**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
      inthe 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
      generallyaccepted auditing standards on behalf of the shareholders.
      Ernst & Young LLP has full and free access to the Audit
      Committee.




signed
            signed**John
              M. Cassaday**President and Chief Executive
              Officer
            **Thomas
              C. Peddie FCA**Senior Vice President and Chief Financial
              Officer








**1**


*Report
      of independent registered public accounting
      firm*




**To
      the shareholders of Corus EntertainmentInc.**


We
      have
      audited the consolidated balance sheets of Corus
      Entertainment Inc. as at August 31, 2007 and 2006 and the consolidated
      statements of income and retained earnings and cash flows for each of the years
      in the three-year period ended August 31, 2007.  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 consolidated 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, 2007 and 2006
      and the results of its operations and its cash flows for each of the years
      in
      the three-year period ended August 31, 2007 in accordance with Canadian
      generally accepted accounting principles.




We
      also have
      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, 2007, 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 21, 2007 expressed an unqualified opinion
      thereon.




signed**Toronto,
              Canada**November 21, 2007
            **Ernst
              & Young LLP**Chartered AccountantsLicensed Public
              Accountants






**2**


*Report
      of independent registered public accounting firm*




**The
      Board of Directors of Corus Entertainment Inc.**


We
      have
      audited Corus
      Entertainment Inc.’s internal control over financial reporting as of
      August 31, 2007, 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 included in the accompanying Management’s
      responsibility for financial reporting.  Our responsibility is to
      express an opinion on the Company’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, assessing the risk that a material weakness
      exists, testing and evaluating the design and operating effectiveness of
      internal control based on the assessed risk, 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, Corus Entertainment Inc. maintained, in all material respects,
      effective internal control over financial reporting as of August 31, 2007,
      based
      on****the COSO criteria**.**




We
      also have
      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, 2007 and 2006, and the related consolidated statements of income
      and retained earnings, and cash flows for each of the years in the three-year
      period ended August 31, 2007 and our report dated November 21, 2007 expressed
      an
      unqualified opinion thereon.


signed**Toronto,
                Canada**November 21, 2007
              **Ernst
                & Young LLP**Chartered AccountantsLicensed Public
                Accountants






**3**




*Consolidated
      balance sheets*


As
      at August 31


(thousands
                of Canadian dollars)
            
            2007
            
            
            2006**Assets**(note
                12)CURRENTCash
                and cash equivalents
            
            
            33,347
            
            
            
            43,636Accounts
                receivable (notes 5 and 27)
            
            
            151,380
            
            
            
            142,934Prepaid
                expenses and other
            
            
            10,921
            
            
            
            7,332Program
                and film rights
            
            
            125,068
            
            
            
            104,723Future
                tax asset (note 18)
            
            
            13,518
            
            
            
            14,535TOTAL
                CURRENT ASSETS
            
            
            334,234
            
            
            
            313,160Tax
                credits receivable
            
            
            16,875
            
            
            
            13,226Investments
                and other assets (note 6)
            
            
            17,492
            
            
            
            29,642Property,
                plant and equipment, net (note 7)
            
            
            78,342
            
            
            
            78,417Program
                and film rights
            
            
            90,687
            
            
            
            79,380Film
                investments (note 8)
            
            
            66,593
            
            
            
            60,779Deferred
                charges (note 9)
            
            
            4,100
            
            
            
            5,655Broadcast
                licenses (note 10)
            
            
            532,812
            
            
            
            505,212Goodwill
                (note 10)
            
            
            795,832
            
            
            
            756,7381,936,967
            
            
            
            1,842,209**Liabilities
                and shareholders’ equity**CURRENTAccounts
                payable and accrued liabilities (notes 11 and 27)
            
            
            166,083
            
            
            
            160,470Income
                taxes payable
            
            
            1,474
            
            
            
            4,583TOTAL
                CURRENT LIABILITIES
            
            
            167,557
            
            
            
            165,053Long-term
                debt (note 12)
            
            
            610,697
            
            
            
            596,362Other
                long-term liabilities (note 13)
            
            
            64,773
            
            
            
            71,470Future
                tax liability (note 18)
            
            
            102,851
            
            
            
            80,447Non-controlling
                interest
            
            
            15,196
            
            
            
            11,379TOTAL
                LIABILITIES
            
            
            961,074
            
            
            
            924,711SHAREHOLDERS’
                EQUITYShare
                capital (note 14)
            
            
            882,244
            
            
            
            870,563Contributed
                surplus (note 15)
            
            
            10,250
            
            
            
            6,878Retained
                earnings
            
            
            95,568
            
            
            
            51,585Cumulative
                translation adjustment (note 23)
            
            
            (12,169
            )
            
            
            (11,528
            )TOTAL
                SHAREHOLDERS’ EQUITY
            
            
            975,893
            
            
            
            917,4981,936,967
            
            
            
            1,842,209


Commitments,
      contingencies and guarantees (notes 12 and 26)  See
        accompanying notes


On
        behalf of
        the Board:


signed
            signed**John
              M.
              Cassaday**Director
            **Heather
              A. Shaw**Director




**4**





*Consolidated
      statements of income and retained earnings*


Years
      ended August 31


(thousands
                of Canadian dollars except per share amounts)
            
            2007
            
            
            2006
            
            
            2005REVENUES
                (notes 25 and 27)
            
            
            768,743
            
            
            
            726,270
            
            
            
            683,069Direct
                cost of sales, general and administrative expenses (notes 14, 20,
                23, 26
                and 27)
            
            
            527,822
            
            
            
            512,151
            
            
            
            487,758Depreciation
            
            
            21,556
            
            
            
            21,302
            
            
            
            23,710Amortization
            
            
            1,555
            
            
            
            2,872
            
            
            
            4,577Interest
                expense (notes 12 and 16)
            
            
            35,838
            
            
            
            43,105
            
            
            
            55,561Debt
                refinancing loss (note 12)
            
            
            -
            
            
            
            131,951
            
            
            
            -Other
                expense, net (notes 6, 10, 11, 17 and 23)
            
            
            9,800
            
            
            
            11,667
            
            
            
            (5,494
            )INCOME
                BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST
            
            
            172,172
            
            
            
            3,222
            
            
            
            116,957Income
                tax expense (recovery) (note 18)
            
            
            59,813
            
            
            
            (36,005
            )
            
            
            42,810Non-controlling
                interest
            
            
            5,341
            
            
            
            3,756
            
            
            
            3,033NET
                INCOME FOR THE YEAR
            
            
            107,018
            
            
            
            35,471
            
            
            
            71,114Retained
                earnings (deficit), beginning of year
            
            
            51,585
            
            
            
            50,802
            
            
            
            (17,122
            )Dividends
                (note 14)
            
            
            (42,842
            )
            
            
            (19,586
            )
            
            
            (3,190
            )Share
                repurchase excess (note 14)
            
            
            (20,193
            )
            
            
            (15,102
            )
            
            
            -RETAINED
                EARNINGS, END OF YEAR
            
            
            95,568
            
            
            
            51,585
            
            
            
            50,802EARNINGS
                PER SHARE(note
                21)Basic
            
            $
            2.53
            
            
            $
            0.84
            
            
            $
            1.66Diluted
            
            $
            2.47
            
            
            $
            0.82
            
            
            $
            1.65WEIGHTED
                AVERAGE NUMBER OF SHARES
                OUTSTANDING(in
                thousands)Basic
            
            
            42,281
            
            
            
            42,461
            
            
            
            42,761Diluted
            
            
            43,328
            
            
            
            43,247
            
            
            
            43,095




See
      accompanying notes




**5**




*Consolidated
      statements of cash flows*


Years
      ended August 31


(thousands
                of Canadian dollars)
            
            2007
            
            
            2006
            
            
            2005**Operating
                activities**Net
                income for the year
            
            
            107,018
            
            
            
            35,471
            
            
            
            71,114Add
                (deduct) non-cash itemsDepreciation
            
            
            21,556
            
            
            
            21,302
            
            
            
            23,710Amortization
                of program and film rights
            
            
            138,711
            
            
            
            124,327
            
            
            
            110,630Amortization
                of film investments
            
            
            38,781
            
            
            
            39,450
            
            
            
            43,693Other
                amortization
            
            
            1,555
            
            
            
            2,872
            
            
            
            4,577Future
                income taxes
            
            
            16,295
            
            
            
            (74,232
            )
            
            
            8,601Non-controlling
                interest
            
            
            5,341
            
            
            
            3,756
            
            
            
            3,033Stock-based
                compensation
            
            
            13,066
            
            
            
            12,137
            
            
            
            6,766Debt
                refinancing loss
            
            ****
            **-**
            
            
            
            131,951
            
            
            
            -Other
            
            
            849
            
            
            
            3,078
            
            
            
            (148
            )Net
                change in non-cash working capital balances related to operations
                (note
                22)
            
            
            (27,810
            )
            
            
            (9,898
            )
            
            
            2,235Payment
                of program and film rights
            
            
            (156,220
            )
            
            
            (134,751
            )
            
            
            (122,368
            )Net
                additions to film investments
            
            
            (56,069
            )
            
            
            (44,445
            )
            
            
            (49,427
            )CASH
                PROVIDED BY OPERATING ACTIVITIES
            
            
            103,073
            
            
            
            111,018
            
            
            
            102,416**Investing
                activities**Additions
                to property, plant and equipment
            
            
            (20,287
            )
            
            
            (23,598
            )
            
            
            (19,217
            )Business
                combinations (note 3)
            
            
            (64,692
            )
            
            ****
            **-**
            
            
            ****
            **-**Net
                proceeds from sale of other investments and assets
            
            
            20,679
            
            
            
            15,943
            
            
            
            7,487Decrease
                in public benefits associated with acquisitions
            
            
            (6,498
            )
            
            
            (9,594
            )
            
            
            (9,893
            )CASH
                USED IN INVESTING ACTIVITIES
            
            
            (70,798
            )
            
            
            (17,249
            )
            
            
            (21,623
            )**Financing
                activities**Increase
                (decrease) in bank loans
            
            
            14,388
            
            
            
            592,687
            
            
            
            (34,017
            )Notes
                repurchase and swap termination
            
            
            (634
            )
            
            
            (727,829
            )
            
            
            -Additions
                to deferred charges
            
            
            -
            
            
            
            (6,000
            )
            
            
            (832
            )Decrease
                in other long-term liabilities
            
            
            (676
            )
            
            
            (648
            )
            
            
            (820
            )Issuance
                of shares under stock option plan
            
            
            26,915
            
            
            
            5,981
            
            
            
            1,650Shares
                repurchased
            
            
            (36,422
            )
            
            
            (36,789
            )
            
            
            -Dividends
                paid
            
            
            (44,845
            )
            
            
            (10,547
            )
            
            
            (3,190
            )Dividends
                paid to minority shareholder
            
            
            (1,524
            )
            
            
            (5,304
            )
            
            
            (937
            )Other
            
            
            234
            
            
            
            230
            
            
            
            208CASH
                USED IN FINANCING
                ACTIVITIES
            
            
            (42,564
            )
            
            
            (188,219
            )
            
            
            (37,938
            )NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE
                YEAR
            
            
            (10,289
            )
            
            
            (94,450
            )
            
            
            42,855Cash
                and cash equivalents, beginning of year
            
            
            43,636
            
            
            
            138,086
            
            
            
            95,231CASH
                AND CASH EQUIVALENTS, END OF YEAR
            
            
            33,347
            
            
            
            43,636
            
            
            
            138,086




Supplemental
      cash flow disclosures (note 22)


See
        accompanying notes




**6**




*Notes
      to consolidated financial statements*


August
      31, 2007, 2006 and 2005


(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 24.




**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, feature films and radio programs. 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.




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.




**8**




**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
      and
      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
      estimated 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) unearned revenue from
      the distribution and licensing of rights for feature films and television
      programs; and (iii) other items that meet the criteria for
      deferral.




**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 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 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 service 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
      per share**


Basic
      earnings per share are calculated using the weighted average number of common
      shares outstanding during the year. The computation of diluted earnings 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.




Note
      3. Business combinations


In
      the first quarter of fiscal 2007, the Company completed the acquisition of
      an
      additional 10% share of TELETOON, to increase its ownership interest in this
      television network from 40% to 50%.  The total cash consideration paid
      was $46.6 million.  This investment will continue to be accounted for
      as a joint venture, and as such the net assets acquired and results of
      operations are proportionately consolidated from the date of
      acquisition.




In
      the fourth quarter of fiscal 2007, the Company completed the acquisition of
      two
      radio stations.  The total cash consideration paid was $18.0 million.
      The Company has not yet finalized the valuation of intangible assets for the
      purpose of allocating the purchase cost of this acquisition.




The
      final TELETOON purchase equation and preliminary radio stations purchase
      equation, which were accounted for using the purchase method, are summarized
      below:


TELETOON
            
            
            Radio
            
            
            TotalCONSIDERATION
                GIVEN:Cash
            
            
            46,645
            
            
            
            18,047
            
            
            
            64,692ASSIGNED
                VALUE OF NET ASSETS ACQUIRED:Current
                assets
            
            
            1,473
            
            
            
            1,307
            
            
            
            2,780Property,
                plant and equipment
            
            
            48
            
            
            
            1,346
            
            
            
            1,394Program
                and film rights
            
            
            6,555
            
            
            
            -
            
            
            
            6,555Investments
                and other assets
            
            
            -
            
            
            
            2,000
            
            
            
            2,000Broadcast
                licenses
            
            
            22,000
            
            
            
            5,600
            
            
            
            27,600Goodwill
            
            
            28,586
            
            
            
            10,508
            
            
            
            39,094Accrued
                liabilities
            
            
            (4,890
            )
            
            
            (1,330
            )
            
            
            (6,220
            )Deferred
                credits
            
            
            -
            
            
            
            (1,384
            )
            
            
            (1,384
            )Future
                tax liability
            
            
            (7,127
            )
            
            
            -
            
            
            
            (7,127
            )46,645
            
            
            
            18,047
            
            
            
            64,692




**12**




Note
      4. Joint ventures


The
      following
      amounts, included in these consolidated financial statements, represent the
      Company’s proportionate share in joint ventures:


2007
            
            
            2006CONSOLIDATED
                BALANCE SHEETSCurrent
                assets
            
            
            32,593
            
            
            
            29,869Long-term
                assets
            
            
            28,370
            
            
            
            19,114Current
                liabilities
            
            
            32,179
            
            
            
            22,440Long-term
                liabilities
            
            
            225
            
            
            
            -CONSOLIDATED
                STATEMENTS OF INCOMERevenues
            
            
            52,748
            
            
            
            40,297Expenses
            
            
            36,484
            
            
            
            29,610NET
                INCOME
            
            
            16,264
            
            
            
            10,687CONSOLIDATED
                STATEMENTS OF CASH FLOWSOperating
                activities
            
            
            12,769
            
            
            
            8,129Investing
                activities
            
            
            1,102
            
            
            
            1,059





Note
                5. Accounts receivable2007
            
            
            2006Trade
            
            
            143,718
            
            
            
            137,126Other
                (note 27)
            
            
            10,534
            
            
            
            8,901154,252
            
            
            
            146,027Less
                allowance for doubtful accounts
            
            
            2,872
            
            
            
            3,093151,380
            
            
            
            142,934





Note
      6. Investments and other assets


2007
            
            
            2006Astral
                Media Inc. (a)
            
            
            -
            
            
            
            13,861Investments
                at equity
            
            
            10,057
            
            
            
            9,768Other
                (b)
            
            
            7,435
            
            
            
            6,01317,492
            
            
            
            29,642




**(a)
      Astral Media Inc.**


In
      fiscal
      2007, the Company disposed of its shares in Astral Media Inc. for proceeds
      of
      $14,568.  The Company recorded a gain of $707 on this disposal, which
      was recorded in other expense, net.




**(b)
      Other investments**


Other
      investments consist primarily of financing provided to the Company’s digital
      channels, long-term portion of loans to executive officers (note 27) and other
      investments accounted for on a cost basis.




**13**




Note
      7. Property, plant and equipment, net


Accumulated
            
            
            Net2007
            
            Cost
            
            
            depreciation
            
            
            book
                valueBroadcasting
                equipment
            
            
            38,135
            
            
            
            26,575
            
            
            
            11,560Production
                equipment
            
            
            95,009
            
            
            
            80,402
            
            
            
            14,607Leasehold
                improvements
            
            
            38,856
            
            
            
            23,657
            
            
            
            15,199Buildings
            
            
            23,262
            
            
            
            9,992
            
            
            
            13,270Computer
                equipment
            
            
            56,867
            
            
            
            45,812
            
            
            
            11,055Furniture
                and fixtures
            
            
            22,456
            
            
            
            19,380
            
            
            
            3,076Land
            
            
            6,814
            
            
            
            -
            
            
            
            6,814Other
            
            
            4,539
            
            
            
            1,778
            
            
            
            2,761285,938
            
            
            
            207,596
            
            
            
            78,342Accumulated2006
            
            Cost
            
            
            depreciation
            
            
            Net
                book valueBroadcasting
                equipment
            
            
            35,005
            
            
            
            24,121
            
            
            
            10,884Production
                equipment
            
            
            89,660
            
            
            
            75,779
            
            
            
            13,881Leasehold
                improvements
            
            
            38,580
            
            
            
            22,787
            
            
            
            15,793Buildings
            
            
            23,094
            
            
            
            9,143
            
            
            
            13,951Computer
                equipment
            
            
            49,666
            
            
            
            37,917
            
            
            
            11,749Furniture
                and fixtures
            
            
            21,752
            
            
            
            18,112
            
            
            
            3,640Land
            
            
            6,814
            
            
            
            -
            
            
            
            6,814Other
            
            
            4,216
            
            
            
            2,511
            
            
            
            1,705268,787
            
            
            
            190,370
            
            
            
            78,417Note
                8. Film investments2007
            
            
            
            
            
            
            2006Projects
                in development and in process, net of advances
            
            
            22,772
            
            
            
            
            
            
            
            21,654Completed
                projects and distribution rights
            
            
            28,874
            
            
            
            
            
            
            
            28,721Investments
                in third-party-produced film projects
            
            
            14,947
            
            
            
            
            
            
            
            10,40466,593
            
            
            
            
            
            
            
            60,779




During
      fiscal
      2007, the Company reduced its investments in film and television programs by
      anticipated federal and Ontario production tax credits amounting to $16,213
      (2006 - $11,292).




The
      Company
      expects that 29% and 68% of the net book value of completed projects and
      distribution rights will be amortized during the year ending August 31, 2008
      and
      three years ending August 31, 2010, respectively. It is estimated that at least
      80% will be amortized within four years.




The
      Company
      expects that $2,837 of accrued participation liabilities will be paid during
      the
      year ending August 31, 2008.




**14**




Note
      9. Deferred charges


Accumulated
            
            
            Net2007
            
            Cost
            
            
            amortization
            
            
            book
                valueFinancing
                costs and credit facility arrangement fees
            
            
            6,000
            
            
            
            1,900
            
            
            
            4,100Accumulated2006
            
            Cost
            
            
            amortization
            
            
            Net
                book valueFinancing
                costs and credit facility arrangement fees
            
            
            6,000
            
            
            
            700
            
            
            
            5,300Start-up
                costs of new specialty programming networks
            
            
            5,264
            
            
            
            4,909
            
            
            
            35511,264
            
            
            
            5,609
            
            
            
            5,655




Note
      10. Broadcast licenses and goodwill


At
      August 31,
      2007, 2006 and 2005, 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, 2007 and 2006. 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, 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
      fiscal
      2007, the Company completed the acquisition of an additional 10% share of
      TELETOON and the acquisition of two radio stations. The impact of these
      transactions was to increase broadcast licenses by $27,600 and increase goodwill
      by $39,094.




Note
      11. Accounts payable and accrued liabilities


2007
            
            
            2006Trade
                accounts payable and accrued liabilities (a)
            
            
            82,270
            
            
            
            81,315Program
                rights payable
            
            
            75,081
            
            
            
            68,250Film
                investment accruals
            
            
            1,696
            
            
            
            1,866Dividends
                payable
            
            
            7,036
            
            
            
            9,039166,083
            
            
            
            160,470




**(a)
      Restructuring provision**


In
      fiscal
      2006, the Company recorded restructuring expenses of $11,433 in the Radio and
      Content segments related primarily to severance and other restructuring
      activities. In fiscal 2007, the Company recorded an additional $10,393 in
      restructuring expenses, related primarily to severance and other restructuring
      activities in the Television segment in the first quarter, and severances in
      the
      Montréal radio cluster in the fourth quarter. These costs are included in other
      expense, net*.* To date, $18,075 has been paid in respect of these
      provisions, and as at August 31, 2007, $3,751 remains unpaid. The Company
      anticipates that these provisions will be substantially paid in fiscal
      2008.




**15**




Note
      12. Long-term debt


2007
            
            
            2006Senior
                Subordinated Notes translated at the current rate (a)
            
            
            -
            
            
            
            601Bank
                loans (b)
            
            
            610,697
            
            
            
            595,761610,697
            
            
            
            596,362




**(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. The remaining Notes were acquired
      through the remainder of fiscal 2006 and fiscal 2007, and as at August 31,
      2007,
      no 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, 2007, $115,000 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. As at August 31, 2007, the weighted average interest
      rate
      on the outstanding bank loans was 5.9%. 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 5.4% for the year ended August 31, 2007 (2006 -
      5.2%).




The
      above
      transactions 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, 2007.




**16**




Note
      13. Other long-term liabilities


2007
            
            
            2006Public
                benefits associated with acquisitions
            
            
            7,200
            
            
            
            11,615Unearned
                revenue from distribution and licensing of film rights
            
            
            9,403
            
            
            
            11,415Program
                rights payable
            
            
            32,079
            
            
            
            31,389Stock-based
                compensation obligation
            
            
            4,947
            
            
            
            6,212Other
            
            
            11,144
            
            
            
            10,83964,773
            
            
            
            71,470




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,
      2005
      are summarized as follows:


Class
                A Voting Shares
            
            
            Class
                B Non-Voting Shares
            
            
            Total#
            
            
            $
            
            
            
            #
            
            
            
            $
            
            
            
            $BALANCE,
                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
            
            
            
            15
            
            
            
            -Issuance
                of shares under Stock Option Plan
            
            
            -
            
            
            
            -
            
            
            
            237,110
            
            
            
            6,109
            
            
            
            6,109Shares
                repurchased
            
            
            -
            
            
            
            -
            
            
            
            (1,034,700
            )
            
            
            (21,687
            )
            
            
            (21,687
            )Repayment
                of executive stock purchase loans
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            230
            
            
            
            230BALANCE,
                AUGUST 31, 2006
            
            
            1,723,929
            
            
            
            26,700
            
            
            
            40,281,529
            
            
            
            843,863
            
            
            
            870,563Conversion
                  of Class A Voting Shares to Class B Non-Voting
                  Shares
            
            
            (1,000
            )
            
            
            (16
            )
            
            
            1,000
            
            
            
            16
            
            
            
            -Issuance
                    of shares under Stock Option Plan
            
            
            -
            
            
            
            -
            
            
            
            998,868
            
            
            
            27,676
            
            
            
            27,676Shares
                repurchased
            
            
            -
            
            
            
            -
            
            
            
            (769,100
            )
            
            
            (16,229
            )
            
            
            (16,229
            )Repayment
                    of executive stock purchase loans
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            234
            
            
            
            234BALANCE,
                AUGUST 31, 2007
            
            
            1,722,929
            
            
            
            26,684
            
            
            
            40,512,297
            
            
            
            855,560
            
            
            
            882,244




**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, 2007, and the changes since August
      31,
      2005, is presented as follows:


Number
            
            
            Weighted
                averageof
                options (#)
            
            
            exercise
                price ($)OUTSTANDING,
                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
            
            
            
            28.00Forfeited
            
            
            (44,023
            )
            
            
            32.60Exercised
            
            
            (998,868
            )
            
            
            26.95OUTSTANDING,
                AUGUST 31, 2007
            
            
            2,386,751
            
            
            
            28.36




**18**




The
      fair
      value of each option granted since September 1, 2003 was estimated on the date
      of grant using the Black-Scholes option pricing model. No options were granted
      during fiscal 2007. The weighted average fair value of the stock options granted
      during fiscal 2006 was $11.16 per option (2005 - $9.02). 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, 2007 of $3,003 (2006 - $2,915; 2005 - $2,271).
      This charge has been credited to contributed surplus.




As
      at August
      31, 2007, the options outstanding and exercisable consist 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
            
            
            
            1,228,089
            
            
            
            3.6
            
            
            
            22.93
            
            
            
            891,714
            
            
            
            22.5827.00-37.90
            
            
            
            866,477
            
            
            
            2.7
            
            
            
            31.94
            
            
            
            660,327
            
            
            
            31.8239.00-44.00
            
            
            
            292,185
            
            
            
            0.6
            
            
            
            40.56
            
            
            
            292,185
            
            
            
            40.5619.05-44.00
            
            
            
            2,386,751
            
            
            
            2.9
            
            
            
            28.36
            
            
            
            1,844,226
            
            
            
            28.73




**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 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 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
      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.  On April 3, 2007, the Board of Directors approved an
      increase of $0.14 to the annual dividend rate and the commencement of monthly
      instead of quarterly dividend payments.




In
      fiscal
      2007, the Company paid quarterly dividends on September 30, 2006, December
      31,
      2006 and March 31, 2007, and monthly dividends each month thereafter. The total
      amount of dividends declared in fiscal 2007 was $42,842 (2006 -
      $19,586).




**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, 2007, the Company had loans receivable of $946 (2006
      -
      $1,180) from certain qualifying executive officers. As at August 31, 2007,
      the
      market value of the shares held as collateral for the loans was $2,669 (2006
      -
      $2,111).




**19**




**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
      (“TSX”) 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 2005 ended August 31, 2007;
      the restriction period for PSUs granted in fiscal 2006 ends August 31, 2008;
      and
      the restriction period for PSUs granted in fiscal 2007 ends August 31, 2009.
      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 stock-based compensation expense recorded for the year ended
      August 31, 2007, in respect of this plan, was $6,059 (2006 - $8,689). The
      current year’s expense includes a credit of $2,874 generated by a total return
      swap entered into in fiscal 2007 in order to limit the Company’s exposure to
      changes in the fair value of certain obligations under the PSU
      plan.




**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 $1,130 (2006 - $533).
      This charge has been credited to contributed surplus.




**Normal
      Course Issuer Bid**


On
      February
      12, 2007, the Company announced that the TSX had accepted the notice filed
      by
      the Company of its intention to renew its normal course issuer bid for its
      Class
      B Non-Voting Shares through the facilities of the TSX. The Company intends
      to
      purchase for cancellation a maximum of 1,500,000 Class B Non-Voting
      Shares.




During
      the
      year ended August 31, 2007, the Company repurchased and cancelled 769,100 Class
      B Non-Voting Shares at an average price of $47.36 per share, for a total cash
      consideration of $36,422. This cash consideration exceeded the carrying value
      of
      the shares repurchased by $20,193, 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 and earnings per share would
      have been reduced to the pro forma amounts indicated below:


2007
            
            
            2006
            
            
            2005Net
                income
            
            
            107,018
            
            
            
            35,471
            
            
            
            71,114Pro
                forma net income
            
            
            106,951
            
            
            
            34,284
            
            
            
            69,598Pro
                forma basic earnings per share
            
            $
            2.53
            
            
            $
            0.81
            
            
            $
            1.63Pro
                forma diluted earnings per share
            
            $
            2.47
            
            
            $
            0.79
            
            
            $
            1.62Note
                15.Contributed
                surplusBALANCE,
                AUGUST 31, 2005
            
            
            
            
            
            
            
            
            
            
            3,558Stock-based
                compensation
            
            
            
            
            
            
            
            
            
            
            3,448Exercise
                of stock options
            
            
            
            
            
            
            
            
            
            
            (128
            )BALANCE,
                AUGUST 31, 2006
            
            
            
            
            
            
            
            
            
            
            6,878Stock-based
                compensation
            
            
            
            
            
            
            
            
            
            
            4,133Exercise
                of stock options
            
            
            
            
            
            
            
            
            
            
            (761
            )BALANCE,
                AUGUST 31, 2007
            
            
            
            
            
            
            
            
            
            
            10,250




Note
      16. Interest expense


2007
            
            
            2006
            
            
            2005Interest
                on long-term debt
            
            
            33,553
            
            
            
            41,383
            
            
            
            54,859Other
                interest
            
            
            2,285
            
            
            
            1,722
            
            
            
            70235,838
            
            
            
            43,105
            
            
            
            55,561




Note
      17. Other expense, net


2007
            
            
            2006
            
            
            2005Interest
                income
            
            
            (841
            )
            
            
            (2,643
            )
            
            
            (2,995
            )Foreign
                exchange gains and losses
            
            
            109
            
            
            
            487
            
            
            
            (3,338
            )Earnings
                from equity investments
            
            
            857
            
            
            
            (1,004
            )
            
            
            (1,607
            )Restructuring
                charges
            
            
            10,393
            
            
            
            11,433
            
            
            ****
            **-**Asset
                disposal gains and losses
            
            
            (1,448
            )
            
            
            2,801
            
            
            
            (1,046
            )Mark-to-market
                on derivative
            
            ****
            **-**
            
            
            ****
            **-**
            
            
            
            (4,377
            )Broadcast
                license impairment
            
            ****
            **-**
            
            
            ****
            **-**
            
            
            
            4,108Retroactive
                tariff adjustment
            
            ****
            **-**
            
            
            ****
            **-**
            
            
            
            3,826Other
            
            
            730
            
            
            
            593
            
            
            
            (65
            )9,800
            
            
            
            11,667
            
            
            
            (5,494
            )




**21**




Note
      18. 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:


2007
            
            
            2006FUTURE
                TAX LIABILITYDeferred
                charges deducted for tax purposes capitalized for accounting
                purposes
            
            
            846
            
            
            
            840Capital
                cost allowance in excess of book depreciation, net
            
            
            (95
            )
            
            
            131Deferred
                partnership income
            
            
            4,611
            
            
            
            4,206Differences
                in tax and accounting cost bases for investments
            
            
            14,909
            
            
            
            14,526Broadcast
                licenses and other intangible assets
            
            
            144,804
            
            
            
            136,507Other,
                net
            
            
            2,787
            
            
            
            2,620TOTAL
                FUTURE TAX LIABILITY
            
            
            167,862
            
            
            
            158,830FUTURE
                TAX ASSETBook
                depreciation in excess of capital cost allowance
            
            
            27,356
            
            
            
            26,640Loss
                carryforwards, net of valuation allowances
            
            
            28,760
            
            
            
            43,033Amortization
                deducted for accounting purposes in excess of tax purposes
            
            
            1,442
            
            
            
            17,706Differences
                in tax and accounting cost bases for investments
            
            
            17,660
            
            
            
            1,747Revenue
                      recognition differences between tax and accounting
                      purposes
            
            
            993
            
            
            
            1,058Purchase
                price equation differences
            
            
            56
            
            
            
            57Other,
                net
            
            
            2,262
            
            
            
            2,677TOTAL
                FUTURE TAX ASSET
            
            
            78,529
            
            
            
            92,918NET
                FUTURE TAX LIABILITY
            
            
            89,333
            
            
            
            65,912Less
                current portion of future tax asset
            
            
            13,518
            
            
            
            14,535FUTURE
                TAX LIABILITY
            
            
            102,851
            
            
            
            80,447




**22**




(b)
      Significant components of the income tax expense (recovery) attributable to
      operations are as follows:


2007
            
            
            2006
            
            
            2005Current
                tax expense
            
            
            43,518
            
            
            
            38,227
            
            
            
            34,209Future
                    tax expense (recovery) relating to origination and reversal of
                    temporary
                    differences
            
            
            3,189
            
            
            
            (12,978
            )
            
            
            2,559Future
                    tax expense (recovery) resulting from utilization (recognition)
                    of
                    losses
            
            
            14,293
            
            
            
            (24,552
            )
            
            
            9,035Future
                tax expense (recovery) resulting from tax rate changes
            
            
            (1,631
            )
            
            
            (11,835
            )
            
            
            254Recovery
                of various future tax liabilities
            
            
            -
            
            
            
            (25,187
            )
            
            
            -Other
            
            
            444
            
            
            
            320
            
            
            
            (3,247
            )INCOME
                TAX EXPENSE (RECOVERY)
            
            
            59,813
            
            
            
            (36,005
            )
            
            
            42,810




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:


2007
              
              
              
              
              
              2006
              
              
              
              
              
              2005$
              %
              
              
              $
              
              
              
              %
              
              
              $
              
              
              
              %Tax
                  at combined federal and provincial rate
              
              
              61,055
              
              
              
              35.5
              
              
              
              1,133
              
              
              
              35.2
              
              
              
              41,356
              
              
              
              35.4Differences
                  from statutory rates  relating to amortization of intangible
                  assets
              
              
              (122
              )
              
              
              (0.1
              )
              
              
              243
              
              
              
              7.5
              
              
              
              166
              
              
              
              0.1Non-taxable
                  portion of net capital gains  on sale of
                  investments
              
              
              (1,319
              )
              
              
              (0.8
              )
              
              
              (4,221
              )
              
              
              (131.0
              )
              
              
              (19
              )
              
              
              -Increase
                  (reduction) in future taxes  resulting from statutory rate
                  change
              
              
              (1,631
              )
              
              
              (0.9
              )
              
              
              (11,835
              )
              
              
              (367.3
              )
              
              
              254
              
              
              
              0.2Reversal
                  in current year of temporary differences originally recorded using
                  long-term tax rates
              
              
              (382
              )
              
              
              (0.2
              )
              
              
              2,368
              
              
              
              73.5
              
              
              
              -
              
              
              
              -Large
                  Corporations Tax and foreign withholding tax
              
              
              401
              
              
              
              0.2
              
              
              
              600
              
              
              
              18.6
              
              
              
              1,617
              
              
              
              1.4Recovery
                  of various future tax liabilities
              
              
              1,016
              
              
              
              0.6
              
              
              
              (25,187
              )
              
              
              (781.7
              )
              
              
              -
              
              
              
              -Other
              
              
              795
              
              
              
              0.4
              
              
              
              894
              
              
              
              27.7
              
              
              
              (564
              )
              
              
              (0.5
              )59,813
              
              
              
              34.7
              
              
              
              (36,005
              )
              
              
              (1,117.5
              )
              
              
              42,810
              
              
              
              36.6


**23**




(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, 2007, the Company had available loss
      carryforwards of approximately $109,400. A future tax asset of $37,600 (2006
      -
      $49,600) has been recognized in respect of these carryforwards, net of a
      valuation allowance of $8,800 (2006 - $7,300).




The
      available
      loss carryforwards will expire as follows:


2008
            
            
            1,9002009
            
            
            7,4002010
            
            
            2,8002011
            
            
            5,4002015
            
            
            3,6002026
            
            
            69,7002027
            
            
            1,400No
                expiration - capital losses
            
            
            17,200109,400




Note
      19. Business segment information


The
      Company’s
      business activities are conducted through three reportable operating
      segments:




Radio


The
      Radio
      segment consists of 52 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, and the Nelvana production studio. 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.




The
      Content segment derives programs for distribution through two means: (1)
      production by the Nelvana studio; and (2) acquisition from third-party
      producers.  Prior to fiscal 2007, the studio was considered to be part
      of the Content segment.  As a result of changes made to Corus’
management structure in early fiscal 2007, the production studio is now
      considered part of the Television segment and the activities of the studio
      are
      included in Television’s results.  The segment results of Television
      and Content for the prior year have been restated to reflect certain aspects
      of
      this change.  The impact of the items restated on fiscal 2006 is to
      increase Television’s revenues and segment profit by $8,507 and $1,053 for the
      year, with a corresponding decrease in Content.  For other aspects of
      the new business relationship between the Content and Television segments,
      it is
      impracticable to restate prior years.




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.




**24**




**(a)
      Revenues and segment profit**


Year
                ended August 31, 2007
            
            Radio
            
            
            Television
            
            
            Content
            
            
            Corporate
            
            
            Eliminations
            
            
            ConsolidatedRevenues
            
            
            275,736
            
            
            
            436,270
            
            
            
            61,325
            
            
            
            -
            
            
            
            (4,588
            )
            
            
            768,743Direct
                    cost of sales, general and administrative
                    expenses
            
            
            198,201
            
            
            
            253,822
            
            
            
            55,883
            
            
            
            24,844
            
            
            
            (4,928
            )
            
            
            527,822Segment
                profit
            
            
            77,535
            
            
            
            182,448
            
            
            
            5,442
            
            
            
            (24,844
            )
            
            
            340
            
            
            
            240,921Depreciation
            
            
            6,195
            
            
            
            10,908
            
            
            
            256
            
            
            
            4,197
            
            
            
            -
            
            
            
            21,556Amortization
            
            
            -
            
            
            
            355
            
            
            
            -
            
            
            
            1,200
            
            
            
            -
            
            
            
            1,555Interest
                expense
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            35,838
            
            
            
            -
            
            
            
            35,838Other
                expense, net
            
            
            3,911
            
            
            
            6,156
            
            
            
            2,876
            
            
            
            (3,143
            )
            
            
            -
            
            
            
            9,800INCOME
                BEFORE
                INCOME TAXES AND NON-CONTROLLING INTEREST
            
            
            67,429
            
            
            
            165,029
            
            
            
            2,310
            
            
            
            (62,936
            )
            
            
            340
            
            
            
            172,172Year
                ended August 31, 2006
            
            Radio
            
            
            Television
            
            
            Content
            
            
            Corporate
            
            
            Eliminations
            
            
            ConsolidatedRevenues
            
            
            268,367
            
            
            
            401,856
            
            
            
            63,618
            
            
            
            -
            
            
            
            (7,571
            )
            
            
            726,270Direct
                    cost of sales, general and administrative
                    expenses
            
            
            200,015
            
            
            
            236,563
            
            
            
            59,118
            
            
            
            23,998
            
            
            
            (7,543
            )
            
            
            512,151Segment
                profit
            
            
            68,352
            
            
            
            165,293
            
            
            
            4,500
            
            
            
            (23,998
            )
            
            
            (28
            )
            
            
            214,119Depreciation
            
            
            6,899
            
            
            
            10,493
            
            
            
            149
            
            
            
            3,761
            
            
            
            -
            
            
            
            21,302Amortization
            
            
            -
            
            
            
            1,065
            
            
            
            -
            
            
            
            1,807
            
            
            
            -
            
            
            
            2,872Interest
                expense
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            43,105
            
            
            
            -
            
            
            
            43,105Debt
                refinancing loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            131,951
            
            
            
            -
            
            
            
            131,951Other
                expense, net
            
            
            4,000
            
            
            
            901
            
            
            
            6,468
            
            
            
            298
            
            
            
            -
            
            
            
            11,667INCOME
                BEFORE
                INCOME TAXES AND NON-CONTROLLING INTEREST
            
            
            57,453
            
            
            
            152,834
            
            
            
            (2,117
            )
            
            
            (204,920
            )
            
            
            (28
            )
            
            
            3,222Year
                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
            
            
            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
                expense
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            55,561
            
            
            
            -
            
            
            
            55,561Other
                expense, 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




The
      Corporate
      segment results represent the incremental cost of Corporate overhead in excess
      of the amount allocated to the other operating segments.




**25**




Gross
      revenues are derived from the following geographical sources by location of
      customer as follows:


2007
            
            
            2006
            
            
            2005Canada
            
            
            718,053
            
            
            
            675,199
            
            
            
            624,130United
                States
            
            
            26,708
            
            
            
            28,798
            
            
            
            25,754International
            
            
            23,982
            
            
            
            22,273
            
            
            
            33,185768,743
            
            
            
            726,270
            
            
            
            683,069




Corus’
      revenue streams for fiscal 2007 are derived primarily from three areas:
      advertising (57%), subscriber fees (29%) and license fees (6%) (2006 - 58%,
      28%
      and 5%, respectively).




**(b)
      Segment assets**


2007
            
            
            2006Radio
            
            
            725,410
            
            
            
            706,007Television
            
            
            1,065,585
            
            
            
            945,129Content
            
            
            80,723
            
            
            
            98,935Corporate
            
            
            68,519
            
            
            
            94,836Eliminations
            
            
            (3,270
            )
            
            
            (2,698
            )1,936,967
            
            
            
            1,842,209




Assets
      are
      located primarily within Canada.




**(c)
      Capital expenditures by segment**


2007
            
            
            2006
            
            
            2005Radio
            
            
            7,745
            
            
            
            11,253
            
            
            
            4,733Television
            
            
            7,522
            
            
            
            5,254
            
            
            
            7,052Content
            
            
            290
            
            
            
            3,289
            
            
            
            2,622Corporate
            
            
            4,730
            
            
            
            3,802
            
            
            
            4,81020,287
            
            
            
            23,598
            
            
            
            19,217




Property,
      plant and equipment are located primarily within Canada.




**(d)
      Goodwill**


2007
            
            
            2006Radio
            
            
            417,961
            
            
            
            407,453Television
            
            
            370,425
            
            
            
            341,839Content
            
            
            7,446
            
            
            
            7,446795,832
            
            
            
            756,738




Goodwill
      is
      located primarily within Canada.




**26**







Note
      20. 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.




(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:


2007
            
            
            
            
            
            2006Carrying
            
            
            Estimated
            
            
            Carrying
            
            
            Estimatedvalue
            
            
            fair
                value
            
            
            value
            
            
            fair
                valueInterest
                rate swap agreements
            
            
            -
            
            
            
            8,767
            
            
            
            -
            
            
            
            2,012Total
                return swap agreements
            
            
            (497
            )
            
            
            (497
            )
            
            
            -
            
            
            
            -




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.




**27**




**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
      21. Earnings per share


The
      following
      is a reconciliation of the numerators and denominators used for the computation
      of the basic and diluted earnings per share amounts:


2007
            
            
            2006
            
            
            2005Net
                income for the year (numerator)
            
            
            107,018
            
            
            
            35,471
            
            
            
            71,114Weighted
                    average number of shares outstanding
                    (denominator)Weighted
                average number of shares outstanding - basic
            
            
            42,281
            
            
            
            42,461
            
            
            
            42,761Effect
                of dilutive securities
            
            
            1,047
            
            
            
            786
            
            
            
            334WEIGHTED
                AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED
            
            
            43,328
            
            
            
            43,247
            
            
            
            43,095




Note
      22. 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:


2007
            
            
            2006
            
            
            2005Accounts
                receivable
            
            
            (10,275
            )
            
            
            14,509
            
            
            
            (13,055
            )Prepaid
                expenses and other
            
            
            (2,586
            )
            
            
            3,435
            
            
            
            (1,794
            )Accounts
                payable and accrued liabilities
            
            
            (9,939
            )
            
            
            (28,160
            )
            
            
            6,040Income
                taxes payable
            
            
            (3,240
            )
            
            
            1,546
            
            
            
            (1,497
            )Deferred
                credits
            
            
            (1,662
            )
            
            
            1,223
            
            
            
            12,354Other
            
            
            (108
            )
            
            
            (2,451
            )
            
            
            187(27,810
            )
            
            
            (9,898
            )
            
            
            2,235




(b)
      Interest paid, interest received and income taxes paid and classified as
      operating activities are as follows:


2007
            
            
            2006
            
            
            2005Interest
                paid
            
            
            33,928
            
            
            
            61,025
            
            
            
            53,855Interest
                received
            
            
            841
            
            
            
            2,643
            
            
            
            2,995Income
                taxes paid
            
            
            47,646
            
            
            
            38,218
            
            
            
            36,279




Note
      23. Foreign exchange gains and losses


The
      Company
      has reflected certain gains and losses in its consolidated statements of income
      and retained earnings as a result of exposure to foreign currency exchange
      rate
      fluctuations. A portion of these gains and losses relate to




**28**




operating
      activities while other portions are of a financing nature. Foreign exchange
      gains and losses are reflected in the consolidated financial statements as
      follows:


2007
            
            
            2006
            
            
            2005CONSOLIDATED
                    STATEMENTS OF INCOME AND RETAINED EARNINGSDirect
                cost of sales, general and administrative expenses
            
            
            (363
            )
            
            
            (511
            )
            
            
            (825
            )Other
                expense, net
            
            
            109
            
            
            
            487
            
            
            
            (3,338
            )TOTAL
                FOREIGN EXCHANGE GAIN
            
            
            (254
            )
            
            
            (24
            )
            
            
            (4,163
            )




An
      analysis
      of the cumulative translation adjustment shown separately in shareholders’
equity is as follows:


BALANCE,
                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
            )Effect
                    of exchange rate fluctuation on translation of net assets of
                    self-sustaining foreign operations
            
            
            (641
            )BALANCE,
                AUGUST 31, 2007
            
            
            (12,169
            )




Note
      24. 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**


2007
            
            
            2006
            
            
            2005NET
                INCOME USING CANADIAN GAAP
            
            
            107,018
            
            
            
            35,471
            
            
            
            71,114Add
                (deduct) adjustments forDeferred
                charges (i)
            
            
            251
            
            
            
            752
            
            
            
            1,858Other
            
            ****
            **-**
            
            
            
            447
            
            
            ****
            **-**Income
                tax effect of adjustments
            
            
            (90
            )
            
            
            (291
            )
            
            
            (764
            )NET
                INCOME USING U.S. GAAP
            
            
            107,179
            
            
            
            36,379
            
            
            
            72,208Add
                (deduct) adjustments for changes inUnrealized gains on investments classified as available for sale,
                net of
                tax (ii)
            
            
            129
            
            
            
            1,235
            
            
            
            1,864Unrealized
                gain (loss) on derivative contracts (iii)
            
            
            5,540
            
            
            
            69,847
            
            
            
            (41,634
            )Unrealized foreign exchange loss on translation of self-sustaining
                foreign
                operations
            
            
            (641
            )
            
            
            (1,519
            )
            
            
            (3,418
            )COMPREHENSIVE
                INCOME USING U.S. GAAP
            
            
            112,207
            
            
            
            105,942
            
            
            
            29,020NET
                INCOME PER SHARE USING U.S. GAAPBasic
            
            $
            2.53
            
            
            $
            0.86
            
            
            $
            1.69Diluted
            
            $
            2.47
            
            
            $
            0.84
            
            
            $
            1.68COMPREHENSIVE
                INCOME PER SHARE USING U.S. GAAPBasic
            
            $
            2.65
            
            
            $
            2.50
            
            
            $
            0.68Diluted
            
            $
            2.59
            
            
            $
            2.45
            
            
            $
            0.67




**29**




**Balance
      sheet items using U.S. GAAP**


2007
            
            
            
            
            
            2006Canadian
            
            
            U.S.
            
            
            Canadian
            
            
            U.S.GAAP
            
            
            GAAP
            
            
            GAAP
            
            
            GAAPInvestments
                and other assets (ii)
            
            
            17,492
            
            
            
            25,974
            
            
            
            29,642
            
            
            
            31,166Deferred
                charges (i)
            
            
            4,100
            
            
            
            4,100
            
            
            
            5,655
            
            
            
            5,300Broadcast
                licenses and goodwill (iv)
            
            
            1,328,644
            
            
            
            1,336,929
            
            
            
            1,261,950
            
            
            
            1,270,235Future
                tax liability
            
            
            102,851
            
            
            
            107,853
            
            
            
            80,447
            
            
            
            84,070Non-controlling
                interest
            
            
            15,196
            
            
            
            15,196
            
            
            
            11,379
            
            
            
            11,275Accumulated
                other comprehensive loss
            
            
            -
            
            
            
            (5,162
            )
            
            
            -
            
            
            
            (10,190
            )Other
                    components of shareholders’ equity
            
            
            975,893
            
            
            
            992,820
            
            
            
            917,498
            
            
            
            933,623


The
        cumulative effect of these adjustments on shareholders’ equity is as
        follows:




2007
            
            
            2006Accumulated
                other comprehensive lossUnrealized
                losses on investments (ii)
            
            
            (183
            )
            
            
            (312
            )Unrealized
                gain on derivative contracts (iii)
            
            
            7,190
            
            
            
            1,650Unrealized foreign exchange loss on translation of self-sustaining
                foreign
                operations
            
            
            (12,169
            )
            
            
            (11,528
            )Other
                components of shareholders’ equityDeferred
                charges (i)
            
            
            -
            
            
            
            (161
            )Equity
                in earnings of investees (iv)
            
            
            4,758
            
            
            
            4,758Cumulative
                translation adjustment
            
            
            12,169
            
            
            
            11,528TOTAL
                CUMULATIVE EFFECT OF ADJUSTMENTS ON SHAREHOLDERS’ EQUITY
            
            
            11,765
            
            
            
            5,935




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 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 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.





**30**




(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, or deferred in other comprehensive income until
      the
      hedged item is recognized in income.




(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, 2007 would have decreased by
      $67
      to $107,112, or $2.53 per share (2006 - net income 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).




Note
      25. Government financing and assistance


Revenues
      include $1,708 (2006 - $2,845; 2005 - $2,053) 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
      $804 (2006 - $939; 2005 - $1,011) of government grants relating to the marketing
      of books in both Canada and international markets. The majority of the grants
      are repayable if the average profit margin for the three-year period following
      receipt of the funds equals or is greater than 10%.





**31**




Note
      26. 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:


2008
            
            
            25,8802009
            
            
            19,4712010
            
            
            20,7632011
            
            
            18,7352012
            
            
            13,057Thereafter
            
            
            198,501296,407




Rental
      expenses recognized in direct cost of sales, general and administrative expenses
      totaled approximately $13,180 (2006 - $13,070; 2005 - $13,411).




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
      $250,153.




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, 2007, 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.




On
      December 14, 2006, the Federal Court of Canada ruled that the Part II license
      fees paid by CRTC licensees are an unlawful tax.  Corus has paid these
      fees since the Company’s inception in 1999, and in fiscal 2006 the Company
      remitted approximately $5.0 million in Part II license fees to the
      CRTC.  The Company has concluded that it is not appropriate to accrue
      for these fees in its results for fiscal 2007. The decision is subject to
      appeal, and the outcome of any appeal may have a detrimental impact on the
      future financial results of the Company.




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Note
      27.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 $104,402 (2006 - $92,837; 2005 - $94,633), production and distribution
      revenue of $3,487 (2006 - $2,853; 2005 - $2,463) and administrative and other
      fees of $5,006 (2006 - $5,968; 2005 - $6,561) from related parties. In addition,
      the Company paid cable and satellite system distribution access fees of $4,493
      (2006 - $4,441; 2005 - $4,800) and administrative and other fees of $2,604
      (2006
      - $2,106; 2005 - $2,007) to related parties. As at August 31, 2007, the Company
      had $19,328 (2006 - $17,446) 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.




Included
      in
      accounts receivable (note 5), other investments (note 6(b)) and share capital
      (note 14) are loans of $1,706 (2006 - $6,074) 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 December 1, 2011 and
      October 31, 2022.




Note
      28. 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
      2007 related to the defined contribution plan was $5,836 (2006 - $6,016; 2005
      -
      $5,527). The amount contributed is approximately the same as the expense
      included in the consolidated statements of income and retained
      earnings.




Note
      29. Subsequent events


On
      September
      12, 2007, the Company announced organizational changes in its Corporate and
      Television divisions. These changes will result in severance and other
      restructuring expenses of approximately $2,000 to be recorded in the first
      quarter of fiscal 2008.




On
      October
      25, 2007, the Company announced that it plans to implement a two-for-one stock
      split for its issued and outstanding Class A Voting and Class B Non-Voting
      Shares.  The stock split, which has been approved by the Company’s
      Board of Directors, must be approved by shareholders at a special meeting of
      shareholders scheduled to be held in Calgary, Alberta on January 9, 2008 and
      is
      subject to regulatory approval and the filing of articles of
      amendment.  Following approval by shareholders, the effective date of
      the stock split is expected to be February 1, 2008.




Note
      30. Comparative consolidated financial statements


The
      comparative consolidated financial statements have been reclassified from
      statements previously presented to conform to the presentation of the 2007
      consolidated financial statements.





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