##### 



EXHIBIT 99.1 FOR IMMEDIATE RELEASE Stock Symbol: MHM  (Toronto & New York) MASONITE REPORTS FIRST QUARTER RESULTS TORONTO, Ontario (April 21, 2004)  Masonite International Corporation today
announced its results for the quarter ended March 31, 2004. Masonite
International Corporation reports in U.S. dollars. Unaudited Financial Highlights2004 versus 2003  o
    
    Earnings per share increases 34%o
    
    Net income increases 36%o
    
    Sales increase 16% to $468 milliono
    
    EBITDA increases 25%o
    
    EBITDA margin increases from 12.12% to 13.01%o
    
    EBIT increases 30%o
    
    EBIT margin increases from 9.19% to 10.25% Unaudited Financial Summary
(in millions of dollars except per share amounts)
Three Months Ended 3/31/04
    
    3/31/03
    
    IncreaseSALES
    
    $
    468.0
    
    
    $
    402.2
    
    
    
    16.3
    %EBITDA
    
    $
    60.9
    
    
    $
    48.7
    
    
    
    24.9
    %EBIT
    
    $
    48.0
    
    
    $
    37.0
    
    
    
    29.7
    %NET INCOME
    
    $
    27.7
    
    
    $
    20.3
    
    
    
    36.4
    %EPS
    
    $
    0.51
    
    
    $
    0.38
    
    
    
    34.2
    %DILUTED EPS
    
    $
    0.50
    
    
    $
    0.37
    
    
    
    35.1
    %AVERAGE SHARES (000s)BASIC
    
    
    54,701
    
    
    
    53,507DILUTED
    
    
    56,026
    
    
    
    54,997




---



##### 



Sales for the three month period ended March 31, 2004 were $468.0 million, a
16.3% increase over the $402.2 million reported in the same period in 2003.
Net income for the three month period ended March 31, 2004 was $27.7 million
compared to $20.3 million in the same period in 2003. Earnings per share were
$0.51 for the three month period compared to $0.38 per share in 2003. On March 2, 2004 the Company completed the transaction to acquire the
residential entry door business of The Stanley Works for approximately US $161
million in cash. Masonite used senior bank financing to complete the
acquisition. Philip S. Orsino, President and Chief Executive Officer, stated, We are very
pleased with the results from the first quarter. Internal growth accounted for
most of the increase in sales for the quarter with the acquisition of Stanley
Door Systems contributing to our sales in the month of March. The increase in
sales was accompanied by higher operating margins and earnings per share. Stanleys entry door business manufactures and pre-hangs steel and fiberglass
residential entry doors and entry systems for sale primarily to the retail home
improvement market in the United States. Stanleys entry door business, known
for its high quality, has state of the art facilities in Charlotte, North
Carolina; Langley, British Columbia; Winchester, Virginia; Garland, Texas; and
Rancho Cucamonga, California. We are very pleased with this acquisition for a number of reasons, said
Philip S. Orsino, Masonites President and Chief Executive Officer. The
acquisition is a clear continuation of our focused strategy in the door
business worldwide. As a result of the acquisition, we expect to achieve
substantial operating efficiencies across all our residential door product
lines. Stanleys entry door business accelerates our all-products solution
initiative. The addition to our existing manufacturing and fabrication
facilities of Stanleys similar facilities will lead to significant
efficiencies. Also, the acquisition presents opportunities for more effective
global procurement of raw materials, product development and standardization.
These initiatives will lower our operating costs and further enhance our
already strong capabilities to provide excellent service and the widest product
range to our customers. We are very proud to welcome Stanleys employees,
customers and suppliers to Masonite. Masonite is a unique, integrated, global building products company with its
Corporate Headquarters in Mississauga, Ontario and its International
Administrative Offices in Tampa, Florida. It operates over 75 facilities in
twelve countries in North America, South America, Europe, Asia and Africa and
has over 12,000 employees. The Company sells its products to customers in over
50 countries. This press release contains a number of forward looking statements. All
statements, other than statements of historical fact, included in this press
release that address activities, events or developments that the Company or its
management expects or anticipates will or may occur in the future, including
sales growth, level of sales, rates of return and earnings per share and other
matters, are forward looking statements. They are based on certain assumptions
and analyses made by the Company and its management in light of its experience
and its perception of historical trends, current conditions and expected future
developments, as well as other factors it




---



##### 



believes are appropriate in the circumstances. However, whether actual results
and developments will conform with the expectations and predictions of the
Company and its management is subject to a number of risks and uncertainties,
including: general economic, market and business conditions; level of
construction and renovation activity; competition; financing risks; ability to
manage expanding operations; retention of key management personnel;
environmental and other governmental regulation; and other factors. This press release contains non-GAAP measures. Securities regulators require
that corporations caution readers that these terms do not have standardized
meanings under GAAP and are unlikely to be comparable to similar measures used
by other companies. Increasingly, the investment and banking industries
calculate and analyze the performance of a company using measurements such as
debt-to-equity ratio, EBITDA and earnings measures excluding non-recurring
items. In this press release EBITDA is defined as earnings before depreciation
and amortization; other expense; interest; income taxes; and non-controlling
interest, EBIT is defined as earnings before other expense; interest; income
taxes; and non-controlling interest. EBITDA and EBIT margin are defined as
EBITDA and EBIT divided by sales respectively. - 30 - For more information contact: Mr. Lawrence P. Repar or Mr. Robert V. Tubbesing
1600 Britannia Road East
Mississauga, Ontario L4W 1J2
(905) 670-6500
www.masonite.com




---



##### 



(MASONITE LOGO) First Quarter Report
to Shareholders
March 31, 2004




---



##### 



MASONITE INTERNATIONAL CORPORATION
Quarterly Report to Shareholders
March 31, 2004 Managements Report on Financial Statements The accompanying unaudited consolidated financial statements of Masonite
International Corporation are the responsibility of management and have been
prepared in accordance with Canadian generally accepted accounting principles.
The unaudited consolidated financial statements and information in Managements
Discussion and Analysis (MD&A) include amounts based on informed judgments
and estimates of the expected effects of current events and transactions with
appropriate consideration of materiality and have been prepared on a consistent
basis with that in the annual audited consolidated financial statements. Management maintains appropriate systems of internal control. Policies and
procedures have been designed to provide reasonable assurance that transactions
are appropriately authorized, assets are safeguarded and financial records are
properly maintained to ensure that financial information is relevant and
reliable. The Companys independent auditors, KPMG LLP , did not perform a
quarterly review engagement of these unaudited consolidated financial
statements. The Audit Committee of the Board of Directors is composed of independent
directors and meets periodically with the independent auditors and management
representatives to review the unaudited consolidated quarterly and annual
audited financial statements, discuss internal accounting control, the nature,
extent and results of KPMG LLPs audits and other financial reporting matters.
The independent auditors have unrestricted access to the Audit Committee. The
Audit Committee reports its findings and makes recommendations to the Board of
Directors and is responsible for re-appointing the independent auditors. The
Board of Directors has approved these unaudited consolidated financial
statements. April 21, 2004 (MASONITE LOGO) 1




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##### 



UNAUDITED CONSOLIDATED
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Period of three months ended March 31(In thousands of U.S. dollars except per share amounts) 2004
    
    2003Sales
    
    $
    467,967
    
    
    $
    402,217Cost of sales
    
    
    363,586
    
    
    
    312,689104,381
    
    
    
    89,528Selling, general and administration
    
    
    43,494
    
    
    
    40,783Income before the undernoted
    
    
    60,887
    
    
    
    48,745Depreciation and amortization
    
    
    12,924
    
    
    
    11,768Income before other expense, interest and income taxes
    
    
    47,963
    
    
    
    36,977Other expense
    
    
    1,730
    
    
    
    229Interest
    
    
    8,565
    
    
    
    8,86737,668
    
    
    
    27,881Income taxes
    
    
    8,928
    
    
    
    6,99528,740
    
    
    
    20,886Non-controlling interest
    
    
    996
    
    
    
    542Net income
    
    
    27,744
    
    
    
    20,344Retained earnings, beginning of period
    
    
    403,525
    
    
    
    295,854Retained earnings, end of period
    
    $
    431,269
    
    
    $
    316,198Earnings per share:Basic
    
    $
    0.51
    
    
    $
    0.38Diluted
    
    $
    0.50
    
    
    $
    0.37
 (MASONITE LOGO) 2




---



##### 



UNAUDITED CONSOLIDATED BALANCE SHEETS(In thousands of U.S. dollars) March 31
    
    December 312004
    
    2003ASSETSCash
    
    $
    113,587
    
    
    $
    129,676Accounts receivable
    
    
    320,228
    
    
    
    258,264Inventories
    
    
    342,242
    
    
    
    321,145Prepaid expenses
    
    
    18,978
    
    
    
    17,185Current future income taxes
    
    
    27,146
    
    
    
    29,318822,181
    
    
    
    755,588Property, plant and equipment
    
    
    791,226
    
    
    
    752,110Goodwill and other intangibles
    
    
    265,087
    
    
    
    130,475Other assets
    
    
    50,267
    
    
    
    46,663Long-term future income taxes
    
    
    6,370
    
    
    
    8,3151,112,950
    
    
    
    937,563$
    1,935,131
    
    
    $
    1,693,151LIABILITIES AND SHAREHOLDERS EQUITYBank indebtedness
    
    $
    18,020
    
    
    $
    6,608Accounts payable and accrued liabilities
    
    
    312,616
    
    
    
    301,484Income taxes payable
    
    
    22,063
    
    
    
    27,013Current portion of long-term debt
    
    
    49,992
    
    
    
    35,498402,691
    
    
    
    370,603Long-term debt
    
    
    624,150
    
    
    
    447,260Long-term future income taxes
    
    
    111,407
    
    
    
    106,662Non-controlling interest
    
    
    36,667
    
    
    
    35,9861,174,915
    
    
    
    960,511Share capital
    
    
    269,874
    
    
    
    266,870Contributed surplus
    
    
    316
    
    
    
    191Retained earnings
    
    
    431,269
    
    
    
    403,525Cumulative translation adjustments
    
    
    58,757
    
    
    
    62,054760,216
    
    
    
    732,640$
    1,935,131
    
    
    $
    1,693,151
 (MASONITE LOGO) 3




---



##### 



UNAUDITED CONSOLIDATED
STATEMENTS OF CASH FLOW
Period of three months ended March 31(In thousands of U.S. dollars) 2004
    
    2003Cash provided by (used in) operating activitiesNet income for the period
    
    $
    27,744
    
    
    $
    20,344Depreciation and amortization
    
    
    12,924
    
    
    
    11,768Non-controlling interest
    
    
    996
    
    
    
    542Cash reinvested in working capital and other
    
    
    (77,142
    )
    
    
    (63,843
    )(35,478
    )
    
    
    (31,189
    )Cash provided by (used in) investing activitiesProceeds from sale of assets
    
    
    115
    
    
    
    234Acquisitions (note 2)
    
    
    (163,273
    )
    
    
    Additions to property, plant and equipment
    
    
    (15,760
    )
    
    
    (8,219
    )Other investing activities
    
    
    (5,142
    )
    
    
    (585
    )(184,060
    )
    
    
    (8,570
    )Cash provided by (used in) financing activitiesProceeds from issuance of common shares
    
    
    3,004
    
    
    
    641Increase in bank and other indebtedness
    
    
    11,412
    
    
    
    40,364Net issue (repayment) of long-term debt
    
    
    188,143
    
    
    
    (25,050
    )202,559
    
    
    
    15,955Net foreign currency translation adjustment
    
    
    890
    
    
    
    3,146Decrease in cash
    
    
    (16,089
    )
    
    
    (20,658
    )Cash, beginning of period
    
    
    129,676
    
    
    
    47,644Cash, end of period
    
    $
    113,587
    
    
    $
    26,986
 (MASONITE LOGO) 4




---



##### 



UNAUDITED CONSOLIDATED
SCHEDULE OF SELECTED SEGMENTED INFORMATION
Period of three months ended March 31(In thousands of U.S. dollars) 2004
    
    2003SalesNorth America
    
    $
    367,937
    
    
    $
    324,219Europe and other
    
    
    109,035
    
    
    
    87,937Intersegment
    
    
    (9,005
    )
    
    
    (9,939
    )$
    467,967
    
    
    $
    402,217Segment operating incomeNorth America
    
    $
    45,075
    
    
    $
    35,944Europe and other
    
    
    11,056
    
    
    
    8,78256,131
    
    
    
    44,726ExpensesGeneral
    
    
    8,168
    
    
    
    7,749Interest
    
    
    8,565
    
    
    
    8,867Other expense
    
    
    1,730
    
    
    
    229Income taxes
    
    
    8,928
    
    
    
    6,995Non-controlling interest
    
    
    996
    
    
    
    54228,387
    
    
    
    24,382Net income
    
    $
    27,744
    
    
    $
    20,344Product line segment dataSales:Interior products
    
    $
    318,931
    
    
    $
    283,578Exterior products
    
    
    149,036
    
    
    
    118,639$
    467,967
    
    
    $
    402,217
 (MASONITE LOGO) 5




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##### 



NOTE 1: SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation These unaudited consolidated financial statements are prepared in accordance
with Canadian generally accepted accounting principles (GAAP) for interim
financial statements, which differ in some respects from United States GAAP.
The differences between Canadian and United States GAAP are disclosed in Note
12 of these unaudited consolidated financial statements. In these unaudited
consolidated financial statements, certain footnote information and footnote
disclosures normally included in annual financial statements prepared in
accordance with GAAP have been condensed or omitted. The unaudited
consolidated financial statements included herein should be read in conjunction
with Masonite International Corporations (the Company) annual audited
financial statements for the year ended December 31, 2003. The unaudited consolidated financial statements are prepared using the same
accounting polices and methods of application as were used in preparing the
most recent annual audited financial statements except for the adoption of new
accounting standards as described below. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation are included. Operating results for the
interim period included herein are not necessarily indicative o f the results
that may be expected for the year ending December 31, 2004. Principles of Consolidation The unaudited consolidated financial statements include the accounts of the
Company and its subsidiaries. Intercompany accounts and transactions have been
eliminated upon consolidation. The results of subsidiaries acquired during the
period are consolidated from their respective dates of acquisition. Asset Retirement Obligations In March 2003, the Canadian Institute of Chartered Accountants (CICA) issued
Handbook Section 3110, Asset Retirement Obligations, which became effective
January 1, 2004. The standard establishes recognition, measurement and
disclosure standards applicable to legal obligations associated with the
retirement of property, plant and equipment that results from its acquisition,
construction, development or normal operations. The Company has assessed the
effect of this new standard and has determined that it has no significant
impact on the unaudited consolidated financial statements. Hedging Relationships In November 2001, the CICA issued Accounting Guideline 13, Hedging
Relationships. This guideline establishes new criteria for hedge accounting
and is effective for the Companys current fiscal year. The Company has
reassessed all hedging relationships to determine whether the criteria have
been met. To qualify for hedge accounting, the hedging relationship must be
appropriately documented at inception of the hedge and there must be reasonable
assurance, both at the inception and throughout the term of the hedge, that the
hedging relationship will be effective. Effectiveness requires a high degree 6




---



##### 



of correlation of changes in fair values or cash flows between the hedged item
and the hedging instrument. All significant current hedging relationships have
been adequately documented and effectiveness has been assessed in order to
comply with the requirements to continue to apply hedge accounting. Generally Accepted Accounting Principles and General Standards of Financial
Statement Presentation In July 2003, the CICA issued Handbook Sections 1100, Generally Accepted
Accounting Principles, and 1400, General Standards of Financial Statement
Presentation. 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. Upon adoption of these recommendations as of January
1, 2004, the Company determined that they have no significant impact on the
unaudited consolidated financial statements. NOTE 2: ACQUISITIONS During the first quarter of 2004, the Company purchased the residential entry
door business of The Stanley Works. Consideration for this acquisition was paid
in cash. The preliminary purchase price, which is subject to certain post
closing adjustments, was allocated as follows: Current assets
    
    $
    18,479Fixed assets
    
    
    36,212Goodwill and intangibles
    
    
    134,805Other assets
    
    
    2,000Liabilities assumed
    
    
    (26,770
    )Long-term debt
    
    
    (1,453
    )$
    163,273Consideration:Cash
    
    $
    163,273
 This acquisition has been accounted for using the purchase method of
accounting. NOTE 3: INCOME TAXES The Companys income tax expense for the three months ended March 31 is
comprised of: 2004
    
    2003Current
    
    $
    64
    
    
    $
    2,703Future
    
    
    8,864
    
    
    
    4,292$
    8,928
    
    
    $
    6,995
 7




---



##### 



NOTE 4: SHARE CAPITAL Information with respect to outstanding common shares is as follows: Shares
    
    AmountMarch 31, 2004
    
    
    54,733,865
    
    
    $
    269,874May 12, 2004
    
    
    54,803,199
 During the period ended March 31, 2004, 300,066 (2003  122,000) options were
exercised at a weighted average exercise price of $10.02 (2003  $5.26). During
the first quarter of 2004 and 2003, no options were granted. NOTE 5: STOCK BASED COMPENSATION  (a)
    
    Stock option plan In 2003, the Company adopted on a prospective basis the fair value method of
accounting for stock options. The fair value method was applied to all stock
options issued on or after January 1, 2003. Compensation expense relating to
stock options recorded in the income statement in the first quarter of 2004
amounted to $125 (2003  $Nil). For options granted in 2002, the pro-forma
effect of fair value accounting applied to stock options issued between January
1, 2002 and January 1, 2003 is as follows: 2004
    
    2003Net income as reported
    
    $
    27,744
    
    
    $
    20,344Deduct: Stock based compensation costs
using fair value method, net of tax
    
    
    (196
    )
    
    
    (380
    )Pro-forma net income
    
    $
    27,548
    
    
    $
    19,964Net income per shareBasic  as reported
    
    $
    0.51
    
    
    $
    0.38Basic  pro-forma
    
    
    0.50
    
    
    
    0.37Diluted  as reported
    
    $
    0.50
    
    
    $
    0.37Diluted  pro-forma
    
    
    0.49
    
    
    
    0.36
  (b)
    
    Other stock-based compensation plan Total compensation expense recorded in connection with the Companys Restricted
Share Unit and Deferred Share Unit plans was $868 (2003  $Nil). 8




---



##### 



NOTE 6: EARNINGS PER SHARE The computations for basic and diluted earnings per share are as follows: 2004
    
    2003Net income
    
    $
    27,744
    
    
    $
    20,344Weighted average number of common shares
outstanding:Basic
    
    
    54,701,000
    
    
    
    53,507,000Effect of share options and warrants
    
    
    1,325,000
    
    
    
    1,490,000Diluted
    
    
    56,026,000
    
    
    
    54,997,000Earnings per shareBasic
    
    $
    0.51
    
    
    $
    0.38Diluted
    
    
    0.50
    
    
    
    0.37
 For the periods ended March 31, 2004 and 2003, all share options to purchase
common shares were included in the computation of diluted earnings per share
because the exercise price was lower than the average market price of the
common shares during the period. NOTE 7: COMMITMENTS The Company has entered into foreign currency contracts to hedge foreign
currency risk. At March 31, 2004, unrealized gains totaled $512 (2003  $3,674)
and unrealized losses totaled $2,202 (2003  $255). At March 31, 2004, the
Company had forward contracts in place to sell UK pound sterling in the amount
of £4,500 in exchange for U.S. dollars over a period of 9 months at an average
exchange rate of $1.6605, and £13,500 in exchange for euros over a period of 9
months at an average exchange rate of ¬1.4033. In addition, the Company had
forward contracts in place to sell US dollars in the amount of $16,762 in
exchange for Canadian dollars over a period of four months at an average
exchange rate of $1.3571. Future minimum payments, for the next five fiscal years ending December 31,
under non-cancelable operating leases with initial or remaining terms of one
year or more consisted of the following at March 31, 2004: 2004
    
    $
    14,7512005
    
    
    12,8762006
    
    
    8,9142007
    
    
    6,9622008
    
    
    4,926Thereafter
    
    
    12,366$
    60,795
 9




---



##### 



NOTE 8: GUARANTEES AND CONTINGENCIES 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. The Company was a guarantor under certain performance letters of credit arising
from a previous transaction in the amount of $8.9 million. The counterparty to
the transaction was required to replace the Companys letters of credit by
March 2004. In the event that the counterparty did not replace the Companys
letters of credit by that date, the Companys liability as guarantor could have
been invoked. Subsequent to March 31, 2004, the guarantee has been extinguished
and the Company can no longer be invoked as guarantor on the performance
letters of credit. NOTE 9: LONG-TERM DEBT March 31, 2004
    
    December 31, 2003Bank term loans due August 31, 2006
    
    $
    78,168
    
    
    $
    34,418Bank term loans due August 31, 2008
    
    
    574,056
    
    
    
    425,181Bank term loan due June 28, 2007
    
    
    17,500
    
    
    
    20,000Other loans with various maturities
    
    
    4,418
    
    
    
    3,159674,142
    
    
    
    482,758Less current portion
    
    
    49,992
    
    
    
    35,498$
    624,150
    
    
    $
    447,260
 During the first quarter of 2004, the Company negotiated additional term
borrowings of $200 million that were used principally for the acquisition
described in Note 2. The new facilities consist of a $50 million term loan due
August 31, 2006 bearing interest at LIBOR plus 1.50%, and a $150 million term
loan due August 31, 2008 bearing interest at LIBOR plus 2.25%. The additional
borrowings have terms and conditions substantially similar to the existing
borrowings. Interest on long-term debt in the quarter was $8,207
(2003  $8,356). The aggregate amount of principal repayments in each of the next five fiscal
years ending December 31 is as follows: 2004
    
    $
    49,9922005
    
    
    27,9022006
    
    
    36,8642007
    
    
    287,7462008
    
    
    271,131
 10




---



##### 



NOTE 10: SUPPLEMENTAL CASH FLOW INFORMATION 2004
    
    2003Interest paid
    
    $
    7,234
    
    
    $
    12,139Income taxes paid
    
    
    6,607
    
    
    
    5,374Income tax refunds
    
    
    2,064
    
    
    
    88
 NOTE 11: ADDITIONAL SEGMENTED INFORMATION March 31, 2004
    
    December 31, 2003Property, plant and equipment:Canada
    
    $
    87,480
    
    
    $
    84,163North America
    
    $
    513,780
    
    
    $
    473,230Europe and other
    
    
    277,446
    
    
    
    278,880$
    791,226
    
    
    $
    752,110Goodwill and other intangibles:Canada
    
    $
    55,090
    
    
    $
    26,442North America
    
    $
    255,237
    
    
    $
    120,578Europe and other
    
    
    9,850
    
    
    
    9,897$
    265,087
    
    
    $
    130,475
 NOTE 12: RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES These unaudited consolidated financial statements have been prepared in
accordance with Canadian GAAP, which differs in certain respects from United
States GAAP. Following is a summary of the effect of significant differences in
GAAP on the Companys unaudited consolidated financial statements: 2004
    
    2003Net income based on Canadian GAAP
    
    $
    27,744
    
    
    $
    20,344Effect of SFAS 133, net of tax
    
    
    1,140
    
    
    
    (293
    )Net income based on United States GAAP
    
    $
    28,884
    
    
    $
    20,051Earnings per share under United States GAAPBasic
    
    $
    0.53
    
    
    $
    0.37Diluted
    
    
    0.52
    
    
    
    0.36
 11




---



##### 



Effect of SFAS 133 United States Accounting Standard SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities, requires that all derivative instruments
be reported on the balance sheet at fair value and establishes criteria for
designation and effectiveness of hedging relationships. The Company has entered into interest rate swap agreements to convert a portion
of its floating rate debt into fixed rate debt in accordance with the Companys
risk management objective of mitigating the variability and uncertainty in its
cash flows due to variable interest rates. As at March 31, 2004, the total
floating rate debt effectively converted to fixed rate debt was $287,500. These
agreements mature at various dates through 2006. The criteria under United States GAAP for hedge accounting were not met prior
to the establishment of the above noted interest rate swap agreements.
Accordingly, any change in the fair value of the interest rate swaps was
reported in income prior to this quarter. As of January 1, 2004, the Company
had met the criteria for designating and assessing the effectiveness of hedging
relationships, thus the interest rate swaps were designated as cash flow
hedges. Under United States GAAP, a portion of the changes in fair values of
these financial instruments is recognized in the income statement. NOTE 13: COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform to the current
year basis of presentation. 12




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS The following discussion has been prepared by management and is a review of
Masonite International Corporations (the Company or Masonite) financial
condition and results of operations for the three months ended March 31, 2004
based on Canadian generally accepted accounting principles (GAAP). All
amounts are in United States dollars unless specified otherwise. This Management Discussion and Analysis (MD&A) should be read in conjunction
with the Companys unaudited consolidated financial statements and annual
audited consolidated financial statements and accompanying notes for the year
ended December 31, 2003. Overview of the Business Masonite is one of the worlds largest manufacturers and merchandisers of
doors, door components and door entry systems to the home improvement and home
construction markets. Masonite operates over 75 facilities in 12 countries and
has over 12,000 employees. The Company sells its products to distributors,
jobbers, home centre chains and wholesale and retail building supply dealers
worldwide. A summary of the Companys results for the three most recently completed fiscal
years is as follows: For the Fiscal Year Ended December 31,(thousands of dollars, except per share amounts)2003
    
    2002(1)
    
    2001(1)Operating DataSales
    
    $
    1,777,238
    
    
    $
    1,619,516
    
    
    $
    1,421,602Net income
    
    $
    107,671
    
    
    $
    89,543
    
    
    $
    39,460Net income per shareBasic
    
    $
    2.00
    
    
    $
    1.70
    
    
    $
    0.84Diluted
    
    $
    1.95
    
    
    $
    1.65
    
    
    $
    0.84Balance Sheet DataTotal assets
    
    $
    1,693,151
    
    
    $
    1,462,791
    
    
    $
    1,442,286Long-term financial liabilities(2)
    
    $
    482,758
    
    
    $
    533,582
    
    
    $
    489,880
   (1)
    
    Net income for 2002 includes a gain on refinancing of $2,990 and 2001
includes debt extinguishment costs of $17,370(2)
    
    Long-term financial
liabilities consists of long-term debt including current maturities The market demand for building products is determined by various factors
including general economic conditions, interest rates, levels of unemployment,
consumer confidence and the availability of credit. These factors influence the
demand for building products used in both new residential and commercial
construction and, to a lesser extent, affect building products usage in home
renovation, remodeling and repair. The pace of existing home sales also 13




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affects the demand for building products used in home renovation, remodeling
and repair. A significant and growing portion of the Companys sale of doors,
door components and door entry systems are used for home improvement and repair
projects. First Quarter of 2004 compared with First Quarter of 2003 Results of Operations Consolidated sales in the first quarter of 2004 increased 16.3% or $65.8
million to approximately $468.0 million from sales of approximately $402.2
million in the first quarter of 2003. Sales increased 13.5% in North America
and 24% in Europe and other markets. Demand in both the home improvement and
new construction sectors, in all Masonite markets, was stronger in the first
quarter of 2004 than the first quarter last year. In 2003, the Company was
negatively affected by harsh weather conditions and greater consumer
uncertainty because of geopolitical events. Sales in 2004 were also positively
impacted by the release of several new interior and exterior products and the
continued implementation of the Companys All Products Strategy and
integrated sales structure. Approximately 80% of the increase in sales was
generated internally. The acquisition of the entry door business from the
Stanley Works (the Stanley Acquisition) principally accounted for the balance
of increased sales. Exterior products increased 25.6% in the first quarter to
$149.0 million compared to $118.6 million in the first quarter of 2003, while
interior products increased 12.5% over the same time period. Exterior product
growth was driven in the first quarter by the Companys continued focus on its
exterior products. Exterior products represented 32% of the interior-exterior
product mix this year versus 30% last year. Innovative new fiberglass exterior
doors, new customers, new programs and continued marketing and advertising also
contributed to the growth in exterior products. Cost of sales, expressed as a percentage of sales, was 77.7% in 2004, which was
unchanged from the first quarter of 2003. Improvements to operating leverage
from the 16.3% increase in sales in the first quarter offset slight increases
in material costs over this period. The pace of sales in March was higher than
the pace of sales in January and February. This pattern negatively affected
gross margins during the quarter. Many industries are experiencing increasing
costs and, in some cases shortages of supply, particularly as it relates to
steel, transportation, lumber and wood related components. These external
factors may impact the financial results of the Company in the second quarter.
The Company is actively working to support margins through the use of
alternative products and sources of supply as well as through price increases
to its customers. The impact of these proactive measures is difficult to
estimate due to the potential timing difference between input cost changes,
availability of material and the Companys ability to mitigate them. Selling, general and administrative expenses were approximately $43.5 million,
or 9.3% of sales, compared to $40.8 million, or 10.1% of sales for the same
quarter a year ago. The decrease in selling, general and administrative
expenses as a per cent of sales is primarily due to the relatively fixed nature
of these costs that were over a larger sales base. The expenditure for the year
is expected to be approximately 9% of sales. 14




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Depreciation and amortization expense increased $1.1 million to $12.9 million
from $11.8 million in the first quarter of 2003. The increase in depreciation
and amortization is primarily the result of additional depreciation being
incurred on capital expenditures from 2003. Interest expense decreased approximately $0.3 million to $8.6 million from $8.9
million in the first quarter of 2003. During fiscal 2003, approximately $51.1
million of long-term debt was repaid. This decrease in long-term debt, and the
related interest expense reduction in the first quarter of 2004 was partially
offset by the issuance of long-term debt to fund the Stanley Acquisition on
March 2, 2004. The Companys effective income tax rate is the weighted average of federal,
state and provincial rates in various countries in which Masonite has
operations including the United States, Canada, France, the United Kingdom and
Ireland. The Companys 2004 net income for the quarter increased approximately $7.4
million to $27.7 million ($0.51 per share) from $20.3 million in 2003 ($0.38
per share). Basic earnings per share of $0.51 in 2004 and $0.38 in 2003 are
calculated using the weighted average number of shares outstanding during the
three- month periods of 54.7 million and 53.5 million, respectively.
Calculations of diluted earnings per share of $0.50 in 2004 and $0.37 in 2003
reflect the dilution effect from the assumed exercise of options and warrants
where the exercise price was lower than the average market price of the common
shares for the reporting period. Summary of Quarterly Results (unaudited) Selected Quarterly Information(thousands of dollars, except per share amounts)March 31,
    
    December 31,
    
    September 30,
    
    June 30,2004
    
    2003
    
    2003
    
    2003Sales
    
    $
    467,967
    
    
    $
    455,897
    
    
    $
    462,169
    
    
    $
    456,955Net Income
    
    $
    27,744
    
    
    $
    29,198
    
    
    $
    30,790
    
    
    $
    27,339Net Income per ShareBasic(1)
    
    $
    0.51
    
    
    $
    0.54
    
    
    $
    0.57
    
    
    $
    0.51Diluted(1)
    
    $
    0.50
    
    
    $
    0.53
    
    
    $
    0.56
    
    
    $
    0.50
 March 31,
    
    December 31,
    
    September 30,
    
    June 30,2003
    
    2002
    
    2002
    
    2002Sales
    
    $
    402,217
    
    
    $
    395,808
    
    
    $
    427,680
    
    
    $
    415,457Net Income
    
    $
    20,344
    
    
    $
    22,209
    
    
    $
    29,176
    
    
    $
    22,046Net Income per ShareBasic(1)
    
    $
    0.38
    
    
    $
    0.42
    
    
    $
    0.55
    
    
    $
    0.42Diluted(1)
    
    $
    0.37
    
    
    $
    0.40
    
    
    $
    0.53
    
    
    $
    0.41
   (1)
    
    The sum of basic and diluted earnings per share for the four quarters may
differ from the basic and diluted earnings per share for the year due to
differences in the average number of shares outstanding. 15




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Liquidity Maintaining significant levels of liquidity and cash flows are important
components of the Companys financial strategy. During the first quarter of
2004, the Company used $35.5 million of cash generated in operations compared
to $31.2 million in the first quarter of 2003. The use of cash for operations
in 2004 was primarily due to the seasonal investment in working capital
preceding the second and third quarters. The month of March accounted for a
more than proportionate amount of the business in the quarter, leaving a
significant amount of receivables outstanding at quarter end. The Company used $184.1 million for investing activities compared to $8.6
million in the first quarter of 2003. The primary use of this cash was for the
Stanley Acquisition and related costs in the amount of $163 million, which was
completed on March 2, 2004. Capital expenditures accounted for the majority of
investing activities in the first quarter of 2003 and the balance of investing
activities in the first quarter of 2004. Management expects the Companys total
capital expenditures in 2004 to be in the range of $50 to $60 million. Approximately $202.6 million of cash was generated from financing activities,
primarily from the issuance of $200 million of long-term debt to fund the
Stanley Acquisition. In the first quarter of 2003, a net $16.0 million of cash
was generated from financing activities principally by drawing on revolving
interest bearing indebtedness to fund working capital and capital expenditures. The Companys working capital ratio remained unchanged from December 31, 2003
at 2.04:1.0. The Companys debt to equity ratio increased to 0.76 to 1.0 at
March 31, 2004 compared to 0.49 to 1.0 at December 31, 2003, as a result of the
$200 million in additional financing received in March 2004 to fund the Stanley
Acquisition. Management believes that its current cash balance plus cash flows from
operations and the additional bank term loan referred to in the preceding
paragraphs will be sufficient to fund its near-term working capital and other
investment needs. 16




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The following table summarizes the Companys significant contractual
obligations and commercial commitments at March 31, 2004: Contractual Obligation Payments Due by PeriodLessthan
    
    1-3
    
    4-5
    
    After 5(in millions of U.S. dollars)
    
    Total
    
    1 year
    
    years
    
    years
    
    YearsShort-term debt
    
    $
    18.0
    
    
    $
    18.0
    
    
    $
    
    
    
    $
    
    
    
    $
    Long-term debt
    
    $
    674.1
    
    
    $
    50.0
    
    
    $
    352.5
    
    
    $
    271.6
    
    
    $
    Operating leases
    
    $
    60.8
    
    
    $
    14.8
    
    
    $
    28.8
    
    
    $
    8.3
    
    
    $
    8.9Commercial commitments(1)
    
    $
    90.5
    
    
    $
    33.8
    
    
    $
    56.6
    
    
    $
    0.1
    
    
    $
    Total contractual cash obligations
    
    $
    843.4
    
    
    $
    116.6
    
    
    $
    437.9
    
    
    $
    280.0
    
    
    $
    8.9
   (1)
    
    Commercial commitments consist of agreements to purchase goods and
services that are enforceable and legally binding. In addition, the purchase
commitments specify all significant terms including fixed or minimum
quantities to be purchased and the timing of the transaction. Capital Resources CAPITAL STRUCTURE COMPOSITION (%) March 31,
    
    December 31,
    
    December 31,2004
    
    2003
    
    2002Shareholders equity
    
    
    47.5
    %
    
    
    53.7
    %
    
    
    45.4
    %Non-controlling interest
    
    
    2.3
    
    
    
    2.6
    
    
    
    2.3Short-term debt
    
    
    1.1
    
    
    
    0.5
    
    
    
    0.3Long-term debt(1)
    
    
    42.1
    
    
    
    35.4
    
    
    
    43.9Future income taxes
    
    
    7.0
    
    
    
    7.8
    
    
    
    8.1100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
   (1)
    
    Includes current portion of long-term debt Historically, the Company has funded its growth through a combination of cash
generated from operations, long-term bank debt and other borrowings, and by the
periodic issuance of common shares. The Companys senior credit facility consists of a $100 million long-term
revolving bank loan and four term loans totaling $652 million. The additional
$200 million incurred in March 2004 was primarily to fund the Stanley
Acquisition. 17




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Information on the Companys debt maturities is disclosed in Note 9 of the
unaudited consolidated financial statements. The aggregate amount of
long-term debt repayments required over the next five years is approximately
$674 million as at March 31, 2004 compared to $482 million at December 31,
2003. Revolving bank lines are maintained to ensure short-term availability of funds.
Masonite and its subsidiaries had approximately $128 million of revolving bank
credit facilities established at March 31, 2004. Nothing was drawn at March 31,
2004 on the Companys main $100 million revolving bank loan. Approximately $18
million of the Companys $28 million of other current revolving bank lines was
utilized at the end of the first quarter, and was classified as current bank
indebtedness. The Company also had cash on hand of $113.6 million as at March
31, 2004. Off-Balance Sheet Arrangements The Company does not have any material off-balance sheet arrangements other
than those disclosed in notes 5, 7, 11 and 12 in the 2003 annual audited
consolidated financial statements and notes 1, 7 and 8 of the unaudited
consolidated financial statements. Transactions with Related Parties The Company does not engage in transactions with related parties other than in
the normal course of business with equity investments. Critical Accounting Policies and Estimates Masonites significant accounting policies are disclosed in Note 1 of the
unaudited consolidated financial statements, and Note 1 of the Companys annual
audited consolidated financial statements for the year ended December 31, 2003.
The preparation of these financial statements requires management to make
estimates that affect the reported amount of assets, liabilities, revenues and
expenses, and related disclosures of contingent items. The following discussion
addresses the Companys more critical accounting policies. These policies are
important to the presentation of the operating results and financial position
of the Company and require significant judgment or the use of estimates. Inventory Masonite values its inventories on a first-in, first-out basis at the lower of
cost and replacement cost for raw materials, and the lower of cost and net
realizable value for finished goods. In determining net realizable value, the
Company considers such factors as yield, turnover or 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. Goodwill and other intangibles The Company uses the purchase method of accounting for all business
acquisitions. Use of the purchase method for acquisitions frequently results in
the recording of goodwill and other 18




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intangibles as part of the purchase price. Goodwill and intangibles with
indefinite lives are not amortized but instead are tested for impairment by the
Company in the fourth quarter of each year or more frequently if events or
changes in circumstances indicate that an impairment loss may have been
incurred. Other intangible assets are amortized over their estimated useful
lives. 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 of goodwill and intangible assets, management relies 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 managements judgment in applying them to
the analysis of goodwill and intangible asset impairment. Since managements
judgment is involved in performing goodwill and intangible asset valuation
analyses, any change in estimates can affect the valuation of goodwill and
intangible assets. Income Taxes The Companys 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 Masonite conducts
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 the Companys income tax provision and net
income in the period in which the determination is made. Masonite has recorded $33.5 million of future income tax assets. 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, management considered such factors as
projected future taxable income, the character of the income tax asset and the
reversal of deferred income tax 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 Management periodically evaluates the recoverability of long- lived assets,
including property, plant and equipment and amortizable intangible assets based
on a two-step impairment analysis. In performing this evaluation, reliance is
placed upon a number of factors, which include operating results, business
plans, economic projections and anticipated cash flows. Masonite writes down
long- lived assets considered to be impaired based on an undiscounted cash flow
test to 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. 19




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Employee Future Benefit Plans The Company maintains defined benefit pension plans and other post retirement
benefits covering certain employees. The determination of Masonites
obligations and expenses for these plans uses several statistical and judgment
factors that include the probable mortality rates of members, expected
investment yields, the rates of wage and salary escalation, and expected ages
at which members will retire. These estimates may differ materially from actual
results that will occur over an extended period of time. Any significant
differences may have a material effect on the recorded pension expense and
carrying value of the plans net assets or net liabilities. Stock-based Compensation Beginning January 1, 2003, the Company adopted a fair value method of
accounting for all stock-based compensation payments to both employees and
non-employees as discussed in Note 1(n) of the Companys annual audited
consolidated financial statements for the year ended December 31, 2003. The
determination of Masonites obligations and compensation expense for these
plans uses several mathematical and judgment factors that include: the expected
volatility of the Companys common share price, the anticipated life of the
option, an estimated risk free interest rate and the number of options expected
to vest. These estimates may differ from actual results that will occur over
the life of the option. Any difference in the number of options that ultimately
vest can affect future compensation expense. Other assumptions are not revised
after the original estimate. In 2003, the Company adopted a Restricted Share Unit (RSU) and Deferred Share
Unit (DSU) program for certain key executives. Compensation expense related
to the RSUs and DSUs are recognized over the vesting period. Any significant
change in the Companys share price could have an impact on the compensation
expense recognized. Asset Retirement Obligations Effective January 1, 2004, the Company adopted guidelines to recognize, measure
and disclose future costs related to asset retirement obligations. The
determination of whether or not future costs will be incurred involves
judgments and estimates by management. These judgments and estimates include
costs to repair or remove assets, a discount rate to determine the present
value of future costs, and the determination of whether retirement obligations
actually exist. These current estimates and their actual future expense over
the life of the asset may differ, which would have an impact on obligations
recorded at the current date. Changes in Accounting Policies In December 2003, the Canadian Institute of Chartered Accountants (CICA)
finalized additional revisions and guidelines surrounding various revenue
recognition issues such as arrangements with multiple deliverables, separately
priced extended warranty and product maintenance contracts, and accounting for
consideration received from a vendor. These revisions and guidelines harmonize
accounting standards with United States GAAP. The adoption of the new
guidelines did not have a material impact on the Companys unaudited 20




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##### 



consolidated financial statements, and is not expected to have a material
impact on future interim or annual consolidated financial statements. In March 2003, the CICA issued Handbook Section 3110, Asset Retirement
Obligations, which became effective January 1, 2004. The standard establishes
recognition, measurement and disclosure standards applicable to legal
obligations associated with the retirement of property, plant and equipment
that results from its acquisition, construction, development or normal
operations. The Company has assessed the effect of this new standard and has
determined that it has no significant impact on the unaudited consolidated
financial statements. Financial Instruments 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. The
Companys policy is not to utilize financial instruments for trading or
speculative purposes. Interest rate swap contracts are used to reduce the
impact of fluctuating interest rates on the Companys long-term debt. These
swap agreements require the periodic exchange of payments without the exchange
of the notional principal amount of which the payments are based. 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. The Company formally documents all significant relationships between hedging
instruments and hedged items, as well as its risk management objective and
strategy for undertaking various hedge transactions. This process includes
linking all derivatives to specific assets and liabilities on the balance sheet
or to specific firm commitments or anticipated transactions. The Company also
formally assesses, both at the hedges inception and on an ongoing basis,
whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items. Almost 100% of the Companys interest-bearing debt carries a floating interest
rate. Therefore, in the normal course of business Masonite is exposed to
changes in short-term interest rates that can create uncertainty and
variability in its cash flows. To mitigate this exposure, in September 2001 the
Company entered into a five-year interest rate swap agreement converting a
notional $250 million of floating-rate debt into fixed-rate debt that currently
bears interest at 7.96%. In August 2002, another five-year interest rate swap
agreement was executed converting an additional $75 million of amortizing
floating-rate debt into a fixed-rate debt at 5.47%. After giving effect to
these interest rate swaps, approximately 57% of the Companys outstanding
interest-bearing debt carries a floating interest rate and the other 43% is
effectively at fixed rates as at March 31, 2004. Management believes that these
interest rate swaps are highly effective in achieving their economic purpose. The Companys forward exchange contracts do not subject the Company to risk
from exchange rate movements because gains and losses on such contracts offset
losses and gains on transactions being hedged. The Company does not require
collateral or other security to 21




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##### 



support financial instruments with credit risk. The amount of foreign exchange
contracts outstanding at March 31, 2004 is described in Note 7 to the unaudited
consolidated financial statements. Additional information with respect to the
Companys use of financial instruments is available in the annual audited
consolidated financial for the year ended December 31, 2003. Non-GAAP Financial Measures This MD&A contains non-GAAP measures. Securities regulators require that
corporations caution readers that these terms do not have standardized meanings
under GAAP and are unlikely to be comparable to similar measures used by other
companies. In this MD&A, debt to equity is defined as interest-bearing debt,
net of cash, divided by shareholders equity. Forward-Looking Statements These unaudited consolidated financial statements, MD&A and other written
reports and oral statements made by the Company may include forward-looking
statements, all of which are subject to risks and uncertainties. One can
identify these forward-looking statements by their use of words such as
expects, plans, will, estimates, intends, forecasts, projects and
other words of similar meaning, or by the fact that they do not relate strictly
to historical or current facts. These statements are likely to address, but may
not be limited to, the Companys growth strategy and financial results. Readers must carefully
consider any such statements and should understand that many factors could
cause actual results and developments to differ materially from the Companys
forward-looking statements. These factors may include inaccurate assumptions
and a broad variety of other known and unknown risks and uncertainties,
including: general economic, market and business conditions; levels of
construction and renovation activity; competition; financing risks; ability to
manage expanding operations; commitments; new services; retention of key
management personnel; environmental and other government regulation; and other
factors. No forward-looking statement can be guaranteed and actual future
results may vary materially. The Company disclaims any responsibility to update
these forward-looking statements. In addition to the information in the unaudited consolidated financial
statements and MD&A, Masonites Annual Information Form can be found on the
Companys website at www.masonite.com, and the SEDAR website at www.sedar.com 22