MANAGEMENT’S DISCUSSION AND ANALYSIS The following chart identifies the impact of foreign currency movements, foreign currency hedges and underlying operations on reported revenue and operating profits (in $000’s): Book Publishing revenues were down $48.6 million in 2004 excluding the impact of foreign exchange. North America Retail was down $18.5 million, North America Direct-To-Consumer was down $12.6 million and Overseas was down $11.3 million. In 2003, the former Creativity division had revenues of $6.2 million. Book Publishing operating profits were down $27.2 million in 2004 excluding the impact of foreign exchange. North America Retail was down $19.4 million, North America Direct-To-Consumer was down $4.7 million and Overseas was down $5.1 million. In 2003, the former Creativity division had operating losses of $2.0 million. North America Retail results reflected the weakness in the U.S. mass-market paperback segment of the consumer book publishing industry in 2004. Statistics published by the Association of American Publishers indicate that net billings of mass-market paperbacks were down 8.9% in 2004. This segment, which represents the majority of Harlequin’s sales, was negatively affected by mega best sellers, including fiction, diet and lifestyle books that drew away consumer dollars and reading time.Harlequin also faced heavy discounting of some products by  competitors. North America Retail sold fewer books in 2004 as both series and single title programs were affected by this trend. 5 The impact of the U.S. dollar hedges is reported in revenue effective January 1, 2004. The 2003 U.S. dollar hedges were reported directly in operating profit. Torstar has hedged  $75 million of its U.S. dollar revenue at $1.58 in 2004 and $76 million at $1.59 in 2005. There are no hedges in place for 2006. For more details see Note 13 in Torstar’s  December 31, 2004 annual financial statements. $^{6}$Gains on the U.S. dollar hedges were recorded in operating profit in 2003. Therefore the impact on operating profit in 2004 is the year over year change.  $^{7}$If the 2003 U.S. dollar hedge gain had been reported in revenue, the 2003 operating and EBITDA margins would have been 20.7% and 22.0% respectively. 30 TORSTAR 2004 2004 2003 Reported revenue, prior year $584,924 $618,093 Impact of currency movements (19,277) (38,043) Impact of U.S. dollar hedges 5 21,396 Change in operating revenue (48,667) 4,874 Reported revenue, current year $538,376 $584,924 Reported operating profit, prior year $124,121 $119,168 Impact of currency movements (6,920) (13,193) Impact of U.S. dollar hedges 6 7,648 14,924 Impact of other currency hedges (436) 513 Change in operating profit (27,231) 2,709 Reported operating profit, current year $97,182 $124,121 Depreciation and amortization  8,502 7,780 Segment EBITDA $105,684 $131,901 Reported margins: Operating profit  18.1% 21.2% 7 EBITDA  19.6% 22.6% 7 Impact of foreign exchange contracts on margins: Reported operating profit, current year $97,182 $124,121 Hedge gains 22,025 14,813 Operating profit before hedge gains $75,157 $109,308 Operating profit margin 14.5% 18.7% EBITDA margin 16.2% 20.0%