Exhibit
      99.1


*Management’s
        responsibility for financial reporting*
  The
        accompanying consolidated financial statements of Corus Entertainment Inc.
        and
        all the information in this annual report are the responsibility of management
        and have been approved by the Board of Directors.
  The
        consolidated financial statements have been prepared by management in accordance
        with Canadian generally accepted accounting principles. When alternative
        accounting methods exist, management has chosen those it deems most appropriate
        in the circumstances. Financial statements are not precise since they include
        certain amounts based on estimates and judgments. Management has determined
        such
        amounts on a reasonable basis in order to ensure that the consolidated financial
        statements are presented fairly in all material respects. Management has
        prepared the financial information presented elsewhere in this annual report
        and
        has ensured that it is consistent with the consolidated financial
        statements.
  Corus
        Entertainment Inc. maintains systems of internal accounting and administrative
        controls of high quality, consistent with reasonable cost. Such systems are
        designed to provide reasonable assurance that the financial information is
        relevant, reliable and accurate and that the Company’s assets are appropriately
        accounted for and adequately safeguarded. During the past year, management
        has
        continued to improve and document the design and operating effectiveness
        of
        internal control over external financial reporting. The results of management’s
        work have been subjected to audit by the shareholders’ auditors. As at year end,
        we have determined that internal control over financial reporting is effective
        and Corus Entertainment Inc. has achieved compliance with the requirements
        set
        by the U.S. Securities and Exchange Commission (“SEC”) under Section 404 of the
        U.S. *Sarbanes-Oxley
        Act* (“SOX”). In compliance with Section 302 of SOX, Corus Entertainment Inc.’s Chief
        Executive Officer and Chief Financial Officer provided to the SEC a
        certification related to Corus Entertainment Inc.’s annual disclosure document
        in the U.S. (Form 40-F). The same certification was provided to the Canadian
        Securities Administrators.
  The
        Board of Directors is responsible for ensuring that management fulfills its
        responsibilities for financial reporting, and is ultimately responsible for
        reviewing and approving the consolidated financial statements. The Board
        carries
        out this responsibility through its Audit Committee.
  The
        Audit Committee is appointed by the Board, and the majority of its members
        are
        outside unrelated directors. The Committee meets periodically with management,
        as well as the external auditors, to discuss internal controls over the
        financial reporting process, auditing matters and financial reporting issues,
        to
        satisfy itself that each party is properly discharging its responsibilities,
        and
        to review the annual report, the consolidated financial statements and the
        external auditors’ report. The Committee reports its findings to the Board for
        consideration when approving the consolidated financial statements for issuance
        to the shareholders. The Committee also considers, for review by the Board
        and
        approval by the shareholders, the engagement or re-appointment of the external
        auditors.
  The
        consolidated financial statements have been audited by Ernst & Young LLP,
        the external auditors, in accordance with Canadian generally accepted auditing
        standards on behalf of the shareholders. Ernst & Young LLP has full and free
        access to the Audit Committee.
  signed
              signed**John
                  M. Cassaday**
              **Thomas
                  C. Peddie FCA**President
                  and Chief Executive Officer
              Senior
                  Vice President and Chief Financial
                  Officer
  **1**
  *Auditors’
        report*
  **To
        the shareholders of Corus Entertainment Inc.**
 We
        have audited the consolidated balance sheets of **Corus
        Entertainment Inc.** as at August 31, 2006 and 2005 and the consolidated statements of income
        (loss)
        and retained earnings (deficit) and cash flows for each of the years in the
        three-year period ended August 31, 2006. These financial statements are the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these financial statements based on our audits.
  We
        conducted our audits in accordance with Canadian generally accepted auditing
        standards and the standards of the Public Company Accounting Oversight Board
        (United States). Those standards require that we plan and perform an audit
        to
        obtain reasonable assurance whether the financial statements are free of
        material misstatement. An audit includes examining, on a test basis, evidence
        supporting the amounts and disclosures in the financial statements. An audit
        also includes assessing the accounting principles used and significant estimates
        made by management, as well as evaluating the overall financial statement
        presentation. We believe that our audits provide a reasonable basis for our
        opinion.
  In
        our opinion, these consolidated financial statements present fairly, in all
        material respects, the financial position of the Company as at August 31,
        2006
        and 2005 and the results of its operations and its cash flows for each of
        the
        years in the three-year period ended August 31, 2006 in accordance with Canadian
        generally accepted accounting principles.
  We
        have also audited, in accordance with the standards of the Public Company
        Accounting Oversight Board (United States), the effectiveness of Corus
        Entertainment Inc.’s internal control over financial reporting as of August 31,
        2006, based on criteria established in Internal Control - Integrated Framework
        issued by the Committee of Sponsoring Organizations of the Treadway Commission
        and our report dated November 27, 2006 expressed an unqualified opinion
        thereon.
  signed**Toronto,
                  Canada**
              **Ernst
                  & Young LLP**November
                  27, 2006
              Chartered
                  Accountants
  **2**
  *Report
        of independent registered public accounting firm*
  **The
        Board of Directors of Corus Entertainment Inc.**
 We
        have audited management’s assessment, included in the Management’s Discussion
        and Analysis, that Corus Entertainment Inc. maintained effective internal
        control over financial reporting as of August 31, 2006, based on criteria
        established in Internal Control - Integrated Framework issued by the Committee
        of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
        Corus Entertainment Inc.’s management is responsible for maintaining effective
        internal control over financial reporting and for its assessment of the
        effectiveness of internal control over financial reporting. Our responsibility
        is to express an opinion on management’s assessment and an opinion on the
        effectiveness of Corus Entertainment Inc.’s internal control over financial
        reporting based on our audit.
  We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether effective
        internal control over financial reporting was maintained in all material
        respects. Our audit included obtaining an understanding of internal control
        over
        financial reporting, evaluating management's assessment, testing and evaluating
        the design and operating effectiveness of internal control, and performing
        such
        other procedures as we considered necessary in the circumstances. We believe
        that our audit provides a reasonable basis for our opinion.
  A
        company's internal control over financial reporting is a process designed
        to
        provide reasonable assurance regarding the reliability of financial reporting
        and the preparation of financial statements for external purposes in accordance
        with generally accepted accounting principles. A company's internal control
        over
        financial reporting includes those policies and procedures that (1) pertain
        to
        the maintenance of records that, in reasonable detail, accurately and fairly
        reflect the transactions and dispositions of the assets of the company; (2)
        provide reasonable assurance that transactions are recorded as necessary
        to
        permit preparation of financial statements in accordance with generally accepted
        accounting principles, and that receipts and expenditures of the company
        are
        being made only in accordance with authorizations of management and directors
        of
        the company; and (3) provide reasonable assurance regarding prevention or
        timely
        detection of unauthorized acquisition, use, or disposition of the company's
        assets that could have a material effect on the financial
        statements.
  Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements. Also, projections of any evaluation of
        effectiveness to future periods are subject to the risk that controls may
        become
        inadequate because of changes in conditions, or that the degree of compliance
        with the policies or procedures may deteriorate.
  In
        our opinion, management's assessment that Corus Entertainment Inc. maintained
        effective internal control over financial reporting as of August 31, 2006,
        is
        fairly stated, in all material respects, based on the COSO criteria. Also,
        in
        our opinion, Corus Entertainment Inc. maintained, in all material respects,
        effective internal control over financial reporting as of August 31, 2006,
        based
        on the COSO criteria.
  We have
        also audited, in accordance with Canadian generally accepted auditing standards
        and the standards of the Public Company Accounting Oversight Board (United
        States), the consolidated balance sheets of Corus Entertainment Inc. as at
        August 31, 2006 and 2005, and the related consolidated statements of income
        (loss) and retained earnings (deficit), and cash flows for each of the years
        in
        the three-year period ended August 31, 2006 and our report dated November
        27,
        2006 expressed an unqualified opinion thereon.
  signed**Toronto,
                  Canada**
              **Ernst
                  & Young LLP**November
                  27, 2006
              Chartered
                  Accountants
  **3**
  *Consolidated
        balance sheets*
 **As
        at August 31**
 (thousands
                  of Canadian dollars)
              
              **2006**
              
              2005**Assets**(note
                  12)CURRENTCash
                  and cash equivalents
              
              
              **43,636**
              
              
              138,086Accounts
                  receivable (notes 5 and 24)
              
              
              **142,934**
              
              
              155,343Prepaid
                  expenses and other
              
              
              **7,332**
              
              
              10,948Program
                  and film rights
              
              
              **104,723**
              
              
              93,725Future
                  tax asset (note 15)
              
              
              **14,535**
              
              
              6,498TOTAL
                  CURRENT ASSETS
              
              
              **313,160**
              
              
              404,600Tax
                  credits receivable
              
              
              **13,226**
              
              
              12,292Investments
                  and other assets (note 6)
              
              
              **29,642**
              
              
              36,886Property,
                  plant and equipment, net (note 7)
              
              
              **78,417**
              
              
              76,041Program
                  and film rights
              
              
              **79,380**
              
              
              54,715Film
                  investments (note 8)
              
              
              **60,779**
              
              
              58,417Deferred
                  charges (note 9)
              
              
              **5,655**
              
              
              15,560Broadcast
                  licenses (note 10)
              
              
              **505,212**
              
              
              509,052Goodwill
                  (note 10)
              
              
              **756,738**
              
              
              760,801**1,842,209**
              
              
              1,928,364**Liabilities
                  and shareholders’ equity**CURRENTAccounts
                  payable and accrued liabilities (notes 11 and 24)
              
              
              **176,384**
              
              
              172,236Income
                  taxes payable
              
              
              **4,583**
              
              
              3,049TOTAL
                  CURRENT LIABILITIES
              
              
              **180,967**
              
              
              175,285Long-term
                  debt (note 12)
              
              
              **596,362**
              
              
              445,162Deferred
                  credits (note 13)
              
              
              **28,691**
              
              
              195,789Future
                  tax liability (note 15)
              
              
              **80,447**
              
              
              147,744Other
                  long-term liabilities
              
              
              **26,865**
              
              
              22,895Non-controlling
                  interest
              
              
              **11,379**
              
              
              11,227TOTAL
                  LIABILITIES
              
              
              **924,711**
              
              
              998,102SHAREHOLDERS’
                  EQUITYShare
                  capital (note 14)
              
              
              **870,563**
              
              
              885,911Contributed
                  surplus (note 14)
              
              
              **6,878**
              
              
              3,558Retained
                  earnings
              
              
              **51,585**
              
              
              50,802Cumulative
                  translation adjustment (note 20)
              
              
              **(11,528**
              **)**
              
              (10,009
              )TOTAL
                  SHAREHOLDERS’ EQUITY
              
              
              **917,498**
              
              
              930,262**1,842,209**
              
              
              1,928,364
 
 Commitments,
        contingencies and guarantees (notes
        12 and 23)
  See
        accompanying notes
  **On
        behalf of the Board:**
 signed
              signedJohn
                M. Cassaday
              **Heather
                A. Shaw**Director
              Director
  **4**
  *Consolidated
        statements of income (loss) and retained earnings (deficit)*
 **Years
        ended August 31**
 (thousands
                    of Canadian dollars except per share amounts)
                
                **2006**
                
                2005
                
                2004REVENUES
                    (notes 22 and 24)
                
                
                **726,270**
                
                
                683,069
                
                
                666,804Direct
                    cost of sales, generaland administrative expenses (notes 8, 14, 20, 23 and 24)
                
                
                **512,151**
                
                
                487,758
                
                
                576,406Depreciation
                
                
                **21,302**
                
                
                23,710
                
                
                25,682Amortization
                
                
                **2,872**
                
                
                4,577
                
                
                7,276Interest
                    on long-term debt (note 12)
                
                
                **43,105**
                
                
                55,561
                
                
                55,276Debt
                    refinancing loss (note 12)
                
                
                **131,951**
                
                
                -
                
                
                -Other
                    expense (income), net (notes 10, 11 and 20)
                
                
                **11,667**
                
                
                (5,494
                )
                
                (4,937
                )INCOME
                    BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST
                
                
                **3,222**
                
                
                116,957
                
                
                7,101Income
                    tax expense (recovery) (note 15)
                
                
                **(36,005**
                **)**
                
                42,810
                
                
                26,925Non-controlling
                    interest
                
                
                **3,756**
                
                
                3,033
                
                
                3,313NET
                    INCOME (LOSS) FOR THE YEAR
                
                
                **35,471**
                
                
                71,114
                
                
                (23,137
                )Retained
                    earnings (deficit), beginning of year
                
                
                **50,802**
                
                
                (17,122
                )
                
                8,135Dividends
                    (note 14)
                
                
                **(19,586**
                **)**
                
                (3,190
                )
                
                (2,120
                )Share
                    repurchase excess (note 14)
                
                
                **(15,102**
                **)**
                
                -
                
                
                -RETAINED
                    EARNINGS (DEFICIT), END OF YEAR
                
                
                **51,585**
                
                
                50,802
                
                
                (17,122
                )EARNINGS
                    (LOSS) PER SHARE (note 18)Basic
                
                **$**
                **0.84**
                
                $
                1.66
                
                $
                (0.54
                )Diluted
                
                **$**
                **0.82**
                
                $
                1.65
                
                $
                (0.54
                )WEIGHTED
                    AVERAGE NUMBER OF SHARES OUTSTANDING (in thousands)Basic
                
                
                **42,461**
                
                
                42,761
                
                
                42,719Diluted
                
                
                **43,247**
                
                
                43,095
                
                
                42,719
 See
        accompanying notes
  **5**
  *Consolidated
        statements of cash flows*
 **Years
        ended August 31**
 (thousands
                  of Canadian dollars)
              
              **2006**
              
              2005
              
              2004**Operating
                  activities**Net
                  income (loss) for the year
              
              
              **35,471**
              
              
              71,114
              
              
              (23,137
              )Add
                  (deduct) non-cash itemsDepreciation
              
              
              **21,302**
              
              
              23,710
              
              
              25,682Amortization
                  of program and film rights
              
              
              **124,327**
              
              
              110,630
              
              
              105,549Amortization
                  of film investments
              
              
              **39,450**
              
              
              43,693
              
              
              142,754Other
                  amortization
              
              
              **2,872**
              
              
              4,577
              
              
              7,276Future
                  income taxes
              
              
              **(74,232**
              **)**
              
              8,601
              
              
              600Non-controlling
                  interest
              
              
              **3,756**
              
              
              3,033
              
              
              3,313Foreign
                  exchange gain
              
              
              **(355**
              **)**
              
              (2,747
              )
              
              (2,057
              )Stock-based
                  compensation
              
              
              **12,137**
              
              
              6,766
              
              
              2,984Unrealized
                  derivative losses (gains)
              
              
              **-**
              
              
              (3,278
              )
              
              3,278Broadcast
                  license impairment
              
              
              **-**
              
              
              4,108
              
              
              -Debt
                  refinancing loss
              
              
              **131,951**
              
              
              -
              
              
              -Other
              
              
              **3,433**
              
              
              1,769
              
              
              (24
              )Net
                  change in non-cash working capital balances related to operations
                  (note
                  19)
              
              
              **(9,898**
              **)**
              
              2,235
              
              
              (18,395
              )Payment
                  of program and film rights
              
              
              **(134,751**
              **)**
              
              (122,368
              )
              
              (115,314
              )Net
                  additions to film investments
              
              
              **(44,445**
              **)**
              
              (49,427
              )
              
              (47,597
              )CASH
                  PROVIDED BY OPERATING ACTIVITIES
              
              
              **111,018**
              
              
              102,416
              
              
              84,912**Investing
                  activities**Additions
                  to property, plant and equipment
              
              
              **(23,598**
              **)**
              
              (19,217
              )
              
              (17,421
              )Decrease
                  (increase) in investments, net
              
              
              **5,374**
              
              
              665
              
              
              (3,685
              )Decrease
                  in public benefits associated with acquisitions
              
              
              **(9,594**
              **)**
              
              (9,893
              )
              
              (11,455
              )Proceeds
                  from sale of assets
              
              
              **10,569**
              
              
              6,822
              
              
              136CASH
                  USED IN INVESTING ACTIVITIES
              
              
              **(17,249**
              **)**
              
              (21,623
              )
              
              (32,425
              )**Financing
                  activities**Increase
                  (decrease) in bank loans
              
              
              **592,687**
              
              
              (34,017
              )
              
              -Notes
                  repurchase and swap termination
              
              
              **(727,829**
              **)**
              
              -
              
              
              -Additions
                  to deferred charges
              
              
              **(6,000**
              **)**
              
              (832
              )
              
              -Decrease
                  in other long-term liabilities
              
              
              **(648**
              **)**
              
              (820
              )
              
              (911
              )Issuance
                  of shares under stock option plan
              
              
              **5,981**
              
              
              1,650
              
              
              2,212Shares
                  repurchased
              
              
              **(36,789**
              **)**
              
              -
              
              
              -Dividends
                  paid
              
              
              **(10,547**
              **)**
              
              (3,190
              )
              
              (2,120
              )Dividends
                  paid to minority shareholder
              
              
              **(5,304**
              **)**
              
              (937
              )
              
              (521
              )Other
              
              
              **230**
              
              
              208
              
              
              210CASH
                  USED IN FINANCING ACTIVITIES
              
              
              **(188,219**
              **)**
              
              (37,938
              )
              
              (1,130
              )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING
                      THE
                      YEAR
              
              
              **(94,450**
              **)**
              
              42,855
              
              
              51,357Cash
                  and cash equivalents, beginning of year
              
              
              **138,086**
              
              
              95,231
              
              
              43,874CASH
                  AND CASH EQUIVALENTS, END OF YEAR
              
              
              **43,636**
              
              
              138,086
              
              
              95,231
  Supplemental
        cash flow disclosures (note 19)
  See
        accompanying notes
  **6**
  *Notes
        to consolidated financial statements*
 **August
        31, 2006, 2005 and 2004**
 (thousands
        of Canadian dollars except share information)
  **Note
        1. Basis of presentation**
 Corus
        Entertainment Inc. (“Corus” or the “Company”) is a diversified Canadian
        communications and entertainment company. The Company is incorporated under
        the *Canada
        Business Corporations Act* and its Class B Non-Voting Shares are listed on the Toronto and New York
        Stock
        Exchanges.
  **Note
        2. Significant accounting policies**
 The
        consolidated financial statements have been prepared by management on the
        historical cost basis in accordance with Canadian generally accepted accounting
        principles (“GAAP”). The effects of differences between the application of
        Canadian and U.S. GAAP on the consolidated financial statements of the Company
        are described in note 21.
  **Basis
        of consolidation**
 The
        consolidated financial statements include the accounts of Corus and all of
        its
        subsidiaries, all of which are wholly owned except for Country Music Television
        Limited (80% interest), Telelatino Network Inc. (50.5% interest), Discovery
        Kids
        Canada (53.6% interest) and SCREAM (51% interest), as well as its proportionate
        share of the accounts of its joint ventures. Intercompany transactions and
        balances have been eliminated on consolidation. The results of operations
        of
        subsidiaries acquired during the year are included from their respective
        dates
        of acquisition.
  **Use
        of estimates**
 The
        preparation of consolidated financial statements in conformity with Canadian
        GAAP requires management to make estimates and assumptions that affect the
        reported amounts of assets and liabilities and disclosure of contingent assets
        and liabilities at the date of the consolidated financial statements and
        the
        reported amounts of revenues and expenses during the reporting periods. The
        most
        significant assumptions made by management in the preparation of the Company’s
        consolidated financial statements include future revenue projections for
        investments in film and television programs, provisions for doubtful accounts
        to
        reflect credit exposures, valuation allowances and impairment assessments
        for
        various assets including investments in film and television programs; property,
        plant and equipment; long-term investments; current and future income taxes;
        broadcast licenses and goodwill. Actual results could differ from those
        estimates.
  **Revenue
        recognition**
 Advertising
        revenues are recognized in the period in which the advertising is aired under
        broadcast contracts.
  Affiliate
        subscriber fee revenues are recognized monthly based on subscriber
        levels.
  Product
        and distribution revenues from the distribution and licensing of film rights
        are
        recognized when all of the following conditions are met: (i) persuasive evidence
        of a sale or licensing arrangement with a customer exists; (ii) the film
        is
        complete and has been delivered or is available for immediate and unconditional
        delivery; (iii) the license period of the arrangement has begun; (iv) the
        arrangement fee is fixed or determinable; and (v) collection of the arrangement
        fee is reasonably assured. Non-refundable recoupable minimum guarantees received
        under licensing arrangements for home videos where film titles are
        cross-collateralized are deferred and recognized as revenue over the license
        term when the underlying home videos are sold as reported by third
        parties.
  **7**
   Customer
        advances on contracts are recorded as unearned revenue until all of the
        foregoing revenue recognition conditions have been met.
  Non-refundable
        advances that are not cross-collateralized and royalties from merchandise
        licensing, publishing and music contracts are recognized when the license
        period
        has commenced and collection is reasonably assured. Advances that are
        cross-collateralized are deferred and recognized as revenue over the license
        term when the underlying royalties are reported as earned by third
        parties.
  Revenues
        from the sale of books are recognized at the time of shipment, net of an
        estimated provision for returns. Revenues from the sale of subsidiary book
        rights, when determinable, are recorded on an accrual basis. When amounts
        are
        not determinable, amounts are recorded on receipt of funds. Grants for specific
        projects are recognized as revenue when the related expenses are
        incurred.
  **Cash
        and cash equivalents**
 Cash
        and cash equivalents include cash and short-term deposits with maturities
        of
        less than three months at the date of purchase.
  **Investments**
 Investments
        in entities over which the Company exercises significant influence are accounted
        for using the equity method. Investments in joint ventures and partnerships
        that
        the Company jointly controls are accounted for using the proportionate
        consolidation method of accounting. Other investments are recorded at cost
        and
        written down only when there is evidence that a decline in value that is
        other-than-temporary has occurred.
  Acquisitions
        subject to Canadian Radio-television and Telecommunications Commission (“CRTC”)
        approval are recorded at cost until approval is received and then accounted
        for
        according to the nature of the investment made.
  **Property,
        plant and equipment**
 Property,
        plant and equipment are recorded at cost less accumulated depreciation.
        Depreciation is recorded on a straight-line basis over the estimated useful
        lives of the assets as follows:
 Broadcasting
                  equipment
              
              
              10
                  yearsProduction
                  equipment
              
              
              5
                  yearsLeasehold
                  improvements
              
              
              lease
                  termBuildings
              
              
              20-40
                  yearsComputer
                  equipment
              
              
              3
                  yearsFurniture
                  and fixtures
              
              
              7
                  yearsOther
              
              
              4-10
                  years
  **Program
        and film rights**
 Program
        and film rights represent contract rights acquired from third parties to
        broadcast television programs and feature films. The assets and liabilities
        related to these rights are recorded when the license period has begun and
        all
        of the following conditions have been met: (i) the cost of the rights is
        known
        or reasonably determinable; (ii) the program material is accepted by the
        Company
        in accordance with the license agreement; and (iii) the material is available
        to
        the Company for airing. Long-term liabilities related to these rights are
        recorded at the net present values of future cash flows, using a discount
        rate
        that approximates the Company’s weighted average cost of capital. These costs
        are amortized over the contracted exhibition period as the programs or feature
        films are aired. Program and film rights are carried at the lower of cost
        less
        accumulated amortization and net recoverable amount.
  **8**
   Amortization
        of program and film rights is included in direct cost of sales, general and
        administrative expenses and has been disclosed separately in the consolidated
        statements of cash flows.
  **Film
        investments**
 Film
        investments represent the costs of projects in development, projects in process,
        the unamortized costs of proprietary films and television programs that have
        been produced by the Company or for which the Company has acquired distribution
        rights, and investments in third-party-produced film projects. Such costs
        include development and production expenditures and attributable studio and
        other costs that are expected to benefit future periods.
  The
        Company accounts for its film investments in accordance with the American
        Institute of Certified Public
        Accountants (“AICPA”) Statement of Position 00-2, “Accounting by Producers or
        Distributors of Films” (“SOP 00-2”).
  The
        individual-film-forecast-computation method is used to determine amortization.
        The capitalized costs and the estimated total costs of participations and
        residuals, net of anticipated federal and provincial program contributions,
        production tax credits and co-producers’ shares of production costs, are charged
        to amortization expense on a series or program basis in the ratio that current
        period revenue bears to management’s estimate of total gross revenue (“ultimate
        revenue”) to be realized from the series or program. Ultimate revenue is
        projected for periods not exceeding ten years from the date of delivery or
        acquisition. For episodic television series, SOP 00-2 requires that ultimate
        revenue includes estimates of revenue over a period not to exceed ten years
        from
        the date of delivery of the first episode or, if still in production, five
        years
        from the date of delivery of the most recent episode, if later. Estimates
        of
        gross revenue can change significantly due to the level of market acceptance
        of
        film and television products. Accordingly, revenue estimates are reviewed
        periodically and amortization is adjusted. Such adjustments could have a
        material effect on the results of operations in future periods.
  The
        Company reviews the status of projects in development quarterly. If, in the
        opinion of management, any such projects will not progress toward production,
        the accumulated costs are charged to direct cost of sales. Projects are written
        off at the earlier of the date determined not to be recoverable or when projects
        under development are abandoned, and three years from the date of the initial
        investment.
  Projects
        in process represent the accumulated costs of television series or feature
        films
        currently in production.
  Completed
        project and distribution rights are stated at the lower of unamortized cost
        or
        estimated net realizable value as determined on a series or program basis.
        Revenue and cost forecasts for each production are evaluated quarterly in
        connection with a comprehensive review of the Company’s film investments, on a
        title-by-title basis. When an event or change in circumstances indicates
        that
        the fair value of a film is less than its unamortized cost, the fair value
        of
        the film is determined using management’s estimates of future revenues under a
        discounted cash flow approach. A writedown is recorded equivalent to the
        amount
        by which the unamortized costs exceed the estimated fair value of the
        film.
  Investments
        in third-party-produced film projects are carried at the lower of cost and
        net
        realizable value.
  Amortization
        of film investments is included in direct cost of sales, general and
        administrative expenses.
  **9**
   **Deferred
        charges**
 Financing
        costs and credit facility arrangement fees are amortized to income on a
        straight-line basis over the term of the debt facility.
  Deferred
        charges are carried at the lower of cost less accumulated amortization and
        net
        recoverable amount.
  **Broadcast
        licenses and goodwill**
 The
        cost of acquiring media broadcasting, production/distribution and publishing
        businesses is allocated to the fair value of related net identifiable tangible
        and intangible assets acquired. Net identifiable intangible assets acquired
        consist primarily of broadcast licenses. The excess of the cost of acquiring
        these businesses over the fair value of related net identifiable tangible
        and
        intangible assets acquired is allocated to goodwill.
  Broadcast
        licenses are considered to have an indefinite life based on management’s intent
        and ability to renew the licenses without substantial cost and without material
        modification of the existing terms and conditions of the license.
  Broadcast
        licenses and goodwill are tested for impairment annually or more frequently
        if
        events or changes in circumstances indicate that they may be impaired. The
        Company has selected August 31 as the date it performs its annual impairment
        test.
  **Government
        financing and assistance**
 The
        Company has access to several government programs that are designed to assist
        film and television production in Canada. Funding from certain programs provides
        a supplement to a series’ Canadian license fees and is recorded as revenue when
        cash has been received. Government assistance with respect to federal and
        provincial production tax credits is recorded as a reduction of film investments
        when eligible expenditures are made and there is reasonable assurance of
        realization. Assistance in connection with equity investments is recorded
        as a
        reduction in film investments.
  Government
        grants approved for specific publishing projects are recorded as revenue
        when
        the related expenses are incurred.
  **Deferred
        credits**
 Deferred
        credits include (i) a provision for contributions to Canadian broadcasting
        initiatives that must be made by a purchaser of specialty television, pay
        television and radio undertakings in accordance with CRTC policies (“public
        benefits associated with acquisitions”) associated with acquiring radio and
        television businesses that will be drawn down when the Company makes eligible
        payments toward meeting the conditions of license; (ii) foreign exchange
        gains
        on translating hedged long-term debt; and (iii) unearned revenue from the
        distribution and licensing of rights for feature films and television
        programs.
  **10**
   **Income
        taxes**
 The
        liability method of tax allocation is used in accounting for income taxes.
        Under
        this method, future tax assets and liabilities are determined based on
        differences between the financial reporting and tax bases of assets and
        liabilities, and measured using the substantively enacted tax rates and laws
        that are expected to be in effect when the differences are expected to
        reverse.
  **Foreign
        currency translation**
 The
        assets and liabilities of the Company’s self-sustaining operations having a
        functional currency that is not in Canadian dollars are translated into Canadian
        dollars using the exchange rate in effect at the consolidated balance sheet
        date, and revenues and expenses are translated at the average rate during
        the
        year. Exchange gains or losses on translation of the Company’s net equity
        investment in these operations are deferred as a separate component of
        shareholders’ equity.
  For
        integrated foreign operations monetary items are translated into Canadian
        dollars at exchange rates in effect at the consolidated balance sheet date,
        and
        non-monetary items are translated at rates of exchange in effect when the
        assets
        were acquired or obligations incurred. Revenues and expenses are translated
        at
        rates in effect at the time of the transaction. Foreign exchange gains and
        losses are included in net income (loss) for the year.
  Long-term
        debt denominated in U.S. dollars is translated into Canadian dollars at the
        year-end rate of exchange. Exchange gains or losses on translating long-term
        debt that qualifies for hedge accounting are offset against the corresponding
        exchange gains or losses arising on the cross-currency agreements.
  Other
        exchange gains and losses are included in net income (loss) for the
        year.
  **Financial
        instruments and hedging relationships**
 The
        Company uses derivative financial instruments to manage risks from fluctuations
        in exchange and interest rates. These instruments may include cross-currency
        and
        interest rate swap agreements. All such instruments are only used for risk
        management purposes. The net receipts or payments arising from financial
        instruments relating to the management of interest rate risks are recognized
        in
        interest expense over the term of the instrument. Foreign exchange gains
        or
        losses arising on cross-currency agreements used to hedge U.S. dollar
        denominated debt are offset against the corresponding exchange gains or losses
        on the hedged item. The carrying values of derivative financial instruments
        that
        do not qualify for hedge accounting are adjusted to reflect their current
        market
        value.
  **Stock-based
        compensation and other stock-based payments**
 The
        fair value of each stock option granted is estimated on the date of the grant
        using the Black-Scholes option pricing model and expensed over the option’s
        vesting period. Compensation expense related to the Performance Share Units
        and
        long-term incentive plan is accrued over the term of the restriction period
        based on the expected total compensation to be paid out at the end of the
        restriction period. Consideration paid by the Company under its Employee
        Share
        Purchase Plan is included in direct cost of sales, general and administrative
        expenses.
  **11**
   **Earnings
        (loss) per share**
 Basic
        earnings (loss) per share are calculated using the weighted average number
        of
        common shares outstanding during the year. The computation of diluted earnings
        (loss) per share assumes the basic weighted average number of common shares
        outstanding during the year is increased to include the number of additional
        common shares that would have been outstanding if the dilutive potential
        common
        shares had been issued. The dilutive effect of stock options is determined
        using
        the treasury stock method.
  **Impairment
        of long-lived assets**
 When
        events or circumstances indicate potential impairment, long-lived assets,
        other
        than broadcast licenses and goodwill, are written down to their fair value
        if
        the net carrying amount of the asset exceeds the net recoverable amount,
        calculated as the sum of undiscounted cash flows related to the
        asset.
  **Non-monetary
        transactions**
 Effective
        September 1, 2005, the Company prospectively adopted the recommendations
        included in the Canadian Institute of Chartered Accountants (“CICA”) Handbook
        Section 3831, “Non-monetary Transactions,” which requires application of fair
        value measurement to non-monetary transactions determined by a number of
        tests.
        The adoption of these recommendations had no impact on the Company’s
        consolidated financial statements.
  **Note
        3. Business combinations**
 Effective
        May 29, 2005, Corus completed an asset exchange with Astral Media Inc.
        (“Astral”). This resulted in Corus acquiring eight Astral-owned radio stations
        in Québec and receiving other consideration including $2,500 in cash, in
        exchange for five Corus-owned radio stations in Québec. This transaction was
        accounted for using the purchase method. The results of operations of the
        eight
        stations previously owned by Astral are included in Corus’ consolidated
        financial statements from the date of the transaction. Accrued liabilities
        include a severance accrual of approximately $1,676, which was substantially
        settled by the end of fiscal 2005, except for accruals relating to salary
        continuance. No gain or loss was recorded on this transaction.
 CONSIDERATION
                  GIVEN:Cash
              
              
              (2,500
              )Property,
                  plant and equipment
              
              
              1,958Broadcast
                  licenses
              
              
              2,047Goodwill
              
              
              6,917Transaction
                  costs
              
              
              9089,330ASSIGNED
                  VALUE OF NET ASSETS ACQUIRED:Property,
                  plant and equipment
              
              
              2,750Broadcast
                  licenses
              
              
              11,025Accrued
                  liabilities
              
              
              (1,828
              )Future
                  tax liability
              
              
              (2,617
              )9,330
 
  **12**
   **Note
        4. Joint ventures**
 The
        following amounts, included in these consolidated financial statements,
        represent the Company’s proportionate share in joint ventures:
 **2006**
              
              2005CONSOLIDATED
                  BALANCE SHEETSCurrent
                  assets
              
              
              **29,869**
              
              
              28,337Long-term
                  assets
              
              
              **19,114**
              
              
              14,263Current
                  liabilities
              
              
              **22,440**
              
              
              19,888CONSOLIDATED
                  STATEMENTS OF INCOMERevenues
              
              
              **40,297**
              
              
              34,974Expenses
              
              
              **29,610**
              
              
              26,945NET
                  INCOME
              
              
              **10,687**
              
              
              8,029CONSOLIDATED
                  STATEMENTS OF CASH FLOWSOperating
                  activities
              
              
              **8,129**
              
              
              9,560Investing
                  activities
              
              
              **1,059**
              
              
              (39
              )
  **Note
        5. Accounts receivable**
  **2006**
              
              2005Trade
              
              
              **137,126**
              
              
              151,053Other**(a)**
              
              
              **8,901**
              
              
              7,957**146,027**
              
              
              159,010Less
                  allowance for doubtful accounts
              
              
              **3,093**
              
              
              3,667**142,934**
              
              
              155,343
  **(a)
        Other receivables**
 Other
        receivables include the current portion of loans to executive
        officers.
  **Note
        6. Investments and other assets**
  **2006**
              
              2005Astral
                  Media Inc.**(a)**
              
              
              **13,861**
              
              
              13,861Other**(b)**
              
              
              **15,781**
              
              
              23,025**29,642**
              
              
              36,886
  **(a)
        Astral Media Inc.**
 The
        Company holds 54,600 Class A non-voting shares and 297,200 Class B subordinate
        voting shares of Astral with a market value of $13,426 (2005 -
        $11,366).
  **(b)
        Other investments**
 Other
        investments consist primarily of financing provided to the Company’s digital
        channels, long-term portion of loans to executive officers, and other
        investments accounted for on a cost and equity basis.
  **13**
   **Note
        7. Property, plant and equipment**
  **Accumulated**
              
              **Net****2006**
              
              **Cost**
              
              **depreciation**
              
              **book
                  value**Broadcasting
                  equipment
              
              
              **35,005**
              
              
              **24,121**
              
              
              **10,884**Production
                  equipment
              
              
              **89,660**
              
              
              **75,779**
              
              
              **13,881**Leasehold
                  improvements
              
              
              **38,580**
              
              
              **22,787**
              
              
              **15,793**Buildings
              
              
              **23,094**
              
              
              **9,143**
              
              
              **13,951**Computer
                  equipment
              
              
              **49,666**
              
              
              **37,917**
              
              
              **11,749**Furniture
                  and fixtures
              
              
              **21,752**
              
              
              **18,112**
              
              
              **3,640**Other
              
              
              **4,216**
              
              
              **2,511**
              
              
              **1,705**Land
              
              
              **6,814**
              
              
              **-**
              
              
              **6,814****268,787**
              
              
              **190,370**
              
              
              **78,417**
  Accumulated
              
              Net2005
              
              Cost
              
              depreciation
              
              book
                  valueBroadcasting
                  equipment
              
              
              32,535
              
              
              23,763
              
              
              8,772Production
                  equipment
              
              
              87,329
              
              
              69,697
              
              
              17,632Leasehold
                  improvements
              
              
              31,328
              
              
              21,520
              
              
              9,808Buildings
              
              
              22,649
              
              
              7,558
              
              
              15,091Computer
                  equipment
              
              
              52,124
              
              
              41,265
              
              
              10,859Furniture
                  and fixtures
              
              
              21,124
              
              
              17,068
              
              
              4,056Other
              
              
              5,527
              
              
              2,528
              
              
              2,999Land
              
              
              6,824
              
              
              -
              
              
              6,824259,440
              
              
              183,399
              
              
              76,041
  **Note
        8. Film investments**
  **2006**
              
              **2005**Projects
                  in development and in process, net of advances
              
              
              **17,397**
              
              
              15,876Completed
                  projects and distribution rights
              
              
              **28,721**
              
              
              28,796Investments
                  in third-party-produced film projects
              
              
              **14,661**
              
              
              13,745**60,779**
              
              
              58,417
  During
        fiscal 2006, the Company reduced its investments in film and television programs
        by anticipated federal and Ontario production tax credits amounting to $11,292
        (2005 - $11,701).
  During
        the third quarter of fiscal 2004, the Company reviewed, as required, future
        revenue projections, or ultimates, on a title-by-title basis, supporting
        the
        carrying value of its film investments in the Content division, and lowered
        its
        estimates of future revenues with reference to current and anticipated market
        conditions and foreign exchange rates, resulting in the recognition of an
        $85,000 writedown of film investments in the quarter. This writedown is included
        in direct cost of sales, general and administrative expenses for the
        year.
  The
        Company expects that 40% and 67% of the net book value of completed projects
        and
        distribution rights will be amortized during the year ending August 31, 2007,
        and three years ending August 31, 2009, respectively. It is estimated that
        at
        least 80% will be amortized within four years.
  The
        Company expects that $2,079 of accrued participation liabilities will be
        paid
        during the year ending August 31, 2007.
  **14**
   **Note
        9. Deferred charges**
  **2006**
              
              **Cost**
              
              **Accumulated**
                **amortization**
              
              **Net**
                **book
                  value**Financing
                  costs and credit facility arrangement fees
              
              
              **6,000**
              
              
              **700**
              
              
              **5,300**Start-up
                  costs of new specialty programming networks
              
              
              **5,264**
              
              
              **4,909**
              
              
              **355****11,264**
              
              
              **5,609**
              
              
              **5,655**
 
  2005
              
              Cost
              
              Accumulated
                amortization
              
              Net
                book
                  valueFinancing
                  costs and credit facility arrangement fees
              
              
              28,233
              
              
              13,676
              
              
              14,557Start-up
                  costs of new specialty programming networks
              
              
              9,857
              
              
              8,854
              
              
              1,00338,090
              
              
              22,530
              
              
              15,560
  **Note
        10. Broadcast licenses and goodwill**
 At
        August 31, 2006, 2005 and 2004, the Company performed its annual impairment
        test
        of broadcast licenses and goodwill and determined that there was no impairment
        for the years ended August 31, 2006 and 2004. For the year ended August 31,
        2005, the Company determined that there was an impairment of $4,108 in the
        broadcast licenses related to three radio stations. This impairment charge
        is
        included in other expense (income), net.
  To
        determine the amount of impairment, management uses a fair value methodology
        based on market transaction multiples for comparable businesses applied to
        forecasted operating income used to evaluate the reporting units’ performance.
        Estimates of forecasted operating income involve measurement uncertainty
        and it
        is therefore possible that reductions in the carrying value of broadcast
        licenses and goodwill may be required as a result of changes in management’s
        future revenue estimates. Actual results may differ from estimates and as
        a
        consequence a material impairment charge may be recorded.
  During
        the first quarter of fiscal 2006, the Company completed the sale of two radio
        stations for an aggregate purchase price of $9,115. There were reductions
        of
        $3,840 and $4,063 in broadcast licenses and goodwill, respectively, and an
        immaterial loss was recorded on these dispositions.
  **Note
        11. Accounts payable and accrued liabilities**
  **2006**
              
              2005Trade
              
              
              **68,935**
              
              
              69,996Program
                  rights payable
              
              
              **84,164**
              
              
              59,607Film
                  investment accruals
              
              
              **1,866**
              
              
              5,413Accrued
                  interest
              
              
              **72**
              
              
              28,654Dividends
                  payable
              
              
              **9,039**
              
              
              -Restructuring
                  provision**(a)**
              
              
              **4,681**
              
              
              -Third
                  party participation payments
              
              
              **5,006**
              
              
              6,813Goods
                  and services tax
              
              
              **1,422**
              
              
              1,201Other
              
              
              **1,199**
              
              
              552**176,384**
              
              
              172,236
  **(a)
        Restructuring provision**
 In
        fiscal 2006 the Company recorded restructuring expenses of $4,165 in the
        Radio
        segment and $6,728 in the Content segment related to severance and other
        restructuring activities. These costs are included in other expense (income),
        net. As at August 31, 2006, $4,681 of this provision remains unpaid. The
        Company
        anticipates that this provision will be substantially paid in fiscal
        2007.
  **15**
   **Note
        12. Long-term debt**
  **2006**
              
              2005Senior
                  Subordinated Notes translated at the current rate**(a)**
              
              
              **601**
              
              
              445,162Bank
                  loans**(b)**
              
              
              **595,761**
              
              
              -**596,362**
              
              
              445,162
  **(a)
        Senior Subordinated Notes**
 On
        March 7, 2002, Corus issued U.S.$375,000 aggregate principal amount of 8.75%
        Senior Subordinated Notes (the “Notes”) due in 2012 at a price of 99.186% of
        their aggregate principal amount. The Company entered into cross-currency
        agreements to fix the liability for interest and principal payments on the
        Notes. The agreements resulted in an effective interest rate of 9.33% on
        the
        Canadian dollar equivalent of the U.S. debt. The exchange rate applicable
        to the
        principal portion of the debt has been fixed at Cdn.$1.6107, translating
        to
        approximately Cdn.$604,000.
  On
        December 15, 2005, the Company commenced a cash tender offer and consent
        solicitation for its Notes. On January 23, 2006, the Company completed its
        tender offer for the Notes, and as a result U.S.$373,646 of the Notes were
        acquired by the Company and cancelled, leaving U.S.$1,354 outstanding.
        Concurrently, the cross-currency agreements were effectively terminated.
        As at
        August 31, 2006, U.S.$544 of the Notes remain outstanding.
  **(b)
        Bank loans**
 In
        order to fund the purchase of the Notes, the Company’s credit facility with a
        syndicate of banks was amended and its operating loan facility was terminated.
        The amendment resulted in an extension of the maturity of the credit facility
        to
        January 24, 2011. The amount committed is $800,000, of which $300,000 is
        available on a revolving basis (the “Revolving Facility”) and $500,000 on a
        non-revolving basis (the “Term Facility”), and is repayable at maturity. Funds
        are available to the Company in both Canadian and U.S. dollars and charge
        interest on a fluctuating basis plus a margin. Other terms of the amended
        credit
        facility are substantially similar to the prior credit facility. As at August
        31, 2006, $100,000 of the Revolving Facility and all of the Term Facility
        were
        utilized in Canadian dollars.
  Interest
        rates on the balance of the bank loans fluctuate with Canadian bankers’
acceptances and LIBOR. The Company has entered into Canadian interest rate
        swap
        agreements to fix the interest rate at 4.13% plus a margin on $400,000 of
        the
        Term Facility for the full term of the facility. Interest on the bank loans
        averaged 5.2% for the year ended August 31, 2006 (2005 - 2.7%).
  The
        transactions in (a) and (b) above resulted in the Company recording a $131,951
        debt refinancing loss in fiscal 2006. The components of this loss include
        mark-to-market payments on the cross-currency agreement termination, consent
        and
        tender premiums, the write-off of deferred financing charges, and underwriting
        and other fees.
  The
        banks hold as collateral a first ranking charge on all assets and undertakings
        of Corus and certain of Corus’ subsidiaries as designated under the credit
        agreements. As well, unlimited guarantees are provided by certain subsidiaries.
        Under the facility, the Company has undertaken to maintain certain financial
        covenants. Management has determined that the Company was in compliance with
        the
        covenants provided under the bank loans as at August 31, 2006.
  **16**
   **Note
        13. Deferred credits**
  **2006**
              
              2005Public
                  benefits associated with acquisitions
              
              
              **11,615**
              
              
              21,209Cross-currency
                  agreementstranslated into Canadian dollars at the current rate
              
              
              **-**
              
              
              158,838Unearned
                  revenue from distribution and licensing of film rights
              
              
              **11,415**
              
              
              12,320Other
              
              
              **5,661**
              
              
              3,422**28,691**
              
              
              195,789
  **Note
        14. Share capital**
 **Authorized**
 The
        Company is authorized to issue, upon approval of holders of no less than
        two-thirds of the existing Class A shares, an unlimited number of Class A
        participating shares (“Class A Voting Shares”), as well as an unlimited number
        of Class B non-voting participating shares (“Class B Non-Voting Shares”), Class
        A Preferred Shares, and Class 1 and Class 2 Preferred Shares.
  Class
        A Voting Shares are convertible at any time into an equivalent number of
        Class B
        Non-Voting Shares. The Class B Non-Voting Shares are convertible into an
        equivalent number of Class A Voting Shares in limited
        circumstances.
  The
        Class A Preferred Shares are redeemable at any time at the demand of Corus
        and
        retractable at any time at the demand of a holder of a Class A Preferred
        Share
        for an amount equal to the consideration received by Corus at the time of
        issuance of such Class A Preferred Shares. Holders of Class A Preferred Shares
        are entitled to receive a non-cumulative dividend at such rate as Corus’ Board
        of Directors may determine on the redemption amount of the Class A Preferred
        Shares. Each of the Class 1 Preferred Shares, the Class 2 Preferred Shares,
        the
        Class A Voting Shares and the Class B Non-Voting Shares rank junior to and
        are
        subject in all respects to the preferences, rights, conditions, restrictions,
        limitations and prohibitions attaching to the Class A Preferred Shares in
        connection with the payment of dividends.
  The
        Class 1 and Class 2 Preferred Shares are issuable in one or more series with
        attributes designated by the Board of Directors. The Class 1 Preferred Shares
        rank senior to the Class 2 Preferred Shares.
  In
        the event of liquidation, dissolution or winding up of Corus or other
        distribution of assets of Corus for the purpose of winding up its affairs,
        the
        holders of Class A Preferred Shares are entitled to a payment in priority
        to all
        other classes of shares of Corus to the extent of the redemption amount of
        the
        Class A Preferred Shares, but will not be entitled to any surplus in excess
        of
        that amount. The remaining property and assets will be available for
        distribution to the holders of the Class A Voting Shares and Class B Non-Voting
        Shares, which shall be paid or distributed equally, share for share, between
        the
        holders of the Class A Voting Shares and the Class B Non-Voting Shares, without
        preference or distinction.
  **17**
   **Issued
        and outstanding**
 The
        changes in the Class A Voting Shares and Class B Non-Voting Shares since
        August
        31, 2004, are summarized as follows:
 Class
                  A Voting Shares
              
              Class
                  B Non-Voting Shares
              
              Total#
              
              $
              
              #
              
              $
              
              $BALANCE,
                  AUGUST 31, 2004
              
              
              1,724,929
              
              
              26,715
              
              
              41,014,099
              
              
              857,338
              
              
              884,053Issuance
                  of shares under Stock Option Plan
              
              
              
              
              
              
              
              
              64,020
              
              
              1,650
              
              
              1,650Repayment
                  of executive stockpurchase
                  loans
              
              
              -
              
              
              -
              
              
              -
              
              
              208
              
              
              208BALANCE,
                  AUGUST 31, 2005
              
              
              1,724,929
              
              
              26,715
              
              
              41,078,119
              
              
              859,196
              
              
              885,911Conversion
                  of Class A Voting Shares to Class B Non-Voting Shares
              
              
              (1,000
              )
              
              (15
              )
              
              1,000
              
              
              15Issuance
                  of shares under Stock Option Plan
              
              
              
              
              
              
              
              
              237,110
              
              
              6,109
              
              
              6,109Shares
                  repurchased
              
              
              -
              
              
              -
              
              
              (1,034,700
              )
              
              (21,687
              )
              
              (21,687
              )Repayment
                  of executive stockpurchase
                  loans
              
              
              
              
              
              
              
              
              
              
              
              230
              
              
              230BALANCE,
                  AUGUST 31, 2006
              
              
              **1,723,929**
              
              
              **26,700**
              
              
              **40,281,529**
              
              
              **843,863**
              
              
              **870,563**
  **Stock
        Option Plan**
 Under
        the Company’s Stock Option Plan (the “Plan”), the Company may grant options to
        purchase Class B Non-Voting Shares to eligible officers, directors and employees
        of or consultants to the Company. The maximum number of shares that can be
        reserved for issuance under the Plan is 4,084,642. All options granted are
        for
        terms not to exceed ten years from the grant date. The exercise price of
        each
        option equals the market price of the Company’s stock on the date of grant.
        Options vest 25% on each of the first, second, third and fourth anniversary
        dates of the date of grant.
  A
        summary of the options outstanding as at August 31, 2006, and the changes
        since
        August 31, 2004, is presented as follows:
  Number
              
              Weighted
                  averageof
                  options (#)
              
              exercise
                  price ($)OUTSTANDING,
                  AUGUST 31, 2004
              
              
              3,149,575
              
              
              28.10Granted
              
              
              443,600
              
              
              23.80Forfeited
              
              
              (90,666
              )
              
              31.66Exercised
              
              
              (64,020
              )
              
              25.77OUTSTANDING,
                  AUGUST 31, 2005
              
              
              3,438,489
              
              
              27.49Granted
              
              
              272,000
              
              
              32.39Forfeited
              
              
              (43,737
              )
              
              30.62Exercised
              
              
              (237,110
              )
              
              25.23OUTSTANDING,
                  AUGUST 31, 2006
              
              
              **3,429,642**
              
              
              **28.00**
  
  **18**
   The
        fair value of each option granted was estimated on the date of grant using
        the
        Black-Scholes option pricing model with the following assumptions:
  
 **Fiscal
                  2006**
              
              Fiscal
                  2005Expected
                  life
              
              
              **5
                  years**
              
              
              5
                  yearsRisk-free
                  interest rate
              
              
              **3.73**
              **%**
              
              4.31
              %Dividend
                  yield
              
              
              **0.31**
              **%**
              
              0.21
              %Volatility
              
              
              **33.33**
              **%**
              
              35.98
              %
  The
        weighted average fair value of the stock options granted during fiscal 2006
        was
        $11.16 per option. The estimated value of the options is amortized to income
        over the options vesting period on a straight-line basis. The Company has
        recorded stock-based compensation expense for the year ended August 31, 2006,
        of
        $2,915 (2005 - $2,271; 2004 - $1,287). This charge has been credited to
        contributed surplus.
  As
        at August 31, 2006, the options outstanding and exercisable consisted of
        the
        following:
  Options
                  outstanding
              
              
              
              Options
                  exercisableWeighted
                  averageNumber
              
              remaining
              
              Weighted
                  average
              
              Number
              
              Weighted
                  averageoutstanding
              
              contractual
                  life
              
              exercise
                  price
              
              outstanding
              
              exercise
                  priceRange
                  of exercise prices ($)
              
              (#)
              
              (years)
              
              ($)
              
              (#)
              
              ($)19.05-24.95
              
              
              1,451,665
              
              
              4.5
              
              
              22.82
              
              
              954,268
              
              
              22.3625.25-35.83
              
              
              1,475,657
              
              
              2.6
              
              
              29.06
              
              
              1,206,357
              
              
              28.3836.14-44.00
              
              
              502,320
              
              
              1.8
              
              
              39.83
              
              
              492,320
              
              
              39.91**19.05-44.00**
              
              
              **3,429,642**
              
              
              **33**
              
              
              **28.00**
              
              
              **2,652,945**
              
              
              **28.35**
  **Dividends**
 The
        holders of Class A Voting Shares and Class B Non-Voting Shares are entitled
        to
        receive such dividends as the Board of Directors determines to declare on
        a
        share-for-share basis, as and when any such dividends are declared or paid.
        The
        holders of Class B Non-Voting Shares are entitled to receive during each
        dividend period, in priority to the payment of dividends on the Class A Voting
        Shares, an additional dividend at a rate of $0.01 per share per annum. This
        additional dividend is subject to proportionate adjustment in the event of
        future consolidations or subdivisions of shares and in the event of any issue
        of
        shares by way of stock dividend. After payment or setting aside for payment
        of
        the additional non-cumulative dividends on the Class B Non-Voting Shares,
        holders of Class A Voting Shares and Class B Non-Voting Shares participate
        equally, on a share-for-share basis, on all subsequent dividends
        declared.
  On
        December 9, 2003, the Board of Directors of Corus approved a semi-annual
        dividend for holders of Class A Voting Shares and Class B Non-Voting Shares
        of
        $0.02 and $0.025, respectively. On April 14, 2005, the Board of Directors
        of
        Corus approved an increase in its semi-annual dividend to holders of Class
        A
        Voting Shares and Class B Non-Voting Shares to $0.045 and $0.05, respectively.
        On January 12, 2006, the Board of Directors of Corus approved an increase
        in its
        dividend, to be paid quarterly, to holders of Class A Voting Shares and Class
        B
        Non-Voting Shares to $0.0975 and $0.010, respectively. On July 13, 2006,
        the
        Board of Directors of Corus approved an increase in its quarterly dividend
        to
        holders of Class A Voting Shares and Class B Non-Voting Shares to $0.2125
        and
        $0.215, respectively.
  In
        fiscal 2006, the Company paid three dividends on December 31, 2005, March
        31,
        2006, and June 30, 2006, to shareholders of record at the close of business
        on
        December 15, 2005, March 15, 2006, and June 15, 2006, respectively. The total
        amount of dividends declared in fiscal 2006 was $19,586 (2005 -
        $3,190).
  **19**
   **Executive
        stock purchase loans**
 In
        October 2001, the Board of Directors of the Company authorized the granting
        of
        loans to certain of its executive officers in order to finance the acquisition
        of Class B Non-Voting Shares of the Company on the open market. These loans
        are
        non-interest bearing and are secured by a promissory note and the relevant
        Class
        B Non-Voting Shares. Each loan has a ten-year term from December 1, 2001,
        with
        annual instalments at the greater of 10% of the original principal or 10%
        of the
        employee’s pre-tax bonus for the most recently completed financial year of the
        Company. As at August 31, 2006, the Company had loans receivable of $1,180
        (2005
        - $1,410) from certain qualifying executive officers. As at August 31, 2006,
        the
        market value of the shares held as collateral for the loans was $2,111 (2005
        -
        $1,762).
  **Performance
        Share Units**
 The
        Company has granted Performance Share Units (“PSUs”) to certain employees. Each
        PSU entitles the participant to receive a cash payment in an amount equal
        to the
        closing price of Class B Non-Voting Shares traded on the Toronto Stock Exchange
        at the end of the restrictions period, multiplied by the number of vested
        units
        determined by achievement of specific performance-based criteria. The
        restriction period for PSUs granted in fiscal 2004 ended August 31, 2006;
        the
        restriction period for PSUs granted in fiscal 2005 ends August 31, 2007;
        and the
        restriction period for PSUs granted in fiscal 2006 ends August 31, 2008.
        The
        employee must be actively employed by Corus as of the end of the restriction
        period to receive a payment of the vested units. Compensation expense related
        to
        the PSUs is accrued over the term of the restriction period based on the
        expected total compensation to be paid out at the end of the restriction
        period,
        factoring in the probability of any performance-based criteria being met
        during
        the period. The compensation expense recorded for the year ended August 31,
        2006, in respect of this plan, was $8,689 (2005 - $4,495) and has been recorded
        in direct cost of sales, general and administrative expenses.
  **Long-term
        incentive plan**
 In
        fiscal 2006, the Company implemented a new long-term plan for senior management
        based on shareholder appreciation targets of 13.5%, 16% and 20% over a
        cumulative five-year period and peer group performance. The plan is intended
        to
        encourage and reward outstanding performance by plan participants if certain
        performance measures are met. The plan is also designed to act as a retention
        tool. The plan has two performance measures. The first measure is absolute
        annualized shareholder return and represents 80% of the potential award.
        The
        annual volume weighted return is based on three target levels of 13.5%, 16%
        and
        20%. The second measure is relative performance against relevant peer companies
        and represents 20% of the potential award. The participant is not eligible
        to
        receive an award until two years after achieving the target and the award
        will
        vest at the rate of one-third on the third anniversary, one-third on the
        fourth
        anniversary and one-third on the fifth anniversary. The obligation will be
        funded by the purchase of Corus shares in the open market. The Company has
        recorded stock-based compensation expense for the year of $533 (2005 - nil).
        This charge has been credited to contributed surplus.
  **Normal
        Course Issuer Bid**
 On
        December 15, 2005, the Company announced its intention to make a Normal Course
        Issuer Bid for its Class B Non-Voting Shares through the facilities of the
        Toronto Stock Exchange. The Company intends to purchase for cancellation
        a
        maximum of 3,000,000 Class B Non-Voting Shares.
  During
        the year ended August 31, 2006, the Company repurchased and cancelled 1,034,700
        Class B Non-Voting Shares for a total cash consideration of $36,789. This
        cash
        consideration exceeded the carrying value of the shares repurchased by $15,102,
        which amount was charged to retained earnings.
  **20**
   **Pro
        forma impact of stock-based compensation**
 For
        options granted to employees up to August 31, 2003, had compensation costs
        for
        the Plan been determined based on the fair value based method of accounting
        for
        stock-based compensation, the Company’s net income (loss) and earnings (loss)
        per share would have been reduced to the pro forma amounts indicated
        below:
  **2006**
              
              2005
              
              2004Net
                  income (loss)
              
              
              **35,471**
              
              
              71,114
              
              
              (23,137
              )Pro
                  forma net income (loss)
              
              
              **34,284**
              
              
              69,598
              
              
              (25,123
              )Pro
                  forma basic earnings (loss) per share
              
              **$**
              **0.81**
              
              $
              1.63
              
              $
              (0.59
              )Pro
                  forma diluted earnings (loss) per share
              
              **$**
              **0.79**
              
              $
              1.62
              
              $
              (0.59
              )
  **Note
        15. Income taxes**
  **(a)** Future income taxes reflect the net tax effects of the temporary differences
        between the carrying amounts of assets and liabilities for financial reporting
        purposes and the amounts used for income tax purposes. Significant components
        of
        the Company’s future tax liability and asset as at August 31 are as
        follows:
  **2006**
              
              2005FUTURE
                  TAX LIABILITYDeferred
                  charges deducted for tax purposes capitalized for accounting
                  purposes
              
              
              **840**
              
              
              1,350Capital
                  cost allowance in excess of book depreciation
              
              
              **131**
              
              
              118Deferred
                  partnership income
              
              
              **4,206**
              
              
              3,476Differences
                  in tax and accounting cost bases for investments
              
              
              **14,526**
              
              
              39,509Broadcast
                  licenses and other intangibles
              
              
              **136,507**
              
              
              150,757Other,
                  net
              
              
              **2,620**
              
              
              2,623TOTAL
                  FUTURE TAX LIABILITY
              
              
              **158,830**
              
              
              197,833FUTURE
                  TAX ASSETBook
                  depreciation in excess of capital cost allowance
              
              
              **26,640**
              
              
              33,913Loss
                  carryforwards, net of valuation allowances
              
              
              **43,033**
              
              
              18,066Amortization
                  deducted for accounting purposes in excess of tax purposes
              
              
              **17,706**
              
              
              800Differences
                  in tax and accounting cost bases for investments
              
              
              **1,747**
              
              
              1,199Revenue
                  recognition differences between tax and accounting
                  purposes
              
              
              **1,058**
              
              
              688Purchase
                  price equation differences
              
              
              **57**
              
              
              57Other,
                  net
              
              
              **2,677**
              
              
              1,864TOTAL
                  FUTURE TAX ASSET
              
              
              **92,918**
              
              
              56,587NET
                  FUTURE TAX LIABILITY
              
              
              **65,912**
              
              
              141,246Less
                  current portion of future tax asset
              
              
              **14,535**
              
              
              6,498FUTURE
                  TAX LIABILITY
              
              
              **80,447**
              
              
              147,744
  
  **21**
   **(b)** Significant components of the income tax expense (recovery) attributable
        to
        operations are as follows:
  **2006**
              
              2005
              
              2004Current
                  tax expense
              
              
              **38,227**
              
              
              34,209
              
              
              26,326Future
                  tax expense (recovery) relating to origination andreversal
                  of temporary differences
              
              
              **(12,978**
              **)**
              
              2,559
              
              
              (22,227
              )Future
                  tax expense (recovery) resulting from utilization (recognition)
                  of
                  losses
              
              
              **(24,552**
              **)**
              
              9,035
              
              
              782Future
                  tax expense (recovery) resulting from tax rate changes
              
              
              **(11,835**
              **)**
              
              254
              
              
              16,810Recovery
                  of various future tax liabilities
              
              
              **(25,187**
              **)**
              
              -
              
              
              -Other
              
              
              **320**
              
              
              (3,247
              )
              
              5,234INCOME
                  TAX EXPENSE (RECOVERY)
              
              
              **(36,005**
              **)**
              
              42,810
              
              
              26,925
  Included
        in income tax recovery for fiscal 2006 is a change in long-term future tax
        rates
        resulting in a recovery of $11,835 and a recovery of $25,187 relating to
        future
        tax liabilities that are deemed in the current period to be no longer required
        as the result of various tax planning strategies.
  **(c)** The reconciliation of income taxes attributable to operations computed at
        the
        statutory tax rates to income tax expense is as follows:
  **2006**
              
              
              
              2005
              
              
              
              2004**$**
              
              **%**
              
              $
              
              %
              
              $
              
              %Tax
                  at combined federal and provincial rates
              
              
              **1,133**
              
              
              **35.2**
              
              
              41,356
              
              
              35.4
              
              
              2,578
              
              
              36.3Differences
                  from statutory ratesrelating
                  to amortization of intangibles
              
              
              **243**
              
              
              **7.5**
              
              
              166
              
              
              0.1
              
              
              (84
              )
              
              (1.2
              )Non-deductible
                  (non-taxable)portion
                  of net capital losses (gains)on
                  sale of investments
              
              
              **(4,221**
              **)**
              
              **(131.0**
              **)**
              
              (19
              )
              
              
              
              
              22
              
              
              0.3Increase
                  (reduction) in future taxesresulting
                  from statutory rate change
              
              
              **(11,835**
              **)**
              
              **(3673**
              **)**
              
              254
              
              
              0.2
              
              
              16,810
              
              
              236.7Reversal
                  in current year of temporary differences originally recorded using
                  long-term tax rates
              
              
              **2,368**
              
              
              **73.5**
              
              
              
              
              
              
              
              
              1,012
              
              
              14.3Large
                  Corporations Tax and foreign withholding tax
              
              
              **600**
              
              
              **18.6**
              
              
              1,617
              
              
              1.4
              
              
              1,084
              
              
              15.3Recovery
                  of various future tax liabilities
              
              
              **(25,187**
              **)**
              
              **(781.7**
              **)**
              
              -
              
              
              -
              
              
              -
              
              
              -Other
              
              
              **894**
              
              
              **27.7**
              
              
              (564
              )
              
              (0.5
              )
              
              5,503
              
              
              77.5**(36,005**
              **)**
              
              **(1,117.5**
              **)**
              
              42,810
              
              
              36.6
              
              
              26,925
              
              
              379.2
  
  
  **22**
   **(d)** The Company recognizes as a future tax asset the benefit of capital and
        non-capital loss carryforwards to the extent it is more likely than not that
        the
        benefit will be realized. As at August 31, 2006, the Company had available
        loss
        carryforwards of approximately $145,800. A future tax asset of $49,600 (2005
        -
        $26,800) has been recognized in respect of these carryforwards, net of a
        valuation allowance of $7,300 (2005 - $8,700).
  The
        available loss carryforwards will expire as follows:
 2008
              
              
              3,2002009
              
              
              8,6002010
              
              
              2,8002011
              
              
              5,3002015
              
              
              4,9002016
              
              
              107,8002025
              
              
              900No
                  expiration - capital losses
              
              
              12,300145,800
  **Note
        16. Business segment information**
 The
        Company’s business activities are conducted through three reportable operating
        segments:
  Radio
 The
        Radio segment consists of 51 radio stations, situated primarily in high-growth
        urban centres in Canada. Revenues are derived from advertising aired over
        these
        stations.
  Television
 The
        Television segment includes interests in several specialty television networks,
        pay television, conventional television stations, a digital music service
        and
        cable advertising services. Revenues are generated from subscriber fees and
        advertising.
  Content
 The
        Content segment includes the production and distribution of television programs
        and the sale and licensing of related products. Revenues are generated from
        licensing of proprietary films and television programs, merchandise licensing
        and publishing. Prior to fiscal 2005, the Content segment had been reported
        as
        two components: Content - production and distribution; and Content - branded
        consumer products. Corus has changed the structure of its internal organization
        such that the production and distribution of television products and the
        licensing of related products are managed as an integrated business process,
        and
        are not meaningful to view as separate business activities. Commencing with
        fiscal 2005, the results of the Content division have been disclosed in
        aggregate, and the corresponding items of segment information for earlier
        periods have been restated.
  Except
        as noted above, the accounting policies of the segments are the same as those
        described in the summary of significant accounting policies. Management
        evaluates each business segment’s performance based on revenues less direct cost
        of sales, general and administrative expenses. Transactions between reporting
        segments are recorded at fair value.
  **23**
   **(a)
        Revenues and segment profit (loss)**
 **Year
                  ended August 31, 2006**
              
              **Radio**
              
              **Television**
              
              **Content**
              
              **Corporate**
              
              **Eliminations**
              
              **Consolidated**Revenues
              
              
              **268,367**
              
              
              **393,349**
              
              
              **72,125**
              
              
              **-**
              
              
              **(7,571**
              **)**
              
              **726,270**Direct
                  cost of sales, general and administrative expenses
              
              
              **200,015**
              
              
              **229,109**
              
              
              **66,572**
              
              
              **23,998**
              
              
              **(7,543**
              **)**
              
              **512,151**Segment
                  profit (loss)
              
              
              **68,352**
              
              
              **164,240**
              
              
              **5,553**
              
              
              **(23,998**
              **)**
              
              **(28**
              **)**
              
              **214,119**Depreciation
              
              
              **6,899**
              
              
              **7,427**
              
              
              **3,215**
              
              
              **3,761**
              
              
              **-**
              
              
              **21,302**Amortization
              
              
              **-**
              
              
              **1,065**
              
              
              **-**
              
              
              **1,807**
              
              
              **-**
              
              
              **2,872**Interest
                  on long-term debt
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **43,105**
              
              
              **-**
              
              
              **43,105**Debt
                  refinancing loss
              
              
              **-**
              
              
              **-**
              
              
              **-**
              
              
              **131,951**
              
              
              **-**
              
              
              **131,951**Other
                  expense (income), net
              
              
              **4,000**
              
              
              **901**
              
              
              **6,468**
              
              
              **298**
              
              
              **-**
              
              
              **11,667**INCOME
                  BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST
              
              
              **57,453**
              
              
              **154,847**
              
              
              **(4,130**
              **)**
              
              **(204,920**
              **)**
              
              **(28**
              **)**
              
              **3,222**
  Year
                  ended August 31, 2005
              
              Radio
              
              Television
              
              Content
              
              Corporate
              
              Eliminations
              
              ConsolidatedRevenues
              
              
              252,685
              
              
              354,201
              
              
              82,318
              
              
              -
              
              
              (6,135
              )
              
              683,069Direct
                  cost of sales, general and administrative expenses
              
              
              183,680
              
              
              213,419
              
              
              78,750
              
              
              18,611
              
              
              (6,702
              )
              
              487,758Segment
                  profit (loss)
              
              
              69,005
              
              
              140,782
              
              
              3,568
              
              
              (18,611
              )
              
              567
              
              
              195,311Depreciation
              
              
              6,979
              
              
              9,060
              
              
              3,926
              
              
              3,745
              
              
              -
              
              
              23,710Amortization
              
              
              -
              
              
              1,859
              
              
              -
              
              
              2,718
              
              
              -
              
              
              4,577Interest
                  on long-term debt
              
              
              -
              
              
              -
              
              
              -
              
              
              55,561
              
              
              -
              
              
              55,561Other
                  expense (income), net
              
              
              7,982
              
              
              312
              
              
              (3,641
              )
              
              (10,147
              )
              
              -
              
              
              (5,494
              )INCOME
                  BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST
              
              
              54,044
              
              
              129,551
              
              
              3,283
              
              
              (70,488
              )
              
              567
              
              
              116,957
  
 Year
                  ended August 31, 2004
              
              Radio
              
              Television
              
              Content
              
              Corporate
              
              Eliminations
              
              ConsolidatedRevenues
              
              
              227,868
              
              
              332,349
              
              
              112,639
              
              
              -
              
              
              (6,052
              )
              
              666,804Direct
                  cost of sales, general and administrative expenses
              
              
              167,826
              
              
              207,294
              
              
              196,360
              
              
              10,970
              
              
              (6,044
              )
              
              576,406Segment
                  profit (loss)
              
              
              60,042
              
              
              125,055
              
              
              (83,721
              )
              
              (10,970
              )
              
              (8
              )
              
              90,398Depreciation
              
              
              8,776
              
              
              8,759
              
              
              2,800
              
              
              5,347
              
              
              -
              
              
              25,682Amortization
              
              
              787
              
              
              3,687
              
              
              -
              
              
              2,802
              
              
              -
              
              
              7,276Interest
                  on long-term debt
              
              
              -
              
              
              -
              
              
              -
              
              
              55,276
              
              
              -
              
              
              55,276Other
                  expense (income), net
              
              
              431
              
              
              (1,047
              )
              
              818
              
              
              (5,139
              )
              
              -
              
              
              (4,937
              )INCOME
                  BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST
              
              
              50,048
              
              
              113,656
              
              
              (87,339
              )
              
              (69,256
              )
              
              (8
              )
              
              7,101
  The
        Corporate segment results represent the incremental cost of Corporate overhead
        in excess of the amount allocated to the other operating
        segments.
  **24**
   Gross
        revenues are derived from the following geographical sources by location
        of
        customer as follows:
  **2006**
              
              2005
              
              2004Canada
              
              
              **675,199**
              
              
              624,130
              
              
              577,402United
                  States
              
              
              **28,798**
              
              
              25,754
              
              
              36,020International
              
              
              **22,273**
              
              
              33,185
              
              
              53,382**726,270**
              
              
              683,069
              
              
              666,804
  Corus’
        revenue streams for fiscal 2006 are derived primarily from three areas:
        advertising (58%), subscriber fees (28%) and license fees (5%) (2005 - 58%,
        27%
        and 9%, respectively).
  **(b)
        Segment assets**
  **2006**
              
              2005Radio
              
              
              **706,007**
              
              
              713,427Television
              
              
              **916,065**
              
              
              878,323Content
              
              
              **127,999**
              
              
              145,947Corporate
              
              
              **94,836**
              
              
              191,963Eliminations
              
              
              **(2,698**
              **)**
              
              (1,296
              )**1,842,209**
              
              
              1,928,364
  Assets
        are located primarily within Canada.
  **(c)
        Capital expenditures by segment**
  **2006**
              
              2005
              
              2004Radio
              
              
              **11,253**
              
              
              4,733
              
              
              4,889Television
              
              
              **5,254**
              
              
              7,052
              
              
              6,843Content
              
              
              **3,289**
              
              
              2,622
              
              
              3,529Corporate
              
              
              **3,802**
              
              
              4,810
              
              
              2,160**23,598**
              
              
              19,217
              
              
              17,421
  Property,
        plant and equipment are located primarily within Canada.
  **(d)
        Goodwill**
  **2006**
              
              2005Radio
              
              
              **407,453**
              
              
              411,516Television
              
              
              **326,947**
              
              
              326,947Content
              
              
              **22,338**
              
              
              22,338**756,738**
              
              
              760,801
  Goodwill
        is located primarily within Canada.
  **25**
  **Note
        17. Financial instruments**
 **Fair
        values**
 The
        fair values of financial instruments have been determined as
        follows:
  (i)
        Current assets and current liabilities
 The
        fair values of financial instruments included in current assets and current
        liabilities approximate their carrying values due to their short-term
        nature.
  (ii)
        Investments and other assets
 (a)
        The fair value of publicly traded shares included in this category is determined
        by the closing market values for those investments.
  (b)
        The fair value of other investments in this category is not
        determinable.
  (iii)
        Long-term debt
 The
        carrying value of the Company’s bank loans approximates their fair value because
        interest charges under the terms of the bank loans are based upon current
        Canadian bank prime and bankers’ acceptance rates and on U.S. bank base and
        LIBOR rates.
  As
        at August 31, 2006, the fair value of the Company’s Notes was not determinable
        (2005 - U.S.$403,125).
  (iv)
        Other long-term liabilities
 The
        fair values of other long-term liabilities approximate their carrying values
        as
        they are recorded at the net present values of future cash flows, using a
        discount rate that approximates the Company’s weighted average cost of
        capital.
  (v)
        Derivative financial instruments
 The
        fair values of cross-currency and interest rate swap agreements are based
        on
        quotations by the counterparties to the agreements.
  The
        estimated fair values of these agreements are as follows:
  **2006**
              
              
              
              2005**Carrying**
              
              **Estimated**
              
              Carrying
              
              Estimated**value**
              
              **fair
                  value**
              
              value
              
              fair
                  valueCross-currency
                  agreements
              
              
              **-**
              
              
              **-**
              
              
              (158,838
              )
              
              (242,005
              )Interest
                  rate swap agreements
              
              
              **-**
              
              
              **2,012**
              
              
              -
              
              
              -
  Fair
        value estimates are made at a specific point in time, based on relevant market
        information and information about the financial instrument. These estimates
        are
        subjective in nature and involve uncertainties and matters of significant
        judgment and, therefore, cannot be determined with precision. Changes in
        assumptions could significantly affect the estimates.
  **26**
   **Credit
        risks and concentration**
 Credit
        risks associated with the interest rate swap agreements arise from the ability
        of counterparties to meet the terms of the contracts. In the event of
        non-performance by the counterparties, the Company’s accounting loss would be
        limited to the net amount that it would be entitled to receive under the
        contracts and agreements. These risks are mitigated by dealing with major
        creditworthy financial institutions.
  Accounts
        receivable resulting from advertising and affiliate subscriber fee revenues
        are
        not subject to any concentration of credit risk.
  Accounts
        receivable from distribution and licensing of proprietary exploitation rights
        of
        feature films and television programs are subject to credit risk. The risk
        is
        mitigated because the Company enters into license and distribution contracts
        with many major international broadcasters and distributors.
  **Note
        18. Earnings (loss) per share**
 The
        following is a reconciliation of the numerators and denominators used for
        the
        computation of the basic and diluted earnings (loss) per share
        amounts:
  **2006**
              
              2005
              
              2004Net
                  income (loss) for the year (numerator)
              
              
              **35,471**
              
              
              71,114
              
              
              (23,137
              )Weighted
                  average number of shares outstanding (denominator)Weighted
                  average number of shares outstanding - basic
              
              
              **42,461**
              
              
              42,761
              
              
              42,719Effect
                  of dilutive securities
              
              
              **786**
              
              
              334
              
              
              -WEIGHTED
                  AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED
              
              
              **43,247**
              
              
              43,095
              
              
              42,719
  In
        fiscal 2004, options issued under the Plan were not included in the computation
        of diluted earnings (loss) per share because the effect of exercising the
        options is anti-dilutive.
  **Note
        19. Consolidated statements of cash flows**
 Additional
        disclosures with respect to the consolidated statements of cash flows are
        as
        follows:
  **(a)** Net change in non-cash working capital balances related to operations consists
        of the following:
  **2006**
              
              2005
              
              2004Accounts
                  receivable
              
              
              **14,509**
              
              
              (13,055
              )
              
              13,268Prepaid
                  expenses and other
              
              
              **3,435**
              
              
              (1,794
              )
              
              1,629Accounts
                  payable and accrued liabilities
              
              
              **(28,160**
              **)**
              
              6,040
              
              
              (24,456
              )Income
                  taxes payable
              
              
              **1,546**
              
              
              (1,497
              )
              
              (11,753
              )Deferred
                  credits
              
              
              **1,223**
              
              
              12,354
              
              
              1,664Other
              
              
              **(2,451**
              **)**
              
              187
              
              
              1,253**(9,898**
              **)**
              
              2,235
              
              
              (18,395
              )
  **(b)** Interest paid, interest received and income taxes paid and classified as
        operating activities are as follows:
  **2006**
              
              2005
              
              2004Interest
                  paid
              
              
              **61,025**
              
              
              53,855
              
              
              55,800Interest
                  received
              
              
              **2,643**
              
              
              2,995
              
              
              2,135Income
                  taxes paid
              
              
              **38,218**
              
              
              36,279
              
              
              38,568
  
  **27**
   **Note
        20. Foreign exchange gains and losses**
 The
        Company has reflected certain gains and losses in its consolidated statements
        of
        income (loss) and retained earnings (deficit) as a result of exposure to
        foreign
        currency exchange rate fluctuations. A portion of these gains and losses
        relate
        to operating activities while other portions are of a financing nature. Foreign
        exchange gains and losses are reflected in the consolidated financial statements
        as follows:
  **2006**
              
              2005
              
              2004CONSOLIDATED
                  STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
                  (DEFICIT)Direct
                  cost of sales, general and administrative expenses
              
              
              **(511**
              **)**
              
              (825
              )
              
              (1,222
              )Other
                  income, net
              
              
              **487**
              
              
              (3,338
              )
              
              (2,245
              )TOTAL
                  FOREIGN EXCHANGE GAIN
              
              
              **(24**
              **)**
              
              (4,163
              )
              
              (3,467
              )
  An
        analysis of the cumulative translation adjustment shown separately in
        shareholders’ equity is as follows:
 BALANCE,
                  AUGUST 31, 2004
              
              
              (7,038
              )Effect
                  of exchange rate fluctuation on translation of net assets of
                  self-sustaining foreign operations
              
              
              (3,418
              )Other
              
              
              447BALANCE,
                  AUGUST 31, 2005
              
              
              (10,009
              )Effect
                  of exchange rate fluctuation on translation of net assets of
                  self-sustaining foreign operations
              
              
              (1,519
              )BALANCE,
                  AUGUST 31, 2006
              
              
              **(11,528**
              **)**
  **Note
        21. Reconciliation of Canadian GAAP to U.S. GAAP**
 The
        consolidated financial statements of the Company are prepared in Canadian
        dollars in accordance with Canadian GAAP. The following adjustments and
        disclosures would be required in order to present these consolidated financial
        statements in accordance with U.S. GAAP:
  **(a)
        Reconciliation to U.S. GAAP**
  **2006**
              
              2005
              
              2004NET
                  INCOME (LOSS) USING CANADIAN GAAP
              
              
              **35,471**
              
              
              71,114
              
              
              (23,137
              )Add
                  (deduct) adjustments forDeferred
                  charges (i)
              
              
              **752**
              
              
              1,858
              
              
              4,474Other
              
              
              **447**
              
              
              **-**
              
              
              **-**Income
                  tax effect of adjustments
              
              
              **(291**
              **)**
              
              (764
              )
              
              (1,789
              )NET
                  INCOME (LOSS) USING U.S. GAAP
              
              
              **36,379**
              
              
              72,208
              
              
              (20,452
              )Add
                  (deduct) adjustments for changes inUnrealized
                  gains on investmentsclassified
                  as available for sale, net of tax (ii)
              
              
              **1,235**
              
              
              1,864
              
              
              640Unrealized
                  gain (loss) on derivative contracts (iii)
              
              
              **69,847**
              
              
              (41,634
              )
              
              (2,420
              )Unrealized
                  foreign exchange loss on translation of self-sustaining foreign
                  operations
              
              
              **(1,519**
              **)**
              
              (3,418
              )
              
              (1,949
              )COMPREHENSIVE
                  INCOME (LOSS) USING U.S. GAAP
              
              
              **105,942**
              
              
              29,020
              
              
              (24,181
              )NET
                  INCOME (LOSS) PER SHARE USING U.S. GAAPBasic
              
              **$**
              **0.86**
              
              $
              1.69
              
              $
              (0.48
              )Diluted
              
              
              **0.84**
              
              
              1.68
              
              
              (0.48
              )COMPREHENSIVE
                  INCOME (LOSS) PER SHARE USING U.S. GAAPBasic
              
              **$**
              **2.50**
              
              $
              0.68
              
              $
              (0.57
              )Diluted
              
              
              **2.45**
              
              
              0.67
              
              
              (0.57
              )
  
  
  **28**
   **Balance
        sheet items using U.S. GAAP**
 **2006**
              
              
              
              2005**Canadian**
              
              **U.S.**
              
              Canadian
              
              U.S.**GAAP**
              
              **GAAP**
              
              GAAP
              
              GAAPInvestments
                  and other assets (ii)
              
              
              **29,642**
              
              
              **31,166**
              
              
              36,886
              
              
              34,391Deferred
                  charges (i)
              
              
              **5,655**
              
              
              **5,300**
              
              
              15,560
              
              
              14,557Broadcast
                  licenses and goodwill (iii)
              
              
              **1,261,950**
              
              
              **1,270,235**
              
              
              1,269,853
              
              
              1,278,138Deferred
                  credits (iii)
              
              
              **28,691**
              
              
              **28,691**
              
              
              195,789
              
              
              278,956Future
                  tax liability
              
              
              **80,447**
              
              
              **84,070**
              
              
              147,744
              
              
              134,972Non-controlling
                  interest
              
              
              **11,379**
              
              
              **11,275**
              
              
              11,227
              
              
              11,227Accumulated
                  other comprehensive loss
              
              
              **-**
              
              
              **(10,190**
              **)**
              
              -
              
              
              (80,200
              )Other
                  components of shareholders’ equity
              
              
              **917,498**
              
              
              **933,623**
              
              
              930,262
              
              
              944,854
  The
        cumulative effect of these adjustments on shareholders’ equity is as
        follows:
  **2006**
              
              2005Other
                  components of shareholders’ equityDeferred
                  charges (i), (iii)
              
              
              **(161**
              **)**
              
              (622
              )Equity
                  in earnings of investees (iv)
              
              
              **4,758**
              
              
              4,758Cumulative
                  translation adjustment
              
              
              **11,528**
              
              
              10,456Accumulated
                  other comprehensive lossUnrealized
                  losses on investments (ii)
              
              
              **(312**
              **)**
              
              (1,547
              )Unrealized
                  gain (loss) on derivative contracts (iii)
              
              
              **1,650**
              
              
              (68,197
              )Unrealized
                  foreign exchange loss on translation of self-sustaining foreign
                  operations
              
              
              **(11,528**
              **)**
              
              (10,456
              )TOTAL
                  CUMULATIVE EFFECT OF ADJUSTMENTS ON SHAREHOLDERS’ EQUITY
              
              
              **5,935**
              
              
              (65,608
              )
  Areas
        of material difference between Canadian GAAP and U.S. GAAP and their impact
        on
        the consolidated financial statements are as follows:
  (i)
        Deferred charges
 Start-up
        costs of new specialty programming networks and costs associated with
        reformatting radio stations are deferred and amortized under Canadian GAAP.
        Under U.S. GAAP, these costs are expensed as incurred.
  (ii)
        Unrealized gains (losses) on investments
 Under
        U.S. GAAP, equity securities having a readily determinable fair value and
        not
        classified as trading securities are classified as “available-for-sale
        securities” and reported at fair value, with unrealized gains and losses
        included in comprehensive income (loss) and reported as a separate component
        of
        shareholders’ equity, net of related deferred income taxes. Under Canadian GAAP,
        these investments are carried at cost and written down only when there is
        evidence that a decline in value that is other-than-temporary has occurred.
        The
        Company has determined that the decline in fair value is not
        other-than-temporary, based on the financial condition of the issue and the
        fact
        that the Company has the intent and ability to retain its investment in the
        issuer for a period of time sufficient to allow for an anticipated recovery
        in
        market value. The Company has considered evidence, such as industry analyst
        reports, that supports this conclusion.
  **29**
  
  (iii)
        Derivative instruments and hedging activities
 Under
        U.S. GAAP, all derivative instruments are to be recorded on the consolidated
        balance sheets at fair value. Derivatives that are not hedges must be adjusted
        to fair value through income. If the derivative is a hedge, depending on
        the
        nature of the hedge, changes in the fair value of derivatives will either
        be
        offset against the change in fair value of the hedged assets, liabilities
        or
        firm commitments through income (loss), or deferred in other comprehensive
        income (loss) until the hedged item is recognized in income (loss).
  (iv)
        Equity in earnings of investees
 Under
        Canadian GAAP, the investments in Nelvana’s 20% interest in TELETOON in fiscal
        2001 and Western International Communications Ltd. (“WIC”) in fiscal 2000 were
        accounted for using the cost method of accounting until CRTC approval was
        received for the transactions. When the Company received CRTC approval, the
        amount in the accounts under the cost method became the basis for the purchase
        price allocation and equity accounting commenced. Under U.S. GAAP, equity
        accounting for the investments is used from the date the Company first acquired
        shares in Nelvana and WIC.
  **(b)
        Stock-based compensation**
 For
        stock options granted to employees after August 31, 2003, the Company has
        adopted the fair value method of accounting. The Company applies Accounting
        Principles Board Opinion No. 25 in accounting for stock options granted to
        employees and officers prior to September 1, 2003. Had compensation expense
        been
        determined on the basis of the estimated fair values of the options granted
        prior to September 1, 2003, net income for the year ended August 31, 2006,
        would
        have decreased by $1,270 to $35,109 or $0.83 per share (2005 - net income
        would
        have decreased by $4,198 to $68,010, or $1.59 per share; 2004 - net loss
        would
        have increased by $10,160 to $30,612, or $0.72 per share). The assumptions
        used
        to determine fair value are consistent with those disclosed in note
        14.
  **Note
        22. Government financing and assistance**
 Revenues
        include $2,845 (2005 - $2,053; 2004 - $2,309) of production financing obtained
        from government programs. This financing provides a supplement to a production
        series’ Canadian license fees and is not repayable. As well, revenues include
        $939 (2005 - $1,011; 2004 - $1,080) of government grants relating to the
        marketing of books in both Canada and international markets. The majority
        of the
        grants is repayable if the average profit margin for the three-year period
        following receipt of the funds equals or is greater than 10%.
  **30**
  
  **Note
        23. Commitments, contingencies and guarantees**
 The
        Company and its subsidiaries are involved in litigation matters arising out
        of
        the ordinary course and conduct of its business. Although such matters cannot
        be
        predicted with certainty, management does not consider the Company’s exposure to
        litigation to be material to these consolidated financial
        statements.
  The
        Company has various long-term operating lease agreements for the use of
        facilities and equipment in each of the next five years and thereafter as
        follows:
 2007
              
              
              21,7012008
              
              
              19,4512009
              
              
              13,7782010
              
              
              11,5112011
              
              
              8,366Thereafter
              
              
              24,06598,872
  Rental
        expenses recognized in direct cost of sales, general and administrative expenses
        totalled approximately $13,070 (2005 - $13,411; 2004 - $11,549).
  The
        Company has entered into various agreements for the right to broadcast or
        distribute certain film and television programs in the future. These agreements,
        which range in term from one to five years, generally commit the Company
        to
        acquire specific films and television programs or certain levels of future
        productions. The acquisition of these broadcast and distribution rights is
        contingent on the actual delivery of the productions. Management estimates
        that
        these agreements will result in future program and film expenditures of
        approximately $145,787.
  Generally,
        it is not the Company’s policy to issue guarantees to non-controlled affiliates
        or third parties, with limited exceptions.
  Many
        of the Company’s agreements, specifically those related to acquisitions and
        dispositions of business assets, included indemnification provisions where
        the
        Company may be required to make payments to a vendor or purchaser for breach
        of
        fundamental representation and warranty terms in the agreements with respect
        to
        matters such as corporate status, title of assets, environmental issues,
        consents to transfer, employment matters, litigation, taxes payable and other
        potential material liabilities. The maximum potential amount of future payments
        that the Company could be required to make under these indemnification
        provisions is not reasonably quantifiable as certain indemnifications are
        not
        subject to a monetary limitation. As at August 31, 2006, management believed
        there was only a remote possibility that the indemnification provisions would
        require any material cash payment.
  The
        Company indemnifies its directors and officers against any and all claims
        or
        losses reasonably incurred in the performance of their service to the Company
        to
        the extent permitted by law. The Company has acquired and maintains liability
        insurance for directors and officers of the Company and its
        subsidiaries.
  In
        fiscal 2005, Corus and a related party entered into a contra agreement for
        the
        exchange of $2,500 in media time annually for a five-year period. The Company’s
        obligation will be settled with a combination of radio and television spots.
        In
        addition, the Company will provide a total of $1,000 annually in direct response
        promotions for the related party.
  **31**
   **Note
        24. Related party transactions**
 The
        Company has transacted business in the normal course with entities that are
        subject to common voting control and with entities over which the Company
        exercises significant influence. These transactions are measured at the exchange
        amount, which is the amount of consideration established and agreed to by
        the
        related parties and having normal trade terms.
  During
        the year, the Company received cable service subscriber, programming and
        advertising fees of $92,837 (2005 - $94,633; 2004 - $92,279), production
        and
        distribution revenue of $2,853 (2005 - $2,463; 2004 - $3,055) and administrative
        and other fees of $5,968 (2005 - $6,561; 2004 - $5,506) from related parties.
        In
        addition, the Company paid cable and satellite system distribution access
        fees
        of $4,441 (2005 - $4,800; 2004 - $4,546) and administrative and other fees
        of
        $2,106 (2005 - $2,007; 2004 - $1,486) to related parties. As at August 31,
        2006,
        the Company had $17,446 (2005 - $20,077) receivable from related
        parties.
  The
        Company provided related parties with radio and television spots in return
        for
        television advertising. No monetary consideration was exchanged for these
        transactions and no amounts were recorded in the accounts.
  In
        fiscal 2005, Corus acquired a cable advertising business for $931 in cash
        from
        Shaw Communications Inc., a company subject to common voting
        control.
  Included
        in accounts receivable (note 5), other investments (note 6(b)) and share
        capital
        (note 14) are loans of $6,074 (2005 - $6,438) made to certain executive officers
        of the Company for housing or investment purposes. The loans are collateralized
        by charges on the officers’ personal residences and/or by related investment.
        The loans are non-interest bearing and are due between April 2, 2007, and
        October 31, 2022.
  **Note
        25. Employee future benefits**
 The
        Company has a defined contribution plan for qualifying full-time employees.
        Under the plan, the Company contributes 5% of an employee’s earnings, not
        exceeding the limits set by the *Income
        Tax Act* (Canada). The amount contributed in 2006 related to the defined contribution
        plan was $6,016 (2005 - $5,527; 2004 - $4,768). The amount contributed is
        approximately the same as the expense included in the consolidated statements
        of
        income (loss) and retained earnings (deficit).
  **Note
        26. Subsequent events**
 On
        July 13, 2006, Corus and Astral Media announced that they had reached an
        agreement to purchase the remaining 20% of TELETOON network from Cookie Jar
        Entertainment. The deal, which received CRTC approval on August 28, 2006,
        will
        give both Corus and Astral Media a 50% ownership in the network. The purchase
        price for Cookie Jar Entertainment’s 20% stake is approximately $96,000. The
        transaction was completed subsequent to the end of fiscal 2006.
  On
        September 12, 2006, the Company announced a new organizational structure
        for its
        Television and Content divisions, including relocating the Movie Central
        operation from Edmonton to Toronto. The changes related to this relocation
        will
        result in severance and other restructuring expenses of approximately $5,000
        to
        be recorded in the first quarter of fiscal 2007.
  On
        October 2, 2006, the Company announced that it has reached an agreement to
        buy
        two radio stations from CanWest MediaWorks. The transaction is subject to
        approval by the CRTC and the acquisition price for the two stations is
        approximately $15,000.
  **Note
        27. Comparative consolidated financial statements**
 The
        comparative consolidated financial statements have been reclassified from
        statements previously presented to conform to the presentation of the 2006
        consolidated financial statements.
   **32**