QuickLinks -- Click here to rapidly navigate through this document

As filed with the Securities and Exchange Commission on January 3, 2007

No. 333-              



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Form F-4

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933


Masonite International Inc.
(Exact name of registrant as specified in its charter)

Canada
(State or other jurisdiction of
incorporation or organization)
  2431
(Primary Standard Industrial
Classification Code Number)
  Not Applicable
(I.R.S. Employer
Identification No.)

1600 Britannia Road East
Mississauga, Ontario L4W 1J2 Canada
(905) 670-6500
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

Masonite Corporation
(Exact name of registrant as specified in its charter)
  Masonite International Corporation
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation
or organization)

 

2431
(Primary Standard
Industrial Classification
Code Number)

 

64-0198020
(I.R.S. Employer
Identification No.)

 

Ontario, Canada
(State or other jurisdiction
of incorporation
or organization)

 

2431
(Primary Standard
Industrial Classification
Code Number)

 

98-0377314
(I.R.S. Employer
Identification No.)

One North Dale Mabry Highway, Suite 950
Tampa, Florida 33609
(813) 877-2726
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

 

1600 Britannia Road East
Mississauga, Ontario L4W 1J2 Canada

(905) 670-6500
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

Frederick Arnold
One North Dale Mabry Highway, Suite 950
Tampa, Florida 33609
(813) 739-3000
(Name, address, including zip code, and telephone number, including area code, of agent for service)


Copies:
Joseph H. Kaufman, Esq.
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017-3954
Tel: (212) 455-2000
Fax: (212) 455-2502


Approximate date of commencement of proposed sale of the securities to the public: The exchange will occur as soon as practicable after the effective date of this Registration Statement.

       If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.   o

       If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o

       If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o



Title of Each Class Of
Securities to be Registered


 

Amount to Be
Registered


 

Proposed
Maximum
Offering Price
Per Unit


 

Proposed
Maximum
Aggregate
Offering Price


 

Amount Of
Registration
Fee


Senior Subordinated Notes due 2015 issued by Masonite Corporation   $412,000,000      100%(1)   $412,000,000(1)   $44,084(2)

Guarantees of Senior Subordinated Notes due 2015 issued by Masonite Corporation(3)    (4)       (4)    (4)    (4)

Senior Subordinated Notes due 2015 issued by
Masonite International Corporation
  $358,000,000      100%(1)   $358,000,000(1)   $38,306(2)

Guarantees of Senior Subordinated Notes due 2015 issued by Masonite International Corporation(3)    (4)       (4)    (4)    (4)

(1)
Estimated solely for the purpose of calculating the registration fee under Rule 457 of the Securities Act of 1933, as amended.
(2)
The registration fee for the securities offered hereby was calculated under Rule 457(f)(2) of the Securities Act of 1933, as amended.
(3)
See inside facing page for table of additional registrant guarantors.
(4)
Pursuant to Rule 457(n) under the Securities Act of 1933, as amended, no separate fee for the guarantees is payable.


       The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.





TABLE OF ADDITIONAL REGISTRANT GUARANTORS

Exact Name of Registrant
As Specified In Its Charter

  State or other
Jurisdiction of
Incorporation
or Organization

  IRS
Employer
Identification
Number

  Address, Including
Zip Code, of
Registrant's Principal
Executive Offices

  Phone Number
3061275 Nova Scotia Company   Nova Scotia   Not Applicable   1600 Britannia Road East
Mississauga, Ontario
L4W 1J2
Canada
  (905) 670-6500

Bonlea Limited

 

United Kingdom

 

Not Applicable

 

Birthwaite Business Park
Huddersfield Road
Darton, Barnsley S75 5JS
United Kingdom

 

+44-1226-383434

Castlegate Entry Systems, Inc.

 

Canada

 

Not Applicable

 

1600 Britannia Road East
Mississauga, Ontario
L4W 1J2
Canada

 

(905) 670-6500

Crown Door Corporation

 

Canada

 

Not Applicable

 

1600 Britannia Road East
Mississauga, Ontario
L4W 1J2
Canada

 

(905) 670-6500

Cutting Edge Tooling, Inc.

 

Florida

 

83-0338818

 

One North Dale Mabry Highway, Suite 950
Tampa, Florida 33609

 

(813) 877-2726

Door Installation Specialists Corporation

 

Florida

 

20-1562354

 

One North Dale Mabry Highway, Suite 950
Tampa, Florida 33609

 

(813) 877-2726

Eger Properties

 

California

 

68-0316847

 

One North Dale Mabry Highway, Suite 950
Tampa, Florida 33609

 

(813) 877-2726

Florida Made Door Co.

 

Florida

 

59-0737960

 

One North Dale Mabry Highway, Suite 950
Tampa, Florida 33609

 

(813) 877-2726

Masonite Chile Holdings S.A.

 

Chile

 

Not Applicable

 

Ruta Q-50, Km. 1,5
Cabrero, Chile
447000

 

+56-43-404402

Masonite Components

 

Ireland

 

Not Applicable

 

Derryoughter
Drumsna
Carrick on Shannon
Co. Leitrim
Republic of Ireland

 

+353-71-9659500

Masonite Europe

 

Ireland

 

Not Applicable

 

Derryoughter
Drumsna
Carrick on Shannon
Co. Leitrim
Republic of Ireland

 

+353-71-9659500

Masonite Europe Limited

 

United Kingdom

 

Not Applicable

 

Birthwaite Business Park
Huddersfield Road,
Darton, Barnsley, S75 5JS
United Kingdom

 

+44-1226-383434

Masonite Ireland

 

Ireland

 

Not Applicable

 

Derryoughter
Drumsna
Carrick on Shannon
Co. Leitrim
Republic of Ireland

 

+353-71-9659500

Masonite Mexico, S.A. de C.V.

 

Mexico

 

Not Applicable

 

Carretera Laredo Km. 23
Cienega de Flores, Estado
Nuevo Leon 65550
Mexico

 

+5281-8220-8900

Masonite PrimeBoard Inc.

 

North Dakota

 

20-2765752

 

One North Dale Mabry Highway, Suite 950
Tampa, Florida 33609

 

(813) 877-2726

Pintu Acquisition Company, Inc.

 

Delaware

 

62-1647932

 

One North Dale Mabry Highway, Suite 950
Tampa, Florida 33609

 

(813) 877-2726

Premdor Crosby Limited

 

United Kingdom

 

Not Applicable

 

Birthwaite Business Park
Huddersfield Road,
Darton, Barnsley, S75 5JS
United Kingdom

 

+44-1226-383434

Premdor Finance LLC

 

Delaware

 

51-0404966

 

Nemours Building, Suite 1414
1007 Orange Street
Wilmington, Delaware 19801

 

(302) 652-5200
                 


Premdor U.K. Holdings Limited

 

United Kingdom

 

Not Applicable

 

Birthwaite Business Park
Huddersfield Road,
Darton, Barnsley S75 5JS
United Kingdom

 

+44-1226-383434

WMW, Inc.

 

Delaware

 

76-0533326

 

One North Dale Mabry Highway, Suite 950
Tampa, Florida 33609

 

(813) 877-2726

Woodlands Millwork I, Ltd.

 

Texas

 

76-0285989

 

One North Dale Mabry Highway, Suite 950
Tampa, Florida 33609

 

(813) 877-2726

Information contained herein is subject to completion or amendment. A registration statement relating to those securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy.

Subject to Completion, dated January 3, 2007

PRELIMINARY PROSPECTUS

LOGO

Masonite International Inc.

Masonite Corporation          Masonite International Corporation


OFFER TO EXCHANGE

        Up to $412,000,000 aggregate principal amount of Senior Subordinated Notes due 2015 issued by Masonite Corporation, which have been registered under the Securities Act of 1933, for any and all outstanding Senior Subordinated Notes due 2015 issued by Masonite Corporation.

        Up to $358,000,000 aggregate principal amount of Senior Subordinated Notes due 2015 issued by Masonite International Corporation, which have been registered under the Securities Act of 1933, for any and all outstanding Senior Subordinated Notes due 2015 issued by Masonite International Corporation.

        The exchange notes will be fully and unconditionally guaranteed on an unsecured basis by our parent company, Masonite International Inc., and certain of our domestic and foreign subsidiaries.


        We are conducting the exchange offer in order to provide you with an opportunity to exchange your unregistered outstanding notes for freely tradeable exchange notes that have been registered under the Securities Act of 1933.

The Exchange Offer

        All untendered outstanding notes will continue to be subject to the restrictions on transfer set forth in the outstanding notes and in the indentures. In general, the outstanding notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Other than in connection with the exchange offer, we do not currently anticipate that we will register the outstanding notes under the Securities Act.

        You should carefully consider the "Risk Factors" beginning on page 19 of this prospectus before participating in the exchange offer.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the exchange notes to be distributed in the exchange offer or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.


The date of this prospectus is            , 2007.



TABLE OF CONTENTS

 
  Page
Presentation of Financial and Other Information   i
Enforceability of Civil Liabilities   ii
Exchange Rate Information   ii
Industry Data   ii
Prospectus Summary   1
Risk Factors   19
Forward-looking Statements   37
Use of Proceeds   38
Capitalization   39
The Transaction   40
Unaudited Pro Forma Consolidated Financial Information   42
Selected Historical Consolidated Financial Data   47
Management's Discussion and Analysis of Financial Condition and Results of Operations   51
Industry Overview   90

Business

 

92
Directors and Senior Management   104
Major Shareholders and Related Party Transactions   107
Description of Certain Indebtedness   110
The Exchange Offer   113
Description of Notes   123
Certain U.S. Federal Income Tax Consequences   182
Certain Canadian Federal Income Tax Considerations   183
Certain ERISA Considerations   184
Book-Entry, Settlement and Clearance   185
Plan of Distribution   188
Legal Matters   189
Experts   189
Available Information   189
Index to Consolidated Financial Statements   F-1

        We have not authorized any dealer, salesperson or other person to give any information or represent anything to you other than the information contained in this prospectus. You must not rely on unauthorized information or representations.

        This prospectus does not offer to sell nor ask for offers to buy any of the securities in any jurisdiction where it is unlawful, where the person making the offer is not qualified to do so, or to any person who cannot legally be offered the securities. The information in this prospectus is current only as of the date on its cover, and may change after that date.

        Following the date of this prospectus we will be subject to reporting obligations and any filings we make will be available via the website of the United States Securities and Exchange Commission, or SEC, at www.sec.gov. You can also obtain any filed documents regarding us without charge by written or oral request to:

Masonite International Inc.
One North Dale Mabry Highway, Suite 950
Tampa, Florida 33609
Attn. Frederick Arnold
Telephone: (813) 739-3000

        Please note that copies of documents provided to you will not include exhibits.

        In order to receive timely delivery of requested documents in advance of the expiration date of the exchange offer, you should make your request no later than                 , 2007, which is five business days before you must make a decision regarding the exchange offer.

        See "Available Information".


PRESENTATION OF FINANCIAL AND OTHER INFORMATION

        Unless we indicate otherwise, financial information in this preliminary prospectus has been prepared in accordance with Canadian GAAP. Canadian GAAP differs in some respects from U.S. GAAP, and thus our financial statements may not be comparable to the financial statements of U.S. companies. Certain differences as they apply to us are summarized in note 26 to the annual

i



consolidated financial statements and note 20 of the unaudited interim consolidated financial statements included elsewhere in this prospectus.


ENFORCEABILITY OF CIVIL LIABILITIES

        Masonite International Inc. is incorporated under the Canada Business Corporations Act and Masonite International Corporation, a subsidiary of Masonite International Inc., is incorporated under the Ontario Business Corporations Act. Certain of our guarantors are also incorporated in jurisdictions outside of the United States. Each of Masonite International Inc. and Masonite International Corporation has its principal executive office in Ontario, Canada. Certain of the directors, officers and experts named in this prospectus are not residents of the United States, and all or a substantial portion of their assets and a substantial portion of the assets of Masonite International Inc., Masonite International Corporation and our non-U.S. guarantors are located outside of the United States. It may be difficult for you to effect service of process within the United States upon us or our directors, officers and experts who are not residents of the United States or to realize in the United States upon judgments of U.S. courts based upon the civil liability under the federal securities laws of the United States. We have been advised by Davies Ward Phillips & Vineberg LLP, our Canadian counsel, that there is doubt as to the enforceability in Canada against us or against our directors, officers or experts who are not residents of the United States, in original actions or in actions for enforcement of judgments of U.S. courts, of liabilities based solely upon the federal securities laws of the United States.


EXCHANGE RATE INFORMATION

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

Year Ended December 31

  Average
2001   0.6444
2002   0.6368
2003   0.7186
2004   0.7702
2005   0.8269
Recent Monthly Data

  Average
  Low
  High
April 2006   0.8742   0.8534   0.8926
May 2006   0.9009   0.8903   0.9100
June 2006   0.8979   0.8902   0.9090
July 2006   0.8855   0.8990   0.8760
August 2006   0.8943   0.8840   0.9037
September 2006   0.8760   0.8872   0.9048


INDUSTRY DATA

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

ii



PROSPECTUS SUMMARY

        This summary highlights information appearing elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before participating in the exchange offer. You should read the entire prospectus carefully.

        Unless the context otherwise requires, in this prospectus "Masonite", the "Company", "we", "us" and "our" refer to Masonite International Inc. ("Masonite International") and its subsidiaries; and references to the "Issuers" mean Masonite Corporation ("Masonite U.S.") and Masonite International Corporation ("Masonite Canada"), the issuers of the notes. Masonite U.S., a direct wholly owned subsidiary of Masonite International, operates Masonite International's U.S. subsidiaries. Masonite Canada, also a direct wholly owned subsidiary of Masonite International, operates Masonite International's Canadian subsidiaries as well as certain other non-U.S. subsidiaries. All amounts are in U.S. dollars unless specified otherwise. Unless otherwise indicated, financial information identified in this prospectus as "pro forma" gives effect to the closing of the acquisition pursuant to which we were acquired by affiliates of Kohlberg Kravis Roberts & Co. L.P. ("KKR") (the "Transaction") and certain other events as described under "Unaudited Pro Forma Consolidated Financial Information."


Our Company

        We are one of the largest manufacturers of doors in the world, with a significant market share in both interior and exterior door products. We sell approximately 50 million doors per year in over 70 countries, including the United States, Canada, the United Kingdom, France, and throughout Central and Eastern Europe. For the year ended December 31, 2005 our sales were $2.4 billion.

        Our products are marketed under well-recognized brand names throughout the world. In North America, we market our doors primarily under the Masonite brand, which is a leading brand in the door industry. Our sales are derived from two primary sources of door demand: residential repair, renovation and remodeling of existing homes, and the construction of new homes. We believe that sales to the residential repair, renovation and remodeling sector represents the larger component of our business in North America. Approximately 79% of our 2005 sales were generated in North America, where we believe we have a leading market share in both interior and exterior doors, 18% in Europe, and the remainder in South America, Asia, Africa and the Middle East.

        We have a global manufacturing and distribution footprint, with over 80 facilities in 18 countries, primarily in North America and Europe. We are a vertically integrated producer, manufacturing key components of doors, including composite molded and veneer door facings, glass door lites and cut stock. In order to realize cost advantages and efficiencies provided by vertical integration, we have integrated the various operations in our North American segment as well as our Europe and Other segment to the point where we share common systems, financing and infrastructure. We believe that our high level of vertical integration provides us with competitive and cost advantages over competitors not as vertically integrated, and enhances our ability to develop new and proprietary products.

        As part of our "all products" cross-merchandising strategy, we provide our customers with a broad product offering of interior and exterior doors and entry systems at various price points. We manufacture a broad line of interior doors, including residential molded, flush, stile and rail, louvre and specially-ordered commercial and architectural doors. We also manufacture exterior residential steel and fiberglass doors and entry systems. In 2005, sales of interior and exterior products accounted for approximately 64% and 36% of our revenue, respectively. In addition, we also sell certain door components to other door manufacturers.

        We sell doors through multiple distribution channels, including: (i) directly to retail home center customers; (ii) one-step distributors that sell directly to homebuilders and contractors; and (iii) two-step wholesale distributors that resell to other distributors. For North American retail home center

1



customers, our numerous door fabrication facilities provide value-added fabrication and logistical services, including store delivery of pre-hung interior and exterior doors. We believe our ability to provide: (i) a broad product range; (ii) frequent, rapid, on-time and complete delivery; (iii) consistency in products and merchandising; (iv) national service; and (v) special order programs differentiate us from our competitors.


Post-Transaction Initiatives

        We were acquired on April 6, 2005 by an affiliate of KKR. Since the acquisition we have implemented a strategic focus designed to enhance the operating performance of our business and deliver increased value to our customers.

        Our "Blueprint for Profitable Growth" focuses employees at all levels on achieving key customer and manufacturing metrics, including targets for customer service, product profitability and manufacturing efficiencies. To accomplish these goals we have deployed an intensive program based upon "Lean Sigma" methodologies, along with a comprehensive review of product pricing. In addition, we have introduced a detailed set of operational metrics which are used to assess facility performance and to benchmark best practices across the company. We believe that these initiatives will provide us with a strong platform for future profitability and growth.


Business Strengths

        We believe that we are distinguished by the following business strengths:

        Leading Global Manufacturer.    With operations in 18 countries and customers in over 70 countries, we are a leading manufacturer of doors in the United States, Canada, the United Kingdom and France.

        Diversified Business.    Our business is diversified by geography and distribution channel, with a broad product offering of doors. We sell products through multiple distribution channels, including one- and two-step distributors, retail home centers and wholesale building supply dealers, thereby reducing our reliance on any one channel.

        Focus on Stable End Market.    We generate the majority of our revenue from residential repair, renovation and remodeling spending, which has historically been less cyclical than new construction spending.

        Strong Brand Recognition.    Our brands are well recognized for their design, innovation, reliability and quality. We market our doors globally, primarily under the Masonite® and Premdor® brands, as well as other well-recognized names.

        Strong Customer Relationships with Well-Established Multi-Channel Distribution.    We have well-established relationships within all door distribution channels. Our top ten customers have been purchasing doors from us for more than 10 years on average and we believe that we are typically their leading door supplier.

        Low Cost Producer with Leading Technology and Infrastructure.    We have numerous design, process and product patents developed primarily at our 141,000 square foot research facility in West Chicago.

        Vertically Integrated Operations.    We are one of the few vertically integrated manufacturers of doors in the world, enabling us to control the many facets of production, decrease lead times and enhance customer service.

2




Business Strategy

        We intend to build upon our leading position in the door market worldwide through the following key elements of our business strategy:

        Implement the Blueprint for Profitable Growth.    Our Blueprint for Profitable Growth was introduced during the fourth quarter of 2005 and distributed to employees around the world and to many of our customers, suppliers and investors. The Blueprint provides direction for all employees with clear, distinct and common goals and actions that we believe will enable us to improve operations across our business.

        We identified three priorities which we believe will improve our performance:


        Enhance Value Proposition for Our Customers.    Through the implementation of Lean Sigma, we intend to further enhance the value we provide to our customers by decreasing our lead times and focusing on other key customer service metrics.

        Continue Leadership in New Product Design and Technology.    We consider our strong focus on research and development to be one of our major strengths and intend to capitalize on our leadership in this area through the development of new and innovative products and improved manufacturing processes.


Issuer Information

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

        Our principal executive offices are located at 1600 Britannia Road East, Mississauga, Ontario, Canada L4W 1J2 and One North Dale Mabry Highway, Suite 950, Tampa, Florida 33609. Our telephone number is (905) 670-6500 and (813) 877-2726, respectively. Our web site is located at www.masonite.com. Information on our web site does not constitute part of this prospectus and is not incorporated by reference herein.

3



Summary of the Terms of the Exchange Offer

        On April 6, 2005, in connection with the closing of the Transaction, we entered into a $770.0 million senior subordinated loan agreement. The proceeds of the loan were used to partially fund the Transaction. See "The Transaction". The senior subordinated loan initially carried an interest rate of LIBOR plus 6.00%, which increased over time to a maximum interest rate of 11% per annum. On October 6, 2006, the senior subordinated loan was repaid in full with the automatic issuance of a new debt obligation comprised of a senior subordinated term loan bearing an interest rate of 11% and maturing on April 6, 2015. Certain lenders exercised their option on and after October 6, 2006 to receive Senior Subordinated Notes due 2015 for all or a part of the principal amount of the senior subordinated term loan of such lender then outstanding (the "private placement").

        In this prospectus, the terms "outstanding notes" refers to the Senior Subordinated Notes due 2015 issued by Masonite Corporation (the "outstanding U.S. notes") and the Senior Subordinated Notes due 2015 issued by Masonite International Corporation (the "outstanding Canada notes") issued in the private placement; the term "exchange notes" refers to Senior Subordinated Notes due 2015 issued by Masonite Corporation and the Senior Subordinated Notes due 2015 issued by Masonite International Corporation, as registered under the Securities Act of 1933, as amended (the "Securities Act"); and the term "notes" refers to both the outstanding notes and the exchange notes.

General   In connection with the private placement, we entered into a registration rights agreement with The Bank of New York, as Trustee, for the holders of the outstanding notes (the "Trustee"), in which we and the guarantors agreed, among other things, to use our commercially reasonable efforts to file a registration statement within 90 days (January 4, 2007) after the date on which the outstanding notes were first issued and to cause the registration statement to become effective by the date that is 180 days (April 4, 2007) from the date outstanding notes were first issued.
    You are entitled to exchange in the exchange offer your outstanding notes for exchange notes representing the same underlying indebtedness, which are identical in all material respects to the outstanding notes except:
      the exchange notes have been registered under the Securities Act;
      the exchange notes are not entitled to certain registration rights which are applicable to the outstanding notes under the registration rights agreement; and
      certain additional interest rate provisions of the registration rights agreement are no longer applicable.
The Exchange Offer   We are offering to exchange up to:
      $412,000,000 aggregate principal amount of Senior Subordinated Notes due 2015 issued by Masonite Corporation, which have been registered under the Securities Act, for any and all outstanding Senior Subordinated Notes due 2015 issued by Masonite Corporation; and
      $358,000,000 aggregate principal amount of Senior Subordinated Notes due 2015 issued by Masonite International Corporation, which have been registered under the Securities Act, for any and all outstanding Senior Subordinated Notes due 2015 issued by Masonite International Corporation.
         

4


    Subject to the satisfaction or waiver of specified conditions, we will exchange, as evidence of the same underlying indebtedness, the exchange notes for all outstanding notes that are validly tendered and not validly withdrawn prior to the expiration of the applicable exchange offer. We will cause the exchange to be effected promptly after the expiration of the exchange offer.
    Upon completion of the exchange offer, there may be no market for the outstanding notes and you may have difficulty selling them.
Resales   Based on interpretations by the staff of the Securities and Exchange Commission, or the "SEC", set forth in no-action letters issued to third parties referred to below, we believe that you may resell or otherwise transfer exchange notes issued in the exchange offer without complying with the registration and prospectus delivery requirements of the Securities Act, if:
    1.   you are acquiring the exchange notes in the ordinary course of your business;
    2.   you do not have an arrangement or understanding with any person to participate in a distribution of the exchange notes;
    3.   you are not an "affiliate" of either of the Issuers within the meaning of Rule 405 under the Securities Act; and
    4.   you are not engaged in, and do not intend to engage in, a distribution of the exchange notes.
    If you are not acquiring the exchange notes in the ordinary course of your business, or if you are engaging in, intend to engage in, or have any arrangement or understanding with any person to participate in, a distribution of the exchange notes, or if you are an affiliate of the Issuers, then:
    1.   you cannot rely on the position of the staff of the SEC enunciated in Morgan Stanley & Co., Inc. (available June 5, 1991), Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the SEC's letter to Shearman & Sterling dated July 2, 1993, or similar no- action letters; and
    2.   in the absence of an exception from the position of the SEC stated in (1) above, you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale or other transfer of the exchange notes.
    If you are a broker-dealer and receive exchange notes for your own account in exchange for outstanding notes that you acquired as a result of market-making or other trading activities, you must acknowledge that you will deliver a prospectus, as required by law, in connection with any resale or other transfer of the exchange notes that you receive in the exchange offer. See "Plan of Distribution."
         

5


Expiration Date   The exchange offer will expire at 5:00 p.m., New York City time, on            , 2007, which is the 21st business day after the date of this prospectus, unless extended by us. We do not currently intend to extend the expiration date of the exchange offer.
Withdrawal   You may withdraw the tender of your outstanding notes at any time prior to the expiration date of the exchange offer. We will return to you any of your outstanding notes that are not accepted for any reason for exchange, without expense to you, promptly after the expiration or termination of the exchange offer.
Interest on the Exchange Notes and the Outstanding Notes   Each exchange note will bear interest at the rate per annum set forth on the cover page of this prospectus from the most recent date to which interest has been paid on the outstanding notes or, if no interest has been paid on the outstanding notes, from October 6, 2006. The interest on the notes will be payable on each April 15 and October 15, beginning April 15, 2007. No interest will be paid on outstanding notes following their acceptance for exchange.
Conditions to the Exchange Offer   The exchange offer is subject to customary conditions, which we may assert or waive. See "The Exchange Offer—Conditions to the exchange offer."
Procedures for Tendering Outstanding Notes   If you wish to participate in the exchange offer, you must complete, sign and date the accompanying letter of transmittal, or a facsimile of the letter of transmittal, according to the instructions contained in this prospectus and the letter of transmittal. You must then mail or otherwise deliver the letter of transmittal, or a facsimile of the letter of transmittal, together with the outstanding notes and any other required documents, to the exchange agent at the address set forth on the cover page of the letter of transmittal. If you hold outstanding notes through The Depository Trust Company, or "DTC", and wish to participate in the exchange offer for the outstanding notes, you must comply with the Automated Tender Offer Program procedures of DTC. By signing, or agreeing to be bound by, the letter of transmittal, you will represent to us that, among other things:
    1.   you are acquiring the exchange notes in the ordinary course of your business;
    2.   you do not have an arrangement or understanding with any person to participate in a distribution of the exchange notes;
    3.   you are not an "affiliate" of any of the Issuers within the meaning of Rule 405 under the Securities Act; and
    4.   you are not engaged in, and do not intend to engage in, a distribution of the exchange notes.
    If you are a broker-dealer and receive exchange notes for your own account in exchange for outstanding notes that you acquired as a result of market-making or other trading activities, you must represent to us that you will deliver a prospectus, as required by law, in connection with any resale or other transfer of such exchange notes.
         

6


    If you are not acquiring the exchange notes in the ordinary course of your business, or if you are engaged in, or intend to engage in, or have an arrangement or understanding with any person to participate in, a distribution of the exchange notes, or if you are an affiliate of any of the Issuers, then you cannot rely on the positions and interpretations of the staff of the SEC and you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale or other transfer of the exchange notes.
Special Procedures for Beneficial Owners   If you are a beneficial owner of outstanding notes that are held in the name of a broker, dealer, commercial bank, trust company or other nominee, and you wish to tender those outstanding notes in the exchange offer, you should contact such person promptly and instruct such person to tender those outstanding notes on your behalf.
Guaranteed Delivery Procedures   If you wish to tender your outstanding notes and your outstanding notes are not immediately available or you cannot deliver your outstanding notes, the letter of transmittal and any other documents required by the letter of transmittal or you cannot comply with the DTC procedures for book-entry transfer prior to the expiration date, then you must tender your outstanding notes according to the guaranteed delivery procedures set forth in this prospectus under "The Exchange Offer—Guaranteed delivery procedures."
Effect on Holders of Outstanding Notes   In connection with the issuance of the outstanding notes, we entered into a registration rights agreement with the Trustee for the holders of the outstanding notes that grants the holders of outstanding notes registration rights. By making the exchange offer, we will have fulfilled most of our obligations under the registration rights agreement. Accordingly, we will not be obligated to pay additional interest as described in the registration rights agreement. If you do not tender your outstanding notes in the exchange offer, you will continue to be entitled to all the rights and limitations applicable to the outstanding notes as set forth in the applicable indenture, except we will not have any further obligation to you to provide for the registration of the outstanding notes under the registration rights agreement and we will not be obligated to pay additional interest as described in the registration rights agreement, except in certain limited circumstances.
    To the extent that outstanding notes are tendered and accepted in the exchange offer, the trading market for outstanding notes could be adversely affected.
Consequences of Failure to Exchange   All untendered outstanding notes will continue to be subject to the restrictions on transfer set forth in the outstanding notes and in the indenture. In general, the outstanding notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Other than in connection with the exchange offer, we do not currently anticipate that we will register the outstanding notes under the Securities Act.
         

7


Certain Federal Income Tax Consequences   The exchange of outstanding notes for exchange notes in the exchange offer will not be a taxable event for United States or Canadian federal income tax purposes. See "Certain U.S. Federal Income Tax Consequences" and "Certain Canadian Federal Income Tax Consequences."
Use of Proceeds   We will not receive any cash proceeds from the issuance of exchange notes in the exchange offer.
Exchange Agent   The Bank of New York, whose address and telephone number are set forth in the section captioned "The exchange offer—exchange agent" of this prospectus, is the exchange agent for the exchange offer.

8



Summary of the Terms of the Exchange Notes

        The terms of the exchange notes are identical in all material respects to the terms of the outstanding notes, except that the exchange notes will not contain terms with respect to transfer restrictions or additional interest upon a failure to fulfill certain of our obligations under the registration rights agreement. The exchange notes will evidence the same debt as the outstanding notes. The exchange notes will be governed by the same indentures under which the outstanding notes were issued, and each series of the exchange notes and the outstanding notes will constitute a single class and series of notes for all purposes under the respective indenture. The following summary is not intended to be a complete description of the terms of the notes. For a more detailed description of the notes, see "Description of Notes." The outstanding notes and the exchange notes are collectively referred to herein as the "notes" unless the context otherwise requires.


Issuers

 

Masonite U.S. and Masonite Canada.

Securities

 

Up to $412,000,000 aggregate principal amount of 11% Senior Subordinated Notes due 2015 issued by Masonite U.S.; and

 

 

Up to $358,000,000 aggregate principal amount of 11% Senior Subordinated Notes due 2015 issued by Masonite Canada.

Maturity Date

 

The notes will mature on April 6, 2015.

Interest Payment Dates

 

We will pay interest on the notes on April 15 and October 15, commencing on April 15, 2007. Interest accrued on the indebtedness evidenced by the exchange notes from October 6, 2006.

Additional Amounts

 

If Masonite Canada is required to withhold or deduct any Canadian taxes from any payment under or with respect to its notes, it will pay such additional amounts as may be necessary so that the net amount received by each holder after such withholding or deduction will not be less than the amount such holder would have received if such taxes had not been withheld or deducted, subject to the exceptions described under the heading "Description of Notes—Additional Amounts."

Guarantees

 

All payments with respect to the notes, including principal and interest, are fully and unconditionally guaranteed on an unsecured senior basis by Masonite International, the Issuers' direct parent company, by the other Issuer, and by each of the Issuers' existing and future U.S. restricted subsidiaries and by certain of the Issuers' non-U.S. restricted subsidiaries.

Ranking

 

The outstanding notes are, and the exchange notes will be, our unsecured senior subordinated obligations and:

 

 


 

are subordinated in right of payment to our existing and future senior debt, including our senior secured credit facilities;

 

 


 

rank equally in right of payment to all of our future senior subordinated debt;

 

 


 

are effectively subordinated in right of payment to all of our existing and future secured debt (including our senior secured credit facilities), to the extent of the value of the assets securing such debt, and are structurally subordinated to all obligations of any of our subsidiaries that is not a guarantor of the notes; and
         

9



 

 


 

rank senior in right of payment to all of our future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the notes.

 

 

Similarly, the note guarantees with respect to the outstanding notes are, and the note guarantees with respect to the exchange notes will be, unsecured senior subordinated obligations of the guarantors and:

 

 


 

are subordinated in right of payment to all of the applicable guarantor's existing and future senior debt, including such guarantor's guarantee under our senior secured credit facilities;

 

 


 

rank equally in right of payment to all of the applicable guarantor's future senior subordinated debt;

 

 


 

are effectively subordinated in right of payment to all of the applicable guarantor's existing and future secured debt (including such guarantor's guarantee under our senior secured credit facilities), to the extent of the value of the assets securing such debt, and be structurally subordinated to all obligations of any subsidiary of a guarantor if that subsidiary is not also a guarantor of the notes; and

 

 


 

rank senior in right of payment to all of the applicable guarantor's future subordinated debt and other obligations that are, by their terms, expressly subordinated in right of payment to the notes.

 

 

As of September 30, 2006, (1) the notes and related guarantees ranked junior to approximately $1,225.4 million of senior indebtedness under our senior secured credit facilities, and (2) we had an additional $282.0 million of unutilized capacity under our senior secured revolving credit facility (excluding $8.2 million of outstanding undrawn letters of credit). In addition, the notes were structurally subordinated to $34.8 million of senior indebtedness incurred by our non-guarantor subsidiaries.

Optional Redemption

 

Prior to April 6, 2010, the Issuers may redeem all or a part of the notes at a redemption price equal to 100% of the principal amount of notes redeemed plus an applicable make-whole premium (as described in "Description of Notes—Optional Redemption") plus accrued and unpaid interest to the redemption date.

 

 

After April 6, 2010, the Issuers may redeem some or all of the notes at par plus accrued interest plus a premium equal to one half of the coupon on such notes, which premium shall decline ratably on each subsequent anniversary of April 6 to zero on April 6, 2014.
         

10



Optional Redemption After Certain Equity Offerings

 

In addition, before April 6, 2008, the Issuers may, at their option, redeem up to 35% of the aggregate principal amount of the notes at a redemption price equal to 111% of the face amount thereof with the proceeds of equity offerings;
provided that at least 65% of the notes originally issued under the applicable Indenture remain outstanding.

Change of Control Offer

 

Upon the occurrence of a change of control, the Issuers will be required, subject to certain conditions, to offer to repurchase the notes at a price equal to 101% of their principal amount plus accrued and unpaid interest and additional interest, if any, to the date of repurchase. See "Description of Notes—Offer to Purchase—Change of Control."

Asset Sale Proceeds

 

If we or our subsidiaries engage in asset sales, we generally must either invest the net cash proceeds from such sales in our business within a period of time, prepay senior indebtedness or make an offer to purchase a principal amount of the notes equal to the excess net cash proceeds. The purchase price of the notes will be 100% of their principal amount, plus accrued interest.

Certain Indenture Provisions

 

The Issuers issued the notes under indentures among the Issuers, Masonite International, the other guarantors and the trustee. The indentures limit the ability of the Issuers, Masonite International and their restricted subsidiaries to, among other things:

 

 


 

incur additional indebtedness and issue preferred stock;

 

 


 

make restricted payments;

 

 


 

place restrictions on the Issuers, Masonite International and their restricted subsidiaries to pay dividends or make other distributions;

 

 


 

make investments;

 

 


 

sell assets;

 

 


 

enter into transactions with affiliates;

 

 


 

merge or consolidate with other entities; and

 

 


 

create or incur liens.

 

 

Each of the covenants is subject to a number of important exceptions and qualifications. See "Description of Notes—Certain Covenants."

No Prior Market; Listing

 

The exchange notes will generally be freely transferable but will be a new issue of securities for which there will not initially be a market. Accordingly, there can be no assurance as to the development or liquidity of any market for the exchange notes.
         

11



ERISA Considerations

 

The notes may, subject to certain restrictions described in "Certain ERISA Considerations" herein, be sold and transferred to ERISA Plans and Plans.

Use of Proceeds

 

We will not receive any cash proceeds from the exchange offer.


Risk Factors

        See "Risk Factors" for a description of some of the risks you should consider before deciding to participate in the exchange offer.

12



Summary Consolidated Financial Data

        Set forth below is summary historical consolidated financial data of Masonite International Corporation, the entity acquired pursuant to the Transaction (the "Predecessor"), and summary historical consolidated financial data of Masonite International (the "Successor") at the dates and for the periods indicated. The historical data for the periods presented has been prepared in accordance with Canadian GAAP. The historical data of the Predecessor for the fiscal years ended December 31, 2003 and 2004 and the period from January 1, 2005 to April 6, 2005 have been derived from the Predecessor's historical consolidated financial statements included elsewhere in this prospectus, which have been audited by KPMG LLP. The historical data of the Successor presented as at December 31, 2005 and for the period from February 2, 2005 to December 31, 2005 has been derived from the Successor's historical consolidated financial statements included elsewhere in this prospectus which have been audited by KPMG LLP.

        Subsequent to December 31, 2005, Deloitte & Touche LLP was appointed as auditors of the Company. As at the current date, Deloitte & Touche LLP have not audited the financial statements of the Company for an period.

        The historical data for the periods from February 2, 2005 to September 30, 2005 and from January 1, 2006 to September 30, 2006 and as at September 30, 2006 have been derived from the unaudited consolidated financial statements of the Successor included elsewhere in this prospectus. This historical data includes, in the opinion of management, all adjustments necessary for a fair presentation of the operating results and financial condition of the Predecessor and Successor, respectively, for such periods and as of such dates.

        The summary unaudited pro forma consolidated financial data have been prepared to give effect to the Transaction (defined herein) as if it had occurred on January 1, 2005. The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable. The summary unaudited pro forma consolidated financial data are for information purposes only and do not purport to represent what our results of operations or financial position actually would have been if the Transaction had occurred at any date, and such data do not purport to project the results of operations for any future period.

        The summary historical consolidated financial data should be read in conjunction with and is qualified by reference to, "Unaudited Pro Forma Consolidated Financial Information," "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and accompanying notes thereto included elsewhere in this prospectus.

 
  Predecessor
  Successor(1)
  Combined(2)
  Pro Forma
  Successor(1)
  Combined(2)
  Successor(1)
 
  Fiscal Years
Ended
December 31,

  Period From
January 1,
to April 6,

  Period From
February 2,
to
December 31,

  Fiscal
Year Ended
December 31,

  Fiscal Year
Ended
December 31,

  Period From
February 2,
to
September 30,

  Nine Months Ended
September 30,

  Nine Months
Ended
September 30,

 
  2003
  2004
  2005
  2005
  2005
  2005
  2005
  2005
  2006
 
   
   
   
   
  (unaudited)

  (unaudited)

  (unaudited)

  (unaudited)

  (unaudited)

 
  (in millions of U.S. dollars)

Statement of Operations Data:                                    
Sales   $ 1,777.2   $ 2,199.9   $ 600.1   $ 1,828.4   $ 2,428.5   $ 2,428.5   $ 1,233.2   $ 1,833.3   $ 1,879.5
Cost of sales     1,380.2     1,722.7     486.7     1,497.9     1,984.7     1,964.2     1,007.9     1,494.6     1,486.9
   
 
 
 
 
 
 
 
 
Gross profit     397.1     477.2     113.4     330.4     443.8     464.3     225.3     338.7     392.6
   
 
 
 
 
 
 
 
 
Selling, general and administration expenses     162.2     189.9     54.4     161.3     215.7     217.7     105.8     160.2     159.2
Depreciation     47.5     58.5     17.9     60.3     78.2     79.3     39.0     57.0     65.3
Amortization     0.2     4.1     1.1     29.9     31.0     40.0     20.5     21.6     26.7
Interest     36.4     39.5     11.2     137.1     148.3     177.8     90.4     101.6     137.2
Other expense (income), net     3.1     7.7     66.4     22.6     89.0     12.0     20.5     86.8     16.6
   
 
 
 
 
 
 
 
 

13


 
  Predecessor
  Successor(1)
  Combined(2)
  Pro Forma
  Successor(1)
  Combined(2)
  Successor(1)
 
 
  Fiscal Years
Ended
December 31,

  Period From
January 1,
to April 6,

  Period From
February 2,
to
December 31,

  Fiscal Year
Ended
December 31,

  Fiscal Year
Ended
December 31,

  Period From
February 2,
to
September 30,

  Nine Months Ended
September 30,

  Nine Months
Ended
September 30,

 
 
  2003
  2004
  2005
  2005
  2005
  2005
  2005
  2005
  2006
 
 
   
   
   
   
  (unaudited)

  (unaudited)

  (unaudited)

  (unaudited)

  (unaudited)

 
 
  (in millions of U.S. dollars)

 
Income (loss) before income taxes and non-controlling interest     147.7     177.4     (37.7 )   (80.8 )   (118.5 )   (62.5 )   (50.9 )   (88.6 )   (12.5 )
Income taxes     34.5     42.7     (8.3 )   (16.3 )   (24.6 )   (6.3 )   (19.3 )   (27.6 )   (4.8 )
Non-controlling interest     5.5     6.8     1.3     5.3     6.6     6.6     4.0     5.3     5.6  
   
 
 
 
 
 
 
 
 
 
Net income (loss)(3)   $ 107.7   $ 128.0   $ (30.7 ) $ (69.8 ) $ (100.5 ) $ (62.8 ) $ (35.6 ) $ (66.2 ) $ (13.2 )
   
 
 
 
 
 
 
 
 
 
Other Financial Data:                                      
Capital expenditures   $ 49.5   $ 70.2   $ 12.4   $ 69.8   $ 82.2   $ 82.2   $ 41.2   $ 53.6     35.3  
EBITDA(4)     234.9     287.3     58.9     169.1     228.1     246.6     119.5     178.5     233.4  
Adjusted EBITDA(4)     298.4           228.9     256.8  
 
  Successor
 
  As at
December 31,

  As at
September 30,

 
  2005
  2006
 
   
  (unaudited)

 
  (in millions of U.S. dollars)

Balance Sheet Data:            
Cash and cash equivalents   $ 47.5   $ 61.3
Working capital     211.2     249.5
Total assets     3,297.3     3,262.8
Total debt     2,105.2     2,030.2
Total shareholder's equity     492.3     503.2

(1)
The only activity of the Successor in the February 2, 2005 to April 6, 2005 period is a realized exchange loss of $5.3 million to hedge the Canadian dollars required to close the Transaction. See note 1 of our consolidated financial statements contained elsewhere in this prospectus.

(2)
The combined financial data for the period ended September 30, 2005 and the year ended December 31, 2005 represents the combined historical results of the Predecessor and Successor for the periods reported. These combined results are for informational purposes only in order to facilitate discussion and analysis of our results of operations and do not purport to be a presentation in accordance with GAAP.

14


(3)
Reconciliation of certain financial data from Canadian GAAP to U.S. GAAP:

 
  Predecessor
  Successor
  Combined
  Pro Forma
  Successor
  Combined
  Successor
 
 
  Fiscal Years
Ended
December 31,

  Period From
January 1,
2005
to April 6,

  Period From
February 2,
2005 to
December 31,

  Fiscal Year
Ended
December 31,

  Fiscal Year Ended December 31,
  Period From
February 2,
2005 to
September 30,

  Nine Months
Ended
September 30,

  Nine Months
Ended
September 30,

 
 
  2003
  2004
  2005
  2005
  2005
  2005
  2005
  2005
  2006
 
 
   
   
   
   
  (unaudited)

  (unaudited)

  (unaudited)

  (unaudited)

  (unaudited)

 
Reconciliation of net income (loss)—Canadian GAAP to U.S. GAAP  
Net income (loss)—Canadian GAAP   $ 107.7   $ 128.0   $ (30.7 ) $ (69.8 ) $ (100.5 ) $ (62.8 ) $ (35.6 ) $ (66.2 ) $ (13.2 )
Effect of SFAS 133(a)     3.3     6.6     1.4         1.4             1.4      
Effect of EITF 88-16(b)                 0.3     0.3     0.3     0.4     0.3      
Tax effect of U.S. GAAP adjustments     (1.0 )   (1.9 )   (0.5 )   (0.2 )   (0.6 )   (0.1 )   (0.1 )   (0.6 )    
   
 
 
 
 
 
 
 
 
 
Net income (loss)—U.S. GAAP   $ 110.0   $ 132.7   $ (29.7 ) $ (69.6 ) $ (99.4 ) $ (62.6 ) $ (35.3 ) $ (65.0 ) $ (13.2 )
   
 
 
 
 
 
 
 
 
 
 
  Successor
 
 
  As at December 31,
  As at September 30,
 
 
  2005
  2006
 
 
   
  (unaudited)

 
Reconciliation of shareholder's equity—Canadian GAAP to U.S. GAAP        
Shareholder's equity—Canadian GAAP   $ 492.3   $ 503.2  
Effect of SFAS 133(a)     9.9     12.5  
Effect of EITF 88-16(b)     (5.8 )   (1.9 )
   
 
 
Shareholder's equity—U.S. GAAP   $ 496.4   $ 513.9  
   
 
 

(a)    SFAS No. 133: Accounting for derivative instruments and hedging activities ("SFAS 133"):

        SFAS 133 and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities—an Amendment of SFAS 133", ("SFAS 138") requires that all derivative instruments be reported on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships.

        Forward exchange contracts:

        The Company enters into forward exchange contracts to hedge certain forecasted cash flows. The contracts are for periods consistent with the forecasted transactions. All relationships between hedging instruments and hedged items, as well as risk management objectives and strategies are documented. Changes in the spot value of the foreign currency contracts that are designated, effective and qualified as cash flow hedges of forecasted transactions are reported in accumulated other comprehensive income and are reclassified into the same component of earnings and in the same period as the hedged transaction is recognized. Under Canadian GAAP, the derivative instruments are not marked to market and the related off balance sheet gains and losses are recognized in earnings in the same period as the hedged transactions.

15



        Interest rate swap agreements:

        The Company has entered into interest rate swap agreements to convert a portion of its floating rate debt into fixed rate debt in accordance with the Company's risk management objective of mitigating the variability and uncertainty in its cash flows due to variable interest rates. At the inception of these hedges, Masonite had met the criteria for designation and assessing the effectiveness of hedging relationships, thus these interest rate swaps were designated as cash flow hedges.

        For the Predecessor, the criteria under SFAS 133 were not met prior to the establishment of its interest rate swap agreements. Accordingly, any change in the fair value of the interest rate swaps was reported in income from inception to December 31, 2003. As of January 1, 2004, the Company had met the criteria for designation and assessing the effectiveness of hedging relationships, thus the interest rate swaps were designated as cash flow hedges. Under U.S. GAAP, changes in fair value of these financial instruments that are designated as effective and qualify as cash flow hedges are reported in accumulated other comprehensive income and are reclassified into income in the same period as the hedged transaction is reported.

(b)    EITF 88-16: Basis in leveraged buyout transactions:

        Under Canadian GAAP, the Transaction was accounted for using the purchase method with a 100% change in basis. Under U.S. GAAP, a portion of the purchase cost (representing approximately 1% of the purchase price) of the Transaction is accounted for at the carrying value of management's continuing equity interests. The termination of a former senior executive resulted in a step acquisition, as the percentage of the Company owned by management decreased. The results of this step acquisition are reflected in the operations of the Company in the Successor Period. As at December 31, 2005, approximately 0.4% of the purchase cost of the Transaction is accounted for at the carrying value of management's continuing equity interests. As a result, the purchase cost and the reduction of purchase cost is allocated pro rata to the assets acquired and liabilities assumed and shareholder's equity is reduced by a similar amount.

(4)
EBITDA, a measure used historically by management to measure operating performance, is defined as net income plus interest, income taxes, depreciation and amortization, other expense (income), net, (gain) loss on refinancing, net and non-controlling interest. Adjusted EBITDA is defined as EBITDA further adjusted to give effect to adjustments required in calculating covenant ratios and compliance under the indentures governing the notes and our senior secured credit facilities. EBITDA and Adjusted EBITDA are not presentations made in accordance with GAAP, are not measures of financial condition or profitability, and should not be considered as an alternative to (1) net income (loss) determined in accordance with GAAP or (2) operating cash flows determined in accordance with GAAP. Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow for management's discretionary use, as they do not include certain cash requirements such as interest payments, tax payments and debt service requirements. We believe that the inclusion of EBITDA and Adjusted EBITDA in this prospectus is appropriate to provide additional information to investors about the calculation of certain financial covenants in the indentures governing the notes and our senior secured credit facilities. Adjusted EBITDA is a material component of these covenants. For instance, both the indentures governing the notes and the senior secured credit facilities contain financial ratios that are calculated by reference to Adjusted EBITDA. Non-compliance with the financial ratio maintenance covenants contained in our senior secured credit facilities could result in the requirement to immediately repay all amounts outstanding under such facilities, while non-compliance with the debt incurrence ratio contained in the indentures governing the notes would prohibit us from being able to incur additional indebtedness other than pursuant to specified exceptions. Because not all companies use identical calculations, these presentations of EBITDA and Adjusted EBITDA may

16


 
  Predecessor
  Successor
  Combined
  Pro Forma
  Successor
  Combined
  Successor
 
 
  Fiscal Years
Ended
December 31,

  Period From
January 1,
2005
to April 6,

  Period From
February 2,
2005 to
December 31,

  Fiscal Year
Ended
December 31,

  Fiscal Year Ended December 31,
  Period From
February 2,
2005 to
September 30,

  Nine Months
Ended
September 30,

  Nine Months
Ended
September 30,

 
 
  2003
  2004
  2005
  2005
  2005
  2005
  2005
  2005
  2006
 
 
   
   
   
   
  (unaudited)

  (unaudited)

  (unaudited)

  (unaudited)

  (unaudited)

 
 
  (in millions of U.S. dollars)

 
Reconciliation of net income (loss) to EBITDA:                                      
Net income (loss)   $ 107.7   $ 128.0   $ (30.7 ) $ (69.8 ) $ (100.5 ) $ (62.8 ) $ (35.6 ) $ (66.2 ) $ (13.2 )
Interest     36.4     39.5     11.2     137.1     148.3     177.8     90.4     101.6     137.2  
Income taxes     34.5     42.7     (8.3 )   (16.3 )   (24.6 )   (6.3 )   (19.3 )   (27.6 )   (4.8 )
Depreciation and amortization     47.7     62.6     19.0     90.3     109.3     119.3     59.5     78.5     92.0  
Other expense (income)     3.1     7.7     66.4     22.6     89.0     12.0     20.5     86.8     16.6  
Non-controlling interest     5.5     6.8     1.3     5.3     6.6     6.6     4.0     5.3     5.6  
   
 
 
 
 
 
 
 
 
 
EBITDA   $ 234.9   $ 287.3   $ 58.9   $ 169.1   $ 228.1   $ 246.6   $ 119.5   $ 178.5   $ 233.4  
   
 
 
 
 
 
 
 
 
 
 
  Pro Forma
  Combined
  Successor
 
 
  Fiscal Year
Ended
December 31,

  Nine Months
Ended
September 30,

  Nine Months
Ended
September 30,

 
Reconciliation of EBITDA to Adjusted EBITDA:

 
  2005
  2005
  2006
 
EBITDA   $ 246.6   $ 178.5   $ 233.4  
  Receivables transaction charges(a)     6.5     4.2     5.9  
  Inventory purchase accounting adjustment(b)     1.2     20.5      
  U.S. fire(c)     5.0     5.0      
  Facility closures/realignments(d)     1.8     1.8     1.9  
  Hurricanes impact(e)     7.9     7.9     (0.7 )
  U.K. fire(f)     1.6          
  Inventory losses(g)     8.4         9.0  
  Acquisitions impact (including synergies)(h)     9.5     7.8      
  Stock-based compensation(i)     4.5     1.8     1.2  
  Franchise and capital tax     3.0     1.4     1.9  
  Foreign exchange gains     (4.2 )   (1.3 )   (0.6 )
  Craftmaster contract termination(j)     1.3     1.3      
  Other(k)     5.3         4.7  
   
 
 
 
Adjusted EBITDA   $ 298.4   $ 228.9   $ 256.8  
   
 
 
 

17


18



RISK FACTORS

        You should consider carefully the following information about these risks, together with the other information contained in this prospectus, before participating in the exchange offer.

Risks Related to Our Indebtedness and the Notes

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

        As of September 30, 2006, we had outstanding indebtedness of approximately $2,030.2 million, and availability of $273.8 million under our revolving credit facility after giving effect to outstanding letters of credit. Our outstanding indebtedness represented approximately 78% of our total capitalization (based on total capitalization of $2,594.7 million).

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

        Any of the above listed factors could materially adversely affect our business and results of operations. Furthermore, our interest expense could increase if interest rates increase because our senior secured credit facilities does bear interest at floating rates. See "Description of Notes—Interest" and "Description of Certain Indebtedness—Senior Secured Credit Facilities."

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

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

19



To service our indebtedness, we require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control, and any failure to meet our debt service obligations could harm our business, financial condition and results of operations.

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

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

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

        A substantial portion of our assets are owned by subsidiaries. Repayment of our indebtedness, including the notes, is dependent on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Although certain of our subsidiaries are guarantors of the notes, our subsidiaries do not have any obligation to pay amounts due on the notes or to make funds available for that purpose. Our subsidiaries may not be able to, or be permitted to, make distributions to enable us to make payments in respect of our indebtedness, including the notes. Each of our subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. While the indentures governing the notes limit the ability of our subsidiaries to incur consensual restrictions on their ability to pay dividends or make other intercompany payments to us, these limitations are subject to certain qualifications and exceptions. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness, including the notes.

The assets of our non-guarantor subsidiaries may not be available to make payments on the notes.

        Your claims in respect of the notes will be effectively subordinated to all of the liabilities of our non-guarantor subsidiaries, including trade payables, and the claims (if any) of third party holders of preferred equity interests in our non-guarantor subsidiaries.

The notes are not secured by the Issuers' assets, and the lenders under the Issuers' senior secured credit facilities are entitled to remedies available to a secured lender, which gives them priority over you to collect amounts due to them.

        In addition to being contractually subordinated to all existing and future senior indebtedness, the notes and the guarantees thereof are not secured by any of the Issuers' assets. In contrast, the Issuers' obligations under the senior secured credit facilities are secured by substantially all of the Issuers' assets and substantially all of the assets of Masonite International and of each guarantor including a perfected first-priority pledge of all the capital stock held by either Issuer or any guarantor (which will be limited in the case of any foreign subsidiary of a U.S. entity to 65% of the voting stock of such

20



foreign subsidiary, and, in the case of other subsidiaries other than U.S. subsidiaries, as the Issuers and The Bank of Nova Scotia agree). In addition, we may incur other senior indebtedness, which may be substantial in amount, and which may, in certain circumstances, be secured. As of September 30, 2006, we had $1,225.4 million of senior secured indebtedness. The Issuers' senior secured credit facilities allow us, subject to certain conditions, to incur additional term loans under the term facility in an aggregate principal amount of up to $300.0 million, which additional term loans would have the same security and guarantees as the senior secured credit facilities.

        In addition, we established receivables sales arrangements with a maximum amount of $135.0 million pursuant to which we from time to time are permitted to sell non-interest bearing trade accounts receivable. We do not have a retained interest in the receivables sold under these sales arrangements. Accordingly, any receivables sold pursuant to these facilities do not constitute assets of ours and will not be available to satisfy payment obligations on the notes.

Because the notes and the guarantees will be unsecured obligations, your right of repayment may be compromised if any of the following situations occur:

        If any of these events occurs, the secured lenders could sell those of our assets in which they have been granted a security interest, to your exclusion, even if an event of default exists under the indentures at such time. As a result, upon the occurrence of any of these events, there may not be sufficient funds to pay amounts due on the notes and the guarantees.

U.S. federal and state and Canadian federal and provincial laws allow courts, under specific circumstances, to void the guarantees, subordinate claims in respect of the guarantees and require note holders to return payments received from the guarantors.

        Masonite International and the guarantors guarantee and the Issuers cross-guarantee the Issuers' obligations under the notes. The issuance of the guarantees by the guarantors may be subject to review under U.S. federal or state or Canadian federal or provincial laws if a bankruptcy, liquidation or reorganization case or a lawsuit, including in circumstances in which bankruptcy is not involved, were commenced at some future date any Issuer or guarantor, by or on behalf of, the Issuers' unpaid creditors or the unpaid creditors of Masonite International or of the other guarantors. Under the federal U.S. and Canadian bankruptcy laws and comparable provisions of state and provincial fraudulent transfer laws, a court may, among other things, void or otherwise decline to enforce a guarantor's guaranty, or subordinate such guaranty to the applicable guarantor's existing and future indebtedness. While the relevant laws may vary from jurisdiction to jurisdiction, a court might do so if it found that when the applicable guarantor entered into its guaranty or when the guaranty became effective (including following the suspension thereof) or, in some jurisdictions, when payments became due under such guaranty, the applicable guarantor received less than reasonably equivalent value or fair consideration and either:

21


        The court might also void a guaranty, without regard to the above factors, if the court found that the applicable guarantor entered into its guaranty with actual intent to hinder, delay or defraud its creditors. In addition, any payment by a guarantor pursuant to its guarantees could be voided and required to be returned to such guarantor or to a fund for the benefit of such guarantor's creditors.

        A court would likely find that a guarantor did not receive reasonably equivalent value or fair consideration for such guaranty if such guarantor did not substantially benefit directly or indirectly from the issuance of the notes. In addition, upon certain circumstances specified in "Description of Notes," a guaranty that had previously been suspended by virtue of the notes having received investment grade ratings will be required to be reinstated. A court might void a guaranty if it found that the applicable guarantor was insolvent when it reinstated its guaranty.

        If a court were to void a guaranty, you would no longer have a claim against the applicable guarantor. Sufficient funds to repay the notes may not be available from other sources, including the remaining guarantors, if any. In addition, the court might direct you to repay any amounts that you already received from any guarantor.

        The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent if:

        To the extent a court voids any of the guarantees as fraudulent transfers or holds any of the guarantees unenforceable for any other reason, holders of notes would cease to have any direct claim against the applicable guarantor. If a court were to take this action, the applicable guarantor's assets may be applied first to satisfy the applicable guarantor's liabilities, if any, before any portion of its assets could be applied to the payment of the notes.

        Each guaranty will contain a provision intended to limit the guarantor's liability to the maximum amount that it could incur without causing the incurrence of obligations under its guaranty to be a fraudulent transfer. This provision may not protect the guarantees from being voided under fraudulent transfer law, or may reduce the guarantor's obligation to an amount that effectively makes the guaranty worthless.

Canadian bankruptcy and insolvency laws may impair the enforcement of remedies under the notes and guarantees.

        The rights of trustees who represent the holders of the notes issued by Masonite Canada and the guarantees issued by Masonite Canada, Masonite International and the Canadian subsidiary guarantors to enforce remedies are likely to be significantly impaired by the restructuring provisions of applicable Canadian federal bankruptcy, insolvency and other restructuring legislation if the benefit of such legislation is sought with respect to any of such entities. For example, both the Bankruptcy and Insolvency Act (Canada) and the Companies' Creditors Arrangement Act (Canada) contain provisions enabling an insolvent person to obtain a stay of proceedings against its creditors and others and to prepare and file a proposal or plan of arrangement for consideration by all or some of its creditors to be voted on by the various classes of its creditors affected thereby. Such a restructuring proposal, if

22



accepted by the requisite majorities of each affected class of creditors and if approved by the relevant Canadian court, would be binding on all creditors within the affected class of creditors, who may not otherwise be willing to accept it. Moreover, this legislation permits the insolvent debtor to retain possession and administration of its property, subject to court oversight, even though it may be in default under applicable debt instruments and the stay against proceedings remains in place.

        The powers of Canadian courts under the Bankruptcy and Insolvency Act and particularly under the Companies' Creditors Arrangements Act have been exercised broadly to protect a restructuring entity from actions taken by creditors and other parties. Accordingly, we cannot predict if payments under the notes issued by Masonite Canada or the guarantees issued by Masonite Canada, Masonite International or the Canadian subsidiary guarantors would be made following commencement of or during such proceeding, whether or when the trustee could exercise its rights under the indentures governing the notes or guarantees or whether and to what extent holders of the notes issued by Masonite Canada or the notes guaranteed by Masonite Canada, Masonite International or the Canadian subsidiary guarantors would be compensated for any delays in payment, if any, of principal, interest and costs, including the fees and disbursements of the trustee.

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

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

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

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

23


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

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

We may not be able to repurchase notes upon a change of control.

        Certain events constitute a change of control under the indentures governing the notes. Upon the occurrence of such events, we will be required to offer to repurchase your notes at a purchase price in cash equal to 101% of the principal amount of the notes plus accrued and unpaid interest, if any, to the extent applicable. The senior secured credit facilities provide that certain change of control events (including a change of control as defined in the indentures relating to the notes) constitute a default. Any future credit agreement or other agreements relating to senior indebtedness to which we become a party may contain similar provisions. If we experience a change of control that triggers a default under our senior secured credit facilities, we could seek a waiver of such default or seek to refinance our senior secured credit facilities. In the event we do not obtain such a waiver or do not refinance the senior secured credit facilities, such default could result in amounts outstanding under our senior secured credit facilities being declared due and payable. In the event we experience a change of control that results in our having to offer to repurchase your notes, we may not have sufficient financial resources to satisfy all of our obligations under our senior secured credit facilities. A failure to make the applicable change-of-control offer or to pay the applicable change-of-control purchase price when due would result in a default under the indentures governing the notes. In addition, the change-of-control covenant in the indentures governing the notes does not cover all corporate reorganizations, mergers or similar transactions and may not provide you with protection in a highly leveraged transaction. See "Description of Notes—Certain Covenants."

Your right to receive payments on the notes and the guarantees will be junior to the rights of the lenders under our senior secured credit facilities and to all of our other senior indebtedness, including any of our future senior debt.

        The notes and the guarantees thereof will rank in right of payment behind all of the Issuers' and the guarantors' existing senior indebtedness, including borrowings under our senior secured credit

24



facilities and the guarantees thereof, and will rank in right of payment behind all of the Issuers' and the guarantors' future borrowings, except for any future indebtedness that expressly provides that it ranks equal or junior in right of payment to the notes and the related guarantees. See "Description of Notes—Subordination of the Notes." As of September 30, 2006, we had approximately $1,225.4 million of senior indebtedness, and the revolving credit portion of our senior secured credit facilities would have provided for additional borrowings of up to $273.8 million after giving effect to outstanding letters of credit, all of which would be senior indebtedness when drawn. Our senior secured credit facilities allow us, subject to certain conditions, to incur additional term loans under the term facility in an aggregate principal amount of up to $300.0 million. As of September 30, 2006, the guarantors had approximately $1,225.4 million of senior indebtedness which represented guarantees of borrowings under our senior secured credit facilities and the notes. We will also be permitted to incur substantial additional indebtedness, including senior indebtedness, in the future.

        We may not pay principal, premium, if any, interest or other amounts on account of the notes or the guarantees in the event of a payment default or certain other defaults in respect of certain of our senior indebtedness, including debt under the senior secured credit facilities and the notes, unless the senior indebtedness has been paid in full or the default has been cured or waived. In addition, in the event of certain other defaults with respect to the senior indebtedness, we may not be permitted to pay any amount on account of the notes or the guarantees for a designated period of time. See "Description of Notes—Ranking."

        Because of the subordination provisions in the notes and the guarantees, in the event of a bankruptcy, liquidation, reorganization or similar proceeding relating to us or a guarantor, the Issuers' or the guarantor's assets will not be available to pay obligations under the notes or the applicable guarantee until the applicable Issuer or guarantor has made all payments in cash on its senior indebtedness. Sufficient assets may not remain after all these payments have been made to make any payments on the notes or the applicable guarantee, including payments of principal or interest when due. In addition, in the event of a bankruptcy, liquidation or reorganization or similar proceeding relating to either Issuer or the guarantors, holders of the notes will participate with trade creditors and all other holders of the Issuers' and the guarantors' senior subordinated indebtedness, as the case may be, in the assets remaining after the Issuers and the guarantors have paid all of the senior indebtedness. However, because the indentures require that amounts otherwise payable to holders of the notes in a bankruptcy or similar proceeding be paid to holders of senior indebtedness instead, holders of the notes may receive less, ratably, than holders of trade payables or other unsecured, unsubordinated creditors in any such proceeding. In any of these cases, the Issuers and the guarantors may not have sufficient funds to pay all of our creditors, and holders of the notes may receive less, ratably, than the holders of senior indebtedness or other unsecured debt. See "Description of Notes—Ranking."

If you choose not to exchange your outstanding notes in the exchange offer, the transfer restrictions currently applicable to your outstanding notes will remain in force and the market price of your outstanding notes could decline.

        If you do not exchange your outstanding notes for exchange notes representing the same underlying indebtedness in the exchange offer, then you will continue to be subject to the transfer restrictions on the outstanding notes as set forth in the notes. In general, the outstanding notes may not be offered or sold unless they are registered or exempt from registration under the Securities Act and applicable state securities laws. Except as required by the registration rights agreement, we do not intend to register resales of the outstanding notes under the Securities Act. You should refer to "Prospectus summary—Summary of the terms of the exchange offer" and "Description of Notes—The Exchange Offer; Registration Rights" for information about how to tender your outstanding notes.

25



        The tender of outstanding notes under the exchange offer will reduce the principal amount of the outstanding notes outstanding, which may have an adverse effect upon and increase the volatility of, the market price of the outstanding notes due to reduction in liquidity.

Your ability to transfer the notes may be limited by the absence of an active trading market, and there is no assurance that any active trading market will develop for the notes.

        An active market for any of the exchange notes may not develop or, if developed, it may not continue. Historically, the market for non investment-grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the exchange notes. The market, if any, for any of the exchange notes may not be free from similar disruptions and any such disruptions may adversely affect the prices at which you may sell your exchange notes. In addition, subsequent to their initial issuance, the exchange notes may trade at a discount from their initial offering price, depending upon prevailing interest rates, the market for similar notes, our performance and other factors.

Your ability to sell the notes may be limited by the absence of an active trading market, and if one develops, it may not be liquid.

        We do not intend to apply for the notes or any exchange notes to be listed on any securities exchange or to arrange for quotation. As a result, any trading market for the notes or the exchange notes or, in the case of any holders of notes that do not exchange them, the trading market for the notes following the offer to exchange the notes for exchange notes evidencing the same underlying indebtedness may not be liquid. You may not be able to sell your notes or exchange notes at a particular time or at favorable prices or at all.

        The liquidity of any market for the notes and the future trading prices of the notes will depend on many factors, including:

Risks Related to Our Business

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

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

26


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

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

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

        The new home construction sector has historically been cyclical, and since May 2006 has commenced a major downturn in the United States. From its peak in May 2006, unadjusted monthly housing starts have declined 31% through the end of October. In addition, the repair, renovation and remodeling sector in the United States has recently experienced weakening year-over-year sales, and there can be no assurance that these levels of lower demand will not continue, or deteriorate further, for a significant amount of time. Our relatively narrow focus within the building products industry amplifies the risks inherent in such a market downturn. In addition, we completed a series of general and selective price increases during 2006. Should pricing discipline in the door market deteriorate during times of softer market conditions, we may not be able to maintain these increases. The impact on our revenues, profits and profit margin will be determined by many factors, including industry capacity, industry pricing discipline, and our ability to implement the series of initiatives encompassed in our Blueprint for Profitable Growth.

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

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

27



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

        Our customers consist mainly of wholesalers and retail home centers. Our top 10 major customers together accounted for approximately 50% of our gross sales in fiscal year 2005, while our largest customer accounted for approximately 26% of our gross sales in fiscal year 2005. We expect that a small number of customers will continue to account for a substantial portion of our gross sales for the foreseeable future. In addition, we generally do not enter into contracts with our customers and they generally do not have an obligation to purchase products from us. The loss of, or a diminution in, our relationship with our largest customer or any other major customer could have a material adverse effect on us. Our competitors may adopt more aggressive pricing and sales policies and devote greater resources to the development, promotion and sale of their products than we do, which could result in a loss of customers. This risk is particularly high in periods of excess industry capacity or lower economic activity. The loss of, or a reduction in orders from, any significant customers, losses arising from customer disputes regarding shipments, fees, merchandise condition or related matters, or our inability to collect accounts receivable from any major customer, could have a material adverse effect on us. Also, revenue from customers that have accounted for significant revenue in past periods, individually or as a group, may not continue in future periods, or if continued, may not reach or exceed historical levels in any period. Also, we have no operational or financial control over these customers and have limited influence over how they conduct their businesses. If any of these customers fails to remain competitive in their respective markets or encounters financial or operational problems, our revenue and profitability may decline, which could make it difficult for us to make some or all of the payments due on the notes.

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

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

Changes in consumer preferences could adversely affect our business.

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

28



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

        Our business experiences seasonal business swings, which correspond primarily to the North American seasons, particularly in the Northeastern and Midwestern United States and in most regions of Canada. In addition to expected seasonal weather changes, unusually prolonged periods of cold, rain, blizzards, hurricanes or other severe weather patterns could delay or halt renovation and construction activity. For example, unusually severe weather can lead to reduced construction activity and magnify the seasonal decline in our sales, cash flows from operations and results of operations during the winter months. Negative cash flows typically occur in the first quarter and also, to a certain extent, in the second quarter of each year. This seasonality requires that we manage our cash flows over the course of the year. If sales were to fall substantially below what we would normally expect during certain periods, our annual financial results would be adversely impacted and our ability to service our debt may also be adversely affected.

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

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

        We operate over 80 facilities worldwide. Many of our facilities are located in areas that are vulnerable to hurricanes, earthquakes and other natural disasters. In the event that a hurricane, earthquake, natural disaster, fire or other catastrophic event were to interrupt our operations for any extended period of time, it could delay shipment of merchandise to our customers, damage our reputation or otherwise have a material adverse effect on our financial condition and results of operations. For example, during the first quarter of 2005, prior to the Transaction, we experienced an equipment electrical fire at our facility located in Laurel, Mississippi. The cost to repair the plant's equipment was immaterial, but two of the three production lines were inoperative for approximately three weeks. The lost production had a significant impact on our consolidated margins during that period.

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

We are subject to the credit risk of our customers.

        We provide credit to our customers in the normal course of business. We generally do not require collateral in extending such credit. Although we purchase worldwide credit insurance, obtain letters of

29



credit from our customers in appropriate circumstances and reserve for this exposure, we cannot assure you that the exposure will not be greater than we anticipate. An increase in the exposure, coupled with material instances of default, could have an adverse effect on our business, financial condition, results of operations and cash flow.

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

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

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

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

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

        Our financial performance is affected by the availability of qualified personnel and the cost of labor. We have approximately 13,200 employees and contract laborers. Approximately 3,728, or 28%, of our employees are unionized. Employees represented by these unions are subject to 24 collective bargaining agreements, six of which are with local unions in the United States. Four of our North American collective bargaining agreements are subject to renewal in 2007, and our collective bargaining agreements in France, United Kingdom and South Africa are subject to annual renewal. If we are unable to enter into new, satisfactory labor agreements with our unionized employees upon expiration of their collective bargaining agreements, we could experience a significant disruption of our operations, which could cause us to be unable to deliver products to customers on a timely basis. In 2004, our results were negatively affected by a 25-day strike at an interior door manufacturing facility, which contract is subject to renewal in 2007. If our workers were to engage in a strike, a work stoppage or other slowdowns, we could experience disruptions of our operations. Such disruptions could result in

30



a loss of business and an increase in our operating expenses, which could reduce our profit margins. In addition, our non-unionized labor force may become subject to labor union organizing efforts, which could cause us to incur additional labor costs and increase the related risks that we now face.

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

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

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

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

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

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

31



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

        We have operations in the United States, Canada, Europe and, to a lesser extent, other foreign jurisdictions. Approximately 79% of our sales are generated in North America and approximately 18% in Europe, with the remainder in South America, Asia and Africa. Further, certain of our businesses obtain raw materials and finished goods from foreign suppliers. Accordingly, our business is subject to political, economic and other risks that are inherent in operating in numerous countries. These risks include:

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

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

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

        In addition, the requirements of such laws and enforcement policies have generally become more stringent over time. Changes in environmental laws and regulations or in their enforcement or the discovery of previously unknown or unanticipated contamination or non-compliance with environmental laws or regulations relating to our properties or operations could result in significant environmental liabilities or costs which could adversely affect our business. In addition, we might incur increased operating and maintenance costs and capital expenditures and other costs to comply with increasingly stringent air emission, wastewater discharge or waste disposal management laws or other future requirements. Typically under ten percent of our capital is spent to comply with our environmental, health and safety requirements. In addition, we will spend approximately $9.5 million over 2006 and 2007 to comply with the U.S. Maximum Achievable Control Technology requirements under the Clean Air Act. Also, discovery of currently unknown or unanticipated conditions could require responses that

32



would result in significant liabilities and costs. Accordingly, we are unable to predict the ultimate costs of compliance with or liability under environmental laws, which may be larger than current projections.

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

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

        Our financial results may be adversely affected by fluctuating exchange rates. In the year ended December 31, 2005, approximately 31% of our net sales were generated outside of the United States although a large portion of these sales are denominated in U.S. dollars. We believe that the percentage of our costs denominated in currencies other than the U.S. dollar is greater than the percentage of our sales in those other currencies. For example, at most of our manufacturing facilities, the prices for a significant portion of our raw materials are quoted in the domestic currency of the country where the facility is located or other currencies that are not U.S. dollars. We also have substantial assets outside the United States. We are subject to currency exchange rate risk to the extent that some of our costs are denominated in currencies other than those in which we earn revenues. Also, since our financial statements are denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on many aspects of our financial results. Changes in currency exchange rates for any country in which we operate may require us to raise the prices of our products in that country or allow our competitors to sell their products at lower prices in that country. As our borrowings under these notes and under our senior secured credit facilities are denominated in a currency (U.S. dollars) that is different from the currencies in which we derive a significant portion of our net sales, we are also exposed to currency exchange rate risk with respect to those financial obligations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk—Currency Risk."

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

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

        Our continued success depends on our ability to develop and introduce new or improved products, to improve our manufacturing and product service processes, and to protect our proprietary rights to the technologies used in our products. If we fail to do so, or if existing or future competitors achieve greater success than we do in these areas, our results of operations may decline and we may not be able to make some or all of the payments due on the notes.

        We rely on a combination of U.S., Canadian and, to a lesser extent, European patent, trademark, copyright and trade secret laws as well as licenses, nondisclosure, confidentiality and other contractual

33



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

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

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

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

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

34



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

        Maintaining effective internal controls over financial reporting is necessary for us to produce reliable financial reports and is important in helping to prevent financial fraud. In addition, we are in the process of integrating the financial reporting processes of those Central and Eastern European entities we acquired in 2005 with our reporting processes. We are not currently required to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules of the SEC, which, beginning with our annual report for fiscal year 2007, will require, among other things, our management to assess and report on annually the effectiveness of our internal controls and, beginning with our annual report for fiscal year 2008, our independent registered public accounting firm to issue a report on our assessment and the effectiveness of our internal controls.

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

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

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

        We restated our consolidated financial statements for the period from February 2, 2005 to December 31, 2005 after we determined that our income tax accounting surrounding certain income tax valuation allowances and other carryforward attributes required revision. As a result and as more fully described in note 2 to our consolidated financial statements contained elsewhere in this prospectus, we reduced our net future income tax liability by an aggregate amount of $33,790, reduced our net loss for the period and our accumulated deficit by $20,890 and recharacterized $12,900 of goodwill as future tax assets.

        Any future restatement may adversely impact our business and operating results, and may also cause investors to lose confidence in our reported information.

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

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

35



Our controlling shareholder may have interests that conflict with yours.

        We are controlled by KKR. In conjunction with our management, KKR oversees our affairs and policies. Circumstances may occur in which the interests of KKR could be in conflict with the interests of the holders of the notes. In addition, KKR may have an interest in pursuing acquisitions, divestitures or other transactions that, in its judgment, could enhance its equity investment, even though such transactions might involve risks to the holders of the notes if the transactions resulted in our being more leveraged or significantly change the nature of our business operations or strategy. In addition, if we encounter financial difficulties, or we are unable to pay our debts as they mature, the interests of KKR might conflict with those of the holders of the notes. In that situation, for example, the holders of the notes might want us to raise additional equity from KKR or other investors to reduce our leverage and pay our debts, while KKR might not want to increase their investment in us or have their ownership diluted and instead choose to take other actions, such as selling our assets. Additionally, KKR and certain of their affiliates are in the business of making investments in companies and currently hold, and may from time to time in the future acquire, interests in businesses that directly or indirectly compete with certain portions of our business or are suppliers or customers of ours. Further, if it pursues such acquisitions or makes further investments in our industry, those acquisition and investment opportunities may not be available to us. While KKR is permitted under the indentures relating to the notes to sell a portion of its equity in us, so long as KKR continues to indirectly own a significant amount of our equity, even if such amount is less than 50%, it will continue to be able to influence or effectively control our decisions.

36



FORWARD-LOOKING STATEMENTS

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

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

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

37



USE OF PROCEEDS

        The exchange offer is intended to satisfy our obligations under the registration rights agreement that we entered into in connection with the private placement. We will not receive any cash proceeds from the issuance of the exchange notes in the exchange offer. As consideration for issuing the exchange notes as contemplated in this prospectus, we will receive in exchange a like principal amount of outstanding notes, the terms of which are identical in all material respects to the exchange notes and represent the same underlying indebtedness, except that the exchange notes will not contain terms with respect to transfer restrictions or additional interest upon a failure to fulfill certain of our obligations under the registration rights agreement. The outstanding notes that are surrendered in exchange for the exchange notes will be retired and cancelled and cannot be reissued. As a result, the issuance of the exchange notes will not result in any increase or decrease in our capitalization.

38



CAPITALIZATION

        The following table sets forth cash and cash equivalents and consolidated capitalization as of September 30, 2006.

        This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the historical consolidated financial statements and accompanying notes thereto appearing elsewhere in this prospectus.

 
  As at September 30, 2006
 
  (in millions of U.S. dollars)

Cash and cash equivalents   $ 61.3
   

Debt (including current maturities):

 

 

 
  Revolving credit facility(1)     68.0
  Other bank loans     13.8
  Term loan(2)     1,157.4
  Senior subordinated loan(3)     770.0
  Senior subordinated term loan(3)    
  Senior subordinated notes due 2015 issued by Masonite U.S.(3)    
  Senior subordinated notes due 2015 issued by Masonite Canada(3)    
  Other subsidiary long-term debt     21.0
   
  Total debt     2,030.2

Total shareholder's equity

 

 

503.2
   

Total capitalization

 

$

2,594.7
   

(1)
Consists of a six-year senior secured $350.0 million revolving credit facility.

(2)
Consists of an eight-year senior secured $1,175.0 million term loan facility.

(3)
In connection with the Transaction, we entered into a $770.0 million senior subordinated loan facility, the proceeds of which were used to partially fund the Transaction. On October 6, 2006, the senior subordinated loan facility was repaid in full by the automatic issuance of the debt comprising the new senior subordinated term loan facility. On and after October 6, 2006, certain senior subordinated term loan lenders opted to receive an aggregate of $393.0 million of senior subordinated notes due 2015 issued by Masonite U.S. and an aggregate of $354.2 million of senior subordinated notes due 2015 issued by Masonite Canada as evidence of the respective principal amounts of their term loans. As of the date hereof, certain senior subordinated term loan lenders were eligible to convert $18.9 million of senior subordinated term loans under which Masonite U.S. is the borrower and $3.7 million of senior subordinated term loans under which Masonite Canada is the borrower into the equivalent amounts of Senior Subordinated Notes due 2015 issued by Masonite U.S. or Masonite Canada, respectively.

39



THE TRANSACTION

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

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

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

        In connection with the Acquisition:

40


Ownership and Corporate Structure

        The chart below illustrates our ownership and corporate structure as of the date hereof.

CHART



(1)
Investment funds affiliated with KKR own 80.32% of Masonite Holding Corporation's outstanding common stock, with the remainder held by certain members of management. See "Major Shareholders and Related Party Transactions."

(2)
Masonite International guarantees on a senior basis the senior secured credit facilities and guarantees the notes on a senior basis.

(3)
Masonite U.S. guarantees on a senior basis the obligations of Masonite Canada under the senior secured credit facilities and guarantees the notes issued by Masonite Canada on a senior subordinated basis.

(4)
Consists of a six-year $350.0 million revolving credit facility and an eight-year $1,175.0 million term loan facility, of which $68.0 million and $1,157.4 million, respectively, were outstanding as of September 30, 2006. The senior secured credit facilities are (i) guaranteed on a senior basis by Masonite International and each subsidiary that guarantees the notes and (ii) secured by a pledge of substantially all of our assets, including the common stock of certain subsidiaries.

(5)
In connection with the Transaction, we entered into a $770.0 million senior subordinated loan facility, the proceeds of which were used to partially fund the Transaction. On October 6, 2006, the senior subordinated loan facility was repaid in full by the automatic issuance of the debt comprising the new senior subordinated term loan facility. On and after October 6, 2006, certain senior subordinated term loan lenders opted to receive the an aggregate of $393.0 million of senior subordinated notes due 2015 issued by Masonite U.S. and an aggregate of $354.2 million of senior subordinated notes due 2015 issued by Masonite Canada as evidence of the respective principal amounts of their term loans. As of the date hereof, certain senior subordinated term loan lenders were eligible to convert $18.9 million of senior subordinated term loans under which Masonite U.S. is the borrower and $3.7 million of senior subordinated term loans under which Masonite Canada is the borrower into the equivalent amounts of senior subordinated notes due 2015 issued by Masonite U.S. or Masonite Canada, respectively.

(6)
Masonite Canada guarantees on a senior basis the obligations of Masonite U.S. under the senior secured credit facilities and guarantees the notes issued by Masonite U.S. on a senior subordinated basis.

(7)
Each of our existing and future U.S. restricted subsidiaries guarantees (or will guarantee, in the case of future subsidiaries) on a senior basis the senior secured credit facilities and guarantees the notes on a senior subordinated basis.

(8)
Certain of our non-U.S. subsidiaries guarantee on a senior basis the senior secured credit facilities and guarantee the notes on a senior subordinated basis.

41



UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

        The following unaudited pro forma consolidated financial statements have been developed by applying pro forma adjustments to the historical consolidated financial statements of the Predecessor and Successor as applicable appearing elsewhere in this prospectus. The unaudited pro forma consolidated statements of operations gives effect to the Transaction and the issuance of the senior subordinated notes as if they had occurred on January 1, 2005. The Transaction is already reflected in the historical audited consolidated balance sheet as of December 31, 2005 and the unaudited consolidated balance sheet as of September 30, 2006. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with these unaudited pro forma consolidated financial statements.

        The Transaction was accounted for as a business combination using the purchase method of accounting. All consideration was paid in cash. The total purchase price of the Transaction, including related fees and expenses, was allocated based upon our estimates of fair value to the underlying assets acquired and liabilities assumed as of the closing date.

        The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable under the circumstances. The unaudited pro forma consolidated financial information is presented for informational purposes only. The unaudited pro forma consolidated financial information does not purport to represent what the results of operations or financial condition of the Predecessor would have been had the Transaction actually occurred on the date indicated, nor do they purport to project the results of operations or financial condition of Masonite for any future period or as of any future date. The unaudited pro forma consolidated financial statements should be read in conjunction with the information contained in "Selected Historical Consolidated Financial Data," "The Transaction," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes thereto appearing elsewhere in this prospectus. All pro forma adjustments are described more fully in the notes to our unaudited pro forma consolidated financial statements.

        The pro forma information presented is based on available information and assumptions and may be revised as additional information becomes available. The pro forma information is being furnished solely for illustrative and informational purposes and is not necessarily indicative of the combined results of operations or financial position that might have been achieved for the period or date indicated, nor is it necessarily indicative of future results.

        Our historical consolidated financial statements have been prepared in accordance with Canadian GAAP. In certain respects, Canadian GAAP differs from U.S. GAAP. Accordingly certain line items with respect to the pro forma statement of operations data differ as a result of the application of U.S. GAAP. For a discussion of the principal differences between Canadian and U.S. GAAP as they relate to the Predecessor, see note 26 to the annual audited consolidated financial statements. See also the discussion on the principal differences between Canadian and U.S. GAAP as they relate to the Successor in "Presentation of Financial and Other Information."

42



MASONITE INTERNATIONAL INC.

Unaudited Pro Forma Consolidated Statement of Operations

(in millions of U.S. dollars)

 
  Fiscal Year Ended December 31, 2005
 
 
  Successor
February 2,
2005 to
December 31,
2005

  Predecessor
January 1,
2005 to April 6,
2005

  Historical Subtotal
  Pro Forma
Adjustments

  Pro Forma
 

Sales

 

$

1,828.4

 

$

600.1

 

$

2,428.5

 

$


 

$

2,428.5

 
Cost of sales     1,497.9     486.7     1,984.7     (20.5 )(1)   1,964.2  
   
 
 
 
 
 
Gross profit     330.4     113.4     443.8     20.5     464.3  
   
 
 
 
 
 
Selling, general and administration expenses     161.3     54.4     215.7     2.0   (2)   217.7  
Depreciation     60.3     17.9     78.3     1.0   (3)   79.3  
Amortization of intangible assets     29.9     1.1     31.0     9.0   (4)   40.0  
Interest     137.1     11.2     148.3     29.5   (5)   177.8  
Other expense (income), net     22.6     66.4     89.0     (77.0 )(6)   12.0  
   
 
 
 
 
 
Income before income taxes and non-controlling interest     (80.8 )   (37.7 )   (118.5 )   56.0     (62.5 )
Income taxes     (16.3 )   (8.3 )   (24.6 )   18.3   (7)   (6.3 )
Non-controlling interest     5.3     1.3     6.6         6.6  
   
 
 
 
 
 
Net income (Loss)   $ (69.8 ) $ (30.7 ) $ (100.5 ) $ 37.7   $ (62.8) (8)
   
 
 
 
 
 

See the accompanying notes to Unaudited Pro Forma Consolidated Financial Information.

43



MASONITE INTERNATIONAL INC.

Notes to Unaudited Pro Forma Consolidated Financial Information

(in millions of U.S. dollars)

(1)
The adjustment to cost of sales represents the elimination of the fair value increment assigned to inventory as part of the Transaction that was amortized to operations by the Successor.

 
  Pro Forma twelve
months ended
December 31, 2005

 
Amortization of inventory fair value adjustment   $ (20.5 )
   
 
(2)
The components of the adjustments to selling, general and administration expense are:

 
  Pro Forma twelve
months ended
December 31, 2005

Effect of new stock option program     1.5
Sponsor management fee     0.5
   
  Total   $ 2.0
   
(3)
Represents change in depreciation based upon evaluations of fair values and useful lives of property, plant and equipment.

 
  Pro Forma twelve
months ended
December 31, 2005

Additional depreciation   $ 1.0
   

Property, plant and equipment (except for land) is to be depreciated using the straight-line method over the estimated useful lives of the assets.

(4)
Represents change in amortization based upon evaluations of fair values of amortizable intangible assets.

 
  Pro Forma twelve
months ended
December 31, 2005

Additional amortization of intangibles   $ 9.0
   

Identified intangibles with definite lives include customer relationships, non-compete agreements, order backlogs and patents. These are to be amortized in the manner in which such assets are consumed or otherwise used, approximated herein by the straight-line method. Indefinite lived

44


Customer relationships   Over expected relationship period, not exceeding 15 years
Non-compete agreements   Over life of non-compete agreement
Order backlogs   Over expected completion period
Patents   Over expected useful life, not exceeding 17 years
(5)
Reflects the additional interest expense resulting from the new debt structure. The components of the interest expense adjustment are as follows:

 
  Pro Forma twelve
months ended December 31,
2005

 
Interest cost—new debt issuances   $ 105.4  
Elimination of historical deferred financing amortization     (10.9 )
Amortization of deferred financing fees on new debt issuance     1.3  
Historical interest cost—pre-acquistion debt     (10.9 )
Historical interest cost—senior subordinated loan     (55.9 )
Revolver commitment fees     0.5  
   
 
  Total   $ 29.5  
   
 
Estimated weighted average interest rate     8.11 %
Effect of 0.125% change in interest rates on new debt issuances   $  
(6)
The components of the other adjustments directly attributable to the transaction and included in other expense are:

 
  Pro Forma twelve
months ended
December 31,
2005

 
Transaction fees     (14.0 )
Hedging loss     (5.3 )
Equity compensation settlement     (57.7 )
   
 
  Total   $ (77.0 )
   
 

The transaction fees include legal, accounting and other costs related to the Transaction. The hedging loss is a realized exchange loss to hedge the Canadian dollars required to close the Transaction. The equity compensation settlement costs represent the settlement of the Predecessor's stock option plans at the closing of the Transaction.

(7)
Adjustment reflects the tax effects of pro forma adjustments in the jurisdictions in which those pro forma adjustments are expected to occur.

45


(8)
Pro forma net income based on U.S. GAAP for the combined twelve months ended December 31, 2005 is $62.6 million. The adjustment of $0.2 represents the effect of EITF 88-16 of $0.3 net of tax of $0.1.

(9)
On April 6, 2005, pursuant to a combination agreement (the "Transaction"), Stile Acquisition Corp. ("Stile"), a wholly owned subsidiary of the Successor and an affiliate of Kohlberg Kravis Roberts & Co. L.P. ("KKR"), acquired all of the outstanding common shares of the Predecessor.


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

 
  Acquisition of
Predecessor

 
Current assets, excluding cash acquired of $48,015   $ 725,637  
Property, plant and equipment     934,590  
Goodwill     949,892  
Customer relationships     300,000  
Order backlogs     4,000  
Patents     85,000  
Trademarks     165,000  
Other assets     18,368  
Long-term future income tax assets     26,220  
Current liabilities assumed     (486,783 )
Debt assumed     (491,470 )
Other long-term liabilities     (27,799 )
Long term future income taxes     (264,265 )
   
 
      1,938,390  
Non-controlling interest     (68,922 )
   
 
    $ 1,869,468  
   
 
Consideration        
  Cash   $ 1,869,468  
   
 

46



SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

        The following table sets forth selected historical consolidated financial data of the Predecessor and the Successor as of the dates and for the periods indicated. The historical data for the periods presented has been prepared in accordance with Canadian GAAP. The selected historical consolidated financial data of the Predecessor as of December 31, 2004, the years ended December 31, 2003 and 2004 and the period from January 1, 2005 to April 6, 2005 have been derived from the audited consolidated financial statements and related notes appearing elsewhere in this prospectus, which have been audited by KPMG LLP. The selected historical consolidated financial data of the Predecessor as of December 31, 2001, 2002 and 2003 and for the years ended December 31, 2001 and 2002 presented in this table have been derived from the Predecessor's audited consolidated financial statements not included in this prospectus. The selected historical consolidated financial data of the Successor as of December 31, 2005 and the period from February 2, 2005 to December 31, 2005 have been derived from the Successor's audited consolidated financial statements appearing elsewhere in this prospectus, which have been audited by KPMG LLP.

        Subsequent to December 31, 2005, Deloitte & Touche LLP was appointed as auditors of the Company. As at the current date, Deloitte & Touche LLP have not audited the financial statements of the Company for any period.

        The historical data of the Successor presented as at September 30, 2006 and for the period from February 2 to September 30, 2005 and the nine months ended September 30, 2006 has been derived from the unaudited interim consolidated financial statements of the Successor included elsewhere in this prospectus. This historical data includes, in the opinion of management, all adjustments necessary for a fair presentation of the operating results and financial condition of the Predecessor and Successor, respectively, for such periods and as of such dates.

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

 
  Predecessor
  Successor(1)
 
 
  Fiscal Years Ended December 31,
  Period From
January 1 to
April 6,

  Period From
February 2, to
December 31,

  Period From
February 2 to
September 30,

  Nine Months
Ended
September 30,

 
 
  2001
  2002
  2003
  2004
  2005
  2005
  2005
  2006
 
 
   
   
   
   
   
   
  (unaudited)

  (unaudited)

 
 
  (in millions of U.S. dollars)

 
Statement of Operations Data:                                      
Sales   $ 1,421.6   $ 1,619.5   $ 1,777.2   $ 2,199.9   $ 600.1   $ 1,828.4   $ 1,233.2   $ 1,879.5  
Cost of sales     1,154.9     1,254.2     1,380.2     1,722.7     486.7     1,497.9     1,007.9     1,486.9  
   
 
 
 
 
 
 
 
 
Gross profit     266.7     365.3     397.1     477.2     113.4     330.4     225.3     392.6  
Selling, general and administration expenses     123.2     155.1     162.2     189.9     54.4     161.3     105.8     159.2  
Depreciation     29.6     40.7     47.5     58.5     17.9     60.3     39.0     65.3  
Amortization     5.1     2.5     0.2     4.1     1.1     29.9     20.5     26.7  
Interest     33.2     45.4     36.4     39.5     11.2     137.1     90.4     137.2  
Other expense (income), net     0.5     (0.6 )   3.1     7.7     66.4     22.6     20.5     16.6  
(Gain) loss on refinancing, net     17.4     (3.0 )                          
   
 
 
 
 
 
 
 
 
Income (loss) before income taxes and non-controlling interest     57.7     125.2     147.7     177.4     (37.7 )   (80.8 )   (50.9 )   (12.5 )
Income taxes     12.9     28.0     34.5     42.7     (8.3 )   (16.3 )   (19.3 )   (4.8 )
Non-controlling interest     5.3     7.7     5.5     6.8     1.3     5.3     4.0     5.6  
   
 
 
 
 
 
 
 
 
Net income (loss)(3)   $ 39.5   $ 89.5   $ 107.7   $ 128.0   $ (30.7 ) $ (69.8 ) $ (35.6 ) $ (13.2 )
   
 
 
 
 
 
 
 
 
                                                   

47



Other Financial Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Capital expenditures   $ 30.5   $ 43.5   $ 49.5   $ 70.2   $ 12.4   $ 69.8   $ 41.2   $ 35.3  
Ratio of earnings to fixed charges(2)     2.5 x   3.4 x   4.3 x   4.6 x                
 
  Predecessor
  Successor
 
  As at Ended December 31,
  As At
September 30,

 
  2001
  2002
  2003
  2004
  2005
  2006
 
   
   
   
   
   
  (unaudited)

 
  (in millions of U.S. dollars)

Balance Sheet Data:                                    
Cash and cash equivalents   $ 40.6   $ 47.6   $ 129.7   $ 86.5   $ 47.5   $ 61.3
Working capital     288.7     298.1     385.0     430.3     211.2     249.5
Total assets     1,442.3     1,462.8     1,693.2     2,108.5     3,297.3     3,262.8
Total debt     713.0     537.4     489.4     637.3     2,105.2     2,030.2
Total shareholder's equity     405.2     552.4     732.6     916.9     492.3     503.2

(1)
The only activity of the Successor in the February 2 to April 6, 2005 period is the realized exchange loss of $5.3 million to hedge the Canadian dollars required to close the Transaction. See note 1 of our consolidated financial statements contained elsewhere in this prospectus.

(2)
Earnings to fixed charges ratio calculated as earnings (defined as pre-tax income before equity income or loss plus fixed charges) divided by fixed charges (defined as interest plus amortization of deferred financing plus rent expense). Under Canadian GAAP earnings were insufficient to cover fixed charges for the period from January 1 to April 6, 2005, the period from February 2 to December 31, 2005, the period from February 2 to September 30, 2005 and the nine months ended September 30, 2006 by $37.9 million, $80.8 million, $50.9 million, and $12.5 million, respectively.

(3)
Reconciliation of certain financial data from Canadian GAAP to U.S. GAAP:

 
  Predecessor
  Successor
 
 
  Fiscal Year Ended
December 31,

  Period From
January 1, 2005 to
April 6,

  Period From
February 2, 2005
to December 31,

  February 2, 2005 to
September 30,

  Nine Months Ended
September 30,

 
 
  2001
  2002
  2003
  2004
  2005
  2005
  2005
  2006
 
 
   
   
   
   
   
   
  (unaudited)

  (unaudited)

 
Reconciliation of net income (loss)—Canadian GAAP to U.S. GAAP                                                  
Net income (loss)—Canadian GAAP   $ 39.5   $ 89.5   $ 107.7   $ 128.0   $ (30.7 ) $ (69.8 ) $ (35.6 ) $ (13.2 )
Effect of SFAS 133(a)     (2.2 )   (22.1 )   3.3     6.6     1.4              
Effect of EITF 88-16(b)                           0.3     0.4      
Effect of SFAS 109(c)     (0.7 )                            
Tax effect of U.S. GAAP adjustments     1.1     8.4     (1.0 )   (1.9 )   (0.5 )   (0.2 )   (0.1 )    
   
 
 
 
 
 
 
 
 
Net income (loss)—U.S. GAAP   $ 37.6   $ 75.7   $ 110.0   $ 132.7   $ (29.7 ) $ (69.6 ) $ (35.3 ) $ (13.2 )
   
 
 
 
 
 
 
 
 

48


 
  Predecessor
  Successor
 
 
  As at December 31,
  As at December 31,
  As at September 30,
 
 
  2004
  2005
  2006
 
 
   
   
  (unaudited)

 
Reconciliation of shareholder's equity—Canadian GAAP to U.S. GAAP                    
Shareholder's equity—Canadian GAAP   $ 916.9   $ 492.3   $ 503.2  
Effect of SFAS 133(a)     2.7     9.9     12.5  
Effect of EITF 88-16(b)         (5.8 )   (1.9 )
   
 
 
 
Shareholder's equity—U.S. GAAP   $ 919.7   $ 496.4   $ 513.9  
   
 
 
 
(a)
SFAS No. 133: Accounting for derivative instruments and hedging activities ("SFAS 133"):


SFAS 133 and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities—an Amendment of SFAS 133", ("SFAS 138") requires that all derivative instruments be reported on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships.


Forward exchange contracts:


The Company enters into forward exchange contracts to hedge certain forecasted cash flows. The contracts are for periods consistent with the forecasted transactions. All relationships between hedging instruments and hedged items, as well as risk management objectives and strategies are documented. Changes in the spot value of the foreign currency contracts that are designated, effective and qualified as cash flow hedges of forecasted transactions are reported in accumulated other comprehensive income and are reclassified into the same component of earnings and in the same period as the hedged transaction is recognized. Under Canadian GAAP, the derivative instruments are not marked to market and the related off balance sheet gains and losses are recognized in earnings in the same period as the hedged transactions.


Interest rate swap agreements:


We have entered into interest rate swap agreements to convert a portion of its floating rate debt into fixed rate debt in accordance with our risk management objective of mitigating the variability and uncertainty in its cash flows due to variable interest rates. At the inception of these hedges, Masonite had met the criteria for designation and assessing the effectiveness of hedging relationships, thus these interest rate swaps were designated as cash flow hedges.


For the Predecessor, the criteria under SFAS 133 were not met prior to the establishment of its interest rate swap agreements. Accordingly, any change in the fair value of the interest rate swaps was reported in income from inception to December 31, 2003. As of January 1, 2004, we had met the criteria for designation and assessing the effectiveness of hedging relationships, thus the interest rate swaps were designated as cash flow hedges. Under U.S. GAAP, changes in fair value of these financial instruments that are designated as effective and qualify as cash flow hedges are reported in accumulated other comprehensive income and are reclassified into income in the same period as the hedged transaction is reported.

(b)
EITF 88-16: Basis in leveraged buyout transactions:


Under Canadian GAAP, the Transaction was accounted for using the purchase method with a 100% change in basis. Under U.S. GAAP, a portion of the purchase cost (representing approximately 1% of the purchase price) of the Transaction is accounted for at the carrying value of management's continuing equity interests. The termination of a former senior executive resulted in a step acquisition, as the percentage of the Company owned by management decreased. The results of this step acquisition are reflected in the operations of the Company in the Successor

49


(c)
SFAS No.109: Accounting for income taxes:


In fiscal 2000, we adopted the CICA recommendations pertaining to income taxes retroactively without restatement of the prior years resulting in differences on business combinations compared to SFAS 109.

50



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

        The following Management Discussion and Analysis ("MD&A") is a review of our financial condition and results of operations, is based upon Canadian Generally Accepted Accounting Principles ("GAAP") and covers periods prior and subsequent to the acquisition by Masonite International Inc. of Masonite International Corporation on April 6, 2005 (the "Transaction"). More specifically, the financial condition and results of operations for the periods from January 1, 2006 to September 30, 2006 and from February 2, 2005 (date of Incorporation) to December 31, 2005 are for Masonite International Inc., and the results of operations from January 1, 2005 to April 6, 2005, January 1, 2004 to December 31, 2004 and January 1, 2003 to December 31, 2003 are for Masonite International Corporation. "Predecessor" refers to Masonite International Corporation and its subsidiaries on a consolidated basis, "Masonite" or the "Successor" refers to Masonite International Inc. and its subsidiaries on a consolidated basis, and unless the context otherwise requires, the "Company", "we", "us" and "our" refer to the Predecessor for periods prior to the Transaction and to the Successor for periods thereafter, unless the context otherwise requires or it is otherwise indicated. All amounts are in United States dollars unless specified otherwise.

        This discussion should be read in conjunction with the annual audited consolidated financial statements, the unaudited interim consolidated financial statements, and the related notes appearing elsewhere herein. The following discussion also contains forward-looking statements that involve numerous risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements as a result of these risks and uncertainties, including those set forth in this prospectus under "Forward-looking Statements" and under "Risk Factors". This discussion should also be read in conjunction with the "Unaudited Pro Forma Consolidated Financial Information", "Selected Historical Consolidated Financial Data", and our consolidated financial statements and related notes appearing elsewhere in this prospectus, including note 26 to the audited consolidated financial statements and note 20 to the unaudited interim consolidated financial statements ("U.S. GAAP") which describe differences between Canadian and United States Generally Accepted Accounting Principles.

Overview of the Business

        We are one of the largest manufacturers of doors in the world, with a significant market share in both interior and exterior doors products. We sell approximately 50 million doors per year in over 70 countries including the United States, Canada, the United Kingdom, France and throughout Central and Eastern Europe. For the year ended December 31, 2005, our sales were $2.4 billion.

        Our products are marketed under well-recognized brand names throughout the world. In North America, we market our doors primarily under the Masonite brand, which is a leading brand in the door industry. Our sales are derived from two primary sources of door demand: residential repair, renovation and remodeling of existing homes, and the construction of new homes. We believe that sales to the residential repair, renovation and remodeling sector represents the larger component of our business in North America. Approximately 79% of our 2005 sales were generated in North America, where we believe we have a leading market share in both interior and exterior doors, 18% in Europe, and the remainder in South America, Asia, Africa and the Middle East.

        We have a global manufacturing and distribution footprint, with over 80 facilities in 18 countries, primarily in North America and Europe. We are a vertically integrated producer, manufacturing key components of doors, including composite molded and veneer door facings, glass door lites and cut stock. In order to realize cost advantages and efficiencies provided by vertical integration, we have integrated the various operations in our North American segment as well as our Europe and Other segment to the point where we share common systems, financing and infrastructure. We believe that our high level of vertical integration provides us with competitive and cost advantages over competitors not as vertically integrated, and enhances our ability to develop new and proprietary products.

        We sell doors through multiple distribution channels, including: (i) directly to retail home center customers; (ii) one-step distributors that sell directly to homebuilders and contractors; and (iii) two-step

51



wholesale distributors that resell to other distributors. For North American retail home center customers, our numerous door fabrication facilities provide value-added fabrication and logistical services, including store delivery of pre-hung interior and exterior doors. We believe our ability to provide: (i) a broad product range; (ii) frequent, rapid, on-time and complete delivery; (iii) consistency in our products and merchandising; (iv) national service; and (v) special order programs differentiate us from our competitors.

        The demand for doors is influenced by various macroeconomic factors, including general economic conditions, interest rates, levels of unemployment, consumer confidence and the availability of credit. During periods when these macroeconomic factors are favorable, home prices typically rise, the volume of existing home sales increases and consumers tend to be more willing and able to undertake renovation, remodeling and repair projects for their homes. As a result, the demand for our products rises.

        We generate the majority of our revenue from residential repair, renovation and remodeling spending, which has historically been less cyclical than new construction spending.

        The new home construction sector has historically been cyclical, and in May 2006, a major downturn began in the United States. From its peak in May, unadjusted monthly housing starts have declined 31% through the end of October. In addition, the repair, renovation and remodeling has recently experienced weakening year-over-year sales in the United States. Our relatively narrow focus within the building products industry amplifies the risks inherent in such a market downturn. The impact of this weakness on our revenues, profits and profit margin will be determined by many factors, including industry capacity, industry pricing discipline, and our ability to implement the series of initiatives encompassed in our Blueprint for Profitable Growth.

        In many of the countries in which we operate, an increasing share of sales of doors are sold through large home center and other large retailers. In addition, consolidation among companies operating in different geographic regions has increased in recent years, resulting in more customers operating nationally and internationally. Although these trends are present to a lesser extent outside North America, we expect consolidation to continue in future years. We believe we are well-positioned to succeed with these large customers, as we offer a comprehensive, high quality product line, a focus on on-time and complete deliveries, and consistency in products and merchandising. We also provide home center and other large retail customers value-added fabrication and logistical services, including store delivery of pre-hung interior and exterior doors. Finally, we offer a broad range of interior and exterior doors in the form of stock products, custom-designed doors and special order doors. This extensive product and service offering allows us to offer an "all products" strategy which provides our customers one-stop shopping and reduces reliance on any one type or style of door.

Critical Accounting Policies and Estimates

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

Inventory

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

52



Goodwill

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

Intangible Assets

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

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

Income Taxes

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

        We have recorded approximately $49 million of future income tax assets as of September 30, 2006. Future tax assets are calculated based on tax rates to be applied in future periods. Previously recorded tax assets and liabilities need to be adjusted when the expected date of the future event is revised based on current information. A valuation allowance has been recorded to reduce future tax assets to the amount of the future tax benefit that is likely to be realized. In determining the need for the valuation allowance, we considered such factors as projected future taxable income, available tax planning strategies, the character of the income tax asset and the reversal of future income tax 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.

53



Long-lived Assets

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

Employee Future Benefit Plans

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

Stock-based Compensation

        Effective January 1, 2002, we began accounting for all stock based payments to non-employees, employee awards that are direct awards of stock, that 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, we accounted for employee stock options that were settled by the issuance of common shares as capital transactions and no compensation cost was recorded. Any consideration paid by employees on the exercise of stock options was recorded as share capital. Under the new policy, we estimate fair value using the Black-Scholes option pricing model, and amortize to income on a straight line basis over the vesting period.

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

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

        In 2003 we implemented a Restricted Shares Unit and Deferred Share Unit incentive plan. This incentive plan was terminated on April 6, 2005, and was settled as part of the Transaction.

54



Variable Interest Entities

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

Impact of the Transaction

        We entered into a combination agreement on December 22, 2004, which was amended and restated on January 16, 2005 and February 17, 2005, with Stile Acquisition Corp., a wholly owned subsidiary of Masonite and an affiliate of Kohlberg Kravis Roberts & Co. L.P. ("KKR") whereby all of the issued and outstanding common shares of the Predecessor would be indirectly acquired by KKR for Cdn$42.25 per share in cash. The Transaction was approved by shareholders at a special meeting of shareholders held on March 31, 2005 and closed on April 6, 2005. Subsequently, the Predecessor's common shares were de-listed from the New York Stock Exchange and the Toronto Stock Exchange. In connection with the Transaction, we incurred certain transaction costs, in 2004 and 2005, which were not capitalized as part of the purchase price, and have been included in other expense.

        We accounted for the Transaction using the purchase method of accounting and, accordingly, the Transaction resulted in a new basis of accounting for us. We have allocated the purchase price on the basis of our estimate of the fair value of the underlying assets acquired and liabilities assumed. We retained third party professionals to assist in the determination of the fair value of the underlying assets acquired and liabilities assumed. We also engaged independent appraisers to assist in determining the fair values of property, plant and equipment and intangible assets acquired, including trade names, trademarks, and customer relationships. Certain transaction costs may be deductible for income tax purposes and others will form the basis of Masonite's investment in the Predecessor. These valuations and cost allocations may be subject to review and challenge by income tax authorities in the countries to which they relate. The excess of the total purchase price over the estimated fair value of the net identifiable assets acquired at closing has been allocated to goodwill, which is subject to an annual impairment review. Goodwill in the Transaction, based on the allocation of the purchase price, totaled approximately $950 million.

        As a result of the purchase accounting associated with the Transaction, the assets and liabilities of the Predecessor are recorded by the Successor at their fair value. Certain of the fair value assigned to the assets (including inventory; property, plant and equipment; customer lists; order backlogs; patents; trademarks and tradenames) is amortized to income over their estimated useful lives.

Recent Developments

        During the third quarter of 2006 we implemented a company-wide reduction in employment levels, impacting approximately eight percent of the global salaried and indirect hourly workforce. In connection with the reduction in employment levels, we will incur a charge of approximately $9 million, of which $6.7 million is reflected in the results for the nine months ended September 30, 2006 below.

        During 2006, we announced the closure of four manufacturing facilities in North America. The first closure, announced in January 2006, was a distribution facility located in Dickson, Tennessee. The second closure, also announced in January 2006, was of an interior door manufacturing facility located in Mobile, Alabama. In the second quarter of 2006, we announced the closure of an entry door manufacturing facility in Woodbridge, Ontario, and a component manufacturing facility in Corning, California. These closures are consistent with our overall goals of improving manufacturing efficiencies, consolidating production and reallocating capacity among locations, as we strive to better balance

55



supply and demand. All employees at these affected locations were offered severance, extended benefits and outplacement assistance.

        In connection with our Blueprint for Profitable Growth and as part of our post-Transaction initiatives, during 2006, we completed a series of general and selective price increases, which are largely reflected in our third quarter results in 2006.

Acquisitions

        Subsequent to the Transaction described under "Impact of the Transaction" above, we completed six acquisitions during 2005.

        Three acquisitions were of interests in less than wholly-owned subsidiaries previously consolidated in our financial results. In May 2005, we purchased the remaining interest in a door component manufacturing facility with operations in Canada and the United States for cash consideration of approximately $36 million (plus approximately $18 million of cash paid to the minority partner in the form of a dividend prior to closing). Also in May 2005, Masonite purchased the remaining ownership interest of less than wholly-owned investments located primarily in Israel and Turkey for cash consideration of approximately $8 million. In October 2005, we purchased the remaining ownership interest of a less than wholly-owned door-fabrication subsidiary with operations in Canada and the United States for total consideration of approximately $9 million, including cash on closing of approximately $5 million, and notes payable of approximately $4 million, which are payable over a three year period.

        Three other acquisitions completed during 2005 expanded our geographic reach and further vertically integration into the production of door components. In July 2005, we purchased a 50% interest in a molded door and stile and rail door manufacturer in Malaysia for approximately $3 million. In October 2005, we acquired an 80% interest in a door manufacturer located in Hungary for total consideration of $8.5 million, including cash consideration of approximately $5 million on closing, with the balance, subject to certain post-closing adjustments, paid in 2006 and to be paid in 2007. In December 2005, we completed the acquisition of a door core manufacturing facility in the United States for cash consideration of approximately $7 million.

        While historically a substantial part of our growth has come from acquisitions, our current strategy emphasizes improving the operations of our existing business.

Consolidated Results of Operations for the Nine Month Period Ended September 30, 2006 compared to the Combined Nine Month Period Ended September 30, 2005

        The nine month period ended September 30, 2006 represents the consolidated results of Masonite International Inc. In the discussion of our financial statements for the nine month period ended September 30, 2005 in the Results of Operations, we refer to these financial statements as "Combined" for comparative purposes. These Combined financial results for 2005 represent the sum of the financial data for our Predecessor business for the period from January 1, 2005 through April 6, 2005 and for Masonite for the period commencing February 2, 2005, when it was incorporated, through September 30, 2005 ("Combined 2005"). Prior to April 6, 2005, Masonite had no substantial business operations. These combined results are for informational purposes only in order to facilitate discussion and analysis of our results of operations and do not purport to be a presentation in accordance with

56



GAAP or to represent what our financial position and results of operations would have actually been in such periods had the Transaction occurred on January 1, 2005.

 
  For the Nine Month Period Ended September 30
 
 
  Successor
January 1, 2006
September 30, 2006

  Successor
February 2, 2005
September 30, 2005

  Predecessor
January 1, 2005
April 6, 2005

  Combined
January 1, 2005
September 30, 2005

 
 
  (in millions of U.S. dollars)

 
Sales   $ 1,879.5   $ 1,233.2   $ 600.1   $ 1,833.3  
Cost of sales     1,486.9     1,007.9     486.7     1,494.6  
   
 
 
 
 
Gross margin     392.6     225.3     113.4     338.7  

Selling, general and administration expenses

 

 

159.2

 

 

105.8

 

 

54.4

 

 

160.2

 

Depreciation

 

 

65.3

 

 

39.0

 

 

17.9

 

 

57.0

 
Amortization of intangible assets     26.7     20.5     1.1     21.6  
Interest     137.2     90.4     11.2     101.6  
Other expense, net     16.6     20.5     66.4     86.8  
   
 
 
 
 
Loss before income taxes and non-controlling interest     (12.5 )   (50.9 )   (37.7 )   (88.6 )

Income taxes

 

 

(4.8

)

 

(19.3

)

 

(8.3

)

 

(27.6

)
Non-controlling interest     5.6     4.0     1.3     5.3  
   
 
 
 
 
Net loss   $ (13.2 ) $ (35.6 ) $ (30.7 ) $ (66.2 )
   
 
 
 
 

Consolidated Sales

 
  For the Nine Month Period Ended September 30
 
 
  Successor
2006

  Combined
2005

  $ Change
  % Change
 
 
  (in millions of U.S. dollars)

 
Sales   $ 1,879.5   $ 1,833.3   46.2   2.5 %

        Consolidated sales for the nine month period ended September 30, 2006 increased 2.5% or $46 million to $1,880 million from sales of $1,833 million for the combined nine month period ended September 30, 2005. Sales attributable to existing operations increased 1.4% in the nine month period ended September 30, 2006 of which approximately one-third was as a result of changes in exchange rates. Acquisitions completed in the last three months of fiscal 2005 comprised the other 1.1%. The softening North American market for building products began to impact sales volume at Masonite toward the end of the nine month period ended September 30, 2006. The decline in sales volume was partially offset by pricing increases implemented in the second quarter of 2006.

Sales and Percentage of Sales by Principal Geographic Region

 
  For the Nine Month Period Ended September 30
 
 
  Successor 2006
  Combined 2005
 
 
  (in millions of U.S. dollars)

 
North America   $ 1,463.8   $ 1,451.7  
      78 %   79 %
Europe and Other   $ 485.0   $ 450.0  
      26 %   25 %
Intersegment   $ (69.3 ) $ (68.4 )
      (4 )%   (4 )%

        Sales in our principal segment, North America, increased 1% to $1,464 million for the nine month period ended September 30, 2006 compared to $1,452 million for the combined nine month period

57



ended September 30, 2005 due primarily to the impact of the strengthening Canadian dollar on reported sales. Declines in sales volume were partially offset the pricing increases.

        Sales outside North America, increased by 8% to $485 million for the nine month period ended September 30, 2006 compared to $450 million during the same combined period in 2005 due to a 5% increase in constant currency sales at businesses owned in both periods, a 4% increase as a result of acquisitions, offset by a 1% decrease due to changes in exchange rates. Reported net sales of existing operations were negatively impacted by the weaker Euro and Pound Sterling against the United States dollar.

        Intersegment sales consist primarily of sales of door components from the Europe and Other segment to the North American segment. Intersegment sales were relatively unchanged from the prior year.

Sales and Percentage of Sales by Product Line

 
  For the Nine Month Period Ended September 30
 
 
  Successor
2006

  Combined
2005

 
 
  (in millions of United States dollars)

 
Interior   $ 1,226.6   $ 1,145.8  
      65 %   62 %
Exterior   $ 652.9   $ 687.5  
      35 %   38 %

        The proportion of revenues from interior and exterior products was approximately 65% and 35%, respectively, for the nine month period ended September 30, 2006, compared to 62% and 38%, respectively, for the combined nine month period ended September 30, 2005. The increase of 7% in interior products over the prior period is a result of (i) acquisitions in the prior year which were interior product focused; (ii) the impact of softening demand in the residential housing sector in North America, which typically affects the demand for exterior products before interior products; and (iii) our price increases in North America which were largely focused on interior door products.

Cost of Sales

 
  For the Nine Month Period Ended September 30
 
 
  Successor
2006

  Percentage of
Sales

  Combined
2005

  Percentage of
Sales

 
 
  (in millions of United States dollars)

 
Cost of sales, as reported   $ 1,486.9   79.1 % $ 1,494.6   81.5 %
Inventory write-down     (9.0 ) (0.5 )%        
Purchase accounting adjustment             (20.5 ) (1.1 )%
Hurricanes     0.7         (7.9 ) (0.4 )%
Electrical fire           (5.0 ) (0.3 )%
   
 
 
 
 
    $ 1,478.6   78.7 % $ 1,461.2   79.7 %
   
 
 
 
 

        The significant components of cost of sales are materials, direct labor, factory overheads and distribution costs. Cost of sales, expressed as a percentage of sales, decreased to 79.1% for the nine month period ended September 30, 2006 from 81.5% during the same combined period in 2005. Cost of sales in the combined nine month period ended September 30, 2005 included three unusual items: a purchase accounting adjustment to reflect the fair value of inventory at the date of acquisition of $20.5 million, the impact of hurricanes in the United States Gulf region in the third quarter of 2005 of $7.9 million, and an electrical fire at our largest facility, at a cost of approximately $5 million. Excluding the impact of these charges, cost of sales would have been 79.7%. Results in 2006 were negatively impacted by a write down of $9 million of obsolete inventory partially offset by insurance

58



proceeds of $0.7 million. Excluding the impact of these items, cost of sales, expressed as a percentage of sales, would have been 78.7%. The improvement in margin, after deducting the items discussed above, was a result of price increases, rigorous management of material costs and improving labor efficiencies offset by increases in distribution, overheads and certain other cost of sales elements.

Selling, General and Administration Expenses

 
  For the Nine Month Period Ended September 30
 
 
  Successor
2006

  Percentage of
Sales

  Combined
2005

  Percentage of
Sales

 
 
  (in millions of United States dollars)

 
Selling, general and administration expenses   $ 159.2   8.5 % $ 160.2   8.7 %

        Selling, general and administration expenses ("SG&A") primarily includes personnel costs, marketing and advertising, sales commissions, information technology costs, professional fees and management travel. SG&A decreased by $1 million for the nine month period ended September 30, 2006 compared to the combined nine month period ended September 30, 2005. SG&A costs, expressed as a percentage of sales, decreased to 8.5% for the nine month period ended September 30, 2006 compared to 8.7% during the nine month period ended September 30, 2005.

        Administration costs increased by approximately $4 million during the nine month period ended September 30, 2006 as compared to the nine month period ended September 30, 2005. Fees incurred on the receivable sale program increased by $1.7 million, and professional fees increased by $1.6 million. Offsetting these increases was a $0.7 million reduction in stock based compensation that occurred in the third quarter of 2006, in order to reflect the forfeiture of a significant number of stock options due to the departure of certain of our employees.

        Selling costs decreased by approximately $4 million during the nine month period ended September 30, 2006 as compared to the nine month period ended September 30, 2005. The majority of the decrease was the result of a $2.4 million reduction in advertising costs, and a $1.2 million reduction in salaries and benefits.

Depreciation

 
  For the Nine Month Period Ended September 30
 
 
  Successor
2006

  Combined
2005

  $ Change
  % Change
 
 
  (in millions of United States dollars)

 
Depreciation   $ 65.3   $ 57.0   $ 8.3   14.6 %

        Depreciation expense increased $8 million for the nine month period ended September 30, 2006 to $65 million from $57 million during the same combined period in 2005. Depreciation in the nine month period ended September 30, 2006 was increased by the amortization of fair value adjustments as a result of purchase accounting, the impact of businesses acquired in 2005 and prior year capital expenditures of $82 million.

Amortization of Intangible Assets

 
  For the Nine Month Period Ended September 30
 
 
  Successor
2006

  Combined
2005

  $ Change
  % Change
 
 
  (in millions of United States dollars)

 
Amortization of intangible assets   $ 26.7   $ 21.6   $ 5.1   23.6 %

        Amortization of intangible assets increased $5 million for the nine month period ended September 30, 2006 to $27 million from $22 million during the same combined period in 2005. In conjunction with the Transaction as of April 6, 2005, we applied purchase accounting and recorded the fair value of assets acquired and liabilities assumed. The historical carrying amounts of intangible assets were increased by $518 million representing an increase of $264 million for customer lists, $165 million

59



for trademarks and tradenames, $85 million for patents and $4 million for order backlogs at the time of acquisition.

Other Expense

 
  For the Nine Month Period Ended September 30
 
 
  Successor 2006
  Combined 2005
 
 
  (in millions of United States dollars)

 
Restructuring and severance expense   $ 11.6   $ 9.8  
Loss on disposal of property, plant and equipment     4.6     0.2  
Other     0.8     (0.3 )
Transaction costs         14.0  
Hedging loss         5.3  
Equity compensation settlement         57.7  
Insurance proceeds     (0.4 )    
   
 
 
Other expense   $ 16.6   $ 86.8  
   
 
 

        Included in Other Expense in the nine month period ended September 30, 2006 is $11.6 million in costs related to the closure of the four manufacturing facilities described earlier, the departure of certain executives, and a restructuring plan that was put in place in the third quarter of 2006. The restructuring plan encompassed a reduction in employment levels throughout all areas of the business and the re-alignment of certain responsibilities. The amount included in restructuring and severance above consists of severance and termination benefits for employees terminated in the period. The loss on disposal of $5 million is comprised of realized losses on the disposal of surplus equipment and real estate as well as a reduction in the carrying value of other redundant assets that are in the process of being sold. The majority of Other Expense in the combined nine month period ended September 30, 2005 was related to the closing of the Transaction on April 6, 2005. Included as part of the Transaction costs were $58 million related to settling the stock option plans of the Predecessor, as well as $19 million in legal, accounting and other costs related to the Transaction which were not eligible to be capitalized. Restructuring and severance in the prior year relates primarily to the departure of our former Chief Executive Officer.

Interest Expense

 
  For the Nine Month Period Ended September 30
 
 
  Successor
2006

  Combined
2005

  $ Change
  % Change
 
 
  (in millions of United States dollars)

 
Interest   $ 137.2   $ 101.6   $ 35.6   35.0 %

        Interest expense increased $36 million for the nine month period ended September 30, 2006 compared to the same combined period in 2005. This is due to the significant increase in debt principally incurred to fund the Transaction, as well as an increase in interest rates compared to the prior year. Information regarding these new debt facilities is discussed in greater detail in the "—Liquidity and Capital Resources" section below.

        Also included in interest expense for the nine month period ended September 30, 2006 is $6 million of deferred financing amortization, compared to $11 million during the same period in 2005. Of the $11 million in deferred financing costs incurred in the combined 2005 period, approximately $7 million were costs that could have been refundable to us had we offered securities to the public within a specified time period ending in October 2005. As we did not issue securities to the public, these $7 million in costs were fully amortized over the period ending October 2005. Deferred financing

60



costs incurred related to the Senior Secured Credit Facilities and the Senior Subordinated Loan are being amortized over the life of these facilities.

Income Tax Rates

 
  For the Nine Month Period Ended September 30
 
 
  Successor 2006
  Combined 2005
 
Combined effective rate   38.5 % 31.2 %

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

        Our income tax rate is also affected by estimates of realizability of tax assets, changes in tax laws and the timing of the expected reversal of temporary differences. We have established a valuation allowance on certain tax losses incurred in Canada, the United States and other jurisdictions until the realization of these tax assets becomes more likely than not during the carryforward period. During the nine month period ended September 30, 2006, we recognized a tax benefit of $3 million relating to the impact of the remeasurement of future tax assets and liabilities as a result of a change in the expected long term tax rate.

Net Loss

 
  For the Nine Month Period Ended September 30
 
 
  Successor
2006

  Combined
2005

  $ Change
  % Change
 
 
  (in millions of U.S. dollars)

 
Net loss   $ (13.2 ) $ (66.2 ) $ 53.0   (80.0 )%

        The net loss of $13 million for the nine month period ended September 30, 2006 improved $53 million from $66 million for the nine month period ended September 30, 2005. The improvement is largely due to the absence of significant one time costs such as equity compensation costs, financing charges and professional fees incurred to close the Transaction in the nine month period ended September 30, 2005.

Segment Information

 
  For the Nine Month Period Ended September 30
 
 
  Successor
2006

  Percentage
of Sales

  Combined
2005

  Percentage
of Sales

 
 
  (in millions of U.S. dollars)

 
Adjusted EBITDA—North America   $ 180.6   12.3 % $ 151.2   10.4 %
Adjusted EBITDA—Europe and Other   $ 76.1   15.7 % $ 77.7   17.3 %

        The performance measurement of each of our geographic segments is measured based on Adjusted EBITDA. See "—Liquidity and Capital Resources."

61



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

 
  For the Nine Month Period Ended September 30
 
 
  Successor
North America
2006

  Percentage of
Sales

  Combined
North America
2005

  Percentage of
Sales

 
 
  (in millions of United States dollars)

 
Net loss   $ (46.2 ) (3.2 )% $ (96.8 ) (6.7 )%
  Interest     134.7         98.8      
  Income taxes     (15.7 )       (38.0 )    
  Depreciation and amortization     68.2         56.3      
  Other expense     15.6         84.0      
  Non-controlling interest     2.4         2.9      
   
 
 
 
 
EBITDA     159.0   10.9 %   107.2   7.4 %
 
EBITDA

 

 

159.0

 

10.9

%

 

107.2

 

7.4

%
  Inventory write-down     7.5              
  Sale of receivables     5.9         4.2      
  Sponsor fees     3.5         1.3      
  Facility closure/rationalization     1.9         1.8      
  Capital and franchise tax     1.9         1.4      
  Equity compensation     1.1         1.8      
  Inventory purchase accounting adjustment             15.1      
  United States fire             5.0      
  Pro-forma acquisition impact             5.7      
  Contract termination             1.3      
  Hurricanes     (0.7 )       7.9      
  Other     0.5         (1.5 )    
   
 
 
 
 
Adjusted EBITDA   $ 180.6   12.3 % $ 151.2   10.4 %
   
 
 
 
 

        Adjusted EBITDA as a percentage of sales in the North American segment, increased to 12.3% for the nine month period ended September 30, 2006 from 10.4% for the combined nine month period ended September 30, 2005. The improvement in Adjusted EBITDA margin resulted primarily from

62



higher selling prices, rigorous cost management and lower selling costs offset by input cost increases and wage inflation.

 
  For the Nine Month Period Ended September 30
 
 
  Successor
Europe and Other
2006

  Percentage of
Sales

  Combined
Europe and Other
2005

  Percentage of
Sales

 
 
  (in millions of United States dollars)

 
Net income   $ 33.0   6.8 % $ 30.6   6.8 %
  Interest     2.5         2.8      
  Income taxes     10.8         10.4      
  Depreciation and amortization     23.8         22.2      
  Other expense     1.0         2.9      
  Non-controlling interest     3.2         2.4      
   
 
 
 
 
EBITDA     74.3   15.3 %   71.3   15.8 %
 
EBITDA

 

 

74.3

 

15.3

%

 

71.3

 

15.8

%
  Inventory write-down     1.5              
  Inventory purchase accounting adjustment             5.4      
  Pro-forma acquisition impact             2.1      
  Other     0.3         (1.1 )    
   
 
 
 
 
Adjusted EBITDA   $ 76.1   15.7 % $ 77.7   17.3 %
   
 
 
 
 

        Adjusted EBITDA as a percentage of sales in the Europe and Other segment, decreased from 17.3% for the combined nine month period ended September 30, 2005 to 15.7% for the nine month period ended September 30, 2006.

        Western European operations posted better third quarter sales and margins rebounding from softer performance earlier in 2006. Emerging businesses in Central and Eastern Europe contributed an additional $28 million in revenue in the nine month period ended September 2006, approximately two-thirds of which was acquisition related, but did not make a proportionate contribution to earnings. We continue to invest in these businesses including a major plant expansion in the Czech Republic, equipment upgrades and other growth capital.

Combined Results of Operations for the Year Ended December 31, 2005 compared to the Year Ended December 31, 2004

        In the discussion of our financial statements for 2005 in the Results of Operations, we refer to these financial statements as "Combined" for comparative purposes. These Combined financial results for 2005 represent the sum of the financial data for our Predecessor business for the period from January 1, 2005 through April 6, 2005 and for Masonite for the period commencing February 2, 2005, when it was incorporated, through December 31, 2005 ("Combined 2005"). Prior to April 6, 2005, Masonite had no substantial business operations. These combined results are for informational purposes only in order to facilitate discussion and analysis of our results of operations and do not purport to be a presentation in accordance with GAAP or to represent what our financial position and results of operations would have actually been in such periods had the Transaction occurred on January 1, 2005.

        The financial data for the year ended December 31, 2004 ("Predecessor 2004") refer to the Predecessor's business. The 2005 information presented below may not be directly comparable to the Predecessor as a result of the effect of the revaluation of assets and liabilities to their estimated fair market values in accordance with the application of purchase accounting pursuant to Canadian GAAP.

63


        A summary of the fiscal year results, for informational purposes only, for the periods ended December 31, 2005 and 2004 is as follows:

 
  Successor
February 2, 2005
to December 31, 2005

  Predecessor
January 1, 2005
to April 6, 2005

  Combined
January 1, 2005
to December 31, 2005

  Predecessor
January 1, 2004
to December 31, 2004

 
  (in millions of U.S. dollars)

Sales   $ 1,828.4   $ 600.1   $ 2,428.5   $ 2,199.9
Cost of sales     1,497.9     486.7     1,984.7     1,722.7
   
 
 
 
Gross margin     330.4     113.4     443.8     477.2

Selling, general and administration expenses

 

 

161.3

 

 

54.4

 

 

215.7

 

 

189.9
Depreciation     60.3     17.9     78.2     58.5
Amortization of intangible assets     29.9     1.1     31.0     4.1
Interest     137.1     11.2     148.3     39.5
Other expense, net     22.6     66.4     89.0     7.7
   
 
 
 
(Loss) income before income taxes and non-controlling interest     (80.8 )   (37.7 )   (118.5 )   177.4

Income taxes

 

 

(16.3

)

 

(8.3

)

 

(24.6

)

 

42.7
Non-controlling interest     5.3     1.3     6.6     6.8
   
 
 
 
Net (loss) income   $ (69.8 ) $ (30.7 ) $ (100.5 ) $ 128.0
   
 
 
 

Consolidated Sales

 
  For the Year Ended December 31
 
 
  Combined
2005

  Predecessor
2004

  $ Change
  % Change
 
 
  (in millions of U.S. dollars)

 
Sales   $ 2,428.5   $ 2,199.9   $ 228.6   10.4 %

        Consolidated sales for the combined year ended December 31, 2005 increased 10% or $229 million to $2.43 billion from sales of $2.20 billion for the year ended December 31, 2004. Sales attributable to existing operations increased approximately 5% over the prior year with the balance of the increase arising from businesses acquired in 2004 and 2005. Sales in 2005 were also positively impacted by the continued growth in sales of several new interior and exterior products.

        An additional factor impacting consolidated sales is foreign exchange. For the combined year ended December 31, 2005 compared to the year ended December 31, 2004, foreign currencies such as the EURO and the Canadian dollar strengthened versus the U.S. dollar, while the British Pound weakened versus the U.S. dollar. Of the total consolidated sales growth of $229 million or 10%, $177 million or 8% was the result of increased sales, and $52 million or 2% was the net impact of changes in foreign exchange rates.

64



Sales and Percentage of Sales by Principal Geographic Region

 
  For the Year Ended December 31
 
 
  Combined 2005
  Predecessor 2004
 
 
  (in millions of U.S. dollars)

 
North America   $ 1,918.7   $ 1,760.3  
      79 %   80 %
Europe and Other   $ 602.0   $ 487.6  
      25 %   22 %
Intersegment   $ (92.2 ) $ (48.0 )
      (4 )%   (2 )%

        Sales in our principal segment, North America, increased 9% to $1.919 billion for the combined year ended December 31, 2005 compared to $1.760 billion for the year ended December 31, 2004 due to a 6% increase in constant currency sales at businesses owned in both periods, a 2% increase due to changes in exchange rates, and a 1% increase as a result of acquisitions.

        Sales outside of North America, net of intersegment sales, increased by 16% to $510 million for the combined year ended December 31, 2005 compared to $440 million during the year ended December 31, 2004 due to a 9% increase in constant currency sales at businesses owned in both periods, a 5% increase due to changes in exchange rates, and a 2% increase as a result of acquisitions.

        Demand in the new construction and home renovation sectors was stronger in 2005 than in 2004 in the regions where our products are sold. During 2004 and 2005, we expanded our presence as a door manufacturer in Europe to include several Eastern European countries. Reported net sales of existing operations were negatively impacted by the weakening Pound Sterling against the U.S. dollar, which was more than offset by a stronger EURO and other Eastern European currencies.

        Intersegment sales consist primarily of sales of door components from the Europe and Other segment to the North American segment. These sales increased in 2005 due to businesses acquired in 2004 and higher demand for interior doors in our North American segment. Also, the impact of the fire in our Laurel, Mississippi manufacturing facility and the hurricanes resulted in certain of our international manufacturing facilities shipping components to North America to ensure continuity of supply for production.

        Also in the fourth quarter of 2005, we informed our largest customer that we were placing our In-Design product line on indefinite hold. The In-Design product features inkjet printing of designs on molded door facings. Due to sales and earnings being less than expected during 2005, the decision was made to halt production. Our research, development and engineering team is further refining the manufacturing process, and we are reassessing the best way to commercialize this highly innovative proprietary technology.

Sales and Percentage of Sales by Product Line

 
  For the Year Ended December 31
 
 
  Combined 2005
  Predecessor 2004
 
 
  (in millions of U.S. dollars)

 
Interior   $ 1,559.0   $ 1,364.7  
      64 %   62 %

Exterior

 

$

869.5

 

$

835.2

 
      36 %   38 %

65


        The proportion of revenues from interior and exterior products was approximately 64% and 36%, respectively, for the combined year ended December 31, 2005, compared to 62% and 38%, respectively, for the year ended December 31, 2004. The relative increase in the percentage of interior doors sold in the current year is the result of our strength in the interior door market, as well as the acquisitions of interior door manufacturing facilities in both the current year and the prior year.

Cost of Sales

 
  For the Year Ended December 31
 
 
  Combined
2005

  Percentage
of Sales

  Predecessor
2004

  Percentage
of Sales

 
 
  (in millions of United States dollars)

 
Cost of sales, as reported   $ 1,984.7   81.7 % $ 1,722.7   78.3 %
Purchase accounting adjustment     (21.8 ) (0.9 )%      
Hurricanes     (7.9 ) (0.3 )%   (1.8 ) (0.1 )%
Inventory write-off     (7.0 ) (0.3 )%      
Electrical fire     (5.0 ) (0.2 )%      
Rationalization charges     (1.8 ) (0.1 )%      
United Kingdom fire     (1.6 ) (0.1 )%      
   
 
 
 
 
    $ 1,939.6   79.9 % $ 1,720.9   78.2 %
   
 
 
 
 

        The significant components of cost of sales are materials, direct labor, factory overheads and distribution costs. Cost of sales, expressed as a percentage of sales, increased to 81.7% for the combined year ended December 31, 2005 from 78.3% during the same period in 2004. Margins in 2005 were impacted in part by the amortization of fair value adjustments that increase the value of inventory acquired as part of business combinations. This adjustment increased cost of sales by approximately $22 million in the year-to-date period (see note 3 of the annual audited consolidated financial statements included elsewhere herein).

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

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

        During the first quarter of 2005, prior to our acquisition by KKR, we experienced an equipment electrical fire at our facility located in Laurel, Mississippi. The cost to repair the plant's equipment was immaterial, but two of the three production lines were inoperative for approximately three weeks. The lost production had a significant impact on our consolidated margins during the period.

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

66



        Excluding the impact of the fair value accounting adjustments, inventory write-downs, hurricanes and the exterior door rationalization and standardization initiative described above, cost of sales would have been 79.9% of sales, compared to 78.2% in 2004.

        We also experienced increased costs and, in some cases, shortages of supply, particularly in relation to petroleum-based products, transportation, and steel. These cost increases were partially offset by operating leverage from higher sales volume during the year and the use of alternative components and sources of supply. We were not able to offset the full impact of the material cost increases due to competitive conditions. In addition, we incurred additional costs at certain plants we acquired during 2004 associated with integration of operations and startup costs associated with the introduction of a new door finishing process. The continuing impact of these and other measures is difficult to estimate due to the potential timing difference between input cost changes, ongoing availability of material and our ability to mitigate these effects.

Selling, General and Administration Expenses

 
  For the Year Ended December 31
 
 
  Combined
2005

  Percentage of
Sales

  Predecessor
2004

  Percentage of
Sales

 
 
  (in millions of U.S. dollars)

 
Selling, general and administration expenses   $ 215.7   8.9 % $ 189.9   8.6 %

        SG&A primarily includes personnel costs, marketing and advertising, sales commissions, information technology costs, professional fees and management travel. SG&A increased by $26 million for the combined year ended December 31, 2005 to $216 million from $190 million during the same period in 2004. SG&A costs, expressed as a percentage of sales, increased to 8.9% for the combined year ended December 31, 2005 compared to 8.6% during the year ended December 31, 2004.

        Administration costs increased by approximately $16 million during the combined year ended December 31, 2005 as compared to the year ended December 31, 2004. Professional fees increased approximately $7 million, which included $1.5 million paid to KKR and $1.3 million paid to Capstone, which provides consulting services to us. Other items representing the increase in administration costs were $4.8 million related to fees incurred on our receivables sale programs, $1.6 million related to capital taxes, $2.5 million in insurance costs, $1.4 million in travel and entertainment costs, and $0.5 million in research and development costs. These increases were partially offset by a $4.1 million reduction in salaries and benefits.

        Selling costs increased by approximately $10 million during the combined year ended December 31, 2005 as compared to the year ended December 31, 2004. The majority of this increase was a $7 million increase in sales commissions, based on the increase in sales during the same period. Other increases in selling costs were approximately $2 million for salaries and benefits, as well as an additional $1 million for licenses and other fees.

Depreciation

 
  For the Year Ended December 31
 
 
  Combined
2005

  Predecessor
2004

  $ Change
  % Change
 
 
  (in millions of U.S. dollars)

 
Depreciation   $ 78.2   $ 58.5   $ 19.7   33.7 %

        Depreciation expense increased by $20 million for the combined year ended December 31, 2005 to $78 million from $59 million during the same period in 2004. In conjunction with the Transaction, we

67



applied purchase accounting and recorded the fair value of assets acquired and liabilities assumed as of April 6, 2005. The historical carrying amounts of property, plant and equipment were increased by $23 million. Also impacting the increase in depreciation were business acquisitions in 2005, as well as prior year capital expenditures of $70 million.

Amortization of Intangible Assets

 
  For the Year Ended December 31
 
 
  Combined
2005

  Predecessor
2004

  $ Change
  % Change
 
 
  (in millions of U.S. dollars)

 
Amortization of intangible assets   $ 31.0   $ 4.1   $ 26.9   656 %

        Amortization of intangible assets increased by $27 million for the combined year ended December 31, 2005 to $31 million from $4 million during the same period in 2004. In conjunction with the Transaction, we applied purchase accounting and recorded the fair value of assets acquired and liabilities assumed as of April 6, 2005. The historical carrying amounts of intangible assets with definite lives were increased by $518 million representing an increase of $264 million for customer lists, $165 million for trademarks and tradenames, $85 million for patents and $4 million for order backlogs at the time of acquisition.

Other Expense

 
  For the Year Ended December 31
 
 
  Combined
2005

  Predecessor
2004

  $ Change
 
 
  (in millions of U.S. dollars)

 
Transaction costs   $ 13.9   $ 2.5   $ 11.4  
Equity compensation settlement     57.7         57.7  
Restructuring and severance expense     9.2     10.4     (1.2 )
Hedging transaction loss     5.3         5.3  
Loss (gain) on disposal of property, plant and equipment     2.5     (5.1 )   7.6  
Other     0.3     (0.1 )   0.4  
   
 
 
 
Other expense   $ 89.0   $ 7.7   $ 81.3  
   
 
 
 

        The increase in other expense for the combined year ended December 31, 2005 compared to December 31, 2004 was primarily due to the Transaction. Included in other expense are approximately $14 million in transaction fees, which includes legal, accounting and other costs related to the Transaction which were not eligible to be capitalized.

        Also included in other expense for the combined year ended December 31, 2005 are approximately $58 million in costs related to equity compensation settlements. These stock based compensation costs were for the value of vested and unvested stock options accounted for using the settlement basis of accounting, as well as previously unvested Restricted Share Units and Deferred Share Units. As a result of the affirmative shareholder vote authorizing the sale of the Predecessor in the Transaction, these stock based instruments were accelerated, vested and became payable in cash. The cash settlement of these instruments was recorded with a charge to the Predecessor's audited statement of operations.

        In addition, we recognized approximately $8 million in severance costs related to the resignation of our former Chief Executive Officer and the termination of other employees. Also included in other expense for the combined 2005 period are $2 million of costs associated with the completion of the

68



shutdown of our Richmond, Indiana exterior steel door plant and the Seoul, South Korea production facility. These costs were incurred in the Predecessor period ending April 6, 2005.

        In addition, an exchange loss of approximately $5 million is included in other expense which resulted from transactions to hedge the Canadian dollar required to complete the Transaction.

Interest Expense

 
  For the Year Ended December 31
 
 
  Combined
2005

  Predecessor
2004

  $ Change
  % Change
 
 
  (in millions of U.S. dollars)

 
Interest   $ 148.3   $ 39.5   $ 108.8   275 %

        Interest expense increased approximately $109 million for the combined year ended December 31, 2005 as compared to the same period in 2004. This increase arose because of the significant increase in the debt principally incurred to fund the Transaction, as well as an increase in interest rates compared to the prior year. Information regarding the new debt facilities are discussed in greater detail in the "Liquidity and Capital Resources" section below.

        Also included in interest expense for the year ended December 31, 2005 is approximately $17 million of deferred financing amortization, compared to approximately $1 million during the same period in 2004. Of the $17 million in deferred financing costs incurred in the combined year ended December 31, 2005, approximately $7 million were costs that could have been refundable to us had we issued an offering of securities to the public within a specified time period ending in October 2005. As we did not issue securities to the public, these $7 million in costs were fully amortized over the period ending October 2005. The remaining deferred financing costs incurred are related to the senior secured credit facilities and the senior subordinated loan and are being amortized over the life of these facilities. The deferred financing costs in the year ended December 31, 2004 were related to pre-Transaction debt, and were being amortized over the term of that debt, now discharged.

Income Tax Rates

 
  For the Year Ended December 31
 
 
  Combined 2005
  Predecessor 2004
 
Combined effective rate   (20.8 )% 24.0 %

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

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

69



Net (Loss) Income

 
  For the Year Ended December 31
 
 
  Combined
2005

  Predecessor
2004

  $ Change
  % Change
 
 
  (in millions of U.S. dollars)

 
Net (loss) income   $ (100.5 ) $ 128.0   $ (228.5 ) (178 )%

        The net loss of $100 million for the combined year ended December 31, 2005 was primarily due to increases in other expenses and interest expense as well as a decline in operating performance and significant unexpected events. As noted above, significant equity compensation costs, financing charges, professional fees were incurred to close the Transaction; and increased depreciation and amortization charges were incurred as a result of the fair values assigned to assets acquired and liabilities assumed in the purchase accounting related to the Transaction, all of which negatively impacted net loss for the combined year ended December 31, 2005.

Segment Information

 
  For the Year Ended December 31
 
 
  Combined
2005

  Percentage
of Sales

  Predecessor
2004

  Percentage
of Sales

 
 
  (in millions of U.S. dollars)

 
Adjusted EBITDA-North America   $ 201.4   10.5 % $ 240.1   13.6 %
Adjusted EBITDA-Europe and Other   $ 97.0   16.1 % $ 79.3   16.3 %

        The performance measurement of each of our geographic segments is measured based on Adjusted EBITDA. See "—Liquidity and Capital Resources."

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

 
  For the Year Ended December 31
 
 
  Combined
North America
2005

  Percentage of
Sales

  Predecessor
North America
2004

  Percentage of
Sales

 
 
  (in millions of United States dollars)

 
Net (loss) income   $ (142.5 ) (7.4 )% $ 82.4   4.7 %
  Interest     145.3         38.0      
  Income taxes     (37.7 )       34.9      
  Depreciation and amortization     79.2         43.9      
  Other expense     94.2         7.1      
  Non-controlling interest     3.3         5.2      
   
 
 
 
 
EBITDA     141.8   7.4 %   211.5   12.0 %
 
EBITDA

 

 

141.8

 

7.4

%

 

211.5

 

12.0

%
  Inventory purchase accounting adjustment     15.1              
  Pro-forma acquisition impact     7.1         8.6      
  Hurricanes     7.9         1.8      
  Inventory losses     7.9              
  Sale of receivables     6.5         1.8      
  United States fire     5.0              
  Capital and franchise tax     3.0         1.6      
  Equity compensation     2.8         5.9      
  Sponsor fees     1.5              
  Facility closure/rationalization     1.8              
  Contract termination     1.3         10.2      
  Pension and postretirement expense (income)     0.9         (2.6 )    
  Other     (1.2 )       1.3      
   
 
 
 
 
Adjusted EBITDA   $ 201.4   10.5 % $ 240.1   13.6 %
   
 
 
 
 

70


        Adjusted EBITDA as a percentage of sales in the North American segment declined for the successor and predecessor to 10.5% for the combined year ended December 31, 2005 from 13.6% for the year ended December 31, 2004. As discussed earlier, our cost reduction efforts and pricing strategies were unable to fully offset the impact of inflation and other cost increases, and along with the items described above combined to reduce Adjusted EBITDA margins for this segment in the combined year ended December 31, 2005.

 
  For the Year Ended December 31
 
 
  Combined
Europe and
Other
2005

  Percentage of
Sales

  Predecessor
Europe and
Other
2004

  Percentage of
Sales

 
 
  (in millions of United States dollars)

 
Net income   $ 42.0   7.0 % $ 45.5   9.3 %
  Interest     3.0         1.5      
  Income taxes     13.1         7.8      
  Depreciation and amortization     30.0         18.7      
  Other (income) expense, net     (5.2 )       0.6      
  Non-controlling interest     3.3         1.7      
   
 
 
 
 
EBITDA     86.2   14.3 %   75.8   15.5 %
 
EBITDA

 

 

86.2

 

14.3

%

 

75.8

 

15.5

%
  Inventory purchase accounting adjustment     6.6              
  Pro-forma acquisition impact     2.4         4.5      
  United Kingdom fire     1.6              
  Inventory losses     0.5              
  Pension and postretirement expense     0.2              
  Equity compensation     0.1              
  Other     (0.6 )       (1.0 )    
   
 
 
 
 
Adjusted EBITDA   $ 97.0   16.1 % $ 79.3   16.3 %
   
 
 
 
 

        Adjusted EBITDA as a percentage of sales in the Europe and Other segment decreased from 16.3% for the year ended December 31, 2004 to 16.1% in the combined year ended December 31, 2005.

71



Predecessor Results of Operations for the Year Ended December 31, 2004 compared to the Year Ended December 31, 2003

        The results below are for the Predecessor's business for the periods from January 1, 2004 to December 31, 2004 and January 1, 2003 to December 31, 2003. The following periods are not necessarily comparable, given the significant acquisitions ocurred in 2004.

 
  Predecessor
January 1, 2004
to December 31, 2004

  Predecessor
January 1, 2003
to December 31, 2003

 
  (in millions of U.S. dollars)

Sales   $ 2,199.9   $ 1,777.2
Cost of sales     1,722.7     1,380.2
   
 
Gross margin     477.2     397.1

Selling, general and administration expenses

 

 

189.9

 

 

162.2
Depreciation     58.5     47.5
Amortization of intangible assets     4.1     0.2
Interest     39.5     36.4
Other expense, net     7.7     3.1
   
 
Income before income taxes and non-controlling interest     177.4     147.7

Income taxes

 

 

42.7

 

 

34.5
Non-controlling interest     6.8     5.5
   
 
Net income   $ 128.0   $ 107.7
   
 

Consolidated Sales

 
  For the Year Ended December 31
 
 
  Predecessor
2004

  Predecessor
2003

  $ Change
  % Change
 
 
  (in millions of U.S. dollars)

 
Sales   $ 2,199.9   $ 1,777.2   $ 422.7   23.8 %

        Consolidated sales for the year ended December 31, 2004 increased 24% or $423 million to $2.2 billion from sales of $1.8 billion for the year ended December 31, 2003. Approximately one-half of this increase was attributable to existing operations, and the balance to businesses acquired during 2004. Demand in both the home improvement and new construction sectors in the regions where our products are sold was stronger in 2004 than 2003. In 2003, our financial results were negatively affected by harsh weather conditions early in the year and slower demand because of greater consumer uncertainty due to geopolitical events. Sales in 2004 were positively impacted by acquisitions of businesses and the release of several new interior and exterior products, as well as by the continued implementation of our "all products" strategy.

        An additional factor impacting our consolidated sales is foreign exchange rates. For the year ended December 31, 2004 compared to the year ended December 31, 2003, foreign currencies, such as the Canadian dollar, the EURO and the Pound Sterling, all strengthened relative to the U.S. dollar. Of the $423 million or 24% increase in consolidated sales, $331 million or 19% was the result of increased sales, while $92 million or 5% was the result of changes in foreign exchange rates.

72



Sales and Percentage of Sales by Principal Geographic Region

 
  For the Year Ended December 31
 
  Predecessor 2004
  Predecessor 2003
 
  (in millions of U.S. dollars)

North America   $ 1,760.3   $ 1,434.1
      80%     81%

Europe and Other

 

$

487.6

 

$

380.6
      22%     21%

Intersegment

 

$

(48.1)

 

$

(37.4)
      (2)%     (2)%

        Sales in our principal segment, North America, increased 23% to $1.760 billion for the year ended December 31, 2004 compared to $1.434 billion for the year ended December 31, 2003 due to a 19% increase in constant currency sales at businesses owned in both periods, a 2% increase due to changes in exchange rates, and a 2% increase as a result of acquisitions.

        Sales outside of North America, net of intersegment sales, increased by 28% to $440 million for the year ended December 31, 2004 compared to $343 million during the year ended December 31, 2004 due to a 19% increase in exchange rates, an 8% increase in constant currency sales at businesses owned in both periods, and a 1% increase due to acquisitions.

        Demand from the new construction and home renovation sectors was strong in 2004 in the regions where our products are sold. During 2004, we expanded our presence as a door manufacturer in Europe to include several Eastern European countries. Reported net sales of existing operations were positively impacted by the strengthening EURO, British Pound, and other Eastern European currencies.

        Intersegment sales consist primarily of sales of door components from the Europe and Other segment to the North American segment. These sales increased in 2004 due to businesses acquired in 2004 and higher demand for doors in our North American segment.

Sales and Percentage of Sales by Product Line

 
  For the Year Ended December 31
 
 
  Predecessor 2004
  Predecessor 2003
 
 
  (in millions of U.S. dollars)

 
Interior   $ 1,364.7   $ 1,164.5  
      62 %   66 %

Exterior

 

$

835.2

 

$

612.7

 
      38 %   34 %

        The proportion of revenues from interior and exterior products was approximately 62% and 38%, respectively, in 2004, compared to 66% and 34%, respectively, in 2003. The increase in exterior products as a percentage of total sales was attributable to our continued focus on exterior products and to the March 2004 acquisition of the entry door business from The Stanley Works. The introduction of

73



innovative new fiberglass exterior doors, new customers, new programs and continued marketing and advertising also contributed to the growth in sales of exterior products.

Cost of Sales

 
  For the Year Ended December 31
 
 
  Predecessor
2004

  Percentage
of Sales

  Predecessor
2003

  Percentage
of Sales

 
 
  (in millions of U.S. dollars)

 
Cost of sales   $ 1,722.7   78.3 % $ 1,380.2   77.7 %

        Cost of sales, expressed as a percentage of sales, increased to 78.3% in 2004 from 77.7% in 2003. We experienced increasing costs and, in some cases shortages of supply, particularly in relation to steel, transportation, petroleum-based products, lumber and wood related components. These cost increases impacted our financial results through most of the year. The effects of these cost increases were mitigated through improvements to operating leverage from the 12% increase in sales from existing businesses, the use of alternative products and sources of supply, and price increases to customers.

        Our results for 2004 were also negatively impacted by hurricanes in the southeastern United States, a labor disruption and certain realignment initiatives at our North American logistical facilities. Our ten facilities in the areas most severely affected by four hurricanes in the southeastern United States lost a number of production and shipping days. While our properties were not damaged by the events, these facilities were forced to temporarily close, as were many of our customers in the area. Also in the third quarter of 2004, a labor disruption at one of our North American manufacturing operations resulted in 25 lost days of production.

Selling, General and Administration Expenses

 
  Predecessor
2004

  Percentage of
Sales

  Predecessor
2003

  Percentage of
Sales

 
 
  (in millions of U.S. dollars)

 
Selling, general and administration expenses   $ 189.9   8.6 % $ 162.2   9.1 %

        SG&A primarily includes personnel costs, marketing and advertising, sales commissions, information technology costs, professional fees and management travel. SG&A increased by $28 million for the year ended December 31, 2004 to $190 million from $162 million during the same period in 2003. SG&A costs, expressed as a percentage of sales, decreased to 8.6% for the year ended December 31, 2004 compared to 9.1% during the year ended December 31, 2003.

        Administration costs increased by approximately $29 million during the year ended December 31, 2004 as compared to the year ended December 31, 2003. Of the increase, $20 million was related to salaries and benefits, $7 million of which was due to the acquisitions completed in 2004, and $6 million of which was related to stock based compensation. Also contributing to the increase were $1.8 million of charges incurred on the receivable sale programs, $1.8 in professional fees and $1.3 million in travel and entertainment costs.

        Selling costs decreased by approximately $1 million during the year ended December 31, 2004 as compared to the year ended December 31, 2003. The major fluctuations in the selling costs were a $3.0 million increase in commissions based on increased sales in 2004 as compared to 2003, offset by a $3.4 million decrease in selling salaries and benefits.

74



Depreciation

 
  For the Year Ended December 31
 
 
  Predecessor
2004

  Predecessor
2003

  $ Change
  % Change
 
 
  (in millions of U.S. dollars)

 
Depreciation   $ 58.5   $ 47.5   $ 11.0   23.2 %

        Depreciation expense increased approximately $11 million in 2004 to approximately $59 million from approximately $48 million in 2003. The increase in depreciation is the result of businesses acquired during the year as well as additional depreciation being incurred on capital expenditures from 2003.

Amortization of Intangible Assets

 
  For the Year Ended December 31
 
  Predecessor
2004

  Predecessor
2003

  $ Change
  % Change
 
  (in millions of U.S. dollars)

Amortization of intangible assets   $ 4.1   $ 0.2   $ 3.9   Not meaningful

        Amortization of intangible assets increased approximately $4 million in 2004 to approximately $4 million from approximately $0.2 million in 2003. The increase in amortization is the result of amortizable intangible assets acquired during fiscal 2004.

Other expense, net

 
  For the Year Ended December 31
 
 
  Predecessor
2004

  Predecessor
2003

  $ Change
 
 
  (in millions of U.S. dollars)

 
Transaction costs   $ 2.5   $   $ 2.5  
Restructuring and severance expense     10.4         10.4  
(Gain)/loss on disposal of property, plant and equipment     (5.1 )   2.4     (7.5 )
Other     (0.1 )   0.8     (0.9 )
   
 
 
 
Other expense   $ 7.7   $ 3.2   $ 4.5  

        Included in other expense in 2004 are costs associated with the shutdown of our Richmond, Indiana exterior steel door plant; the closure of the Seoul, South Korea post forming wood composite molded door facing facility; the consolidation of senior operating management in our Tampa, Florida headquarters; the previously announced KKR Transaction; and a gain on disposal of property, plant and equipment.

        The shutdown of the Richmond operation, which resulted in a charge to other expense of approximately $4 million, was part of our ongoing program of rationalization of exterior door capacity and standardization of exterior door production and product specifications. The closure of the South Korea production facility resulted in a charge to other expense of approximately $2 million, primarily for employee termination costs. Employee consolidation in our Tampa headquarters resulted in a charge to other expense of $2 million. This consolidation included employee transfer and severance costs, is the completion of the consolidation in Tampa of key operating executives that began with the shutdown of the former Masonite Chicago headquarters in 2002. The legal, accounting and other costs related to the Transaction resulted in a charge to other expense of approximately $3 million.

75


        During the year, the sale of certain idle real estate and other equipment for proceeds of approximately $10 million resulted in a gain of approximately $5 million which was included in other expense.

Interest Expense

 
  For the Year Ended December 31
 
 
  Predecessor
2004

  Predecessor
2003

  $ Change
  % Change
 
 
  (in millions of U.S. dollars)

 
Interest   $ 39.5   $ 36.4   $ 3.1   8.5 %

        Interest expense increased approximately $3 million in comparison to 2003. This increase arose because we incurred additional debt of $200 million to finance acquisitions during the year and experienced an increase in interest rates. Approximately 58% of our debt is at floating rates, primarily LIBOR, which increased during the year. Repayment of long-term debt from cash flow generated by operations was approximately $104 million.

Income Tax Rates

 
  For the Year
Ended December 31

 
 
  Predecessor
2004

  Predecessor
2005

 
 
  (in millions of
U.S. dollars)

 
Combined effective rate   24.1 % 23.4 %

        Our effective income tax rate is primarily the weighted average of federal, state and provincial rates in various countries in which we have operations, including the United States, Canada, France, the United Kingdom and Ireland. Our income tax rate is also affected by estimates of realizability of tax assets, changes in tax laws and the timing of the expected reversal of temporary differences.

Net Income

 
  For the Year Ended December 31
 
 
  Predecessor
2004

  Predecessor
2003

  $ Change
  % Change
 
 
  (in millions of U.S. dollars)

 
Net income   $ 128.0   $ 107.7   $ 20.3   18.8 %

        Our 2004 net income increased approximately 19%, or $20 million, to a new record level of $128 million from $108 million in 2003. The increase in net income over the prior period was due to the increase in sales that occurred in 2004.

Segment Information

 
  For the Year Ended December 31
 
 
  Predecessor
2004

  Percentage of
Sales

  Predecessor
2003

  Percentage of
Sales

 
 
  (in millions of U.S. dollars)

 
Adjusted EBITDA—North America   240.1   13.6 % 177.2   12.4 %
Adjusted EBITDA—Europe and Other   79.3   16.3 % 53.7   14.1 %

76


        The performance measurement of each of our geographic segments is measured based on Adjusted EBITDA. See "—Liquidity and Capital Resources".

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

 
  For the Year Ended December 31
 
 
  North America
2004

  Percentage of
Sales

  North America
2003

  Percentage of
Sales

 
 
  (in millions of United States dollars)

 
Net income   $ 82.4   4.7 % $ 69.9   4.9 %
  Interest     38.0         35.5      
  Income taxes     34.9         34.2      
  Depreciation and amortization     43.9         32.4      
  Other expense     7.1         2.9      
  Non-controlling interest     5.2         5.5      
   
 
 
 
 
EBITDA     211.5   12.0 %   180.4   12.6 %

EBITDA

 

 

211.5

 

12.0

%

 

180.4

 

12.6

%
  Contracted termination     10.2              
  Pro-forma acquisition impact     8.6              
  Equity compensation     5.9         3.7      
  Sale of receivables     1.8              
  Hurricanes     1.8              
  Capital and franchise tax     1.6              
  Pension & postretirement income     (2.6 )       (4.7 )    
  Other     1.3         (2.2 )    
   
 
 
 
 
Adjusted EBITDA   $ 240.1   13.6 % $ 177.2   12.4 %
   
 
 
 
 

        Adjusted EBITDA as a percentage of sales in the North American segment, as reported for the successor and predecessor in note 23 of the annual audited consolidated financial statements contained elsewhere herein, increased from 12.4% for the year ended December 31, 2003 to 13.6% for the year ended December 31, 2004.

 
  For the Year Ended December 31
 
 
  Predecessor
Europe and
Other
2004

  Percentage of
Sales

  Predecessor
Europe and
Other
2003

  Percentage of
Sales

 
 
  (in millions of United States dollars)

 
Net income   $ 45.5   9.3 % $ 37.8   9.9 %
  Interest     1.5         0.9      
  Income taxes     7.8         0.3      
  Depreciation and amortization     18.7         15.3      
  Other expense     0.6         0.2      
  Non-controlling interest     1.7              
   
 
 
 
 
EBITDA     75.8   15.5 %   54.5   14.3 %

EBITDA

 

 

75.8

 

 

 

 

54.5

 

 

 
  Pro-forma acquisition impact     4.5              
  Other     (1.0 )       (0.8 )    
   
 
 
 
 
Adjusted EBITDA   $ 79.3   16.3 % $ 53.7   14.1 %
   
 
 
 
 

77


        Adjusted EBITDA as a percentage of sales in the Europe and Other Segment, as reported in note 23 of the annual audited consolidated financial statements continued elsewhere herein, increased from 14.1% for the year ended December 31, 2003 to 16.3% for the year ended December 31, 2004.

Liquidity and Capital Resources

Net Debt

 
  As at
 
  Successor
September 30, 2006

  Successor
December 31, 2005

 
  (in millions of United States dollars)

Revolving credit facility outstanding   $ 68.0   $ 110.0
Other bank loans outstanding     13.8     18.8
Senior secured credit facility term loan outstanding     1,157.4     1,166.2
Senior subordinated loan outstanding     770.0     770.0
Other subsidiary long-term debt outstanding     21.0     40.2
   
 
Total debt outstanding   $ 2,030.2   $ 2,105.1
Plus: Notes payable and letters of credit outstanding     16.0     16.9
Less: Cash on hand     61.3     47.5
   
 
Net debt outstanding(1)   $ 1,984.9   $ 2,074.6
   
 

(1)
Net debt is as defined in the credit agreement.

        To fund the Transaction we entered into senior secured credit facilities totalling approximately $2 billion dollars on April 6, 2005.

        As of September 30, 2006, the balance outstanding on our revolving credit facility was reduced by $42 million from December 31, 2005 through the use of cash flow generated from operations, asset sales and a reduction in the amount of capital expenditure. Subsidiary long-term debt was reduced by $19 million from December 31, 2005 of which $16.3 million was due to the repayment by one of our subsidiaries of a loan that matured in the period. The loan was repaid using the cash balance accumulated from the subsidiary's operations and in part by an $11 million short term loan from us drawn on our revolving credit facility. The subsidiary subsequently obtained third party financing.

Debt Facilities

 
  As at
 
  Successor
September 30, 2006

  Successor
December 31, 2005

 
  (in millions of United States dollars)

Revolving credit facility capacity   $ 350.0   $ 350.0
Revolving credit facility outstanding     68.0     110.0
Subsidiaries' bank loan capacity     18.4     20.0
Subsidiaries' bank loan outstanding     13.8     18.8
Other subsidiary long-term debt outstanding     21.0     40.2
Senior secured credit facility term loan outstanding     1,157.4     1,166.2
Senior subordinated loan facility outstanding     770.0     770.0

        The aggregate amount of long-term debt repayments required over the next five years ending September 30 is approximately $80 million at September 30, 2006, compared to approximately $99 million at December 31, 2005. The decrease is due to repayments of long-term debt in the first

78



nine months of the year. Future principal debt payments are expected to be paid out of cash flows from operations, borrowings on our new revolving credit facility and future refinancing of our debt.

        To mitigate interest risk, in April 2005, we entered into a five year interest rate swap agreement converting a notional $1.15 billion of floating-rate debt into fixed rate debt that currently bears interest at 4.22% plus an applicable credit spread. On April 26, 2006, $100 million of the interest rate swaps amortized, leaving $1.05 billion at a fixed rate as of September 30, 2006. After giving effect to the interest rate swap and the repayment of the senior subordinated loan by the automatic issuance of a new debt obligation comprising the senior subordinated term loan, approximately 90% of outstanding interest-bearing debt carries a fixed interest rate and the other 10% carries a floating rate at September 30, 2006. The three month LIBOR rate at September 30, 2006 was 5.37%.

        Our ability to make scheduled payments of principal, or to pay the interest or additional amounts if any, or to refinance indebtedness, or to fund planned capital expenditures or payments required pursuant to our shareholder agreements relating to our less than wholly-owned subsidiaries, will depend on future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based upon the current level of operations and certain anticipated improvements, we believe that cash flow from operations and available cash, together with borrowings available under our senior secured credit facility and senior subordinated loan, will be adequate to meet our future liquidity needs throughout the term of the loans. There can be no assurance that we will generate sufficient cash flow from operations, that anticipated revenue growth and operating improvements will be realized or that future borrowings will be available under the senior secured credit facility in an amount sufficient to enable us to service our indebtedness or to fund other liquidity needs. In addition, there can be no assurance that we will be able to affect any future refinancing of our debt on commercially reasonable terms or at all.

        We expect our current cash balance plus cash flows from operations and availability under our revolving credit facility to be sufficient to fund near-term working capital and other investment needs.

Senior Secured Credit Facility

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

        We also entered into a $350 million revolving credit facility which is available for general corporate purposes. The revolving credit facility interest rate is subject to a pricing grid ranging from LIBOR plus 1.75% to LIBOR plus 2.50%. As of September 30, 2006, the revolving credit facility interest rate was LIBOR plus 2.50%. In addition to the senior secured credit facilities noted above, we have funded operations through cash generated from operations.

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

        Our senior secured credit facilities require us to meet a minimum interest coverage ratio of 1.5 times Adjusted EBITDA and a maximum leverage ratio of 7.7 times Adjusted EBITDA as of September 30, 2006, as defined in the credit agreements (see discussion on non-GAAP measures below). These ratios will be adjusted over the passage of time, ultimately reaching a minimum interest coverage ratio of 2.2 times Adjusted EBITDA, and a maximum leverage ratio of 4.75 times Adjusted EBITDA. In addition, the senior secured credit facilities contain certain restrictive covenants which,

79



among other things, limit the incurrence of additional indebtedness, investments, dividends, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, prepayments of other indebtedness, liens and encumbrances and other matters customarily restricted in such agreements. They also contain certain customary events of default, subject to grace periods, as appropriate.

        The net debt to Adjusted EBITDA calculation measures the debt we have on our balance sheet against our Adjusted EBITDA over the last twelve months. This ratio declined from 6.95:1.0 at December 31, 2005 to 6.08:1.0 at September 30, 2006.

        Our cash interest coverage ratio measures our Adjusted EBITDA as a multiple of our cash interest expense over the last twelve months. This ratio improved from 1.74:1.0 at December 31, 2005 to 1.89:1.0 at September 30, 2006.

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

Senior Subordinated Loan

        On April 6, 2005, we entered into a senior subordinated loan agreement for a $770 million senior subordinated loan, the proceeds of which were also used to fund the Transaction. The senior subordinated loan initially carried an interest rate of LIBOR plus 6.00% and increased over time to a maximum interest rate of 11% per annum which was reached in the second quarter of 2006. On October 6, 2006, the senior subordinated loan was repaid in full by the automatic issuance of a new debt obligation comprising a senior subordinated term loan and on and after October 6, 2006 the majority of the lenders elected to receive the outstanding notes, which bear interest 11%, and are subject to registration rights, as evidence of all or part of the principal amount of the senior subordinated term loan of such lender then outstanding.

Notes

        The indentures governing the notes limit our ability to:

        Subject to certain exceptions, the indentures governing the notes permit us and our restricted subsidiaries to incur additional indebtedness, including secured indebtedness.

80



Non-GAAP measures

        Under the indentures governing the notes, our ability to engage in certain activities such as incurring certain additional indebtedness, making certain investments and paying certain dividends is tied to ratios based on Adjusted EBITDA.

        EBITDA, a measure used historically by management to measure operating performance, is defined as net income plus interest, income taxes, depreciation and amortization, other expense (income), net, (gain) loss on refinancing, net and non-controlling interest. Adjusted EBITDA is defined as EBITDA further adjusted to give effect to adjustments required in calculating covenant ratios and compliance under the indentures governing the notes and our senior secured credit facilities. EBITDA and Adjusted EBITDA are not presentations made in accordance with GAAP, are not measures of financial condition or profitability, and should not be considered as an alternative to (1) net income (loss) determined in accordance with GAAP or (2) operating cash flows determined in accordance with GAAP. Additionally, EBITDA and Adjusted EBITDA are not intended to be measures of free cash flow for management's discretionary use, as they do not include certain cash requirements such as interest payments, tax payments and debt service requirements. We believe that the inclusion of EBITDA and Adjusted EBITDA in this prospectus is appropriate to provide additional information to investors about the calculation of certain financial covenants in the indentures governing the notes and our senior secured credit facilities. Adjusted EBITDA is a material component of these covenants. For instance, both the indentures governing the notes and the senior secured credit facilities contain financial ratios that are calculated by reference to Adjusted EBITDA. Non-compliance with the financial ratio maintenance covenants contained in our senior secured credit facilities could result in the requirement to immediately repay all amounts outstanding under such facilities, while non-compliance with the debt incurrence ratio contained in the indentures governing the notes would prohibit us from being able to incur additional indebtedness other than pursuant to specified exceptions. Because not all companies use identical calculations, these presentations of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Adjusted EBITDA under the indentures is defined as net earnings (loss) as further adjusted to exclude unusual items, non-cash items and the other adjustments shown in the table below. We believe that the disclosure of the calculation of Adjusted EBITDA provides information that is useful to an investor's understanding of our liquidity and financial flexibility.

81


        The following is a reconciliation of net loss, which is a GAAP measure of our operating results, to Adjusted EBITDA as defined in our debt agreements, and the calculation of the fixed charge coverage ratio, net debt and net debt to Adjusted EBITDA ratio under the indentures governing the notes. The terms and related calculations are defined in the indentures governing the notes.

 
  For the Last Twelve Months Ended September 30, 2006
 
 
  Masonite
Combined
2005

  Less: Combined
January 1 to September 30,
2005

  Add: Masonite
January 1 to September 30,
2006

  Last Twelve Months
Ended
September 30,
2006

 
 
  (in millions of United States dollars)

 
Net loss   $ (100.5 ) $ (66.2 ) $ (13.2 ) $ (47.5 )
  Interest     148.3     101.6     137.2     183.9  
  Income taxes     (24.6 )   (27.6 )   (4.8 )   (1.8 )
  Depreciation and amortization     109.3     78.5     92.0     122.8  
  Other expense     89.0     86.8     16.6     18.6  
  Non-controlling interest     6.6     5.3     5.6     6.9  
   
 
 
 
 
EBITDA     228.1     178.5     233.4     282.8  
   
 
 
 
 

EBITDA

 

 

228.1

 

 

178.5

 

 

233.4

 

 

282.8

 
  Receivables transaction charges(a)     6.5     4.2     5.9     8.2  
  Inventory purchase accounting adjustment(b)     21.8     20.5         1.3  
  U.S. fire(c)     5.0     5.0          
  Facility closures/realignments(d)     1.8     1.8     1.9     1.9  
  Hurricanes impact(e)     7.9     7.9     (0.7 )   (0.7 )
  U.K. fire(f)     1.6             1.6  
  Inventory losses(g)     8.4         9.0     17.4  
  Acquisitions impact (including synergies)(h)     9.5     7.8         1.7  
  Stock-based compensation(i)     3.0     1.8     1.2     2.4  
  Franchise and capital tax     3.0     1.4     1.9     3.5  
  Foreign exchange gains     (4.2 )   (1.3 )   (0.6 )   (3.5 )
  Craftmaster contract termination(j)     1.3     1.3          
  Other(k)     4.8         4.7     9.5  
   
 
 
 
 
  Defined adjustments     70.4     50.4     23.3     43.3  
   
 
 
 
 
Adjusted EBITDA   $ 298.4   $ 228.9   $ 256.8   $ 326.2  
   
 
 
 
 

82



Net Debt   1,984.9
Last Twelve Months Adjusted EBITDA   326.2
               
Ratio of Net Debt to Adjusted EBITDA   6.08

Last Twelve Months Adjusted EBITDA

 

326.2
Total Interest Expense   172.4
               
Ratio of Adjusted EBITDA to Interest Expense   1.89
               

83


Current—September 30, 2006

Cash flows from Operating Activities

 
  For the Nine
Month Period Ended
September 30

 
  Successor
2006

  Combined
2005

 
  (in millions of United States dollars)

Cash generated from operating activities   $ 108.9   $ 62.8

        In the first nine months of 2006, $109 million was generated through operations, compared to $63 million in the combined nine months ended September 30, 2005. Approximately $88 million of the operating cash flow came from operations and $21 million was generated through working capital. In the prior year, most of the cash flow from operations was generated through working capital. Receivables consumed more working capital in the current year than in the prior year. During the second quarter of 2005, the receivables sale program was expanded from $75 million to $135 million mitigating the normal seasonal increase in receivables in the first nine months of the year. Inventory reductions and payables management helped to offset the growth in receivables in the current year.

Cash flows from Financing Activities

 
  For the Nine
Month Period Ended
September 30

 
  Successor
2006

  Combined
2005

 
  (in millions of United States dollars)

Cash (used in) generated from financing activities   $ (75.4 ) $ 1,941.9

        Cash used in financing activities in the nine month period ended September 30, 2006 was primarily to repay both short term and long term debt. Total debt was reduced by $76 million from year end. In the prior year period, the sources and uses were related the issuance of debt and equity to complete the Transaction and the payment of financing fees.

Cash flows from Investing Activities

 
  For the Nine
Month Period Ended
September 30

 
 
  Successor
2006

  Combined
2005

 
 
  (in millions of United States dollars)

 
Cash used in investing activities   $ (24.4 ) $ (2,027.2 )

        Cash flows used for investing activities in the nine month period ended September 30, 2006 were $24.4 million. Proceeds from the disposal of fixed assets helped to fund capital expenditures through the first nine months of the year as we disposed of surplus real estate and equipment. In the prior year period, the Transaction was completed as well as a series of strategic acquisitions primarily in Eastern

84



Europe. Capital expenditures were approximately $18 million lower in 2006 than in the same period in 2005. In the prior year, a distribution to a minority shareholder in the amount of $18 million was made as part of the acquisition of the remaining interest in us. In 2006, other investing activities consist principally of advances made to the parent company to fund the redemption of management shareholders. In the prior year, other investing activities included advances made to an equity investee prior to the purchase of the balance of the ownership interest in the second quarter of 2005. The 2005 comparative figure excludes cash acquired of the Predecessor in connection with the Transaction.

Historical—December 31, 2005, 2004 and 2003

Cash flows from Operating Activities

 
  For the Year Ended December 31
 
  Combined
2005

  Predecessor
2004

  Predecessor
2003

 
  (in millions of U.S. dollars)

Cash generated from operating activities   $ 98.6   $ 146.9   $ 154.8

        The decrease in cash flows from operations in the combined 2005 period ending December 31, 2005 compared to 2004 was largely due to costs associated with the Transaction. The main reason for the decrease is interest payments of $106 million in 2005, compared to $39 million in 2004. Cash generated from working capital improved in 2005 compared to 2004, primarily due to more controlled monitoring and spending on inventories. In the fourth quarter of 2004, inventory levels increased by $30 million, in order to support the higher level of sales, and as a result of acquiring businesses. Another area of working capital improvement in 2005 compared to 2004 was trade payables and accrued expenses, which represented a use of cash of $20 million for the year ended December 31, 2004, compared to a source of cash of $29 million for the year ended December 31, 2005. The decrease in inventory noted above at December 31, 2005, combined with a more focused effort in monitoring days payable resulted in this improvement in working capital.

        During 2004, we entered into an agreement to sell up to $75 million of non-interest bearing accounts receivable. In April of 2005, the agreement was increased to a maximum of $135 million and modified to include sales of another customer. At December 31, 2005, approximately $111 million (2004—approximately $75 million; 2003—$nil) of receivables had been sold under this agreement, and were excluded from accounts receivable. Under this agreement, we retain servicing responsibilities but do not have a retained interest in the receivables. In addition, when we acquired the entry door business of The Stanley Works in March 2004, we continued an accounts receivable sale program already established by The Stanley Works. At December 31, 2005, approximately $30 million (2004—approximately $25 million; 2003—$nil) of receivables had been sold under this agreement, and were excluded from accounts receivable.

        Cash flows from operations for the year ended December 31, 2004 compared to December 31, 2003 remained relatively consistent. The timing of collecting receivables improved cash flows as a result of the sale of receivables programs we entered into in 2004. This improvement was offset by a $30 million increase in inventories in the fourth quarter of 2004, which accumulated as a result of higher sales and businesses acquired during the year. In addition, the increase in inventory was the result of a buildup in finished goods related to home center sales that occurred in January 2005 as well as delayed receipts of raw materials including steel, composite molded door facings and pine products from offshore sources due to earlier shipping capacity shortages that occurred throughout 2004. Also offsetting the cash flow improvements in receivables was a use of cash in trade payables and accrued expenses.

85



        During 2004 and 2003, we used approximately $147 million and $155 million, respectively, in cash generated from operations to fund additions to property, plant and equipment, repay long-term debt, fund acquisitions of businesses and undertake additional other investing activities.

Cash flows from Financing Activities

 
  For the Year Ended December 31
 
 
  Combined
2005

  Predecessor
2004

  Predecessor
2003

 
 
  (in millions of U.S. dollars)

 
Cash generated from (used in) financing activities   $ 1,949.7   $ 107.9   $ (39.8 )

        Cash generated in financing activities in 2005 were primarily related to the issuance of approximately $1.95 billion of Senior Secured and Senior Subordinated long-term debt and approximately $567 million generated from the issuance of common shares. In addition, we made repayments of long-term debt of approximately $595 million. Comparatively, we issued approximately $200 million of debt to fund the acquisitions of various businesses and made repayments of approximately $104 million over the same period in 2004. In addition, we have borrowed approximately $110 million on its revolving credit facility at December 31, 2005 to fund operations. As of December 31, 2004, there was nothing drawn on the Predecessor's revolving term loan.

        Cash generated in financing activities in 2004 were primarily related to long-term debt. During the year, we made repayments of long-term debt of approximately $104 million (2003—$51 million). An additional $200 million was borrowed to fund current year acquisitions of businesses (2003—$nil). Cash was also generated from financing activities related to the exercise of stock options for approximately $5 million (2003—$9 million), less the repurchase of common shares under our Share Repurchase for approximately $2 million (2003—$nil).

Cash flows from Investing Activities

 
  For the Year Ended December 31
 
 
  Combined
2005

  Predecessor
2004

  Predecessor
2003

 
 
  (in millions of U.S. dollars)

 
Cash used in investing activities   $ (2,033.5 ) $ (317.8 ) $ (48.1 )

        The increase in cash used for investing activities in 2005 compared to 2004 was primarily due to Masonite's acquisition of the Predecessor. In 2005, we spent approximately $1.9 billion on acquisitions compared to approximately $255 million over the same period in 2004. Subsequent to the Transaction on April 6, 2005, we completed six acquisitions for aggregate consideration of approximately $89 million. The $89 million included a dividend of $18 million paid to the shareholder in one of the subsidiaries purchased.

        The increase in cash used in investing activities in 2004 compared to 2003 was primarily due to the acquisitions. In 2004, we spent approximately $254 million on acquisitions compared to approximately $4 million in 2003. In March 2004, we purchased the residential entry door business of the Stanley Works for cash consideration of approximately $164 million; in June 2004 we acquired 75% of the shares of a door manufacturer in Eastern Europe for cash consideration of approximately $23 million; in July 2004 we acquired a 50% equity interest in a door component manufacturer in Malaysia for cash consideration of approximately $26 million; and in August 2004 we completed the purchase of an

86



interior door and door component manufacturer in the United States for cash consideration of approximately $32 million. We also disposed of two redundant facilities and other production assets in the year resulting in proceeds on disposal of approximately $10 million (2003—$14 million). We used $60 million to fund additions to property, plant and equipment in 2004. Cash used in investing activities in 2003 was primarily to fund additions to property, plant and equipment of approximately $50 million.

Contractual Obligations

 
  As at December 31, 2005
 
  Total
  Less Than
1 Year

  1–3
Years

  4–5
Years

  After 5
Years

Bank indebtedness(1)   $ 139   $ 139   $   $   $
Long-term debt(1)   $ 2,130   $ 37   $ 56   $ 26   $ 2,011
Operating leases   $ 106   $ 27   $ 45   $ 8   $ 26
Commercial commitments(2)   $ 271   $ 43   $ 132   $ 96   $
Other-long term liabilities(3)   $ 26   $ 4   $ 18   $ 4   $
   
 
 
 
 
    $ 2,672   $ 250   $ 251   $ 134   $ 2,037
   
 
 
 
 

(1)
Includes expected interest charges based on our weighted average cost of debt at December 31, 2005.

(2)
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. Commercial commitments exclude normal course purchase orders for raw materials or other goods and services as they represent authorizations to purchase rather than binding contracts.

(3)
Includes contractual severance payments to our former employees, repayment of minority interest loans, and funding of our defined benefit plan in the United Kingdom.

        Our current cash balance plus cash flows from operations and the availability under our revolving credit facility will be sufficient to fund near-term working capital and other investment needs.

Off-Balance Sheet Arrangements

        Our off-balance sheet arrangements include a "Facilities Agreement" to sell up to $135 million of non-interest bearing trade accounts receivable, an "Acquired Facilities Agreement" whereby we can sell receivables of a specific customer, interest rate swap agreements to convert $1.15 billion floating rate debt into fixed rate debt and forward foreign currency contracts to hedge foreign currency risk.

        We do not have any material off-balance sheet arrangements other than those described above, which are more fully discussed in notes 1, 4, 10, 14, 16, and 17 in the annual audited financial statements contained elsewhere herein, and notes 3, 7, 10, 12 and 19 in the unaudited interim consolidated financial statements contained elsewhere herein.

Related Party Transactions

        We paid KKR a $30 million fee for services provided in completing the Transaction, plus approximately $1 million of out-of-pocket costs both of which were capitalized as part of the Transaction. We have also entered into an agreement to pay KKR annual management fees of

87



$2 million for services provided during the year, payable quarterly in advance, with the amount increasing by 5% per year.

        In addition, we paid approximately $1 million of fees to Capstone for services provided during the Transaction, and we have engaged Capstone on a per-diem basis for management consulting services. Although neither KKR nor any entity affiliated with KKR owns any of the equity of Capstone, KKR has provided financing to Capstone. In the first nine months of 2006, we paid Capstone $1.9 million (2005—$0.3 million) for services rendered.

        In the fourth quarter of 2005, Capstone invested $2.5 million in our parent company, Masonite Holding Corporation.

Quantitative and Qualitative Disclosures About Market Risk

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

Currency Risk

        Outside of the United States, we maintain assets and operations in Canada, Mexico, Europe, South America, Asia and Africa. The results of operations and the financial position of our foreign operations are principally measured in their respective currency and translated into U.S. dollars. As a result, exposure to foreign currency gains and losses exists. The reported income of these subsidiaries will be higher or lower depending on the depreciation or appreciation of the U.S. dollar against the respective foreign currency. Our subsidiaries also obtain labor and certain raw materials locally, denominated primarily in their respective domestic currencies. Other raw materials are imported and prices are often quoted in U.S. dollars or in the domestic currency in the country where the facility operates. Most of our subsidiaries sell a significant portion of their products within their respective domestic markets at domestic selling prices. In situations where import or export commitments are undertaken, the subsidiaries may periodically enter into foreign exchange contracts to manage and reduce the risk associated with foreign currency fluctuations. Gains and losses on such contracts offset losses and gains on transactions being hedged. The amount of foreign exchange contracts matches estimated foreign currency risks over a specified period of time. Our policy is not to utilize foreign exchange contracts for trading or speculative purposes. The amount of foreign exchange contracts outstanding at September 30, 2006 are described in note 12 of the unaudited interim consolidated financial statements.

Interest Rate Risk

        We are subject to market risk associated with interest rate changes in connection with our senior secured credit facility. Therefore, in the normal course of business we are exposed to changes in short-term interest rates that can create uncertainty and variability in cash flows. To mitigate this exposure, in April 2005, we entered into a 5 year interest rate swap agreement converting a notional $1.15 billion of floating-rate debt into fixed rate debt that currently bears interest at 4.22% plus an applicable credit spread. In April 2006, $100 million of the interest rate swaps amortized, leaving $1.05 billion of long-term debt at a fixed interest rate as at September 30, 2006. After giving effect to the interest rate swap, approximately 90% or $1.82 billion of our outstanding interest-bearing debt carries a fixed interest rate and 10% or $210 million carries a floating interest rate as at September 30, 2006. The Predecessor also had entered into interest rate swap agreements to convert floating rate debt into fixed rate debt. As at the closing date of the Transaction, the Predecessor's interest rate swaps were settled. We believe that these interest rate swaps are highly effective in achieving their economic purpose.

88



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

 
  December 31, 2005
 
  December 31,
2006

  December 31,
2007

  December 31,
2008

  December 31,
2009

  December 31,
2010

  Thereafter
  Total
  Fair
Value

 
   
   
   
   
   
   
   
  (including
notional
amount)

Liabilities                                
Long-term Debt:                                
Variable Rate(1)   34,329   27,477   13,060   11,883   11,836   1,877,877   1,976,462   1,941,700
  Average interest rate   7.12%   6.98%   6.87%   6.97%   7.09%   8.76%    

Off-Balance Sheet Financial Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Interest Rate Swaps:                                
  Variable to Fixed   100,000   150,000   300,000   300,000   300,000     1,150,000   1,165,874
    Average pay rate   4.22%   4.22%   4.22%   4.22%   4.22%      
    Average receive rate   5.36%   4.95%   4.86%   4.97%   5.09%      

        The table summarizes information on instruments that are sensitive to foreign currency exchange rates. For foreign currency forward exchange agreements, the table represents the notional amounts and weighted average exchange rates by expected (contractual) maturity dates.

 
  December 31, 2005
 
  Actual
  Fair Value
 
   
  (including
notional
amount)

Forward Exchange Agreements:        
(US$ equivalent in thousands)        
Receive Eur/Pay GBP   14,130   14,205
Average Contractual Exchange Rate   1.4615    
Receive US$/Pay GBP   2,330   2,365
Average Contractual Exchange Rate   1.7553    
Receive ZAR/Pay US$   837   861
Average Contractual Exchange Rate   6.5024    
Receive US$/Pay ZAR   1,041   1,036
Average Contractual Exchange Rate   0.1573    
Receive EUR/Pay ZAR   617   596
Average Contractual Exchange Rate   0.1264    

(1)
On October 6, 2006 the senior subordinated loan in the amount of $770 million (classified as variable rate debt obligations for purposes of this table) was repaid in full with the automatic issuance of a new debt obligation comprised of a senior subordinated term loan bearing a fixed interest rate of 11% and maturing on April 6, 2015.

89



INDUSTRY OVERVIEW

Overview

        We compete in the multi-billion dollar global door market. We believe that over 75 million interior doors and approximately 18 million exterior doors were purchased in North America during 2005. Residential volumes represent nearly 88% of the total doors purchased in North America, or approximately 82 million units. Non-residential volumes represent the remaining 12%, or approximately 11 million units. Demand for residential doors is driven by residential repair, renovation and remodeling as well as the construction of new housing.

Interior Doors

        Interior doors are typically manufactured with wood or wood composite materials. There are three primary types of interior doors: (i) molded panel (molded hardboard facings covering a wood or wood composite frame), (ii) stile and rail (traditional construction of stiles, rails and panels with wood, veneered or wood composite/engineered substrates) and (iii) flush (veneers, plywood or hardboard facings covering a wood or wood composite frame). Molded door construction allows for improved cost and design over traditional stile and rail doors. As a result, since the early 1990s, consumer preference has shifted to molded doors, representing approximately 68% of the U.S. residential interior door market today, and with significant growth worldwide.

Exterior Doors

        There are also three major categories of residential entry doors: (i) steel (steel facings positioned on a wood or metal frame with an insulated core), (ii) fiberglass (fiberglass facings positioned on a wood or composite frame with an insulated core) and (iii) stile and rail (traditional construction of stiles, rails and panels with wood, veneered or composite/engineered substrates). For many years, the residential entry door market has been dominated by the steel door category, which currently represents 66% of the total U.S. market. However, in recent years, fiberglass entry doors have seen substantial growth, primarily impacting the steel category share across all distribution channels. In 2005, industry sources estimated the fiberglass entry door category share at 23%. Fiberglass market share growth of up to 3% annually is projected through 2008 and beyond.

Distribution

        Doors are sold though two main distribution channels: retail and wholesale. The retail channel includes retail home centers, as well as smaller specialty retailers, and primarily targets consumers and small remodeling contractors. Specialty retailers are niche players that generally do not maintain an inventory and do not hang doors. Retail home centers, by contrast, offer large, warehouse size retail space for the widest product offering in the sector.

        Retail home centers continue to gain market share in residential repair, renovation and remodeling relative to more traditional wholesale channels such as lumberyards and millwork distributors. With the addition of pre-hanging and installation services, retail home centers have further solidified their position. The home center retail channel is expected to continue its growth by increasing the number of stores and geographic presence.

        The wholesale channel includes both one-step and two-step distributors through which door manufacturers sell indirectly to homebuilders and regional retailers. Two-step distributors have traditionally been the main channel for residential entry door distribution. Two-step distributors are large millwork or building products distributors that sell doors and door units to building products

90



retailers. Typically, two-step distributors purchase doors or door units from the manufacturer in bulk and customize the units, installing windows (or "lites") and pre-hanging the doors.

        One-step distributors sell doors and door units directly to homebuilders and remodeling contractors who install the doors. Over the past five years this channel segment has seen significant consolidation and has become an increasingly important and growing method of door distribution. One-step distributors base their business proposition on shortening the supply chain thus reducing cost and delivery time.

Industry Trends

Growth in Composite Molded Door Facings

        We believe the market for molded door products has been the fastest growing interior door segment, which in the United States is estimated to have grown from approximately 40% of residential interior door category share in 1990 to approximately 68% in 2005. This significant growth and acceptance of molded interior doors has been driven by the value proposition of this product.

Long-Term Demand Drivers

        The two primary demand drivers for doors and door-related products are the residential repair, renovation and remodeling of existing homes and new home construction.

Residential Repair, Renovation and Remodeling

        Despite the recent weakening in year over year retail home center sales, demand for residential repair, renovation and remodeling has historically demonstrated relatively stable and consistent growth. According to the U.S. Census Bureau, residential repair, renovation and remodeling expenditures in the United States grew during 36 of the 40 years ending in 2005, with 7.8% compounded annual growth over that 40-year period. Residential repair, renovation and remodeling expenditures increased from $125 billion in 1995 to $153 billion in 2000 and $215 billion in 2005, representing five- and ten-year compounded annual growth rates of 4.1% and 5.6%, respectively. Leading drivers of residential repair, renovation and remodeling expenditures include the age and size of the housing stock, home size, the rate of existing home sales and home ownership rates.

New Home Construction

        Despite the recent downturn in new home construction in the United States, industry sources suggest that new home construction in the United States will be supported by a favorable interest rate environment and strong demographic trends, as increasing immigration drives demand for starter homes, and maturing baby boomers seek second homes and trade-up properties. According to the Joint Center for Housing Studies of Harvard University, total new home construction in the United States between 2006 and 2016 is expected to exceed 2.0 million units annually, as compared to the 1.8 million units added annually from 1995 to 2004.

        See also "Management's Discussion and Analysis of Financial Condition and Results of Operations—Overview of the Business."

91



BUSINESS

Our Company

        We are one of the largest manufacturers of doors in the world, with a significant market share in both interior and exterior door products. We sell approximately 50 million doors per year in over 70 countries, including the United States, Canada, the United Kingdom, France, and throughout Central and Eastern Europe. For the year ended December 31, 2005 our sales were $2.4 billion.

        Our products are marketed under well-recognized brand names throughout the world. In North America, we market our doors primarily under the Masonite brand, which is a leading brand in the door industry. Our sales are derived from two primary sources of door demand: residential repair, renovation and remodeling of existing homes, and the construction of new homes. We believe that sales to the residential repair, renovation and remodeling sector represents the larger component of our business in North America. Approximately 79% of our 2005 sales were generated in North America, where we believe we have a leading market share in both interior and exterior doors, 18% in Europe, and the remainder in South America, Asia, Africa and the Middle East.

        We have a global manufacturing and distribution footprint, with over 80 facilities in 18 countries, primarily in North America and Europe. We are a vertically integrated producer, manufacturing key components of doors, including composite molded and veneer door facings, glass door lites and cut stock. In order to realize cost advantages and efficiencies provided by vertical integration, we have integrated the various operations in our North American segment as well as our Europe and Other segment to the point where we share common systems, financing and infrastructure. We believe that our high level of vertical integration provides us with competitive and cost advantages over competitors not as vertically integrated, and enhances our ability to develop new and proprietary products.

        As part of our "all products" cross-merchandising strategy, we provide our customers with a broad product offering of interior and exterior doors and entry systems at various price points. We manufacture a broad line of interior doors, including residential molded, flush, stile and rail, louvre and specially-ordered commercial and architectural doors. We also manufacture exterior residential steel and fiberglass doors and entry systems. In 2005, sales of interior and exterior products accounted for approximately 64% and 36% of our revenue, respectively. In addition, we also sell certain door components to other door manufacturers.

        We sell doors through multiple distribution channels, including: (i) directly to retail home center customers; (ii) one-step distributors that sell directly to homebuilders and contractors; and (iii) two-step wholesale distributors that resell to other distributors. For North American retail home center customers, our numerous door fabrication facilities provide value-added fabrication and logistical services, including store delivery of pre-hung interior and exterior doors. We believe our ability to provide: (i) a broad product range; (ii) frequent, rapid, on-time and complete delivery; (iii) consistency in products and merchandising; (iv) national service; and (v) special order programs differentiate us from our competitors.

Post-Transaction Initiatives

        We were acquired on April 6, 2005 by an affiliate of KKR. Since the Transaction we have implemented a strategic focus designed to enhance the operating performance of our business and deliver increased value to our customers.

        Our Blueprint for Profitable Growth focuses employees at all levels on achieving key customer and manufacturing metrics, including targets for customer service, product profitability and manufacturing efficiencies. To accomplish these goals we have deployed an intensive program based upon Lean Sigma methodologies, along with a comprehensive review of product pricing. In addition, we have introduced

92



a detailed set of operational metrics which are used to assess facility performance and to benchmark best practices across the company. We believe that these initiatives will provide us with a strong platform for future profitability and growth.

Business Strengths

        We believe that we are distinguished by the following business strengths:

        Leading Global Manufacturer.    With operations in 18 countries and customers in over 70 countries, we are a leading manufacturer of doors in the United States, Canada, the United Kingdom and France.

        Diversified Business.    Our business is diversified by geography and distribution channel, with a broad product offering of doors. We sell products through multiple distribution channels, including one- and two-step distributors, retail home centers and wholesale building supply dealers, thereby reducing our reliance on any one channel.

        Focus on Stable End Market.    We generate the majority of our revenue from residential repair, renovation and remodeling spending, which has historically been less cyclical than new construction spending.

        Strong Brand Recognition.    Our brands are well recognized for their design, innovation, reliability and quality. We market our doors globally, primarily under the Masonite® and Premdor® brands, as well as other well-recognized names.

        Strong Customer Relationships with Well-Established Multi-Channel Distribution.    We have well-established relationships within all door distribution channels. Our top ten customers have been purchasing doors from us for more than 10 years on average and we believe that we are typically their leading door supplier.

        Low Cost Producer with Leading Technology and Infrastructure.    We have numerous design, process and product patents developed primarily at our 141,000 square foot research facility in West Chicago.

        Vertically Integrated Operations.    We are one of the few vertically integrated manufacturers of doors in the world, enabling us to control the many facets of production, decrease lead times and enhance customer service.

Business Strategy

        We intend to build upon our leading position in the door market worldwide through the following key elements of our business strategy:

        Implement the Blueprint for Profitable Growth.    Our Blueprint for Profitable Growth was introduced during the fourth quarter of 2005 and distributed to employees around the world and to many of our customers, suppliers and investors. The Blueprint provides direction for all employees with clear, distinct and common goals and actions that we believe will enable us to improve operations across our business.

        We identified three priorities which we believe will improve our performance:

93


        Enhance Value Proposition for Our Customers.    Through the implementation of Lean Sigma, we intend to further enhance the value we provide to our customers by decreasing our lead times and focusing on other key customer service metrics.

        Continue Leadership in New Product Design and Technology.    We consider our strong focus on research and development to be one of our major strengths and intend to capitalize on our leadership in this area through the development of new and innovative products and improved manufacturing processes.

History

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

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

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

Product Lines

        We sell interior and exterior doors, with interior products accounting for approximately 64% of our total sales revenue in 2005 and exterior products accounting for the balance of our revenue during 2005. We offer an extensive range of interior and exterior doors, which are available in a wide variety of sizes, styles and types. Substantially all interior doors are made with wood and related materials such as hardboard (including composite molded and flat door facings). Exterior doors are made primarily of steel or fiberglass, as sales of wood exterior doors have declined in use over the last decade.

94


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


Molded Flush

 

Doors made by sandwiching a wood or MDF frame and a hollow or solid core between two molded hardboard facings. These doors are used for closets, bedrooms, bathrooms and hallways.

Flush

 

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

Stile and Rail

 

Doors made from solid wood with vertical stiles, horizontal rails and wood panels, which have been cut, milled and assembled from lumber such as clear pine, knotty pine, oak and mahogany. Where glass panels are inserted between stiles and rails, the resulting door when used for interior purposes is referred to as a French door. For interior purposes these doors are primarily used for hallways, room dividers, closets and bathrooms. For exterior purposes these doors are used as entry doors and decorative glass inserts (lites) are often inserted into these doors.

Louvre

 

Doors with sloping horizontal slats that admit light and air. These doors are used for hallways, closets, and cabinets and as interior and exterior decorative shutters.

Bifold

 

Hinged folding doors (typically molded flush, flush or louvre doors) used in closets or as room dividers.

Pre-hung

 

Interior and exterior doors sold together with door frames as units.

Plastic Laminate

 

Flush doors with a plastic veneer facing, generally for commercial use.

Architectural

 

Doors custom-designed to architectural specifications generally for commercial uses such as in office buildings, hotels, schools and hospitals.

Steel

 

Exterior doors made by assembling two interlocking steel facings (paneled or flat) or attaching two steel facings to a wood or steel frame and injecting the core with polyurethane insulation.

Fiberglass

 

Exterior doors made by assembling two fiberglass facings to a wood frame or composite material and injecting the core with polyurethane insulation.

Entry Systems

 

Exterior doors sold pre-assembled in a door frame, with or without lites and transoms.

Molded Door Facings

 

Thin sheets of molded hardboard produced by grinding or defibrating wood chips, adding resin and other ingredients, creating a thick fibrous mat composed of dry wood fibers and pressing the mat between two steel dies to form a molded sheet, the surface of which may be smooth or textured with a wood grain pattern.

95


Door Framing Material   Commonly referred to as cut stock. Wood or MDF components that constitute the frame on which interior and exterior door facings are attached.

Door Lites

 

Decorative and non-decorative insulated glass inserts primarily used in exterior doors.

Door Core

 

A molded fiber mat or particle board used in the construction of solid core doors.

New Products

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

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

        The Masonite® Anniversary Collection includes designs with unique architectural features. The Cheyenne door is a two-panel plank interior door for consumers who are looking for a rustic, country or western style. This door has beaded planks, a custom panel profile and feature lines distinguishing the stiles from the rails. We intend to add two more designs to the Anniversary Collection in 2007.

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

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

Sales and Marketing

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

96



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

        In 2003, we established our "all products" cross-merchandising strategy, which provides retail and wholesale customers a broad range of innovative doors and door products, frequent, on-time and complete delivery, consistency across our product lines, and merchandising expertise. This strategy has allowed our customers to consolidate their door purchasing with us and has translated into higher customer sales and satisfaction, greater efficiencies and lower costs for the customer.

Customers and Distribution

        We sell our products worldwide to more than 3,500 customers. Our top ten customers have been purchasing doors from us for more than 10 years on average, and we believe that in most cases we are typically their leading door supplier. Although we have a large number of customers worldwide, our largest customer accounted for approximately 26% of our sales in 2005.

        We sell doors through multiple distribution channels, including: (i) directly to retail home center customers; (ii) one-step distributors that sell directly to homebuilders and contractors; and (iii) two-step wholesale distributors that resell to other distributors. For our North American retail home center customers we provide value-added fabrication and logistical services, including store delivery of pre-hung interior and exterior doors. These services are provided from our door fabrication facilities, which are strategically located to optimize our ability to service our retail home center customers. These prehanging operations utilize interior flush doors, stile and rail and louvre doors, and exterior doors from our manufacturing operations. The value added door fabrication products include interior doors which are machined for hinges, passage and lock sets and then incorporated in a frame, and framed exterior doors with decorative glass lites (inserts).

Research and Development

        Research and development activities are concentrated in our 141,000 sq. ft. research center in West Chicago, Illinois. During 2005, the center employed approximately 70 people engaged in various forms of research and product development.

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

        As an integrated manufacturer, we believe that we are well positioned to take advantage of the growing global demand for a variety of molded door facing designs. This capability is particularly important outside North America where newer molded door designs are rapidly replacing traditional wood doors. We have an internal capability to create new molded door facing designs and manufacture our own molds for use in our own facilities. This provides us with the ability to develop proprietary designs that enjoy a strong identity in the marketplace; more flexibility in meeting customer demand;

97


quicker reaction time in the production of new designs or design changes; and greater responsiveness to customer needs.

Intellectual Property

        In North America, our doors are marketed primarily under the Masonite® brand. Other North American brands include: Premdor®, Belleville®, Barrington®, Oakcraft®, Sta-Tru® HD, ArTek®, Premvu®, Royal Mahogany™, Cavalier™, Fast-Frame™, Safe'N Sound®, Premcor™, Crown™, Miami™, Palazzo Series®, Bellagio®, Capri®, Cheyenne™, Savannah™ and Mohawk®.

        In Europe, doors are marketed under the Premdor®, Ekem™, Fonmarty™, Magri™, Monnerie™, Batimetal™ and Crosby™ brands, among others. We consider the use of trademarks and trade names to be important in the development of product awareness, and for differentiating our products from those of our competitors.

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

Manufacturing Process and Raw Materials

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

        The manufacture of insulated steel and fiberglass doors consists primarily of the fabrication of steel sheets embossed into panel or flush door facings and fiberglass door facings which are then assembled onto a wood or steel framing system. The doors are then injected with polyurethane insulation.

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

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

98



Competition

        We believe we are well-positioned to compete successfully because we offer comprehensive product lines, a focus on on-time and complete deliveries, and consistency in products and merchandising. We believe that over time factors such as reduced lead times, and accurate and complete deliveries will become more important than price as a competitive differentiator.

        Our competitors include many regional and local door manufacturers around the world, and several large door manufacturers, some with multi-national presence. Competition in the door industry is based on quality, price, product design, logistics and customer service.

Geographic Information

        The following geographic segment financial information summarizes our sales and operating income for each of the years in the three-year period ended December 31, 2005.

 
  Fiscal Years Ended December 31,
 
 
  2003
  2004
  Combined
2005

 
 
  (in millions of U.S. dollars)

 
Sales:                    
North America   $ 1,434.1   $ 1,760.3   $ 1,918.7  
Europe and Other     380.6     487.6     602.0  
Intersegment     (37.4 )   (48.0 )   (92.2 )
   
 
 
 
    $ 1,777.2   $ 2,199.9   $ 2,428.5  
   
 
 
 
Segment Adjusted EBITDA:                    
North America   $ 177.2   $ 240.1   $ 201.4  
Europe and Other     53.7     79.3     97.0  
   
 
 
 
    $ 230.9   $ 319.4   $ 298.4  
   
 
 
 

Seasonality

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

Properties

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

99


        The following table provides certain information regarding our properties of 5,000 square feet and more as of September 30, 2006.

Country

  Facility Location
  Principal Purpose
  Square Footage
  Status
Canada   Yarrow, BC   Manufacturing, Warehouse   182,000   Owned
    Berthierville, QC   Manufacturing, Warehouse   157,000   Owned
    Lac Megantic, QC   Manufacturing   151,000   Owned
    Mississauga, ON   Manufacturing, Warehouse   116,000   Owned
    St-Hyacinthe, QC   Manufacturing, Warehouse   112,000   Owned
    Lac Megantic, QC   Manufacturing, Warehouse   112,000   Owned
    Sacre-Coeur, QC   Manufacturing   100,000   Owned
    Lac Megantic, QC   Manufacturing, Warehouse   43,000   Owned
    St-Romuald, QC   Manufacturing Warehouse   39,000   Owned
    Lac Megantic, QC   Warehouse   18,000   Owned
    Mississauga, ON   Office   15,000   Owned
    Lac Megantic, QC   Manufacturing   15,000   Owned
    Lac Megantic, QC   Warehouse   15,000   Owned
    Berthierville, QC   Warehouse   8,000   Owned
    Lac Megantic, QC   Warehouse   6,000   Owned
    Surrey, BC   Manufacturing, Warehouse   189,700   Leased
    Concord, ON   Warehouse   170,000   Leased
    Brampton, ON   Manufacturing, Warehouse   122,000   Leased
    New Westminster, BC   Manufacturing   104,000   Leased
    Langley, BC   Manufacturing, Warehouse   100,000   Leased
    Granby, QC   Manufacturing, Warehouse   75,000   Leased
    Delta, BC   Warehouse   30,000   Leased
    Berthierville, QC   Warehouse   26,000   Leased
    Lac Megantic, QC   Warehouse   20,000   Leased
    Calgary, AB   Warehouse   16,000   Leased
    St-Romuald, QC   Warehouse   13,000   Leased
    Lac Megantic, QC   Warehouse   12,000   Leased
United States   Laurel, MS   Manufacturing   1,913,000   Owned
    Pittsburg, KS   Manufacturing, Warehouse   300,000   Owned
    Walkerton, IN   Manufacturing, Warehouse   220,000   Owned
    Northumberland, PA   Manufacturing, Warehouse   220,000   Owned
    Dickson, TN   Manufacturing, Warehouse   211,000   Owned
    Greenville, TX   Manufacturing, Warehouse   161,000   Owned
    West Chicago, IL   Die Manufacturing, R&D   141,000   Owned
    Astatula, FL   Manufacturing, Warehouse   125,000   Owned
    Stanley, VA   Manufacturing, Warehouse   118,000   Owned
    South Bend, IN   Manufacturing, Warehouse   117,000   Owned
    Greenville, TX   Warehouse   102,000   Owned
    Haleyville, AL   Manufacturing   94,000   Owned
    North Platte, NE   Manufacturing, Warehouse   92,000   Owned
    Stockton, CA   Manufacturing   92,000   Owned
    Haleyville, AL   Warehouse   85,000   Owned
    Tampa, FL   Manufacturing   75,000   Owned
    Stockton, CA   Warehouse   67,000   Owned
    Stockton, CA   Manufacturing   65,000   Owned
    Stockton, CA   Manufacturing, Warehouse   47,000   Owned
    Stockton, CA   Warehouse   15,000   Owned
                 

100


    Charlotte, NC   Manufacturing   334,000   Leased
    Moreno Valley, CA   Manufacturing, Warehouse   334,000   Leased
    Bridgeport, NJ   Manufacturing, Warehouse   231,000   Leased
    Lawrenceville, GA   Manufacturing, Warehouse   220,100   Leased
    Toledo, OH   Manufacturing, Warehouse   186,000   Leased
    Leominster, MA   Warehouse   157,000   Leased
    Dickson, TN   Manufacturing, Warehouse   150,000   Leased
    Kirkwood, NY   Manufacturing, Warehouse   138,000   Leased
    Goshen, IN   Manufacturing, Warehouse   132,000   Leased
    Duluth, GA   Manufacturing, Warehouse   130,000   Leased
    Stockton, CA   Manufacturing, Warehouse   125,000   Leased
    Frederick, MD   Manufacturing, Warehouse   125,000   Leased
    Yulee, FL   Manufacturing, Warehouse   123,000   Leased
    Mobile, AL   Manufacturing, Warehouse   112,000   Leased
    Winchester, VA   Manufacturing, Warehouse   109,000   Leased
    Westminster, MA   Manufacturing, Warehouse   100,000   Leased
    Lake Charles, LA   Warehouse   100,000   Leased
    Vandalia, OH   Manufacturing, Warehouse   96,000   Leased
    Garland, TX   Manufacturing, Warehouse   84,000   Leased
    Mobile, AL   Manufacturing, Warehouse   80,000   Leased
    Mobile, AL   Manufacturing   80,000   Leased
    Pittsburg, KS   Warehouse   77,000   Leased
    Kansas City, MO   Manufacturing, Warehouse   74,000   Leased
    Tampa, FL   Warehouse   72,000   Leased
    Goshen, IN   Manufacturing, Warehouse   63,000   Leased
    Garland, TX   Warehouse   57,000   Leased
    Mt. Dora, FL   Manufacturing   57,000   Leased
    Charleston, SC   Warehouse   50,000   Leased
    Danville, VA   Warehouse   49,000   Leased
    Luray, VA   Warehouse   43,000   Leased
    Plymouth, IN   Warehouse   42,000   Leased
    Tampa, FL   Warehouse   37,000   Leased
    Kirkwood, NY   Warehouse   29,000   Leased
    Haleyville, AL   Warehouse   28,000   Leased
    Tampa, FL   Office   24,000   Leased
    Pittsburg, KS   Warehouse   19,000   Leased
    Pittsburg, KS   Warehouse   15,000   Leased
    Sunbury, PA   Warehouse   15,000   Leased
    North Platte, NE   Warehouse   14,400   Leased
    South Bend, IN   Warehouse   14,000   Leased
    Mobile, AL   Office   10,000   Leased
    White Bluff, TN   Warehouse   10,000   Leased
    Lake Charles, LA   Warehouse   7,000   Leased
    Tavares, FL   Manufacturing   6,000   Leased
    Pittsburg, KS   Warehouse   5,000   Leased
    Lake Charles, LA   Office   5,000   Leased
    Sidney, NE   Warehouse   Variable   Leased
    Cumberland Caves, TN   Warehouse   Variable   Leased
United Kingdom   Hedingham   Manufacturing, Warehouse   358,000   Owned
                 

101


    Barnsley   Manufacturing, Warehouse   338,000   Owned
    Bridgwater   Manufacturing, Warehouse   108,000   Owned
    Barnsley   Warehouse   97,000   Owned
    Stockton-on-Tees   Manufacturing, Warehouse   40,000   Leased
    Middlesbrough   Manufacturing   25,000   Leased
    Swindon   Office   20,000   Leased
France   Bazas   Manufacturing, Warehouse   374,000   Owned
    Douvres   Manufacturing, Warehouse   183,000   Owned
    Orange   Manufacturing   171,000   Owned
    Bordeaux   Manufacturing, Warehouse   165,000   Owned
    Thignonville   Manufacturing, Warehouse   115,000   Owned
    Tillieres   Manufacturing, Warehouse   72,000   Owned
    Bazas   Warehouse   25,000   Owned
    Mereville   Manufacturing   15,000   Owned
    Giberville   Manufacturing   52,000   Leased
    Rungis   Office   6,000   Leased
Ireland   Carrick-on-Shannon   Manufacturing   576,000   Owned
Chile   Cabrero   Manufacturing   110,000   Owned
China   Shanghai   Warehouse, Office   16,000   Leased
South Africa   Kwa-Zulu Natal   Land, Forests       Owned
    Estcourt   Manufacturing, Warehouse   1,000,000   Owned
    Durban   Office   15,000   Leased
    Pietermaritzburg   Office   5,000   Leased
Mexico   Nuevo-Leon   Manufacturing   188,000   Leased
    Nuevo-Leon   Manufacturing, Warehouse   13,000   Leased
Costa Rica   Heredia   Manufacturing   135,000   Owned
    Guapiles   Manufacturing   57,000   Owned
Czech Republic   Jihlava   Manufacturing   239,000   Leased
Poland   Jaslo   Manufacturing   212,000   Leased
Romania   Brasov   Warehouse   13,000   Leased
Ukraine   Berdychiv   Manufacturing   454,000   Owned
Hungary   Banhalma   Manufacturing   107,600   Owned
    Budapest   Warehouse   45,200   Owned
Turkey   Istanbul   Manufacturing   25,000   Owned
    Istanbul   Warehouse   15,000   Leased
Israel   Karmiel   Manufacturing   105,000   Owned
    Ben Zvi   Warehouse   19,000   Leased
Malaysia   Bintulu   Manufacturing   127,000   Owned
    Kuala Lumpur   Manufacturing   215,000   Leased

Employees

        We employ approximately 13,200 employees and contract laborers of which approximately 3,728 were covered by collective bargaining agreements. During the third quarter of 2006 we implemented a company-wide reduction in employment levels, impacting approximately eight percent of the global salaried and indirect hourly workforce. Approximately 3,728, or 28%, of our employees are unionized. Employees represented by these unions are subject to 24 collective bargaining agreements, six of which are with local unions in the United States. There are seven contracts subject to renewal in 2007. Four of our North American collective bargaining agreements are subject to renewal in 2007, and our collective bargaining agreements in France, United Kingdom and South Africa are subject to annual

102



renewal. In 2004, our results were negatively affected by a 25-day strike at an interior door manufacturing facility, which contract is subject to renewal in 2007. We have not since experienced any material interruptions of operations due to disputes with our employees and consider our relations with our employees to be satisfactory.

Legal Proceedings

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

Environmental

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

        Typically under ten percent of our capital is spent to comply with our environmental, health and safety requirements. In addition, we will spend approximately $9.5 million over 2006 and 2007 to comply with the U.S. Maximum Achievable Control Technology requirements under the Clean Air Act. Based on recent experience and current projections, environmental protection requirements and liabilities are not expected to have a material effect on our business, operations or financial position.

103



DIRECTORS AND SENIOR MANAGEMENT

Directors and Senior Management

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

Name

  Positions
Kenneth W. Freeman   Chief Executive Officer and Director
Frederick J. Lynch   President
Frederick Arnold   Executive Vice President, Finance
James U. Morrison   Executive Vice President and Group Chief Operating Officer
Lawrence P. Repar   Executive Vice President and Group Chief Operating Officer
Paul E. Raether   Director
Scott C. Nuttall   Director
Tagar C. Olson   Director
Robert V. Tubbesing   Director

        The present principal occupations and recent employment history of each of the senior managers and directors listed above are as follows:

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

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

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

        Mr. Morrison was appointed Executive Vice President and Group Chief Operating Officer of Masonite in 2002 and continued in that role after the Transaction. Mr. Morrison is a 38-year veteran of Masonite U.S. He was appointed as a Vice President of Masonite U.S. in 1981 and continued to serve in that capacity until 2001. He joined Masonite U.S. as a Process Engineer in 1968 and has had various operations, sales, marketing and executive assignments.

        Mr. Repar was appointed as Executive Vice President and Group Chief Operating Officer of Masonite International upon the closing of the Transaction. He served in a similar position for our

104


predecessor companies since 2001, and he has held a variety of senior positions with us since 1994. Mr. Repar formerly worked as an equity financial analyst and director of institutional sales and trading for Sanwa McCarthy Securities Limited in Toronto for 3 years prior to joining us in 1994.

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

        Mr. Nuttall was appointed as a Director of Masonite Holding Corporation, Masonite International and Masonite U.S. upon the closing of the Transaction. He has been a member of KKR & Co. since 2005, having been continuously employed by KKR since 1996. Mr. Nuttall is also a director of Alea Group Holdings (Bermuda) Ltd., and KKR Financial Corp.

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

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

Executive Compensation

        The aggregate salary and benefits paid to our senior managers for the year ended December 31, 2005 amounted to approximately $4,024,465. In addition, our former Chief Executive Officer, whose employment terminated in October 2005, is entitled to receive $7,875,000 in severance pay payable in equal installments over a thirty-six month period which payments commenced in October 2005.

        In connection with the Transaction, we cancelled each Restricted Share Unit, Deferred Share Unit and option to purchase shares of our predecessor outstanding prior to the Transaction in exchange for a cash payment, which resulted in aggregate compensation paid to our current and former senior managers and directors of $53,452,263 in April 2005. Transaction bonuses were also paid to our senior managers in the form of cash and stock in the aggregate amount of $3,835,000. An aggregate of 17,295,782 time, performance and special options to purchase our common stock were also granted to our senior managers under the 2005 Stock Purchase and Option Plan for Key Employees of Masonite Holding Corporation and its subsidiaries. 11,376,780 shares underlying these options have subsequently been cancelled in connection with the termination of employment of certain of our former senior managers and key employees.

        For details on the equity participation of our senior managers, please see "Major Shareholders and Related Party Transactions", note 14 to our historical consolidated financial statements and note 10 to our unaudited consolidated financial statements.

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

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

105



Stock Purchase and Option Plan

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

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

        Vesting of Time Options.    Time options granted in 2005 generally become exercisable by the holder of the option in installments of 20% on each of the first five anniversaries of the grant date.

        Vesting of Performance Options.    Performance options granted in 2005 generally become exercisable over the five fiscal years through the fiscal year 2009 upon the achievement of certain EBITDA performance targets. In the event that performance targets are not achieved in any given fiscal year but are achieved in a subsequent year, the performance option will become exercisable as to the previously unexercisable percentage of the performance options from the missed years, as well as with respect to the percentage of the performance options in respect of the fiscal year in which the performance targets are achieved.

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

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

106



MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders

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

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

Name of beneficial owner

  Number(1)
  Percentage
 
KKR(2)   91,032,161   80.32 %
Sculptor Investments, S.à. r.l.(3)   9,519,276   8.40 %
Alpinvest(4)   5,711,565   5.04 %
Kenneth W. Freeman   *   * %
Frederick J. Lynch   *   * %
Frederick Arnold   *   * %
James U. Morrison   *   * %
Lawrence P. Repar   *   * %
Paul E. Raether(2)   91,032,161   80.32 %
Scott C. Nuttall(2)   91,032,161   80.32 %
Tagar C. Olson(2)   91,032,161   80.32 %
Robert V. Tubbesing     * %
All senior managers and directors as a group (9 persons)   95,192,161   83.99 %

*
Less than 1%.

(1)
Applicable percentage of ownership includes 113,331,002 shares of common stock outstanding as of September 30, 2006. The amounts and percentages of our common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a "beneficial owner" of a security if that person has or shares "voting power," which includes the power to vote or to direct the voting of such security, or "investment power," which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed to be a beneficial owner of such securities as to which such person has an economic interest.

(2)
KKR affiliates currently beneficially own 91,032,161 shares of Masonite Holdings common stock as follows:

85,714,451 shares are beneficially owned by KKR Millennium Fund (Overseas), Limited Partnership, for which KKR Associates Millenium (Overseas), Limited Partnership is the general partner for which KKR Millennium is the general partner and exercises sole voting and investment power with respect to such shares;

1,510,000 shares are beneficially owned by KKR Partners (International), Limited Partnership, for which KKR 1996 Overseas Limited is the general partner and exercises sole voting and investment power with respect to such shares; and

3,807,710 shares are beneficially owned by KKR Financial Corporation.

107


(3)
Sculptor Investments, S.à. r.l. beneficially own 9,519,276 shares of Masonite Holdings common stock. The address of Sculptor Investments, S.a. r.l. is c/o Manacor (Luxembourg) SA 46A Avenue J.F. Kennedy Kirchberg, Luxembourg L-1855.

(4)
Alpinvest Partners N.V. affiliates current beneficially own 5,711,565 shares of Masonite Holdings common stock as follows:

5,649,309 shares are beneficially owned by Alpinvest Partners CS Investments 2005 C.V.

62,256 shares are beneficially owned by Alpinvest Partners Later Stage Co Investments.

Related Party Transactions

Management Stockholder's Agreement

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

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

108


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

Sale Participation Agreement

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

Registration Rights Agreement

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

Management Services Agreement

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

Consulting Agreement

        Following completion of the Transaction, we retained Capstone Consulting to provide us with consulting services, primarily to identify and advise on potential opportunities to reduce our costs and identify other potential opportunities to grow our business. Although neither KKR nor any entity affiliated with KKR owns any of the equity of Capstone, KKR has provided financing to Capstone. We paid approximately $0.3 million of fees to Capstone for services provided in connection with the Transaction. In the fourth quarter of 2005, Capstone invested $2.5 million in Masonite Holdings.

109



DESCRIPTION OF CERTAIN INDEBTEDNESS

Senior Secured Credit Facilities

        Concurrently with the closing of the Transaction we entered into new senior credit facilities with The Bank of Nova Scotia and Deutsche Bank Securities Inc., as co-lead arrangers, The Bank of Nova Scotia, Deutsche Bank Securities Inc. and UBS Securities LLC, as co-bookrunners, the lenders signatory thereto, The Bank of Nova Scotia, as administrative agent and collateral agent, Deutsche Bank Securities Inc. and UBS Loan Finance LLC, as co-syndication agents, and Bank of Montreal and SunTrust Bank, as co-documentation agents.

        Our senior secured credit facilities consist of:


        Our senior secured credit facilities allow us, subject to certain conditions, to incur additional term loans under the term loan facility, or under a new term facility, in either case in an aggregate principal amount of up to $300.0 million, which additional term loans will have the same security and guarantees as the term loan facility.

Security and guarantees

        The obligations under the senior secured credit facilities are unconditionally and irrevocably guaranteed by Masonite International, Masonite U.S. (as to the obligations of Masonite Canada), Masonite Canada (as to the obligations of Masonite U.S.) and each of our Canadian and U.S. wholly-owned subsidiaries as well as certain other material non-U.S. wholly-owned subsidiaries (but in any event excluding any non-U.S. subsidiaries of Masonite U.S. and their subsidiaries). All such obligations and the obligations under such guarantees are secured by substantially all of our assets and the assets of each guarantor, including but not limited to:

Interest rates and fees

        Borrowings under the senior secured credit facilities bear interest as follows:

110


        The senior secured credit facilities also provide for the payment to the lenders of a commitment fee on the average daily undrawn commitments under the revolving credit facility at a rate equal to 0.50% per annum, and a letter of credit fee at a rate equal to 2.50% per annum (in each case subject to reduction based on our leverage ratio).

Scheduled amortization payments and mandatory prepayments

        The term loan facility provides for quarterly amortization payments in an aggregate annual amount equal to 1% of the original principal amount thereof during the first 73/4 years, with the balance of the facility to be repaid at final maturity.

        In addition, the senior secured credit facilities require us to prepay outstanding term loans, subject to certain exceptions, with:

        Such requirements are subject to the limitation that no more than 25% of the principal amount of an outstanding term loan made to Masonite Canada is required to be repaid within 5 years from the date of issue of the loan if additional repayments would preclude the availability of the Canadian withholding tax exemption in respect of interest payments made on the loan.

Voluntary prepayments and commitment reductions

        The senior secured credit facilities permit voluntary prepayments of the loans and voluntary reductions of the unutilized portion of the commitments thereunder, without premium or penalty, subject to certain conditions pertaining to minimum notice and minimum payment/reduction amounts and to customary breakage costs with respect to LIBOR loans.

Covenants

        Our senior secured credit facilities contain financial, affirmative and negative covenants that we believe are usual and customary for a senior secured credit agreement. The negative covenants in the senior secured credit facilities include limitations (each of which is subject to customary exceptions) on our ability and each of our current and future restricted subsidiaries to:

111


        In addition, the senior secured credit facilities contain customary financial covenants including maximum total leverage and minimum interest coverage ratios.

Events of default

        Our senior secured credit facilities contain certain customary events of default, including:

Senior Subordinated Term Loan

        Concurrently with the closing of the Transaction we entered into a $770.0 million senior subordinated loan agreement with The Bank of Nova Scotia, as U.S. administrative agent and Canadian administrative agent, joint lead arranger and joint bookrunner, Deutsche Bank Securities Inc., as joint lead arranger, joint bookrunner and co-syndication agent, UBS Securities LLC, as joint bookrunner and co-syndication agent, and Bank of Montreal and Suntrust Bank as co-documentation agents. The proceeds of the loan were also used to fund the Transaction.

        The senior subordinated loan initially carried an interest rate of LIBOR plus 6.00% which increased over time to a maximum interest rate of 11% per annum. On October 6, the senior subordinated loan was repaid in full by the issuance of a new debt obligation comprising a senior subordinated term loan with an interest rate of 11% and maturing on April 6, 2015. Certain lenders exercised their option on and after October 6, 2006 to receive the outstanding notes for all or a part of the principal amount of the senior subordinated loan then outstanding, which notes bear interest at the rate applicable to the senior subordinated loan and are subject to registration rights. The senior subordinated term loan agreement contains financial, affirmative and negative covenants and events of default that correspond to those of the notes.

112