Exhibit
      99.2




*Management’s
        discussion and analysis*
  Management’s
        discussion and analysis of the financial position and results of operations
        for
        the fiscal year ended August 31, 2006 is prepared at October 31, 2006. This
        should be read in conjunction with the Company’s August 31, 2006 annual report
        and audited consolidated financial statements and notes therein.
  The
        financial information presented herein has been prepared on the basis of
        Canadian generally accepted accounting principles (“GAAP”). Please refer to note
        21 of the consolidated financial statements of the Company for a summary
        of
        differences between Canadian and United States (“U.S.”) GAAP.
  All
        dollar amounts are in Canadian dollars unless otherwise indicated.
  **Cautionary
        statement regarding forward-looking statements**
 To
        the extent any statements made in this report contain information that is
        not
        historical, these statements are forward-looking statements within the meaning
        of applicable securities laws. These forward-looking statements are related
        to,
        among other things, our objectives, goals, strategies, intentions, plans,
        estimates and outlook and can generally be identified by the use of words
        such
        as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may” and other
        similar expressions. In addition, any statements that refer to expectations,
        projections or other characterizations of future events or circumstances
        are
        forward-looking statements. Although Corus believes that the expectations
        reflected in such forward-looking statements are reasonable, such statements
        involve risks and uncertainties and undue reliance should not be placed on
        such
        statements. Certain material factors or assumptions are applied in making
        forward-looking statements and actual results may differ materially from
        those
        expressed or implied in such statements. Important factors that could cause
        actual results to differ materially from these expectations include, among
        other
        things: our ability to attract and retain advertising revenues; audience
        acceptance of our television programs and cable networks; our ability to
        recoup
        production costs, the availability of tax credits and the existence of
        co-production treaties; our ability to compete in any of the industries in
        which
        we do business; the opportunities (or lack thereof) that may be presented
        to and
        pursued by us; conditions in the entertainment, information and communications
        industries and technological developments therein; changes in laws or
        regulations or the interpretation or application of those laws and regulations;
        our ability to integrate and realize anticipated benefits from our acquisitions
        and to effectively manage our growth; our ability to successfully defend
        ourselves against litigation matters arising out of the ordinary course of
        business; and changes in accounting standards. Additional information about
        these factors and about the material assumptions underlying such forward-looking
        statements may be found in our Annual Information Form. Corus cautions that
        the
        foregoing list of important factors that may affect future results is not
        exhaustive. When relying on our forward-looking statements to make decisions
        with respect to Corus, investors and others should carefully consider the
        foregoing factors and other uncertainties and potential events. Unless otherwise
        required by applicable securities laws, we disclaim any intention or obligation
        to publicly update or revise any forward-looking statements whether as a
        result
        of new information, events or circumstances that arise after the date thereof
        or
        otherwise.
  **Overview**
 Corus
        Entertainment Inc. (“Corus” or the “Company”) commenced operations on September
        1, 1999. On that date, pursuant to a statutory plan of arrangement, Corus
        was
        separated from Shaw Communications Inc. (“Shaw”) as an independently operated,
        publicly traded company and assumed ownership of Shaw’s radio broadcasting,
        specialty television, digital audio services and cable advertising services
        businesses, as well as certain investments held by Shaw.
  Corus
        manages its business in three operating segments: Radio, Television and Content.
        Generally, Corus’ financial results depend on a number of factors, including the
        strength of the Canadian national economy and the local economies of Corus’
served markets, local and national market competition from other broadcasting
        stations and other advertising media, government regulation, market competition
        from other distributors of children’s animated programming and Corus’ ability to
        continue to provide popular programming.
  **1**
   **(a)
        Radio**
 The
        Radio segment comprises 51 radio stations situated primarily in nine of the
        ten
        largest Canadian markets by population, and in the densely populated area
        of
        Southern Ontario. Revenues are derived from advertising aired over these
        stations. Corus is Canada’s leading radio operator in terms of audience reach
        and tune-in.
  **(b)
        Television**
 For
        fiscal 2006, the Television segment is composed of the following: specialty
        television networks YTV, W Network, Treehouse TV, Corus’ 80% interest in Country
        Music Television Limited (“CMT”), 50.5% interest in Telelatino, 40% interest in
        TELETOON and 20% interest in Food Network; Corus’ premium television services
        Movie Central and Encore Avenue; interests in three digital television channels,
        SCREAM, Discovery Kids Canada and The Documentary Channel; Corus Custom
        Networks, a cable advertising service; three local television stations; and
        Max
        Trax, a residential digital music service. Revenues for specialty television
        networks and digital television channels are generated from affiliate subscriber
        fees and advertising. Revenues for premium television and digital music services
        are generated from affiliate subscriber fees. Revenues for the conventional
        television stations and cable advertising services are derived from advertising.
        For fiscal 2007, Television’s interest in TELETOON has increased to 50%, and the
        Content production studio has been absorbed.
  **(c)
        Content**
 For
        fiscal 2006, the Content segment consists of the production and distribution
        of
        television programs and the sale and licensing of related products. Revenues
        are
        generated from licensing of television programs, merchandise licensing and
        publishing. For fiscal 2007, the production studio has been integrated into
        the
        Television segment.
  **Annual
        selected financial information**
 The
        following table presents summary financial information for Corus for each
        of the
        listed years ended August 31:
 %
                  Increase (decrease)(millions
                  of Canadian dollars except
              
              
              
              
              
              
              
              2006
              
              2005percentages
                  and per share amounts)
              
              **2006**
              
              2005
              
              2004
              
              over
                  2005
              
              over
                  2004REVENUES
              
              
              **726.3**
              
              
              683.1
              
              
              666.8
              
              
              6.3
              
              
              2.4SEGMENT
                  PROFIT1
              
              
              **214.1**
              
              
              195.3
              
              
              90.4
              
              
              9.6
              
              
              116.1NET
                  INCOME (LOSS)
              
              
              **35.5**
              
              
              71.1
              
              
              (23.1
              )EARNINGS
                  (LOSS) PER SHAREBasic
              
              **$**
              **0.84**
              
              $
              1.66
              
              $
              (0.54
              )Diluted
              
              **$**
              **0.82**
              
              $
              1.65
              
              $
              (0.54
              )Total
                  assets
              
              
              **1,842.2**
              
              
              1,928.4
              
              
              1,871.9Total
                  long-term financial liabilities
              
              
              **650.5**
              
              
              660.4
              
              
              690.9CASH
                  DIVIDENDS DECLARED PER SHAREClass
                  A Voting
              
              
              **0.4525**
              
              
              0.065
              
              
              0.04Class
                  B Non-Voting
              
              
              **0.4650**
              
              
              0.075
              
              
              0.05
  1As
        defined in “Key performance
        indicators- Segment profit and segment profit margin.”
  **2**
   **Highlights
        for fiscal 2006**
 **Operations**
  >  Revenue
        increased by 6% to $726 million in fiscal 2006.
  >  Segment
        profit increased by 10% to $214 million in fiscal 2006.
  >  Segment
        profit margins were 30% in 2006 compared to 29% in 2005.
  >  Television
        delivers double-digit segment profit growth.
  >  Radio
        experiences above average growth in Western Canada.
  >  Content
        continues to deliver positive cash flow.
  **Financial**
  >  Free
        cash flow of $94 million, up 16% from 2005.
  >  Successful
        refinancing of long-term debt and Normal Course Issuer Bid.
  >  Corus
        increases quarterly dividend for holders of its Class A and Class B shares
        to
        $0.2125 and $0.215, respectively.
  **Regulatory**
  >  The
        Canadian Radio-television and Telecommunications Commission (“CRTC”) renewed
        several licenses, including: YTV Canada Inc.; Corus specialty and pay services;
        and a variety of radio station licenses.
  **Highlights
        for fiscal 2005**
 **Operations**
  >  Revenue
        from operations increased by 2% to $683 million in 2005.
  >  Segment
        profit increased by 116% to $195 million in 2005.
  >  Segment
        profit margins were 29% in 2005 compared to 14% in 2004.
  >  Television
        delivers double-digit segment profit growth.
  >  Corus
        Radio outperforms market growth in 2005.
  >  Corus
        Radio enters one of the top ten markets in Canada in Québec City.
  >  Content
        continues to deliver positive cash flow.
  **Financial**
  >  Free
        cash flow of over $80 million, up 54% from 2004.
  >  Adjusted
        net debt reduced to $466 million from $546 million at August 31,
        2004.
  >  Adjusted
        net debt to adjusted segment profit reduced to 2.4 from 3.1 at August 31,
        2004.
  >  Corus
        increases semi-annual dividend for holders of its Class A and Class B shares
        to
        $0.045 and $0.05, respectively.
  **Regulatory**
 
 >
        Corus secured CRTC approval to swap five radio stations located in Québec with
        Astral Media Inc. (“Astral”) for eight radio stations also located in that
        province.
  **3**
   **Results
        of operations**
 The
        following tables present summary financial information for Corus’ operating
        business segments and a reconciliation of net income (loss) to segment profit
        for each of the listed years ended August 31:
  %
                  Increase (decrease)(millions
                  of Canadian dollars except
              
              
              
              
              
              
              
              
              
              
              
              
              
              2006
              
              2005percentages
                  and per share amounts)
              
              **2006**
              
              **%**1
              
              2005
              
              **%**1
              
              2004
              
              **%**1
              
              over
                  2005
              
              over
                  2004REVENUESRadio
              
              
              **268.4**
              
              
              **36.9**
              
              
              252.7
              
              
              37.0
              
              
              227.9
              
              
              34.2
              
              
              6.2
              
              
              10.9Television
              
              
              **393.3**
              
              
              **54.2**
              
              
              354.2
              
              
              51.9
              
              
              332.3
              
              
              49.8
              
              
              11.0
              
              
              6.6Content
              
              
              **72.1**
              
              
              **9.9**
              
              
              82.3
              
              
              12.0
              
              
              112.6
              
              
              16.9
              
              
              (12.4
              )
              
              (26.9
              )Eliminations
              
              
              **(7.5**
              **)**
              
              **(1.0**
              **)**
              
              (6.1
              )
              
              (0.9
              )
              
              (6.0
              )
              
              (0.9
              )**726.3**
              
              
              **100.0**
              
              
              683.1
              
              
              100.0
              
              
              666.8
              
              
              100.0
              
              
              6.3
              
              
              2.4DIRECT
                  COST OF SALES, GENERAL AND ADMINISTRATIVE EXPENSESRadio
              
              
              **200.0**
              
              
              **74.5**
              
              
              183.7
              
              
              72.7
              
              
              167.9
              
              
              73.7
              
              
              8.9
              
              
              9.4Television
              
              
              **229.1**
              
              
              **58.3**
              
              
              213.4
              
              
              60.2
              
              
              207.2
              
              
              62.4
              
              
              7.4
              
              
              3.0Content
              
              
              **66.5**
              
              
              **92.2**
              
              
              78.7
              
              
              95.6
              
              
              196.3
              
              
              174.3
              
              
              (15.5
              )
              
              (59.9
              )Corporate
              
              
              **24.0**
              
              
              **3.3**
              
              
              18.6
              
              
              2.7
              
              
              11.0
              
              
              1.6
              
              
              29.0
              
              
              69.1Eliminations
              
              
              **(7.4**
              **)**
              
              **(1.0**
              **)**
              
              (6.6
              )
              
              (1.0
              )
              
              (6.0
              )
              
              (0.9
              )**512.2**
              
              
              **70.5**
              
              
              487.8
              
              
              71.4
              
              
              576.4
              
              
              86.4
              
              
              5.0
              
              
              (15.4
              )SEGMENT
                  PROFIT (LOSS)2Radio
              
              
              **68.4**
              
              
              **25.5**
              
              
              69.0
              
              
              27.3
              
              
              60.0
              
              
              26.3
              
              
              (0.9
              )
              
              15.0Television
              
              
              **164.2**
              
              
              **41.7**
              
              
              140.8
              
              
              39.8
              
              
              125.1
              
              
              37.6
              
              
              16.6
              
              
              12.5Content
              
              
              **5.6**
              
              
              **7.8**
              
              
              3.6
              
              
              4.4
              
              
              (83.7
              )
              
              (74.3
              )
              
              55.6
              
              
              (104.3
              )Corporate
              
              
              **(24.0**
              **)**
              
              **(3.3**
              **)**
              
              (18.6
              )
              
              (2.7
              )
              
              (11.0
              )
              
              (1.6
              )
              
              29.0
              
              
              69.1Eliminations
              
              
              **(0.1**
              **)**
              
              **-**
              
              
              0.5
              
              
              0.1
              
              
              -
              
              
              -**214.1**
              
              
              **29.5**
              
              
              195.3
              
              
              28.6
              
              
              90.4
              
              
              13.6
              
              
              9.6
              
              
              116.0Depreciation
              
              
              **21.3**
              
              
              **2.9**
              
              
              23.7
              
              
              3.5
              
              
              25.7
              
              
              3.9
              
              
              (10.1
              )
              
              (7.8
              )Amortization
              
              
              **2.9**
              
              
              **0.4**
              
              
              4.6
              
              
              0.7
              
              
              7.3
              
              
              1.1
              
              
              (37.0
              )
              
              (37.0
              )Interest
                  on long-term debt
              
              
              **43.1**
              
              
              **5.9**
              
              
              55.6
              
              
              8.1
              
              
              55.3
              
              
              8.3
              
              
              (22.5
              )
              
              0.5Debt
                  refinancing loss
              
              
              **132.0**
              
              
              
              
              
              -
              
              
              
              
              
              -Other
                  expense (income), net
              
              
              **11.6**
              
              
              
              
              
              (5.5
              )
              
              
              
              
              (5.0
              )Income
                  before income taxes and non-controlling interest
              
              
              **3.2**
              
              
              
              
              
              116.9
              
              
              
              
              
              7.1Income
                  tax expense (recovery)
              
              
              **(36.0**
              **)**
              
              
              
              
              42.8
              
              
              
              
              
              26.9Non-controlling
                  interest
              
              
              **3.7**
              
              
              
              
              
              3.0
              
              
              
              
              
              3.3NET
                  INCOME (LOSS) FOR THE YEAR
              
              
              35.5
              
              
              
              
              
              71.1
              
              
              
              
              
              (23.1
              )
  1Direct
        cost of sales, general and administrative expenses and segment profit for
        each
        business segment are expressed as a percentage of revenues for the segment.
        Other items are expressed as a percentage of total revenues.
  2As
        defined
        in “Key performanceindicators - Segment profit and segment profit
        margin.”
  **4**
   **Fiscal
        2006 compared to fiscal 2005**
 Revenues
        for fiscal 2006 were $726.3 million, up 6% from $683.1 million last year.
        Radio
        and Television experienced increases of 6% and 11%, respectively, while Content
        was down 12% compared to the prior year.
  Direct
        cost of sales, general and administrative expenses were $512.2 million, up
        5%
        from $487.8 million in the prior year. Expense increases in Television were
        a
        result of higher revenues, while increases in Radio were a result of the
        integration of the new stations in Québec. Expenses at Content decreased as a
        result of lower revenues, while Corporate expenses increased as a result
        of
        stock-based compensation and costs incurred in the process of continually
        improving its infrastructure and controls.
  Segment
        profit for fiscal 2006 was $214.1 million, up 10% from $195.3 million last
        year.
        The Radio segment profit of $68.4 million was down 1% from the prior year,
        reflecting disappointing results in Québec. The Television division’s segment
        profit of $164.2 million represented a segment profit growth of 17%. The
        Content
        division generated segment profit of $5.6 million, an increase of 56% over
        the
        prior year. Segment profit as a percentage of revenues for the year ended
        August
        31, 2006, was 30% compared to 29% in fiscal 2005.
  **Radio**
 Radio
        revenues for the year were $268.4 million, up 6% from the prior year. Local
        and
        national airtime sales each increased by 5% while interactive and other revenues
        also increased. According to the Trans-Canada Radio Advertising by Market
        (“TRAM”) report for the year ended August 31, 2006, Corus stations generated
        advertising growth of 5.5%, compared to total market growth of 6.5%. Above
        average growth was experienced in the western markets of Vancouver, Calgary
        and
        Winnipeg. Although fiscal 2006 was a challenging year in major markets like
        Toronto and Montréal, where Corus’ growth did not keep pace with the market
        average growth, Corus Radio believes that its assets continue to be
        competitively positioned to take advantage of the strong advertising
        market.
  Direct
        cost of sales, general and administrative expenses for the year were $200.0
        million, up 9% from last year, mainly due to increased investments in new
        media
        and programming content, principally related to professional hockey which
        was
        unavailable last year and contributed approximately $2.6 million in costs
        in the
        current year. In addition, expenses related to the integration of the recently
        acquired Québec stations are higher than management’s expectations and this
        combined with lower than anticipated revenue growth has had a negative impact
        on
        results for the year.
  Segment
        profit for the year was $68.4 million, 1% lower than the prior year. Segment
        profit margin for the year was 25%, down from 27% last year. During the year
        Corus Radio incurred $4.2 million in expenses related to restructuring costs
        primarily in Western Canada. These costs are reflected in other expense
        (income), net.
  **Television**
 Television
        revenues for the year were $393.3 million, up 11% over last year. Revenue
        growth
        was driven by advertising growth of 13% and subscriber growth of 10% for
        the
        year. Subscriber revenues for the year include subscriber fee adjustments
        of
        $4.7 million. Excluding these items, subscriber revenue growth for the year
        was
        7%. The strong advertising results were driven by double-digit growth in
        YTV,
        CMT, W Network, TELETOON and Telelatino. Specialty advertising growth for
        the
        year was 14%, while total revenues from local and other television properties
        grew by 5% over the prior year. Subscriber revenue growth was driven by Movie
        Central, which finished the year with 822,000 subscribers, up 10% from 748,000
        at August 31, 2005. The Company attributes this increase to successful marketing
        campaigns surrounding high-profile HBO programming, including *Rome* and the sixth season of *The
        Sopranos* ,
        which launched in March 2006.
  **5**
   Direct
        cost of sales, general and administrative expenses were $229.1 million for
        the
        year, up 7% from the prior year. The increase was primarily due to higher
        programming costs, as amortization of program rights increased by 10% over
        the
        prior year. These costs fluctuate in proportion to changes in subscriber
        levels,
        as a result of program supply agreements, and Canadian content requirements
        based on the prior year’s revenues, as a result of conditions of license. These
        increased costs were offset by effective cost containment in other general
        and
        administrative overhead, which increased by 2% over the prior year, due to
        higher marketing costs as well as bad debt expense incurred in the current
        year.
  Segment
        profit for the year of $164.2 million represented a 17% increase over the
        prior
        year. Segment profit margin was 42%, up from 40% last year.
  **Content**
 Content
        revenues for the year were $72.1 million, a decrease of 12% from the prior
        year.
        During fiscal 2006, Content delivered 107 completed episodes, compared to
        111
        episodes in the prior year. The decrease in revenues from the prior year
        was due
        to the decline in *Beyblade* revenues towards the end of fiscal 2005. The *Beyblade* decline is not likely to reverse and merchandising revenues will not return
        to
        the levels of the past few fiscal years until new brands come on line. Included
        in Content’s revenues for the year are intercompany revenues of $7.1 million.
        These revenues are eliminated upon consolidation.
  Direct
        cost of sales, general and administrative expenses for the year were $66.6
        million, down 15% from the prior year. The decrease reflects ongoing diligence
        in expense control, as well as lower film amortization and third party
        participation costs that fluctuate in proportion to revenues. In fiscal 2006
        Content incurred $6.7 million in expenses related to the restructuring of
        the
        Toronto studio and the closure of foreign offices. These costs are reflected
        in
        other expense (income), net.
  Segment
        profit for the year was $5.6 million, up from $3.6 million last year. The
        Content division continues to perform in line with the Company’s
        expectations.
  **Corporate**
 The
        Corporate segment results represent the incremental cost of corporate overhead
        in excess of the amount allocated to the other operating divisions. Corporate
        overhead in fiscal 2006 was $24.0 million, up from $18.6 million in 2005.
        Stock-based compensation expenses increased to $11.6 million in fiscal 2006
        from
        $6.8 million last year. This increase reflects the impact of Corus’ higher
        average share price in fiscal 2006 on expenses related to the Company’s
        Performance Share Units (“PSUs”), as well as an additional year of expensing
        stock options. Other general and administrative costs increased to $12.4
        million
        in fiscal 2006 from $11.8 million last year. This increase relates primarily
        to
        the increased cost of information technology and costs associated with
        implementing the requirements of the *Sarbanes-Oxley
        Act* and new Canadian securities standards.
  **Depreciation**
 Depreciation
        expense for the year was $21.3 million, a decrease of $2.4 million from last
        year. This decrease reflects a lower capital cost base, particularly in the
        Television division, and continues a trend reflecting lower capital expenditures
        in that division in recent years.
  **6**
   **Amortization**
 Amortization
        expense for fiscal 2006 was $2.9 million, down from $4.6 million in fiscal
        2005.
        The decrease is a result of certain deferred start-up and reformatting costs
        becoming fully amortized, as well as the write-off in the second quarter
        of
        deferred financing costs associated with the Senior Subordinated Notes
        (“Notes”). The write-off of these costs has been recorded as a component of the
        debt restructuring loss. The remaining deferred start-up costs of $0.4 million
        will be fully amortized in fiscal 2007, while $5.3 million in deferred financing
        charges relating to the new bank facility is being amortized over the remaining
        life of the facility.
  **Interest
        on long-term debt**
 Interest
        expense for the year was $43.1 million, down from $55.6 million last year.
        The
        Company refinanced its debt at the end of January 2006, with the result that
        the
        Notes, which paid interest at an effective rate of 9.33%, were replaced with
        bank debt paying interest on a floating rate plus a margin. Interest rate
        swap
        agreements fix the interest rate at 4.13% plus a margin on $400.0 million
        of the
        bank debt for the full term of the facility. The effective interest rate
        for
        fiscal 2006 since the refinancing was 5.2% on bank debt, compared to 9.1%,
        primarily on the Notes, in the prior year.
  **Debt
        refinancing loss**
 In
        the second quarter of fiscal 2006, the Company purchased and cancelled
        U.S.$373.6 million of its Notes. Concurrently, the cross-currency agreements
        which fixed the exchange rate on the principal and interest on the Notes
        were
        effectively terminated. In order to fund the purchase of the Notes, the Company
        amended its credit facility with a syndicate of banks. These transactions
        resulted in the Company recording a pre-tax debt refinancing loss of $132.0
        million in the second quarter. The components of this loss include
        mark-to-market payments on the cross-currency agreement terminations, consent
        and tender premiums, the non-cash write-off of deferred financing charges
        related to the Notes, and other fees. The after-tax impact of these transactions
        was approximately $1.95 per share.
  **Other
        expense (income), net**
 Other
        expense for the year was $11.7 million, representing a decrease of $17.2
        million
        from income of $5.5 million in the prior year. The current year includes
        severance-related restructuring charges of $4.2 million incurred in the Radio
        segment and $6.7 million incurred in the Content segment. The prior year
        included foreign exchange and derivative gains of $3.3 million and $4.4 million,
        respectively. The financial instruments which gave rise to these gains were
        terminated in fiscal 2005 so there is no corresponding impact in fiscal 2006.
        In
        addition, the prior year includes a realized contingent consideration gain
        of
        $4.1 million, a broadcast license impairment of $4.1 million and the retroactive
        portion of a performing rights tariff increase in the amount of $3.8
        million.
  **Income
        taxes**
 Income
        tax recovery for the year was $36.0 million on income before taxes of $3.2
        million. Fiscal 2006 was positively impacted by approximately $37.0 million
        in
        long-term future tax rate changes and other items as described in note 15
        to the
        audited consolidated financial statements.
  **Net
        income**
 Net
        income for the year was $35.5 million, down $35.6 million from $71.1 million
        last year. Earnings per share for the year were $0.84 basic and $0.82 diluted,
        compared with basic and diluted earnings per share of $1.66 and $1.65,
        respectively, in fiscal 2005. The after-tax impact of the debt refinancing
        transaction in fiscal 2006 was a loss of approximately $1.95 per
        share.
 
  
  **7**
   **Fiscal
        2005 compared to fiscal 2004**
 Revenues
        for fiscal 2005 were $683.1 million, up 2% from $666.8 million in fiscal
        2004.
        Radio and Television experienced increases of 11% and 7%, respectively, while
        Content was down 27% compared to fiscal 2004.
  Direct
        cost of sales, general and administrative expenses were $487.8 million in
        fiscal
        2005, down 15% from $576.4 million in fiscal 2004. The fiscal 2004 results
        include a writedown in film investments of $85.0 million. Excluding the
        writedown, direct cost of sales, general and administrative expenses experienced
        a 1% decrease.
  Segment
        profit for fiscal 2005 was $195.3 million, up 116% from $90.4 million in
        fiscal
        2004. The Radio division achieved segment profit of $69.0 million, an increase
        of 15%. The Television division’s segment profit of $140.8 million represented a
        segment profit growth of 13%. The Content division generated segment profit
        of
        $3.6 million, after incurring a loss of $83.7 million in the prior year.
        Segment
        profit as a percentage of revenues for fiscal 2005 was 29% compared to 14%
        in
        fiscal 2004.
  **Radio**
 Radio
        revenues for fiscal 2005 were $252.7 million, up 11% from fiscal 2004, as
        Corus
        stations were well positioned to take advantage of a strong advertising market.
        This growth was experienced across Canada, and in both local and national
        advertising. According to the TRAM report for the year ended August 31, 2005,
        Corus stations generated advertising growth of 11.3%, compared to total market
        growth of 8.7%.
  Direct
        cost of sales, general and administrative expenses for fiscal 2005 were $183.7
        million, up 9% from fiscal 2004, mainly due to higher variable costs such
        as
        commissions and copyright fees, as well as higher on-air talent compensation
        costs and Québec integration costs.
  Segment
        profit for fiscal 2005 was $69.0 million, 15% higher than fiscal 2004. Segment
        profit margin for fiscal 2005 was 27%, up from 26% in fiscal 2004. Segment
        profit for fiscal 2005 includes the $2.6 million negative impact of the tariff
        rates imposed by the Copyright Board for 2005. The retroactive portion for
        fiscal years 2003 and 2004 of $3.8 million was reflected in other expense
        (income), net.
  **Television**
 Television
        revenues for fiscal 2005 were $354.2 million, up 7% over fiscal 2004.
        Advertising and subscriber revenues increased in fiscal 2005 by 9% and 5%,
        respectively, with Movie Central, Corus’ western-based pay television service,
        finishing the year with 748,000 subscribers, up 6% from 707,000 at August
        31,
        2004. Specialty advertising revenues grew 13% over fiscal 2004.
  Direct
        cost of sales, general and administrative expenses for fiscal 2005 were $213.4
        million, up 3% from fiscal 2004. The increase was primarily due to higher
        cost
        of sales and higher variable costs associated with higher revenues. Amortization
        of program and film rights, included in cost of sales, increased as a result
        of
        a higher proportion of blockbuster movies acquired at Movie Central. These
        increased costs were offset by effective cost containment in general and
        administrative overhead.
  Segment
        profit for fiscal 2005 was $140.8 million, up 13% from fiscal 2004. Segment
        profit margin was 40%, up from 38% in fiscal 2004.
  
  
  **8**
   **Content**
 Content
        revenues for fiscal 2005 were $82.3 million, a decrease of 27% from fiscal
        2004.
        Revenues were down for the year primarily due to the decline in *Beyblade* revenue in both broadcast sales and licensing. Included in Content’s revenues
        for fiscal 2005 was $6.1 million in intercompany revenues, unchanged from
        fiscal
        2004. These revenues are eliminated upon consolidation.
  Direct
        cost of sales, general and administrative expenses for fiscal 2005 were $78.8
        million, down 60% from fiscal 2004. In the third quarter of fiscal 2004,
        the
        Content division recorded an $85.0 million writedown of its film investments.
        Excluding the writedown, direct cost of sales, general and administrative
        expenses were down 29%, reflecting lower cost of sales associated with lower
        revenues.
  Segment
        profit for fiscal 2005 was $3.6 million, up from a loss of $83.7 million
        in
        fiscal 2004. The Content division continued to perform in line with the
        Company’s expectations.
  **Corporate**
 The
        Corporate segment results represent the incremental cost of corporate overhead
        in excess of the amount allocated to the other operating divisions. Corporate
        overhead in fiscal 2005 was $18.6 million, up from $11.0 million in fiscal
        2004.
        Stock-based compensation expenses increased to $6.8 million in fiscal 2005
        from
        $3.0 million in fiscal 2004. This increase reflected the impact of Corus’ higher
        average share price in fiscal 2005 on expenses related to the Company’s PSUs, as
        well as an additional year of expensing stock options. Other general and
        administrative costs increased to $11.8 million in fiscal 2005 from $8.0
        million
        in fiscal 2004. This increase related primarily to the increased cost of
        information technology and implementation costs associated with implementing
        the
        requirements of the *Sarbanes-Oxley
        Act* .
  **Depreciation**
 Depreciation
        expense for fiscal 2005 was $23.7 million, a decrease of $2.0 million from
        $25.7
        million in fiscal 2004. This change reflected a lower capital cost base due
        to
        reduced capital expenditures and existing assets becoming fully
        amortized.
  **Amortization**
 Amortization
        expense for fiscal 2005 was $4.6 million, down from $7.3 million in fiscal
        2004.
        The decrease was a result of certain deferred pre-operating costs and radio
        reformatting costs becoming fully amortized.
  **Interest
        on long-term debt**
 Interest
        expense for fiscal 2005 was $55.6 million, up from $55.3 million in fiscal
        2004
        primarily due to lower savings generated by a fixed-to-floating interest
        rate
        swap in fiscal 2005 compared to fiscal 2004. The effective interest rate
        for
        fiscal 2005 was 9.1% compared to 8.6% in fiscal 2004. This increase reflected
        a
        higher ratio of fixed debt in fiscal 2005 as the Company repaid its floating
        rate bank loans in the first quarter of that year.
  **Other
        income, net**
 Other
        income for fiscal 2005 was $5.5 million, compared to $4.9 million in fiscal
        2004. Fiscal 2005 included net derivative transaction gains of $4.4 million,
        foreign exchange gains of $3.3 million, realized contingent consideration
        gains
        of $4.1 million, a broadcast license impairment of $4.1 million and the
        retroactive portion of a performing rights tariff increase in the amount
        of $3.8
        million, while fiscal 2004 included net derivative transaction gains of $1.0
        million and foreign exchange gains of $2.2 million.
 
  
  **9**
   **Income
        taxes**
 The
        effective tax rate for fiscal 2005 was 36.6%, compared to the statutory rate
        of
        35.4%. This difference reflected the geographical allocation of the Company’s
        taxable income and the non-deductibility of stock-based
        compensation.
  **Net
        income (loss)**
 Net
        income for fiscal 2005 was $71.1 million, up from a loss of $23.1 million
        in
        fiscal 2004. Earnings per share for fiscal 2005 were $1.66 basic and $1.65
        diluted, compared with a loss per share of $0.54 basic and diluted in fiscal
        2004.
  **Quarterly
        consolidated financial information (unaudited)**
 The
        following tables set forth certain unaudited data from the consolidated
        statements of income (loss) and retained earnings (deficit) for each of the
        eight most recent quarters ended August 31, 2006. The information has been
        derived from the Company’s unaudited consolidated financial statements that, in
        management’s opinion, have been prepared on a basis consistent with the audited
        consolidated financial statements contained elsewhere in this
        report.
 Earnings
                  (loss) per share(thousands
                  of Canadian dollarsexcept
                  per share amounts)
              
              Revenues
              
              Segment
                  profit 1
              
              Net
                  income (loss)
              
              Basic
              
              Diluted**2006****4th
                  quarter**
              
              
              **184,979**
              
              
              **44,515**
              
              
              **46,642**
              
              **$**
              **1.11**
              
              **$**
              **1.09****3rd
                  quarter**
              
              
              **181,562**
              
              
              **57,702**
              
              
              **23,154**
              
              
              **0.55**
              
              
              **0.54****2nd
                  quarter**
              
              
              **164,388**
              
              
              **42,151**
              
              
              **(65,732**
              **)**
              
              **(1.54**
              **)**
              
              **(1.54**
              **)****1st
                  quarter**
              
              
              **195,341**
              
              
              **69,751**
              
              
              **31,407**
              
              
              **0.73**
              
              
              **0.72**20054th
                  quarter
              
              
              175,279
              
              
              42,571
              
              
              9,662
              
              $
              0.23
              
              $
              0.223rd
                  quarter
              
              
              171,890
              
              
              52,351
              
              
              19,430
              
              
              0.45
              
              
              0.452nd
                  quarter
              
              
              155,300
              
              
              38,024
              
              
              12,945
              
              
              0.30
              
              
              0.301st
                  quarter
              
              
              180,600
              
              
              62,365
              
              
              29,077
              
              
              0.68
              
              
              0.68
  1As
        defined in “Key
        performance indicators- Segment profit and segment profit
        margin.”
  **Seasonal
        fluctuations**
 Corus’
        operating results are subject to seasonal fluctuations that can significantly
        impact quarter-to-quarter operating results. Accordingly, one quarter’s
        operating results are not necessarily indicative of what a subsequent quarter’s
        operating results will be. The broadcasting businesses (Radio and Television)
        and the Content business each have unique seasonal aspects.
  For
        the broadcasting businesses, operating results are dependent on general
        advertising and retail cycles associated with consumer spending activity.
        Accordingly, operating results for the first quarter tend to be the strongest,
        reflecting pre-Christmas advertising activity, and for the second quarter
        tend
        to be the weakest, consistent with lower consumer spending in winter
        months.
  For
        the Content business, operating results are dependent on the timing and number
        of television programs made available for delivery in the period, as well
        as
        timing of merchandising royalties received, none of which can be predicted
        with
        certainty. Consequently, Content’s operating results may fluctuate significantly
        from quarter to quarter. Cash flows may also fluctuate and are not necessarily
        closely related to revenue recognition.
  **10**
   **Significant
        items causing variations in quarterly results**
  >  Net
        income in the fourth quarter of fiscal 2006 was positively impacted by
        approximately $37.0 million in income tax rate changes and other income tax
        items.
  >  The
        second quarter of fiscal 2006 was impacted by the purchase and cancellation
        of
        the Company’s Notes, as well as the termination of the cross-currency agreements
        associated with the Notes. The after-tax impact of these transactions was
        approximately $82.6 million or $1.95 per share.
  **Fourth
        quarter**
 Revenues
        for the fourth quarter were $185.0 million, an increase of 6% over $175.3
        million last year. Radio revenues for the fourth quarter were $66.3 million,
        up
        2% from the corresponding period last year. Revenue growth for the quarter
        was
        experienced in Western Canada and Ontario, with Vancouver and Calgary
        contributing above market average growth in the quarter, as indicated by
        the
        TRAM report for the three months ended August 31, 2006. Local airtime sales
        for
        the fourth quarter decreased over the prior year by 4%, while national airtime
        sales increased by 11% in the quarter. Television revenues for the fourth
        quarter were $94.7 million, up 13% over the corresponding period last year.
        Revenue growth for the quarter was driven by advertising growth of 18% and
        subscriber growth of 12%. Subscriber revenues for the quarter include subscriber
        fee adjustments of $2.3 million. Excluding these items, subscriber revenue
        growth for the quarter was 7%. The strong advertising results were driven
        by
        double-digit growth in YTV, CMT, W Network, TELETOON and Telelatino. In total,
        specialty advertising revenues grew 20% over the prior year’s quarter. Content
        revenues for the fourth quarter were $26.8 million, a decrease of 4% from
        the
        prior year. During the quarter, Content delivered 47 episodes, compared to
        12
        episodes in the prior year.
  Direct
        cost of sales, general and administrative expenses for the fourth quarter
        were
        $140.5 million, up 6% from $132.7 million in the prior year. Radio expenses
        of
        $50.4 million were up 2% from the prior year. Television expenses were $60.5
        million for the fourth quarter, up 15% from the prior year, primarily due
        to
        higher programming costs. Content expenses for the quarter were $24.1 million,
        down by 8% from the prior year, due to lower revenues. Corporate overhead
        for
        the fourth quarter increased to $7.9 million from $6.0 million in the prior
        year, reflecting higher expenses for stock-based compensation.
  Depreciation
        expense for the fourth quarter was $5.6 million, a decrease of $0.3 million
        from
        last year. This decrease reflects a lower capital cost base. Amortization
        expense for the fourth quarter was $0.6 million, down from $1.1 million last
        year. The decrease is a result of certain deferred start-up and reformatting
        costs becoming fully amortized. Interest expense for the fourth quarter was
        $8.5
        million, down from $14.3 million last year. The effective interest rate for
        the
        fourth quarter was 5.3% on bank debt, compared to 9.4%, primarily on the
        Notes,
        in the prior year. Other expense for the fourth quarter was $8.3 million,
        compared to $5.3 million in the prior year. The current year’s quarter includes
        $6.7 million in restructuring charges incurred in the Content segment, while
        the
        prior year’s quarter includes a realized contingent consideration gain of $4.1
        million, a broadcast license impairment of $4.1 million and the retroactive
        portion of a performing rights tariff increase in the amount of $3.8 million.
        Income tax recovery for the fourth quarter was $25.9 million on income before
        taxes of $21.6 million. The fourth quarter was positively impacted by
        approximately $37.0 million in income tax rate changes and other income tax
        items. Excluding these items, the effective tax rate for the fourth quarter
        was
        51.4%, compared with the Company’s 35.2% statutory rate. This difference is due
        to the impact of the fourth quarter long-term future tax rate change on the
        tax
        benefit recognized on the debt restructuring recorded in the second
        quarter.
  Net
        income for the fourth quarter was $46.6 million, compared to $9.7 million
        last
        year. Earnings per share for the fourth quarter were $1.11 basic and $1.09
        diluted, compared with $0.23 basic and $0.22 diluted last year.
  **11**
   **Key
        performance indicators**
 The
        Company measures the success of its strategies using a number of key performance
        indicators. These have been outlined below, including a discussion as to
        their
        relevance, definitions, calculation methods and underlying assumptions. With
        the
        exception of revenues, direct cost of sales, general and administrative expenses
        and segment profit, the following key performance indicators are not
        measurements in accordance with Canadian or U.S. GAAP and should not be
        considered as an alternative to net income or any other measure of performance
        under Canadian or U.S. GAAP.
  **Revenue**
 Revenue
        is a measurement defined by Canadian and U.S. GAAP. Revenue is the inflow
        of
        cash, receivables or other consideration arising from the sale of product
        and
        services and is net of items such as trade or volume discounts and certain
        excise and sales taxes. It is the base on which free cash flow, a key
        performance indicator defined below, is determined; therefore, it measures
        the
        potential to deliver free cash flow as well as indicates the level of growth
        in
        a competitive marketplace.
  The
        primary sources of revenues for the Company are outlined in the “Overview”
section on page 1.
  Corus
        is well diversified by revenue source with revenue streams for the year ended
        August 31, 2006, derived primarily from three areas: advertising (58%),
        subscriber fees (28%) and license fees (5%) (2005 - 58%, 27% and 9%,
        respectively).
  **Direct
        cost of sales, general and administrative expenses**
 Consolidated
        direct cost of sales, general and administrative expenses include amortization
        of program and film rights (costs of programming intended for broadcast,
        from
        which advertising and subscriber fee revenues are derived), amortization
        of film
        investments (costs associated with internally produced and acquired television
        and film programming, from which distribution and licensing revenues are
        derived), employee remuneration, regulatory license fees, cost of goods sold
        relating to publishing, marketing (research and advertising costs), selling,
        general administration and overhead costs. Cost of goods sold relating to
        publishing includes the material cost of the product, printing, freight,
        customs
        and duties and royalties to authors and illustrators based upon sales and
        is
        included in direct cost of sales, general and administrative expenses.
        Approximately 36% and 29% of consolidated direct cost of sales, general and
        administrative expenses in fiscal 2006 (2005 - 36% and 30%, respectively)
        were
        composed of employee remuneration and programming and film costs,
        respectively.
  **Segment
        profit and segment profit margin**
 Segment
        profit is calculated as revenues less direct cost of sales, general and
        administrative expenses as reported in the Company’s consolidated statements of
        income (loss) and retained earnings (deficit). The Company believes this
        is an
        important measure as it allows the Company to evaluate the operating performance
        of its business segments and its ability to service and/or incur debt;
        therefore, it is calculated before (i) interest on long-term debt; (ii) non-cash
        expenses such as depreciation and amortization; and (iii) items not indicative
        of the Company’s core operating results, and not used in management’s evaluation
        of the business segment’s performance, such as debt refinancing loss and other
        expense (income), net. Segment profit is also one of the measures used by
        the
        investing community to value the Company and is included in note 16 to the
        consolidated financial statements. Segment profit margin is calculated by
        dividing segment profit by revenues.
 
  
  **12**
   **Free
        cash flow**
 Free
        cash flow is calculated as cash provided by operating activities less cash
        used
        in investing activities as reported in the consolidated statements of cash
        flows. Free cash flow measures the Company’s ability to repay debt, finance the
        business and pay dividends.
  (thousands
                  of Canadian dollars)
              
              **2006**
              
              2005
              
              2004Cash
                  provided by (used in):Operating
                  activities
              
              
              **111,018**
              
              
              102,416
              
              
              84,912Investing
                  activities
              
              
              **(17,249**
              **)**
              
              (21,623
              )
              
              (32,425
              )FREE
                  CASH FLOW
              
              
              **93,769**
              
              
              80,793
              
              
              52,487
  **Net
        debt and adjusted net debt**
 Net
        debt is calculated as long-term debt less cash and cash equivalents as reported
        in the consolidated balance sheets. Adjusted net debt is calculated as net
        debt
        adjusted for the unrealized cumulative foreign exchange gains on the Company’s
        Notes. Adjusted net debt is an important measure as it reflects the principal
        amount of debt owing by the Company as at a particular date.
  (thousands
                  of Canadian dollars)
              
              **2006**
              
              2005Long-term
                  debt
              
              
              **596,362**
              
              
              445,162Cash
                  and cash equivalents
              
              
              **(43,636**
              **)**
              
              (138,086
              )Net
                  debt
              
              
              **552,726**
              
              
              307,076Unrealized
                  cumulative foreign exchange gains
              
              
              **-**
              
              
              158,838ADJUSTED
                  NET DEBT
              
              
              **552,726**
              
              
              465,914
  **Adjusted
        net debt to adjusted segment profit**
 Adjusted
        net debt to adjusted segment profit is calculated as adjusted net debt divided
        by adjusted segment profit. Adjusted segment profit is calculated as segment
        profit adjusted for items not considered being in the ordinary course of
        business. It is one of the key metrics used by the investing community to
        measure the Company’s ability to repay debt through ongoing
        operations.
 
 (thousands
                  of Canadian dollars except ratios)
              
              **2006**
              
              2005
              
              2004Adjusted
                  net debt (numerator)
              
              
              **552,726**
              
              
              465,914
              
              
              545,533Adjusted
                  segment profitSegment
                  profit
              
              
              **214,119**
              
              
              195,311
              
              
              90,398Writedown
                  of
                  investment in film
              
              
              **-**
              
              
              -
              
              
              85,000Adjusted
                  segment profit (denominator)
              
              
              **214,119**
              
              
              195,311
              
              
              175,398ADJUSTED
                  NET DEBT TO ADJUSTED SEGMENT PROFIT
              
              
              **2.6**
              
              
              2.4
              
              
              3.1
 
  **13**
   **Risks
        and uncertainties**
  **Impact
        of regulation on Corus’ results of operations**
 Radio
        and Television
 Corus’
        Radio and Television business activities are regulated by the CRTC under
        the *Broadcasting
        Act* and, accordingly, Corus’ results of operations may be adversely affected by
        changes in regulations, policies and decisions by the CRTC. The CRTC, among
        other things, issues licenses to operate radio and television stations and
        regulates the rates Corus may charge for its specialty television services
        if
        such services are distributed as part of the basic service by a cable
        distributor. In fiscal 2006, the CRTC granted a pay television license to
        an
        entity allowing it to compete with our premium television services. Corus’ radio
        stations must also meet technical operating requirements under the *Radiocommunications
        Act* and
        regulations promulgated under the *Broadcasting
        Act* .
        Changes in the regulation of Corus’ business activities, including decisions by
        the CRTC affecting Corus’ operations (such as the granting or renewal of
        licenses, decisions as to the subscriber fees Corus may charge its customers,
        or
        the granting of additional distribution, broadcasting or programming licenses
        to
        competitors in Corus’ markets) or changes in interpretations of existing
        regulations by courts or the CRTC, could materially adversely affect Corus’
business and results of operations.
  In
        addition, in order to maintain eligibility under the *Broadcasting
        Act* and the *Radiocommunications
        Act* ,
        there are limitations on the ownership by non-Canadians of Corus Class A
        Voting
        Shares. Under certain circumstances, Corus’ Board of Directors may refuse to
        issue or register the transfer of Corus Class A Voting Shares to any person
        that
        is a non-Canadian or may sell the Corus Class A Voting Shares of a non-Canadian
        as if they were the owner of such Corus Class A Voting Shares.
  Corus’
        radio, conventional television, specialty television, pay television, and
        digital audio undertakings rely upon licenses under the *Copyright
        Act* (Canada) in order to make use of the music component of the programming
        distributed by these undertakings. Under these licenses, Corus is required
        to
        pay royalties established by the Copyright Board pursuant to the requirements
        of
        the *Copyright
        Act* to collecting societies that represent the copyright owners in such music
        component. These royalties are paid by these undertakings on a monthly basis
        in
        the normal course of their business.
  The
        levels of the royalties payable by Corus are subject to change upon application
        by the collecting societies and approval by the Copyright Board. The Government
        of Canada may, from time to time, make amendments to the *Copyright
        Act* to implement Canada’s international treaty obligations and for other obligations
        and purposes. Any such amendments could result in Corus’ broadcasting
        undertakings being required to pay additional royalties for these
        licenses.
  Content
 Corus
        licenses a significant portion of its programming to Canadian conventional
        television stations, specialty and premium television networks, which are
        required by the CRTC to devote a certain portion of their programming schedules
        to Canadian productions. In addition to these scheduling requirements, the
        CRTC
        generally requires Canadian specialty services to devote a certain amount
        of
        their revenues to certified Canadian programming. There can be no assurance
        that
        such policies will not be eliminated or scaled back, thereby reducing the
        advantages that they currently provide to Corus as a supplier of such programs.
        Also, there can be no assurance that Corus programming will continue to qualify
        as certified Canadian programming. If Corus’ programming fails to so qualify,
        Canadian broadcasters would not be able to use the programs to meet their
        Canadian programming obligations and, as a result, license fees paid to Corus
        by
        Canadian broadcasters would not reflect the current premium paid for certified
        Canadian programs and Corus would not qualify for certain Canadian tax credits
        and industry incentives. Canadian Heritage, the Canadian ministry that oversees
        the tax credits, has conducted a review of the definition of Canadian content,
        as it applies to film and television production, but no formal changes to
        the
        definition have been announced.
  **14**
   **Competition**
 Corus
        encounters aggressive competition in all areas of its business. Corus’ failure
        to compete in these areas could materially adversely affect Corus’ results of
        operations.
  The
        television production industry, specialty and pay television channel
        broadcasting and radio broadcasting have always involved a substantial degree
        of
        risk. There can be no assurance of the economic success of radio stations,
        television programs or specialty television channels as revenue derived depends
        on audience acceptance of other competing programs released into, or channels
        existing in, the marketplace at or near the same time, the availability of
        alternative forms of entertainment and leisure time activities, general economic
        conditions, public tastes generally and other intangible factors, all of
        which
        could change rapidly and many of which are beyond Corus’ control. The lack of
        audience acceptance for Corus’ radio stations, television programs, specialty
        and pay television channels would have an adverse impact on Corus’ businesses,
        results of operations, prospects and financial condition.
  Radio
 The
        financial success of each of Corus’ radio stations is dependent principally upon
        its share of the overall advertising revenue within its geographic market,
        its
        promotional and other expenses incurred to obtain the revenue and the economic
        strength of its geographic market. Corus’ radio advertising revenues are, in
        turn, highly dependent upon audience share. Other stations may change
        programming formats to compete directly with Corus’ stations for listeners and
        advertisers or launch aggressive promotional campaigns in support of already
        existing competitive formats. If a competitor, particularly one with substantial
        financial resources, were to attempt to compete in either of these fashions,
        ratings at Corus’ affected stations could be negatively impacted, resulting in
        lower net revenues.
  Radio
        broadcasting is also subject to competition from electronic and print media.
        Potential advertisers can substitute advertising through broadcast television,
        cable television systems (which can offer concurrent exposure on a number
        of
        cable networks to enlarge the potential audience), daily, weekly, and
        free-distribution newspapers, other print media, direct mail, and online
        computer services for radio advertising. Competing media commonly target
        the
        customers of their competitors, and advertisers regularly shift dollars from
        radio to these competing media and vice versa. Accordingly, there can be
        no
        assurance that any of Corus’ radio stations will be able to maintain or increase
        their current audience share and advertising revenue share.
  Television
 The
        financial success of Corus’ specialty television business depends on obtaining
        revenue from advertising as well as from subscription fees. Numerous broadcast
        and specialty television networks compete with Corus for advertising revenue,
        and a failure by Corus to obtain its necessary share of such revenue could
        materially adversely affect Corus’ results of operations. Corus’ services also
        compete with a number of foreign programming services which have been authorized
        for distribution in Canada by the CRTC. Moreover, increasingly Corus’ specialty,
        pay and conventional television services are competing with alternative forms
        of
        entertainment that are not regulated by the CRTC, such as the Internet and
        video
        and DVD rentals. In addition, competition among specialty television services
        in
        Canada is highly dependent upon the offering of prices, marketing and
        advertising support and other incentives to cable operators and other
        distributors for carriage so as to favourably position and package the services
        to subscribers. As well, the CRTC has licensed a number of specialty services
        for digital distribution, which increases competition. Any failure by Corus
        to
        compete effectively in the area of specialty television services could
        materially adversely affect Corus’ results of operations.
  **15**
   Corus’
        pay television services are exclusive providers of premium movies and series,
        as
        well as classical movie offerings to western Canadian subscribers. These
        services compete with pay-per-view movie offerings as well as video-on-demand
        offerings.
  Content
 The
        production and distribution of children’s television, books and other media
        content is very competitive. There are numerous suppliers of media content,
        including vertically integrated major motion picture studios, television
        networks, independent television production companies and children’s book
        publishers around the world. Many of these competitors are significantly
        larger
        than Corus and have substantially greater resources, including easier access
        to
        capital. Corus competes with other television and motion picture production
        companies for ideas and storylines created by third parties as well as for
        actors, directors and other personnel required for a production.
  Further,
        vertical integration of the television broadcast industry and the creation
        and
        expansion of new networks, which create a substantial portion of their own
        programming, have decreased the number of available time slots for programs
        produced by third party production companies. There can be no assurances
        that
        Corus will be able to compete successfully in the future or that Corus will
        continue to produce or acquire rights to additional successful programming
        or
        enter into agreements for the financing, production, distribution or licensing
        of programming on terms favourable to Corus. There continues to be intense
        competition for the most attractive time slots offered by those services.
        There
        can be no assurances that Corus will be able to increase or maintain penetration
        of broadcast schedules.
  **Risks
        associated with production of film and television programs and
        websites**
 Each
        production is an individual artistic work and its commercial success is
        determined primarily by audience acceptance, which cannot be accurately
        predicted. The success of a program is also dependent on the type and extent
        of
        promotion and marketing activities, the quality and acceptance of other
        competing programs, general economic conditions and other factors, all of
        which
        can change rapidly and many of which are beyond Corus’ control.
  Production
        of film and television programs require a significant amount of capital.
        Factors
        such as labour disputes, technology changes or other disruptions affecting
        aspects of production may affect Corus or its co-production partners and
        cause
        cost overruns and delay or hamper completion of a production.
  Financial
        risks exist in productions relating to tax credits and co-production treaties.
        The aggregate amount of government tax credits a project may receive can
        constitute a material portion of a production budget and typically can be
        as
        much as 30% of total budgeted costs. There is no assurance that government
        tax
        credits and industry funding assistance programs will continue to be available
        at current levels or that Corus’ production projects will continue to qualify
        for them. As well, the majority of Corus’ productions are co-productions
        involving international treaties that allow Corus to access foreign financing
        and reduce production risk as well as qualify for Canadian government tax
        credits. If an existing treaty between Canada and the government of one of
        the
        current co-production partners were to be abandoned, one or more co-productions
        currently underway may also need to be abandoned. Losing the ability to rely
        on
        co-productions would have a significant adverse effect on Corus’ production
        capabilities and production financing.
  Results
        of operations for the production and distribution business for any period
        are
        dependent on the number, timing and commercial success of television programs
        and feature films delivered or made available to various media, none of which
        can be predicted with certainty. Consequently, current revenue from production
        and distribution may fluctuate materially from period to period and the results
        of any one period are not necessarily indicative of results for future periods.
        Cash flows may also fluctuate and are not necessarily closely correlated
        with
        revenue recognition.
  **16**
   Library
        revenue from production and distribution can vary substantially from year
        to
        year, both by geographic territory and by year of production. The timing
        of
        Content’s ability to sell library product in certain territories will depend on
        the market outlook in the particular territory and the availability of product
        by territory, which depends on the extent and term of any prior sale in that
        territory.
  The
        production of websites related to Corus’ Television, Radio, and Content brands
        generates hundreds of pages of content each day. This content is in many
        forms
        including text, graphics, databases, photographs, audio files, radio files,
        and
        interactive content such as online games and third party posts of content
        and
        links. Corus takes rigorous steps to ensure that procedures are in place
        to
        clear rights and to vet third party content. There remains a risk, however,
        that
        some potentially defamatory or infringing content can be posted on a Corus
        website. Corus carries insurance coverage against this risk but there remains
        a
        limited risk of liability to third party claims.
  **Intellectual
        property rights**
 Corus’
        trademarks, copyrights and other proprietary rights are important to the
        Company’s competitive position. In particular, the Content group must be able to
        protect its trademarks, copyrights and other proprietary rights in order
        to
        competitively produce, distribute and license its television programs and
        published materials, and market its merchandise. Accordingly, Corus devotes
        the
        Company’s resources to the establishment and protection of trademarks,
        copyrights and other proprietary rights on a worldwide basis. However, from
        time
        to time, various third parties contest or infringe upon the Company’s
        intellectual property rights. The Company reviews these matters to determine
        what, if any, actions may be required or should be taken, including legal
        action
        or negotiated settlement. There can be no assurance that the Company’s actions
        to establish and protect trademarks, copyrights and other proprietary rights
        will be adequate to prevent imitation or unauthorized reproduction of the
        Company’s products by others or prevent third parties from seeking to block
        sales, licensing or reproduction of these products as a violation of their
        trademarks, copyrights and proprietary rights.
  Moreover,
        there can be no assurance that others will not assert rights in, or ownership
        of, the Company’s trademarks, copyrights and other proprietary rights, or that
        the Company will be able to successfully resolve these conflicts. In addition,
        the laws of certain foreign countries may not protect proprietary rights
        to the
        same extent as do the laws of the United States or Canada.
  **Technological
        developments**
 New
        or alternative media technologies and business models, such as digital radio
        services, satellite radio, direct-to-home satellite, wireless and wired cable
        television, Internet programming and video programming, and online publications
        have recently begun to compete, or may in the future compete, for programming,
        audiences and advertising revenues. These technologies and business models
        may
        increase audience fragmentation, reduce the Company’s ratings or have an adverse
        effect on advertising revenues from local and national audiences. These or
        other
        technologies and business models may have a material adverse effect on Corus’
business, results of operations or financial condition.
  **Interest
        rate and foreign exchange risk**
 The
        Company manages its exposure to floating interest rates through the use of
        interest rate agreements or “swaps.” All such agreements are used for risk
        management purposes only. In order to minimize the risk of counterparty default
        under its swap agreements, Corus assesses the creditworthiness of its swap
        counterparties. Currently 100% of the Company’s total swap portfolio is held by
        financial institutions with Standard & Poor’s ratings (or the equivalent)
        ranging from A to AA-.
  **17**
  Corus
        has the following financial exposures to risk in its day-to-day
        operations:
  Interest
        rates
 The
        Company utilizes long-term financing extensively in its capital structure,
        which
        includes banking facilities, and U.S. dollar denominated Notes as more fully
        described in note 12 to the consolidated financial statements.
  Interest
        rates on the balance of the bank loans fluctuate with Canadian bankers’
acceptances and LIBOR. The Company has entered into Canadian interest rate
        swap
        agreements to fix the interest rate of a portion of the facility.
  As
        at August 31, 2006, 67% of the Company’s consolidated long-term debt was fixed
        with respect to interest rates.
  Foreign
        exchange
 A
        significant portion of revenues and expenses for the Content business is
        in
        currencies other than Canadian dollars and, therefore, is subject to
        fluctuations in exchange rates. Approximately 7% of Corus’ total revenues were
        in foreign currencies, the majority of which was U.S. dollars.
  **Contingencies**
 The
        Company and its subsidiaries are involved in litigation arising in the ordinary
        course and conduct of its business. The Company recognizes liabilities for
        contingencies when a loss is probable and capable of being estimated. As
        at
        August 31, 2006, there were no actions, suits or proceedings pending or against
        the Company or its subsidiaries which would, in management’s estimation, likely
        be determined in such a manner as to have a material adverse effect on the
        business of the Company.
  **Financial
        position**
 Total
        assets at August 31, 2006, were $1.84 billion compared to $1.93 billion at
        August 31, 2005. The following discussion describes the significant changes
        in
        the consolidated balance sheet since August 31, 2005.
  Current
        assets decreased by $91.4 million. Cash and cash equivalents decreased by
        $94.5
        million. This decrease is the result of financing activities related to the
        purchase of the Notes and the termination of the associated cross-currency
        agreements as well as the purchase of the Company’s shares through the Normal
        Course Issuer Bid. Accounts receivable decreased by $12.4 million. This decrease
        is primarily in the Content division, from receipts related to significant
        revenues recorded at the end of fiscal 2005.
  Non-current
        assets increased by $5.3 million. Investments and other assets decreased
        by $7.2
        million, as the Company divested itself of an interest in a privately owned
        Canadian media company. Property, plant and equipment increased by $2.4 million
        as capital expenditures of $23.6 million were offset by depreciation of $21.3
        million. The property, plant and equipment balance had declined through the
        first three quarters of fiscal 2006, as the significant investments from
        fiscal
        2001 and 2002 were depreciated; however, capital expenditures in the fourth
        quarter were higher than in the first three quarters as the Company invests
        in
        consolidating its Montréal radio facilities. Program and film rights (current
        and non-current) increased by $35.7 million, as accruals for acquired rights
        of
        $159.3 million were offset by amortization of $124.3 million. Program rights
        increased due to the renewal of multi-year output arrangements, summer license
        term start dates for some of the key fall launch programming, and increases
        in
        condition of license requirements due to revenue growth. Film investments
        increased by $2.4 million as net film spending of $44.4 million was offset
        by
        film amortization and accruals for tax credits. Deferred charges decreased
        by
        $9.9 million due to amortization and the write-off of deferred financing
        charges
        as a result of the refinancing transactions in the second quarter. This was
        offset by the addition of new deferred financing charges related to the new
        bank
        facility. Broadcast licenses decreased by $3.8 million and goodwill decreased
        by
        $4.1 million as a result of the sale of two radio stations in the first
        quarter.
  **18**
   Current
        liabilities increased by $5.7 million. Accounts payable and accrued liabilities
        increased by $4.1 million and income taxes payable increased by $1.5 million.
        Accounts payable and accrued liabilities related to working capital decreased
        by
        $25.8 million, due to the change in timing of the payment of interest on
        long-term debt, while non-working capital accruals for program rights and
        film
        investments increased by $20.9 million, as the Company grows its program
        rights
        assets. In addition, the Company accrued $9.0 million for dividends to be
        paid
        in the first quarter of fiscal 2007.
  Non-current
        liabilities decreased by $79.1 million. Long-term debt increased by $151.2
        million, resulting from the refinancing transaction in the second quarter.
        The
        Company paid $436.0 million to purchase its Notes, and has drawn down $595.8
        million on its new bank facility. This bank facility combined with an existing
        cash balance was used to finance the purchase of the Notes and terminate
        the
        associated cross-currency agreements. Deferred credits decreased by $167.1
        million as a result of the termination of the cross-currency agreements
        associated with the Notes and the payment of public benefit liabilities.
        Net
        future tax liability (including current future tax asset) decreased by $75.3
        million primarily as a result of the tax impact of the refinancing transaction
        in the second quarter, changes in long-term rates, and other items in the
        fourth
        quarter.
  Share
        capital decreased by $15.3 million as a result of the repurchase and
        cancellation of shares with a book value of $21.7 million under the Company’s
        recently implemented issuer bid. This was offset by the receipt of $6.0 million
        on the exercise of employee stock options, in response to a recent increase
        in
        the Company’s share price. Contributed surplus increased by $3.3 million as a
        result of expensing stock options for the year. Cumulative translation
        adjustment increased by $1.5 million due to the effect of the strengthening
        Canadian dollar on the translation of the net assets of self-sustaining foreign
        operations.
  **Liquidity
        and capital resources**
 **Cash
        flows**
 Overall,
        the Company’s cash and cash equivalents position has decreased by $94.5 million
        in fiscal 2006, compared to an increase of $42.9 million in the prior year.
        This
        is due to the refinancing of the Company’s debt in the second quarter and the
        repurchase of shares through a Normal Course Issuer Bid. Free cash flow for
        the
        year was $93.8 million compared to $80.8 million in the prior year.
  Cash
        provided by operating activities in fiscal 2006 is $111.0 million, compared
        to
        $102.4 million last year. This increase is primarily due to cash provided
        by an
        $18.8 million increase in segment profit; an increase of $19.1 million in
        non-cash add-backs for stock-based compensation and amortization of program
        and
        film rights; and a $5.0 million decrease in net additions to film assets,
        offset
        by an increased investment in non-cash working capital of $12.1 million and
        higher payments for program rights of $12.4 million.
  Cash
        used in investing activities in fiscal 2006 is $17.2 million, compared to
        $21.6
        million last year. The current year includes $10.6 million in proceeds from
        the
        sale of certain radio and other assets, and $5.4 million from the disposal
        of
        investments, while capital expenditures are ahead of the prior year. The
        increased capital expenditures relate to the consolidation of the Montréal radio
        facilities.
  Cash
        used in financing activities in fiscal 2006 is $188.2 million, compared to
        $37.9
        million last year. In the second quarter of fiscal 2006, the Company purchased
        and cancelled its Notes, terminated the cross-currency agreement associated
        with
        the Notes, and amended its credit facility. The Company financed this
        transaction through a drawdown of the amended credit facility. In fiscal
        2006,
        1,034,700 shares were purchased through a Normal Course Issuer Bid for cash
        consideration of $36.8 million.
  **19**
   **Liquidity**
 As
        at August 31, 2006, the Company has available $200.0 million under a revolving
        term credit facility that matures on January 24, 2011. Interest rates on
        the
        Company’s facilities fluctuate with Canadian bankers’ acceptances and
        LIBOR.
  These
        borrowings combined with cash generated from operations have been the primary
        funding sources for operations over the last several years. The nature of
        the
        Company’s business is such that significant expenditures are required to acquire
        program rights for the Television business and to produce and acquire film
        assets for the Content business. For the past three years, these expenditures
        have been financed from cash generated from operations. The Company has no
        significant commitments related to the acquisition of property, plant and
        equipment. Over the past three fiscal years, the Company has reduced its
        investment in non-cash working capital.
  As
        at August 31, 2006, the Company has a cash balance of $43.6 million, and
        a
        working capital balance of $88.3 million. Management believes that cash flow
        from operations and existing credit facilities will provide the Company with
        sufficient financial resources to fund its operations for fiscal
        2007.
  **Net
        debt and adjusted net debt**
 As
        at August 31, 2006, net debt was $552.7 million, up from $307.1 million at
        August 31, 2005. Adjusted net debt at August 31, 2006, was $552.7 million,
        up
        from $465.9 million at August 31, 2005. This increase in net debt is a result
        of
        the cash flows incurred to buy back the Notes and terminate the associated
        cross-currency agreements. Adjusted net debt to segment profit at August
        31,
        2006, was 2.6 times, up from 2.4 times at August 31, 2005. This ratio remains
        below management’s stated guidance range of 3.0 to 3.5 times.
  **Off-balance
        sheet arrangements and derivative financial instruments**
 The
        Company has guarantees and general indemnification commitments to
        counterparties. Historically, the Company has not made any significant payments
        with respect to these guarantees and indemnification provisions, and management
        believes that the risk of loss is low.
  The
        Company uses derivative financial instruments to manage risks from fluctuations
        in interest rates. These instruments include 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. The carrying value of derivative financial instruments that do
        not
        qualify for hedge accounting is adjusted to reflect their current market
        value.
  During
        fiscal 2006, the Company entered into Canadian interest rate swap agreements
        to
        fix the interest rate on its outstanding bank loans. The estimated fair value
        of
        these agreements at August 31, 2006, is $2.0 million. No asset has been included
        in the consolidated balance sheet.
  As
        at August 31, 2005, the consolidated balance sheet included a liability of
        $158.8 million related to a cross-currency agreement. Corus terminated this
        agreement in the second quarter of fiscal 2006 as part of the refinancing
        of its
        debt. The fair value of the liability at the date of its termination was
        included in the debt refinancing loss recorded in the second quarter of fiscal
        2006.
  
  
  **20**
   **Contractual
        commitments**
 Corus
        has the following contractual obligations:
  Less
                  than
              
              One
                  to
              
              Four
                  to
              
              After(thousands
                  of Canadian dollars)
              
              Total
              
              one
                  year
              
              three
                  years
              
              five
                  years
              
              five
                  yearsLong-term
                  debt
              
              
              600,601
              
              
              -
              
              
              -
              
              
              600,000
              
              
              601Operating
                  leases
              
              
              98,872
              
              
              21,701
              
              
              33,229
              
              
              19,877
              
              
              24,065Film
                  and program rights purchase commitments
              
              
              154,198
              
              
              67,303
              
              
              73,592
              
              
              13,303
              
              
              -Other
                  long-term obligations
              
              
              18,514
              
              
              2,868
              
              
              5,304
              
              
              5,026
              
              
              5,316
  **Transactions
        with related parties**
 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 have normal trade terms.
  During
        the year, the Company received cable service subscriber, programming and
        advertising fees of $92.8 million (2005 - $94.6 million), production and
        distribution revenue of $2.9 million (2005 - $2.5 million) and administrative
        and other fees of $6.0 million (2005 - $6.6 million) from related parties.
        In
        addition, the Company paid cable and satellite system distribution access
        fees
        of $4.4 million (2005 - $4.8 million) and administrative and other fees of
        $2.1
        million (2005 - $2.0 million) to related parties. As at August 31, 2006,
        the
        Company had $17.4 million (2005 - $20.1 million) receivable from related
        parties.
  The
        Company provided related parties with radio and television spots in return
        for
        television advertising. No monetary consideration was exchanged for these
        transactions and no amounts were recorded in the accounts.
  In
        fiscal 2005, Corus acquired a cable advertising business for $0.9 million
        in
        cash from Shaw, a company subject to common voting control.
  Certain
        officers of the Company are currently indebted to the Company in connection
        with
        the purchase of Class B Non-Voting Shares and relocation housing loans. The
        loans granted by the Company do not bear interest. The aggregate amount of
        such
        indebtedness as of August 31, 2006, was $6.1 million.
  **Outstanding
        share data**
 As
        at October 31, 2006, 1,722,929 Class A Voting Shares and 40,343,577 Class
        B
        Non-Voting Shares were issued and outstanding. 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.
  **Impact
        of new accounting pronouncements adopted in 2006**
 **Non-monetary
        transactions**
 In
        fiscal 2006 the Company prospectively adopted the recommendations included
        in
        the Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 3831,
“Non-monetary Transactions,” which requires application of fair value
        measurement to non-monetary transactions determined by a number of tests.
        The
        adoption of these recommendations had no impact on the Company’s consolidated
        financial statements.
  **21**
   **Recent
        accounting pronouncements**
 **Financial
        instruments, comprehensive income and hedges**
 In
        April 2005, the CICA issued Handbook Section 1530, “Comprehensive Income,”
Handbook Section 3855, “Financial Instruments - Recognition and Measurement,”
and Handbook Section 3865, “Hedges.” Section 3855 expands on CICA Handbook
        Section 3860, “Financial Instruments - Disclosure and Presentation,” by
        prescribing when a financial instrument is to be recognized on the balance
        sheet
        and at what amount. It also specifies how instrument gains and losses are
        to be
        presented. Section 3865 is optional. It provides alternative treatments to
        Section 3855 for entities that choose to designate qualifying transactions
        as
        hedges for accounting purposes and specifies how hedge accounting is applied
        and
        what disclosures are necessary when it is applied. Section 1530 introduced
        a new
        requirement to present temporarily certain gains and losses outside net income
        in a new component of shareholders’ equity entitled Comprehensive Income. These
        standards are substantially harmonized with U.S. GAAP and are effective for
        the
        Company beginning September 1, 2007. The Company is currently evaluating
        the
        impact of these standards on its consolidated financial position and results
        of
        operations.
  **Critical
        accounting estimates**
 The
        Company’s significant accounting policies are described in note 2 to the
        consolidated financial statements. 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 financial statements include
        future revenue projections for investment in film and television programs,
        provisions for doubtful accounts to reflect credit exposures, valuation
        allowances and impairment assessments for various assets including investment
        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. The policies described
        below
        are considered to be critical accounting estimates, as they require significant
        estimation or judgment.
  **Film
        investments**
 The
        Company accounts for its production and distribution of film and television
        programs 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”). SOP 00-2 requires that film and television
        costs of production and acquisition are amortized using the
        individual-film-forecast-computation method. Under this method, capitalized
        costs for an individual film or television program are amortized in the
        proportion that current period actual revenues bear to management’s estimates of
        the total revenue expected to be received from such film or television program
        over a period not to exceed ten years from the date of delivery. As a result,
        if
        revenue estimates change with respect to a film or television program, the
        Company may be required to write down all or a portion of the unamortized
        costs
        of such film or television program, therefore impacting direct cost of sales,
        general and administrative expenses, and profitability.
  The
        fiscal 2004 results include a writedown of $85.0 million resulting from lower
        estimates of future revenue projections. No assurance can be given that
        unfavourable changes to revenue estimates will not continue to occur, which
        may
        again result in significant writedowns affecting Corus’ results of operations
        and financial condition.
  **22**
   **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. No assurance
        can be given that the Company will be able to renew its licenses, or that
        substantial cost or material modification of the existing terms and conditions
        will not be incurred.
  Broadcast
        licenses and goodwill are tested for impairment annually, or more frequently
        if
        events or changes in circumstances indicate that they are impaired. The Company
        has selected August 31 as the date it performs its annual impairment test.
        The
        key assumptions used in the test include forecasted segment profit and industry
        multiples. The fair value of the Company’s intangible assets is exposed to
        future adverse changes if the Company experiences declines in operating results,
        significant negative industry or economic trends, or if future performance
        is
        below historical trends.
  **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
        which are expected to be in effect when the differences are expected to reverse.
        Certain assumptions are required in order to determine the provision for
        income
        taxes, including filing positions on certain items and the realization of
        future
        tax assets. In fiscal 2006, the Company recorded $11.8 million in income
        tax
        recoveries related to the impact of income tax rate reductions on the
        measurement of future tax liabilities.
  The
        Company is audited regularly by federal and provincial authorities in the
        areas
        of income taxes and the remittance of sales taxes. These audits consider
        the
        timing and amount of deductions and compliance with federal and provincial
        laws.
        To the extent that the Company’s filing positions are challenged, the Company’s
        effective tax rate in a given financial statement period could be materially
        affected.
  The
        recognition of future tax assets depends on management’s assumption that future
        earnings will be sufficient to realize the future benefit. No assurance can
        be
        given that future earnings will be sufficient to realize the future benefit.
        In
        fiscal 2006 the Company recorded an income tax recovery of $25.2 million
        relating to future tax liabilities that were deemed in that period to be
        no
        longer required as the result of various tax planning strategies.
  **Investments**
 The
        Company’s consolidated balance sheets contain balances related to investments
        carried at historical cost. In certain cases, quoted market value has been
        lower
        than cost for several years. In each case, management believes that persuasive
        evidence exists to indicate that the financial condition and near-term prospects
        of the issuer are not impaired and that the Company has the intent and ability
        to retain its investment in the issuer until anticipated recovery in market
        value occurs. Therefore, management believes that the declines in market
        value
        are not other-than-temporary, and no writedown is required. No assurance
        can be
        given that a recovery will occur, and the prospect of a writedown sometime
        in
        the future remains present. As at October 31, 2006, the market value of
        investments held at cost exceeded their carrying amount by $0.3 million (2005
        -
        carrying amount exceeded market value by $2.7 million).
  **23**
   **Production
        tax credits**
 The
        Company’s consolidated balance sheets contain balances related to production tax
        credits received or receivable from federal and provincial government agencies.
        Tax credits are claimed based on the expectation of meeting eligibility
        requirements and amounts may be subject to estimation and interpretation.
        Claims
        are subject to audit by federal and provincial authorities, and no assurances
        can be given that amounts received or receivable will not be disallowed.
        Such a
        disallowance may have an impact on the net unamortized cost of completed
        film,
        and result in higher film amortization expense.
  **Controls
        and procedures**
 As
        required by Multilateral Instrument 52-109 issued by the Canadian Securities
        Administrators, Corus’ Chief Executive Officer and Chief Financial Officer have
        made certain certifications related to the information in Corus’ annual filings
        (as defined in Multilateral Instrument 52-109) with the provincial securities
        legislation.
  As
        Corus is a foreign private issuer listed on the New York Stock Exchange,
        similar
        certifications by Corus’ Chief Executive Officer and Chief Financial Officer are
        required by Section 302(a) of the *Sarbanes-Oxley
        Act of 2002* related to information in Corus’ annual report on Form 40-F.
  **Evaluation
        of disclosure controls and procedures**
 As
        part of the Form 52-109 certification, the Chief Executive Officer and Chief
        Financial Officer must certify that they are responsible for establishing
        and
        maintaining disclosure controls and procedures and have designed such disclosure
        controls and procedures (or caused such disclosure controls and procedures
        to be
        designed under their supervision) to ensure that material information with
        respect to Corus, including its consolidated subsidiaries, is made known
        to them
        and that they have evaluated the effectiveness of Corus’ disclosure controls and
        procedures as of the end of the period covered by these annual filings.
        Disclosure controls and procedures ensure that information required to be
        disclosed by Corus in the reports that it files or submits to the provincial
        securities legislation is recorded, processed, summarized and reported, within
        the time periods required. Corus has adopted or formalized such controls
        and
        procedures as it believes are necessary and consistent with its business
        and
        internal management and supervisory practices.
  The
        Company’s Chief Executive Officer and Chief Financial Officer, after evaluating
        the effectiveness of the Company’s disclosure controls and procedures (as
        defined in Multilateral Instrument 52-109 and in Rules 13a-15(e) and 15d-15(e)
        under the *Securities
        Exchange Act of 1934* ,
        as amended (the “Exchange Act”)), have concluded that, as at August 31, 2006,
        the Company’s disclosure controls and procedures were
        effective.
  **24**
   **Management’s
        annual report on internal control over financial reporting**
 As
        part of the Form 52-109 certification, the Chief Executive Officer and Chief
        Financial Officer must also certify that they are responsible for establishing
        and maintaining internal control over financial reporting and have designed
        such
        internal control over financial reporting (or caused such internal control
        over
        financial reporting to be designed under their supervision). In addition,
        Corus’
management is responsible for establishing and maintaining adequate internal
        control over financial reporting, as such term is defined in Rules 13a-15(f)
        and
        15d-15(f) under the Exchange Act. The Company’s internal control over financial
        reporting includes those policies and procedures that: (i) pertain to the
        maintenance of records that, in reasonable detail, accurately and fairly
        reflect
        the transactions and dispositions of Corus’ assets; (ii) provide reasonable
        assurance that transactions are recorded as necessary to permit preparation
        of
        financial statements in accordance with generally accepted accounting
        principles, and that the Company’s receipts and expenditures are being made only
        in accordance with authorizations of the Company’s management and directors; and
        (iii) provide reasonable assurance regarding prevention or timely detection
        of
        unauthorized acquisition, use or disposition of assets that could have a
        material effect on the Company’s financial statements.
  The
        Company’s Chief Executive Officer and Chief Financial Officer have concluded
        that, as at August 31, 2006, the Company has designed such internal control
        over
        financial reporting (as defined in Multilateral Instrument 52-109) to provide
        reasonable assurance regarding the reliability of financial reporting and
        the
        preparation of financial statements for external purposes in accordance with
        Canadian GAAP.
  Under
        the supervision and with the participation of the Chief Executive Officer
        and
        Chief Financial Officer, Corus’ management conducted an evaluation of the
        effectiveness of the Company’s internal control over financial reporting, as at
        August 31, 2006, based on the framework set forth in *Internal
        Control-Integrated Framework* issued by the Committee of Sponsoring Organizations of the Treadway Commission
        (“COSO”). Based on its evaluation under this framework, management concluded
        that the Company’s internal control over financial reporting was effective as of
        that date.
  **Attestation
        report of the registered public accounting firm**
 Ernst
        & Young LLP, an independent registered public accounting firm, who has
        audited, and reported on, Corus Entertainment’s consolidated financial
        statements for the year ended August 31, 2006, as included in this annual
        report, has also issued a report, under Auditing Standard No. 2 of the Public
        Company Accounting Oversight Board (United States), on management’s assessment
        of internal control over financial reporting as at August 31, 2006.
  **Changes
        in internal controls over financial reporting**
 There
        were no changes in the Company’s internal control over financial reporting that
        occurred during fiscal 2006 that have materially affected, or are reasonably
        likely to materially affect, the Company’s internal control over financial
        reporting.
  The
        design of any system of controls and procedures is based in part upon certain
        assumptions about the likelihood of certain events. There can be no assurance
        that any design will succeed in achieving its stated goals under all potential
        future conditions, regardless of how remote.
  Additional
        information relating to the Company, including the Annual Information Form,
        can
        be found on SEDAR at www.sedar.com.
  **25**