Corus Entertainment Inc. - First Quarter Report to Shareholders

Corus Entertainment Inc. - First Quarter Report to Shareholders

TORONTO, Jan. 12 /PRNewswire-FirstCall/ --
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HIGHLIGHTS
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(Unaudited) Three months ended
(thousands of Canadian dollars except November 30,
per share data) 2005 2004
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Revenues 195,341 180,600
Segment profit
Radio 21,863 21,024
Television 52,029 44,945
Content 524 122
Corporate (4,785) (3,623)
Eliminations 120 (103)
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69,751 62,365
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Net income 31,407 29,077
Earnings per share
Basic $0.73 $0.68
Diluted $0.72 $0.68

Weighted average number of
shares outstanding (in thousands)
Basic 42,808 42,739
Diluted 43,387 42,822

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Significant Events in the Quarter
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- On September 16, 2005, Corus announced that Movie Central's service
would be available for broadcast in High Definition to Bell Express Vu
customers.
- On September 29, 2005 Corus hosted its annual Investor Day. Financial
guidance for fiscal 2006 was given as follows: segment profit of
between $210 to $220 million and free cash flow of between $70 to
$85 million.
- On October 14, 2005, the Copyright Board of Canada announced its
decision to increase royalties paid by commercial radio stations to
the Society of Composers, Authors and Music Publishers of Canada
(SOCAN) and the Neighbouring Rights Collective of Canada (NRCC) for
their use of music from 2003 to 2007.
- In November 2005, Corus Entertainment programs were awarded eight
Gemini Awards and an International Emmy. In particular, YTV's Dark
Oracle won both a Gemini and an International Emmy.

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Significant Events Subsequent to the Quarter
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- On December 15, 2005 the Company announced that it had commenced a
cash tender offer and consent solicitation for its outstanding
U.S.$375.0 million aggregate principal amount of 8.75% Senior
Subordinated Notes due 2012. The consent solicitation was successful,
as 99.5% of the Notes were tendered prior to the expiry of the consent
solicitation on December 29, 2005. The tender offer expires on
January 20, 2006.
- On December 15, 2005 the Company announced its intention to make a
Normal Course Issuer Bid for its Class B Non-Voting Participating
Shares through the facilities of the TSX. On December 29, 2005 the TSX
confirmed its acceptance of the notice of intention.
- On December 31, 2005 the Company paid a semi-annual dividend of
$0.045 and $0.05 to holders of its Class A and Class B shares
respectively.
- On January 12, 2006 the Company announced an increase in its dividend.
The dividend will now be paid quarterly instead of semi-annually. The
quarterly dividend for holders of its Class A and Class B shares will
increase to $0.0975 and $0.10 respectively. The Company's dividend
will be paid on March 31, 2006 to shareholders of record at the close
of business on March 15, 2006.

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Management's Discussion and Analysis
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The following should be read in conjunction with Management's Discussion and Analysis, consolidated financial statements and the notes thereto included in our August 31, 2005 Annual Report. All amounts are stated in Canadian dollars unless specified otherwise.

Cautionary statement regarding forward-looking statements

Certain statements in this report may constitute forward-looking statements and are subject to important risks and uncertainties. The results or events predicted in these statements may differ materially from actual results or events. Factors which could cause results or events to differ from current expectations include, among other things: our ability to attract and retain advertising revenues; audience acceptance of our television programs and cable networks; our ability to recoup production costs, the availability of tax credits and the existence of co-production treaties; our ability to compete in any of the industries in which we do business; the opportunities (or lack thereof) that may be presented to and pursued by us; conditions in the entertainment, information and communications industries and technological developments therein; changes in laws or regulations or the interpretation or application of those laws and regulations; our ability to integrate and realize anticipated benefits from our acquisitions and to effectively manage our growth; our ability to successfully defend ourselves against litigation matters arising out of the ordinary course of business; and changes in accounting standards. Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Unless otherwise required by applicable securities laws, we disclaim any intention or obligation to publicly update or revise any forward-looking statements whether as a result of new information, events or circumstances that arise after the date thereof or otherwise.

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Overview of Consolidated Results
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The first quarter was highlighted by strong revenue growth and excellent operating performance from our Radio, Television and Content segments. Net income for the quarter was $31.4 million on revenues of $195.3 million, as compared to $29.1 million on revenues of $180.6 million in the prior year. Radio and Television delivered segment profit growth of 4% and 16% respectively, while Content contributed another quarter of positive segment profit. On a same station basis, Radio delivered revenues and segment profit growth of 9% and 12%, respectively.

First Quarter Results

Revenues

Revenues for the first quarter were $195.3 million, an increase of 8% over $180.6 million last year. Radio and Television each experienced increases of 10% driven by strong advertising sales growth, while Content revenues were down 17% from the prior year.

Direct cost of sales, general and administrative expenses

Direct cost of sales, general and administrative expenses for the first quarter were $125.6 million, up 6% from $118.2 million in the prior year. Radio expenses were up 14% as the stations acquired at the end of fiscal 2005 began integration into the Quebec cluster.

Depreciation

Depreciation expense for the first quarter was $5.0 million, a decrease of $0.4 million from last year. This decrease reflects a lower capital cost base.

Amortization

Amortization expense for the first quarter was $0.9 million, down from $1.2 million last year. The decrease is a result of certain deferred start-up and reformatting costs becoming fully amortized.

Interest on long-term debt

Interest expense for the first quarter was $14.5 million, up from $13.6 million last year. The increase was due to the Company's termination of its fixed-to-floating interest rate swap agreement in the third quarter of fiscal 2005. The effective interest rate for the first quarter was 9.5%, as compared to 8.6% in the prior year reflecting the absence of interest savings from the fixed-to-floating interest rate swap.

Other income, net

Other income for the first quarter was $0.7 million, compared to $6.4 million in the prior year. The prior year's comparable quarter includes an unrealized derivative transaction gain of $2.1 million and foreign exchange gains of $3.9 million.

Income taxes

The effective tax rate for the first quarter was 35.4%, consistent with the Company's 35.7% statutory rate.

Net income

Net income for the first quarter was $31.4 million, as compared to $29.1 million last year. Earnings per share for the first quarter were $0.73 basic and $0.72 diluted, compared with $0.68 basic and diluted last year.

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Radio
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The Radio division comprises 51 radio stations situated primarily in nine of the ten largest Canadian markets by population and in the densely populated area of southern Ontario. Corus is Canada's leading radio operator in terms of revenues and audience reach.

Financial Highlights

(Unaudited) Three months ended
November 30,
(thousands of Canadian dollars) 2005 2004
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Revenues 72,392 65,533
Direct cost of sales, general and
administrative expenses 50,529 44,509
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Segment profit 21,863 21,024
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Revenues for the first quarter were $72.4 million, up 10% from the corresponding period last year. On a same station basis revenues were up 9% over the prior year. Revenue growth was experienced across Canada, with Edmonton, Calgary, Winnipeg, Toronto, and Montreal contributing above average growth in the quarter. Local and national airtime sales for the division increased over the prior year by 10% and 4%, respectively. Corus Radio continues to be competitively well positioned to take advantage of the strong ad market which was up 8% in the top ten markets for the quarter. The recent Bureau of Broadcast Measurement ratings confirmed that Corus has improved its competitive position.

Direct cost of sales, general and administrative expenses for the first quarter were $50.5 million, up 14% from the corresponding period last year. On a same station basis expenses were up 7% over the prior year. This growth is attributed to increased investments in new media and programming content, principally related to professional hockey which was unavailable last year.

Segment profit for the first quarter was $21.9 million, an increase of 4% over the corresponding period. On a same station basis, segment profit increased by 12% over the prior year.

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Television
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The Television division is composed of the following: specialty television networks YTV, W Network, Treehouse TV, Corus' 80% interest in Country Music Television Limited ("CMT"), a 50.5% interest in Telelatino, a 40% interest in TELETOON and a 20% interest in Food Network; Corus' premium television services Movie Central and Encore Avenue; interests in three digital television channels, SCREAM, Discovery Kids Canada and The Documentary Channel; Corus Custom Networks, a cable advertising service; three local television stations; and Max Trax, a residential digital music service.

Financial Highlights

(Unaudited) Three months ended
November 30,
(thousands of Canadian dollars) 2005 2004
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Revenues 108,840 98,520
Direct cost of sales, general and
administrative expenses 56,811 53,575
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Segment profit 52,029 44,945
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Revenues for the first quarter were $108.8 million, up 10% over the corresponding period last year. Revenue growth was driven by continued advertising growth of 13% and subscriber growth of 8%. The strong advertising growth was driven by CMT, W Network and TELETOON. In total, specialty advertising revenues grew 14% over the prior year's quarter. Subscriber revenue growth was driven by Movie Central, which finished the quarter with 767,000 subscribers, up 3% from 748,000 at August 31, 2005. The Company attributes this increase to a successful marketing campaign surrounding the launch of the HBO series Rome.

Direct cost of sales, general and administrative expenses were $56.8 million for the first quarter, up 6% from the prior year. The increase was primarily due to higher overall cost of sales and higher variable costs associated with increased revenues. Amortization of program and film rights, included in direct cost of sales was relatively unchanged from the prior year. These increased costs were offset by effective cost containment in other general and administrative overhead.

Segment profit for the first quarter was $52.0 million, up 16% from the prior year.

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Content
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The Content division consists of the production and distribution of television programs and the sale and licensing of related products and rights.

Financial Highlights

(Unaudited) Three months ended
November 30,
(thousands of Canadian dollars) 2005 2004
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Revenues 15,719 18,928
Direct cost of sales, general and
administrative expenses 15,195 18,806
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Segment profit 524 122
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Revenues for the first quarter were $15.7 million, a decrease of 17% from the prior year. During the quarter Content delivered 17 completed episodes, compared to 52 episodes in the prior year. Included in Content's revenues are $1.6 million in intercompany revenues. These revenues are eliminated upon consolidation.

Direct cost of sales, general and administrative expenses for the first quarter were $15.2 million, down by 19% from the prior year. The decrease reflects lower revenues.

Segment profit for the first quarter was $0.5 million, compared to $0.1 million last year. The Content division continues to perform in line with the Company's expectations for segment profit and free cash flow.

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

Financial Highlights

(Unaudited) Three months ended
November 30,
(thousands of Canadian dollars) 2005 2004
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Stock-based compensation 1,683 1,275
Other general and administrative costs 3,102 2,348
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General and administrative expenses 4,785 3,623
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General and administrative expense increased to $4.8 million in the first quarter from $3.6 million in the same period last year.

Stock-based compensation includes the expenses related to the Company's Performance Share Units and the issuance of stock options. The increase in the quarter reflects the impact of Corus' higher average share price in the first quarter of fiscal 2006 compared to the same period last year.

The increase in other general and administrative costs of $0.8 million in the first quarter relate primarily to increased costs of information technology and costs associated with implementing the requirements of the Sarbanes-Oxley Act and new Canadian securities standards.

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Quarterly Consolidated Financial Information
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The following table sets forth certain unaudited data from the consolidated statements of income (loss) and retained earnings (deficit) for each of the eight most recent quarters ended November 30, 2005. The information has been derived from the Company's unaudited consolidated financial statements that, in management's opinion, have been prepared on a basis consistent with the audited consolidated financial statements contained in the Company's Annual Report for the year ended August 31, 2005.

Segment Earnings (loss)
(thousands of Revenues profit Net income per share
Canadian dollars (loss) (loss) Basic Diluted
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2006
1st Qtr 195,341 69,751 31,407 $0.73 $0.72

2005
4th Qtr 175,279 42,571 9,662 $0.23 $0.22
3rd Qtr 171,890 52,351 19,430 0.45 0.45
2nd Qtr 155,300 38,024 12,945 0.30 0.30
1st Qtr 180,600 62,365 29,077 0.68 0.68

2004
4th Qtr 162,959 42,837 14,018 $0.33 $0.33
3rd Qtr 163,864 (43,777) (51,160) (1.20) (1.20)
2nd Qtr 155,019 34,069 8,305 0.19 0.19

Seasonal Fluctuations

As discussed in Management's Discussion and Analysis for the year ended August 31, 2005, the first quarter results tend to be the strongest and second quarter results tend to be the weakest in a fiscal year.

Significant items causing variations in quarterly results

- The third quarter of fiscal 2004 was impacted by a non-cash, after-tax
write-down in film investments of $60.3 million ($1.41/share)
resulting from the Company's decision to lower estimates of future
revenue as a result of a challenging library market and a lower U.S.
dollar. The pre-tax write-down of $85.0 million was recorded in
operating, general and administrative expenses.

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Risks and Uncertainties
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There have been no material changes in any risks or uncertainties facing the Company since the year ended August 31, 2005.

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Financial Position
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Total assets at November 30, 2005 were $1.97 billion compared to $1.93 billion at August 31, 2005. The following discussion describes the significant changes in the consolidated balance sheet since August 31, 2005.

Current assets increased by $31.0 million. Cash and cash equivalents increased by $4.4 million. Accounts receivable increased by $25.5 million. The first quarter typically generates the strongest revenues for the broadcasting businesses, and this results in an increase in receivables.

Non-current assets increased by $7.7 million. Tax credits receivable increased by $1.7 million due to accruals made related to film production. Property, plant and equipment decreased by $3.6 million as capital expenditures of $1.2 million were offset by depreciation of $5.0 million. Program and film rights (current and non-current) increased by $14.8 million, as accruals for acquired rights of $43.5 million were offset by amortization of $28.9 million. Film investments increased by $5.8 million, as net film spending of $12.7 million was offset by film amortization and accruals for tax credits. Deferred charges decreased by $0.9 million due to amortization. Broadcast licenses decreased by $3.8 million and goodwill decreased by $4.1 million as a result of the sale of two radio stations in the quarter.

Current liabilities increased by $4.4 million. Accounts payable and accrued liabilities decreased by $3.1 million and income taxes payable increased by $7.5 million. Accounts payable and accrued liabilities related to working capital decreased by $20.0 million, due to the timing of trade accounts payable and the payment of interest, while non-working capital accruals for program rights and film investments increased by $16.9 million.

Non-current liabilities increased by $4.6 million. Long-term debt decreased by $7.6 million, resulting from foreign exchange translation adjustments. Deferred credits increased by $8.2 million, as payments of $1.7 million for public benefits related to acquisitions were offset by $7.6 million in translation adjustments for cross-currency agreements and other working capital adjustments. Net future tax liability (including current asset) increased by $3.8 million primarily as a result of the utilization of tax loss carryforwards.

Share capital increased by $0.2 million as a result of the exercising of employee stock options. Contributed surplus increased by $0.7 million as a result of expensing stock options for the period. Cumulative translation adjustment increased by $0.6 million primarily due to the effect of exchange rate fluctuation on the translation of the net assets of self-sustaining foreign operations.

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Liquidity and Capital Resources
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Cash flows

Overall, the Company's cash and cash equivalents position increased by $4.4 million in the first quarter, compared to a decrease of $47.1 million in the prior year. Free cash flow is typically negative in the first quarter, as the Company pays interest on its notes, however in the first quarter of fiscal 2006 free cash flow was positive. This is due primarily to proceeds from the sale of radio assets received in the quarter.

Cash used in operating activities for the first quarter was $1.1 million, compared to $8.4 million last year. An increase in net income adjusted for non- cash items and net change in non-cash working capital of $5.2 million, as well as a $1.4 million decrease in payments for program rights contributed to this increase in operating cash flow. Non-cash working capital is typically a use of cash in the first quarter as accrued interest and other year end accruals are paid in the quarter, and quarter-over-quarter revenue increases lead to higher receivables.

Cash provided by investing activities was $5.5 million for the first quarter, as compared to cash used of $4.5 million last year. The current year includes $9.0 million in proceeds from the sale of certain radio assets.

Cash flow from financing activities in the first quarter was practically nil compared to a use of $34.2 million last year. The Company paid down its U.S. dollar denominated bank loan balance of $34.0 million in the first quarter of fiscal 2005.

Liquidity

As at November 30, 2005, the Company had a cash balance of $142.5 million, and a working capital balance of $216.2 million. Management believes that cash flow from operations and existing or revised credit facilities will provide the Company with sufficient financial resources to fund its operations for the remainder of fiscal 2006.

Net debt and adjusted net debt

At November 30, 2005 net debt was $295.1 million, down from $307.1 million at August 31, 2005. Adjusted net debt at November 30, 2005 was $461.5 million, down from $465.9 million at August 31, 2005. Adjusted net debt to segment profit at November 30, 2005 was 2.3 times, down from 2.4 times at August 31, 2005.

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Key Performance Indicators
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The Company measures the success of its strategies using a number of key performance indicators. With the exception of radio same station segment results, these have been outlined in the Management's Discussion and Analysis contained in the Annual Report for the year ended August 31, 2005, including a discussion as to their relevance, definitions, calculation methods and underlying assumptions. Certain key performance indicators are not measurements in accordance with Canadian or U.S. generally accepted accounting principles ("GAAP") and should not be considered as an alternative to net income or any other measure of performance under Canadian or U.S. GAAP.

The following tables reconcile those key performance indicators that are not in accordance with GAAP measures.

Free cash flow
Three months ended
November 30,
(thousands of Canadian dollars) 2005 2004
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Cash provided by (used in):
Operating activities (1,102) (8,370)
Investing activities 5,543 (4,519)
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Free cash flow 4,441 (12,889)
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Net debt and adjusted net debt
As at As at
November August
(thousands of Canadian dollars) 30, 2005 31, 2005
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Long-term debt 437,587 445,162
Cash and cash equivalents (142,521) (138,086)
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Net debt 295,066 307,076
Unrealized cumulative foreign exchange gains 166,413 158,838
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Adjusted net debt 461,479 465,914
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Adjusted net debt to segment profit
As at As at
November August
(thousands of Canadian dollars except ratios) 30, 2005 31, 2005
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Adjusted net debt (numerator) 461,479 465,914
Segment profit(1) (denominator) 202,697 195,311
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Adjusted net debt to segment profit 2.3 2.4
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(1) Reflects aggregate amounts for the most recent four quarters, as
detailed in the table in the "Quarterly Consolidated Financial
Information" of Management's Discussion and Analysis.

Radio same station segment results

Radio same station segment results represents the revenues and segment profit for the 43 radio stations whose results are included in the first quarter of fiscals 2006 and 2005. With the acquisition and sale of certain stations over the past several quarters, the radio same station segment results metric has been included in this managements' discussion and analysis to enhance the Company's disclosure.

Three months ended
November 30,
(thousands of Canadian dollars) 2005 2004
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Total Radio revenues 72,392 65,533
Adjustment for stations not in both fiscal periods (4,319) (2,816)
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Radio same station revenues 68,073 62,717
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Total Radio direct cost of sales, general
and administrative expenses 50,529 44,509
Adjustment for stations not in both fiscal periods (5,170) (2,095)
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Radio same station direct cost of sales, general
and administrative expenses 45,359 42,414
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Total Radio segment profit 21,863 21,024
Adjustment for stations not in both fiscal periods 851 (721)
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Radio same station segment profit 22,714 20,303
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CORUS ENTERTAINMENT INC.
CONSOLIDATED BALANCE SHEETS

As at As at
(unaudited) November August
(in thousands of Canadian dollars) 30, 2005 31, 2005
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ASSETS
Current
Cash and cash equivalents 142,521 138,086
Accounts receivable 180,822 155,343
Prepaid expenses and other 12,284 10,948
Program and film rights 95,473 93,725
Future tax asset 4,478 6,498
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Total current assets 435,578 404,600
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Tax credits receivable 14,014 12,292
Investments and other assets 36,433 36,886
Property, plant and equipment, net 72,431 76,041
Program and film rights 67,732 54,715
Film investments (note 2) 64,198 58,417
Deferred charges 14,708 15,560
Broadcast licenses (note 3) 510,712 514,552
Goodwill (note 3) 751,238 755,301
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1,967,044 1,928,364
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 169,119 172,236
Income taxes payable 10,577 3,049
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Total current liabilities 179,696 175,285
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Long-term debt (note 4) 437,587 445,162
Deferred credits (note 5) 203,995 195,789
Future tax liability 149,484 147,744
Other long-term liabilities 23,986 22,895
Non-controlling interest 12,411 11,227
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Total liabilities 1,007,159 998,102
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SHAREHOLDERS' EQUITY
Share capital (note 6) 886,081 885,911
Contributed surplus 4,304 3,558
Retained earnings 80,077 50,802
Cumulative translation adjustment (note 11) (10,577) (10,009)
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Total shareholders' equity 959,885 930,262
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1,967,044 1,928,364
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See accompanying notes

On behalf of the Board,

John M. Cassaday Heather A. Shaw
President and Chief Executive Officer Executive Chair

January 12, 2006

CORUS ENTERTAINMENT INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (DEFICIT)

(unaudited) Three months ended
(in thousands of Canadian dollars November 30,
except per share amounts) 2005 2004
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Revenues 195,341 180,600
Direct cost of sales, general and
administrative expenses 125,590 118,235
Depreciation 5,038 5,419
Amortization 852 1,165
Interest on long-term debt 14,464 13,592
Other income, net (678) (6,362)
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Income before income taxes
and non-controlling interest 50,075 48,551
Income tax expense 17,751 18,743
Non-controlling interest 917 731
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Net income for the period 31,407 29,077

Retained earnings (deficit), beginning of period 50,802 (17,122)
Dividends (2,132) -
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Retained earnings, end of period 80,077 11,955
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Earnings per share (note 9)
Basic $0.73 $0.68
Diluted $0.72 $0.68
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Weighted average number of shares outstanding
(in thousands)
Basic 42,808 42,739
Diluted 43,387 42,822
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See accompanying notes

CORUS ENTERTAINMENT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended
(unaudited) November 30,
(in thousands of Canadian dollars) 2005 2004
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OPERATING ACTIVITIES
Net income for the period 31,407 29,077
Add (deduct) non-cash items:
Depreciation 5,038 5,419
Amortization of program and film rights 28,889 28,148
Amortization of film investments 7,505 9,422
Other amortization 852 1,165
Future income taxes 3,851 3,230
Non-controlling interest 917 731
Foreign exchange gains - (2,747)
Stock-based compensation 1,683 1,275
Unrealized derivative gains - (2,086)
Other 337 (593)
Net change in non-cash working capital balances
related to operations (40,509) (38,296)
Payment of program and film rights (28,324) (29,687)
Net additions to film investments (12,748) (13,428)
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Cash used in operating activities (1,102) (8,370)
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INVESTING ACTIVITIES
Additions to property, plant and equipment (1,235) (3,037)
Increase in investments, net (497) (907)
Decrease in public benefits associated with
acquisitions (1,725) (1,121)
Proceeds from sale of assets 9,000 546
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Cash provided by (used in) investing activities 5,543 (4,519)
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FINANCING ACTIVITIES
Decrease in bank loans - (34,017)
Decrease in other long-term liabilities (176) (198)
Issuance of shares under stock option plan 170 -
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Cash used in financing activities (6) (34,215)
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Net increase (decrease) in cash and cash
equivalents during period 4,435 (47,104)
Cash and cash equivalents, beginning of period 138,086 95,231
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Cash and cash equivalents, end of period 142,521 48,127
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See accompanying notes

Corus Entertainment Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
November 30, 2005
(in thousands of Canadian dollars except share information)

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The interim consolidated financial statements include the accounts of
Corus Entertainment Inc. and its subsidiaries ("Corus" or the
"Company"). The notes presented in these interim consolidated
financial statements include only significant events and transactions
occurring since the Company's last fiscal year and are not fully
inclusive of all matters normally disclosed in the Company's annual
audited financial statements. As a result, these interim consolidated
financial statements should be read in conjunction with the Company's
consolidated financial statements for the year ended August 31, 2005.

These interim consolidated financial statements follow the same
accounting policies and methods of application as the most recent
annual consolidated financial statements.

Corus' operating results are subject to seasonal fluctuations that
can significantly impact quarter-to-quarter operating results.
Accordingly, one quarter's operating results are not necessarily
indicative of a subsequent quarter's operating results. Each of our
broadcasting businesses (Radio and Television) and our Content
business has unique seasonal aspects.

For our broadcasting businesses, operating results are dependent on
general advertising and retail cycles associated with consumer
spending activity. Accordingly, operating results for the first
quarter tend to be the strongest, reflecting pre-Christmas
advertising activity and the second quarter tends to be the weakest,
consistent with lower consumer spending in winter months.

For our Content business, operating results are dependent on the
timing and number of television programs made available for delivery
in the period, as well as timing of merchandising royalties received,
none of which can be predicted with certainty. Consequently,
Content's operating results may fluctuate significantly from quarter
to quarter. As well, cash flows may also fluctuate and are not
necessarily closely related to revenue recognition.

2. FILM INVESTMENTS
As at As at
November August
30, 2005 31, 2005
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Projects in development and in process,
net of advances 23,008 15,876
Completed projects and distribution rights 26,992 28,796
Investments in third party film projects 14,198 13,745
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64,198 58,417
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3. BROADCAST LICENSES AND GOODWILL

During the first quarter, the Company completed the sale of two radio
stations to Newfoundland Capital Corporation for an aggregate $9,000
purchase price. There was a reduction of $3,840 and $4,063 in
broadcast licenses and goodwill, respectively, and an immaterial loss
was recorded on this disposition.

4. LONG-TERM DEBT
As at As at
November August
30, 2005 31, 2005
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Senior subordinated notes
Principal amount translated into Canadian
dollars at hedged rate 604,000 604,000
Unrealized cumulative foreign exchange gains (166,413) (158,838)
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Senior subordinated notes translated at
the current rate 437,587 445,162
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5. DEFERRED CREDITS
As at As at
November August
30, 2005 31, 2005
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Public benefits associated with acquisitions 19,484 21,209
Cross-currency agreements translated into
Canadian dollars at the current rate 166,413 158,838
Unearned revenue from distribution and
licensing of film rights 14,539 12,320
Other 3,559 3,422
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203,995 195,789
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6. SHARE CAPITAL

Authorized

The Company is authorized to issue, upon approval of holders of no
less than two-thirds of the existing Class A shares, an unlimited
number of Class A participating shares ("Class A Voting Shares"), as
well as an unlimited number of Class B non-voting participating
shares ("Class B Non-Voting Shares"), Class A Preferred Shares, and
Class 1 and Class 2 preferred shares.

Issued and Outstanding

The changes in the Class A Voting and Class B Non-Voting Shares since
August 31, 2005 are summarized as follows:

Class A Class B
Voting Shares Non-Voting Shares Total
------------------- -------------------
No. $ No. $ $
---------------------------------------------------------------------
Balance,
August 31, 2005 1,724,929 26,715 41,078,119 859,196 885,911
Issuance of shares
under Stock Option
Plan - - 6,748 170 170
---------------------------------------------------------------------
Balance,
November 30, 2005 1,724,929 26,715 41,084,867 859,366 886,081
---------------------------------------------------------------------
---------------------------------------------------------------------

There were no significant changes to the outstanding share capital
subsequent to quarter end.

Stock Option Plan

Under the Company's Stock Option 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.

During the first quarter of fiscal 2006, the Company granted
262,000 stock options with a weighted average exercise price of
$32.25 per share, and a term of seven and a half years. The weighted
average fair value of the stock options granted in the first quarter
of fiscal 2006 was $11.16 per option.

As at November 30, 2005, the Company has outstanding stock options
for 3,668,857 Class B Non-Voting Shares, of which 2,616,577 are
exercisable.

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:
Fiscal Fiscal
2006 2005
---------------------------------------------------------------------
Expected life 5 years 5 years
Risk-free interest rates 3.73% 4.31%
Dividend yield 0.31% 0.21%
Volatility 33.33% 35.98%
---------------------------------------------------------------------
---------------------------------------------------------------------

The estimated fair value of the options is amortized to income over
the option's vesting period on a straight-line basis. The Company has
recorded stock-based compensation expense for the first quarter of
$746 (2005 - $650) and this has been credited to contributed surplus.

For options granted to employees up to August 31, 2003, had
compensation costs for the Company's Stock Option 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:
Three months ended
November 30,
2005 2004
---------------------------------------------------------------------
Net income 31,407 29,077
Pro forma net income 31,115 28,593
Pro forma basic earnings per share $0.73 $0.67
Pro forma diluted earnings per share $0.72 $0.67
---------------------------------------------------------------------
---------------------------------------------------------------------

Long-term Incentive Plan

In fiscal 2006, the Company implemented a new long-term incentive
plan for senior management based on shareholder appreciation targets.
No expense was recorded in the first quarter in relation to this
plan.

7. BUSINESS SEGMENT INFORMATION

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

Radio

The Radio segment comprises 51 radio stations, situated primarily in
high growth urban centres in Canada. Revenues are derived from
advertising broadcast over these stations.

Television

The Television segment includes interests in several specialty
television networks, pay television, conventional television
stations, a digital music service and cable advertising services.
Revenues are generated from subscriber fees and advertising.

Content

The Content segment includes the production and distribution of
television programs and the sale and licensing of related products.
Revenues are generated from licensing of proprietary films and
television programs, merchandise licensing and publishing.

The 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 direct cost of sales, general and administrative
expenses. Transactions between reporting segments are recorded at
fair value.

(a) Revenues and segment profit

Three months ended November 30, 2005
Elimin- Consol-
Radio Television Content Corporate ations idated
---------------------------------------------------------------------
Revenues 72,392 108,840 15,719 - (1,610) 195,341
Direct cost of
sales, general
and administra-
tive expenses 50,529 56,811 15,195 4,785 (1,730) 125,590
---------------------------------------------------------------------
Segment profit 21,863 52,029 524 (4,785) 120 69,751
Depreciation 1,568 1,804 751 915 - 5,038
Amortization - 188 - 664 - 852
Interest on
long-term debt - - - 14,464 - 14,464
Other expense
(income), net 134 20 (2) (830) - (678)
---------------------------------------------------------------------
Income before
income taxes and
non-controlling
interest 20,161 50,017 (225) (19,998) 120 50,075
---------------------------------------------------------------------
---------------------------------------------------------------------

Three months ended November 30, 2004
Elimin- Consol-
Radio Television Content Corporate ations idated
---------------------------------------------------------------------
Revenues 65,533 98,520 18,928 - (2,381) 180,600
Direct cost of
sales, general
and administra-
tive expenses 44,509 53,575 18,806 3,623 (2,278) 118,235
---------------------------------------------------------------------
Segment profit 21,024 44,945 122 (3,623) (103) 62,365
Depreciation 1,678 2,117 653 971 - 5,419
Amortization - 465 - 700 - 1,165
Interest on
long-term debt - - - 13,592 - 13,592
Other expense
(income), net (80) 185 288 (6,755) - (6,362)
---------------------------------------------------------------------
Income before
income taxes and
non-controlling
interest 19,426 42,178 (819) (12,131) (103) 48,551
---------------------------------------------------------------------
---------------------------------------------------------------------

The corporate segment represents the incremental cost of corporate
overhead in excess of the amount allocated to the other operating
segments.

(b) Segment assets
As at As at
November August
30, 2005 31, 2005
---------------------------------------------------------------------
Radio 712,109 713,427
Television 919,116 878,323
Content 140,224 145,947
Corporate 196,832 191,963
Eliminations (1,237) (1,296)
---------------------------------------------------------------------
1,967,044 1,928,364
---------------------------------------------------------------------
---------------------------------------------------------------------

Assets are located primarily within Canada.

8. FINANCIAL INSTRUMENTS

Fair values

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

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 November 30, 2005, the fair value of the Company's Notes was
U.S.$397,500 (August 31, 2005 - U.S.$403,125).

Derivative financial instruments

The estimated fair values of these agreements are as follows:

November 30, 2005 August 31, 2005
--------------------- ---------------------
Carrying Estimated Carrying Estimated
value fair value value fair value
---------------------------------------------------------------------
Cross-currency
agreements (166,413) (245,054) (158,838) (242,005)
---------------------------------------------------------------------
---------------------------------------------------------------------

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.

9. EARNINGS PER SHARE

The following is a reconciliation of the numerator and denominators
(in thousands) used for the computation of the basic and diluted
earnings per share amounts.

Three months ended
November 30,
2005 2004
---------------------------------------------------------------------
Net income for the period (numerator) 31,407 29,077
---------------------------------------------------------------------
---------------------------------------------------------------------

Weighted average number of shares
outstanding (denominator)
Weighted average number of shares
outstanding - basic 42,808 42,739
Effect of dilutive securities 579 83
---------------------------------------------------------------------
Weighted average number of shares
outstanding - diluted 43,387 42,822
---------------------------------------------------------------------
---------------------------------------------------------------------

10. CONSOLIDATED STATEMENTS OF CASH FLOWS

Interest paid, interest received and income taxes paid and classified
as operating activities are as follows:
Three months ended
November 30,
2005 2004
---------------------------------------------------------------------
Interest paid 28,451 26,847
Interest received 1,052 654
Income taxes paid 6,631 12,095
---------------------------------------------------------------------
---------------------------------------------------------------------

11. FOREIGN EXCHANGE GAINS AND LOSSES

The Company has reflected certain gains and losses in its
consolidated statements of income and retained earnings (deficit) as
a result of exposure to foreign currency exchange rate fluctuations.
A portion of these gains and losses relate to operating activities
while other portions are of a financing nature. Foreign exchange
gains and losses are reflected in the consolidated financial
statements as follows:
Three months ended
November 30,
2005 2004
---------------------------------------------------------------------
Direct cost of sales, general and
administrative expenses 295 (1,071)
Other income, net 211 (3,947)
---------------------------------------------------------------------
Total foreign exchange loss (gains) 506 (5,018)
---------------------------------------------------------------------
---------------------------------------------------------------------

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

---------------------------------------------------------------------
Balance, August 31, 2005 (10,009)
Effect of exchange rate fluctuation on translation
of net assets of self-sustaining foreign operations (568)
---------------------------------------------------------------------
Balance, November 30, 2005 (10,577)
---------------------------------------------------------------------
---------------------------------------------------------------------

12. SUBSEQUENT EVENTS

On December 15, 2005 the Company announced that it had commenced a
cash tender offer and consent solicitation for its outstanding
U.S.$375.0 million aggregate principal amount of 8.75% Senior
Subordinated Notes due 2012. The consent solicitation was successful
prior to its expiry on December 29, 2005. The tender offer expires on
January 20, 2006.

On December 15, 2005 the Company announced its intention to make a
Normal Course Issuer Bid for its Class B Non-Voting Participating
Shares through the facilities of the TSX. On December 29, 2005 the
TSX confirmed its acceptance of the notice of intention.

13. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS

Certain comparative consolidated amounts have been reclassified from
those previously presented to conform to the presentation of the
fiscal 2006 consolidated financial statements.

Source: Corus Entertainment Inc.

CONTACT: John Cassaday, President and Chief Executive Officer, Corus
Entertainment Inc., (416) 642-3770; Tom Peddie, Senior Vice President and
Chief Financial Officer, Corus Entertainment Inc., (416) 642-3780; Tracy
Ewing, Vice President, Communications, Corus Entertainment Inc.,
(416) 642-3792

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