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## 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): 

<img src='content_image/81389.jpg'>

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. 

