COGECO Inc.
TSX : CGO

COGECO Inc.

October 16, 2006 08:14 ET

Cable and radio drive COGECO's growth

MONTREAL, Oct. 16 - Today, COGECO Inc. (TSX: CGO) announced
its financial results for the fourth quarter and fiscal year ended August 31,
2006.

COGECO's sustained growth is mainly attributable to the cable sector,
which, through internal and external expansion, drives the Company's
performance. For the fourth quarter, revenue was up 21.4%, operating income
before amortization by 21.5% and net income jumped to reach $10.3 million.


Cable Sector:

Growth by business acquisition and by internal customer growth
--------------------------------------------------------------
With the acquisition of Cabovisao - Televisao por Cabo S.A. (Cabovisao),
as a contributing factor, the number of revenue-generating units(1) (RGUs)
jumped from about 1,348,000 at the beginning of the fiscal year to
approximately 2,185,000 at the end of August 2006. "The arrival of Cabovisao
in our cable sector, with about 629,000 RGUs, is very promising," said Mr.
Louis Audet, President and CEO of COGECO. "We are in a very good position to
sustain growth, in Canada with more than 208,000 RGUs added to our base as a
result of the positive impact of our Digital Telephony service and, with the
well-trained and enthusiastic people in Portugal, who are working to grow our
position in that market."

During the fourth quarter, the Canadian operations reported strong RGU
increases, adding more than 44,000 compared to about 10,000 for the same
period last year and growing revenue by 12.7%, while operating income before
amortization improved by 11.8%. On a consolidated basis, revenue increased by
24.8%, operating income before amortization by 20% while net income more than
tripled to reach $34 million.

Media Sector:

Revenue increased slightly compared to those of the fourth quarter of
fiscal year 2005.
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TQS: strong fall schedule
-------------------------

During the fourth quarter, TQS developed a new logo and imagery and
prepared the fall season, which coincided with the 20th anniversary of the
station. "The 20th anniversary of TQS is testimony to the vitality of a
generalist television network, that is different in terms of style and
content. We continue to take all the necessary measures to improve our
programming with new shows that will please our advertisers and our audience",
declared Mr. Audet.


-----------------------
(1) Revenue-generating units represents the sum of basic service, Digital
Television service, High Speed Internet service and Telephony
customers.


Radio: maintaining its position
-------------------------------

On the radio side, RYTHME FM maintained its leading position in the
Montreal French market. "The competition is fierce but we continuously strive
to maintain that position. This is why in August, we launched a new morning
show and revisited our lunchtime and afternoon shows with new hosts," stated
Mr. Audet. All of its other stations are strenghtening their position in their
respective markets.


2007 projections

Consolidated outlook
--------------------

For fiscal 2007, COGECO expects to improve operating income before
amortization by 33% to 35%, and consequently generate a net income of
approximately $15 million. The expected free cash flow should stand between
$15 million and $20 million as announced in the third quarter.

Cable Sector
------------

For the Canadian operations, management is maintaining its 2007
preliminary projections of last July. In Portugal, we expect to add more than
75,000 RGUs essentially equally divided between basic cable, High Speed
Internet (HSI), and Telephony services. Revenue generated from the Portuguese
operations should exceed $215 million and operating income before amortization
should reach approximately $70 million, an operating margin of 33%.
Consequently, on a consolidated basis, an operating margin of approximately
38% should be achieved.

"For fiscal 2007, all Cogeco Cable employees, here and abroad will aim to
increase customer satisfaction through improved customer service and enhanced
product and service offerings. We will maintain tight controls over the cable
subsidiary's costs and we will work to continue to improve our business
processes. With regards to our new Portuguese subsidiary, the Cabovisao
integration plan is well advanced and we believe Cabovisao will contribute to
the creation of value for COGECO's shareholders as early as this fiscal year",
concluded Mr. Audet.

Media Sector
------------

New shows, new hosts and standard favourites will drive TQS performance.
Since it began, Loft Story III enjoyed large audiences every night. Loft Story
III and other original shows will help sustain TQS's viewership. On the radio
side, management will focus on maintaining leadership in the key Montreal
market while continuing to improve performance in all regional markets.

FINANCIAL HIGHLIGHTS

Quarters ended August 31, Years ended August 31,
($000s, except (unaudited) (audited)
percentages
and per share 2006 2005 % 2006 2005 %
data) Change Change
---- ---- ------ ---- ---- ------


Revenue $ 199,351 $ 164,210 21.4 $ 746,906 $ 675,605 10.6
Operating
income before
amortization 68,645 56,485 21.5 253,114 233,843 8.2

Net income (loss) 10,300 630 - 23,101 (19,813) -

Cash flow from
operations(1) 51,729 43,215 19.7 192,308 177,379 8.4
Less:
Capital
expenditures
and increase
in deferred
charges 55,309 49,361 12.0 168,131 132,649 26.7
Free cash flow(1) (3,580) (6,146)(41.8) 24,177 44,730 (45.9)

Per share data
Basic net income
(loss) $ 0.62 $ 0.04 - $ 1.40 $ (1.21) -

(1) Cash flow from operations, free cash flow and net income excluding
impairment of goodwill and other intangible assets 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
the section "Uncertainty and main risk factors" of the Company's 2005 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 Company's financial
statements, and the notes thereto, prepared in accordance with Canadian GAAP
and the MD&A included in the Company's 2005 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's objectives are to maximize shareholder value by increasing
profitability and by ensuring continued growth. The strategies for reaching
those objectives are, for the cable sector, constant corporate growth through
the diversification and improvement of products and services as well as
clientele and territories, effective management of capital and tight cost
control. The media sector focuses on continuous improvement of its programming
to increase its market share, and therefore, its profitability. The Company
measures its performance with regard to these objectives with operating income
before amortization growth, free cash flow(1) and RGU(2) growth for the cable
sector. Below are the fourth quarter achievements of the cable and media
sectors in furtherance of COGECO's objectives.

Cable Sector

Sustained corporate growth and diversification of clientele and
territories
- On August 1, 2006, Cogeco Cable completed the acquisition of
Cabovisao, the second largest cable operator in Portugal in terms
of the number of basic service cable customers served. On
August 31, 2006, Cabovisao had 826,369 homes passed, 629,041 RGUs
and 269,694 basic cable service customers, offering analog
television, HSI and Telephony services. In addition, only one month
of financial results was incorporated in those of the fourth
quarter and fiscal year 2006.

Diversification and improvement of products and services
- Digital Television services:
- Launch of five new high definition (HD) channels, and two new
standard definition (SD) channels in most Ontario territories;
- Digital Telephony service:
- Available to 66% of homes passed in Cogeco Cable's territories,
as at August 31, 2006;
- Since June 1, 2006, deployment of Digital Telephony service in
Niagara Falls, Pelham, Wallaceburg, Essex, St.Catharines,
Cornwall, Gananoque, North Bay, Peterborough, Sarnia, Beamsville,
Bright's Grove, Corunna, Lindsay in Ontario, and Salaberry-de-
Valleyfield, Magog, St-Sauveur, Piedmont, Ste-Adèle, St-Jovite,
Mont-Tremblant, Alma, Roberval and Ste-Agathe in Québec.
- HSI service:
- Download speed increase:
- Standard HSI service's maximum speed went from 7 Mbps to
up to 10 Mbps;
- Pro HSI service's maximum speed went from 10 Mbps to up to
16 Mbps.

Media Sector

- During the fourth quarter, TQS announced that it would air "Loft
Story III" in the fall of 2006. Increased programming commitments
should sustain growth in viewership and advertising revenue for
fiscal 2007;
- RYTHME FM is committed to keeping its leadership position in the
Montreal market. It has renewed its morning show and brought in new
hosts. Across Québec, other RYTHME FM stations are consolidating
their position. In addition, station 93.3 continues to gain new
listeners within its target audience.

----------------------
(1) See "Non-GAAP financial" section for explanation.
(2) See "Customer statistics" section of the cable sector section for
detailed explanations.

RGU Growth


During the year, the number of RGUs for the Canadian operations increased
by 15.4%. In the third quarter of 2006, Cogeco Cable had anticipated RGU
growth between 13% and 15% for all of fiscal year 2006. Higher than
anticipated HSI, Digital Television, Digital Telephony and basic customer
growth allowed the cable subsidiary to exceed the fiscal year objectives. With
the acquisition of Cabovisao on August 1, 2006, Cogeco Cable added 629,041
RGUs for a total of 2,184,977.

Operating Income Before Amortization Growth


During the year, consolidated revenue increased by 10.6% mainly due to
stronger RGU growth and the acquisition of Cabovisao on August 1, 2006 in the
cable sector. Operating income before amortization grew by 8.2% while, the
Company had expected a 4.3% increase in its third-quarter revised guidelines.

Free Cash Flow


For the fiscal year 2006, COGECO generated a higher than anticipated free
cash flow of $24.2 million mainly due to stronger RGU growth in the cable
sector. Capital expenditures and deferred charges amounted to $168.1 million,
which is in line with the Company's third quarter revised guidelines.

ACCOUNTING POLICIES AND ESTIMATES

Foreign Currency Translation


Financial statements of self-sustaining foreign subsidiaries are
translated using the rate in effect at the balance sheet date for assets and
liabilities, and using the average exchange rates during the year for revenues
and expenses. Adjustments arising from this translation are deferred and
recorded in the foreign currency translation adjustment account and are
included in income only when a reduction in the investment in these foreign
subsidiaries is realized.

Other assets and liabilities denominated in foreign currencies are
translated in Canadian dollars at the prevailing exchange rates at the balance
sheet date for monetary items and at the transaction date for non-monetary
items. Revenues and expenses are translated at average rates prevailing during
the period except for transactions being hedged which were translated using
the terms of the hedges. Amounts payable or receivable on cross-currency
swaps, all of which are used to hedge foreign currency debt obligations are
recorded concurrently with the unrealized gains and losses on the obligations
being hedged. Other foreign exchange gains and losses are included in net
income, except for unrealized foreign exchange gains and losses on long-term
debt denominated in foreign currencies, designated as a hedge of a net
investment in a self-sustaining foreign subsidiary, which are included in the
foreign currency translation adjustment account.

Non-Monetary Transactions


In June 2005, the Canadian Institute of Chartered Accountants issued
Handbook Section 3831, Non-Monetary Transactions, which revised and replaced
the current standards on non-monetary transactions. Under the new section, the
criterion for measuring non-monetary transactions at fair value is modified to
focus on the assessment of commercial substance instead of the culmination of
the earnings process. A non-monetary transaction has commercial substance when
the entity's future cash flows are expected to change significantly as a
result of the transaction. These standards are effective for non-monetary
transactions initiated in periods beginning on or after January 1, 2006.
During the third quarter, the Company adopted these new standards and
concluded that they had no significant impact on its consolidated financial
statements.

There has been no other significant change in COGECO's accounting policies
and estimates since August 31, 2005. A description of these policies and
estimates can be found in the Company's 2005 annual MD&A.

OPERATING RESULTS


Revenue, for the fourth quarter and fiscal year 2006 rose by
$35.1 million, or 21.4% and by $71.3 million, or 10.6% respectively, compared
to the same periods last year. Cable revenue, driven by an increased number of
customers in Digital Television, HSI and Telephony services together with rate
increases and the Cabovisao acquisition, went up by $34.7 million, or 24.8%,
in the fourth quarter and by $65.6 million, or 11.8%, for fiscal year 2006.
Media revenue increased by $0.4 million, or 1.8%, in the fourth quarter 2006
and by $5.7 million, or 4.7%, in the fiscal year 2006, due to higher radio
advertising revenue.

Operating income before amortization grew by 21.5% to reach $68.6 million
in the fourth quarter 2006, compared to $56.5 million for the same period last
year. The cable sector contributed to an increase of $12.1 million while that
of the media sector had a negative impact of $1.1 million.

FIXED CHARGES
Quarters ended August 31, Years ended August 31,
($000s, 2006 2005 % 2006 2005 %
except percentages) Change Change
---- ---- ------ ---- ---- ------

Amortization $ 36,446 $ 30,769 18.5 $ 127,204 $ 130,551 (2.6)

Financial expense 16,864 14,366 17.4 59,176 57,284 3.3


Amortization amounted to $36.4 million for the fourth quarter and to
$127.2 million for fiscal year 2006 compared to $30.8 million and
$130.6 million for the same periods last year, respectively. Amortization
increased during the fourth quarter mainly as a result of Cabovisao
acquisition and declined for fiscal year 2006 since many cable modems and
digital terminals in the cable sector were fully amortized.
During the fourth quarter and fiscal year 2006, financial expense
increased compared to the same periods last year. These increases were
attributable to a higher level of Indebtedness (defined as bank indebtedness
and long-term debt) required to finance the acquisition of the Portuguese
subsidiary, Cabovisao.

IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS


Subsequent to a viewership market share loss in conventional television
combined with a shift in conventional television advertising towards specialty
channels, impairment tests of goodwill and other intangible assets related to
the television operation of the media business unit were performed at the end
of the second quarter of fiscal 2005. The Company concluded that an impairment
existed and consequently wrote-off the $27.9 million of goodwill and reduced
the value of its television broadcasting licenses by $24.6 million. The impact
of the impairment of goodwill and other intangible assets on the net income of
fiscal 2005 was as follows:

($ 000s)
Impairment of goodwill and other intangible assets 52,531
Income taxes 3,270
-------
Impairment losses net of income taxes 49,261
Non-controlling interest 19,651
-------
Impairment losses net of income taxes and
non-controlling interest 29,610
-------
-------

INCOME TAXES


For the fourth quarter of fiscal year 2006, income taxes represented a
recovery of $14 million compared to an expense of $5.1 million in 2005 despite
operating income growth. The income tax decrease was mainly attributable to a
change in the Canadian federal enacted income tax rate for the Canadian
operations. On May 2, 2006, the Federal government announced its intention 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. These measures were considered substantially enacted on June 6, 2006,
and as a result an adjustment of $19.8 million was recorded in the fourth
quarter of fiscal year 2006 to reduce future income taxes. Income taxes for
fiscal year 2006 amounted to $6.8 million compared to $15.4 million for the
same period last year.

NON-CONTROLLING INTEREST


The non-controlling interest represents an interest of approximately 61%
in Cogeco Cable's results and a 40% interest in TQS Inc. Fourth quarter 2006
non controlling interest amounted to $19 million compared to $5.4 million for
the same period last year. During fiscal year 2006, the non-controlling
interest stood at $36.6 million compared to a reduction of $2.7 million for
the same period last year. During fiscal 2005 the non-controlling interest
included an adjustment of $19.7 million for the television's impairment of
goodwill and other intangible assets.

NET INCOME (LOSS)


Net income for the fourth quarter of fiscal year 2006 amounted to
$10.3 million, or $0.62 per share, compared to $0.6 million, or $0.04 per
share, for the same period last year. Excluding the net effect of the income
tax recovery after non-controlling interest of $7.9 million, net income would
have stood at $2.4 million for the quarter or $0.15 per share. For fiscal year
2006, net income amounted to $23.1 million, or $1.40 per share, $15.2 million
or $0.92 per share excluding the impact of the income tax recovery, compared
to a net loss of $19.8 million, or $1.21 per share for the same period in
fiscal 2005. Excluding the impact of the impairment of goodwill and other
intangible assets in fiscal 2005, net income would have been at $9.8 million.
Net income has increased in these periods, due to the growth in operating
income before amortization.


CASH FLOW AND LIQUIDITY
Quarters ended August 31, Years ended August 31,
($000s)
2006 2005 2006 2005
--------- --------- --------- ---------
Operating Activities
Cash flow from
operations $ 51,729 $ 43,215 $ 192,308 $ 177,379
Changes in non-cash
operating items 57,288 49,951 3,645 23,680
--------- --------- --------- ---------
109,017 93,166 195,953 201,059
--------- --------- --------- ---------
--------- --------- --------- ---------

Investing Activities (1) $(632,547) $ (48,942) $(742,594) $(130,585)
--------- --------- --------- ---------
--------- --------- --------- ---------

Financing Activities (1) $ 595,759 $ (44,224) $ 618,870 $ (70,474)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net change in cash
and cash equivalents $ 72,229 $ - $ 72,229 $ -
--------- --------- --------- ---------
--------- --------- --------- ---------

(1) Excludes assets acquired under capital leases.


For the fourth quarter of fiscal year 2006, cash flow from operations
reached $51.7 million, 19.7% higher than the result achieved for the
comparable period last year, primarily due to the increase in operating income
before amortization. Changes in non-cash operating items generated greater
cash inflows than for the same period last year, mainly as a result of an
increase in accounts payable and accrued liabilities resulting from an
increase in capital expenditures.

During fiscal year 2006, cash flow from operations reached $192.3 million,
8.4% higher than the result achieved for the same period last year, primarily
due to the increase in operating income before amortization. Changes in
non-cash operating items generated lower cash inflows than last year mainly as
a result of lower increases in accounts payable and deferred and prepaid
income.

On June 2, 2006, the Company's subsidiary Cogeco Cable Inc. entered into
an agreement with Cable Satisfaction International Inc. ("CSII"), Catalyst
Fund Limited Partnership I and Cabovisao to purchase, for a total
consideration of (euro)465.7 million, all the shares of the second largest
cable operator 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 will be determined following the completion of a
post-closing working capital adjustment. Cogeco Cable is assuming a
(euro)20 million working capital deficiency.

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


The preliminary allocation of the purchase price of the acquisition is as
follows:

-------------------------------------------------------------------------
(amounts are in thousands of dollars)
-------------------------------------------------------------------------
Consideration
Paid
Estimated share purchase price $ 304,188
Secured lenders debt and certain specified
Cabovisao liabilities 274,761
Acquisition costs 4,193
-------------------------------------------------------------------------
583,142

Amounts outstanding
Preliminary working capital adjustment 2,432
-------------------------------------------------------------------------
585,574
-------------------------------------------------------------------------

Net assets acquired
Cash and cash equivalents 5,711
Restricted cash 489
Accounts receivable 16,570
Prepaid expenses 1,324
Fixed assets 287,652
Accounts payable and accrued liabilities assumed (65,282)
Other specified Cabovisao liabilities assumed (91,914)
-------------------------------------------------------------------------
154,550
-------------------------------------------------------------------------

Excess of consideration over net assets acquired $ 431,024
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Preliminary allocation of excess of consideration
over net assets acquired
Preliminary goodwill $ 431,024
-------------------------------------------------------------------------
-------------------------------------------------------------------------


-------------------------------------------------------------------------
-------------------------------------------------------------------------


Other investing activities related to capital expenditures and the
increase in deferred charges, including assets acquired under capital leases
reached $55.3 million and $168.1 million during the fourth quarter and fiscal
year 2006, respectively.

During the fourth quarter and fiscal year 2006, capital expenditures
increased compared to last year mainly as a result of the following factors:

- The increase in customer premise equipment for the fourth quarter of
fiscal year 2006 resulted primarily from greater demand for HSI and
Digital Telephony services. For fiscal year 2006, the increase in
customer premise equipment resulted primarily from a rise in the number
of digital terminals rented to customers, a greater ratio of digital
terminals per digital home, and the increase in the number of Digital
Telephony and HSI customers.

- The growth in scalable infrastructure was mainly attributable to the
support of the Digital Telephony rollout.

- Expenditures associated with the network upgrade and rebuild program
rose due to the acceleration of the program to expand the bandwidth to
750 MHz and 550 MHz for the Ontario and Québec networks, respectively,
and to improve network reliability. An increase in the number of homes
passed with access to the two-way service was also a factor and the
percentage of customers with access to the two-way service rose from
89% as at August 31, 2005 to 93% as at August 31, 2006.


The fourth quarter and fiscal year 2006 increases in deferred charges are
explained by higher reconnect costs attributable to the significant level of
RGU increase in the cable sector.

Free cash flow for the fourth quarter of 2006 recorded a deficit of
$3.6 million compared to a deficit of $6.1 million the year before. For fiscal
year 2006, free cash flow amounted to $24.2 million compared to $44.7 million
last year, as a result of increased capital expenditures and deferred charges
in the cable sector generated by better-than-projected RGU growth, including
improved service penetration, as well as the launch of the Digital Telephony
service. This increase was partly offset by increased operating income before
amortization in that sector and a decrease in cash flow from operations in the
media sector. In fiscal year 2006, free cash flow decreased compared to 2005,
mainly as a result of increase capital expenditures and deferred charges to
support the better-than-expected RGU growth, as well as the launch of the
digital telephony service.

During the fourth quarter, the level of Indebtedness increased by
$607.7 million, mainly due to the Cabovisao acquisition, an increase in cash
and cash equivalents of $71.5 million and to the fees related to the new
Cogeco Cable's Term Facility of $900,000,000, partly offset by an increase in
non-cash operating items of $57.3 million. For the same period last year,
Indebtedness declined by $42.2 million mainly due to non-cash operating items
of $50 million. In addition, a dividend of $0.0625 per share for subordinate
and multiple voting shares, totalling $1 million, was paid during the fourth
quarter of fiscal years 2006 and 2005.

In fiscal year 2006, the level of Indebtedness grew by $635.4 million
mainly due to the acquisition of Cabovisao completed in the fourth quarter,
the increase in cash and cash equivalents of $71.5 million and to the fees
related to the new Cogeco Cable's Term Facility of $900,000,000, partly offset
by generated free cash flow of $24.2 million. For the same period last year,
Indebtedness declined by $65.7 million essentially due to generated free cash
flow of $44.7 million and an increase in non-cash operating items of
$23.7 million. Dividends totalling $4.1 million were paid during fiscal year
2006 compared to $3.6 million the year before.

As at August 31, 2006, COGECO had a working capital deficiency of
$315.8 million compared to $112.3 million the year before. The greater
deficiency was mainly attributable to the increase in the current portion of
long-term debt as Cogeco Cable's $125 million Second Secured Debentures Series
A matures in less than a year and to Cabovisao's working capital deficiency of
$93.2 million. COGECO maintains a working capital deficiency due to a low
accounts receivable since the majority of the cable subsidiary's customers pay
before their services are rendered, unlike accounts payable and accrued
liabilities, which are paid after products or services are rendered. In
addition, the cable subsidiary generally uses cash and cash equivalents to
reduce Indebtedness.

As at August 31, 2006, the cable subsidiary had used $623.3 million of its
Term Facility and the Company had drawn $19 million of its Term Facility. On
July 28, 2006, the Term Facility and the operating line of credit of the
Company's subsidiary, Cogeco Cable, were restructured by an amended and
restated credit agreement for credit facilities totalling $900,000,000. The
Term Facility is composed of four tranches: a first tranche, a revolving Term
Facility for an amount of $700,000,000 available in Canadian, U.S. or euro
currencies; a second tranche, a swingline of $25,000,000 available in Canadian
or U.S. currencies; a third tranche of $150,000,000 fully drawn, and a fourth
tranche of 17,358,700 Euros fully drawn. The Term Facility is repayable on
July 28, 2011, except for the third tranche of $150,000,000 which is repayable
as follows: $15,000,000 on July 28, 2008, $22,500,000 on July 28, 2009,
$37,500,000 on July 28, 2010 and the balance on July 28, 2011. Earlier
repayments can be made without penalty. The Term Facility requires commitment
fees, and interest rates are based, on bankers' acceptance, LIBOR, EURIBOR,
bank prime rate loan or U.S. base rate loan plus stamping fees. The Term
Facility is secured by a first fixed and floating charge on the assets of
Cogeco Cable and certain of its subsidiaries except for permitted
encumbrances, including purchased money obligations, existing funded
obligations and charges granted by any subsidiary prior to the date when it
becomes a subsidiary subject to a maximum amount.

Transfers of funds from non-wholly owned subsidiaries to COGECO are
subject to approval by the subsidiaries' Board of Directors and may also be
restricted under the terms and conditions of certain debt instruments. In
accordance with applicable corporate and securities laws, significant
transfers of funds from COGECO may be subject to approval by minority
shareholders.

FINANCIAL POSITION


As at August 31, 2006, there have been major changes on the balance sheet.
The Company balance sheet included the assets and liabilities of the recently
acquired subsidiary in the cable sector, Cabovisao. Please refer to section
"Cash Flow and Liquidity" for details.

Except for the changes noted above, fixed assets for fiscal year 2006 have
increased by $42.2 million mainly related to the cable sector RGU growth and
Digital Telephony launch. Deferred charges have increased by $7.6 million
mainly due to the fees related to the new financing in the cable sector and
Indebtedness increased by $628.3 million, due to the factors previously
discussed in the "Cash Flow and Liquidity" section.

A description of COGECO's share data as of September 30, 2006 is presented
in the table below:

Number of shares/ Amount
options ($000s)
Common Shares
Multiple voting shares 1,849,900 12
Subordinate voting shares 14,702,556 117,540
Options to Purchase Subordinate Voting Shares
Outstanding options 315,776
Exercisable options 315,776


In the normal course of business, COGECO incurred financial obligations,
primarily in the form of long-term debt, operating and capital leases and
guarantees. Except for the matters related to the acquisition of Cabovisao and
the new financing of its subsidiary Cogeco Cable, COGECO's obligations,
described in the MD&A of the 2005 annual report, have not materially changed
since August 31, 2005.

DIVIDEND DECLARATION


At its October 13, 2006 meeting, the Board of Directors of COGECO declared
a quarterly dividend of $0.0625 per share for subordinate and multiple voting
shares, payable on November 10, 2006, to shareholders of record on October 27,
2006.


CABLE SECTOR
----------------
CUSTOMER STATISTICS

Canadian operations

% of
Net additions (losses) Penetration(1)

Fourth Quarters Fiscal years August 31,
----------------- ------------------- ----------------
August 31,
2006 2006 2005 2006 2005 2006 2005
---------- ------- -------- --------- --------- ------- -------
RGUs(2) 1,555,936 44,243 9,559 208,203 81,834
Basic
service
customers 833,177 685 (5,891) 11,744 (2,422)
HSI service
custo-
mers(3) 343,080 12,601 2,775 65,432 38,040 44.3 37.7
Digital
Television
service
customers 327,364 10,563 11,227 80,160 44,768 40.0 31.7
Digital
Telephony
service
customers 52,315 20,394 1,448 50,867 1,448 10.4 0.2

(1) As a percentage of basic service customers in areas served.
(2) Represent the sum of basic service, HSI service, Digital Television
service and Digital Telephony service customers.
(3) Customers subscribing only to Internet services totalled 61,208 as at
August 31, 2006 compared to 55,057 as at August 31, 2005.


All services generated higher growth in the fourth quarter compared to the
same period last year, except for Digital Television service. During fiscal
year 2006, the growth in Digital Telephony is mostly attributable to the
launch of this service in new markets. Coverage of homes passed has now
reached 66% compared to 21% last year. For the first time in many years, the
net additions of basic service customers were positive in the fourth quarter
and amounted to 685 compared to a loss of 5,891 for the same period last year.
The number of net additions of HSI service stood at 12,601 compared to 2,775
for the same period last year. The growth of HSI and basic service customers
compared to the same period last year is mostly due to promotional activities,
enhancement of the product offering and the impact of the bundled offer of
Television, HSI and Digital Telephony services (triple play).

The net additions of Digital Television service customers stood at 10,563
compared to 11,227 for the same period last year. For the fourth quarter of
fiscal 2006, the increase in the number of customers is essentially similar to
the fourth quarter of fiscal 2005. Customers are still showing strong interest
for the HD technology.

Portuguese operations

% of
Net additions (losses) Penetration(1)

Fourth Quarters Fiscal years August 31,
----------------- ------------------- ----------------
August 31,
2006 2006(3) 2005 2006(3) 2005 2006 2005
---------- ------- -------- --------- --------- ------- -------
RGUs(2) 629,041 3,141 _____ 3,141 _____ _____ _____
Basic
service
customers 269,694 1,117 _____ 1,117 _____ _____ _____
HSI
service
customers 136,278 1,165 _____ 1,165 _____ 50.5 _____
Telephony
service
customers 223,069 859 _____ 859 _____ 82.7 _____

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


For the one-month operation period as a subsidiary, all services generated
customer growth. Basic service customers grew by 1,117; HSI by 1,165 customers
and telephony by 859 customers.


OPERATING RESULTS

Quarters ended August 31, Years ended August 31,
($000s, except percentages)

2006 2005 % 2006 2005 %
Change Change
---------- ---------- ------- ---------- ---------- --------

Revenue $ 174,875 $ 140,178 24.8 $ 620,001 $ 554,404 11.8

Operating
costs 102,011 79,458 28.4 358,631 318,704 12.5
Management
fees -
COGECO Inc. - - 8,392 8,179 2.6

Operating
income before
amortization 72,864 60,720 20.0 252,978 227,521 11.2

Operating margin 41.7% 43.3% 40.8% 41.0%


Revenue


Consolidated revenue for the fourth quarter and fiscal year 2006 increased
by $34.7 million and $65.6 million, respectively.

For the fourth quarter and fiscal year 2006, revenue for the Canadian
operations rose by $17.8 million and $48.7 million or 12.7% and 8.8%
respectively compared to same periods of fiscal year 2005. This growth is
explained by an increase in the number of HSI, Digital Telephony and basic
service customers as mentioned in the "Customer Statistics" section, together
with rate increases implemented in June and August of 2005. Monthly rate
increases of at most $3 per customer and averaging $0.50 per basic service
customer took effect on June 15, 2005 in Ontario and on August 1, 2005 in
Québec. The monthly rate for certain bundled services has increased by $1 in
Ontario, and other limited rate increases for selective tier services were
implemented in Québec. Furthermore, an August 2005 reduction in digital
terminal rental rates was more than offset by a greater number of customers
renting digital terminals. In addition, monthly rate increases of up to $3 per
customer averaging $2 per basic service customer, took effect on June 15, 2006
in Ontario, and in August 1, 2006 in Québec. The Portuguese subsidiary's
revenue amounted to $16.9 million for the fourth quarter and the fiscal year
2006.

Operating Costs


Consolidated operating costs for the fourth quarter and the fiscal year
2006 increased by $22.6 million and $39.9 million, respectively.

For the fourth quarter and fiscal year 2006, Canadian operations'
operating costs, including network fees but excluding management fees payable
to COGECO Inc., rose by $10.7 million or 13.4% and by $28 million or 8.8%
respectively. During the fourth quarter and the fiscal year 2006, network fees
increased by 18.8% and 9.3% respectively, compared to the same periods last
year. The network fee increase was mainly attributable to the introduction of
Digital Telephony service, the wholesale rate increase for APTN as mandated by
the Canadian Radio-television and Telecommunications Commission (CRTC) and RGU
growth. These fees were partly offset by the decline of IP transport costs
even with the growth in the number of HSI customers. The increase in other
operating costs was related to servicing additional RGUs, including Digital
Telephony. For the fourth quarter and fiscal year 2006, Cabovisao's operating
costs amounted to $11.9 million.

Operating Income before Amortization


Consolidated operating income before amortization for the fourth quarter
and fiscal year 2006 increased by $12.1 million and $25.5 million,
respectively. Cabovisao's operating income before amortization for the fourth
quarter and fiscal year 2006 amounted to $5.0 million.

For the fourth quarter and fiscal year 2006, operating income before
amortization for the Canadian operations rose by 11.8% and 9.0% respectively,
compared to the same periods last year as the increase in revenue outpaced the
rise in operating costs. Cogeco Cable's operating margin for the Canadian
operations decreased slightly from 43.3% to 43% in the fourth quarter of
fiscal 2006 and for fiscal year 2006, the operating margin. For fiscal 2006,
the operating margin increased slightly to 41.1% compared to 41% last year.
The Portuguese operations generated an operating margin of 29.5% for the
fourth quarter and fiscal 2006. As a result, Cogeco Cable's fourth quarter
2006 operating margin declined to 41.7% from 43.3% and to 40.8% in fiscal year
2006 from 41% in fiscal year 2005.

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 US 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 CDN$1.5910. Amounts due under the US$150
million Senior Secured Notes Series A decreased by CDN$ 12.3 million at the
end of fiscal 2006 compared to August 31, 2005 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 described in Note 10
of the fourth quarter 2006 financial statements. The $72.9 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.

MEDIA SECTOR
------------
OPERATING RESULTS

Quarters ended August 31, Years ended August 31,
($000s, except
percentages)
2006 2005 % 2006 2005 %
Change Change
---- ---- ------ ---- ---- ------
Revenue $ 24,527 $ 24,082 1.8 $ 127,109 $ 121,386 4.7

Operating costs 27,315 25,770 6.0 127,730 114,587 11.5

Operating income
before
amortization (2,788) (1,688) - (621) 6,799 -

Operating margin (11.4) % (7.0) % - % 5.6 %


Revenue


During the fourth quarter and fiscal year 2006, revenue increased by $0.4
million and $5.7 million respectively. All radio stations contributed to the
increase in revenue. Furthermore, since August 31, 2005, revenue and operating
expenses for the Sherbrooke and Trois-Rivières RYTHME FM stations have no
longer been capitalized. Television revenue decreased by 6.8% and 2.6% in the
fourth quarter and fiscal year 2006 compared to the same periods last year,
respectively, due to a difficult advertising market for conventional
television in the Francophone market.

Operating Income Before Amortization


Operating income before amortization declined in the fourth quarter and
for fiscal year 2006 by $1.1 million and $7.4 million respectively. For the
fourth quarter and fiscal year 2006, TQS operating income before amortization
decreased as a result of greater investment in television programming,
combined with a slight decrease in revenue. During the fourth quarter and
fiscal year 2006, radio's operating income before amortization improved due to
revenue growth.

FISCAL 2007 FINANCIAL GUIDELINES

Revised Projections Preliminary
($ million, except October 16, 2006 Projections,
customer data) Fiscal 2007 Fiscal 2007
------------------- ---------------
Cable sector-
Financial Guidelines
Revenue 880 to 885 660 to 670
Operating income
before amortization 335 to 338 264 to 267
Operating margin About 38% About 40%
Financial expense 85 55
Amortization 182 128
Capital expenditures and
deferred charges 225 to 230 180
Free cash flow 20 to 25 25 to 30

Customer Addition Guidelines
Basic service 25,000 to 30,000 3,000 to 6,000
HSI service 55,000 to 60,000 35,000 to 40,000
Digital Television service 55,000 to 60,000 55,000 to 60,000
Telephony services 67,000 to 72,000 45,000 to 50,000
RGU 202,000 to 222,000 138,000 to 156,000

Media sector-
Financial Guidelines
Revenue 131 to 135 131 to 135
Operating income
before amortization 1 to 3 1 to 3
Amortization 7 7
Capital expenditures and deferred charges 7 7

Consolidated Financial Guidelines
Revenue 1,010 to 1,020 790 to 805
Operating income before
amortization 336 to 341 265 to 270
Net income 15 19
Free Cash Flow 15 to 20 20 to 25


Cable Sector
------------

The preliminary financial guidelines for fiscal 2007 exclude Cabovisao. In
its revised projections, management has maintained its preliminary financial
guidelines for the Canadian operations and added those of Cabovisao.

Canadian Operations


The revenue increase of approximately 10% to 12% should result mainly from
expanded penetration of HSI and Digital Telephony services in fiscal 2007 as
well as the full-year impact of the 2006 RGU additions. In addition rate
increases of up to $3 per customer in Quebec and Ontario, thus averaging $2
per basic service customer, as well as improved penetration of Digital
Television services will also contribute to the revenue increase. Cogeco Cable
plans to expand its basic service clientele through effective marketing,
competitive product offering and superior customer service. As the penetration
of HSI and Digital Television services increase, the demand for these products
will likely slow down but should be offset by increased demand for Digital
Telephony service. As a result, the Canadian operations operating income
before amortization should increase by 6% to 8% to reach $264 million to
$267 million, for an operating margin of about 40%. Amortization of capital
assets and deferred charges are expected to increase by $11 million, as a
result of capital expenditures and deferred charges that will be incurred for
the RGU growth of fiscal 2007 and the full-year impact of the 2006 RGU growth.
Compared to fiscal year 2006, the rise in capital expenditures and deferred
charges will result primarily from an increase of approximately $6 million
associated with the scalable infrastructure related to the head end equipment
to support HSI, Digital Television services and video on demand (VOD),
$7 million related to customer premise equipment and $4 million related to
support capital for the upgrade of business information systems.

Portuguese Operations


RGUs should increase by approximately 75,000 essentially equally divided
between basic cable, HSI and telephony customers. As a result, revenue should
reach $215 million to $220 million, using a conversion rate of $1.40 per euro,
while operating income before amortization should amount to between
$69 million to $71 million for an operating margin of approximately 33%.
Capital expenditures to support the projected revenue growth, including $4.4
million for the launch of the Digital Television service, should reach $45
million to $50 million, or approximately 22% of projected revenue.
Amortization of capital assets and deferred charges should amount to $54
million.

Media Sector


Media sector revenue should grow by 5% to 7% compared to fiscal year 2006.
In fiscal year 2007, revenue from radio should improve by 15% to 17%, while
TQS revenue should increase by 2% to 3%.

Consolidated outlook

For fiscal 2007, COGECO expects to improve its operating income before
amortization by 33% to 35%. Free cash flow should generate between $15 million
and $20 million and net income of approximately $15 million should be earned
as a result of growth in operating income before amortization.

RISK FACTORS AND UNCERTAINTIES


This section outlines general as well as more specific risks faced by
COGECO and its subsidiaries that could significantly affect the financial
condition, operating results or business of the Company. It does not purport
to cover all contingencies, or to describe all possible factors that might
have an influence on the Company 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 currently anticipated.

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

Risks Pertaining to Markets and Competition

Cable Sector
------------

Broadband telecommunications markets in Canada and Portugal are very
dynamic and highly competitive. They involve intense rivalry between a variety
of terrestrial wireline and wireless, as well as satellite, service providers
over a widening suite of broadband services that include fixed and mobile
voice communications, Internet access, data communications, audio and video
content delivery, electronic programming guides and navigation, security and
other related or incidental services. While cable broadband telecommunications
providers have entered into the voice and data communications markets
traditionally dominated by incumbent telephone companies, the telephone
companies are increasingly involved in audio and video content delivery, as
part of a global phenomenon known as convergence. A number of new competitors
have also entered various telecommunications markets through the use of the
Internet and access to the facilities of telephone and cable
telecommunications companies.

In this converged environment, competition for the Cable Sector
increasingly unfolds over bundles of services offered at attractive package
rates, as competitors strive to meet all the communications needs of
residential and business customers and thus obtain maximum share of their
overall communications budget. Rivalry extends over the composition of service
bundles, bundle prices and perceived value, promotional or introductory
offers, term of commitment by the customer, terminal devices and customer
service. The substantial cost of broadband facilities and broadband customer
acquisition, combined with the significant annual growth rates 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. As markets mature and penetration gains for high speed
Internet access, digital video and digital telephony services abate, retail
pricing strategies may become more aggressive, with resulting downward
pressure on operating margins of both individual services and service bundles
for the Cable Sector.

Cogeco Cable provides "double-play" and "triple-play" service bundles in
its various geographic markets, with various combinations of voice, Internet
and video distribution services being offered at attractive bundle prices.
"Quadruple-play" service bundles that include mobile communications have
appeared in these markets, but so far they have had limited effect in the
marketplace. Cogeco Cable continues to focus at this time on its existing
lines of service with a view to capturing the remaining growth opportunities
for HSI, Digital Television and Digital Telephony services in its footprint,
making the most efficient use of its own hybrid fibre-coaxial (HFC) plant.
Mobile telephone operators are now offering audio and video content
distribution directly to their mobile telephone customers, but this new form
of content distribution has so far had no measurable impact on the use of
wireline and satellite content distribution. As markets evolve and mobility
becomes a more cost-effective substitute to wireline communications, Cogeco
Cable and its subsidiaries may need to add mobility components to its service
bundles, through suitable mobile virtual network arrangements with existing
mobile operators.

In Canada, Cogeco Cable faces competition in its service areas mainly from
two national direct-to-home satellite distribution services, Star Choice and
Bell ExpressVu (the latter controlled by BCE Inc., the largest and most widely
integrated Canadian telecommunications company), and from incumbent telephone
companies Telus, Bell Canada (controlled by BCE Inc.) and Bell Nordiq (also
controlled by BCE Inc.). Star Choice and Bell ExpressVu both offer a wide
range of competitive audio and video services on a fully digital basis. Telus,
Bell Canada and Bell Nordiq all offer a wide range of business and residential
Internet access, voice and data telecommunications services. Rogers, Telus and
Bell Canada respectively operate mobile telecommunications services in Ontario
and Quebec. In addition, Telus now offers audio and video distribution
services in the Lower St. Lawrence area in direct competition with Cogeco
Cable. Telus and Bell Canada have recently announced that they will become
income trusts. However, Cogeco Cable and Telus cooperate in other parts of
Cogeco Cable's footprint to offer Cogeco Cable's Digital Telephony service.
Bell Canada offers a new digital telephone service in Ontario and Québec and
is expected to launch some time in 2007 a new digital video distribution
service over its wireline network, starting with larger urban centres in
Ontario and Québec, some of which are included in Cogeco Cable's cable network
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 who use resale or third-party
access arrangements in effect. Although spectrum has been allocated for
broadband wireless distribution alternatives for quite some time, this form of
wireless competition has been slow to develop in Cogeco Cable's footprint. It
may however become a more significant competitive factor in coming years.

In Portugal, Cogeco Cable's subsidiary Cabovisao faces competition in its
service areas mainly from incumbent telecommunications carrier Portugal
Telecom, SGPS, S.A. (PT) and its subsidiaries, from diversified Portuguese
conglomerate Sonae, SGPS, S.A. (Sonae) and its subsidiaries, and from
telecommunications operator ONI, whose main shareholder is Energias do
Portugal (EDP), the incumbent electricity service provider in Portugal. In
addition to the national telephone network operator PT Communicaçoes, PT owns
TV Cabo, the largest cable broadband operator in Portugal, which also offers a
direct-to-home satellite television distribution service to the Portuguese
market. Sonae owns and operates the Clix and Novis services, which provide
voice, data, and high-speed Internet services respectively to the residential
and business markets. PT and Sonae, provide mobile telecommunications services
in Portugal, through their respective subsidiaries TMN and OPTIMUS, as well as
Vodaphone. Other competitors include AR Telecom (formerly known as Jazztel),
Tele 2 and Redvo Telecom, a recently launched broadband microwave distribution
service using WiMax technology. Until recently, Cabovisao has been the only
provider of full "triple-play" service bundles in its footprint, but Clix has
recently launched a digital video distribution service over telephone lines,
and its competitive "triple-play" service bundles are expected to extend
progressively to approximately 60% of Cabovisao's footprint. TV Cabo has
started offering telephone services on Session Initiation Protocol (SIP) as
well as a digital video service, and is thus also in a position to offer
competitive "triple-play" service bundles to approximately 60% of Cabovisao's
footprint. Cabovisao's video distribution services are analog only, and do not
include true video-on-demand at this time, but Cabovisao is actively
considering the opportunity and timing for the roll-out of its own digital
services, as its HFC plant has the capacity to accommodate digital services in
addition to all its existing analog services.

The broadband telecommunications competitive landscape in Portugal differs
from that prevailing in Canada mainly in the following respects: the density
of urban dwelling units within the Company 's footprint in Portugal is
approximately double that of its footprint in Canada; there is overlapping
competitive cable plant over approximately 60% of Cabovisao's footprint; and
this competitive cable plant is presently controlled by the incumbent
telephone company; but there is only one Portuguese direct-to-home satellite
competitor and direct-to-home satellite service penetration is very limited in
urban areas.

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

Media Sector
------------

COGECO's media subsidiary CRTI conducts all its commercial radio and
television activities in the Francophone market of the Province of Québec. TQS
Inc. (TQS) competes head-to-head for audience, advertising revenue and
programming content acquisition with three other French-language conventional
television networks operated respectively by Quebecor Media Inc. (TVA), the
Canadian Broadcasting Corporation, a federal public sector corporation (SRC)
and the Société de télédiffusion du Québec, a provincial public sector
corporation (Télé-Québec). TQS also competes with a variety of French-language
specialty and pay television services, most of which are controlled by Astral
Communications Inc. and Quebecor Media Inc. and are widely distributed by
broadcasting distributors throughout the Province of Québec. In the Montreal
market, where a substantial part of the overall audience is bilingual, TQS
competes as well with a variety of English-language conventional, specialty
and pay television services. In the regional markets of Jonquière, Sherbrooke
and Trois-Rivières, TQS operates a combination of local stations affiliated
respectively to the TQS network and to the SRC network. TQS has experienced
slight audience share erosion to the two market leaders TVA and SRC, but more
importantly, all conventional television networks are experiencing gradual
audience and revenue erosion from specialty television services. As specialty
television services benefit both from advertising and subscription revenue,
the establishment of fees for carriage payable by broadcasting distributors to
conventional television networks, now under discussion before the CRTC, would
provide TQS with a new source of revenue and assist with the production and
acquisition of more competitive programming.

CRTI operates the Rythme FM radio service, with stations broadcasting in
the Montreal, Québec, Sherbrooke and Trois-Rivières markets, and the 93.3
station broadcasting in Québec. CRTI's radio stations compete head-to-head
with stations controlled respectively by Astral Communications Inc., Corus
Entertainment Inc. and Radio Nord Communications Inc. While Rythme FM now
enjoys a leading position in the Montreal market, competitors enjoy the
leading position in the other local markets served by CRTI. The CRTC has
recently authorized three additional commercial radio stations to serve the
Québec market, which will bring even more competition in that local market.

Technological Risks

Cable Sector
------------

The evolution of broadcasting and telecommunications technologies is very
rapid, fuelled by a highly competitive global market for digital content,
consumer electronics and broadband products and services. The Company monitors
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 the home
with varying degrees of flexibility and efficiency, and they compete with
cable broadband telecommunications. While the broadband over power line (BPL)
alternative has made little headway to date, the competitive threat posed by
other alternatives such as 3G and Wi-Max broadband wireless technologies,
advanced digital subscriber line technologies such as VDSL+, and the
deployment of fibre to the premises (FTTP) or close to the premises (FTTN) by
incumbent telephone companies is growing with each passing year.

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 Cogeco Cable
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
emergence of the more powerful MPEG-4 video standard promote the increased
distribution and consumption of video content directly over the Internet.
Video content, which is bandwidth-intensive, already accounts for over 50% of
total peer-to-peer data traffic on the Internet. This may lead eventually to
fragmentation of the retail market for existing analog and digital video
distribution services provided by Cogeco Cable, and gradual disintermediation
as between video content suppliers and Cogeco Cable's customers. In this
context, revenue and margins derived from Cogeco Cable's HSI services may not
entirely compensate for the loss of revenue or margin derived from Cogeco
Cable's video distribution services in the future. Alternative voice and data
communications services are proliferating as well over the Internet, with the
resulting risk that fragmentation and disintermediation may also occur in the
future with respect to Cogeco Cable's digital telephone service.

Electronic communications increasingly rely on advanced security
technology and devices to ensure conditional access and service integrity.
Security technology is provided worldwide by a small pool of global suppliers
on a proprietary basis. Like other providers of electronic communications,
Cogeco Cable depends on the effectiveness of security technology for many of
its services and the ability of security technology providers to offer cost-
effective and timely solutions as, if and when existing levels of security are
compromised.

Media Sector
------------

Digital satellite multi-channel radio services are now being offered
throughout Canada, but the transmission facilities of most local commercial
radio stations and their reception has not yet made a transition to digital.
While SRC has already started to broadcast HD digital programming over-the-
air, and TVA plans to so in the near future, TQS has not announced when it
plans to start broadcasting in HD.

Regulatory Risks

Cable Sector
------------

In Canada, broadband telecommunications 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 broadband
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 property and power
utilities 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 operators are also
subject to Canadian ownership and control requirements.

A recently published report by the Telecommunications Policy Review Panel
(TPRP) contains a broad set of recommendations that include a timely
transition to deregulation of all telecommunications services, the creation of
a specialized telecommunications competition tribunal, a review of the
Telecommunications Act (Canada), and the removal of ownership restrictions for
telecommunications carriers, subject to certain conditions. The report also
considers that the traditional separation of broadcasting distribution and
telecommunications activities for regulatory purposes is no longer appropriate
in a converged market environment. The federal government is expected to table
a new bill on telecommunications in the near future. The federal government
has also requested that the CRTC report back by the end of 2006 and provide
answers to a broad range of questions on the future of the Canadian
broadcasting system, which includes the distribution of broadcasting services.

While this overall policy review process is unfolding, two key
telecommunications decisions of the Canadian Radio-television and
Telecommunications Commission (CRTC) concerning respectively, the regulatory
status of voice-over-IP (VOIP) local access telephone services of incumbent
telephone companies and forbearance from regulation of local access
telecommunications services still regulated by the CRTC have been challenged
by incumbent telephone companies. The CRTC confirmed on September 1, 2006 its
decision to continue regulating VOIP local access telephone services of
incumbent telephone companies until certain conditions are met, but has agreed
to reconsider the required threshold of 25% loss of market share by incumbent
telephone companies in the relevant markets in order for deregulation to
occur. This decision may be further challenged by incumbent telephone
companies. It is not known at this time whether the federal government will
require the reconsideration of, or will set aside, the decision of the CRTC
respecting regulatory forbearance for local access telephone services
generally. The ultimate outcome and timing of the policy review process and
challenges to these key telecommunications decisions may have a significant
impact on the development of Cogeco Cable's new digital telephone service line
of business, and incidentally on the marketing strategies for service bundles
that include digital telephone service.

In Portugal, a broad reform of national legislation respecting electronic
communications has already occurred with the publication of Law 5/2004
(Electronic Communications Law, known as REGICOM) on February 10, 2004, in
line with the basic requirements of applicable European Commission directives.
Under this new national legislation, the Autoridade Nacional das Comunicaçoes
(ANACOM), has implemented a general authorization regime which no longer
involves the issuance of licences for wireline telecommunications activities.
The telecommunications markets in Portugal are 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 ANACOM's regulatory
oversight is focused at present 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 conducted through separate entities. TV Cabo, Cabovisao's direct
cable competitor for video distribution and HSI services, is operated through
PT Multimedia, an entity separate from PT Comunicacoes, which operates PT's
telecommunications network (telephony and ADSL HSI services), and services
provided by each of these entities are billed separately. The ownership and
operating conditions of various entities of PT, including PT Multimedia, may
however change in the foreseeable future as a result of the pending takeover
bid by Sonae, alternative bids by other interested parties, or ownership or
restructuring proposals put forward by PT itself. There is a possible scenario
of having two full triple play companies, PT Comunicaçoes and PT Multimedia,
owned by separate groups, with the conclusion of the pending takeover bid by
Sonae, with each significant market power and possible new regulatory
requirements as a result.

On June 29, 2006, the European Commission launched 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 ultimate outcome and timing
of these legislative proposals, and their transposition into Portuguese
domestic law and policies, may eventually have an impact on the future on
Cabovisao's electronic communications activities and on the future state of
competition for the provision of electronic communications in Portugal.

Media Sector
------------

The CRTC has recently initiated a policy review proceeding for over-the-
air television in Canada that raises the possible establishment of fees for
carriage of conventional over-the-air television signals by broadcasting
distributors, including cable, telephone and satellite distributors. The World
Intellectual Property Organization (WIPO) is also considering the issue of
fees for carriage as part of its proceedings leading to the drafting of a new
multilateral treaty concerning the protection of broadcasting signals. At
present, Canadian broadcasting distributors pay carriage fees to pay and
specialty programming services, but not to conventional over-the-air
television services. Next year, the CRTC is also expected to launch a review
of its broadcasting distribution policies. The ultimate outcome and timing of
these policy initiatives may have a significant impact on Cogeco Cable's cost
of sales for its analog and digital services and the penetration of its
various tiers of video distribution services. On the other hand, fees for
carriage would improve the financial prospects of TQS. The over-the-air
television policy review now underway raises several other issues that may
have a significant impact on the operations and future business prospects of
TQS. TQS is also facing a licence renewal process next year. The CRTC has now
completed a broad review of its commercial radio policy, but has yet to issue
its revised policy, which may have business and competitive implications for
CRTI's commercial radio activities.

Risks Pertaining to Operating Costs

Cable Sector
------------
Cogeco Cable applies itself on 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,
and 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, structural rigidities
imposed by the CRTC's regulatory framework for broadcasting distribution, and
the resulting strong bargaining position of program suppliers. The recently
announced takeover of CHUM Limited by Bell Globemedia Inc., if approved by the
CRTC and the Commissioner of Competition, would significantly increase the
level of concentration of Canadian conventional over-the-air, specialty and
pay television programming services in the Canadian marketplace generally, and
significantly would increase the market power of Bell Globemedia Inc. The
renewal of Cogeco Cable's affiliation agreements for CHUM and Bell Globemedia
specialty services are currently under negotiation.

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, Cogeco Cable may not
be able to secure further cost efficiencies in the future.

In Portugal, the offering of new digital audio and video services by
Cabovisao will require the negotiation of suitable arrangements with existing
and new program suppliers. Although affiliation arrangements and program
service bundling and retailing are less constrained by regulations in Portugal
than in Canada, the negotiation of such new arrangements has not yet taken
place.

Media Sector
------------

On the media side, television program production and acquisition costs
continue to rise year over year, and the compounded annual growth rate in
these costs could exceed the growth rate in television advertising revenue in
the coming years unless current trends are reversed. Programming costs at CRTI
are also rising as result of efforts to improve the position of RYTHME FM in
the morning and the overall position of the 93.3 station in Québec.

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 roll-out
of new services in the Cable Sector, and traffic and billing in the Media
Sector. TQS plans to implement a new traffic management system this year.
Cogeco Cable uses different customer relations management tools and databases
for its operation respectively in Ontario, Québec 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


The Company 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, given the fact that Cabovisao
became a subsidiary of Cogeco Cable only on August 1, 2006. Cabovisao's
insurance coverage has been integrated in 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 and relies on
data protection and recovery systems that it has put in place with third-party
service providers. CRTI has disaster recovery procedures in place but has not
adopted as yet a full disaster recovery plan for its broadcasting operations
in Canada.

Risks Pertaining to the Financing of the Cabovisao Acquisition


The acquisition of Cabovisao has been financed through corporate credit
facilities of Cogeco Cable. The major part of the purchase price for Cabovisao
(approximately (euro)465.7 million) was borrowed directly in Euros and
(euro)104 million was borrowed in Canadian dollars and subsequently converted
into Euros. The remainder of the purchase price is assumed liabilities. There
are no financial hedging arrangements in effect at this time for interest
fluctuation risks 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. Cogeco Cable
is presently considering alternative financial arrangements to extend the term
with alternate sources of financing and to set the interest rate of the Term
Facility.

NON-GAAP FINANCIAL MEASURES


This section describes Non-GAAP financial measures used by COGECO
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'" "free cash flow" and "net income
excluding income tax rate adjustment and impairment of goodwill and other
intangible assets".

Cash flow from operations


Cash flow from operations is used by COGECO'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 Company 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:

($ 000) Quarters ended August 31, Years ended August 31,

2006 2005 2006 2005
--------- -------- --------- ----------
Cash flow from
operating activities $ 109,017 $ 93,166 $ 195,953 $ 201,059
Changes in non-cash
operating items (57,288) (49,951) (3,645) (23,680)
--------- -------- --------- ----------
Cash flow from operations $ 51,729 $ 43,215 $ 192,308 $ 177,379
--------- -------- --------- ----------
--------- -------- --------- ----------
Free cash flow


Free cash flow is used, by COGECO'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:

($ 000) Quarters ended August 31, Years ended August 31,

2006 2005 2006 2005
--------- -------- --------- ----------
Cash flow from operations $ 51,729 $ 43,215 $ 192,308 $ 177,379
Acquisition of fixed assets (46,112) (43,725) (144,469) (115,354)
Increase in deferred charges (8,929) (5,217) (20,657) (15,316)
Assets acquired under
capital leases
- as per Note 13 b) (268) (419) (3,005) (1,979)
--------- -------- --------- ----------
Free cash flow $ (3,580) $ (6,146) $ 24,177 $ (44,730)
--------- -------- --------- ----------
--------- -------- --------- ----------


Net income excluding income tax rate adjustment and impairment of
goodwill and other intangible assets


Net income excluding income tax rate adjustment and impairment of goodwill
and other intangible assets is used by COGECO and its investors in order to
evaluate what would have been the net income excluding income tax rate
adjustment and impairment of goodwill and other intangible assets. This allows
the Company to isolate the one time adjustment in order to evaluate the net
income from ongoing activities.

($ 000) Quarters ended August 31, Years ended August 31,

2006 2005 2006 2005
--------- -------- --------- ----------
Net income (loss) $ 10,300 $ 630 $ 23,101 $ (19,813)
Adjustments:
Income tax rate adjustment
net of non-controlling
interest (7,866) (7,866)
Impairment of goodwill and
other intangible assets(1) 29,610
--------- -------- --------- ----------
Net income excluding above
adjustments $ 2,434 $ 630 $ 15,235 $ 9,797
--------- -------- --------- ----------
--------- -------- --------- ----------
(1) For more details, please consult the Impairment of goodwill and other
intangible assets section.

ADDITIONAL INFORMATION


This MD&A was prepared on October 16, 2006. Additional information
relating to the Company, including its Annual Information Form, is available
on the SEDAR Web site at www.sedar.com.


ABOUT COGECO


COGECO is a diversified communications company. Through its Cogeco Cable
subsidiary, COGECO provides about 1,556,000 revenue-generating units (RGU) to
approximately 1,477,000 homes passed in its Canadian service territory and
629,000 RGUs to approximately 826,000 homes passed in its Portuguese service
territory. Through its two-way broadband cable networks, Cogeco Cable provides
its residential and commercial customers with analog and Digital Television
and services, High Speed Internet access as well as Telephony services.
Through its Cogeco Radio-Television subsidiary, COGECO holds a 60% interest
and operates the TQS network, six TQS television stations, and three French
CBC-affiliated television stations in partnership with CTV Television. Cogeco
Radio-Television also wholly owns and operates the RYTHME FM radio stations in
Montréal, Québec City, Trois-Rivières and Sherbrooke as well as the 93.3
station in Québec City. COGECO's subordinate voting shares are listed on the
Toronto Stock Exchange (CGO). The subordinate voting shares of Cogeco Cable
are also listed on the Toronto Stock Exchange (CCA).

Analyst Conference Call: Monday October 16th at 11:00 a.m.
(Eastern Daylight Time)
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: 1 800 967-7134
International Access Number: +1 719 457-2625
Confirmation Code: 1255847
By Internet at: www.cogeco.ca/investors

A rebroadcast of the conference call will be
available until October 23 by dialing:

Canada and USA access number: 1 888 203-1112
International access number: + 1 719 457-0820
Confirmation code: 1255847


Supplementary Quarterly Financial Information

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

Revenue $ 180,478 $ 177,359 $ 189,718 $ 199,351
Operating income
before amortization 60,593 57,765 66,111 68,645
Operating margin 33.6% 32.6% 34.8% 34.4%
Amortization 29,883 30,217 30,658 36,446
Financial expense 13,961 14,231 14,120 16,864
Impairment losses - - - -
Income taxes 6,611 5,706 8,461 (13,950)
Non-controlling interest 5,455 4,842 7,293 19,022
Net income (loss) 4,593 2,679 5,529 10,300

Cash flow from operations 46,842 41,644 52,093 51,729

Net income (loss)
per share $ 0.28 $ 0.16 $ 0.33 $ 0.62


Fiscal 2005
------------------------------------------
Nov.30 Feb. 28 May 31 Aug. 31
($000, except
percentages
and per share data)

Revenue $ 171,411 $ 166,566 $ 173,418 $ 164,210
Operating income
before amortization 58,928 54,616 63,814 56,485
Operating margin 34.4% 32.8% 36.8% 34.4%
Amortization 33,616 33,383 32,783 30,769
Financial expense 14,240 14,237 14,441 14,366
Impairment losses - 52,531 - -
Income taxes 4,582 (130) 5,869 5,052
Non-controlling interest 3,256 (16,940) 5,603 5,422
Net income (loss) 3,117 (28,524) 4,964 630

Cash flow from operations 44,503 40,962 48,699 43,215

Net income (loss)
per share $ 0.19 $ (1.74) $ 0.30 $ 0.04


Cable sector operating results are generally not subject to material
seasonal fluctuations. However, the loss of basic service customers is usually
greater, and the addition of HSI customers is generally lower in the third
quarter, mainly due to students leaving campuses at the end of the school
year. However, the media sector's operating results may be subject to
significant seasonal variations. The revenue depends on audience ratings and
the market for conventional radio and television advertising expenditures in
the Province of Québec. Advertising sales, mainly national advertising, are
normally weaker in the second and fourth quarters and, as a result, the
operating margin before amortization is generally lower.

The large net loss of COGECO in the second quarter of fiscal year 2005 was
attributable to COGECO's 60% share of the television sector's impairment of
goodwill and other intangible assets amounting to $29.6 million. This loss is
discussed in the "Impairment of goodwill and other intangible assets" section.


COGECO INC.
Customer Statistics
August 31, August 31,
2006 2005
-------------------------------------------------------------------------
Homes Passed
Ontario 1,002,187 986,401
Québec 474,717 462,332
------------ -----------
Canada 1,476,904 1,448,733
Portugal 826,369 -
------------ -----------
Total 2,303,273 1,448,733
------------ -----------
------------ -----------

Revenue Generating Units
Ontario 1,104,157 968,749
Québec 451,779 378,984
------------ -----------
Canada 1,555,936 1,347,733
Portugal 629,041 -
------------ -----------
Total 2,184,977 1,347,733
------------ -----------
------------ -----------

Basic Service Customers
Ontario 587,289 581,631
Québec 245,888 239,802
------------ -----------
Canada 833,177 821,433
Portugal 269,694 -
------------ -----------
Total 1,102,871 821,433
------------ -----------
------------ -----------

Discretionnary Service Customers
Ontario 463,783 461,038
Québec 192,895 183,320
------------ -----------
Canada 656,678 644,358
Portugal - -
------------ -----------
Total 656,678 644,358
------------ -----------
------------ -----------

Pay TV Service Customers
Ontario 84,425 80,817
Québec 38,455 35,407
------------ -----------
Canada 122,880 116,224
Portugal 100,079 -
------------ -----------
Total 222,959 116,224
------------ -----------
------------ -----------

High Speed Internet Service Customers
Ontario 269,328 226,133
Québec 73,752 51,515
------------ -----------
Canada 343,080 277,648
Portugal 136,278 -
------------ -----------
Total 479,358 277,648
------------ -----------
------------ -----------

Digital Video Service Customers
Ontario 213,556 159,734
Québec 113,808 87,470
------------ -----------
Canada 327,364 247,204
Portugal - -
------------ -----------
Total 327,364 247,204
------------ -----------
------------ -----------

Telephony Service Customers
Ontario 33,984 1,251
Québec 18,331 197
------------ -----------
Canada 52,315 1,448
Portugal 223,069 -
------------ -----------
Total 275,384 1,448
------------ -----------
------------ -----------


COGECO INC.
CONSOLIDATED STATEMENTS OF INCOME

Three months Twelve months
ended August 31, ended August 31,
-------------------------------------------------------------------------
(In thousands of dollars,
except per share data) 2006 2005 2006 2005
-------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Revenue $ 199,351 $ 164,210 $ 746,906 $ 675,605

Operating costs 130,706 107,725 493,792 441,762
-------------------------------------------------------------------------

Operating income
before amortization 68,645 56,485 253,114 233,843

Amortization (note 5) 36,446 30,769 127,204 130,551
-------------------------------------------------------------------------

Operating income 32,199 25,716 125,910 103,292

Financial expense (note 10) 16,864 14,366 59,176 57,284
-------------------------------------------------------------------------

Income before income
taxes and following items 15,335 11,350 66,734 46,008

Impairment of goodwill
and other intangible
assets (note 8) - - - 52,531

Income taxes (note 6) (13,950) 5,052 6,828 15,373

Non-controlling interest 19,022 5,422 36,612 (2,659)

Loss on dilution resulting
from shares issued
by a subsidiary - - - 108

Share in the earnings (loss)
of a general partnership 37 (246) (193) (468)
-------------------------------------------------------------------------

Net income (loss) $ 10,300 $ 630 $ 23,101 $ (19,813)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Earnings (loss)
per share (note 7)
Basic $ 0.62 $ 0.04 $ 1.40 $ (1.21)
Diluted 0.62 0.04 1.39 (1.21)
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

Twelve months
ended August 31,
-------------------------------------------------------------------------
(In thousands of dollars) 2006 2005
-------------------------------------------------------------------------
(audited) (audited)

Balance at beginning $ 185,762 $ 209,188
Net income (loss) 23,101 (19,813)
Dividends on multiple voting shares (462) (407)
Dividends on subordinate voting shares (3,667) (3,206)
-------------------------------------------------------------------------

Balance at end $ 204,734 $ 185,762
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO INC.
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
(In thousands of dollars)
August 31, August 31,
2006 2005
-------------------------------------------------------------------------
(audited) (audited)

Assets
Current
Cash and cash equivalents $ 71,516 $ -
Restricted cash 569 -
Accounts receivable 71,989 55,529
Prepaid expenses 7,204 4,704
Broadcasting rights 15,632 14,168
-------------------------------------------------------------------------
166,910 74,401
-------------------------------------------------------------------------

Broadcasting rights 18,083 16,076
Investments 539 539
Fixed assets 1,048,998 726,270
Deferred charges 49,433 41,797
Broadcasting licenses and customer base (note 8) 1,017,892 1,017,892
Goodwill (note 8) 422,108 -
-------------------------------------------------------------------------

$ 2,723,963 $ 1,876,975
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Liabilities and Shareholders' equity
Liabilities
Current
Bank indebtedness (note 9) $ 7,891 $ 605
Accounts payable and accrued liabilities 312,837 151,985
Broadcasting rights payable 7,721 7,337
Income tax liabilities 666 299
Deferred and prepaid income 26,737 25,034
Current portion of long-term debt (note 10) 126,904 1,400
-------------------------------------------------------------------------
482,756 186,660
-------------------------------------------------------------------------

Long-term debt (note 10) 1,209,254 713,739
Share in the partner's deficiency
of a general partnership 841 648
Deferred and prepaid income 10,525 10,522
Broadcasting rights payable 5,777 4,112
Pension plans liabilities and
accrued employee benefits 11,098 10,628
Future income tax liabilities 211,848 208,434
Non-controlling interest 472,605 439,643
-------------------------------------------------------------------------
2,404,704 1,574,386
-------------------------------------------------------------------------

Shareholders' equity
Capital stock (note 11) 117,552 116,167
Contributed surplus - stock-based compensation 1,425 660
Retained earnings 204,734 185,762
Foreign currency translation adjustment (note 12) (4,452) -
-------------------------------------------------------------------------
319,259 302,589
-------------------------------------------------------------------------

$ 2,723,963 $ 1,876,975
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO INC.
CONSOLIDATED STATEMENTS OF CASH FLOW

Three months Twelve months
ended August 31, ended August 31,
-------------------------------------------------------------------------
(In thousands of dollars,
except per share data) 2006 2005 2006 2005
-------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Cash flow from
operating activities
Net income (loss) $ 10,300 $ 630 $ 23,101 $ (19,813)
Items not affecting
cash and cash equivalents
Amortization (note 5) 36,446 30,769 127,204 130,551
Amortization of
deferred financing costs 416 241 1,140 1,102
Impairment of goodwill
and other intangible
assets - - - 52,531
Future income
taxes (note 6) (14,900) 5,419 1,709 12,055
Non-controlling interest 19,022 5,422 36,612 (2,659)
Stock-based compensation (534) 743 356 2,087
Loss on disposal
of fixed assets 963 - 1,135 56
Other 16 (9) 1,051 1,469
-------------------------------------------------------------------------
51,729 43,215 192,308 177,379
Changes in non-cash
operating items (note 13a)) 57,288 49,951 3,645 23,680
-------------------------------------------------------------------------
109,017 93,166 195,953 201,059
-------------------------------------------------------------------------

Cash flow from
investing activities
Acquisition of fixed
assets (note 13b)) (46,112) (43,725) (144,469) (115,354)
Increase in deferred charges (8,929) (5,217) (20,657) (15,316)
Increase in restricted cash (91) - (91) -
Business acquisition, net of
cash and cash equivalents
acquired (note 3) (577,431) - (577,431) -
Other 16 - 54 85
-------------------------------------------------------------------------
(632,547) (48,942) (742,594) (130,585)
-------------------------------------------------------------------------

Cash flow from
financing activities
Increase (decrease)
in bank indebtedness (6,165) (14,966) 7,286 (3,946)
Increase in long-term debt 633,402 1,000 633,402 557
Repayment of long-term debt (19,536) (28,278) (5,304) (62,332)
Increase in deferred
financing costs (10,110) - (10,110) -
Issue of subordinate
voting shares 111 - 1,385 546
Dividends on multiple
voting shares (115) (116) (462) (407)
Dividends on subordinate
voting shares (918) (912) (3,667) (3,206)
Issue of subordinate
voting shares by a
subsidiary to
non-controlling interest 62 20 228 742
Dividends paid by a
subsidiary to
non-controlling interest (972) (972) (3,888) (2,428)
-------------------------------------------------------------------------
595,759 (44,224) 618,870 (70,474)
-------------------------------------------------------------------------

Net change in cash
and cash equivalents 72,229 - 72,229 -
Effect of exchange rate
changes on cash and cash
equivalents denominated
in foreign currencies (713) - (713) -
-------------------------------------------------------------------------
Cash and cash
equivalents at end $ 71,516 $ - $ 71,516 $ -
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See supplemental cash flow information in note 13.


COGECO INC.
Notes to Consolidated Financial Statements
August 31, 2006
(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 Inc. as at August 31, 2006 and
2005 as well as its results of operations and its cash flow for the three and
twelve month periods ended August 31, 2006 and 2005.


While management believes that the disclosures presented are adequate,
these unaudited interim consolidated financial statements and notes should be
read in conjunction with COGECO Inc.'s annual consolidated financial
statements. These unaudited interim consolidated financial statements follow
the same accounting policies as the most recent annual consolidated financial
statements, except as mentioned in note 2.

The interim consolidated financial statements for the three month period
ended August 31, 2005 have not been subject to a review by the Company's
external auditors.


2. Recent accounting pronouncements

Non-Monetary Transactions


In June 2005, the Canadian Institute of Chartered Accountants issued
Handbook section 3831, Non-Monetary Transactions, which revised and replaced
the current standards on non-monetary transactions. Under the new section, the
criterion for measuring non-monetary transactions at fair value is modified to
focus on the assessment of commercial substance instead of the culmination of
the earnings process. A non-monetary transaction has commercial substance when
the entity's future cash flows are expected to change significantly as a
result of the transaction. These standards are effective for non-monetary
transactions initiated in periods beginning on or after January 1, 2006.
During the third quarter, the Company adopted these new standards and
concluded that they had no significant impact on these consolidated financial
statements.


3. Business acquisition

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


On June 2, 2006, the Company's subsidiary, Cogeco Cable Inc., 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 (euro) 465.7 million,
all the shares of the second largest cable operator 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. The final purchase price will be determined
following completion of a post-closing working capital adjustment. The
Company's subsidiary is assuming a (euro) 20 million working capital
deficiency of Cabovisao.

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


The preliminary allocation of the purchase price of the acquisition is as
follows:

Consideration
Paid
Estimated share purchase price $ 304,188
Secured lenders debt and certain
specified Cabovisao liabilities 274,761
Acquisition costs 4,193
-------------------------------------------------------------------------
583,142
Amounts outstanding
Preliminary working capital adjustment 2,432
-------------------------------------------------------------------------
585,574
-------------------------------------------------------------------------

Net assets acquired
Cash and cash equivalents 5,711
Restricted cash 489
Accounts receivable 16,570
Prepaid expenses 1,324
Fixed assets 287,652
Accounts payable and accrued liabilities assumed (65,282)
Other specified Cabovisao liabilities assumed (91,914)
-------------------------------------------------------------------------
154,550
-------------------------------------------------------------------------

Excess of consideration over net assets acquired $ 431,024
-------------------------------------------------------------------------

Preliminary allocation of excess of
consideration over net assets acquired
Preliminary goodwill $ 431,024
-------------------------------------------------------------------------
-------------------------------------------------------------------------



In order to finance the cash component of the transaction, the Term
Facility and the operating line of credit of the Company's subsidiary, Cogeco
Cable Inc., were restructured by an amended and restated credit agreement (see
note 10).


Management is currently carrying out a more specific analysis and changes
will be made to the allocation of the excess of consideration over net assets
acquired as the information becomes available. For example, since the
measurement of the fair value of fixed assets had not yet been completed at
the time of the preliminary allocation, fixed assets have been presented at
cost. The measurement of indefinite and finite-lived intangible assets is also
under way. Furthermore, in accordance with the Portuguese Companies Income Tax
Code, 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. These losses have not been
included in the preliminary purchase price allocation. Finally, the Company's
subsidiary did not complete the assessment of possible costs related to the
restructuring and integration of the activities of Cabovisao potentially
giving rise to the recognition of a liability in the allocation of the
purchase price. As a result, the actual amounts allocated to the identifiable
assets acquired and liabilities assumed and the related operating results will
vary according to the amounts initially recorded, and such differences could
be significant.


4. Segmented Information


The Company's activities are divided into two business segments: Cable and
Media. The Cable segment is comprised of all cable, high-speed Internet access
and telephony services, and the Media segment is comprised of radio and
television operations.


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


Cable Media
-------------------------------------------------------------------------
Three months ended August 31,
(unaudited) 2006 2005 2006 2005
-------------------------------------------------------------------------

Revenue $ 174,875 $ 140,178 $ 24,527 $ 24,082
Operating costs 102,011 79,458 27,315 25,770
Operating income (loss)
before amortization 72,864 60,720 (2,788) (1,688)
Amortization 34,801 29,460 1,600 1,329
Operating income (loss) 38,063 31,260 (4,388) (3,017)
Financial expense 16,374 14,004 156 133
Income taxes (12,298) 6,220 (1,224) (367)
-------------------------------------------------------------------------
Net assets
employed (1)(2) $ 2,210,823 $ 1,595,216 $ 70,550 $ 75,561
Total assets (2) 2,602,603 1,755,796 112,609 114,393
Fixed assets (2) 1,021,538 697,526 26,794 28,014
Goodwill (2) 422,108 - - -
Acquisition of fixed assets 44,350 41,443 2,030 2,647
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Head Office
and elimination Consolidated
------------------------------------------------ ------------------------
Three months ended August 31,
(unaudited) 2006 2005 2006 2005
------------------------------------------------ ------------------------

Revenue $ (51) $ (50) $ 199,351 $ 164,210
Operating costs 1,380 2,497 130,706 107,725
Operating income (loss)
before amortization (1,431) (2,547) 68,645 56,485
Amortization 45 (20) 36,446 30,769
Operating income (loss) (1,476) (2,527) 32,199 25,716
Financial expense 334 229 16,864 14,366
Income taxes (428) (801) (13,950) 5,052
------------------------------------------------ ------------------------
Net assets
employed (1)(2) $ 7,477 $ 7,208 $ 2,288,850 $ 1,677,985
Total assets (2) 8,751 6,786 2,723,963 1,876,975
Fixed assets (2) 666 730 1,048,998 726,270
Goodwill (2) - - 422,108 -
Acquisition of fixed assets - 54 46,380 44,144
------------------------------------------------ ------------------------
------------------------------------------------ ------------------------

(1) Total assets less cash and cash equivalents, accounts payable and
accrued liabilities, broadcasting rights payable and deferred and
prepaid income.
(2) As at August 31, 2006 and 2005.


Cable Media
-------------------------------------------------------------------------
Twelve months ended August 31,
(audited) 2006 2005 2006 2005
-------------------------------------------------------------------------

Revenue $ 620,001 $ 554,404 $ 127,109 $ 121,386
Operating costs 367,023 326,883 127,730 114,587
Operating income (loss)
before amortization 252,978 227,521 (621) 6,799
Amortization 120,782 125,088 6,251 5,306
Operating income (loss) 132,196 102,433 (6,872) 1,493
Financial expense 57,366 55,692 678 528
Impairment of goodwill
and other intangible assets - - - 52,531
Income taxes 9,274 18,020 (2,962) (2,899)
-------------------------------------------------------------------------
Net assets
employed (1)(2) $ 2,210,823 $ 1,595,216 $ 70,550 $ 75,561
Total assets (2) 2,602,603 1,755,796 112,609 114,393
Fixed assets (2) 1,021,538 697,526 26,794 28,014
Goodwill (2) 422,108 - - -
Acquisition
of fixed assets 143,839 112,289 3,528 4,940
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Head Office
and elimination Consolidated
------------------------------------------------ ------------------------
Twelve months ended August 31,
(audited) 2006 2005 2006 2005
------------------------------------------------ ------------------------

Revenue $ (204) $ (185) $ 746,906 $ 675,605
Operating costs (961) 292 493,792 441,762
Operating income (loss)
before amortization 757 (477) 253,114 233,843
Amortization 171 157 127,204 130,551
Operating income (loss) 586 (634) 125,910 103,292
Financial expense 1,132 1,064 59,176 57,284
Impairment of goodwill
and other intangible assets - - - 52,531
Income taxes 516 252 6,828 15,373
------------------------------------------------ ------------------------
Net assets
employed (1)(2) $ 7,477 $ 7,208 $ 2,288,850 $ 1,677,985
Total assets (2) 8,751 6,786 2,723,963 1,876,975
Fixed assets (2) 666 730 1,048,998 726,270
Goodwill (2) - - 422,108 -
Acquisition
of fixed assets 107 104 147,474 117,333
------------------------------------------------ ------------------------
------------------------------------------------ ------------------------

(1) Total assets less cash and cash equivalents, accounts payable and
accrued liabilities, broadcasting rights payable and deferred and
prepaid income.
(2) As at August 31, 2006 and 2005.



The Company's Cable subsidiary, Cogeco Cable Inc., considers its cable
distribution, high-speed Internet access and telephony activities as a single
operating segment. The Cable segment activities are carried out in Canada and
in Portugal.

The Portugal 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 Portugal
-------------------------------------------------------------------------
Three months ended August 31,
(unaudited) 2006 2005 2006 2005
-------------------------------------------------------------------------

Revenue $ 158,009 $ 140,178 $ 16,866 $ -
Operating costs 90,116 79,458 11,895 -
Management fees - - - -
Operating income
before amortization 67,893 60,720 4,971 -
Amortization 30,373 29,460 4,428 -
Operating income 37,520 31,260 543 -
Financial expense 16,103 14,004 271 -
Income taxes (12,612) 6,220 314 -
Net income (loss) 34,029 11,036 (42) -
-------------------------------------------------------------------------
Net assets
employed (1)(2) $ 1,649,631 $ 1,595,216 $ 561,192 $ -
Total assets (2) 1,842,312 1,755,796 760,291 -
Fixed assets (2) 741,024 697,526 280,514 -
Goodwill (2) - - 422,108 -
Acquisition of fixed assets 40,145 41,443 4,205 -


Consolidated
-------------------------------------------------------------------------
Three months ended August 31,
(unaudited) 2006 2005
-------------------------------------------------------------------------

Revenue $ 174,875 $ 140,178
Operating costs 102,011 79,458
Management fees - -
Operating income
before amortization 72,864 60,720
Amortization 34,801 29,460
Operating income 38,063 31,260
Financial expense 16,374 14,004
Income taxes (12,298) 6,220
Net income (loss) 33,987 11,036
-------------------------------------------------------------------------
Net assets
employed (1)(2) $ 2,210,823 $ 1,595,216
Total assets (2) 2,602,603 1,755,796
Fixed assets (2) 1,021,538 697,526
Goodwill (2) 422,108 -
Acquisition of fixed assets 44,350 41,443

(1) Total assets less cash and cash equivalents, accounts payable and
accrued liabilities, and deferred and prepaid income.
(2) As at August 31, 2006 and 2005.


Canada Portugal
-------------------------------------------------------------------------
Twelve months ended August 31,
(audited) 2006 2005 2006 2005
-------------------------------------------------------------------------

Revenue $ 603,135 $ 554,404 $ 16,866 $ -
Operating costs 346,736 318,704 11,895 -
Management fees 8,392 8,179 - -
Operating income
before amortization 248,007 227,521 4,971 -
Amortization 116,354 125,088 4,428 -
Operating income 131,653 102,433 543 -
Financial expense 57,095 55,692 271 -
Income taxes 8,960 18,020 314 -
Net income (loss) 65,598 28,721 (42) -
-------------------------------------------------------------------------
Net assets
employed (1)(2) $ 1,649,631 $ 1,595,216 $ 561,192 $ -
Total assets (2) 1,842,312 1,755,796 760,291 -
Fixed assets (2) 741,024 697,526 280,514 -
Goodwill (2) - - 422,108 -
Acquisition of fixed assets 139,634 112,289 4,205 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Consolidated
-------------------------------------------------------------------------
Twelve months ended August 31,
(audited) 2006 2005
-------------------------------------------------------------------------

Revenue $ 620,001 $ 554,404
Operating costs 358,631 318,704
Management fees 8,392 8,179
Operating income
before amortization 252,978 227,521
Amortization 120,782 125,088
Operating income 132,196 102,433
Financial expense 57,366 55,692
Income taxes 9,274 18,020
Net income (loss) 65,556 28,721
-------------------------------------------------------------------------
Net assets
employed (1)(2) $ 2,210,823 $ 1,595,216
Total assets (2) 2,602,603 1,755,796
Fixed assets (2) 1,021,538 697,526
Goodwill (2) 422,108 -
Acquisition of fixed assets 143,839 112,289
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) Total assets less cash and cash equivalents, accounts payable and
accrued liabilities, and deferred and prepaid income.
(2) As at August 31, 2006 and 2005.


5. Amortization

Three months Twelve months
ended August 31, ended August 31,
-------------------------------------------------------------------------

2006 2005 2006 2005
-------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Fixed assets $ 31,139 $ 25,112 $ 105,213 $ 107,366
Deferred charges 5,307 5,657 21,991 23,185
-------------------------------------------------------------------------
$ 36,446 $ 30,769 $ 127,204 $ 130,551
-------------------------------------------------------------------------
-------------------------------------------------------------------------


6. Income taxes

Three months Twelve months
ended August 31, ended August 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Current $ 950 $ (367) $ 5,119 $ 3,318
Future (14,900) 5,419 1,709 12,055
-------------------------------------------------------------------------
$ (13,950)$ 5,052 $ 6,828 $ 15,373
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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

Three months Twelve months
ended August 31, ended August 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Income taxes at
combined income tax
rate of 35.51 %
(34.15 % in 2005) $ 5,804 $ 3,717 $ 23,631 $ (2,387)
Loss or income subject
to lower or higher
tax rates (567) 339 (226) 2,060
Decrease in income taxes
as a result of decreases
in substantially enacted
tax rates (19,831) - (19,922) -
Large corporation tax (1,837) 127 614 1,534
Income taxes arising
from non-deductible
impairment of goodwill
and broadcasting licenses - - - 10,570
Income taxes arising from
non-deductible expenses 1,593 - 1,593 -
Withholding taxes on
interest of a foreign
subsidiary 314 - 314 -
Variation of the
valuation allowance (34) 1,624 (34) 4,078
Other 608 (755) 858 (482)
-------------------------------------------------------------------------
Income taxes at effective
income tax rate $ (13,950) $ 5,052 $ 6,828 $ 15,373
-------------------------------------------------------------------------
-------------------------------------------------------------------------


7. Earnings (loss) per share

The following table provides reconciliation between basic and diluted
earnings (loss) per share:

Three months Twelve months
ended August 31, ended August 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Net income (loss) $ 10,300 $ 630 $ 23,101 $ (19,813)

Weighted average number
of multiple voting and
subordinate voting
shares outstanding 16,544,443 16,450,004 16,507,666 16,419,584

Effect of dilutive
stock options (1) 84,820 171,548 121,692 -
-------------------------------------------------------------------------
Weighted average number
of diluted multiple
voting and subordinate
voting shares
outstanding 16,629,263 16,621,552 16,629,358 16,419,584
-------------------------------------------------------------------------

Earnings (loss) per share
Basic $ 0.62 $ 0.04 $ 1.40 $ (1.21)

Diluted 0.62 0.04 1.39 (1.21)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) For the three and twelve month periods ended August 31, 2006, 36,443
and 38,293 (43,843 for the three month period ended August 31, 2005)
stock options were excluded from the calculation of diluted earnings
per share since the exercise price of the options was greater than
the average share price of the subordinate voting shares.
Also, for the twelve month periods ended August 31, 2005, the effect
of 366,400 stock options was not included in diluted loss per share,
as the effect of their inclusion was antidilutive.


8. Goodwill and other intangible assets

-------------------------------------------------------------------------
Customer Broadcasting
base licenses Goodwill Total
-------------------------------------------------------------------------
(audited) (audited) (audited) (audited)

Balance as at
August 31, 2004 $ 989,772 $ 52,726 $ 27,925 $ 1,070,423
Impairment - (24,606) (27,925) (52,531)
-------------------------------------------------------------------------
Balance as
at August 31, 2005 989,772 28,120 - 1,017,892
Business
acquisition (note 3) - - 431,024 431,024
Foreign currency
translation adjustment - - (8,916) (8,916)
-------------------------------------------------------------------------
Balance as
at August 31, 2006 $ 989,772 $ 28,120 $ 422,108 $ 1,440,000
-------------------------------------------------------------------------
-------------------------------------------------------------------------


9. Bank indebtedness


In April 2006, the operating line of credit available to the indirect
subsidiary of the Company, TQS Inc., has been increased from $10,000,000 to
$20,000,000. This line of credit, in the form of term credit provided by a
financial institution, is secured by a first-ranking fixed and floating
charges for an amount of $20,000,000 on the assets of TQS Inc. and its
subsidiaries.



10. Long-term debt

-------------------------------------------------------------------------
Maturity Interest August 31, August 31,
rate 2006 2005
-------------------------------------------------------------------------
(audited) (audited)
Parent company
Term Facility 2009(1) 6.27 %(2) $ 19,000 $ 22,500
Obligations under
capital leases 2010 6.49 - 6.61 138 55

Subsidiaries
Term Facility (3)
Term loan 2011 5.71 (2) 150,000 -
Term loan -
(euro) 17,358,700 2011 4.50 (2) 24,573 -
Revolving loan -
(euro) 317,000,000 2011 4.50 (2) 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 (4) 165,795 178,065
Series B 2011 7.73 175,000 175,000
Second Secured
Debentures Series A 2007 8.44 125,000 125,000
Deferred credit (5) 2008 - 72,855 60,585
Obligations under
capital leases 2010 6.42 - 8.36 5,009 3,831
Other - - 43 103
-------------------------------------------------------------------------
1,336,158 715,139
Less current portion 126,904 1,400
-------------------------------------------------------------------------
$ 1,209,254 $ 713,739
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) COGECO Inc.'s Term Facility has been extended for an additional year
in January 2006.
(2) Average interest rate on debt as at August 31, 2006, including
stamping fees.
(3) On July 28, 2006, the Term Facility and the operating line of credit
of the Company's subsidiary, Cogeco Cable Inc., were restructured by
an amended and restated credit agreement for credit facilities
totalling $900,000,000. The Term Facility is composed of four
tranches: a first tranche, a revolving Term Facility for an amount of
$ 700,000,000 available in Canadian, U.S. or Euro currencies; a
second tranche, a swingline of $25,000,000 available in Canadian or
U.S. currencies; a third tranche of $150,000,000 fully drawn, and a
fourth tranche of (euro) 17,358,700 fully drawn. The Term Facility
is repayable on July 28, 2011, except for the third tranche of
$ 150,000,000 which is repayable as follows: $15,000,000 on July 28,
2008, $22,500,000 on July 28, 2009, $37,500,000 on July 28, 2010 and
the balance on July 28, 2011. Earlier repayments can be made without
penalty. The Term Facility requires commitment fees, and interest
rates are based, on bankers' acceptance, LIBOR, EURIBOR, bank prime
rate loan or U.S. base rate loan plus stamping fees. The Term
Facility is secured by a first fixed and floating charge on the
assets of the Company's subsidiary and certain of its subsidiaries
except for permitted encumbrances, including purchased money
obligations, existing funded obligations and charges granted by any
subsidiary prior to the date when it becomes a subsidiary subject to
a maximum amount. The provisions under these facilities provide for
restrictions on the operations and activities of the Company's
subsidiary. Generally, the most significant restrictions relate to
permitted investments, dividends on multiple and subordinate voting
shares and reimbursement of long-term debt as well as incurrence and
maintenance of certain financial ratios primarily linked to the
operating income before amortization, financial expense and total
indebtedness.
(4) 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 of the Company's subsidiary, Cogeco Cable Inc.
(5) The deferred credit represents the amount which would have been
payable as at August 31, 2006, and August 31, 2005 under cross-
currency swaps entered into by the Company's subsidiary, Cogeco Cable
Inc., to hedge Senior Secured Notes Series A denominated in US
dollars.


Interest on long-term debt for the three and twelve month periods ended
August 31, 2006 amounted to $15,892,000 and $56,020,000 ($13,325,000 and
$53,475,000 in 2005).


11. Capital Stock

Authorized, an unlimited number


Preferred shares of first and second rank, could be issued in series and
non-voting, except when specified in the Articles of Incorporation of the
Company or in the Law.

Multiple voting shares, 20 votes per share.

Subordinate voting share, 1 vote per share.


-------------------------------------------------------------------------
August 31, August 31,
2006 2005
-------------------------------------------------------------------------
(audited) (audited)
Issued

1,849,900 multiple voting shares $ 12 $ 12
14,702,556 subordinate voting shares
(14,600,104 as at August 31, 2005) 117,540 116,155
-------------------------------------------------------------------------
$ 117,552 $ 116,167
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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

Twelve months ended Twelve months ended
August 31, 2006 August 31, 2005
-------------------------------------------------------------------------
(audited) (audited)
-------------------------------------------------------------------------
Number of Number of
shares Amount shares Amount
-------------------------------------------------------------------------

Balance at beginning 14,600,104 $ 116,155 14,522,456 $ 115,609
Shares issued for cash
under the Employee
Stock Purchase Plan and
the Stock Option Plan 102,452 1,385 77,648 546
-------------------------------------------------------------------------
Balance at end 14,702,556 $ 117,540 14,600,104 $ 116,155
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Stock-based plans


The Company established, 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 Company's annual consolidated
financial statements. During the year, no stock options were granted to
employees by COGECO Inc. However, the Company's subsidiary, Cogeco Cable Inc.,
granted 136,059 stock options (140,766 in 2005) with an exercise price ranging
from $24.15 to $29.05 ($21.50 in 2005), of which 31,743 stock options (38,397
in 2005) were granted to COGECO Inc.'s employees. The Company records
compensation expense for options granted on or after September 1, 2003. As a
result, a compensation expense of $202,000 and $775,000 ($132,000 and $484,000
in 2005) was recorded for the three and twelve month periods ended August 31,
2006. 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 Company's net income (loss) and earnings (loss) per share
for the three and twelve month periods ended August 31, 2006 and 2005 would
have been reduced (increased) to the following pro forma amounts:


Three months Twelve months
ended August 31, ended August 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)
Net income (loss)
As reported $ 10,300 $ 630 $ 23,101 $ (19,813)
Pro forma 10,292 550 23,069 (20,133)

Basic earnings
(loss) per share
As reported $ 0.62 $ 0.04 $ 1.40 $ (1.21)
Pro forma 0.62 0.03 1.40 (1.23)

Diluted earnings
(loss) per share
As reported $ 0.62 $ 0.04 $ 1.39 $ (1.21)
Pro forma 0.62 0.03 1.39 (1.23)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The fair value of stock options granted by the Company's subsidiary,
Cogeco Cable Inc., for the twelve month period ended August 31, 2006 was $9.32
($7.46 in 2005) per option. The fair value was estimated on the grant date for
purposes of determining stock-based compensation expense using the Binomial
option pricing model based on the following assumptions:

-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Expected dividend yield 1.27 % 1.27 %
Expected volatility 39 % 43 %
Risk-free interest rate 3.70 % 3.70 %
Expected life in years 4.0 4.0
-------------------------------------------------------------------------


As at August 31, 2006, the Company had outstanding stock options providing
for the subscription of 315,776 subordinate voting shares. These stock options
can be exercised at various prices ranging from $6.60 to $37.50 and at various
dates up to October 19, 2011.

TQS Inc., an indirect subsidiary of the Company, also adopted a stock
option plan for certain executives and key employees. During the twelve month
period ended August 31, 2006, 206,341 stock options (77,000 in 2005) were
granted by TQS Inc. No compensation expense ($41,000 in 2005) was recorded
during the three month period ended August 31, 2006, and a compensation
expense of $154,000 ($162,000 in 2005) was recorded for the twelve month
period ended August 31, 2006 related to this plan.


12. 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 operations 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 2006 is as follows:
-------------------------------------------------------------------------


-------------------------------------------------------------------------
(audited)
Effect of exchange rate variation on translation of
net investments in self-sustaining foreign subsidiaries $ (12,412)
Effect of exchange rate variation on translation of
long-term debt designated as hedge of a net investments
in self-sustaining subsidiaries, net of income taxes
of $1,703,000 7,960
-------------------------------------------------------------------------
$ (4,452)
-------------------------------------------------------------------------


13. Statements of cash flow

a) Changes in non-cash operating items


Three months Twelve months
ended August 31, ended August 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Accounts receivable $ 9,283 $ 5,843 $ (348) $ 1,681
Income tax receivable 245 - - 304
Prepaid expenses 227 891 (1,201) 825
Broadcasting rights 1,807 (2,265) (3,471) (1,816)
Accounts payable and
accrued liabilities 48,369 46,018 4,536 17,381
Broadcasting
rights payable (3,116) 138 2,049 2,057
Income tax liabilities 672 (850) 373 299
Deferred and prepaid income (199) (242) 1,707 2,949
Other - 418 - -
-------------------------------------------------------------------------
$ 57,288 $ 49,951 $ 3,645 $ 23,680
-------------------------------------------------------------------------
-------------------------------------------------------------------------

b) Other information

Three months Twelve months
ended August 31, ended August 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Fixed asset acquisitions
through capital leases $ 268 $ 419 $ 3,005 $ 1,979
Interest paid 12,242 11,701 56,429 55,817
Income taxes paid 39 483 4,752 2,715
-------------------------------------------------------------------------
-------------------------------------------------------------------------


14. Employee future benefits


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

Three months Twelve months
ended August 31, ended August 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Contributory defined
benefit pension plans $ 783 $ 703 $ 3,334 $ 2,285
Defined contribution
pension plan and
collective registered
retirement savings plans 502 388 1,914 1,593
-------------------------------------------------------------------------
$ 1,285 $ 1,091 $ 5,248 $ 3,878
-------------------------------------------------------------------------
-------------------------------------------------------------------------


15. Contingencies

Second Put and Call Options of TQS Inc.


On February 15, 2002, the shareholders of 3947424 Canada Inc. ("TQS
Holdco"), Cogeco Radio-Télévision Inc. ("CRTI") and Bell Globemedia Inc.
("BGM"), entered into a shareholders agreement following the acquisition of
TQS Inc. (the "Shareholders Agreement"). On October 31, 2002, BGM transferred
its shares in TQS Holdco to CTV Television Inc. ("CTV"), a subsidiary of BGM.
The Shareholders Agreement provides the right for CTV to notify CRTI, during a
180 day period starting from February 15, 2007, of its offer to sell all its
shares in TQS Holdco to CRTI for an all-cash consideration calculated as the
fair market value of TQS Holdco multiplied by the ratio of shares owned by CTV
to total shares issued and outstanding in the capital of TQS Holdco, and
multiplied by 1.15. CRTI may elect to acquire CTV's shares within 90 days
following receipt of the put notice by delivering a put exercise notice to
CTV. If CRTI elects not to exercise or fails to exercise its put option, CTV
may within 90 days following such election or failure to exercise by CRTI,
deliver a call notice to CRTI to purchase all the shares of CRTI in TQS Holdco
for an all-cash consideration calculated as the fair market value of TQS
Holdco multiplied by the ratio of shares owned by CRTI to total shares issued
and outstanding in the capital of TQS Holdco, and multiplied by 1.30. Unless
the parties decide to modify the Shareholders Agreement, in the event that CTV
notifies CRTI of its offer to sell all its shares in TQS Holdco to CRTI, CRTI
does not buy them and CTV does not buy CRTI's shares, CRTI and CTV have agreed
to put up all TQS Holdco shares for sale to a third party purchaser, subject
to requisite governmental authorizations, with a view to obtaining the highest
possible price and maximizing shareholder value.

On August 31, 2006, BGM announced that it had closed off on its new
ownership structure whereby BCE sold 48% of its voting interest in BGM to The
Woodbridge Company Limited and affiliates, the Ontario Teachers' Pension Plan
and Torstar Corporation. This transaction constitutes a change of control
under the Shareholders Agreement and, accordingly, triggers certain purchase
rights under the Agreement in favour of CRTI to purchase all, but not less
than all, of the shares owned by CTV.


16. Comparative figures


Certain comparative figures have been reclassified in order to conform to
the presentation adopted in the current period.

Contact Information

  • Media: Marie Carrier, Director, Corporate
    Communications, (514) 874-2600;
    Source: COGECO Inc.; Pierre Gagné, Vice President, Finance and Chief Financial Officer, (514) 874-2600