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U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 40-F [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
 [X] ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE
THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003
    
    Commission File Number 1-11796
 Masonite International Corporation  Premdor Inc.  Ontario
    
    2431
    
    98-0377314(Province or other jurisdiction of
incorporation or organization)
    
    (Primary Standard Industrial
Classification Code Number)
    
    (I.R.S. Employer
Identification No.)
 1600 Britannia Road East
Mississauga, Ontario, Canada L4W 1J2
(905) 670-6500(Address and telephone number of Registrants principal executive offices) Mr. Steve MacIsaac
Masonite Holdings, Inc.
One North Dale Mabry
Tampa, Florida 33609
(813) 877-2726(Name, address (including zip code) and telephone number
(including area code) of agent for service in the United States) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each class
    
    Name of each exchange on which registeredCommon Shares, no par value
    
    New York Stock Exchange and The Toronto Stock Exchange
 Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None For annual reports, indicate by check mark the information filed with this Form:
[X] Annual information form            [X] Audited annual financial statements Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report:
The Registrant had 54,433,799 Common Shares
Outstanding as at December 31, 2003 Indicate by check mark whether the Registrant by filing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934 (the Exchange Act). If Yes is marked, indicate the filing number assigned to the Registrant in connection with such Rule. Yes
[  ].                                        No  [X] . Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 [X].                                          No [  ].




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DOCUMENTS FILED WITH THIS FORM 40-F  1.
    
    Annual Information Form of the Registrant for the fiscal year ended
December 31, 20032.
    
    Consolidated Audited Financial Statements of the Registrant as at and for
the years ended on December 31, 2003 and 2002, including a reconciliation
to United States generally accepted accounting principles3.
    
    Managements Discussion and Analysis of Financial Condition and Results
of Operations of the Registrant4.
    
    Comments by Auditors for United States Readers on Canada-U.S. Reporting
Difference CONTROLS AND PROCEDURES As of the end of the period
covered by this report, the Registrant
carried out an evaluation, under the supervision and with the participation of
the Registrants management, including the Registrants Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation
of the Registrants disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Registrants disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Registrant (including its consolidated subsidiaries) required
to be included in the Registrants periodic Securities and Exchange Commission
filings. No significant changes were made in the Registrants internal controls
or in other factors that could significantly affect these controls subsequent
to the date of their evaluation. Disclosure controls and procedures are those controls and other procedures that
are designed to ensure that information required to be disclosed by the
Registrant in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commissions rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by the Registrant
in the reports that it files or submits under the Exchange Act is accumulated
and communicated to the Registrants management, including the Registrants
principal executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosure. Change in Internal Controls Over Financial Reporting Masonite maintains a system of internal controls over financial reporting.
There were no changes in Masonite internal controls that occurred during the
period covered by this report that have materially affected, or are reasonably
likely to materially affect, Masonites internal control over financial
reporting AUDIT MATTERS Audit Committee The members of Masonites audit committee are Howard L. Beck, John J. Berton,
John M. Cassaday and Joseph L. Rotman. Each of the members of Masonites audit
committee is independent and financially literate for the purposes of
applicable Canadian and U.S. securities legislation. Reference is made to
Masonites Management Information Circular dated March 26, 2004 relating to the
Companys annual meeting of shareholders held on May 3, 2004 for information
about the mandate of the audit committee and the experience of each member of
the audit committee that is relevant to the performance of his responsibilities
as an audit committee member. The Board of Directors of the Company has determined that it has at least one
audit committee financial expert serving on its audit committee. Mr. John
Cassaday has been determined by the board of Masonite to meet the audit
committee financial expert criteria prescribed by the Securities and Exchange
Commission (SEC) and applicable Canadian regulatory requirements and is
independent, as that term is defined by the New York Stock Exchanges
listing standards applicable to Masonite and applicable Canadian regulatory
requirements. The SEC has indicated 2




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that the designation of Mr. Cassaday as an
audit committee financial expert does not make Mr. Cassaday an expert for any
purposes, impose any duties, obligations or liability on Mr. Cassaday, that are
greater than those imposed on members of the audit committee and Board of
Directors who do not carry this designation, or affect the duties, obligations
or liability of any other member of the audit committee. Audit and Related Fees For the year ended December 31, 2003, fees for audit and related services
provided by KPMG LLP, Masonites independent external auditors to Masonite were
$1,130,000 (2002 - $985,000). Non-audit fees paid to KPMG LLP relating to tax
planning and compliance in 2003 were $1,076,000 (2002 - $925,000). Details are
shown in the following table: Year Ended December 31, 2003
    
    Year Ended December 31, 2002Audit Fees
    
    $
    1,067,000
    
    
    $
    812,000Audit Related Fees
    
    $
    63,000
    
    
    $
    173,000Tax Fees
    
    $
    1,076,000
    
    
    $
    925,000All Other Fees
    
    Nil
    
    NilTotal:
    
    $
    2,206,000
    
    
    $
    1,910,000
 Audit Fees Audit fees were for professional services rendered by KPMG 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 reviewing
documents related to due diligence services for business acquisitions and
business divestitures. 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, and tax planning and advisory services relating to common forms of
domestic and international taxation (i.e. income tax, capital tax, goods and
services tax, value added tax and payroll tax). All Other Fees In 2003 and 2002, no fees for services were incurred other than those described
above under Audit Fees, Audit-Related Fees and Tax Fees. Pre-Approval Policies and Procedures It is within the mandate of Masonites audit committee to approve all audit and
non-audit related fees. The audit committee has pre-approved specifically
identified non-audit tax-related services, including tax compliance; the review
of tax returns; and tax planning and advisory services relating to common forms
of domestic and international taxation (i.e. income tax, capital tax, goods and
services tax, value added tax and payroll tax). The audit committee 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 the
Committee for approval prior to undertaking the annual audit of the financial
statements.




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CODE OF ETHICS Masonite has adopted a Code of Ethics for its Chief Executive Officer, Chief
Financial Officer and directors and officers. The Code of Ethics is available
on the Companys website at www.masonite.com and in print to any shareholder
who requests them. All amendments to the code, and all waivers of a code with
respect to any of the persons covered by it, will be posted on the Companys
website and provided in print to any shareholder who requests them. CORPORATE GOVERNANCE GUIDELINES The Company has adopted corporate governance guidelines and established
committees regarding such matters as, but not limited to: director
qualification standards and responsibilities; access by directors to management
and independent advisors; director compensation; and management succession.
The guidelines and board committee charters are available on the Companys
website at www.masonite.com. Although the Company files as a foreign private
issuer in the United States, Masonite is in compliance with the listing
requirements of the New York Stock Exchange as they apply to U.S. domestic
issuers. 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 to the consolidated financial
statements. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS See the disclosure Contractual Obligation Payments Due by Period in the
Managements Discussion and Analysis of Financial Condition and Results of
Operations filed herewith. FORWARD-LOOKING STATEMENTS This Form 40-F 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.




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DOCUMENT 1




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MASONITE INTERNATIONAL CORPORATION ANNUAL INFORMATION FORM May 3, 2004




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TABLE OF CONTENTS CORPORATE STRUCTURE
    
    
    1GENERAL DEVELOPMENT OF THE BUSINESS
    
    
    2THE BUSINESS
    
    
    3RISK FACTORS
    
    
    11DESCRIPTION OF CAPITAL STRUCTURE
    
    
    13MARKET FOR SECURITIES
    
    
    13DIVIDENDS
    
    
    14DIRECTORS AND OFFICERS
    
    
    14LEGAL PROCEEDINGS
    
    
    16TRANSFER AGENT AND REGISTRARS
    
    
    16AUDIT MATTERS
    
    
    16DISCLOSURE CONTROLS AND PROCEDURES
    
    
    17CODE OF ETHICS
    
    
    18CORPORATE GOVERNANCE GUIDELINES
    
    
    18OFF-BALANCE SHEET ARRANGEMENTS
    
    
    18ADDITIONAL INFORMATION
    
    
    18FORWARD-LOOKING STATEMENTS
    
    
    18
 - i -




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MASONITE INTERNATIONAL CORPORATION ANNUAL INFORMATION FORM May 3, 2004 Except where the context otherwise requires, all references in this annual
information form (AIF) to the Company are to Masonite International
Corporation and its subsidiaries. In this AIF, references to $ and Cdn.$
are to United States and Canadian dollars, respectively, and unless otherwise
indicated, the statistical and financial data contained in this AIF are
presented as at December 31, 2003. 
 CORPORATE STRUCTURE The Company was formed by articles of amalgamation under the Business
Corporations Act (Ontario)on January 1, 2002 upon the amalgamation of Premdor
Inc. and its wholly owned subsidiaries, Masonite International Corporation and
Les Portes Centenaires Ltée. (the Amalgamation). The registered and
principal office of the Company is located at 1600 Britannia Road East,
Mississauga, Ontario, L4W 1J2. The Companys common shares trade on the
Toronto Stock Exchange and the New York Stock Exchange under the symbol MHM. Subsidiaries and Investments (Florida)
The following corporate structure chart illustrates the Companys material
subsidiaries and investments as of May 3, 2004 and identifies their respective
jurisdiction of incorporation and the percentage of voting securities
beneficially owned, or over which control or direction is exercised by, the
Company: (CORPORATE STRUCTURE)




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GENERAL DEVELOPMENT OF THE BUSINESS General Masonite International Corporation is one of the worlds largest
manufacturers of doors and door components. On January 1, 2002, as a result of
the Amalgamation, Premdor Inc. (Premdor) changed its name to Masonite
International Corporation (Masonite International). Masonite International
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 12 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. Nature of the Business The principal business of the Company is the manufacture of doors, door
components and door entry systems for new residential construction, home
repair, renovation and remodelling and commercial use. The Company
manufactures a broad line of interior doors, including standard residential
flush, molded-facing, stile and rail, louvre and specially-ordered commercial
and architectural doors. The Company also manufactures door components for
internal use and sale to other door manufacturers. It also manufactures
exterior residential steel and fiberglass doors and entry systems. These door
products are manufactured, merchandised and sold to large distributors,
jobbers, home centre chains and wholesale and retail building supply dealers
across North America, South America, France, the United Kingdom, Europe and
other countries in the Middle East and Asia. Doors, door components and door
entry systems accounted for over 95% of the Companys total dollar sales in
2003, with other building products accounting for the balance. Corporate History of the Company The Company commenced business in 1955 in Toronto, Ontario as the
purchasing division of a retail lumberyard. It began manufacturing doors in
1961. The Companys original product was a full line of flush doors. Over
time, the Company introduced other wood doors, including louvre, stile and
rail, plastic laminate, fire doors and pre-hung units. From 1975 to 2000, the Company expanded worldwide, initially establishing
and acquiring door manufacturers in Canada and then in the United States, the
United Kingdom and France. During this period, the Company completed and
integrated multiple acquisitions, including acquisitions of door component
manufacturers, door manufacturers as well as logistical and fabrication
centres. Through this period of growth, the Company increased its sales of
interior residential doors and expanded its product line with architectural
doors and steel and fiberglass exterior doors and entry systems. Masonite Corporation On August 31, 2001, the Company completed the acquisition of Masonite
Corporation from International Paper Company for a purchase price including
transaction costs of approximately $427 million, of which approximately $314
million was paid in cash and the remainder in the form of unsecured
subordinated long-term debt. Masonite Corporation is a global leader in engineered wood composite
products, with manufacturing facilities in North America, Europe, Asia and
Africa. Masonite Corporations products include molded door facings, as well
as hardboard and softboard for residential and commercial use. Masonite
Corporation is the largest manufacturer of molded door facings in the world.
Prior to its acquisition, Premdor was Masonite Corporations single largest
customer. Masonite Corporation was founded in 1925 in Laurel, Mississippi by William
H. Mason, whose objective was to utilize the vast available quantities of
sawmill waste to manufacture a useable end product. Masonite Corporations
first major invention and successful product was hardboard, a conversion of
wood fiber mat under intense heat and pressure into thin, dense, tough sheets
used in the manufacture of a variety of products for - 2 -




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residential and commercial construction, retail and other applications.
In the early 1970s, Masonite Corporation began production of door facings,
also known as door skins. In 1975, Masonite Corporation began the first
commercial production of molded door facings. In 1996, Masonite Corporations
exploration of scaled production methodologies led to the acquisition of the
FormTEC process, a unique method of manufacturing molded door facings on a
micro-scale by molding already pressed thin MDF (medium density fiberboard)
purchased from third-party suppliers. Masonite International In 2002, the Company purchased the remaining interest in four less than
wholly-owned companies and acquired the shares of one door fabrication company.
Consideration of $25.9 million for these acquisitions was paid in a
combination of cash, common shares of the Company and a note payable. The
Company also made an equity investment in a door component manufacturing
entity. In 2003, the Company purchased 100% of the shares of a door pre-hanger for
consideration of approximately $3.5 million and increased its ownership
percentage in a less than wholly owned subsidiary for cash consideration of
approximately $1.5 million. The net assets of the Lisbon Falls, Maine
manufacturing facility that were acquired as part of the Masonite Corporation
acquisition were disposed of in 2003. The Company also divested itself of
another less than wholly owned entity. In December 2003, the Company signed a definitive agreement to acquire the
residential entry door business (the Stanley Purchase) of The Stanley Works.
The purchase price was $161 million and the transaction was completed on March
2, 2004. The residential entry door business acquired in the Stanley Purchase
manufactures and pre-hangs steel and fiberglass residential entry doors and
entry systems for sale primarily to the home improvement market in the United
States. The Stanley Purchase will increase the Companys presence in the
exterior products market and expand its position in the retail home improvement
channel. Financing History In July 2001, the Company entered into an agreement to issue and sell
7,150,000 common shares for net proceeds of approximately $63 million. In
August 2001, the Company entered into a credit agreement with a banking
syndicate providing for a $685 million secured credit facility. Proceeds from
these financings were used to pay the cash portion of the purchase price of
Masonite Corporation, retire then existing senior debt and to provide working
capital. In July 2002, the Company completed a refinancing of its existing bank
facilities and entered into an amended and restated credit agreement. At the
closing of the refinancing, $650 million was available to be drawn through a
combination of term facilities having varying maturity dates and interest
rates. The new bank facilities are secured by fixed and floating charges over
substantially all of the Companys assets. The Company used the proceeds from
the refinancing to repay existing indebtedness including the Companys
subordinated long-term debt. In order to finance the Stanley Purchase, the Company negotiated
additional term borrowings of $200 million under its existing bank facilities.
These additional borrowings are on terms consistent with the July 2002
refinancing of the bank facilities. 
 THE BUSINESS Corporate Strategy Masonite Internationals primary objective is to increase shareholder
value by pursuing strategic growth through focusing on one product line  doors
 and expanding in all significant markets throughout the world. With
manufacturing facilities in twelve countries and sales worldwide, Masonite
International has continuously expanded through start-ups and acquisitions. It
has increased sales in both domestic and export markets through innovative
merchandising and marketing initiatives that emphasize quality, value and
service. As demand for building products increases outside North America,
Masonite Internationals manufacturing, merchandising and sales expertise
enable it to become one of the leading door companies in the world. As part of
this strategy, the Companys goal was to - 3 -




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achieve substantial vertical integration and this has been accomplished to
a large extent through the acquisition of Masonite Corporation. Geographic Region Financial Information The following geographic segment financial information summarizes the
Companys sales and operating income for each of the years in the three year
period ended December 31, 2003 and is derived from the segmented information
disclosure in the Companys audited consolidated financial statements: Year Ended December 311(dollars in thousands)2003
    
    2002
    
    2001Sales:North America
    
    $
    1,434,055
    
    
    $
    1,325,396
    
    
    $
    1,191,674Europe and other
    
    
    380,573
    
    
    
    320,018
    
    
    
    249,616Intersegment
    
    
    (37,390
    )
    
    
    (25,898
    )
    
    
    (19,688
    )$
    1,777,238
    
    
    $
    1,619,516
    
    
    $
    1,421,602Segment Operating Income:North America
    
    $
    179,142
    
    
    $
    165,331
    
    
    $
    118,814Europe and other
    
    
    37,580
    
    
    
    28,511
    
    
    
    12,423$
    216,722
    
    
    $
    193,842
    
    
    $
    131,237
 Note:  (1)
    
    In 2003, the Company modified the manner in which the geographic segments
are aggregated. The comparative figures have been reclassified to conform
with the new basis of presentation. Products Demand for doors is derived from three principal sources: new residential
construction; repair, renovation and remodelling activity; and commercial
renovation and construction. According to information available to the
Company, housing starts (in thousands) in the Companys major markets were as
follows: Year
    
    United States
    
    Canada
    
    United Kingdom
    
    France2003
    
    
    1,847
    
    
    
    217
    
    
    
    185
    
    
    
    3142002
    
    
    1,705
    
    
    
    205
    
    
    
    183
    
    
    
    3022001
    
    
    1,602
    
    
    
    163
    
    
    
    179
    
    
    
    305
 The Company estimates that in 2003 over 50% of its door sales were from
repair, renovation and remodelling, with the balance from new construction
(both residential and commercial). This estimate is based on the experience of
management in the industry and the Companys knowledge of its customers,
however it is not based on any empirical data. - 4 -




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The Company sells interior and exterior products, with interior products
accounting for approximately 66% of the total sales revenue in 2003 and
exterior products accounting for the balance of the Companys total sales
revenue during 2003. While substantially all interior doors are made with
wood and related materials such as hardboard (including molded and flat door
facings), the use of wood in exterior doors in North America has declined over
the last decade as a result of the introduction of steel and fiberglass doors.
The Companys exterior doors are made primarily of steel or fiberglass. The
Company offers an extensive range of interior and exterior doors, which are
available in a wide variety of sizes, styles and types. The Company has become a leader in merchandising and advertising through
point of sale displays, in-store merchandising and training programs, magazine
and television advertisements, regional flyer programs and do-it-yourself
videos for doors distributed through home centres. In addition, the Company
advertises its products at numerous events, including trade shows in Canada,
the United States, Europe, Asia and the Middle East. The Company has 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 centre sales personnel with
product knowledge and sales strategies. The following is a description of the principal types of doors and door
components that the Company sells and manufactures 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.Stile and Rail
    
    Doors made from solid wood with vertical stiles, horizontal
rails and wood panels, which have been cut, milled and
assembled from a single type of 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.Plastic Laminate
    
    Flush doors with a plastic veneer facing, generally for
commercial use.Pre-hung
    
    Interior and exterior doors sold together with door frames as
units.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 (panelled 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
 - 5 -




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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 may contain a wood grain
pattern. Following pressing, molded door facings are trimmed,
painted and shipped to door manufacturing plants where they are
mounted on frames to produce molded doors.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 fibre mat used in the construction of solid core doors.
 The Companys sales and marketing efforts have increasingly reflected an
international focus. In 1990, door sales outside of North America represented
3% of aggregate door sales. In 2003, door sales outside North America
represented approximately 23% of the Companys aggregate door sales. This
increase in sales abroad is the result of acquisitions and internal growth. The
Company expects that a major portion of the future growth of its door business
will be in the United States, Europe, Mexico, the Middle East, South America
and Asia. Intangible Properties In North America, doors are marketed primarily under the Masonite® brand.
Other North American brands include: Premdor®, Johnson, Rigi-Dor®,
Castlegate®, Evergreen®, Timbergrain®, OakcraftTM, ArTekTM, PREMVU®, Royal
MahoganyTM, Span-RiteTM, Safe N Sound®, PremcorTM, CrownTM, Miami, PalazzoTM,
BellagioTM, CapriTM, and Mohawk®. In Europe, doors are marketed under the Premdor®, EkemTM, FonmartyTM,
MagriTM, MonnerieTM, BatimetalTM and Crosby® brands. The Company uses these trademarks and trade names in the conduct of its
business as well as the other trademarks and trade names mentioned throughout
this AIF. The Company considers the use of trademarks and trade names to be
important in the development of product awareness, and for differentiating
products from competitors and between customers. Distribution Generally the major customers of door manufacturers are two-step
distributors, one-step distributors, jobbers, home centre chains and wholesale
and retail building supply dealers. Retail building supply dealers,
lumberyards and home centre chains are the primary merchandisers to the
do-it-yourself segment of the repair, renovation and remodelling segment.
Builders and contractors purchase their door requirements primarily from
one-step distributors, lumberyards, home centre chains and wholesale building
supply dealers. - 6 -




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(DISTRIBUTION CHART) In Canada, the Company sells primarily to a distributor that resells the
Companys products to wholesale and retail building supply dealers, lumber
yards, home centre chains and pre-hangers (suppliers of doors to builders on an
installed basis), some of which are members of buying groups. In the United
States, the Companys major customers are two-step distributors, one-step
distributors and large home centre chains. In Europe, the Companys customers
are home centre chains and large distributors. Door manufacturers in Canada,
the United States, France and the United Kingdom rely primarily on a
combination of their own sales forces and independent sales agents. Manufacturing Process 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
co-ordinated material movement are essential to achieve a flexible process
capable of producing a wide range of door types, sizes, materials and styles.
The Company makes use of flexible manufacturing operations together with
scalable logistics primarily through the use of common carriers to fill
customers orders and to manage its investment in finished goods inventory. 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 assembled onto a wood or steel
framing system. The doors are then injected with polyurethane insulation. The Companys prehanging operations utilise interior flush doors, stile
and rail and louvre doors, and exterior doors from the Companys manufacturing
operations and provide value added fabrication and logistical services to big
box retail home centres throughout North America. These value added products
include interior - 7 -




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doors which are machined for hinges, passage and lock sets and
then incorporated in a frame. Exterior doors are incorporated in a frame and
may include decorative glass lites (inserts). Research and Development The acquisition of Masonite Corporation in 2001 added significantly to the
Companys R&D capabilities. R&D activities are concentrated in the Companys
141,000 sq. ft. research centre in West Chicago, Illinois. During 2003, the
centre employed approximately 70 people engaged in various forms of research
and product development. Management believes the Company is a leader in technological innovation
and development in doors, door components and door entry systems and the
manufacturing processes involved in making such products. Management is of the
view that R&D is a major competitive advantage for the Company intends to
capitalize on its leadership in this area through the development of more new
and innovative products. As an integrated manufacturer, the Company believes that it is well
positioned to take advantage of the growing global demand for a variety of
molded door facing designs. This capability is particularly important outside
North America where newer molded door designs are rapidly replacing traditional
wood doors. The Company has an internal capability, unique in the industry, to
create new molded door facing designs and manufacture its own molds for use in
its own facilities. This provides the Company 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.
This capability also enables the Company to develop and implement product and
process improvements with respect to the production of molded door facings and
doors which enhance production efficiency and reduce costs. The Company estimates that it spent approximately $8.1 million on R&D
during 2003. During 2003 R&D activities resulted in the development of new
products that contain patent or patent pending features, including BELLEVILLETM
fiberglass exterior doors in both smooth and a realistic new textured finish;
BARRINGTON® fiberglass exterior doors with the same textured finish as
BELLEVILLETM, deep embossed panels and raised moldings; and a post formed
molded flat panel interior door launched in the Asian markets that has design
flexibility. Competition In 2003, Masonite established its all-products strategy, which provides
retail and wholesale customers with an innovative and wide range of doors. The
Stanley Purchase reinforces this strategy initiative as it presents
opportunities for more effective global procurement of raw materials, product
development and standardization and more efficient logistics. Moreover, the
all-products strategy provides customers in the home improvement and
wholesale sectors with the opportunity to market Masonites complete product
line. Management believes that this strategy initiative is a significant
competitive advantage. With respect to doors, the Company faces significant competition in North
America. Competitors based in Canada include other manufacturers that
distribute on a national basis as well as smaller regional manufacturers, which
focus on particular products. There is a significantly greater number of
competitors based in the United States. Doors are shipped from Canada to the
United States and vice versa. In Europe, the Company faces significant competition from a number of
regionally based competitors and imports. Competition in both North America and Europe is vigorous because firms
manufacture similar products using similar raw materials and manufacturing
methods and there has been excess capacity in the industry. The Company is the largest manufacturer of molded door facings in the
world. The rest of the industry is comprised of one other large, integrated
door manufacturer and a number of smaller regional manufacturers. Competition
in the molded door facing business is based on quality, price, product design,
logistics and customer service. The Company produces molded door facings to
meet its own requirements and serves as an important - 8 -




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supplier to the door
industry at large. The Company manufactures molded door facings at its
facilities in Mississippi, Ireland, Chile and South Korea. New Products The Company has launched several new interior residential doors in the
past several years: the SAFE N SOUND®, RENOVATOR®, PREMWOOD®, the MASONITE®
French Door Series and pre-painted and pre-stained embossed panel doors. The
SAFE N SOUND door is a solid core Molded Panel Series door. The inclusion of
the solid core greatly enhances the doors sound deadening and fire resistance
properties when compared to standard hollow core doors. In 1998, the Company
developed PREMCOR, a patented new core material for SAFE N SOUND doors. The
SAFE N SOUND door has the look and feel of a solid wood door at a much lower
price. The RENOVATOR series door is a low priced French door having the look
of a higher priced stile and rail wood French door. PREMWOOD is a door with a
simulated mahogany, oak or birch wood grain surface which is designed to be
stained or painted and is an alternative to mahogany, oak or birch veneer
doors. Since their launch, these products have been enhanced and modified to
keep pace with changing consumer preferences. The Masonite French Door Series
is a series of glazed doors targeted at the mid and upper-priced door market. The pre-painted and pre-stained embossed panel doors are used in
manufactured housing, new construction, remodelling and emerging market
applications. This product utilizes medium density fibreboard door facings
with an embossed pattern and is economically priced. During 2000, the Company launched several new exterior door products which
enhanced the wide range of exterior doors available in the industry. These
products include a new line of smooth fiberglass exterior doors marketed as
ARTEK® and PREMVU® Series Patio Units. In 2001, the Company launched the MASONITE® HD High-Definition Steel and
PREMVU® Flush-Glazed Steel Door lines. For interior doors, the new Two Panel
Roman Smooth Molded Panel Series Door was introduced. The Company also
released MASONITE® wainscot, an easy to install high-definition raised panel
wainscot system. In 2002, Masonite launched the full-line of OAKCRAFTTM and ARTEK
Flush-Glazed Fiberglass Doors. OAKCRAFT and ARTEK twenty minute fire-rated
doors were also launched. The PALAZZOTM SERIES molded panel interior door was
released as well. PALAZZO doors feature a high definition panel profile and
raised moulding. The PALAZZO door is the first of its kind in molded wood
fibre technology. In 2003, two new lines of fiberglass doors were released by the Company.
The BELLEVILLETM line of smooth and textured fiberglass doors have
high-definition panels and several unique designs. The patent-pending
wood-grain texture of BELLEVILLE doors allows for easy finishing and the
ability to replicate the appearance of real wood doors. The BARRINGTON® line
of textured fiberglass doors combines the same patent-pending wood-grain
texture with high-definition panel profiles and raised mouldings to replicate
the look of authentic hardwood doors. BARRINGTON doors are factory-glazed with
SPECIALTYTM decorative glass and custom, matching glazing frames. Raw Materials The primary raw materials used in the manufacture of wood doors are
cut-stock (lumber cut to the various sizes required for components) and door
facings. Cut-stock is purchased from suppliers located on the west coast of
North America, the southern United States, Europe, eastern Canada, southern
Africa and South America. Plywood door facings are imported principally from
the Far East, 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 the Companys facilities in the United States, Ireland,
Chile and South Korea. 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). - 9 -




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##### 



The primary raw materials used in the manufacture of steel and fiberglass
doors are steel, fiberglass, polyurethane and cut-stock, which are primarily
purchased from suppliers in North America. Periodically, certain commodity components used in the manufacture of
doors rise in price significantly or decrease in availability. The risk
associated with rising material prices is that these costs may not be passed on
to customers. The risk related to the unavailability of certain raw materials
is that the Companys sales will decline if
alternative door products manufactured by the Company are not accepted in
the marketplace. The Company manages these risks by developing strategic
relationships with suppliers and customers, aggressively searching for
substitute components, developing new products and seeking alternative sources
of supply. Door prices are influenced primarily by the cost of raw materials, which
usually comprise more than 50% of the total cost of the finished product.
Principal raw materials are commodity items that are purchased from suppliers
located in North America, the Far East, Europe, South America and Africa. In
most cases, purchases from those suppliers are priced in U.S. dollars or euros.
Fluctuations in the cost of raw materials and currency exchange rates affect
all manufacturers of doors. 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. Masonite experiences a decrease in sales in the first quarter of
each year and also, to a certain extent, in the fourth quarter of each year.
During the winter months in certain regions in which Masonite operates,
inclement weather generally reduces building activity, particularly in the new
construction market. However, the Companys 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 its focus on the repair,
renovation and remodelling segment, which is less seasonal than new
construction, has helped to smooth this influence on operations in the first
and fourth quarters. Additional product and geographic diversification
resulting from the 2001 acquisition of Masonite Corporation has also positively
affected the seasonality of the Companys results. Significant Customers Masonite sells its products worldwide to a large number of customers.
However, one customer accounted for approximately 21% of Masonites sales in
North America in 2003. Due to the depth and breadth of the relationship with
this customer, which operates in multiple geographic regions and which sells a
variety of Masonites products, management of the Company believes that this
relationship is likely to continue. Management is of the view that, while this
customer may be able to purchase and sell some products that compete with
Masonites products, it would be difficult to replace all of Masonites
products and services with those of competitors due to the range of products
sold to this customer and number of locations serviced. Environmental Protection The geographic breadth of the Companys facilities subject it to
environmental laws, regulations and guidelines in a number of jurisdictions,
including Canada, the United States, the United Kingdom, France, Mexico, Chile,
Costa Rica, Israel, South Africa, South Korea and the Republic of Ireland.
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 and
the disposal of wastes. The Companys efforts to ensure environmental compliance include the
review of its operations on an ongoing basis utilizing in-house staff and on a
selective basis by specialized environmental consultants. Environmental
assessments are conducted as part of the Companys due diligence review prior
to the completion of acquisitions. Based on recent experience and current projections, environmental
protection requirements are not expected to have a material effect on the
Companys business, capital expenditures, operations or financial position. - 10 -




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Employees As at December 31, 2003, the Company employed approximately 12,000
employees of which an estimated 3,167 were covered by collective bargaining
agreements. The employees covered by collective bargaining agreements are
situated at the Companys operations as follows: Number
    
    Collective AgreementFacility
    
    of Employees
    
    Expiration DateCanada:Bethierville, Quebec
    
    
    143
    
    
    
    2005Lac-Megantic, Quebec
    
    
    162
    
    
    
    2006Lac-Megantic, Quebec
    
    
    260
    
    
    
    2007Mississauga, Ontario
    
    
    224
    
    
    
    2004New Westminster, British Columbia
    
    
    119
    
    
    
    2004St. Romuald, Quebec
    
    
    58
    
    
    
    2005St-Hyachinthe, Quebec
    
    
    230
    
    
    
    2007Vaughan, Ontario
    
    
    44
    
    
    
    2005United States:Mobile, Alabama
    
    
    63
    
    
    
    2007Richmond, Indiana
    
    
    83
    
    
    
    2007South Bend, Indiana
    
    
    43
    
    
    
    2010Laurel, Mississippi
    
    
    577
    
    
    
    2005Toledo, Ohio
    
    
    82
    
    
    
    2005Vandalia, Ohio
    
    
    48
    
    
    
    2006Europe: (1)Barnsley, England
    
    
    242
    
    
    
    n/aBridgwater, England
    
    
    66
    
    
    
    n/aHedingham, England
    
    
    41
    
    
    
    n/aMiddlesbrough, England
    
    
    9
    
    
    
    n/aBordeaux, France
    
    
    80
    
    
    
    n/aDouvres, France
    
    
    32
    
    
    
    n/aOrange, France
    
    
    12
    
    
    
    n/aAfrica:South Africa
    
    
    549
    
    
    
    2004
 Note:  (1)
    
    Employees in many European countries participate in industry-wide unions
with centralized bargaining. Local issues are, however, typically
negotiated separately. 
 RISK FACTORS Masonites strategic focus is to expand and strengthen its core business
of the manufacture and sale of doors, door components and door entry systems.
A market strategy that specializes in a relatively narrow product line in the
building products industry may amplify the risks inherent in the general effect
of economic cycles on - 11 -




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##### 



residential construction and remodeling. The Company has
addressed this risk by broadening its customer base within various markets and
by expanding market coverage through geographic diversification. During the
1990s, the Company acquired numerous facilities in France and the United
Kingdom. The completion of the Masonite Corporation acquisition in 2001 added
operations in Ireland, South Africa and South Korea. The Companys 2003 annual
sales outside North America exceeded $340 million. The Masonite group of companies obtains labour 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. The Company
and most of its subsidiaries sell
a significant portion of their products within their respective domestic
markets at domestic market selling prices. In situations where import or
export commitments are undertaken, the Company or its 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. Masonites policy is not to utilize exchange
contracts for trading or speculative purposes. The amount of foreign exchange
contracts outstanding at December 31, 2003 are described in Note 1(m) of the
Companys consolidated financial statements for the year ended December 31,
2003. Certain commodity components used in the manufacture of doors and door
components periodically experience significant changes in price or
availability. If material cost increases are persistent, there is no assurance
that Masonite will be able to sufficiently increase its selling prices. In
recent years, the Company has responded to fluctuating prices and decreasing
availability of certain materials by seeking sources for similar components
from other geographic regions, developing or purchasing substitute alternative
materials and raising selling prices on various products in certain markets. Almost 100% of the Companys interest-bearing debt outstanding at December
31, 2003 carried 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 5.72%. After giving effect to these interest rate swaps, approximately 38%
of the Companys outstanding interest-bearing debt carries a floating interest
rate and the other 62% is effectively at fixed rate swaps as at December 31,
2003. Management believes that these interest rate swaps are highly effective
in achieving their economic purpose. The geographic breadth of the Companys facilities subjects it to
environmental laws, regulations and guidelines in a number of countries. 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, and the disposal
of wastes. The Companys efforts to ensure environmental compliance include
the review of its existing operations on an ongoing basis by its own
environmental staff and on a selective basis by external environmental
consultants. In addition, environmental assessments are conducted as part of
Masonites due diligence review prior to completion of acquisitions. Masonite
has not incurred any significant costs relating to environmental matters in
prior years. Future expenditures required to comply with any changes in
environmental requirements are anticipated to be undertaken as part of the
Companys ongoing capital investment program that is primarily designed to
improve the efficiency of various manufacturing processes. Masonite provides credit to its customers in the normal course of
business. The Company performs credit evaluations of its customers and
maintains reserves for potential credit losses which, when realized, have been
within the range of managements expectations. Masonite does not generally
require collateral. The Companys credit risk is minimized by undertaking
transactions with a large number of customers in various countries. Masonites
credit risk is further minimized by insuring a significant portion of total
trade receivables through the use of credit insurance. - 12 -




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DESCRIPTION OF CAPITAL STRUCTURE The Companys authorized share capital consists of an unlimited number of
common shares and unlimited number of first preference shares, issuable in
series. Holders of common shares are entitled to one vote per share at
meetings of shareholders and to receive dividends, if, as and when declared by
the Board of Directors of the Company. In the event of voluntary or
involuntary liquidation, dissolution or winding up of the Company, after
payment of all outstanding debts, the remaining assets of the Company available
for distribution would be distributed rateably to the holders of common shares.
Holders of common shares have no pre-emptive redemption, exchange or
conversion rights. The preferred shares are non-voting, except as required by
law, and will have such rights, privileges and restrictions as will be fixed by
the Board of Directors of the Company at the time of issue. The preferred
shares are entitled to preference over the common shares with respect to the
payment of dividends and distribution of the assets of the Company in the event
of liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, or other distribution of assets of the Company for purposes of
winding up its
affairs. At December 31, 2003, there were 54,433,799 common shares issued
and outstanding and no preferred shares outstanding. The Companys senior secured debt has been rated as follows: Agency(1)
    
    Rating Assigned
    
    Description of RatingStandard and Poors
    
    BB+
    
    Outlook StableMoodys Investor Service
    
    Ba2
    
    Outlook Positive
  Notes:  (1)
    
    An obligation noted BB or Ba2 is less vulnerable
to non-payment than other speculative issues. However it faces
major ongoing uncertainties or exposures to adverse business,
financial or economic conditions, which could lead to the
obligors inadequate capacity to meet its financial commitment on
the obligation. The plus sign shows the relative standing
within the rating category. A stable outlook means that the
outing is not likely to change. A security rating is not a recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time by the rating
organization. 
 MARKET FOR SECURITIES The Companys common shares are listed on the Toronto Stock Exchange and
on the New York Stock Exchange under the symbol MHM. The price ranges and
trading volume of Masonites common shares in 2003 on the Toronto Stock
Exchange were as follows: Month
    
    Toronto Stock Exchange (Cdn. $)High
    
    Low
    
    VolumeJanuary
    
    $
    29.39
    
    
    $
    26.00
    
    
    
    2,731,399February
    
    $
    29.09
    
    
    $
    24.32
    
    
    
    4,161,827March
    
    $
    24.70
    
    
    $
    20.15
    
    
    
    3,736,536April
    
    $
    24.60
    
    
    $
    20.35
    
    
    
    4,346,768May
    
    $
    27.65
    
    
    $
    24.25
    
    
    
    4,526,741June
    
    $
    28.95
    
    
    $
    26.78
    
    
    
    3,074,057July
    
    $
    28.85
    
    
    $
    25.80
    
    
    
    2,255,638August
    
    $
    29.20
    
    
    $
    27.40
    
    
    
    3,117,349
 - 13 -




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##### 



Month
    
    Toronto Stock Exchange (Cdn. $)High
    
    Low
    
    VolumeSeptember
    
    $
    32.00
    
    
    $
    29.00
    
    
    
    3,062,059October
    
    $
    32.81
    
    
    $
    29.00
    
    
    
    4,241,179November
    
    $
    32.05
    
    
    $
    29.10
    
    
    
    2,420,514December
    
    $
    34.80
    
    
    $
    31.02
    
    
    
    4,183,150
 
 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. 
 DIRECTORS AND OFFICERS The following table and associated notes set forth as at the date hereof
the name of each director and executive officer of the Company and certain
senior managers of the Company, their municipalities of residence, their
respective principal occupations and, where applicable, their membership on an
executive committee of the Board of Directors. In addition, it indicates the
period during which each director has served as a director of the Company or
its predecessor. As a group, based on information provided to the Company by
each director, executive officer, and senior manager listed below, all
directors, executive officers and the senior managers of the Company listed
below beneficially owned, directly or indirectly, or exercised control or
direction over a total of 1,981,996 common shares of the Company as at May 3,
2004, representing approximately 3.6% of the outstanding common shares. The
terms of office of all of the directors of the Company expire at the
termination of the next annual meeting of shareholders or until their successor
is elected or appointed. Director of the Company or
    
    Present principal occupation (includingName and municipality of residence
    
    its predecessor since
    
    positions held with the Company)(5)HOWARD L. BECK,
Q.C.(1)(2)(3)Toronto, Ontario, Canada
    
    April 24, 1990
    
    Corporate DirectorJOHN J. BERTON(1)Toronto, Ontario, Canada
    
    May 13, 1991
    
    President, Starlaw Holdings Limited
(private investment company)JOHN M. CASSADAY(1)Toronto, Ontario, Canada
    
    August 3, 1993
    
    President and Chief Executive Officer,
Corus Entertainment Inc.PETER A. CROSSGROVE, C.M.
(2)(3)Toronto, Ontario, Canada
    
    October 27, 1989
    
    Chairman of Board, Corporate DirectorFREDRIK S. EATON, O.C., O.
Ont.(3)Toronto, Ontario, Canada
    
    August 10, 1994
    
    Chairman, White Raven Capital Corp.
(holding company)ALAN R. McFARLAND(2)New York, New York, USA
    
    March 24, 1994
    
    Managing Member, McFarland Dewey & Co.,
LLC (investment bank)PHILIP S. ORSINO, F.C.A., O.C.Toronto, Ontario, Canada

JOSEPH L. ROTMAN(1)Toronto, Ontario, Canada
    
    October 27, 1989

May 27, 1994
    
    President and Chief Executive Officer

Chairman and CEO, Roy-L Capital
Corporation (private family investment
company)SAUL M. SPEARS(3)Toronto, Ontario, Canada
    
    December 17, 1979
    
    Corporate Director
 - 14 -




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##### 



Director of the Company or
    
    Present principal occupation (includingName and municipality of residence
    
    its predecessor since
    
    positions held with the Company)(5)PAUL A. BERNARDS, C.A., C.P.A.Toronto, Ontario, Canada
    
    
    
    Vice President and Corporate ControllerBRENDA L. BROGDEN,
C.G.A.(4)Terra Cotta, Ontario, Canada
    
    
    
    Director, AdministrationWILFRED A. CURTISToronto, Ontario, Canada
    
    
    
    Vice President, Risk ManagementJAMES U. MORRISONTampa, Florida, USA
    
    
    
    Executive Vice President and Group Chief
Operating OfficerLAWRENCE P. REPARMississauga, Ontario, Canada
    
    
    
    Executive Vice President and Group Chief
Operating OfficerLEO E. SERIO, C.G.A.Oakville, Ontario, Canada
    
    
    
    Vice President, Sourcing and ProcurementROBERT V. TUBBESING, C.A.Toronto, Ontario, Canada
    
    
    
    Vice President and Chief Financial OfficerHARLEY ULSTER, L.L.B.Toronto, Ontario, Canada
    
    
    
    Executive Vice President, General Counsel
and Corporate SecretaryCHRISTOPHER A. VIROSTEK, C.A.,
C.P.A.(4)Mississauga, Ontario, Canada
    
    
    
    Controller, Financial Reporting
 Notes:  (1)
    
    Member of the Audit Committee.(2)
    
    Member of the Human Resource and Compensation Committee.(3)
    
    Member of the Nominating and Corporate Governance Committee.(4)
    
    Senior Manager.(5)
    
    Information provided with respect to the principal occupation of
each director is based on information furnished to the Company by such
director. All of the above directors and executive officers have held
their present principal occupations or executive positions with the
same or associated firms for the past five years, except as indicated
below. Paul A. Bernards
    
    Prior to May 2000, Corporate Controller of the Company;Brenda L. Brogden
    
    Prior to May 2003, Director of Corporate Accounting of the Company;James U. Morrison
    
    Prior to September 2001, Executive Vice President and General
Manager, Building and Industrial Products, Masonite Corporation;Christopher A. Virostek
    
    Prior to May 2003, Financial Controller of the Company and prior
to March 2002, Audit Manager in public accounting practice
 One director of the Company, Mr. J.L. Rotman, has been a director of other
companies, which during the past ten years have been the subject of a cease
trade or similar order while Mr. Rotman was acting as a director of such
companies. Livent Inc. was the subject of a cease trade order issued by the
Ontario Securities Commission on August 7, 1998 following the discovery of
accounting irregularities. In November 1998 Livent Inc. filed a voluntary
petition under Chapter 11 of the U.S. Bankruptcy Code and filed for protection
under the Companies Creditors Arrangement Act in Canada. The cease trade order
was revoked effective November 20, 1998 and Mr. Rotman resigned as a director
of Livent Inc. on September 29, 1999. Paragon Entertainment Corporation made a
filing under the Companies Creditors Arrangement Act in April 1998; Mr. Rotman
resigned as a director of Paragon in June 1998. - 15 -




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LEGAL PROCEEDINGS 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. 
 TRANSFER AGENT AND REGISTRARS The Companys transfer agent in Canada is Computershare Trust Company of
Canada at its principal office in Toronto, Ontario. The Companys transfer agent in the U.S. is Computershare Trust Company,
Inc. 
 AUDIT MATTERS Audit Committee The members of Masonites audit committee are Howard L. Beck, John J.
Berton, John M. Cassaday and Joseph L. Rotman. Each of the members of
Masonites audit committee is independent and financially literate for the
purposes of applicable Canadian and U.S. securities legislation. Reference is
made to Masonites Management Information Circular dated March 26, 2004
relating to the Companys annual meeting of shareholders held on May 3, 2004
for information about the mandate of the audit committee and the experience of
each member of the audit committee that is relevant to the performance of his
responsibilities as an audit committee member. The Board of Directors of the Company has determined that it has at least
one audit committee financial expert serving on its audit committee. Mr. John
Cassaday has been determined by the board of Masonite to meet the audit
committee financial expertcriteria prescribed by the Securities and Exchange
Commission (SEC) and applicable Canadian regulatory requirements and is
independent, as that term is defined by the New York Stock Exchanges listing
standards applicable to Masonite and applicable Canadian regulatory
requirements. The SEC has indicated that the designation of Mr. Cassaday as an
audit committee financial expert does not make Mr. Cassaday an expertfor any
purposes, impose any duties, obligations or liability on Mr. Cassaday, that are
greater than those imposed on members of the audit committee and Board of
Directors who do not carry this designation, or affect the duties, obligations
or liability of any other member of the audit committee. Audit and Related Fees For the year ended December 31, 2003, fees for audit and related services
provided by KPMG LLP, Masonites independent external auditors to Masonite were
$1,130,000 (2002  $985,000). Non-audit fees paid to KPMG LLP relating to tax
planning and compliance in 2003 were $1,076,000 (2002  $925,000). Details are
shown in the following table: Year Ended December 31, 2003
    Year Ended December 31, 2002Audit Fees
    
    $
    1,067,000
    
    
    $
    812,000Audit Related Fees
    
    $
    63,000
    
    
    $
    173,000Tax Fees
    
    $
    1,076,000
    
    
    $
    925,000All Other Fees
    
    Nil
    
    NilTotal:
    
    $
    2,206,000
    
    
    $
    1,910,000
 - 16 -




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##### 



Audit Fees Audit fees were for professional services rendered by KPMG 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
reviewing documents related to due diligence services for business acquisitions
and business divestitures. 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, and tax planning and advisory services relating to common forms of
domestic and international taxation (i.e. income tax, capital tax, goods and
services tax, value added tax and payroll tax). All Other Fees In 2003 and 2002, no fees for services were incurred other than those
described above under Audit Fees,
Audit-Related Feesand Tax Fees. Pre-Approval Policies and Procedures It is within the mandate of Masonites audit committee to approve all
audit and non-audit related fees. The audit committee has pre-approved
specifically identified non-audit tax-related services, including tax
compliance; the review of tax returns; and tax planning and advisory services
relating to common forms of domestic and international taxation (i.e. income
tax, capital tax, goods and services tax, value added tax and payroll tax).
The audit committee 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 the
Committee for approval prior to undertaking the annual audit of the financial
statements. 
 DISCLOSURE CONTROLS AND PROCEDURES Disclosure Controls and Procedures Masonite maintains a system of disclosure controls and procedures that is
designed to ensure that information required to be disclosed by Masonite is
accumulated and communicated to management, including the Chief Executive
Officer and the Chief Financial Officer, in a timely manner. Under the
supervision and with the participation of its management, including its Chief
Executive Officer and Chief Financial Officer, Masonite has evaluated the
effectiveness of the design and operation of these disclosure controls and
procedures as of the end of the period covered by this report. Based on that
evaluation, Masonites Chief Executive Officer and Chief Financial Officer
concluded that Masonites system of disclosure controls and procedures is
effective. Change in Internal Controls Over Financial Reporting Masonite maintains a system of internal controls over financial reporting.
There were no changes in Masonite internal controls that occurred during the
period covered by this report that have materially affected, or are reasonably
likely to materially affect, Masonites internal control over financial
reporting. - 17 -




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##### 



CODE OF ETHICS Masonite has adopted a Code of Ethics for its Chief Executive Officer,
Chief Financial Officer and directors and officers. The Code of Ethics is
available on the Companys website at www.masonite.com and in print to any
shareholder who requests them. All amendments to the code, and all waivers of
a code with respect to any of the persons covered by it, will be posted on the
Companys website and provided in print to any shareholder who requests them. 
 CORPORATE GOVERNANCE GUIDELINES The Company has adopted corporate governance guidelines and established
committees regarding such matters as, but not limited to: director
qualification standards and responsibilities; access by directors to management
and independent advisors; director compensation; and management succession.
The guidelines and board committee charters are available on the Companys
website at www.masonite.com. Although the Company files as a foreign private
issuer in the United States, Masonite is in compliance with the listing
requirements of the New York Stock Exchange as they apply to U.S. domestic
issuers. 
 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 to the consolidated
financial statements. 
 ADDITIONAL INFORMATION Additional information, including directors and officers remuneration
and indebtedness, principal holders of the Companys securities and shares
authorized for issuance under equity compensation plans, where applicable, is
contained in the Companys Management Information Circular dated March 26, 2004
with respect to the annual and special meeting of shareholders held on May 3,
2004. Additional financial information is provided in the Companys
consolidated financial statements for the year ended December 31, 2003,
together with the accompanying report of the auditors, as well as the Companys
Management Discussion and Analysis of Financial Condition and Results of
Operations for the period. Additional information about the Company may be found on SEDAR at
www.sedar.com. 
 FORWARD-LOOKING STATEMENTS This Annual Information Form 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. - 18 -




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##### 



DOCUMENT 2




---



##### 



MASONITE INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 2003 and 2002 (In thousands of United States dollars, except earnings per share) 2003
    
    2002Sales
    
    $
    1,777,238
    
    
    $
    1,619,516Cost of sales
    
    
    1,380,178
    
    
    
    1,254,208397,060
    
    
    
    365,308Selling, general and administration expenses
    
    
    162,166
    
    
    
    155,513Income before the undernoted
    
    
    234,894
    
    
    
    209,795Depreciation and amortization
    
    
    48,561
    
    
    
    44,855Interest
    
    
    35,536
    
    
    
    43,767Gain on refinancing, net (note 7)
    
    
    
    
    
    
    (2,990
    )Other expense (income)
    
    
    3,145
    
    
    
    (998
    )Income before income taxes
and non-controlling interest
    
    
    147,652
    
    
    
    125,161Income taxes (note 13)
    
    
    34,464
    
    
    
    27,951Non-controlling interest
    
    
    5,517
    
    
    
    7,667Net income
    
    $
    107,671
    
    
    $
    89,543Earnings per share (note 15):Basic
    
    $
    2.00
    
    
    $
    1.70Diluted
    
    $
    1.95
    
    
    $
    1.65
 See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Years ended December 31, 2003 and 2002 (In thousands of United States dollars) 2003
    
    2002Retained earnings, beginning of year
    
    $
    295,854
    
    
    $
    206,311Net income
    
    
    107,671
    
    
    
    89,543Retained earnings, end of year
    
    $
    403,525
    
    
    $
    295,854
 See accompanying notes to consolidated financial statements. 33




---



##### 



MASONITE INTERNATIONAL CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 2003 and 2002 (In thousands of United States dollars) 2003
    
    2002AssetsCurrent assets:Cash
    
    $
    129,676
    
    
    $
    47,644Accounts receivable
    
    
    258,264
    
    
    
    197,927Inventories (note 3)
    
    
    321,145
    
    
    
    293,878Prepaid expenses
    
    
    17,185
    
    
    
    11,289Current future income taxes (note 13)
    
    
    29,318
    
    
    
    32,768755,588
    
    
    
    583,506Property, plant and equipment(note 4)
    
    
    752,110
    
    
    
    711,601Goodwill
    
    
    130,475
    
    
    
    124,001Other assets(note 5)
    
    
    46,663
    
    
    
    36,569Long-term
future income taxes (note 13)
    
    
    8,315
    
    
    
    7,114$
    1,693,151
    
    
    $
    1,462,791
 34




---



##### 



MASONITE INTERNATIONAL CORPORATION 2003
    
    2002Liabilities and Shareholders EquityCurrent liabilities:Bank indebtedness (note 6)
    
    $
    6,608
    
    
    $
    3,830Accounts payable and accrued liabilities
    
    
    301,484
    
    
    
    241,292Income taxes payable
    
    
    27,013
    
    
    
    4,671Current portion of long-term debt (note 7)
    
    
    35,498
    
    
    
    35,582370,603
    
    
    
    285,375Long-term debt(note 7)
    
    
    447,260
    
    
    
    498,000Long-term
future income taxes (note 13)
    
    
    106,662
    
    
    
    98,744Non-controlling interest
    
    
    35,986
    
    
    
    28,231Shareholders equity:Share capital (note 8)
    
    
    266,870
    
    
    
    257,325Contributed surplus (note 8(a))
    
    
    191
    
    
    
    Retained earnings
    
    
    403,525
    
    
    
    295,854Cumulative translation
adjustments (note 10)
    
    
    62,054
    
    
    
    (738
    )732,640
    
    
    
    552,441Commitments (note 11)Guarantees and contingencies (note 12)$
    1,693,151
    
    
    $
    1,462,791
 See accompanying notes to consolidated financial statements. On behalf of the Board: -s- Peter A. Crossgrove
    
    -s- Philip S. OrsinoPeter A. Crossgrove
    
    Philip S. OrsinoDirector
    
    Director
 35




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##### 



MASONITE INTERNATIONAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2003 and 2002. (In thousands of United States dollars) Cash provided by (used in): 2003
    
    2002Operating activities:Net income
    
    $
    107,671
    
    
    $
    89,543Items not involving cash:Depreciation and amortization
    
    
    48,561
    
    
    
    44,855Accretion of interest
    
    
    
    
    
    
    7,840Gain on refinancing, net
    
    
    
    
    
    
    (2,990
    )Loss (gain) on sales of assets
    
    
    2,385
    
    
    
    (441
    )Equity from investments
    
    
    760
    
    
    
    (557
    )Stock based compensation
    
    
    191
    
    
    
    Future income taxes
    
    
    9,082
    
    
    
    12,044Pension and post retirement
    
    
    (4,715
    )
    
    
    594Non-controlling interest
    
    
    5,517
    
    
    
    7,667169,452
    
    
    
    158,555Change in non-cash operating working capital:Accounts receivable
    
    
    (62,290
    )
    
    
    11,538Inventories
    
    
    (29,769
    )
    
    
    (30,967
    )Income taxes
    
    
    23,125
    
    
    
    7,551Prepaid expenses
    
    
    (5,977
    )
    
    
    860Accounts payable and accrued liabilities
    
    
    60,231
    
    
    
    4,683154,772
    
    
    
    152,220Financing activities:Increase (decrease) in bank and other
indebtedness
    
    
    2,357
    
    
    
    (101,547
    )Proceeds from issuance of common shares
    
    
    9,545
    
    
    
    10,082Proceeds from issuance of long-term debt
    
    
    
    
    
    
    550,000Repayment of long-term debt
    
    
    (51,140
    )
    
    
    (636,462
    )(39,238
    )
    
    
    (177,927
    )Investing activities:Proceeds from sale of assets
    
    
    13,947
    
    
    
    103,095Additions to property, plant and equipment
    
    
    (49,454
    )
    
    
    (43,503
    )Acquisitions (note 2)
    
    
    (4,476
    
    
    
    (15,991
    )Other investing activities
    
    
    (8,748
    
    
    
    (21,804
    )(48,731
    )
    
    
    21,797Net foreign currency translation adjustment
    
    
    15,229
    
    
    
    10,943Increase in cash
    
    
    82,032
    
    
    
    7,033Cash, beginning of year
    
    
    47,644
    
    
    
    40,611Cash, end of year
    
    $
    129,676
    
    
    $
    47,644
 Supplemental cash flow
information (note 14) See accompanying notes to consolidated financial statements. 36




---



##### 



MASONITE INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31, 2003 and 2002. (In thousands of United States dollars,
except per share amounts) The primary business activity of Masonite International Corporation (the
Company) is the manufacture and sale of doors, door components and door entry
systems.  1.
    
    Significant accounting policies: These consolidated financial statements are prepared
in accordance with Canadian generally accepted
accounting principles, which differ in some respects
from United States generally accepted accounting
principles, as disclosed in note 17. A summary of the
significant accounting principles adopted by the
Company is as follows:  (a)
    
    Principles of consolidation:The consolidated financial statements include the
accounts of the Company and its subsidiaries. The
results of subsidiaries acquired during the year are
consolidated from their respective dates of
acquisition. Intercompany accounts and transactions
have been eliminated upon consolidation.  (b)
    
    Cash:Cash includes cash equivalents which are
short-term highly liquid investments with
original maturities of three months or less.  (c)
    
    Inventories:Raw materials are valued at the lower of cost and
replacement cost. Finished goods are valued at the
lower of cost (comprised of materials and conversion
costs) and 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.  (d)
    
    Investments:Long-term investments over which the Company has
significant influence are recorded on the equity
basis. The investments include the Companys share of
undistributed earnings since acquisition and are
reduced by the Companys share of dividends paid.
Investments are written down when there is evidence
that a decline in value is other than temporary.
Equity income is included in other income on the
consolidated statements of income.  (e)
    
    Property, plant and equipment:Property, plant and equipment are stated at cost.
Depreciation is provided on the carrying values of
buildings and equipment by the straight-line method
based on the estimated useful lives as follows: Buildings
    
    20 - 40 yearsMachinery and equipment
    
    5 - 25 years
  Improvements and extraordinary repairs 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. 37




---



##### 



MASONITE INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Years ended December 31, 2003 and 2002. (In thousands of United States dollars,
except per share amounts)  1.
    
    Significant
accounting policies:(continued)  An impairment loss is recognized when the carrying
amount of an asset to be held and used exceeds the sum
of the undiscounted cash flows expected from its use
and disposal. Impairment recognized, if any, is
measured as the amount by which the carrying amount of
the asset exceeds its fair value. Specified criteria
must be met for classifying an asset as held-for-sale.
In addition, assets classified as held-for-sale which
must be measured at the lower of their carrying
amounts or fair value, net of estimated disposal
costs.(f)
    
    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. Shares
issued in business combinations are measured using an
average share price for a reasonable period before and
after the date the terms of the acquisition are agreed
and announced.Effective January 1, 2002, goodwill is not amortized but
instead is tested for impairment annually 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 applied the above standards to all
business combinations. No adjustment to the carrying
value of goodwill was required as a result of a
transitional goodwill impairment test conducted January
1, 2002 and no reclassification from goodwill to
intangibles was required on that date.The Company has completed the annual impairment test
for its reporting units and has determined that there
is no impairment of goodwill. Accumulated amortization
of goodwill is $12,382.(g)
    
    Deferred Charges:Deferred charges primarily represent deferred financing
costs, patents and trademarks. Deferred financing costs
are amortized over the term of the loan. Patents and
trademarks are amortized over their expected useful
life. 38




---



##### 



MASONITE INTERNATIONAL CORPORATION  (h)
    
    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.  (i)
    
    Employee future benefits:The Company maintains defined benefit pension 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 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 13
years for the pension plan and 15 years for the other
employee post retirement benefits plan for 2003 and
2002.  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.  The difference between pension cost, determined on an
accounting basis, and the funding of pension costs, as
required by regulatory authorities, gives rise to a
timing difference in the recognition of pension
expense, which appears on the consolidated balance
sheets as a pension asset (note 5).  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 post-retirement benefits obligation has
been actuarially determined and benefit costs are
charged against the obligation as incurred. 39




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##### 



MASONITE INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Years ended December 31, 2003 and 2002. (In thousands of United States dollars,
except per share amounts)  1.
    
    Significant
accounting policies:(continued)  (j)
    
    Earnings per share:Basic earnings per share is computed by dividing net
earnings by the weighted average number of shares
outstanding during the reporting period. Diluted
earnings per share is computed similar to basic
earnings per share, except that the weighted average
number of shares outstanding is increased to include
additional shares from the assumed exercise of stock
options, if dilutive. The number of additional shares
is calculated by assuming that outstanding stock
options were exercised and that the proceeds from such
exercises were used to acquire shares of common stock
at the average market price during the reporting
period.(k)
    
    Currency translation: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
exchange rates prevailing at the end of the year 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 shareholders
equity.(l)
    
    Use of estimates:The preparation of financial statements in conformity
with generally accepted accounting principles 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 net realizable value
of inventories, the determination of obligations under
employee future benefit plans, the determination of
stock-based compensation, the determination of fair
value of financial instruments, the fair value of
goodwill and the useful lives of long-lived assets as
well as determination of impairment thereon, and
recoverability of future income tax assets. Actual
results could differ from those estimates.(m)
    
    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.  (i)
    
    Fair values:The carrying values of cash, accounts receivable,
bank indebtedness and accounts payable and
accrued liabilities approximate fair values
because of the near-term nature of these
instruments.The carrying values of interest-bearing amounts,
including long-term debt, approximate fair values
since the interest rates are based on market rates
of interest for similar debt securities. 40




---



##### 



MASONITE INTERNATIONAL CORPORATION  Other financial instruments held or issued by the
Company include other current and long-term
receivables. The Company does not have plans to sell
these financial instruments to third parties and
will realize or settle them in the ordinary course
of business. No quoted market prices exist for these
instruments because they are not traded in an active
and liquid market. Accordingly, the fair values of
these amounts are not readily determinable.(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 the
amount management reasonably believes will be
collected. A specific allowance is recorded against
customer receivables that are considered to be
impaired based on the Companys knowledge of the
financial condition of its customers and the
availability of credit insurance.In determining the
amount of the allowance, factors including, but not
limited to, the following are considered: the aging
of the receivables, customer and industry
concentrations, current business environment, credit
insurance available and historical experience.
Credit risk exists in the Companys interest rate
swap agreement in the event of nonperformance by the
counterparty; however, this risk is minimized as
each contract is with a major financial institution
and represents an exchange between the same parties,
allowing for an offset in the event of
non-performance.(iii)
    
    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 on 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. 41




---



##### 



MASONITE INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED) Years ended December 31, 2003 and 2002. (In thousands of United States dollars,
except per share amounts)  1.
    
    Significant
accounting policies:(continued)  (iii)
    
    Financial instruments (continued):Payments and receipts under interest rate swap
contracts are recognized as adjustments to interest
expense on long-term debt. The forward premium or
discount on forward currency exchange contracts is
amortized over the term of the forward contract.
Gains and losses on forward foreign exchange
contracts are recognized in revenues and expenses in
the same period as the foreign currency revenues and
expenses to which they relate. At year-end, the
unrealized gain or loss associated with these
financial instruments has not been reflected in the
consolidated financial statements In the event that
a hedged item is sold or cancelled prior to the
termination of the related hedging item, any
unrealized gain or loss on the hedging item is
immediately recognized in income. In the event that
a hedging item is sold or cancelled, any unrealized
gain or loss on the hedging item is deferred and
amortized over the original contractual life of the
hedging item. 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 support
financial instruments with credit risk. At December
31, 2003, unrealized gains totalled $625 (2002 -
$1,501) and unrealized losses totalled $1,353 (2002
 - $489). In 2003, the Company had forward contracts
in place to sell UK pound sterling in the amount
£6,000 in exchange for U.S. dollars over a period of
12 months at an average exchange rate of $1.6666;
and £18,000 in exchange for euros over a period of
12 months at an average exchange rate of £1.4071. In
addition, the Company had forward contracts in place
to sell U.S. dollars in exchange for Canadian
dollars in the amount of U.S. $2,000 over a period
of 5 months at an average exchange rate of $1.5980.  (n)
    
    Stock-based compensation:Effective January 1, 2002, the Company accounts for
all stock-based payments to non-employees, and
employee awards that are direct awards of stock, call
for settlement in cash or other assets, or are stock
appreciation rights that call for settlement by the
issuance of equity instruments, granted on or after
January 1, 2002, using a fair value based method.
Prior to January 1, 2003, the Company accounted for
stock options that were settled by the issuance of
common shares as capital transactions and no
compensation cost was recorded. Consideration paid by
employees on the exercise of stock options is recorded
as share capital. The Company discloses the pro forma
effect
of accounting for these awards granted after January
1, 2002 under the fair value method. The pro forma
effect of awards granted prior to January 1, 2002 has
not been included. Pro forma compensation cost under
the fair value method is amortized over the vesting
period. 42




---



##### 



MASONITE INTERNATIONAL CORPORATION  Effective January 1, 2003, the Company adopted the
revised guidance for stock based compensation, which
requires that a fair value method of accounting be
applied to all stock-based compensation payments to
both employees, and non-employees. The Company has
prospectively applied the fair value method of
accounting for stock option awards granted after
January 1, 2003, and accordingly, has recorded the
compensation expense in the year. The estimated fair
value of the stock option awards is amortized to income
on a straight-line basis over the vesting period and
was determined using the Black-Scholes option pricing
model.(o)
    
    Revenue recognition:Revenue is recognized when persuasive evidence of an
arrangement exists, performance has occurred, the
earnings process is complete and title has passed to
the customer. The Company has no further performance
obligations other than its customary manufacturing
warranty.(p)
    
    Recently issued accounting standards:In 2003, the CICA issued Accounting Guideline 15,
Consolidation of Variable Interest Entites (AcG 15).
AcG 15 requires the consolidation of variable interest
entities (VIEs) by the primary beneficiary. A VIE is
an entity which has insufficient equity at risk to
finance its operations without additional subordinated
financial support from other parties, and/or an entity
for which the group of holders of the equity investment
at risk lack one or more specified characteristics of a
controlling financial interest. The primary beneficiary
is the entity that will absorb or receive the majority
of the VIEs expected losses, expected residual
returns, or both. AcG 15 is effective for the Companys
2005 fiscal year. The adoption of this standard is not
expected to have a material impact on the Companys
consolidated financial statements.In 2003, the Emerging Issues Committee of the CICA
issued new guidance on revenue recognition. This
guidance is consistent with United States GAAP. It is
effective for the Company beginning January 1, 2004.
The Company does not expect that this guidance will
have a significant effect on its revenue recognition
practices.In 2003, the CICA issued Handbook Section 1100,
Generally Accepted Accounting Principles. This
section establishes standards for financial reporting
in accordance with Canadian GAAP, and describes what
constitutes Canadian GAAP and its sources. This section
also provides guidance on sources to consult when
selecting accounting policies and determining
appropriate disclosures when the primary sources of
Canadian GAAP are silent. This standard is effective
for the Companys 2004 fiscal year. The adoption of
this standard is not expected to have a material impact
on the Companys consolidated financial statements.In November 2001, the CICA issued Accounting Guideline
13, Hedging Relationships (AcG 13). AcG 13
establishes new criteria for hedge 43




---



##### 



MASONITE INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Years ended December 31, 2003 and 2002. (In thousands of United States dollars,
except per share amounts)  1.
    
    Significant
accounting policies:(continued) accounting and is effective for the Companys 2004 fiscal year. The
Company has reassessed all hedging relationships to
determine whether the criteria are met and will apply the
new guidance on a prospective basis. 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 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 when AcG 13 becomes
effective. In 2003, the CICA issued Handbook Section 3110, Asset
Retirement Obligations which is effective for fiscal
years beginning on or after 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 will have
no significant impact on the financial statements of the
Company.  2.
    
    Acquisitions and disposals: The following is a summary of acquisitions in 2003 and 2002: 2003
    
    2002Current assets, less cash of $57
(2002 - $677)
    
    $
    1,986
    
    
    $
    8,894Property, plant and equipment
    
    
    602
    
    
    
    53,274Other assets
    
    
    
    
    
    
    479Goodwill
    
    
    2,801
    
    
    
    2,683Current liabilities assumed
    
    
    (1,614
    )
    
    
    (3,706
    )Long-term debt assumed
    
    
    (151
    )
    
    
    (25,040
    )Future income taxes
    
    
    (78
    )
    
    
    8,5813,546
    
    
    
    45,165Non-controlling interest
    
    
    
    
    
    
    8,681Cost of original
equity investment
    
    
    
    
    
    
    (27,995
    )$
    3,546
    
    
    $
    25,851Consideration:Cash
    
    $
    2,934
    
    
    $
    15,991Common shares
    
    
    
    
    
    
    9,060Note payable
    
    
    612
    
    
    
    800$
    3,546
    
    
    $
    25,851
 44




---



##### 



MASONITE INTERNATIONAL CORPORATION During 2003, the Company purchased 100% of the shares of a
door pre-hanger for consideration of $3,546 and increased
its ownership percentage in a less than wholly owned
subsidiary for cash consideration of $1,542. The note
payable issued as consideration in 2003 is non-interest
bearing and is payable over 3 years. In 2003, the Company disposed of the net assets of its
Lisbon Falls manufacturing facility located in the U.S.
for cash consideration of $9,739. The Company also
disposed of its interest in another less than wholly
owned subsidiary for cash consideration of $192. During 2002, the Company purchased the remaining interest
in four less than wholly owned companies and acquired the shares of one company. Consideration for these
acquisitions was paid in a combination of cash, common shares of the Company and a note payable. The note
payable issued as consideration in 2002 was paid in 2003. Of the total goodwill of
$2,801 (2002 - $2,683), $Nil
(2002 - $2,683) is related to the North American
segment. It is expected that $612 (2002 -$2,683) will
be deductible for income tax purposes. None of this
goodwill was amortized.  3.
    
    Inventories: 2003
    
    2002Raw materials
    
    $
    198,552
    
    
    $
    176,940Finished goods
    
    
    122,593
    
    
    
    116,938$
    321,145
    
    
    $
    293,878
  4.
    
    Property, plant and equipment: 2003Accumulated
    
    Net BookCost
    
    Depreciation
    
    ValueLand
    
    $
    49,277
    
    
    $
    
    
    
    $
    49,277Buildings
    
    
    217,082
    
    
    
    35,923
    
    
    
    181,159Machinery and equipment
    
    
    709,833
    
    
    
    188,159
    
    
    
    521,674$
    976,192
    
    
    $
    224,082
    
    
    $
    752,110
 2002Accumulated
    
    Net BookCost
    
    Depreciation
    
    ValueLand
    
    $
    46,200
    
    
    $
    
    
    
    $
    46,200Buildings
    
    
    202,455
    
    
    
    28,777
    
    
    
    173,678Machinery and equipment
    
    
    633,027
    
    
    
    141,304
    
    
    
    491,723$
    881,682
    
    
    $
    170,081
    
    
    $
    711,601
 45




---



##### 



MASONITE INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Years ended December 31, 2003 and 2002. (In thousands of United States dollars, except per share amounts)  5.
    
    Other assets: 2003
    
    2002Deferred charges, less
accumulated amortization of
$1,834 (2002 - $702)
    
    $
    11,442
    
    
    $
    9,822Equity investments
    
    
    15,334
    
    
    
    13,551Long-term receivables
    
    
    11,345
    
    
    
    9,942Pension asset (note 9(a))
    
    
    8,542
    
    
    
    3,254$
    46,663
    
    
    $
    36,569
 Included in long-term receivables is $6,997
(2002 - $7,442) receivable over the next nine
years pursuant to a royalty agreement and a
$2,500 non-interest bearing receivable due in
2005. In 2003, the Company increased its equity
interest in the shares of a door manufacturing
and distribution facility headquartered in
Israel for consideration of $1,072. During
2002, the Company made an equity investment in
the shares of a door component manufacturing
entity for consideration of $9,600.  6.
    
    Bank indebtedness: The Company has a $100,000 revolving term loan available
as part of its banking arrangements. The loan bears interest at LIBOR plus
2.25% and is secured by fixed and floating charges over substantially all the
Companys assets. There were no amounts outstanding on this loan at December
31, 2003 or 2002. Certain of the Companys subsidiaries also have credit
facilities with local lenders. These facilities are secured by a fixed and
floating charge over the assets of the respective subsidiaries and are
non-recourse to the parent company.  7.
    
    Long-term debt: 2003
    
    2002Bank term loan, bearing interest at LIBOR plus 2.25%
(2002 - 2.5%), due August 31, 2006
    
    $
    34,418
    
    
    $
    68,798Bank term loan, bearing interest at LIBOR plus 2.75%
(2002 - 2.75%), due August 31, 2008
    
    
    425,181
    
    
    
    435,156Bank term loan, bearing interest at LIBOR plus 2.75%
(2002 - 3.50%), due June 28, 2007
    
    
    20,000
    
    
    
    25,000Other loans, at various interest rates and maturities
    
    
    3,159
    
    
    
    4,628482,758
    
    
    
    533,582Less current portion
    
    
    35,498
    
    
    
    35,582$
    447,260
    
    
    $
    498,000
 46




---



##### 



MASONITE INTERNATIONAL CORPORATION  7.
    
    Long-term debt:(continued) The aggregate amount of principal repayments required in each of the next five
years is as follows: 2004
    
    $
    35,4982005
    
    
    19,7052006
    
    
    9,9502007
    
    
    114,4412008
    
    
    302,632
 Interest on long-term debt for the year ended December 31,
2003 was $31,953 (2002 - $34,553). The Company has entered into interest rate swap
agreements to convert floating rate debt into fixed rate
debt. At December 31, 2003, a total of $293,750 (2002 -
$318,750) of floating rate debt has been converted into
fixed rate debt at a weighted average interest rate of
7.6% (2002 - 7.5%). These agreements mature at various
dates through 2006. At December 31, 2003, these
agreements had a fair value of $274,585 (2002 -
$293,959). Additional repayment of bank term loans may be required
depending on the generation of excess cash flow as
defined in the credit agreement. The bank facilities are
secured by fixed and floating charges over substantially
all of the Companys assets. In July of 2002, the Company entered into an amended and
restated credit agreement that constituted a settlement of
the previous bank facilities resulting in the write off of
financing costs of $17,566. The Company used the proceeds
from the refinancing to retire existing indebtedness that
had a carrying amount of $125,556 for $105,000 resulting
in a gain on settlement of $20,556.  8.
    
    Share capital: 2003
    
    2002Authorized:Unlimited first preference shares, issuable in
series and non-voting with rights, privileges
and restrictions to be fixed by the directorsUnlimited common sharesIssued:54,433,799 common shares (2002 - 53,409,349)
    
    $
    266,870
    )
    
    $
    257,325
 In May 2003, the Companys shareholder rights plan
expired and was not renewed. (a) Stock option plans The Company provides a stock option plan to allow
management and key employees to purchase shares of the
Company. At December 31, 2003, options to purchase
2,743,750 common shares (2002 - 3,657,200) at an average
option price of $12.20 (2002 - $9.30) per share were
outstanding. The term of each option is 10 years and the
vesting period is three years. The exercise price for
options is the closing share price of the Company on The
Toronto Stock 47




---



##### 



MASONITE INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Years ended December 31, 2003 and 2002. (In thousands of United States dollars,
except per share amounts)  8.
    
    Share capital:(continued) Exchange on the day prior to the grant date. The options have expiry dates
through 2013. The number of options exercisable at December 31, 2003 was
2,461,840 (2002 - 3,233,425) at an average price of $11.52 (2002 - $8.67).
During the year, 113,000 options (2002 - 632,500) were granted at an average
exercise price of $20.08 (2002 - $14.11) per share and 2,000 (2002 - 77,000)
options were forfeited at an average exercise price of $15.90 (2002 - $9.09). A
total of 1,024,450 common shares (2002 - 1,208,800) were exercised under the
option plan at an average price of $9.32 (2002 - $6.96) per share for proceeds
of $9,545 (2002 - $8,412). In 2003, the Company adopted on a prospective basis requirements for fair value
accounting for stock based compensation. The weighted average assumptions used
in the determination of the fair value of stock based compensation are as
follows: 2003
    
    2002Risk-free rate
    
    
    4.4
    %
    
    
    5.3
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Expected volatility of the market price of the
Companys shares
    
    
    32
    %
    
    
    32
    %Expected option life (in years)
    
    
    5
    
    
    
    7Weighted-average grant date fair values of options issued
    
    $
    7.23
    
    
    $
    6.42
 For options granted in 2003, the Company recognized
$191 relating to the fair value of the compensation.
For options granted in 2002, the pro forma disclosure
relating to the fair value of the compensation is as
follows: 2003
    
    2002Net income as reported
    
    $
    107,671
    
    
    $
    89,543Deduct: Stock-based compensation costs
using fair-value method, net of tax
    
    
    (1,060
    )
    
    
    (1,697
    )Pro forma net income
    
    $
    106,611
    
    
    $
    87,846
 2003
    
    
    
    
    
    2002Net income per share:Basic  as reported
    
    $
    2.00
    
    
    $
    
    
    
    
    1.70Basic  pro forma
    
    $
    1.98
    
    
    $
    
    
    
    
    1.67Diluted  as reported
    
    $
    1.95
    
    
    $
    
    
    
    
    1.65Diluted  pro forma
    
    $
    1.93
    
    
    $
    
    
    
    
    1.62
 48




---



##### 



MASONITE INTERNATIONAL CORPORATION  8.
    
    Share capital:(continued) Information with respect to outstanding options is as follows: Options outstanding
    
    Options exercisableAverage
    
    Weighted
    
    
    
    
    
    WeightedRange of
    
    
    
    
    
    remaining
    
    average
    
    
    
    
    
    averageexercise
    
    Number
    
    contractural
    
    exercise
    
    Number
    
    exerciseprice
    
    outstanding
    
    life (years)
    
    price
    
    exercisable
    
    price$
    6.67-$9.88
    
    
    
    761,900
    
    
    
    2.13
    
    
    $
    8.77
    
    
    
    761,900
    
    
    $
    8.7710.11-12.65
    
    
    
    1,244,000
    
    
    
    4.14
    
    
    
    11.07
    
    
    
    1,244,000
    
    
    
    11.0717.02-21.14
    
    
    
    737,850
    
    
    
    8.88
    
    
    
    17.65
    
    
    
    455,940
    
    
    
    17.362,743,750
    
    
    
    
    
    
    
    
    
    
    
    2,461,840
 During 2002, the Company issued 623,571 common shares with an ascribed value of $9,060 in
connection with the acquisitions described in
note 2. Also in 2002 an additional 125,000 shares with an ascribed value of $1,921 were
issued in connection with a previous
acquisition, which has been included in
goodwill. In 2002, 200,000 warrants for common shares at
$8.35 per share were exercised for proceeds of
$1,670. There were no warrants outstanding at
December 31, 2003 or 2002. (b) Other stock-based compensation plan In 2003, the Company adopted a Restricted Share
Unit (RSU) and Deferred Share Unit (DSU)
plan for certain key senior executives. Under
this plan, the RSUs vest over three years and
the DSUs vest immediately, but are payable
only on retirement. Both instruments are
settled in cash. The Company records
compensation expense for RSUs evenly over the
three year vesting period and for DSUs
immediately. Total compensation expense
recorded was $3,588 in 2003, (2002 - $Nil).  9.
    
    Employee future benefits: (a) Defined contribution plans: For certain subsidiaries the Company matches a portion of employee
contributions to defined contribution retirement. Total contributions by the
Company in 2003 were approximately $5,322 (2002 - $2,845). (b) Defined benefit plans: Certain of the Companys subsidiaries maintain defined benefit pension plans
for specific employees. Information about the Companys defined benefit plans
is as follows: 2003
    
    2002Fair value of plan assets, beginning of year
    
    $
    57,163
    
    
    $
    48,780Actual return on plan assets
    
    
    9,827
    
    
    
    8,383Benefits paid
    
    
    (1,883
    )
    
    
    Fair value of plan assets, end of year
    
    $
    65,107
    
    
    $
    57,163
 49




---



##### 



MASONITE INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Years ended December 31, 2003 and 2002. (In thousands of United States
dollars, except per share amounts)  9.
    
    Employee future benefits:(continued) 2003
    
    2002Accrued benefit obligation, beginning of year
    
    $
    50,514
    
    
    $
    45,637Current service cost
    
    
    1,730
    
    
    
    1,623Interest cost
    
    
    3,399
    
    
    
    3,528Actuarial loss
    
    
    12,212
    
    
    
    2,781Benefits paid
    
    
    (1,883
    )
    
    
    Plan amendments
    
    
    
    
    
    
    1,777Curtailments
    
    
    (9,407
    )
    
    
    (4,832
    )Accrued benefit obligation, end of year
    
    $
    56,565
    
    
    $
    50,514Plan funded status:Surplus, end of year
    
    $
    8,542
    
    
    $
    6,649Unrecognized prior service cost
    
    
    
    
    
    
    1,193Unrecognized net gain
    
    
    
    
    
    
    (4,588
    )Pension asset, end of year
    
    $
    8,542
    
    
    $
    3,254Pension expense:Current service cost
    
    $
    1,730
    
    
    $
    1,623Interest cost
    
    
    3,399
    
    
    
    3,528Expected return on plan assets
    
    
    (3,974
    )
    
    
    (3,655
    )Net amortization of prior service cost
and curtailments
    
    
    95
    
    
    
    (1,616
    )Curtailment gain
    
    
    (6,538
    )
    
    
    Net pension income
    
    $
    (5,288
    )
    
    $
    (120
    )The significant actuarial assumptions adopted in
measuring the Companys accrued benefit obligations are
as follows (weighted average assumptions as at December
31):Discount rate
    
    
    6.00
    %
    
    
    6.75
    %Expected long-term rate of return on plan assets
    
    
    7.00
    %
    
    
    7.00
    %Rate of compensation increase
    
    Nil
    
    
    4.50
    %
 The Company also maintains certain other defined benefit
plans, principally in the U.K. which have been curtailed
in prior years and for which the net pension liability
is not significant. 50




---



##### 



MASONITE INTERNATIONAL CORPORATION  9.
    
    Employee future benefits:(continued) (c) Post-retirement benefits Certain of the Companys subsidiaries maintain defined post-retirement benefit
plans for specific employees. Information about the Companys post retirement
benefit plans is as follows: 2003
    
    2002Accrued benefit obligation, beginning of year
    
    $
    5,095
    
    
    $
    3,476Current service cost
    
    
    306
    
    
    
    429Interest cost
    
    
    267
    
    
    
    283Actuarial loss (gain)
    
    
    (450
    )
    
    
    907Accrued benefit obligations, end of year
    
    $
    5,218
    
    
    $
    5,095Plan funded status:Deficit, end of year
    
    $
    (5,218
    )
    
    $
    (5,095
    )Unrecognized net loss
    
    
    454
    
    
    
    904Accrued benefit liability, end of year
    
    $
    (4,764
    )
    
    $
    (4,191
    )
 Accrued benefit liabilities are included in accounts
payable and accrued liabilities. 2003
    
    2002Other future employee benefits expense:Current service cost
    
    $
    306
    
    
    $
    429Interest cost
    
    
    267
    
    
    
    283Amortization of net loss
    
    
    
    
    
    
    2Other future employee benefits expense
    
    $
    573
    
    
    $
    714
 The discount rate used in measuring the Companys accrued
benefit obligation is 6.00% (2002 - 6.75%). A 5.00% annual
rate of increase in the per capita cost of covered health
care was assumed. On December 8, 2003 the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 became law. This
Legislation expanded Medicare to include, for the first
time, coverage for prescription drugs. The Company
sponsors retiree medical programs for certain of its
locations and the Company expects that this legislation
will eventually reduce the Companys cost for some of
these programs. At present, no analysis of the potential
reduction in the Companys costs or obligations has been
performed. Under the Companys accounting policy, the
financial effect of this legislation is to be reflected
during fiscal 2004. 51




---



##### 



MASONITE INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Years ended December 31, 2003 and 2002. (In thousands of United States
dollars, except per share amounts)  10.
    
    Cumulative
translation
adjustments: This account represents the cumulative unrealized foreign
currency translation gain on the Companys net investment
in self-sustaining foreign operations. Changes during the
year are as follows: 2003
    
    2002Balance, beginning of year
    
    $
    (738
    )
    
    $
    (37,351
    )Unrealized gain on translation
of net investments
    
    
    62,792
    
    
    
    36,613Balance, end of year
    
    $
    62,054
    
    
    $
    (738
    )
  11.
    
    Commitments: Future minimum payments, by year, under non-cancellable
operating leases with initial or remaining terms of one
year or more consisted of the following at December 31,
2003: 2004
    
    $
    14,8932005
    
    
    9,7632006
    
    
    6,8852007
    
    
    5,3682008
    
    
    3,832Thereafter
    
    
    10,982$
    51,723
  12.
    
    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 is 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 is required to replace the Companys letters
of credit by March 2004. In the event that the
counterparty does not replace the Companys letters of
credit by that date, the Companys liability as a
guarantor could be invoked. No liability has been
recorded with respect to this guarantee as the likelihood
of non-performance is remote. In addition, the Company
would have full legal recourse and holds certain
collateral in
the form of outstanding accounts payable that could be
used to offset amounts paid. 52




---



##### 



MASONITE INTERNATIONAL CORPORATION  13.
    
    Income taxes: 2003
    
    2002Current
    
    $
    25,382
    
    
    $
    15,907Future
    
    
    9,082
    
    
    
    12,044$
    34,464
    
    
    $
    27,951
 The effective rates of income taxes provided in the
consolidated statements of income vary from the combined
Canadian federal and provincial statutory income tax
rates as follows: 2003
    
    
    
    
    

2002% of
    
    
    
    
    
    % ofpre-tax
    
    
    
    
    
    pre-taxAmount
    
    income
    
    Amount
    
    incomeIncome tax computed at
statutory income tax rate
    
    $
    52,859
    
    
    
    35.8
    
    
    $
    47,186
    
    
    
    37.7Reduction in rate of tax
due to income earned in
foreign jurisdictions
    
    
    (14,197
    )
    
    
    (9.6
    )
    
    
    (14,899
    )
    
    
    (11.9
    )Reduction for manufacturing
and processing in Canada
    
    
    (671
    )
    
    
    (0.5
    )
    
    
    (715
    )
    
    
    (0.6
    )Change in valuation allowance
    
    
    (1,484
    )
    
    
    (1.0
    )
    
    
    (974
    )
    
    
    (0.8
    )Gain on refinancing, net
    
    
    
    
    
    
    
    
    
    
    (2,500
    )
    
    
    (2.0
    )Other
    
    
    (2,043
    )
    
    
    (1.4
    )
    
    
    (147
    )
    
    
    (0.1
    )$
    34,464
    
    
    
    23.3
    
    
    $
    27,951
    
    
    
    22.3
 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 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: 2003
    
    2002Future tax assets:Non-capital loss carryforwards
    
    $
    31,502
    
    
    $
    31,779Capital loss carryforwards
    
    
    3,111
    
    
    
    Intangibles
    
    
    4,271
    
    
    
    9,076Expenses not currently deductible for tax purposes
    
    
    29,318
    
    
    
    31,526Other
    
    
    4,093
    
    
    
    72,295
    
    
    
    72,381Valuation allowance
    
    
    (8,732
    )
    
    
    (6,957
    )63,563
    
    
    
    65,424Future tax liabilities:Plant and equipment
    
    
    (116,886
    )
    
    
    (105,572
    )Pension asset
    
    
    (3,417
    )
    
    
    (1,302
    )Other
    
    
    (12,289
    )
    
    
    (17,412
    )(132,592
    )
    
    
    (124,286
    )Net future tax liability
    
    $
    (69,029
    )
    
    $
    (58,862
    )
 53




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##### 



MASONITE INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Year ended
December 31, 2002 and 2002 (In thousands of United States dollars,
except per share amounts)  14.
    
    Supplemental cash flow information: 2003
    
    2002Interest paid
    
    $
    38,704
    
    
    $
    33,342Income taxes paid
    
    
    16,925
    
    
    
    14,215Income tax refunds
    
    
    14,979
    
    
    
    5,300Common shares issued in connection
with business combinations
    
    
    
    
    
    
    10,981Notes issued in connection
with business combinations
    
    
    612
    
    
    
    800
  15.
    
    Earnings per share: The computations for basic and diluted earnings per share are as follows: 2003
    
    2002Net income
    
    $
    107,671
    
    
    $
    89,543Weighted average number of common
shares outstanding:Basic
    
    
    53,857,000
    
    
    
    52,628,000Effect of share options and warrants
    
    
    1,462,000
    
    
    
    1,694,000Diluted
    
    
    55,319,000
    
    
    
    54,322,000Earnings per share:Basic
    
    $
    2.00
    
    
    $
    1.70Diluted
    
    
    1.95
    
    
    
    1.65
 In 2003 and 2002, 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 reporting year. 54




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##### 



MASONITE INTERNATIONAL CORPORATION  16.
    
    Segmented information: The Company manages its operations on a geographic basis
and determines its operating segments accordingly. The
performance of the geographic segments is monitored on
the basis of sales and operating income. In 2003, the
Company modified the manner in which the geographic
segments are aggregated. 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: Geographic segment data
    
    2003
    
    2002Sales:North America
    
    $
    1,434,055
    
    
    $
    1,325,396Europe and other
    
    
    380,573
    
    
    
    320,018Intersegment
    
    
    (37,390
    )
    
    
    (25,898
    )$
    1,777,238
    
    
    $
    1,619,516Operating income:North America
    
    $
    179,142
    
    
    $
    165,331Europe and other
    
    
    37,580
    
    
    
    28,511$
    216,722
    
    
    $
    193,842Expenses:General
    
    
    30,389
    
    
    
    28,902Interest
    
    
    35,536
    
    
    
    43,767Other expense (income)
    
    
    3,145
    
    
    
    (998
    )Debt extinguishment costs
    
    
    
    
    
    
    (2,990
    )Income taxes
    
    
    34,464
    
    
    
    27,951Non-controlling interest
    
    
    5,517
    
    
    
    7,667109,051
    
    
    
    104,299Net income
    
    $
    107,671
    
    
    $
    89,543Identifiable assets:North America
    
    $
    1,088,486
    
    
    $
    1,029,127Europe and other
    
    
    358,962
    
    
    
    327,918Corporate assets,
including cash
    
    
    245,703
    
    
    
    105,746$
    1,693,151
    
    
    $
    1,462,791
 The Company derives revenue from two major product
lines, interior and exterior products as follows: Product line segment data
    
    2003
    
    2002Sales:Interior products
    
    $
    1,164,563
    
    
    $
    1,074,826Exterior products
    
    
    612,675
    
    
    
    544,690$
    1,777,238
    
    
    $
    1,619,516
 55




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##### 



MASONITE INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Years ended December 31, 2003 and 2002. (In thousands of United States dollars, except per share amounts)  16.
    
    Segmented
information:
(continued) Included in sales in 2003 and 2002 are export sales from
North America of $15,987 and $16,716, respectively, and
from Europe and other of $42,597 and $40,761,
respectively. Transfers between geographic regions and
product lines are accounted for at the same prices as
sales to customers outside the enterprise. Included in
sales in 2003 and 2002 are sales from facilities in
Canada to all external customers of $380,000 and
$369,000, respectively. Included in sales in 2003 and
2002 are sales to one customer of $378,000 and $334,000,
respectively. Depreciation and amortization in 2003 and
2002 in North America was $32,890 and $32,381,
respectively, and in Europe and other was $15,671 and
$12,474, respectively. Capital assets employed in Canada, North America and
Europe and other in 2003 were $84,163, $473,230 and
$278,880, respectively, and in 2002 were $73,983,
$460,601 and $251,000, respectively. Capital
expenditures in North America and Europe and other in
2003 were $38,705 and $10,749, respectively, and 2002
were $35,216 and $8,287, respectively. Equity
investments in North America and Europe and other in
2003 were $11,381 and $3,953, respectively, and in 2002
were $10,230 and $3,321, respectively. Goodwill in
Canada, North America and Europe and other in 2003 was
$26,442, $120,578 and $9,897, respectively, and in 2002
was $23,117, $119,292 and $4,709, respectively.  17.
    
    Reconciliation of
Canadian and United
States generally accepted
accounting principles: These consolidated financial statements have been
prepared in accordance with Canadian generally accepted
accounting principles (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 consolidated financial statements. If United States GAAP were applied, net income for
the year would be adjusted as follows: 2003
    
    2002Net income based on Canadian GAAP
    
    $
    107,671
    
    
    $
    89,543Effect of SFAS 133, net of tax
    
    
    2,318
    
    
    
    (13,835
    )Net income based on United States GAAP
    
    $
    109,989
    
    
    $
    75,708Earnings per share under United States GAAP
    
    $
    2.04
    
    
    $
    1.44Diluted earnings per share under United States GAAP
    
    
    1.99
    
    
    
    1.39
 U.S. 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.
Since
the criteria under United States GAAP was not met prior
to the establishment of these financial instruments, any
change in fair value of these financial instruments is
reported in income. The Company has complied with this
criteria under Canadian GAAP (see note 1(m)). 56




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##### 



MASONITE INTERNATIONAL CORPORATION  17.
    
    Reconciliation of
Canadian and United States
generally accepted
accounting principles:
(continued) United States GAAP requires that depreciation and
amortization be included in the determination of
operating income and does not permit the disclosure of a
subtotal of income before depreciation and amortization. Comprehensive income under United States GAAP is as follows: 2003
    
    2002Net income based on United States GAAP
    
    $
    109,989
    
    
    $
    75,708Foreign currency translation adjustment
    
    
    62,792
    
    
    
    36,613Comprehensive income based on United States GAAP
    
    $
    172,781
    
    
    $
    112,321
 Consolidated balance sheets: As a result of the differences in the method of adoption
of CICA recommendations and SFAS 109, Accounting for
Income Taxes, at December 31, 2003, goodwill on
acquisitions net of accumulated amortization and retained
earnings would have increased by $9,651 in 2003 and 2002. Recognition of the Companys financial instruments
pursuant to SFAS 133 on the consolidated balance sheets
would have increased current assets by $584 (2002 -
$1,012), current liabilities by $210 (2002 - $380),
long-term liabilities by $19,165 (2002 - $24,791),
non-controlling interest by $154 (2002 - $201), long-term
future tax assets by $6,324 (2002 - $9,421) and decreased
retained earnings by $12,621 (2002 - $14,939). Consolidated statements of cash flows: United States GAAP does not permit the disclosure of a
subtotal for cash provided by operating activities before
the effect of changes in working capital. Recently issued accounting standards: In August 2001, SFAS No. 143, Accounting for Asset Retirement
Obligations was approved and requires that the fair
value of an asset retirement obligation be recorded as a
liability, at fair value, in the period in which the
Company incurs the obligation. SFAS No. 143 is effective
for the Companys fiscal year commencing January 1, 2003.
There was no
significant impact on the Companys financial position,
results of operations or cash flows upon adoption of this
standard. In July 2002, FASB issued SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. SFAS
No. 146 requires the recognition of a liability for an
exit or disposal activity only when the costs are incurred
and can be measured at fair value. Prior standards
required only a commitment to an exit or disposal plan in
order to recognize the majority of the costs. SFAS No. 146
is effective for exit or disposal activities initiated
after December 31, 2002. There was no significant impact
on the Companys financial position, results of
operations, or cash flows upon adoption of this standard. 57




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##### 



MASONITE INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Years ended December 31, 2003 and 2002. (In thousands of United States dollars,
except per share amounts)  17.
    
    Reconciliation of
Canadian and United States
generally accepted
accounting principles:
(continued) In November 2002, FASB issued FIN 45, Guarantors
Accounting and Disclosure Requirements for Guarantees
Including Indirect Guarantees of Indebtedness of
Others, which requires certain disclosures of
obligations under guarantees. The disclosure
requirements of FIN 45 were effective for the Companys
year ended December 31, 2002. Effective for 2003, FIN 45
also requires the recognition of a liability by a
guarantor at the inception of certain guarantees entered
into or modified after December 31, 2002, based on the
fair value of the guarantee. The Company has adopted the
disclosure requirements in its financial statements. See
note 12. The Company was not impacted by the measurement
requirements of FIN 45 in 2003. In January 2003, FASB issued FIN 46,  Consolidation of
Variable Interest Entities which was revised in December
2003. FIN 46 requires variable interest entities,
previously referred to as special-purpose entities or
off-balance sheet structures, to be consolidated by a
company if that company is subject to a majority of the
risk of loss from the entitys activities or is entitled
to receive a majority of the entitys returns or both.
The consolidation provisions of FIN 46 are effective for
new variable interest entities created after January 31,
2003, and are applicable to existing entities of foreign
private issuers as of January 1, 2004. This standard is
not expected to have a significant impact on the
Companys financial statements under U.S. GAAP. During 2003, the FASB issued SFAS No. 150. Accounting
for Certain Financial Instruments with Characteristics
of both Liabilities and Equity. The standard is
effective for the Companys U.S. GAAP reporting for the
year commencing January 1, 2004 and requires
presentation as a liability for instruments that meet
certain criteria. This
standard is not expected to have a significant impact on
the Companys financial statements under U.S. GAAP. 58




---



##### 



MASONITE INTERNATIONAL CORPORATION  18.
    
    Subsequent event: On March 2, 2004, the Company completed the purchase of
the entry door business of The Stanley Works. The
purchase price was approximately $161 million and was
settled in cash.  19.
    
    Comparative figures: Certain comparative figures have been reclassified to
conform to the current year basis of presentation. 59




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##### 



MASONITE INTERNATIONAL CORPORATION MANAGEMENTS REPORT ON FINANCIAL STATEMENTS The accompanying 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
consolidated financial statements and information in the
MD&A include amounts based on informed judgments and
estimates of the expected effects of current events and
transactions with appropriate consideration of
materiality. Other financial information in the annual
report is consistent with that in the 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 have audited and
reported on the Companys consolidated financial
statements. Their report outlines the scope of their
examination and opinion on the consolidated financial
statements. The Audit Committee of the Board of Directors is
composed of unrelated directors and meets periodically
with the independent auditors and management
representatives to review the consolidated quarterly and
annual 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 financial
statements. -s- Philip S. Orsino
    
    -s- Robert V. TubbesingPhilip S. Orsino
    
    Robert V. TubbesingPresident and Chief Executive Officer
    
    Vice President and Chief Financial OfficerFebruary 10, 2004
 60




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##### 



MASONITE INTERNATIONAL CORPORATION AUDITORS REPORT TO THE SHAREHOLDERS We have audited the consolidated balance sheets of
Masonite International Corporation as at December 31, 2003
and 2002 and the consolidated statements of income,
retained earnings and cash flows for the years then ended.
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. 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. In our opinion, these consolidated financial
statements present fairly, in all material
respects, the financial position of the Company
as at December 31, 2003 and 2002 and the
results of its operations and its cash flows
for the years then ended in accordance with
Canadian generally accepted accounting
principles. /s/ KPMG LLP KPMG LLP
Chartered Accountants Toronto, Canada
February 10, 2004
(except with respect to Note 18 which is as of March 2, 2004) 61




---



##### 



DOCUMENT 3




---



##### 



MASONITE INTERNATIONAL CORPORATION 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 THE
COMPANYS FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 2003 AND DECEMBER 31,2002 BASED UPON CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES. ALL AMOUNTS ARE IN UNITED STATES DOLLARS UNLESS
SPECIFIED OTHERWISE. THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS AND ACCOMPANYING NOTES. NOTE 17 TO THOSE STATEMENTS DESCRIBES
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES. Overview of the BusinessMasonite International Corporation
(Masonite or the Company) 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. 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 affects
the demand for building products used in home renovation, remodeling and
repair. A significant and growing portion of the Companys sales of doors, door
components and door entry systems are used for home improvement and repair
projects. (BAR CHART) Subsequent EventOn December 8, 2003,
Masonite announced that a definitive
agreement had been reached to acquire the
residential entry door business of The
Stanley Works (Stanley). This
transaction was completed on March 2,
2004. The purchase price was approximately
$161 million and was settled in cash.
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 annual sales
are approximately $200 million. The
acquisition was funded through incurrence
of additional bank indebtedness. 9




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##### 



MASONITE INTERNATIONAL CORPORATION Selected Consolidated Financial Information (thousands of dollars, except per share amounts)
    
    2003
    
    2002
    
    2001Operating DataSales
    
    $
    1,777,238
    
    
    $
    1,619,516
    
    
    $
    1,421,602Net income
    
    
    107,671
    
    
    
    89,543
    
    
    
    39,460Net income per share*Basic
    
    
    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 debt
    
    
    447,260
    
    
    
    498,000
    
    
    
    591,419
 *Based on weighted average number of common shares of the Company outstanding
during the year. (BAR CHART) Results of OperationsConsolidated sales in 2003 increased 9.7%, or $157.7
million, to approximately $1.78 billion from sales of $1.62 billion in 2002.
This represents the highest level of revenue ever reported by the Company. Over
the last five years the Companys revenues have
increased at an annual compounded rate of 13.3% through a combination of
acquisitions, gains in market share and new product introductions. Increased
unit volume in 2003 primarily accounted for the year over year sales increase.
Higher unit sales volumes were generated by a combination of factors that
included execution of the Companys all products sales strategy, continued
strong demand for building products in most of Masonites principal markets and
introduction of new products. Revenue generated by facilities in Masonites two
principal geographic regions, North America and Europe and other, was
approximately 81% and 19%, respectively, in 2003 compared to approximately 82%
and 18% in 2002. The proportion of the Companys sales in North America
decreased slightly from 2002 primarily because of the increase in the exchange
rates of the euro and U.K. pound sterling relative to the U.S. dollar over the
last year. The proportion of revenues from interior and exterior products has
remained unchanged at approximately 66% and 34%, respectively, in both 2003 and
2002. Cost of sales, expressed as a percentage of sales, was 77.66% in
2003, an increase of 0.22% from 77.44% in 2002. This slight increase
in cost of sales, as a percentage of revenues, was primarily
attributable to small shifts in product and customer mix. 11




---



##### 



MASONITE INTERNATIONAL CORPORATION Selling, general and administrative expenses as a percentage of sales
decreased in 2003 to 9.1% from 9.6% in 2002. The percentage decreased
primarily because the Company had established a sales and
administrative structure in mid-2002 that could support annualized
sales activity ranging from approximately $1.70 to $1.85 billion.
Since June 30, 2002, selling, general and administrative expenses
have been incurred in a relatively narrow quarterly range of $39
million to $42 million, while sales have increased over that time
from an annualized rate of $1.71 billion in the third quarter of 2002
to $1.82 billion in the fourth quarter of 2003. During 2003, Masonite continued to harmonize the Companys various
employee benefit plans. As part of this process certain defined
benefit pension plans in the United States were curtailed and other
defined contribution pension plans in the United States were
enhanced. The curtailment resulted in $5.3 million of pension income
being recorded in 2003 related to the defined benefit plans, while
the enhancements increased pension expense for the defined
contribution plans by $2.5 million during 2003 over comparative costs
absorbed in 2002. (BAR CHART) Increasingly the investment and banking
industries calculate and analyze the
performance of a company using an EBITDA
measurement. The calculation of EBITDA* as
a percentage of sales for Masonite over
the last five years is as follows: 2003
    
    2002
    
    2001
    
    2000
    
    199913.2%
    
    
    13.0
    %
    
    
    10.1
    %
    
    
    8.5
    %
    
    
    9.6
    %
 *See discussion of non-GAAP financial measures At the end of 2001, management set a target of earning a 14% EBITDA
margin by the end of 2004. Masonite International earned a 13.2%
EBITDA margin in 2003. Management continues to target achieving an
annualized 14% margin by the end of 2004. Depreciation and amortization expense increased $3.7 million in 2003
to $48.6 million from $44.9 million in 2002. This is at the upper end
of the range of $47 million to $48 million that was estimated in the
2002 Management Discussion and Analysis. The rise in depreciation and
amortization is principally due to capital expenditure programs
undertaken during 2003 and 2002. Interest expense decreased approximately $8.2 million in 2003 to
$35.5 million. The decrease in financing costs is largely due to
continued repayment of bank debt from cash flow generated by the
Companys operations. Interest expense of $35.5 million in 2003 is 12




---



##### 



MASONITE INTERNATIONAL CORPORATION $1.5 million higher than the $34 million expense forecast in the 2002
Management Discussion and Analysis because debt reduction occurred
somewhat more slowly than anticipated throughout 2003. The Company realized a net gain of $3.0 million in the third quarter
of 2002 on a refinancing of its debt. In the fourth quarter of 2003,
Masonite recognized a $2.2 million loss on the sale of non-core
assets. This was a non-cash loss and it is included in the other
expense caption on the statement of income. Masonites effective income tax rate is primarily the weighted
average of federal, state and provincial rates in various countries
in which the Company has operations including the United States,
Canada, France, the United Kingdom and Ireland. The combined
effective rate of 23.3% in 2003 was slightly higher than the
effective rate of 22.3% in 2002. However, excluding the income tax
effect from refinancing charges in 2002, the Companys combined
effective 2002 income tax rate was slightly higher at 24.3%. The
combined income tax rate of 23.3% in 2003 is slightly lower than the
forecast range of 24% to 26% and is due to more taxable income being
earned in lower rate jurisdictions than in 2002. Management expects
the Companys combined effective income tax rate in 2004 to be in the
range of 24% to 25%. (BAR CHART) The Companys 2003 net income increased
approximately $18.1 million to $107.7
million ($2.00 per share) from $89.5
million in 2002 ($1.70 per share).
Masonites 2003 net income is a record
level of profitability for the Company.
Basic earnings per share of $2.00 in 2003
and $1.70 in 2002 are calculated using the
weighted average number of shares
outstanding for the year of 53.9 million
and 52.6 million, respectively.
Calculations of diluted earnings per share
of $1.95 in 2003 and $1.65 in 2002 reflect
the dilution effect from the assumed
exercise of options where the exercise
price was lower than the average market
price of the common shares for the
reporting period. Approximately 2.7
million share options with an exercise
price lower than the average market price
were outstanding at December 31, 2003 at
prices ranging from $6.67 to $21.14 per
share. There were approximately 3.7
million share options with an exercise
price below the average market price
outstanding at December 31, 2002 at prices
ranging from $5.26 to $14.11. Additional
information on the Companys stock option
plan is contained in Note 8 of the
Consolidated Financial Statements. The cumulative unrealized foreign currency translation gain of $62.1
million as at December 31, 2003, which is a component of
shareholders equity, is approximately $62.8 million 13




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##### 



MASONITE INTERNATIONAL CORPORATION higher than the $0.7 million accumulated unrealized loss in the
account at the previous year end. The increase in this balance during
2003 was primarily the result of the continued strengthening of the
euro, the U.K. pound sterling and the Canadian dollar compared to the
Companys reporting currency, the U.S. dollar. There was a
corresponding net increase of the translated value of the Companys
net investment in the assets and liabilities of self-sustaining
foreign operations. Liquidity and Capital
Resources
CAPITAL STRUCTURE COMPOSITION (%) As at December 31 2003
    
    2002
    
    2001Shareholders equity
    
    
    53.7
    %
    
    
    45.4
    %
    
    
    33.1
    %Non-controlling interest
    
    
    2.6
    
    
    
    2.3
    
    
    
    2.3Short-term debt
    
    
    0.5
    
    
    
    0.3
    
    
    
    8.6Long-term debt*
    
    
    35.4
    
    
    
    43.9
    
    
    
    40.0Subordinated long-term debt
    
    
    
    
    
    
    
    
    
    
    9.6Future income taxes
    
    
    7.8
    
    
    
    8.1
    
    
    
    6.4100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 * 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 last raised additional common share equity in 2001 by
issuing 7.15 million common shares for net cash proceeds of $63.2
million. The Company amended its senior credit facility in the third quarter
of 2002. The amended senior credit facility now consists of a $100
million long-term revolving bank loan and two term loans that
initially totaled $550 million. Approximately $460 million of the two
term loans is outstanding at December 31, 2003. The terms of the
banking facility are contained in Note 7 of the Consolidated
Financial Statements. In the fourth quarter of 2003 Masonite negotiated further amendments
to its senior credit facility to provide additional debt financing
for the Stanley acquisition that was completed on March 2, 2004. The following table summarizes the Companys significant contractual
obligations and commercial commitments. 15




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##### 



MASONITE INTERNATIONAL CORPORATION Contractual Obligation Payments Due by Period Less than
    
    1-3
    
    4-5
    
    After 5(In millions of U.S. dollars)
    
    Total
    
    1 year
    
    years
    
    years
    
    YearsShort-term debt
    
    $
    6.6
    
    
    $
    6.6
    
    
    $
    
    
    
    $
    
    
    
    $
    Long-term debt
    
    
    482.8
    
    
    
    35.5
    
    
    
    29.7
    
    
    
    417.0
    
    
    
    0.6Operating leases
    
    
    51.7
    
    
    
    14.9
    
    
    
    16.6
    
    
    
    9.2
    
    
    
    11.0Commercial commitments
    
    
    95.0
    
    
    
    31.8
    
    
    
    41.0
    
    
    
    22.2
    
    
    
    Total contractual
cash obligations
    
    $
    636.1
    
    
    $
    88.8
    
    
    $
    87.3
    
    
    $
    448.4
    
    
    $
    11.6
 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. (BAR CHART) Maintaining significant levels of liquidity and cash flow are important
components of the Companys financial strategy. During 2003, Masonite used
$154.8 million of cash generated from operations, the cash proceeds from asset
sales of $13.9 million and the issuance of common shares from the exercise of
stock options for $9.5 million to fund additions to property, plant and
equipment of $49.5 million, repay $48.8 million of debt, fund acquisitions of
$4.5 million and undertake additional other investing activities of $8.7
million. The Companys working capital ratio remained unchanged at 2.04:1.0 for both
December 31, 2003 and 2002. Masonites year-end working capital ratio has been
in the range of 1.85:1.0 to 2.40:1.0 over the last five years. Revolving bank credit lines are maintained to ensure short-term availability
of funds. Masonite and its subsidiaries had approximately $120 million of
revolving bank credit facilities established at December 31, 2003. Nothing was
drawn at December 31, 2003 on the Companys main $100 million revolving bank
loan. Approximately $6.6 million of the Companys $20 million of other current
revolving bank lines was utilized at the end of 2003 and was classified as
current bank indebtedness. The Company also had cash on hand of $129.7 million
as at December 31, 2003. Information on the Companys debt maturities is disclosed in Note 7 of the
Consolidated Financial Statements. The aggregate amount of long-term debt
repayment required over 17




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##### 



MASONITE INTERNATIONAL CORPORATION the next five years is approximately $482 million as at December 31, 2003
compared to $225 million at December 31, 2002. The increase in the required
debt repayment of $257 million is attributable to inclusion for the first time
of the final balloon payments on the Companys senior secured bank term loans
that are due in 2008. Scheduled repayments of the senior secured bank term
facility over the next five years are approximately $460 million. Accelerated
repayment of bank term loans may be required depending upon the generation of
excess cash flow as defined in the credit agreement. One of the Companys principal objectives during 2003 was to continue to repay
bank debt outstanding at December 31, 2002. It was Masonites intention to
reach an interest bearing debt to equity ratio (see discussion on non-GAAP
financial measures) of 0.6:1.0 by
or before December 31, 2004. Debt reduction is primarily from the application
of cash generated from operations during 2003 was sufficient to achieve an
interest bearing debt to equity ratio of 0.49:1.0 at December 31, 2003, down
from 0.89:1.0 at December 31, 2002. As a result of funding the Stanley
acquisition, the Companys estimated debt to equity ratio increased to
approximately 0.75:1.0. Management anticipates that cash flow from operations
will provide the funds to repay the remaining bank term loans at their
respective maturity dates. (BAR CHART) Masonites debt has been rated below investment grade by Moodys and Standards
& Poors as Ba2 and BB+, respectively, with a stable outlook. Following the
announcement of the pending acquisition of Stanleys entry door business, the
Company reviewed the transaction with both Moodys and Standard & Poors.
Masonite funded the acquisition by increasing its bank facility term loans by
approximately $200 million. Both rating agencies have indicated that no
revision of their ratings will be forthcoming as a result of the acquisition.
It is the Companys longer term intention to obtain investment grade status
from both rating agencies at the earliest opportunity. Achievement of
investment grade status should permit Masonite to continue to improve
borrowing terms. Management believes that its current cash balance plus cash flows from
operations and the additional bank term loan referred to in the preceding
paragraph will be sufficient to fund its near-term working capital and other
investment needs. Off-Balance Sheet ArrangementsThe Company does not have any material
off-balance sheet arrangements other than those disclosed in Notes 5, 7, 11
and 12 to the consolidated financial statements. 19




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##### 



MASONITE INTERNATIONAL CORPORATION Capital InvestmentAdditions to property, plant and equipment in 2003 were
$49.5 million compared to $43.5 million in 2002. This is higher than the range
of $40 million to $45 million that was estimated in the 2002 Management
Discussion and Analysis. Additional capital expenditures were undertaken in
2003 to support development of several new products at levels that were higher
than initially forecast. Capital expenditures in 2003 consisted primarily of
purchases of manufacturing machinery and equipment. The Company continues to
invest in its manufacturing operations to increase productivity, improve
customer service and introduce new products. (PHOTO OF  ROBERT V. TUBBESING) Capital expenditures in 2004 are expected to range from $50 million to $55
million. Depreciation expense on plant and equipment increased to $47.5
million in 2003 from $42.4 million in 2002 due to the capital expenditure
programs undertaken in 2003 and 2002. Depreciation expense of $47.5 million in
2003 was within the range of $47 million to $48 million estimated in the 2002
Management Discussion and Analysis. Depreciation for 2004 is estimated to be
in a range of $50 million to $52 million. Business Risks and UncertaintiesMasonites strategic focus is to expand and
strengthen its core business of the manufacture and sale of doors, door
components and door entry systems. A market strategy that specializes in a
relatively narrow product line in the building products industry may amplify
the risks inherent in the general effect of economic cycles on residential
construction and remodeling. The Company has addressed this risk by broadening
its customer base within various markets and by expanding market coverage
through geographic diversification. During the 1990s, the Company acquired
numerous facilities in France and the United Kingdom. The completion of the
Masonite Corporation acquisition in 2001 added operations in Ireland, South
Africa and South Korea. The Companys 2003 annual sales outside North America
exceeded $340 million. The Masonite group of companies obtains 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. The Company
and most of its subsidiaries sell a significant portion of their products
within their respective domestic markets at domestic market selling prices. In
situations where import or export commitments are undertaken, the Company or
its 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. Masonites policy is
not to utilize foreign exchange contracts for trading or speculative purposes.
The amount of foreign exchange contracts outstanding at December 31, 2003 are
described in Note 1(m) of the Consolidated Financial Statements. 21




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##### 



MASONITE INTERNATIONAL CORPORATION Almost 100% of the Companys interest-bearing debt outstanding at December 31,
2003 carried 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 5.72%. After giving effect to these interest rate swaps, approximately 38%
of the Companys outstanding interest-bearing debt carries a floating interest
rate and the other 62% is effectively at fixed rates as at December 31, 2003.
Management believes that these interest rate swaps are highly effective in
achieving their economic purpose. Certain commodity components used in the manufacture of doors and
door components periodically experience significant changes in price
or availability. If material cost increases are persistent, there is
no assurance that Masonite will be able to sufficiently increase its
selling prices. In recent years, the Company has responded to
fluctuating prices and decreasing availability of certain materials
by seeking sources for similar components from other geographic
regions, developing or purchasing substitute alternative materials
and raising selling prices on various products in certain markets. The geographic breadth of the Companys facilities subjects it to
environmental laws, regulations and guidelines in a number of
countries. 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, and the disposal of wastes. The Companys efforts to ensure environmental compliance include the
review of its existing operations on an ongoing basis by its own
environmental staff and on a selective basis by external
environmental consultants. In addition, environmental assessments are
conducted as part of Masonites due diligence review prior to
completion of acquisitions. (PIE CHART) 23




---



##### 



MASONITE INTERNATIONAL CORPORATION Masonite has not incurred any significant costs relating to environmental
matters in prior years. Future expenditures required to comply with any
changes in environmental requirements are anticipated to be undertaken as part
of the Companys ongoing capital investment program that is primarily designed
to improve the efficiency of various manufacturing processes. Masonite provides credit to its customers in the normal course of business.
The Company performs credit evaluations of its customers and maintains
reserves for potential credit losses which, when realized, have been within
the range of managements expectations. Masonite does not generally require
collateral. The Companys credit risk is minimized by undertaking transactions
with a large number of customers in various countries. Masonites credit risk
is further minimized by insuring a significant portion of total trade
receivables through the use of credit insurance. (BAR CHART) Critical Accounting Policies and EstimatesMasonites significant accounting
policies are disclosed in Note 1 to the Consolidated Financial Statements. 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. InventoryMasonite 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. GoodwillThe 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 as part of the purchase price. Goodwill is not
amortized but instead is 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. 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 25




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##### 



MASONITE INTERNATIONAL CORPORATION units are estimated using an income approach. In making this fair value
assessment, 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 impairment.
Since managements judgment is involved in performing goodwill valuation
analyses, any change in estimates can affect the valuation of goodwill. Income TaxesThe 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 $37.6 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 AssetsManagement 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. Employee Future Benefit PlansThe 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. 27




---



##### 



MASONITE INTERNATIONAL CORPORATION 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 CompensationBeginning 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). 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. Recent Accounting PronouncementsIn 2003, the Canadian Institute of
Chartered Accountants (CICA) issued a new accounting guideline
regarding consolidation of variable interest entities (VIEs). This
guideline requires consolidation of VIEs by the primary beneficiary
and is effective for the Companys 2005 fiscal year. The adoption of
this guideline is not expected to have a material effect on the
Companys financial statements. In 2003, the CICA issued new guidance on revenue recognition. This
guidance is consistent with United States GAAP. It is effective for
the Company beginning January 1, 2004. The Company does not expect
that this guidance will have a significant effect on its revenue
recognition practices. In 2003, the CICA established standards for financial reporting in
accordance with Canadian GAAP, and describes what constitutes
Canadian GAAP and its sources. This standard is effective for the
Companys 2004 fiscal year. The adoption of this standard is not
expected to have a material effect on the Companys consolidated
financial statements. The CICA has established new criteria for hedge accounting that
applies to all hedging relationships in effect for fiscal years
beginning on or after July 1, 2003. Masonite has assessed all hedging
relationships to determine whether the criteria was met or not and is
applying the new guidance on all new hedging contracts. To qualify
for hedge accounting, the relationship must be appropriately
documented at the 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. All of the
Companys significant current hedging relationships have been
adequately documented and their effectiveness has assessed in order
to meet the new hedging criteria and to meet the requirements to
continue to apply hedge accounting. 29




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##### 



MASONITE INTERNATIONAL CORPORATION In 2003, the CICA issued new standards regarding asset retirement
obligations that are effective for fiscal years beginning on or after
January 1, 2004. The standard establishes recognition, measurement
and disclosure requirements applicable to legal obligations
associated with the retirement of property, plant and equipment that
result from the acquisition, construction, development or normal
operations of those assets. The Company has assessed the effect of
this new standard and has determined that it will not have a
significant effect on the financial statements of the Company. There were also certain other new pronouncements issued by the
Financial Accounting Standards Board in the United States that are
described more fully in Note 17 to the Consolidated Financial
Statements. The adoption of these other guidelines is not expected to
have a significant effect on the Companys accounting policies or
disclosure practices under U.S. GAAP. Non-GAAP Financial MeasuresThis Management Discussion and Analysis
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. Debt to equity ratio is
defined as interest-bearing debt, net of cash, divided by
shareholders equity. EBITDA is defined as earnings before
depreciation and amortization; interest; (gain) loss on refinancing
(net); other expense (income); income taxes; and non-controlling
interest (see table below). EBITDA margin is defined as EBITDA
divided by sales. Reconciliation of Net Income to EBITDA (In millions of U.S. dollars)
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999Net income
    
    $
    107.7
    
    
    $
    89.5
    
    
    $
    39.5
    
    
    $
    37.6
    
    
    $
    43.8Non-controlling interest
    
    
    5.5
    
    
    
    7.7
    
    
    
    5.3
    
    
    
    5.3
    
    
    
    2.9Income taxes
    
    
    34.5
    
    
    
    27.9
    
    
    
    12.9
    
    
    
    15.2
    
    
    
    21.2Other expense (income)
    
    
    3.1
    
    
    
    -1.0
    
    
    
    0.5
    
    
    
    2.6
    
    
    
    0.5(Gain) loss on refinancing
(net)
    
    
    
    
    
    
    -3.0
    
    
    
    17.4
    
    
    
    
    
    
    
    Interest
    
    
    35.5
    
    
    
    43.8
    
    
    
    32.5
    
    
    
    23.6
    
    
    
    18.2Depreciation &
amortization
    
    
    48.6
    
    
    
    44.9
    
    
    
    35.4
    
    
    
    25.6
    
    
    
    23.2EBITDA
    
    $
    234.9
    
    
    $
    209.8
    
    
    $
    143.5
    
    
    $
    109.9
    
    
    $
    109.8
 Forward-Looking StatementsThis Annual Report contains a number of
forward-looking statements. All statements, other than statements
of historical fact, included in this Annual Report that address
activities, events or developments that the Company or its management
expects or anticipates will or may occur in the future are
forward-looking statements. They are based on certain assumptions and
analyses made by the Company considering its experience and
perceptions of historical trends, current conditions and 31




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MASONITE INTERNATIONAL CORPORATION expected future developments, as well as other factors it believes
are appropriate in the circumstances. However, whether actual results
or 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; levels of construction and renovation activity;
competition; financing risks; ability to manage expanding operations;
retention of key management personnel; environmental and other
government regulation; and other factors. Quarterly Financial Information (unaudited) First Quarter
    
    Second Quarter(U.S. dollars in thousands, except per share
data)
    
    2003
    
    2002
    
    2003
    
    2002Sales
    
    $
    402,217
    
    
    $
    380,571
    
    
    $
    456,955
    
    
    $
    415,457Net income
for the period
    
    $
    20,344
    
    
    $
    16,112
    
    
    $
    27,339
    
    
    $
    22,046Net income per share
for the period,
basic(2)
    
    $
    0.38
    
    
    $
    0.31
    
    
    $
    0.51
    
    
    $
    0.42Net income per share
for the period,
diluted(2)
    
    $
    0.37
    
    
    $
    0.30
    
    
    $
    0.50
    
    
    $
    0.41
 Third Quarter(1)
    
    Fourth Quarter2003
    
    2002
    
    2003
    
    2002Sales
    
    $
    462,169
    
    
    $
    427,680
    
    
    $
    455,897
    
    
    $
    395,808Net income
for the period
    
    $
    30,790
    
    
    $
    29,176
    
    
    $
    29,198
    
    
    $
    22,209Net income per share
for the period,
basic(2)
    
    $
    0.57
    
    
    $
    0.55
    
    
    $
    0.54
    
    
    $
    0.42Net income per share
for the period,
diluted(2)
    
    $
    0.56
    
    
    $
    0.53
    
    
    $
    0.53
    
    
    $
    0.40
  (1)
    
    Net income for 2002 includes a gain on refinancing, net of $2,990.  (2)
    
    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. 32




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DOCUMENT 4




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COMMENTS BY AUDITORS FOR U.S. READERS
ON CANADA - U.S. REPORTING DIFFERENCE In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when there is a
change in accounting principles that has a material effect on the comparability
of the companys financial statements, such as the changes described in Note 1(n)(stock-based compensation) to
the consolidated financial statements as at December 31, 2003 and 2002 and for
the years then ended. Our report to the shareholders dated February 10, 2003,
except with respect to Note 18 which is as of March 2, 2004, is expressed in
accordance with Canadian reporting standards, which does 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/ KPMG LLP Toronto, Canada February 10, 2004, except with respect to Note 18 which is as of March 2, 2004




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UNDERTAKING AND CONSENT TO SERVICE OF PROCESS  A.
    
    Undertaking The Registrant undertakes to make available, in person or by telephone,
representatives to respond to inquiries made by the Commission staff, and to
furnish promptly, when required to do so by the Commission staff, information
relating to: the securities registered pursuant to Form 40-F; the securities in
relation to which the obligation to file an annual report on Form 40-F arises;
or transactions in said securities.  B.
    
    Consent to Service of Process The Registrant has previously filed with the Commission a Form F-X. EXHIBITS The following exhibits are filed as part of this report: ExhibitNumber
    
    Title99.1
    

Consent
of KPMG LLP99.2
    
    Certifications pursuant to Section 302 of the US Sarbanes-Oxley Act of 2002
Certification of the Registrants Chief Executive Officer
Certification of the Registrants Chief Financial Officer99.3
    
    Certifications pursuant to Section 906 of the US Sarbanes-Oxley Act of 2002
Certification of the Registrants Chief Executive Officer
Certification of the Registrants Chief Financial




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SIGNATURE Pursuant to the requirements of the Exchange Act, the Registrant certifies
that it meets all of the requirements for filing on Form 40-F and has duly
caused this annual report to be signed on its behalf by the undersigned,
thereto duly authorized. MASONITE INTERNATIONAL CORPORATIONMay 14, 2004
    
    By:
    
    /s/ Harley UlsterHarley UlsterExecutive Vice President, General Counsel
and Corporate Secretary