**Exhibit
      1**


MANAGEMENT’S
            RESPONSIBILITY FOR FINANCIAL REPORTING
 
 The
            accompanying consolidated financial statements of Corus Entertainment
            Inc. and
            all the information in this annual report are the responsibility of management
            and have been approved by the Board of Directors.
  The
            consolidated financial statements have been prepared by management in
            accordance
            with Canadian generally accepted accounting principles. When alternative
            accounting methods exist, management has chosen those it deems most appropriate
            in the circumstances. Financial statements are not precise since they
            include
            certain amounts based on estimates and judgments. Management has determined
            such
            amounts on a reasonable basis in order to ensure that the consolidated
            financial
            statements are presented fairly in all material respects. Management
            has
            prepared the financial information presented elsewhere in this annual
            report and
            has ensured that it is consistent with the consolidated financial statements.
  Corus
            Entertainment Inc. maintains systems of internal accounting and administrative
            controls of high quality, consistent with reasonable cost. Such systems
            are
            designed to provide reasonable assurance that the financial information
            is
            relevant, reliable and accurate and that the Company’s assets are appropriately
            accounted for and adequately safeguarded.
  The
            Board of Directors is responsible for ensuring that management fulfills
            its
            responsibilities for financial reporting, and is ultimately responsible
            for
            reviewing and approving the consolidated financial statements. The Board
            carries
            out this responsibility through its Audit Committee.
  The
            Audit Committee is appointed by the Board, and the majority of its members
            are
            outside unrelated directors. The Committee meets periodically with management,
            as well as the external auditors, to discuss internal controls over the
            financial reporting process, auditing matters and financial reporting
            issues, to
            satisfy itself that each party is properly discharging its responsibilities,
            and
            to review the annual report, the consolidated financial statements and
            the
            external auditors’ report. The Committee reports its findings to the Board for
            consideration when approving the consolidated financial statements for
            issuance
            to the shareholders. The Committee also considers, for review by the
            Board and
            approval by the shareholders, the engagement or re-appointment of the
            external
            auditors.
  The
            consolidated financial statements have been audited by Ernst & Young LLP,
            the external auditors, in accordance with Canadian generally accepted
            auditing
            standards on behalf of the shareholders. Ernst & Young LLP has full and free
            access to the Audit Committee.
   John M. Cassaday Signature
                  Thomas C. Peddie Signature**John
                      M. Cassaday**
                  **Thomas
                      C. Peddie FCA***President
                      and Chief Executive Officer*
                  *Senior
                      Vice President and Chief Financial
                      Officer*
 
  44
            / Corus Entertainment
 
  
 
 
 AUDITORS’
            REPORT
 
 **To
            the Shareholders of Corus Entertainment Inc.**
 We
            have audited the consolidated balance sheets of **Corus
            Entertainment Inc.** as
            at August 31, 2005 and 2004 and the consolidated statements of income
            (loss) and
            retained earnings (deficit) and cash flows for each of the years in the
            three-year period ended August 31, 2005. These financial statements are
            the
            responsibility of the Company’s management. Our responsibility is to express an
            opinion on these financial statements based on our audits.
  We
            conducted our audits in accordance with Canadian generally accepted auditing
            standards. Those standards require that we plan and perform an audit
            to obtain
            reasonable assurance whether the financial statements are free of material
            misstatement. An audit includes examining, on a test basis, evidence
            supporting
            the amounts and disclosures in the financial statements. An audit also
            includes
            assessing the accounting principles used and significant estimates made
            by
            management, as well as evaluating the overall financial statement presentation.
  In
            our opinion, these consolidated financial statements present fairly,
            in all
            material respects, the financial position of the Company as at August
            31, 2005
            and 2004 and the results of its operations and its cash flows for each
            of the
            years in the three-year period ended August 31, 2005 in accordance with
            Canadian
            generally accepted accounting principles.
  **Toronto,
                      Canada,**
                  Ernst and Young Signature*October
                      21, 2005*
                  *Chartered
                      Accountants*
 
  2005
            Annual Report / **45**
 
 
 CONSOLIDATED
            BALANCE SHEETS
  **AS
                      AT AUGUST 31**[in
                      thousands of Canadian dollars]
                  
                  **2005**
                  
                  2004*[revised
                      - note 26[b]]***ASSETS***[note
                      12]***Current**Cash
                      and cash equivalents
                  
                  
                  **138,086**
                  
                  
                  95,231Accounts
                      receivable*[notes
                      5 and 24]*
                  
                  
                  **155,343**
                  
                  
                  143,641Prepaid
                      expenses and other
                  
                  
                  **10,948**
                  
                  
                  9,674Program
                      and film rights
                  
                  
                  **93,725**
                  
                  
                  92,786Future
                      tax asset*[note
                      15]*
                  
                  
                  **6,498**
                  
                  
                  13,719**Total
                      current assets**
                  
                  
                  **404,600**
                  
                  
                  355,051Tax
                      credits receivable
                  
                  
                  **12,292**
                  
                  
                  10,774Investments
                      and other assets*[note
                      6]*
                  
                  
                  **36,886**
                  
                  
                  41,683Property,
                      plant and equipment, net*[note
                      7]*
                  
                  
                  **76,041**
                  
                  
                  82,105Program
                      and film rights
                  
                  
                  **54,715**
                  
                  
                  32,523Film
                      investments*[note
                      8]*
                  
                  
                  **58,417**
                  
                  
                  56,867Deferred
                      charges*[note
                      9]*
                  
                  
                  **15,560**
                  
                  
                  19,305Broadcast
                      licenses*[note
                      10]*
                  
                  
                  **514,552**
                  
                  
                  509,040Goodwill*[notes
                      10 and 16]*
                  
                  
                  **755,301**
                  
                  
                  764,518**1,928,364**
                  
                  
                  1,871,866**LIABILITIES
                      AND SHAREHOLDERS’ EQUITY****Current**Accounts
                      payable and accrued liabilities*[notes
                      11 and 24]*
                  
                  
                  **172,236**
                  
                  
                  161,397Income
                      taxes payable
                  
                  
                  **3,049**
                  
                  
                  4,567**Total
                      current liabilities**
                  
                  
                  **175,285**
                  
                  
                  165,964Long-term
                      debt*[note
                      12]*
                  
                  
                  **445,162**
                  
                  
                  529,139Deferred
                      credits*[note
                      13]*
                  
                  
                  **195,789**
                  
                  
                  146,164Future
                      tax liability*[note
                      15]*
                  
                  
                  **147,744**
                  
                  
                  144,085Other
                      long-term liabilities
                  
                  
                  **22,895**
                  
                  
                  16,203Non-controlling
                      interest
                  
                  
                  **11,227**
                  
                  
                  9,131**Total
                      liabilities**
                  
                  
                  **998,102**
                  
                  
                  1,010,686**Shareholders’
                      equity**Share
                      capital*[note
                      14]*
                  
                  
                  **885,911**
                  
                  
                  884,053Contributed
                      surplus*[note
                      14]*
                  
                  
                  **3,558**
                  
                  
                  1,287Retained
                      earnings (deficit)
                  
                  
                  **50,802**
                  
                  
                  (17,122
                  )Cumulative
                      translation adjustment*[note
                      20]*
                  
                  
                  **(10,009**
                  **)**
                  
                  (7,038
                  )**Total
                      shareholders’ equity**
                  
                  
                  **930,262**
                  
                  
                  861,180**1,928,364**
                  
                  
                  1,871,866
 Commitments
            and contingencies *[notes
            12 and 23]*
 
 See
            accompanying notes
  **On
                      behalf of the Board:**
                  John M. Cassaday Signature
                  Heather Shaw SignatureJohn
                      M. Cassaday -*Director*
                  Heather
                      Shaw -*Director*
 
 **46
            / Corus Entertainment**
 
 
 
 CONSOLIDATED
            STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT)
  **YEARS
                      ENDED AUGUST 31**[in
                      thousands of Canadian dollars except per share amounts]
                  
                  **2005**
                  
                  2004
                  
                  2003**Revenues***[notes
                      22 and 24]*
                  
                  
                  **683,069**
                  
                  
                  666,804
                  
                  
                  643,918Direct
                      cost of sales, general and administrative expenses*[notes
                      8,14,20,23 and 24]*
                  
                  
                  **487,758**
                  
                  
                  576,406
                  
                  
                  478,606Depreciation
                  
                  
                  **23,710**
                  
                  
                  25,682
                  
                  
                  24,708Amortization
                  
                  
                  **4,577**
                  
                  
                  7,276
                  
                  
                  9,792Interest
                      on long-term debt*[note
                      12]*
                  
                  
                  **55,561**
                  
                  
                  55,276
                  
                  
                  61,030Other
                      income, net*[notes
                      10 and 20]*
                  
                  
                  **(5,494**
                  **)**
                  
                  (4,937
                  )
                  
                  (6,024
                  )Restructuring
                      charges
                  
                  
                  **-**
                  
                  
                  -
                  
                  
                  5,025**Income
                      before income taxes and non-controlling interest**
                  
                  
                  **116,957**
                  
                  
                  7,101
                  
                  
                  70,781Income
                      tax expense*[note
                      15]*
                  
                  
                  **42,810**
                  
                  
                  26,925
                  
                  
                  28,534Non-controlling
                      interest
                  
                  
                  **3,033**
                  
                  
                  3,313
                  
                  
                  2,226**Net
                      income (loss) for the year**
                  
                  
                  **71,114**
                  
                  
                  (23,137
                  )
                  
                  40,021Retained
                      earnings (deficit),beginning of year
                  
                  
                  **(17,122**
                  **)**
                  
                  8,135
                  
                  
                  (31,886
                  )Dividends
                      paid*[note
                      14]*
                  
                  
                  **(3,190**
                  **)**
                  
                  (2,120
                  )
                  
                  -**Retained
                      earnings (deficit), end of year**
                  
                  
                  **50,802**
                  
                  
                  (17,122
                  )
                  
                  8,135**Earnings
                      (loss) per share***[note
                      18]*Basic
                  
                  **$**
                  **1.66**
                  
                  $
                  (0.54
                  )
                  $
                  0.94Diluted
                  
                  **$**
                  **1.65**
                  
                  $
                  (0.54
                  )
                  $
                  0.94**Weighted
                      average number of shares outstanding***[in
                      thousands]*Basic
                  
                  
                  **42,761**
                  
                  
                  42,719
                  
                  
                  42,641Diluted
                  
                  
                  **43,095**
                  
                  
                  42,719
                  
                  
                  42,645
 
 See
            accompanying notes
  2005
            Annual Report / **47**
 
 
 
 CONSOLIDATED
            STATEMENTS OF CASH FLOWS
 
 **YEARS
                      ENDED AUGUST 31**[in
                      thousands of Canadian dollars]
                  
                  **2005**
                  
                  2004
                  
                  2003**OPERATING
                      ACTIVITIES**Net
                      income (loss) for the year
                  
                  
                  **71,114**
                  
                  
                  (23,137
                  )
                  
                  40,021Add
                      (deduct) non-cash itemsDepreciation
                  
                  
                  **23,710**
                  
                  
                  25,682
                  
                  
                  24,708Amortization
                      of
                      program and film rights
                  
                  
                  **110,630**
                  
                  
                  105,549
                  
                  
                  94,016Amortization
                      of
                      film investments
                  
                  
                  **43,693**
                  
                  
                  142,754
                  
                  
                  64,578Other
                      amortization
                  
                  
                  **4,577**
                  
                  
                  7,276
                  
                  
                  9,792Future
                      income taxes
                  
                  
                  **8,601**
                  
                  
                  600
                  
                  
                  3,257Non-controlling
                      interest
                  
                  
                  **3,033**
                  
                  
                  3,313
                  
                  
                  2,226Foreign
                      exchange gain
                  
                  
                  **(2,747**
                  **)**
                  
                  (2,057
                  )
                  
                  (7,259
                  )Stock-based
                      compensation
                  
                  
                  **6,766**
                  
                  
                  2,984
                  
                  
                  1,250Unrealized
                      derivative losses (gains)
                  
                  
                  **(3,278**
                  **)**
                  
                  3,278
                  
                  
                  -Broadcast
                      license impairment
                  
                  
                  **4,108**
                  
                  
                  -
                  
                  
                  -Other
                  
                  
                  **1,769**
                  
                  
                  (24
                  )
                  
                  3,475Net
                      change in non-cash working capital balances related to operations*[note
                      19]*
                  
                  
                  **2,235**
                  
                  
                  (18,395
                  )
                  
                  3,381Payment
                      of program and film rights
                  
                  
                  **(122,368**
                  **)**
                  
                  (115,314
                  )
                  
                  (108,626
                  )Net
                      additions to film investments
                  
                  
                  **(49,427**
                  **)**
                  
                  (47,597
                  )
                  
                  (66,197
                  )**Cash
                      provided by operating activities**
                  
                  
                  **102,416**
                  
                  
                  84,912
                  
                  
                  64,622**INVESTING
                      ACTIVITIES**Additions
                      to property, plant and equipment
                  
                  
                  **(19,217**
                  **)**
                  
                  (17,421
                  )
                  
                  (14,908
                  )Decrease
                      (increase) in investments, net
                  
                  
                  **665**
                  
                  
                  (3,685
                  )
                  
                  (5,312
                  )Decrease
                      in public benefits associated with acquisitions
                  
                  
                  **(9,893**
                  **)**
                  
                  (11,455
                  )
                  
                  (12,198
                  )Proceeds
                      from sale of assets
                  
                  
                  **6,822**
                  
                  
                  136
                  
                  
                  4,695Additions
                      to deferred charges
                  
                  
                  **(832**
                  **)**
                  
                  -
                  
                  
                  (80
                  )**Cash
                      used in investing activities**
                  
                  
                  **(22,455**
                  **)**
                  
                  (32,425
                  )
                  
                  (27,803
                  )**FINANCING
                      ACTIVITIES**Decrease
                      in bank loans
                  
                  
                  **(34,017**
                  **)**
                  
                  -
                  
                  
                  (15,499
                  )Decrease
                      in other long-term liabilities
                  
                  
                  **(820**
                  **)**
                  
                  (911
                  )
                  
                  (2,810
                  )Issuance
                      of shares under stock option plan
                  
                  
                  **1,650**
                  
                  
                  2,212
                  
                  
                  -Dividends
                      paid
                  
                  
                  **(3,190**
                  **)**
                  
                  (2,120
                  )
                  
                  -Dividends
                      paid to minority shareholder
                  
                  
                  **(937**
                  **)**
                  
                  (521
                  )
                  
                  (1,496
                  )Other
                  
                  
                  **208**
                  
                  
                  210
                  
                  
                  216**Cash
                      used in financing activities**
                  
                  
                  **(37,106**
                  **)**
                  
                  (1,130
                  )
                  
                  (19,589
                  )**Net
                      increase in cash and cash equivalents during the
                      year**
                  
                  
                  **42,855**
                  
                  
                  51,357
                  
                  
                  17,230Cash
                      and cash equivalents, beginning of year
                  
                  
                  **95,231**
                  
                  
                  43,874
                  
                  
                  26,644**Cash
                      and cash equivalents, end of year**
                  
                  
                  **138,086**
                  
                  
                  95,231
                  
                  
                  43,874
  Supplemental
            cash flow disclosures *[note
            19]*
  See
            accompanying notes
  **48
            / Corus Entertainment**
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **AUGUST
            31, 2005, 2004 AND 2003**
 [in
            thousands of Canadian dollars except share information]
  **1. BASIS
            OF
            PRESENTATION**
 Corus
            Entertainment Inc. [“Corus” or the “Company”] is a diversified Canadian
            communications and entertainment company. The Company is incorporated
            under the *Canada
            Business Corporations Act* and
            its Class B Non-Voting Shares are listed on the Toronto and New York
            Stock
            Exchanges.
  **2. SIGNIFICANT
            ACCOUNTING POLICIES**
 The
            consolidated financial statements have been prepared by management on
            the
            historical cost basis in accordance with Canadian generally accepted
            accounting
            principles [“GAAP”]. The effects of differences between the application of
            Canadian and U.S. GAAP on the consolidated financial statements of the
            Company
            are described in note 21.
  **Basis
            of consolidation**
 The
            consolidated financial statements include the accounts of Corus and all
            of its
            subsidiaries, all of which are wholly owned except for Country Music
            Television
            Limited [80% interest], Telelatino Network Inc. [50.5% interest] and
            Discovery
            Kids [53.6% interest], as well as its proportionate share of the accounts
            of its
            joint ventures. Intercompany transactions and balances have been eliminated
            on
            consolidation. The results of operations of subsidiaries acquired during
            the
            year are included from their respective dates of acquisition.
  **Use
            of estimates**
 The
            preparation of consolidated financial statements in conformity with Canadian
            GAAP requires management to make estimates and assumptions that affect
            the
            reported amounts of assets and liabilities and disclosure of contingent
            assets
            and liabilities at the date of the consolidated financial statements
            and the
            reported amounts of revenues and expenses during the reporting periods.
            The most
            significant assumptions made by management in the preparation of the
            Company’s
            consolidated financial statements include future revenue projections
            for
            investments in film and television programs, provisions for doubtful
            accounts to
            reflect credit exposures, valuation allowances and impairment assessments
            for
            various assets including investments in film and television programs;
            property,
            plant and equipment; long-term investments; current and future income
            taxes;
            broadcast licenses and goodwill. Actual results could differ from those
            estimates.
  **Revenue
            recognition**
 Advertising
            revenues are recognized in the period in which the advertising is aired
            under
            broadcast contracts.
  Affiliate
            subscriber fee revenues are recognized monthly based on subscriber levels.
  Product
            and distribution revenues from the distribution and licensing of film
            rights are
            recognized when all of the following conditions are met: [i] persuasive
            evidence
            of a sale or licensing arrangement with a customer exists; [ii] the film
            is
            complete and has been delivered or is available for immediate and unconditional
            delivery; [iii] the license period of the arrangement has begun; [iv]
            the
            arrangement fee is fixed or determinable; and [v] collection of the arrangement
            fee is reasonably assured. Non-refundable recoupable minimum guarantees
            received
            under licensing arrangements for home videos where film titles are
            cross-collateralized are deferred and recognized as revenue over the
            license
            term when the underlying home videos are sold as reported by third parties.
  Customer
            advances on contracts are recorded as unearned revenue until all of the
            foregoing revenue recognition conditions have been met.
  2005
              Annual Report / **49**
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Non-refundable
            advances that are not cross-collateralized and royalties from merchandise
            licensing, publishing and music contracts are recognized when the license
            period
            has commenced and collection is reasonably assured. Advances that are
            cross-collateralized are deferred and recognized as revenue over the
            license
            term when the underlying royalties are reported as earned by third parties.
  Revenues
            from the sale of books are recognized at the time of shipment, net of
            an
            estimated provision for returns. Revenues from the sale of subsidiary
            book
            rights, when determinable, are recorded on an accrual basis. When amounts
            are
            not determinable, amounts are recorded on receipt of funds. Grants for
            specific
            projects are recognized as revenue when the related expenses are incurred.
  **Cash
            and cash equivalents**
 Cash
            and cash equivalents include cash and short-term deposits with maturities
            of
            less than three months at the date of purchase.
  **Investments**
 Investments
            in entities over which the Company exercises significant influence are
            accounted
            for using the equity method. Investments in joint ventures and partnerships
            that
            the Company jointly controls are accounted for using the proportionate
            consolidation method of accounting. Other investments are recorded at
            cost and
            written down only when there is evidence that a decline in value that
            is
            other-than-temporary has occurred.
  Acquisitions
            subject to Canadian Radio-television and Telecommunications Commission
            [“CRTC”]
            approval are recorded at cost until approval is received and then accounted
            for
            according to the nature of the investment made.
  **Property,
            plant and equipment**
 Property,
            plant and equipment are recorded at cost less accumulated depreciation.
            Depreciation is recorded on a straight-line basis over the estimated
            useful
            lives of the assets as follows:
 Broadcasting
                      equipment
                  
                  
                  10
                      yearsProduction
                      equipment
                  
                  
                  5
                      yearsLeasehold
                      improvements
                  
                  
                  lease
                      termBuildings
                  
                  
                  20-40
                      yearsComputer
                      equipment
                  
                  
                  3
                      yearsFurniture
                      and fixtures
                  
                  
                  7
                      yearsOther
                  
                  
                  4-10
                      years
 
 **Program
            and film rights**
 Program
            and film rights represent contract rights acquired from third parties
            to
            broadcast television programs and feature films. The assets and liabilities
            related to these rights are recorded when the cost of the rights is known
            or
            reasonably determinable, the program material is accepted by the Company
            in
            accordance with the license agreement and the material is available to
            the
            Company for airing. Long-term liabilities related to these rights are
            recorded
            at the net present values of future cash flows, using a discount rate
            that is
            equivalent to the effective interest rate on similar term debt. These
            costs are
            amortized over the contracted exhibition period as the programs or feature
            films
            are aired. Program and film rights are carried at the lower of cost less
            accumulated amortization and net recoverable amount.
  Amortization
            of program and film rights is included in direct cost of sales, general
            and
            administrative expenses and has been disclosed separately in the consolidated
            statements of cash flows.
  **50 /
            Corus Entertainment**
 
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Film
            investments**
 Film
            investments represent the costs of projects in development, projects
            in process,
            the unamortized costs of proprietary films and television programs that
            have
            been produced by the Company or for which the Company has acquired distribution
            rights, and investments in third-party-produced film projects. Such costs
            include development and production expenditures and attributable studio
            and
            other costs that are expected to benefit future periods.
  The
            Company accounts for its film investments in accordance with the American
            Institute of Certified Public Accountants [“AICPA”] Statement of Position 00-2,
“Accounting by Producers or Distributors of Films” [“SOP 00-2”].
  The
            individual-film-forecast-computation method is used to determine amortization.
            The capitalized costs and the estimated total costs of participations
            and
            residuals, net of anticipated federal and provincial program contributions,
            production tax credits and co-producers’ shares of production costs, are charged
            to amortization expense on a series or program basis in the ratio that
            current
            period revenue bears to management’s estimate of total gross revenue [“ultimate
            revenue”] to be realized from the series or program. Ultimate revenue is
            projected for periods not exceeding ten years from the date of delivery
            or
            acquisition. For episodic television series, SOP 00-2 requires that ultimate
            revenue includes estimates of revenue over a period not to exceed ten
            years from
            the date of delivery of the first episode or, if still in production,
            five years
            from the date of delivery of the most recent episode, if later. Estimates
            of
            gross revenue can change significantly due to the level of market acceptance
            of
            film and television products. Accordingly, revenue estimates are reviewed
            periodically and amortization is adjusted. Such adjustments could have
            a
            material effect on the results of operations in future periods.
  The
            Company reviews the status of projects in development quarterly. If,
            in the
            opinion of management, any such projects will not progress toward production,
            the accumulated costs are charged to direct cost of sales. Projects are
            written
            off at the earlier of the date determined not to be recoverable or when
            projects
            under development are abandoned, and three years from the date of the
            initial
            investment.
  Projects
            in process represent the accumulated costs of television series or feature
            films
            currently in production.
  Completed
            project and distribution rights are stated at the lower of unamortized
            cost or
            estimated net realizable value as determined on a series or program basis.
            Revenue and cost forecasts for each production are evaluated quarterly
            in
            connection with a comprehensive review of the Company’s film investments, on a
            title-by-title basis. When an event or change in circumstances indicates
            that
            the fair value of a film is less than its unamortized cost, the fair
            value of
            the film is determined using management’s estimates of future revenues under a
            discounted cash flow approach. A writedown is recorded equivalent to
            the amount
            by which the unamortized costs exceed the estimated fair value of the
            film.
  Investments
            in third-party-produced film projects are carried at the lower of cost
            and net
            realizable value.
  Amortization
            of film investments is included in direct cost of sales, general and
            administrative expenses.
  2005
              Annual Report / **51**
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Deferred
            charges**
 Financing
            costs and credit facility arrangement fees are amortized to income on
            a
            straight-line basis over the term of the debt facility.
  Start-up
            costs for the preparation of new applications to the CRTC are deferred
            prior to
            approval by the CRTC. The costs associated with unsuccessful applications
            are
            expensed. Start-up costs for licenses of successful applications that
            are
            awarded by the CRTC are capitalized from the date they are awarded to
            the date
            revenue is generated for the service. Start-up costs are amortized over
            a period
            that reflects their expected future benefit, not exceeding the term of
            the
            licenses.
  Deferred
            charges are carried at the lower of cost less accumulated amortization
            and net
            recoverable amount.
  **Broadcast
            licenses and goodwill**
 The
            cost of acquiring media broadcasting, production/distribution and publishing
            businesses is allocated to the fair value of related net identifiable
            tangible
            and intangible assets acquired. Net identifiable intangible assets acquired
            consist primarily of broadcast licenses. The excess of the cost of acquiring
            these businesses over the fair value of related net identifiable tangible
            and
            intangible assets acquired is allocated to goodwill.
  Broadcast
            licenses are considered to have an indefinite life based on management’s intent
            and ability to renew the licenses without substantial cost and without
            material
            modification of the existing terms and conditions of the license.
  Broadcast
            licenses and goodwill are tested for impairment annually or more frequently
            if
            events or changes in circumstances indicate that they may be impaired.
            The
            Company has selected August 31 as the date it performs its annual impairment
            test.
  **Government
            financing and assistance**
 The
            Company has access to several government programs that are designed to
            assist
            film and television production in Canada. Funding from certain programs
            provides
            a supplement to a series’ Canadian license fees and is recorded as revenue when
            cash has been received. Government assistance with respect to federal
            and
            provincial production tax credits is recorded as a reduction of film
            investments
            when eligible expenditures are made and there is reasonable assurance
            of
            realization. Assistance in connection with equity investments is recorded
            as a
            reduction in film investments.
  Government
            grants approved for specific publishing projects are recorded as revenue
            when
            the related expenses are incurred.
  **Deferred
            credits**
 Deferred
            credits include [i] a provision for contributions to Canadian broadcasting
            initiatives that must be made by a purchaser of specialty television,
            pay
            television and radio undertakings in accordance with CRTC policies [“public
            benefits associated with acquisitions”] associated with acquiring radio and
            television businesses that will be drawn down when the Company makes
            eligible
            payments toward meeting the conditions of license; [ii] foreign exchange
            gains
            on translating hedged long-term debt; and [iii] unearned revenue from
            the
            distribution and licensing of rights for feature films and television
            programs.
  **Income
            taxes**
 The
            liability method of tax allocation is used in accounting for income taxes.
            Under
            this method, future tax assets and liabilities are determined based on
            differences between the financial reporting and tax bases of assets and
            liabilities, and measured using the substantively enacted tax rates and
            laws
            that are expected to be in effect when the differences are expected to
            reverse.
  **52 /
            Corus Entertainment**
 
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Foreign
            currency translation**
 The
            assets and liabilities of the Company’s self-sustaining operations having a
            functional currency that is not in Canadian dollars are translated into
            Canadian
            dollars using the exchange rate in effect at the consolidated balance
            sheet
            date, and revenues and expenses are translated at the average rate during
            the
            year. Exchange gains or losses on translation of the Company’s net equity
            investment in these operations are deferred as a separate component of
            shareholders’ equity.
  For
            integrated foreign operations monetary items are translated into Canadian
            dollars at exchange rates in effect at the consolidated balance sheet
            date and
            non-monetary items are translated at rates of exchange in effect when
            the assets
            were acquired or obligations incurred. Revenues and expenses are translated
            at
            rates in effect at the time of the transaction. Foreign exchange gains
            and
            losses are included in net income (loss) for the year.
  Long-term
            debt denominated in U.S. dollars is translated into Canadian dollars
            at the
            year-end rate of exchange. Exchange gains or losses on translating long-term
            debt that qualifies for hedge accounting are offset against the corresponding
            exchange gains or losses arising on the cross-currency agreements.
  Other
            exchange gains and losses are included in net income (loss) for the year.
  **Financial
            instruments and hedging relationships**
 The
            Company uses derivative financial instruments to manage risks from fluctuations
            in exchange and interest rates. These instruments include cross-currency
            and
            interest rate swap agreements. All such instruments are only used for
            risk
            management purposes. The net receipts or payments arising from financial
            instruments relating to the management of interest rate risks are recognized
            in
            interest expense over the term of the instrument. Foreign exchange gains
            or
            losses arising on cross-currency agreements used to hedge U.S. dollar
            denominated debt are offset against the corresponding exchange gains
            or losses
            on the hedged item. The carrying values of derivative financial instruments
            that
            do not qualify for hedge accounting are adjusted to reflect their current
            market
            value.
  **Stock-based
            compensation and other stock-based payments**
 The
            fair value of each stock option granted is estimated on the date of the
            grant
            using the Black-Scholes option pricing model and expensed over the option’s
            vesting period. Compensation expense related to the Performance Share
            Units is
            accrued over the term of the restriction period based on the expected
            total
            compensation to be paid out at the end of the restriction period. Consideration
            paid by the Company under its Employee Share Purchase Plan is included
            in direct
            cost of sales, general and administrative expenses.
  **Earnings
            (loss) per share**
 Basic
            earnings (loss) per share are calculated using the weighted average number
            of
            common shares outstanding during the year. The computation of diluted
            earnings
            (loss) per share assumes the basic weighted average number of common
            shares
            outstanding during the year is increased to include the number of additional
            common shares that would have been outstanding if the dilutive potential
            common
            shares had been issued. The dilutive effect of warrants and stock options
            is
            determined using the treasury stock method.
  **Impairment
            of long-lived assets**
 When
            events or circumstances indicate potential impairment, long-lived assets,
            other
            than broadcast licenses and goodwill, are written down to their fair
            value if
            the net carrying amount of the asset exceeds the net recoverable amount,
            calculated as the sum of undiscounted cash flows related to the asset.
   2005
              Annual Report / **53**
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Asset
            retirement obligations**
 Effective
            September 1, 2004, the Company adopted the recommendations of the Canadian
            Institute of Chartered Accountants [“CICA”] Handbook Section 3110, “Asset
            Retirement Obligations,” which establishes standards for the recognition,
            measurement and disclosure of liabilities for asset retirement obligations
            and
            the associated asset retirement costs. The section requires that an entity
            recognize the fair value of a liability for an asset retirement obligation
            in
            the period in which it is incurred when a reasonable estimate of fair
            value can
            be made. The adoption of this standard did not have a material impact
            on the
            Company’s consolidated financial position or results of operations.
  **Consolidation
            of variable interest entities**
 Effective
            December 1, 2004, the Company adopted the recommendations of CICA Accounting
            Guideline-15, “Consolidation of Variable Interest Entities,” which provides
            guidance on the consolidation and disclosure of variable interest entities.
            The
            adoption of this standard did not have a material impact on the Company’s
            consolidated financial position or results of operations.
  **3. BUSINESS
            COMBINATIONS**
 Effective
            May 29, 2005, Corus completed an asset exchange with Astral Media Inc.
            [“Astral”]. This resulted in Corus acquiring eight Astral-owned radio stations
            in Québec and receiving other consideration including $2,500 in cash, in
            exchange for five Corus-owned radio stations in Québec. This transaction was
            accounted for using the purchase method. The results of operations of
            the eight
            stations previously owned by Astral are included in Corus’ consolidated
            financial statements from the date of the transaction. Accrued liabilities
            include a severance accrual of approximately $1,676, which was substantially
            settled by year end, except for accruals relating to salary continuance.
            No gain
            or loss was recorded on this transaction.
 **Consideration
                      given:**Cash
                  
                  
                  (2,500
                  )Property,
                      plant and equipment
                  
                  
                  1,958Broadcast
                      licenses
                  
                  
                  2,047Goodwill
                  
                  
                  6,917Transaction
                      costs
                  
                  
                  9089,330**Assigned
                      value of net assets acquired:**Property,
                      plant and equipment
                  
                  
                  2,750Broadcast
                      licenses
                  
                  
                  11,025Accrued
                      liabilities
                  
                  
                  (1,828
                  )Future
                      tax liability
                  
                  
                  (2,617
                  )9,330
 
 **54
            / Corus Entertainment**
 
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **4. JOINT
            VENTURES**
 The
            following amounts, included in these consolidated financial statements,
            represent the Company’s proportionate share in joint ventures:
  **2005**
                  
                  2004**Consolidated
                      balance sheets**Current
                      assets
                  
                  
                  **28,337**
                  
                  
                  19,550Long-term
                      assets
                  
                  
                  **14,263**
                  
                  
                  16,926Current
                      liabilities
                  
                  
                  **19,888**
                  
                  
                  17,071**Consolidated
                      statements of income**Revenues
                  
                  
                  **34,974**
                  
                  
                  31,389Expenses
                  
                  
                  **26,945**
                  
                  
                  28,002**Net
                      income**
                  
                  
                  **8,029**
                  
                  
                  3,387**Consolidated
                      statements of cash flows**Operating
                      activities
                  
                  
                  **9,560**
                  
                  
                  4,757Investing
                      activities
                  
                  
                  **(39**
                  **)**
                  
                  (555
                  )
 
 **5. ACCOUNTS
            RECEIVABLE**
 
 **2005**
                  
                  2004Trade
                  
                  
                  **151,053**
                  
                  
                  146,156Other
                  
                  
                  **7,957**
                  
                  
                  2,654**159,010**
                  
                  
                  148,810Less
                      allowance for doubtful accounts
                  
                  
                  **3,667**
                  
                  
                  5,169**155,343**
                  
                  
                  143,641
 
 **6. INVESTMENTS
            AND OTHER ASSETS**
  **2005**
                  
                  2004Astral
                      Media Inc. [a]
                  
                  
                  **13,861**
                  
                  
                  13,861Other
                      [b]
                  
                  
                  **23,025**
                  
                  
                  27,822**36,886**
                  
                  
                  41,683
 
 **[a] Astral
            Media
            Inc.**
 The
            Company holds 54,600 Class A non-voting shares and 297,200 Class B subordinate
            voting shares of Astral with a market value of $11,366 [2004 - $9,598].
  **[b] Other
            investments**
 Other
            investments consist primarily of an interest in a privately owned Canadian
            media
            company, financing provided to the Company’s digital channels, loans to
            executive officers and other investments accounted for on a cost and
            equity
            basis.
  2005
              Annual Report / **55**
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **7. PROPERTY,
            PLANT AND EQUIPMENT**
  **2005**
                  
                  2004**Cost**
                  
                  **Accumulated
                      depreciation**
                  
                  Cost
                  
                  Accumulated
                    depreciationBroadcasting
                      equipment
                  
                  
                  **32,535**
                  
                  
                  **23,763**
                  
                  
                  31,883
                  
                  
                  22,501Production
                      equipment
                  
                  
                  **87,329**
                  
                  
                  **69,697**
                  
                  
                  91,417
                  
                  
                  72,112Leasehold
                      improvements
                  
                  
                  **31,328**
                  
                  
                  **21,520**
                  
                  
                  32,862
                  
                  
                  19,315Buildings
                  
                  
                  **22,649**
                  
                  
                  **7,558**
                  
                  
                  23,917
                  
                  
                  8,719Computer
                      equipment
                  
                  
                  **52,124**
                  
                  
                  **41,265**
                  
                  
                  49,711
                  
                  
                  38,458Furniture
                      and fixtures
                  
                  
                  **21,124**
                  
                  
                  **17,068**
                  
                  
                  21,221
                  
                  
                  16,136Other
                  
                  
                  **5,527**
                  
                  
                  **2,528**
                  
                  
                  3,432
                  
                  
                  2,666**252,616**
                  
                  
                  **183,399**
                  
                  
                  254,443
                  
                  
                  179,907Land
                  
                  
                  **6,824**
                  
                  
                  **-**
                  
                  
                  7,569
                  
                  
                  -**259,440**
                  
                  
                  **183,399**
                  
                  
                  262,012
                  
                  
                  179,907**Net
                      book value**
                  
                  
                  **76,041**
                  
                  
                  82,105
 
 **8. FILM
            INVESTMENTS**
 
 **2005**
                  
                  
                  2004Projects
                      in development and in process, net of advances
                  
                  
                  **15,876**
                  
                  
                  15,990Completed
                      projects and distribution rights
                  
                  
                  **28,796**
                  
                  
                  31,843Investments
                      in third-party-produced film projects
                  
                  
                  **13,745**
                  
                  
                  9,034**58,417**
                  
                  
                  56,867
 
 During
            fiscal 2005, the Company reduced its investments in film and television
            programs
            by anticipated federal and Ontario production tax credits amounting to
            $11,701
            [2004 - $3,059].
  During
            the third quarter of fiscal 2004, the Company reviewed, as required,
            future
            revenue projections, or ultimates, on a title-by-title basis, supporting
            the
            carrying value of its film investments in the Content division, and lowered
            its
            estimates of future revenues with reference to current and anticipated
            market
            conditions and foreign exchange rates, resulting in the recognition of
            an
            $85,000 writedown of film investments in the quarter. This writedown
            is included
            in direct cost of sales, general and administrative expenses for the
            year.
  The
            Company expects that 43% and 79% of the net book value of completed projects
            and
            distribution rights will be amortized during the year ending August 31,
            2006,
            and three years ending August 31, 2008, respectively.
  The
            Company expects that $2,773 of accrued participation liabilities will
            be paid
            during the year ending August 31, 2006.
  **56 /
            Corus Entertainment**
 
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **9. DEFERRED
            CHARGES**
 
 **2005**
                  
                  2004**Accumulated**
                  
                  
                  
                  Accumulated**Cost**
                  
                  **amortization**
                  
                  Cost
                  
                  amortizationFinancing
                      costs and credit facility arrangement fees
                  
                  
                  **28,233**
                  
                  
                  **13,676**
                  
                  
                  27,401
                  
                  
                  10,957Start-up
                      costs of new specialty programming networks
                  
                  
                  **9,857**
                  
                  
                  **8,854**
                  
                  
                  9,857
                  
                  
                  8,103Advertising
                      and promotion costs for reformatting radio, specialty and pay
                      television
                      stations
                  
                  
                  **-**
                  
                  
                  **-**
                  
                  
                  11,570
                  
                  
                  10,463**38,090**
                  
                  
                  **22,530**
                  
                  
                  48,828
                  
                  
                  29,523**Net
                      book value**
                  
                  
                  **15,560**
                  
                  
                  19,305
 
 **10. BROADCAST
            LICENSES AND GOODWILL**
 At
            August 31, 2005, 2004 and 2003, the Company performed its annual impairment
            test
            of broadcast licenses and goodwill and determined that there was no impairment
            for the years ended August 31, 2004 and 2003. For the year ended August
            31,
            2005, the Company determined that there was an impairment of $4,108 in
            the
            broadcast licenses related to three radio stations. This impairment charge
            is
            included in other income, net.
  To
            determine the amount of impairment, management uses a fair value methodology
            based on market transaction multiples for comparable businesses applied
            to
            forecasted operating income used to evaluate the reporting units’ performance.
            Estimates of forecasted operating income involve measurement uncertainty
            and it
            is therefore possible that reductions in the carrying value of broadcast
            licenses and goodwill may be required as a result of changes in management’s
            future revenue estimates. Actual results may differ from estimates and
            as a
            consequence a material impairment charge may be recorded.
  During
            the second quarter of fiscal 2005, the Company sold its 50% share in
            the assets
            of the Locomotion Channel to a wholly owned subsidiary of Sony Pictures
            Inc. for
            an aggregate purchase price of $6,200. The purchase price is to be paid
            out over
            three years and a portion is subject to certain performance related holdbacks.
            There was a reduction of $2,300 in goodwill, and an immaterial loss was
            recorded
            on this disposition.
  As
            discussed in note 3, during the third quarter of fiscal 2005, the Company
            completed the exchange of certain radio stations in Québec with Astral. This
            transaction resulted in an increase of $8,978 in broadcast licenses and
            a
            reduction of $6,917 in goodwill.
  **11. ACCOUNTS
            PAYABLE AND ACCRUED LIABILITIES**
  **2005**
                  
                  2004Trade
                  
                  
                  **69,996**
                  
                  
                  59,216Program
                      rights payable
                  
                  
                  **59,607**
                  
                  
                  54,887Film
                      investment accruals
                  
                  
                  **5,413**
                  
                  
                  9,591Accrued
                      interest
                  
                  
                  **28,654**
                  
                  
                  27,393Third
                      party participation payments
                  
                  
                  **6,813**
                  
                  
                  5,804GST
                      payable
                  
                  
                  **1,201**
                  
                  
                  1,620Other
                  
                  
                  **552**
                  
                  
                  2,886**172,236**
                  
                  
                  161,397
 
 
 2005
              Annual Report / **57**
 
 
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **12. LONG-TERM
            DEBT**
 
 **2005**
                  
                  2004Senior
                      Subordinated Notes [a]Principal
                      amount translated into Canadian dollars at the hedged rate
                  
                  
                  **604,000**
                  
                  
                  604,000Unrealized
                      cumulative foreign exchange gains
                  
                  
                  **(158,838**
                  **)**
                  
                  (111,625
                  )Senior
                      Subordinated Notes translated at the current rate
                  
                  
                  **445,162**
                  
                  
                  492,375Bank
                      loans [b]
                  
                  
                  **-**
                  
                  
                  36,764**445,162**
                  
                  
                  529,139
 
 **[a] Senior
            Subordinated Notes**
 On
            March 7, 2002, Corus issued U.S.$375,000 aggregate principal amount of
            8.75%
            Senior Subordinated Notes [the “Notes”] due in 2012 at a price of 99.186% of
            their aggregate principal amount. The Notes are redeemable at the option
            of the
            Company, in whole or in part, at any time on or after March 1, 2007,
            at
            specified redemption prices plus accrued interest to the date of redemption.
  The
            Company has entered into cross-currency agreements to fix the liability
            for
            interest and principal payments on the Notes. The agreements have resulted
            in an
            effective interest rate of 9.33% on the Canadian dollar equivalent of
            the U.S.
            debt. The exchange rate applicable to the principal portion of the debt
            has been
            fixed at Cdn.$1.6107, translating to approximately Cdn.$604,000.
  **[b] Bank
            loans**
 The
            Company has a $25,000 revolving operating loan facility with interest
            rates and
            borrowing options, the same as those contained in the credit facilities
            described below. As at August 31, 2005, the Company had not drawn on
            this
            facility. If the Company were to draw on this facility, it would be classified
            as current on the consolidated balance sheets.
  Effective
            January 31, 2005, the Company’s credit facility, including bank loans, with a
            syndicate of banks was amended. The amendment resulted in an extension
            of the
            maturity of the facility to January 31, 2009. The amount committed is
            $215,000,
            which is available on a revolving basis and repayable at maturity. Other
            terms
            of the amended credit facility are substantially similar to the prior
            credit
            facility. As at August 31, 2005, no amount of the facility was utilized.
            Funds
            are available to the Company in both Canadian and U.S. dollars. As at
            August 31,
            2005, the U.S. dollar portion of the bank loans was nil [2004 - U.S.$28,000
            [Cdn.$36,764]].
  Interest
            rates on the balance of the bank loans fluctuate with Canadian bankers’
acceptances and LIBOR and averaged 2.7% for the year ended August 31,
            2005 [2004
            - 2.4%].
  The
            banks hold as collateral a first ranking charge on all assets and undertakings
            of Corus and certain of Corus’ subsidiaries as designated under the credit
            agreements. As well, unlimited guarantees are provided by certain subsidiaries.
            Under the facility, the Company has undertaken to maintain certain financial
            covenants. Management has determined that the Company was in compliance
            with the
            covenants provided under the bank loans as at August 31, 2005.
   **58 /
            Corus Entertainment**
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **13. DEFERRED
            CREDITS**
  **2005**
                  
                  2004Public
                      benefits associated with acquisitions
                  
                  
                  **21,209**
                  
                  
                  31,102Cross-currency
                      agreements translated into Canadian dollars at the current
                      rate
                  
                  
                  **158,838**
                  
                  
                  111,625Unearned
                      revenue from distribution and licensing of film rights
                  
                  
                  **12,320**
                  
                  
                  2,800Other
                  
                  
                  **3,422**
                  
                  
                  637**195,789**
                  
                  
                  146,164
 
 **14. SHARE
            CAPITAL**
 **Authorized**
 The
            Company is authorized to issue, upon approval of holders of no less than
            two-thirds of the existing Class A shares, an unlimited number of Class
            A
            participating shares [“Class A Voting Shares”], as well as an unlimited number
            of Class B non-voting participating shares [“Class B Non-Voting Shares”], Class
            A Preferred Shares, and Class 1 and Class 2 Preferred Shares.
  Class
            A Voting Shares are convertible at any time into an equivalent number
            of Class B
            Non-Voting Shares. The Class B Non-Voting Shares are convertible into
            an
            equivalent number of Class A Voting Shares in limited circumstances.
  The
            Class A Preferred Shares are redeemable at any time at the demand of
            Corus and
            retractable at any time at the demand of a holder of a Class A Preferred
            Share
            for an amount equal to the consideration received by Corus at the time
            of
            issuance of such Class A Preferred Shares. Holders of Class A Preferred
            Shares
            are entitled to receive a non-cumulative dividend at such rate as Corus’ Board
            of Directors may determine on the redemption amount of the Class A Preferred
            Shares. Each of the Class 1 Preferred Shares, the Class 2 Preferred Shares,
            the
            Class A Voting Shares and the Class B Non-Voting Shares rank junior to
            and are
            subject in all respects to the preferences, rights, conditions, restrictions,
            limitations and prohibitions attaching to the Class A Preferred Shares
            in
            connection with the payment of dividends.
  The
            Class 1 and Class 2 Preferred Shares are issuable in one or more series
            with
            attributes designated by the Board of Directors. The Class 1 Preferred
            Shares
            rank senior to the Class 2 Preferred Shares.
  In
            the event of liquidation, dissolution or winding up of Corus or other
            distribution of assets of Corus for the purpose of winding up its affairs,
            the
            holders of Class A Preferred Shares are entitled to a payment in priority
            to all
            other classes of shares of Corus to the extent of the redemption amount
            of the
            Class A Preferred Shares, but will not be entitled to any surplus in
            excess of
            that amount. The remaining property and assets will be available for
            distribution to the holders of the Class A Voting Shares and Class B
            Non-Voting
            Shares, which shall be paid or distributed equally, share for share,
            between the
            holders of the Class A Voting Shares and the Class B Non-Voting Shares,
            without
            preference or distinction.
  2005
              Annual Report / **59**
 
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Issued
            and outstanding**
 The
            changes in the Class A Voting Shares and Class B Non-Voting Shares since
            August
            31, 2003 are summarized as follows:
  Class
                      A Voting Shares
                  
                  Class
                      B Non-Voting Shares
                  
                  Total#
                  
                  $
                  
                  #
                  
                  $
                  
                  $**Balance,
                      August 31, 2003**
                  
                  
                  1,726,712
                  
                  
                  26,743
                  
                  
                  40,914,588
                  
                  
                  854,888
                  
                  
                  881,631Conversion
                      of Class A Voting Shares to Class B Non-Voting Shares
                  
                  
                  (1,783
                  )
                  
                  (28
                  )
                  
                  1,783
                  
                  
                  28
                  
                  
                  -Issuance
                      of shares under Stock Option Plan
                  
                  
                  -
                  
                  
                  -
                  
                  
                  97,728
                  
                  
                  2,212
                  
                  
                  2,212Repayment
                      of executive stock purchase loans
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  210
                  
                  
                  210**Balance,
                      August 31, 2004**
                  
                  
                  1,724,929
                  
                  
                  26,715
                  
                  
                  41,014,099
                  
                  
                  857,338
                  
                  
                  884,053Issuance
                      of shares under Stock Option Plan
                  
                  
                  -
                  
                  
                  -
                  
                  
                  64,020
                  
                  
                  1,650
                  
                  
                  1,650Repayment
                      of executive stock purchase loans
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  208
                  
                  
                  208**Balance,
                      August 31, 2005**
                  
                  
                  **1,724,929**
                  
                  
                  **26,715**
                  
                  
                  **41,078,119**
                  
                  
                  **859,196**
                  
                  
                  **885,911**
 
 **Stock
            Option Plan**
 Under
            the Company’s Stock Option Plan [the “Plan”], the Company may grant options to
            purchase Class B Non-Voting Shares to eligible officers, directors and
            employees
            of or consultants to the Company. The maximum number of shares that can
            be
            reserved for issuance under the Plan is 4,084,642. All options granted
            are for
            terms not to exceed ten years from the grant date. The exercise price
            of each
            option equals the market price of the Company’s stock on the date of grant.
            Options vest 25% on each of the first, second, third and fourth anniversary
            dates of the date of grant.
  A
            summary of the options outstanding as at August 31, 2005, and the changes
            since
            August 31, 2003, is presented as follows:
  Number
                  
                  Weighted
                      averageof
                      options*[#]*
                  
                  exercise
                      price*[$]***Outstanding,
                      August 31, 2003**
                  
                  
                  3,105,114
                  
                  
                  29.74Granted
                  
                  
                  537,700
                  
                  
                  24.02Forfeited
                  
                  
                  (395,511
                  )
                  
                  36.77Exercised
                  
                  
                  (97,728
                  )
                  
                  22.62**Outstanding,
                      August 31, 2004**
                  
                  
                  3,149,575
                  
                  
                  28.10Granted
                  
                  
                  443,600
                  
                  
                  23.80Forfeited
                  
                  
                  (90,666
                  )
                  
                  31.66Exercised
                  
                  
                  (64,020
                  )
                  
                  25.77**Outstanding,
                      August 31, 2005**
                  
                  
                  **3,438,489**
                  
                  
                  **27.49**
 
 
 **60 /
            Corus Entertainment**
 
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 The
            fair value of each option granted was estimated on the date of grant
            using the
            Black-Scholes option pricing model with the following assumptions:
  **Fiscal
                      2005**
                  
                  Fiscal
                      2004Expected
                      life
                  
                  
                  **5
                      years**
                  
                  
                  5
                      yearsRisk-free
                      interest rates
                  
                  
                  **4.31**
                  **%**
                  
                  4.08%
                      to 4.67
                  %Dividend
                      yield
                  
                  
                  **0.21**
                  **%**
                  
                  0.19
                  %Volatility
                  
                  
                  **35.98**
                  **%**
                  
                  37.21%
                      to 39.52
                  %
 
 The
            weighted average fair value of the stock options granted during 2005
            was $9.02
            per option. The estimated value of the options is amortized to income
            over the
            options vesting period on a straight-line basis. The Company has recorded
            stock-based compensation expense for the year ended August 31, 2005 of
            $2,271
            [2004 - $1,287], which has been credited to contributed surplus.
  As
            at August 31, 2005, the options outstanding and exercisable consisted
            of the
            following:
  Options
                      outstanding
                  
                  
                  
                  Options
                      exercisableWeighted
                      averageNumber
                  
                  remaining
                      contractual
                  
                  Weighted
                      average
                  
                  Number
                  
                  Weighted
                      averageRange
                      of exercise prices*[$]*
                  
                  outstanding*[#]*
                  
                  life*[in
                      years]*
                  
                  exercise
                      price*[$]*
                  
                  outstanding*[#]*
                  
                  exercise
                      price*[$]*19.05-24.95
                  
                  
                  1,516,592
                  
                  
                  5.5
                  
                  
                  22.80
                  
                  
                  630,690
                  
                  
                  22.0725.25-35.83
                  
                  
                  1,417,402
                  
                  
                  2.7
                  
                  
                  28.10
                  
                  
                  1,395,577
                  
                  
                  28.0637.00-44.00
                  
                  
                  504,495
                  
                  
                  2.6
                  
                  
                  39.91
                  
                  
                  503,064
                  
                  
                  39.92**19.05-44.00**
                  
                  
                  **3,438,489**
                  
                  
                  **3.9**
                  
                  
                  **27.49**
                  
                  
                  **2,529,331**
                  
                  
                  **28.93**
 
 On
            September 1, 2005, the Company granted a further 262,000 options for
            Class B
            Non-Voting Shares to eligible officers and employees of the Company.
            These
            options are exercisable at $32.25 per share.
  **Dividends**
 The
            holders of Class A Voting Shares and Class B Non-Voting Shares are entitled
            to
            receive such dividends as the Board of Directors determines to declare
            on a
            share-for-share basis, as and when any such dividends are declared or
            paid. The
            holders of Class B Non-Voting Shares are entitled to receive during each
            dividend period, in priority to the payment of dividends on the Class
            A Voting
            Shares, an additional dividend at a rate of $0.01 per share per annum.
            This
            additional dividend is subject to proportionate adjustment in the event
            of
            future consolidations or subdivisions of shares and in the event of any
            issue of
            shares by way of stock dividend. After payment or setting aside for payment
            of
            the additional non-cumulative dividends on the Class B Non-Voting Shares,
            holders of Class A Voting Shares and Class B Non-Voting Shares participate
            equally, on a share-for-share basis, on all subsequent dividends declared.
  On
            December 9, 2003, the Board of Directors of Corus approved a semi-annual
            dividend for holders of Class A Voting Shares and Class B Non-Voting
            Shares of
            $0.02 and $0.025, respectively. On April 14, 2005, the Board of Directors
            of
            Corus approved an increase in its semi-annual dividend to holders of
            Class A
            Voting Shares and Class B Non-Voting Shares to $0.045 and $0.05, respectively.
            In fiscal 2005, the Company paid two semi-annual dividends on December
            31, 2004
            and June 30, 2005 to shareholders of record at the close of business
            on December
            15, 2004 and June 15, 2005, respectively. The total amount of dividends
            paid was
            $3,190.
  2005
              Annual Report / **61**
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **Executive
            stock purchase loans**
 In
            October 2001, the Board of Directors of the Company authorized the granting
            of
            loans to certain of its executive officers in order to finance the acquisition
            of Class B Non-Voting Shares of the Company on the open market. These
            loans are
            non-interest bearing and are secured by a promissory note and the relevant
            Class
            B Non-Voting Shares. Each loan has a ten-year term from December 1, 2001,
            with
            annual instalments at the greater of 10% of the original principal or
            10% of the
            employee’s pre-tax bonus for the most recently completed financial year of the
            Company. As at August 31, 2005, the Company had loans receivable of $1,410
            [2004
            - $1,619] from certain qualifying executive officers. As at August 31,
            2005, the
            market value of the shares held as collateral for the loans was $1,762
            [2004 -
            $1,300].
  **Performance
            Share Units**
 The
            Company has granted Performance Share Units [“PSUs”] to certain employees. Each
            PSU entitles the participant to receive a cash payment in an amount equal
            to the
            closing price of Class B Non-Voting Shares traded on the Toronto Stock
            Exchange
            at the end of the restrictions period, multiplied by the number of vested
            units
            determined by achievement of specific performance-based criteria. The
            restriction period for PSUs granted in fiscal 2003 ended August 31, 2005;
            the
            restriction period for PSUs granted in fiscal 2004 ends August 31, 2006;
            and the
            restriction period for PSUs granted in fiscal 2005 ends August 31, 2007.
            The
            employee must be actively employed by Corus as of the end of the restriction
            period to receive a payment of the vested units. Compensation expense
            related to
            the PSUs is accrued over the term of the restriction period based on
            the
            expected total compensation to be paid out at the end of the restriction
            period,
            factoring in the probability of any performance-based criteria being
            met during
            the period. The compensation expense recorded for the year ended August
            31,
            2005, in respect of this plan was $4,495 [2004 - $1,697] and has been
            recorded
            in direct cost of sales, general and administrative expenses.
  **Pro
            forma impact of stock-based compensation**
 For
            options granted to employees up to August 31, 2003, had compensation
            costs for
            the Plan been determined based on the fair value based method of accounting
            for
            stock-based compensation, the Company’s net income (loss) and earnings (loss)
            per share would have been reduced to the pro forma amounts indicated
            below:
  **2005**
                  
                  2004Net
                      income (loss)
                  
                  
                  **71,114**
                  
                  
                  (23,137
                  )Pro
                      forma net income (loss)
                  
                  
                  **69,598**
                  
                  
                  (25,123
                  )Pro
                      forma basic earnings (loss) per share
                  
                  $
                  **1.63**
                  
                  $
                  (0.59
                  )Pro
                      forma diluted earnings (loss) per share
                  
                  $
                  **1.62**
                  
                  $
                  (0.59
                  )
 
 **62 /
            Corus Entertainment**
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **15. INCOME
            TAXES**
 **[a]** Future
            income taxes reflect the net tax effects of the temporary differences
            between
            the carrying amounts of assets and liabilities for financial reporting
            purposes
            and the amounts used for income tax purposes. Significant components
            of the
            Company’s future tax liability and asset as at August 31 are as follows:
  **2005**
                  
                  2004*[revised
                      - note 26[b]]***Future
                      tax liability**Deferred
                      charges deducted for tax purposes capitalized for accounting
                      purposes
                  
                  
                  **1,350**
                  
                  
                  3,181Capital
                      cost allowance in excess of book depreciation
                  
                  
                  **118**
                  
                  
                  542Deferred
                      partnership income
                  
                  
                  **3,476**
                  
                  
                  2,637Differences
                      in tax and accounting cost bases for investments
                  
                  
                  **39,509**
                  
                  
                  38,959Broadcast
                      licenses and other intangibles
                  
                  
                  **150,757**
                  
                  
                  148,538Other,
                      net
                  
                  
                  **2,623**
                  
                  
                  4,881**Total
                      future tax liability**
                  
                  
                  **197,833**
                  
                  
                  198,738**Future
                      tax asset**Book
                      depreciation in excess of capital cost allowance
                  
                  
                  **33,913**
                  
                  
                  35,795Employment
                      obligations recognized on purchase equation
                  
                  
                  **-**
                  
                  
                  361Loss
                      carryforwards, net of valuation allowances
                  
                  
                  **18,066**
                  
                  
                  24,242Amortization
                      deducted for accounting purposes in excess of tax purposes
                  
                  
                  **800**
                  
                  
                  1,583Differences
                      in tax and accounting cost bases for investments
                  
                  
                  **1,199**
                  
                  
                  1,159Revenue
                      recognition differences between tax and accounting
                      purposes
                  
                  
                  **688**
                  
                  
                  4,134Purchase
                      price equation differences
                  
                  
                  **57**
                  
                  
                  57Other,
                      net
                  
                  
                  **1,864**
                  
                  
                  1,041**Total
                      future tax asset**
                  
                  
                  **56,587**
                  
                  
                  68,372**Net
                      future tax liability**
                  
                  
                  **141,246**
                  
                  
                  130,366Less
                      current portion of future tax asset
                  
                  
                  **6,498**
                  
                  
                  13,719**Future
                      tax liability**
                  
                  
                  **147,744**
                  
                  
                  144,085
 
 **[b]** Significant
            components of the income tax expense attributable to operations are as
            follows:
 
 **2005**
                  
                  2004
                  
                  2003Current
                      tax expense
                  
                  
                  **34,209**
                  
                  
                  26,326
                  
                  
                  25,281Future
                        tax expense (recovery) relating toorigination and reversal of
                        temporary differences
                  
                  
                  **2,559**
                  
                  
                  (22,227
                  )
                  
                  7,115Future
                        tax expense (recovery) resulting fromutilization (recognition) of
                        losses
                  
                  
                  **9,035**
                  
                  
                  782
                  
                  
                  (4,460
                  )Future
                      tax expense resulting from tax rate changes
                  
                  
                  **254**
                  
                  
                  16,810
                  
                  
                  -Other
                  
                  
                  **(3,247**
                  **)**
                  
                  5,234
                  
                  
                  598**Income
                      tax expense**
                  
                  
                  **42,810**
                  
                  
                  26,925
                  
                  
                  28,534
  2005
              Annual Report / **63**
 
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **[c]** The
            reconciliation of income taxes attributable to operations computed at
            the
            statutory tax rates to income tax expense is as follows:
  **2005**
                  
                  
                  
                  2004
                  
                  
                  
                  2003$
                  
                  %
                  
                  $
                  
                  %
                  
                  $
                  
                  %Tax
                      at combined federal and provincial rates
                  
                  
                  **41,356**
                  
                  
                  **35.4**
                  
                  
                  2,578
                  
                  
                  36.3
                  
                  
                  26,543
                  
                  
                  37.5Differences
                      from statutory rates relating to amortization of
                      intangibles
                  
                  
                  **166**
                  
                  
                  **0.1**
                  
                  
                  (84
                  )
                  
                  (1.2
                  )
                  
                  -
                  
                  
                  -Non-deductible
                      (non-taxable) portion of net capital losses (gains) on sale
                      of
                      investments
                  
                  
                  **(19**
                  **)**
                  
                  **-**
                  
                  
                  22
                  
                  
                  0.3
                  
                  
                  1,869
                  
                  
                  2.6Increase
                      in future taxes resulting from statutory rate change
                  
                  
                  **254**
                  
                  
                  **0.2**
                  
                  
                  16,810
                  
                  
                  236.7
                  
                  
                  -
                  
                  
                  -Reversal
                      in current year of temporary differences originally recorded
                      using
                      long-term tax rates
                  
                  
                  **-**
                  
                  
                  **-**
                  
                  
                  1,012
                  
                  
                  14.3
                  
                  
                  (102
                  )
                  
                  (0.1
                  )Large
                      Corporations Tax and foreign withholding tax
                  
                  
                  **1,617**
                  
                  
                  **1.4**
                  
                  
                  1,084
                  
                  
                  15.3
                  
                  
                  1,170
                  
                  
                  1.7Other
                  
                  
                  **(564**
                  **)**
                  
                  **(0.5**
                  **)**
                  
                  5,503
                  
                  
                  77.5
                  
                  
                  (946
                  )
                  
                  (1.3
                  )**42,810**
                  
                  
                  **36.6**
                  
                  
                  26,925
                  
                  
                  379.2
                  
                  
                  28,534
                  
                  
                  40.3
 
 **[d]** The
            Company recognizes as a future tax asset the benefit of capital and non-capital
            loss carryforwards to the extent it is more likely than not that the
            benefit
            will be realized. As at August 31, 2005, the Company had available loss
            carryforwards of approximately $77,500. A future tax asset of $26,800
            [2004 -
            $34,200] has been recognized in respect of these carryforwards, net of
            a
            valuation allowance of $8,700 [2004 - $9,900].
  The
            available loss carryforwards will expire as follows:
 2008
                  
                  
                  2,7002009
                  
                  
                  6,2002010
                  
                  
                  33,8002011
                  
                  
                  8,3002015
                  
                  
                  6,7002024
                  
                  
                  1,3002025
                  
                  
                  1,000No
                      expiration - capital losses
                  
                  
                  17,50077,500
  **64
            / Corus Entertainment**
 
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **16. BUSINESS
            SEGMENT INFORMATION**
 The
            Company’s business activities are conducted through three reportable operating
            segments:
  Radio
 The
            Radio segment is composed of 53 radio stations, situated primarily in
            high
            growth urban centres in Canada. Revenues are derived from advertising
            aired over
            these stations.
  Television
 The
            Television segment includes interests in several specialty television
            networks,
            pay television, conventional television stations, digital audio services
            and
            cable advertising services. Revenues are generated from subscriber fees
            and
            advertising.
  Content
 The
            Content segment includes the production and distribution of television
            programs
            and the sale and licensing of related products. Revenues are generated
            from
            licensing of proprietary films and television programs, merchandise licensing
            and publishing. Prior to fiscal 2005, the Content segment had been reported
            as
            two components: Content - production and distribution; and Content -
            branded
            consumer products. Corus has changed the structure of its internal organization
            such that the production and distribution of television products and
            the
            licensing of related products are managed as an integrated business process,
            and
            are not meaningful to view as separate business activities. Commencing
            with
            fiscal 2005, the results of the Content division have been disclosed
            in
            aggregate, and the corresponding items of segment information for earlier
            periods have been restated.
  Except
            as noted above, the accounting policies of the segments are the same
            as those
            described in the summary of significant accounting policies. Management
            evaluates the business segments’ performances based on revenues less direct cost
            of sales, general and administrative expenses. Transactions between reporting
            segments are recorded at fair value.
  The
            accounting policies of the segments are the same as those described in
            the
            summary of significant accounting policies. Management evaluates the
            business
            segments’ performances based on revenues less direct cost of sales, general and
            administrative expenses. Transactions between reporting segments are
            recorded at
            fair market value.
  2005
              Annual Report / **65**
 
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **[a] Revenues
            and
            segment profit (loss)**
 
 **Year
                      ended August 31, 2005**
                  
                  **Radio**
                  
                  **Television**
                  
                  **Content**
                  
                  **Corporate**
                  
                  **Eliminations**
                  
                  **Consolidated**Revenues
                  
                  
                  **252,685**
                  
                  
                  **354,201**
                  
                  
                  **82,318**
                  
                  
                  **-**
                  
                  
                  **(6,135**
                  **)**
                  
                  **683,069**Direct
                      cost of sales, general and administrative expenses
                  
                  
                  **183,680**
                  
                  
                  **213,419**
                  
                  
                  **78,750**
                  
                  
                  **18,611**
                  
                  
                  **(6,702**
                  **)**
                  
                  **487,758**Segment
                      profit (loss)
                  
                  
                  **69,005**
                  
                  
                  **140,782**
                  
                  
                  **3,568**
                  
                  
                  **(18,611**
                  **)**
                  
                  **567**
                  
                  
                  **195,311**Depreciation
                  
                  
                  **6,979**
                  
                  
                  **9,060**
                  
                  
                  **3,926**
                  
                  
                  **3,745**
                  
                  
                  **-**
                  
                  
                  **23,710**Amortization
                  
                  
                  **-**
                  
                  
                  **1,859**
                  
                  
                  **-**
                  
                  
                  **2,718**
                  
                  
                  **-**
                  
                  
                  **4,577**Interest
                      on long-term debt
                  
                  
                  **-**
                  
                  
                  **-**
                  
                  
                  **-**
                  
                  
                  **55,561**
                  
                  
                  **-**
                  
                  
                  **55,561**Other
                      income, net
                  
                  
                  **7,982**
                  
                  
                  **312**
                  
                  
                  **(3,641**
                  **)**
                  
                  **(10,147**
                  **)**
                  
                  **-**
                  
                  
                  **(5,494**
                  **)**Income
                      before income taxes and non-controlling interest
                  
                  
                  **54,044**
                  
                  
                  **129,551**
                  
                  
                  **3,283**
                  
                  
                  **(70,488**
                  **)**
                  
                  **567**
                  
                  
                  **116,957**
 
 Year
                      ended August 31, 2004 1
                  
                  Radio
                  
                  Television
                  
                  Content
                  
                  Corporate
                  
                  Eliminations
                  
                  ConsolidatedRevenues
                  
                  
                  227,868
                  
                  
                  332,349
                  
                  
                  112,639
                  
                  
                  -
                  
                  
                  (6,052
                  )
                  
                  666,804Direct
                      cost of sales, general and administrative expenses
                  
                  
                  167,826
                  
                  
                  207,294
                  
                  
                  196,360
                  
                  
                  10,970
                  
                  
                  (6,044
                  )
                  
                  576,406Segment
                      profit (loss)
                  
                  
                  60,042
                  
                  
                  125,055
                  
                  
                  (83,721
                  )
                  
                  (10,970
                  )
                  
                  (8
                  )
                  
                  90,398Depreciation
                  
                  
                  8,776
                  
                  
                  8,759
                  
                  
                  2,800
                  
                  
                  5,347
                  
                  
                  -
                  
                  
                  25,682Amortization
                  
                  
                  787
                  
                  
                  3,687
                  
                  
                  -
                  
                  
                  2,802
                  
                  
                  -
                  
                  
                  7,276Interest
                      on long-term debt
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  55,276
                  
                  
                  -
                  
                  
                  55,276Other
                      income, net
                  
                  
                  431
                  
                  
                  (1,047
                  )
                  
                  818
                  
                  
                  (5,139
                  )
                  
                  -
                  
                  
                  (4,937
                  )Income
                      before income taxes and non-controlling interest
                  
                  
                  50,048
                  
                  
                  113,656
                  
                  
                  (87,339
                  )
                  
                  (69,256
                  )
                  
                  (8
                  )
                  
                  7,101
 
 Year
                      ended August 31, 2003 1
                  
                  Radio
                  
                  Television
                  
                  Content
                  
                  Corporate
                  
                  Eliminations
                  
                  ConsolidatedRevenues
                  
                  
                  226,034
                  
                  
                  306,885
                  
                  
                  116,269
                  
                  
                  -
                  
                  
                  (5,270
                  )
                  
                  643,918Direct
                      cost of sales, general and administrative expenses
                  
                  
                  167,920
                  
                  
                  193,470
                  
                  
                  113,103
                  
                  
                  8,779
                  
                  
                  (4,666
                  )
                  
                  478,606Segment
                      profit (loss)
                  
                  
                  58,114
                  
                  
                  113,415
                  
                  
                  3,166
                  
                  
                  (8,779
                  )
                  
                  (604
                  )
                  
                  165,312Depreciation
                  
                  
                  7,806
                  
                  
                  9,555
                  
                  
                  2,527
                  
                  
                  4,820
                  
                  
                  -
                  
                  
                  24,708Amortization
                  
                  
                  1,367
                  
                  
                  4,507
                  
                  
                  -
                  
                  
                  3,918
                  
                  
                  -
                  
                  
                  9,792Interest
                      on long-term debt
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  61,030
                  
                  
                  -
                  
                  
                  61,030Other
                      income, net
                  
                  
                  (41
                  )
                  
                  488
                  
                  
                  1,345
                  
                  
                  (7,816
                  )
                  
                  -
                  
                  
                  (6,024
                  )Restructuring
                      charges
                  
                  
                  1,198
                  
                  
                  249
                  
                  
                  3,578
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,025Income
                      before income taxes and non-controlling interest
                  
                  
                  47,784
                  
                  
                  98,616
                  
                  
                  (4,284
                  )
                  
                  (70,731
                  )
                  
                  (604
                  )
                  
                  70,781
 
 The
            Corporate segment results represent the incremental cost of Corporate
            overhead
            in excess of the amount allocated to the other operating segments.
  **66 /
            Corus Entertainment**
 
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Gross
            revenues are derived from the following geographical sources by location
            of
            customer as follows:
 
 **2005**
                  
                  2004
                  
                  2003Canada
                  
                  
                  **624,130**
                  
                  
                  577,402
                  
                  
                  545,694United
                      States
                  
                  
                  **25,754**
                  
                  
                  36,020
                  
                  
                  43,221International
                  
                  
                  **33,185**
                  
                  
                  53,382
                  
                  
                  55,003**683,069**
                  
                  
                  666,804
                  
                  
                  643,918
 
 Corus’
            revenue streams for fiscal 2005 are derived primarily from three areas:
            advertising [58%], subscriber fees [27%] and license fees [9%] [2004
            - 55%, 27%
            and 14%, respectively].
  **[b] Segment
            assets**
  **2005**
                  
                  2004
                      1*[revised
                      - note 26[b]]*Radio
                  
                  
                  **713,427**
                  
                  
                  705,000Television
                  
                  
                  **878,323**
                  
                  
                  855,186Content
                  
                  
                  **145,947**
                  
                  
                  162,119Corporate
                  
                  
                  **191,963**
                  
                  
                  151,782Eliminations
                  
                  
                  **(1,296**
                  **)**
                  
                  (2,221
                  )**1,928,364**
                  
                  
                  1,871,866
 
 Assets
            are located primarily within Canada.
 
 **[c] Capital
            expenditures by segment**
 
 **2005**
                  
                  2004
                      1
                  
                  2003
                      1Radio
                  
                  
                  **4,733**
                  
                  
                  4,889
                  
                  
                  6,432Television
                  
                  
                  **7,052**
                  
                  
                  6,843
                  
                  
                  3,461Content
                  
                  
                  **2,622**
                  
                  
                  3,529
                  
                  
                  2,173Corporate
                  
                  
                  **4,810**
                  
                  
                  2,160
                  
                  
                  2,842**19,217**
                  
                  
                  17,421
                  
                  
                  14,908
 
 Property,
            plant and equipment are located primarily within Canada.
 
 **[d] Goodwill**
 
 **2005**
                  
                  2004
                      1*[revised
                      - note 26[b]]*Radio
                  
                  
                  **406,016**
                  
                  
                  412,933Television
                  
                  
                  **326,947**
                  
                  
                  329,247Content
                  
                  
                  **22,338**
                  
                  
                  22,338**755,301**
                  
                  
                  764,518
 
 Goodwill
            is located primarily within Canada.
  1Prior periods restated to conform to fiscal 2005 aggregation of
            Content
            division into a single reporting segment.
  2005
              Annual Report / 6**7**
 
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **17. FINANCIAL
            INSTRUMENTS**
 **Fair
            values**
 The
            fair values of financial instruments have been determined as follows:
  [i] Current
            assets and current liabilities
 The
            fair values of financial instruments included in current assets and current
            liabilities approximate their carrying values due to their short-term
            nature.
  [ii] Investments
            and other assets
 [a] The
            fair
            value of publicly traded shares included in this category is determined
            by the
            closing market values for those investments.
 [b] The
            fair
            value of other investments in this category is not determinable.
  [iii] Long-term
            debt
 The
            carrying value of the Company’s bank loans approximates their fair value because
            interest charges under the terms of the bank loans are based upon current
            Canadian bank prime and bankers’ acceptance rates and on U.S. bank base and
            LIBOR rates.
  As
            at August 31, 2005, the fair value of the Company’s Notes was U.S.$403,125 [2004
            - U.S.$407,344].
  [iv
            ] Derivative financial
            instruments
 The
            fair values of cross-currency and interest rate swap agreements are based
            on
            quotations by the counterparties to the agreements.
  The
            estimated fair values of these agreements are as follows:
  **2005**
                  
                  
                  
                  2004**Carrying**
                  
                  **Estimated**
                  
                  Carrying
                  
                  Estimated**value**
                  
                  **fair
                      value**
                  
                  value
                  
                  fair
                      valueCross-currency
                      agreements
                  
                  
                  **(158,838**
                  **)**
                  
                  **(242,005**
                  **)**
                  
                  (111,625
                  )
                  
                  (142,875
                  )Interest
                      rate swap agreements
                  
                  
                  **-**
                  
                  
                  **-**
                  
                  
                  (3,278
                  )
                  
                  (3,278
                  )
 
 Fair
            value estimates are made at a specific point in time, based on relevant
            market
            information and information about the financial instrument. These estimates
            are
            subjective in nature and involve uncertainties and matters of significant
            judgment and, therefore, cannot be determined with precision. Changes
            in
            assumptions could significantly affect the estimates.
  **Credit
            risks and concentration**
 Credit
            risks associated with the cross-currency and interest rate swap agreements
            arise
            from the ability of counterparties to meet the terms of the contracts.
            In the
            event of non-performance by the counterparties, the Company’s accounting loss
            would be limited to the net amount that it would be entitled to receive
            under
            the contracts and agreements. These risks are mitigated by dealing with
            major
            creditworthy financial institutions.
  Accounts
            receivable resulting from advertising and affiliate subscriber fee revenues
            are
            not subject to any concentration of credit risk.
  Accounts
            receivable from distribution and licensing of proprietary exploitation
            rights of
            feature films and television programs are subject to credit risk. The
            risk is
            mitigated because the Company enters into license and distribution contracts
            with many major international broadcasters and distributors.
  **68 /
            Corus Entertainment**
 
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **18. EARNINGS
            (LOSS) PER SHARE**
 The
            following is a reconciliation of the numerators and denominators used
            for the
            computation of the basic and diluted earnings (loss) per share amounts:
  **2005**
                  
                  2004
                  
                  2003Net
                      income (loss) for the year [numerator]
                  
                  
                  **71,114**
                  
                  
                  (23,137
                  )
                  
                  40,021Weighted
                      average number of shares outstanding [denominator]Weighted
                      average number of shares outstanding - basic
                  
                  
                  **42,761**
                  
                  
                  42,719
                  
                  
                  42,641Effect
                      of dilutive securities
                  
                  
                  **334**
                  
                  
                  -
                  
                  
                  4**Weighted
                      average number of shares outstanding - diluted**
                  
                  
                  **43,095**
                  
                  
                  42,719
                  
                  
                  42,645
 
 In
            fiscal 2004, options issued under the Plan were not included in the computation
            of diluted earnings (loss) per share because the effect of exercising
            the
            options is anti-dilutive.
  **19. CONSOLIDATED
            STATEMENTS OF CASH FLOWS**
 Additional
            disclosures with respect to the consolidated statements of cash flows
            are as
            follows:
  **[a]** Net
            change in non-cash working capital balances related to operations consists
            of
            the following:
  **2005**
                  
                  2004
                  
                  2003Accounts
                      receivable
                  
                  
                  **(13,055**
                  **)**
                  
                  13,268
                  
                  
                  8,246Prepaid
                      expenses and other
                  
                  
                  **(1,794**
                  **)**
                  
                  1,629
                  
                  
                  628Accounts
                      payable and accrued liabilities
                  
                  
                  **6,040**
                  
                  
                  (24,456
                  )
                  
                  (15,484
                  )Income
                      taxes payable
                  
                  
                  **(1,497**
                  **)**
                  
                  (11,753
                  )
                  
                  10,064Deferred
                      credits
                  
                  
                  **12,354**
                  
                  
                  1,664
                  
                  
                  (406
                  )Other
                  
                  
                  **187**
                  
                  
                  1,253
                  
                  
                  333**2,235**
                  
                  
                  (18,395
                  )
                  
                  3,381
 
 **[b]** Interest
            paid, interest received and income taxes paid and classified as operating
            activities are as follows:
  **2005**
                  
                  2004
                  
                  2003Interest
                      paid
                  
                  
                  **53,855**
                  
                  
                  55,800
                  
                  
                  60,467Interest
                      received
                  
                  
                  **2,995**
                  
                  
                  2,135
                  
                  
                  1,803Income
                      taxes paid
                  
                  
                  **36,279**
                  
                  
                  38,568
                  
                  
                  15,338
 
 2005
              Annual Report / **69**
 
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 **20. FOREIGN
            EXCHANGE GAINS AND LOSSES**
 The
            Company has reflected certain gains and losses in its consolidated statements
            of
            income (loss) and retained earnings (deficit) as a result of exposure
            to foreign
            currency exchange rate fluctuations. A portion of these gains and losses
            relate
            to operating activities while others are of a financing nature. Foreign
            exchange
            gains and losses are reflected in the consolidated financial statements
            as
            follows:
  **2005**
                  
                  2004
                  
                  2003**Consolidated
                      statements of income (loss) and retained earnings
                      (deficit)**Direct
                      cost of sales, general and administrative expenses
                  
                  
                  **(825**
                  **)**
                  
                  (1,222
                  )
                  
                  (772
                  )Other
                      income, net
                  
                  
                  **(3,338**
                  **)**
                  
                  (2,245
                  )
                  
                  (6,638
                  )**Total
                      foreign exchange gain**
                  
                  
                  **(4,163**
                  **)**
                  
                  (3,467
                  )
                  
                  (7,410
                  )
 
 An
            analysis of the cumulative translation adjustment shown separately in
            shareholders’ equity is as follows:
 **Balance,
                      August 31, 2003**
                  
                  
                  (5,089
                  )Effect
                      of exchange rate fluctuation on translation of net assets of
                      self-sustaining foreign operations
                  
                  
                  (1,949
                  )**Balance,
                      August 31, 2004**
                  
                  
                  (7,038
                  )Effect
                      of exchange rate fluctuation on translation of net assets of
                      self-sustaining foreign operations
                  
                  
                  (3,418
                  )Other
                  
                  
                  447**Balance,
                      August 31, 2005**
                  
                  
                  **(10,009**
                  **)**
 
 **21. RECONCILIATION
            OF
            CANADIAN GAAP TO U.S. GAAP**
 The
            consolidated financial statements of the Company are prepared in Canadian
            dollars in accordance with Canadian GAAP. The following adjustments and
            disclosures would be required in order to present these consolidated
            financial
            statements in accordance with U.S. GAAP:
  **[a] Reconciliation
            to
            U.S. GAAP**
  **2005**
                  
                  2004
                  
                  2003**Net
                      income (loss) using Canadian GAAP**
                  
                  
                  **71,114**
                  
                  
                  (23,137
                  )
                  
                  40,021Add
                      (deduct) adjustments forDeferred
                      charges [i]
                  
                  
                  **1,858**
                  
                  
                  4,474
                  
                  
                  7,246Income
                      tax effect of adjustments
                  
                  
                  **(764**
                  **)**
                  
                  (1,789
                  )
                  
                  (2,898
                  )**Net
                      income (loss) using U.S. GAAP**
                  
                  
                  **72,208**
                  
                  
                  (20,452
                  )
                  
                  44,369Add
                      (deduct) adjustments for changes inUnrealized
                      gains on investments classified as available for sale, net
                      of tax
                      [ii]
                  
                  
                  **1,864**
                  
                  
                  640
                  
                  
                  320Unrealized
                      loss
                      on derivative contracts [iii]
                  
                  
                  **(41,634**
                  **)**
                  
                  (2,420
                  )
                  
                  (31,055
                  )Unrealized
                      foreign exchange loss on translation of self-sustaining foreign
                      operations
                  
                  
                  **(3,418**
                  **)**
                  
                  (1,949
                  )
                  
                  (6,276
                  )**Comprehensive
                      income (loss) using U.S. GAAP**
                  
                  
                  **29,020**
                  
                  
                  (24,181
                  )
                  
                  7,358
 
  **70 /
            Corus Entertainment**
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
  **2005**
                  
                  2004
                  
                  2003**Net
                      income (loss) per share using U.S. GAAP**Basic
                  
                  **$**
                  **1.69**
                  
                  $
                  (0.48
                  )
                  $
                  1.04Diluted
                  
                  **$**
                  **1.68**
                  
                  $
                  (0.48
                  )
                  $
                  1.04**Comprehensive
                      income (loss) per share using U.S. GAAP**Basic
                  
                  **$**
                  **0.68**
                  
                  $
                  (0.57
                  )
                  $
                  0.17Diluted
                  
                  **$**
                  **0.67**
                  
                  $
                  (0.57
                  )
                  $
                  0.17
 
 **Balance
            sheet items using U.S. GAAP**
 
 **2005**
                  
                  
                  
                  2004*[revised
                      - note 26[b]]***Canadian**
                  
                  **U.S.**
                  
                  Canadian
                  
                  U.S.**GAAP**
                  
                  **GAAP**
                  
                  GAAP
                  
                  GAAPInvestments
                      and other assets [ii]
                  
                  
                  **36,886**
                  
                  
                  **34,391**
                  
                  
                  41,683
                  
                  
                  37,419Deferred
                      charges [i]
                  
                  
                  **15,560**
                  
                  
                  **14,557**
                  
                  
                  19,305
                  
                  
                  16,444Broadcast
                      licenses and goodwill [iv]
                  
                  
                  **1,269,853**
                  
                  
                  **1,278,138**
                  
                  
                  1,273,558
                  
                  
                  1,281,843Deferred
                      credits [iii]
                  
                  
                  **195,789**
                  
                  
                  **278,956**
                  
                  
                  146,164
                  
                  
                  177,414Future
                      tax liability
                  
                  
                  **147,744**
                  
                  
                  **134,972**
                  
                  
                  144,085
                  
                  
                  140,927Accumulated
                      other comprehensive loss
                  
                  
                  **-**
                  
                  
                  **(80,200**
                  **)**
                  
                  -
                  
                  
                  (37,012
                  )Other
                      components of shareholders’ equity
                  
                  
                  **930,262**
                  
                  
                  **944,854**
                  
                  
                  861,180
                  
                  
                  871,260
 
 The
            cumulative effect of these adjustments on shareholders’ equity is as follows:
 
 **2005**
                  
                  2004Other
                      components of shareholders’ equityDeferred
                      charges [i],[iii]
                  
                  
                  **(622**
                  **)**
                  
                  (1,716
                  )Equity
                      in earnings of investees [iv]
                  
                  
                  **4,758**
                  
                  
                  4,758Cumulative
                      translation adjustment
                  
                  
                  **10,456**
                  
                  
                  7,038Accumulated
                      other comprehensive lossUnrealized
                      losses on investments [ii]
                  
                  
                  **(1,547**
                  **)**
                  
                  (3,411
                  )Unrealized
                      loss
                      on derivative contracts [iii]
                  
                  
                  **(68,197**
                  **)**
                  
                  (26,563
                  )Unrealized
                      foreign exchange loss on translation of self-sustaining foreign
                      operations
                  
                  
                  **(10,456**
                  **)**
                  
                  (7,038
                  )**Total
                      cumulative effect of adjustments on shareholders’
                      equity**
                  
                  
                  **(65,608**
                  **)**
                  
                  (26,932
                  )
 
 Areas
            of material difference between Canadian GAAP and U.S. GAAP and their
            impact on
            the consolidated financial statements are as follows:
  [i] Deferred
            charges
 Start-up
            costs of new specialty programming networks and costs associated with
            reformatting radio stations are deferred and amortized under Canadian
            GAAP.
            Under U.S. GAAP, these costs are expensed as incurred.
  2005
              Annual Report / **71**
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 [ii] Unrealized
            gains (losses) on investments
 Under
            U.S. GAAP, equity securities having a readily determinable fair value
            and not
            classified as trading securities are classified as “available-for-sale
            securities” and reported at fair value, with unrealized gains and losses
            included in comprehensive income (loss) and reported as a separate component
            of
            shareholders’ equity, net of related deferred income taxes. Under Canadian GAAP,
            these investments are carried at cost and written down only when there
            is
            evidence that a decline in value that is other-than-temporary has occurred.
            The
            Company has determined that the decline in fair value is not
            other-than-temporary, based on the financial condition of the issue and
            the fact
            that the Company has the intent and ability to retain its investment
            in the
            issuer for a period of time sufficient to allow for an anticipated recovery
            in
            market value. The Company has considered evidence, such as industry analyst
            reports, that supports this conclusion.
  [iii] Derivative
            instruments and hedging activities
 Under
            U.S. GAAP, all derivative instruments are to be recorded on the consolidated
            balance sheets at fair value. Derivatives that are not hedges must be
            adjusted
            to fair value through income. If the derivative is a hedge, depending
            on the
            nature of the hedge, changes in the fair value of derivatives will either
            be
            offset against the change in fair value of the hedged assets, liabilities
            or
            firm commitments through income (loss), or deferred in other comprehensive
            income (loss) until the hedged item is recognized in income (loss).
  [iv
            ] Equity
            in earnings of investees
 Under
            Canadian GAAP, the investments in Nelvana’s 20% interest in TELETOON in fiscal
            2001 and Western International Communications Ltd. [“WIC”] in fiscal 2000 were
            accounted for using the cost method of accounting until CRTC approval
            was
            received for the transactions. When the Company received CRTC approval,
            the
            amount in the accounts under the cost method became the basis for the
            purchase
            price allocation and equity accounting commenced. Under U.S. GAAP, equity
            accounting for the investments is used from the date the Company first
            acquired
            shares in Nelvana and WIC.
  **[b] Stock-based
            compensation**
 For
            stock options granted to employees after August 31, 2003, the Company
            has
            adopted the fair value method of accounting in accordance with Financial
            Accounting Standards Board [“FASB”] Statement No. 123, “Accounting for
            Stock-Based Compensation.” The Company applies Accounting Principles Board
            Opinion No. 25 in accounting for common share options granted to employees
            and
            officers prior to September 1, 2003. Had compensation expense been determined
            on
            the basis of the estimated fair values of the options granted prior to
            September
            1, 2003, net income for the year ended August 31, 2005 would have decreased
            by
            $4,198 to $66,916 or $1.56 per share [2004 - net loss would have increased
            by
            $10,160 to $30,612, or $0.72 per share; 2003 - net income would have
            decreased
            by $15,498 to $28,871, or $0.68 per share]. The assumptions used to determine
            fair value are consistent with those disclosed in note 14.
  **22. GOVERNMENT
            FINANCING AND ASSISTANCE**
 Revenues
            include $2,053 [2004 - $2,309; 2003 - $1,248] of production financing
            obtained
            from government programs. This financing provides a supplement to a production
            series’ Canadian license fees and is not repayable. As well, revenues include
            $1,011 [2004 - $1,080; 2003 - $938] of government grants relating to
            the
            marketing of books in both Canada and international markets. The majority
            of the
            grants is repayable if the average profit margin for the three-year period
            following receipt of the funds equals or is greater than 10%.
  **72 /
            Corus Entertainment**
 
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **23. COMMITMENTS,
            CONTINGENCIES AND GUARANTEES**
 The
            Company and its subsidiaries are involved in litigation matters arising
            out of
            the ordinary course and conduct of its business. Although such matters
            cannot be
            predicted with certainty, management does not consider the Company’s exposure to
            litigation to be material to these consolidated financial statements.
  The
            Company has various long-term operating lease agreements for the use
            of
            facilities and equipment in each of the next five years and thereafter
            as
            follows:
 2006
                  
                  
                  22,1392007
                  
                  
                  18,2552008
                  
                  
                  15,7902009
                  
                  
                  9,1862010
                  
                  
                  4,716Thereafter
                  
                  
                  26,92697,012
 
 Rental
            expenses recognized in direct cost of sales, general and administrative
            expenses
            totalled approximately $13,411 [2004 - $11,549; 2003 - $10,637].
  The
            Company has entered into various agreements for the right to broadcast
            or
            distribute certain film and television programs in the future. These
            agreements,
            which range in term from one to five years, generally commit the Company
            to
            acquire specific films and television programs or certain levels of future
            productions. The acquisition of these broadcast and distribution rights
            is
            contingent on the actual delivery of the productions. Management estimates
            that
            these agreements will result in future program and film expenditures
            of
            approximately $147,021.
  Generally,
            it is not the Company’s policy to issue guarantees to non-controlled affiliates
            or third parties, with limited exceptions.
  Many
            of the Company’s agreements, specifically those related to acquisitions and
            dispositions of business assets, included indemnification provisions
            where the
            Company may be required to make payments to a vendor or purchaser for
            breach of
            fundamental representation and warranty terms in the agreements with
            respect to
            matters such as corporate status, title of assets, environmental issues,
            consents to transfer, employment matters, litigation, taxes payable and
            other
            potential material liabilities. The maximum potential amount of future
            payments
            that the Company could be required to make under these indemnification
            provisions is not reasonably quantifiable as certain indemnifications
            are not
            subject to a monetary limitation. As at August 31, 2005, management believed
            there was only a remote possibility that the indemnification provisions
            would
            require any material cash payment.
  The
            Company indemnifies its directors and officers against any and all claims
            or
            losses reasonably incurred in the performance of their service to the
            Company to
            the extent permitted by law. The Company has acquired and maintains liability
            insurance for directors and officers of the Company and its
            subsidiaries.
  2005
              Annual Report / **73**
 
 
 NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS
 
 **24. RELATED
            PARTY
            TRANSACTIONS**
 The
            Company has transacted business in the normal course with entities that
            are
            subject to common voting control and with entities over which the Company
            exercises significant influence. These transactions are measured at the
            exchange
            amount, which is the amount of consideration established and agreed to
            by the
            related parties and having normal trade terms.
  During
            the year, the Company received cable service subscriber, programming
            and
            advertising fees of $94,633 [2004 - $92,279; 2003 - $89,250], production
            and
            distribution revenue of $2,463 [2004 - $3,055; 2003 - $2,120], and
            administrative and other fees of $6,561 [2004 - $5,506] from related
            parties. In
            addition, the Company paid cable and satellite system distribution access
            fees
            of $4,800 [2004 - $4,546; 2003 - $3,636] and administrative and other
            fees of
            $2,007 [2004 - $1,486; 2003 - $1,051] to related parties. As at August
            31, 2005,
            the Company had $20,077 [2004 - $9,868] receivable from related parties.
  The
            Company provided related parties with radio and television spots in return
            for
            television advertising. No monetary consideration was exchanged for these
            transactions and no amounts were recorded in the accounts.
  In
            fiscal 2005, Corus acquired a cable advertising business for $931 in
            cash from
            Shaw Communications Inc., a company subject to common voting control.
  Included
            in share capital [note 14] and other investments [note 6[b]] are loans
            of $6,438
            [2004 - $6,780] made to certain executive officers of the Company for
            housing or
            investment purposes. The loans are collateralized by charges on the officers’
personal residences and/or by related investment. The loans are non-interest
            bearing and are due between April 2, 2007 and October 31, 2012.
  **25. EMPLOYEE
            FUTURE BENEFITS**
 The
            Company has a defined contribution plan for qualifying full-time employees.
            Under the plan, the Company contributes 5% of an employee’s earnings, not
            exceeding the limits set by the *Income
            Tax Act* [Canada].
            The amount contributed in 2005 related to the defined contribution plan
            was
            $5,527 [2004 - $4,768; 2003 - $4,594]. The amount contributed is approximately
            the same as the expense included in the consolidated statements of income
            (loss)
            and retained earnings (deficit).
  **26. COMPARATIVE
            CONSOLIDATED FINANCIAL STATEMENTS**
 **[a]** The
            comparative consolidated financial statements have been reclassified
            from
            statements previously presented to conform to the presentation of the
            2005
            consolidated financial statements.
  **[b]** The
            Company revised its balances for goodwill and future income taxes to
            reflect a
            correction in certain tax liabilities recorded in connection with acquisitions
            prior to fiscal 2003. The change was recorded as a reduction in goodwill
            and did
            not result in a change to net income for any previously reported periods.
            The
            future tax liability and goodwill balances were each reduced by $25,000.
  **74 /
            Corus Entertainment**