Cogeco Câble inc.
TSX : CCA

October 26, 2007 18:37 ET

Strong Fourth Quarter and Year-End Financial and Operational Results for Cogeco Cable

MONTREAL, QUEBEC--(Marketwire - Oct. 26, 2007) - Today, Cogeco Cable Inc. (TSX:CCA) announced its financial results for the fourth quarter and fiscal year 2007 ended August 31, 2007.

Strong operating results in both Canada and Portugal have contributed to solid financial results.

For the fourth quarter and the full year:

- Consolidated revenue grew 39.7% to $244.3 million and 51.4% to $938.9 million, respectively (essentially in line with July 2007 guidelines);

- Consolidated operating income before amortization increased 40.6% to $102.4 million and 46.6% to $370.8, million respectively (above July 2007 guidelines);

- Consolidated net income for the year amounted to $84.7 million up 29.2% and free cash flow reached $30.6 million (above July 2007 guidelines);

- Strong subscriber growth continued with 49,576 net additions of revenue-generating units reaching 300,688 in fiscal 2007 (above July 2007 guidelines);

- Second public offering in fiscal 2007 of 3,000,000 subordinate voting shares resulted in a gross proceed of $153,450,000;

- New Canadian operational structure was put in place to enable a stronger synergy throughout our Canadian operations.

"Financially, Cogeco Cable's fourth quarter results were very positive. We are well positioned to address the needs of our customers in the markets we serve, said Louis Audet, President and CEO of Cogeco Cable. The relevance of our strategy has been recognized by the financial markets and the stock has continued to perform very well. Our new management structure will enable the Canadian operations to develop better synergies and therefore will have a positive impact in the way we deliver our services. Our balance sheet is solid and we are looking forward to achieving a strong fiscal 2008."



FINANCIAL HIGHLIGHTS

Quarters ended Years ended
($000s, except August 31, August 31,
percentages and per (unaudited) (audited)
share data) 2007 2006 % Change 2007 2006 % Change
---------------------------------------------------------------------------
Revenue $244,314 $174,875 39.7 $938,880 $620,001 51.4

Operating income
before
amortization 102,426 72,864 40.6 370,753 252,978 46.6

Net income 36,368 33,987 7.0 84,691 65,556 29.2

Cash flow from
operations (1) 83,825 56,714 47.8 284,565 194,739 46.1
Less:
Capital
expenditures
and increase in
deferred charges 68,964 53,279 29.4 254,008 164,446 54.5
------ ------ ------- -------
Free cash flow (1) 14,861 3,435 30,557 30,293

Per share data
Basic net income $0.79 $0.85 (7.1) $1.96 $1.64 19.5

(1) Cash flow from operations and free cash flow do not have standard
definitions prescribed by Canadian generally accepted accounting
principles (GAAP) and should be treated accordingly. For more
details, please consult the "non-GAAP financial measures" section.


FORWARD-LOOKING STATEMENT

Certain statements in this press release may constitute forward-looking information within the meaning of securities laws. Forward-looking information may relate to our future outlook and anticipated events, our business, our operations, our financial performance, our financial condition or our results and, in some cases, can be identified by terminology such as "may"; "will"; "should"; "expect"; "plan"; "anticipate"; "believe"; "intend"; "estimate"; "predict"; "potential"; "continue"; "foresee", "ensure" or other similar expressions concerning matters that are not historical facts. In particular, statements regarding our future operating results and economic performance and our objectives and strategies are forward-looking statements. These statements are based on certain factors and assumptions, including expected growth, results of operations, performance and business prospects and opportunities, which we believe are reasonable as of the current date. While we consider these assumptions to be reasonable based on information currently available to us, they may prove to be incorrect. Forward-looking information is also subject to certain factors, including risks and uncertainties (described in "Uncertainties and main risk factors" of the Corporation's 2006 annual MD&A that could cause actual results to differ materially from what we currently expect. These factors include technological changes, changes in market and competition, governmental or regulatory developments, general economic conditions, the development of new products and services, the enhancement of existing products and services, and the introduction of competing products having technological or other advantages, many of which are beyond our control. Therefore, future events and results may vary significantly from what we currently foresee. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While we may elect to, we are under no obligation (and expressly disclaim any such obligation) and do not undertake to update or alter this information before next quarter.

This analysis should be read in conjunction with the Corporation's financial statements, and the notes thereto, prepared in accordance with Canadian GAAP and the MD&A included in the Corporation's 2006 Annual Report. Throughout this discussion, all amounts are in Canadian dollars unless otherwise indicated.

MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)


CORPORATE STRATEGIES AND OBJECTIVES

Cogeco Cable's objectives are to improve profitability and create shareholder value. The strategies for reaching those objectives are constant corporate growth through the diversification and the improvement of products and services as well as clientele and territories; effective management of capital; and tight cost control and business processes. The Corporation measures its performance, with regard to these objectives, with revenue growth, RGU(1) growth and free cash flow(2). Below are the recent achievements in furtherance of Cogeco Cable's objectives.

Continuous improvement of the service offering and expansion of the customer base



Canadian operations

- Digital Television services:
- On June 5, addition of six high definition (HD) channels in
its HD line-up in Quebec;
- On July 17, addition of WGN HD to its HD line-up in Ontario;
- On September 4, addition of Setanta International Sports Pak
to its digital line-up;
- On September 25, addition of MTV to its digital line-up in Quebec;
- On October 3, addition of RDS HD to its HD line-up in Quebec;
- On October 11, addition of Leafs TV HD to its HD line-up in Ontario.
- Telephony service:
- New International calling service with a supplier of choice;

Portuguese operations
- Cabovisao - Televisao por Cabo, S.A. (Cabovisao) launched its
Digital Television service in July 2007.
- Growth of Basic Cable service by 4,756 customers.


Continuous improvement of networks and equipment

- During fiscal 2007, the Corporation has invested approximately $102 million in its infrastructure including headends and upgrade/rebuild.

Effective management of capital

- On August 9, the Corporation announced the completion of a 3,000,000 subordinate voting shares issue. The net proceed of $146.9 million was used to reduce long-term indebtedness.

Tight control over costs, business processes

- For the fourth quarter 2007, Canadian operating costs, excluding management fees, increased by 18.6%, essentially in line with revenue growth of 19.3% during this period;

- The design of internal controls over financial reporting as per National Instrument 52-109 is well underway. As discussed in the 2006 annual MD&A, the Corporation had identified certain material weaknesses in the design of internal controls over financial reporting and there have been improvements in the design of internal controls on some significant processes during the year. The documentation and remediation of internal controls weaknesses are progressing normally.

(1) See the "Customer statistics" section for detailed explanations.

(2) See the "non-GAAP financial measures" section for explanations.

RGU growth

During fiscal 2007, the consolidated number of RGUs increased by 13.8% to reach almost 2.5 million units. In the third quarter of fiscal 2007, the Corporation revised its guidelines and anticipated RGU growth of 13% to 14% for all of fiscal 2007. With better-than-anticipated High Speed Internet (HSI), Basic Cable and Telephony customer growth, Cogeco Cable reached the upper end of its most recent 2007 guidelines.

Revenue growth

During fiscal 2007, revenue increased by $318.9 million, or 51.4%, to reach $938.9 million, mainly due to the consolidation of the full-year operating results of Cabovisao and to RGU growth in Canada. In its third quarter of fiscal 2007, the Corporation revised its 2007 guidelines and expected to achieve revenue growth between 51% and 52%.

Free cash flow

In the fourth quarter of fiscal 2007, Cogeco Cable generated free cash flow of $14.9 million, compared to $3.4 million for the same period last year, as a result of an increase in operating income before amortization outpacing the increase in financial expense and in capital expenditures and deferred charges for the Canadian operations as well as the consolidation of the financial results of Cabovisao for the three-month period compared to only one month for the same period last year. For fiscal 2007, the Corporation increased its capital expenditures in order to sustain RGU growth and build an inventory of home terminal devices to sustain growth for the forthcoming period. This strategy generated free cash flow of $30.6 million in fiscal 2007 compared to $30.3 million the year before. Capital expenditures and deferred charges amounted to $254 million for the year ended August 31, 2007, of which $211.4 million was intended to support Canadian operations and the remainder was earmarked for the Portuguese operations. The Corporation surpassed its 2007 free cash flow revised guidelines of $20 million announced in the third quarter of fiscal 2007.



OPERATING RESULTS - CONSOLIDATED OVERVIEW


Quarters ended Years ended
August 31, August 31,
($000s, except (unaudited) (audited)
percentages) 2007 2006(1) % Change 2007 2006(1) % Change
---------------------------------------------------------------------------
Revenue $244,314 $174,875 39.7 $938,880 $620,001 51.4

Operating
costs 141,888 102,011 39.1 559,559 358,631 56.0

Management fees
- COGECO Inc. - - 8,568 8,392 2.1

Operating income
before
amortization 102,426 72,864 40.6 370,753 252,978 46.6

Operating
margin 41.9% 41.7% 39.5% 40.8%

(1) Include operating results of Cabovisao since the date of acquisition of
control on August 1, 2006.


Revenue

In the fourth quarter of fiscal 2007, consolidated revenue grew by $69.4 million, or 39.7%, to reach $244.3 million and, for fiscal 2007, by $318.9 million, or 51.4%, to reach $938.9 million. For the fourth quarter 2007, revenue increased at a lower pace than that of fiscal 2007. This is mainly due to the consolidation of the three-month period of the Portuguese operations financial results compared to a one-month period in 2006. Canadian operations revenue, driven by an increased number of customers in Basic Cable, HSI, Telephony and Digital Television services as well as rate increases, went up by $30.4 million, or 19.3%, in the fourth quarter and by $110.9 million, or 18.4%, for fiscal 2007. Portuguese operations revenue amounted to $55.9 million for the fourth quarter of fiscal 2007 and to $224.8 million for fiscal 2007 compared to a one-month period in 2006 of $16.9 million.

Operating costs

For the fourth quarter and fiscal 2007, operating costs excluding management fees payable to COGECO Inc., increased by $39.9 million, or 39.1%, and by $201 million, or 56%, to reach $141.9 million and $559.6 million, respectively. For the fourth quarter 2007, operating costs increased at a lower pace than that of fiscal 2007. This situation is mainly due to the consolidation of the financial results of the 2007 three-month period of the Portuguese operations compared to a one-month period in 2006. For fiscal 2007, operating costs increased mainly as a result of the inclusion of the operating costs of Cabovisao and the servicing of additional RGUs, including the increased penetration of Telephony service in Canada.

Operating income before amortization

For the fourth quarter and fiscal 2007, operating income before amortization increased by $29.6 million, or 40.6%, to reach $102.4 million and by $117.8 million, or 46.6%, to reach $370.8 million, respectively, as a result of RGU growth, the consolidation of the Portuguese operations and various rate increases outpacing operating cost increases. Cogeco Cable's fourth quarter 2007 operating margin increased to 41.9% from 41.7% due to rate increases implemented during the third quarter of fiscal 2007 and the improvement of the operating margin of the Portuguese operations from 29.5% in 2006 to 37.3% in the fourth quarter of fiscal 2007. For fiscal 2007, the operating margin declined to 39.5% from 40.8% as a result of the Telephony deployment in Canada and the consolidation of the twelve-month period of the Portuguese operations' lower operating margin. The operating margin for fiscal 2007 is slightly higher than management's third quarter revised guidelines.

RELATED PARTY TRANSACTIONS

Cogeco Cable is a subsidiary of COGECO Inc., which holds 32.5% of the Corporation's equity shares, representing 82.8% of the votes attached to the Corporation's voting shares. Under a management agreement, the Corporation pays COGECO Inc. monthly management fees equal to 2% of its total revenue for certain executive, administrative, legal, regulatory, strategic and financial planning, and additional services. In 1997, management fees were capped at $7 million per year, subject to annual upward adjustments based on increases in the Consumer Price Index in Canada. Accordingly, for fiscal 2007, management fees have been set at a maximum of $8.6 million, which was reached in the second quarter, and therefore, no management fees were paid in the third and fourth quarter of fiscal 2007. For fiscal 2006, management fees were set at a maximum of $8.4 million fully paid during the first nine month period. Furthermore, Cogeco Cable granted 319,647 stock options to COGECO's employees during fiscal 2007, compared to 31,743 for the same period last year. Of these 319,647 stock options, 262,400 are conditional on the achievement of certain yearly financial objectives by the Portuguese subsidiary, Cabovisao, over a period of three years. During the fourth quarter of fiscal 2007, Cogeco Cable charged COGECO Inc. an amount of $0.3 million for fiscal 2007 with regards to Cogeco Cable's options granted to COGECO's employees. Details regarding the management agreement and stock options granted to COGECO Inc.'s employees are provided in the MD&A of the Corporation's 2006 annual report. There were no other material related party transactions during the fourth quarter and fiscal year ended August 31, 2007 and 2006.



FIXED CHARGES

Quarters ended Years ended
August 31, August 31,
($000s, except (unaudited) (audited)
percentages) 2007 2006 % Change 2007 2006 % Change
--------------------------------------------------------------------------

Amortization $54,164 $34,801 55.6 $189,323 $120,782 56.7

Financial
expense 18,524 16,374 13.1 84,569 57,366 47.4


For the fourth quarter and fiscal 2007, amortization amounted to $54.2 million and $189.3 million respectively, compared to $34.8 million and $120.8 million for the same periods last year. The increase in amortization expense for both periods of fiscal 2007 compared to fiscal 2006 is due to several factors: the consolidation of the financial results of the Portuguese operations in 2007 while it was only applicable for one month in 2006; the amortization resulting from the completion of the purchase price allocation of the Cabovisao acquisition, including the valuation of the tangible assets and intangible assets; as well as increased capital expenditures arising from the required customer premise equipment to sustain RGU growth, scalable infrastructure, upgrade/rebuild, support capital and deferred charges for the Canadian operations.

During the fourth quarter and fiscal 2007, financial expense increased by $2.2 million and $27.2 million respectively, compared to the same periods in fiscal 2006. This is due to the higher level of Indebtedness (defined as bank indebtedness and long-term debt) required to finance the acquisition of the Portuguese subsidiary, Cabovisao.

INCOME TAXES

For the fourth quarter of fiscal 2007, income tax recoveries amounted to $6.6 million compared to a recovery of $12.3 million in fiscal 2006. The recovery has reduced mainly as a result of a non-cash adjustment of $14.7 million in fiscal 2007 compared to a non-cash adjustment of $20 million recorded in fiscal 2006. Excluding these adjustments, the 2007 fourth quarter income taxes increased due to higher operating income before amortization net of fixed charges. For fiscal 2007, income taxes amounted to $12.2 million compared to $9.3 million last year. This increase was mainly due to the operating income before amortization growing faster than the increase in fixed charges for the Canadian operations. The increase in income taxes for fiscal 2007 was partly offset by the elimination of Canadian federal capital tax on January 1, 2006 and by non-cash adjustments of $16.2 million related to the recognition of benefits from prior years' income tax losses, minimum income tax paid and a reduction of Canadian federal enacted income tax rate effective in January 2011. For fiscal 2006, a non-cash adjustment of $20 million was also recorded to reduce future income taxes due to the announcement, by the Canadian federal government, to reduce the corporate income tax rate progressively from 21% to 19% effective in January 2010 and to eliminate the corporate surtax of 1.12% on January 1, 2008. Excluding income tax adjustments for both years, income taxes would have amounted to $28.4 million in fiscal 2007 compared to $29.3 million in fiscal 2006.

NET INCOME

Net income for the fourth quarter amounted to $36.4 million, or $0.79 per share, compared to $34 million, or $0.85 per share, for the same period last year. Net income for the fourth quarter of both fiscal 2007 and fiscal 2006 included non-recurring adjustments of $14.7 million and $20 million of income taxes, respectively. For fiscal 2007, net income amounted to $84.7 million, or $1.96 per share, compared to $65.6 million, or $1.64 per share, for fiscal 2006. For the fourth quarter 2007, net income excluding income tax adjustments would have amounted to $21.6 million, or $0.47 per share, compared to $14 million, or $0.35 per share, for the fourth quarter 2006. For fiscal 2007, net income excluding income tax adjustments would have stood at $68.5 million, or $1.58 per share, compared to a net income of $45.6 million, or $1.14 per share, for fiscal 2006. Net income increases in the fourth quarter and fiscal 2007, excluding income tax adjustments described above, were attributable to the growth in operating income before amortization outpacing the fixed charge increases.


CASH FLOW AND LIQUIDITY



Quarters ended August 31, Years ended August 31,
(unaudited) (audited)
($000s) 2007 2006 2007 2006
---------------------------------------------------------------------------
Operating Activities
Cash flow from
operations $83,825 $56,714 $284,565 $194,739
Changes in non-cash
operating items 28,790 50,495 (72,755) 1,051
---------------------------------------------------------------------------
$112,615 $107,209 $211,810 $195,790
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Investing
Activities (1) $(68,778) $(630,523) $(248,579) $(739,022)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Financing
Activities (1) $(2,042) $595,543 $28,218 $615,400
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net change in cash
and cash
equivalents $41,795 $72,229 $(8,551) $72,168
Effect of exchange
rate changes on cash
and cash equivalents
denominated in
foreign currencies (243) (713) 1,243 (713)
Cash and cash
equivalents at
beginning 22,656 - 71,516 61
---------------------------------------------------------------------------
Cash and cash
equivalents at end $64,208 $71,516 $64,208 $71,516
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(1) Excludes assets acquired under capital leases.


During the fourth quarter 2007, cash flow from operations reached $83.8 million, 47.8% higher than for the comparable period last year, primarily due to the increase in operating income before amortization, partly offset by the increase in financial expense. Changes in non-cash operating items generated lower cash inflows compared to the same period last year, mainly as a result of a decrease in accounts payable and accrued liabilities from non-recurring payments made by the Portuguese subsidiary in accordance with the terms of the acquisition.

During fiscal 2007, cash flow from operations reached $284.6 million, an increase of 46.1% compared to the same period the year before, primarily due to the growth in operating income before amortization, partly offset by the increase in financial expense. Changes in non-cash operating items generated $72.8 million of cash outflows compared to a cash inflow of $1.1 million for the same period last year, mainly as a result of a decrease in accounts payable and accrued liabilities from non recurring payments made by the Portuguese subsidiary in accordance with the terms of the acquisition. Increases in accounts receivable and income tax receivable, partly offset by an increase in deferred and prepaid income, have also contributed to increase fiscal 2007 cash outflows.

Acquisition of Cabovisao - Televisao por Cabo, S.A.

On June 2, 2006, the Corporation entered into an agreement with Cable Satisfaction International Inc. ("CSII"), Catalyst Fund Limited Partnership I and Cabovisao, to purchase, for a total consideration of 461.8 million EUR ($667.5 million), all the shares of the second largest cable telecommunications company in Portugal, an indirect wholly-owned subsidiary of CSII. The price included the purchase of senior debt and reimbursement of certain other Cabovisao liabilities. The acquisition was completed on August 1, 2006. The final purchase price was determined following completion of a post-closing working capital adjustment that occurred on March 9, 2007. According to the agreement, the final purchase price was reduced by an amount of 2.2 million EUR($3.4 million). The acquisition was accounted for using the purchase method. The results of Cabovisao have been consolidated as of the acquisition date.

Management has completed its valuations of tangible and intangible assets acquired and liabilities assumed and the final allocation is as follows:



--------------------------------------------------------------------------
--------------------------------------------------------------------------
(amounts are in thousands of dollars) $
--------------------------------------------------------------------------
Consideration Paid
Purchase of shares 304,188
Working capital adjustment (3,371)
Secured lenders debt and certain specified Cabovisao liabilities 274,761
Acquisition costs 6,299
--------------------------------------------------------------------------
581,877
--------------------------------------------------------------------------
Net assets acquired
Cash and cash equivalents 5,711
Restricted cash 489
Accounts receivable 16,570
Prepaid expenses 1,324
Fixed assets 323,796
Customer relationships 71,684
Goodwill 344,004
Accounts payable and accrued liabilities assumed (60,433)
Other specified Cabovisao liabilities assumed (91,914)
Future income tax liabilities (29,354)
--------------------------------------------------------------------------
581,877
--------------------------------------------------------------------------


The final allocation resulted in an increase in fixed assets of $36,144,000, an increase in customer relationships of $71,684,000 and an increase in future income tax liabilities of $29,354,000, as well as a decrease in accounts payable and accrued liabilities assumed of $4,849,000. The net impact of these adjustments, combined with the reduction of the purchase price, reduced goodwill by $87,020,000.

Also, in accordance with the Portuguese Companies Income Tax Code (CIRC), accumulated tax losses can not be deducted if the ownership of at least 50% of the social capital changes from the moment when the tax losses were generated, unless an authorization is granted before such change in the ownership takes place. To this effect, a request for preservation of tax losses was filed by Cabovisao on July 28, 2006 and Cabovisao has not yet received a reply. Consequently, the tax benefits of these losses have not been included in the purchase price allocation, but will be recognized as a reduction of goodwill upon realisation.

Investing activities, including capital expenditures are segmented according to the National Cable Television Association (NCTA) standard reporting categories as follows:



Quarters ended August 31, Years ended August 31,
(unaudited) (audited)
($000s) 2007 2006 2007 2006
---------------------------------------------------------------------------

Customer Premise
Equipment (1) $22,004 $16,011 $98,192 $59,441
Scalable
Infrastructure 11,692 10,195 43,392 25,298
Line Extensions 3,366 3,756 11,164 11,205
Upgrade / Rebuild 16,673 11,221 58,640 39,709
Support Capital 4,445 3,167 12,578 8,186
---------------------------------------------------------------------------
Total Capital
Expenditures (2) $58,180 $44,350 $223,966 $143,839
---------------------------------------------------------------------------
Deferred charges
and others 10,763 8,919 29,553 20,559
---------------------------------------------------------------------------
Business acquisition
and adjustments 629 577,431 (1,265) 577,431
---------------------------------------------------------------------------
Decrease (increase)
in restricted cash (503) 91 (591) 91
---------------------------------------------------------------------------
Total investing
activities $69,069 $630,791 $251,663 $741,920
---------------------------------------------------------------------------

(1) Includes mainly new and replacement drops as well as home terminal
devices.
(2) Includes capital leases, which are excluded from the statements of
cash flow.


Capital expenditures increased during the fourth quarter and fiscal 2007 compared to last year mainly as a result of the following factors:

- The capital expenditures from the Portuguese operations amounted to $12.6 million and $41.6 million for the fourth quarter and fiscal 2007, respectively, essentially to support RGU growth and the early stage of deployment of the Digital Television service.

- In Canada, the customer premise equipment expenditures increased as a result of a greater demand for HSI and Telephony services, from a rise in the number of HD terminals and from a greater ratio of digital terminals per digital home.

- The growth in capital expenditures for scalable infrastructure was mainly attributable to the support of the Telephony service rollout for the Canadian operations.

- The increase in capital expenditures associated with the network upgrade and rebuild program for the Canadian operations was due to the acceleration of the program to expand the bandwidth to 750 MHz and 550 MHz for the Ontario and Quebec networks, respectively, and to improve network reliability. An increase in the number of households with access to two-way service was also a factor and the percentage of customers with access to two-way service rose from 93% as at August 31, 2006 to 94% as at August 31, 2007.

In the fourth quarter and fiscal 2007, deferred charges increased as a result of higher reconnect costs attributable to the significant level of RGU growth.

In the fourth quarter of fiscal 2007, the Corporation generated free cash flow of $14.9 million compared to $3.4 million the preceding year. For fiscal 2007, the Corporation generated free cash flow of $30.6 million compared to $30.3 million for the same period the year before. The fourth quarter and fiscal 2007 free cash flow increases over the same periods last year are due to the growth in operating income before amortization, partly offset by a higher level of capital expenditures and deferred charges to serve RGU growth and to support Telephony service rollout and the increase in financial expense.

On August 9, 2007, the Corporation announced the completion of a public offering of 3,000,000 subordinate voting shares for a gross proceed of $153.5 million. The offering resulted in a net proceed to Cogeco Cable of approximately $146.9 million, which was used to reduce long-term indebtedness.

During the fourth quarter of fiscal 2007, the level of Indebtedness decreased by $146.5 million. The decrease in the level of Indebtedness is due to the repayment of Term Facility using the public offering net proceeds of $146.9 million, the generated free cash flow of $14.9 million and the increase of $28.8 million in non-cash operating items, partly offset by the net increase of $41.6 million in cash and cash equivalents. For the same period last year, Indebtedness increased by $607.2 million due to the Cabovisao acquisition, the increase in cash and cash equivalents of $71.5 million and the fees related to the new Term Facility of $900 million, partly offset by an increase in non-cash operating items of $50.5 million. In addition, a dividend of $0.08 per share for subordinate and multiple voting shares, totalling $3.6 million, was paid during the fourth quarter of fiscal 2007 compared to a dividend of $0.04 per share or $1.6 million for the fourth quarter of fiscal 2006.

During fiscal 2007, the level of Indebtedness decreased by $299.6 million. The decrease in the level of Indebtedness is due essentially to the completion of two public offerings totalling 8,000,000 subordinate voting shares for net proceeds of approximately $331.1 million that were used to reimburse the Second Secured Debentures Series A and a portion of the Term Facility, the generated free cash flow of $30.6 million and a reduction of $7.3 million in cash and cash equivalents, partly offset by a decline of $72.8 million in non-cash operating items. For the same period last year, Indebtedness grew by $631.7 million due to the acquisition of Cabovisao completed in the fourth quarter, the increase in cash and cash equivalents of $71.5 million and the fees related to the new Term Facility of $900 million, partly offset by generated free cash flow of $30.3 million. In addition, dividends totalling $10.3 million were paid during fiscal 2007 compared to $6.4 million for the same period the year before.

As at August 31, 2007, the working capital deficiency was reduced by an amount of $194.2 million compared to August 31, 2006, mainly as a result of the net proceeds of the share issuances being used to reimburse the Second Secured Debentures Series A and to the repayment of certain suppliers subsequent to the Cabovisao acquisition. Cogeco Cable maintains a working capital deficiency due to a low level of accounts receivable since the majority of the Corporation's customers pay before their services are rendered, contrary to accounts payable and accrued liabilities, which are paid after products or services are rendered. In addition, the Corporation generally uses cash and cash equivalents to reduce Indebtedness.

As at August 31, 2007, the Corporation had used $458.5 million of its $900 million Term Facility.

FINANCIAL POSITION

Since August 31, 2006, there have been major changes to "Fixed assets", "Goodwill", "Intangible assets", "Accounts receivable", "Accounts payable and accrued liabilities", "Cash and cash equivalents", "Foreign currency translation adjustment", "Future income tax liabilities", "Future income tax assets", "Indebtedness" and "Capital stock".

The $98 million rise in fixed assets is mainly related to increased capital expenditures to sustain RGU growth and by the appreciation of the euro currency over the Canadian dollar. The decrease of $79.5 million in goodwill stems from the completion of the purchase price allocation of the acquisition of Cabovisao, which gave rise to the valuation at the amount of $71.7 million of intangible assets, partly offset by the appreciation of the euro currency over the Canadian dollar. The $3.2 million increase in accounts receivable is essentially due to an increase in the general level of receivables related to the revenue growth and to the appreciation of the euro currency over the Canadian dollar. The $72.6 million and $7.3 million reductions in accounts payable and accrued liabilities and cash and cash equivalents respectively, are related to payments made with regards to the acquisition of Cabovisao. The $1.3 million increase in foreign currency translation adjustment is the result of the appreciation of the euro currency over the Canadian dollar. The $48.4 million increase in future income tax liabilities is mainly due to the recognition of future income taxes of $29.4 million related to intangible assets and to the difference between fair market value and net book value of tangible assets acquired in Portugal, and by the growth in operating income before amortization for the Canadian operations. The $18 million in future income tax assets is related to non-capital loss carryforwards for the Canadian operations that will benefit the Corporation in the coming year. Finally, Indebtedness decreased by $289.1 million and capital stock increased by $353.9 million as a result of the factors previously discussed in the "Cash Flow and Liquidity" section.

A description of Cogeco Cable's share data as of September 30, 2007 is presented in the table below:



Number of Amount
shares/options ($000s)
-----------------------------------------------------------
Common Shares
Multiple voting shares 15,691,100 98,346
Subordinate voting shares 32,663,587 886,059

Options to Purchase
Subordinate Voting Shares
Outstanding options 942,714
Exercisable options 239,067


The number of outstanding options has increased significantly during fiscal 2007. With regards to the acquisition of Cabovisao, the Corporation granted 376,000 conditional stock options with an exercise price of $26.63. These options vest over a period of three years beginning one year after the day such options are granted and are exercisable over ten years. The vesting of these options is conditional to the achievement of certain yearly financial objectives by the Portuguese subsidiary over a period of three years.

In the normal course of business, Cogeco Cable has incurred financial obligations, primarily in the form of long-term debt, operating and capital leases and guarantees. Cogeco Cable's obligations, discussed in the 2006 annual MD&A, have not materially changed since August 31, 2006 except for the repayment of the $125 million Second Secured Debentures Series A and the partial repayment of approximately $175 million of the $900 million Term Facility discussed in the "Cash Flow and Liquidity" section. Furthermore, during the second quarter of fiscal 2007, the Corporation has guaranteed the payment by Cabovisao of certain taxes for municipal rights of way assessed by the Municipality of Seixal in Portugal for the years 2004 and 2005, totalling 5.7 million EUR(the "Tax Amounts"), which are currently being challenged by Cabovisao. Trustworthy financial guarantees were required under applicable Portuguese law in order for Cabovisao to challenge the Tax Amounts and withhold payment thereof until a final judgement, no longer subject to appeal, is rendered by the Portuguese courts having jurisdiction in this matter. As a result, the Corporation may be required to pay, upon written demand by the Municipality of Seixal, the required amounts following final judgement, up to a maximum aggregate amount of 5.7 million EUR, should Cabovisao fail to pay such required amounts.

DIVIDEND DECLARATION

At its October 26, 2007 meeting, the Board of Directors of Cogeco Cable declared a quarterly eligible dividend of $0.10 per share for subordinate and multiple voting shares, an increase of 25%, payable on November 23, 2007, to shareholders of record on November 9, 2007.

FOREIGN EXCHANGE MANAGEMENT

Cogeco Cable has entered into cross-currency swap agreements to set the liability for interest and principal payments on its US$150 million Senior Secured Notes. These agreements have the effect of converting the U.S. interest coupon rate of 6.83% per annum to an average Canadian dollar fixed interest rate of 7.254% per annum. The exchange rate applicable to the principal portion of the debt has been fixed at CAN$1.5910. Amounts due under the US$150 million Senior Secured Notes Series A decreased by CAN$7.4 million at the end of the fourth quarter compared to August 31, 2006 due to the Canadian dollar's appreciation. Since the Senior Secured Notes Series A are fully hedged, the fluctuation is offset by a variation in deferred credit as described in Note 8 of the fourth quarter 2007 interim financial statements. The CAN$80.2 million deferred credit represents the difference between the quarter-end exchange rate and the exchange rate on the cross-currency swap agreements, which determine the liability for interest and principal payments on the Senior Secured Notes Series A.

As noted in the MD&A of the 2006 annual report, the Corporation's net investments in self-sustaining foreign subsidiaries, are exposed to market risk attributable to fluctuations in foreign currency exchange rates, primarily changes in the values of the Canadian dollar versus the euro. This risk is mitigated since the major part of the purchase price for Cabovisao was borrowed directly in euros. This debt is designated as a hedge of net investments in self-sustaining foreign subsidiaries and, accordingly, the Corporation realized a foreign exchange gain of CAN$1.3 million in fiscal 2007, which is deferred and recorded in the foreign currency translation adjustment. The exchange rate used to convert the euro currency into Canadian dollars for the balance sheet accounts as at August 31, 2007 was $1.4390 per euro compared to $1.4156 per euro as at August 31, 2006. The average exchange rates prevailing during the fourth quarter and fiscal 2007 used to convert the operating results of the Portuguese operations were $1.4374 per euro and $1.4803 per euro, respectively.



CANADIAN OPERATIONS

CUSTOMER STATISTICS

Net additions % of
(losses) Penetration(1)(4)

Fourth Quarters Fiscal Years August 31,
--------------------------------------------------------------------------
August 31,
2007 2007 2006 2007 2006 2007 2006
--------------------------------------------------------------------------
RGUs(2) 1,788,508 39,656 44,243 232,572 208,203 - -
Basic Cable
service
customers 849,157 (2,627) 685 15,980 11,744 - -
HSI service
customers(3) 415,836 12,363 12,601 72,756 65,432 52.2 44.3
Digital
Television
service
customers 379,879 8,747 10,563 52,515 80,160 45.8 40.0
Telephony service
customers 143,636 21,173 20,394 91,321 50,867 21.7 10.4


(1) As a percentage of Basic Cable service customers in areas served.
(2) Represent the sum of Basic Cable, HSI, Digital Television and
Telephony service customers.
(3) Customers subscribing only to HSI or Telephony totalled 68,367 as
at August 31, 2007 compared to 61,208 as at August 31, 2006.
(4) An audit of homes passed in Ontario was completed during the first
quarter of fiscal 2007 and, as a result, the number of homes passed
was reduced by 42,386.


In the fourth quarter of 2007, net additions were lower than for the same period last year mainly due to a reduction in Basic Cable service customers and to a slower growth of Digital Television service customers. During the fourth quarter, Telephony customers grew by 21,173 to reach 143,636 compared to a growth of 20,394 for the same period last year. This growth is mostly attributable to the launch of the service in new markets and increased penetration in areas where the service is already offered. Coverage of homes passed has now reached 78% compared to 66% last year. The net losses of Basic Cable service in the fourth quarter reached 2,627 customers, compared to a gain of 685 customers for the same period last year, mainly due to less generous promotional offers to Basic Cable customers in the fourth quarter 2007 compared to the same period the year before.

The number of net additions to HSI service stood at 12,363 customers compared to 12,601 customers for the same period last year. During the fourth quarter 2007, the HSI customer net additions is mostly due to the enhancement of the product offering, the impact of the bundled offer of Television, HSI and Telephony services (Cogeco Complete Connection), and promotional activities.

The net additions of Digital Television service stood at 8,747 customers compared to 10,563 customers for the same period last year. The decrease in net additions this quarter compared to the same quarter last year reflects a maturation of the digital TV segment following a period of robust growth, especially in the second half of fiscal 2006. Nevertheless, customers continue to demonstrate strong interest in HD technology. Furthermore, the Corporation adjusted the service offering and price gap differential between Analogue Television services and Digital Television services in the second half of fiscal 2006, which has also contributed to a moderation of the strong growth experienced in fiscal 2006.



OPERATING RESULTS

Quarters ended Years ended
August 31, August 31,
($000s, except (unaudited) (audited)
percentages) 2007 2006 % Change 2007 2006 % Change
--------------------------------------------------------------------------

Revenue $188,450 $158,009 19.3 $714,070 $603,135 18.4

Operating
costs 106,869 90,116 18.6 412,602 346,736 19.0

Management fees
- COGECO Inc. - - - 8,568 8,392 2.1

Operating income
before
amortization 81,581 67,893 20.2 292,900 248,007 18.1

Operating margin 43.3% 43.0% 41.0% 41.1%


Revenue

For the fourth quarter and fiscal 2007, revenue grew by $30.4 million and $110.9 million to reach $188.5 million and $714.1 million respectively, an increase of 19.3 % and 18.4% compared to fiscal 2006. This growth is explained mainly by an increase in the number of HSI, Telephony and Digital Television service customers as mentioned in the "Customer Statistics" section, together with rate increases implemented in June and August of 2006 as well as in March and April of 2007. Monthly rate increases of at most $3 per customer and averaging $2 per Basic Cable service customer took effect on June 15, 2006 in Ontario and on August 1, 2006 in Quebec. During fiscal 2007, monthly rate increases of $3 per Digital Television customer were effective in March 2007 in Ontario and in April 2007 in Quebec. In Ontario, the Analogue Value Pak rate was also increased by $1.50 per customer effective in April 2007. The rate increases implemented in fiscal 2007 represent approximately an average of $1.25 per Basic Cable service customer.

Operating costs

For the fourth quarter and fiscal 2007, operating costs, excluding management fees payable to COGECO Inc., increased by $16.8 million and $65.9 million to reach $106.9 million and $412.6 million respectively, an increase of 18.6% and 19% compared to last year. The increase in operating costs is mainly attributable to the increased penetration of Telephony service and to servicing additional RGUs.

Operating income before amortization

For the fourth quarter and fiscal 2007, operating income before amortization rose from $67.9 million to $81.6 million and from $248 million to $292.9 million respectively, representing increases of 20.2% and 18.1%, compared to the same periods last year. The rise in operating income before amortization is the result of increased revenue outpacing the rise in operating costs. In addition, Cogeco Cable's operating margin for the Canadian operations increased from 43% to 43.3% in the fourth quarter of fiscal 2007 due to new rate increases implemented during the third quarter of fiscal 2007. For fiscal 2007, operating margin slightly decreased from 41.1% to 41% mainly as a result of the deployment of the Telephony service.



PORTUGUESE OPERATIONS

CUSTOMER STATISTICS

Net additions % of Penetration(1)

Fourth Quarters Fiscal Years August 31,
--------------------------------------------------------------------------
August 31,
2007 2007 2006(3) 2007 2006(3) 2007 2006
--------------------------------------------------------------------------
RGUs(2) 697,157 9,920 3,141 68,116 3,141 - -
Basic Cable
service
customers 294,003 4,756 1,117 24,309 1,117 - -
HSI service
customers 160,023 2,936 1,165 23,745 1,165 54.4 50.5
Telephony
service
customers 243,131 2,228 859 20,062 859 82.7 82.7

(1) As a percentage of Basic Cable service customers in areas served.
(2) Represent the sum of Basic Cable, HSI and Telephony service customers.
(3) Customer additions are for the month of August 2006.


For the fourth quarter, all services generated customer growth as anticipated from the Corporation's guidelines, except for the Telephony service net additions, which were lower than expected, but the service penetration compared to Basic Cable customers remained the same.. Basic Cable service grew by 4,756 customers, HSI service by 2,936 customers and Telephony service by 2,228 customers.


OPERATING RESULTS



Quarters ended August 31, Years ended August 31,
(unaudited) (audited)
($000s, except
percentages) 2007 2006(1) 2007 2006(1)
---------------------------------------------------------------------------

Revenue $55,864 $16,866 $224,810 $16,866

Operating costs 35,019 11,895 146,957 11,895

Operating income
before
amortization 20,845 4,971 77,853 4,971

Operating margin 37.3% 29.5% 34.6% 29.5%


(1) Include operating results of Cabovisao since the date of acquisition
of control on August 1, 2006.


Revenue

Revenue for the fourth quarter and fiscal 2007 amounted to $55.9 million and $224.8 million respectively. The average exchange rates prevailing during the fourth quarter of fiscal 2007 used to convert the operating results of the foreign subsidiaries was $1.4374 per euro and $1.4803 per euro for fiscal 2007 compared to $1.4250 per euro for the quarter as per management's third quarter revised guidelines. Monthly rate increases of at most $3 (2 Euros) per HSI and Telephony customer, averaging $1 per Basic Cable customer, took effect on November 1, 2006, and of $1 (0.65 Euros) per Basic Cable service customer was effective in March 2007. Last year, revenue for a one-month period amounted to $16.9 million.

Operating costs

For the fourth quarter and fiscal 2007, operating costs amounted to $35 million and to $147 million, respectively, which is lower than management's expectations. Last year, operating costs for a one-month period amounted to $11.9 million.

Operating income before amortization

For the fourth quarter and fiscal 2007, operating income before amortization stood at $20.8 million and $77.9 million respectively, which exceeded management's objectives for its first full year of operations as a subsidiary of Cogeco Cable. Cabovisao operating margin stood at 37.3% in the fourth quarter and at 34.6% for fiscal 2007. Last year, the operating margin for the one-month period amounted to 29.5%.

FISCAL 2008 FINANCIAL GUIDELINES

The Corporation has revised its consolidated projections to take into consideration the issuance of 3,000,000 subordinate voting shares on August 9, 2007 for a gross proceed of $153,450,000. The result of this share issuance should reduce financial expense from $80 million to $72 million, increase net income from $90 million to $95 million and increase free cash flow from $60 million to $65 million.

The Corporation is maintaining all of its other guidelines for its Canadian and Portuguese operations.



-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated

(in millions of $, except customer data) Revised projections
Fiscal 2008
-------------------------------------------------------------------------
Financial Guidelines
Revenue 1,050
Operating income before amortization 425
Operating margin 40% to 41%
Financial expense 72(1)
Amortization 215
Net income 95(1)
Capital expenditures and deferred charges 260
Free cash flow 65(1)

Customer Addition Guidelines
Basic Cable service 30,000
HSI services 75,000
Digital Television service 54,000
Telephony service 100,000
RGUs 259,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) Revised projections taking into account the issuance of 3,000,000
subordinate voting shares on August 9, 2007 for a gross proceed of
$153,450,000.


UNCERTAINTIES AND MAIN RISK FACTORS

This section outlines general as well as more specific risks faced by Cogeco Cable and its subsidiaries that could significantly affect the financial condition, operating results or business of the Corporation. It does not purport to cover all contingencies, or to describe all possible factors that might have an influence on the Corporation or its activities at any point in time. Furthermore, the risks and uncertainties outlined in this section may or may not materialize in the end, may evolve differently than expected or may have different consequences than those that are being presently anticipated.

Cogeco Cable applies an on-going risk management process that includes a quarterly assessment of risks for the Corporation and its subsidiaries, under the oversight of the Audit Committee. As part of this process, the Corporation endeavours to identify risks that are liable to have a major impact on the Corporation's financial situation, revenue or activities, and to mitigate such risks proactively as may be reasonable and appropriate in the circumstances. This section reflects management's current views on uncertainties and main risk factors.

Risks Pertaining to Markets and Competition

Electronic communications markets are evolving rapidly both in Canada and Portugal and are increasingly competitive. Rivalry between terrestrial wireline and wireless, as well as satellite service providers is unfolding over individual as well as bundles of services, including fixed and mobile voice communications, Internet access, data, audio and video content delivery, electronic programming guides and navigation tools, security and other related or incidental services. In this converged environment, competitors strive to meet all the electronic communications needs of residential and business customers and thus obtain maximum share of their overall electronic communications budget. Rivalry extends over several elements, including the features of individual services, the composition of service bundles, prices and perceived value, promotional or introductory offers, duration of the commitment by the customer, terminal devices and customer service.

Cable telecommunications providers have successfully entered into the residential voice communications markets traditionally dominated by the incumbent telephone companies and they continue to attract a growing base of residential telephone customers. The telephone companies are increasingly involved in competitive audio and video content delivery, both on their fixed and mobile networks, and they continue to dominate the provision of voice and data services to business customers.

The substantial cost of broadband facilities and broadband customer acquisition, combined with the growth of revenue generating units achieved by competitors generally, tend to make outright price wars on individual services and service bundles less appealing as a competitive strategy. However, as markets mature and penetration gains for high speed Internet access, digital video and digital telephony services abate, retail pricing strategies are likely to become more aggressive, with resulting downward pressure on operating margins both for individual services and service bundles.

Cogeco Cable provides "double-play" and "triple-play" service bundles both in Canada and in Portugal, with various combinations of Telephony, HSI and Television services being offered at attractive bundle prices. "Quadruple-play" service bundles that include mobile communications are becoming available, but so far they have had limited effect on relative market shares for double-play or triple-play service bundles. Cogeco Cable continues to focus on its existing lines of service with a view to capturing the remaining growth opportunities for HSI, Digital Television and Telephony services in its footprint, making the most efficient use of its own hybrid fibre-coaxial (HFC) plant. As markets evolve and mobility becomes a more cost-effective substitute to wireline communications, Cogeco Cable may need to add mobility components to its service bundles, through suitable mobile virtual network (MVNO) arrangements with existing or future mobile operators, or otherwise through new wireless alternatives. The capital and operating expenditures eventually required to offer quadruple-play service bundles may not be offset by the incremental revenue that such new bundles would generate, thus resulting in downward pressure on operating margins.

In Canada, Cogeco Cable faces competition in its service areas mainly from a few large integrated telecommunications service providers. The largest, BCE Inc., offers through its various subsidiaries and income trusts a full range of competitive voice, data and video services to residential, as well as business, customers in the Provinces of Ontario and Quebec through a combination of fixed wireline (Bell Canada, Telebec), mobile wireless (Bell Mobility) and satellite (Bell ExpressVu) platforms. BCE Inc. was the subject of a takeover earlier this year by a group of institutional investors led by the Ontario Teachers' Pension Plan, with closing of the transaction expected to take place in the earlier part of 2008. It is not known at this time to what extent the changes in the ownership and management of this major competitor will affect market dynamics in the two Provinces, notably with respect to the anticipated rollout of IPTV services over its fixed wireline platform. Telus Communications Company competes with all of Cogeco Cable's services in the Lower St. Lawrence area of the Province of Quebec through the use of its wireline network, and throughout Cogeco Cable's Canadian footprint through the use of its mobile telecommunications network. However, Cogeco Cable's Telephony service is provided with the assistance of certain Telus carrier services through a multi-year contractual arrangement. Star Choice Television Network Incorporated, an indirect subsidiary of Shaw Communications Inc., competes for video and audio distribution services throughout Cogeco Cable's Canadian footprint. Rogers Wireless Communications Inc., a subsidiary of Rogers Communications Inc., operates a mobile telecommunications network in Ontario and Quebec, and is the owner of the Inukshuk broadband wireless network in partnership with Bell Mobility. Rogers Cablesystems Inc., the cable subsidiary of Rogers Communications Inc. has recently applied for licensed service area extensions covering the Burlington, Oakville and Milton areas, which are part of Cogeco Cable's footprint in Ontario. Videotron Ltd., an indirect subsidiary of Quebecor Inc., offers competitive mobile telecommunications services in Cogeco Cable's Quebec footprint. Cogeco Cable also competes with other telecommunications service providers, including Vonage, Primus and Rogers Home Phone (formerly known as Sprint), and with alternative service providers that use resale or third-party access arrangements in effect. It is anticipated that the federal Department of Industry Canada will proceed soon with the advanced wireless spectrum (AWS) auction, which could lead to new entrants entering the wireless telecommunications markets in Canada on a national, regional or local basis, and incumbent wireless carriers obtaining more spectrum for the provision of advanced voice, data and video services, thus resulting in increased competition for the voice, data and video services of Cogeco Cable.

In Portugal, Cogeco Cable's indirect subsidiary, Cabovisao, faces competition in its service areas, for all its lines of business, mainly from incumbent telecommunications carrier Portugal Telecom, SGPS, S.A. (PT) and its present subsidiary Portugal Telecom Multimedia, SGPS, S.A. (PTM), as well as from Sonaecom, SGPS, S.A., a subsidiary of diversified Portuguese conglomerate Sonae, SGPS, S.A. (Sonae), which recently purchased the fixed telephony and HSI residential business from the operator ONI, as well as all fixed telephony business previously owned by TELE2, another indirect access telephony operator, and unsuccessfully attempted a takeover of PT or PTM earlier this year. PT is expected to complete, before the end of the calendar year, the distribution of the shares that it owns in PTM to its own shareholders and, thus, cease to hold a controlling equity interest in PTM. PTM owns TV Cabo, the largest cable telecommunications operator in Portugal, and also offers a direct-to-home satellite distribution service to the Portuguese market. PTM's cable plant overlaps a major part of Cabovisao's footprint in Portugal. PT's national telephone network, PT Communicacoes, which offers a full range of fixed wireline and mobile wireless telecommunications services throughout Portugal, has recently started the rollout of a competitive IPTV service over its telephone plant, starting with the Lisbon, Oporto and Castelo Branco areas, with a view to offering triple-play service (voice, high speed Internet access and video distribution), and PTM's cable subsidiary, TV Cabo, started a full triple-play offer covering all its footprint. Sonaecom owns and operates the Clix (Residential Fixed Telephony, HSI and IPTV), Novis (Business Telephony Solutions) and Optimus (Wireless Telephony and Wireless HSI) services, which provide voice, data, high speed Internet, video and mobile services to the residential and business markets. Cabovisao is no longer the only provider of triple-play service bundles in its footprint, as Sonaecom, PT and PTM now have competitive triple-play offers available in the Portuguese market. Cabovisao has started the rollout of a Digital Television service in order to improve signal security and quality, provide an expanded choice of programming, make better use of the distribution capacity of its network and better compete with the digital video service offerings of its competitors. This rollout will extend at least through 2008. The Portuguese regulatory authorities are expected to award several licenses in 2008 for new digital terrestrial television services providing both national and regional digital television signals for free-to-air and paid reception. This will likely lead to increased competition for video distribution throughout the areas served by Cabovisao in Portugal.

The level of piracy of video signals and the actual penetration of illicit reception of video distribution services in households within the Corporation's service areas may also have a significant effect on the Corporation's business and the competitiveness of its service offerings.

Technological Risks

The evolution of telecommunications technologies unfolds at breathtaking speed, fuelled by a highly competitive global market for digital content, consumer electronics and broadband products and services. The Corporation continues to monitor the development of technologies used for the transmission, distribution, reception and storage of data and their deployment by various existing or potential competitors in the broadband telecommunications markets.

There are now several terrestrial and satellite transmission technologies available to deliver a range of electronic communications services to homes and to commercial establishments with varying degrees of flexibility and efficiencies, and thus compete with cable telecommunications. On the other hand, cable telecommunications also continue to benefit from rapid improvements, particularly in the areas of modulation, digital compression, fractioning of optoelectronic links, multiplexing, HD distribution and switched video distribution.

Management of the Corporation remains of the view that broadband wireline distribution over fibre and coaxial cable will continue to be an efficient, reliable, economical and competitive platform for the distribution of a full range of electronic communications products and services for the foreseeable future. The competitiveness of the cable broadband telecommunications platform will, however, continue to require additional capital investment on a timely basis in an increasingly competitive and uncertain market environment.

The growth in penetration of broadband connections of all types, the rapid increase in transmission speeds offered by competitors in the market and the deployment of the more powerful and efficient MPEG-4 video compression standard and of other similar compression technologies promotes the increased distribution and consumption of video content directly over the Internet. This may lead eventually to fragmentation of the retail market for existing Analogue and Digital Television services provided by the Corporation and gradual disintermediation between video content suppliers and the Corporation's customers. In this context, revenue and margins derived from the Corporation's HSI services may not entirely compensate for the loss of revenue or margin derived from the Corporation's Television services in the future. Alternative voice and data communications services are proliferating over the Internet, as well with the resulting risk that fragmentation and disintermediation may also occur in the future with respect to the Corporation's Telephony service.

Electronic communications increasingly rely on advanced security technology, devices, control systems and software to ensure conditional access, appropriate billing and service integrity. Security and business systems technology is provided worldwide by a small pool of global suppliers on a proprietary basis. As other providers of electronic communications, the Corporation depends on the effectiveness of such technology for many of its services and the ability of technological solutions providers to offer cost-effective and timely solutions to deal with security breaches or new developments required in the marketplace.

Regulatory Risks

In Canada, electronic communications facilities and services are subject to regulatory requirements depending mainly on the type of facilities involved, the incumbent status of service providers and their relative market power, the technology used and whether the activities are categorized as telecommunications or broadcasting. Canadian cable telecommunications facilities and services are subject to various requirements mainly under federal legislation governing broadcasting, radiocommunication, telecommunications, copyright and privacy, and under provincial legislation governing consumer protection and access to certain municipal property and municipally-owned support structures. Licences are still required for the operation of larger (Class 1 and 2) cable systems, while smaller (Class 3) cable systems are now mostly licence-exempt. Various licence and licence exemption conditions continue to apply in Canada. Canadian cable telecommunications operators are also subject to Canadian ownership and control requirements. Changes in the regulatory framework or licences, which are subject to periodic renewal, may affect the Corporation's existing business activities or future prospects.

The Canadian Radio-Television and Telecommunications Commission (CRTC) has forborne from regulating the residential and business local access telephone services of the incumbent telephone companies in most of the geographic markets served by the Corporation in Ontario and Quebec. As a result, Bell Canada and Telus are now free to price and bundle their residential and business local access telephone services and to extend general or specific promotional offers without prior regulatory approval, in the forborne local exchange areas within the Corporation's footprint.

In Telecom Public Notice CRTC 2006-14, the CRTC has initiated a telecommunications proceeding with a view to determining which telecommunications facilities and services should be considered as essential, as well as the regulatory wholesale requirements that should apply to the provision of essential facilities and services by Canadian telecommunications carriers in the future. The outcome of this proceeding, expected in the second half of 2008, may have an impact on whether the Corporation is considered to have any essential facilities and whether it must make such facilities available at certain regulated terms and conditions, including under third-party Internet access tariffs currently in effect. It may also have an impact on the facilities and services that the Corporation will be capable of obtaining from other Canadian telecommunications carriers under certain regulated terms and conditions in the future.

In Broadcasting Notice of Public Hearing CRTC 2007-5, the CRTC has initiated a broadcasting proceeding on the diversity of voices within the Canadian broadcasting system and other media. This notice raised various important structural issues such as the common ownership of broadcasting undertakings (which include broadcasting distribution undertakings (BDUs)), concentration of ownership, cross-media ownership or horizontal integration, vertical integration, the benefits policy, licence trafficking, ownership of new media and the relationship between the CRTC and the Competition Bureau with respect to ownership transfers of broadcasting undertakings. The final outcome of this proceeding is expected to be known in the first half of 2008.

In Broadcasting Notice of Public Hearing CRTC 2007-10, the CRTC has also initiated a broadcasting proceeding to review the regulatory frameworks for BDUs (cable, satellite and microwave) and for discretionary programming services (specialty and pay television and audio services). This notice generally proposes to streamline the regulatory requirements currently applicable to BDUs and to allow for market forces to play a greater role in the distribution arrangements between BDUs and discretionary programming services. The proceeding may, however, give rise to further discussion of carriage fees and signal retransmission consent for the signals of over-the-air broadcasters. The final outcome of this important policy review proceeding is expected to be known in the second half of 2008.

The telecommunications markets in Portugal have been fully open to competition since January 1, 2000, and there are no foreign ownership restrictions applying to electronic communications service providers or the ownership of broadband telecommunications facilities in Portugal. Much of Autoridade Nacional de Communicacoes (ANACOM)'s regulatory oversight remains focussed on the analysis of the competitive state of relevant telecommunications markets and the adoption of selected measures, where significant market power by a competitor is found to exist in a relevant market. ANACOM has analyzed 16 of the 18 relevant retail and wholesale markets identified by the European Commission and found that PT has significant market power in most of these markets. As a result, various specific regulatory requirements apply to the provision of certain services by PT companies. In addition, pursuant to Directive 2002/77/EC of the European Commission (Competition Directive), the cable television and telecommunications network operations of incumbent telephone companies in EU member states must be kept separate and be conducted through separate entities. TV Cabo, Cabovisao's direct cable competitor, is, therefore, operated through PT Multimedia, an entity separate from PT Communicacoes, which operates PT's telecommunications network, and services provided by each of these entities are billed separately.

The European Commission launched, on June 29, 2006, a broad policy review initiative on electronic communications with a view to boosting competition among telecommunications operators of EU member states and building a single market for services that use radio spectrum. The legislative proposals stemming from this policy review initiative are expected to be tabled in November 2007. Their precise nature, the timing of their approval by the European Parliament and their transposition into Portuguese domestic law are not known at this time, but they may eventually have an impact in the medium- to long-term on Cabovisao's electronic communications activities and the future state of competition for the provision of electronic communications in Portugal.

Risks Pertaining to Operating Costs

Cogeco Cable applies itself to keeping its cost of goods sold in check so as to secure continued operating margin growth. The two largest drivers of cost of goods sold are network fees paid to audio and video service suppliers as well as data transport and connectivity charges, mostly for Internet traffic.

The market for audio and video programming services in Canada is already characterized by high levels of supplier integration and structural rigidities imposed by the CRTC's regulatory framework for broadcasting distribution, which is presently under review. While Cogeco Cable has been able to conclude satisfactory distribution agreements with Canadian and foreign programming service suppliers to date, there is no assurance that network fees will not increase by larger increments in future years. There is also no assurance that programming service suppliers will not change other material terms of distribution agreements or extend preferences for the distribution of their content to competing distributors, or push for the distribution of their content over the Internet in the future. In Portugal, the offering of new digital audio and video services by Cabovisao requires the conclusion of suitable arrangements with program suppliers. The negotiation of these arrangements is under way, but is not concluded as yet.

As the markets for data transport and connectivity remain very competitive in Canada and Portugal, Cogeco Cable and Cabovisao have negotiated cost effective arrangements in the past for voice and data traffic. However, as overall traffic increases and capacity on existing broadband telecommunications facilities becomes more widely used, the Corporation may not be able to secure further cost efficiencies in the future.

Risks Pertaining to Information Systems

Flexible, reliable and cost-effective information systems are an essential requirement for the handling of sophisticated service options, customer account management, internal controls, provisioning, billing and the rollout of new services. The Corporation uses different customer relations management tools and databases for its operation respectively in Ontario, Quebec and Portugal. The agreement with the main third-party supplier of information systems in Ontario will expire in 2008, and the terms that would apply for the continued use of the relevant information systems in Ontario are under negotiation.

Risks Pertaining to Disasters and Other Contingencies

The Corporation has a disaster recovery plan for dealing with the occurrence of natural disasters, quarantine, power failures, terrorist acts, intrusions, computer hacking or data corruption, but the operations and facilities of Cabovisao are not yet integrated into this plan. Cabovisao's insurance coverage has been integrated into Cogeco Cable's insurance coverage. The emergency plans and procedures that are in place cannot provide the assurance that the effect of any disaster can and will be mitigated as planned. Cogeco Cable is not insured against the loss of data, hacking or malicious interference with its electronic communications and systems, or against losses resulting from natural disasters. In Canada, it relies on data protection and recovery systems that it has put in place with third-party service providers. In Portugal, similar arrangements with third parties have not been implemented as yet.

Financial Risks

Cable telecommunications is a very capital-intensive business that requires substantial and recurring investment in property, plant, equipment and customer acquisition. Cogeco Cable depends on capital markets for the availability of additional capital that it must deploy to support its internal and external growth. There is no assurance that future capital requirements will be met when needed, or that the cost to secure such needed incremental capital will not increase the Corporation's overall cost of capital.

Cogeco Cable's debt financing structure involves the borrowing of money from third parties by Cogeco Cable and the subsequent investment of equity and debt by the Corporation into its direct and indirect subsidiaries. This financing structure requires that Cogeco Cable be able to receive upstream flows of funds from its subsidiaries through capital repayments, interest payments, dividend payments, management fees or other distributions that are sufficient to meet its corporate debt obligations. Future changes to corporate, tax, currency exchange and other legal requirements applicable to the Corporation, or to its direct or indirect subsidiaries, could adversely affect such upstream flow of funds or the effectiveness of the Corporation's existing debt financing structure.

The Corporation's leverage and corporate risk profile is liable to vary from time to time as a result of new developments in its business activities and the investments required to support internal growth as well as external growth through acquisitions. The development of new services or additional lines of business, and the acquisition of new business properties, may not necessarily generate the anticipated results or benefits. There is no assurance that Cogeco Cable will be able to maintain or increase distributions to shareholders by way of dividends or otherwise.

The acquisition of Cabovisao has been financed through corporate credit facilities of Cogeco Cable. The major part of the purchase price for the shares of Cabovisao (approximately 461.8 million Euros) was borrowed directly in euros and a second tranche of $150 million was borrowed in Canadian dollars and subsequently converted into euros (104 million Euros). The remainder of the purchase price is assumed liabilities. There are no financial hedging arrangements in effect at this time for currency fluctuation risk on interest payments resulting from these borrowings, but there is a natural hedging effect between the borrowings in euros and the inter-corporate debt interest payments and cash distributions in euros originating from the European subsidiaries. Also, for the purposes of this acquisition, Cogeco Cable has set up an acquisition structure involving one of its operating Canadian subsidiaries and intermediate holding and financing entities located in Luxembourg with a view to maximizing returns. The Corporation is still considering various options to extend the term with euro-denominated alternate sources of financing.

Human Resources

Cogeco Cable maintains appropriate labour relations both in Canada and in Portugal, but there is no assurance that requisite collective agreements will be established or renewed without conflict or disruption to the provision of its services. Cogeco Cable maintains, as well, appropriate relations with its key personnel. The Corporation's success depends to a significant extent on its ability to attract and retain its managers and skilled employees in an increasingly competitive market. The Corporation's inability or failure to recruit, retain or adequately train its human resources may have a materially adverse effect on the Corporation's business and future prospects.

Controlling Shareholder and Holding Structure

Cogeco Cable is controlled by COGECO Inc. through the holding of multiple voting shares of Cogeco Cable, and COGECO Inc. is in turn controlled by Gestion Audem Inc., a company controlled by Mr. Henri Audet and members of his family (the Audet Family), through the holding of multiple and subordinate voting shares of COGECO Inc. Both Cogeco Cable and COGECO Inc. are reporting issuers with subordinate voting shares listed on the Toronto Stock Exchange. Pursuant to the Conflicts Agreement in effect between Cogeco Cable and COGECO Inc., all cable properties must be owned or controlled by Cogeco Cable. COGECO Inc. is otherwise free to own and operate any other business or invest as it deems appropriate. It is possible that situations could arise where the respective interests of the controlling shareholder COGECO Inc. and other shareholders of Cogeco Cable, or the respective interests of the Audet Family and other shareholders of COGECO Inc., could differ.

ACCOUNTING POLICIES AND ESTIMATES

Accounting changes

In July 2006, the Canadian Institute Chartered Accountants (CICA) issued Section 1506, Accounting Changes, which modifies certain aspects of the previous standard. A reporting entity may not change its accounting method unless required by primary source of GAAP or to provide a more reliable and relevant presentation of the financial statements. In addition, changes in accounting methods must be applied retroactively and additional information must be disclosed. This section applies to interim and annual financial statements relating to fiscal years beginning on or after January 1, 2007.

Harmonization of Canadian and International Standards

In March 2006, the Accounting Standards Board of the CICA released its new strategic plan, which proposes to abandon Canadian GAAP and effect a complete convergence to the International Financial Reporting Standards. At the end of a transitional period of approximately five years, Canadian GAAP will cease to exist as a separate, distinct basis of financial reporting for public companies. The Corporation will convert to these new standards according to the timetable set with these rules. The Corporation will closely monitor changes arising from this convergence.

NON-GAAP FINANCIAL MEASURES

This section describes non-GAAP financial measures used by Cogeco Cable throughout this MD&A. It also provides reconciliations between these non-GAAP measures and the most comparable GAAP financial measures. These financial measures do not have standard definitions prescribed by Canadian GAAP and may not be comparable with similar measures presented by other companies. These measures include "cash flow from operations" and "free cash flow".

Cash flow from operations

Cash flow from operations is used by Cogeco Cable's management and investors to evaluate cash flow generated by operating activities, excluding the impact of changes in non-cash operating items. This allows the Corporation to isolate the cash flow from operating activities from the impact of cash management decisions. Cash flow from operations is subsequently used in calculating the non-GAAP measure, "free cash flow". Cash flow from operations is calculated as follows:



Quarters ended August 31, Years ended August 31,
(unaudited) (audited)
($ 000) 2007 2006 2007 2006
---------------------------------------------------------------------------
Cash flow from
operating
activities $112,615 $107,209 $211,810 $195,790
Changes in non-cash
operating items (28,790) (50,495) 72,755 (1,051)
---------------------------------------------------------------------------
Cash flow from
operations $83,825 $56,714 $284,565 $194,739
---------------------------------------------------------------------------
---------------------------------------------------------------------------


Free cash flow

Free cash flow is used, by Cogeco Cable's management and investors, to measure its ability to repay debt, distribute capital to its shareholders and finance its growth. Free cash flow is calculated as follows:



Quarters ended August 31, Years ended August 31,
(unaudited) (audited)
($ 000) 2007 2006 2007 2006
---------------------------------------------------------------------------
Cash flow from
operations $83,825 $56,714 $284,565 $194,739
Acquisition of
fixed assets (57,889) (44,082) (220,882) (140,941)
Increase in
deferred charges (10,784) (8,929) (30,042) (20,607)
Assets acquired under
capital leases - as
per Note 11 b) (291) (268) (3,084) (2,898)
---------------------------------------------------------------------------
Free cash flow $14,861 $3,435 $30,557 $30,293
---------------------------------------------------------------------------
---------------------------------------------------------------------------


ADDITIONAL INFORMATION

This MD&A was prepared on October 26, 2007. Additional information relating to the Corporation, including its Annual Information Form, is available on the SEDAR web site at www.sedar.com.


ABOUT COGECO CABLE

Cogeco Cable (www.cogeco.ca), a telecommunications company offering a diverse range of services to its customers in Canada and in Portugal, is the second largest cable operator in Ontario, Quebec and Portugal, in terms of the number of Basic Cable service customers served. Through its two-way broadband cable networks, Cogeco Cable provides its residential and commercial customers with Analogue and Digital Television, High Speed Internet and Telephony services. The Corporation provides 2,485,665 revenue-generating units (RGUs) to 2,343,466 homes passed in its Canadian and Portuguese service territories. Cogeco Cable's subordinate voting shares are listed on the Toronto Stock Exchange (TSX:CCA).



Analyst Conference Monday, October 29, 2007 at 11:00 A.M. (EDT)
Call: Media representatives may attend as listeners only.

Please use the following dial-in number to have
access to the conference call by dialing 10 minutes
before the start of the conference:
Canada/USA Access Number: 1 866 904-6909
International Access Number: + 1 416 915-8331
Confirmation Code: 4118404
By Internet at www.cogeco.ca/investors

A rebroadcast of the conference call will be
available until November 5, by dialing:
Canada and U.S. access number: 1 888 203-1112
International access number: + 1 647 436-0148
Confirmation code: 4118404


Supplementary Quarterly Financial Information
(unaudited)

Quarters ended(2) Fiscal 2007
--------------------------------------------------------------------------
Nov. 30 Feb. 28 May 31 Aug. 31
($000, except
percentages and per
share data)

Revenue $222,002 $231,952 $240,612 $244,314
Operating income
before amortization 83,662 86,791 97,874 102,426
Operating margin 37.7% 37.4% 40.7% 41.9%
Amortization 44,309 43,572 47,278 54,164
Financial expense 21,221 23,551 21,273 18,524
Income taxes (recovery) 5,597 4,261 8,942 (6,630)
Net income 12,535 15,407 20,381 36,368

Cash flow from
operations 62,060 62,264 76,416 83,825

Net income per share $0.31 $0.37 $0.45 $0.79


Quarters ended(2) Fiscal 2006 (1)
--------------------------------------------------------------------------
Nov. 30 Feb. 28 May 31 Aug. 31(1)
($000, except
percentages and per
share data)

Revenue $143,413 $147,757 $153,956 $174,875
Operating income
before amortization 57,302 59,568 63,244 72,864
Operating margin 40.0% 40.3% 41.1% 41.7%
Amortization 28,277 28,656 29,048 34,801
Financial expense 13,582 13,776 13,634 16,374
Income taxes (recovery) 6,445 6,936 8,191 (12,298)
Net income 8,998 10,200 12,371 33,987

Cash flow from
operations 43,389 44,940 49,696 56,714

Net income per share $0.23 $0.26 $0.31 $0.85


(1) Include operating results of Cabovisao since the date of acquisition of
control on August 1, 2006.
(2) The addition of quarterly information may not correspond to the annual
total given rounding.


Cogeco Cable's operating results are not generally subject to material seasonal fluctuations. However, the loss of Basic service customers is usually greater, and the addition of HSI service customers is generally lower in the third quarter, mainly due to students leaving campuses at the end of the school year. Cogeco Cable offers its services in several university and college towns such as Kingston, Windsor, St. Catharines, Hamilton, Peterborough, Trois-Rivieres and Rimouski in Canada. Furthermore, the third and fourth quarters' operating margin is usually higher as lower or no management fees are paid to COGECO Inc. Under a Management Agreement, Cogeco Cable pays a fee equal to 2% of its total revenue subject to a maximum amount. For more details, please refer to the "Related Party Transactions" section.



COGECO CABLE INC.
Customer Statistics

August 31, August 31,
2007 2006
-----------------------------------------------------------------
-----------------------------------------------------------------
Homes Passed
Ontario (1) 997,498 1,002,187
Quebec 486,592 474,717
-----------------------------------------------------------------
Canada 1,484,090 1,476,904
Portugal 859,376 826,369
-----------------------------------------------------------------
Total 2,343,466 2,303,273
-----------------------------------------------------------------
-----------------------------------------------------------------

Revenue Generating Units
Ontario 1,256,244 1,104,157
Quebec 532,264 451,779
-----------------------------------------------------------------
Canada 1,788,508 1,555,936
Portugal 697,157 629,041
-----------------------------------------------------------------
Total 2,485,665 2,184,977
-----------------------------------------------------------------
-----------------------------------------------------------------

Basic Cable Service Customers
Ontario 594,889 587,289
Quebec 254,268 245,888
-----------------------------------------------------------------
Canada 849,157 833,177
Portugal 294,003 269,694
-----------------------------------------------------------------
Total 1,143,160 1,102,871
-----------------------------------------------------------------
-----------------------------------------------------------------

Discretionnary Service Customers
Ontario 468,764 463,783
Quebec 204,585 192,895
-----------------------------------------------------------------
Canada 673,349 656,678
Portugal - -
-----------------------------------------------------------------
Total 673,349 656,678
-----------------------------------------------------------------
-----------------------------------------------------------------

Pay TV Service Customers
Ontario 88,835 84,425
Quebec 42,180 38,455
-----------------------------------------------------------------
Canada 131,015 122,880
Portugal 54,723 54,089
-----------------------------------------------------------------
Total 185,738 176,969
-----------------------------------------------------------------
-----------------------------------------------------------------

High Speed Internet Service Customers
Ontario 316,363 269,328
Quebec 99,473 73,752
-----------------------------------------------------------------
Canada 415,836 343,080
Portugal 160,023 136,278
-----------------------------------------------------------------
Total 575,859 479,358
-----------------------------------------------------------------
-----------------------------------------------------------------

Digital Television Service Customers
Ontario 246,267 213,556
Quebec 133,612 113,808
-----------------------------------------------------------------
Canada 379,879 327,364
Portugal - -
-----------------------------------------------------------------
Total 379,879 327,364
-----------------------------------------------------------------
-----------------------------------------------------------------

Telephony Service Customers
Ontario 98,725 33,984
Quebec 44,911 18,331
-----------------------------------------------------------------
Canada 143,636 52,315
Portugal 243,131 223,069
-----------------------------------------------------------------
Total 386,767 275,384
-----------------------------------------------------------------
-----------------------------------------------------------------

(1) An audit of homes passed in Ontario was completed during the first
quarter of fiscal 2007 and, as a result, the number of homes passed was
reduced by 42,386


COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF INCOME

Three months ended Twelve months ended
August 31, August 31,
-----------------------------------------------------------------------
(In thousands of
dollars, except
per share data) 2007 2006 2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)
Revenue
Service $243,544 $174,494 $935,390 $617,806
Equipment 770 381 3,490 2,195
-----------------------------------------------------------------------
244,314 174,875 938,880 620,001

Operating costs 141,888 102,011 559,559 358,631
Management fees -
COGECO Inc. - - 8,568 8,392
-----------------------------------------------------------------------

Operating income
before
amortization 102,426 72,864 370,753 252,978
Amortization
(note 4) 54,164 34,801 189,323 120,782
-----------------------------------------------------------------------

Operating income 48,262 38,063 181,430 132,196
Financial expense
(note 8) 18,524 16,374 84,569 57,366
-----------------------------------------------------------------------

Income before
income taxes 29,738 21,689 96,861 74,830
Income taxes
(note 5) (6,630) (12,298) 12,170 9,274
-----------------------------------------------------------------------

Net income $36,368 $33,987 $84,691 $65,556
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Earnings per
share (note 6)
Basic $0.79 $0.85 $1.96 $1.64
Diluted 0.78 0.85 1.94 1.63
-----------------------------------------------------------------------
-----------------------------------------------------------------------



COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

Twelve months ended August 31,
-----------------------------------------------------------------------
(In thousands of dollars) 2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(audited) (audited)

Balance at beginning $117,760 $58,604

Net income 84,691 65,556

Subordinate voting shares issue costs,
net of related income taxes of $4,689,000 (10,151) -

Dividends on multiple voting shares (3,766) (2,512)

Dividends on subordinate voting shares (6,582) (3,888)
-----------------------------------------------------------------------

Balance at end $181,952 $117,760
-----------------------------------------------------------------------
-----------------------------------------------------------------------



COGECO CABLE INC.
CONSOLIDATED BALANCE SHEETS

----------------------------------------------------------------------
August 31, August 31,
(In thousands of dollars) 2007 2006
----------------------------------------------------------------------
----------------------------------------------------------------------
(audited) (audited)

Assets
Current
Cash and cash equivalents $64,208 $71,516
Restricted cash - 569
Accounts receivable 46,945 43,728
Income taxes receivable 1,112 -
Prepaid expenses 7,606 6,265
Future income tax assets 17,986 -
----------------------------------------------------------------------
137,857 122,078
----------------------------------------------------------------------

Income taxes receivable 1,345 -
Fixed assets 1,119,498 1,021,538
Deferred charges 54,645 47,327
Intangible assets (note 7) 1,058,410 989,552
Goodwill (note 7) 342,584 422,108
----------------------------------------------------------------------
$2,714,339 $2,602,603
----------------------------------------------------------------------
----------------------------------------------------------------------

Liabilities and Shareholders' equity
Liabilities
Current
Accounts payable and accrued liabilities $210,496 $283,087
Income tax liabilities 953 444
Deferred and prepaid income 29,837 26,652
Current portion of long-term debt (note 8) 17,292 126,851
----------------------------------------------------------------------
258,578 437,034
----------------------------------------------------------------------

Long-term debt (note 8) 1,010,634 1,190,126
Deferred and prepaid income 11,501 10,525
Pension plan liabilities and accrued
employee benefits 1,918 2,091
Future income tax liabilities 266,042 217,636
----------------------------------------------------------------------
1,548,673 1,857,412
----------------------------------------------------------------------

Shareholders' equity
Capital stock (note 9) 984,405 630,458
Contributed surplus - stock-based
compensation 2,419 1,425
Retained earnings 181,952 117,760
Foreign currency translation
adjustment (note 10) (3,110) (4,452)
----------------------------------------------------------------------
1,165,666 745,191
----------------------------------------------------------------------
$2,714,339 $2,602,603
----------------------------------------------------------------------
----------------------------------------------------------------------



COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF CASH FLOW

Three months ended Twelve months ended
August 31, August 31,
--------------------------------------------------------------------------
(In thousands of dollars) 2007 2006 2007 2006
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Cash flow from
operating activities
Net income $36,368 $33,987 $84,691 $65,556
Adjustments for:
Amortization (note 4) 54,164 34,801 189,323 120,782
Amortization of deferred
financing costs 513 416 2,226 1,140
Future income taxes (note 5) (6,024) (13,398) 7,511 5,200
Stock-based compensation (891) 85 1,145 636
Loss on disposal of
fixed assets 389 957 220 1,129
Other (694) (134) (551) 296
--------------------------------------------------------------------------
83,825 56,714 284,565 194,739
Changes in non-cash
operating items (note 11a)) 28,790 50,495 (72,755) 1,051
--------------------------------------------------------------------------
112,615 107,209 211,810 195,790
--------------------------------------------------------------------------

Cash flow from
investing activities
Acquisition of fixed
assets (note 11b)) (57,889) (44,082) (220,882) (140,941)
Increase in deferred charges (10,784) (8,929) (30,042) (20,607)
Business acquisition,
net ofcash and cash
equivalents acquired (note 2) (629) (577,431) 1,265 (577,431)
Decrease (increase)
in restricted cash 503 (91) 591 (91)
Other 21 10 489 48
--------------------------------------------------------------------------
(68,778) (630,523) (248,579) (739,022)
--------------------------------------------------------------------------

Cash flow from
financing activities
Decrease in bank indebtedness - (7,693) - -
Increase in long-term debt - 633,402 - 633,402
Repayment of long-term debt (146,472) (18,518) (299,558) (1,720)
Increase in deferred
financing costs - (10,110) - (10,110)
Issue of subordinate
voting shares 154,609 62 352,964 228
Subordinate voting
shares issue costs (6,551) - (14,840) -
Dividends on multiple
voting shares (1,256) (628) (3,766) (2,512)
Dividends on subordinate
voting shares (2,372) (972) (6,582) (3,888)
--------------------------------------------------------------------------
(2,042) 595,543 28,218 615,400
--------------------------------------------------------------------------

Net change in cash
and cash equivalents 41,795 72,229 (8,551) 72,168

Effect of exchange
rate changes on cash
and cash equivalents
denominated in
foreign currencies (243) (713) 1,243 (713)

Cash and cash
equivalents at beginning 22,656 - 71,516 61

--------------------------------------------------------------------------
Cash and cash
equivalents at end $64,208 $71,516 $64,208 $71,516
--------------------------------------------------------------------------
--------------------------------------------------------------------------

See supplemental cash flow information in note 11.


COGECO CABLE INC.

Notes to Consolidated Financial Statements August 31, 2007

(amounts in tables are in thousands of dollars, except per share data)

1. Basis of Presentation

In the opinion of management, the accompanying unaudited interim consolidated financial statements, prepared in accordance with Canadian generally accepted accounting principles, contain all adjustments necessary to present fairly the financial position of Cogeco Cable Inc. as at August 31, 2007 and 2006 as well as its results of operations and its cash flow for the three and the twelve month periods ended August 31, 2007 and 2006.

While management believes that the disclosures presented are adequate, these unaudited interim consolidated financial statements and notes should be read in conjunction with Cogeco Cable Inc.'s annual consolidated financial statements for the year ended August 31, 2006. These unaudited interim consolidated financial statements follow the same accounting policies as the most recent annual consolidated financial statements, except as mentioned below.

Intangible assets with definite lives, such as customer relationships, are recorded at cost and amortized on a straight-line basis over the average life of a customer's subscription. In the case of the acquisition of Cabovisao - Televisao por Cabo, S.A., the average life of a customer's subscription is eight years.

Also, in the normal course of its business, the Corporation enters into non-monetary transactions. These non-monetary transactions, which would otherwise be payable in cash, are accounted for at their fair market value.

2. Business Acquisition

Acquisition of Cabovisao - Televisao por Cabo, S.A.

On June 2, 2006, the Corporation entered into an agreement with Cable Satisfaction International Inc. ("CSII"), Catalyst Fund Limited Partnership I and Cabovisao - Televisao por Cabo, S.A. ("Cabovisao"), to purchase, for a total consideration of 461.8 million EUR ($667.5 million), all the shares of the second largest cable telecommunications company in Portugal, an indirect wholly-owned subsidiary of CSII. The price includes the purchase of senior debt and reimbursement of certain other Cabovisao liabilities. The acquisition was completed on August 1, 2006 and the final purchase price has been determined following completion of a post-closing working capital adjustment that occurred on March 9, 2007. According to the agreement, the final purchase price was reduced by an amount of 2,194,000 EUR ($3,371,000).

The acquisition was accounted for using the purchase method. The results of Cabovisao have been consolidated as of the acquisition date.

Management has completed its valuations of tangible and intangible assets acquired and liabilities assumed and the final allocation is as follows:



----------------------------------------------------------------------
2007
----------------------------------------------------------------------
----------------------------------------------------------------------
(audited)

Consideration paid
Share purchase price $304,188
Working capital adjustment (3,371)
Secured lenders debt and certain specified
Cabovisao liabilities 274,761
Acquisition costs 6,299
----------------------------------------------------------------------
$581,877
----------------------------------------------------------------------
----------------------------------------------------------------------

Net assets acquired
Cash and cash equivalents $5,711
Restricted cash 489
Accounts receivable 16,570
Prepaid expense 1,324
Fixed assets 323,796
Customer relationships 71,684
Goodwill 344,004
Accounts payable and accrued liabilities assumed (60,433)
Other specified Cabovisao liabilities assumed (91,914)
Future income tax liabilities (29,354)
----------------------------------------------------------------------
$581,877
----------------------------------------------------------------------
----------------------------------------------------------------------


The final allocation resulted in an increase in fixed assets of $36,144,000, an increase in customer relationships of $71,684,000 and an increase in future income tax liabilities of $29,354,000, as well as a decrease in accounts payable and accrued liabilities assumed of $4,849,000. The net impact of these adjustments, combined with the reduction of the purchase price, reduced goodwill by $87,020,000 (see note 7b)).

Also, in accordance with the Portuguese Companies Income Tax Code, accumulated tax losses cannot be deducted if the ownership of at least 50% of the social capital changes from the moment when the tax losses were generated, unless a request is filed before such change in the ownership takes place, subject to approval by the Portuguese tax authorities. To this effect, a request for preservation of tax losses was filed by Cabovisao on July 28, 2006, and Cabovisao has not yet received a reply. Consequently, these losses have not been included in the purchase price allocation, but will be recognized as a reduction of goodwill upon realisation.

3. Segmented Information

The Corporation's activities are comprised of Cable Television, High Speed Internet and Telephony services. The Corporation considers its Cable Television, High Speed Internet and Telephony activities as a single operating segment. The Corporation's activities are carried out in Canada and in Europe.

The Europe segment includes operating results since the date of the acquisition of control on August 1, 2006.

The principal financial information per business segment is presented in the tables below:



Canada Europe
-----------------------------------------------------------------------
Three months ended
August 31,
(unaudited) 2007 2006 2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Revenue $188,450 $158,009 $55,864 $16,866
Operating costs 106,869 90,116 35,019 11,895
Management fees - - - -
Operating income before
amortization 81,581 67,893 20,845 4,971
Amortization 34,992 30,373 19,172 4,428
Operating income 46,589 37,520 1,673 543
Financial expense 18,458 16,103 66 271
Income taxes (4,036) (12,612) (2,594) 314
Net income (loss) 32,167 34,029 4,201 (42)
-----------------------------------------------------------------------
Net assets
employed (1)(2) $1,744,616 $1,649,631 $653,681 $561,192
Total assets (2) 1,955,218 1,842,312 759,121 760,291
Fixed assets (2) 811,982 741,024 307,516 280,514
Goodwill (2) - - 342,584 422,108
Acquisition of
fixed assets 45,559 40,145 12,621 4,205
----------------------------------------------------------------------
-
-----------------------------------------------------------------------


Consolidated
-----------------------------------------------------------------------
Three months ended August 31,
(unaudited) 2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Revenue $244,314 $174,875
Operating costs 141,888 102,011
Management fees - -
Operating income before amortization 102,426 72,864
Amortization 54,164 34,801
Operating income 48,262 38,063
Financial expense 18,524 16,374
Income taxes (6,630) (12,298)
Net income (loss) 36,368 33,987
-----------------------------------------------------------------------
Net assets employed (1)(2) $2,398,297 $2,210,823
Total assets (2) 2,714,339 2,602,603
Fixed assets (2) 1,119,498 1,021,538
Goodwill (2) 342,584 422,108
Acquisition of fixed assets 58,180 44,350
-----------------------------------------------------------------------
-----------------------------------------------------------------------

(1) Total assets less cash and cash equivalents, accounts payable and
accrued liabilities, and deferred and prepaid income.

(2) As at August 31, 2007 and 2006.



Canada Europe
-----------------------------------------------------------------------
Twelve months ended August 31,
(audited) 2007 2006 2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Revenue $714,070 $603,135 $224,810 $16,866
Operating costs 412,602 346,736 146,957 11,895
Management fees 8,568 8,392 - -
Operating income before
amortization 292,900 248,007 77,853 4,971
Amortization 131,383 116,354 57,940 4,428
Operating income 161,517 131,653 19,913 543
Financial expense 82,714 57,095 1,855 271
Income taxes 12,050 8,960 120 314
Net income (loss) 66,753 65,598 17,938 (42)
-----------------------------------------------------------------------
Net assets
employed (1)(2) $1,744,616 $1,649,631 $653,681 $561,192
Total assets (2) 1,955,218 1,842,312 759,121 760,291
Fixed assets (2) 811,982 741,024 307,516 280,514
Goodwill (2) - - 342,584 422,108
Acquisition of fixed
assets 182,374 139,634 41,592 4,205
-----------------------------------------------------------------------
-----------------------------------------------------------------------


Consolidated
-----------------------------------------------------------------------
Twelve months ended August 31,
(audited) 2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Revenue $938,880 $620,001
Operating costs 559,559 358,631
Management fees 8,568 8,392
Operating income before amortization 370,753 252,978
Amortization 189,323 120,782
Operating income 181,430 132,196
Financial expense 84,569 57,366
Income taxes 12,170 9,274
Net income (loss) 84,691 65,556
-----------------------------------------------------------------------
Net assets employed (1) (2) $2,398,297 $2,210,823
Total assets (2) 2,714,339 2,602,603
Fixed assets (2) 1,119,498 1,021,538
Goodwill (2) 342,584 422,108
Acquisition of fixed assets 223,966 143,839
-----------------------------------------------------------------------
-----------------------------------------------------------------------

(1) Total assets less cash and cash equivalents, accounts payable and
accrued liabilities, and deferred and prepaid income.

(2) As at August 31, 2007 and 2006.


4. Amortization

Three months ended Twelve months ended
August 31, August 31,
-----------------------------------------------------------------------
2007 2006 2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Fixed assets $46,272 $29,872 $166,298 $100,306

Deferred charges 5,331 4,929 20,464 20,476

Intangible assets 2,561 - 2,561 -
-----------------------------------------------------------------------
$54,164 $34,801 $189,323 $120,782
-----------------------------------------------------------------------
-----------------------------------------------------------------------

5. Income Taxes

Three months ended Twelve months ended
August 31, August 31,
-----------------------------------------------------------------------
2007 2006 2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Current $(606) $1,100 $4,659 $4,074

Future (6,024) (13,398) 7,511 5,200
-----------------------------------------------------------------------
$(6,630) $(12,298) $12,170 $9,274
-----------------------------------------------------------------------
-----------------------------------------------------------------------


The following table provides the reconciliation between Canadian statutory federal and provincial income taxes and the consolidated income tax expense:



Three months ended Twelve months ended
August 31, August 31,
-----------------------------------------------------------------------
2007 2006 2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Income before
income taxes $29,738 $21,689 $96,861 $74,830

Combined income
tax rate 34.99% 35.09% 34.97% 35.09%

Income taxes at
combined income
tax rate $10,406 $7,611 $33,872 $26,258

Loss or income
subject to lower
or higher tax rates (812) (363) (1,285) (226)

Decrease in future
income taxes as a
result of decrease
in substantively
enacted tax rates (6,318) (19,982) (6,318) (19,820)

Large corporation tax - (1,815) - 600

Income taxes arising
from non-deductible
expenses 636 1,430 636 1,430

Effect of foreign
income tax
rate differences (2,066) 314 (5,103) 314

Benefit related to
prior years' minimum
income taxes paid and
non-capital loss
carryforwards (8,403) - (9,878) -

Other (73) 507 246 718
-----------------------------------------------------------------------

Income taxes at
effective
income tax rate $(6,630) $(12,298) $12,170 $9,274
-----------------------------------------------------------------------
-----------------------------------------------------------------------


6. Earnings per Share

The following table provides the reconciliation between basic and diluted
earnings per share:



Three months ended Twelve months ended
August 31, August 31,
--------------------------------------------------------------------------
2007 2006 2007 2006
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Net income $36,368 $33,987 $84,691 $65,556

Weighted average number
of multiple voting
andsubordinate voting
shares outstanding 46,080,398 39,993,757 43,246,025 39,990,239

Effect of dilutive
stock options (1) 427,920 129,091 349,854 172,784
--------------------------------------------------------------------------

Weighted average number
of diluted multiple
voting and subordinate
voting shares
outstanding 46,508,318 40,122,848 43,595,879 40,163,023
--------------------------------------------------------------------------

Earnings per share
Basic $0.79 $0.85 $1.96 $1.64
Diluted 0.78 0.85 1.94 1.63
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(1) No stock options (172,844 in 2006) were excluded from the calculation
of diluted earnings per share for the three month periods ended August
31, 2007, and 35,884 stock options (150,647 in 2006) were excluded from
the calculation of diluted earnings per share for the twelve month
periods ended August 31, 2007, since the exercise price of the options
was greater than the average share price of the subordinate voting
shares.

7. Goodwill and Other Intangible Assets

--------------------------------------------------------------------------
August 31, August 31,
2007 2006
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(audited) (audited)

Customer relationships $68,858 $-
Customer base 989,552 989,552
--------------------------------------------------------------------------
1,058,410 989,552
Goodwill 342,584 422,108
--------------------------------------------------------------------------
$1,400,994 $1,411,660
--------------------------------------------------------------------------
--------------------------------------------------------------------------

a) Intangible assets

During the year 2007, intangible assets variations were as follows:

--------------------------------------------------------------------------
Customer Customer
relationships base Total
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(audited) (audited) (audited)

Balance as at August 31, 2006 $- $989,552 $989,552
Business acquisition (note 2) 71,684 - 71,684
Amortization (2,561) - (2,561)
Foreign currency translation
adjustment (265) - (265)
--------------------------------------------------------------------------
Balance as at August 31, 2007 $68,858 $989,552 $1,058,410
--------------------------------------------------------------------------
--------------------------------------------------------------------------

At August 31, 2007 and 2006, the Corporation tested the value of customer
base for impairment and concluded that no impairment existed.

b) Goodwill

During the years 2007 and 2006, goodwill variation was as follows:

--------------------------------------------------------------------------
2007 2006
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(audited) (audited)

Balance as at August 31, 2006 $422,108 $-
Business acquisition - 431,024
Adjustment to the allocation of the
purchase price (note 2) (87,020) -
Foreign currency translation adjustment 7,496 (8,916)
--------------------------------------------------------------------------
Balance as at August 31, 2007 $342,584 $422,108
--------------------------------------------------------------------------
--------------------------------------------------------------------------


On March 9, 2007, the Corporation and Cable Satisfaction International Inc. came to an agreement for a final adjustment to the working capital that was outstanding since the date of acquisition. According to the agreement, the final purchase price was reduced by an amount of 2,194,000 EUR ($3,371,000). Also, during 2007, the purchase price allocation related to the 2006 acquisition of Cabovisao was adjusted to reflect final valuations of tangible and intangible assets acquired and liabilities assumed on acquisition. The impact of these adjustments reduced goodwill by $87,020,000 (see note 2).

At August 31, 2007, the Corporation tested the value of goodwill for impairment and concluded that no impairment existed.



8. Long-Term Debt

--------------------------------------------------------------------------
Interest August 31, August 31,
Maturity rate 2007 2006
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(audited) (audited)

Parent company
Term Facility
Term loan -
104,551,500 EUR
($150,000,000
in 2006) (1) 2011 5.44 % (2) $150,450 $150,000
Term loan -
17,358,700 EUR 2011 5.25 (2) 24,979 24,573
Revolving loan -
196,725,000
(317,000,000 EUR
in 2006) 2011 5.02 (2) 283,087 448,745
Senior Secured
Debentures Series 1 2009 6.75 150,000 150,000
Senior - Secured
Notes
Series A -- US$150
million 2008 6.83 (3) 158,430 165,795
Series B 2011 7.73 175,000 175,000
Second Secured
Debentures
Series A 2007 (4) 8.44 - 125,000
Deferred credit (5) 2008 - 80,220 72,855

Subsidiaries
Obligations under
capital leases 2011 6.42 - 8.30 5,760 5,009
--------------------------------------------------------------------------
1,027,926 1,316,977
Less current portion 17,292 126,851
--------------------------------------------------------------------------
$1,010,634 $1,190,126
--------------------------------------------------------------------------
--------------------------------------------------------------------------

(1) On August 14, 2007, the Term Facility was amended to permit EURIBOR
loans under the third tranche Term commitment in an amount not
exceeding $150,000,000 subject to reduction already determined.

(2) Average interest rate on debt as at August 31, 2007, including stamping
fees.

(3) Cross-currency swap agreements have resulted in an effective interest
rate of 7.254% on the Canadian dollar equivalent of the U.S.
denominated debt.

(4) On February 2, 2007, the Corporation gave a notice of redemption to
purchase on March 5, 2007, all of its 8.44% Second Secured Debentures
Series A (the "Notes") in the aggregate principal amount of
$125,000,000. Concurrently, the Corporation also made an offer to
purchase for cancellation on February 12, 2007, all of the validly
issued and held Notes upon receipt by the Trustee of a written notice
of acceptance by the holders of Notes. As a result, a total of
$89,257,000 of Notes were redeemed on February 12, 2007, for a total
cash consideration of $91,038,000. The remaining Notes of $35,743,000
were redeemed on March 5, 2007, for a total cash consideration of
$36,550,000. The excess of the redemption price over the aggregate
principal amount was recorded as financial expense.

(5) The deferred credit represents the amount that would have been payable
as at August 31, 2007 and 2006 under cross-currency swaps entered into
by the Corporation to hedge Senior Secured Notes Series A denominated
in U.S. dollars.


Interest on long-term debt for the three and twelve month periods ended August 31, 2007 amounted to $18,163,000 and $80,066,000 ($15,675,000 and $55,240,000 in 2006).

9. Capital Stock

Authorized, an unlimited number

Class A Preference shares, without voting rights, redeemable by the Corporation and retractable at the option of the holder at any time at a price of $1 per share, carrying a cumulative preferential cash dividend at a rate of 11% of the redemption price per year.

Class B Preference shares, without voting rights, could be issued in series.

Multiple voting shares, 10 votes per share.

Subordinate voting shares, 1 vote per share.



----------------------------------------------------------------------
August 31, August 31,
2007 2006
----------------------------------------------------------------------
----------------------------------------------------------------------
(audited) (audited)


Issued

15,691,100 multiple voting shares $98,346 $98,346

32,663,587 subordinate voting shares
(24,308,112 in 2006) 886,059 532,112
----------------------------------------------------------------------
$984,405 $630,458
----------------------------------------------------------------------
----------------------------------------------------------------------

During the period, subordinate voting share transactions were as follows:

Twelve months ended Twelve months ended
----------------------------------------------------------------------
August 31, 2007 August 31, 2006
----------------------------------------------------------------------
----------------------------------------------------------------------
(audited) (audited)
----------------------------------------------------------------------
Number of Number of
shares Amount shares Amount
----------------------------------------------------------------------
Balance at beginning 24,308,112 $532,112 24,293,486 $531,874

Shares issued for cash
consideration 8,000,000 345,950 - -

Shares issued for cash
under the Employee
Stock Purchase
Plan and the Stock
Option Plan 355,475 7,014 14,626 228
Compensation expense
previously recorded
in contributed
surplus for options
exercised - 983 - 10
----------------------------------------------------------------------
Balance at end 32,663,587 $886,059 24,308,112 $532,112
----------------------------------------------------------------------
----------------------------------------------------------------------


On February 2, 2007, the Corporation issued 5,000,000 subordinate voting shares for a total consideration of $192,500,000. Proceeds of this offering, net of issue costs, amounted to $184,211,000. On August 9, 2007, the Corporation issued 3,000,000 subordinate voting shares for a total consideration of $153,450,000. Proceeds of this offering, net of issue costs, amounted to $146,899,000.

Stock-based plans

The Corporation offers for the benefit of its employees and those of its subsidiaries, an Employee Stock Purchase Plan and a Stock Option Plan for certain executives which are described in the Corporation's annual consolidated financial statements. During fiscal year 2007, the Corporation granted 201,587 stock options (136,059 in 2006) with an exercise price of $26.63 to $44.54 ($24.15 to $29.05 in 2006) of which 57,247 stock options (31,743 in 2006) were granted to COGECO Inc.'s employees. The Corporation also granted 376,000 conditional stock options with an exercise price of $26.63 of which 262,400 stock options were granted to COGECO Inc.'s employees. These conditional options vest over a period of three years beginning one year after the day such options are granted and are exercisable over ten years. The vesting of these options is conditional to the achievement of certain yearly financial objectives by the Portuguese subsidiary, Cabovisao -- Televisao por Cabo, S.A., over a period of three years. During the fourth quarter of 2007, the Corporation charged an amount of $315,000 with regards to the Corporation's options granted to Cogeco Inc.'s employees. The Corporation records compensation expense for options granted on or after September 1, 2003. As a result, a compensation expense of $223,000 and $1,662,000 ($202,000 and $775,000 in 2006) was recorded for the three and twelve month periods ended August 31, 2007. If compensation expense had been recognized using the fair value-based method at the grant date for options granted between September 1, 2001 and August 31, 2003, the Corporation's net income and earnings per share for the three and twelve month periods ended August 31, 2006 would have been reduced to the following pro forma amounts:



Three months ended Twelve months ended
----------------------------------------------------------------------
August 31, 2006 August 31, 2006
----------------------------------------------------------------------
----------------------------------------------------------------------
(unaudited) (audited)

Net income
As reported $33,987 $65,556
Pro forma 33,967 65,475

Basic earnings per share
As reported $0.85 $1.64
Pro forma 0.85 1.64

Diluted earnings per share
As reported $0.85 $1.63
Pro forma 0.85 1.63
----------------------------------------------------------------------
----------------------------------------------------------------------


The fair value of stock options granted for the twelve month period ended August 31, 2007 was $7.39 ($9.32 in 2006) per option. The fair value of each option granted was estimated at the grant date for purposes of determining stock-based compensation expense using the binomial option pricing model based on the following assumptions:



----------------------------------------------------------------------
2007 2006
----------------------------------------------------------------------
Expected dividend yield 1.27 % 1.27 %

Expected volatility 32 % 39 %

Risk-free interest rate 4.05 % 3.70 %

Expected life in years 4.0 4.0
----------------------------------------------------------------------


As at August 31, 2007, the Corporation had outstanding stock options providing for the subscription of 942,714 subordinate voting shares. These stock options, which include 376,000 conditional stock options, can be exercised at various prices ranging from $7.05 to $44.54 and at various dates up to April 11, 2017.

The Corporation had also a Performance Unit Plan for key employees, which was terminated in June 2007. The value of a performance unit granted was equal to the closing price of the subordinate voting shares of the Corporation on the Toronto Stock Exchange on the trading day preceding the date of grant of the unit. The units credited to the participant's account became vested to the participant on the third anniversary of the date of grant of the said performance units. During fiscal years 2007 and 2006, no performance units were granted to employees by the Corporation. An amount of $1,125,000 was paid in the fourth quarter related to the termination of the plan. A compensation expense of $11,000 and $608,000 ($279,000 and $139,000 in 2006) was recorded for the three and twelve months periods ended August 31, 2007 related to this plan.

In April 2007, the Corporation established a deferred share unit plan ("DSU Plan") to assist in the attraction and retention of qualified individuals to serve on the Board of the Corporation. Each existing or new member of the Board may elect to be paid a percentage of the annual retainer in the form of deferred share units ("DSUs") with the balance, if any, being paid in cash. The number of DSUs that a member is entitled to receive is based on the average closing price of the subordinate shares on the Toronto Stock Exchange for the twenty consecutive trading days immediately preceding the day preceding the date of grant. Dividend equivalents are awarded with respect to DSUs in a member's account on the same basis as if the member was a shareholder of record of subordinate shares on the relevant record date, and the dividend equivalents are credited to the individual's account as additional DSUs. DSUs are redeemable upon an individual ceasing to be a member of the Board or in the event of the death of a member.

10. Foreign Currency Translation Adjustment

The change in the foreign currency translation adjustment included in shareholders' equity is the result of the fluctuation in the exchange rates on translation of net investments in self-sustaining foreign subsidiaries and foreign exchange gains or losses related to long-term debt denominated in foreign currency used to hedge net investments. The net change in foreign currency translation adjustment for 2007 and 2006 is as follows:



Twelve months ended Twelve months ended
-----------------------------------------------------------------------
August 31, 2007 August 31, 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(audited) (audited)

Effect of exchange rate
variation on translation
of net investments in
self-sustaining
foreign subsidiaries $(3,512) $(12,412)

Effect of exchange rate
variation on translation
of long-term debt designated
as hedge of net investments in
self-sustaining subsidiaries,
net of income taxes of $18,000
($1,703,000 in 2006) 402 7,960
-----------------------------------------------------------------------
$(3,110) $(4,452)
-----------------------------------------------------------------------
-----------------------------------------------------------------------


11. Statements of Cash Flow

a) Changes in non-cash operating items

Three months ended Twelve months ended
August 31, August 31,
--------------------------------------------------------------------------
2007 2006 2007 2006
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Accounts receivable $582 $1,023 $(3,792) $(1,131)

Income taxes receivable 58 178 (2,528) -

Prepaid expenses (738) 244 (1,324) (1,020)

Accounts payable and
accrued liabilities 27,575 48,788 (69,807) 1,681

Income tax liabilities 158 450 507 (228)

Deferred and prepaid income 1,155 (188) 4,189 1,749
--------------------------------------------------------------------------
$28,790 $50,495 $(72,755) $1,051
--------------------------------------------------------------------------
--------------------------------------------------------------------------

b) Other information

Three months ended Twelve months ended
August 31, August 31,
--------------------------------------------------------------------------
2007 2006 2007 2006
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Fixed asset
acquisitions
through capital leases $291 $268 $3,084 $2,898

Financial expense paid 13,705 11,805 82,787 54,892

Income taxes paid
(received) (728) 478 6,255 4,308
--------------------------------------------------------------------------
--------------------------------------------------------------------------


12. Employee Future Benefits

The Corporation and its Canadian subsidiaries offer their employees contributory defined benefit pension plans, a defined contribution pension plan or a collective registered retirement savings plan which are described in the Corporation's annual consolidated financial statements. The total expenses related to these plans are as follows:



Three months ended Twelve months ended
August 31, August 31,
--------------------------------------------------------------------------
2007 2006 2007 2006
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Contributory defined
benefit pension plans $413 $426 $1,103 $1,044

Defined contribution
pension plan and
collective registered
retirement savings plan 604 407 2,307 1,522
--------------------------------------------------------------------------
$1,017 $833 $3,410 $2,566
--------------------------------------------------------------------------
--------------------------------------------------------------------------


13. Guarantees

Taxes for Municipal Rights of Way

During the second quarter, the Corporation has guaranteed the payment by Cabovisao of certain taxes for municipal rights of way assessed by the Municipality of Seixal in Portugal for the years 2004 and 2005 totalling 5.7 million EUR (the "Tax Amounts"), which are currently being challenged by Cabovisao. Trustworthy financial guarantees were required under applicable Portuguese law in order for Cabovisao to challenge the Tax Amounts and withhold payment thereof until a final judgement no longer subject to appeal is rendered by the Portuguese courts having jurisdiction in this matter. As a result, the Corporation may be required to pay, upon written demand by the Municipality of Seixal, the required amounts following final judgement up to a maximum aggregate amount of 5.7 million EUR ($8.3 million), should Cabovisao fail to pay such required amounts.

Contact Information

  • Cogeco Cable Inc.
    Pierre Gagne
    Vice President, Finance and Chief Financial Officer
    514-874-2600
    or
    Cogeco Cable Inc.
    Media: Marie Carrier
    Director, Corporate Communications
    514-874-2600