UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 20-F

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|o                                           | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|------------------------------------------- | ----------------------------------------------------------------------------------------------
|OR                                         
|ý                                           | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934          
|For the fiscal year ended December 31, 2007
|OR                                         
|o                                           | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934      
|OR                                         
|o                                           | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   

Commission file number 333-139791

MASONITE INTERNATIONAL INC.(Exact name of Registrant as specified in its charter)

Canada(Jurisdiction of incorporation or organization)

1820 Matheson Blvd., Unit B4
Mississauga, Ontario L4W 0B3 Canada(Address of principal executive offices)

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Securities
registered or to be registered pursuant to Section 12(b) of the Act:None

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Securities registered or to be registered pursuant to Section 12(g) of the Act:None

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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

|Title of Class                                |  | Amount      
|--------------------------------------------- |  | ------------
|Guaranteed Senior Subordinated Notes due 2015 |  | $412,000,000
|Guaranteed Senior Subordinated Notes due 2015 |  | $358,000,000

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.    Yes o    No ý

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.    Yes o    No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.    Yes ý    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (check one):

|Large accelerated filer o |  | Accelerated filer o |  | Non-accelerated filer ý (Do not check if a smaller reporting company) |  | Smaller reporting company o
|------------------------- |  | ------------------- |  | --------------------------------------------------------------------- |  | ---------------------------

Indicate
by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
filing:    U.S. GAAP o    International Financial Reporting Standards as issued by the International Accounting
Standards Board o    Other ý

If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to
follow.    Item 17    o    Item 18    ý

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes o    No ý



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TABLE OF CONTENTS

|PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION |                                                                                       | 1 
|------------------------------------------------------- | ------------------------------------------------------------------------------------- | --
|FORWARD-LOOKING STATEMENTS                              |                                                                                       | 2 
|PART I                                                  |                                                                                       | 4 
|                                                        | ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS                         |   
|                                                        | ITEM 2. OTHER STATISTICS AND EXPECTED TIMETABLE                                       |   
|                                                        | ITEM 3. KEY INFORMATION                                                               |   
|                                                        | ITEM 4. INFORMATION ON THE COMPANY                                                    |   
|                                                        | ITEM 4A. UNRESOLVED STAFF COMMENTS                                                    |   
|                                                        | ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                  |   
|                                                        | ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                    |   
|                                                        | ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             |   
|                                                        | ITEM 8. FINANCIAL INFORMATION                                                         |   
|                                                        | ITEM 9. THE OFFER AND LISTING                                                         |   
|                                                        | ITEM 10. ADDITIONAL INFORMATION                                                       |   
|                                                        | ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |   
|                                                        | ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |   
|PART II                                                 |                                                                                       | 69
|                                                        | ITEM 13. DEFAULTS, DIVIDENDS ARREARAGES AND DELIQUENCIES                              |   
|                                                        | ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |   
|                                                        | ITEM 15. CONTROLS AND PROCEDURES                                                      |   
|                                                        | ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT                                            |   
|                                                        | ITEM 16B. CODE OF ETHICS                                                              |   
|                                                        | ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      |   
|PART III                                                |                                                                                       | 71
|                                                        | ITEM 17. FINANCIAL STATEMENTS                                                         |   
|                                                        | ITEM 18. FINANCIAL STATEMENTS                                                         |   
|                                                        | ITEM 19. EXHIBITS                                                                     |   

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PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION

INTRODUCTION

We are one of the largest manufacturers of doors in the world based on the number of doors sold, with a significant market share in both interior and exterior
door products. We sell approximately 45 million doors per year. Our products are sold in over 70 countries, including the United States, Canada, the United Kingdom, France and throughout
Central and Eastern Europe. For the year ended December 31, 2007 our sales were $2.2 billion.

THE TRANSACTION

On December 22, 2004, Masonite International Corporation entered into a combination agreement with Stile Canada, an entity controlled by affiliates of
Kohlberg Kravis Roberts & Co. L.P. ("KKR"), which was amended and restated on January 16, 2005 and was further amended and restated on February 17, 2005, pursuant to
which on April 6, 2005, Stile Canada acquired all of the common shares of Masonite International Corporation (other than certain shares held by certain officers and employees of Masonite
International Corporation which were later exchanged for shares of Masonite Holding Corporation) at a purchase price of C$42.25 per share in cash (the "Transaction").

Following
the Transaction, Masonite International Corporation was amalgamated with Stile Canada to form Masonite Canada Corporation, which then transferred all of the common shares of
Masonite Holdings, Inc., which is the parent company of Masonite International Corporation's U.S. subsidiaries, to Stile U.S. Following such transfer, Masonite Holdings, Inc. was merged
with and into Stile U.S., and the surviving corporation was renamed Masonite Corporation. Masonite Canada Corporation was subsequently renamed Masonite International Corporation.

The
aggregate value of the Transaction, including the assumption of indebtedness, premiums, fees and expenses, was approximately $2.7 billion, including approximately
$551.5 million of new equity provided by KKR and $24.3 million of equity invested by certain members of management at the closing. On June 30, 2005, members of our management and
certain other employees invested an additional $22.6 million in the capital stock of Masonite Holding Corporation, with the proceeds used to repurchase shares held by KKR.

In
connection with the Acquisition:



FINANCIAL INFORMATION

Unless we indicate otherwise, financial information in this annual report has been prepared in accordance with Canadian GAAP. Canadian GAAP differs in some
respects from U.S. GAAP, and thus our financial statements may not be comparable to the financial statements of U.S. companies.

1

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Differences
as they apply to us are summarized in note 25 to the annual audited consolidated financial statements included elsewhere herein.

Unless
the context otherwise requires, in this annual report "Masonite", the "Company", "we", "us" and "our" refer to Masonite International Inc. ("Masonite International") and
its subsidiaries, Masonite U.S. refers to Masonite Corporation and Masonite Canada refers to Masonite International Corporation. Masonite U.S., a direct wholly owned subsidiary of Masonite
International, operates Masonite International's U.S. subsidiaries. Masonite Canada, also a direct wholly owned subsidiary of Masonite International, operates Masonite International's Canadian
subsidiaries as well as certain other non-U.S. subsidiaries. All amounts are in U.S. dollars unless specified otherwise.

The
financial information and certain other information presented in a number of tables in this annual report have been rounded to the nearest whole number or the nearest decimal.
Therefore, the sum of the numbers in a column may not conform exactly to the total figure given for that column. In addition, certain percentages presented in the tables in this annual report reflect
calculations based upon the underlying information prior to rounding and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the
rounded numbers.

INDUSTRY DATA

We obtained the industry, market and competitive position data referenced throughout this annual report from our own internal estimates and research as well as
from industry and general publications and research, and surveys and studies conducted by third parties. Industry publications, studies and surveys generally state that they have been obtained from
sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that each of these publications, studies and surveys is reliable, we
have not independently verified market and industry data from third party sources. While we believe our internal company research is reliable, such research has not been verified by any independent
source.

FORWARD-LOOKING STATEMENTS

This annual report contains certain forward-looking statements, including, without limitation, statements concerning the conditions in our industry, expected cost
savings, our operations, our economic performance and financial condition, including, in particular, statements relating to our business and growth strategy and product development efforts. The words
"may," "might," "should," "estimate," "project," "plan," "anticipate," "expect," "intend," "outlook," "believe" and other similar expressions are intended to identify forward-looking statements and
information. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on estimates and
assumptions by our management that, although we believe them to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties. These risks and uncertainties include,
without limitation, those identified under "Risk Factors" in Part I, Item 3.D of this annual report.

The
following list represents some, but not necessarily all, of the factors that could cause actual results to differ from historical results or those anticipated or predicted by these
forward-looking statements:



2

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We
caution you that the foregoing list of important factors is not exclusive. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking
statements contained in this annual report may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or
otherwise, except as otherwise required by law.

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PART I

ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

ITEM 2.    OTHER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.    KEY INFORMATION

A.    SELECTED FINANCIAL DATA

The information presented below relates to periods before and after the Transaction. "Predecessor" refers to Masonite International Corporation and its
subsidiaries on a consolidated basis, "Masonite" or the "Successor" refers to Masonite International Inc. and its subsidiaries on a consolidated basis, and unless the context otherwise
requires, the "Company", "we", "us" and "our" refer to the Predecessor for periods prior to the Transaction and to the Successor for periods thereafter, unless the context otherwise requires or it is
otherwise indicated. The following table sets forth selected consolidated financial data of the Predecessor and the Successor as of the dates and for the periods indicated. The historical data for the
periods presented has been prepared in accordance with Canadian GAAP. The selected consolidated financial data of the Predecessor as at December 31, 2003, 2004 and 2005 and for the years ended
December 31, 2003 and December 31, 2004 presented in this table have been derived from our audited consolidated financial statements not included herein. The selected consolidated
financial data of the Predecessor for the period from January 1, 2005 to April 6, 2005 and of the Successor for the period from February 2, 2005 to December 31, 2005 have
been derived from our audited consolidated financial statements appearing elsewhere herein, which have been audited by KPMG LLP. The consolidated financial data of the Successor presented as at
December 31, 2006 and 2007 and for the years ended December 31, 2006 and December 31, 2007 have been derived from our consolidated financial statements included elsewhere herein
which have been audited by Deloitte & Touche LLP.

The
results of operations for any period are not necessarily indicative of the results to be expected for any future period. The selected consolidated financial data set forth below
should be read in conjunction with, and are qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements
and related notes thereto appearing elsewhere herein.

|                                                               |  | Predecessor |         | Successor |  
|-------------------------------------------------------------- |  | ----------- | ------- | --------- | -
|
|
|
|
|Statement of Operations Data:                                  |  |             |         |           |  
|Sales                                                          |  | $           | 1,777.2 |           | $
|Cost of sales                                                  |  |             | 1,380.2 |           |  
|                                                               |  |             |         |           |  
|Gross profit                                                   |  |             | 397.1   |           |  
|Selling, general and administration expenses                   |  |             | 162.2   |           |  
|Depreciation                                                   |  |             | 47.5    |           |  
|Amortization                                                   |  |             | 0.2     |           |  
|Impairment of goodwill and intangible assets                   |  |             |        |           |  
|Interest                                                       |  |             | 36.4    |           |  
|Other (income) expense, net                                    |  |             | 3.1     |           |  
|                                                               |  |             |         |           |  
|Income (loss) before income taxes and non-controlling interest |  |             | 147.7   |           |  
|Income taxes                                                   |  |             | 34.5    |           |  
|Non-controlling interest                                       |  |             | 5.5     |           |  
|                                                               |  |             |         |           |  
|Net income (loss)(3)                                           |  | $           | 107.7   |           | $
|                                                               |  |             |         |           |  
|Net income (loss) per share                                    |  | $           | 2.00    |           | $
|                                                               |  |             |         |           |  
|Diluted net income (loss) per share                            |  | $           | 1.95    |           | $
|                                                               |  |             |         |           |  

4

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|                                      |  | Predecessor |         | Successor
|------------------------------------- |  | ----------- | ------- | ---------
|
|
|
|Balance Sheet Data:                   |  |             |         |          
|Cash and cash equivalents             |  | $           | 129.7   |          
|Working capital                       |  |             | 385.0   |          
|Total assets                          |  |             | 1,693.2 |          
|Total debt                            |  |             | 489.4   |          
|Net assets                            |  |             | 768.6   |          
|Capital stock                         |  |             | 266.9   |          
|Total shareholder's equity(3)         |  |             | 732.6   |          
|Number of shares (in millions)        |  |             | 54.4    |          
|Dividends per share U.S.$             |  |             |        |          
|Dividends per share Cdn.$             |  |             |        |          
|Other Financial Data:                 |  |             |         |          
|Capital expenditures                  |  | $           | 49.5    |          
|Ratio of earnings to fixed charges(2) |  |             | 4.3x    |          

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Predecessor

SuccessorFiscal
Years Ended
December 31,

Period From
January 1,
2005 to
April 6,
2005

Period From
February 2,
2005 to
December 31,
2005

Fiscal
Years Ended
December 31,2003

2004

2006

2007Reconciliation of net income (loss)Canadian GAAP to U.S. GAAPNet income (loss)Canadian GAAP

$
107.7

$
128.0

$
(30.7
)
$
(69.8
)
$
(34.3
)
$
(302.9
)Effect of SFAS 133(a)


3.3


6.6


1.4








Effect of EITF 88-16(b)











0.3





Effect of FIN 48(c)

















6.1Impairment of Goodwill and intangibles(b)

















13.0Tax effect of U.S. GAAP adjustments


(1.0
)

(1.9
)

(0.5
)

(0.2
)




(0.1
)Net income (loss)U.S. GAAP

$
110.0

$
132.7

$
(29.7
)
$
(69.6
)
$
(34.3
)
$
(283.8
)


5

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|
|

SuccessorAs at
December 31,
2006

As at
December 31,
2007Reconciliation of shareholder's equityCanadian GAAP to U.S. GAAPShareholder's equityCanadian GAAP

$
484.0

$
197.6Effect of SFAS 133(a)


12.2


Effect of EITF 88-16(b)


(1.5
)

1.5Effect of SFAS 158(d)


2.3


4.2Effect of FIN 48(c)





(1.3
)Shareholder's equityU.S. GAAP

$
496.9

$
202.0








6

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The
following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the year:

Unrecognized tax benefitopening balance

$
110,517Gross increasetax positions in prior period


3,214Gross decreasetax positions in prior period


(36,660
)Gross increasetax positions in current period


557Pre-acquisition settlements to goodwill


(57,414
)Pre-acquisition lapse of statute of limitations to goodwill


(3,411
)Settlements


(141
)Lapse of statute of limitations


(973
)Currency


13,126Other


(1,977
)Unrecognized tax benefitending balance

$
26,838


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The
total amount that would affect the effective tax rate is $6,570 as of December 31, 2007. Also included in the balance of unrecognized tax benefits at
December 31, 2007 are $20,049 of tax benefits that, if recognized, would result in a decrease to goodwill recorded in purchase business combinations.

The
Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. Related to the uncertain tax benefits noted above, the Company accrued
penalties of $nil and interest of $2,435 during 2007 and in total, as of December 31, 2007, has recognized a liability for penalties of $1,724 and interest of $9,926.

The
Company estimates the amount of unrecognized tax benefit will not significantly increase within the next 12 months of the reporting date. In addition, the Company believes
that it is possible approximately $2,926 of its currently remaining unrecognized tax positions, primarily relating to transfer pricing exposures, may be recognized by the end of 2009 as a result of a
lapse of the statute of limitations.

Principally
as a result of the passage into law in 2007 of legislation enacted retroactively in Canada, $69,639 of previously unrecognized tax benefit established on January 1,
2007 was recognized. Of this amount, $52,360 was recognized as a pre-acquisition settlement relating to goodwill and $28,795 was recognized as decrease in tax positions in prior periods,
and $11,516 was related to growth in the tax position during the period associated with currency fluctuations.

The
Company is subject to taxation in Canada and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the
world, including such major jurisdictions as the United States, United Kingdom, France, and Ireland. With few exceptions, the Company is no longer subject to Canada or non-Canada income
tax examinations for years before 2000.

As
a result of pre-acquisition adjustments, the goodwill impairment under U.S. GAAP in 2007 was $11,626 lower as these adjustments resulted in additional liabilities
prior to the goodwill impairment test.



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DIVIDENDS

The Company has not declared any dividends on its common shares in each of the three most recently completed financial years. The payment of dividends is at the
discretion of the Board of Directors of the Company, which considers earnings, capital requirements, the financial condition of the Company and other relevant factors including restrictions contained
in the Company's banking facilities.

EXCHANGE RATE INFORMATION

The following table sets forth, for the periods indicated, translations of Canadian dollars into U.S. dollars at specified rates. These translations have been
made at the indicated noon-buying rate in New York City for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York. These rates are
provided solely for your convenience. They are not necessarily the rates used by us in the preparation of our financial statements.

Year Ended December 31

Average2003

0.71862004

0.77022005

0.82692006

0.88212007

0.9419


|
|

Recent Monthly Data

Average

Low

HighOctober 2007

1.0257

0.9998

1.0531November 2007

1.0359

0.9993

1.0908December 2007

0.9981

0.9789

1.0221January 2008

0.9903

0.9714

1.0096February 2008

1.0016

0.9815

1.0291March 2008

0.9973

0.9732

1.0162


B.    CAPITALIZATION AND INDEBTEDNESS

Not applicable.

C.    REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

D.    RISK FACTORS

Risks Related to Our Indebtedness

We have a substantial amount of indebtedness, which may adversely affect our cash flow and our ability to operate our business, remain in compliance
with debt covenants and make payments on our indebtedness.

As of December 31, 2007, we had outstanding indebtedness of approximately $1,952.1 million, and availability of $337.7 million under our
revolving credit facility after giving effect to outstanding letters of credit. Our outstanding indebtedness as of that date represented approximately 93% of our total capitalization (based on total
capitalization of $2,107.9 million). Subsequent to December 31, 2007, we
borrowed the remaining $336 million available from our $350 million senior secured revolving credit facility.

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Our
substantial indebtedness could have important consequences to you. For example, it could:



Any
of the above listed factors could materially adversely affect our business and results of operations. Furthermore, our interest expense could increase if interest rates increase
because our senior secured credit facilities does bear interest at floating rates.

We and our subsidiaries will be able to incur more debt, which could further exacerbate the risks associated with our substantial anticipated leverage.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of our indebtedness do not fully prohibit us or our
subsidiaries from doing so. To the extent new debt is added to our and our subsidiaries' currently anticipated debt levels, the substantial leverage risks would increase. Specifically, our senior
secured credit facilities allow us, subject to certain conditions, to incur additional term loans in an aggregate principal amount of up to $300.0 million, which additional term loans would
have the same security and guarantees as under the senior secured credit facilities.

To service our indebtedness, we require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control, and any
failure to generate cash in an amount sufficient to meet our debt service obligations or to comply with the financial maintenance covenants contained in our senior secured credit facilities could harm
our business, financial condition and results of operations.

Our ability to pay interest on and principal of our debt obligations principally will depend upon our future operating performance. As a result, prevailing
economic conditions and financial, business and other factors, many of which are beyond our control, will affect our ability to make these payments.

If
we do not generate sufficient cash flow from operations to satisfy our debt service obligations or to comply with the financial maintenance covenants contained in our senior secured
credit facilities, we may have to undertake alternative financing plans, such as refinancing or restructuring our indebtedness, selling assets, reducing or delaying capital investments or seeking to
raise additional capital. Our ability to restructure or refinance our debt will depend on the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher
interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. In addition, the terms of existing or future debt instruments, may
restrict us from adopting some of these alternatives. Our inability to generate sufficient cash flow to satisfy our debt service obligations or to comply with the financial maintenance covenants
contained in our senior secured credit facilities, or

10

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to
refinance our obligations on commercially reasonable terms, would have an adverse effect, which could be material, on our business, financial condition and results of operations.

Repayment of our debt, is dependent on cash flow generated by our subsidiaries.

A substantial portion of our assets are owned by subsidiaries. Repayment of our indebtedness is dependent on the generation of cash flow by our subsidiaries and
their ability to make such cash available to us, by dividend, debt repayment or otherwise. Our subsidiaries may not be able to, or be permitted to, make distributions to enable us to make payments in
respect of our indebtedness. Each of our subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our
subsidiaries. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.

The terms of our senior secured credit facilities and the indentures governing our notes may restrict our current and future operations, particularly
our ability to respond to changes in our business or to take certain actions.

Our senior secured credit facilities and the indentures governing our notes contain, and any future indebtedness of ours would likely contain, a number of
restrictive covenants that impose significant operating and financial restrictions on us, including restrictions on our ability to engage in acts that may be in our best long-term
interests. Our senior secured credit facilities include financial covenants, including requirements that we:



The
financial covenants contained in our senior secured credit facilities will become more restrictive over time. In addition, our senior secured credit facilities require that we use a
portion of excess cash flow and proceeds of certain asset sales that are not reinvested in our business to repay indebtedness under those facilities.

Our
senior secured credit facilities also include covenants restricting, among other things, our ability to:



The
indentures relating to our notes also contain numerous covenants including, among other things, restrictions on our ability to:



11

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The
operating and financial restrictions and covenants in our existing debt agreements and any future financing agreements may adversely affect our ability to finance future operations
or capital needs or to engage in other business activities. A breach of any of the restrictive covenants in the senior secured credit facilities, including any of the financial covenants noted above,
would result in a default under the senior secured credit facilities. If any such default occurs, the lenders under the senior secured credit facilities may elect to declare all outstanding
borrowings, together with accrued interest and other fees, to be immediately due and payable, enforce their security interest or require us to apply all of our available cash to repay these
borrowings. The lenders will also have the right in these circumstances to terminate any commitments they have to provide further borrowings.

Cross-default and cross-acceleration provisions in our outstanding indebtedness may result in substantially all of our debt obligations coming due at
the same time, and in such event we may not have available liquidity to satisfy all of those obligations.

Our senior secured credit facilities contain cross-default and cross-acceleration provisions, and the indentures governing our notes also provide for
cross-acceleration. These provisions could result in substantially all of our debt obligations coming due at the same time if an event of default under any of our indebtedness were to occur, and in
such event we may not have available liquidity to satisfy all of those obligations. For example, to the extent that we failed to pay interest on our notes when due and an event of default were to
result following the applicable 30-day grace period, the cross-default provisions under our senior secured credit facilities would be triggered, in which case our obligations under both
our notes and our senior secured credit facilities could become immediately due and payable.

Risks Related to Our Business

We operate in a competitive business environment. If we are unable to compete successfully, we could lose customers and our sales could decline.

The building products industry is highly competitive. We compete against international, national and regional manufacturers of doors. Some of our principal
competitors may be less highly leveraged than we are and may have greater financial, marketing and distribution resources than we do. Accordingly, these competitors may be better able to withstand
changes in conditions within the industry in which we operate and may have significantly greater operating and financial flexibility than we do. Also, certain of our competitors may have excess
production capacity, which could lead to pressure to decrease prices in order to remain competitive. For these and other reasons, these competitors could take a greater share of sales and cause us to
lose business from our customers, resulting in potential facility closures and related writedowns and impairments.

As
a result of this competitive environment, we face and will continue to face pressure on selling prices of our products from competitors and from large customers. Because of these
pricing pressures, we may in the future experience reduced sales and lower margins. In addition, overcapacity in the door industry could limit our ability to pass on future raw material price or labor
cost increases to our customers which would also reduce profit margins.

12

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Downward trends in repair, renovation and remodeling and new home construction or in general economic conditions could negatively impact our financial
performance.

Trends in repair, renovation and remodeling and new home construction directly impact our financial performance because demand for doors is influenced by the
level of repair, renovation and remodeling activity in existing homes and new home construction activity. Accordingly, the following trends have a direct impact on our business in the countries in
which our products are sold:



The
new home construction sector has historically been cyclical. During 2007, a major downturn continued in the United States and December 2007 annualized seasonally adjusted housing
starts were 33% below the December 2006 rate as reported by the U.S. Census Bureau. In addition, the repair, renovation and remodeling has recently experienced weakening
year-over-year sales in the United States. Our relatively narrow focus within the building products industry amplifies the risks inherent in such a market downturn. The impact
of this weakness on our revenues, profits and profit margin will be determined by many factors, including industry capacity, industry pricing discipline, and our ability to implement the series of
initiatives encompassed in our Blueprint for Profitable Growth.

Increases in interest rates and the reduced availability of financing for home improvements and the purchase of new homes could have a material adverse
impact on us.

In general, demand for home improvement products and new homes may be adversely affected by increases in interest rates and the reduced availability of financing.
If interest rates increase and, consequently, the ability of prospective buyers to finance purchases of home improvement products or new homes is adversely affected, our business, financial condition
and results of operations may also be adversely impacted and the impact may be material.

Because we depend on a core group of significant customers, our sales, cash flows from operations and results of operations may be negatively affected
if our key customers reduce the amount of products they purchase from us.

Our customers consist mainly of wholesalers and retail home centers. Our top 10 major customers together accounted for approximately 43% of our gross sales in
fiscal year 2007, while our largest customer accounted for approximately 19% of our gross sales in fiscal year 2007. We expect that a small number of customers will continue to account for a
substantial portion of our gross sales for the foreseeable future. In addition, we generally do not enter into contracts with our customers and they generally do not have an obligation to purchase
products from us. The loss of, or a diminution in, our relationship with our largest customer or any other major customer could have a material adverse effect on us. Our competitors may adopt more
aggressive pricing and sales policies and devote greater

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resources
to the development, promotion and sale of their products than we do, which could result in a loss of customers. This risk is particularly high in periods of excess industry capacity or lower
economic activity. The loss of, or a reduction in orders from, any significant customers, losses arising from customer disputes regarding shipments, fees, merchandise condition or related matters, or
our inability to collect accounts receivable from any major customer, could have a material adverse effect on us. Also, revenue from customers that have accounted for significant revenue in past
periods, individually or as a group, may not continue in future periods, or if continued, may not reach or exceed historical levels in any period. Also, we have no operational or financial control
over these customers and have limited influence over how they conduct their businesses. If any of these customers fails to remain competitive in their respective markets or encounters financial or
operational problems, our revenue and profitability may decline. In the first quarter of 2007, we were notified by our largest customer, The Home Depot, that they would be moving substantially all of
their business with us in certain geographic regions to a competitor later in 2007. As a result, we announced the permanent closure of five facilities dedicated to The Home Depot.

Consolidation of our customers and their increasing size could adversely affect our results of operations.

In many of the countries in which we operate, an increasing share of sales of building products are sold through large home centers and other large retailers. In
addition, consolidation among businesses operating in different geographic regions has increased in recent years, resulting in more customers operating nationally and internationally. We believe that
these trends will continue in the future. As a result, our customers will increase in size and purchasing power. As our customers grow, we will be challenged to continue to provide consistently high
customer service levels for increasing sales volumes, while offering a broad mix of innovative products and on-time and complete deliveries. If we fail to provide high levels of service,
broad product offerings, competitive prices and timely and complete deliveries, we could lose a substantial portion of our customer base and our profitability, margins and revenues could decrease.

Changes in consumer preferences could adversely affect our business.

Our business in general is subject to changing consumer and industry trends, demands and preferences. Our continued success depends largely on the introduction
and acceptance by our customers of new products and improvements to existing product lines that respond to such trends, demands and preferences. Trends within the industry change often and our failure
to anticipate, identify or react to changes in these trends could lead to, among other things, rejection of a new product line and reduced demand and price reductions for our products, the writedown
of obsolete or excess inventory or the impairment of intangibles or fixed assets, each of which could materially adversely affect us. In addition, we are subject to the risk that new technologies
could be introduced that would replace or reduce demand for our products. We may not have sufficient resources to make necessary investments or we may be unable to make the investments necessary to
develop new products or improve our existing products.

Our business is subject to some seasonality and weather may impact our sales, cash flows from operations and results of operations.

Our business experiences seasonal business swings, which correspond primarily to the North American seasons, particularly in the Northeastern and Midwestern
United States and in most regions of Canada. In addition to expected seasonal weather changes, unusually prolonged periods of cold, rain, blizzards, hurricanes or other severe weather patterns could
delay or halt renovation and construction activity. For example, unusually severe weather can lead to reduced construction activity and magnify the seasonal decline in our sales, cash flows from
operations and results of operations during the winter months. Negative cash flows typically occur in the first quarter and also, to a certain extent, in the

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second
quarter of each year. This seasonality requires that we manage our cash flows over the course of the year. If sales were to fall substantially below what we would normally expect during certain
periods, our annual financial results would be adversely impacted and our ability to service our debt may also be adversely affected.

Severe
weather may also have a negative impact on our operations. For instance, our ten facilities in the Southeastern United States lost a number of production and shipping days as a
result of the four hurricanes experienced by that region in 2004. In 2005, two hurricanes struck the Southern United States and caused the temporary curtailment of operations at our Laurel,
Mississippi facility, and other facilities in the area.

A disruption in our operations could materially affect our operating results.

We operate over 65 facilities worldwide. Many of our facilities are located in areas that are vulnerable to hurricanes, earthquakes and other natural disasters.
In the event that a hurricane, earthquake, natural disaster, fire or other catastrophic event were to interrupt our operations for any extended period of time, it could delay shipment of merchandise
to our customers, damage our reputation or otherwise have a material adverse effect on our financial condition and results of operations. For example, during the first quarter of 2005, prior to the
Transaction, we experienced an equipment electrical fire at our facility located in Laurel, Mississippi. The cost to repair the plant's equipment was immaterial, but two of the three production lines
were inoperative for approximately three weeks. The lost production had a significant impact on our consolidated margins during that period.

In
addition, our operations may be interrupted by terrorist attacks or other acts of violence or war. These attacks may directly impact our suppliers' or customers' physical facilities.
For example, earlier in 2006, operations at our plant in Karmiel, Israel, were interrupted for eight weeks due to its proximity to the Lebanese border and the recent conflict occurring there.
Furthermore, these attacks may make travel and the transportation of our supplies and products more difficult and more expensive and ultimately affect our operating results. The United States has
entered into, and may enter into additional, armed conflicts which could have a further impact on our sales and our ability to deliver product to our customers in the United States and elsewhere.
Political and economic instability in some regions of the world may also result and could negatively impact our business. The consequences of any of these armed conflicts are unpredictable, and we may
not be able to foresee events that could have an adverse effect on our business or your investment. More generally, any of these events could cause consumer confidence and spending to decrease or
result in increased volatility in the U.S. and worldwide financial markets and economy. They could also result in economic recession in the United States or abroad. Any of these occurrences could have
a significant impact on our operating results.

We are subject to the credit risk of our customers.

We provide credit to our customers in the normal course of business. We generally do not require collateral in extending such credit. Although we purchase
worldwide credit insurance, obtain letters of credit from our customers in appropriate circumstances and reserve for this exposure, we cannot assure you that the exposure will not be greater than we
anticipate. An increase in the exposure, coupled with material instances of default, could have an adverse effect on our business, financial condition, results of operations and cash flow.

Increased prices for raw materials or finished goods used in our products and/or interruptions in deliveries of raw materials or finished goods could
adversely affect our profitability, margins and revenues.

Our profitability is affected by the prices of the raw materials and finished goods used in the manufacture of our products. These prices have fluctuated and may
continue to fluctuate based on a

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number
of factors beyond our control, including world oil prices, changes in supply and demand, general economic or environmental conditions, labor costs, competition, import duties, tariffs, currency
exchange rates, mergers and acquisitions, weather, and, in some cases, government regulation. The commodities we use may undergo major price fluctuations and there is no certainty that we will be able
to pass these costs through to our customers. Significant increases in the prices of raw materials or finished goods are more difficult to pass through to customers in periods of housing market
weakness and excess door industry capacity, and may negatively impact our revenues, profitability and margins. We also purchase raw materials and manufactured items from suppliers located in
non-U.S. Dollar based economies in North America, Asia, Europe, South America and Africa. In most cases, purchases from those suppliers are priced in U.S. dollars or euros. However,
fluctuations in currency exchange rates may also affect us.

We
require a regular supply of steel, fiberglass, wood, wood composites, door facings, cut stock, core material and other raw materials as well as petroleum-based products such as resins
and foam. In certain instances, we depend upon single or limited source suppliers for these supplies. Our dependency upon regular deliveries from particular suppliers means that interruptions or
stoppages in such deliveries could adversely affect our operations until arrangements with alternate suppliers could be made.

If
any of our suppliers were unable to deliver materials to us for an extended period of time (including as a result of delays in land or sea shipping), or if we were unable to negotiate
acceptable terms for the supply of materials with these or alternative suppliers, our business could suffer. For example, in 2006 we experienced a short term disruption in the supply of methanol, a
key ingredient in resins used in the production of door skins. In the future, we may not be able to find acceptable supply alternatives, and any such alternatives could result in increased costs for
us. Even if acceptable alternatives are found, the process of locating and securing such alternatives might be disruptive to our business.

Increases in labor costs, potential labor disputes and work stoppages at our facilities or the facilities of our suppliers could materially adversely
affect our financial performance.

Our financial performance is affected by the availability of qualified personnel and the cost of labor. We have approximately 10,700 employees and contract
laborers. Approximately 2,400 or 22%, of our employees are unionized. Employees represented by these unions are subject to 14 collective bargaining
agreements, three of which are with local unions in the United States. None of our North American collective bargaining agreements are subject to renewal in 2008, and our collective bargaining
agreements in France, United Kingdom and South Africa are subject to annual renewal. If we are unable to enter into new, satisfactory labor agreements with our unionized employees upon expiration of
their collective bargaining agreements, we could experience a significant disruption of our operations, which could cause us to be unable to deliver products to customers on a timely basis. If our
workers were to engage in a strike, a work stoppage or other slowdowns, we could experience disruptions of our operations. Such disruptions could result in a loss of business and an increase in our
operating expenses, which could reduce our profit margins. In addition, our non-unionized labor force may become subject to labor union organizing efforts, which could cause us to incur
additional labor costs and increase the related risks that we now face.

Many
of our direct and indirect suppliers and customers also have unionized workforces. Strikes, work stoppages or slowdowns experienced by these suppliers and customers could result in
slowdowns or closures of facilities where components of our products are manufactured or delivered. Any interruption in the production or delivery of these components could reduce sales, increase
costs and have a material adverse affect on us.

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Our recent acquisitions and any future acquisitions could be difficult to integrate and could adversely affect our operating results.

Historically, a substantial part of our growth has come from acquisitions. Our recent and any future acquisitions involve a number of risks, including:



For
example, in 2005 we completed a series of acquisitions in Central and Eastern Europe, and we are still in the process of integrating these businesses into Masonite. The integration
of these and any future material acquisition into our business will require substantial time, effort, attention and dedication of management resources and may distract our management in unpredictable
ways from our ordinary operations. We may not be able to effectively manage recent or future acquisitions or realize their anticipated benefits, which could harm our results of operations.

If our leases terminate or are not renewed upon expiration, we could be required to make significant capital expenditures to relocate our facilities.

A significant number of our manufacturing facilities and warehouses are leased. There can be no assurance that upon termination or expiration of these leases we
will be able to renew them on acceptable terms or at all. If we are unable to renew such leases, we could be required to make significant capital expenditures to relocate our facilities.

We are exposed to political, economic and other risks that arise from operating a multinational business.

We have operations in the United States, Canada, Europe and, to a lesser extent, other foreign jurisdictions. Approximately 70% of our sales are generated in
North America and approximately 26% in Europe, with the remainder in South America, Asia and Africa. Further, certain of our businesses obtain raw materials and finished goods from foreign suppliers.
Accordingly, our business is subject to political, economic and other risks that are inherent in operating in numerous countries. These risks include:



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Our
business success depends in part on our ability to anticipate and effectively manage these and other risks. We cannot assure you that these and other factors will not have a material
adverse effect on our international operations or on our business as a whole.

Environmental requirements may impose significant environmental compliance costs and liabilities on us.

Our operations are subject to numerous U.S. (federal, state and local), Canadian (federal, provincial and local), European (European Union, country and local) and
other laws and regulations relating to pollution and the protection of the environment, including, without limitation, those governing emissions to air, discharges to water, storage, treatment and
disposal of waste, releases of contaminants or hazardous or toxic substances, remediation of contaminated sites and protection of worker health and safety. From time to time, our facilities are
subject to investigation by governmental regulators. Despite our best efforts to comply with environmental requirements, we are at risk of being subject to civil, administrative or criminal
enforcement actions, of being held liable, of being subject to an order or of incurring costs, fines or penalties for, among other things, releases of contaminants or hazardous or toxic substances
occurring on or emanating from currently or formerly owned or operated properties or any associated offsite disposal location, or for contamination discovered at any of our properties from activities
conducted by us or by previous occupants.

In
addition, the requirements of such laws and enforcement policies have generally become more stringent over time. Changes in environmental laws and regulations or in their enforcement
or the discovery of previously unknown or unanticipated contamination or non-compliance with environmental laws or regulations relating to our properties or operations could result in
significant environmental liabilities or costs which could adversely affect our business. In addition, we might incur increased operating and maintenance costs and capital expenditures and other costs
to comply with increasingly stringent air emission, wastewater discharge or waste disposal management laws or other future requirements. Typically under ten percent of our capital is spent to comply
with our environmental, health and safety requirements. In addition, we will spend between $20.0 million and $30.0 million in addition to the $8.7 million already spent to comply
with the U.S. Maximum Achievable Control Technology requirements under the Clean Air Act. Also, discovery of currently unknown or
unanticipated conditions could require responses that would result in significant liabilities and costs. Accordingly, we are unable to predict the ultimate costs of compliance with or liability under
environmental laws, which may be larger than current projections.

Further,
as we consider acquisitions and divestitures of sites or change locations or rented facilities, a Phase 1 Environmental Assessment is conducted to assess and determine
the current environmental condition of the site. This is completed by either utilizing in-house staff or by specialized environmental consultants.

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Fluctuating exchange and interest rates could adversely affect our financial results.

Our financial results may be adversely affected by fluctuating exchange rates. In the year ended December 31, 2007, approximately 44% of our net sales were
generated outside of the United States. We believe that the percentage of our costs denominated in currencies other than the U.S. dollar is greater than the percentage of our sales in those other
currencies. For example, at most of our manufacturing facilities, the prices for a significant portion of our raw materials are quoted in the domestic currency of the country where the facility is
located or other currencies that are not U.S. dollars. We also have substantial assets outside the United States. We are subject to currency exchange rate risk to the extent that some of our costs are
denominated in currencies other than those in which we earn revenues. Also, since our financial statements are denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar
and other currencies have had, and will continue to have, an impact on many aspects of our financial results. Changes in currency exchange rates for any country in which we operate may require us to
raise the prices of our products in that country or allow our competitors to sell their products at lower prices in that country. As our borrowings under our notes and under our senior secured credit
facilities are denominated in a currency (U.S. dollars) that is different from the currencies in which we derive a significant portion of our net sales, we are also exposed to currency exchange rate
risk with respect to those financial obligations. See "Quantitative and Qualitative Disclosures About Market Risk" in Part I, Item 11.A of this annual report.

Some
of our borrowings, including those under our revolving credit facility and the unhedged portion of our term loan facility, are at variable rates of interest. This exposes us to
interest rate risk. If interest rates increase, the payments we are required to make on our variable portion of our indebtedness will increase, and cash available for servicing our other indebtedness
would decrease. To the extent we are unable to repay our term loan facility at the same rate at which our interest rate hedges expire, our exposure to variable rates of interest would increase. In
addition, when the debt represented by Masonite Canada's notes is repaid, Masonite Canada may be subject to taxes on any corresponding foreign currency gain, if the exchange rate of the Canadian
dollar is different than the rate at the time of the Transaction.

We may fail to continue to innovate, face claims that we infringe third party intellectual property rights, or be unable to protect our intellectual
property from infringement by others except by incurring substantial costs as a result of litigation or other proceedings relating to patent or trademark rights, any of which could cause our revenue
or profitability to decline. In addition our innovations may fail to realize commercial success.

Our continued success depends on our ability to develop and introduce new or improved products, to improve our manufacturing and product service processes, and to
protect our proprietary rights to the technologies used in our products. If we fail to do so, or if existing or future competitors achieve greater success than we do in these areas, our results of
operations may decline.

We
rely on a combination of U.S., Canadian and, to a lesser extent, European patent, trademark, copyright and trade secret laws as well as licenses, nondisclosure, confidentiality and
other contractual restrictions to protect certain aspects of our business. We have registered trademarks and patents, and have pending trademark and patent applications in the United States, Canada
and abroad. However, our pending patent and trademark applications may not be allowed by the applicable governmental authorities to issue as patents or register as trademarks at all, or in a form that
will be advantageous to us. In addition, we have selectively pursued patent and trademark protection, and in some instances we may not have registered important patent and trademark rights in these
and other countries. Furthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. The failure to obtain worldwide
patent and trademark protection may result in other companies copying and marketing products based upon our technologies or under our brand or trade names outside the jurisdictions in which we are
protected. This could impede our growth in existing regions and expansion into new regions, create confusion among

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consumers
and result in a greater supply of similar products that could erode prices for our protected products.

Our
success depends in part on our ability to protect our patents, trademarks, copyrights, trade secrets and licensed intellectual property from unauthorized use by others. We cannot be
sure that the patents we have obtained, or other protections such as confidentiality, trade secrets and copyrights, will be adequate to prevent imitation of our products by others. If we are unable to
protect our products through the enforcement of intellectual property rights, our ability to compete based on our current advantages may be harmed. If we fail to prevent substantial unauthorized use
of our trade secrets, we risk the loss of those intellectual property rights and whatever competitive advantage they embody.

Although
we are not aware that any of our products or intellectual property rights materially infringe upon the proprietary rights of third parties, third parties may accuse us of
infringing or misappropriating their patents, trademarks, copyrights or trade secrets. Third parties may also challenge our trademark rights and branding practices in the future. We may be required to
institute or defend litigation to defend ourselves from such accusations or to enforce our patent, trademark and copyright rights from unauthorized use by others, which, regardless of the outcome,
could result in substantial costs and diversion of resources and could negatively affect our competitive position, sales, profitability
and reputation. If we lose a patent infringement suit, we may be liable for money damages and be enjoined from selling the infringing product unless we can obtain a license or are able to redesign our
product to avoid infringement. A license may not be available at all or on terms acceptable to us, and we may not be able to redesign our products to avoid any infringement, which could negatively
affect our profitability. In addition, our patents, trademarks and other proprietary rights may be subject to various attacks claiming they are invalid or unenforceable. These attacks might
invalidate, render unenforceable or otherwise limit the scope of the protection that our patents and trademarks afford. If we lose the use of a product name, our efforts spent building that brand may
be lost and we will have to rebuild a brand for that product, which we may or may not be able to do. Even if we prevail in a patent infringement suit, there is no assurance that third parties will not
be able to design around our patents, which could harm our competitive position.

Our business will suffer if certain key officers or employees discontinue employment with us.

The success of our business is materially dependent upon the skills, experience and efforts of certain of our key officers and employees. The loss of key
personnel could have a material adverse effect on our business, operating results or financial condition. We may not succeed in attracting and retaining the personnel we need to generate sales and to
expand our operations successfully, and, in such event, our business could be materially and adversely affected. The loss of the services of any key personnel, or our inability to hire new personnel
with the requisite skills, could impair our ability to develop new products or enhance existing products, sell products to our customers or manage our business effectively.

Failure to maintain effective internal controls over financial reporting could have a material adverse effect on our business or operating results.

Maintaining effective internal controls over financial reporting is necessary for us to produce reliable financial reports and is important in helping to prevent
financial fraud. In addition, we are in the process of integrating the financial reporting processes of those Central and Eastern European entities we acquired in 2005 with our reporting processes. We
are not currently required to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules of the SEC, which, beginning with our annual report for fiscal
year 2008, will require, among other things, our management to assess and report on annually the effectiveness of our internal controls and, beginning with our annual report for fiscal year 2008, our
independent registered public accounting firm to issue a report on the effectiveness of our internal controls.

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Any
failure to maintain adequate internal controls over financial reporting or to implement required, new or improved controls, or difficulties encountered in their implementation could
cause us to report deficiencies in our internal controls over financial reporting. If we are unable to maintain adequate internal controls, our business and operating results could be adversely
affected, or if we or our independent registered public accounting firm were to conclude that our internal controls over financial reporting were not effective, investors could lose confidence in our
reported financial information.

Financial reporting requires us to make judgments and estimates about matters that are inherently uncertain, which affects the balances reported in our
financial statements and has caused us to restate our financial statements.

Our accounting policies require us to make judgments and estimates that affect the amounts of assets, liabilities, revenues and expenses and related disclosures
of contingent items that we report. Actual results could differ significantly from those estimates, and such differences have required and could in the future require us to restate our financial
statements.

If the reorganization of Masonite in connection with the Transaction does not meet the requirements of Canadian tax law, the reorganization could result
in Canadian tax liability to us.

Certain restructuring transactions were effected following the Transaction. These transactions are dependent, under Canadian tax law, upon certain relevant facts
relating to the ownership of shares of the entity acquired pursuant to the Transaction of our debt and equity. If the facts provided to us in respect of such ownership are subsequently proven to be
incorrect, we could incur a tax liability that may result in a material adverse effect on our liquidity and results of operations.

Our controlling shareholder may have interests that conflict with us now or in the future.

We are controlled by KKR. In conjunction with our management, KKR oversees our affairs and policies. As a result, KKR has control over our decisions to enter into
any corporate transaction and have the ability to prevent any transaction that requires the approval of shareholders regardless of whether others believe that any such transactions are in our own best
interests. For example, KKR could cause us to make acquisitions that increase the amount of indebtedness that is secured or that is senior to our outstanding debt securities or to sell assets, which
may impair our ability to make payments under our outstanding debt securities.

Additionally,
KKR is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us.
KKR may also
pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. So long as KKR, or other funds controlled by or
associated with KKR, continue to indirectly own a significant amount of the outstanding shares of our common stock, even if such amount is less than 50%, KKR will continue to be able to strongly
influence or effectively control our decisions.

ITEM 4.    INFORMATION ON THE COMPANY

A.    HISTORY AND DEVELOPMENT OF THE COMPANY

Masonite International Inc., the parent company of Masonite Corporation and Masonite International Corporation, was incorporated under the Canada Business
Corporations Act on February 2, 2005. Masonite Corporation is a Delaware corporation incorporated on September 1, 1925. Masonite International Corporation and Specialty Buildings
Products Ltd. amalgamated on May 30, 2005 to form Masonite International Corporation under the Ontario Business Corporations Act.

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Our principal executive offices are located at 1820 Matheson Blvd Unit B4, Mississauga, Ontario, Canada L4W 0B3 and One North Dale Mabry Highway, Suite 950, Tampa, Florida
33609. Our telephone number is (905) 212-9622 and (813) 877-2726, respectively. Our web site is located at www.masonite.com.

We
commenced business in 1955 in Toronto, Ontario, as the purchasing division of a retail lumberyard. We began manufacturing doors in 1961 with a full line of flush doors. Expansion
initially was through our product line with the introduction of wood doors, such as louvre, stile and rail, plastic laminate, fire doors and pre-hung units, and eventually including
architectural doors and steel and fiberglass exterior doors and entry systems. We also expanded geographically, establishing and acquiring door manufacturers in Canada, the United States, the United
Kingdom and France and in Central and Eastern Europe. In addition, we made numerous acquisitions of door component manufacturers, as well as logistical and fabrication centers.

On
August 31, 2001, we acquired Masonite Corporation, a leading manufacturer composite of molded door facings, from International Paper Company for approximately
$427.3 million, forming the newly integrated company Masonite International Corporation. In 2004, we acquired the residential entry door business of The Stanley Works, a manufacturer and
pre-hanger of steel and fiberglass residential entry doors sold primarily for use in residential repair, renovation and remodeling in the United States.

On
April 6, 2005, we were acquired by an entity controlled by affiliates of KKR.

In
the 2005 Successor Period, we paid cash of $21.4 million (net of $1.4 million in cash acquired) for the acquisition of businesses, excluding acquisitions of minority
positions in subsidiaries that were already consolidated. In May 2005, we purchased the remaining ownership of less than wholly owned investments located in Israel and Turkey for cash consideration of
$8.4 million. In July 2005, we entered into a joint venture in Malaysia with a cash contribution of $2.8 million. Also, in October 2005, we acquired an 80% interest in a manufacturing
enterprise located in Hungary for total consideration of $8.5 million. In December 2005, we completed the acquisition of a manufacturing facility in the United States for cash consideration of
$6.6 million.

We
also acquired the remaining ownership of less than wholly owned subsidiaries in the 2005 Successor Period for total consideration of $45.3 million. These acquisitions included
purchasing the remaining
interest in a manufacturing facility with operations in Canada and the United States for cash consideration of $36.4 million in May 2005, and the purchase of the remaining ownership of a
manufacturing enterprise with operations in Canada for total consideration of $8.9 million in October 2005. The total consideration included cash of $4.6 million and a note payable of
$4.3 million payable over a three year period from the closing date. Total goodwill recorded in connection with these transactions was $8.3 million.

In
2005, the Company sold its former manufacturing site located in the Republic of Korea, which has previously been closed in late 2004, for cash proceeds of approximately
$7.4 million, representing the majority of the asset sales proceeds in that year.

We
made no acquisitions in 2006.

In
2006, we closed four sites in North America. These were a pre-hanging operation, an interior door manufacturing operation, a cutstock operation and an exterior door
manufacturing operation.

Also
in 2006, we disposed of surplus real estate and other assets for proceeds of approximately $20.5 million, consisting largely of surplus land at current and former
manufacturing sites in both North America and Europe.

In
the first quarter of 2007, we were notified by our largest customer that they would be moving substantially all of their business with us in certain geographic regions to a competitor
later in 2007.

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This
decision was the result of price increases we put in place during 2006. Sales to this customer in the regions affected were approximately $250$300 million on an annualized
basis. Subsequent to this notification, we announced the permanent closure of five facilities and the significant curtailment of production at an additional facility dedicated to serving this
customer. As a result of this lost business and the continuing deterioration in the North American housing market, we further announced the permanent closure of an interior door manufacturing facility
located in Mississauga, Ontario and the consolidation of our interior door manufacturing operations in Florida, resulting in the permanent closure of our Tampa, Florida facility. The closures of these
facilities were completed in 2007. In the early 2008, we announced the closure of three additional sites in Canada and a site in the UK. These decisions were made in order to effectively rationalize
capacity with demand given the current state of the housing market and to exit unprofitable product lines. The shut-down of the four facilities being permanently closed are expected to be
completed by the end of the third quarter of 2008.

In
2007 we disposed of surplus assets, (principally real estate at a former manufacturing site) for cash proceeds of $8.6 million.

Since
the Transaction we have closed or have announced the closure of 16 manufacturing sites around the world.

In
2007, we purchased the remaining 20% of our door manufacturing facility located in Eastern Europe for cash consideration of $3.3 million.

Capital
expenditures have ranged from a peak of $82.2 million for the full year in 2005 (Predecessor and Successor combined) to a low of $42.8 million in 2007. These
expenditures are made in order to maintain our existing capacity and to invest in more efficient production machinery where cost effective. In recent years these expenditures have diminished due to a
combination of reduced need for capacity expansion due to the downturn in the North American housing market, the re-deployment of surplus equipment due to facility closures, our "lean
sigma" manufacturing initiatives which have unlocked capacity and a tighter focus on capital spending.

B.    BUSINESS OVERVIEW

GENERAL

We sell interior and exterior doors, with interior products accounting for approximately 69%, 66%, 63% and 68% of our total sales revenue in 2007, 2006, 2005
(successor period) and 2005 (predecessor period) respectively; and exterior products accounting for the balance of our revenue during those periods. We offer an extensive range of interior and
exterior doors, which are available in a wide variety of sizes, styles and types. Substantially all interior doors are made with wood and related materials such as hardboard (including composite
molded and flat door facings). Exterior doors are made primarily of steel or fiberglass, as sales of wood exterior doors have declined in use over the last decade.

The
following is a description of the principal types of doors and other products that we sell and manufacture worldwide:

|Molded Flush |  | Doors made by sandwiching a wood or MDF frame and a hollow or solid core between two molded hardboard facings. These doors are used for closets, bedrooms, bathrooms and hallways.                               
|------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Flush        |  | Doors made by sandwiching a wood or MDF frame and a hollow or solid core between two facings made of plywood or hardboard (flat or embossed). These doors are used for closets, bedrooms, bathrooms and hallways.

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|Stile and Rail        |  | Doors made from solid wood with vertical stiles, horizontal rails and wood panels, which have been cut, milled and assembled from lumber such as clear pine, knotty pine, oak and mahogany. Where glass panels are inserted between stiles and rails, the
resulting door when used for interior purposes is referred to as a French door. For interior purposes these doors are primarily used for hallways, room dividers, closets and bathrooms. For exterior purposes these doors are used as entry doors and
decorative glass inserts (lites) are often inserted into these doors.
|--------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Louvre                |  | Doors with sloping horizontal slats that admit light and air. These doors are used for hallways, closets, and cabinets and as interior and exterior decorative shutters.                                                                                                                                                                                                                                                                                                                                                                                                              
|Bifold                |  | Hinged folding doors (typically molded flush, flush or louvre doors) used in closets or as room dividers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Pre-hung              |  | Interior and exterior doors sold together with door frames as units.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Plastic Laminate      |  | Flush doors with a plastic veneer facing, generally for commercial use.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Architectural         |  | Doors custom-designed to architectural specifications generally for commercial uses such as in office buildings, hotels, schools and hospitals.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Steel                 |  | Exterior doors made by assembling two interlocking steel facings (paneled or flat) or attaching two steel facings to a wood or steel frame and injecting the core with polyurethane insulation.                                                                                                                                                                                                                                                                                                                                                                                       
|Fiberglass            |  | Exterior doors made by assembling two fiberglass facings to a wood frame or composite material and injecting the core with polyurethane insulation.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Entry Systems         |  | Exterior doors sold pre-assembled in a door frame, with or without lites and transoms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Molded Door Facings   |  | Thin sheets of molded hardboard produced by grinding or defibrating wood chips, adding resin and other ingredients, creating a thick fibrous mat composed of dry wood fibers and pressing the mat between two steel dies to form a molded sheet, the
surface of which may be smooth or textured with a wood grain pattern.                                                                                                                                                                                                                                                            
|Door Framing Material |  | Commonly referred to as cut stock. Wood or MDF components that constitute the frame on which interior and exterior door facings are attached.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Door Lites            |  | Decorative and non-decorative insulated glass inserts primarily used in exterior doors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Door Core             |  | A molded fiber mat or particle board used in the construction of solid core doors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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New Products

Within the past three years, we have launched several new products containing patentable or patented features, including PalazzoTM and
CheyenneTM interior molded panel doors and new Barrington® Mahogany, Craftsman and SierraTM textured exterior fiberglass doors. The Cheyenne is our first design
in a new premium series of molded panel doors that are being marketed as Masonite's Anniversary Collection. The new Barrington products address the growing market needs for specific architectural
designs and alternative wood grains. In addition, we modify our product offerings to keep pace with changing consumer preferences.

Two
Palazzo Series designs, Bellagio® and Capri®, are offered in all sizes and configurations. This door features raised moulding and recessed panels resembling
authentic stile and rail doors. Palazzo provides these features with the added benefits of a single piece facing and composite wood technology.

The
Masonite® Anniversary Collection includes designs with unique architectural features. The Cheyenne door is a two-panel plank interior door for consumers who
are looking for a rustic, country or western style. This door has beaded planks, a custom panel profile and feature lines distinguishing the stiles from the rails.

The
Barrington Mahogany, Craftsman and Sierra exterior fiberglass doors are extensions of the Barrington line. Barrington Mahogany features a mahogany wood-grain texture
that, after staining, looks like an authentic mahogany hardwood door. This product was made to be compatible with the full array of Barrington decorative glass. Barrington Craftsman addresses the
craftsman, mission or shaker design trends occurring today in building products, furniture and cabinetry. This door has custom glazing, recessed flat panels and straight-grain hardwood texture. The
Barrington Sierra is designed for rustic, southwest or Mediterranean style homes. It is offered with or without planks, mahogany grain and in many configurations, including an over-sized
3'6"×8'0" door.

During
the past three years, we have also launched our Belleville® and Barrington (oak) Series of exterior fiberglass doors. We have added several new additions to our
exterior Royal MahoganyTM and interior wood panel and French stile and rail door lines. Many updates were also made to our steel door offerings, including: high-definition
panel profiles on all 24-gauge steel doors, prefinished white (Sta-Tru® HD) and two new panel designs (one-panel arch and two-panel
camber-top). The SpecialtyTM Glass line was enhanced with many new decorative glass families, Hurricane-LitesTM and a wrought iron collection.

New
product offerings for 2008 include:



25

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We are also introducing our new fiberglass door with our proprietary AvantGuard finish that digitally produces a realistic wood finish. AvantGuard is being introduced with a Spanish
Cedar finish reproducing the appearance of a high-end, real wood door, combined with the features of a durable fiberglass door.

We
are emphasizing the environmental aspects of our Safe 'N Sound doors based on our proprietary door core and construction methods. For those needing to meet LEED(1) specifications we
are offering the Safe 'N Sound Emerald door. This door has some additional features, such as no added urea formaldehyde and FSC(2) certification.

---

In
addition to several new interior and exterior door offerings, we are adding new glass designs as well a new mahogany grain finish for our Belleville and Barrington Fiberglass Door
lines.

Our
products are sold in over 70 countries, including the United States, Canada, the United Kingdom, France, and throughout Central and Eastern Europe. Geographically, we segment our
sales based on the North American versus The Rest of World markets.

Sales by Segment

See "Operating ResultsManagement's Discussion and Analysis of Financial Condition and Results of Operations" in Part I, Item 5.A of
this annual report for information regarding our sales by segment.

Seasonality

The building products industry in North America is seasonal, particularly in the northeast and midwest regions of the United States and in most regions of Canada,
where inclement winter weather generally reduces building activity, particularly in the new construction sector. As such, we typically experience a decrease in sales in the first quarter of each year
and also, to a lesser extent, in the fourth quarter of each year. However, our expansion into areas of more moderate climate (e.g., the southeast, southern and western part of the United
States, France, the United Kingdom and Mexico) and our focus on the residential repair, renovation and remodeling segment, which is less seasonal than new construction, has helped to mitigate this
seasonality.

Manufacturing Process and Raw Materials

The manufacture of wood doors is primarily an assembly operation. Cut-stock is either acquired from suppliers or cut by the door manufacturer. If
necessary, the cut-stock is milled into the various dimensions required for different door styles and sizes. The assembly process varies by type of door, from a relatively simple process
for flush doors, where the door facings are glued to a wood frame, to more complex procedures for the many pieces of a louvre or stile and rail door. Following assembly, doors are trimmed to their
final specifications. Short set-up times, proper production scheduling and coordinated material movement are essential to achieve a flexible process capable of producing a wide range of
door types, sizes, materials and styles.

The
manufacture of insulated steel and fiberglass doors consists primarily of the fabrication of steel sheets embossed into panel or flush door facings and fiberglass door facings which
are then

26

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assembled
onto a wood or steel framing system. The doors are then injected with polyurethane insulation.

Raw
materials usually comprise more than 50% of the total cost of a finished door slab. The primary raw materials used in the manufacture of our interior and exterior doors are wood,
steel, fiberglass, petroleum-based products including resins and plastics, paints, adhesives and door core material. The North American manufacturing operations primarily purchase production materials
from sources in North America, South America and Asia, while our European operations primarily purchase materials from European suppliers.

Cut-stock
is purchased from suppliers located on the west coast of the United States and Western Canada, the southern United States, Europe, eastern Canada, southern Africa
and South America. Plywood door facings are imported principally from Asia, although certain types of hardwood veneer door facings are sourced in North America. Hardboard door facings are purchased
from suppliers in Canada, the United States, South America and Africa. Molded hardboard door facings are produced at our facilities in the United States, Ireland, Chile, Canada and Malaysia. Subject
to seasonal fluctuations, the lead time required for shipments of plywood is approximately three months and ranges from two to eight weeks for cut-stock and hardboard (molded and flat).

Our
profitability is affected by the prices of the raw materials and finished goods used in the manufacture of our products. These prices have fluctuated and may continue to fluctuate
based on a number of factors beyond our control, including world oil prices, changes in supply and demand, general economic or environmental conditions, labor costs, competition, import duties,
tariffs, currency exchange rates, mergers and acquisitions, weather, and, in some cases, government regulation. The commodities we use may undergo major price fluctuations and there is no certainty
that we will be able to pass these costs through to our customers. Significant increases in the prices of raw materials or finished goods are more difficult to pass through to customers in periods of
housing market weakness and excess door industry capacity, and may negatively impact our revenues, profitability and margins. We also purchase raw materials and manufactured items from suppliers
located in non-U.S. Dollar based economies in North America, Asia, Europe, South America and Africa. In most cases, purchases from those suppliers are priced in U.S. dollars or euros.
However, fluctuations in currency exchange rates may also affect us.

We
require a regular supply of steel, fiberglass, wood, wood composites, door facings, cut stock, core material and other raw materials as well as petroleum-based products such as resins
and foam. In certain instances, we depend upon single or limited source suppliers for these supplies. Our dependency upon regular deliveries from particular suppliers means that interruptions or
stoppages in such deliveries could adversely affect our operations until arrangements with alternate suppliers could be made.

If
any of our suppliers were unable to deliver materials to us for an extended period of time (including as a result of delays in land or sea shipping), or if we were unable to negotiate
acceptable terms for the supply of materials with these or alternative suppliers, our business could suffer. For example, in 2006 we experienced a short term disruption in the supply of methanol, a
key ingredient in resins used in the production of door skins. In the future, we may not be able to find acceptable supply alternatives, and any such alternatives could result in increased costs for
us. Even if acceptable alternatives are found, the process of locating and securing such alternatives might be disruptive to our business.

Sales and Marketing

In North America, we sell doors through our own dedicated commissioned sales force organized on a geographic basis. Our sales force is also responsible for
customer service in the field, enabling us to respond rapidly to our customers and to end user needs.

27

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We
have become a leader in merchandising and advertising through point of sale displays, in-store merchandising and training programs, trade advertisements, regional flyer
programs and do-it-yourself videos for doors distributed through home centers. In addition, we advertise our products at numerous events, including trade shows in North
America, Europe, Asia and the Middle East. We have also developed consumer brochures, including a planning guide and do-it-yourself products to assist the consumer in the
purchase and installation of doors, as well as training programs designed to assist home center sales personnel with product knowledge and sales strategies.

In
2008, we introduced our redesigned web sitewww.masonite.com. Our new web site allows customers to more easily browse and choose from a
wide selection of doors. The site contains an interactive door configurator, which permits customers to design any entry door specifically for a given home, as well as a
where-to-buy feature that provides consumers with a wide selection of dealers and retail outlets that carry our products along with detailed maps and directions to these
locations.

Intellectual Property

In North America, our doors are marketed primarily under the Masonite® brand. Other North American brands include: Premdor®,
Belleville®, Barrington®, Oakcraft®, Sta-Tru® HD, ArTek®, Premvu®, Royal MahoganyTM,
CavalierTM, Fast-FrameTM, Safe'N Sound®, PremcorTM, CrownTM, MiamiTM, Palazzo Series®,
Bellagio®, Capri®, CheyenneTM, SavannahTM and Mohawk®.

In
Europe, doors are marketed under the Premdor®, EkemTM, FonmartyTM, MagriTM, MonnerieTM, BatimetalTM
and CrosbyTM brands, among others. We consider the use of trademarks and trade names to be
important in the development of product awareness, and for differentiating our products from those of our competitors.

Many
of our products contain patented features or were manufactured using patented processes owned by us. We believe these patents provide us with an advantage over our competitors and
are a valuable benefit to our customers.

Legal Proceedings

We are involved in various legal proceedings, claims and governmental audits in the ordinary course of business. In the opinion of management, the ultimate
disposition of these proceedings, claims and audits will not have a material adverse effect on our financial position or results of operations.

Government Regulations

The geographic breadth of our facilities subjects us to environmental laws, regulations and guidelines in a number of jurisdictions, including, among others,
Canada, the United States, the United Kingdom, the Republic of Ireland, France, the Czech Republic, Hungary, Poland, Ukraine, Israel, Mexico, Chile, Costa Rica, South Africa, and Malaysia. Such laws,
regulations and guidelines relate to, among other things, the discharge of contaminants into water and air and onto land, the storage and handling of certain regulated materials used in the
manufacturing process, the disposal of wastes and the remediation of contaminated sites.

Typically
less than ten percent of our capital is spent to comply with our environmental, health and safety requirements. Our operations in the United States are subject to regulations
enacted by the US Environmental Protection Agency (EPA) related to Maximum Achievable Control Technology ("MACT"). MACT regulations govern the manner in which we measure and control the emissions from
our manufacturing facilities into the air. As a result of a June 2007 decision by the US Court of Appeals, the EPA has eliminated certain compliance options which were based on low health risk
determinations in relation to compliance with MACT regulations for wood products. We anticipate the cost of complying with the amended rules would require us to spend between $20 million and
$30 million in addition to the $8.7 million already spent.

28

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C.    ORGANIZATIONAL STRUCTURE

Masonite International Inc., the parent company of Masonite Corporation and Masonite International Corporation, was incorporated under the Canada Business
Corporations Act on February 2, 2005. Masonite Corporation is a Delaware corporation incorporated on September 1, 1925. Masonite International Corporation and Specialty Buildings
Products Ltd. amalgamated on May 30, 2005 to form Masonite International Corporation under the Ontario Business Corporations Act.

Our
principal executive offices are located at 1820 Matheson Boulevard, Unit B4, Mississauga, Ontario, Canada L4W 0B3 and One North Dale Mabry Highway, Suite 950, Tampa,
Florida 33609. Our telephone number is (905) 212-9622 and (813) 877-2726, respectively. Our web site is located at www.masonite.com. Information on our web site does not constitute part of
this annual report and is not incorporated by reference herein.

The
following table provides the names of our significant subsidiaries and ownership percentages.

Significant subsidiaries

Ownership PercentageMasonite International Corporation

100
%Masonite Corporation

100
%Premdor UK Holdings

100
%Premdor S.A.S.

100
%Masonite Ireland

100
%Masonite Mexico S.A. de C.V.

100
%Masonite Chile Holdings S.A.

100
%Kronospan Door Holdings s.a.r.l.

75
%Magna Foremost Sdn Bhd

50
%Sacopan Inc.

50
%


D.    PROPERTY PLANT AND EQUIPMENT

Properties

Our principal executive offices are located in Mississauga, Ontario and Tampa, Florida. We own 58 manufacturing, warehouse and office facilities worldwide.
We also lease space for our manufacturing and warehouse operations and administrative offices, in many locations worldwide. We believe that our leased and owned facilities are adequate for our present
operations. We believe that we generally have sufficient capacity to satisfy the demand for our products in the foreseeable future, and there are no environmental issues materially constraining the
utilization of our facilities.

The
following table provides certain information regarding our properties of 5,000 square feet and more as of December 31, 2007.

|Country |  | Facility Location |  | Principal Purpose        |  | Square Footage |  | Status
|------- |  | ----------------- |  | ------------------------ |  | -------------- |  | ------
|Canada  |  | Yarrow, BC        |  | Manufacturing, Warehouse |  | 182,000        |  | Owned 
|        |  | Berthierville, QC |  | Manufacturing, Warehouse |  | 157,000        |  | Owned 
|        |  | Lac Megantic, QC  |  | Manufacturing            |  | 151,000        |  | Owned 
|        |  | St-Hyacinthe, QC  |  | Manufacturing, Warehouse |  | 112,000        |  | Owned 
|        |  | Lac Megantic, QC  |  | Manufacturing, Warehouse |  | 112,000        |  | Owned 
|        |  | Sacre-Coeur, QC   |  | Manufacturing            |  | 100,000        |  | Owned 
|        |  | Lac Megantic, QC  |  | Manufacturing, Warehouse |  | 43,000         |  | Owned 
|        |  | St-Romuald, QC    |  | Manufacturing Warehouse  |  | 37,000         |  | Owned 
|        |  | Lac Megantic, QC  |  | Warehouse                |  | 18,000         |  | Owned 
|        |  | Lac Megantic, QC  |  | Manufacturing            |  | 15,000         |  | Owned 
|        |  | Lac Megantic, QC  |  | Warehouse                |  | 15,000         |  | Owned 

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|              |  | Berthierville, QC   |  | Warehouse                |  | 8,000     |  | Owned 
|------------- |  | ------------------- |  | ------------------------ |  | --------- |  | ------
|              |  | Lac Megantic, QC    |  | Warehouse                |  | 6,000     |  | Owned 
|              |  | Surrey, BC          |  | Manufacturing, Warehouse |  | 189,700   |  | Leased
|              |  | Concord, ON         |  | Warehouse                |  | 170,000   |  | Leased
|              |  | Brampton, ON        |  | Manufacturing, Warehouse |  | 122,000   |  | Leased
|              |  | St-Romuald, QC      |  | Manufacturing, Warehouse |  | 110,000   |  | Leased
|              |  | Langley, BC         |  | Manufacturing, Warehouse |  | 100,000   |  | Leased
|              |  | New Westminster, BC |  | Manufacturing, Warehouse |  | 90,000    |  | Leased
|              |  | Granby, QC          |  | Manufacturing, Warehouse |  | 75,000    |  | Leased
|              |  | Delta, BC           |  | Warehouse                |  | 30,000    |  | Leased
|              |  | Berthierville, QC   |  | Warehouse                |  | 26,000    |  | Leased
|              |  | Lac Megantic, QC    |  | Warehouse                |  | 20,000    |  | Leased
|              |  | Calgary, AB         |  | Warehouse                |  | 16,000    |  | Leased
|              |  | Lac Megantic, QC    |  | Warehouse                |  | 12,000    |  | Leased
|United States |  | Laurel, MS          |  | Manufacturing            |  | 1,913,000 |  | Owned 
|              |  | Pittsburg, KS       |  | Manufacturing, Warehouse |  | 300,000   |  | Owned 
|              |  | Walkerton, IN       |  | Manufacturing, Warehouse |  | 220,000   |  | Owned 
|              |  | Northumberland, PA  |  | Manufacturing, Warehouse |  | 220,000   |  | Owned 
|              |  | Dickson, TN         |  | Manufacturing, Warehouse |  | 211,000   |  | Owned 
|              |  | Greenville, TX      |  | Manufacturing, Warehouse |  | 161,000   |  | Owned 
|              |  | West Chicago, IL    |  | Die Manufacturing, R&D   |  | 141,000   |  | Owned 
|              |  | Astatula, FL        |  | Manufacturing, Warehouse |  | 125,000   |  | Owned 
|              |  | Stanley, VA         |  | Manufacturing, Warehouse |  | 118,000   |  | Owned 
|              |  | South Bend, IN      |  | Manufacturing, Warehouse |  | 117,000   |  | Owned 
|              |  | Greenville, TX      |  | Warehouse                |  | 102,000   |  | Owned 
|              |  | Haleyville, AL      |  | Manufacturing            |  | 94,000    |  | Owned 
|              |  | North Platte, NE    |  | Manufacturing, Warehouse |  | 92,000    |  | Owned 
|              |  | Stockton, CA        |  | Manufacturing            |  | 92,000    |  | Owned 
|              |  | Haleyville, AL      |  | Warehouse                |  | 85,000    |  | Owned 
|              |  | Stockton, CA        |  | Warehouse                |  | 67,000    |  | Owned 
|              |  | Stockton, CA        |  | Manufacturing            |  | 65,000    |  | Owned 
|              |  | Stockton, CA        |  | Manufacturing, Warehouse |  | 47,000    |  | Owned 
|              |  | Stockton, CA        |  | Warehouse                |  | 15,000    |  | Owned 
|              |  | Charlotte, NC       |  | Manufacturing            |  | 334,000   |  | Leased
|              |  | Moreno Valley, CA   |  | Manufacturing, Warehouse |  | 334,000   |  | Leased
|              |  | Lawrenceville, GA   |  | Manufacturing, Warehouse |  | 220,100   |  | Leased
|              |  | Dickson, TN         |  | Manufacturing, Warehouse |  | 150,000   |  | Leased
|              |  | Kirkwood, NY        |  | Manufacturing, Warehouse |  | 138,000   |  | Leased
|              |  | Duluth, GA          |  | Manufacturing, Warehouse |  | 130,000   |  | Leased
|              |  | Stockton, CA        |  | Manufacturing, Warehouse |  | 125,000   |  | Leased
|              |  | Yulee, FL           |  | Manufacturing, Warehouse |  | 123,000   |  | Leased
|              |  | Wahpeton, ND        |  | Manufacturing, Warehouse |  | 121,000   |  | Leased
|              |  | Winchester, VA      |  | Manufacturing, Warehouse |  | 109,000   |  | Leased
|              |  | Dallas, TX          |  | Manufacturing            |  | 108,000   |  | Leased
|              |  | Westminster, MA     |  | Manufacturing, Warehouse |  | 100,000   |  | Leased
|              |  | Lake Charles, LA    |  | Warehouse                |  | 100,000   |  | Leased
|              |  | Vandalia, OH        |  | Manufacturing, Warehouse |  | 96,000    |  | Leased
|              |  | Garland, TX         |  | Manufacturing, Warehouse |  | 84,000    |  | Leased
|              |  | Mobile, AL          |  | Manufacturing            |  | 80,000    |  | Leased

30

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|               |  | Pittsburg, KS      |  | Warehouse                |  | 77,000    |  | Leased
|-------------- |  | ------------------ |  | ------------------------ |  | --------- |  | ------
|               |  | Kansas City, MO    |  | Manufacturing, Warehouse |  | 74,000    |  | Leased
|               |  | Garland, TX        |  | Warehouse                |  | 57,000    |  | Leased
|               |  | Mt. Dora, FL       |  | Manufacturing            |  | 57,000    |  | Leased
|               |  | Charleston, SC     |  | Warehouse                |  | 50,000    |  | Leased
|               |  | Danville, VA       |  | Warehouse                |  | 49,000    |  | Leased
|               |  | Luray, VA          |  | Warehouse                |  | 43,000    |  | Leased
|               |  | Plymouth, IN       |  | Warehouse                |  | 42,000    |  | Leased
|               |  | Tampa, FL          |  | Warehouse                |  | 37,000    |  | Leased
|               |  | Kirkwood, NY       |  | Warehouse                |  | 29,000    |  | Leased
|               |  | Haleyville, AL     |  | Warehouse                |  | 28,000    |  | Leased
|               |  | Tampa, FL          |  | Office                   |  | 24,000    |  | Leased
|               |  | Sunbury, PA        |  | Warehouse                |  | 15,000    |  | Leased
|               |  | North Platte, NE   |  | Warehouse                |  | 14,400    |  | Leased
|               |  | South Bend, IN     |  | Warehouse                |  | 14,000    |  | Leased
|               |  | Mobile, AL         |  | Office                   |  | 10,000    |  | Leased
|               |  | Mississauga, ON    |  | Office                   |  | 9,000     |  | Leased
|               |  | Lake Charles, LA   |  | Warehouse                |  | 7,000     |  | Leased
|               |  | Lake Charles, LA   |  | Office                   |  | 5,000     |  | Leased
|               |  | Sidney, NE         |  | Warehouse                |  | Variable  |  | Leased
|United Kingdom |  | Hedingham          |  | Manufacturing, Warehouse |  | 358,000   |  | Owned 
|               |  | Barnsley           |  | Manufacturing, Warehouse |  | 338,000   |  | Owned 
|               |  | Bridgwater         |  | Manufacturing, Warehouse |  | 108,000   |  | Owned 
|               |  | Barnsley           |  | Warehouse                |  | 97,000    |  | Owned 
|               |  | Barnsley           |  | Warehouse                |  | 54,000    |  | Leased
|               |  | Stockton-on-Tees   |  | Manufacturing, Warehouse |  | 40,000    |  | Leased
|               |  | Middlesbrough      |  | Manufacturing            |  | 25,000    |  | Leased
|               |  | Swindon            |  | Office                   |  | 20,000    |  | Leased
|France         |  | Bazas              |  | Manufacturing, Warehouse |  | 374,000   |  | Owned 
|               |  | Douvres            |  | Manufacturing, Warehouse |  | 183,000   |  | Owned 
|               |  | Orange             |  | Manufacturing            |  | 171,000   |  | Owned 
|               |  | Bordeaux           |  | Manufacturing, Warehouse |  | 165,000   |  | Owned 
|               |  | Thignonville       |  | Manufacturing, Warehouse |  | 115,000   |  | Owned 
|               |  | Tillieres          |  | Manufacturing, Warehouse |  | 72,000    |  | Owned 
|               |  | Bazas              |  | Warehouse                |  | 25,000    |  | Owned 
|               |  | Mereville          |  | Manufacturing            |  | 15,000    |  | Owned 
|               |  | Giberville         |  | Manufacturing            |  | 52,000    |  | Leased
|               |  | Rungis             |  | Office                   |  | 6,000     |  | Leased
|Ireland        |  | Carrick-on-Shannon |  | Manufacturing            |  | 576,000   |  | Owned 
|Chile          |  | Cabrero            |  | Manufacturing            |  | 110,000   |  | Owned 
|China          |  | Shanghai           |  | Warehouse, Office        |  | 11,000    |  | Leased
|South Africa   |  | Kwa-Zulu Natal     |  | Land, Forests            |  |           |  | Owned 
|               |  | Estcourt           |  | Manufacturing, Warehouse |  | 1,000,000 |  | Owned 
|               |  | Durban             |  | Office                   |  | 15,000    |  | Leased
|               |  | Pietermaritzburg   |  | Office                   |  | 5,000     |  | Leased
|Mexico         |  | Nuevo-Leon         |  | Manufacturing            |  | 188,000   |  | Owned 

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|Costa Rica     |  | Heredia      |  | Manufacturing |  | 135,000 |  | Owned 
|-------------- |  | ------------ |  | ------------- |  | ------- |  | ------
|               |  | Guapiles     |  | Manufacturing |  | 57,000  |  | Owned 
|Czech Republic |  | Jihlava      |  | Manufacturing |  | 239,000 |  | Leased
|Poland         |  | Jaslo        |  | Manufacturing |  | 212,000 |  | Leased
|Romania        |  | Brasov       |  | Warehouse     |  | 13,000  |  | Leased
|Ukraine        |  | Berdychiv    |  | Manufacturing |  | 454,000 |  | Owned 
|Hungary        |  | Banhalma     |  | Manufacturing |  | 107,600 |  | Owned 
|               |  | Budapest     |  | Warehouse     |  | 45,200  |  | Owned 
|Turkey         |  | Istanbul     |  | Manufacturing |  | 25,000  |  | Owned 
|               |  | Istanbul     |  | Warehouse     |  | 15,000  |  | Leased
|Israel         |  | Karmiel      |  | Manufacturing |  | 105,000 |  | Owned 
|               |  | Ben Zvi      |  | Warehouse     |  | 19,000  |  | Leased
|Malaysia       |  | Kuala Lumpur |  | Manufacturing |  | 211,000 |  | Leased
|               |  | Bintulu      |  | Manufacturing |  | 151,000 |  | Leased

32

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ITEM 4A.    UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A.    OPERATING RESULTS

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS OF OPERATIONS

The following Management Discussion and Analysis ("MD&A") is a review of Masonite International Inc.'s financial condition and
results of operations, is based upon Canadian Generally Accepted Accounting Principles ("GAAP") and covers periods prior and subsequent to the acquisition by Masonite International Inc. of
Masonite International Corporation on April 6, 2005 (the "Transaction"). More specifically, the financial condition and results of operations for the year ended December 31, 2007 and
December 31, 2006 are for Masonite International Inc. The results of operations from February 2, 2005 (Date of Incorporation) to December 31, 2005 are for Masonite
International Inc. ("Successor 2005"), and the results of operations from January 1, 2005 to April 6, 2005 ("Predecessor 2005") are for Masonite International Corporation.
"Predecessor" refers to Masonite International Corporation and its subsidiaries
on a consolidated basis, "Masonite" or the "Successor" refers to Masonite International Inc. and its subsidiaries on a consolidated basis, and unless the context otherwise requires, the
"Company", "we", "us" and "our" refer to the Predecessor for periods prior to the Transaction and to the Successor for periods thereafter, unless the context otherwise requires or it is otherwise
indicated. All amounts are in United States dollars unless specified otherwise. The Successor financial information may not be comparable to the Predecessor financial information as a result of the
effect of the revaluation of assets and liabilities to their estimated fair market values in accordance with the application of purchase accounting pursuant to Canadian GAAP.

This discussion should be read in conjunction with our audited consolidated financial statements contained elsewhere in this annual report. The following
discussion also contains forward-looking statements that involve numerous risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements as
a result of these risks and uncertainties. See "Forward-Looking Statements" of this annual report for additional information regarding forward-looking statements.

Critical Accounting Policies and Estimates

Our significant accounting policies are disclosed in note 1 to the annual audited consolidated financial statements. The preparation of these financial
statements requires us to make estimates that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosures of contingent items. Actual results could differ
significantly from those estimates. The following discussion addresses our more critical accounting policies. These policies are important to the presentation of our operating results and financial
position and require significant judgment or the use of estimates.

Inventory

We value inventories on a first-in, first-out basis at the lower of cost or replacement cost for raw materials, and the lower of cost or
market value for finished goods. In determining net realizable value, we consider such factors as yield, turnover and aging, expected future demand and past experience. A change in the underlying
assumptions related to these factors could affect the valuation of inventory and have a corresponding effect on cost of sales.

33

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Goodwill

We use the purchase method of accounting for all business combinations. Use of the purchase method for acquisitions frequently results in the recording of
goodwill as part of the purchase price. Goodwill is not amortized but instead is tested for impairment each year or more frequently if events or changes in circumstances indicate that an impairment
loss may have been incurred. Goodwill impairment analysis is performed at the reporting unit level by comparing the reporting unit's carrying amount to its fair value. Fair values of reporting units
are estimated using an income approach. In making this fair value assessment, we rely on a number of factors including operating results, business plans, economic projections and anticipated future
cash flows. There are inherent uncertainties related to these factors and to our judgment in applying them to the analysis of goodwill impairment. Since judgment is involved in performing goodwill
valuation analyses, any change in estimates can affect the valuation of goodwill.

Intangible Assets

We assign value to intangible assets acquired in business combinations or other forms of acquisitions. The value assigned to intangible assets such as customer
relationships, non-compete agreements and order backlogs is determined by estimating future cash flows, discount rates, rates of attrition and useful lives of acquired intangible assets.
As needed, independent external appraisers are engaged in assisting management to determine the appropriate fair values to be assigned to the intangible assets.

An
impairment test is performed at least annually which compares the carrying value of intangible assets not subject to amortization to fair value. A similar impairment test is performed
for intangible assets which are subject to amortization when events or conditions indicate that the carrying value may be impaired by comparing the carrying value to future undiscounted cash flows. An
impairment loss is recognized when the carrying amount of the intangible asset exceeds the fair value or is less than future undiscounted cash flows as appropriate. Fair values are based on
assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates that reflect varying amounts of perceived risk. As the estimates of future cash flows, discount
rates and attrition rates used to value and test the intangible assets for impairment are based on future events, any changes from the estimated amounts could have an impact on the annual impairment
test and carrying value of the intangible assets.

Income Taxes

Our consolidated income tax provision is calculated by determining taxable income and then applying varying rates of income tax that are appropriate in the
numerous taxing jurisdictions in which we
conduct business. In the ordinary course of conducting business internationally, there can be numerous transactions and calculations where the ultimate tax outcome is uncertain. The final result of
these matters may be different from the estimates that have been made in determining income tax provisions and accruals. If these estimates and assumptions are determined to be inaccurate, there could
be a material effect on our income tax provision and net income in the period in which the determination is made.

We
have recorded approximately $59 million of future income tax assets as of December 31, 2007. Future tax assets are calculated based on tax rates to be applied in future
periods. Previously recorded tax assets and liabilities need to be adjusted when the expected date of the future event is revised based on current information. A valuation allowance has been recorded
to reduce future tax assets to the amount of the future tax benefit that is likely to be realized. In determining the need for the valuation allowance, we considered such factors as projected future
taxable income, available tax planning strategies, the character of the income tax asset and the reversal of future income tax

34

---



liabilities.
If assumptions related to these factors change significantly, then the valuation allowance, income tax expense and net income may change materially in the period for which the
determination is made.

Long-lived Assets

We periodically evaluate the recoverability of long-lived assets, including property, plant and equipment and amortizable intangible assets based on a
two-step impairment analysis when events or conditions indicate that the carrying value may not be recoverable. In performing this evaluation, reliance is placed upon a number of factors
which include operating results, business plans, economic projections and anticipated cash flows. An impairment loss is recognized when the carrying amount of the asset to be held and used exceeds the
sum of the undiscounted cash flows expected from use. Impairment is measured as the amount by which the carrying value of the asset exceeds its fair value. Fair values are based on assumptions
concerning the amount and timing of estimated future cash flows and assumed discount rates that reflect varying degrees of perceived risk. Since fair value is based on estimates of future events,
changes in estimates could result in write downs.

Employee Future Benefit Plans

We maintain defined benefit plans and other post-retirement benefits covering certain employees. Earnings are charged with the cost of benefits earned
by employees as services are rendered. The cost reflects our best estimates of the pension plans' expected investment yields, wage and salary escalation, expected health care costs, mortality of
members, terminations and the ages at which members will retire. Changes in these assumptions could impact future pension expense. The
excess of the net actuarial gain (loss) over 10% of the greater of the benefit obligation and the fair value of plan assets at the beginning of the year is amortized over the average remaining service
lives of its members. These estimates may differ from actual results that will occur over an extended period of time. Any significant differences may have an effect on the recorded pension expense and
carrying value of the plans' net assets or net liabilities. Benefits under our defined benefit pension plans were largely curtailed in 2003.

Stock-based Awards

Effective January 1, 2003, we adopted the revised guidance for stock-based awards, which requires that a fair value method of accounting, as outlined
above, be applied to all stock-based award grants to both employees and non-employees, and included in income. We have prospectively applied the fair value method of accounting for stock
option awards granted to employees after January 1, 2003, and accordingly, have recorded the compensation expense for such awards.

The
determination of obligations and compensation expense for the plans noted above use several mathematical and judgment factors that include expected volatility, the anticipated life
of the option, an estimated risk free rate, and the number of options expected to vest. Any difference in the number of options that actually vest can affect future compensation expense. Other
assumptions are not revised after the original estimate.

Variable Interest Entities

In 2004, we began consolidating variable interest entities ("VIE's") of which we are the primary beneficiary as determined in accordance with AcG-15:
"Consolidation of variable interest entities". The determination of whether we are the primary beneficiary involves judgments and estimates by management. These judgments involve determining the
expected loss and expected returns from the variable interest entity and a discount rate to determine the present value of the expected cash flows. Changes in assumptions used may affect the
variability of the expected cash flows and potentially our conclusion of whether we are or are not the primary beneficiary.

35

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Recent Developments

In the first quarter of 2007, we were notified by our largest customer, The Home Depot, that they would be moving substantially all of their business with us in
certain geographic regions to a competitor later in 2007. This decision was the result of price increases we put in place during 2006. Sales to this customer in the regions affected were approximately
$250$300 million on an annualized basis. Subsequent to this notification, we announced the permanent closure of five facilities and the significant curtailment of production at an
additional facility dedicated to serving this customer. As a result of this lost business and the continuing deterioration in the North American housing market, we further announced the permanent
closure of an interior door manufacturing facility located in Mississauga, Ontario and the consolidation of our interior door manufacturing operations in Florida, resulting in the permanent closure of
our Tampa, Florida facility. The closures of these facilities were completed in 2007. In the early 2008, we announced the closure of three additional sites in Canada and a site in the UK.

Results of Operations for the year ended December 31, 2007 compared to the year ended December 31, 2006.

A summary of our 2007 and 2006 annual results is as follows:

For the year ended December 31,

2007

2006Sales

$
2,174.4

$
2,464.5Cost of sales


1,695.4


1,950.2Gross margin


479.0


514.2Selling, general and administration expenses


206.6


211.8Depreciation


91.8


89.0Amortization of intangible assets


35.6


35.6Interest


178.2


182.6Other expense, net


29.9


39.0Impairment of goodwill and intangibles


303.8


Loss before income taxes and non-controlling interest


(367.0
)

(43.8
)Income taxes (recovery)


(72.2
)

(15.7
)Non-controlling interest


8.1


6.2Net income (loss)

$
(302.9
)
$
(34.3
)


Consolidated Sales

For the year ended December 31

2007

2006

$ Change

% ChangeSales

$
2,174.4

$
2,464.5

$
(290.1
)
(11.8
)%


Consolidated
sales for the year ended December 31, 2007 were $2,174.4 million compared to $2,464.5 million in the prior year period. Sales in the 2007 period were
negatively impacted by lower North American sales due to soft demand from customers servicing both the wholesale and retail channels and the business lost from our largest customer. The decline in
demand in the wholesale channels was driven by a significant decline in the new housing market in the U.S. as evidenced by an 33% drop in new housing starts in the U.S. in 2007. Sales demand in our
retail channels declined significantly in the second half of 2007 in particular as the credit crisis significantly impacted the availability of capital. The impact of the lost business from certain
regions of our largest customer was

36

---



$137 million
of the year-over-year sales decline. Sales in 2007 benefited by a $59.2 million increase or 2.4% related to stronger foreign currency rates as
compared to the prior year period, as well as by favorable year over year price comparisons.

Sales and Percentage of Sales by Principal Geographic Region

For the year ended December 31

2007

2006North America

$
1,526.3

$
1,899.470
%

77
%Europe and Other

$
706.3

$
644.233
%

26
%Intersegment

$
(58.1
)
$
(79.2
)(3
)%

(3
)%


Sales
in our principal segment, North America, declined 19.6% to $1,526.3 million for the year ended December 31, 2007 as compared to the prior year period. Sales in North
America were negatively impacted by the lost business from The Home Depot, continued soft demand from customers servicing both the wholesale and retail channels, partially offset by favorable foreign
currency movements. Sales
in the North American segment declined to 70% of consolidated sales as compared to 77% in the prior year.

Sales
to external customers from facilities outside of North America grew 14.7% to $648.2 million in 2007 as compared to the prior year period. European sales were positively
impacted by the appreciation of European currencies versus the U.S. dollar and organic growth. Excluding the impact of foreign exchange, sales outside of North America increased 6.6%. Good economic
fundamentals throughout the region combined with the continued expansion of our business accounted for this increase in sales.

Intersegment
sales, primarily the movement of door components from the Europe and Other segment into the North America segment, declined by 26.6% to $58.1 million due to softening
market conditions in North America during fiscal 2007.

Sales and Percentage of Sales by Product Line
For the year ended December 31

2007

2006Interior

$
1,506.4

$
1,625.069
%

66
%Exterior

$
668.1

$
839.431
%

34
%


The
proportion of revenues from interior and exterior products was approximately 69% and 31%, respectively, for the year ended December 31, 2007, compared to 66% and 34%,
respectively, in the prior year period. Sales of exterior doors in 2007 declined as a percentage of sales because our exterior door business is more heavily concentrated in North America where markets
have been weakening. In addition, exterior doors are a smaller component of our European business which has been growing. We also believe that weakening housing market conditions in North America tend
to affect exterior product sales earlier than the sales of interior product sales. Furthermore, the business lost from our largest customer was more heavily weighted to exterior products.

37

---



Cost of Sales
For the year ended December 31

2007

Percentage of
Sales

2006

Percentage of
SalesCost of sales

$
1,695.4

78.0
%
$
1,950.2

79.1
%


The
significant components of cost of sales are materials, direct labor, factory overheads and distribution costs. Cost of sales, expressed as a percentage of sales, was 78.0% for the
2007 period versus 79.1% for the 2006 period. Our global supply chain and logistics initiatives, facility rationalizations, rigorous cost management and product pricing adjustments contributed to this
improvement in our cost of sales percentage in the 2007 period as did favorable foreign currency movements. The 2007 period includes inventory write downs of $7.0 million and approximately
$2.0 million of site integration costs associated with the consolidation of facilities. Excluding these amounts, our cost of sales percentage in the 2007 period would have been 77.6%. Results
in the 2006 period include a $11.5 million non-cash write down of inventories as well as a recovery of $0.7 million on damages incurred as a result of hurricanes in the third
quarter of 2005. Excluding the impact of this write down and hurricane recovery, cost of sales in the 2006 period would have been $1,939.4, or 78.7% of sales.

Selling, General and Administration Expenses
For the year ended December 31

2007

Percentage of
Sales

2006

Percentage of
SalesSelling, general and administration expenses

$
206.6

9.5
%
$
211.8

8.6
%


SG&A
primarily includes personnel costs, marketing and advertising costs, sales commissions, information technology costs, receivables sales program costs, professional fees and
management travel. SG&A costs in the 2007 period declined $5.2 million as compared to the prior year period. Lower commissions of $4.0 million, lower receivables sales program costs of
$2.6 million and reduced travel and entertainment costs of $1.4 million were partially offset by higher recruiting and relocation expenses of $2.2 million and
non-restructuring related severance of $2.4 million. SG&A in the 2007 period is also higher due to foreign exchange as our expenditure on SG&A in foreign sites translates into a
higher US dollar equivalent.

Depreciation
For the year ended December 31

2007

2006

$ Change

% ChangeDepreciation

$
91.8

$
89.0

$
2.8

3.1
%


Depreciation
expense increased to $91.8 million in the 2007 period as compared to $89.0 million in the 2006 period, primarily due to accelerated depreciation expense on
leasehold improvements at facilities that were closed in 2007.

Amortization of Intangible Assets
For the year ended December 31

2007

2006

$ Change

% ChangeAmortization of intangible assets

$
35.6

$
35.6






38

---



Amortization
of intangible assets for the 2007 period was unchanged from the 2006 period and represents the amortization of the fair value of assets acquired and liabilities assumed as
of April 6, 2005, the date of acquisition by KKR.

Other Expense
For the year ended December 31

2007

2006Restructuring and severance expense

$
28.0

$
14.4Loss on disposal of property, plant and equipment


3.4


6.8Impairment of property, plant and equipment


11.0


16.9Insurance proceeds and other


(6.2
)

(0.4
)Foreign exchange (gain) loss on long-term liabilities


(6.3
)

1.3Other expense

$
29.9

$
39.0


Other
expense was $29.9 million in the 2007 period including restructuring and severance costs of $28.0 million related to the closure of eleven manufacturing facilities in
North America. A loss on disposal of idle property, plant and equipment also added $3.4 million to other expense in the 2007 period, as well as an $11.0 million impairment charge on
property, plant and equipment at facilities that are closing. A gain of $2.7 million from an insurance settlement and a one-time gain on the favorable resolution of an environmental
liability in the amount of $3.5 million reduced total other expense in the 2007 period.

Included
in other expense in the 2006 period are severance costs related to the termination of certain former senior executives, the closure of four manufacturing sites, and costs
related to the 8% reduction in staffing levels that occurred in September 2006.

Impairment of Goodwill and Intangibles
For the year ended December 31

2007

2006

$ Change

% ChangeImpairment of goodwill and intangibles

$
303.8



$
303.8

100
%


In
the 2007 period, we recorded impairment of goodwill and intangible assets of $303.8 million, representing impairment in tradenames of $30.0 million, impairment in
customer relationship intangible assets of $65.4 million and impairment of goodwill of $208.4 million. The loss of a significant portion of business with a major customer and the ongoing
decline in the North American housing market were events and conditions that indicated that it was necessary to conduct an impairment test. The impairment test on intangibles other than goodwill is
performed by comparing the estimated fair value of the intangibles to their carrying value. The impairment of goodwill is measured by comparing the enterprise value for each of the reporting segments
to the segment carrying value. Enterprise values are estimated using income approaches to valuation.

Interest Expense
For the year ended December 31

2007

2006

$ Change

% ChangeInterest

$
178.2

$
182.6

$
(4.4
)
(2.4
)%


Interest
expense of $178.2 million for the 2007 period declined by $4.4 million compared to the 2006 period. Lower interest costs of $5.9 million due to lower debt
levels and interest rates in the 2007 period were offset by higher amortization of deferred financing fees in the amount of $1.5 million.

39

---



These
additional deferred financing fees were incurred in the fourth quarter of 2006 and related to the conversion of our senior subordinated term loans into senior subordinated notes due 2015.
Information about our indebtedness is provided in greater detail in the "Liquidity and Capital Resources" section below.

Income Tax Rates
For the year ended December 31

2007

2006Combined effective rate

19.7
%
35.7
%


Our
effective income tax rate is primarily the weighted average of federal, state and provincial rates in various countries in which we have operations, including the United States,
Canada, France, the United Kingdom and Ireland.

Our
income tax rate is also affected by estimates of realizability of tax assets, changes in tax laws and the timing of the expected reversal of temporary differences. We have
established a valuation allowance on a portion of tax losses and other carryforward attributes in the United States and other jurisdictions until the realization of these tax assets becomes more
likely than not during the carryforward period. Income tax expense in the current year was impacted by accrued but unrealized foreign exchange gains,
impairment of intangible assets and the enacted rate reductions in Canada which required a reduction in the expected rate of reversal of temporary differences.

Net Income (Loss)
For the year ended December 31

2007

2006

$ Change

% ChangeNet income (loss)

$
(302.9
)
$
(34.3
)
$
(268.6
)
783.1
%


Our
net loss of $302.9 million in 2007 increased by $268.6 million from the prior year period. This increase reflects the factors discussed above, including the
significantly weaker North American market, goodwill and intangible impairments, additional restructuring activities, offset by aggressive global cost controls, lower SG&A, and higher income tax
recovery.

Segment Information
For the year ended December 31

2007

Percentage of
Sales

2006

Percentage of
SalesOperating EBITDANorth America

$
183.4

12.0
%
$
208.9

11.0
%Operating EBITDAEurope and Other

$
89.0

13.7
%
$
93.5

16.5
%


The
performance measurement of each of our geographic segments is based on Operating EBITDA which is defined as Net income plus interest expense, income taxes, depreciation, amortization
and other expense. In the fourth quarter of 2007, our management made a determination to change our principal segment performance measure to Operating EBITDA from Adjusted EBITDA. Adjusted EBITDA is
based upon definitions contained in our senior secured credit facility as more fully described in the "Liquidity and Capital Resources" section below. Our management determined that Operating EBITDA
is more closely aligned with cash flow from operations than Adjusted EBITDA and is a better measure of the performance of the segments and their overall contribution to our debt and interest payment
obligations.

40

---



Set
forth below is a reconciliation of Operating EBITDA, by segment, to net income (loss):

|                                                   |  | North America
2007 |        | North America
2006 |   | Europe and
Other
2007 |   | Europe and
Other
2006 |     
|-------------------------------------------------- |  | ------------------ | ------ | ------------------ | - | --------------------- | - | --------------------- | ----
|Net (loss) income                                  |  | $                  | (347.0 | )                  | $ | (75.2                 | ) | $                     | 44.1
|Non-controlling interest                           |  |                    | 6.4    |                    |   | 5.0                   |   |                       | 1.7 
|Income taxes                                       |  |                    | (73.3  | )                  |   | (28.0                 | ) |                       | 1.1 
|Other expense                                      |  |                    | 23.5   |                    |   | 36.0                  |   |                       | 6.4 
|Impairment of goodwill and intangibles             |  |                    | 303.8  |                    |   |                      |   |                       |    
|Interest                                           |  |                    | 175.6  |                    |   | 179.1                 |   |                       | 2.6 
|Depreciation and amortization of intangible
assets |  |                    | 94.4   |                    |   | 92.0                  |   |                       | 33.1
|                                                   |  |                    |        |                    |   |                       |   |                       |     
|Operating EBITDA                                   |  | $                  | 183.4  |                    | $ | 208.9                 |   | $                     | 89.0
|                                                   |  |                    |        |                    |   |                       |   |                       |     
|Percentage of Sales                                |  |                    | 12.0   | %                  |   | 11.0                  | % |                       | 13.7
|                                                   |  |                    |        |                    |   |                       |   |                       |     

Operating
EBITDA margins by segment are impacted by a variety of external and internal factors including the level and profitability of our sales to external customers and intersegment
movements of goods within our global supply chain. North American Operating EBITDA in the 2007 period, as a percentage of sales, benefited from facility rationalizations, reductions in staffing levels
and favorable year over year pricing comparisons as previously discussed. However, Operating EBITDA was negatively impacted by persistent volume weakness, the lost business from The Home Depot and
employee transition charges such as non-restructuring related severance and recruiting and relocation. Europe and Other Operating EBITDA in the 2007 period, as a percentage of sales, were
impacted by some isolated operational issues in two subsidiaries in Eastern Europe in the fourth quarter, by changes in geographic mix of sales and by foreign currency.

Results of Operations for the Year Ended December 31, 2006 compared to the Period from February 2, 2005 to December 31, 2005 and
the Period from January 1, 2005 to April 6, 2005

|                                                               |  | 2006 |         | Successor
2005 |   | Predecessor
2005 |  
|-------------------------------------------------------------- |  | ---- | ------- | -------------- | - | ---------------- | -
|
|Sales                                                          |  | $    | 2,464.5 |                | $ | 1,828.4          |  
|Cost of sales                                                  |  |      | 1,950.2 |                |   | 1,497.9          |  
|                                                               |  |      |         |                |   |                  |  
|Gross margin                                                   |  |      | 514.2   |                |   | 330.4            |  
|Selling, general and administration expenses                   |  |      | 211.8   |                |   | 161.3            |  
|Depreciation                                                   |  |      | 89.0    |                |   | 60.3             |  
|Amortization of intangible assets                              |  |      | 35.6    |                |   | 29.9             |  
|Interest                                                       |  |      | 182.6   |                |   | 137.1            |  
|Other expense, net                                             |  |      | 39.0    |                |   | 22.6             |  
|                                                               |  |      |         |                |   |                  |  
|(Loss) income before income taxes and non-controlling interest |  |      | (43.8   | )              |   | (80.8            | )
|Income taxes                                                   |  |      | (15.7   | )              |   | (16.3            | )
|Non-controlling interest                                       |  |      | 6.2     |                |   | 5.3              |  
|                                                               |  |      |         |                |   |                  |  
|Net loss                                                       |  | $    | (34.3   | )              | $ | (69.8            | )
|                                                               |  |      |         |                |   |                  |  

41

---



Consolidated Sales

|      |  | 2006 |         | Successor
2005 |   | Predecessor
2005
|----- |  | ---- | ------- | -------------- | - | ----------------
|
|Sales |  | $    | 2,464.5 |                | $ | 1,828.4         

Consolidated
sales for 2006 were $2,464 million. Sales in 2006 were positively impacted by businesses acquired in 2005 after the Transaction which contributed $21 million
of additional sales. Several new interior and exterior products also positively affected sales in 2006. An additional factor impacting 2006 consolidated sales is foreign exchange. If currencies were
held constant from 2005, 2006 sales would have been reduced by $18 million.

Sales
in the 2005 Successor period were $1,828 million and include the results of the business of the Predecessor acquired on April 6, 2005. Sales in the 2005 Predecessor
period were $600.1 million. Sales in both periods were positively impacted by the continued growth in sales of several new interior and exterior products as well as acquisitions completed in
2004.

Sales and Percentage of Sales by Principal Geographic Region

|                        |  | 2006 |         | Successor
2005 |   | Predecessor
2005 |   
|----------------------- |  | ---- | ------- | -------------- | - | ---------------- | --
|
|North America           |  |      |         |                |   |                  |   
|Net sales               |  | $    | 1,899.4 |                | $ | 1,445.3          |   
|Percentage of net sales |  |      | 77      | %              |   | 79               | % 
|Europe and Other        |  |      |         |                |   |                  |   
|Net sales               |  | $    | 644.2   |                | $ | 458.0            |   
|Percentage of net sales |  |      | 26      | %              |   | 25               | % 
|Intersegment            |  |      |         |                |   |                  |   
|Net sales               |  | $    | (79.2   | )              | $ | (74.9            | ) 
|Percentage of net sales |  |      | (3      | )%             |   | (4               | )%

Sales
in our principal segment, North America, were $1,899 million in 2006. Sales in the North American segment contributed 77% of consolidated sales and were impacted by
softening market conditions in North America. Sales in the North American segment were $1,445.3 million and $473.4 million for the 2005 Successor and 2005 Predecessor periods,
respectively.

Sales
outside of North America, net of intersegment sales, were $565.0 million in 2006. European sales were impacted by acquisitions completed in 2005 and appreciation of European
currencies. Sales in the Europe and Other segment were $458.0 million and $144.0 million for the 2005 Successor and 2005 Predecessor periods, respectively. Both periods were impacted by
our expanded presence as a door manufacturer in several Eastern European countries.

Intersegment
sales consist primarily of sales of door components from our Europe and Other segment to the North American segment and these sales were impacted by softening market
conditions in North America in 2006. In addition, the fire in our Laurel, Mississippi manufacturing facility and the 2005 hurricanes caused certain of our international manufacturing facilities to
ship more components to North America to ensure continuity of supply for production throughout 2005.

42

---



Sales and Percentage of Sales by Product Line

|                        |  | 2006 |         | Successor
2005 |   | Predecessor
2005 |  
|----------------------- |  | ---- | ------- | -------------- | - | ---------------- | -
|
|Interior products       |  |      |         |                |   |                  |  
|Net sales               |  | $    | 1,625.0 |                | $ | 1,149.6          |  
|Percentage of net sales |  |      | 66      | %              |   | 63               | %
|Exterior products       |  |      |         |                |   |                  |  
|Net sales               |  | $    | 839.4   |                | $ | 678.8            |  
|Percentage of net sales |  |      | 34      | %              |   | 37               | %

The
proportion of revenues from interior and exterior products was approximately 66% and 34%, respectively, for 2006. For the 2005 Successor period, the proportion was 63% and 37%,
respectively while the 2005 Predecessor period was 68% and 32%, respectively. Our sales of interior doors in 2006 were affected by our relative strength in the interior door market price increases as
well as the acquisitions of interior door manufacturing facilities in 2005.

Cost of Sales

|              |  | 2006 |         | Percentage of
Sales |      | Successor
2005 |   | Percentage of
Sales |  | Predecessor
2005 |   | Percentage of
Sales |      
|------------- |  | ---- | ------- | ------------------- | ---- | -------------- | - | ------------------- |  | ---------------- | - | ------------------- | -----
|
|Cost of sales |  | $    | 1,950.2 |                     | 79.1 | %              | $ | 1,497.9             |  | 81.9             | % | $                   | 486.7

Cost
of sales, expressed as a percentage of sales, was 79.1% for 2006, 81.9% for the 2005 Successor period and 81.1% for the 2005 Predecessor period. In 2006, we completed a
comprehensive review of future market conditions for certain inventories that resulted in an $11.5 million charge to cost of sales. This was partially offset by insurance proceeds of
$0.7 million related to hurricane damage incurred in 2005. Our supply chain initiatives, facility rationalization and rigorous cost management helped affect the cost of sales percentage in
2006.

Margins
in the 2005 Successor period were impacted in part by the amortization of fair value adjustments that increase the value of inventory acquired as part of business combinations.
This adjustment increased cost of sales by approximately $22 million.

In
December 2005, we wrote-off approximately $2 million in inventory to cost of sales, as a result of a fire set by arsonists at a leased warehouse facility near a
manufacturing plant in the United Kingdom. We also took a charge against cost of sales in December of 2005 of approximately $7 million relating to inventory in the United States. We had
evaluated the future market conditions for this inventory and determined that it was appropriate to record the charge based on the age of the inventory, and expected future demand.

Also
negatively impacting cost of sales in the 2005 Successor period were the hurricanes that occurred in the southeastern United States. The estimated impact of these hurricanes was
approximately $8 million representing direct costs, property losses and lost profit margin on sales.

The
2005 Successor period was also negatively impacted by a significant rationalization and standardization initiative in the production of residential entry doors. One exterior door
manufacturing facility was closed during the period and several of the other locations were re-aligned to a common product specification. The costs associated with the rationalization and
standardization of approximately $2 million are included in cost of sales.

During
the 2005 Predecessor period, prior to the Transaction, we experienced an equipment electrical fire at our facility located in Laurel, Mississippi. The cost to repair the plant's
equipment was

43

---



immaterial,
but two of the three production lines were inoperative for approximately three weeks. The lost production impacted our consolidated margins during the period.

Selling, General and Administration Expenses

|                                             |  | 2006 |       | Percentage of
Sales |     | Successor
2005 |   | Percentage of
Sales |  | Predecessor
2005 |   | Percentage of
Sales |     
|-------------------------------------------- |  | ---- | ----- | ------------------- | --- | -------------- | - | ------------------- |  | ---------------- | - | ------------------- | ----
|
|Selling, general and administration expenses |  | $    | 211.8 |                     | 8.6 | %              | $ | 161.3               |  | 8.8              | % | $                   | 54.4

SG&A
costs were 8.6% of sales in 2006 and were affected by our discontinued use of our corporate airplanes, and the reduction in staffing levels.

For
the 2005 Successor period, total SG&A costs were $161.3 million or 8.8% of sales while for the 2005 Predecessor period, total SG&A costs were 9.1% of sales. These costs
reflect the fixed costs incurred during a period of generally lower seasonal sales during the 2005 Predecessor period.

Depreciation

|             |  | 2006 |      | Successor
2005 |   | Predecessor
2005
|------------ |  | ---- | ---- | -------------- | - | ----------------
|
|Depreciation |  | $    | 89.0 |                | $ | 60.3            

Depreciation
expense was $89 million in 2006, $60 million in the 2005 Successor period and $18 million in the 2005 Predecessor period. In conjunction with the
Transaction, we applied purchase accounting and recorded the fair value of assets acquired and liabilities assumed as of April 6, 2005 thereby increasing the historical carrying amounts of
property, plant and equipment by $23 million. Also impacting the level of depreciation in 2006 were business acquisitions in 2005, as well as 2005 Successor and Predecessor capital expenditures
of $70 million and $12 million, respectively.

Amortization of Intangible Assets

|                                  |  | 2006 |      | Successor
2005 |   | Predecessor
2005
|--------------------------------- |  | ---- | ---- | -------------- | - | ----------------
|
|Amortization of intangible assets |  | $    | 35.6 |                | $ | 29.9            

Amortization
of intangible assets was $36 million in 2006, $30 million in the 2005 Successor period and $1 million in the 2005 Predecessor period. In conjunction
with the Transaction, we applied purchase accounting and recorded the fair value of assets acquired and liabilities assumed as of April 6, 2005. The historical carrying amounts of intangible
assets with definite lives were increased by $518 million representing an increase of $264 million for customer lists, $165 million for trademarks and tradenames,
$85 million for patents and $4 million for order backlogs at the time of acquisition.

44

---



Other Expense

|                                                         |  | 2006 |      | Successor
2005 |   | Predecessor
2005 | 
|-------------------------------------------------------- |  | ---- | ---- | -------------- | - | ---------------- | 
|
|Transaction costs                                        |  | $    |     |                | $ | 6.8              | 
|Equity compensation settlement                           |  |      |     |                |   |                 | 
|Restructuring and severance expense                      |  |      | 14.4 |                |   | 7.5              | 
|Hedging transaction loss                                 |  |      |     |                |   | 5.3              | 
|Loss (gain) on disposal of property, plant and equipment |  |      | 6.8  |                |   | 2.4              | 
|Asset impairment                                         |  |      | 16.9 |                |   |                 | 
|Other                                                    |  |      | 0.9  |                |   | 0.6              | 
|                                                         |  |      |      |                |   |                  | 
|Other expense                                            |  | $    | 39.0 |                | $ | 22.6             | 
|                                                         |  |      |      |                |   |                  | 

Other
expense was $39.0 million in 2006, including asset impairments of $16.9 million to reduce the carrying value of certain assets to their net realizable value. In
addition, we incurred restructuring and severance costs of $14.4 million related to the closure of four manufacturing facilities in North America as well as reductions in staffing levels that
occurred primarily in September. A loss on disposal of idle property, plant and equipment also added $6.8 million to other expense in 2006.

Approximately
$6.8 million in transaction fees, including legal, accounting and other costs related to the Transaction which were not eligible to be capitalized are included in
other expense for the 2005 Successor period. In addition, we recognized approximately $7.5 million in severance costs related to the resignation of our former Chief Executive Officer and the
termination of other employees.

Included
in other expense for the 2005 Predecessor period are approximately $58 million in costs related to equity compensation settlements. These stock based compensation costs
were for the value of vested and unvested stock options accounted for using the settlement basis of accounting, as well as previously unvested Restricted Share Units and Deferred Share Units. As a
result of the affirmative shareholder vote authorizing the sale of the Predecessor in the Transaction, these stock based instruments were accelerated, vested and became payable in cash. The cash
settlement of these instruments was recorded with a charge to the Predecessor's audited statement of operations. Also included in other expense for the 2005 Predecessor period are $7.2 million
in transaction fees related to the Transaction and $2 million of costs associated with the completion of the shutdown of our Richmond, Indiana exterior steel door plant and our Seoul, South
Korea production facility.

Interest Expense

|         |  | 2006 |       | Successor
2005 |   | Predecessor
2005
|-------- |  | ---- | ----- | -------------- | - | ----------------
|
|Interest |  | $    | 182.6 |                | $ | 137.1           

Interest
expense was $182.6 million in 2006, $137.1 million in the 2005 Successor period, and $11.2 million in the 2005 Predecessor period. Information about our
indebtedness is discussed in greater detail in the "Liquidity and Capital Resources" section below.

We
incurred additional deferred financing fees of $18.3 million in the fourth quarter of 2006 related to the conversion of the senior subordinated term loan into senior
subordinated notes due 2015. These costs were capitalized and will be amortized over the life of the senior subordinated notes.

45

---



Approximately $17 million of deferred financing amortization is included in interest expense for the 2005 Successor period. The majority of the deferred financing costs incurred
are related to the senior secured credit facilities and the senior subordinated loan and are being amortized over the life of these facilities.

Income Tax Rates

|                        |  | 2006 |   | Successor
2005 |   | Predecessor
2005 |  
|----------------------- |  | ---- | - | -------------- | - | ---------------- | -
|Combined effective rate |  | 35.7 | % | 20.1           | % | 22.1             | %

Our
effective income tax rate is primarily the weighted average of federal, state and provincial rates in various countries in which we have operations, including the United States,
Canada, France, the United Kingdom and Ireland.

Our
income tax rate is also affected by estimates of realizability of tax assets, changes in tax laws and the timing of the expected reversal of temporary differences. We have
established a valuation allowance on a portion of tax losses and other carryforward attributes in Canada, the United States and other jurisdictions until the realization of these tax assets becomes
more likely than not during the carryforward period.

Net loss

|         |  | 2006 |       | Successor
2005 |   | Predecessor
2005 |  
|-------- |  | ---- | ----- | -------------- | - | ---------------- | -
|
|Net loss |  | $    | (34.3 | )              | $ | (69.8            | )

The
net loss of $34.3 million in 2006 reflects our cost management and supply chain initiatives as well as price increase implemented during 2006. Difficult market conditions in
North America during the fourth quarter, restructuring and severance charges, asset impairments and inventory losses also are reflected in the 2006 net loss. The 2005 Successor period net loss of
$69.8 million includes significant unexpected events such as hurricane damage and inventory losses. Significant equity compensation costs, financing charges and professional fees largely
impacted the 2005 Predecessor period net loss of $30.7 million.

Segment Information

|                                  |  | 2006 |       | Percentage of
Sales |      | Successor
2005 |   | Percentage of
Sales |  | Predecessor
2005 |   | Percentage of
Sales |     
|--------------------------------- |  | ---- | ----- | ------------------- | ---- | -------------- | - | ------------------- |  | ---------------- | - | ------------------- | ----
|
|Operating EBITDANorth America    |  | $    | 205.8 |                     | 10.8 | %              | $ | 108.0               |  | 7.5              | % | $                   | 33.8
|Operating EBITDAEurope and Other |  | $    | 94.2  |                     | 14.6 | %              | $ | 61.1                |  | 13.3             | % | $                   | 25.2

The performance measurement of each of our geographic segments is based on Operating EBITDA.

46

---



Set
forth below is a reconciliation of Operating EBITDA, by segment, from net income as reported in the consolidated statement of operations.

|                  |                               | North
America
2006 |       | Successor
North
America
2005 |   | Predecessor
North
America
2005 |       | Successor
Europe and
Other
2006 |       | Successor
Europe and
Other
2005 |   | Predecessor
Europe
and Other
2005 |     
|----------------- | ----------------------------- | ------------------ | ----- | ---------------------------- | - | ------------------------------ | ----- | ------------------------------- | ----- | ------------------------------- | - | --------------------------------- | ----
|
|Net (loss) income |                               | $                  | (77.1 | )                            | $ | (93.0                          | )     | $                               | (49.4 | )                               | $ | 42.8                              |     
|                  | Interest                      |                    |       | 179.1                        |   |                                | 134.7 |                                 |       | 10.6                            |   |                                   | 3.5 
|                  | Income taxes                  |                    |       | (28.0                        | ) |                                | (31.0 | )                               |       | (6.7                            | ) |                                   | 12.3
|                  | Depreciation and amortization |                    |       | 92.4                         |   |                                | 66.2  |                                 |       | 13.0                            |   |                                   | 32.2
|                  | Other expense                 |                    |       | 34.4                         |   |                                | 28.9  |                                 |       | 65.2                            |   |                                   | 4.6 
|                  | Non-controlling interest      |                    |       | 5.0                          |   |                                | 2.2   |                                 |       | 1.1                             |   |                                   | (1.2
|                  |                               |                    |       |                              |   |                                |       |                                 |       |                                 |   |                                   |     
|Operating EBITDA  |                               | $                  | 205.8 |                              | $ | 108.0                          |       | $                               | 33.8  |                                 | $ | 94.2                              |     
|                  |                               |                    |       |                              |   |                                |       |                                 |       |                                 |   |                                   |     
|                  |                               |                    | 10.8  | %                            |   | 7.5                            | %     |                                 | 7.1   | %                               |   | 14.6                              | %   

Our 2006 Operating EBITDA margin in the North American segment, as a percentage of sales, was impacted by pricing actions taken
mid-year, our supply chain initiatives, facilities closures, headcount reductions and overall cost management. Our Operating EBITDA in the 2005 Successor period, as a percentage of sales,
was impacted by purchase accounting adjustments related to the Transaction, hurricanes in the US southeast and inventory write downs. Our Operating EBITDA in North America in the 2005 Predecessor
period, as a percentage of sales, was impacted by an equipment electrical fire at our largest facility and costs associated with facility closures and realignments.

Our
Operating EBITDA, as a percentage of sales, in the Europe and Other segment in 2006 reflected weakness in certain markets at the start of the year and the impact of expansion in
Eastern Europe, where the benefits are not yet fully realized. The expansion also includes the construction of 2 new facilities in the Ukraine and Czech Republic in addition to the integration of
acquisitions. Our 2006 results were also negatively impacted due to a one month closure of our Israel facility during the Israel and Lebanon conflict in July 2006. Our Operating EBITDA, as a
percentage of sales, in the 2005 Successor period was negatively impacted by purchase accounting adjustments related to the Transaction and favorably in the 2005 Predecessor period by additional
volumes in our international facilities that were used to provide additional capacity following the equipment electrical fire in North America.

B.    LIQUIDITY AND CAPITAL RESOURCES

General

Cash flows from Operating Activities
For the year ended December 31

2007

2006

Successor
2005

Predecessor
2005Cash generated from operating activities

$
104.3

$
146.2

$
(28.2
)
$
126.8


In
2007, cash flows of $104.3 million were generated through operations compared to $146.2 million in the prior year period. Approximately $14.1 million was
generated through working capital compared to $42.1 million in the prior year period. Continuing measures in 2007 to reduce inventory positively contributed to working capital as inventory was
a source of cash of $61.3 million in 2007 compared to $48.6 million in the prior year. In addition, payables in 2006 were favorably impacted by efforts to rationalize vendor terms as
part of our supply chain efforts. During 2007 we have also disbursed approximately $22.5 million of cash related to restructuring charges for actions taken since 2005 compared to
$10.5 million in the prior year. Our accrual for restructuring has increased from

47

---



$11.7 million
at the end of 2006 to $17.7 million at the end of 2007 representing a source of cash on the cash flow statement in the amount of $6 million. Cash flow from working
capital related to income taxes was a source of $9.5 million in 2007 and a use of $16.6 million in 2006. In 2006, the settlement of income tax uncertainties in our favor resulted in a
cash inflow while in 2007, the resolution of tax uncertainties did not require a cash outflow and resulted in a reversal of taxes previously accrued.

Cash
flow from operations before changes in working capital in 2007 was $90.2 million compared to $104.1 million in the prior year period. The reduction in cash flow from
operations before changes in working capital is a result of the decline in sales and earnings year over year.

In
2006, $146.2 million of cash was generated through operations. Of the total, approximately $104 million of the operating cash flow came from operations and
$42 million was generated through changes in working capital. Funds generated from working capital were principally the result of our inventory reduction measures partially offset by a
contraction in accounts payable due to slowing business activity. Receivables did not significantly impact cash flow in the year as contraction in North America from slowing business conditions was
offset by higher receivables associated with more robust sales in our Europe and Other segment.

In
the 2005 Successor period, approximately $19 million of cash flow was generated from operations and working capital was a use of $48 million. Cash flow from operations
was impacted by the hurricanes and other business events during the later part of 2005 as discussed previously. The use of cash for working capital was principally to pay down Transaction related
liabilities, most significantly to settle the $57 million of stock compensation liabilities as part of the Transaction.

In
the 2005 Predecessor period, cash flow from operations was a use of $24 million while working capital generated $150 million. Both of these measures were significantly
impacted by costs charged to expense in connection with the Transaction in the 2005 Predecessor period which were paid in cash in the 2005 Successor period. We completed an amendment to our accounts
receivable sales facility in the 2005 Predecessor period, resulting in the sale of an additional $34 million of accounts receivable immediately prior to the Transaction.

Cash flows from Financing Activities
For the year ended December 31

2007

2006

Successor
2005

Predecessor
2005Cash used in financing activities

$
(65.6
)
$
(112.5
)
$
2,094.7

$
(145.0
)


Cash
used in financing activities in 2007 was $65.6 million, comprised of $22.0 million used for repayment of long-term debt and $43.7 million repayment
of short-term borrowings. In the prior year period, we reduced borrowings on our revolving credit facility and repaid additional long-term debt with cash flow from operations.

Cash
used in financing activities in 2006 was $112.5 million. The principal components of this were net repayment of debt of $90 million, payment of the conversion fee on
the senior subordinated bridge loan (and associated fees) of $18.3 million and payments related to 2005 acquisitions of $3.9 million.

Cash
provided by financing activities in the 2005 Successor period was related to the issuance of common shares of $567 million and debt of $1,945 million to fund the
Transaction, and the incurrence of an additional $110 million of debt following the Transaction to complete acquisitions and fund capital expenditure and working capital. We also repaid
$449 million of debt including debt that was assumed as part of the Transaction and paid $78 million in financing fees associated with the funding of the senior secured credit facility
and the senior subordinated bridge loan.

48

---



In the 2005 Predecessor period, financing activities consumed $145 million of cash which was principally used to repay long term debt immediately prior to the Transaction.

Cash flows from Investing Activities
For the year ended December 31

2007

2006

Successor
2005

Predecessor
2005Cash used in investing activities

$
(49.4
)
$
(39.5
)
$
(2,019.9
)
$
(13.6
)


Cash
used in investing activities in 2007 was $49.4 million, comprised of $42.8 million of capital expenditures and $8.5 million for payments due on prior
acquisitions including the purchase of the remaining 20% of a facility in Eastern Europe. We also distributed $3.8 million to non-controlling interests in 2007.

Cash
flows used for investing activities in 2006 was $39.5 million. Proceeds on disposal of surplus real estate and fixed assets of $21 million helped to fund capital
expenditures of $50 million for the year. Capital expenditures in 2006 were lower due to stricter project reviews. We also made distributions to shareholders of its less than wholly owned
subsidiaries in the amount of $4 million. Other investing activities consist principally of advances made to our parent company to fund the net redemption of shares held by members of
management who have departed the Company.

In
the 2005 Successor period, $1,932 million was spent on acquisitions, including $1,869 million paid for the acquisition of the Predecessor. The balance of the
acquisitions were for businesses in Central and Eastern Europe and for the purchase of the remaining interest of a number of less than wholly owned subsidiaries. Immediately prior to the purchase of
one of these subsidiaries, a distribution to the minority shareholder was made in the amount of $18 million. Distributions to other minority interest shareholders in the period were
$4 million. Capital expenditures were $70 million in the Successor period as we invested in new manufacturing capabilities. This was offset by proceeds of $9 million on the sale
of surplus real estate and fixed assets. Other investing activities of $5 million consists principally of advances made to the parent company to fund the redemption of management shareholders.

In
the 2005 Predecessor period, the uses of cash for investing activities was principally $12 million for capital expenditures.

Our
ability to make scheduled payments of principal, or to pay interest or additional amounts if any, or to refinance indebtedness, or to fund planned capital expenditures or payments
required pursuant to our shareholder agreements relating to our less than wholly owned subsidiaries, will depend on future performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are beyond our control.

In
March and April 2008, we borrowed the remaining $336 million available from our $350 million senior secured revolving credit facility. Although we have no immediate
needs for the additional liquidity, in light of current financial market conditions, we drew on the facility to provide ourselves with greater financial flexibility.

Given
current economic conditions there is a possibility that we may not remain in full compliance with certain covenants contained in our senior secured credit facilities through 2008.
In the event of this occurrence, we intend to take such actions available to us in respect thereof as we determine to be appropriate at such time, but there can be no assurance that any such actions
will be successful.

We
expect our current cash balance plus cash flows from operations to be sufficient to fund near-term working capital and other investment needs through 2008. There can be no
assurance, however, that we will generate cash flow from operations in an amount sufficient to enable us to meet

49

---



our
liquidity needs. In addition, to the extent that we fail to remain in full compliance with certain covenants contained in our senior secured credit facilities, we would be in default under these
facilities. If any such default occurs, the lenders under the senior secured credit facilities may elect to declare all outstanding borrowings, together with accrued interest and other fees, to be
immediately due and payable. To the extent that the lenders under the senior secured credit facilities agree to an amendment of these covenants, such amendment may result in interest being payable on
these facilities at higher interest rates.

We
operate in multiple foreign jurisdictions, including the United States, United Kingdom, France, Ireland, and certain countries in South America, Eastern Europe and Asia. In general,
there are no legal restrictions on the ability of our subsidiaries to transfer funds to Masonite International Inc. in the form of cash dividends, loans, or advances. The transfer of funds
through dividends and intercompany loans may be subject to withholding tax. The transfer of funds through dividends may be exempt from income tax if the subsidiary has cumulative active business
earnings.

Our Indebtedness

Net Debt

(Principal amount)

As at December 31, 2007

As at December 31, 2006Revolving credit facility outstanding

$


$
43.0Other bank loans outstanding


17.0


17.4Senior secured credit facility term loan outstanding


1,145.6


1,154.4Senior subordinated notes outstanding


769.9


747.2Senior subordinated term loan outstanding





22.6Other subsidiary long-term debt outstanding


19.0


31.6Less: Cash on hand(1)


41.2


47.4Net debt outstanding

$
1,910.3

$
1,968.8Notes payable and financial instruments


4.7


4.2Net debt outstanding as defined in our senior secured credit facilities

$
1,915.0

$
1,973.0




As
at December 31, 2007, net debt as defined in our senior secured credit facilities was $1,915.0 million, $58.0 million lower than at December 31, 2006 due
primarily to the repayment of indebtedness from cash flow generated by operating activities. At December 31, 2007, our $350 million revolver was undrawn. The balance outstanding on our
senior secured credit facility was reduced by the normal quarterly amortization of 0.25% of the original principal amount of $1,175 million. Subsidiary debt was reduced by $9.3 million
through cash flow from operations. Cash on hand decreased by $5.6 million through better management of the cash float, largely as a result of cash held at foreign subsidiaries. As noted above,
subsequent to December 31, 2007, we borrowed the remaining $336 million available from our $350 million senior secured revolving credit facility.

50

---



Debt Facilities

|(Principal amount)                                   |  | As at December 31, 2007 |         | As at December 31, 2006
|---------------------------------------------------- |  | ----------------------- | ------- | -----------------------
|Revolving credit facility capacity                   |  | $                       | 350.0   |                        
|Revolving credit facility outstanding                |  |                         |        |                        
|Subsidiaries' bank loan capacity                     |  |                         | 32.7    |                        
|Subsidiaries' bank loan and overdrafts outstanding   |  |                         | 17.6    |                        
|Other subsidiary long-term debt outstanding          |  |                         | 22.3    |                        
|Senior secured credit facility term loan outstanding |  |                         | 1,145.6 |                        
|Senior subordinated notes outstanding                |  |                         | 769.9   |                        
|Senior subordinated term loan outstanding            |  |                         |        |                        

The
aggregate amount of long-term debt repayments required during the next five years ending December 31, 2012 is approximately $78 million,
down from $90 million at December 31, 2006. Future principal debt payments are expected to be paid out of cash flows from operations, borrowings on our revolving credit facility and
future refinancing of our debt.

To
mitigate interest risk, in April 2005, we entered into a five year interest rate swap agreement converting a notional $1.15 billion of floating-rate debt into fixed
rate debt that currently bears interest at 4.22% plus an applicable credit spread of 2.00%. On April 26, 2007, $150 million of the interest rate swaps amortized, leaving
$900 million at a fixed rate as of December 31, 2007. After giving effect to the interest rate swap at December 31, 2007 approximately 86% of outstanding interest-bearing debt
carries a fixed interest rate and the remainder carries a floating rate. The three month LIBOR rate at December 31, 2007 was 4.71%.

Senior Secured Credit Facilities

On April 6, 2005, we entered into senior secured credit facilities which included an eight year $1.175 billion term loan due April 6, 2013
with an original interest rate of LIBOR plus 2.00% that amortizes at 1% per year. The proceeds from the senior secured credit facilities were used to fund the Transaction.

We
also entered into a $350 million revolving credit facility which is available for general corporate purposes. The revolving credit facility interest rate is subject to a
pricing grid ranging from LIBOR plus 1.75% to LIBOR plus 2.50%. As of December 31, 2007, the revolving credit facility carried an interest rate of LIBOR plus 2.50%. In addition to the senior
secured credit facilities noted above, we have funded operations through cash generated from operations.

The
senior secured credit facilities provide for the payment to the lenders of a commitment fee on the average daily undrawn commitments under the revolving credit facility at a range
from 0.375% to 0.50% per annum, a fronting fee on letters of credit of 0.125%, and a letter of credit fee ranging from 1.75% to 2.50% (less the 0.125% fronting fee).

Our
senior secured credit facilities require us to meet a minimum interest coverage ratio of 1.65 times Adjusted EBITDA and a maximum leverage ratio of 7.0 times Adjusted EBITDA
as of December 31, 2007, as defined in the credit agreements (see discussion on non-GAAP measures below). These ratios will be adjusted over the passage of time, ultimately reaching
a minimum interest coverage ratio of 2.2 times Adjusted EBITDA, and a maximum leverage ratio of 4.75 times Adjusted EBITDA. In addition, the senior secured credit facilities contain
certain restrictive covenants which, among other things, limit the incurrence of additional indebtedness, investments, dividends, transactions with affiliates, asset sales, acquisitions, mergers and
consolidations, prepayments of other indebtedness, liens and encumbrances and other matters customarily restricted in such agreements. They also contain certain customary events of default, subject to
grace periods, as appropriate.

51

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We
are permitted to incur up to an additional $300 million of senior secured term debt under the senior secured credit facilities so long as no default or event of default under
the new senior secured credit facilities has occurred or would occur after giving effect to such incurrence, and certain other conditions are satisfied.

The
net debt to Adjusted EBITDA calculation measures the debt we have on our balance sheet against our Adjusted EBITDA over the last twelve months. This ratio increased from 5.96:1.0 at
December 31, 2006 to 6.00:1.0 at December 31, 2007.

Our
cash interest coverage ratio measures our Adjusted EBITDA as a multiple of our cash interest expense over the last twelve months. This ratio was unchanged from the prior year at
1.91:1.0.

Senior Subordinated Notes due 2015

The indentures relating to our senior subordinated notes due 2015 limit our ability to:



Subject
to certain exceptions, the indentures relating to our senior subordinated notes due 2015 permit us and our restricted subsidiaries to incur additional indebtedness, including
secured indebtedness.

Senior Subordinated Loan

On April 6, 2005, we entered into a senior subordinated loan agreement for a $770 million senior subordinated loan, the proceeds of which were also
used to fund the Transaction. The senior subordinated loan initially carried an interest rate of LIBOR plus 6.00% and increased over time to a maximum interest rate of 11% per annum, which was reached
in the second quarter of 2006. On October 6, 2006, the senior subordinated loan was repaid in full by the automatic issuance of a new debt obligation comprising a Senior Subordinated Term Loan.
On and after October 6, 2006 the majority of the lenders elected to convert their holdings of the Senior Subordinated Term Loan to Senior Subordinated Notes due 2015, which bear interest 11%,
and are subject to registration rights.

Non-GAAP Measures

Under our senior secured credit facilities and the indentures governing our senior subordinated notes, compliance with certain covenants is tied to ratios based
on Adjusted EBITDA.

Adjusted
EBITDA is defined as net income (loss) plus interest, income taxes, depreciation and amortization, other expense (income), net, (gain) loss on refinancing, net and
non-controlling interest further adjusted to give effect to adjustments required in calculating covenant ratios and compliance under the indentures governing our notes and our senior
secured credit facilities. Adjusted EBITDA is not a presentation made in accordance with GAAP, is not a measure of financial condition or profitability, and should not be considered as an alternative
to (1) net income (loss) determined in

52

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accordance
with GAAP or (2) operating cash flows determined in accordance with GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management's
discretionary use, as it does not include certain cash requirements such as interest payments, tax payments and debt service requirements. We believe that the inclusion of Adjusted EBITDA herein is
appropriate to provide additional information about the calculation of certain financial covenants in the indentures governing the notes and our senior secured credit facilities. Adjusted EBITDA is a
material component of these covenants. For instance, both the indentures governing our notes and our senior secured credit facilities contain financial ratios that are calculated by reference to
Adjusted EBITDA. Non-compliance with the financial ratio maintenance covenants contained in our senior secured credit facilities could result in the requirement to immediately repay all
amounts outstanding under such facilities, while non-compliance with the debt incurrence ratio contained in the indentures governing our notes would prohibit us from being able to incur
additional indebtedness other than pursuant to specified exceptions. Because not all companies use identical calculations, this presentation of Adjusted EBITDA may not be comparable to other similarly
titled measures of other companies. We believe that the disclosure of the calculation of Adjusted EBITDA provides information that is useful to an investor's understanding of our liquidity and
financial flexibility.

The
following is a reconciliation of net loss, which is a GAAP measure of our operating results, to Adjusted EBITDA as defined in our indentures and credit agreement (which we refer to
as our "debt agreements"), and the calculation of the fixed charge coverage ratio, net debt and net debt to Adjusted EBITDA ratio under our debt agreements. The terms and related calculations are
defined in our debt agreements, copies of which are publicly available.

Twelve months ended2007

2006Net (loss) income

$
(302.9
)
$
(34.3
)Interest


178.2


182.6Income taxes


(72.2
)

(15.7
)Depreciation and amortization


127.4


124.6Other expense


29.9


39.0Impairment of goodwill and intangibles


303.8


Non-controlling interest


8.1


6.2Inventory write-down(a)


7.0


11.5Receivable transaction charges(b)


5.3


7.9Facility closures / realignments(c)


2.4


1.9Stock based compensation(d)


1.8


2.0Franchise and capital tax(e)


4.2


2.2Foreign exchange (gains)


(2.6
)

(1.1
)Employee future benefits(f)


1.1


0.6Severance(g)


3.0


Relocation / recruiting(h)


5.6


Lean Sigma, Supply Chain & HR consulting(i)


7.2


(Earnings) loss of unrestricted subsidiaries


3.7


Other(j)


8.3


5.0Adjusted EBITDA

$
319.4

$
332.6




53

---





Net Debt

$
1,915.0Last Twelve Months Adjusted EBITDA

$
319.4Ratio of Net Debt to Adjusted EBITDA


6.00


|
|

Last Twelve Months Adjusted EBITDA

$
319.4Total Interest Expense

$
167.5Ratio of Adjusted EBITDA to Interest Expense


1.91


Adjusted
EBITDA for all periods including the first nine months of 2007 reflect $12.4 million of additional adjustments eligible under our senior secured credit
facilities and our indentures that had not been previously reported. Of this amount, $4.5 million was allocable to the first quarter of 2007, $7.2 million was allocable to the second
quarter of 2007 and $0.7 million was allocable to the third quarter of 2007.

Environmental Matters

Our operations in the United States are subject to regulations enacted by the US Environmental Protection Agency (EPA) related to Maximum Achievable Control
Technology ("MACT"). MACT regulations govern the manner in which we measure and control the emissions from our manufacturing facilities into the air. As a result of a June 2007 decision by the US
Court of Appeals, the EPA has eliminated certain compliance options which were based on low health risk determinations in relation to compliance with MACT regulations for wood products. We anticipate
the cost of complying with the amended rules would require us to spend between $20 million and $30 million in addition to the $8.7 million already spent.

B.    RESEARCH AND DEVEOPMENT, PATENTS AND LICENSES, ETC.

Research and development activities are concentrated in our 141,000 sq. ft. research center in West Chicago, Illinois. During 2007, the center
employed approximately 50 people engaged in various forms of research and product development.

We
believe we are a leader in technological innovation and development in doors, door components and door entry systems and the manufacturing processes involved in making such products.
We believe that research and development is a major competitive advantage for us, and we intend to capitalize on our leadership in this area through the development of more new and innovative
products. Our research and development capability enables us to develop and implement product and process improvements relating to the manufacturing of our products that enhance manufacturing
efficiency and reduce costs.

As
an integrated manufacturer, we believe that we are well positioned to take advantage of the growing global demand for a variety of molded door facing designs. This capability is
particularly

54

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important
outside North America where newer molded door designs are rapidly replacing traditional wood doors. We have an internal capability to create new molded door facing designs and manufacture
our own molds for use in our own facilities. This provides us with the ability to develop proprietary designs that enjoy a strong identity in the marketplace; more flexibility in meeting customer
demand; quicker reaction time in the production of new designs or design changes; and greater responsiveness to customer needs.

C.    TREND INFORMATION

Net sales declined 12% in 2007 to $2,174.4 million from $2,464.5 million in the prior year. The impact of favorable foreign currency movements
increased current year net sales by approximately $59 million or 2.3%, due principally to the strengthening of the euro and the Canadian dollar in 2007. The annualized impact of lost business
from a significant customer is estimated to be $250 to $300 million per year. As the transition took place in the middle of 2007, the impact on 2007 results is estimated to be approximately
$135 million.

The
US census bureau housing statistics show January 2008 housing starts at an adjusted annual rate of just over one million starts, 28% below the January 2007 rate of 1.4 million
starts. The year 2007 ended at an estimated 1.35 million starts representing a 25% drop from 2006 and a 35% drop from the recent peak in 2005. The December National Association of Home Builders
forecast predicted nearly 1.1 million starts in 2008, however, we now believe starts could average as low as 900,000 through the remainder of 2008. The supply of new home inventory is also very
high relative to historical trends which may potentially have a dampening effect on new home construction in 2008.

Repair
and renovation expenditures in North America are also declining as increasing uncertainty about economic conditions in North America as well as falling home prices and fewer home
sales are dampening interest in home improvements. In recent years, the growth in repair and remodeling expenditure was driven by increasing home ownership rates and rising average age of housing
stock. The risk exists that trend may reverse in the near term.

Since
2005, we have closed or announced plans to close 16 manufacturing sites in both North America and Europe. These actions are designed to ensure the appropriate level of
manufacturing capacity to support anticipated customer demand around the world. In many of these cases, we have redeployed these assets into other manufacturing sites in anticipation of the eventual
market recovery. We do not believe that these actions have reduced our long term capacity or capability.

In
2007 we reduced inventory by approximately $61 million through a combination of site closures and consolidations, improvements in our supply chain processes, rationalization of
product lines and lean sigma efforts.

Throughout
2007, 3 month LIBOR (the interest rate that much of our variable rate debt is based on) averaged in excess of 5%. In early 2008, 3 month LIBOR has declined to
less than 3%. A large portion of our LIBOR based floating rate debt, ($900 million through the end of April, and $600 million thereafter) is hedged through an interest rate swap that
converts floating rate LIBOR into fixed rate interest at 4.22%.

As
a result of a June 2007 decision by the US Court of Appeals, the EPA has eliminated certain compliance options which were based on low health risk determinations in relation to
compliance with MACT regulations for wood products. We anticipate the cost of complying with the amended rules would require us to spend between $20 million and $30 million in addition
to the $8.7 million already spent.

Given
current economic conditions there is a possibility that the Company may not remain in full compliance with its debt covenants through 2008. In the event of this occurrence, the
Company intends

55

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to
take such actions available to it in respect thereof as it determines to be appropriate at such time, but there can be no assurance that any such actions will be successful.

D.    OFF-BALANCE SHEET ARRANGEMENTS

Our off-balance sheet arrangements include a "Facilities Agreement" to sell up to $135 million of non-interest bearing trade
accounts receivable, and an "Acquired Facilities Agreement" whereby we can sell receivables of specific customers.

We
do not have any material off-balance sheet arrangements other than those described above, which are more fully discussed in note 3 to our audited consolidated
financial statements contained elsewhere in this annual report.

E.    TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

Contractual Obligations

|                                          |  | Total |         | Less Than 1 Year |   | 1-3 Years |  | 4-5 Years |       | After 5 Years
|----------------------------------------- |  | ----- | ------- | ---------------- | - | --------- |  | --------- | ----- | -------------
|
|Bank indebtedness(1)                      |  | $     | 17.6    |                  | $ | 17.6      |  | $         |      |              
|Long-term debt                            |  |       | 1,934.4 |                  |   | 20.8      |  |           | 33.5  |              
|Interest payments(2)                      |  |       | 1,027.1 |                  |   | 158.4     |  |           | 307.5 |              
|Operating leases                          |  |       | 96.9    |                  |   | 23.4      |  |           | 30.7  |              
|Commercial commitments(3)                 |  |       | 324.3   |                  |   | 112.9     |  |           | 138.7 |              
|Other liabilities(4)                      |  |       | 72.4    |                  |   | 31.2      |  |           | 21.2  |              
|Minority interest purchase obligations(5) |  |       | 28.2    |                  |   | 28.2      |  |           |      |              
|                                          |  |       |         |                  |   |           |  |           |       |              
|                                          |  | $     | 3,500.9 |                  | $ | 392.5     |  | $         | 531.6 |              
|                                          |  |       |         |                  |   |           |  |           |       |              

---

In
addition to the items listed above, approximately $26,838 of unrecognized tax benefits have been recorded as liabilities in accordance with Interpretation 48, and we
are uncertain as to if or when such amounts may be settled. Related to the unrecognized tax benefits not included in the table above, the Company has also recorded a liability for potential penalties
of $1,724 and interest of $9,926.

56

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ITEM 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

The
individuals serving as our senior managers and directors are as follows:

|Name                |  | Age |  | Positions                                                                
|------------------- |  | --- |  | -------------------------------------------------------------------------
|Frederick J. Lynch  |  | 43  |  | President and Chief Executive Officer                                    
|Anthony DiLucente   |  | 49  |  | Chief Financial Officer                                                  
|Lawrence P. Repar   |  | 46  |  | Executive Vice President and Chief Operating Officer                     
|Glen Coulter        |  | 51  |  | Executive Vice President Global Manufacturing Operations and Supply Chain
|Matthew M. Clark    |  | 55  |  | Senior Vice President Legal, General Counsel and Corporate Secretary     
|Paul E. Raether     |  | 61  |  | Director                                                                 
|Scott C. Nuttall    |  | 35  |  | Director                                                                 
|Tagar C. Olson      |  | 30  |  | Director                                                                 
|Robert V. Tubbesing |  | 61  |  | Director                                                                 

Mr. Lynch
has served as our President since August 2006 and as our Chief Executive Officer since June 2007. Prior to joining us, Mr. Lynch served in a variety of senior
positions at Alpharma, Inc. including as President, Generic Pharmaceuticals from June 2003 until December 2005. Prior to joining Alpharma, Mr. Lynch served in a variety of senior
positions over the course of 18 years at AlliedSignal and its successor, Honeywell International, including Vice President and General Manager of Specialty Chemicals, from 1999 to March 2003
and General Manager, High Purity Chemicals, from 1997 to 1999.

Mr. DiLucente
has served as our Chief Financial Officer since November 2007. Prior to joining us, Mr. DiLucente was Vice President-Finance for Johns Manville from December
2005 through October 2007. Prior to joining Johns Manville, Mr. DiLucente served in a variety of financial leadership and General Management positions with AlliedSignal and its successor,
Honeywell International for 11 years, most recently as Vice President and Chief Financial Officer of Honeywell Nylon, Inc. from 2003 to 2005, and General Manager of Specialty Films from
2001 to 2005. Before AlliedSignal, he spent 11 years with DuPont in a variety of financial roles.

Mr. Repar
was appointed as Executive Vice President and Group Chief Operating Officer of Masonite International upon the closing of the Transaction. He served in a similar
position for our predecessor companies since 2001, and he has held a variety of senior positions with us since 1994. Mr. Repar formerly worked as an equity financial analyst and director of
institutional sales and trading for Sanwa McCarthy Securities Limited in Toronto for 3 years prior to joining us in 1994.

Mr. Coulter
was appointed as Executive Vice President Operations of Masonite International as of January, 2008. He joined Masonite November 27, 2006 as Senior Vice
President Operations for the Door Group and as Senior Vice President of Continuous Improvement. Mr. Coulter has 25 years of extensive manufacturing experience in companies including Dow
Chemical, AlliedSignal and W. R. Grace.

Mr. Clark
was appointed Senior Vice President Legal, General Counsel and Corporate Secretary in June, 2007. He began his career as a litigation attorney with Paul Hastings,
Janofsky & Walker. Mr. Clark has over 27 years of in-house corporate legal experience, working for TRW, Hitachi, Raytheon and General Electric.

Mr. Raether
serves as a Director of Masonite Holdings Corporation, Masonite International and Masonite U.S. He has been a member of KKR & Co. L.L.C., a limited
liability company that is the general partner of Kohlberg Kravis Roberts & Co. L.P., since 1996. Prior to that, he was a general partner of Kohlberg Kravis
Roberts & Co. L.P.

57

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Mr. Nuttall
was appointed as a Director of Masonite Holding Corporation, Masonite International and Masonite U.S. upon the closing of the Transaction. He has been a member of
KKR & Co. since 2005, having been continuously employed by KKR since 1996. Mr. Nuttall is also a director of KKR Financial Corp., Legg Mason Inc., First Data Corp., and
Capmark Financial Group Inc.

Mr. Olson
was appointed as a Director of Masonite Holding Corporation, Masonite International and Masonite U.S. upon the closing of the Transaction. He has been an executive of
Kohlberg Kravis Roberts & Co. L.P. since 2002. From 1999 until 2002, Mr. Olson was an executive with Evercore Partners Inc., a private investment firm.
Mr. Olson is also a director of Visant Corp., First Data Corp., and Capmark Financial Group Inc.

Mr. Tubbesing
was appointed as a Director of Masonite Holding Corporation, Masonite International and Masonite Canada in April 2006. Mr. Tubbesing served as Vice President
and Chief Financial Officer of Masonite from 1989 until 2004 and as Executive Vice President from 2004 until his retirement in September 2006.

Mr. Freeman
previously served as our Chief Executive Officer from October 2005 to June 2007 and is a Director of Masonite U.S.. Mr. Freeman was named a member of Kohlberg
Kravis Roberts & Co. L.P. in 2007. Prior to joining Kohlberg Kravis Roberts & Co. L.P. as a managing director in May 2005, Mr. Freeman served as
Chairman and Chief Executive Officer of Quest Diagnostics Incorporated from its inception in January 1997 through May 2004. Mr. Freeman retired from his role as Chairman of the Board of
Directors of Quest Diagnostics Incorporated in December 2004. Between 1995 and 1997, Mr. Freeman served as Chief Executive Officer of Corning Clinical Laboratories, the predecessor company to
Quest Diagnostics Incorporated. Prior to 1995, Mr. Freeman served in a variety of financial and general management positions at Corning Incorporated, which he joined in 1972. Mr. Freeman
is also a director and Executive Chairman of Accellent Inc.

Mr. Arnold
previously served as our Executive Vice President, Finance from February 2006 to October 2007. Prior to joining us, Mr. Arnold served in a series of senior
management positions from March 2000 until September 2003 at Willis Group Holdings Ltd., including as Executive Vice President, Strategic Development and Group Chief Administrative Officer.
Mr. Arnold formerly worked for
20 years as an investment banker, primarily at Lehman Brothers Inc. and Smith Barney (a division of Citigroup Inc.), specializing in mergers and acquisitions and equity capital
markets.

F.     COMPENSATION

Executive Compensation

The aggregate salary and benefits paid to our senior managers for the year ended December 31, 2007 amounted to approximately $7,678,630. In addition,
former senior managers, whose employment ceased between 2005 and 2007, are entitled to receive severance pay and salary continuance payable over periods for periods from 12 to 36 months from
the date of termination. Total payments in 2007 on account of former senior managers was $5,998,495.

An
aggregate of 143,750 time, performance and other options to purchase our common stock were also granted to our senior managers under the 2005 Stock Purchase and Option Plan for Key
Employees of Masonite Holding Corporation and its subsidiaries.

For
details on the equity participation of our senior managers, please see "Major Shareholders and Related Party Transactions", note 14 to our audited consolidated financial
statements.

In
2005, Masonite Holding Corporation adopted a Directors' Deferred Compensation Plan pursuant to which, for 2007, in lieu of receiving cash remuneration, non-employee
directors received a credit under their stock accounts under the plan valued at $50,000 (10,000 shares based on fair market valuation of $5.00 per share in 2006).

58

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We
also maintain a directors' and officers' insurance policy with respect to our senior managers and board of directors.

Stock Purchase and Option Plan

We have adopted the 2005 Stock Purchase and Option Plan for Key Employees of Masonite Holding Corporation and its subsidiaries (the "Stock Plan"), which provides
for the grant of incentive stock options (within the meaning of Section 422 of the Internal Revenue Code), options that are not incentive stock options, and various other stock-based grants,
including the shares of common stock of Masonite Holding Corporation ("Holdings Stock") sold to, and options granted to the executive officers and other key employees, as described below. We have
granted under the Stock Plan certain options as non-incentive stock options. The options are generally granted as follows: 50% vest and become exercisable over the passage of time, which
we refer to as "time options," assuming the optionee continues to be employed by us, and 50% vest and become exercisable over time based upon the achievement of certain performance targets, which we
refer to as "performance options."

The
following table summarizes the history of share options granted to senior management of Masonite.

|                                |  | Options Granted
2005 |  | Options Granted
2006 |  | Options Granted
2007 |  | Total     
|------------------------------- |  | -------------------- |  | -------------------- |  | -------------------- |  | ----------
|                               
|Options to acquire
common stock |  | 17,070,000           |  | 1,875,000            |  | 143,750              |  | 19,016,875
|                               
|Exercise Price                  |  | $5.00                |  | $5.00                |  | $5.00                |  | $5.00     
|                               
|Term (in years)                 |  | 10                   |  | 10                   |  | 10                   |  | 10        
|                               
|Expiration date                 |  | April 5, 2015        |  | November 6, 2016     |  | October 6, 2018      |  |           
|                               

Of
the 2005 Options granted 11,190,000 have been cancelled. Of the 2006 options granted, 360,000 have been cancelled.

Exercise Price.The exercise price of the options is the fair market value of the shares underlying the options on the date
of the grant of the option.

Vesting of Time Options.Time options granted in 2006 generally become exercisable by the holder of the option in
installments of 20% on each of the first five anniversaries of the grant date.

Vesting of Performance Options.Performance options granted in 2006 generally become exercisable over a specified time in
specified percentages upon the achievement of certain EBITDA performance targets. In the event that performance targets are not achieved in any given fiscal year but are achieved in a subsequent year,
the performance option will become exercisable as to the previously unexercisable percentage of the performance options from the missed years, as well as with respect to the percentage of the
performance options in respect of the fiscal year in which the performance targets are achieved.

Effect of Change in Control of Masonite Holding Corporation.In addition, immediately prior to a change in control of
Masonite Holding, as defined in the Stock Plan, (i) the exercisability of the time options will automatically accelerate with respect to 100% of the shares of common stock of Masonite Holding
Corporation subject to the time options and (ii) up to 100% of the unvested performance options will automatically vest if certain EBITDA performance targets have been achieved for the fiscal
year ending immediately prior to such change in control. Otherwise, the acceleration of vesting of performance options depends upon whether KKR has achieved a specified internal rate of return.

59

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Miscellaneous.The options are only transferable by will or pursuant to applicable laws of descent and distribution upon the
death of the optionee. The Stock Plan may be amended or terminated by Masonite Holding's Corporation's board of directors at any time.

These
options generally expire on the tenth anniversary of the grant date, subject to earlier termination, in the case of termination of employment.

G.    BOARD PRACTICES

Board meetings are convened by the chairman or upon request by a director or the chief executive officer. During 2007, 15 board meetings were held. Written
documentation covering the various items of the agenda for each board meeting is sent out in advance to each board member in order to allow each member time to study the covered matters prior to the
meetings. Decisions made at the board meetings are recorded in written minutes of the meetings. Three of our board members (Mssrs. Raether, Nuttal, and Olson) are members of KKR and therefore would
not be considered independent. Mr. Tubbesing also held the role of Executive Vice President from 2004 to 2006 and Chief Financial officer of the Predecessor from 1989 until 2004.

The
board in its entirety oversees the financial reporting processes and accounting practices, evaluates the independence, objectivity and effectiveness of external auditors, reviews
audit results, monitors compliance with the laws and regulations governing the preparation of our financial statements and assesses the processes relating to our risk management and internal control
systems.

The
compensation committee is comprised of Mssrs. Raether, Nuttal and Olson and determines the compensation of the Senior Managers.

Mssrs.
Raether, Nuttal, and Olson were appointed directors on April 6, 2005. Mr. Tubbesing was appointed director on March 1, 2006. Each director's term of office is
an annual appointment by vote of the shareholders.

H.    EMPLOYEES

We employ approximately 10,700 employees and contract laborers of which approximately 2,400 or 22% were covered by collective bargaining agreements. During the
third quarter of 2006 we implemented a company-wide reduction in employment levels, impacting approximately eight percent of the global salaried and indirect hourly workforce. Employees
represented by these unions are subject to 14 collective bargaining agreements, three of which are with local unions in the United States. None of our North American collective bargaining agreements
are subject to renewal in 2008, and our collective bargaining agreements in France, United Kingdom and South Africa are subject to annual renewal. The Company has not had any labor disruptions in the
last three years and contracts that have been renewed in the last three years have been completed in ordinary course. The employees covered by collective bargaining agreements are situated at the
Company's operations as follows:

Facility

Number
of Employees

Collective Agreement
Expiration DateCanada:Bethierville, Quebec

96

2010Lac-Megantic, Quebec

150

2011Lac-Megantic, Quebec

197

2011New Westminster, British Columbia

51

2012St. Romuald, Quebec

109

2011Toronto, Ontario

80

2010Brampton, Ontario

182

2010


60

---



Facility

Number
of Employees

Collective Agreement
Expiration DateUnited States:South Bend, Indiana

78

2010Laurel, Mississippi

638

2011Vandalia, Ohio

20

2012Europe:(1)Barnsley, England

253

n/aHedingham, England

52

n/aBridgwater, England

32

n/aAfrica:South Africa

471

n/a




I.     SHARE OWNERSHIP

Under our management incentive plan, certain of our senior managers received options to purchase common stock that remain outstanding. For details of the stock
option plan see "Stock Purchase and Option Plan" under Part I, Item 6.B of this annual report. As of March 31, 2008, the members of the board of directors and senior management as
at December 31, 2007 held the following number of shares and options to acquire common shares.

|Name                 |  | Total number
of Shares Held |  | Number of options held |  | Total number of
shares under
Directors
Deferred
Compensation
Plan
|-------------------- |  | --------------------------- |  | ---------------------- |  | -----------------------------------------------------------------
|                    
|Frederick J. Lynch   |  | 300,000                     |  |                       |  | 975,000                                                          
|                    
|Glen Coulter         |  | 25,000                      |  |                       |  |                                                                 
|                    
|Matthew M. Clark     |  |                            |  |                       |  |                                                                 
|                    
|Anthony D. DiLucente |  |                            |  |                       |  |                                                                 
|                    
|James U. Morrison    |  | 704,000                     |  | 2,940,000              |  |                                                                 
|                    
|Lawrence P. Repar    |  | 704,000                     |  | 2,940,000              |  |                                                                 
|                    
|Paul E. Raether(1)   |  | 87,224,151                  |  |                       |  |                                                                 
|                    
|Scott C. Nuttall(1)  |  | 87,224,151                  |  |                       |  |                                                                 
|                    
|Tagar C. Olson(1)    |  | 87,224,151                  |  |                       |  |                                                                 
|                    
|Robert V. Tubbesing  |  |                            |  |                       |  |                                                                 
|                    

61

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ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.    MAJOR SHAREHOLDERS

Masonite International owns 100% of the issued and outstanding common stock of Masonite U.S. and Masonite Canada. Masonite Holding Corporation ("Masonite
Holdings"), a Cayman entity, owns 100% of the issued and outstanding common stock of Masonite International.

The
following table and accompanying footnotes show information regarding the beneficial ownership of the common stock of Masonite Holdings by (i) each person known to us to
beneficially own more than 5% of the issued and outstanding common stock of Masonite Holdings, (ii) each of our directors, (iii) each of our senior managers and (iv) all of the
directors and senior managers as a group.

|Name of beneficial owner                                 |  | Number(1)  |  | Percentage |  
|-------------------------------------------------------- |  | ---------- |  | ---------- | -
|KKR(2)                                                   |  | 87,224,451 |  | 77.79      | %
|Sculptor Investments, S.à. r.l.(3)                       |  | 9,519,276  |  | 8.49       | %
|Alpinvest(4)                                             |  | 5,711,565  |  | 5.09       | %
|Kenneth W. Freeman                                       |  | *          |  | *          | %
|Frederick J. Lynch                                       |  | *          |  | *          | %
|Glen Coulter                                             |  | *          |  | *          | %
|James U. Morrison                                        |  | *          |  | *          | %
|Lawrence P. Repar                                        |  | *          |  | *          | %
|Paul E. Raether(2)                                       |  | 87,224,451 |  | 77.79      | %
|Scott C. Nuttall(2)                                      |  | 87,224,451 |  | 77.79      | %
|Tagar C. Olson(2)                                        |  | 87,224,451 |  | 77.79      | %
|All senior managers and directors as a group (8 persons) |  | 89,357,451 |  | 79.69      | %

---





62

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None
of the common stock have preferential voting rights. At December 31, 2007, the portion of equity held in Canada is 77.98%.

B.    RELATED PARTY TRANSACTIONS

Management Stockholder's Agreement

In connection with the subscription for the purchase of common shares of Masonite Holdings, the sale of shares of Masonite in consideration of the issuance of
shares of Masonite Holdings, the exchange of options to purchase shares of Masonite for options to purchase shares of Masonite Holdings and the grant of options under the Stock Plan, as applicable,
the senior managers and other employees and officers of Masonite each became party to a management stockholder's agreement with Masonite Holdings. The management stockholder's agreement generally
restricts the ability of the stockholders to transfer shares held by them for five years after the closing of the Transaction in case of the agreements entered into around the time of the closing of
the Transaction.

In
general, in the case of the agreements entered into around the time of the closing of the Transaction, if a management stockholder's employment is terminated prior to the fifth
anniversary of the closing of the Transaction, Masonite Holdings has the right to purchase the shares and options held by such person on terms specified in the management stockholder's agreement. If a
management

63

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stockholder's
employment is terminated as a result of death or disability prior to the later of the fifth anniversary of the closing of the Transaction and the date of a public offering meeting
certain criteria, such stockholder or, in the event of such stockholder's death, the estate of such stockholder, has the right to force Masonite Holdings to issue him shares of Masonite Holdings in
exchange for certain exercisable options and to purchase all his shares, on terms specified in the management stockholder's agreement in the case of the agreements entered into around the time of the
closing of the Transaction.

The
management stockholder's agreement also permits such stockholder under certain circumstances to participate in registrations by Masonite Holdings of its equity securities. If certain
investment funds affiliated with KKR that are stockholders of Masonite Holdings also sell shares in such registration, such registration rights are subject to customary limitations specified in the
registration rights agreement between Masonite Holdings and such investment funds.

Sale Participation Agreement

Each management stockholder entered into a sale participation agreement granting the management stockholder the right to participate in any sale of shares of
Masonite Holdings by certain investment funds affiliated with KKR that are shareholders of Masonite Holdings occurring prior to the fifth
anniversary of the first public offering of Masonite Holdings on the same terms as such investment funds. In order to participate in such sale, the management stockholder may be required, among other
things, to become a party to any agreement under which the shares of Masonite Holdings are to be sold, and to grant certain powers with respect to the proposed sale of shares of Masonite Holdings to
custodians and attorneys-in-fact.

Registration Rights Agreement

In connection with the Transaction, we entered into a registration rights agreement with certain investment funds affiliated with KKR that are stockholders of
Masonite Holdings, pursuant to which such investment funds are entitled to certain demand and piggyback rights with respect to the registration and sale of the shares of Masonite Holdings held by
them.

Management Services Agreement

In connection with the Transaction, we entered into a management services agreement with KKR pursuant to which KKR provided certain structuring, consulting and
management advisory services to us. Pursuant to this agreement, KKR received a transaction fee of $30.0 million, payable upon the closing of the Transaction, plus approximately
$0.6 million of out-of-pocket costs and will receive an annual advisory fee of $2.0 million, payable quarterly in advance, such amount to increase by 5% per year.
We indemnified KKR and its affiliates, directors, officers and representatives for losses relating to the services contemplated by the management services agreement and the engagement of KKR pursuant
to, and the performance by KKR of the services contemplated by, the management services agreement. For the twelve month period ended December 31, 2007 we paid KKR $2.1 million
(December 31, 2006$2.1 million) for services rendered.

Consulting Agreement

Following completion of the Transaction, we retained Capstone Consulting to provide us with consulting services, primarily to identify and advise on potential
opportunities to reduce our costs and identify other potential opportunities to grow our business. Although neither KKR nor any entity affiliated with KKR owns any of the equity of Capstone, prior to
January 1, 2007, KKR had provided financing to Capstone. In addition, we paid fees of $2.4 million for the twelve month period ended

64

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December 31,
2007 (December 31, 2006$2.8 million) to Capstone. In the fourth quarter of 2005, Capstone invested $2.5 million in Masonite Holdings.

C.    INTERESTS OF EXPERTS AND COUNSEL

Not applicable.

ITEM 8.    FINANCIAL INFORMATION

A.    CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

See "Financial Statements" in Part III, Item 18 of this annual report.

B.    SIGNIFICANT CHANGES

In the first quarter of 2008, we purchased the remaining 25% ownership interest of our operations located in the Czech Republic and Poland. The consideration was
approximately $17.9 million consisting
of approximately $13.4 million paid for the shares and the balance as repayment of advances made by the minority interest shareholder. In the first quarter of 2008, we announced the closure of
three additional manufacturing sites in Canada. These closures are expected to be completed by the end of the third quarter of 2008. We were also notified in 2008 by the owner of 25% of one of our
VIE's of their intention to require the other VIE party or us to purchase their 25% share in the VIE pursuant to the terms contained in the shareholder agreement. Preliminary estimates of the
consideration required for the purchase of the 25% range between $14.5 million and $21.0 million. It is anticipated that the transaction will close before the end of the third quarter of
2008.

In
March and April 2008, we borrowed the remaining $336 million available under our $350 million senior secured revolving credit facility. Although we have no immediate
needs for the additional liquidity, in light of current financial market conditions, we drew on the facility to provide ourselves with greater financial flexibility.

On
April 18, 2008, the Company was notified by the counterparty to the Facilities Agreement described in note 3 of termination the program in 60 days. The amount
outstanding on the Facilities Agreement as of that date was $66.4 million. The Company is evaluating other programs that are substantially similar to the Facilities Agreement as a replacement
for this program.

ITEM 9.    THE OFFER AND LISTING

Not applicable.

ITEM 10.    ADDITIONAL INFORMATION

A.    SHARE CAPITAL

Not applicable.

B.    MEMORANDUM OF ARTICLES OF ASSOCIATION

The following summary includes a portion of the rights of the holders of our shares. These rights are set out in our certificate of incorporation and
by-laws or are otherwise provided under applicable Canadian law and may differ from those typically provided to shareholders of U.S. companies. This summary does not purport to be complete
and is subject to, and qualified in its entirety by, the provisions contained in our certificate of incorporation and by-laws, copies of which have been incorporated by reference as
exhibits to this annual report.

65

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Object and Purpose.We are a privately held company and our company was formed on February 2, 2005 under the Canadian Business Corporations Act. The corporation can engage in any legal activity permitted under theCanadian Business
Corporations Act. As reported in Annex 3 to our certificate of incorporation, there are no restrictions on the business our corporation may conduct.

Directors.Our corporation is managed by a board of directors, which manages and supervises our business and affairs, subject
to any unanimous agreement among our shareholders. Our directors are not required to hold shares of the corporation.

Our
directors are required to disclose to the corporation, either in writing or by requesting to have it entered in the minutes of the meetings of directors, the nature and extent of any
interest a director has in a material contract or material transaction with the corporation if the director is a party to the contract or transaction, is a director or officer or acting in a similar
capacity of a party to the contract or transaction, or has a material interest in a party to the contract or transaction.

Pursuant
to our by-laws, any of our directors who are interested, as described immediately above, may not vote on any resolution to approve the contract or transaction unless
the contract or transaction relates primarily to the director's remuneration as a director, officer, employee or agent of the corporation or its affiliates. In addition, directors who are interested
may also vote on resolutions to approve a contract or transaction if it is for indemnity or insurance or is a contract or transaction between our company and one of its affiliates. As a result, a
director may, in the absence of an independent quorum, vote compensation to him or herself or to other directors.

Rights, Preferences and Restrictions.We have one class stock. Subject to the provisions of the Canadian
Business Corporations Act, our board of directors may from time to time declare dividends to our
shareholders according to their rights and interests in the corporation. Dividends may be paid in money or property or by issuing fully paid shares of the corporation.

Our
shareholders have customary voting rights. Our directors are not elected on a staggered basis. Our shareholders do not have any rights as shareholders to share in the Company's
profits, other than in the form of dividends, and they do not have any right as shareholders to share in any surplus in the event of liquidation.

Certain
of our shareholders have the right to have their shares redeemed under certain circumstances, in accordance with our Management Stockholder's Agreement. See "Related Party
Transactions" in Part I, Item 7.B of this report for more information regarding our Management Stockholder's Agreement.

Changes to the Rights of Shareholders.Our certificate of incorporation and by-laws do not have any restrictions
on the board of directors' ability to change the rights of holders of our stock.

Shareholder Meetings.Pursuant to Canadian law and our by-laws, a meeting of our shareholders is held annually on
such day and time as specified by our board of directors. Our board of directors also has the power to call special meetings of shareholders at any time. Notice of any such meeting must be delivered,
sent or served to the last known address of all our shareholders entitled to vote. Notice is required to be sent not more than 60 days and not less than 21 days prior to the meeting
unless such advance notice is waived by our shareholders.

The
only persons who may be present at our shareholder meeting are those entitled vote, our directors and auditors and others who, although not entitled to vote, are required by law to
be present or those persons present at the invitation of the chairperson of the meeting or present with the consent of the meeting. A written resolution in lieu of such meeting is permitted if signed
by all shareholders entitled to vote at such meeting. If we have only one shareholder, which is currently the case, the shareholder present in person or by proxy constitutes a meeting.

66

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Limitations on the Right to Own Shares.Our certificate of incorporation restricts the number of holders of our shares to
fifty people, in addition to our employees and former employees who are also shareholders.

C.    MATERIAL CONTRACTS

Not applicable.

D.    EXCHANGE CONTROLS

Not applicable.

E.    TAXATION

Not applicable.

F.     DIVIDENDS AND PAYING AGENTS

Not applicable.

G.    STATEMENT BY EXPERTS

Not applicable.

H.    DOCUMENTS ON DISPLAY

We are subject to the informational reporting requirements of the U.S. Securities Exchange Act of 1934, as amended, which requires that we file periodic reports
and other information with the SEC. As a foreign private issuer, we file annual reports on Form 20-F as opposed to
Form 10-K. We do not file quarterly reports on Form 10-Q but furnish reports containing quarterly information on Form 6-K.

Our
reports and other information filed by us with the SEC may be inspected and copied by the public at the public reference facilities maintained by the SEC at Station Place,
100 F Street, N.E., Room 1580, Washington, D.C. 20549 and are also available on the website of the SEC athttp://www.sec.gov.

As
a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements. As a foreign private issuer, we are also
exempt from the rules under the Exchange Act relating to short swing profit disclosure and liability.

I.     SUBSIDIARY INFORMATION

Not applicable.

ITEM 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A.    QUANTITATIVE INFORMATION ABOUT MARKET RISK

We have been exposed to various market risks, which are potential losses arising from adverse changes in market rates and prices, such as currency and interest
rate fluctuations.

Currency Risk

Outside of the United States, we maintain assets and operations in Canada, Mexico, Europe, South America, Asia and Africa. The results of operations and the
financial position of our foreign operations are principally measured in their respective currency and translated into U.S. dollars. As a result, exposure to foreign currency gains and losses exists.
The reported income of these subsidiaries

67

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will
be higher or lower depending on the depreciation or appreciation of the U.S. dollar against the respective foreign currency. Our subsidiaries also obtain labor and certain raw materials locally,
denominated primarily in their respective domestic currencies. Other raw materials are imported and prices are often quoted in U.S. dollars or in the domestic currency in the country where the
facility operates. Most of our subsidiaries sell a significant portion of their products within their respective domestic markets at domestic selling prices. In situations where import and export
commitments are undertaken, the subsidiaries may periodically enter into foreign exchange contracts to manage and reduce the risk associated with foreign currency fluctuations. Gains and losses on
such contracts offset losses and gains on transactions being hedged. The amount of foreign exchange contracts matches estimated foreign currency risks over a specified period of time. Our policy is
not to utilize foreign exchange contracts for trading or speculative purposes. There were no foreign exchange contracts outstanding at December 31, 2007.

Interest Rate Risk

We are subject to market risk associated with interest rate changes in connection with our senior secured credit facility. Therefore, in the normal course of
business we are exposed to changes in short-term interest rates that can create uncertainty and variability in cash flows. To mitigate this exposure, in April 2005, we entered into a
5 year interest rate swap agreement converting a notional $1.15 billion of floating-rate debt into fixed rate debt that currently bears interest at 4.22% plus an applicable
credit spread of 2.00%. In April of 2006, $100 million of the interest rate swaps amortized, leaving $1.05 billion of long-term debt at a fixed rate as at December 31,
2006. In April of 2007, a further $150 million of the interest rate swaps amortized, leaving $900 million of long-term debt at a fixed rate as at December 31, 2007.
The Predecessor also had entered into interest rate swap agreements to convert floating rate debt into fixed rate debt. As at the closing date of the Transaction, the Predecessor's interest rate swaps
were settled. We believe that these interest rate swaps are highly effective in achieving their economic purpose.

The
table below provides information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including interest rate
swaps and debt obligations. The information is presented in U.S. dollar equivalents, which is our reporting currency.

|                                        |                       | December 31,
2008 |      | December 31,
2009 |      | December 31,
2010 |      | December 31,
2011 |      | December 31,
2012 |      | Thereafter |      | Total     |  | Fair Value
|--------------------------------------- | --------------------- | ----------------- | ---- | ----------------- | ---- | ----------------- | ---- | ----------------- | ---- | ----------------- | ---- | ---------- | ---- | --------- |  | ----------
|Liabilities                             |                       |                   |      |                   |      |                   |      |                   |      |                   |      |            |      |           |  |           
|Long-term Debt:                         |                       |                   |      |                   |      |                   |      |                   |      |                   |      |            |      |           |  |           
|Fixed Rate                              |                       |                   |      |                   |      |                   |      |                   |      |                   |      | 769,856    |      | 769,856   |  | 600,488   
|                                        | Average Interest Rate |                   |      |                   |      |                   |      |                   |      |                   |      |            | 11   | %         |  |           
|Variable Rate                           |                       | 20,777            |      | 20,763            |      | 12,688            |      | 11,750            |      | 11,750            |      | 1,086,880  |      | 1,164,607 |  | 1,059,353 
|                                        | Average Interest Rate |                   | 6.13 | %                 | 5.60 | %                 | 6.17 | %                 | 6.59 | %                 | 6.85 | %          | 6.95 | %         |  |           
|Off-Balance Sheet Financial Instruments |                       |                   |      |                   |      |                   |      |                   |      |                   |      |            |      |           |  |           
|Interest Rate Swaps:                    |                       |                   |      |                   |      |                   |      |                   |      |                   |      |            |      |           |  |           
|Variable to Fixed                       |                       | 300,000           |      | 300,000           |      | 300,000           |      |                   |      |                   |      |            |      | 900,000   |  | 896,775   
|                                        | Average pay rate      |                   | 4.22 | %                 | 4.22 | %                 | 4.22 | %                 |      |                   |      |            |      |           |  |           
|                                        | Average receive rate  |                   | 4.14 | %                 | 3.60 | %                 | 4.17 | %                 |      |                   |      |            |      |           |  |           

ITEM 12.   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

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PART II

ITEM 13.    DEFAULTS, DIVIDENDS ARREARAGES AND DELIQUENCIES

Not applicable.

ITEM 14.    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.

ITEM 15.    CONTROLS AND PROCEDURES

As of December 31, 2007, we conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term "disclosure controls and procedures," as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (Exchange Act), means controls and other procedures of a company that are
designed to provide reasonable assurance
that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in
the SEC's rules and forms. Disclosure controls and procedures are also designed to provide reasonable assurance that such information is accumulated and communicated to the Company's management,
including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2007 that our disclosure controls and procedures were effective.

ITEM 16A.    AUDIT COMMITTEE FINANCIAL EXPERT

Our Audit Committee is composed of Messrs. Raether, Olson, Nuttall and Tubbesing. In light of our status as a closely held company and the absence of a
public trading market for our common stock, our Board has not designated any member of the Audit Committee as an "audit committee financial expert." Though not formally considered by our Board given
that our securities are not registered or traded on any national securities exchange, based upon the listing standards of the New York Stock Exchange (the "NYSE") upon which our common stock was
listed prior to the Transaction, we do not believe that Messrs. Raether, Olson or Nuttall would be considered independent because of their relationships with KKR which indirectly owns, through
its interests in Parent, over 50% of our outstanding common stock, and certain other relationships with us as more fully described under Item 7.

ITEM 16B.    CODE OF ETHICS

Masonite has adopted a Code of Ethics that applies to its Chief Executive Officer, Chief Financial Officer and its directors and senior officers. The Code of
Ethics is filed with this Form 20-F as Exhibit 11.1.

69

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ITEM 16C.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

Deloitte & Touche LLP acted as principal independent registered public accounting firm for Masonite for the fiscal years ended December 31,
2007 and 2006. Set forth below is a breakdown of fees for services rendered in 2007 and 2006.

Year Ended December 31, 2007

Year Ended December 31, 2006Audit Fees

$
1,924,000

$
1,983,000Audit Related Fees

$
191,000

$
411,500Tax Fees





All Other Fees





Total:

$
2,115,000

$
2,394,500


Pre-approval policies and procedures

Our Board of Directors must approve all audit and non-audit related fees. Our Board of Directors has pre-approved specifically identified
non-audit tax-related services, including tax compliance, review of tax returns and advisory services related to acquisitions. Our Board of Directors will be informed routinely
as to the non-audit services actually provided by the auditors pursuant to this pre-approval process. The auditors also present the estimate for the annual audit related
services to our Board of Directors for approval prior to undertaking the annual audit of the financial statements.

Audit Fees

Audit fees were for professional services rendered by Deloitte & Touche LLP for the audit of Masonite's annual financial statements and services
provided in connection with statutory and regulatory filings or engagements.

Audit-Related Fees

Audit-related fees were for assurance and related services reasonably related to the performance of the audit of the annual statements and are not reported under "Audit Fees"above. These services primarily consisted of services in connection with the filing of the Company's Registration Statement on
Form F-4, related Amendments and services in connection with the restatements in the prior year and the adoption of FIN 48.

Tax Fees

Tax fees were for tax compliance, tax advice and tax planning professional services. These services consisted of tax compliance including the review of tax
returns in 2007 and 2006, no fees for services were incurred.

All Other Fees

In 2007 and 2006, no fees for services were incurred other than those described above under"Audit Fees", "Audit-Related Fees"and"Tax Fees".

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PART III

ITEM 17.    FINANCIAL STATEMENTS

See "Financial Statements" in Item 18 below.

ITEM 18.    FINANCIAL STATEMENTS

See our Consolidated Financial Statements beginning at page F-1.

ITEM 19.    EXHIBITS

|Exhibit No. |  | Description                                                                                                                      
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------
|1.1*        |  | Certificate of Incorporation and Certificate of Amendment of Certificate of the Incorporation of Masonite International Inc.     
|1.2*        |  | By-laws of Masonite International Inc.                                                                                           
|1.3*        |  | Restated Certificate of Incorporation and Certificate of Amendment of the Certificate of Incorporation of Masonite Corporation   
|1.4*        |  | By-laws of Masonite Corporation                                                                                                  
|1.5*        |  | Articles of Amalgamation of Masonite International Corporation                                                                   
|1.6*        |  | By-laws of Masonite International Corporation                                                                                    
|1.7*        |  | Memorandum and Articles of Association of 3061275 Nova Scotia Company                                                            
|1.8*        |  | Memorandum and Articles of Association of Bonlea Limited                                                                         
|1.9*        |  | Certificate of Incorporation of Castlegate Entry Systems, Inc.                                                                   
|1.10*       |  | By-laws of Castlegate Entry Systems, Inc.                                                                                        
|1.11*       |  | Certificate of Incorporation and Certificate of Amendment of Certificate of Incorporation of Crown Door Corporation              
|1.12*       |  | By-laws of Crown Door Corporation                                                                                                
|1.13*       |  | Articles of Incorporation of Cutting Edge Tooling, Inc.                                                                          
|1.14*       |  | Amended and Restated By-laws of Cutting Edge Tooling, Inc.                                                                       
|1.15*       |  | Articles of Incorporation and Articles of Amendment of the Articles of Incorporation of Door Installation Specialists Corporation
|1.16*       |  | By-laws of Door Installation Specialists Corporation                                                                             
|1.17*       |  | Certificate of Incorporation of Eger Properties                                                                                  
|1.18*       |  | Amended and Restated By-laws of Eger Properties                                                                                  
|1.19*       |  | Articles of Incorporation and Amendment to Articles of Incorporation of Florida Made Door Co.                                    
|1.20*       |  | Amended and Restated By-laws of Florida Made Door Co.                                                                            
|1.21*       |  | Certificate of Incorporation (Estatutos Sociales) of Masonite Chile Holdings S.A. (with English translation)                     
|1.22*       |  | By-laws (Estatutos Sociales) of Masonite Chile Holdings S.A. (with English translation)                                          

71

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|1.23* |  | Memorandum and Articles of Association of Masonite Components                                                                                                                                                                                                                                                                                                                  
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.24* |  | Memorandum and Articles of Association of Masonite Europe                                                                                                                                                                                                                                                                                                                      
|1.25* |  | Memorandum and Articles of Association of Masonite Europe Limited                                                                                                                                                                                                                                                                                                              
|1.26* |  | Memorandum and Articles of Association of Masonite Ireland                                                                                                                                                                                                                                                                                                                     
|1.27* |  | Certificate of Incorporation (Estatutos Sociales) of Masonite Mexico, S.A. de C.V. (with English translation)                                                                                                                                                                                                                                                                  
|1.28* |  | By-laws (Estatutos Sociales) of Masonite Mexico, S.A. de C.V. (with English translation)                                                                                                                                                                                                                                                                                       
|1.29* |  | Articles of Incorporation and Articles of Amendment to the Articles of Incorporation of Masonite Primeboard Inc.                                                                                                                                                                                                                                                               
|1.30* |  | By-laws of Masonite Primeboard Inc.                                                                                                                                                                                                                                                                                                                                            
|1.31* |  | Certificate of Incorporation and Certificate of Amendment of the Certificate of Incorporation of Pintu Acquisition Company, Inc.                                                                                                                                                                                                                                               
|1.32* |  | By-laws of Pintu Acquisition Company, Inc.                                                                                                                                                                                                                                                                                                                                     
|1.33* |  | Memorandum and New Articles of Association of Premdor Crosby Limited                                                                                                                                                                                                                                                                                                           
|1.34* |  | Certificate of Formation of Premdor Finance LLC                                                                                                                                                                                                                                                                                                                                
|1.35* |  | Limited Liability Company Agreement of Premdor Finance LLC                                                                                                                                                                                                                                                                                                                     
|1.36* |  | Memorandum and Articles of Association of Premdor U.K. Holdings Limited                                                                                                                                                                                                                                                                                                        
|1.37* |  | Certificate of Incorporation of WMW, Inc.                                                                                                                                                                                                                                                                                                                                      
|1.38* |  | By-laws of WMW, Inc.                                                                                                                                                                                                                                                                                                                                                           
|1.39* |  | Certificate of Limited Partnership of Woodlands Millwork I, Ltd.                                                                                                                                                                                                                                                                                                               
|1.40* |  | Limited Partnership Agreement of Woodlands Millwork I, Ltd.                                                                                                                                                                                                                                                                                                                    
|2.1*  |  | Indenture, dated October 6, 2006, by and among Masonite Corporation, as issuer, Masonite International Corporation, Masonite International Inc. and the other guarantors thereto and The Bank of New York, as Trustee, governing the Senior
Subordinated Notes Due 2015                                                                                                        
|2.2*  |  | Indenture, dated October 6, 2006, by and among Masonite International Corporation, as issuer, Masonite Corporation, Masonite International Inc. and the other guarantors thereto and The Bank of New York, as Trustee, governing the Senior
Subordinated Notes Due 2015                                                                                                        
|2.3*  |  | Registration Rights Agreement, dated October 6, 2006, by and among Masonite Corporation, Masonite International Corporation, Masonite International Inc. and the other guarantors thereto and The Bank of New York, as Trustee                                                                                                                                                 
|4.1*  |  | Credit Agreement, dated as of April 6, 2005, among Stile U.S. Acquisition Corp., as the U.S. Borrower, Stile Acquisition Corp., as the Canadian Borrower, Stile Consolidated Corp., as Guarantor, The Several Lenders from Time to Time Parties
Hereto and The Bank of Nova Scotia, as Administrative Agent and as Canadian Administrative Agent, and the other parties thereto

72

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|4.2*   |  | Senior Subordinated Loan Agreement, dated as of April 6, 2005, among Stile U.S. Acquisition Corp., as the U.S. Borrower, Stile Acquisition Corp., as the Canadian Borrower, Stile Consolidated Corp., as Guarantor, The Several Lenders from Time to
Time Parties Hereto and The Bank of Nova Scotia, as Administrative Agent and as Canadian Administrative Agent, and the other parties thereto
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.3*   |  | Registration Rights Agreement, dated as of April 6, 2005, among Stile Holding Corp., KKR Millennium Fund (Overseas) Limited Partnership and KKR Partners (International) Limited Partnership                                                                                                                                                                                                     
|4.4*   |  | Management and Advisory Services Retainer Agreement, dated as of April 6, 2005, between Stile U.S. Acquisition Corp. and Kohlberg Kravis Roberts & Co. L.P.                                                                                                                                                                                                                                      
|7.1*   |  | Computation of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                                                                         
|8.1*   |  | List of Subsidiaries                                                                                                                                                                                                                                                                                                                                                                             
|11.1** |  | Code of Ethics for Principal Executive and Senior Financial Officers                                                                                                                                                                                                                                                                                                                             
|12.1** |  | Section 302 Certification of Chief Executive Officer                                                                                                                                                                                                                                                                                                                                             
|12.2** |  | Section 302 Certification of Chief Financial Officer                                                                                                                                                                                                                                                                                                                                             
|13.1** |  | Section 906 Certification                                                                                                                                                                                                                                                                                                                                                                        
|15.1   |  | Combination Agreement, dated December 22, 2004, by and between Stile Acquisition Corp. and Masonite International Corporation (incorporated by reference to Exhibit 99.1 filed with Masonite International Corporation's Report of Foreign
Issuer on Form 6-K for the month of January 2005 (Commission File No. 001-11796))                                                                     
|15.2   |  | Amended and Restated Combination Agreement, dated January 16, 2005, by and between Stile Acquisition Corp. and Masonite International Corporation (incorporated by reference to Exhibit 99.(A)(1) filed with Masonite International
Corporation's Schedule 13E-3 filed on January 19, 2005 (Commission File No. 005-43863))                                                                      
|15.3   |  | Second Amended and Restated Combination Agreement, dated February 17, 2005, by and between Stile Acquisition Corp. and Masonite International Corporation (incorporated by reference to Exhibit 99.2 filed with Masonite International
Corporation's Report of Foreign Private Issuer on Form 6-K for the month of February 2005 (Commission File No. 001-11796))                                

---

73

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Schedule IIa. Valuation And Qualifying Accounts And Reserves  (In thousands of U.S. Dollars)

|Column A                                             |  | Column B |       | Column C and D |   | Column E
|---------------------------------------------------- |  | -------- | ----- | -------------- | - | --------
|
|Year Ended December 31, 2007                         |  |          |       |                |   |         
|Reserve for doubtful accounts                        |  | $        | 3,999 |                | $ | 1,011   
|                                                     |  |          |       |                |   |         
|Year Ended December 31, 2006                         |  |          |       |                |   |         
|Reserve for doubtful accounts                        |  | $        | 2,132 |                | $ | 1,867   
|                                                     |  |          |       |                |   |         
|For the Period February 2, 2005 to December 31, 2005 |  |          |       |                |   |         
|Reserve for doubtful accounts                        |  |          | 2,216 |                |   | (84     
|                                                     |  |          |       |                |   |         
|For the Period January 1, 2005 to April 6, 2005      |  |          |       |                |   |         
|Reserve for doubtful accounts                        |  |          | 1,957 |                |   | 259     
|                                                     |  |          |       |                |   |         

74

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.

|Date: April 24, 2008 |  | MASONITE INTERNATIONAL INC.
|-------------------- |  | ---------------------------
|                     |  | By:                        
|                     |  | Name:                      
|                     |  | Title:                     

75

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Consolidated Financial Statements
(In thousands of U.S. dollars)

MASONITE INTERNATIONAL INC.

For the Years Ended December 31, 2007 and 2006;
the Period from February 2, 2005 (date of Incorporation) to December 31, 2005;
and the Predecessor Period from January 1, 2005 to April 6, 2005

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Report of Independent Registered Chartered Accountants

To
the Board of Directors of Masonite International Inc.

We
have audited the consolidated balance sheets of Masonite International Inc. as at December 31, 2007 and 2006 and the consolidated statements of operations, changes in
shareholder's equity and comprehensive income, and cash flows for each of the two years in the period ended December 31, 2007. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). These
standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Masonite International Inc. as at December 31,
2007 and 2006 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2007 in accordance with Canadian generally accepted accounting
principles.

The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the Company's internal control over
financial reporting. Accordingly, we express no such opinion.

/s/
Deloitte & Touche LLP

Independent
Registered Chartered Accountants
Licensed Public Accountants
March 31, 2008 (except for Note 26 which is as at April 18, 2008)

Comments by Independent Registered Chartered Accountants on Canada-United States of America Reporting Differences

The standards of the Public Company Accounting Oversight Board (United States) require the addition of an explanatory paragraph (following the opinion paragraph)
when there are changes in accounting principles that have a material effect on the comparability of the Company's financial statements, such as the changes described in Notes 1 and 25 to the
financial statements. Our report to the Board of Directors, dated March 31, 2008, is expressed in accordance with Canadian reporting standards which do not require a reference to such changes
in accounting principles in the auditors' report when the change is properly accounted for and adequately disclosed in the financial statements.

/s/
Deloitte & Touche LLP

Independent
Registered Chartered Accountants
Licensed Public Accountants
March 31, 2008 (except for Note 26 which is as at April 18, 2008)

F-1

---



GRAPHIC

|KPMGLLP Chartered AccountantsYonge Corporate Centre
4100 Yonge Street, Suite 200
North York, ON M2P 2H3 |  |  |  |  |  | Telephone (416) 228-7000
Telefax(416) 228-7123
www.kpmg.ca
|------------------------------------------------------------------------------------------------------- |  |  |  |  |  | ----------------------------------------------------------

AUDITORS' REPORT TO THE BOARD OF DIRECTORS OF  MASONITE INTERNATIONAL INC.

We have audited the accompanying consolidated statements of operations, changes in shareholders' equity and cash flows for the period from February 2, 2005
(date of Incorporation) to December 31, 2005, and for the period from January 1, 2005 to April 6, 2005. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of its operations and its cash flows for the period ended
from February 2, 2005 (date of Incorporation) to December 31, 2005, and for the period from January 1, 2005 to April 6, 2005 in conformity with Canadian generally accepted
accounting principles.

Canadian
generally accepted accounting principles vary in certain significant respects from accounting principles generally accepted in the United States. Information relating to the
nature and effect of such differences is presented in note 25 to the consolidated financial statements.

/s/
KPMG LLP

Chartered
Accountants
Toronto, Canada
March 13, 2006, except as
to notes 18, 22, 25 and 27 which
are as of January 2, 2007

F-2

---





MASONITE INTERNATIONAL INC.        Consolidated Statements of Operations        (In thousands of U.S. dollars)        For the Years Ended December 31, 2007 and 2006;  the
Period from February 2, 2005 (date of Incorporation) to December 31, 2005;  and the Predecessor Period from January 1, 2005 to April 6, 2005

|                                                      |  | Note |  | January 1, 2007 -
December 31, 2007 |           | January 1, 2006 -
December 31, 2006 |   | February 2, 2005 -
December 31, 2005 |   | Predecessor
January 1, 2005 -
April 6, 2005 |          
|----------------------------------------------------- |  | ---- |  | ----------------------------------- | --------- | ----------------------------------- | - | ------------------------------------ | - | ------------------------------------------- | ---------
|Sales                                                 |  |      |  | $                                   | 2,174,431 |                                     | $ | 2,464,471                            |   | $                                           | 1,828,383
|Cost of sales                                         |  |      |  |                                     | 1,695,445 |                                     |   | 1,950,247                            |   |                                             | 1,497,934
|                                                      |  |      |  |                                     |           |                                     |   |                                      |   |                                             |          
|                                                      |  |      |  |                                     | 478,986   |                                     |   | 514,224                              |   |                                             | 330,449  
|Selling, general and administration expenses          |  | 23   |  |                                     | 206,633   |                                     |   | 211,789                              |   |                                             | 161,319  
|Depreciation                                          |  |      |  |                                     | 91,840    |                                     |   | 88,992                               |   |                                             | 60,338   
|Amortization of intangible assets                     |  |      |  |                                     | 35,580    |                                     |   | 35,650                               |   |                                             | 29,915   
|Impairment of goodwill and intangible assets          |  | 1, 7 |  |                                     | 303,800   |                                     |   |                                     |   |                                             |         
|Interest                                              |  |      |  |                                     | 178,219   |                                     |   | 182,616                              |   |                                             | 137,081  
|Other expense, net                                    |  | 17   |  |                                     | 29,887    |                                     |   | 38,989                               |   |                                             | 22,600   
|                                                      |  |      |  |                                     |           |                                     |   |                                      |   |                                             |          
|Loss before income taxes and non-controlling interest |  |      |  |                                     | (366,973  | )                                   |   | (43,812                              | ) |                                             | (80,804  
|Income taxes                                          |  | 18   |  |                                     | (72,229   | )                                   |   | (15,656                              | ) |                                             | (16,285  
|Non-controlling interest                              |  |      |  |                                     | 8,147     |                                     |   | 6,178                                |   |                                             | 5,281    
|                                                      |  |      |  |                                     |           |                                     |   |                                      |   |                                             |          
|Net loss                                              |  |      |  | $                                   | (302,891  | )                                   | $ | (34,334                              | ) | $                                           | (69,800  
|                                                      |  |      |  |                                     |           |                                     |   |                                      |   |                                             |          

---

Basis
of presentation (note 1)

See
accompanying notes to consolidated financial statements.

F-3

---





MASONITE INTERNATIONAL INC.        Consolidated Balance Sheets        (In thousands of U.S. dollars)        As at December 31, 2007 and December 31, 2006

|                                     |                                                                                                                                  | Note |    | 2007 |           | 2006     |  
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------- | ---- | -- | ---- | --------- | -------- | -
|Assets                               |                                                                                                                                  |      |    |      |           |          |  
|Current assets:                      |                                                                                                                                  |      |    |      |           |          |  
|                                     | Cash and cash equivalents                                                                                                        |      |    |      | $         | 41,754   |  
|                                     | Accounts receivable                                                                                                              |      | 3  |      |           | 264,931  |  
|                                     | Inventories                                                                                                                      |      | 4  |      |           | 295,831  |  
|                                     | Prepaid expenses                                                                                                                 |      |    |      |           | 15,153   |  
|                                     | Assets held for sale                                                                                                             |      | 5  |      |           | 1,849    |  
|                                     | Income tax recoverable                                                                                                           |      |    |      |           | 1,784    |  
|                                     | Current future income taxes                                                                                                      |      | 18 |      |           | 39,388   |  
|                                     |                                                                                                                                  |      |    |      |           |          |  
|                                     |                                                                                                                                  |      |    |      | 660,690   |          |  
|Property, plant and equipment        |                                                                                                                                  | 6    |    |      | 812,475   |          |  
|Goodwill                             |                                                                                                                                  |      |    |      | 768,430   |          |  
|Intangible assets                    |                                                                                                                                  | 7    |    |      | 377,997   |          |  
|Other assets                         |                                                                                                                                  | 8    |    |      | 20,501    |          |  
|Long-term future income taxes        |                                                                                                                                  | 18   |    |      | 19,959    |          |  
|                                     |                                                                                                                                  |      |    |      |           |          |  
|                                     |                                                                                                                                  |      |    | $    | 2,660,052 |          | $
|                                     |                                                                                                                                  |      |    |      |           |          |  
|Liabilities and Shareholder's Equity |                                                                                                                                  |      |    |      |           |          |  
|Current liabilities:                 |                                                                                                                                  |      |    |      |           |          |  
|                                     | Bank indebtedness                                                                                                                |      | 9  |      | $         | 17,615   |  
|                                     | Accounts payable and accrued expenses                                                                                            |      | 11 |      |           | 325,123  |  
|                                     | Income taxes payable                                                                                                             |      |    |      |           | 15,056   |  
|                                     | Current future income taxes                                                                                                      |      | 18 |      |           | 2,093    |  
|                                     | Current portion of long-term debt                                                                                                |      | 10 |      |           | 20,777   |  
|                                     |                                                                                                                                  |      |    |      |           |          |  
|                                     |                                                                                                                                  |      |    |      | 380,664   |          |  
|Long-term debt                       |                                                                                                                                  | 10   |    |      | 1,852,646 |          |  
|Long-term future income taxes        |                                                                                                                                  | 18   |    |      | 147,541   |          |  
|Other long-term liabilities          |                                                                                                                                  | 13   |    |      | 38,946    |          |  
|                                     |                                                                                                                                  |      |    |      |           |          |  
|                                     |                                                                                                                                  |      |    |      | 2,419,797 |          |  
|                                     |                                                                                                                                  |      |    |      |           |          |  
|Non-controlling interest             |                                                                                                                                  | 12   |    |      | 42,654    |          |  
|                                     |                                                                                                                                  |      |    |      |           |          |  
|Shareholder's equity:                |                                                                                                                                  |      |    |      |           |          |  
|                                     | Share capital                                                                                                                    |      | 14 |      |           | 567,177  |  
|                                     | Common shares, unlimited shares authorized, 113,435,362 shares issued and outstanding at December 31, 2007 and December 31, 2006 |      |    |      |           |          |  
|                                     | Contributed surplus                                                                                                              |      |    |      |           | 6,780    |  
|                                     | Deficit                                                                                                                          |      |    |      |           | (407,025 | )
|                                     | Accumulated other comprehensive income                                                                                           |      |    |      |           | 30,669   |  
|                                     |                                                                                                                                  |      |    |      |           |          |  
|                                     |                                                                                                                                  |      |    |      | 197,601   |          |  
|                                     |                                                                                                                                  |      |    |      |           |          |  
|                                     |                                                                                                                                  |      |    | $    | 2,660,052 |          | $
|                                     |                                                                                                                                  |      |    |      |           |          |  

---

Commitments
and contingencies (note 16)
Related party transactions (notes 8 and 23)
Basis of presentation (note 1)

See accompanying notes to consolidated financial statements.

F-4

---





MASONITE INTERNATIONAL INC.        Consolidated Statements of Changes in Shareholder's Equity and Comprehensive Income        (In thousands of U.S. dollars)        For the Years
Ended December 31, 2007 and December 31, 2006

|                                                      |                                                                  |             |   |   |         |   |   |       |   |   |          | Total
Retained
earnings
(Deficit)
and
Accumulated
Other
Comprehensive
Income
(loss) |   |         |        
|----------------------------------------------------- | ---------------------------------------------------------------- | ----------- | - | - | ------- | - | - | ----- | - | - | -------- | ----------------------------------------------------------------------------------- | - | ------- | -------
|
|
|
|
|Balance, January 1, 2005                              |                                                                  | 54,796,531  |   | $ | 271,126 |   | $ | 587   |   | $ | 529,611  |                                                                                     | $ | 115,624 |        
|Shares issued                                         |                                                                  | 23,000      |   |   | 469     |   |   |      |   |   |         |                                                                                     |   |        |        
|Net loss                                              |                                                                  |            |   |   |        |   |   |      |   |   | (30,665  | )                                                                                   |   |        |        
|Foreign exchange loss on self-sustaining operations   |                                                                  |            |   |   |        |   |   |      |   |   |         |                                                                                     |   | (20,471 | )      
|                                                      |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|Comprehensive loss                                    |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|Share based awards                                    |                                                                  |            |   |   |        |   |   | 229   |   |   |         |                                                                                     |   |        |        
|Cancellation of Predecessor share based awards        |                                                                  |            |   |   |        |   |   | (816  | ) |   |         |                                                                                     |   |        |        
|                                                      |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|Balance, April 6, 2005                                |                                                                  | 54,819,531  |   |   | 271,595 |   |   |      |   |   | 498,946  |                                                                                     |   | 95,153  |        
|                                                      |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|Balance February 2, 2005                              |                                                                  |            |   |   |        |   |   |      |   |   |         |                                                                                     |   |        |        
|Shares issued                                         |                                                                  | 113,435,362 |   |   | 567,177 |   |   |      |   |   |         |                                                                                     |   |        |        
|Net loss                                              |                                                                  |            |   |   |        |   |   |      |   |   | (69,800  | )                                                                                   |   |        |        
|Foreign exchange loss on self-sustaining operations   |                                                                  |            |   |   |        |   |   |      |   |   |         |                                                                                     |   | (7,984  | )      
|                                                      |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|Comprehensive loss                                    |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|Share based awards                                    |                                                                  |            |   |   |        |   |   | 2,956 |   |   |         |                                                                                     |   |        |        
|                                                      |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|Balance, December 31, 2005                            |                                                                  |             |   |   | 567,177 |   |   | 2,956 |   |   | (69,800  | )                                                                                   |   | (7,984  | )      
|Net loss                                              |                                                                  |            |   |   |        |   |   |      |   |   | (34,334  | )                                                                                   |   |        |        
|Other comprehensive income, net of tax:               |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|                                                      | Foreign exchange gain on self-sustaining operations              |             |  |   |         |  |   |       |  |   |          |                                                                                    |   |         | 23,967 
|                                                      |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|Comprehensive loss                                    |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|                                                      |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|Share based awards                                    |                                                                  |            |   |   |        |   |   | 2,031 |   |   |         |                                                                                     |   |        |        
|                                                      |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|Balance, December 31, 2006                            |                                                                  | 113,435,362 |   |   | 567,177 |   |   | 4,987 |   |   | (104,134 | )                                                                                   |   | 15,983  |        
|New accounting standard (note 1) net of tax of $3,339 |                                                                  |            |   |   |        |   |   |      |   |   |          |                                                                                     |   | 13,315  |        
|                                                      |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|                                                      |                                                                  | 113,435,362 |   |   | 567,177 |   |   | 4,987 |   |   | (104,134 | )                                                                                   |   | 29,298  |        
|                                                      |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|Net loss                                              |                                                                  |            |   |   |        |   |   |      |   |   | (302,891 | )                                                                                   |   |        |        
|Other comprehensive income (loss), net of tax:        |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|                                                      | Foreign exchange gain on self-sustaining operations              |             |  |   |         |  |   |       |  |   |          |                                                                                    |   |         | 16,814 
|                                                      | Change in fair value of cash flow hedges, net of tax of $(4,428) |             |  |   |         |  |   |       |  |   |          |                                                                                    |   |         | (15,443
|                                                      |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|Comprehensive loss                                    |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|                                                      |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|Share based awards                                    |                                                                  |            |   |   |        |   |   | 1,793 |   |   |         |                                                                                     |   |        |        
|                                                      |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        
|Balance, December 31, 2007                            |                                                                  | 113,435,362 |   | $ | 567,177 |   | $ | 6,780 |   | $ | (407,025 | )                                                                                   | $ | 30,669  |        
|                                                      |                                                                  |             |   |   |         |   |   |       |   |   |          |                                                                                     |   |         |        

---

Basis
of presentation (note 1)

See accompanying notes to consolidated financial statements.

F-5

---





MASONITE INTERNATIONAL INC.        Consolidated Statements of Cash Flows        (In thousands of U.S. dollars)        For the Years Ended December 31, 2007 and 2006;  the
Period from February 2, 2005 (date of Incorporation) to December 31, 2005;  and the Predecessor Period from January 1, 2005 to April 6, 2005

|                                               |                                                     | January 1, 2007 -
December 31, 2007                  |         | January 1, 2006 -
December 31, 2006 |         | February 2, 2005 -
December 31, 2005 |         | Predecessor
January 1, 2005 -
April 6, 2005 |           
|---------------------------------------------- | --------------------------------------------------- | ---------------------------------------------------- | ------- | ----------------------------------- | ------- | ------------------------------------ | ------- | ------------------------------------------- | ----------
|Cash provided by (used in):                    |                                                     |                                                      |         |                                     |         |                                      |         |                                             |           
|Operating activities:                          |                                                     |                                                      |         |                                     |         |                                      |         |                                             |           
|                                               | Net loss                                            |                                                      | $       | (302,891                            | )       | $                                    | (34,334 | )                                           | $         
|                                               | Items not involving cash:                           |                                                      |         |                                     |         |                                      |         |                                             |           
|                                               |                                                     | Depreciation                                         |         |                                     | 91,840  |                                      |         | 88,992                                      |           
|                                               |                                                     | Amortization of intangible assets                    |         |                                     | 35,580  |                                      |         | 35,650                                      |           
|                                               |                                                     | Non-cash interest expense                            |         |                                     | 10,607  |                                      |         | 8,558                                       |           
|                                               |                                                     | Loss on sale of property, plant and equipment        |         |                                     | 3,351   |                                      |         | 6,792                                       |           
|                                               |                                                     | Impairment of property, plant and equipment          |         |                                     | 10,962  |                                      |         | 16,853                                      |           
|                                               |                                                     | Impairment of goodwill and intangible assets         |         |                                     | 303,800 |                                      |         |                                            |           
|                                               |                                                     | Loss (income) from equity investments                |         |                                     |        |                                      |         |                                            |           
|                                               |                                                     | Share based awards                                   |         |                                     | 1,793   |                                      |         | 2,031                                       |           
|                                               |                                                     | Future income taxes                                  |         |                                     | (67,589 | )                                    |         | (28,484                                     | )         
|                                               |                                                     | Pension and post-retirement expense and funding, net |         |                                     | 1,496   |                                      |         | 626                                         |           
|                                               |                                                     | Unrealized foreign exchange (gain) losses            |         |                                     | (7,015  | )                                    |         | 1,200                                       |           
|                                               |                                                     | Non-controlling interest                             |         |                                     | 8,147   |                                      |         | 6,178                                       |           
|                                               | Change in non-cash operating working capital:       |                                                      |         |                                     |         |                                      |         |                                             |           
|                                               |                                                     | Accounts receivable                                  |         |                                     | (2,262  | )                                    |         | (1,158                                      | )         
|                                               |                                                     | Inventories                                          |         |                                     | 61,272  |                                      |         | 48,557                                      |           
|                                               |                                                     | Income taxes recoverable                             |         |                                     | (1,784  | )                                    |         |                                            |           
|                                               |                                                     | Income taxes payable                                 |         |                                     | (14,817 | )                                    |         | 9,547                                       |           
|                                               |                                                     | Prepaid expenses                                     |         |                                     | 4,337   |                                      |         | 613                                         |           
|                                               |                                                     | Accounts payable and accrued expenses                |         |                                     | (32,567 | )                                    |         | (15,385                                     | )         
|                                               |                                                     | Equity compensation settlement liability             |         |                                     |        |                                      |         |                                            |           
|                                               |                                                     |                                                      |         |                                     |         |                                      |         |                                             |           
|                                               |                                                     |                                                      | 104,260 |                                     |         | 146,236                              |         |                                             | (28,182   
|                                               |                                                     |                                                      |         |                                     |         |                                      |         |                                             |           
|Financing activities                           |                                                     |                                                      |         |                                     |         |                                      |         |                                             |           
|                                               | Change in bank indebtedness                         |                                                      |         | (43,651                             | )       |                                      | (65,413 | )                                           |           
|                                               | Proceeds from issuance of common shares             |                                                      |         |                                    |         |                                      |        |                                             |           
|                                               | Proceeds from issuance of long-term debt            |                                                      |         |                                    |         |                                      | 12,170  |                                             |           
|                                               | Repayment of long-term debt                         |                                                      |         | (21,983                             | )       |                                      | (37,031 | )                                           |           
|                                               | Change in other long-term liabilities               |                                                      |         |                                    |         |                                      | (3,868  | )                                           |           
|                                               | Deferred financing fees                             |                                                      |         |                                    |         |                                      | (18,325 | )                                           |           
|                                               |                                                     |                                                      |         |                                     |         |                                      |         |                                             |           
|                                               |                                                     |                                                      | (65,634 | )                                   |         | (112,467                             | )       |                                             | 2,094,656 
|                                               |                                                     |                                                      |         |                                     |         |                                      |         |                                             |           
|Investing activities                           |                                                     |                                                      |         |                                     |         |                                      |         |                                             |           
|                                               | Proceeds from sale of property, plant and equipment |                                                      |         | 8,643                               |         |                                      | 20,541  |                                             |           
|                                               | Additions to property, plant and equipment          |                                                      |         | (42,800                             | )       |                                      | (49,569 | )                                           |           
|                                               | Acquisitions                                        |                                                      |         | (8,473                              | )       |                                      |        |                                             |           
|                                               | Distributions to non-controlling interests          |                                                      |         | (3,843                              | )       |                                      | (4,096  | )                                           |           
|                                               | Other investing activities                          |                                                      |         | (2,932                              | )       |                                      | (6,398  | )                                           |           
|                                               |                                                     |                                                      |         |                                     |         |                                      |         |                                             |           
|                                               |                                                     |                                                      | (49,405 | )                                   |         | (39,522                              | )       |                                             | (2,019,858
|                                               |                                                     |                                                      |         |                                     |         |                                      |         |                                             |           
|Net foreign currency translation adjustment    |                                                     |                                                      | 5,110   |                                     |         | 5,717                                |         |                                             | 843       
|                                               |                                                     |                                                      |         |                                     |         |                                      |         |                                             |           
|Decrease in cash and cash equivalents          |                                                     |                                                      | (5,669  | )                                   |         | (36                                  | )       |                                             | 47,459    
|Cash and cash equivalents, beginning of period |                                                     |                                                      | 47,423  |                                     |         | 47,459                               |         |                                             |          
|                                               |                                                     |                                                      |         |                                     |         |                                      |         |                                             |           
|Cash and cash equivalents, end of period       |                                                     | $                                                    | 41,754  |                                     | $       | 47,423                               |         | $                                           | 47,459    
|                                               |                                                     |                                                      |         |                                     |         |                                      |         |                                             |           

---

Basis
of presentation (note 1)
Supplemental cash flow information (note 19)

See accompanying notes to consolidated financial statements.

F-6

---





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        For the years ended December 31, 2007 and December 31, 2006;  the period from February 2, 2005 (date of Incorporation) to December 31,
2005;  the Predecessor Period from January 1, 2005 to April 6, 2005.        (In thousands of U.S. dollars, except share and option information)

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These consolidated financial statements are prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). These consolidated financial
statements include the accounts of Masonite International Inc. (the "Company" or "Masonite") as at and for the years ended December 31, 2007 and 2006, formerly Stile Consolidated Corp.,
("Masonite", "Successor" or the "Company") for the year ended December 31, 2006 ("2006"), and the period from February 2, 2005 (date of Incorporation) to December 31, 2005 (the
"2005 Successor Period"). The consolidated statements of operations and cash flows show the results of the Masonite International Corporation (the "Predecessor") for the period from January 1,
2005 to April 6, 2006 (the "2005 Predecessor Period").

The
financial statements include the operations of Masonite (a company incorporated under the Canada Business Corporations Act) for the years ended December 31, 2007 and
December 31, 2006 and for the period from the date of incorporation of February 2, 2005 to December 31, 2005. Stile Consolidated Corp. changed its name to Masonite
International Inc. in the 2005 Successor Period. The only operations of Masonite for the period from February 2, 2005 to April 6, 2005 consisted of a realized exchange loss of
$5,314 to hedge the Canadian dollars required to complete the acquisition of the Predecessor as described in note 2. This realized loss, as well as the post acquisition operations from
acquiring the Predecessor, are reflected in the consolidated statement of operations in the 2005 Successor Period.

The
Company's fiscal year is the 52 or 53-week period ending on the Sunday closest to December 31. In a 52-week year, each fiscal quarter consists of
13 weeks. The years ended December 31, 2007 and 2006 consist of 52 weeks. For presentation purposes, the financial statements and notes refer to December 31 as the
Company's year-end.

The
significant accounting principles adopted by Masonite are described below. These accounting policies are consistent with those followed by the Predecessor during the relevant periods
presented unless otherwise stated. The consolidated financial statements presented for the 2005 Predecessor
Period Year-End are not comparable in all respects to the consolidated financial statements of 2007, 2006 or the 2005 Successor Period as a result of the transaction described in
note 2.

(a)   Principles of consolidation:

These
consolidated financial statements include the accounts of the Company and its subsidiaries, the accounts of any variable interest entities for which the Company is the primary
beneficiary and its proportionate share of assets, liabilities, revenues and expenses from joint ventures. Intercompany accounts and transactions have been eliminated on consolidation. The results of
subsidiaries acquired during the periods presented are consolidated from their respective dates of acquisition using the purchase method. Joint ventures are proportionately consolidated from the date
of formation.

F-7

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES(Continued)

(b)   Generally accepted accounting principles:

The
Company has adopted Handbook sections 1100, "Generally Accepted Accounting Principles", and 1400, "General Standards of Financial Statement Presentation" issued by the
Canadian Institute of Chartered Accountants ("CICA"). These sections establish standards for financial reporting and fair presentation in accordance with Canadian GAAP and provide guidance on sources
to consult when a matter is not dealt with explicitly in the primary sources of Canadian GAAP.

(c)   Translation of consolidated financial statements into United States ("U.S.") dollars:

These
consolidated financial statements are expressed in U.S. dollars. The U.S. dollar is the functional currency of the Company. The accounts of certain self-sustaining
foreign operations of the Company are maintained in functional currencies other than the U.S. dollar. Assets and liabilities have been translated into U.S. dollars at the exchange rates prevailing at
the end of the period and results of operations at the average exchange rates for the period. Unrealized exchange gains and losses arising on the translation of the financial statements of the
Company's non-U.S. dollar functional currency operations are accumulated in the cumulative translation adjustments account in accumulated other comprehensive income.

Other
exchange gains and losses are included in net loss for the year.

(d)   Cash and cash equivalents:

Cash
includes cash equivalents which are short-term highly liquid investments with original maturities of three months or less.

(e)   Accounts receivable:

Transfers
of receivables are accounted for as sales when the Company is considered to have surrendered control over the transferred accounts receivables and receives proceeds, other than
a beneficial interest, in the assets sold. This is considered to have occurred when the transferred receivables have been put presumptively beyond the reach of the Company and its creditors after the
sale, there are no constraints put on the transferee of taking advantage of its right to pledge or exchange the assets received, and the Company no longer maintains effective control over the
transferred receivables. In recording a sale, the receivables are removed from the consolidated balance sheet and charges incurred on the sale are recognized immediately in selling, general and
administration expense on the consolidated statement of operations based on the carrying amount of the receivables transferred.

Under
the sale of the receivables facility, as described in note 3, the Company acts as the servicer of the receivables and is permitted to sell, on an ongoing basis, additional
eligible accounts receivable on an agreed upon timetable. Although the Company remains responsible for servicing the accounts receivable, it does not receive additional compensation for servicing
them. The Company's servicing obligations are not significant.

F-8

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES(Continued)

The
Company does not have a retained interest in the receivables sold, and records the sale of the receivables at the face value less the charge incurred. The Company does not record any
gain or loss on the sale of receivables under these facilities. The balances sold represent the entire balance of accounts receivable from two selected customers.

(f)    Inventories:

Raw
materials are valued at the lower of cost or market value, where market value is determined using replacement cost. Finished goods are valued at the lower of cost (comprised of
materials and conversion costs) or net realizable value. Cost is determined on a first-in, first-out basis. In determining the net realizable value, the Company considers
factors such as yield, turnover, expected future demand and past experience.

(g)   Property, plant and equipment:

Property,
plant and equipment are stated at cost. Depreciation is provided on the carrying values of buildings and machinery and equipment by the straight-line method based
on the estimated useful lives as follows:

Buildings

20 - 40 yearsMachinery and equipmentTooling

12 yearsMachinery and equipment

5 - 12 yearsMolds and dies

20 - 25 yearsFixtures and fittings

10 - 12 yearsDistribution and delivery equipment

5 yearsOffice and data processing equipment

3 - 10 years


Improvements
and major maintenance that extend the life of an asset are capitalized; other repairs and maintenance are expensed. When assets are retired or otherwise disposed of, their
carrying values and accumulated depreciation are removed from the accounts.

Property,
plant and equipment is tested for impairment when events or changes in circumstances indicate that the carrying value of property, plant and equipment may exceed the sum of the
undiscounted cash flows expected from their use and disposal. An impairment loss is recognized when the carrying amount of an asset being tested for recoverability exceeds the sum of the undiscounted
cash flows expected from its use and disposal. Impairments are measured as the amount by which the carrying amount of the asset exceeds its fair value, as determined using a discounted cash flow
approach. For the year ended December 31, 2007, the Company recorded impairment charges of $10,962 (2006$16,853; 2005 Successor Period$nil; 2005 Predecessor
Period$nil).

F-9

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES(Continued)

(h)   Goodwill:

The
Company uses the purchase method of accounting for all business combinations. The Company evaluates all business combinations for intangible assets that should be recognized and
reported apart from goodwill.

Goodwill
is not amortized but instead is tested for impairment annually on December 31, or more frequently if events or changes in circumstances indicate the carrying amount may
not be recoverable. Impairment is tested at the reporting unit level by comparing the reporting unit's carrying amount to its fair value. Fair values of reporting units are estimated using an income
approach. If the carrying amount exceeds fair value, there is impairment in goodwill. Any impairment in goodwill is measured by allocating the fair value of the reporting unit in a manner similar to a
purchase price allocation and comparing the notional goodwill from the fair value allocation to the carrying value of goodwill. The Company has completed its annual impairment test for its reporting
units, and determined that there was impairment in the goodwill in the North American segment in the amount of $208,400. This impairment was primarily the result of continuing weakness in the North
American housing market.

(i)    Intangible assets:

Intangible
assets with finite lives include customer relationships, non-compete agreements, order backlogs and patents. Intangible assets are amortized on a
straight-line basis over their estimated useful lives, as follows:

|Customer relationships |  | Over expected relationship period, not exceeding 15 years
|---------------------- |  | ---------------------------------------------------------
|Non-compete agreements |  | Over life of non-compete agreement                       
|Order backlogs         |  | Over expected completion period                          
|Patents                |  | Over expected useful life, not exceeding 17 years        

Amortizable
intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying value may be greater than the fair value. An impairment
loss is recognized when the estimate of undiscounted future cash flows generated by such assets is less than the carrying amount. Measurement of the impairment loss is based on the fair value of the
asset. Fair value is measured using discounted cash flows when quoted market prices are not available. As a result of impairment tests conducted at December 31, 2007, it was determined that
there was impairment in the North American customer relationship intangible in the amount of $65,400.

Indefinite
life intangibles are tested for impairment annually on December 31, or more frequently if events or circumstances indicate the carrying value exceeds the fair value. As
a result of the impairment test conducted at December 31, 2007 it was determined there was impairment in the tradename intangible in the amount of $30,000.

(j)    Other assets:

Other
assets includes long-term receivable and a receivable from the Company's parent. As of December 31, 2006, other assets included deferred financing costs which
are amortized over the term

F-10

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES(Continued)

of
the related long-term debt using the effective interest rate method. On January 1, 2007 the Company adopted Canadian Institute of Charted Accountants ("CICA") Handbook
section 3855, "Financial InstrumentsRecognition and Measurement" ("CICA 3855"), which resulted in the reclassification of $71,282 of unamortized financing costs to
long-term debt.

(k)   Future income taxes:

The
Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, future tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are
measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on
future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. A valuation allowance is recorded to
reduce future tax assets to an amount that is anticipated to be realized on a more likely than not basis.

(l)    Employee future benefits:

The
Company maintains defined benefit pension plans and other postretirement benefits covering certain employees. Earnings are charged with the cost of benefits earned by employees as
services are rendered. The cost reflects management's best estimates of the pension plans' expected investment yields, wage and salary escalation, expected health care costs, mortality of members,
terminations and the ages at which members will retire. Changes in these assumptions could impact future pension expense. The excess of the net actuarial gain (loss) over 10% of the greater of the
benefit obligation and the fair value of plan assets at the beginning of the year is amortized over the average remaining service lives of the members. The average remaining service life of the
members is 14 years (200615 years; 200514 years) for the U.S. defined benefit pension plan, 12 years (200612 years;
20056 years) for medical benefits and 13 years (200613 years; 200513 years) for life insurance benefits under the other U.S. employee
postretirement benefits plan. For the United Kingdom defined benefit plan, the average remaining service life of the members is 12 years (200615 years;
200515 years).

Assets
are valued at fair value for the purpose of calculating the expected return on plan assets. Past service costs arising from plan amendments are amortized on a
straight-line basis over the average remaining service period of employees active at the date of amendment.

When
a restructuring of a benefit plan gives rise to both a curtailment and a settlement of obligations, the curtailment is accounted for prior to the settlement. Curtailment gains are
offset against unrecognized losses and any excess gains and all curtailment losses are recorded in the period in which the curtailment occurs.

The
Company is responsible for continuing to provide health care and life insurance benefits for certain retired employees. The amount of the accumulated postretirement benefits
obligation has been actuarially determined and benefit costs are charged against the obligation as incurred.

F-11

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES(Continued)

(m)  Restructuring and severance benefits:

All
salary related contractual severance benefits are accrued and expensed when the benefit is probable and reasonably estimable, which is generally when the decision to terminate the
employee is made by management of sufficient authority. A liability and expense is charged for contractual termination benefits based on their fair value when it is probable that employees will be
entitled to the benefits, and the amount can be reasonably estimated. This occurs when management approves and commits the Company to the obligation, management's termination plan specifically
identifies all significant actions to be taken, actions required to fulfill management's plan are expected to begin as soon as possible, and significant changes to the plan are not likely.

All
salary related non-contractual benefits are accrued and expensed at fair value at the communication date that the employees being severed are given formal notice of
termination.

In
addition to salary related costs, the Company incurs other restructuring costs when facilities are closed or capacity is realigned within the organization. A liability and expense is
charged for contractual exit activities when the Company terminates the contract within the provisions of the agreement, generally by way of written notice to the counterparty. For
non-contractual exit activities, a liability and expense are measured at fair value in the period in which the liability is incurred.

Restructuring
related costs are charged to other expense whereas non-restructuring related severance benefits are charged to selling, general and administration expenses.

(n)   Asset retirement obligations:

Asset
Retirement Obligations ("ARO") are measured initially at fair value in the period in which they are incurred. Upon initial recognition of a liability for an ARO, a corresponding
asset retirement cost
is added to the carrying amount of the related asset. Following the initial recognition of an ARO, the carrying amount of the obligation is increased for the passage of time and adjusted for revisions
to the amount or timing of the underlying cash flows needed to settle the obligation. The cost is amortized into income subsequently on the same basis as the related asset.

(o)   Use of estimates:

The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant areas requiring the
use of management estimates include the collectibility of accounts receivable, the net realizable value of inventories, the determination of obligations under employee future benefit plans, the
determination of stock based awards, the valuation of acquired assets and liabilities, the determination of fair value of financial instruments, the fair value of goodwill, intangible assets, the
useful lives of long-lived assets, as well as the determination of impairment thereon and the recoverability of future income tax assets. Actual results could differ from those estimates.

F-12

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES(Continued)

(p)   Financial instruments:

The
estimated fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than a forced or
liquidation sale. These estimates, although based on the relevant market information about the financial instrument, are subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.



F-13

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES(Continued)





F-14

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES(Continued)



(p)   Financial Instrument Standards:

On
January 1, 2007, the Company adopted the recommendations of the Canadian Institute of Chartered Accountants Handbook (CICA Handbook) Section 1530, "Comprehensive Income"
("CICA 1530"); Section 3855, "Financial InstrumentsRecognition and Measurement" ("CICA 3855"); Section 3861, "Financial InstrumentsDisclosure and
Presentation" ("CICA 3861"); Section 3865, "Hedges" ("CICA 3865"); and Section 3251, "Equity" ("CICA 3251"). These sections became effective on January 1,
2007, and provide standards for recognition, measurement, disclosure and presentation of financial assets, financial liabilities and non-financial derivatives, and describe when and how
hedge accounting may be applied. These standards were adopted retroactively without restating prior periods, except for the presentation of translation gains or losses on self-sustaining
operations.

CICA 1530
provides standards for the reporting and presentation of comprehensive income, which represents the change in equity, from transactions and other events and
circumstances from non-owner sources. Other comprehensive income is defined by revenues, expenses, gains and losses that are recognized in comprehensive income, but excluded from net
income, in conformity with the generally accepted accounting principles. As a result of adopting CICA 1530 as of January 1, 2007, the Company reclassified the balance in the cumulative
translation adjustment presented on the consolidated balance sheet of $15,983 at December 31, 2006 to accumulated other comprehensive income, which is presented as a new category of
shareholder's equity on the consolidated balance sheet.

CICA 3855
requires that all financial assets be classified as held for trading, held-to-maturity investments, loans and receivables or
available-for-sale categories. Also, all financial liabilities must be classified as held for trading or other financial liabilities upon initial recognition. All financial
instruments, other than those that are held-to-maturity, are recorded on the consolidated balance sheet at fair value. After initial recognition, the financial instruments
should be measured at their fair values, except for held-to-maturity investments, loans and receivables and other financial liabilities, which should be measured at amortized
cost using the effective interest rate method. The effective interest related to financial assets and liabilities and the gain or loss arising from a change in the fair value of a financial asset or
financial liability classified as held for trading is included in net income as a component of interest expense for the period in which it arises. If a financial asset is classified as
available-for-sale, the gain or loss should be recognized in other comprehensive income until the financial asset is derecognized and all of the cumulative gain or loss is then
recognized in net income

F-15

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES(Continued)

as
a component of interest expense. In addition, it is the Company's policy that transaction costs with respect to instruments not classified as held-for-trading are recognized
as an adjustment to the cost of the underlying instrument, and amortized using the effective interest method as a component of interest expense. As a result of adopting CICA 3855 at
January 1, 2007, the Company reclassified $71,282 of unamortized financing costs, which were previously recorded in other assets, to long-term debt.

As
a result of the adoption of these standards, the Company has classified its cash and cash equivalents as held for trading, accounts receivable as loans and receivables and accounts
payable and accrued liabilities, bank indebtedness and long term debt as other financial liabilities.

CICA 3865
replaces Accounting Guideline 13, "Hedging Relationships" ("AcG-13"), and provides new standards for the accounting treatment of qualifying hedging
relationships and the related disclosures. The Company's derivative financial instruments, which consist of interest rate swap agreements that have been designated as cash flow hedges, have been
reported at fair value as a result of the implementation of CICA 3855 and 3865. The unrealized gains and losses that arise as a result of re-measuring the swap agreements at their
fair value at the end of each period are recognized, net of income taxes, in other comprehensive income in the period. As a result of adopting CICA 3855 and 3865 at January 1, 2007, the
Company recognized an asset of $13,315, net of taxes of $3,339 related to its interest rate swap in accumulated other comprehensive income. For the period ended December 31, 2007, the interest
rate swaps designated as cash flow hedges were determined to be effective.

An
embedded derivative is a component of a hybrid instrument that also includes a non-derivative host contract, with the effect that some of the cash flows of the combined
instrument vary in a way similar to a stand-alone derivative. If certain conditions are met, an embedded derivative is separated from the host contract and accounted for as a derivative in the balance
sheet, at its fair value. The Company recognizes embedded derivatives on its consolidated balance sheet, if
applicable. As a result of adopting CICA 3855, the Company conducted a search for embedded derivatives in all contractual agreements dated subsequent to January 1, 2003 and did not
identify any embedded features that required separate presentation from the related host contract.

The
following table shows the impact on the December 31, 2006 balances of adopting CICA 1530, 3855, 3865 and 3251 on January 1, 2007:

|                                       |  | Balance
December 31, 2006 |           | Adoption of
Financial Instruments |   | Balance
January 1, 2007
|-------------------------------------- |  | -------------------------- | --------- | --------------------------------- | - | ------------------------
|Other assets                           |  | $                          | 89,334    |                                   | $ | (54,628                 
|Long-term debt                         |  |                            | 1,955,779 |                                   |   | (71,282                 
|Long-term future income taxes          |  |                            | 214,185   |                                   |   | 3,339                   
|Cumulative translation adjustment      |  |                            | 15,983    |                                   |   | (15,983                 
|Accumulated other comprehensive income |  |                            |          |                                   |   | 29,298                  

F-16

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES(Continued)

(q)   Stock-based awards:

The
Company has a stock-based awards plan, which is described in further detail in note 14.

The
Company applies the fair value method of accounting using the Black-Scholes option pricing model to determine the compensation expense which is recorded in selling, general and
administration expenses.

(r)   Revenue recognition:

Revenue
from the sale of products is recognized when supported by an agreement with the customer in the form of a sales order, when collectibility is reasonably assured, and when the
risks and benefits of ownership have been transferred to the customer. Revenue recognition occurs when title of ownership transfers to the customer.

Volume
rebates to customers are considered as a reduction of the sales price of the Company's products. Accordingly, revenue is reported net of such rebates.

(s)   Vendor rebates:

The
Company accounts for cash consideration received from a vendor as a reduction of cost of sales and inventory, on the statement of operations and balance sheet respectively. The cash
consideration received represents agreed upon vendor rebates that are earned in the normal course of operations.

(t)    Non-Monetary Transactions:

The
Company measures all non-monetary transactions at fair value unless:



A
transaction is considered to have commercial substance if it causes an identifiable and measurable change in the economic circumstances of an entity.

(u)   Recently Issued Accounting Standards:

Accounting Changes

On
January 1, 2007, the Company adopted revisions to the CICA 1506, "Accounting Changes". The revised standard sets forth expanded disclosures for changes in accounting policies,
accounting estimates, and accounting errors. The standard requires that accounting changes be applied retrospectively unless otherwise permitted or where it is deemed impractical. The standard also
requires

F-17

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES(Continued)

that
the Company disclose new primary sources of GAAP that have been issued, but are not adopted because they are not currently effective.

Inventories

In
June 2007, the CICA issued Section 3031, Inventories, replacing Section 3030, Inventories. The new Section will be applicable to financial statements relating to fiscal
years beginning on or after January 1, 2008. Accordingly, the Company will adopt the new standards for its fiscal year beginning January 1, 2008. It provides more guidance on the
measurement and disclosure requirements for inventories. For example, it requires that fixed and variable production overheads be systematically allocated to the carrying amount of inventory.

Going Concern

In
June 2007, CICA 1400, "General Standards of Financial Statement Presentation" was amended to include guidance on an entity's ability to continue as a going concern. The revised
standards are effective for all fiscal periods commencing on or after January 1, 2008. The revised standard explicitly requires management to assess and disclose the entity's ability to
continue as a going concern.

Financial Instruments

In
December 2006, the CICA issued Section 3862, "Financial InstrumentsDisclosures"; Section 3863, "Financial InstrumentsPresentation"; and
Section 1535, "Capital Disclosures". All three Sections will be applicable to financial statements relating to fiscal years beginning on or after October 1, 2007. Accordingly, the
Company will adopt the new standards for its
fiscal year beginning January 1, 2008. Section 3862 on financial instruments disclosures, requires the disclosure of information about: a) the significance of financial
instruments for the entity's financial position and performance and b) the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at
the balance sheet date, and how the entity manages those risks. Section 3863 on the presentation of financial instruments is unchanged from the presentation requirements included in
Section 3861. Section 1535 on capital disclosures requires the disclosure of information about an entity's objectives, policies and processes for managing capital.

Goodwill and intangible assets

In
February 2008, the CICA issued Section 3064, "Goodwill and intangible assets", replacing Section 3062, "Goodwill and other intangible assets" and Section 3450,
"Research and development costs". Various changes have been made to other sections of the CICA Handbook for consistency purposes. These new Sections will be applicable to financial statements relating
to fiscal years beginning on or after October 1, 2008. Accordingly, the Company will adopt the new standards for its fiscal year beginning January 1, 2009. It establishes standards for
the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are
unchanged from the standards included in the previous Section 3062.

F-18

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 1: SIGNIFICANT ACCOUNTING POLICIES(Continued)

The
Company is currently evaluating the impact of the adoption of these new Sections on its consolidated financial statements.

NOTE 2: ACQUISITIONS

In the third quarter of 2007, the Company paid $3,264 for the remaining 20% of a subsidiary in Eastern Europe. The excess of the purchase price over the fair
value of the net assets acquired of
$1,993 was allocated to goodwill. During the year, the Company also made payments of $5,209 due on prior acquisitions and recognized additional goodwill of $2,381.

There
were no acquisitions completed during the period from January 1, 2006 to December 31, 2006.

For
the years ended December 31, 2007 and 2006, the changes in the carrying amount of goodwill were as follows:

2007

North America

Europe and Other

TotalGoodwill, December 31, 2006

$
915,790

$
53,690

$
969,480Impairments


(208,400
)




(208,400
)Acquisitions





4,374


4,374Translation adjustment





2,976


2,976Goodwill, December 31, 2007

$
707,390

$
61,040

$
768,430


|
|

2006

North America

Europe and Other

TotalGoodwill, December 31, 2005

$
920,110

$
48,657

$
968,767Acquisition-related future taxes


(4,320
)




(4,320
)Translation adjustment





5,033


5,033Goodwill, December 31, 2006

$
915,790

$
53,690

$
969,480


On
April 6, 2005, pursuant to a combination agreement (the "Transaction"), Stile Acquisition Corp. ("Stile"), a wholly owned subsidiary of the Successor and an affiliate of
Kohlberg Kravis Roberts & Co. L.P. ("KKR"), acquired all of the outstanding common shares of the Predecessor. Immediately thereafter, Stile U.S. Acquisition Corp. ("Stile U.S."),
a wholly-owned subsidiary of Successor, purchased the shares of Masonite Holdings Inc., the holding company of the U.S. operations of the Predecessor, from Stile for its fair value of
$1,100,000.

Subsequent
to these transactions, Stile U.S. amalgamated with Masonite Holdings Inc. ("Masonite Holdings") and changed its name to Masonite Corporation (formerly known as Masonite
U.S. Corporation), and Stile amalgamated with the Predecessor and changed its name to Masonite
International Corporation. Finally, the Successor changed its name from Stile Consolidated Inc. to Masonite International Inc.

The
Company accounted for the acquisition as a business combination using the purchase method. All consideration was paid in cash. The following table summarizes the fair value of the
assets acquired

F-19

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 2: ACQUISITIONS(Continued)

and
liabilities assumed at the date of acquisition, as well as the assets acquired and liabilities assumed of all other acquisitions in the Successor Period (the table does not include acquisitions of
minority positions in subsidiaries that were already consolidated):

|December 31, 2005                                  |              | Acquisition of
Predecessor |           | Acquisitions Since
April 6, 2005 |   | Total   |       
|-------------------------------------------------- | ------------ | -------------------------- | --------- | -------------------------------- | - | ------- | ------
|Current assets, excluding cash acquired of $49,445 |              | $                          | 725,637   |                                  | $ | 25,898  |       
|Property, plant and equipment                      |              |                            | 934,590   |                                  |   | 17,521  |       
|Goodwill                                           |              |                            | 949,892   |                                  |   | 9,400   |       
|Customer relationships                             |              |                            | 300,000   |                                  |   | 6,134   |       
|Order backlogs                                     |              |                            | 4,000     |                                  |   |        |       
|Patents                                            |              |                            | 85,000    |                                  |   | 1,232   |       
|Trademarks                                         |              |                            | 165,000   |                                  |   |        |       
|Other assets                                       |              |                            | 18,368    |                                  |   | 71      |       
|Long-term future income taxes                      |              |                            | 26,220    |                                  |   |        |       
|Current liabilities assumed                        |              |                            | (486,783  | )                                |   | (20,756 | )     
|Debt assumed                                       |              |                            | (491,470  | )                                |   | (9,555  | )     
|Other long-term liabilities                        |              |                            | (27,799   | )                                |   | (757    | )     
|Long-term future income taxes                      |              |                            | (264,265  | )                                |   |        |       
|                                                   |              |                            |           |                                  |   |         |       
|                                                   |              |                            | 1,938,390 |                                  |   | 29,188  |       
|Non-controlling interest                           |              |                            | (68,922   | )                                |   | (761    | )     
|Cost of original equity investment                 |              |                            |          |                                  |   | (3,507  | )     
|                                                   |              |                            |           |                                  |   |         |       
|                                                   |              | $                          | 1,869,498 |                                  | $ | 24,920  |       
|                                                   |              |                            |           |                                  |   |         |       
|Consideration:                                     |              |                            |           |                                  |   |         |       
|                                                   | Cash         |                            | $         | 1,869,468                        |   | $       | 21,420
|                                                   | Note payable |                            |           |                                 |   |         | 3,500 
|                                                   |              |                            |           |                                  |   |         |       
|                                                   |              | $                          | 1,869,468 |                                  | $ | 24,920  |       
|                                                   |              |                            |           |                                  |   |         |       

In
the 2005 Successor Period, the Company paid cash of $21,420 (net of $1,430 in cash acquired) for the acquisition of businesses, excluding acquisitions of minority positions in
subsidiaries that were already consolidated. In May 2005, the Company purchased the remaining ownership of less than wholly owned investments located in Israel and Turkey for cash consideration of
$8,409. In July 2005, the Company entered into a joint venture in Malaysia with a cash contribution of $2,827. Also, in October 2005, the Company acquired an 80% interest in a manufacturing enterprise
located in Hungary for total consideration of $8,514. The Company paid cash consideration of $5,014 in 2005, and the balance of the consideration in 2007. In December 2005, the Company completed the
acquisition of a manufacturing facility in the United States for cash consideration of $6,600.

The
Company also acquired the remaining ownership of less than wholly owned subsidiaries in the Successor Period for total consideration of $45,315. These acquisitions included
purchasing the remaining interest in a manufacturing facility with operations in Canada and the United States for cash consideration of $36,369 in May 2005, and the purchase of the remaining ownership
of a manufacturing

F-20

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 2: ACQUISITIONS(Continued)

enterprise
with operations in Canada for total consideration of $8,946 in October 2005. The total consideration included cash of $4,620 and a note payable of $4,326 payable over a three year period
from the closing date. Total goodwill recorded in connection with these transactions was $8,328.

NOTE 3: ACCOUNTS RECEIVABLE

The Company has an agreement (the "Facilities Agreement") to sell up to $135,000 of non-interest bearing trade accounts receivable. The charges
incurred under the Facilities Agreement are calculated based on the receivables sold and the prevailing LIBOR interest rate plus a spread of 1.25% at December 31, 2007 (20061.25%).
Information regarding balances
sold and charges incurred, which are included in selling, general and administration expenses, on the Facilities Agreement, is included in the table below.

The
Company also had an additional agreement (the "Acquired Facilities Agreement") to sell receivables of a specific customer. The charges incurred under the Acquired Facilities
Agreement were calculated based on the receivables sold and the prevailing LIBOR interest rate plus a spread of 1.75%. In March of 2007, further sales under the Acquired Facilities Agreement were
terminated and were transitioned to the Facilities Agreement. Information regarding the balances sold and charges incurred, which are included in selling, general and administration expenses, on the
Acquired Facilities Agreement is included in the following table:

2007

2006Receivables sold at period end:Facilities Agreement

$
52,150

$
88,063Acquired Facilities Agreement





24,841$
52,150

$
112,904


|
|

2007

2006

2005
Successor
Period

2005
Predecessor
PeriodCharges incurred in the periodFacilities Agreement

$
5,021

$
6,104

$
4,058

$
945Acquired Facilities Agreement


280


1,828


1,238


273$
5,301

$
7,932

$
5,296

$
1,218


NOTE 4: INVENTORIES

2007

2006Raw materials

$
185,146

$
222,364Finished goods


110,685


129,174$
295,831

$
351,538


F-21

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 4: INVENTORIES(Continued)

In
2006, the Company recorded a provision of $9,000 in cost of sales in the consolidated statement of operations related to finished goods and raw materials inventory at various
facilities within the organization. The Company performed an analysis of expected demand primarily related to discontinued product lines and it was determined that an adjustment was necessary to
present these inventories at the lower of cost or market value.

NOTE 5: ASSETS HELD FOR SALE

Due to the closure of a manufacturing facility in the U.S., land and buildings have been held for sale, and as a result, the carrying value of $1,849 has been
reclassified from property, plant and equipment to assets held for sale. The carrying value of the assets held for sale are included in the North American segment and are expected to be sold during
2008.

NOTE 6: PROPERTY, PLANT AND EQUIPMENT

2007

Cost

Accumulated
Depreciation

Net Book ValueLand

$
44,294

$


$
44,294Buildings


215,947


31,875


184,072Machinery and equipment


820,109


236,000


584,109$
1,080,350

$
267,875

$
812,475


|
|

2006

Cost

Accumulated
Depreciation

Net Book ValueLand

$
48,901

$


$
48,901Buildings


216,692


17,461


199,231Machinery and equipment


771,523


146,079


625,444$
1,037,116

$
163,540

$
873,576


Total
depreciation expense charged to the consolidated statement of operations related to property, plant and equipment in the year ended December 31, 2007 was $91,840
(2006$88,992; 2005 Successor Period$59,695; 2005 Predecessor Period$17,919).

During
2007, the Company recorded impairment charges of $10,962 (2006$16,853; 2005 Successor Period$nil; 2005 Predecessor Period$nil) to reduce the
carrying value of fixed assets to their net realizable value, as a result of the expected discounted cash flows from these assets being less than their carrying value.

F-22

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 7: INTANGIBLE ASSETS

2007

Cost

Accumulated
Amortization

Net Book ValueAmortizable intangible assetsCustomer relationships

$
247,954

$
71,947

$
176,007Order backlogs


4,105


4,105


Patents


92,023


25,033


66,990344,082


101,085


242,997Indefinite life intangible assetsTrademarks and tradenames


135,000





135,000$
479,082

$
101,085

$
377,997


|
|

2006

Cost

Accumulated
Amortization

Net Book ValueAmortizable intangible assetsCustomer relationships

$
313,354

$
45,561

$
267,793Order backlogs


4,105


4,105


Patents


92,023


15,848


76,175409,482


65,514


343,968Indefinite life intangible assetsTrademarks and tradenames


165,000





165,000$
574,482

$
65,514

$
508,968


Impairment
recorded in the consolidated statement of operations was $95,400 (2006$nil; 2005 Successor Period$nil; 2005 Predecessor Period$nil).
$30,000 of this amount was related to tradenames and $65,400 was related to customer relationship intangibles.

For
the years ended December 31, 2007 and 2006, the changes in the carrying amount of intangible assets were as follows:

|2007                              |  | Customer
Relationships |         | Order
Backlogs |   | Patents |  | Trademarks |        | Total |  
|--------------------------------- |  | ---------------------- | ------- | -------------- | - | ------- |  | ---------- | ------ | ----- | -
|Net book value, December 31, 2006 |  | $                      | 267,793 |                | $ |        |  | $          | 76,175 |       | $
|Impairment                        |  |                        | (65,400 | )              |   |        |  |            |       |       |  
|Amortization                      |  |                        | (26,389 | )              |   |        |  |            | (9,184 | )     |  
|                                  |  |                        |         |                |   |         |  |            |        |       |  
|Net book value, December 31, 2007 |  | $                      | 176,004 |                | $ |        |  | $          | 66,990 |       | $
|                                  |  |                        |         |                |   |         |  |            |        |       |  

F-23

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 7: INTANGIBLE ASSETS(Continued)

|
|

|2006                              |  | Customer
Relationships |         | Order
Backlogs |   | Patents |  | Trademarks |        | Total |  
|--------------------------------- |  | ---------------------- | ------- | -------------- | - | ------- |  | ---------- | ------ | ----- | -
|Net book value, December 31, 2005 |  | $                      | 294,188 |                | $ |        |  | $          | 85,430 |       | $
|Amortization                      |  |                        | (26,395 | )              |   |        |  |            | (9,255 | )     |  
|                                  |  |                        |         |                |   |         |  |            |        |       |  
|Net book value, December 31, 2006 |  | $                      | 267,793 |                | $ |        |  | $          | 76,175 |       | $
|                                  |  |                        |         |                |   |         |  |            |        |       |  

The
weighted average amortization period at December 31, 2007 for intangible assets was approximately 9 years (200610 years). The estimated amortization
for existing intangible assets over the next five years ending December 31 is as follows:

2008

$
30,1422009


30,1422010


30,1422011


30,1422012


30,142$
150,710


Total
amortization expense charged to the consolidated statement of operations related to intangible assets in the year ended December 31, 2007 was $35,568
(2006$35,650; 2005 Successor Period$29,915; 2005 Predecessor Period$1,093).

F-24

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 8: OTHER ASSETS

2007

2006Deferred financing fees, less accumulated amortization of $nil (2006$25,043)

$


$
71,282Receivable from parent


18,408


13,408Long-term receivables and other


2,093


4,644$
20,501

$
89,334


At
April 6, 2005, the deferred financing fees include costs of $78,000 related to financing fees on the Company's term loan and senior subordinated bridge loan. In 2006,
additional deferred financing fees of $17,325, plus $1,000 in professional fees, were capitalized as part of the conversion of the senior term loan into senior subordinated notes, in accordance with
the terms of the indenture of the senior term loan (see note 10). As of January 1, 2007, as a result of adopting a new CICA Handbook section, this amount was reclassified to
long-term debt.

Included
in long-term receivables and other at December 31, 2007 is $1,690 (2006$3,894) in receivables due over the next five years pursuant to a royalty
agreement. The $18,408 (2006$13,408) due from Masonite Holding Corporation ("Holdings"), the Company's parent, represents share purchase and redemption transactions of the Parent's shares
that were funded by a subsidiary of the Company. The amount receivable from Holdings is non-interest bearing, unsecured, and has no set terms of repayment.

NOTE 9: BANK INDEBTEDNESS

2007

2006Revolving credit facility

$


$
43,000Other borrowings and overdrafts


17,615


17,393$
17,615

$
60,393


The
Company has a $350,000 revolving credit facility as part of its banking arrangements. Interest on the revolving credit facility is subject to a pricing grid ranging from LIBOR plus
1.75% to LIBOR plus 2.50%, and is secured by fixed and floating charges over substantially all of Masonite's assets. As of December 31, 2007, the revolving credit facility interest rate was
LIBOR plus 2.50% (2006LIBOR plus 2.50%).

The
revolving credit facility also provides for payment to the lenders of a commitment fee on the average daily undrawn commitments at a rate ranging from 0.375% to 0.5% per annum, a
fronting fee of 0.125%, and a letter of credit fee ranging from 1.75% to 2.5% (less the 0.125% fronting fee).

Interest
on the revolving credit facility for the year ended December 31, 2007 was $3,137 (2006$8,696; 2005 Successor Period$4,981). Interest on the
Predecessor revolving credit facility in the Predecessor Period was $174.

F-25

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 9: BANK INDEBTEDNESS(Continued)

Certain
of Masonite's subsidiaries also have bank loans and bank overdraft agreements with local lenders. These facilities are secured by fixed and floating charges over the assets of
the respective subsidiaries and are non-recourse to Masonite. The maximum credit available to these subsidiaries at December 31, 2007 was $32,694 (2006$14,081) and bear
interest at rates between of 4.5% to 22.6%.

NOTE 10: LONG-TERM DEBT

|                                                                                                                                                |  | 2007 |           | 2006
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ----
|Senior Secured Credit Facilities, bearing interest at LIBOR plus 2.00% due April 6, 2013, net of deferred financing fees of $29,199 (2006$nil) |  | $    | 1,116,426 |     
|Senior Subordinated Notes, bearing interest at 11%, due October 6, 2015, net of deferred financing fees of $31,841 (2006$nil)                  |  |      | 738,015   |     
|Senior Subordinated Term Loan, bearing interest at 11%, due October 6, 2015                                                                     |  |      |          |     
|Bank term loan bearing interest at LIBOR plus 1.50%, due November 27, 2009                                                                      |  |      | 2,100     |     
|Bank term loan bearing interest at LIBOR plus 0.50% (20060.49%) due January 17, 2009                                                           |  |      | 7,500     |     
|Bank term loan bearing interest at LIBOR plus 0.49% (20060.49%) due January 4, 2008                                                            |  |      | 5,000     |     
|Other loans, at various interest dates and maturities                                                                                           |  |      | 4,382     |     
|                                                                                                                                                |  |      |           |     
|                                                                                                                                                |  |      | 1,873,423 |     
|Less current portion                                                                                                                            |  |      | 20,777    |     
|                                                                                                                                                |  |      |           |     
|                                                                                                                                                |  | $    | 1,852,646 |     
|                                                                                                                                                |  |      |           |     

The
aggregate amount of principal repayments in the twelve month periods ending December 31 in each of the next five years and thereafter is as follows:

2008

$
20,7772009


20,7622010


12,6882011


11,7502012


11,750Thereafter


1,856,736$
1,934,463


The
Company's senior secured credit facilities include an eight year $1,175,000 term loan that bears interest at LIBOR plus 2.00% and amortizes at 1% per year. This facility requires the
Company to meet a minimum interest coverage ratio starting at 1.5 times and increasing over time to 2.2 times adjusted earnings before interest, taxes, depreciation and amortization, as defined in the
credit agreement ("Adjusted EBITDA"), and a maximum leverage ratio, which is defined generally as total

F-26

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 10: LONG-TERM DEBT(Continued)

indebtedness
including outstanding letters of credit less cash on hand, starting at 7.9 times, and decreasing over time to 4.75 times, Adjusted EBITDA. The fair market value of the term loan
obligation as represented by its December 31, 2007 trading value is estimated to be $1,001,971. The prevailing 3-month LIBOR rate at year end was 4.70%.

At
December 31, 2007, the Company was required to have met a minimum interest coverage ratio of 1.65 times Adjusted EBITDA, and a maximum leverage ratio of 7.0 times Adjusted
EBITDA. In addition, the senior secured credit facilities limit, among other things, the incurrence of additional indebtedness, investments, dividends, transactions with affiliates, asset sales,
acquisitions, mergers and consolidations, prepayments of other indebtedness, liens and other encumbrances, additional payments based on excess cash flows, and other matters customarily restricted in
such agreements. This facility also contains certain customary events of default, subject to grace periods, as appropriate. The senior secured credit facilities are secured by a fixed and floating
charge over the assets of the Company and the guarantor subsidiaries, as defined in the credit agreement. At December 31, 2007 and 2006, the Company was in compliance with both of these ratios.
Given current economic conditions there is a possibility that the Company may not remain in full compliance with its debt covenants through 2008. In the event of this occurrence, the Company intends
to take such actions available to it in respect thereof as it determines to be appropriate at such time, but there can no assurance that any such actions will be successful.

Also
on April 6, 2005, the Company entered into a senior subordinated bridge loan agreement for a $770,000 senior subordinated loan. On October 6, 2006, the $770,000 senior
subordinated bridge loan automatically converted into a $770,000 senior subordinated term loan, bearing interest at 11%. Upon notice of conversion by the holders of the senior subordinated term loan,
all of the senior subordinated loan holders elected to convert their holdings into senior subordinated notes due 2015, which bear interest at 11% and were subject to registration rights. On
June 18, 2007, the Company's Registration Statement was declared effective and the Exchange Offer was consummated. The fair market value of the senior subordinated notes as represented by their
December 31, 2007 trading values is $600,488.

The
Company did not consummate a registered exchange offer for the notes by April 4, 2007 and thus pursuant to the Exchange and Registration Rights Agreement relating to the
senior subordinated notes due 2015, additional interest began to accrue as of April 5, 2007. Included in interest expense in year ended December 31, 2007 is additional interest of $346
(2006$nil; 2005 Successor Period$nil; 2005 Predecessor Period$nil).

The
Company's weighted average interest rate at December 31, 2007 was 8.2% (20068.1%).

Interest
on long-term debt for the year ended December 31, 2007 was $162,596 (2006$163,250; 2005 Successor Period$112,593; 2005 Predecessor
Period$10,902).

On
April 26, 2005, Masonite entered into interest rate swap agreements to convert $1,150,000 of floating rate debt into fixed rate debt. These swaps amortize over a five year
period and mature in 2010. On April 26, 2006 and 2007, $100,000 and $150,000 of notional principal amortized respectively. At December 31, 2007, a total of $900,000 of floating rate debt
remained converted into fixed rate debt, at an interest rate of 4.22% plus a credit spread of 2.00%. On April 26, 2008, 2009 and 2010,

F-27

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 10: LONG-TERM DEBT(Continued)

$300,000
of notional principal associated with the floating for fixed swap agreements amortizes. As at April 26, 2010, the Company's interest rate swaps will have fully amortized. At
December 31, 2007, the fair value of these agreements represented a liability of $3,225 and is included in accrued liabilities (note 11). The income tax benefit associated with the
recognition of this loss is $1,089. During 2007, $10,471 of income related to the interest rate swaps was moved from accumulated other comprehensive income to net income as this interest was realized
during the year. The floating reference rate is the 3-month LIBOR rate. The interest rate swaps were valued utilizing the forward swap rates as derived from the swap curve as at year end
and is sensitive to changes in forward rates. The effective interest rate method was utilized to discount the liability. The swaps are considered to be debt for purposes of our credit agreement. The
swaps settle on a quarterly basis. At December 31, 2006, the interest rate swap represented an asset of $18,953 and was not reflected in the consolidated balance sheet pursuant to AcG 13.
Pursuant to AcG 13 and CICA 3865, the Company has established a hedging relationship with formal documentation between the interest rate swap and the long-term debt.

NOTE 11: ACCOUNTS PAYABLE AND ACCRUED EXPENSES

2007

2006Trade payables

$
135,049

$
153,045Interest


35,752


35,887Customer incentives


46,417


40,516Payroll and related remittances


41,041


42,487Restructuring liability


14,368


7,783Interest rate swap


3,225


Other


49,271


63,964$
325,123

$
343,682


The
interest rate swap of $3,225 is measured at its fair value, based on a mark-to-market valuation received from the counterparty at period end.
Of the $3,225 interest rate swap liability, we expect approximately $250 to be realized in 2008. This will cause the movement of $250 between accumulated other comprehensive income and net income.

NOTE 12: NON-CONTROLLING INTEREST

2007

2006Balance, beginning of period

$
36,841

$
30,668Share of results


8,147


6,178Impact of:Acquisitions


(1,271
)

86Distributions to minority shareholders


(1,065
)

(144
)Foreign exchange and other


2


53Balance, end of period

$
42,654

$
36,841


F-28

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 13: OTHER LONG-TERM LIABILITIES

2007

2006U.S. defined benefit plan (Note 15(a))

$
13,577

$
12,224Advances from minority interest shareholders


9,425


11,443United Kingdom defined benefit plan (Note 15(b))


8,488


8,670Severances payable and restructuring liability


3,302


3,925Notes payable issued in a business combination





1,273Other post employment benefits


4,154


3,546$
38,946

$
41,081


NOTE 14: SHARE CAPITAL

Masonite is authorized to issue an unlimited number of common shares.

2007

2006Number of common shares outstanding


113,435,362


113,435,362Share capital

$
567,177

$
567,177


Upon
the acquisition of the Predecessor (note 2), the Company issued 112,935,362 common shares for aggregate consideration of $564,677. The value of $5.00 per share was assigned
to the common shares upon their initial issuance to complete the Transaction. The fair value of $5.00 per share was determined based on the arm's length purchase price of the Predecessor and the
number of common shares issued. There are no conversion or redemption features included with these common shares.

On
June 30, 2005, certain executive officers and other members of management subscribed for 500,000 common shares of Holdings' pursuant to the execution of Management Stockholder
Agreements for aggregate consideration of $2,500. The 500,000 common shares subscribed for under the Management Stockholder Agreements were in connection with the Transaction, and as a result, were
assigned a
value of $5.00 per share which was determined to be the fair value consistent with the value determined in the Transaction which had been recently completed. There are no conversion or redemption
features included with these common shares.

Masonite
is a wholly owned subsidiary of Holdings. As at December 31, 2007, management owns a 4.7% interest in Holdings (December 31, 20065.8%). Holdings
provides a stock option plan to allow management and key employees of Masonite to purchase shares of Holdings. Information with respect to Masonite's participation in Holdings' stock option plan is
included below.

Options
to acquire shares of Holdings have a ten year term and an exercise price of $5.00 per share. The vesting period of the options varies with the type of option granted. Time based
options ("Time Based") vest equally over a five year period with the passage of time, performance based options ("Performance Based") vest based on pre-established performance criteria set
for each period in a five year period, and cumulative performance options ("Cumulative Performance") vest only if specific cumulative performance targets are met at the end of a five year period.
Also, included as part of the performance based options are cumulative targets. If the cumulative targets at the end of

F-29

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 14: SHARE CAPITAL(Continued)

subsequent
period are met, performance based options in that period, as well as previously unvested options in periods where the performance criteria were not met, become vested.

Of
the 1,225,000 total options granted in 2007 (the "2007 Options"), 612,500 were time based and 612,500 were performance based. Since the grant of the 2007 Options, 19,375 time based
and 19,375 performance based options have been cancelled.

Of
the 2,850,000 total options granted in 2006 (the "2006 Options"), 1,275,000 were time based, 1,275,000 were performance based, and 300,000 were options that vested immediately at the
grant date. Since the grant of the 2006 Options, 667,500 time based and 667,500 performance based options have been cancelled.

Of
the 24,505,779 options granted in 2005 (the "2005 Options"), 11,745,390 were time based, 11,745,389 were performance based, and 1,015,000 were cumulative performance options. Since
the grant of the 2005 Options, 6,870,390 time based, 6,870,389 performance based and 615,000 cumulative performance based options have been cancelled.

|2007
December 31, 2007                             |  | Time Based
Options |   | Performance
Based
Options |   | Cumulative
Performance
Options |  | Immediate
Vesting |  | Total Number
of Options |   | Weighted Average
Exercise Price
|-------------------------------------------------- |  | ------------------ | - | ------------------------- | - | ------------------------------ |  | ----------------- |  | ----------------------- | - | -------------------------------
|Number of options outstanding, beginning of period |  | 7,200,625          |   | 7,856,625                 |   | 400,000                        |  | 300,000           |  | 15,757,250              |   | $                              
|Number of options granted                          |  | 612,500            |   | 612,500                   |   |                               |  |                  |  | 1,225,000               |   |                                
|Number of options exercised                        |  |                   |   |                          |   |                               |  |                  |  |                        |   |                                
|Number of options cancelled                        |  | (1,737,500         | ) | (2,393,500                | ) |                               |  |                  |  | (4,131,000              | ) |                                
|                                                   |  |                    |   |                           |   |                                |  |                   |  |                         |   |                                
|Number of options outstanding, end of period       |  | 6,075,625          |   | 6,075,625                 |   | 400,000                        |  | 300,000           |  | 12,851,250              |   | $                              
|                                                   |  |                    |   |                           |   |                                |  |                   |  |                         |   |                                

|2006                                               |  | Time Based
Options |   | Performance
Based
Options |   | Cumulative
Performance
Options |   | Immediate
Vesting |  | Total Number
of Options |   | Weighted Average
Exercise Price
|-------------------------------------------------- |  | ------------------ | - | ------------------------- | - | ------------------------------ | - | ----------------- |  | ----------------------- | - | -------------------------------
|Number of options outstanding, beginning of period |  | 9,114,140          |   | 9,114,139                 |   | 640,000                        |   |                  |  | 18,868,279              |   | $                              
|Number of options granted                          |  | 1,275,000          |   | 1,275,000                 |   |                               |   | 300,000           |  | 2,850,000               |   |                                
|Number of options exercised                        |  |                   |   |                          |   |                               |   |                  |  |                        |   |                                
|Number of options cancelled                        |  | (3,188,515         | ) | (2,532,514                | ) | (240,000                       | ) |                  |  | (5,961,029              | ) |                                
|                                                   |  |                    |   |                           |   |                                |   |                   |  |                         |   |                                
|Number of options outstanding, end of period       |  | 7,200,625          |   | 7,856,625                 |   | 400,000                        |   | 300,000           |  | 15,757,250              |   | $                              
|                                                   |  |                    |   |                           |   |                                |   |                   |  |                         |   |                                

The weighted average fair value at the grant date for time based, performance based, cumulative performance based (where applicable) and immediate
vesting options (where applicable) for the 2007 Options, 2006 Options and 2005 Options was $2.36, $2.03 and $1.09, respectively.

F-30

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 14: SHARE CAPITAL(Continued)

Information
regarding the number of options outstanding by type, the average remaining contractual life, and the number of options exercisable is as follows:

Options OutstandingOptions Exercisable2007

Number
Outstanding

Average Remaining
Contractual Life
(years)Number ExercisableTime based

6,075,625

7.64

2,290,250Performance based

6,075,625

7.64

Cumulative performance

400,000

7.27

Immediate vesting

300,000

7.85

300,00012,851,250



2,590,250


Although
2,290,250 time-based and 300,000 immediate vesting options have vested and are exercisable, the Option Agreement restricts option holders from exercising, selling or
transferring their options until December 31, 2009 unless certain conditions occur.

The
Company has recorded stock-based awards expense for awards granted to employees, using the minimum value method for the 2005 Options and the Black-Scholes method for the 2006 Options
and 2007 Options, of $1,793 in the year ended December 31, 2007 (2006$2,031; 2005 Successor Period$2,956). The determination of total stock-based awards was adjusted
for options that have been cancelled and or are not expected to vest. The assumptions used in the determination of the fair value of stock options are as follows:

2007
Options

2006
Options

2005
OptionsRisk-free rate

4.4
%
4.7
%
4.1
%Expected dividend yield

0
%
0
%
0
%Expected volatility of the market price of the Company's shares

37
%
32
%
0
%Expected option life (in years)

7

6

6


NOTE 15: EMPLOYEE FUTURE BENEFITS

(a)   U.S. defined benefit plan:

The
Company has a defined benefit plan covering approximately 2,000 employees in the U.S. Benefits under the plan were largely curtailed in 2003, and are a function of compensation
levels, benefit formulas and years of service. The Company accrues the expected costs of providing plan benefits during the periods in which the employees render service. The measurement date used for
the

F-31

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 15: EMPLOYEE FUTURE BENEFITS(Continued)

accounting
valuation for the defined benefit plan was December 31, 2007. Information about the defined benefit plan is as follows:

2007

2006

2005
Successor
Period

2005
Predecessor
PeriodPension expenseCurrent service cost

$
1,143

$
1,194

$
810

$
297Interest cost


4,506


4,307


3,103


907Expected return on plan assets


(4,641
)

(4,531
)

(3,387
)

(1,158
)Amortization of prior service cost


345








91Net pension expense

$
1,353

$
970

$
526

$
137


Information
with respect to the assets and liabilities in the U.S. defined benefit plan is as follows:

2007

2006Pension asset:Fair value of plan assets, beginning of period

$
67,679

$
66,007Actual return on plan assets


3,715


5,478Benefits paid


(3,125
)

(3,349
)Administrative expenses paid


(464
)

(457
)Fair value of plan assets, end of period

$
67,805

$
67,679


|
|

2007

2006Pension liability:Accrued benefit obligation, beginning of period

$
78,577

$
78,051Current service cost


1,143


1,194Interest cost


4,506


4,307Actuarial gain


(5,370
)

(1,169
)Benefits paid


(3,125
)

(3,349
)Special termination benefit cost


345


Administrative expenses paid


(464
)

(457
)Accrued benefit obligation, end of period

$
75,612

$
78,577


F-32

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 15: EMPLOYEE FUTURE BENEFITS(Continued)

A reconciliation of the net accrued benefit obligation is as follows:

2007

2006Reconciliation to net accrued benefit obligation:Accrued benefit obligation, end of period

$
(75,612
)
$
(78,577
)Fair value of plan assets, end of period


67,805


67,679Unamortized actuarial (gain) loss


(5,770
)

(1,326
)Net accrued benefit obligation, end of period

$
(13,577
)
$
(12,224
)


Pension
fund assets are invested primarily in equity and debt securities. Asset allocation between equity and debt securities and cash is adjusted based on the expected life of the plan
and the expected retirement age of the plan participants. Information with respect to the amounts and types of securities that are held in the plans assets are as follows:

2007

2006Information on Plan Assets

Amount

% of
Total Plan

Amount

% of
Total PlanEquity securities

$
40,005

59.0
%
$
33,298

49.2
%Debt securities


27,597

40.7
%

34,313

50.7
%Other


203

0.3
%

68

0.1
%$
67,805

100.0
%
$
67,679

100.0
%


Under
the Company's investment policy and strategy, plan assets are invested to achieve a fully funded status based on actuarial calculations, maintain a level of liquidity that is
sufficient to pay benefit and expense obligations when due, maintain flexibility in determining the future level of contribution and to maximize returns within the limits of risk. The target asset
allocation for plan assets in the defined benefit plan is as follows:

Target Asset AllocationEquity securities

50 - 70
%Debt securities

30 - 50
%


The
Company's pension funds are not invested directly in the debt or equity of Masonite, but may have been invested indirectly as a result of inclusion of Masonite in certain market
investment funds.

F-33

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 15: EMPLOYEE FUTURE BENEFITS(Continued)

The
weighted average actuarial assumptions for the years ended December 31, 2007 and 2006, the 2005 Successor Period and the 2005 Predecessor Period adopted in measuring the
Company's accrued benefit obligations and costs were as follows:

2007

2006

2005
Successor
Period

2005
Predecessor
PeriodDiscount rate for:Accrued benefit obligation

6.40
%
5.75
%
5.50
%
6.00
%Net periodic pension cost

5.75
%
5.50
%
5.50
%
6.00
%Expected long-term rate of return on plan assets

7.00
%
7.00
%
7.00
%
7.00
%


The
rate of compensation increase for the accrued benefit obligation and net periodic pension cost for the U.S. defined benefit plan is not applicable, as benefits under the plan are not
affected by compensation increases.

(b)   United Kingdom defined benefit plan:

The
Company also has a defined benefit plan in the United Kingdom, which has been curtailed in prior years. The measurement date used for the accounting valuation for the defined benefit
plan was December 31, 2007. Information about the defined benefit plan in the United Kingdom is as follows:

2007

2006

2005
Successor
Period

2005
Predecessor
PeriodPension expenseInterest cost

$
1,446

$
1,238

$
853

$
260Expected return on plan assets


(1,262
)

(1,061
)

(671
)

(258
)Amortization of acturial losses











24Net pension expense

$
184

$
177

$
182

$
26


Information
with respect to the assets and liabilities in the United Kingdom defined benefit plan is as follows:

2007

2006Pension asset:Fair value of plan assets, beginning of period

$
19,190

$
15,836Actual return on plan assets


995


1,178Employer contributions


477


478Benefits paid


(895
)

(475
)Exchange impact


231


2,173Fair value of plan assets, end of period

$
19,998

$
19,190


F-34

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 15: EMPLOYEE FUTURE BENEFITS(Continued)

|
|

2007

2006Pension liability:Accrued benefit obligation, beginning of period

$
27,387

$
22,407Interest cost


1,446


1,238Benefit payments


(895
)

(475
)Actuarial (gain) loss


(507
)

1,128Exchange impact


336


3,089Accrued benefit obligation, end of period

$
27,767

$
27,387


A
reconciliation of the net accrued benefit obligation is as follows:

2007

2006Reconciliation to net accrued benefit obligation:Accrued benefit obligation, end of period

$
(27,767
)
$
(27,387
)Fair value of plan assets, end of period


19,998


19,190Unamortized actuarial gain


(719
)

(473
)Net pension accrued benefit obligation, end of period

$
(8,488
)
$
(8,670
)


The
weighted average actuarial assumptions for the years ended December 31, 2007 and 2006, the 2005 Successor Period and the 2005 Predecessor Period adopted in measuring the
Company's accrued benefit obligations and costs were as follows:

2007

2006

2005
Successor
Period

2005
Predecessor
PeriodDiscount rate for:Accrued benefit obligation

5.85
%
5.25
%
5.25
%
6.00
%Net period pension cost

5.85
%
5.25
%
5.25
%
6.00
%Rate of compensation increase for:Accrued benefit obligation

n/a
%
n/a
%
n/a
%
2.60
%Net period pension cost

n/a
%
n/a
%
n/a
%
2.60
%Expected long-term rate of return on plan assets

6.50
%
6.50
%
6.50
%
7.50
%


The
rate of compensation increase for the accrued benefit obligation and net pension cost for the United Kingdom defined benefit plan is not applicable, as the plan was largely curtailed
in 2005, and benefits under the plan are not affected by compensation increases.

The
expected long-term rate of return on plan assets is based on projected rates of return for current and planned asset classes in the plan's investment portfolio. Based on
the target asset allocation for each asset class, the overall expected rate of return for the portfolio is developed considering the

F-35

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 15: EMPLOYEE FUTURE BENEFITS(Continued)

effects
of active portfolio management and expenses paid from plan assets. Under the Company's investment policy and strategy, plan assets are invested to achieve a fully funded status based on
actuarial calculations, maintain a level of liquidity that is sufficient to pay benefit and expense obligations when due, maintain flexibility in determining the future level of contributions and to
maximize returns within the limits of risk.

(c)   U.S. post-retirement benefit plan:

The
Company maintains a contributory retiree medical plan and a limited non-contributory life insurance benefit covering approximately 250 employees in the U.S. The plan
contains features such as co-insurance, co-pays and deductibles. The plan is unfunded with benefits and contributions subject to change. The measurement date used for the
accounting valuation for the post-retirement benefit plan was updated to December 31, 2007. Information about the post-retirement benefit plans is as follows:

2007

2006

2005
Successor
Period

2005
Predecessor
PeriodPost-retirement benefits expenseCurrent service cost

$
98

$
101

$
111

$
33Interest cost


98


88

$
84

$
27Amortization of net settlement gain


(11
)

(27
)




(33
)Post-retirement benefits expense

$
185

$
162

$
195

$
27


A
reconciliation of the post-retirement liability is as follows:

2007

2006Reconciliation to post-retirement liability:Accrued benefit obligation, beginning of period

$
2,053

$
2,021Current service cost


98


101Interest cost for the period


98


88Benefits paid during the period


(187
)

(221
)Unamortized actuarial gain


(10
)

64Accrued benefit obligation, end of period

$
2,052

$
2,053


The
accrued benefit obligation is included in other long-term liabilities on the balance sheet.

F-36

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 15: EMPLOYEE FUTURE BENEFITS(Continued)

The
impact of a 1% increase and a 1% decrease in health care cost trend rates would be as follows:

2007

2006

2005
Successor
Period

2005
Predecessor
Period1% increase in health care cost rates:Accrued benefit obligation, end of period

$
1,770

$
1,615

$
2,219

$
1,936Change in accrued benefit obligation


66


61


198


1591% decrease in health care cost rates:Accrued benefit obligation, end of period

$
1,648

$
1,503

$
1,859

$
1,646Change in accrued benefit obligation


(56
)

(51
)

(162
)

(131
)


The
weighted average actuarial assumptions for the years ended December 31, 2007 and 2006 adopted in measuring the Company's accrued benefit obligations and costs were as follows:

2007

2006

2005
Successor
Period

2005
Predecessor
PeriodDiscount rate for:Accrued benefit obligation

6.40
%
5.75
%
5.50
%
6.00
%Net periodic post-retirement cost

5.75
%
5.50
%
5.50
%
6.00
%Health care trend rate for:Accrued benefit obligation

8.00
%
8.00
%
5.50
%
5.00
%Net periodic post-retirement cost

8.00
%
8.00
%
5.00
%
5.00
%Ultimate year trend rate for:Accrued benefit obligation

5.00
%
5.00
%
5.00
%
5.00
%Net periodic post-retirement cost

5.00
%
5.00
%
5.00
%
5.00
%


The
rate of compensation increase for the accrued benefit obligation and net post-retirement cost for the U.S. post-retirement benefit plan is not applicable, as
the plan was largely curtailed in 2003, and benefits under the plan are not affected by compensation increases.

The
ultimate health care trend rate of 5.00% is expected to be achieved in 2010.

F-37

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 15: EMPLOYEE FUTURE BENEFITS(Continued)

As
at December 31, 2007, the estimated future benefit payments and expected contributions for the years ended December 31 are as follows:

Defined
Benefit Plans

Post-retirement
BenefitsEstimated Future Benefit Payments:2008

$
3,530

$
822009


3,839


1032010


4,104


1262011


4,468


1532012


4,849


1672013 through 2017


28,834


817Expected Contributions:2008

$
2,255

$
82


NOTE 16: COMMITMENTS AND CONTINGENCIES

Masonite has entered into forward foreign currency contracts to hedge foreign currency risk. As of January 1, 2007 with the adoption of CICA 3855, all
outstanding forwards are marked to market and recorded on the balance sheet. At December 31, 2007, unrealized gains totalled $nil (December 31, 2006$14) and unrealized
losses totalled $nil (2006$56). The Company had no outstanding foreign exchange forward contracts at December 31, 2007.

For
lease agreements that provide for escalating rent payments or rent-free occupancy periods, the Company recognizes rent expense on a straight line basis over the
non-cancellable lease term and any option renewal period where failure to exercise such option would result in an economic penalty in such amount that renewal appears, at the inception of
the lease, to be reasonably assured. The lease term commences on the date when all conditions precedent to the Company's obligation to pay rent are satisfied. The leases generally contain provisions
for 1 to 3 renewal options of 5 years each. Future minimum payments, in the twelve month periods ending December 31, under non-cancellable operating leases with initial or
remaining terms of one year or more consisted of the following:

2008

$
23,4172009


17,4372010


13,2362011


9,3152012


7,588Thereafter


25,920$
96,913


F-38

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 16: COMMITMENTS AND CONTINGENCIES(Continued)

Total
rent expense, including non-cancellable operating leases as well as month-to-month leases, incurred in the year ended December 31, 2007
was $33,868 (2006$36,905; 2005 Successor Period$25,573; 2005 Predecessor Period$7,884).

Masonite
has provided standard indemnifications to its landlords under certain property lease agreements for claims by third parties in connection with its use of the premises. The
maximum amount of these indemnifications cannot be reasonably estimated due to their nature. Historically, the Company has not made any significant payments relating to such indemnifications.

In
addition to the above indemnifications, Masonite has also provided routine indemnifications, whose terms range in duration and often are not explicitly defined. These may include
indemnifications against adverse effects to changes in tax laws and patent infringements by third parties. The maximum amounts from these indemnifications cannot be reasonably estimated. In some
cases, Masonite has recourse against other parties to mitigate its risk of loss from these indemnifications. Historically, the Company has not made significant payments relating to these types of
indemnifications.

Operations
in the U.S. are subject to regulations enacted by the U.S. Environmental Protection Agency ("EPA") related to Maximum Achievable Control Technology ("MACT"). MACT regulations
govern the manner in which the Company measures and controls the emissions from manufacturing facilities into the air. As a result of a June 2007 decision by the U.S. Court of Appeals, the EPA has
eliminated certain compliance options which were based on low health risk determinations in relation to
compliance with MACT regulations for wood products. The Company anticipates the cost of complying with the amended rules would require the Company to spend between $20,000 and $30,000 in addition to
the $8,700 already spent.

The
Company is involved in various claims and legal actions. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or liquidity.

NOTE 17: OTHER EXPENSE, NET

|                                                     |  | 2007 |        | 2006 |   | 2005
Successor
Period |   | 2005
Predecessor
Period |       
|---------------------------------------------------- |  | ---- | ------ | ---- | - | --------------------- | - | ----------------------- | ------
|Restructuring and severance(a)                       |  | $    | 27,987 |      | $ | 14,444                |   | $                       | 7,513 
|Asset impairment(b)                                  |  |      | 10,962 |      |   | 16,853                |   |                         |      
|Loss on disposal of property, plant and equipment(c) |  |      | 3,351  |      |   | 6,792                 |   |                         | 2,414 
|Insurance proceeds and other(d)                      |  |      | (6,146 | )    |   | (370                  | ) |                         |      
|Foreign Exchange (gains) losses(e)                   |  |      | (6,267 | )    |   | 1,270                 |   |                         | 590   
|Transaction Costs(f)                                 |  |      |       |      |   |                      |   |                         | 12,083
|Equity compensation settlement expense(g)            |  |      |       |      |   |                      |   |                         |      
|                                                     |  |      |        |      |   |                       |   |                         |       
|                                                     |  | $    | 29,887 |      | $ | 38,989                |   | $                       | 22,600
|                                                     |  |      |        |      |   |                       |   |                         |       

F-39

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 17: OTHER EXPENSE, NET(Continued)

(a)   Restructuring and severance expenses:

The
restructuring and severance expense for the year ended December 31, 2007 relates to closures announced by the Company as a result of a customer transferring significant
business to a competitor as well as actions taken by management due to the significant downturn in the U.S. housing market. As a result of this lost business and the significant market downturn, the
Company announced the closure of seven manufacturing facilities in the U.S. and significantly curtailed activities at an additional manufacturing facility in the U.S. In addition, the Company closed
an interior door manufacturing facility in Canada and reduced the workforce at manufacturing sites in the U.S. and Ireland in the year ended December 31, 2007. The Company also committed to a
plan to close additional sites in 2008 and as a result recorded additional restructuring costs in December 2007. Also included are severance benefits for certain former senior executives of the
Company.

The
following table details the activity in the accrued restructuring liability for the year ended December 31, 2007:

|                                                              |  | Provision
December 31, 2006 |        | Provision |   | Payments |  | Provision
December 31, 2007
|------------------------------------------------------------- |  | --------------------------- | ------ | --------- | - | -------- |  | ---------------------------
|Reduction in staff levels 2006                                |  | $                           | 4,899  |           | $ | 71       |  | $                          
|Executive and management compensation                         |  |                             | 6,679  |           |   | 2,630    |  |                            
|Facility closures and reductions as a result of lost business |  |                             |       |           |   | 16,681   |  |                            
|Capacity rationalization due to housing market slowdown       |  |                             |       |           |   | 5,827    |  |                            
|Woodbridge, Ontario plant closure                             |  |                             | 130    |           |   |         |  |                            
|Reduction in staff levels 2007                                |  |                             |       |           |   | 3,249    |  |                            
|                                                              |  |                             |        |           |   |          |  |                            
|                                                              |  | $                           | 11,708 |           | $ | 28,458   |  | $                          
|                                                              |  |                             |        |           |   |          |  |                            

Included
in the provision column in the table above is $471 in charges related to the accretion of previously discounted severance liability. The current portion of the accrued
restructuring liability of $14,368 is included in accounts payable and accrued expenses on the balance sheet, with the long-term portion of $3,302 recorded in other long-term
liabilities. Of the total provision incurred in the year ended December 31, 2007, $25,091 relates to the North America segment, and $3,367 relates to the Europe and Other segment.

The
restructuring and severance expense for the year ended December 31, 2006 relates to the closure of four manufacturing facilities in North America as well as selected headcount
reductions that occurred towards the end of September. Two of the closures were announced in the first quarter, while

F-40

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 17: OTHER EXPENSE, NET(Continued)

the
other two were announced in the second quarter. Also included are severance benefits for certain former senior executives of the Company.

|                                      |  | Provision
December 31, 2005 |       | Provision
During 2006 |   | Payments
During 2006 |  | Provision
December 31, 2006
|------------------------------------- |  | --------------------------- | ----- | --------------------- | - | -------------------- |  | ---------------------------
|Reduction in staff levels             |  | $                           |      |                       | $ | 8,451                |  | $                          
|Executive and management compensation |  |                             | 7,158 |                       |   | 3,337                |  |                            
|Mobile, Alabama plant closure         |  |                             |      |                       |   | 999                  |  |                            
|Woodbridge, Ontario plant closure     |  |                             |      |                       |   | 1,497                |  |                            
|Corning, California plant closure     |  |                             |      |                       |   | 437                  |  |                            
|Dickson, Tennessee plant closure      |  |                             |      |                       |   | 279                  |  |                            
|                                      |  |                             |       |                       |   |                      |  |                            
|                                      |  | $                           | 7,158 |                       | $ | 15,000               |  | $                          
|                                      |  |                             |       |                       |   |                      |  |                            

Included
in the provision column in the table above is $556 in charges related to the accretion of previously discounted severance liability. The current portion of the accrued
restructuring liability is included in accounts payable and accrued expenses on the balance sheet, with the long-term portion recorded in other long-term liabilities.

Restructuring
and severance in the 2005 Successor Period represents severance for former senior executives of the Company. In the 2005 Predecessor Period this Company incurred $1,660 of
costs related to facilities closed in 2004.

(b)   Impairment of property, plant and equipment

As
a result of the consolidation of certain facilities and the discontinuation of product lines, the Company tested the related property, plant and equipment for impairment. After
determining that the undiscounted cash flows were lower than the carrying value for these fixed assets, the Company used a discounted cash flow approach to determine the impairment charge was required
to reduce the carrying value of these fixed assets to their net realizable value.

(c)   Loss on disposal of property, plant and equipment:

For
the year ended December 31, 2007, the Company disposed of idle property, plant and equipment, as well as other machinery and equipment for cash consideration of $8,643. The
disposal of these assets resulted in a net loss of $3,351.

For
the year ended December 31, 2006, the Company disposed of idle property, plant and equipment, as well as other machinery and equipment for cash consideration of $20,541. The
disposal of these assets resulted in a net loss of $6,792, which is included in other expense, net.

In
the 2005 Successor Period, the Company disposed of idle property, plant and equipment, as well as other machinery and equipment for cash consideration of $9,197. The disposal of these
assets resulted in a net loss of $2,414, which is included in other expense, net.

F-41

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 17: OTHER EXPENSE, NET(Continued)

In
the 2005 Predecessor Period, the Company disposed of idle property, plant and equipment, as well as other machinery and equipment for cash consideration of $403. The disposal of these
assets resulted in a net loss of $118, which is included in other expense, net.

(d)   Insurance proceeds and other:

This
income includes a gain of $2,688 from an insurance settlement and a one-time gain on the favorable resolution of an environmental liability in the amount of $3,500. In
addition, insurance proceeds of $370 are included in the year ended December 31, 2006.

(e)   Foreign exchange (gains) and losses:

These
are costs related to foreign exchange transaction gains and losses on working capital and long-term liabilities denominated in currencies other than the U.S. dollar.

(f)    Transaction costs:

As
part of the Transaction (see note 2), certain legal, accounting and other costs were incurred that were not eligible to be capitalized as part of the purchase price and were
expensed. Also included in transaction costs in the 2005 Successor Period is $5,000 of compensation awarded to management in connection with the Transaction. Of this amount $2,500 was issued in the
form of shares of Holdings.

(g)   Equity compensation settlement expense:

As
a result of the affirmative shareholder vote on the Transaction, previously unrecognized compensation costs for vested and unvested stock options, as well as previously unrecognized
compensation costs for unvested RSUs and DSUs were settled in cash, resulting in a charge to the statement of operations in the 2005 Predecessor Period in the amount of $57,742.

NOTE 18: INCOME TAXES

2007

2006

2005
Successor
Period

2005
Predecessor
PeriodCurrent

$
(4,640
)
$
12,828

$
12,861

$
5,533Future


(67,589
)

(28,484
)

(29,146
)

(13,849
)$
(72,229
)
$
(15,656
)
$
(16,285
)
$
(8,316
)


F-42

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 18: INCOME TAXES(Continued)

The effective rates of income taxes provided in the consolidated statements of operations vary from the combined Canadian federal and provincial statutory income
tax rates as follows:

|                                                                       |  | 2007 |          | 2006 |       | 2005
Successor Period |   | 2005
Predecessor Period |  
|---------------------------------------------------------------------- |  | ---- | -------- | ---- | ----- | --------------------- | - | ----------------------- | -
|
|Income tax computed at statutory income tax rate                       |  | $    | (132,477 | )    | 36.1  | %                     | $ | (14,948                 | )
|Reduction in rate of tax due to income earned in foreign jurisdictions |  |      | (25,539  | )    | 7.0   | %                     |   | (21,948                 | )
|Goodwill impairment                                                    |  |      | 81,808   |      | (22.3 | )%                    |   |                        |  
|Change in valuation allowance                                          |  |      | 13,600   |      | (3.7  | )%                    |   | 12,948                  |  
|Permanent differences                                                  |  |      | 6,844    |      | (1.9  | )%                    |   | 2,595                   |  
|Unrealized gain on debt                                                |  |      | 20,543   |      | (5.6  | )%                    |   | (974                    | )
|Reversal of taxes previously accrued                                   |  |      | (11,389  | )    | 3.1   | %                     |   | 652                     |  
|Functional currency adjustments                                        |  |      | (15,620  | )    | 3.7   | %                     |   |                        |  
|Other                                                                  |  |      | (9,999   | )    | 4.3   | %                     |   | 6,019                   |  
|                                                                       |  |      |          |      |       |                       |   |                         |  
|                                                                       |  | $    | (72,229  | )    | 2.7   | %                     | $ | (15,656                 | )
|                                                                       |  |      |          |      |       |                       |   |                         |  

Future income tax assets arise from available income tax losses and future income tax deductions. The Company's ability to use these income tax
losses and future income tax deductions is dependent upon the results of the operations of the Company in the tax jurisdictions in which such losses or

F-43

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 18: INCOME TAXES(Continued)

deductions
arose. The tax effects of temporary differences that give rise to significant portions of the future tax assets and liabilities are as presented below:

2007

2006Future tax assets:Non-capital loss carryforwards

$
112,702

$
85,363Pension and post-retirement liability


9,415


8,828Amounts currently not deductible for tax purposes


24,063


21,281Other


12,959


16,023159,139


131,495Valuation allowance


(50,994
)

(37,113
)108,145


94,382Future tax liabilities:Plant and equipment


(96,548
)

(112,819
)Intangibles


(74,960
)

(127,224
)Unrealized foreign exchange gain


(23,727
)

(7,047
)Other


(3,197
)

(5,714
)(198,432
)

(252,804
)Net future tax liability

$
(90,287
)
$
(158,422
)


The
Company currently has future tax assets in certain jurisdictions resulting from net operating losses and other deductible temporary differences, which will reduce taxable income in
these jurisdictions in future periods. The Company has determined that a valuation allowance of $50,994 is required in respect of its future income tax assets as at December 31, 2007
(2006$37,113). The Company has provided valuation allowances for future tax benefits resulting from net operating loss carry forwards and other carry forward attributes arising in Canada,
the U.S., and certain countries in South America, Eastern Europe and Asia. The Company expects to record valuation allowances on future tax assets arising in these jurisdictions until a sustained
level of taxable income is reached.

The
Company has not recognized a future tax liability for the undistributed earnings of its foreign subsidiaries in the current and prior years as the Company currently does not expect
those undistributed earnings to reverse and to become taxable in the foreseeable future. A future tax liability will be recognized when the Company expects that it will recover those undistributed
earnings in a taxable manner, such as sale of the investment or through receipt of dividends. Such liability is not reasonably determinable at the present time.

F-44

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 18: INCOME TAXES(Continued)

The
Canadian and foreign components of (loss) income before taxes and the applicable provision for income taxes are as follows:

2007

2006

2005
Successor
Period

2005
Predecessor
Period(Loss) income before taxesCanada

$
(57,271
)
$
(72,548
)
$
(68,094
)
$
(40,304
)Foreign


(309,702
)

28,736


(12,710
)

2,653(366,973
)

(43,812
)

(80,804
)

(37,651
)Current income tax (recovery)Canada


(9,333
)

1,653


6,284


8,580Foreign


4,693


11,175


6,577


(3,047
)(4,640
)

12,828


12,861


5,533Future income tax (recovery)Canada


(16,699
)

(16,025
)

(21,849
)

(13,906
)Foreign


(50,890
)

(12,459
)

(7,297
)

57(67,589
)

(28,484
)

(29,146
)

(13,849
)Total income tax (recovery)

$
(72,229
)
$
(15,656
)
$
(16,285
)
$
(8,316
)


The
losses carried forward for tax purposes available to reduce future income taxes amount to $327,663. The Company can utilize these losses against future taxable income as follows:

Canada

Foreign

Total2008

$


$
8,871

$
8,8712009





2,270


2,2702010








2011





1,773


1,7732012


5,614


1,317


6,9312013








2014


12,381





12,381Thereafter


128,131


152,514


280,645Indefinitely





14,792


14,792146,126


181,537


327,663Tax losses for which a tax benefit has been accounted for as a future tax asset


(115,799
)

(73,641
)

(189,440
)Tax losses for which a valuation allowance has been established

$
30,327

$
107,896

$
138,223


F-45

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 19: SUPPLEMENTAL CASH FLOW INFORMATION

2007

2006

2005
Successor
Period

2005
Predecessor
PeriodTransactions involving cash:Interest paid

$
181,181

$
182,451

$
87,951

$
13,219Interest received


12,963


10,578


1,125


490Income taxes paid


13,355


12,006


7,484


2,422Income tax refunds


4,493


4,138


10,676


167Non-cash transactions:
Issuance of shares of Holdings as compensation








2,500


Issuance of notes payable as part of acquisitions








7,826





NOTE 20: VARIABLE INTEREST ENTITIES

The Company is the primary beneficiary of two variable interest entities ("VIE's") that manufacture semi-finished products for use in the Company's
other manufacturing operations. The majority of the semi-finished products produced by the VIE are contractually obligated to be sold to the Company to be used in other manufacturing
operations.

The
liabilities of the VIE's consolidated by the Company represent claims against the specific assets of the VIE's, and not additional claims on the Company's general assets. There is no
recourse available to the creditors of the VIE against the Company.

The
impact of consolidating these investments as VIE's on the consolidated balance sheet is as follows:

2007

2006Current assets

$
18,196

$
12,228Property, plant and equipment


83,580


77,722Goodwill


584


584Long-term future income taxes


10,719


19,715Current liabilities


6,751


4,231Long-term debt





10,700Other long-term liabilities


6,840


6,990Non-controlling interest


36,180


30,206Net investment by the Company


(63,308
)

(58,122
)


NOTE 21: INVESTMENTS IN JOINT VENTURES

The 50% investment in the door manufacturing facility in Malaysia is accounted for under the proportionate consolidation method, as it represents a jointly
controlled enterprise. In addition, a 45%

F-46

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 21: INVESTMENTS IN JOINT VENTURES(Continued)

investment
in a manufacturing facility in the U.S. is also accounted for under the proportionate consolidation method as it represents a jointly controlled operation. The following table summarizes
the Company's proportionate share of investments that are included in these consolidated financial statements. Net sales include intercompany sales from the jointly controlled operations to the
Company in the amount of $9,431 in the year ended 2007 (2006$11,035; 2005 Successor Period$8,191; 2005 Predecessor Period$2,753. All intercompany transactions
have been eliminated on consolidation.

2007

2006

2005
Successor
Period

2005
Predecessor
PeriodStatement of operations:Net sales

$
15,363

$
16,111

$
10,963

$
3,591Costs and expenses


14,355


14,545


10,286


3,117Earnings before income taxes


1,008


1,566


677


474Net income


565


641


170


1,053Statement of cash flows:Cash flows from operating activities


411


3,554


825


998Cash flows from investing activities


(718
)

(438
)

(188
)

(145
)Cash flows from financing activities








59


(59
)


|
|

2007

2006Balance sheets:Current assets

$
5,905

$
5,298Non-current assets


10,010


10,734Total assets

$
15,915

$
16,032Current liabilities


1,089


2,299Non-current liabilities





Equity

$
14,826

$
13,733


NOTE 22: SEGMENTED INFORMATION

The senior management team has established the practice of reviewing performance measurement of each geographic segment based on the measures of net sales and
operating EBITDA. Operating EBITDA is defined as net income plus depreciation, amortization, interest, income taxes and other expense. Senior management feels that operating EBITDA from an operations
standpoint, provides a better way to measure and assess performance as it is more comprehensive and inclusive. Operating EBITDA generally provides a lower absolute measure of performance as compared
to Adjusted EBITDA. Adjusted EBITDA is a financial measure defined by Masonite's Senior Secured Credit Agreement and allows for certain expenses incurred to be added back for the purpose of the
measure.

F-47

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 22: SEGMENTED INFORMATION(Continued)

Intersegment
transfers are negotiated as if the transactions were to third parties, at market prices. The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Certain information with respect to geographic segments is as follows:

|                                             |                  | 2007 |           | 2006      |   | 2005
Successor
Period |           | 2005
Predecessor
Period |          
|-------------------------------------------- | ---------------- | ---- | --------- | --------- | - | --------------------- | --------- | ----------------------- | ---------
|Geographic segment data                      |                  |      |           |           |   |                       |           |                         |          
|Sales:                                       |                  |      |           |           |   |                       |           |                         |          
|                                             | North America    |      | $         | 1,526,282 |   | $                     | 1,899,396 |                         | $        
|                                             | Europe and Other |      |           | 706,286   |   |                       | 644,239   |                         |          
|                                             | Intersegment     |      |           | (58,137   | ) |                       | (79,164   | )                       |          
|                                             |                  |      |           |           |   |                       |           |                         |          
|                                             |                  |      | 2,174,431 |           |   | 2,464,471             |           |                         | 1,828,383
|                                             |                  |      |           |           |   |                       |           |                         |          
|Operating EBITDA:                            |                  |      |           |           |   |                       |           |                         |          
|                                             | North America    |      |           | 183,386   |   |                       | 208,947   |                         |          
|                                             | Europe and Other |      |           | 88,967    |   |                       | 93,488    |                         |          
|                                             |                  |      |           |           |   |                       |           |                         |          
|                                             |                  |      | 272,353   |           |   | 302,435               |           |                         | 169,130  
|                                             |                  |      |           |           |   |                       |           |                         |          
|Depreciation                                 |                  |      | 91,840    |           |   | 88,992                |           |                         | 60,338   
|Amortization of intangible assets            |                  |      | 35,580    |           |   | 35,650                |           |                         | 29,915   
|Impairment of goodwill and intangible assets |                  |      | 303,800   |           |   |                      |           |                         |         
|Interest                                     |                  |      | 178,219   |           |   | 182,616               |           |                         | 137,081  
|Other expense, net                           |                  |      | 29,887    |           |   | 38,989                |           |                         | 22,600   
|Income taxes                                 |                  |      | (72,229   | )         |   | (15,656               | )         |                         | (16,285  
|Non-controlling interest                     |                  |      | 8,147     |           |   | 6,178                 |           |                         | 5,281    
|                                             |                  |      |           |           |   |                       |           |                         |          
|                                             |                  |      | 575,244   |           |   | 336,769               |           |                         | 238,930  
|                                             |                  |      |           |           |   |                       |           |                         |          
|Net loss                                     |                  | $    | (302,891  | )         | $ | (34,334               | )         | $                       | (69,800  
|                                             |                  |      |           |           |   |                       |           |                         |          

The
consolidated financial information of the Predecessor in the 2005 Predecessor Period presented above is not comparable in all respects to those presented in 2007, 2006 and the 2005
Successor Period as a result of the application of purchase accounting adjustments as described in note 2.

F-48

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 22: SEGMENTED INFORMATION(Continued)

Segmented
export sales are as follows:

2007

2006

2005
Successor
Period

2005
Predecessor
PeriodSales:North America

$
7,341

$
10,522

$
12,139

$
4,558Europe and Other


85,431


74,288


85,852


14,454$
92,773

$
84,810

$
97,991

$
19,012


Transfers
between geographic regions and product lines are generally accounted for at prices meant to approximate those charged to customers outside the enterprise.

Depreciation
and amortization of intangible assets are as follows:

2007

2006

2005
Successor
Period

2005
Predecessor
PeriodNorth America

$
93,229

$
92,462

$
66,916

$
12,964Europe and Other


34,191


32,180


23,337


6,048$
127,420

$
124,642

$
90,253

$
19,012


Capital
expenditures are as follows:

2007

2006

2005
Successor
Period

2005
Predecessor
PeriodNorth America

$
30,361

$
37,148

$
53,800

$
11,567Europe and Other


12,243


12,421


16,008


834$
42,604

$
49,569

$
69,808

$
12,401


|
|

2007

2006Identifiable assets:North America

$
1,921,318

$
2,428,236Europe and Other


595,558


571,850Corporate assets, including cash


143,176


164,426$
2,660,052

$
3,164,512


F-49

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 22: SEGMENTED INFORMATION(Continued)

The
Company derives revenue from two major product lines, interior and exterior products as follows:

2007

2006

2005
Successor
Period

2005
Predecessor
PeriodSales:Interior products

$
1,506,364

$
1,625,040

$
1,149,553

$
409,418Exterior products


668,067


839,431


678,830


190,697$
2,174,431

$
2,464,471

$
1,828,383

$
600,115


The
Company does not review or analyze its two major product lines below net sales.

Information
about geographic areas, exceeding 10% of consolidated net sales, is as follows:

2007

2006

2005
Successor
Period

2005
Predecessor
PeriodSales to all external customers from facilities in:Canada

$
352,977

$
369,349

$
295,192

$
84,284U.S.


1,110,240


1,462,545


1,136,377


349,559United Kingdom


220,328


194,603


138,613


51,276


F-50

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 22: SEGMENTED INFORMATION(Continued)

Additional
segmented information regarding long-lived assets, exceeding 10% of consolidated property, plant and equipment, and goodwill, is as follows:

2007

2006Property, plant and equipment:Canada

$
86,838

$
108,045U.S.


359,763


387,683Other


11,629


12,467North America

$
458,230

$
508,195Ireland

$
129,531

$
130,310Other


224,714


235,071Europe and Other


354,245


365,381$
812,475

$
873,576Goodwill:Canada

$
145,790

$
185,178U.S.


561,600


730,612North America

$
707,390

$
915,790Europe and Other


615,040


53,690$
768,430

$
969,480


Total
sales to one customer within the North American segment for the year ended December 31, 2007 was $426,125 (2006$610,760; 2005 Successor
Period$503,028; 2005 Predecessor Period$148,271). Included in accounts receivable are balances owing from one customer of $21,336 at December 31, 2007
(2006$12,576).

NOTE 23: RELATED PARTY TRANSACTIONS

On April 6, 2005, the Company entered into an agreement to pay Kohlberg Kravis Roberts & Co. L.P. ("KKR") annual management fees of $2,000 for services
provided, which are payable quarterly in advance and may be increased up to 5% each year. For the year ended December 31, 2007, the Company paid KKR fees of $2,104 (2006$2,105);
(2005 Successor Period$1,503; 2005 Predecessor Period$nil) in accordance with the management fee agreement.

In
addition, the Company has engaged Capstone Consulting ("Capstone") on a per-diem basis for management consulting services. For the year ended December 31, 2007, the
Company paid Capstone fees of $2,422 (2006$2,856; 2005 Successor Period$700; 2005 Predecessor Period$nil) for management consulting services. Although neither
KKR nor any entity affiliated with KKR owns any of the equity of Capstone, KKR has provided financing to Capstone.

F-51

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 24: FINANCIAL INSTRUMENTS

(i)    Fair value

The
Company utilizes certain financial instruments, principally interest rate swap contracts and forward currency exchange contracts to manage the risk associated with fluctuations in
interest rates and currency exchange rates. Interest rate swap contracts are used to reduce the impact of fluctuating interest rates on the Company's long-term debt, and forward currency
exchange contracts are used to reduce the impact of fluctuating exchange rates on the Company's purchases of materials and sale of goods in foreign currencies.

Financial
instruments with carrying value different from their fair values include the following:

2007

Carrying Value
Asset (Liability)

Fair Value
Asset (Liability)Long-term debt

$
(1,873,422
)
$
(1,659,839
)


|
|

2006

Carrying Value
Asset (Liability)

Fair Value
Asset (Liability)Long-term debt

$
(1,955,779
)
$
(1,870,139
)Interest rate swaps


2,258


18,912Forward foreign currency contracts





(42
)$
(1,953,521
)
$
(1,851,269
)


The
fair value of a financial instrument on initial recognition is normally the transaction price, which is usually the fair value of the consideration given or received. The fair value
of the long-term debt was based on the trading rate at the period end closing date. The fair value of interest rate swap at December 31, 2007 and December 31, 2006 was based
on the mark-to-market price provided by the counterparty. The fair value of the forward foreign currency contracts were based on the difference between the exchange rate in the
contracts entered into, and the forward exchange rate at the valuation date which would be available for a forward contract maturing at the same time.

As
at December 31, 2007, the carrying values of cash and cash equivalents, accounts receivable, short-term debt, accounts payable and accrued liabilities approximate
fair values due to their immediate or short-terms to maturity.

Due
to the use of judgment and uncertainties in the determination of estimated fair values, these values should not be interpreted as being realizable in the immediate term.

(ii)   Credit risk

Credit
risk arises from the potential default of a customer in meeting its financial obligations to the Company. The Company has credit evaluation, approval and monitoring processes,
including credit insurance, intended to mitigate potential credit risk. The Company evaluates the collectibility of accounts receivable and records an allowance for doubtful accounts, which reduces
the receivables to

F-52

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 24: FINANCIAL INSTRUMENTS(Continued)

the
amount management believes will be collected. The allowance for doubtful accounts as at December 31, 2007 was $5,010 (2006$3,999).

There
is also credit risk related to the interest rate swap liability of $3,225 recorded in accounts payable and accrued expenses (note 11). There is a risk that the counterparty
to the swaps will not be able to fulfill its side of the agreement. The Company monitors the creditworthiness of the counterparty on a quarterly basis to determine whether or not they will be able to
fulfill its obligation. At December 31, 2007, the Company reviewed the creditworthiness of the counterparty, and determined that there was no credit risk on the counterparty fulfilling its
obligation under the interest rate swap agreement.

NOTE 25: RECONCILIATION OF CANADIAN AND U.S. GAAP

These consolidated financial statements have been prepared in accordance with Canadian GAAP which differs in certain respects from U.S. GAAP. The following
is a summary of the effect of significant differences between U.S. and Canadian GAAP on the Company's consolidated financial statements.

If
U.S. GAAP were applied, net (loss) income for the years ended December 31, 2007 and December 31, 2006, the 2005 Successor Period, the 2005 Predecessor Period
would be adjusted as follows:

|                                    |  | 2007 |          | 2006 |   | 2005
Successor
Period |   | 2005
Predecessor
Period |        
|----------------------------------- |  | ---- | -------- | ---- | - | --------------------- | - | ----------------------- | -------
|Net loss based on Canadian GAAP     |  | $    | (302,891 | )    | $ | (34,334               | ) | $                       | (69,800
|Effect of EITF 88-16(i)             |  |      |         |      |   | (4                    | ) |                         | 304    
|Effect of FIN 48(v)                 |  |      | 6,115    |      |   |                      |   |                         |       
|Impairment of goodwill(v)           |  |      | 12,669   |      |   |                      |   |                         |       
|Impairment of intangibles(i)        |  |      | 379      |      |   |                      |   |                         |       
|Tax effect of U.S. GAAP adjustments |  |      | (75      | )    |   | (21                   | ) |                         | (150   
|                                    |  |      |          |      |   |                       |   |                         |        
|Net loss based on U.S. GAAP         |  | $    | (283,803 | )    | $ | (34,359               | ) | $                       | (69,646
|                                    |  |      |          |      |   |                       |   |                         |        

F-53

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 25: RECONCILIATION OF CANADIAN AND U.S. GAAP(Continued)

Comprehensive (loss) income under U.S. GAAP is as follows:

|                                      |  | 2007 |          | 2006 |   | 2005
Successor
Period |   | 2005
Predecessor
Period |        
|------------------------------------- |  | ---- | -------- | ---- | - | --------------------- | - | ----------------------- | -------
|Net loss based on U.S. GAAP           |  | $    | (283,803 | )    | $ | (34,359               | ) | $                       | (69,646
|Effect of SFAS 130(iv)                |  |      | 16,814   |      |   | 23,967                |   |                         | (7,984 
|Effect of SFAS 87(iii)                |  |      |         |      |   |                      |   |                         |       
|Effect of SFAS 133(ii)                |  |      | (22,178  | )    |   | 2,926                 |   |                         | 15,985 
|Effect of SFAS 158(iii)               |  |      | 4,564    |      |   |                      |   |                         |       
|Tax effect of U.S. GAAP adjustments   |  |      | 5,337    |      |   | (745                  | ) |                         | (6,065 
|                                      |  |      |          |      |   |                       |   |                         |        
|Comprehensive loss based on U.S. GAAP |  | $    | (279,266 | )    | $ | (8,211                | ) | $                       | (67,710
|                                      |  |      |          |      |   |                       |   |                         |        

The
statement of accumulated other comprehensive income under U.S. GAAP is as follows:

|                                                              |  | 2007 |         | 2006 |   | 2005
Successor
Period |   | 2005
Predecessor
Period |       
|------------------------------------------------------------- |  | ---- | ------- | ---- | - | --------------------- | - | ----------------------- | ------
|Opening balance of foreign currency translation account       |  | $    | 15,983  |      | $ | (7,984                | ) | $                       |      
|Foreign currency translation gain (loss)                      |  |      | 16,814  |      |   | 23,967                |   |                         | (7,984
|                                                              |  |      |         |      |   |                       |   |                         |       
|Closing balance                                               |  |      | 32,797  |      |   | 15,983                |   |                         | (7,984
|                                                              |  |      |         |      |   |                       |   |                         |       
|Opening balance of additional minimum pension liability       |  |      | 2,270   |      |   |                      |   |                         |      
|Change in minimum pension liability, net of tax               |  |      |        |      |   |                      |   |                         |      
|Impact of SFAS 158(iii)                                       |  |      | 1,960   |      |   | 2,270                 |   |                         |      
|                                                              |  |      |         |      |   |                       |   |                         |       
|Closing balance                                               |  |      | 4,230   |      |   | 2,270                 |   |                         |      
|                                                              |  |      |         |      |   |                       |   |                         |       
|Opening balance of accumulated net gain on cash flow hedges   |  |      | 12,101  |      |   | 9,920                 |   |                         |      
|Net (loss) gain on derivatives designated as cash flow hedges |  |      | (14,229 | )    |   | 2,181                 |   |                         | 9,920 
|                                                              |  |      |         |      |   |                       |   |                         |       
|Closing balance                                               |  |      | (2,128  | )    |   | 12,101                |   |                         | 9,920 
|                                                              |  |      |         |      |   |                       |   |                         |       
|Accumulated other comprehensive income based on U.S. GAAP     |  | $    | 34,899  |      | $ | 30,354                |   | $                       | 1,936 
|                                                              |  |      |         |      |   |                       |   |                         |       

F-54

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 25: RECONCILIATION OF CANADIAN AND U.S. GAAP(Continued)

Consolidated
balance sheets:

A
reconciliation between the carrying values of assets, liabilities and components of equity as reported under Canadian GAAP as compared to U.S. GAAP is as follows:

|2007                                      |  | Canadian GAAP |   | Adjustments |   | U.S. GAAP |  
|----------------------------------------- |  | ------------- | - | ----------- | - | --------- | -
|Income tax recoverable(a)                 |  | 1,784         |   | 3,413       |   | 5,197     |  
|Property, plant and equipment(b)          |  | 812,475       |   | (24         | ) | 812,451   |  
|Goodwill(c)                               |  | 768,430       |   | 11,413      |   | 779,843   |  
|Intangible assets(d)                      |  | 377,997       |   |            |   | 377,997   |  
|Other assets(e)                           |  | 20,501        |   | 61,041      |   | 81,542    |  
|Current liabilities(f)                    |  | 380,664       |   | 16,082      |   | 396,746   |  
|Long-term debt(g)                         |  | 1,852,646     |   | 61,041      |   | 1,913,687 |  
|Long-term future income taxes(h)          |  | 147,541       |   | 2,604       |   | 150,145   |  
|Other long-term liabilities(i)            |  | 38,946        |   | (6,834      | ) | 32,112    |  
|Share capital(j)                          |  | 567,177       |   | (1,500      | ) | 565,677   |  
|Deficit(k)                                |  | (407,025      | ) | 220         |   | (406,805  | )
|Accumulated other comprehensive income(l) |  | 30,669        |   | 4,230       |   | 34,899    |  

|
|

|2006                                      |  | Canadian GAAP |          | Adjustments |   | U.S. GAAP |  
|----------------------------------------- |  | ------------- | -------- | ----------- | - | --------- | -
|Property, plant and equipment(b)          |  | $             | 873,576  |             | $ | (24       | )
|Goodwill(c)                               |  |               | 969,480  |             |   | (1,043    | )
|Intangible assets(d)                      |  |               | 508,968  |             |   | (379      | )
|Other assets(e)                           |  |               | 89,334   |             |   | 18,953    |  
|Current liabilities(f)                    |  |               | 464,834  |             |   | 29        |  
|Long-term future income taxes(g)          |  |               | 214,185  |             |   | 6,748     |  
|Other long-term liabilities(h)            |  |               | 41,081   |             |   | (2,270    | )
|Share capital(i)                          |  |               | 567,177  |             |   | (1,500    | )
|Deficit(i)                                |  |               | (104,134 | )           |   | 129       |  
|Accumulated other comprehensive income(j) |  |               | 15,983   |             |   | 14,371    |  

F-55

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 25: RECONCILIATION OF CANADIAN AND U.S. GAAP(Continued)

Adjustments
to the carrying value of assets, liabilities and equity are as follows:

|    |  |                                                              |  | 2007 |        | 2006 |  
|--- |  | ------------------------------------------------------------ |  | ---- | ------ | ---- | -
|(a) |  | Income tax recoverable FIN 48(v)                             |  | $    | 3,413  |      | $
|(b) |  | The adjustment to property, plant and equipment consists of: |  |      |        |      |  
|    |  | EITF 88-16(i)                                                |  | $    | (24    | )    | $
|(c) |  | The adjustment to goodwill consists of:                      |  |      |        |      |  
|    |  | FIN 48(v) & EITF 88-16(i)                                    |  | $    | 11,413 |      | $
|(d) |  | The adjustment to intangible assets consists of:             |  |      |        |      |  
|    |  | EITF 88-16(i)                                                |  | $    |       |      | $
|(e) |  | The adjustment to other assets consists of:                  |  |      |        |      |  
|    |  | Interest rate swaps(ii)                                      |  | $    |       |      | $
|    |  | Deferred financing fees(vi)                                  |  |      | 61,041 |      |  
|    |  |                                                              |  |      |        |      |  
|    |  |                                                              |  | $    | 61,041 |      | $
|(f) |  | The adjustment to current liabilities consists of:           |  |      |        |      |  
|    |  | Forward exchange contracts(ii)                               |  | $    |       |      | $
|    |  | Taxes payable-FIN 48(v)                                      |  |      | 16,082 |      |  
|    |  |                                                              |  |      |        |      |  
|    |  |                                                              |  | $    | 16,082 |      | $
|(g) |  | The adjustment to long-term debt consists of:                |  |      |        |      |  
|    |  | APB 21(vi)                                                   |  | $    | 61,041 |      | $
|(h) |  | The adjustment to long-term future income taxes consists of: |  |      |        |      |  
|    |  | EITF 88-16(i)                                                |  | $    |       |      | $
|    |  | SFAS 158(iii)                                                |  |      | 2,604  |      |  
|    |  | Interest rate swaps(ii)                                      |  |      |       |      |  
|    |  |                                                              |  |      |        |      |  
|    |  |                                                              |  | $    | 2,604  |      | $
|(i) |  | The adjustment to other long-term liabilities consists of:   |  |      |        |      |  
|    |  | SFAS 158(iii)                                                |  | $    | (6,834 | )    | $
|(j) |  | The adjustment to share capital consists of:                 |  |      |        |      |  
|    |  | EITF 88-16(i)                                                |  | $    | (1,500 | )    | $
|(k) |  | The adjustment to deficit consists of:                       |  |      |        |      |  
|    |  | EITF 88-16(i)                                                |  | $    | 129    |      | $
|    |  | EITF 88-16 Goodwill and intangible impairment(i)             |  |      | 1,347  |      |  
|    |  | FIN 48(v)                                                    |  |      | (1,256 | )    |  
|    |  |                                                              |  |      |        |      |  
|    |  |                                                              |  | $    | 220    |      | $
|(l) |  | The adjustment to AOCI consists of:                          |  |      |        |      |  
|    |  | SFAS 158(iii)                                                |  | $    | 4,230  |      | $
|    |  | Interest rate swaps(ii)                                      |  |      |       |      |  
|    |  | Forward exchange contracts(ii)                               |  |      |       |      |  
|    |  |                                                              |  |      |        |      |  
|    |  |                                                              |  | $    | 4,230  |      | $

F-56

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 25: RECONCILIATION OF CANADIAN AND U.S. GAAP(Continued)

Cash flows under U.S. GAAP would appear as follows:

|                                                  |                         | 2007 |         | 2006 |   | 2005
Successor
Period |   | 2005
Predecessor
Period |           
|------------------------------------------------- | ----------------------- | ---- | ------- | ---- | - | --------------------- | - | ----------------------- | ----------
|Operating activities under Canadian and U.S. GAAP |                         | $    | 104,260 |      | $ | 146,236               |   | $                       | (28,182   
|                                                  |                         |      |         |      |   |                       |   |                         |           
|Financing activities under Canadian GAAP          |                         | $    | (65,634 | )    | $ | (112,467              | ) | $                       | 2,094,656 
|                                                  | Impact of EITF 88-16(i) |      |         |     |   |                       |  |                         |           
|                                                  |                         |      |         |      |   |                       |   |                         |           
|Financing activities under U.S. GAAP              |                         | $    | (65,634 | )    | $ | (112,467              | ) | $                       | 2,079,456 
|Investing activities under Canadian GAAP          |                         | $    | (49,405 | )    | $ | (39,522               | ) | $                       | (2,019,858
|                                                  | Impact of EITF 88-16(i) |      |         |     |   |                       |  |                         |           
|                                                  |                         |      |         |      |   |                       |   |                         |           
|Investing activities under U.S. GAAP              |                         | $    | (49,405 | )    | $ | (39,522               | ) | $                       | (2,004,658
|                                                  |                         |      |         |      |   |                       |   |                         |           
|(Decrease) increase in cash                       |                         | $    | (5,669  | )    | $ | (36                   | ) | $                       | 47,459    
|                                                  |                         |      |         |      |   |                       |   |                         |           

(i)    EITF 88-16: Basis in leveraged buyout transactions ("EITF 88-16")

Under
Canadian GAAP, the 2005 leveraged buyout transaction was accounted for using the purchase method with a 100% change in basis. Under U.S. GAAP, a portion of the purchase cost
(representing approximately 1% of the purchase price) of the Transaction is accounted for at the carrying value of management's continuing equity interests. The termination of a former senior
executive in 2005 resulted in a step acquisition, as the percentage of the Company owned by management decreased. In addition, other former executive were terminated or left the Company, resulting in
subsequent step acquisitions. The results of these step acquisitions are reflected in the operations of the Company in the 2005 and 2006 periods. As at December 31, 2007, approximately 0.1%
(December 31, 2006approximately 0.1%; December 31, 2005approximately 0.4%) of the purchase cost of the Transaction is accounted for at the carrying value of
management's continuing equity interests. As a result, the purchase cost and the reduction of purchase costs are allocated pro rata to the assets acquired and liabilities assumed and shareholder's
equity is reduced by a similar amount.

As
a result of the lower fair value established at the time of the original allocation in 2005, the difference of $1,043 and $379 (net of tax of $75) in goodwill and intangibles
respectively, due to EITF 88-16, reduces the goodwill and intangibles impairment charge in 2007 under U.S. GAAP. Following the impairment in goodwill and intangibles in 2007,
there is no longer a difference for the purpose of the Canadian to U.S. GAAP reconciliation in respect of goodwill and intangibles (related to EITF 88-16).

(ii)   SFAS No. 133: Accounting for derivative instruments and hedging activities ("SFAS 133")

SFAS 133
and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activitiesan Amendment of SFAS 133", ("SFAS 138")
requires that all derivative instruments be reported on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships.

F-57

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 25: RECONCILIATION OF CANADIAN AND U.S. GAAP(Continued)



(iii)  SFAS No. 158: Employer's Accounting for Defined Benefit Pension and Other Post-Retirement Plans:

This
standard requires the full recognition of the funded status of an entity's defined benefit and other post-retirement plans either as an asset or a liability on its
year-end balance sheet. As a result, this standard eliminates the recognition of an Additional Minimum Pension Liability ("AML") as well as other previously unreported
pension adjustments for defined benefit and other post-retirement plans that were not previously required under SFAS 87 "Employer's Accounting for Pensions". The Company adopted
SFAS 158 in 2006 and reduced its long-term pension liability by $2,270, with an offset to accumulated other comprehensive
income. In 2007, the impact of SFAS 158 was a cumulative reduction of the long-term pension liability in the amount of $6,834 ($4,230 net of tax), with an offset to accumulated
other comprehensive income ($4,564 in 2007, $2,270 in 2006).

(iv)  SFAS No. 130: Reporting comprehensive income

This
standard defines comprehensive income as all changes in equity other than those resulting from investments by owners and distributions to owners. Comprehensive income is comprised
of two components, net income and Other Comprehensive Income ("OCI"). OCI refers to amounts that are recorded as an element of shareholder's equity but are excluded from net income because these
transactions or events were attributed to changes from non-owner sources. As stated in note (ii), the

F-58

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 25: RECONCILIATION OF CANADIAN AND U.S. GAAP(Continued)

Company
adopted CICA 1530 in 2007, eliminating the majority of reconciling items related to this standard.

(v)   FIN 48: Accounting for Uncertainty in Income Taxes

This
interpretation was designed to clarify the accounting for uncertain tax positions in accordance with SFAS 109, Accounting for Income Taxes. The initial benefit recognition
model follows a two-step approach. First, an enterprise evaluates if the tax position is more-likely-than-not of being sustained on audit based solely
on the technical merits of the position. Second, the enterprise measures the appropriate amount of benefit to recognize. This is calculated as the largest amount of tax benefit that has a greater than
50% likelihood of ultimately being realized upon settlement. Subsequently at each reporting date, the largest amount that has a greater than 50% likelihood of ultimately being realized, based on the
information available at that date, will be recognized and measured. Subsequent recognition, derecognition, and measurement should be based on new information. The change in net assets as a result of
applying the provisions of the final interpretation will be considered a change in accounting principle with the cumulative effect of the change treated as an offsetting adjustment to the opening
balance of retained earnings in the period of transition.

FASB
Interpretation No. 48 "FIN 48" is effective for fiscal years beginning after December 15, 2006 and as a result, was effective for the Company in the first
quarter of 2007. As a result of the implementation of FIN 48, the Company recognized approximately a $79,609 increase in the liability for unrecognized tax benefits, which was accounted for by
a corresponding $60,612 increase in the January 1, 2007 balance of goodwill and an $18,997 increase to the January 1, 2007 balance of deficit.

The
Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statement of operations. Accrued
interest and penalties are included within the related tax liability line in the consolidated balance sheet.

The
following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the year:

Unrecognized tax benefitopening balance

$
110,517Gross increasetax positions in prior period


3,214Gross decreasetax positions in prior period


(36,660
)Gross increasetax positions in current period


557Pre-acquisition settlements to goodwill


(57,414
)Pre-acquisition lapse of statute of limitations to goodwill


(3,411
)Settlements


(141
)Lapse of statute of limitations


(973
)Currency


13,126Other


(1,977
)Unrecognized tax benefitending balance

$
26,838


F-59

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 25: RECONCILIATION OF CANADIAN AND U.S. GAAP(Continued)

The
total amount that would affect the effective tax rate is $6,570 as of December 31, 2007. Also included in the balance of unrecognized tax benefits at December 31, 2007
are $20,049 of tax benefits that, if recognized, would result in a decrease to goodwill recorded in purchase business combinations.

The
Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. Related to the uncertain tax benefits noted above, the Company accrued
penalties of $nil and interest of $2,435 during 2007 and in total, as of December 31, 2007, has recognized a liability for penalties of $1,724 and interest of $9,926.

The
Company estimates the amount of unrecognized tax benefit will not significantly increase within the next 12 months of the reporting date. In addition, the Company believes
that it is possible approximately $2,926 of its currently remaining unrecognized tax positions, primarily relating to transfer pricing exposures, may be recognized by the end of 2009 as a result of a
lapse of the statute of limitations.

Principally
as a result of the passage into law in 2007 of legislation enacted retroactively in Canada, $69,639 of previously unrecognized tax benefit established on January 1,
2007 was recognized. Of this amount, $52,360 was recognized as a pre-acquisition settlement relating to goodwill and $28,795 was recognized as decrease in tax positions in prior periods,
and $11,516 was related to growth in the tax position during the period associated with currency fluctuations.

The
company is subject to taxation in Canada and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the
world, including such major jurisdictions as the United States, United Kingdom, France, and Ireland. With few exceptions, the Company is no longer subject to Canada or non-Canada income
tax examinations for years before 2000.

As
a result of pre-acquisition adjustments, the goodwill impairment under U.S. GAAP in 2007 was $11,626 lower as these adjustments resulted in additional liabilities
prior to the goodwill impairment test.

(vi)  SFAS No. 123: Accounting for stock-based compensation

The
disclosure requirements of SFAS No. 123 are different from CICA recommendations. SFAS No. 123 requires disclosure of the pro-forma effect of fair value
accounting applied to all options issued while CICA recommendations only require disclosure of the pro-forma effect of options issued after January 1, 2002. Pro-forma
disclosure under U.S. GAAP would be as follows:

|                                                                   |  | 2007 |          | 2006 |   | 2005
Successor
Period |   | 2005
Predecessor
Period |        
|------------------------------------------------------------------ |  | ---- | -------- | ---- | - | --------------------- | - | ----------------------- | -------
|Net loss based on United States GAAP                               |  | $    | (295,428 | )    | $ | (34,359               | ) | $                       | (69,646
|Stock-based compensation costs using fair value method, net of tax |  |      |         |      |   |                      |   |                         |       
|                                                                   |  |      |          |      |   |                       |   |                         |        
|Pro forma net loss                                                 |  | $    | (295,428 | )    | $ | (34,359               | ) | $                       | (69,646
|                                                                   |  |      |          |      |   |                       |   |                         |        

F-60

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 25: RECONCILIATION OF CANADIAN AND U.S. GAAP(Continued)

vii)  Under the Accounting Principles Board Opinion 21, issue costs related to debt issuance should be reported in the balance sheet as
deferred charges within other assets. With the 2007 adoption of CICA 3855, unamortized debt issuance costs were required to be presented as a reduction of the debt instrument to which they relate.

Recently issued accounting standards:

In
September 2006, the FASB issued SFAS 157: Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value under GAAP and expands
disclosures about fair value measurements. The statement applies only to fair value measurements that are already required or permitted by other current accounting standards. This statement replaces
the different definitions of fair value in accounting literature with a single definition. The statement requires reporting entities to establish a valuation premise based on the asset's highest and
best use. This premise is often an integral part of valuing non-financial assets and other assets for which there is no observable market price. Three possible valuation approaches are
identified by the statement; the market, income and cost approaches. The statement requires expanded disclosures in both interim and annual periods by each major category of assets and liabilities.
The statement is effective for fair value measures already required or permitted by other standards for financial statements issued for fiscal years beginning after November 15, 2007 and
interim periods within those fiscal years. Earlier adoption is permitted if no interim or annual financial statements have been issued for the earlier periods. The requirements of the statement are
effective on a prospective basis except for changes in fair value related to estimating the fair value of a large block position and instruments measured at fair value at initial recognition based on
transaction price in accordance with EITF 02-3 or SFAS 155. If these exceptions are present, the statement should be applied by adjusting the opening balance of retained
earnings in the period of adoption. The Company is currently assessing the impact of this standard.

In
February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and LiabilitiesIncluding an amendment of FASB Statement No. 115
("SFAS 159"). SFAS 159 expands the use of fair value accounting but does not affect existing standards which requires assets or liabilities to be carried at fair value. The objective of
SFAS 159 is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. Under SFAS 159, a company may elect to use fair value to measure eligible items at specified election dates and report unrealized
gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Eligible items include, but are limited to, accounts and loans receivable,
available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees, issued debt and firm commitments. If
elected, SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact adoption of SFAS 159 may have on our consolidated
financial statements.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations ("SFAS 141(R)"). SFAS 141(R) establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired.
SFAS 141(R) also establishes

F-61

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 25: RECONCILIATION OF CANADIAN AND U.S. GAAP(Continued)

disclosure
requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15,
2008.

Canadian
GAAP requires the proportionate consolidation of interests in joint ventures. Proportionate consolidation is not permitted under U.S. GAAP and interests in joint ventures
are accounted for under the equity method. However, as allowed by the Securities and Exchange Commission ("SEC"), reclassification is not required in an SEC filing when specified criteria are met and
the information is disclosed. Although adoption of proportionate consolidation has no impact on net earnings or shareholder's equity, it does increase assets, liabilities, revenues, expenses and cash
flows from operations from those amounts otherwise reported under U.S. GAAP.

Other matters:

The
tax effect of temporary differences under Canadian GAAP are described as future income taxes in these financial statements whereas such amounts are described as deferred income taxes
under U.S. GAAP.

U.S. GAAP
requires that depreciation and amortization, impairment of property, plant and equipment, and restructuring expenses be included in the determination of operating income
and does not permit the disclosure of a sub-total of income before such items.

NOTE 26: SUBSEQUENT EVENTS

In the first quarter of 2008, the Company announced the closure of three additional manufacturing sites in Canada. These closures are expected to be completed by
the end of the third quarter of 2008.

In
the first quarter of 2008, the Company purchased the remaining 25% ownership interest of the Company's operations located in the Czech Republic and Poland. The consideration was
approximately $17,900 consisting of approximately $13,400 paid for the shares and the balance as repayment of advances made by the minority interest shareholder. The Company was also notified in 2008
by the owner of 25% of one of the Company's VIE's of their intention to require the other VIE party or the Company to purchase their 25% share in the VIE pursuant to the terms in the shareholder
agreement.
Preliminary estimates of the consideration required for the purchase of the 25% range between $14,500 and $21,000. It is anticipated that the transaction will close before the end of the third quarter
of 2008.

Subsequent
to year end the Company borrowed the remaining $336,000 available from its eight year $350,000 bank senior secured revolving credit facility. The borrowing will be at LIBOR
plus an applicable margin. Although the Company has no immediate needs for the additional liquidity, in light of current financial market conditions, the Company drew on the facility to provide it
with greater financial flexibility.

On
April 18, 2008, the Company was notified by the counterparty to the Facilities Agreement described in note 3 of termination the program in 60 days. The amount
outstanding on the Facilities Agreement as of that date was $66,400. The Company is evaluating other programs that are substantially similar to the Facilities Agreement as a replacement for this
program.

F-62

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

NOTE 27: CONSOLIDATING FINANCIAL INFORMATION

As part of the acquisition of Masonite International Corporation, Masonite (formerly known as Stile Consolidated, "Parent") through its subsidiaries, Masonite
International Corporation (formerly known as Stile Acquisition, "Canadian Issuer") and Masonite Corporation (formerly known as Masonite US Corporation, formerly known as Stile US Acquisition, "US
Issuer"), entered into a senior secured credit facility agreement and a senior subordinated loan agreement. The senior secured credit facility and the senior subordinated loan, which was replaced with
the senior subordinated term loan and subsequently the senior subordinated notes (the "Guaranteed Debt") are fully and unconditionally guaranteed on a joint and several basis by Masonite and certain
of its 100% owned subsidiaries ("Guarantor Subsidiaries"). The Guaranteed Debt is not guaranteed by the Company's less than 100% owned subsidiaries and certain other subsidiaries of the Company
(collectively, the "Non-Guarantor Subsidiaries").

The
consolidating financial information below for the years ended December 31, 2007 and December 31, 2006, the period from February 2, 2005 (date of Incorporation)
to December 31, 2005, and the period from January 1, 2005 to April 6, 2005 is presented pursuant to Article 3-10(d) of Regulation S-X. The operations of the Company
for year ended December 31, 2007, December 31, 2006 and the period from February 2, 2005 (date of Incorporation) to December 31, 2005 consist of Masonite. The information
presented for the period from January 1, 2005 to April 6, 2005 consists of the operations of the Predecessor. For purposes of presenting the following consolidating financial
information, for the period from January 1, 2005 to April 6, 2005, amounts were allocated to the columns Canadian Issuer, US Issuer, Guarantor Subsidiaries and Non-Guarantor
Subsidiaries on the same basis as in periods subsequent to April 6, 2005 and applied by Masonite.

The
consolidating financial information reflects the investments of the Parent Company in the Issuers, and of the Issuer in their respective Guarantor and Non-Guarantor
subsidiaries using the equity method.

F-63

---





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

Consolidating Statement of Operations  For the year ended December 31, 2007

|                                                               |  | Parent |          | Canadian
Issuer |   | US Issuer |   | Guarantor
Subsidiaries |           | Guarantor
Adjustments |   | Combined |   | Non-Guarantor
Subsidiaries |          | Adjustments |   | Consolidated |  
|-------------------------------------------------------------- |  | ------ | -------- | --------------- | - | --------- | - | ---------------------- | --------- | --------------------- | - | -------- | - | -------------------------- | -------- | ----------- | - | ------------ | -
|Sales                                                          |  | $      |         |                 | $ | 446,303   |   | $                      | 1,122,452 |                       | $ | 463,539  |   | $                          | (219,825 | )           | $ | 1,812,469    |  
|Cost of sales                                                  |  |        |         |                 |   | 354,032   |   |                        | 906,434   |                       |   | 397,531  |   |                            | (219,825 | )           |   | 1,438,172    |  
|                                                               |  |        |          |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|                                                               |  |        |         |                 |   | 92,271    |   |                        | 216,018   |                       |   | 66,008   |   |                            |         |             |   | 374,297      |  
|Selling, general and administration expenses                   |  |        |         |                 |   | 35,483    |   |                        | 105,300   |                       |   | 20,955   |   |                            |         |             |   | 161,738      |  
|Depreciation and amortization                                  |  |        |         |                 |   | 14,201    |   |                        | 72,010    |                       |   | 19,646   |   |                            |         |             |   | 105,857      |  
|Goodwill and Intangible Impairment                             |  |        |         |                 |   | 69,388    |   |                        | 234,412   |                       |   |         |   |                            |         |             |   | 303,800      |  
|Interest                                                       |  |        |         |                 |   | 85,889    |   |                        | 117,408   |                       |   | (1,222   | ) |                            |         |             |   | 202,075      |  
|(Income) loss from equity investments                          |  |        | 302,891  |                 |   | (63,251   | ) |                        | (7,392    | )                     |   |         |   |                            | (281,842 | )           |   | (49,594      | )
|Other expense                                                  |  |        |         |                 |   | 7,832     |   |                        | 17,428    |                       |   | 6,866    |   |                            |         |             |   | 32,126       |  
|                                                               |  |        |          |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|Income (loss) before income taxes and non-controlling interest |  |        | (302,891 | )               |   | (57,271   | ) |                        | (323,148  | )                     |   | 19,763   |   |                            | 281,842  |             |   | (381,705     | )
|Income taxes                                                   |  |        |         |                 |   | (28,311   | ) |                        | (49,728   | )                     |   | (774     | ) |                            |         |             |   | (78,813      | )
|Non controlling interest                                       |  |        |         |                 |   |          |   |                        |          |                       |   |         |   |                            |         |             |   |             |  
|                                                               |  |        |          |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|Net income (loss)                                              |  | $      | (302,891 | )               | $ | (28,960   | ) | $                      | (273,420  | )                     | $ | 20,537   |   | $                          | 281,842  |             | $ | (302,892     | )
|                                                               |  |        |          |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|Reconciliation to United States GAAP is as follows:            |  |        |          |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|Net (loss) income based on Canadian GAAP                       |  | $      | (302,891 | )               | $ | (28,960   | ) | $                      | (273,420  | )                     | $ | 20,537   |   | $                          | 281,842  |             | $ | (302,892     | )
|Effect of FIN 48                                               |  |        | 6,115    |                 |   | 14,454    |   |                        | (6,973    | )                     |   | (1,366   | ) |                            | (6,115   | )           |   | 6,115        |  
|Impairment of goodwill                                         |  |        | 12,669   |                 |   | 2,394     |   |                        | 10,275    |                       |   |         |   |                            | (12,669  | )           |   | 12,669       |  
|Impairment of intangibles                                      |  |        | 379      |                 |   | 265       |   |                        | 114       |                       |   |         |   |                            | (379     | )           |   | 379          |  
|Tax effect on U.S. GAAP adjustments                            |  |        | (75      | )               |   | (53       | ) |                        | (22       | )                     |   |         |   |                            | 75       |             |   | (75          | )
|                                                               |  |        |          |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|Net (loss) income based on United States GAAP                  |  |        | (283,803 | )               |   | (11,900   | ) |                        | (270,026  | )                     |   | 19,171   |   |                            | 262,754  |             |   | (283,804     | )
|Effect of SFAS 130                                             |  |        | 16,814   |                 |   | 13,687    |   |                        | 41        |                       |   | 7,696    |   |                            | (21,424  | )           |   | 16,814       |  
|Effect of SFAS 133                                             |  |        | (22,178  | )               |   | (11,089   | ) |                        | (11,089   | )                     |   |         |   |                            | 22,178   |             |   | (22,178      | )
|Effect of SFAS 158                                             |  |        | 4,564    |                 |   |          |   |                        | 4,292     |                       |   | 272      |   |                            | (4,564   | )           |   | 4,564        |  
|Tax effect on U.S. GAAP adjustments                            |  |        | 5,337    |                 |   | 3,695     |   |                        | 1,718     |                       |   | (76      | ) |                            | (5,337   | )           |   | 5,337        |  
|                                                               |  |        |          |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|Comprehensive (loss) income based on United States GAAP        |  | $      | (279,266 | )               | $ | (5,607    | ) | $                      | (275,064  | )                     | $ | 27,063   |   | $                          | 253,607  |             | $ | (279,267     | )
|                                                               |  |        |          |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  

F-64

---





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

Consolidating Statement of Operations  For the year ended December 31, 2006

|                                                               |  | Parent |         | Canadian
Issuer |   | US Issuer |   | Guarantor
Subsidiaries |           | Guarantor
Adjustments |   | Combined |   | Non-Guarantor
Subsidiaries |          | Adjustments |   | Consolidated |  
|-------------------------------------------------------------- |  | ------ | ------- | --------------- | - | --------- | - | ---------------------- | --------- | --------------------- | - | -------- | - | -------------------------- | -------- | ----------- | - | ------------ | -
|Sales                                                          |  | $      |        |                 | $ | 533,196   |   | $                      | 1,470,979 |                       | $ | 485,731  |   | $                          | (338,662 | )           | $ | 2,151,244    |  
|Cost of sales                                                  |  |        |        |                 |   | 469,657   |   |                        | 1,199,275 |                       |   | 408,548  |   |                            | (338,662 | )           |   | 1,738,818    |  
|                                                               |  |        |         |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|                                                               |  |        |        |                 |   | 63,539    |   |                        | 271,704   |                       |   | 77,183   |   |                            |         |             |   | 412,426      |  
|Selling, general and administration expenses                   |  |        |        |                 |   | 36,269    |   |                        | 115,555   |                       |   | 18,519   |   |                            |         |             |   | 170,343      |  
|Depreciation and amortization                                  |  |        |        |                 |   | 15,426    |   |                        | 69,611    |                       |   | 17,725   |   |                            |         |             |   | 102,762      |  
|Interest                                                       |  |        |        |                 |   | 87,561    |   |                        | 119,433   |                       |   | (982     | ) |                            |         |             |   | 206,012      |  
|Loss (income) from equity investments                          |  |        | 34,334  |                 |   | (62,585   | ) |                        | (12,100   | )                     |   |         |   |                            | (4,951   | )           |   | (45,302      | )
|Other expense                                                  |  |        |        |                 |   | 7,990     |   |                        | 27,705    |                       |   | 2,768    |   |                            |         |             |   | 38,463       |  
|                                                               |  |        |         |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|(Loss) income before income taxes and non-controlling interest |  |        | (34,334 | )               |   | (21,122   | ) |                        | (48,500   | )                     |   | 39,153   |   |                            | 4,951    |             |   | (59,852      | )
|Income taxes                                                   |  |        |        |                 |   | (13,951   | ) |                        | (18,171   | )                     |   | 6,604    |   |                            |         |             |   | (25,518      | )
|Non controlling interest                                       |  |        |        |                 |   |          |   |                        |          |                       |   |         |   |                            |         |             |   |             |  
|                                                               |  |        |         |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|Net (loss) income                                              |  | $      | (34,334 | )               | $ | (7,171    | ) | $                      | (30,329   | )                     | $ | 32,549   |   | $                          | 4,951    |             | $ | (34,334      | )
|                                                               |  |        |         |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|Reconciliation to United States GAAP is as follows:            |  |        |         |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|Net (loss) income based on Canadian GAAP                       |  | $      | (34,334 | )               | $ | (7,171    | ) | $                      | (30,329   | )                     | $ | 32,549   |   | $                          | 4,951    |             | $ | (34,334      | )
|Effect of EITF 88-16                                           |  |        | (4      | )               |   | (39       | ) |                        | 35        |                       |   |         |   |                            | 4        |             |   | (4           | )
|Tax effect on U.S. GAAP adjustments                            |  |        | (21     | )               |   | (4        | ) |                        | (17       | )                     |   |         |   |                            | 21       |             |   | (21          | )
|                                                               |  |        |         |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|Net (loss) income based on United States GAAP                  |  |        | (34,359 | )               |   | (7,214    | ) |                        | (30,311   | )                     |   | 32,549   |   |                            | 4,976    |             |   | (34,359      | )
|Effect of SFAS 130                                             |  |        | 23,967  |                 |   | (4,665    | ) |                        | (20       | )                     |   | 28,652   |   |                            | (23,967  | )           |   | 23,967       |  
|Effect of SFAS 133                                             |  |        | 2,926   |                 |   | 1,387     |   |                        | 1,539     |                       |   |         |   |                            | (2,926   | )           |   | 2,926        |  
|Tax effect on U.S. GAAP adjustments                            |  |        | (745    | )               |   | (160      | ) |                        | (585      | )                     |   |         |   |                            | 745      |             |   | (745         | )
|                                                               |  |        |         |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|Comprehensive (loss) income based on United States GAAP        |  | $      | (8,211  | )               | $ | (10,652   | ) | $                      | (29,377   | )                     | $ | 61,201   |   | $                          | (21,172  | )           | $ | (8,211       | )
|                                                               |  |        |         |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  

F-65

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

Consolidating Statement of Operations  For the period from February 2, 2005 (date of Incorporation) to December 31, 2005

|                                                               |  | Parent |         | Canadian
Issuer |   | US Issuer |   | Guarantor
Subsidiaries |           | Guarantor
Adjustments |   | Combined |   | Non-Guarantor
Subsidiaries |          | Adjustments |   | Consolidated |  
|-------------------------------------------------------------- |  | ------ | ------- | --------------- | - | --------- | - | ---------------------- | --------- | --------------------- | - | -------- | - | -------------------------- | -------- | ----------- | - | ------------ | -
|Sales                                                          |  | $      |        |                 | $ | 408,544   |   | $                      | 1,117,472 |                       | $ | 357,139  |   | $                          | (261,180 | )           | $ | 1,621,975    |  
|Cost of sales                                                  |  |        |        |                 |   | 362,000   |   |                        | 958,577   |                       |   | 296,684  |   |                            | (261,180 | )           |   | 1,356,081    |  
|                                                               |  |        |         |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|                                                               |  |        |        |                 |   | 46,544    |   |                        | 158,895   |                       |   | 60,455   |   |                            |         |             |   | 265,894      |  
|Selling, general and administration expenses                   |  |        |        |                 |   | 28,125    |   |                        | 86,979    |                       |   | 17,475   |   |                            |         |             |   | 132,579      |  
|Depreciation and amortization                                  |  |        |        |                 |   | 11,227    |   |                        | 50,501    |                       |   | 13,044   |   |                            |         |             |   | 74,772       |  
|Interest                                                       |  |        |        |                 |   | 66,524    |   |                        | 89,668    |                       |   | (147     | ) |                            |         |             |   | 156,045      |  
|Loss (income) from equity investments                          |  |        | 69,800  |                 |   | (46,670   | ) |                        | (3,943    | )                     |   |         |   |                            | (45,772  | )           |   | (26,585      | )
|Other expense (income)                                         |  |        |        |                 |   | 18,683    |   |                        | 4,391     |                       |   | 291      |   |                            |         |             |   | 23,365       |  
|                                                               |  |        |         |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|(Loss) income before income taxes and non-controlling interest |  |        | (69,800 | )               |   | (31,345   | ) |                        | (68,701   | )                     |   | 29,792   |   |                            | 45,772   |             |   | (94,282      | )
|Income taxes                                                   |  |        |        |                 |   | (16,141   | ) |                        | (15,043   | )                     |   | 5,764    |   |                            |         |             |   | (25,420      | )
|Non-controlling interest                                       |  |        |        |                 |   | 938       |   |                        |          |                       |   |         |   |                            |         |             |   | 938          |  
|                                                               |  |        |         |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|Net (loss) income                                              |  | $      | (69,800 | )               | $ | (16,142   | ) | $                      | (53,658   | )                     | $ | 24,028   |   | $                          | 45,772   |             | $ | (69,800      | )
|                                                               |  |        |         |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|Reconciliation to United States GAAP is as follows:            |  |        |         |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|Net (loss) income based on Canadian GAAP                       |  | $      | (69,800 | )               | $ | (16,142   | ) | $                      | (53,658   | )                     | $ | 24,028   |   | $                          | 45,772   |             | $ | (69,800      | )
|Effect of EITF 88-16                                           |  |        | 304     |                 |   | 98        |   |                        | 206       |                       |   |         |   |                            | (304     | )           |   | 304          |  
|Tax effect on U.S. GAAP adjustments                            |  |        | (150    | )               |   | (64       | ) |                        | (86       | )                     |   |         |   |                            | 150      |             |   | (150         | )
|                                                               |  |        |         |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|Net (loss) income based on United States GAAP                  |  |        | (69,646 | )               |   | (16,108   | ) |                        | (53,538   | )                     |   | 24,028   |   |                            | 45,618   |             |   | (69,646      | )
|Effect of SFAS 130                                             |  |        | (7,984  | )               |   | (7,711    | ) |                        | (108      | )                     |   | (165     | ) |                            | 7,984    |             |   | (7,984       | )
|Effect of SFAS 133                                             |  |        | 15,985  |                 |   | 8,048     |   |                        | 7,937     |                       |   |         |   |                            | (15,985  | )           |   | 15,985       |  
|Tax effect on U.S. GAAP adjustments                            |  |        | (6,065  | )               |   | (3,049    | ) |                        | (3,016    | )                     |   |         |   |                            | 6,065    |             |   | (6,065       | )
|                                                               |  |        |         |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  
|Comprehensive (loss) income based on United States GAAP        |  | $      | (67,710 | )               | $ | (18,820   | ) | $                      | (48,725   | )                     | $ | 23,863   |   | $                          | 43,682   |             | $ | (67,710      | )
|                                                               |  |        |         |                 |   |           |   |                        |           |                       |   |          |   |                            |          |             |   |              |  

F-66

---





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

Consolidating Statement of Operations  For the period from January 1, 2005 to April 6, 2005

|                                                               |  | Parent |   | Canadian
Issuer |   | US Issuer |   | Guarantor
Subsidiaries |         | Guarantor
Adjustments |   | Combined |   | Non-Guarantor
Subsidiaries |         | Adjustments |   | Consolidated |  
|-------------------------------------------------------------- |  | ------ | - | --------------- | - | --------- | - | ---------------------- | ------- | --------------------- | - | -------- | - | -------------------------- | ------- | ----------- | - | ------------ | -
|Sales                                                          |  | $      |  |                 | $ | 130,345   |   | $                      | 354,670 |                       | $ | 112,233  |   | $                          | (62,561 | )           | $ | 534,687      |  
|Cost of sales                                                  |  |        |  |                 |   | 107,164   |   |                        | 308,678 |                       |   | 88,393   |   |                            | (62,561 | )           |   | 441,674      |  
|                                                               |  |        |   |                 |   |           |   |                        |         |                       |   |          |   |                            |         |             |   |              |  
|                                                               |  |        |  |                 |   | 23,181    |   |                        | 45,992  |                       |   | 23,840   |   |                            |        |             |   | 93,013       |  
|Selling, general and administration expenses                   |  |        |  |                 |   | 11,542    |   |                        | 28,861  |                       |   | 5,341    |   |                            |        |             |   | 45,744       |  
|Depreciation and amortization                                  |  |        |  |                 |   | 2,276     |   |                        | 9,003   |                       |   | 2,922    |   |                            |        |             |   | 14,201       |  
|Interest                                                       |  |        |  |                 |   | 7,619     |   |                        | 9,804   |                       |   | (391     | ) |                            |        |             |   | 17,032       |  
|Loss (income) from equity investments                          |  |        |  |                 |   | 5,115     |   |                        | (1,569  | )                     |   |         |   |                            | (6,592  | )           |   | (3,046       | )
|Other expense                                                  |  |        |  |                 |   | 41,738    |   |                        | 23,057  |                       |   | 1,409    |   |                            |        |             |   | 66,204       |  
|                                                               |  |        |   |                 |   |           |   |                        |         |                       |   |          |   |                            |         |             |   |              |  
|(Loss) income before income taxes and non-controlling interest |  |        |  |                 |   | (45,109   | ) |                        | (23,164 | )                     |   | 14,559   |   |                            | 6,592   |             |   | (47,122      | )
|Income taxes                                                   |  |        |  |                 |   | (15,097   | ) |                        | (5,695  | )                     |   | 3,682    |   |                            |        |             |   | (17,110      | )
|Non-controlling interest                                       |  |        |  |                 |   | 653       |   |                        |        |                       |   |         |   |                            |        |             |   | 653          |  
|                                                               |  |        |   |                 |   |           |   |                        |         |                       |   |          |   |                            |         |             |   |              |  
|Net (loss) income                                              |  | $      |  |                 | $ | (30,665   | ) | $                      | (17,469 | )                     | $ | 10,877   |   | $                          | 6,592   |             | $ | (30,665      | )
|                                                               |  |        |   |                 |   |           |   |                        |         |                       |   |          |   |                            |         |             |   |              |  
|Reconciliation to United States GAAP is as follows:            |  |        |   |                 |   |           |   |                        |         |                       |   |          |   |                            |         |             |   |              |  
|Net (loss) income based on Canadian GAAP                       |  | $      |  |                 | $ | (30,665   | ) | $                      | (17,469 | )                     | $ | 10,877   |   | $                          | 6,592   |             | $ | (30,665      | )
|Effect of SFAS 133                                             |  |        |  |                 |   | 1,373     |   |                        |        |                       |   |         |   |                            |        |             |   | 1,373        |  
|Tax effect on U.S. GAAP adjustments                            |  |        |  |                 |   | (453      | ) |                        |        |                       |   |         |   |                            |        |             |   | (453         | )
|                                                               |  |        |   |                 |   |           |   |                        |         |                       |   |          |   |                            |         |             |   |              |  
|Net (loss) income based on United States GAAP                  |  |        |  |                 |   | (29,745   | ) |                        | (17,469 | )                     |   | 10,877   |   |                            | 6,592   |             |   | (29,745      | )
|Effect of SFAS 130                                             |  |        |  |                 |   | (20,406   | ) |                        | (2,222  | )                     |   | (1,124   | ) |                            | 3,346   |             |   | (20,406      | )
|Effect of SFAS 87                                              |  |        |  |                 |   | (198      | ) |                        |        |                       |   | (198     | ) |                            | 198     |             |   | (198         | )
|Effect of SFAS 133                                             |  |        |  |                 |   | 168       |   |                        |        |                       |   |         |   |                            |        |             |   | 168          |  
|Tax effect on U.S. GAAP adjustments                            |  |        |  |                 |   | 39        |   |                        |        |                       |   | 89       |   |                            | (89     | )           |   | 39           |  
|                                                               |  |        |   |                 |   |           |   |                        |         |                       |   |          |   |                            |         |             |   |              |  
|Comprehensive (loss) income based on United States GAAP        |  | $      |  |                 | $ | (50,142   | ) | $                      | (19,691 | )                     | $ | 9,644    |   | $                          | 10,047  |             | $ | (50,142      | )
|                                                               |  |        |   |                 |   |           |   |                        |         |                       |   |          |   |                            |         |             |   |              |  

F-67

---





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

Consolidating Balance Sheet  December 31, 2007

|                                     |                                     | Parent |         | Canadian
Issuer |   | US Issuer |        | Guarantor
Subsidiaries |           | Guarantor
Adjustments |   | Combined |        | Non-Guarantor
Subsidiaries |          | Adjustments |   | Consolidated
|------------------------------------ | ----------------------------------- | ------ | ------- | --------------- | - | --------- | ------ | ---------------------- | --------- | --------------------- | - | -------- | ------ | -------------------------- | -------- | ----------- | - | ------------
|Assets                               |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|Current assets:                      |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|                                     | Cash and cash equivalents           |        | $       |                |   | $         | 4,814  |                        | $         | 3,329                 |   | $        | 7,549  |                            | $        |            |   | $           
|                                     | Accounts receivable                 |        |         |                |   |           | 51,552 |                        |           | 49,239                |   |          | 69,662 |                            |          |            |   |             
|                                     | Intercompany receivable             |        |         |                |   |           | 37,416 |                        |           | 22,854                |   |          | 26,514 |                            |          | (71,376     | ) |             
|                                     | Inventories                         |        |         |                |   |           | 50,321 |                        |           | 113,890               |   |          | 62,498 |                            |          |            |   |             
|                                     | Income tax recoverable              |        |         |                |   |           | 395    |                        |           |                      |   |          | 477    |                            |          |            |   |             
|                                     | Prepaid expenses                    |        |         |                |   |           | 2,965  |                        |           | 4,186                 |   |          | 3,589  |                            |          |            |   |             
|                                     | Assets held for sale                |        |         |                |   |           |       |                        |           | 1,849                 |   |          |       |                            |          |            |   |             
|                                     | Current future income taxes         |        |         |                |   |           | 3,603  |                        |           | 22,013                |   |          | 2,561  |                            |          |            |   |             
|                                     |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|                                     |                                     |        |        |                 |   | 151,066   |        |                        | 217,360   |                       |   | 172,850  |        |                            | (71,376  | )           |   | 469,900     
|Property, plant and equipment        |                                     |        |        |                 |   | 51,576    |        |                        | 342,454   |                       |   | 207,168  |        |                            |         |             |   | 601,198     
|Goodwill                             |                                     |        |        |                 |   | 135,354   |        |                        | 561,967   |                       |   | 24,836   |        |                            |         |             |   | 722,157     
|Intangible assets                    |                                     |        |        |                 |   | 192,479   |        |                        | 161,924   |                       |   | 9,768    |        |                            |         |             |   | 364,171     
|Investments and advances             |                                     |        | 197,601 |                 |   | 774,970   |        |                        | 109,843   |                       |   | 186,241  |        |                            | (598,440 | )           |   | 670,215     
|Other assets                         |                                     |        |        |                 |   | 17,846    |        |                        | 2,162     |                       |   | 249      |        |                            |         |             |   | 20,257      
|Long-term future income taxes        |                                     |        |        |                 |   |          |        |                        |          |                       |   | 1,513    |        |                            |         |             |   | 1,513       
|                                     |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|                                     |                                     | $      | 197,601 |                 | $ | 1,323,291 |        | $                      | 1,395,710 |                       | $ | 602,625  |        | $                          | (669,816 | )           | $ | 2,849,411   
|                                     |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|Liabilities and Shareholder's Equity |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|Current liabilities:                 |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|                                     | Bank indebtedness                   |        | $       |                |   | $         |       |                        | $         |                      |   | $        |       |                            | $        |            |   | $           
|                                     | Trade payables and accrued expenses |        |         |                |   |           | 66,295 |                        |           | 129,754               |   |          | 57,229 |                            |          |            |   |             
|                                     | Intercompany payable                |        |         |                |   |           | 17,111 |                        |           | 51,537                |   |          | 20,097 |                            |          | (71,376     | ) |             
|                                     | Income taxes payable                |        |         |                |   |           | 2,817  |                        |           | 8,924                 |   |          | 261    |                            |          |            |   |             
|                                     | Current future income taxes         |        |         |                |   |           |       |                        |           |                      |   |          |       |                            |          |            |   |             
|                                     | Current portion of long-term
debt   |        |         |                |   |           | 6,293  |                        |           | 5,956                 |   |          | 61     |                            |          |            |   |             
|                                     |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|                                     |                                     |        |        |                 |   | 92,516    |        |                        | 196,171   |                       |   | 77,648   |        |                            | (71,376  | )           |   | 294,959     
|Long-term debt                       |                                     |        |        |                 |   | 896,268   |        |                        | 1,181,970 |                       |   | 56,828   |        |                            |         |             |   | 2,135,066   
|Long-term future income taxes        |                                     |        |        |                 |   | 31,241    |        |                        | 72,043    |                       |   | 15,667   |        |                            |         |             |   | 118,951     
|Long-term liabilities                |                                     |        |        |                 |   | 260       |        |                        | 18,581    |                       |   | 8,488    |        |                            |         |             |   | 27,329      
|                                     |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|                                     |                                     |        |        |                 |   | 1,020,285 |        |                        | 1,468,765 |                       |   | 158,631  |        |                            | (71,376  | )           |   | 2,576,305   
|Non-controlling interest             |                                     |        |        |                 |   |          |        |                        |          |                       |   |         |        |                            |         |             |   |            
|                                     |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|Shareholders' equity                 |                                     |        | 197,601 |                 |   | 303,006   |        |                        | (73,055   | )                     |   | 443,993  |        |                            | (598,440 | )           |   | 273,106     
|                                     |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|                                     |                                     | $      | 197,601 |                 | $ | 1,323,291 |        | $                      | 1,395,710 |                       | $ | 602,624  |        | $                          | (669,816 | )           | $ | 2,849,411   
|                                     |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             

F-68

---





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

Consolidating Balance Sheet  December 31, 2006

|                                     |                                     | Parent |         | Canadian
Issuer |   | US Issuer |        | Guarantor
Subsidiaries |           | Guarantor
Adjustments |   | Combined |        | Non-Guarantor
Subsidiaries |          | Adjustments |   | Consolidated
|------------------------------------ | ----------------------------------- | ------ | ------- | --------------- | - | --------- | ------ | ---------------------- | --------- | --------------------- | - | -------- | ------ | -------------------------- | -------- | ----------- | - | ------------
|Assets                               |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|Current assets:                      |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|                                     | Cash and cash equivalents           |        | $       |                |   | $         | 18,196 |                        | $         | 2,971                 |   | $        | 5,361  |                            | $        |            |   | $           
|                                     | Accounts receivable                 |        |         |                |   |           | 47,522 |                        |           | 57,504                |   |          | 64,898 |                            |          |            |   |             
|                                     | Intercompany receivable             |        |         |                |   |           | 69,958 |                        |           | 23,528                |   |          | 15,204 |                            |          | (98,911     | ) |             
|                                     | Inventories                         |        |         |                |   |           | 62,429 |                        |           | 157,908               |   |          | 68,387 |                            |          |            |   |             
|                                     | Prepaid expenses                    |        |         |                |   |           | 1,219  |                        |           | 8,640                 |   |          | 4,488  |                            |          |            |   |             
|                                     | Current future income taxes         |        |         |                |   |           | 8,110  |                        |           | 25,099                |   |          | 261    |                            |          |            |   |             
|                                     |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|                                     |                                     |        |        |                 |   | 207,434   |        |                        | 275,650   |                       |   | 158,599  |        |                            | (98,911  | )           |   | 542,772     
|Property, plant and equipment        |                                     |        |        |                 |   | 70,880    |        |                        | 373,118   |                       |   | 212,885  |        |                            |         |             |   | 656,883     
|Goodwill                             |                                     |        |        |                 |   | 175,484   |        |                        | 730,979   |                       |   | 24,701   |        |                            |         |             |   | 931,164     
|Intangible assets                    |                                     |        |        |                 |   | 228,777   |        |                        | 253,569   |                       |   | 11,197   |        |                            |         |             |   | 493,543     
|Investments and advances             |                                     |        | 485,365 |                 |   | 712,219   |        |                        | 154,156   |                       |   | 179,023  |        |                            | (858,753 | )           |   | 672,010     
|Other assets                         |                                     |        |        |                 |   | 46,797    |        |                        | 41,683    |                       |   | 274      |        |                            |         |             |   | 88,754      
|Long-term future income taxes        |                                     |        |        |                 |   |          |        |                        |          |                       |   |         |        |                            |         |             |   |            
|                                     |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|                                     |                                     | $      | 485,365 |                 | $ | 1,441,591 |        | $                      | 1,829,155 |                       | $ | 586,679  |        | $                          | (957,664 | )           | $ | 3,385,126   
|                                     |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|Liabilities and Shareholder's Equity |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|Current liabilities:                 |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|                                     | Bank indebtedness                   |        | $       |                |   | $         |       |                        | $         | 43,000                |   | $        |       |                            | $        |            |   | $           
|                                     | Trade payables and accrued expenses |        |         | 1,352           |   |           | 71,908 |                        |           | 157,477               |   |          | 48,890 |                            |          |            |   |             
|                                     | Intercompany payable                |        |         |                |   |           | 22,118 |                        |           | 76,155                |   |          | 14,616 |                            |          | (98,911     | ) |             
|                                     | Income taxes payable                |        |         |                |   |           | 10,351 |                        |           | 8,927                 |   |          | 2,632  |                            |          |            |   |             
|                                     | Current future income taxes         |        |         |                |   |           |       |                        |           |                      |   |          | 405    |                            |          |            |   |             
|                                     | Current portion of long-term debt   |        |         |                |   |           | 6,234  |                        |           | 5,956                 |   |          | 57     |                            |          |            |   |             
|                                     |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|                                     |                                     |        | 1,352   |                 |   | 110,611   |        |                        | 291,515   |                       |   | 66,600   |        |                            | (98,911  | )           |   | 371,167     
|                                     |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|Long-term debt                       |                                     |        |        |                 |   | 929,888   |        |                        | 1,221,086 |                       |   | 64,493   |        |                            |         |             |   | 2,215,467   
|Long-term future income taxes        |                                     |        |        |                 |   | 55,486    |        |                        | 122,980   |                       |   | 13,155   |        |                            |         |             |   | 191,621     
|Long-term liabilities                |                                     |        |        |                 |   | 4,635     |        |                        | 14,841    |                       |   | 8,670    |        |                            |         |             |   | 28,146      
|                                     |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|                                     |                                     |        | 1,352   |                 |   | 1,100,620 |        |                        | 1,650,422 |                       |   | 152,918  |        |                            | (98,911  | )           |   | 2,806,401   
|Non-controlling interest             |                                     |        |        |                 |   |          |        |                        |          |                       |   |         |        |                            |         |             |   |            
|                                     |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|Shareholders' equity                 |                                     |        | 484,013 |                 |   | 340,971   |        |                        | 178,733   |                       |   | 433,761  |        |                            | (858,753 | )           |   | 578,725     
|                                     |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             
|                                     |                                     | $      | 485,365 |                 | $ | 1,441,591 |        | $                      | 1,829,155 |                       | $ | 586,679  |        | $                          | (957,664 | )           | $ | 3,385,126   
|                                     |                                     |        |         |                 |   |           |        |                        |           |                       |   |          |        |                            |          |             |   |             

F-69

---





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

The reconciliation of condensed consolidating balance sheet captions is as follows:  December 31, 2007

|                         |  | Parent
|------------------------ |  | ------
|
|Investments and advances |  | $     
|Shareholders' equity     |  |       
|Total assets             |  | $     

|
|

|                              |  | Canadian Issuer
|----------------------------- |  | ---------------
|
|Income tax recoverable        |  | $              
|Property, plant and equipment |  |                
|Goodwill                      |  |                
|Other assets                  |  |                
|Current liabilities           |  |                
|Long-term debt                |  |                
|Shareholders' equity          |  |                
|Total assets                  |  | $              

|
|

|                              |  | US Issuer |          
|----------------------------- |  | --------- | ---------
|
|Goodwill                      |  | $         | 561,967  
|Other assets                  |  |           | 2,162    
|Current liabiities            |  |           | 196,171  
|Long-term debt                |  |           | 1,181,970
|Long-term future income taxes |  |           | 72,043   
|Long-term liabilities         |  |           | 18,581   
|Shareholders' equity          |  |           | (112,443 
|Total assets                  |  | $         | 1,395,710

|
|

|                              |  | Guarantors
|----------------------------- |  | ----------
|
|Goodwill                      |  | $         
|Long-term future income taxes |  |           
|Other long-term liabilities   |  |           
|Shareholders' equity          |  |           
|Total assets                  |  | $         

F-70

---





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

The reconciliation of condensed consolidating balance sheet captions is as follows:  December 31, 2006

|                                        |  | Parent
|--------------------------------------- |  | ------
|
|Investments and advances                |  | $     
|Shareholders' equity                    |  |       
|Total assets                            |  | $     
|
|
|Property, plant and equipment           |  | $     
|Goodwill                                |  |       
|Intangible assets                       |  |       
|Other assets                            |  |       
|Current liabilities                     |  |       
|Long-term future income tax liabilities |  |       
|Shareholders' equity                    |  |       
|Total assets                            |  | $     
|
|
|Goodwill                                |  | $     
|Intangible assets                       |  |       
|Other assets                            |  |       
|Long-term future income tax liabilities |  |       
|Other long-term liabilities             |  |       
|Shareholders' equity                    |  |       
|Total assets                            |  | $     
|
|
|Other long-term liabilities             |  | $     
|Shareholders' equity                    |  |       
|Total assets                            |  | $     

F-71

---





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

Consolidating Statement of Cash Flows  For the year ended December 31, 2007

|                                                 |                                                     | Parent                                                        |                                          | Canadian
Issuer |         | US Issuer |         | Guarantor
Subsidiaries |         | Guarantor
Adjustments |         | Combined |         | Non-Guarantor
Subsidiaries |       | Adjustments |          | Consolidated |         
|------------------------------------------------ | --------------------------------------------------- | ------------------------------------------------------------- | ---------------------------------------- | --------------- | ------- | --------- | ------- | ---------------------- | ------- | --------------------- | ------- | -------- | ------- | -------------------------- | ----- | ----------- | -------- | ------------ | --------
|Cash provided by (used in):                      |                                                     |                                                               |                                          |                 |         |           |         |                        |         |                       |         |          |         |                            |       |             |          |              |         
|Operating activities:                            |                                                     |                                                               |                                          |                 |         |           |         |                        |         |                       |         |          |         |                            |       |             |          |              |         
|                                                 | Net (loss) income                                   |                                                               | $                                        | (302,891        | )       | $         | (28,960 | )                      | $       | (273,420              | )       | $        | 20,537  |                            | $     | 281,842     |          | $            | (302,892
|                                                 | Items not involving cash:                           |                                                               |                                          |                 |         |           |         |                        |         |                       |         |          |         |                            |       |             |          |              |         
|                                                 |                                                     | Depreciation and amortization                                 |                                          |                 |        |           |         | 14,201                 |         |                       | 72,010  |          |         | 19,646                     |       |             |         |              |         
|                                                 |                                                     | Non-cash interest expense                                     |                                          |                 |        |           |         | 5,394                  |         |                       | 5,213   |          |         |                           |       |             |         |              |         
|                                                 |                                                     | Impairment of property, plant and equipment                   |                                          |                 |        |           |         | 3,721                  |         |                       | 2,906   |          |         | 4,335                      |       |             |         |              |         
|                                                 |                                                     | Goodwill and Intangible Impairment                            |                                          |                 |        |           |         | 69,388                 |         |                       | 234,412 |          |         |                           |       |             |         |              |         
|                                                 |                                                     | Loss (gain) on sale of property, plant and equipment          |                                          |                 |        |           |         | 339                    |         |                       | 2,825   |          |         | 33                         |       |             |         |              |         
|                                                 |                                                     | Loss (income) from equity investments                         |                                          |                 | 302,891 |           |         | (63,251                | )       |                       | (7,392  | )        |         |                           |       |             | (281,842 | )            |         
|                                                 |                                                     | Share based awards                                            |                                          |                 |        |           |         | 97                     |         |                       | 1,532   |          |         | 68                         |       |             |         |              |         
|                                                 |                                                     | Future income taxes                                           |                                          |                 |        |           |         | (20,040                | )       |                       | (45,584 | )        |         | (3,574                     | )     |             |         |              |         
|                                                 |                                                     | Pension and post retirement expense (income) and funding, net |                                          |                 |        |           |         |                       |         |                       | 1,352   |          |         | (305                       | )     |             |         |              |         
|                                                 |                                                     | Unrealized foreign exchange (gains) losses                    |                                          |                 |        |           |         | (6,012                 | )       |                       |        |          |         | 462                        |       |             |         |              |         
|                                                 |                                                     | Non-controlling interest                                      |                                          |                 |        |           |         |                       |         |                       |        |          |         |                           |       |             |         |              |         
|                                                 | Change in non-cash operating working capital:       |                                                               |                                          |                 |         |           |         |                        |         |                       |         |          |         |                            |       |             |          |              |         
|                                                 |                                                     | Accounts receivable                                           |                                          |                 |        |           |         | 2,703                  |         |                       | 8,923   |          |         | (4,090                     | )     |             |         |              |         
|                                                 |                                                     | Inventories                                                   |                                          |                 |        |           |         | 13,457                 |         |                       | 43,712  |          |         | 6,285                      |       |             |         |              |         
|                                                 |                                                     | Income taxes Recoverable                                      |                                          |                 |        |           |         | (395                   | )       |                       |        |          |         | (477                       | )     |             |         |              |         
|                                                 |                                                     | Income taxes payable                                          |                                          |                 |        |           |         | (10,874                | )       |                       | (1,625  | )        |         | 77                         |       |             |         |              |         
|                                                 |                                                     | Prepaid expenses                                              |                                          |                 |        |           |         | (1,728                 | )       |                       | 4,454   |          |         | 942                        |       |             |         |              |         
|                                                 |                                                     |                                                               | Accounts payable and accrued liabilities |                 |         |          |         |                        | (16,462 | )                     |         | (26,949  | )       |                            | 7,912 |             |          |             |         
|                                                 |                                                     | Intercompany receivable                                       |                                          |                 |        |           |         | 24,708                 |         |                       | 674     |          |         | (11,310                    | )     |             | (23,341  | )            |         
|                                                 |                                                     | Intercompany payable                                          |                                          |                 |        |           |         | 2,828                  |         |                       | (24,618 | )        |         | 5,480                      |       |             | 23,341   |              |         
|                                                 |                                                     |                                                               |                                          |                 |         |           |         |                        |         |                       |         |          |         |                            |       |             |          |              |         
|                                                 |                                                     |                                                               |                                         |                 |         | (10,886   | )       |                        | (1,575  | )                     |         | 46,021   |         |                            |      |             |          | 33,559       |         
|                                                 |                                                     |                                                               |                                          |                 |         |           |         |                        |         |                       |         |          |         |                            |       |             |          |              |         
|Financing activities                             |                                                     |                                                               |                                          |                 |         |           |         |                        |         |                       |         |          |         |                            |       |             |          |             |         
|                                                 | Change in bank and other indebtedness               |                                                               |                                          |                |         |           |        |                        |         | (43,000               | )       |          |        |                            |       |            |          |              | (43,000 
|                                                 | Repayment of long-term
debt                         |                                                               |                                          |                |         |           | (4,762  | )                      |         | (7,011                | )       |          | (7,661  | )                          |       |            |          |              | (19,434 
|                                                 |                                                     |                                                               |                                          |                 |         |           |         |                        |         |                       |         |          |         |                            |       |             |          |              |         
|                                                 |                                                     |                                                               |                                         |                 |         | (4,762    | )       |                        | (50,011 | )                     |         | (7,661   | )       |                            |      |             |          | (62,434      | )       
|                                                 |                                                     |                                                               |                                          |                 |         |           |         |                        |         |                       |         |          |         |                            |       |             |          |              |         
|Investing activities                             |                                                     |                                                               |                                          |                 |         |           |         |                        |         |                       |         |          |         |                            |       |             |          |              |         
|                                                 | Proceeds from sale of property, plant and equipment |                                                               |                                          |                |         |           | 9,580   |                        |         | 719                   |         |          | 1,260   |                            |       | (3,095      | )        |              | 8,464   
|                                                 | Additions to property, plant and equipment          |                                                               |                                          |                |         |           | (3,791  | )                      |         | (23,092               | )       |          | (8,867  | )                          |       | 3,095       |          |              | (32,655 
|                                                 | Acquisitions                                        |                                                               |                                          | (6,997          | )       |           | (1,476  | )                      |         |                      |         |          |        |                            |       |            |          |              | (8,473  
|                                                 | Distributions to non-controlling interests          |                                                               |                                          |                |         |           |        |                        |         |                      |         |          |        |                            |       |            |          |              |        
|                                                 | Investments and advances                            |                                                               |                                          | 6,997           |         |           | (4,663  | )                      |         | 72,771                |         |          | (35,961 | )                          |       |            |          |              | 39,144  
|                                                 | Other investing activities                          |                                                               |                                          |                |         |           | (4,991  | )                      |         | 1,546                 |         |          | 35      |                            |       |            |          |              | (3,410  
|                                                 |                                                     |                                                               |                                          |                 |         |           |         |                        |         |                       |         |          |         |                            |       |             |          |              |         
|                                                 |                                                     |                                                               |                                         |                 |         | (5,341    | )       |                        | 51,944  |                       |         | (43,533  | )       |                            |      |             |          | 3,070        |         
|                                                 |                                                     |                                                               |                                          |                 |         |           |         |                        |         |                       |         |          |         |                            |       |             |          |              |         
|Net foreign currency translation adjustment      |                                                     |                                                               |                                         |                 |         | 7,607     |         |                        |        |                       |         | 7,361    |         |                            |      |             |          | 14,969       |         
|                                                 |                                                     |                                                               |                                          |                 |         |           |         |                        |         |                       |         |          |         |                            |       |             |          |              |         
|Increase (decrease) in cash and cash equivalents |                                                     |                                                               |                                         |                 |         | (13,382   | )       |                        | 358     |                       |         | 2,188    |         |                            |      |             |          | (10,836      | )       
|Cash and cash equivalents, beginning of period   |                                                     |                                                               |                                         |                 |         | 18,196    |         |                        | 2,971   |                       |         | 5,361    |         |                            |      |             |          | 26,528       |         
|                                                 |                                                     |                                                               |                                          |                 |         |           |         |                        |         |                       |         |          |         |                            |       |             |          |              |         
|Cash and cash equivalents, end of period         |                                                     | $                                                             |                                         |                 | $       | 4,814     |         | $                      | 3,329   |                       | $       | 7,549    |         | $                          |      |             | $        | 15,692       |         
|                                                 |                                                     |                                                               |                                          |                 |         |           |         |                        |         |                       |         |          |         |                            |       |             |          |              |         

F-72

---





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

Consolidating Statement of Cash Flows  For the year ended December 31, 2006

|                                                 |                                                     | Parent                                                        |        | Canadian
Issuer |        | US
Issuer |         | Guarantor
Subsidiaries |         | Guarantor
Adjustments |         | Combined |         | Non-Guarantor
Subsidiaries |      | Adjustments |        | Consolidated |        
|------------------------------------------------ | --------------------------------------------------- | ------------------------------------------------------------- | ------ | --------------- | ------ | --------- | ------- | ---------------------- | ------- | --------------------- | ------- | -------- | ------- | -------------------------- | ---- | ----------- | ------ | ------------ | -------
|Cash provided by (used in):                      |                                                     |                                                               |        |                 |        |           |         |                        |         |                       |         |          |         |                            |      |             |        |              |        
|Operating activities:                            |                                                     |                                                               |        |                 |        |           |         |                        |         |                       |         |          |         |                            |      |             |        |              |        
|                                                 | Net (loss) income                                   |                                                               | $      | (34,334         | )      | $         | (7,171  | )                      | $       | (30,329               | )       | $        | 32,549  |                            | $    | 4,951       |        | $            | (34,334
|                                                 | Items not involving cash:                           |                                                               |        |                 |        |           |         |                        |         |                       |         |          |         |                            |      |             |        |              |        
|                                                 |                                                     | Depreciation and amortization                                 |        |                 |       |           |         | 15,426                 |         |                       | 69,611  |          |         | 17,725                     |      |             |       |              |        
|                                                 |                                                     | Amortization of financing fees                                |        |                 |       |           |         | 4,176                  |         |                       | 4,315   |          |         |                           |      |             |       |              |        
|                                                 |                                                     | Impairment of property, plant and equipment                   |        |                 |       |           |         |                       |         |                       | 15,810  |          |         | 991                        |      |             |       |              |        
|                                                 |                                                     | Loss on sale of property, plant and equipment                 |        |                 |       |           |         | 11                     |         |                       | 6,092   |          |         | 271                        |      |             |       |              |        
|                                                 |                                                     | Loss (income) from equity investments                         |        |                 | 34,334 |           |         | (62,585                | )       |                       | (12,100 | )        |         |                           |      |             | (4,951 | )            |        
|                                                 |                                                     | Share based awards                                            |        |                 |       |           |         | (139                   | )       |                       | 1,822   |          |         | 141                        |      |             |       |              |        
|                                                 |                                                     | Future income taxes                                           |        |                 |       |           |         | (15,310                | )       |                       | (18,753 | )        |         | 359                        |      |             |       |              |        
|                                                 |                                                     | Pension and post retirement expense (income) and funding, net |        |                 |       |           |         |                       |         |                       | 938     |          |         | (380                       | )    |             |       |              |        
|                                                 |                                                     | Unrealized foreign exchange on long-term liabilities          |        |                 |       |           |         | 551                    |         |                       |        |          |         | 836                        |      |             |       |              |        
|                                                 |                                                     | Non-controlling interest                                      |        |                 |       |           |         |                       |         |                       |        |          |         |                           |      |             |       |              |        
|Change in non-cash operating working capital:    |                                                     |                                                               |        |                 |        |           |         |                        |         |                       |         |          |         |                            |      |             |        |              |        
|                                                 |                                                     | Accounts receivable                                           |        |                 |       |           |         | 12,207                 |         |                       | 5,353   |          |         | (7,052                     | )    |             |       |              |        
|                                                 |                                                     | Inventories                                                   |        |                 |       |           |         | 16,841                 |         |                       | 46,104  |          |         | (5,437                     | )    |             |       |              |        
|                                                 |                                                     | Income taxes payable                                          |        |                 |       |           |         | 4,093                  |         |                       | 8,846   |          |         | (2,259                     | )    |             |       |              |        
|                                                 |                                                     | Prepaid expenses                                              |        |                 |       |           |         | (698                   | )       |                       | 791     |          |         | (128                       | )    |             |       |              |        
|                                                 |                                                     | Accounts payable and accrued liabilities                      |        |                 |       |           |         | (10,224                | )       |                       | (9,931  | )        |         |                           |      |             |       |              |        
|                                                 |                                                     | Intercompany receivable                                       |        |                 |       |           |         | (14,287                | )       |                       | 12,306  |          |         | (869                       | )    |             | 6,316  |              |        
|                                                 |                                                     | Intercompany payable                                          |        |                 |       |           |         | (3,591                 | )       |                       | 20,195  |          |         | (19,545                    | )    |             | (6,316 | )            |        
|                                                 |                                                     |                                                               |        |                 |        |           |         |                        |         |                       |         |          |         |                            |      |             |        |              |        
|                                                 |                                                     |                                                               |       |                 |        | (60,700   | )       |                        | 121,070 |                       |         | 17,202   |         |                            |     |             |        | 77,572       |        
|                                                 |                                                     |                                                               |        |                 |        |           |         |                        |         |                       |         |          |         |                            |      |             |        |              |        
|Financing activities                             |                                                     |                                                               |        |                 |        |           |         |                        |         |                       |         |          |         |                            |      |             |        |              |        
|                                                 | Change in bank and other indebtedness               |                                                               |        |                |        |           | (56,000 | )                      |         | (12,000               | )       |          |        |                            |      |            |        |              | (68,000
|                                                 | Proceeds from issuance of long-term debt            |                                                               |        |                |        |           |        |                        |         |                      |         |          |        |                            |      |            |        |              |       
|                                                 | Repayment of long-term debt                         |                                                               |        |                |        |           | (6,911  | )                      |         | (54,548               | )       |          | 6,484   |                            |      |            |        |              | (54,975
|                                                 | Change in other long-term liabilities               |                                                               |        | (2,148          | )      |           | (1,720  | )                      |         |                      |         |          |        |                            |      |            |        |              | (3,868 
|                                                 | Deferred financing fees                             |                                                               |        |                |        |           | (8,623  | )                      |         | (9,702                | )       |          |        |                            |      |            |        |              | (18,325
|                                                 |                                                     |                                                               |        |                 |        |           |         |                        |         |                       |         |          |         |                            |      |             |        |              |        
|                                                 |                                                     |                                                               | (2,148 | )               |        | (73,254   | )       |                        | (76,250 | )                     |         | 6,484    |         |                            |     |             |        | (145,168     | )      
|                                                 |                                                     |                                                               |        |                 |        |           |         |                        |         |                       |         |          |         |                            |      |             |        |              |        
|Investing activities                             |                                                     |                                                               |        |                 |        |           |         |                        |         |                       |         |          |         |                            |      |             |        |              |        
|                                                 | Proceeds from sale of property, plant and equipment |                                                               |        |                |        |           | 5,574   |                        |         | 10,857                |         |          | 3,994   |                            |      |            |        |              | 20,425 
|                                                 | Additions to property, plant and equipment          |                                                               |        |                |        |           | 2,993   |                        |         | (35,298               | )       |          | (6,547  | )                          |      |            |        |              | (38,852
|                                                 | Investments and advances                            |                                                               |        | 2,148           |        |           | 137,712 |                        |         | (22,432               | )       |          | (32,320 | )                          |      | 976         |        |              | 86,084 
|                                                 | Distributions to minority partners                  |                                                               |        |                |        |           |        |                        |         |                      |         |          |        |                            |      |            |        |              |       
|                                                 | Other investing activities                          |                                                               |        |                |        |           | (8,007  | )                      |         | 1,273                 |         |          | (19     | )                          |      |            |        |              | (6,753 
|                                                 |                                                     |                                                               |        |                 |        |           |         |                        |         |                       |         |          |         |                            |      |             |        |              |        
|                                                 |                                                     |                                                               | 2,148  |                 |        | 138,272   |         |                        | (45,600 | )                     |         | (34,892  | )       |                            | 976  |             |        | 60,904       |        
|                                                 |                                                     |                                                               |        |                 |        |           |         |                        |         |                       |         |          |         |                            |      |             |        |              |        
|Net foreign currency translation adjustment      |                                                     |                                                               |       |                 |        | (1,794    | )       |                        | (318    | )                     |         | 7,492    |         |                            | (976 | )           |        | 4,404        |        
|                                                 |                                                     |                                                               |        |                 |        |           |         |                        |         |                       |         |          |         |                            |      |             |        |              |        
|Increase (decrease) in cash and cash equivalents |                                                     |                                                               |       |                 |        | 2,524     |         |                        | (1,098  | )                     |         | (3,714   | )       |                            |     |             |        | (2,288       | )      
|Cash and cash equivalents, beginning of period   |                                                     |                                                               |       |                 |        | 15,672    |         |                        | 4,069   |                       |         | 9,075    |         |                            |     |             |        | 28,816       |        
|                                                 |                                                     |                                                               |        |                 |        |           |         |                        |         |                       |         |          |         |                            |      |             |        |              |        
|Cash and cash equivalents, end of period         |                                                     | $                                                             |       |                 | $      | 18,196    |         | $                      | 2,971   |                       | $       | 5,361    |         | $                          |     |             | $      | 26,528       |        
|                                                 |                                                     |                                                               |        |                 |        |           |         |                        |         |                       |         |          |         |                            |      |             |        |              |        

F-73

---





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

Consolidating Statement of Cash Flows  For the period from February 2, 2005 (date of Incorporation) to December 31, 2005

|                                               |                                                     | Parent                                               |          | Canadian
Issuer |        | US Issuer |          | Guarantor
Subsidiaries |            | Guarantor
Adjustments |         | Combined |         | Non-Guarantor
Subsidiaries |          | Adjustments |         | Consolidated |           
|---------------------------------------------- | --------------------------------------------------- | ---------------------------------------------------- | -------- | --------------- | ------ | --------- | -------- | ---------------------- | ---------- | --------------------- | ------- | -------- | ------- | -------------------------- | -------- | ----------- | ------- | ------------ | ----------
|Cash provided by (used in):                    |                                                     |                                                      |          |                 |        |           |          |                        |            |                       |         |          |         |                            |          |             |         |              |           
|Operating activities:                          |                                                     |                                                      |          |                 |        |           |          |                        |            |                       |         |          |         |                            |          |             |         |              |           
|                                               | Net (loss) income                                   |                                                      | $        | (69,800         | )      | $         | (16,142  | )                      | $          | (53,658               | )       | $        | 24,028  |                            | $        | 45,772      |         | $            | (69,800   
|                                               | Items not involving cash:                           |                                                      |          |                 |        |           |          |                        |            |                       |         |          |         |                            |          |             |         |              |           
|                                               |                                                     | Depreciation and amortization                        |          |                 |       |           |          | 11,227                 |            |                       | 50,501  |          |         | 13,044                     |          |             |        |              |           
|                                               |                                                     | Amortization of financing fees                       |          |                 |       |           |          | 9,040                  |            |                       | 7,445   |          |         |                           |          |             |        |              |           
|                                               |                                                     | (Gain) loss on sale of property, plant and equipment |          |                 |       |           |          | (50                    | )          |                       | 2,420   |          |         | 1                          |          |             |        |              |           
|                                               |                                                     | Loss (income) from equity investments                |          |                 | 69,800 |           |          | (46,670                | )          |                       | (3,943  | )        |         |                           |          |             | (45,772 | )            |           
|                                               |                                                     | Share based awards                                   |          |                 |       |           |          | 553                    |            |                       | 2,115   |          |         | 116                        |          |             |        |              |           
|                                               |                                                     | Future income taxes                                  |          |                 |       |           |          | (23,142                | )          |                       | (11,602 | )        |         | 527                        |          |             |        |              |           
|                                               |                                                     | Pension and post-retirement expense and funding, net |          |                 |       |           |          |                       |            |                       | 721     |          |         | 182                        |          |             |        |              |           
|                                               |                                                     | Non-controlling interest                             |          |                 |       |           |          | 938                    |            |                       |        |          |         |                           |          |             |        |              |           
|                                               | Change in non-cash operating working capital:       |                                                      |          |                 |        |           |          |                        |            |                       |         |          |         |                            |          |             |         |              |           
|                                               |                                                     | Accounts receivable                                  |          |                 |       |           |          | (2,541                 | )          |                       | (2,015  | )        |         | 3,017                      |          |             |        |              |           
|                                               |                                                     | Inventories                                          |          |                 |       |           |          | 13,776                 |            |                       | 30,584  |          |         | 4,095                      |          |             |        |              |           
|                                               |                                                     | Income taxes payable                                 |          |                 |       |           |          | 7,362                  |            |                       | 2,213   |          |         | 1,791                      |          |             |        |              |           
|                                               |                                                     | Prepaid expenses                                     |          |                 |       |           |          | 2,847                  |            |                       | (1,957  | )        |         | 1,784                      |          |             |        |              |           
|                                               |                                                     | Accounts payable and accrued liabilities             |          |                 | 3,500  |           |          | (20,534                | )          |                       | (19,469 | )        |         | (12,330                    | )        |             |        |              |           
|                                               |                                                     | Intercompany receivable                              |          |                 |       |           |          | 31,304                 |            |                       | 7,064   |          |         | 7,698                      |          |             | (32,251 | )            |           
|                                               |                                                     | Intercompany payable                                 |          |                 |       |           |          | (27,900                | )          |                       | (33,347 | )        |         | 9,768                      |          |             | 32,251  |              |           
|                                               |                                                     | Equity compensation settlement liability             |          |                 |       |           |          | (35,906                | )          |                       | (21,780 | )        |         |                           |          |             |        |              |           
|                                               |                                                     |                                                      |          |                 |        |           |          |                        |            |                       |         |          |         |                            |          |             |         |              |           
|                                               |                                                     |                                                      | 3,500    |                 |        | (95,838   | )        |                        | (44,708    | )                     |         | 53,721   |         |                            |         |             |         | (83,325      | )         
|                                               |                                                     |                                                      |          |                 |        |           |          |                        |            |                       |         |          |         |                            |          |             |         |              |           
|Financing activities                           |                                                     |                                                      |          |                 |        |           |          |                        |            |                       |         |          |         |                            |          |             |         |              |           
|                                               | Change in bank and other indebtedness               |                                                      |          |                |        |           | 56,000   |                        |            | 55,002                |         |          | 181     |                            |          |            |         |              | 111,183   
|                                               | Proceeds from issuance of common shares             |                                                      |          | 567,177         |        |           | 403,983  |                        |            | 163,194               |         |          |        |                            |          | (567,177    | )       |              | 567,177   
|                                               | Proceeds from issuance of long-term debt            |                                                      |          |                |        |           | 945,500  |                        |            | 999,500               |         |          |        |                            |          |            |         |              | 1,945,000 
|                                               | Repayment of long-term debt                         |                                                      |          |                |        |           | (330,014 | )                      |            | (112,557              | )       |          |        |                            |          |            |         |              | (442,571  
|                                               | Deferred financing fees                             |                                                      |          |                |        |           | (39,057  | )                      |            | (38,943               | )       |          |        |                            |          |            |         |              | (78,000   
|                                               |                                                     |                                                      |          |                 |        |           |          |                        |            |                       |         |          |         |                            |          |             |         |              |           
|                                               |                                                     |                                                      | 567,177  |                 |        | 1,036,412 |          |                        | 1,066,196  |                       |         | 181      |         |                            | (567,177 | )           |         | 2,102,789    |           
|                                               |                                                     |                                                      |          |                 |        |           |          |                        |            |                       |         |          |         |                            |          |             |         |              |           
|Investing activities                           |                                                     |                                                      |          |                 |        |           |          |                        |            |                       |         |          |         |                            |          |             |         |              |           
|                                               | Proceeds from sale of property, plant and equipment |                                                      |          |                |        |           |         |                        |            | 1,348                 |         |          | 44      |                            |          |            |         |              | 1,392     
|                                               | Additions to property, plant and equipment          |                                                      |          |                |        |           | (7,885   | )                      |            | (41,934               | )       |          | (4,980  | )                          |          |            |         |              | (54,799   
|                                               | Acquisitions                                        |                                                      |          | (5,014          | )      |           | (953,204 | )                      |            | (993,807              | )       |          | 4,972   |                            |          |            |         |              | (1,947,053
|                                               | Investments and advances                            |                                                      |          | (565,663        | )      |           | 55,971   |                        |            | 16,395                |         |          | (40,697 | )                          |          | 567,177     |         |              | 33,183    
|                                               | Distributions to minority partners                  |                                                      |          |                |        |           | (22,275  | )                      |            |                      |         |          |        |                            |          |            |         |              | (22,275   
|                                               | Other investing activities                          |                                                      |          |                |        |           | (6,209   | )                      |            | 401                   |         |          | (486    | )                          |          |            |         |              | (6,294    
|                                               |                                                     |                                                      |          |                 |        |           |          |                        |            |                       |         |          |         |                            |          |             |         |              |           
|                                               |                                                     |                                                      | (570,677 | )               |        | (933,602  | )        |                        | (1,017,597 | )                     |         | (41,147  | )       |                            | 567,177  |             |         | (1,995,846   | )         
|                                               |                                                     |                                                      |          |                 |        |           |          |                        |            |                       |         |          |         |                            |          |             |         |              |           
|Net foreign currency translation adjustment    |                                                     |                                                      |         |                 |        | 4,523     |          |                        | 297        |                       |         | (4,031   | )       |                            |         |             |         | 789          |           
|                                               |                                                     |                                                      |          |                 |        |           |          |                        |            |                       |         |          |         |                            |          |             |         |              |           
|Increase in cash and cash equivalents          |                                                     |                                                      |         |                 |        | 11,495    |          |                        | 4,188      |                       |         | 8,724    |         |                            |         |             |         | 24,407       |           
|Cash and cash equivalents, beginning of period |                                                     |                                                      |         |                 |        |          |          |                        |           |                       |         |         |         |                            |         |             |         |             |           
|                                               |                                                     |                                                      |          |                 |        |           |          |                        |            |                       |         |          |         |                            |          |             |         |              |           
|Cash and cash equivalents, end of period       |                                                     | $                                                    |         |                 | $      | 11,495    |          | $                      | 4,188      |                       | $       | 8,724    |         | $                          |         |             | $       | 24,407       |           
|                                               |                                                     |                                                      |          |                 |        |           |          |                        |            |                       |         |          |         |                            |          |             |         |              |           

F-74

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the years ended December 31, 2007 and December 31, 2006;
the period from February 2, 2005 (date of Incorporation) to December 31, 2005;
the Predecessor Period from January 1, 2005 to April 6, 2005.

(In thousands of U.S. dollars, except share and option information)

Consolidating Statement of Cash Flows  For the period from January 1, 2005 to April 6, 2005

|                                                 |                                                     | Parent                                               |   | Canadian
Issuer |   | US Issuer |         | Guarantor
Subsidiaries |         | Guarantor
Adjustments |        | Combined |         | Non-Guarantor
Subsidiaries |   | Adjustments |         | Consolidated |         
|------------------------------------------------ | --------------------------------------------------- | ---------------------------------------------------- | - | --------------- | - | --------- | ------- | ---------------------- | ------- | --------------------- | ------ | -------- | ------- | -------------------------- | - | ----------- | ------- | ------------ | --------
|Cash provided by (used in):                      |                                                     |                                                      |   |                 |   |           |         |                        |         |                       |        |          |         |                            |   |             |         |              |         
|Operating activities:                            |                                                     |                                                      |   |                 |   |           |         |                        |         |                       |        |          |         |                            |   |             |         |              |         
|                                                 | Net (loss) income                                   |                                                      | $ |                |   | $         | (30,665 | )                      | $       | (17,469               | )      | $        | 10,877  |                            | $ | 6,592       |         | $            | (30,665 
|                                                 | Items not involving cash:                           |                                                      |   |                 |   |           |         |                        |         |                       |        |          |         |                            |   |             |         |              |         
|                                                 |                                                     | Depreciation and amortization                        |   |                 |  |           |         | 2,276                  |         |                       | 9,003  |          |         | 2,922                      |   |             |        |              |         
|                                                 |                                                     | Amortization of financing fees                       |   |                 |  |           |         | 208                    |         |                       | 179    |          |         |                           |   |             |        |              |         
|                                                 |                                                     | Loss on sale of property, plant and equipment        |   |                 |  |           |         |                       |         |                       | 44     |          |         |                           |   |             |        |              |         
|                                                 |                                                     | Loss (income) from equity investments                |   |                 |  |           |         | 5,115                  |         |                       | (1,569 | )        |         |                           |   |             | (6,592  | )            |         
|                                                 |                                                     | Share based awards                                   |   |                 |  |           |         | 101                    |         |                       | 128    |          |         |                           |   |             |        |              |         
|                                                 |                                                     | Future income taxes                                  |   |                 |  |           |         | (18,396                | )       |                       | (9     | )        |         | 2,350                      |   |             |        |              |         
|                                                 |                                                     | Pension and post-retirement expense and funding, net |   |                 |  |           |         |                       |         |                       | 190    |          |         |                           |   |             |        |              |         
|                                                 |                                                     | Non-controlling interest                             |   |                 |  |           |         | 653                    |         |                       |       |          |         |                           |   |             |        |              |         
|                                                 | Change in non-cash operating working capital:       |                                                      |   |                 |   |           |         |                        |         |                       |        |          |         |                            |   |             |         |              |         
|                                                 |                                                     | Accounts receivable                                  |   |                 |  |           |         | (8,724                 | )       |                       | 29,683 |          |         | 4,129                      |   |             |        |              |         
|                                                 |                                                     | Inventories                                          |   |                 |  |           |         | 211                    |         |                       | (3,612 | )        |         | 1,805                      |   |             |        |              |         
|                                                 |                                                     | Income taxes payable                                 |   |                 |  |           |         | 452                    |         |                       | (4,842 | )        |         | (303                       | ) |             |        |              |         
|                                                 |                                                     | Prepaid expenses                                     |   |                 |  |           |         | (6,799                 | )       |                       | 106    |          |         | (2,154                     | ) |             |        |              |         
|                                                 |                                                     | Accounts payable and accrued liabilities             |   |                 |  |           |         | 35,099                 |         |                       | 35,802 |          |         | 11,623                     |   |             |        |              |         
|                                                 |                                                     | Intercompany receivable                              |   |                 |  |           |         | (8,186                 | )       |                       | (3,573 | )        |         | (10,059                    | ) |             | 18,454  |              |         
|                                                 |                                                     | Intercompany payable                                 |   |                 |  |           |         | 5,280                  |         |                       | 21,260 |          |         | 4,991                      |   |             | (18,454 | )            |         
|                                                 |                                                     | Equity compensation settlement liability             |   |                 |  |           |         | 35,906                 |         |                       | 21,780 |          |         |                           |   |             |        |              |         
|                                                 |                                                     |                                                      |   |                 |   |           |         |                        |         |                       |        |          |         |                            |   |             |         |              |         
|                                                 |                                                     |                                                      |  |                 |   | 12,531    |         |                        | 87,101  |                       |        | 26,181   |         |                            |  |             |         | 125,813      |         
|                                                 |                                                     |                                                      |   |                 |   |           |         |                        |         |                       |        |          |         |                            |   |             |         |              |         
|Financing activities                             |                                                     |                                                      |   |                 |   |           |         |                        |         |                       |        |          |         |                            |   |             |         |              |         
|                                                 | Change in bank and other indebtedness               |                                                      |   |                |   |           |        |                        |         | (2                    | )      |          | (181    | )                          |   |            |         |              | (183    
|                                                 | Proceeds from issuance of common shares             |                                                      |   |                |   |           | 469     |                        |         |                      |        |          |        |                            |   |            |         |              | 469     
|                                                 | Repayment of long-term debt                         |                                                      |   |                |   |           | (94,410 | )                      |         | (48,570               | )      |          |        |                            |   |            |         |              | (142,980
|                                                 |                                                     |                                                      |   |                 |   |           |         |                        |         |                       |        |          |         |                            |   |             |         |              |         
|                                                 |                                                     |                                                      |  |                 |   | (93,941   | )       |                        | (48,572 | )                     |        | (181     | )       |                            |  |             |         | (142,694     | )       
|                                                 |                                                     |                                                      |   |                 |   |           |         |                        |         |                       |        |          |         |                            |   |             |         |              |         
|Investing activities                             |                                                     |                                                      |   |                 |   |           |         |                        |         |                       |        |          |         |                            |   |             |         |              |         
|                                                 | Proceeds from sale of property, plant and equipment |                                                      |   |                |   |           | 133     |                        |         | 52                    |        |          |        |                            |   |            |         |              | 185     
|                                                 | Additions to property, plant and equipment          |                                                      |   |                |   |           | (2,219  | )                      |         | (7,979                | )      |          | (623    | )                          |   |            |         |              | (10,821 
|                                                 | Investments and advances                            |                                                      |   |                |   |           | 79,349  |                        |         | (19,604               | )      |          | (29,742 | )                          |   |            |         |              | 30,003  
|                                                 | Other investing activities                          |                                                      |   |                |   |           | (1,573  | )                      |         | 2                     |        |          | 242     |                            |   |            |         |              | (1,329  
|                                                 |                                                     |                                                      |   |                 |   |           |         |                        |         |                       |        |          |         |                            |   |             |         |              |         
|                                                 |                                                     |                                                      |  |                 |   | 75,690    |         |                        | (27,529 | )                     |        | (30,123  | )       |                            |  |             |         | 18,038       |         
|                                                 |                                                     |                                                      |   |                 |   |           |         |                        |         |                       |        |          |         |                            |   |             |         |              |         
|Net foreign currency translation adjustment      |                                                     |                                                      |  |                 |   | 2,382     |         |                        |        |                       |        | (3,114   | )       |                            |  |             |         | (732         | )       
|                                                 |                                                     |                                                      |   |                 |   |           |         |                        |         |                       |        |          |         |                            |   |             |         |              |         
|(Decrease) increase in cash and cash equivalents |                                                     |                                                      |  |                 |   | (3,338    | )       |                        | 11,000  |                       |        | (7,237   | )       |                            |  |             |         | 425          |         
|Cash and cash equivalents, beginning of period   |                                                     |                                                      |  |                 |   | 14,838    |         |                        | 6,490   |                       |        | 12,209   |         |                            |  |             |         | 33,537       |         
|                                                 |                                                     |                                                      |   |                 |   |           |         |                        |         |                       |        |          |         |                            |   |             |         |              |         
|Cash and cash equivalents, end of period         |                                                     | $                                                    |  |                 | $ | 11,500    |         | $                      | 17,490  |                       | $      | 4,972    |         | $                          |  |             | $       | 33,962       |         
|                                                 |                                                     |                                                      |   |                 |   |           |         |                        |         |                       |        |          |         |                            |   |             |         |              |         

F-75

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