49 TORSTAR 2004 had matured at the current share price. Upon maturity of the plan, contributed surplus is eliminated and share capital is credited. No compensation expense has been recorded for plans originating prior  to January 1, 2003. The consideration paid by the plan members is credited to share capital when the plan matures. Eligible executives and non-employee directors may receive or elect to receive deferred share units equivalent in value to Class B non-voting shares of the company A compensation expense is recorded  in the year of granting of the deferred share units and changes in the value of outstanding deferred share units, including deemed dividend equivalents, ar e recorded as an expense in the period that they occur . Outstanding deferred share units are recorded as  long-term liabilities. The company follows the liability method of accounting for income taxes. Under the liability method of tax allocation, future tax assets and liabilities are  determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using substantively enacted tax rates and laws that will be in effect when the differences are expected to reverse. Newspaper circulation and advertising revenue  is recognized when the publication is delivered. Revenue from the sale of books is recognized when they are shipped and title has transferred, net of  provisions for estimated returns and direct-to- consumer bad debts which are primarily based on past experience. The preparation of financial statements in conformity with Canadian generally accepted accounting  principles requires management to make estimates and assumptions that affect the reported amounts  of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial  statements and the reported amounts of revenues and expenses during the reporting year Actual results could differ from those estimates. The CICA issued Section 1100 “Generally Accepted Accounting Principles” and EIC-147 “Implementation of Accounting Changes Resulting from the Application of CICA 1100” which became effective for the  company’s 2004 fiscal year. The company has  historically reported newspaper home delivery  circulation revenues net of certain distribution costs, which was reflective of industry practice. As a result of adopting Section 1100, a GAAP hierarchy is established and the ability to use industry practice has been  eliminated. As a consequence, the company has begun in 2004 to report its home delivery circulation  revenues on a gross basis and included the distribution costs in operating expenses. The impact of the change was to increase revenue and operating expenses by $38.1 million for the year ended December 31, 2004. There was no impact on operating profit or net income. EIC-147 does not permit retroactive restatement of prior years’ results. Effective January 1, 2004, the company adopted CICA Accounting Guideline 13 “Hedging Relationships” (AcG 13) on a prospective basis without restatement of prior periods. AcG 13 addresses the identification, designation, documentation and effectiveness of hedging transactions for the purpose of applying hedge accounting. It also establishes conditions for applying or discontinuing hedge accounting. Under the new guideline, the company has documented its hedging relationships and demonstrated that the hedges are sufficiently effective in order to continue accrual accounting for positions hedged with derivatives. The impact of adopting this guideline was insignificant with respect to the company’s financial position or results from operations. Book publishing revenues in 2004 include $21.4 million related to gains from its U.S. dollar foreign currency and option contracts. The 2003 gains of $13.7 million were included directly in Book publishing operating profit. Circulation revenue Hedging relationships (p) Revenue recognition (q) Use of estimates (r) Changes in accounting policies (o) Income taxes MANAGEMENT’S TORSTAR CORPORATION