MANAGEMENT’S DISCUSSION AND ANALYSIS Book Publishing operating profits were $24.9 million  in the fourth quarter of 2004, down $3.9 million  from $28.8 million in the fourth quarter of 2003. The strengthening of the Canadian dollar reduced Book Publishing operating profits by $1.4 million, offset by $1.6 million of higher gains on U.S. dollar and othe r  currency hedges. Operating profits were down $4.5 million in the fourth quarter of 2004, with each of Harlequin ’s divisions reporting lower revenues. In the fourth quarter of 2003, the former Creativity Division had an op erating loss of $0.4 million. As expected, the 2004 fourth quarter results were consistent with the level of profits reported in the second and third quarters of 2004. Torstar’s effective tax rate was 37.6% in the fourth quarter of 2004, down significantly from 47.0% in the fourth quarter of 2003. Excluding the impact of unusual items and the fourth quarter 2003 impact of the change in provincial income taxes, the effective rate was 38.1% in the fourth quarter of 2003. The 0.5% lower effective tax rate reflects the change in mix of income during the fourth quarter. Net income was $42.6 million in the fourth quarter of 2004, up $12.2 million from $30.4 million in the fourth quarter of 2003. Net income per share was $0.54 in the quarter, up $0.15 from $0.39 in the same quarter last year. The weighted average number of shares outstanding in the fourth quarter of 2004 was 78.8 million, up slightly from 78.0 million in the fourth quarter of 2003. The following chart provides a continuity of fourth quarter earnings per share from 2003 to 2004: Corporate costs were up slightly in the fourth quarter  to $3.3 million from $3.1 million in 2003 due to higher payroll costs. Interest expense was $2.8 million in  the fourth quarter of 2004, down $0.7 million from  $3.5 million in the fourth quarter of 2003. The decrease was from the lower level of debt outstanding during  the quarter. The 2003 fourth quarter loss of $7.8 million from unusual items included $4.6 million for restructuring in the Newspaper Segment and $4.4 million for the closure  of Harlequin’s craft kit business. Offsetting the losses was a $1.2 million gain that arose from the finalization of the gain realized on the sale of newspapers in the second quarter and additional proceeds from the first quarter sale of an investment in Miles Kimball Company. The Newspaper Segment grew EBITDA in the fourth quarter despite only limited advertising revenue growth at the daily newspapers. Lower costs at the Toronto Star and CityMedia dailies improved both operating profit and EBITDA margins. Metroland’s revenues and operating profits were up over the fourth quarter of 2003. NEWSPAPERS Net income per share 2003 $0.39 Unusual items in 2003 0.06 Tax rate – 2003 statutory change 0.06 Operations 0.03 Net income per share 2004 $0.54 32 TORSTAR 2004