##### 



EXHIBIT 1

auditors report

TO THE SHAREHOLDERS OF CORUS ENTERTAINMENT INC.

We have audited the consolidated balance sheets of Corus Entertainment
Inc. as at August 31, 2003 and 2002 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, 2003. 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,
2003 and 2002 and the results of its operations and its cash flows for
each of the years in the three-year period ended August 31, 2003 in
accordance with Canadian generally accepted accounting principles.

Toronto, Canada,
October 14, 2003.
    
    /s/  Ernst & Young LLP
ERNST & YOUNG LLPChartered Accountants


24



---



##### 



consolidated balance sheets

AS AT AUGUST 31
    
    2003
    
    2002[thousands of Canadian dollars]
    
    
    
    
    
    [restated note 2[b]]ASSETS[note 13]CurrentCash and cash equivalents
    
    
    43,874
    
    
    
    26,644Accounts receivable [notes 6 and 27]
    
    
    158,689
    
    
    
    172,406Prepaid expenses and other
    
    
    11,385
    
    
    
    14,254Program and film rights
    
    
    73,107
    
    
    
    57,393Future tax asset [note 16]
    
    
    10,230
    
    
    
    Total current assets
    
    
    297,285
    
    
    
    270,697Tax credits receivable
    
    
    27,109
    
    
    
    30,332Investments and other assets [notes 4 and 7]
    
    
    38,786
    
    
    
    33,655Capital assets [note 8]
    
    
    89,378
    
    
    
    101,348Program and film rights
    
    
    28,365
    
    
    
    24,736Film investments [note 9]
    
    
    134,564
    
    
    
    140,601Deferred charges [note 10]
    
    
    26,581
    
    
    
    37,721Broadcast licenses [note 11]
    
    
    509,040
    
    
    
    509,329Goodwill [note 11]
    
    
    789,518
    
    
    
    791,5651,940,626
    
    
    
    1,939,984LIABILITIES AND SHAREHOLDERS EQUITYCurrentAccounts payable and accrued liabilities [notes 12 and 27]
    
    
    173,749
    
    
    
    193,119Income taxes payable
    
    
    16,182
    
    
    
    6,243Future tax liability [note 16]
    
    
    
    
    
    
    2,248Current portion of long-term debt [note 13]
    
    
    
    
    
    
    2,391Total current liabilities
    
    
    189,931
    
    
    
    204,001Long-term debt [note 13]
    
    
    558,437
    
    
    
    646,614Deferred credits [note 14]
    
    
    128,802
    
    
    
    76,631Future tax liability [note 16]
    
    
    165,556
    
    
    
    149,967Other long-term liabilities
    
    
    7,048
    
    
    
    6,610Minority interest
    
    
    6,175
    
    
    
    5,445Total liabilities
    
    
    1,055,949
    
    
    
    1,089,268Shareholders equityShare capital [note 15]
    
    
    881,631
    
    
    
    881,415Retained earnings (deficit)
    
    
    8,135
    
    
    
    (31,886
    )Cumulative translation adjustment [note 23]
    
    
    (5,089
    )
    
    
    1,187Total shareholders equity
    
    
    884,677
    
    
    
    850,7161,940,626
    
    
    
    1,939,984


Commitments and contingencies [notes 13, 15 and 26]

See accompanying notes

On behalf of the Board:
    
    /s/  Heather Shaw
Director
    
    /s/  John Cassaday
Director


25



---



##### 



consolidated statements of income (loss) and retained earnings (deficit)

YEARS ENDED AUGUST 31
    
    2003
    
    2002
    
    2001[thousands of Canadian dollars except per share amounts]
    
    
    
    
    
    [restated note 2[b]]Revenues[notes 25 and 27]
    
    
    643,918
    
    
    
    674,503
    
    
    
    556,825Operating, general and administrative expenses [notes 26 and 27]
    
    
    478,606
    
    
    
    548,932
    
    
    
    432,909Operating income before the following
    
    
    165,312
    
    
    
    125,571
    
    
    
    123,916Depreciation [note 8]
    
    
    24,708
    
    
    
    25,980
    
    
    
    19,960Amortization [notes 10 and 11]
    
    
    9,792
    
    
    
    8,570
    
    
    
    45,958Interest on long-term debt [note 13]
    
    
    61,030
    
    
    
    57,731
    
    
    
    47,328Loss (gain) on sale of investments [note 4]
    
    
    994
    
    
    
    (18,172
    )
    
    
    (103,125
    )Other expense (income) [note 23]
    
    
    (9,386
    )
    
    
    289
    
    
    
    (10,546
    )Restructuring charges [note 18]
    
    
    5,025
    
    
    
    22,089
    
    
    
    Hedge transaction loss [note 13[b]]
    
    
    
    
    
    
    20,429
    
    
    
    Asset write-downs [note 19]
    
    
    2,368
    
    
    
    15,240
    
    
    
    1,530Goodwill and intangible impairment loss [note 11]
    
    
    
    
    
    
    162,772
    
    
    
    Income (loss) before income taxes
    
    
    70,781
    
    
    
    (169,357
    )
    
    
    122,811Income tax expense (recovery) [note 16]
    
    
    28,534
    
    
    
    (2,245
    )
    
    
    (3,093
    )Income (loss) before equity earnings from
investees and minority interest
    
    
    42,247
    
    
    
    (167,112
    )
    
    
    125,904Equity earnings from investees
    
    
    
    
    
    
    115
    
    
    
    2,585Minority interest
    
    
    (2,226
    )
    
    
    (1,650
    )
    
    
    (322
    )Net income (loss) for the year
    
    
    40,021
    
    
    
    (168,647
    )
    
    
    128,167Retained earnings (deficit), beginning of year
    
    
    (31,886
    )
    
    
    284,151
    
    
    
    155,984Adjustment for change in accounting policy [note 2[b][ii]]
    
    
    
    
    
    
    (147,390
    )
    
    
    Retained earnings (deficit), end of year
    
    
    8,135
    
    
    
    (31,886
    )
    
    
    284,151Earnings (loss) per shareBasic
    
    $
    0.94
    
    
    $
    (3.96
    )
    
    $
    3.09Diluted
    
    
    0.94
    
    
    
    (3.96
    )
    
    
    3.06Weighted average number of shares outstanding[in thousands]Basic
    
    
    42,641
    
    
    
    42,621
    
    
    
    41,539Diluted
    
    
    42,645
    
    
    
    42,621
    
    
    
    41,819


See accompanying notes

26



---



##### 



consolidated statements of cash flows

YEARS ENDED AUGUST 31
    
    2003
    
    2002
    
    2001[thousands of Canadian dollars]
    
    
    
    
    
    [restated note 2[b]]OPERATING ACTIVITIESNet income (loss) for the year
    
    
    40,021
    
    
    
    (168,647
    )
    
    
    128,167Add (deduct) non-cash itemsDepreciation
    
    
    24,708
    
    
    
    25,980
    
    
    
    19,960Amortization of broadcast licenses and goodwill [note 11]
    
    
    
    
    
    
    
    
    
    
    42,429Amortization of program and film rights
    
    
    87,931
    
    
    
    105,461
    
    
    
    61,956Amortization of film investments
    
    
    64,578
    
    
    
    124,943
    
    
    
    60,847Other amortization [notes 10 and 11]
    
    
    9,792
    
    
    
    8,570
    
    
    
    3,529Future income taxes
    
    
    3,257
    
    
    
    (35,845
    )
    
    
    (54,341
    )Loss (gain) on sale of investments
    
    
    994
    
    
    
    (18,172
    )
    
    
    (103,125
    )Equity earnings from investees
    
    
    
    
    
    
    (115
    )
    
    
    (2,585
    )Hedge transaction loss
    
    
    
    
    
    
    20,429
    
    
    
    Asset write-downs
    
    
    2,368
    
    
    
    15,240
    
    
    
    1,530Goodwill and intangible impairment loss
    
    
    
    
    
    
    162,772
    
    
    
    Minority interest
    
    
    2,226
    
    
    
    1,650
    
    
    
    322Other
    
    
    (5,451
    )
    
    
    298
    
    
    
    467Cash flow derived from operations
    
    
    230,424
    
    
    
    242,564
    
    
    
    159,156Net change in non-cash working capital
balances related to operations [note 22]
    
    
    3,381
    
    
    
    20,333
    
    
    
    (13,828
    )Payment of program and film rights
    
    
    (102,541
    )
    
    
    (104,752
    )
    
    
    (63,937
    )Net additions to film investments
    
    
    (66,197
    )
    
    
    (132,512
    )
    
    
    (95,628
    )Other
    
    
    (445
    )
    
    
    2,259
    
    
    
    4,876Cash provided by (used in) operating activities
    
    
    64,622
    
    
    
    27,892
    
    
    
    (9,361
    )INVESTING ACTIVITIESAdditions to capital assets [note 22[iii]]
    
    
    (14,908
    )
    
    
    (28,176
    )
    
    
    (37,045
    )Net proceeds from sale of investments
    
    
    
    
    
    
    134,827
    
    
    
    2,273Net proceeds from business divestitures [note 4]
    
    
    4,005
    
    
    
    95,067
    
    
    
    135,684Business acquisitions, net of cash acquired [note 3]
    
    
    
    
    
    
    (90,581
    )
    
    
    (462,696
    )Increase in investments
    
    
    (5,312
    )
    
    
    (27,068
    )
    
    
    (283,382
    )Additions to deferred charges
    
    
    (80
    )
    
    
    (26,278
    )
    
    
    (13,022
    )Dividends paid to minority interest
    
    
    (1,496
    )
    
    
    
    
    
    
    Decrease in public benefits associated with acquisitions
    
    
    (12,198
    )
    
    
    (7,444
    )
    
    
    Other
    
    
    690
    
    
    
    (421
    )
    
    
    3,288Cash provided by (used in) investing activities
    
    
    (29,299
    )
    
    
    49,926
    
    
    
    (654,900
    )FINANCING ACTIVITIESIncrease (decrease) in bank overdraft
    
    
    
    
    
    
    (3,600
    )
    
    
    6,536Increase (decrease) in bank loans
    
    
    (15,499
    )
    
    
    (557,648
    )
    
    
    305,829Increase in senior subordinated notes [note 13[b]]
    
    
    
    
    
    
    604,000
    
    
    
    Increase (decrease) in securitized borrowing
    
    
    
    
    
    
    (89,500
    )
    
    
    89,500Decrease in other long-term debt
    
    
    (2,810
    )
    
    
    (3,325
    )
    
    
    (110,752
    )Issuance of shares under stock option plan
    
    
    
    
    
    
    944
    
    
    
    800Other
    
    
    216
    
    
    
    (2,045
    )
    
    
    Cash provided by (used in) financing activities
    
    
    (18,093
    )
    
    
    (51,174
    )
    
    
    291,913Net increase (decrease) in cash and cash equivalents during the year
    
    
    17,230
    
    
    
    26,644
    
    
    
    (372,348
    )Cash and cash equivalents, beginning of year
    
    
    26,644
    
    
    
    
    
    
    
    372,348Cash and cash equivalents, end of year
    
    
    43,874
    
    
    
    26,644
    
    
    
    


Supplemental cash flow disclosures [note 22]

See accompanying notes

27



---



##### 





| |  | notes to consolidated financial statements
| |  | ------------------------------------------



| |  | August 31, 2003, 2002 and 2001
| |  | ------------------------------



|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 shares are
listed on the Toronto and New York Stock Exchanges.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. |  | [a]  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 24.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | BASIS OF CONSOLIDATION
| |  | ----------------------



| |  | The consolidated financial statements include the accounts of Corus and all
of its subsidiaries, all of which are wholly-owned except for Country Music
Television 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, property and equipment,
long-term investments, current and future income taxes, broadcast licenses
and goodwill. Actual results could differ from those estimates.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | REVENUE RECOGNITION
| |  | -------------------



| |  | Advertising revenues are recognized in the period in which the advertising is
aired under broadcast contracts.
| |  | --------------------------------------------------------------------------------------------------------------



| |  | Affiliate subscriber fee revenues are recognized to the extent that the
service has been made available under distribution contracts.
| |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  | Product and distribution revenues from the distribution and licensing of
proprietary exploitation rights for network television, syndicated television,
pay cable television feature films and home video 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.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

28



---



##### 





| |  | 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 head-end equipment
    
    10 yearsProduction equipment
    
    5 yearsLeasehold improvements
    
    lease termBuildings
    
    20  40 yearsComputer equipment
    
    3 yearsFurniture and fixtures
    
    7 yearsOther
    
    4  10 years




| |  | PROGRAM AND FILM RIGHTS
| |  | -----------------------



| |  | Program and film rights represent contract rights acquired from third parties
to broadcast television programs and feature films. The assets and liabilities
related to these rights are recorded when the cost of the rights is known or
reasonably determinable, the program material is accepted by the Company in
accordance with the license agreement and the material is available to the
Company for airing. 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
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 represents 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 inventory
of audio-visual products. Estimated losses, if any, are then provided for.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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.
| |  | -----------------------------------------------------------------------------------------------

29



---



##### 





| |  | 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.
Start-up 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. Costs assessed as having no future
benefit are written off.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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. Prior to September 1, 2001, amounts allocated to broadcast
licenses and goodwill were amortized on a straight-line basis over twenty to
forty years.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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 will be 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 will
perform 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 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
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

30



---



##### 





| |  | 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 deferred.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Other exchange gains and losses are included in net income for the year.
| |  | ------------------------------------------------------------------------



| |  | FINANCIAL INSTRUMENTS
| |  | ---------------------



| |  | The Company uses derivative financial instruments to manage risks from
fluctuations in exchange and interest rates. These instruments include
cross-currency agreements. All such instruments are only used for risk
management purposes. The Company accounts for these financial instruments as
hedges and, as a result, the carrying values of the financial instruments are
not adjusted to reflect their current market value. 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 deferred until
maturity of the agreement at which time they are offset by the foreign
currency hedge.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | STOCK-BASED COMPENSATION
| |  | ------------------------



| |  | No compensation expense is recognized for stock options granted under the
Companys Stock Option Plan. Consideration paid by employees and senior
officers on the exercise of stock options is credited to share capital.
Consideration paid by the Company under its Employee Share Purchase Plan is
included in operating, general and administrative expenses.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Effective September 1, 2002, the Company adopted the new accounting
standard for stock-based compensation [note 2[b][iii]].
| |  | ---------------------------------------------------------------------------------------------------------------------------



| |  | 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.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|2. |  | [b]  accounting changes
|-- |  | -----------------------



| |  | The following changes were made to the consolidated financial statements for
the year ended August 31, 2002:
| |  | ------------------------------------------------------------------------------------------------------------

[thousands of
Canadian dollars except per share amounts]
    
    AS PREVIOUSLY REPORTED
    
    ADJUSTMENT
    
    AS RESTATEDTotal assets
    
    
    1,925,156
    
    
    
    14,828
    
    
    
    1,939,984Total liabilities
    
    
    1,074,141
    
    
    
    15,127
    
    
    
    1,089,268Revenues
    
    
    652,784
    
    
    
    21,719
    
    
    
    674,503Operating income before the following
    
    
    116,496
    
    
    
    9,075
    
    
    
    125,571Income (loss) before income taxes
    
    
    (174,596
    )
    
    
    5,239
    
    
    
    (169,357
    )Net loss for the year [ii]
    
    
    (166,037
    )
    
    
    (2,610
    )
    
    
    (168,647
    )Basic loss per share
    
    $
    (3.90
    )
    
    $
    (0.06
    )
    
    $
    (3.96
    )Diluted loss per share
    
    $
    (3.90
    )
    
    $
    (0.06
    )
    
    $
    (3.96
    )


31



---



##### 





|[i] |  | PROPORTIONATE CONSOLIDATION
|--- |  | ---------------------------



| |  | Effective September 1, 2002, the Company has retroactively adopted with
restatement the proportionate consolidation of its 40% interest in TELETOON
Canada Inc. [TELETOON] and its 50% interest in The Locomotion Channel.
Both of these investments afford the Company joint control of the strategic
operating, investing and financing decisions and the Company is now
reflecting the assets, liabilities, and operating results to the extent that
the Company owns them. The retroactive adoption of this accounting policy
has had no impact on net loss and loss per share for 2002, as the previous
equity accounting treatment for these investments resulted in the same net
loss as the proportionate consolidation treatment. The consolidated balance
sheet as at August 31, 2002 and the consolidated statement of income (loss)
and retained earnings (deficit) and consolidated statement of cash flows for
the year ended August 31, 2002 have been restated to reflect the Companys
proportionate share of these investments.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[ii] |  | FOREIGN CURRENCY TRANSLATION
|---- |  | ----------------------------



| |  | Effective September 1, 2002, the Company has retroactively adopted with
restatement the amended Canadian standard for foreign currency translation,
which is consistent with U.S. standards, and eliminates the deferral and
amortization of unrealized translation gains and losses on long-term
monetary items that are not hedged. The standard requires that unrealized
translation gains and losses be included in the determination of net income
as they arise. The adoption of this accounting policy resulted in an
increase of $2,610,000 to fiscal 2002 opening retained earnings and an
increase of $2,610,000 to fiscal 2002 net loss.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[iii] |  | STOCK-BASED COMPENSATION
|----- |  | ------------------------



| |  | Effective September 1, 2002, the Company has adopted the new accounting
standard that requires that a fair value based method of accounting be
applied to all stock-based payments to non-employees and to direct awards of
stock to employees. The standard permits the Company to continue its
existing policy of recording no compensation cost on the grant of stock
options to employees, but does require additional disclosures of pro forma
information. This pro forma information is disclosed in note 15 to these
consolidated financial statements.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | business combinations
|-- |  | ---------------------



| |  | In fiscal 2002, the Company completed a number of acquisitions, accounted for
using the purchase method, which are summarized below:
| |  | ------------------------------------------------------------------------------------------------------------------------------------

[thousands
of Canadian dollars except for percentages]
    
    TELELATINO[a]
    
    WTN[b]
    
    LOCOMOTION[c]
    
    OTHER[d][e]
    
    TOTALEffective date acquired
    
    November 2001
    
    
    November 2001
    
    
    May 2002Percentage acquired
    
    
    50.5
    %
    
    
    100
    %
    
    
    50
    %
    
    
    100
    %Cash consideration, including transaction costs,
net of cash acquired Fiscal 2002
    
    
    7,480
    
    
    
    55,009
    
    
    
    12,825
    
    
    
    15,231
    
    
    
    90,545 Prior years
    
    
    738
    
    
    
    150,079
    
    
    
    
    
    
    
    
    
    
    
    150,8178,218
    
    
    
    205,088
    
    
    
    12,825
    
    
    
    15,231
    
    
    
    241,362Non-cash consideration
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000
    
    
    
    8,000Integration and transaction costs, net of taxes
    
    
    30
    
    
    
    35
    
    
    
    
    
    
    
    100
    
    
    
    165Total consideration after integration and transaction costs
    
    
    8,248
    
    
    
    205,123
    
    
    
    12,825
    
    
    
    23,331
    
    
    
    249,527


32



---



##### 



[thousands of
Canadian dollars except for percentages]
    
    TELELATINO[a]
    
    WTN[b]
    
    LOCOMOTION[c]
    
    OTHER[d][e]
    
    TOTALASSIGNED VALUE OF ASSETS AND LIABILITIES ACQUIREDCapital assets
    
    
    1,301
    
    
    
    3,834
    
    
    
    140
    
    
    
    129
    
    
    
    5,404Program and film rights
    
    
    412
    
    
    
    4,990
    
    
    
    1,217
    
    
    
    
    
    
    
    6,619Broadcast licenses
    
    
    7,424
    
    
    
    68,238
    
    
    
    
    
    
    
    2,196
    
    
    
    77,858Goodwill
    
    
    6,803
    
    
    
    167,959
    
    
    
    10,431
    
    
    
    21,834
    
    
    
    207,027Non-cash working capital
    
    
    (439
    )
    
    
    1,721
    
    
    
    1,037
    
    
    
    83
    
    
    
    2,402Long-term debt
    
    
    (146
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (146
    )Deferred credits
    
    
    (1,106
    )
    
    
    (20,500
    )
    
    
    
    
    
    
    (242
    )
    
    
    (21,848
    )Minority interest
    
    
    (2,339
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,339
    )Future tax liability
    
    
    (2,277
    )
    
    
    (21,119
    )
    
    
    
    
    
    
    (669
    )
    
    
    (24,065
    )9,633
    
    
    
    205,123
    
    
    
    12,825
    
    
    
    23,331
    
    
    
    250,912Equity earnings of investee recorded in prior years
    
    
    (1,385
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,385
    )8,248
    
    
    
    205,123
    
    
    
    12,825
    
    
    
    23,331
    
    
    
    249,527




|[a] |  | TELELATINO NETWORK INC. [TELELATINO]
|--- |  | --------------------------------------



| |  | Effective November 16, 2001, Corus acquired shares
that increased its total interest in Telelatino to
50.5% from 20% for cash consideration of
$11,060,000. Telelatino operates TLN Television, a
specialty ethnic channel that provides programming
in Italian, Spanish and English. The results of
operations are included in the Companys
consolidated financial statements from the date of
acquisition.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[b] |  | WOMENS TELEVISION NETWORK [WTN]
|--- |  | ----------------------------------



| |  | Effective November 19, 2001, Corus acquired all of
the outstanding shares of Lifestyle Television
(1994) Limited, which operates WTN, a special
television network [relaunched April 15, 2002 as W
Network"] focused on womens programming, from
Moffat Communications Ltd. [Moffat] for cash
consideration of $205,000,000. During fiscal 2001,
$150,000,000 was advanced to Moffat against the
purchase price. The balance was paid upon
completion of the transaction. The results of
operations are included in the Companys
consolidated financial statements from the date of
acquisition.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[c] |  | THE LOCOMOTION CHANNEL/LOCOMOTION CHANNEL B.V. [LOCOMOTION]
|--- |  | -------------------------------------------------------------



| |  | Effective May 17, 2002, Corus acquired a 50%
interest in Locomotion, an action-oriented
animation pay television service for a maximum
consideration of approximately $16,250,000
[U.S.$10,500,000] less a holdback in the event of
certain economic changes that may impact revenue
projections. Cash consideration of $12,825,000
[U.S.$8,400,000] was paid during the third quarter
of fiscal 2002. The results of operations are
included in the Companys consolidated financial
statements from the date of acquisition.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[d] |  | TRI-CO BROADCASTING LIMITED
|--- |  | ---------------------------



| |  | Effective January 4, 2002, Corus acquired all of the
outstanding shares of Tri-Co Broadcasting Limited, a
company that owns and operates three radio stations
in Cornwall, Ontario for cash consideration of
$4,250,000. The results of operations are included in
the Companys consolidated financial statements from
the date of acquisition.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[e] |  | DMX MUSIC SERVICES [DMX]
|--- |  | --------------------------



| |  | For accounting purposes, Corus recorded, effective
March 1, 2002, the exchange of ownership interests in
digital music subscription services to residential
and commercial customers in Canada with DMX. The
transaction resulted in Corus acquiring the remaining
20% ownership of the existing Canadian residential
subscription business in exchange for DMX gaining
100% ownership of the Canadian commercial business.
Corus acquired assets with an assigned fair value of
approximately $19,000,000 for which cash of
approximately $11,000,000 was paid.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

33



---



##### 





|[f] |  | ACQUISITION OBLIGATIONS
|--- |  | -----------------------



| |  | As a result of acquisitions made by the Company since
2000, the Company has incurred certain obligations
related to direct acquisition costs, workforce
reductions and costs to exit certain activities
identified at the time of acquisition. An accrual for
these obligations was included in the tangible net
assets of the acquired businesses at the time of
acquisition.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | At August 31, 2003, the acquisition
obligation was $571,000.
| |  | ------------------------------------------------------------



| |  | The Company expects to draw down these
liabilities by the fourth quarter of 2004.
| |  | ---------------------------------------------------------------------------------



|4. |  | divestitures
|-- |  | ------------



|[A] |  | KLUTZ
|--- |  | -----



| |  | Effective April 8, 2002, Corus sold Klutz, its U.S.
publishing business, to Scholastic Inc. for
approximately $68,000,000 [U.S.$43,000,000] in cash
plus a three-year earn-out based on revenue,
resulting in a pre-tax gain of approximately
$900,000. Additional consideration, once
determinable, will be recorded as a gain on sale
once earned.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[B] |  | CORUS VC LTD.
|--- |  | -------------



| |  | Effective May 31, 2002, Corus sold all of its
outstanding shares in Corus VC Ltd., which operates
the Viewers Choice Pay-Per-View Service, to Shaw
Communications Inc. [Shaw] for consideration of
$33,000,000. The transaction resulted in a pre-tax
gain of approximately $3,000,000.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[C] |  | THE COMEDY NETWORK INC.
|--- |  | -----------------------



| |  | Effective October 11, 2001, Corus acquired an
additional 14.95% interest in The Comedy Network
Inc., increasing its total ownership interest to
29.9%. The specialty channel provides programming
such as Canadian and foreign comedy series, comedy
sketches, variety and human interest programs. On
December 18, 2001, Corus disposed of its 29.9%
interest to CTV Inc. for cash consideration of
$36,000,000, resulting in a pre-tax gain of
approximately $17,967,000. This investment was
accounted for using the cost method prior to
disposition.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[D] |  | CHAU-TV
|--- |  | -------



| |  | Effective February 28, 2001, Corus sold its Quebec
conventional television station CHAU-TV for the base
price of $7,000,000 plus a working capital adjustment
and other consideration of approximately $1,800,000,
resulting in a pre-tax gain of approximately
$900,000.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[E] |  | THE FAMILY CHANNEL INC.
|--- |  | -----------------------



| |  | Effective May 30, 2001, Corus sold its 50% interest
in The Family Channel Inc., held by a wholly-owned
subsidiary, to Astral Media Inc., for $126,900,000,
resulting in a pre-tax gain of approximately
$102,000,000.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5. |  | joint ventures
|-- |  | --------------



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

[thousands of
Canadian dollars]
    
    2003
    
    2002BALANCE SHEETSCurrent assets
    
    
    28,058
    
    
    
    23,036Long-term assets
    
    
    15,401
    
    
    
    16,784Current liabilities
    
    
    20,105
    
    
    
    18,041STATEMENTS OF INCOME (LOSS)Revenues
    
    
    32,602
    
    
    
    27,236Expenses
    
    
    28,732
    
    
    
    28,164Net income (loss)
    
    
    3,870
    
    
    
    (928
    )STATEMENTS OF CASH FLOWSOperating activities
    
    
    6,585
    
    
    
    5,193Investing activities
    
    
    (230
    )
    
    
    (4,351
    )Financing activities
    
    
    
    
    
    
    2,936




|6. |  | accounts receivable
|-- |  | -------------------

[thousands of
Canadian dollars]
    
    2003
    
    2002Trade
    
    
    158,634
    
    
    
    169,819Receivable from co-venturers
    
    
    351
    
    
    
    GST receivable
    
    
    554
    
    
    
    337Other
    
    
    4,206
    
    
    
    5,799163,745
    
    
    
    175,955Less allowance for doubtful accounts
    
    
    5,056
    
    
    
    3,549158,689
    
    
    
    172,406


34



---



##### 





|7. |  | investments and other assets
|-- |  | ----------------------------

[thousands
of Canadian dollars]
    
    2003
    
    2002INVESTMENTS, AT COSTAstral Media Inc.[market value  2003  $8,797;
2002  $7,654] [note 7[i]]
    
    
    13,861
    
    
    
    13,861Other [notes 7[ii] and 27]
    
    
    24,925
    
    
    
    19,79438,786
    
    
    
    33,655




|[i] |  | ASTRAL MEDIA INC.
|--- |  | -----------------



| |  | During fiscal 2001, the Company, through a
wholly-owned subsidiary, purchased 2,029,000 Class
A non-voting shares and 145,600 Class B subordinate
voting shares of Astral Media Inc. from Shaw for
approximately $110,000,000.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On October 31, 2001, the Company, through a
wholly-owned subsidiary, disposed of 1,000,000
Class A non-voting shares of Astral Media Inc. for
$43,000,000, resulting in a pre-tax loss of
approximately $4,700,000.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On April 2, 2002, the
remaining 1,000,000 Class A non-voting shares were
disposed of for $50,500,000, resulting in a pre-tax
gain of approximately $2,250,000. The securitized
borrowing was repaid in full upon sale of the
shares.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[ii] |  | OTHER INVESTMENTS
|---- |  | -----------------



| |  | Other investments consist primarily of an interest
in a privately owned Canadian media company,
financing provided to the Companys digital channel
partnership and loans to employees.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|8. |  | capital assets
|-- |  | --------------

2003
    
    2002ACCUMULATED
    
    
    
    
    
    ACCUMULATED[thousands of
Canadian dollars]
    
    COST
    
    DEPRECIATION
    
    COST
    
    DEPRECIATIONBroadcasting head-end equipment
    
    
    30,067
    
    
    
    20,878
    
    
    
    28,565
    
    
    
    19,096Production equipment
    
    
    87,357
    
    
    
    63,826
    
    
    
    82,021
    
    
    
    54,214Leasehold improvements
    
    
    31,321
    
    
    
    15,352
    
    
    
    29,445
    
    
    
    11,655Buildings
    
    
    21,175
    
    
    
    6,897
    
    
    
    21,624
    
    
    
    6,124Computer equipment
    
    
    40,457
    
    
    
    28,356
    
    
    
    33,926
    
    
    
    20,831Furniture and fixtures
    
    
    21,228
    
    
    
    15,004
    
    
    
    24,009
    
    
    
    15,008Other
    
    
    2,981
    
    
    
    2,464
    
    
    
    2,533
    
    
    
    1,873234,586
    
    
    
    152,777
    
    
    
    222,123
    
    
    
    128,801Land
    
    
    7,569
    
    
    
    
    
    
    
    8,026
    
    
    
    242,155
    
    
    
    152,777
    
    
    
    230,149
    
    
    
    128,801Net book value
    
    
    
    
    89,378
    
    
    
    
    
    
    
    101,348




| |  | Depreciation on capital assets provided in the accounts amounted to $24,708,000
[2002  $25,980,000; 2001  $19,960,000].
| |  | -------------------------------------------------------------------------------------------------------------------------

35



---



##### 





|9. |  | film investments
|-- |  | ----------------

[thousands of
Canadian dollars]
    
    2003
    
    2002Projects in development, net of advances
    
    
    1,790
    
    
    
    3,251Projects in process
    
    
    17,704
    
    
    
    23,607Completed projects and distribution rights
    
    
    105,464
    
    
    
    109,636Investments in third party film projects
    
    
    9,606
    
    
    
    4,107134,564
    
    
    
    140,601




| |  | During fiscal 2003, the Company reduced its
investments in film and television programs by
anticipated Federal and Ontario production tax
credits amounting to $8,296,000 [2002 
$15,392,000].
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company expects that 27% of the costs
related to completed films, net of amortization,
will be amortized during the year ending August 31,
2004. The Company estimates that 62% of unamortized
film costs, excluding acquired film libraries, will
be amortized within three years from August 31,
2003. It is estimated that at least 80% will be
amortized within five years.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company expects
that $2,700,000 of accrued participation liabilities
will be paid during the year ending August 31, 2004.
| |  | -----------------------------------------------------------------------------------------------------------------------------



| |  | The Company also generates revenue from productions
which have been fully amortized in prior years and
are not valued in the accounts.
| |  | --------------------------------------------------------------------------------------------------------------------------------------



|10. |  | deferred charges
|--- |  | ----------------

2003
    
    2002ACCUMULATED
    
    
    
    
    
    ACCUMULATED[thousands of
Canadian dollars]
    
    COST
    
    AMORTIZATION
    
    COST
    
    AMORTIZATIONFinancing costs and credit facility arrangement fees
    
    
    27,949
    
    
    
    8,703
    
    
    
    27,925
    
    
    
    4,786Start-up costs of new specialty programming networks
    
    
    12,232
    
    
    
    9,274
    
    
    
    13,031
    
    
    
    6,858Advertising and promotion costs for reformatting radio,
specialty and pay television stations
    
    
    11,366
    
    
    
    6,989
    
    
    
    11,366
    
    
    
    3,140Other
    
    
    1,374
    
    
    
    1,374
    
    
    
    1,318
    
    
    
    1,13552,921
    
    
    
    26,340
    
    
    
    53,640
    
    
    
    15,919Net book value
    
    
    
    
    26,581
    
    
    
    
    
    
    
    37,721




| |  | Amortization on deferred charges provided in the accounts amounted to
$9,792,000 [2002  $8,273,000; 2001  $3,529,000].
| |  | ------------------------------------------------------------------------------------------------------------------------



|11. |  | broadcast licenses and goodwill
|--- |  | -------------------------------

2003
    
    2002ACCUMULATED
    
    
    
    
    
    ACCUMULATED[thousands of Canadian dollars]
    
    COST
    
    AMORTIZATION
    
    COST
    
    AMORTIZATIONBroadcast licenses
    
    
    557,590
    
    
    
    48,550
    
    
    
    557,890
    
    
    
    48,561Goodwill
    
    
    823,123
    
    
    
    33,605
    
    
    
    825,245
    
    
    
    33,6801,380,713
    
    
    
    82,155
    
    
    
    1,383,135
    
    
    
    82,241Net book value
    
    
    
    
    1,298,558
    
    
    
    
    
    
    
    1,300,894


36



---



##### 





| |  | The changes in the carrying amounts of broadcast licenses and goodwill since
August 31, 2002 are summarized as follows:
| |  | -----------------------------------------------------------------------------------------------------------------------

[thousands
of Canadian dollars]
    
    2002
    
    DISPOSALS
    
    2003Broadcast licenses
    
    
    509,329
    
    
    
    (289
    )
    
    
    509,040GoodwillRadio
    
    
    414,980
    
    
    
    (2,047
    )
    
    
    412,933Television
    
    
    329,247
    
    
    
    
    
    
    
    329,247Content Production and distribution
    
    
    24,953
    
    
    
    
    
    
    
    24,953 Branded consumer products
    
    
    22,385
    
    
    
    
    
    
    
    22,385791,565
    
    
    
    (2,047
    )
    
    
    789,518




| |  | In February 2002, total goodwill impairment loss of
$150,000,000 was recognized upon adoption of CICA
Section 3062 and reflected as an adjustment to
retained earnings as at September 1, 2001. The
total goodwill impairment loss was comprised of
$66,000,000 related to the production and
distribution business and $84,000,000 related to
the branded consumer products business.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | At August 31, 2003, the Company performed its
annual impairment test and determined that there was
no impairment. The Company determined that there was
a further impairment of goodwill during fiscal 2002
of $153,240,000 of which $150,000,000 related to the
production and distribution business in the Content
division and $3,240,000 related to the Television
division. In addition, an impairment of $9,532,000
was determined related to other intangible assets. To
determine the amount of the impairment, management
used a fair value methodology based on market
transaction multiples for comparable businesses
applied to forecasted operating income used to
evaluate the reporting units performance.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Amortization on broadcast licenses, other
intangibles and goodwill provided in the accounts
amounted to nil [2002  $297,000; 2001 
$42,429,000].
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------



|12. |  | accounts payable and accrued liabilities
|--- |  | ----------------------------------------

[thousands of
Canadian dollars]
    
    2003
    
    2002Trade
    
    
    83,962
    
    
    
    100,889Program rights payable
    
    
    50,482
    
    
    
    45,304Accrued interest
    
    
    28,422
    
    
    
    27,836Restructuring
    
    
    3,568
    
    
    
    11,342Acquisition and integration costs
    
    
    571
    
    
    
    1,883Third party participation payments
    
    
    3,827
    
    
    
    3,922GST payable
    
    
    1,564
    
    
    
    896Other
    
    
    1,353
    
    
    
    1,047173,749
    
    
    
    193,119




|13. |  | long-term debt
|--- |  | --------------

[thousands of
Canadian dollars]
    
    2003
    
    2002Bank loans [a]
    
    
    38,800
    
    
    
    61,558Senior subordinated notes [b]
    
    
    519,637
    
    
    
    584,550Other
    
    
    
    
    
    
    2,897558,437
    
    
    
    649,005Less current portion
    
    
    
    
    
    
    2,391558,437
    
    
    
    646,614




|[a] |  | BANK LOANS
|--- |  | ----------



| |  | The Company has a $25,000,000 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,
2003, 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.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

37



---



##### 





| |  | A syndicate of banks has provided the Company
with various credit facilities [the facility"],
which at August 31, 2003 amounted to $240,000,000,
all of which is revolving on a reducing basis until
repayment on August 31, 2006. At August 31, 2003,
$201,200,000 of the facility was not utilized. During
fiscal 2003, the Company reduced its facility by
allowing its revolving credit facility of
$150,000,000 to expire on March 10, 2003. This
facility was undrawn at the time of its expiry. Funds
are available to the Company in both Canadian and
U.S. dollars. At August 31, 2003, the U.S. dollar
portion of the bank loans was $28,000,000
[Cdn.$38,800,000] [2002  U.S.$35,000,000;
Cdn.$54,558,000].
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Interest rates on the balance of the bank
loans fluctuate with the Canadian bankers
acceptances and LIBOR and averaged 4.8% for the
year ended August 31, 2003 [2002  6.7%].
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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, 2003.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[b] |  | SENIOR SUBORDINATED NOTES
|--- |  | -------------------------



| |  | On March 7, 2002, Corus issued U.S.$375,000,000
aggregate principal amount of 8 3/4% Senior
Subordinated Notes [the Notes"] due 2012 at a
price of 99.186% of their aggregate principal
amount.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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.$604,000,000.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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.$294,000,000 due on August 31, 2007.
Consequently, the Company unwound U.S.$147,000,000 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.$212,000,000, resulting in a non-cash
hedge transaction loss of approximately $20,429,000.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Principal repayments on long-term debt in each
of the next five years and thereafter are
approximately as follows:
| |  | ------------------------------------------------------------------------------------------------------------------

[thousands of
Canadian dollars]
    
    $2004
    
    
    2005
    
    
    2006
    
    
    38,8002007
    
    
    2008
    
    
    Thereafter
    
    
    519,637558,437




|14. |  | deferred credits
|--- |  | ----------------

[thousands of
Canadian dollars]
    
    2003
    
    2002Public benefits associated with acquisitions
    
    
    42,558
    
    
    
    54,756Foreign exchange gains on translating
long-term debt
    
    
    84,362
    
    
    
    19,450Unearned revenue from distribution and
licensing of film rights
    
    
    1,106
    
    
    
    1,511Other
    
    
    776
    
    
    
    914128,802
    
    
    
    76,631




|15. |  | share capital
|--- |  | -------------



| |  | AUTHORIZED
| |  | ----------



| |  | The Company is authorized to issue 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.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

38



---



##### 





| |  | 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, 2001 are summarized as follows:
| |  | ----------------------------------------------------------------------------------------------------------------

CLASS A
    
    
    
    
    
    CLASS B[thousands of
Canadian dollars except number of shares]
    
    VOTING SHARES (#)
    
    $
    
    NON-VOTING SHARES (#)
    
    $
    
    TOTAL ($)Balance, August 31, 2001
    
    
    1,842,677
    
    
    
    28,539
    
    
    
    40,761,198
    
    
    
    853,977
    
    
    
    882,516Conversion of Class A Voting to Class B Non-Voting Shares
    
    
    (3,965
    )
    
    
    (61
    )
    
    
    3,965
    
    
    
    61
    
    
    
    Issuance of shares under Stock Option Plan
    
    
    
    
    
    
    
    
    
    
    37,425
    
    
    
    944
    
    
    
    944Executive stock purchase loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,045
    )
    
    
    (2,045
    )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
    
    
    
    Executive stock purchase loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    216
    
    
    
    216Balance, August 31, 2003
    
    
    1,726,712
    
    
    
    26,743
    
    
    
    40,914,588
    
    
    
    854,888
    
    
    
    881,631




| |  | 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, 2003 and the changes since August 31, 2001 is
presented as follows:
| |  | ----------------------------------------------------------------------------------------------------------------------

NUMBER OF
    
    WEIGHTED AVERAGEOPTIONS (#)
    
    EXERCISE PRICE ($)Outstanding, August 31, 2001
    
    
    1,857,933
    
    
    
    32.98Granted
    
    
    927,742
    
    
    
    30.14Exercised
    
    
    (37,425
    )
    
    
    25.25Cancelled
    
    
    (129,212
    )
    
    
    32.44Outstanding, August 31, 2002
    
    
    2,619,038
    
    
    
    32.11Granted
    
    
    580,852
    
    
    
    21.03Cancelled
    
    
    (182,604
    )
    
    
    31.98Outstanding, August 31, 2003
    
    
    3,017,286
    
    
    
    29.87




| |  | The weighted average fair value of the stock options
granted during 2003 was $10.96 per option.
| |  | -----------------------------------------------------------------------------------------------

39



---



##### 





| |  | At August 31, 2003, the options outstanding and exercisable consist of the
following:
| |  | -------------------------------------------------------------------------------------

OPTIONS OUTSTANDING
    
    OPTIONS EXERCISABLEWEIGHTEDAVERAGEREMAINING
    
    WEIGHTED
    
    
    
    WEIGHTEDRANGE OF
    
    
    
    CONTRACTUAL
    
    AVERAGE
    
    
    
    AVERAGEEXERCISE
    
    NUMBER
    
    LIFE
    
    EXERCISE
    
    NUMBER
    
    EXERCISEPRICES ($)
    
    OUTSTANDING (#)
    
    (IN YEARS)
    
    PRICE ($)
    
    OUTSTANDING (#)
    
    PRICE ($)19.05  25.25
    
    
    1,367,727
    
    
    
    5.0
    
    
    
    23.45
    
    
    
    585,019
    
    
    
    25.2429.50  37.90
    
    
    990,219
    
    
    
    5.4
    
    
    
    31.24
    
    
    
    304,223
    
    
    
    31.9739.00  44.00
    
    
    659,340
    
    
    
    4.6
    
    
    
    41.15
    
    
    
    329,670
    
    
    
    41.1519.05  44.00
    
    
    3,017,286
    
    
    
    5.1
    
    
    
    29.87
    
    
    
    1,218,912
    
    
    
    31.22




| |  | On January 23, 2003, the Board of Directors approved
an extension of the lives of all outstanding options
subject to shareholder approval at the Annual and
Special Meeting of Shareholders of the Company to be
held in December 2003. The original five-year life of
all outstanding options at that date was adjusted to
seven and a half years. The benefit of this extended
option life to the employees, calculated using the
Black-Scholes option pricing model, is reflected in
the pro forma disclosure to the extent that the
options are vested.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On September 1, 2003, the Company granted a
further 516,000 options for Class B Non-Voting
Shares to eligible officers, directors, and
employees of or consultants to the Company. These
options are exercisable at $23.90 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.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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, 2003, the Company has
loans receivable of $1,829,000 [2002  $2,045,000]
from certain qualifying executive officers. At August
31, 2003, the market value of the shares held as
collateral for the loans was $1,306,000 [2002 
$928,000].
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 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 on August
31, 2005, multiplied by the number of vested units
determined by achievement of specific
performance-based criteria. The employee must be
actively employed by Corus as of the end of the
restriction period [August 31, 2005] 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, 2003 in respect of this plan
was $1,250,000 [2002  nil] and has been recorded in
operating, general and administrative expenses.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

40



---



##### 





| |  | PRO FORMA IMPACT OF STOCK-BASED COMPENSATION
| |  | --------------------------------------------



| |  | As described in note 2[b], the Company applies the
intrinsic value based method of accounting for stock
options granted to employees. Accordingly, no
compensation cost has been recorded for the Plan. Had
compensation cost 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:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[thousands of Canadian dollars except per share amounts]
    
    YEAR ENDED AUGUST 31, 2003Net income
    
    
    40,021Pro forma net income
    
    
    34,824Pro forma basic earnings per share
    
    $
    0.82Pro forma diluted earnings per share
    
    $
    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:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

Expected life
    
    From 2.5 to 7.5 yearsRisk-free interest rates
    
    3.7% to 5.0%Dividend yield
    
    0%Volatility
    
    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.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



|16. |  | 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:
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[thousands of Canadian dollars]
    
    2003
    
    2002FUTURE TAX LIABILITYDeferred charges deducted for tax purposes
capitalized for accounting purposes
    
    
    4,525
    
    
    
    7,424Capital cost allowance in excess of
book depreciation
    
    
    620
    
    
    
    919Deferred partnership income
    
    
    3,521
    
    
    
    3,468Differences in tax and accounting cost bases
for investments
    
    
    38,243
    
    
    
    38,035Broadcast licenses
    
    
    126,580
    
    
    
    124,630Purchase price equation differences
    
    
    25,000
    
    
    
    25,000Other, net
    
    
    9,356
    
    
    
    10,136Total future tax liability
    
    
    207,845
    
    
    
    209,612FUTURE TAX ASSETBook depreciation in excess of
capital cost allowance
    
    
    18,480
    
    
    
    20,733Employment obligations recognized on
purchase equation
    
    
    332
    
    
    
    338Loss carryforwards, net of valuation allowances
    
    
    23,261
    
    
    
    22,483Deferred charges deducted for accounting purposes
in excess of tax purposes
    
    
    1,613
    
    
    
    2,989Differences in tax and accounting cost bases
for investments
    
    
    342
    
    
    
    1,619Revenue recognition differences between tax and
accounting purposes
    
    
    6,802
    
    
    
    6,627Purchase price equation differences
    
    
    231
    
    
    
    756Other, net
    
    
    1,458
    
    
    
    1,852Total future tax asset
    
    
    52,519
    
    
    
    57,397Net future tax liability
    
    
    155,326
    
    
    
    152,215


41



---



##### 





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

[thousands of Canadian dollars]
    
    2003
    
    2002
    
    2001Current tax expense
    
    
    25,281
    
    
    
    33,297
    
    
    
    51,248Future income tax expense (recovery) relating to origination
and reversal of temporary differences
    
    
    7,115
    
    
    
    (9,128
    )
    
    
    (15,474
    )Future income tax recovery resulting from recognition of
losses incurred in the year
    
    
    (4,460
    )
    
    
    (17,541
    )
    
    
    (4,986
    )Future income tax recovery resulting from tax rate changes
    
    
    
    
    
    
    (160
    )
    
    
    (42,258
    )Other
    
    
    598
    
    
    
    (8,713
    )
    
    
    8,377Income tax expense (recovery)
    
    
    28,534
    
    
    
    (2,245
    )
    
    
    (3,093
    )




|[c] |  | The reconciliation of income taxes attributable to operations computed at
the statutory tax rates to income tax expense (recovery) is as follows:
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------

2003
    
    2002
    
    2001[thousands of Canadian dollars]
    
    AMOUNT ($)
    
    %
    
    AMOUNT ($)
    
    %
    
    AMOUNT ($)
    
    %Tax at combined federal and provincial rates
    
    
    25,706
    
    
    
    37.5
    
    
    
    (68,015
    )
    
    
    39.8
    
    
    
    53,457
    
    
    
    42.7Differences from statutory rates relating to
Amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    63,640
    
    
    
    (37.2
    )
    
    
    14,462
    
    
    
    11.6Non-deductible (non-taxable) portion of net
capital losses (gains) on sale of investments
    
    
    1,869
    
    
    
    2.7
    
    
    
    (16,345
    )
    
    
    9.5
    
    
    
    (40,329
    )
    
    
    (32.2
    )Reduction in future income taxes
resulting from statutory rate reduction
    
    
    
    
    
    
    
    
    
    
    (160
    )
    
    
    0.1
    
    
    
    (42,258
    )
    
    
    (33.8
    )Reversal in current year of temporary differences
originally recorded using long-term tax rates
    
    
    (102
    )
    
    
    (0.1
    )
    
    
    8,451
    
    
    
    (4.9
    )
    
    
    2,658
    
    
    
    2.1Large Corporations Tax
    
    
    1,170
    
    
    
    1.7
    
    
    
    1,103
    
    
    
    (0.7
    )
    
    
    1,505
    
    
    
    1.2Other
    
    
    (109
    )
    
    
    (0.2
    )
    
    
    9,081
    
    
    
    (5.3
    )
    
    
    7,412
    
    
    
    5.928,534
    
    
    
    41.6
    
    
    
    (2,245
    )
    
    
    1.3
    
    
    
    (3,093
    )
    
    
    (2.5
    )




|[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, 2003, the
Company has available loss carryforwards of
approximately $86,900,000. A future tax asset of
$29,700,000 [2002  $22,400,000] has been recognized
in respect of these carryforwards, net of a valuation
allowance of $6,500,000 [2002 $5,000,000].
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The available loss carryforwards will expire as follows:
| |  | --------------------------------------------------------

[thousands of Canadian dollars]
    
    $2007
    
    
    2002008
    
    
    2,7002009
    
    
    18,1002010
    
    
    47,7002021
    
    
    4,3002022
    
    
    300No expiration  capital losses
    
    
    13,60086,900


42



---



##### 





|17. |  | 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
[2002  52 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 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.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[a] |  | REVENUES AND SEGMENT PROFIT
|--- |  | ---------------------------

[thousands of Canadian dollars]
    
    2003
    
    2002
    
    2001REVENUESRadio
    
    
    226,034
    
    
    
    211,416
    
    
    
    191,773Television
    
    
    306,885
    
    
    
    308,529
    
    
    
    228,693Content production and distribution
    
    
    70,474
    
    
    
    99,357
    
    
    
    81,287 branded consumer products
    
    
    45,795
    
    
    
    60,558
    
    
    
    56,119Eliminations
    
    
    (5,270
    )
    
    
    (5,357
    )
    
    
    (1,047
    )643,918
    
    
    
    674,503
    
    
    
    556,825SEGMENT PROFITRadio
    
    
    58,114
    
    
    
    52,853
    
    
    
    48,063Television
    
    
    113,415
    
    
    
    99,061
    
    
    
    73,728Content production and distribution
    
    
    (5,185
    )
    
    
    (28,797
    )
    
    
    8,509 branded consumer products
    
    
    8,351
    
    
    
    7,843
    
    
    
    3,616Corporate
    
    
    (8,779
    )
    
    
    (4,750
    )
    
    
    (9,461
    )Eliminations
    
    
    (604
    )
    
    
    (639
    )
    
    
    (539
    )165,312
    
    
    
    125,571
    
    
    
    123,916




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



| |  | During fiscal 2003, two customers accounted for approximately 15% and 9% of
production and distribution revenues, respectively for the Content segment.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

43



---



##### 





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

[thousands of Canadian dollars]
    
    2003
    
    2002
    
    2001Canada
    
    
    545,694
    
    
    
    540,872
    
    
    
    442,743United States
    
    
    43,221
    
    
    
    87,166
    
    
    
    75,277International
    
    
    55,003
    
    
    
    46,465
    
    
    
    38,805643,918
    
    
    
    674,503
    
    
    
    556,825




|[b] |  | SEGMENT ASSETS
|--- |  | --------------

[thousands of Canadian dollars]
    
    2003
    
    2002Radio
    
    
    331,143
    
    
    
    334,209Television
    
    
    528,049
    
    
    
    487,335Content production and distribution
    
    
    223,969
    
    
    
    271,252 branded consumer products
    
    
    10,106
    
    
    
    14,519Corporate
    
    
    848,506
    
    
    
    833,791Eliminations
    
    
    (1,147
    )
    
    
    (1,122
    )1,940,626
    
    
    
    1,939,984




|[c] |  | CAPITAL EXPENDITURES BY SEGMENT
|--- |  | -------------------------------

[thousands of Canadian dollars]
    
    2003
    
    2002
    
    2001Radio
    
    
    6,432
    
    
    
    12,740
    
    
    
    10,326Television
    
    
    3,461
    
    
    
    5,462
    
    
    
    20,040Content production and distribution
    
    
    2,109
    
    
    
    3,422
    
    
    
    2,951 branded consumer products
    
    
    64
    
    
    
    217
    
    
    
    403Corporate
    
    
    2,842
    
    
    
    6,335
    
    
    
    7,37914,908
    
    
    
    28,176
    
    
    
    41,099




| |  | Capital assets and goodwill are located primarily within Canada.
| |  | ----------------------------------------------------------------



|18. |  | restructuring charges
|--- |  | ---------------------



| |  | Changes in the restructuring provision are summarized as follows:
| |  | -----------------------------------------------------------------

BALANCE AT
    
    RESTRUCTURING
    
    
    
    
    
    BALANCE AT[thousands of Canadian dollars]
    
    AUGUST 31, 2002
    
    CHARGES
    
    PAID IN THE YEAR
    
    AUGUST 31, 2003Workforce reduction [i]
    
    
    7,294
    
    
    
    2,865
    
    
    
    8,840
    
    
    
    1,319Contract settlement and lease costs [ii]
    
    
    3,787
    
    
    
    2,160
    
    
    
    3,893
    
    
    
    2,054Other [iii]
    
    
    261
    
    
    
    
    
    
    
    66
    
    
    
    19511,342
    
    
    
    5,025
    
    
    
    12,799
    
    
    
    3,568




| |  | In light of the current economic climate, the Company has taken steps to reduce
debt and improve operating margins by streamlining operations and exiting
activities not aligned with its core assets.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

44



---



##### 





| |  | During 2003 and 2002, the Company recorded
restructuring charges of $5,025,000 and $22,089,000,
respectively which included the following:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------



|[i] |  | Workforce reduction charges of $2,865,000 in 2003
and $15,986,000 in 2002 relating to the cost of
severance and benefits associated with approximately
510 job positions. Of the 510 positions, approximately
130, 150 and 230 were from the Radio, Television and
Content divisions, respectively and included
management, sales/marketing, operations, programming
and administrative staff. In fiscal 2003, the workforce
reduction provision has been drawn down by cash
payments totaling $8,840,000 [2002  $8,692,000],
resulting in an ending provision balance of $1,319,000.
The remaining provision is expected to be substantially
drawn down by the end of fiscal 2004.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[ii] |  | Contract settlement costs of $2,160,000 in 2003
and $5,396,000 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.
In fiscal 2003, the provision for contract settlement
has been drawn down by cash payments totaling
$3,893,000 [2002 $1,609,000], resulting in an ending
provision balance of $2,054,000.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[iii] |  | Other costs of $707,000 were drawn down by cash
payments totaling $66,000 in 2003 and $237,000 in
2002. The provision balance at August 31, 2003 was
$195,000.
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



|19. |  | 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:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[thousands of
Canadian dollars]
    
    2003
    
    2002
    
    2001Local Media Internet Venture
    
    
    
    
    
    
    6,869
    
    
    
    Balmur Corus Music Inc.
    
    
    1,350
    
    
    
    4,000
    
    
    
    Liberty Digital Inc.
    
    
    
    
    
    
    2,171
    
    
    
    Other
    
    
    1,018
    
    
    
    2,200
    
    
    
    1,5302,368
    
    
    
    15,240
    
    
    
    1,530




|20. |  | financial instruments
|--- |  | ---------------------



| |  | FAIR VALUES
| |  | -----------



| |  | The fair values of financial instruments have been determined as follows:
| |  | -------------------------------------------------------------------------



|[i] |  | CURRENT ASSETS AND CURRENT LIABILITIES
|--- |  | --------------------------------------



| |  | The fair values of financial instruments included in
current assets and current liabilities approximate
their carrying values due to their short-term nature.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



|[ii] |  | INVESTMENTS AND OTHER ASSETS
|---- |  | ----------------------------



|[a] |  | The fair value of publicly traded shares included
in this category is determined by the closing market
values for those investments.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------



|[b] |  | The fair value of
other investments in this category is not
determinable.
|--- |  | -------------------------------------------------------------------------



|[iii] |  | LONG-TERM DEBT
|----- |  | --------------



| |  | The carrying value of the Companys bank loans
approximates their fair value because interest
charges under the terms of the bank loans are based
upon current Canadian bank prime and bankers
acceptance rates and on U.S. bank base and LIBOR
rates.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As at August 31, 2003, the fair value of the
Companys senior subordinated debt was $543,021,000
[U.S.$391,875,000] [2002  $586,742,000;
U.S.$376,406,000].
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



|[iv] |  | DERIVATIVE FINANCIAL INSTRUMENTS
|---- |  | --------------------------------



| |  | The fair values of cross-currency agreements are
based on quotations by the counterparties to the
agreements.
| |  | -------------------------------------------------------------------------------------------------------------



| |  | The estimated fair values of these agreements are as follows:
| |  | -------------------------------------------------------------

45



---



##### 



2003
    
    2002CARRYING
    
    ESTIMATED
    
    CARRYING
    
    ESTIMATED[thousands of
Canadian dollars]
    
    VALUE
    
    FAIR VALUE
    
    VALUE
    
    FAIR VALUECross-currency agreements
    
    
    
    
    
    
    (112,767
    )
    
    
    
    
    
    
    (11,318
    )




| |  | 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
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.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Accounts receivable from Canadian federal
government and other government agencies in
connection with production on financing represents
15% of the total accounts receivable balance at
August 31, 2003 and 2002. The Company believes that
there is minimal risk associated with the
collection of these amounts.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|21. |  | 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:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

[thousands of
Canadian dollars except share amounts]
    
    2003
    
    2002
    
    2001Net income (loss) for the year [numerator]
    
    
    40,021
    
    
    
    (168,647
    )
    
    
    128,167Weighted average number of shares outstanding [denominator]Weighted average number of shares outstanding  basic
    
    
    42,641
    
    
    
    42,621
    
    
    
    41,539Effect of dilutive securities
    
    
    4
    
    
    
    
    
    
    
    280Weighted average number of shares outstanding  diluted
    
    
    42,645
    
    
    
    42,621
    
    
    
    41,819




|22. |  | 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:
|--- |  | ------------------------------------------------------------------------------------------------

[thousands of
Canadian dollars]
    
    2003
    
    2002
    
    2001Accounts receivable
    
    
    8,246
    
    
    
    13,076
    
    
    
    (17,032
    )Prepaid expenses and other
    
    
    628
    
    
    
    6,554
    
    
    
    (6,666
    )Accounts payable and accrued liabilities
    
    
    (15,890
    )
    
    
    19,929
    
    
    
    (3,029
    )Income taxes payable
    
    
    10,397
    
    
    
    (19,226
    )
    
    
    12,8993,381
    
    
    
    20,333
    
    
    
    (13,828
    )


46



---



##### 





|[ii] |  | Interest paid, interest received, dividends received and income taxes paid
and classified as operating activities are as follows:
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------

[thousands of
Canadian dollars]
    
    2003
    
    2002
    
    2001Interest paid
    
    
    60,467
    
    
    
    32,349
    
    
    
    47,238Interest received
    
    
    1,803
    
    
    
    2,671
    
    
    
    8,313Dividends received
    
    
    
    
    
    
    1,597
    
    
    
    826Income taxes paid
    
    
    15,338
    
    
    
    53,093
    
    
    
    35,400




|[iii] |  | Non-cash transactions
|----- |  | ---------------------



| |  | The consolidated statements of cash flows exclude the following non-cash
transactions:
| |  | --------------------------------------------------------------------------------------

2003
    
    2002
    
    2001Common shares issued on acquisitions
    
    
    
    
    
    
    
    
    
    
    211,022Accounts payable and accrued liabilities relating to capital assets
    
    
    
    
    
    
    
    
    
    
    4,054




|23. |  | foreign exchange gains and losses
|--- |  | ---------------------------------



| |  | The Company has reflected certain gains and losses in
its consolidated statements of income (loss) and
retained earnings (deficit) and cash flows 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. The following table details the
foreign exchange gains and losses:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[thousands of
Canadian dollars]
    
    2003
    
    2002
    
    2001CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND RETAINED EARNINGS (DEFICIT)Operating, general and administrative expenses
    
    
    (772
    )
    
    
    (552
    )
    
    
    340Other expense (income)
    
    
    (6,638
    )
    
    
    4,149
    
    
    
    (224
    )Total foreign exchange loss (gain)
    
    
    (7,410
    )
    
    
    3,597
    
    
    
    116CONSOLIDATED STATEMENTS OF CASH FLOWSAdd (deduct) non-cash items  other
    
    
    (7,259
    )
    
    
    (2,012
    )
    
    
    940




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

[thousands of
Canadian dollars]
    
    2003
    
    2002Balance, August 31, 2002
    
    
    1,187
    
    
    
    940Effect of exchange rate valuation on translation of net assets of self-sustaining foreign operations
    
    
    (6,276
    )
    
    
    247Balance, August 31, 2003
    
    
    (5,089
    )
    
    
    1,187


47



---



##### 





|24. |  | reconciliation of Canadian GAAP to U.S. GAAP
|--- |  | --------------------------------------------



| |  | The consolidated financial statements of the Company are prepared in Canadian
dollars in accordance with Canadian GAAP. The following adjustments and
disclosures would be required in order to present these consolidated
financial statements in accordance with U.S. GAAP.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[A] |  | RECONCILIATION TO U.S. GAAP
|--- |  | ---------------------------

[thousands
of Canadian dollars except per share amounts]
    
    2003
    
    2002
    
    2001Net income (loss) using Canadian GAAP
    
    
    40,021
    
    
    
    (168,647
    )
    
    
    128,167Add (deduct) adjustments forDeferred charges [1]
    
    
    7,246
    
    
    
    (1,529
    )
    
    
    (10,134
    )Foreign exchange gains (losses)
    
    
    
    
    
    
    
    
    
    
    (804
    )Equity in earnings of investees [2]
    
    
    
    
    
    
    
    
    
    
    1,283Dividend income [2]
    
    
    
    
    
    
    
    
    
    
    (690
    )Transaction gain (loss) [4]
    
    
    
    
    
    
    (1,385
    )
    
    
    4,617Reversal of net derivative loss deferred in other comprehensive income [4]
    
    
    
    
    
    
    
    
    
    
    (1,996
    )Adoption of SOP 00-2 [5]
    
    
    
    
    
    
    (13,473
    )
    
    
    5,418Adoption of FAS 142 [6]
    
    
    
    
    
    
    (150,000
    )
    
    
    Income tax effect of adjustments
    
    
    (2,898
    )
    
    
    4,554
    
    
    
    4,525Net income (loss) using U.S. GAAP
    
    
    44,369
    
    
    
    (330,480
    )
    
    
    130,386Unrealized gains (losses) on investments classified as
available for sale, net of tax [3]
    
    
    320
    
    
    
    (647
    )
    
    
    (13,369
    )Realized gains (losses) on investments classified as
available for sale, net of tax
    
    
    
    
    
    
    5,605
    
    
    
    Unrealized gain (loss) on derivative contracts [4]
    
    
    (31,055
    )
    
    
    23,573
    
    
    
    (16,661
    )Unrealized foreign exchange gain (loss) on translation of
self-sustaining foreign operations
    
    
    (6,276
    )
    
    
    247
    
    
    
    940Comprehensive income (loss) using U.S. GAAP
    
    
    7,358
    
    
    
    (301,702
    )
    
    
    101,296Net income (loss) per share
prior to cumulative catch-up using U.S. GAAPBasic
    
    $
    1.04
    
    
    $
    (4.01
    )
    
    $
    3.03Diluted
    
    
    1.04
    
    
    
    (4.01
    )
    
    
    3.01Net income (loss) per share related to
cumulative catch-up using U.S. GAAPBasic
    
    $
    
    
    
    $
    (3.74
    )
    
    $
    0.11Diluted
    
    
    
    
    
    
    (3.74
    )
    
    
    0.11Net income (loss) per share using U.S. GAAPBasic
    
    $
    1.04
    
    
    $
    (7.75
    )
    
    $
    3.14Diluted
    
    
    1.04
    
    
    
    (7.75
    )
    
    
    3.12Comprehensive income (loss) per share using U.S. GAAPBasic
    
    $
    0.17
    
    
    $
    (7.07
    )
    
    $
    2.44Diluted
    
    
    0.17
    
    
    
    (7.07
    )
    
    
    2.42


48



---



##### 





| |  | BALANCE SHEET ITEMS USING U.S. GAAP
| |  | -----------------------------------

2003
    
    2002[thousands of Canadian dollars]
    
    CANADIAN GAAP
    
    U.S. GAAP
    
    CANADIAN GAAP
    
    U.S. GAAPInvestments and other assets [2]
    
    
    38,786
    
    
    
    33,722
    
    
    
    33,655
    
    
    
    28,191Film investments [5]
    
    
    134,564
    
    
    
    134,564
    
    
    
    140,601
    
    
    
    140,601Deferred charges [1]
    
    
    26,581
    
    
    
    19,246
    
    
    
    37,721
    
    
    
    23,140Broadcast licenses and goodwill [5]
    
    
    1,298,558
    
    
    
    1,302,089
    
    
    
    1,300,894
    
    
    
    1,304,425Deferred credits [4]
    
    
    128,802
    
    
    
    44,440
    
    
    
    76,631
    
    
    
    57,181Interest rate swap liability [4]
    
    
    
    
    
    
    112,767
    
    
    
    
    
    
    
    11,318Future tax liability
    
    
    165,556
    
    
    
    160,875
    
    
    
    149,967
    
    
    
    147,788Shareholders equity
    
    
    884,677
    
    
    
    852,086
    
    
    
    850,716
    
    
    
    844,512




| |  | The cumulative effect of these adjustments on
shareholders equity is as follows:
| |  | ---------------------------------------------------------------------------------

[thousands of Canadian dollars]
    
    2003
    
    2002Deferred charges [1] and [4]
    
    
    (4,401
    )
    
    
    (8,749
    )Equity in earnings of investees [2]
    
    
    4,758
    
    
    
    4,758Adoption of SOP 00-2 [5]
    
    
    (4,754
    )
    
    
    (4,754
    )Accumulated other comprehensive income (loss)Unrealized losses on investments [3]
    
    
    (4,051
    )
    
    
    (4,371
    )Unrealized gain on derivative contracts [4]
    
    
    (24,143
    )
    
    
    6,912Unrealized foreign exchange gain (loss)
on translation of self-sustaining
foreign operations
    
    
    (5,089
    )
    
    
    1,187Total cumulative effect of adjustments
on shareholders equity
    
    
    (37,680
    )
    
    
    (5,017
    )




| |  | Areas of material difference between Canadian GAAP
and U.S. GAAP and their impact on the consolidated
financial statements are as follows:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------



|[1] |  | DEFERRED CHARGES
|--- |  | ----------------



| |  | Start-up costs of new specialty programming networks
and costs associated with reformatting radio stations
are deferred and amortized under Canadian GAAP. Under
U.S. GAAP, these costs are expensed as incurred net
of amortization recorded for Canadian GAAP.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[2] |  | EQUITY IN EARNINGS OF INVESTEES
|--- |  | -------------------------------



| |  | The 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 INVESTMENTS
|--- |  | ----------------------------------------



| |  | Under U.S. GAAP, equity securities having a readily
determinable fair value and not classified as trading
securities are classified as available-for-sale
securities and reported at fair value, with
unrealized gains and losses included in comprehensive
income and reported as a separate component of
shareholders equity, net of related deferred income
taxes. Under Canadian GAAP, these investments are
carried at cost and written down only when there is
evidence that a decline in value that is other than
temporary has occurred.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[4] |  | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
|--- |  | ---------------------------------------------



| |  | Under U.S. GAAP, all derivative instruments are to be
recorded on the consolidated balance sheet 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.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

49



---



##### 





|[5] |  | ADOPTION OF SOP 00-2
|--- |  | --------------------



| |  | Under Canadian GAAP, adoption of a new accounting
standard is applied retroactively including a
revision to the purchase price equation for the
Nelvana acquisition. Under U.S. GAAP, the adoption of
SOP 00-2 is reflected in the consolidated statements
of income (loss) 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 pro forma net income under U.S.
GAAP for the year ended August 31, 2001.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Accounting for SOP 00-2 also gives rise to a
balance sheet difference. Under Canadian GAAP the
adjustment to broadcast licenses and goodwill is
recorded retroactively, with an adjustment to opening
retained earnings which therefore impacts the 2001
consolidated balance sheet. Under U.S. GAAP, the
adjustment is applied as a cumulative adjustment to
the current years income which therefore impacts the
broadcast licenses and goodwill balance in 2002.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[6] |  | ADOPTION OF FAS 142
|--- |  | -------------------



| |  | Under 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 is reflected in the consolidated
statements of income (loss) 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.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[B] |  | STOCK-BASED COMPENSATION
|--- |  | ------------------------



| |  | The Company applies Accounting Principles Board
Opinion No. 25 in accounting for common share options
granted to employees and officers for U.S. GAAP
purposes. Had compensation expense been determined on
the basis of the estimated fair values of the options
granted in accordance with Financial Accounting
Standards Board [FASB] Statement No. 123,
Accounting for Stock-Based Compensation, the net
income for the year ended August 31, 2003 would have
decreased by $15,498,000 to $28,871,000 or $0.68 per
share [2002  would have decreased by $7,243,000 to
a loss of $337,723,000, or a loss of $7.92 per
share]. The assumptions used to determine fair value
are consistent with those disclosed in note 15.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|[C] |  | RECENT ACCOUNTING PRONOUNCEMENTS
|--- |  | --------------------------------



| |  | In May 2003, the FASB issued FAS 150, Accounting
for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. FAS
150 establishes standards for the measurement and
classification of certain financial instruments with
characteristics of both liabilities and equity. FAS
150 is effective for financial instruments entered
into or modified after May 31, 2003. Corus adopted
FAS 150 during 2003. It had no impact on the
Companys consolidated financial statements.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In January 2003, the FASB issued FASB
Interpretation [FIN] 46, Consolidation of Variable
Interest Entities an interpretation of ARB No. 51
[the Interpretation"]. The Interpretation introduces
a new consolidation model  the variable interests
model  which determines control [and consolidation]
based on potential variability in gains and losses of
the entity being evaluated for consolidation. The
Interpretation requires disclosure of certain
information in financial statements initially issued
after January 31, 2003, if it is reasonably possible
that an enterprise will consolidate or disclose
information about a variable interest entity when
Interpretation 46 becomes effective. For foreign
private issuers, Interpretation 46 will be applicable
from the beginning of their first standalone U.S.
GAAP reporting period that begins after June 15,
2003. Corus will assess the impact of the FIN in its
first quarter of fiscal 2004.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In November 2002, the FASB issued FIN 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. FIN 45 clarifies and
expands on existing disclosure requirements for a
guarantor regarding its obligations under certain
guarantees it has issued. FIN 45 also requires that
the guarantor must recognize a liability for the
fair value of its obligations under certain
guarantees. The disclosure requirements are
effective for fiscal years ending after December 15,
2002. The initial recognition and measurement
provisions apply on a prospective basis to
guarantees issued after December 31, 2002. Corus
adopted FIN 45 during 2003. FIN 45 had no impact on
the Companys consolidated financial statements.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|25. |  | government financing and assistance
|--- |  | -----------------------------------



| |  | Revenues include $1,248,000 [2002  $1,893,000] of
production financing obtained from government
programs. This financing provides a supplement to a
production series Canadian license fees and is not
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

50



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##### 





| |  | repayable. As well, revenues include $938,000 [2002
  $1,224,000] 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%.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|26. |  | commitments and contingencies
|--- |  | -----------------------------



| |  | The Company and its subsidiaries are involved in
litigation matters arising out of the ordinary course
and conduct of its business. Although such matters
cannot be predicted with certainty, management does
not consider the Companys exposure to litigation to
be material to these consolidated financial
statements.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company has various long-term operating
lease agreements for the use of transmission
facilities and premises in each of the next five
years and thereafter as follows:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[thousands of Canadian dollars]
    
    $2004
    
    
    17,2262005
    
    
    13,8692006
    
    
    12,6192007
    
    
    10,9952008
    
    
    10,612Thereafter
    
    
    34,735100,056




| |  | Acquisition commitments are outlined in note 3 to
these consolidated financial statements. Rental
expenses recognized in operating, general and
administrative expenses totalled approximately
$10,637,000 [2002  $10,460,000; 2001 
$10,433,000].
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|27. |  | 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, measured at the exchange amount which
is the amount of consideration established and agreed
to by the related parties and having normal trade
terms, are as follows:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[thousands of Canadian dollars]
    
    2003
    
    2002RevenuesCable service subscriber fees and advertising
    
    
    89,250
    
    
    
    96,511Sales representation fees
    
    
    
    
    
    
    1,923Production and distribution
    
    
    2,120
    
    
    
    3,208Other
    
    
    
    
    
    
    600ExpensesDigital music subscriber fees
    
    
    29
    
    
    
    1,933Cable and satellite system distribution
access fees
    
    
    3,636
    
    
    
    5,153Administrative service fees
    
    
    1,022
    
    
    
    1,824Amounts due from (to) affiliated companiesCable service subscriber fees and advertising
    
    
    18,479
    
    
    
    15,962Sales representation fees
    
    
    
    
    
    
    959Production and distribution
    
    
    1,961
    
    
    
    2,718Other
    
    
    
    
    
    
    184Cable and satellite system distribution
access fees
    
    
    (238
    )
    
    
    (447
    )Administrative service fees
    
    
    28
    
    
    
    (49
    )




| |  | Included in other investments [note 7]are loans of
$5,321,000 made to certain executive officers of
the Company for housing or investment purposes. The
loans are secured 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.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|28. |  | comparative consolidated financial statements
|--- |  | ---------------------------------------------



| |  | The comparative consolidated financial statements
have been reclassified from statements previously
presented to conform to the presentation of the 2003
consolidated financial statements and to give effect
to the accounting changes described in note 2[b].
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

51



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##### 



directors and officers



DIRECTORSPIERRE BÉLAND (4) Montreal, Quebec
President, Metromedia PlusJOHN M. CASSADAY (2) Toronto, Ontario
President and Chief Executive Officer, Corus Entertainment Inc.DENNIS M. ERKER (2) (3) Edmonton, Alberta
Partner, The FE Advisory GroupCLINTON C. FORSTER Victoria, British Columbia
President, Forvest Investment Inc.WENDY A. LEANEY (1) Toronto, Ontario
President, Wyoming Associates Ltd.DOROTHY ZOLF MCDONALD, PHD (4) Toronto, Ontario
Corporate Director, former Associate Professor, Graduate Program in
Communication Studies, University of Calgary and Visiting Professor,
University of AlbertaCATHERINE ROOZEN (1) (3) Edmonton, Alberta
Director and Corporate Secretary of Cathton Holdings Ltd.TERRANCE E. ROYER (1) (2) Calgary, Alberta
Executive Vice Chairman, Royal Host Reit and Royal Host Corp.HEATHER A. SHAW (2) (3) Calgary, Alberta
Executive Chair, Corus Entertainment Inc.JULIE M. SHAW (4) Calgary, Alberta
Vice President, Facilities, Design and Management,
Shaw Communications Inc., and Secretary, Shaw Foundation


OFFICERSJUDY ADAM CA Oakville, Ontario
Vice President, Controller, Corus Entertainment Inc.PIERRE ARCAND Montreal, Quebec
President, Quebec RadioHAL BLACKADAR Oakville, Ontario
Vice President, Human Resources, Corus Entertainment Inc.JOHN M. CASSADAY Toronto, Ontario
President and Chief Executive Officer, Corus Entertainment Inc.JOHN P. HAYES Toronto, Ontario
President, Radio, Corus Entertainment Inc.KATHLEEN C. MCNAIR Toronto, Ontario
Vice President, Corporate & Regulatory Affairs, General Counsel,
Corus Entertainment Inc.THOMAS C. PEDDIE FCA Toronto, Ontario
Senior Vice President and Chief Financial Officer,
Corus Entertainment Inc.JOHN R. (JACK) PERRATON Calgary, Alberta
Corporate SecretaryPAUL W. ROBERTSON Toronto, Ontario
President, Television and Nelvana, Corus Entertainment Inc.(1)  Member of the Audit Committee(2)  Member of the Executive Committee(3)  Member of the Human Resources Committee(4)  Member of the Corporate Governance Committee




52



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##### 



corporate information



corporate office CORUS ENTERTAINMENT INC.
Suite 501
630 3rd Avenue S.W.
Calgary, Alberta
T2P 4L4 Telephone: 403.444.4244
Facsimile: 403.444.4242 executive office CORUS ENTERTAINMENT INC.
Suite 1630
181 Bay Street
Toronto, Ontario
M5J 2T3 Telephone: 416.642.3770
Facsimile: 416.642.3779 internet Corus Entertaiments Annual Report, Annual Information Form, Quarterly Reports, Press Releases and other relevant Investor Relations information are available electronically on the Internet at www.corusent.com under Financial Info. auditors Ernst & Young LLP primary bankers The Toronto-Dominion Bank


transfer agents CIBC MELLON TRUST COMPANY
Calgary, Alberta
1.800.387.0825 CHASE MELLON SHAREHOLDER SERVICES, L.L.C.
New York, New York
1.800.526.0801 corporate governance Information concerning Corus Entertaiments corporate governance
policy is contained in the Information Circular and is also availableby contacting the company. further information Financial analysts, portfolio managers, other investors and interested
parties may contact the Company at 416.642.3770 or visit our Web site. To receive additional copies of Corus Entertainments Annual Report, please fax your request to the Vice President of Communications at 416.642.3779. Vous pouvez obtenir la version francaise du present rapport en
communiquant par telecopieur avec le vice-président des
Communications, au 416.642.3779. annual meeting The Annual General Meeting of Shareholders will be held on
December 9, 2003 at The Carlu, 444 Yonge Street, 7th floor,
Toronto, Ontario.