##### 



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. -s- John M. Cassaday
    
    -s- Thomas C. PeddieJohn M. Cassaday
    
    Thomas C. Peddie, FCAPresident & Chief Executive Officer
    
    Senior Vice President & Chief Financial Officer




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##### 



auditors report To the Shareholders of Corus Entertainment Inc. We have audited the consolidated balance sheets of Corus Entertainment Inc. as at August 31,
2004 and 2003 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, 2004. 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, 2004 and 2003 and the results of
its operations and its cash flows for each of the years in the three-year period ended August 31,
2004 in accordance with Canadian generally accepted accounting principles. Toronto, Canada,
    
(ERNST & YOUNG LLP)October 18, 2004.
    
    Chartered Accountants




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##### 



consolidated balance sheets AS
AT AUGUST 31 [in thousands of Canadian dollars]
    
    2004
    
    
    2003ASSETS[note 12]CurrentCash and cash equivalents
    
    
    95,231
    
    
    
    43,874Accounts receivable [notes 5 and 26]
    
    
    143,641
    
    
    
    158,689Prepaid expenses and other
    
    
    9,674
    
    
    
    11,385Program and film rights
    
    
    92,786
    
    
    
    73,107Future tax asset [note 15]
    
    
    13,719
    
    
    
    10,230Total current assets
    
    
    355,051
    
    
    
    297,285Tax credits receivable
    
    
    10,774
    
    
    
    27,109Investments and other assets [note 6]
    
    
    41,683
    
    
    
    38,786Capital assets, net [note 7]
    
    
    82,105
    
    
    
    89,378Program and film rights
    
    
    32,523
    
    
    
    28,365Film investments [note 8]
    
    
    56,867
    
    
    
    134,564Deferred charges [note 9]
    
    
    19,305
    
    
    
    26,581Broadcast licenses
    
    
    509,040
    
    
    
    509,040Goodwill [note 16]
    
    
    789,518
    
    
    
    789,5181,896,866
    
    
    
    1,940,626LIABILITIES AND SHAREHOLDERS EQUITYCurrentAccounts payable and accrued liabilities [notes 11 and 26]
    
    
    161,397
    
    
    
    173,749Income taxes payable
    
    
    4,567
    
    
    
    16,182Total current liabilities
    
    
    165,964
    
    
    
    189,931Long-term debt [note 12]
    
    
    529,139
    
    
    
    558,437Deferred credits [note 13]
    
    
    146,164
    
    
    
    128,802Future tax liability [note 15]
    
    
    169,085
    
    
    
    165,556Other long-term liabilities
    
    
    16,203
    
    
    
    7,048Non-controlling interest
    
    
    9,131
    
    
    
    6,175Total liabilities
    
    
    1,035,686
    
    
    
    1,055,949Shareholders equityShare capital [note 14]
    
    
    884,053
    
    
    
    881,631Contributed surplus [note 14]
    
    
    1,287
    
    
    
    Retained earnings (deficit)
    
    
    (17,122
    )
    
    
    8,135Cumulative translation adjustment [note 22]
    
    
    (7,038
    )
    
    
    (5,089
    )Total shareholders equity
    
    
    861,180
    
    
    
    884,6771,896,866
    
    
    
    1,940,626
 Commitments and contingencies [notes 12 and 25] See accompanying notes -s- J. Cassaday
    

-s- Heather ShawOn behalf of the Board:
    
    Director
    
    Director




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##### 



consolidated statements of
income (loss)and retained earnings
(deficit) YEARS ENDED AUGUST 31 [in thousands of Canadian dollars except per share amounts]
    
    2004
    
    
    2003
    
    
    2002Revenues[notes 24 and 26]
    
    
    666,804
    
    
    
    643,918
    
    
    
    674,503Operating, general and administrative
expenses [notes 8, 14, 22, 25 and 26]
    
    
    576,406
    
    
    
    478,606
    
    
    
    548,93290,398
    
    
    
    165,312
    
    
    
    125,571Depreciation
    
    
    25,682
    
    
    
    24,708
    
    
    
    25,980Amortization
    
    
    7,276
    
    
    
    9,792
    
    
    
    8,570Interest on long-term debt [note 12]
    
    
    55,276
    
    
    
    61,030
    
    
    
    57,731Loss (gain) on sale of investments [note 3]
    
    
    
    
    
    
    994
    
    
    
    (18,172
    )Other expense (income), net [note 22]
    
    
    (4,937
    )
    
    
    (9,386
    )
    
    
    289Restructuring charges [note 17]
    
    
    
    
    
    
    5,025
    
    
    
    22,089Hedge transaction loss [note 12[a]]
    
    
    
    
    
    
    
    
    
    
    20,429Asset write-downs [note 18]
    
    
    
    
    
    
    2,368
    
    
    
    15,240Goodwill and intangible impairment loss [note 10]
    
    
    
    
    
    
    
    
    
    
    162,772Income (loss) before income taxes
    
    
    7,101
    
    
    
    70,781
    
    
    
    (169,357
    )Income tax expense (recovery) [note 15]
    
    
    26,925
    
    
    
    28,534
    
    
    
    (2,245
    )Income (loss) before equity earnings from
investees and non-controlling interest
    
    
    (19,824
    )
    
    
    42,247
    
    
    
    (167,112
    )Equity earnings from investees
    
    
    
    
    
    
    
    
    
    
    115Non-controlling interest
    
    
    (3,313
    )
    
    
    (2,226
    )
    
    
    (1,650
    )Net income (loss) for the year
    
    
    (23,137
    )
    
    
    40,021
    
    
    
    (168,647
    )Retained earnings (deficit),
beginning of year
    
    
    8,135
    
    
    
    (31,886
    )
    
    
    136,761Dividends paid [note 14]
    
    
    (2,120
    )
    
    
    
    
    
    
    Retained earnings (deficit), end of year
    
    
    (17,122
    )
    
    
    8,135
    
    
    
    (31,886
    )Earnings (loss) per share[note 20]Basic and diluted
    
    $
    (0.54
    )
    
    $
    0.94
    
    
    $
    (3.96
    )Weighted average number of
shares outstanding[in thousands]Basic
    
    
    42,719
    
    
    
    42,641
    
    
    
    42,621Diluted
    
    
    42,719
    
    
    
    42,645
    
    
    
    42,621
 See accompanying notes




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##### 



consolidated statements of cash flows YEARS ENDED AUGUST 31 [in thousands of Canadian dollars]
    
    2004
    
    
    2003
    
    
    2002OPERATING ACTIVITIESNet income (loss) for the year
    
    
    (23,137
    )
    
    
    40,021
    
    
    
    (168,647
    )Add (deduct) non-cash itemsDepreciation
    
    
    25,682
    
    
    
    24,708
    
    
    
    25,980Amortization of program and film rights
    
    
    105,549
    
    
    
    94,016
    
    
    
    105,461Amortization of film investments
    
    
    142,754
    
    
    
    64,578
    
    
    
    124,943Other amortization
    
    
    7,276
    
    
    
    9,792
    
    
    
    8,570Future income taxes
    
    
    600
    
    
    
    3,257
    
    
    
    (35,845
    )Loss (gain) on sale of investments
    
    
    
    
    
    
    994
    
    
    
    (18,172
    )Hedge transaction loss
    
    
    
    
    
    
    
    
    
    
    20,429Asset write-downs
    
    
    
    
    
    
    2,368
    
    
    
    15,240Goodwill and intangible impairment loss
    
    
    
    
    
    
    
    
    
    
    162,772Non-controlling interest
    
    
    3,313
    
    
    
    2,226
    
    
    
    1,650Foreign exchange gains
    
    
    (2,057
    )
    
    
    (7,259
    )
    
    
    (2,012
    )Other
    
    
    3,841
    
    
    
    1,808
    
    
    
    2,195263,821
    
    
    
    236,509
    
    
    
    242,564Net change in non-cash working capital
balances related to operations [note 21]
    
    
    (18,395
    )
    
    
    3,381
    
    
    
    20,333Payment of program and film rights
    
    
    (115,314
    )
    
    
    (108,626
    )
    
    
    (104,752
    )Net additions to film investments
    
    
    (47,597
    )
    
    
    (66,197
    )
    
    
    (132,512
    )Other
    
    
    2,397
    
    
    
    (445
    )
    
    
    2,259Cash provided by operating activities
    
    
    84,912
    
    
    
    64,622
    
    
    
    27,892INVESTING ACTIVITIESAdditions to capital assets
    
    
    (17,421
    )
    
    
    (14,908
    )
    
    
    (28,176
    )Net proceeds from sale of investments
    
    
    
    
    
    
    
    
    
    
    134,827Net proceeds from business divestitures
    
    
    
    
    
    
    4,005
    
    
    
    95,067Business acquisitions, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (90,581
    )Increase in investments
    
    
    (3,685
    )
    
    
    (5,312
    )
    
    
    (27,068
    )Additions to deferred charges
    
    
    
    
    
    
    (80
    )
    
    
    (26,278
    )Decrease in public benefits
associated with acquisitions
    
    
    (11,455
    )
    
    
    (12,198
    )
    
    
    (7,444
    )Other
    
    
    136
    
    
    
    690
    
    
    
    (421
    )Cash provided by (used in) investing activities
    
    
    (32,425
    )
    
    
    (27,803
    )
    
    
    49,926FINANCING ACTIVITIESDecrease in bank overdraft
    
    
    
    
    
    
    
    
    
    
    (3,600
    )Decrease in bank loans
    
    
    
    
    
    
    (15,499
    )
    
    
    (557,648
    )Increase in senior subordinated notes [note 12[a]]
    
    
    
    
    
    
    
    
    
    
    604,000Decrease in securitized borrowing
    
    
    
    
    
    
    
    
    
    
    (89,500
    )Decrease in other long-term liabilities
    
    
    (911
    )
    
    
    (2,810
    )
    
    
    (3,325
    )Issuance of shares under stock option plan
    
    
    2,212
    
    
    
    
    
    
    
    944Dividends paid
    
    
    (2,120
    )
    
    
    
    
    
    
    Dividends paid to minority shareholder
    
    
    (521
    )
    
    
    (1,496
    )
    
    
    Other
    
    
    210
    
    
    
    216
    
    
    
    (2,045
    )Cash used in financing activities
    
    
    (1,130
    )
    
    
    (19,589
    )
    
    
    (51,174
    )Net increase in cash and cash equivalents
during the year
    
    
    51,357
    
    
    
    17,230
    
    
    
    26,644Cash and cash equivalents, beginning of year
    
    
    43,874
    
    
    
    26,644
    
    
    
    Cash and cash equivalents, end of year
    
    
    95,231
    
    
    
    43,874
    
    
    
    26,644
 Supplemental cash flow disclosures [note 21] See accompanying notes




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##### 



notes to consolidated financial statements AUGUST 31, 2004, 2003, AND 2002[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 [Canadian 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 23. 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 Ltd. [80%
interest], Telelatino Network Inc. [50.5% interest] and Discovery Kids [53.6% interest].
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, capital assets, 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 to the extent that the service has been made
available under distribution contracts. 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 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. Revenues from merchandise licensing contracts, publishing and other royalties, which may
provide for non-refundable advances, are recognized when the license period has commenced and
collection is reasonably assured. 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.




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##### 



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 which 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. Capital assets Capital assets 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: ASSET
    
    ESTIMATED USEFUL LIFEBroadcasting equipment
    
    10 yearsProduction equipment
    
    5 yearsLeasehold improvements
    
    lease termBuildings
    
    20  40 yearsComputer equipment
    
    3 yearsFurniture and fixtures
    
    7 yearsOther
    
    4  10 years
 Effective September 1, 2003, the Company adopted the recommendations of The Canadian Institute
of Chartered Accountants [CICA] Handbook Section 3063, Impairment of Long-lived Assets, on a
prospective basis. Under this section, an impairment loss is recognized when the carrying amount of
a long-lived asset is not recoverable, and is measured as the amount by which the carrying value of
an asset exceeds its fair value. The adoption of this standard had no material impact on the
Companys results of operations or financial position. 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 operating, general and administrative
expenses and has been disclosed separately in the consolidated statements of cash flows. Film investments Film investments represent the costs of projects in development, projects in process, the
unamortized costs of proprietary films and television programs which 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, attributable
studio and other costs which 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 operating expenses. 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 investments in film, 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 write-down 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 operating, general and
administrative expenses. Deferred charges Financing costs and credit facility arrangements 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 which are awarded by the CRTC are capitalized from
the date they are awarded to the date revenue is generated for the service. Startup costs are
amortized over a period which reflects their expected future benefit, not exceeding the term of the
licenses. Advertising and promotion costs incurred for reformatting of radio, specialty and pay
television stations are deferred and amortized on a straight-line basis over a period which
reflects their expected future benefit, not exceeding three years. 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 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 towards 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 which are expected to be in effect when the differences are expected to reverse. Foreign currency translation The assets and liabilities of the Companys self-sustaining operations having a functional
currency that is not in Canadian dollars are translated into Canadian dollars using the exchange
rate in effect at the consolidated balance sheet date and revenues and expenses are translated at
the average rate during the year. Exchange gains or losses on translation of the Companys net
equity investment in these operations are deferred as a separate component of shareholders equity. For integrated foreign operations monetary items are translated into Canadian dollars at
exchange rates in effect at the consolidated balance sheet date and non-monetary items are
translated at rates of exchange in effect when the assets were acquired or obligations incurred.
Revenues and expenses are translated at rates in effect at the time of the transaction. Foreign
exchange gains and losses are included in income. 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. In December 2001, the CICA issued Accounting Guideline-13, Hedging Relationships [AcG-13].
AcG-13 establishes new criteria for hedge accounting and will apply to all hedging relationships in
effect for the Companys fiscal year commencing on September 1, 2003 under Canadian GAAP. To
qualify for hedge accounting, consistent with U.S. GAAP, the hedging relationship must be
appropriately documented at the inception of the hedge and there must be reasonable assurance, both
at the inception and throughout the term of the hedge, that the hedging relationship will be
effective.




---



##### 



Effectiveness requires a high correlation of changes in fair values or cash flows between the
hedged item and the hedge. In June 2002, the Emerging Issues Committee issued EIC-128, Accounting
for Trading, Speculative or Non-Hedging Derivative Financial Instruments, which establishes that a
derivative financial instrument that does not qualify for hedge accounting under AcG-13 should be
recognized on the balance sheet at fair value, with changes to fair value recognized in net income.
The Company has applied the recommendations to its hedging relationships, and those that qualify
continue to be accounted for using hedge accounting. The carrying value of derivative financial
instruments that do not qualify for hedge accounting are adjusted to reflect their current market
value. The adoption of this standard had no impact on the Companys results of operations or
financial position. Stock-based Compensation and Other Stock-based Payments In October 2003, the CICA issued amended Handbook Section 3870, Stock-based Compensation and
Other Stock-based Payments, which requires that equity instruments awarded to employees be
measured and expensed, thus eliminating the existing provisions which permit a company to only
disclose the fair value. Fair value of the equity instruments would be used to measure compensation
expense. As well, the transitional provisions that apply when a company adopts the fair value
method have been modified to harmonize with U.S. standards, whereby alternative methods of
transition to the fair value method are now permitted. The transitional provisions include both
retroactive and prospective alternatives. However, the prospective method is only available to
enterprises that elect to apply the fair-value based method of accounting for fiscal years
beginning before January 1, 2004. The Company has elected to adopt the prospective approach for its
fiscal year commencing September 1, 2003, and as a result has recorded the $1,287 in compensation
costs associated with stock options awarded to employees after August 31, 2003 in its operating,
general and administrative expenses for the year ended August 31, 2004. Consideration paid by the
Company under its Employee Share Purchase Plan is included in operating, 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. 3. DIVESTITURES Divestitures in fiscals 2003 and 2002 resulted in the following gains and losses being
recorded: 2003
    
    
    2002The Comedy Network Inc.
    
    
    
    
    
    
    (17,967
    )Astral Media Inc.
    
    
    
    
    
    
    2,489Corus VC Ltd.
    
    
    
    
    
    
    (2,938
    )Other
    
    
    994
    
    
    
    244Loss (gain) on sale of investments
    
    
    994
    
    
    
    (18,172
    )
 During fiscal 2002, the Company disposed of its 29.9% interest in The Comedy Network Inc. and
a portion of its investment in Astral Media Inc. for gross proceeds of approximately $36,000 and
$93,500 respectively. These amounts have been included in the consolidated statements of cash flows
as net proceeds from sale of investments. Also during fiscal 2002, the Company disposed of its ownership interest in Klutz and Corus VC
Ltd. for gross proceeds of approximately $68,000 and $33,000 respectively. These amounts have been
included in the consolidated statements of cash flows as net proceeds from business divestitures.




---



##### 



4. JOINT VENTURES The following amounts, included in these consolidated financial statements, represent the
Companys proportionate share in joint ventures: 2004
    
    
    2003Balance sheetsCurrent assets
    
    
    19,550
    
    
    
    28,058Long-term assets
    
    
    16,926
    
    
    
    15,401Current liabilities
    
    
    17,071
    
    
    
    20,105Statements of income (loss)Revenues
    
    
    31,389
    
    
    
    32,602Expenses
    
    
    28,002
    
    
    
    28,732Net income
    
    
    3,387
    
    
    
    3,870Statements of cash flowsOperating activities
    
    
    4,757
    
    
    
    6,585Investing activities
    
    
    (555
    )
    
    
    (230
    )
 5. ACCOUNTS RECEIVABLE 2004
    
    
    2003Trade
    
    
    146,156
    
    
    
    158,634Other
    
    
    2,654
    
    
    
    5,111148,810
    
    
    
    163,745Less allowance for doubtful accounts
    
    
    5,169
    
    
    
    5,056143,641
    
    
    
    158,689
 6. INVESTMENTS AND OTHER ASSETS 2004
    
    
    2003Investments, at costAstral Media Inc. [a]
    
    
    13,861
    
    
    
    13,861Other [b]
    
    
    27,822
    
    
    
    24,92541,683
    
    
    
    38,786
 [a] Astral Media Inc. The Company holds 54,600 Class A non-voting shares and 297,200 Class B subordinate voting
shares of Astral Media Inc. with a market value of $9,598 [2003  $8,797]. [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 basis.




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##### 



7. CAPITAL ASSETS 2004
    
    
    2003ACCUMULATED
    
    
    
    
    
    
    ACCUMULATEDCOST
    
    
    DEPRECIATION
    
    
    COST
    
    
    DEPRECIATIONBroadcasting equipment
    
    
    31,883
    
    
    
    22,501
    
    
    
    30,067
    
    
    
    20,878Production equipment
    
    
    91,417
    
    

    
    72,112
    
    
    
    87,357
    
    
    
    63,826Leasehold improvements
    
    
    32,862
    
    
    
    19,315
    
    
    
    31,321
    
    
    
    15,352Buildings
    
    
    23,917
    
    
    
    8,719
    
    
    
    21,175
    
    
    
    6,897Computer equipment
    
    
    49,711
    
    
    
    38,458
    
    
    
    40,457
    
    
    
    28,356Furniture and fixtures
    
    
    21,221
    
    
    
    16,136
    
    
    
    21,228
    
    
    
    15,004Other
    
    
    3,432
    
    
    
    2,666
    
    
    
    2,981
    
    
    
    2,464254,443
    
    
    
    179,907
    
    
    
    234,586
    
    
    
    152,777Land
    
    
    7,569
    
    
    
    
    
    
    
    7,569
    
    
    
    262,012
    
    
    
    179,907
    
    
    
    242,155
    
    
    
    152,777Net book value
    
    
    82,105
    
    
    
    89,378
 8. FILM INVESTMENTS 2004
    
    
    2003Projects in development and in process, net of advances
    
    
    15,990
    
    
    
    19,494Completed projects and distribution rights
    
    
    31,843
    
    
    
    105,464Investments in third party film projects
    
    
    9,034
    
    
    
    9,60656,867
    
    
    
    134,564
 During fiscal 2004, the Company reduced its investments in film and television programs by
anticipated federal and Ontario production tax credits amounting to $3,059 [2003  $8,296]. 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 revenue projections with
reference to current and anticipated market conditions and foreign exchange rates resulting in the
recognition of an $85,000 write-down of film investments in the quarter. This write-down is
included in operating, general and administrative expenses for the year. The Company expects that 45% and 85% of the net book value of completed projects and
distribution rights will be amortized during the year ending August 31, 2005 and three years ending
August 31, 2007, respectively. The Company expects that $3,500 of accrued participation liabilities will be paid during the
year ending August 31, 2005. The Company also generates revenue from productions which have been
fully amortized in prior years and are not valued in the accounts.




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##### 



9. DEFERRED CHARGES 2004
    
    
    2003ACCUMULATED
    
    
    
    
    
    
    ACCUMULATEDCOST
    
    
    DEPRECIATION
    
    
    COST
    
    
    DEPRECIATIONFinancing costs and credit facility arrangement fees
    
    
    27,401
    
    
    
    10,957
    
    
    
    27,401
    
    
    
    8,155Start-up costs of new specialty programming networks
    
    
    9,857
    
    
    
    8,103
    
    
    
    9,857
    
    
    
    7,193Advertising and promotion costs for reformatting radio,
specialty and pay television stations
    
    
    11,570
    
    
    
    10,463
    
    
    
    11,570
    
    
    
    6,89948,828
    
    
    
    29,523
    
    
    
    48,828
    
    
    
    22,247Net book value
    
    
    19,305
    
    
    
    26,581
 10. GOODWILL, BROADCAST LICENSES AND INTANGIBLE IMPAIRMENT At August 31, 2004 and 2003, the Company performed its annual impairment test and determined
that there was no impairment. To determine the amount of an 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 goodwill and broadcast licenses 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. The Company determined that there was an impairment of goodwill during fiscal 2002 of $153,240
of which $150,000 related to the production and distribution business in the Content division and
$3,240 related to the Television division. In addition, an impairment of $9,532 was determined
related to other intangible assets. 11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 2004
    
    
    2003Trade
    
    
    68,807
    
    
    
    83,962Program rights payable
    
    
    54,887
    
    
    
    50,482Accrued interest
    
    
    27,393
    
    
    
    28,422Restructuring
    
    
    
    
    
    
    3,568Acquisition and integration costs
    
    
    
    
    
    
    571Third party participation payments
    
    
    5,804
    
    
    
    3,827GST payable
    
    
    1,620
    
    
    
    1,564Other
    
    
    2,886
    
    
    
    1,353161,397
    
    
    
    173,749




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##### 



12. LONG-TERM DEBT 2004
    
    
    2003Senior subordinated notes [a]Principal amount translated into Canadian dollars at the hedged rate
    
    
    604,000
    
    
    
    604,000Unrealized cumulative foreign exchange gains
    
    
    (111,625
    )
    
    
    (84,363
    )Senior subordinated notes translated at the current rate
    
    
    492,375
    
    
    
    519,637Bank loans [b]
    
    
    36,764
    
    
    
    38,800529,139
    
    
    
    558,437
 [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 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 or approximately Cdn.$604,000. The Company has also entered into an interest swap agreement under which it receives a fixed
rate of interest and pays a floating rate of interest, both calculated on a notional amount of
Cdn.$135,900. The fixed rate of interest is set at 9.332% and the floating rate is based on the
three-month bankers acceptance rate plus a spread of 4.935%. The net proceeds from this offering were used to repay existing indebtedness including the
permanent repayment in full of the Companys reducing term loans of Cdn.$294,000 due on August 31,
2007. Consequently, the Company unwound U.S.$147,000 of cross-currency interest rate swaps relating
to the reducing term loan that had fixed the interest rate at 11.4% and liability for interest and
principal payments at Cdn.$212,000, resulting in a non-cash hedge transaction loss of approximately
$20,429. [b] Bank loans The Company has a $25,000 revolving operating loan facility with interest rates and borrowing
options, which are the same as those contained in the credit facilities described below. At August
31, 2004, the Company has 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. A syndicate of banks has provided the Company with a credit facility, which at August 31, 2004
amounted to $195,000, all of which is revolving on a reducing basis until repayment on August 31,
2006. At August 31, 2004, $158,236 of the facility was not utilized. Funds are available to the
Company in both Canadian and U.S. dollars. At August 31, 2004, the U.S. dollar portion of the bank
loans was $28,000 [Cdn.$36,764] [2003  U.S.$28,000; Cdn.$38,800]. Interest rates on the balance of the bank loans fluctuate with the Canadian bankers
acceptances and LIBOR and averaged 3.9% for the year ended August 31, 2004 [2003  4.8%]. 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 at August 31, 2004.




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##### 



Principal repayments on long-term debt in each of the next five years and thereafter are
approximately as follows: $2005
    
    
    2006
    
    
    36,7642007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    604,000640,764
 13. DEFERRED CREDITS 2004
    
    
    2003Public benefits associated with acquisitions
    
    
    31,102
    
    
    
    42,558Cross-currency agreements translated into
Canadian dollars at the current rate
    
    
    111,625
    
    
    
    84,363Unearned revenue from distribution and licensing of film rights
    
    
    2,800
    
    
    
    1,106Other
    
    
    637
    
    
    
    775146,164
    
    
    
    128,802
 14. SHARE CAPITAL Authorized The Company is authorized to issue, upon approval of a majority of the existing Class A
shareholders, an unlimited number of Class A participating shares [Class A Voting Shares], 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 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.




---



##### 



Issued and outstanding The changes in the Class A Voting and Class B Non-Voting Shares since August 31, 2002 are
summarized as follows: CLASS A
    
    
    CLASS BVOTING SHARES
    
    
    NON-VOTING SHARES
    
    
    TOTAL#
    
    
    $
    
    
    #
    
    
    $
    
    
    $Balance, August 31, 2002
    
    
    1,838,712
    
    
    
    28,478
    
    
    
    40,802,588
    
    
    
    852,937
    
    
    
    881,415Conversion of Class A Voting to
Class B Non-Voting Shares
    
    
    (112,000
    )
    
    
    (1,735
    )
    
    
    112,000
    
    
    
    1,735
    
    
    
    Repayment of executive stock purchase loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    216
    
    
    
    216Balance, August 31, 2003
    
    
    1,726,712
    
    
    
    26,743
    
    
    
    40,914,588
    
    
    
    854,888
    
    
    
    881,631Conversion of Class A Voting 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
    
    
    
    210Balance, August 31, 2004
    
    
    1,724,929
    
    
    
    26,715
    
    
    
    41,014,099
    
    
    
    857,338
    
    
    
    884,053
 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 the
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 at August 31, 2004 and the changes since August 31, 2002
is presented as follows: NUMBER OF OPTIONS
    
    
    WEIGHTED AVERAGE EXERCISE PRICE#
    
    
    $Outstanding, August 31, 2002
    
    
    2,706,866
    
    
    
    31.76Granted
    
    
    580,852
    
    
    
    21.03Cancelled
    
    
    (182,604
    )
    
    
    31.98Outstanding, August 31, 2003
    
    
    3,105,114
    
    
    
    29.74Granted
    
    
    537,700
    
    
    
    24.02Cancelled
    
    
    (395,511
    )
    
    
    36.77Exercised
    
    
    (97,728
    )
    
    
    22.62Outstanding, August 31, 2004
    
    
    3,149,575
    
    
    
    28.10
 The weighted average fair value of the stock options granted during 2004 was $9.73 per option.
The Company has recorded stock-based compensation expense for the year ended August 31, 2004 of
$1,287 and this has been credited to contributed surplus.




---



##### 



At August 31, 2004, the options outstanding and exercisable consist of the following: OPTIONS OUTSTANDING
    
    
    OPTIONS EXERCISABLEWEIGHTEDAVERAGE
    
    
    WEIGHTED
    
    
    
    
    
    
    WEIGHTEDREMAINING
    
    
    AVERAGE
    
    
    
    
    
    
    AVERAGENUMBER
    
    
    CONTRACTUAL
    
    
    EXERCISE
    
    
    NUMBER
    
    
    EXERCISERANGE OF EXERCISE PRICES
    
    OUTSTANDING
    
    
    LIFE
    
    
    PRICE
    
    
    OUTSTANDING
    
    
    PRICE$
    
    #
    
    
    [IN YEARS]
    
    
    $
    
    
    #
    
    
    $19.05  27.20
    
    
    1,843,847
    
    
    
    4.7
    
    
    
    23.56
    
    
    
    1,106,656
    
    
    
    24.1229.15  37.90
    
    
    848,818
    
    
    
    4.4
    
    
    
    31.34
    
    
    
    627,832
    
    
    
    31.3439.00  44.00
    
    
    456,910
    
    
    
    3.6
    
    
    
    40.33
    
    
    
    342,683
    
    
    
    40.3319.05  44.00
    
    
    3,149,575
    
    
    
    4.5
    
    
    
    28.10
    
    
    
    2,077,171
    
    
    
    28.98
 On September 1, 2004, the Company granted a further 430,000 options for Class B Non-Voting
Shares to eligible officers, directors, and employees of or consultants to the Company. These
options are exercisable at $23.79 per share. Dividends The holders of Class A Voting 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 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 and Class B Non-Voting Shares of $0.02 and $0.025, respectively. In
fiscal 2004, the Company paid two semi-annual dividends on December 31, 2003 and June 30, 2004 to
shareholders of record at the close of business on December 19, 2003 and June 15, 2004
respectively. The total amount of dividends paid was $2,120. 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. At
August 31, 2004, the Company has loans receivable of $1,619 [2003  $1,829] from certain qualifying
executive officers. At August 31, 2004, the market value of the shares held as collateral for the loans was $1,300 [2003  $1,306].




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##### 



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 ends August 31, 2005, and for PSUs
granted in fiscal 2004 ends August 31, 2006. 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, 2004 in respect of this plan was $1,697 [2003  $1,250] and has been
recorded in operating, 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 and earnings per share would have been reduced to the pro forma amounts
indicated below: 2004
    
    
    2003Net income (loss)
    
    
    (23,137
    )
    
    
    40,021Pro forma net income (loss)
    
    
    (25,123
    )
    
    
    34,824Pro forma basic and diluted earnings (loss) per share
    
    
    (0.59
    )
    
    
    0.82
 The fair value of each option granted was estimated on the date of the
grant using the Black-Scholes option pricing model with the following
assumptions: 2004
    
    
    2003AssumptionsExpected life
    
    
    2.5 to 7.5 years
    
    
    
    2.5 to 7.5 yearsRisk-free interest rates
    
    3.7% to 5.0%
    
    3.7% to 5.0%Dividend yield
    
    
    0.19
    %
    
    
    0
    %Volatility
    
    39.3% to 42.1%
    
    39.3% to 42.1%
 For the purposes of pro forma disclosure, the estimated fair value of the options is amortized
to income over the options vesting period on a straight-line basis.




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##### 



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: 2004
    
    
    2003Future tax liabilityDeferred charges deducted for tax purposes capitalized for
accounting purposes
    
    
    3,181
    
    
    
    4,525Capital cost allowance in excess of book depreciation
    
    
    542
    
    
    
    620Deferred partnership income
    
    
    2,637
    
    
    
    3,521Differences in tax and accounting cost bases for investments
    
    
    38,959
    
    
    
    38,243Broadcast licenses
    
    
    148,538
    
    
    
    126,580Purchase price equation differences
    
    
    25,000
    
    
    
    25,000Other, net
    
    
    4,881
    
    
    
    9,356Total future tax liability
    
    
    223,738
    
    
    
    207,845Future tax assetBook depreciation in excess of capital cost allowance
    
    
    35,795
    
    
    
    18,480Employment obligations recognized on purchase equation
    
    
    361
    
    
    
    332Loss carryforwards, net of valuation allowances
    
    
    24,242
    
    
    
    23,261Deferred charges deducted for accounting purposes in excess of tax
purposes
    
    
    1,583
    
    
    
    1,613Differences in tax and accounting cost bases for investments
    
    
    1,159
    
    
    
    342Revenue recognition differences between tax and accounting purposes
    
    
    4,134
    
    
    
    6,802Purchase price equation differences
    
    
    57
    
    
    
    231Other, net
    
    
    1,041
    
    
    
    1,458Total future tax asset
    
    
    68,372
    
    
    
    52,519Net future tax liability
    
    
    155,366
    
    
    
    155,326Less current portion of future tax asset
    
    
    13,719
    
    
    
    10,230Future tax liability
    
    
    169,085
    
    
    
    165,556
 [b] Significant components of the income tax expense (recovery)
attributable to operations are as follows: 2004
    
    
    2003
    
    
    2002Current tax expense
    
    
    26,326
    
    
    
    25,281
    
    
    
    33,297Future income tax expense
(recovery) relating to
origination and reversal of
temporary differences
    
    
    (22,227
    )
    
    
    7,115
    
    
    
    (9,128
    )Future income tax expense
(recovery) resulting from
recognition of losses
incurred in the year
    
    
    782
    
    
    
    (4,460
    )
    
    
    (17,541
    )Future income tax expense
(recovery) resulting from
tax rate changes
    
    
    16,810
    
    
    
    
    
    
    
    (160
    )Other
    
    
    5,234
    
    
    
    598
    
    
    
    (8,713
    )Income tax expense (recovery)
    
    
    26,925
    
    
    
    28,534
    
    
    
    (2,245
    )




---



##### 



[c] The reconciliation of income taxes attributable to operations computed at the
statutory tax rates to income tax expense (recovery) is as follows: 2004
    
    
    2003
    
    
    2002$
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %Tax at combined
federal and
provincial rates
    
    
    1,375
    
    
    
    36.3
    
    
    
    25,706
    
    
    
    37.5
    
    
    
    (68,015
    )
    
    
    39.8Differences from
statutory rates
relating to
amortization of
goodwill
    
    
    (84
    )
    
    
    (2.2
    )
    
    
    
    
    
    
    
    
    
    
    63,640
    
    
    
    (37.2
    )Non-deductible
[non-taxable] portion
of net capital losses
(gains) on sale of
investments
    
    
    22
    
    
    
    0.6
    
    
    
    1,869
    
    
    
    2.7
    
    
    
    (16,345
    )
    
    
    9.5(Increase) reduction
in future income
taxes resulting from
statutory rate
reduction
    
    
    16,810
    
    
    
    443.7
    
    
    
    
    
    
    
    
    
    
    
    (160
    )
    
    
    0.1Reversal in current
year of temporary
differences
originally recorded
using long-term tax
rates
    
    
    1,012
    
    
    
    26.7
    
    
    
    (102
    )
    
    
    (0.1
    )
    
    
    8,451
    
    
    
    (4.9
    )Large Corporations Tax
    
    
    1,084
    
    
    
    28.6
    
    
    
    1,170
    
    
    
    1.7
    
    
    
    1,103
    
    
    
    (0.7
    )Other
    
    
    6,706
    
    
    
    177.0
    
    
    
    (109
    )
    
    
    (0.2
    )
    
    
    9,081
    
    
    
    (5.3
    )26,925
    
    
    
    710.7
    
    
    
    28,534
    
    
    
    41.6
    
    
    
    (2,245
    )
    
    
    1.3
 [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. At
August 31, 2004, the Company has available loss carryforwards of approximately $103,200. A future
tax asset of $34,200 [2003  $29,700] has been recognized in respect of these carryforwards, net of
a valuation allowance of $9,900 [2003  $6,500]. The available loss carryforwards will expire as follows: $2007
    
    
    2002008
    
    
    3,2002009
    
    
    9,5002010
    
    
    48,8002011
    
    
    11,8002021
    
    
    4,3002022
    
    
    300No
expiration - capital losses
    
    
    25,100103,200
 16. BUSINESS SEGMENT INFORMATION The Companys business activities are conducted through three reportable operating segments: Radio The Radio segment is composed of 50 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 and pay-per-view services, several conventional television stations, digital audio
services and cable advertising services. Revenues are generated from affiliate subscriber fees and
advertising. Content The Content segment includes the production and distribution of film and television programs
and the branded consumer products business [formerly merchandise licensing and publishing
businesses] of Nelvana Limited [Nelvana] which was acquired in fiscal 2001. Revenues are
generated from licensing of proprietary films and television programs, merchandise licensing and
publishing. The accounting policies of the segments are the same as those described in the summary of
significant accounting policies. Management evaluates the business segments performance based on
revenues less operating, general and administrative expenses. Transactions between reporting
segments are recorded at fair market value. [a] Revenues and segment profit (loss) 2004
    
    
    2003
    
    
    2002RevenuesRadio
    
    
    227,868
    
    
    
    226,034
    
    
    
    211,416Television
    
    
    332,349
    
    
    
    306,885
    
    
    
    308,529Contentproduction and distribution
    
    
    62,789
    
    
    
    70,474
    
    
    
    99,357branded consumer products
    
    
    49,850
    
    
    
    45,795
    
    
    
    60,558Eliminations
    
    
    (6,052
    )
    
    
    (5,270
    )
    
    
    (5,357
    )666,804
    
    
    
    643,918
    
    
    
    674,503Segment profit (loss)Radio
    
    
    60,042
    
    
    
    58,114
    
    
    
    52,853Television
    
    
    125,055
    
    
    
    113,415
    
    
    
    99,061Contentproduction and distribution
    
    
    (92,089
    )
    
    
    (5,185
    )
    
    
    (28,797
    )branded consumer products
    
    
    8,368
    
    
    
    8,351
    
    
    
    7,843Corporate
    
    
    (10,970
    )
    
    
    (8,779
    )
    
    
    (4,750
    )Eliminations
    
    
    (8
    )
    
    
    (604
    )
    
    
    (639
    )90,398
    
    
    
    165,312
    
    
    
    125,571
 The Corporate segment results represent the incremental cost of corporate overhead in excess of the amount allocated to the
other operating segments. Gross revenues are derived from the following geographical sources by location of customer as follows: 2004
    
    
    2003
    
    
    2002Canada
    
    
    577,402
    
    
    
    545,694
    
    
    
    540,872United States
    
    
    36,020
    
    
    
    43,221
    
    
    
    87,166International
    
    
    53,382
    
    
    
    55,003
    
    
    
    46,465666,804
    
    
    
    643,918
    
    
    
    674,503
 Corus revenue streams for fiscal 2004 are derived primarily from four areas: advertising
[55%], subscriber fees [27%], license fees [8%], and publishing and merchandising [7%].




---



##### 



[b] Segment assets 2004
    
    
    2003Radio
    
    
    744,358
    
    
    
    744,076Television
    
    
    855,186
    
    
    
    857,296Contentproduction and distribution
    
    
    155,912
    
    
    
    248,922branded consumer products
    
    
    31,207
    
    
    
    32,491Corporate
    
    
    112,424
    
    
    
    58,988Eliminations
    
    
    (2,221
    )
    
    
    (1,147
    )1,896,866
    
    
    
    1,940,626
 Assets are located primarily within Canada. [c] Capital expenditures by segment 2004
    
    
    2003
    
    
    2002Radio
    
    
    4,889
    
    
    
    6,432
    
    
    
    12,740Television
    
    
    6,843
    
    
    
    3,461
    
    
    
    5,462Contentproduction and distribution
    
    
    3,529
    
    
    
    2,109
    
    
    
    3,422branded consumer products
    
    
    
    
    
    
    64
    
    
    
    217Corporate
    
    
    2,160
    
    
    
    2,842
    
    
    
    6,33517,421
    
    
    
    14,908
    
    
    
    28,176
 Capital assets are located primarily within Canada. [d] Goodwill 2004
    
    
    2003GoodwillRadio
    
    
    412,933
    
    
    
    412,933Television
    
    
    329,247
    
    
    
    329,247Contentproduction and distribution
    
    
    24,953
    
    
    
    24,953branded consumer products
    
    
    22,385
    
    
    
    22,385789,518
    
    
    
    789,518
 Goodwill is located primarily with in Canada. 17. RESTRUCTURING CHARGES During fiscal 2003 and 2002, the Company recorded restructuring charges of $5,025 and $22,089,
respectively which included workforce reduction charges of $2,865 in 2003 and $15,986 in 2002
relating to the cost of severance and benefits; contract settlement costs of $2,160 in 2003 and
$5,396 in 2002 relating
to provisions for negotiated settlements to cancel programming contracts at the Radio division,
production contracts at Content and future contractual obligations under operating leases for
facilities that will no longer be required; and other costs in 2002 of $707. At August 31, 2004 the
restructurings were substantially complete, and no further provision remains on the consolidated
balance sheets.




---



##### 



18. ASSET WRITE-DOWNS As part of the Companys restructuring plan announced in the first quarter of 2002, management
focused on exiting activities not aligned with its core assets. As a result, the following
investments were either discontinued or disposed of. The carrying values of these investments were
written down at August 31, 2003 and 2002 as follows: 2003
    
    
    2002Local Media Internet Venture
    
    
    
    
    
    
    6,869Balmur Corus Music Inc.
    
    
    1,350
    
    
    
    4,000Liberty Digital Inc.
    
    
    
    
    
    
    2,171Other
    
    
    1,018
    
    
    
    2,2002,368
    
    
    
    15,240
 19. 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, 2004, the fair value of the Companys Notes was U.S.$407,344 [2003 
U.S.$391,875]. [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 2004
    
    2003CARRYING
    
    
    ESTIMATED
    
    
    CARRYING
    
    
    ESTIMATEDVALUE
    
    
    FAIR VALUE
    
    
    VALUE
    
    
    FAIR VALUECross-currency agreements
    
    
    (111,625
    )
    
    
    (142,875
    )
    
    
    (84,363
    )
    
    
    (112,767
    )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. 20. 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: 2004
    
    
    2003
    
    
    2002Net income (loss) for the year [numerator]
    
    
    (23,137
    )
    
    
    40,021
    
    
    
    (168,647
    )Weighted average number of shares outstanding [denominator]Weighted average number of shares
outstanding  -  basic
    
    
    42,719
    
    
    
    42,641
    
    
    
    42,621Effect of dilutive securities
    
    
    
    
    
    
    4
    
    
    
    Weighted average number of shares
outstanding -  diluted
    
    
    42,719
    
    
    
    42,645
    
    
    
    42,621
 In fiscals 2004 and 2002, 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. 21. CONSOLIDATED STATEMENTS OF CASH FLOWS Additional disclosures with respect to the consolidated statements of cash flows are as
follows: [i]
    
    Net change in non-cash working capital balances related to operations consists of
the following:
 2004
    
    
    2003
    
    
    2002Accounts receivable
    
    
    13,268
    
    
    
    8,246
    
    
    
    13,076Prepaid expenses and other
    
    
    1,629
    
    
    
    628
    
    
    
    6,554Accounts payable and accrued liabilities
    
    
    (24,456
    )
    
    
    (15,484
    )
    
    
    19,929Income taxes payable
    
    
    (11,753
    )
    
    
    10,064
    
    
    
    (19,226
    )Other
    
    
    2,917
    
    
    
    (73
    )
    
    
    (18,395
    )
    
    
    3,381
    
    
    
    20,333
 [ii]
    
    Interest paid, interest received, dividends received and income taxes paid and classified as operating
activities are as
follows:
 2004
    
    
    2003
    
    
    2002Interest paid
    
    
    55,800
    
    
    
    60,467
    
    
    
    32,349Interest received
    
    
    2,135
    
    
    
    1,803
    
    
    
    2,671Dividends received
    
    
    
    
    
    
    
    
    
    
    1,597Income taxes paid
    
    
    38,568
    
    
    
    15,338
    
    
    
    53,093




---



##### 



22. 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: 2004
    
    
    2003
    
    
    2002Consolidated statements of income (loss)
and retained earnings (deficit)Operating, general and administrative expenses
    
    
    (1,222
    )
    
    
    (772
    )
    
    
    (552
    )Other expense (income), net
    
    
    (2,245
    )
    
    
    (6,638
    )
    
    
    4,149Total foreign exchange loss (gain)
    
    
    (3,467
    )
    
    
    (7,410
    )
    
    
    3,597
 An analysis of the cumulative translation adjustment shown separately in shareholders equity is as follows: $Balance, August 31, 2002
    
    
    1,187Effect of exchange rate fluctuation on translation of net assets of self-sustaining foreign operations
    
    
    (6,276
    )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
    )
 23. 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 2004
    
    
    2003
    
    
    2002(REVISED)(6)Net income (loss) using Canadian GAAP
    
    
    (23,137
    )
    
    
    40,021
    
    
    
    (168,647
    )Add (deduct) adjustments forDeferred charges [1]
    
    
    4,474
    
    
    
    7,246
    
    
    
    (1,529
    )Transaction loss[4]
    
    
    
    
    
    
    
    
    
    
    (1,385
    )Adoption of
SOP 00-2[5]
    
    
    
    
    
    
    
    
    
    
    (13,473
    )Adoption of FAS 142[6]
    
    
    
    
    
    
    
    
    
    
    (145,246
    )Income tax effect of adjustments
    
    
    (1,789
    )
    
    
    (2,898
    )
    
    
    4,554Net income (loss) using U.S. GAAP
    
    
    (20,452
    )
    
    
    44,369
    
    
    
    (325,726
    )Unrealized gains (losses) on investments
classified as available for sale, net of tax [3]
    
    
    640
    
    
    
    320
    
    
    
    (647
    )Realized gains (losses) on investments
classified as available for sale, net of tax
    
    
    
    
    
    
    
    
    
    
    5,605Unrealized gain (loss) on derivative contracts[4]
    
    
    (2,420
    )
    
    
    (31,055
    )
    
    
    23,573Unrealized foreign exchange gain (loss) on translation
of self-sustaining foreign operations
    
    
    (1,949
    )
    
    
    (6,276
    )
    
    
    247Comprehensive income (loss) using U.S. GAAP
    
    
    (24,181
    )
    
    
    7,358
    
    
    
    (296,948
    )




---



##### 



2004
    
    
    2003
    
    

2002(REVISED)[6]Net income (loss) per share prior to cumulative catch-upBasic and diluted
    
    
    (0.48
    )
    
    
    1.04
    
    
    
    (4.01
    )Net loss per share related to cumulative catch-upBasic and diluted
    
    
    
    
    
    
    
    

    
    
    (3.63
    )Net income (loss) per shareBasic and diluted
    
    
    (0.48
    )
    
    
    1.04
    
    
    
    (7.64
    )Comprehensive income (loss) per shareBasic and diluted
    
    
    (0.57
    )
    
    
    0.17
    
    
    
    (6.96
    )
 Balance sheet items using U.S. GAAP 2004
    
    
    2003CANADIAN
    
    
    
    
    
    
    CANADIAN
    
    
    U.S. GAAPGAAP
    
    
    U.S. GAAP
    
    
    GAAP
    
    

(REVISED)[6]Investments and other assets[3]
    
    
    41,683
    
    
    
    37,419
    
    
    
    38,786
    
    
    
    33,722Deferred charges[1]
    
    
    19,305
    
    
    
    16,444
    
    
    
    26,581
    
    
    
    19,246Broadcast licenses and goodwill[2]
    
    
    1,298,558
    
    
    
    1,306,843
    
    
    
    1,298,558
    
    
    
    1,306,843Deferred credits[4]
    
    
    146,164
    
    
    
    177,414
    
    
    
    128,802
    
    
    
    157,207Future tax liability
    
    
    169,085
    
    
    
    165,927
    
    
    
    165,556
    
    
    
    160,875Shareholders equity
    
    
    861,180
    
    
    
    834,248
    
    
    
    884,677
    
    
    
    856,840
 The cumulative effect of these adjustments on shareholders equity is as follows: 2004
    
    

2003(REVISED)[6]Deferred charges[1] and [4]
    
    
    (1,716
    )
    
    
    (4,401
    )Equity in earnings of investees[2]
    
    
    4,758
    
    
    
    4,758Accumulated other comprehensive income (loss)Unrealized losses on investments[3]
    
    
    (3,411
    )
    
    
    (4,051
    )Unrealized loss on derivative contracts[4]
    
    
    (26,563
    )
    
    
    (24,143
    )Total cumulative effect of adjustments on
shareholders equity
    
    
    (26,932
    )
    
    
    (27,837
    )
 Areas of material difference between Canadian GAAP and U.S. GAAP and their impact on the
consolidated financial statements are as follows:   [1]
    
    Deferred chargesStart-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.[2]
    
    Equity in earnings of investeesThe earnings of investees determined under Canadian GAAP have been adjusted to reflect
U.S. GAAP. Under Canadian GAAP, the investment 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 was done retroactively to the date the Company first
acquired shares in
Nelvana and WIC.




---



##### 



[3]
    
    Unrealized gains (losses) on investmentsUnder U.S. GAAP, equity securities having a readily determinable fair value and not
classified as trading securities are classified as available-for-sale securities and reported
at fair value, with unrealized gains and losses included in comprehensive income and reported
as a separate component of shareholders equity, net of related deferred income taxes. Under
Canadian GAAP, these investments are carried at cost and written down only when there is
evidence that a decline in value that is other than temporary has occurred. The Company has
determined that the decline in fair value is not other-than- temporary, based on the financial
condition of the issuer 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
support this conclusion.[4]
    
    Derivative instruments and hedging activitiesUnder U.S. GAAP, all derivative instruments are to be recorded on the consolidated balance
sheets at fair value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through income or deferred in other comprehensive
income until the hedged item is recognized in income.[5]
    
    Adoption of SOP 00-2Under Canadian GAAP, adoption of a new accounting standard is applied retroactively. Under
U.S. GAAP, the adoption of SOP 00-2 is reflected in the consolidated statements of income
(loss) and retained earnings (deficit) of the adoption year. As such, under U.S. GAAP the
effect of the adoption
of SOP 00-2 is reflected as a cumulative catch-up adjustment in income of fiscal 2002. The
increased amortization from adopting this accounting policy retroactively under Canadian GAAP
has therefore been added back in the determination of net income under U.S. GAAP for the year
ended August 31, 2001.[6]
    
    Adoption of FAS-142Under Canadian GAAP, adoption of a new accounting standard is applied retroactively as an
adjustment to retained earnings. Under U.S. GAAP, the adoption of FAS-142 Goodwill and Other
Intangible Assets is reflected in the consolidated statements of income (loss) and retained
earnings (deficit) of the adoption year. As such, under U.S. GAAP, the effect of the adoption
of FAS-142 is reflected as a cumulative catch-up adjustment in income of fiscal 2002.
 The amount previously reported for U.S. GAAP purposes in 2002 as goodwill impairment on
the adoption of FAS-142 was overstated by $4,754 (net of amortization). On the adoption of SOP
00-2 in 2002, the Company retroactively adjusted the purchase price equation under Canadian
GAAP for the Nelvana acquisition, including an increase to goodwill in the amount of $4,951.
Under U.S. GAAP the adoption of SOP 00-2 was reflected in the 2001 consolidated statement of
income. Consequently, as a result of the differences in accounting for the adoption of SOP
00-2, under Canadian GAAP goodwill was higher than that recorded under U.S. GAAP by $4,754. As
a result the amount previously recorded on adoption of FAS-142 has been revised. The effect of this revision is to increase goodwill and shareholders equity as at August
31, 2003 by $4,754 and to reduce the net loss for the year ended August 31, 2002 by an
equivalent amount. The revision reduces the net loss per share related to cumulative catch-up,
net loss per share and comprehensive loss per share for the year ended August 31, 2002 to
$3.63, $7.64, and $6.96, respectively. This revision has no effect on net income (loss), comprehensive income (loss), net income
(loss) per share and comprehensive income (loss) per share amounts for the years ended August
31, 2003 and 2004. [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




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the estimated fair values of the options granted prior to September 1, 2003, the net loss for the
year ended August 31, 2004 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. 24. GOVERNMENT FINANCING AND ASSISTANCE Revenues include $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 $1,080 [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%. 25. 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. As at August 31, 2004, the minority shareholders of Telelatino Network Inc. had the right,
through a put option, to require the Company to purchase their shareholdings. This put option
expired November 16, 2004 without being exercised. The Company has various long-term operating lease agreements for the use of transmission
facilities and premises in each of the next five years and thereafter as follows: $2005
    
    
    19,4492006
    
    
    15,6712007
    
    
    13,5582008
    
    
    12,9322009
    
    
    7,059Thereafter
    
    
    30,37799,046
 Rental expenses recognized in operating, general and administrative expenses totaled
approximately $11,549 [2003  $10,637; 2002  $10,460]. 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. At August 31, 2004, management believes
there is 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 its directors and officers as
well as those of its subsidiaries as a group. 26. RELATED PARTY TRANSACTIONS The Company has transacted business in the normal course of business with entities which 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.




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During the year, the Company received cable service subscriber, programming and advertising
fees of $92,279 [2003  $89,250] and production and distribution revenue of $3,055 [2003  $2,120]
from related parties. In addition, the Company paid cable and satellite system distribution access
fees of $4,546 [2003  $3,636] and administrative and other fees of $1,486 [2003  $1,051] to
related parties. As at August 31, 2004, the Company had $9,868 [2003  $20,230] 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. Through an investment in a partnership, Corus and a related party each had an indirect holding
in certain assets, primarily consisting of a real estate property. In 2004, the related partys
interest in the assets was transferred to Corus in exchange for cash of $253 and a promissory note
of $1,140. As part of the transaction, Corus and the related party entered into an agreement
effective August 26, 2004 for the related partys use of the remaining assets for $20 per month.
These transactions were measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties. The parties have agreed that the exchange amounts
represent fair value consideration for the transactions. Included in share capital [note 14] and other investments [note 6 (b)] are loans of $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. 27. 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 2004 related to the defined contribution plan
was $4,768 [2003  $4,594]. The amount contributed is approximately the same as the expense
included in the statement of income (loss) and retained earnings (deficit). 28. PENDING TRANSACTION On March 30, 2004, Corus and Astral Media Inc. announced their intention to exchange a number
of radio assets in the province of Quebec, subject to regulatory approval. The transaction will
bring Corus radio stations total to 53, with 15 radio stations in the province of Quebec. As this
is a non-monetary transaction at carrying value, there is no gain or loss anticipated on approval
of this transaction. 29. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS The comparative consolidated financial statements have been reclassified from statements
previously presented to conform to the presentation of the 2004 consolidated financial statements.