COGECO Inc.
TSX : CGO

COGECO Inc.

January 11, 2007 07:30 ET

COGECO achieves strong performance

MONTREAL, Jan. 11 - Today, COGECO Inc. (TSX: CGO) announced
its financial results for the first quarter ended November 30, 2006.
In the first quarter of fiscal year 2007, COGECO's results showed
substantial growth. On a consolidated basis, revenue increased by 45.9% and
operating income before amortization increased by 45.8% compared to the same
period last year. These increases are mainly attributable to the cable sector.
Indeed, Cogeco Cable achieved one of the best revenue generating units
(RGUs(1)) growth of its Canadian operations history and acquired a Portuguese
affiliate, Cabovisao - Televisao por Cabo, S.A. (Cabovisao). The media sector
contributed to these results with better radio advertising revenue and TQS's
success with its new programming during the fall season. Net income increased
by 47% compared to the same period last year as a result of substantial growth
in all sectors.

Cable sector
------------

The newly acquired Portuguese operations, Cabovisao, is on its way to
achieving its 2007 financial projections supported by the increase of about
21,300 RGUs. The Portuguese operations generated revenue of $54.1 million
while operating income before amortization amounted to $18.3 million for an
operating margin of 33.9%.
During the first quarter, the Canadian operations reported very strong
RGU increases, with more than 93,000 net additions compared to about 61,000
for the same period last year. First quarter revenue grew by 17.1% compared to
the same period last year, reaching $167.9 million while operating income
before amortization improved by 14%, reaching $65.3 million.
For the cable sector, revenue increased by 54.8% and operating income
before amortization by 46% compared to the same period last year. The
Corporation's first quarter operating margin was 37.7% compared to 40% last
year due to Cabovisao's lower but rising operating margin. "We are very
pleased with our cable results. The Portuguese and the Canadian operations
should continue to perform well and we have revised our guidance to better
reflect our expectations," stated Mr. Louis Audet, President and CEO of
COGECO Inc.

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

Revenue and operating income before amortization are up in the media
sector. "RYTHME FM revenue echoes our position in the markets, especially in
Montreal where we continue to keep our leading position. As for TQS, "Loft
Story III" and our fall programming attracted greater audiences, thus
increasing our television revenue," added Mr. Audet.

Consolidated 2007 financial projections
---------------------------------------

The first quarter's higher than expected results in the cable sector lead
the Company to revise most of its projections upwards for fiscal 2007.
Management expects to improve revenue from between $1,010 million to
$1,020 million to between $1,050 million to $1,060 million. Operating income
before amortization should reach approximately $356 million to $358 million
from the $336 million to $341 million last quarter's revised projections. Free
cash flow should be revised to $5 million to $10 million from the previous
projections of $15 million to $20 million due to the increase in capital
expenditures to sustain RGU growth in the cable sector.

Cable sector
------------

For fiscal 2007, Cogeco Cable expects to add between 287,000 and 305,000
RGUs, consolidated revenue should reach $925 million, operating income before
amortization should reach approximately $355 million, while the operating
margin should remain at about 38%.

Media sector
------------

The media sector is performing as expected and management maintains its
initial projections for fiscal 2007, thus revenue should grow by 5% to 7%
compared to fiscal 2006 and the operating income before amortization should
reach $1 million to $3 million.

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




FINANCIAL HIGHLIGHTS

($000s, except percentages and per Quarters ended November 30,
share data) (unaudited)
2006 2005 % Change
---------- ---------- ----------

Revenue $ 263,292 $ 180,478 45.9

Operating income before
amortization 88,367 60,593 45.8

Net income 6,751 4,593 47.0

Cash flow from operations (1) 66,035 46,842 41.0
Less:
Capital expenditures and
increase in deferred charges 74,615 34,043 -
---------- ----------
Free cash flow (1) (8,580) 12,799 -

Per share data
Basic net income $ 0.41 $ 0.28 46.4

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


FORWARD-LOOKING STATEMENT

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


MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)

CORPORATE STRATEGIES AND OBJECTIVES

COGECO'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 first quarter achievements of the cable and media
sectors in furtherance of COGECO's objectives.

Tight control over costs and business processes

During the first quarter of fiscal 2007, the Company's operating costs
have grown by 45.9% over the same period last year, mainly as a result of the
acquisition of the cable subsidiary, Cabovisao and in line with the revenue
growth.
The design of internal controls over financial reporting as per National
Instrument 52-109 is still underway. As discussed in the MD&A of the 2006
annual report, the Company had identified certain material weaknesses in the
design of internal controls over financial reporting. During the first quarter
of fiscal 2007, the employees of the media sector have received the corporate
Code of Ethics. Other than this remediation during the quarter, there have
been no changes to the identified material weaknesses since August 31, 2006.

Cable Sector

Sustained corporate growth

Canadian operations
- Digital Television services:
- Significant upgrade of Cogeco Cable's High Definition (HD) Television
offering in Québec, now with 11 HD channels;
- Addition of two new HD channels (A&E HD and HDNet) to the Ontario
Digital Television line-up;
- Addition of Anime Network On Demand, a new subscription
Video on Demand (VOD) service;
- Addition to Cogeco On Demand of "Lance et compte I, II et III" in
Québec and "Survivor: Cook Islands" in all territories served by
Cogeco Cable.

- Digital Telephony service:
- Available to 72% of homes passed in Cogeco Cable's territories, as at
November 30, 2006;
- Since September 1, 2006, deployment of the Digital Telephony service
in Corunna, Bright's Grove, Lindsay, Niagara-on-the-Lake and
St.Catharines, in Ontario, as well as St-Sauveur, Piedmont,
Ste-Adèle, St-Jovite, Mont-Tremblant, Alma, Roberval, Ste-Agathe,
Thetford Mines and Montmagny in Québec.

Portuguese operations and their integration
- Cabovisao is in the process of completing its plan to launch its
Digital Television offering for the deployment during fiscal 2007.
- The integration process advances according to plan. Customer service ia
a key activity on which the Integration Committee is focusing.

Continuous improvement of networks and equipment
- During the first quarter of fiscal 2007, Cogeco Cable has invested in
its infrastructure including head-ends and upgrade/rebuild for an
amount approximating $23 million.

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

Media Sector

- During the first quarter, TQS aired "Loft Story III" which brought over
1 million daily viewership. Increased programming commitments should
continue to sustain growth in viewership and advertising revenue for
fiscal 2007;

- RYTHME FM is committed to keeping its leadership position in the
Montreal market. Across Québec, other RYTHME FM stations are
consolidating their position. In addition, station 93,3 continues to
gain new listeners within its target audience.

RGU Growth

As at November 30, 2006, the consolidated number of RGUs has increased by
5.2% to reach nearly 2.3 million units. As at August 31, 2006, Cogeco Cable
had anticipated RGU growth of between 9% and 10% for the full year, as
compared to a year earlier. Following higher than anticipated HSI,
Digital Television, Digital Telephony and basic cable service customer growth
during the first quarter of fiscal 2007, the cable subsidiary has revised its
guidelines to 13% to 14% RGU growth by August 31, 2007. Please consult the
''Fiscal 2007 financial guidelines'' section for further details.

Revenue and Operating Income Before Amortization Growth

During the first quarter, consolidated revenue increased by 45.9% 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 45.8% while
the Company had expected a 33% to 35% increase in its last-quarter revised
projections for fiscal 2007.

Free Cash Flow

For the first quarter, COGECO generated a negative free cash flow of
$8.6 million compared to a positive free cash flow of $12.8 million for the
same period last year, mainly due to higher capital expenditures necessary to
sustain RGU growth in the cable sector, including the acquisition of customer
premise equipment amounting to approximately $12 million to serve expected RGU
growth in the coming months. Capital expenditures and deferred charges
amounted to $74.6 million. In light of the stronger than expected RGU growth
in the cable sector for the first quarter of fiscal 2007, capital expenditures
and deferred charges are expected to reach $262 million. Fiscal 2007 revised
free cash flow should be between $5 million to $10 million. Please consult the
''Fiscal 2007 financial guidelines'' section for further details.

ACCOUNTING POLICIES AND ESTIMATES

There has been no significant change in COGECO's accounting policies and
estimates since August 31, 2006. A description of these policies and estimates
can be found in the Company's 2006 annual MD&A.

OPERATING RESULTS

Revenue, for the first quarter of 2007 rose by $82.8 million, or 45.9%, to
reach $263.3 million compared to $180.5 million for the same period last year.
Cable revenue, driven by an increased number of customers in basic cable,
Digital Television, HSI and Telephony services together with rate increases
and the Cabovisao acquisition, went up by $78.6 million, or 54.8%, in the
first quarter. Media revenue increased by $4.2 million, or 11.4%, in the first
quarter, due to higher television and radio advertising revenue.
Operating income before amortization grew by 45.8% to reach $88.4 million
in the first quarter, compared to $60.6 million for the same period last year.
The cable sector contributed to an increase of $26.4 million while the media
sector had a positive impact of $0.6 million.


FIXED CHARGES
Quarters ended November 30,
($000s, except percentages) 2006 2005 % Change
-------- ---------- ----------

Amortization $ 45,839 $ 29,883 53.4

Financial expense 21,759 13,961 55.9


For the first quarter, amortization amounted to $45.8 million compared to
$29.9 million for the same period last year. Amortization increased mainly as
a result of Cabovisao acquisition and to the higher level of capital
expenditures arising from the demand for customer premise equipment, scalable
infrastructure, upgrade/rebuild, support capital and deferred charges in the
cable sector.
During the first quarter, financial expense increased by $7.8 million
compared to the same period last year. This is due to the higher level of
Indebtedness (defined as bank indebtedness and long-term debt) required to
finance the acquisition of the Portuguese subsidiary Cabovisao in the cable
sector.

INCOME TAXES

For the first quarter of fiscal2007, income taxes amounted $6.5 million
compared to $6.6 million in fiscal 2006. Income taxes for the cable sector
amounted to $5.6 million for the first quarter of fiscal 2007 compared to
$6.4 million for the same period last year despite the growth in operating
income before amortization. The income tax decrease for the cable sector was
mainly attributable to the elimination of Canadian federal capital tax on
January 1, 2006. Income taxes for media sector have increased during the first
quarter due to the increase in operating income before amortization.

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. First quarter 2007
non controlling interest amounted to $7.6 million compared to $5.5 million for
the same period last year and is mainly due to the cable sector results.

NET INCOME

Net income for the first quarter of fiscal 2007 amounted to $6.8 million,
or $0.41 per share, compared to $4.6 million, or $0.28 per share, for the same
period last year. Net income has increased since the rise in operating income
before amortization outpaced fixed charges growth.

CASH FLOW AND LIQUIDITY

Quarters ended November 30,
($000s) 2006 2005
---------- -----------

Operating Activities
Cash flow from operations $ 66,035 $ 46,842
Changes in non-cash operating items (85,758) (51,913)
---------- -----------
$ (19,723) $ (5,071)
---------- -----------
---------- -----------

Investing Activities (1) $ (74,297) $ (34,043)
---------- -----------
---------- -----------

Financing Activities (1) $ 39,796 $ 59,797
---------- -----------
---------- -----------

Net change in cash and cash equivalents $ (54,224) $ 20,683
Effect of exchange rate changes on cash
and cash equivalents denominated in foreign
currencies 1,616 -
Cash and cash equivalents at beginning 71,516 -
---------- -----------
Cash and cash equivalents at end $ 18,908 $ 20,683
---------- -----------
---------- -----------

(1) Excludes assets acquired under capital leases.


For the first quarter of fiscal 2007, cash flow from operations reached
$66 million, 41% higher than the result achieved for the comparable period
last year, primarily due to the increase in operating income before
amortization net of financial expense. Changes in non-cash operating items
generated greater cash outflows than the same period last year, mainly as a
result of a decrease in accounts payable and accrued liabilities resulting
from non recurring payments made by the cable subsidiary, following the terms
of the acquisition of Cabovisao.
Investing activities related to capital expenditures and the increase in
deferred charges, including assets acquired under capital leases reached
$74.6 million during the first quarter.
During the first quarter, cable sector capital expenditures increased
compared to last year mainly as a result of the following factors:

- An increase in customer premise equipment expenditures due to a greater
demand for HSI and Digital Telephony services, from a rise in the
number of digital terminals rented to customers and from a greater
ratio of digital terminals per digital home. Furthermore, customer
premise equipment representing approximately $12 million was acquired
by Cogeco Cable at the end of the quarter to serve expected RGU growth
in the coming months.

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

- The increase in capital expenditures associated with the network
upgrade and rebuild program for the Canadian operations 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 households
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 90% as at
November 30, 2005 to 93% as at November 30, 2006.

Capital expenditures by the Portuguese operations amounted to $9.6 million
during the first quarter, essentially to support RGU growth.
The first quarter increase in deferred charges is explained by higher
reconnect costs attributable to the significant level of RGU increase in the
cable sector.
The Company incurred a deficit in free cash flow in the first quarter of
fiscal 2007 in the amount of $8.6 million compared to a surplus of
$12.8 million the preceding year. The first quarter free cash flow decrease
over the same period last year is due to increased capital expenditures and
deferred charges in the cable sector generated by better-than-projected RGU
growth (including the acquisition of customer premise equipment amounting to
approximately $12 million at the end of the quarter to support expected
growth), as well as the launch of the Digital Telephony service. This increase
was partly offset by increased operating income before amortization in the
cable sector.
During the first quarter, the level of Indebtedness increased by
$41.5 million due to a decrease of $85.8 million in non-cash operating items
explained by the repayment of certain suppliers subsequent to the Cabovisao
acquisition in the cable sector, and by a free cash flow deficit of
$8.6 million, partly offset by a $54.2 million decrease in cash and cash
equivalents. For the same period last year, Indebtedness increased by
$61.8 million mainly due to a decline in non-cash operating items of $51.9
million and a net change in cash and cash equivalents of $20.7 million, partly
offset by generated free cash flow of $12.8 million. In addition, a dividend
of $0.0625 per share for subordinate and multiple voting shares, totalling
$1 million, was paid during the first quarter of fiscal years 2007 and 2006.
As at November 30, 2006, COGECO had a working capital deficiency of $331.9
million compared to $315.8 million as at August 31, 2006. The greater
deficiency is mainly attributable to negative free cash flow generated and the
depreciation of the Canadian dollar over the euro currency. COGECO maintains a
working capital deficiency due to a low level of accounts receivable since the
majority of the cable subsidiary's customers pay before their services are
rendered, contrary to accounts payable and accrued liabilities, which are paid
after products or services are rendered. In addition, the cable subsidiary
generally uses cash and cash equivalents to reduce Indebtedness.
As at November 30, 2006, the cable subsidiary had used $658 million of its
$900 million Term Facility and the Company had drawn $19 million of its Term
Facility.
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

Since August 31, 2006, there have been major changes to "Fixed Assets",
"Preliminary Goodwill", "Accounts Payable and accrued liabilities", "Accounts
receivable", "Indebtedness", "Cash and cash equivalents" and "Foreign currency
translation adjustment".
The $46.2 million rise in fixed assets is mainly related to increased
capital expenditures to sustain RGU growth in the cable sector during the
quarter as well as the anticipated growth in the following months. The
increase of $28.9 million in preliminary goodwill and $11.8 million in foreign
currency translation adjustment is the result of the appreciation of the euro
currency over the Canadian dollar. The increase of $19.8 million in accounts
receivable is mostly due to the media sector. The $66.1 million and
$52.6 million reduction in accounts payable and accrued liabilities and cash
and cash equivalents respectively are related to payments made with regards to
the acquisition of Cabovisao by Cogeco Cable. Indebtedness increased by
$73.9 million as a result of the depreciation of the Canadian dollar over the
Euro currency and the factors previously discussed in the "Cash Flow and
Liquidity" section.
A description of COGECO's share data as at December 31, 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 14,714,731 117,664

Options to Purchase Subordinate Voting Shares
Outstanding options 303,779
Exercisable options 303,779

In the normal course of business, COGECO incurred financial obligations,
primarily in the form of long-term debt, operating and capital leases and
guarantees. COGECO's obligations, described in the MD&A of the 2006 annual
report, have not materially changed since August 31, 2006.

DIVIDEND DECLARATION

At its January 10, 2007 meeting, the Board of Directors of COGECO declared
a quarterly eligible dividend of $0.07 per share for subordinate and multiple
voting shares, payable on February 7, 2007, to shareholders of record on
January 24, 2007. Continued improvement of the financial results by the cable
sector explains the dividend increase by 12% from $0.0625 to $0.07 per share.

CABLE SECTOR
------------

CUSTOMER STATISTICS

Canadian operations

Net additions % of
Quarters ended Penetration(1)(4)
November 30, November 30, November 30,
2006 2006 2005 2006 2005
--------- ------ ------ ----- ------
RGUs(2) 1,648,951 93,015 60,770
Basic service
customers 849,417 16,240 10,903
HSI service
customers(3) 372,015 28,935 22,993 47.0 39.9
Digital
Television
service
customers 348,588 21,224 21,415 42.0 32.9
Digital
Telephony
service
customers 78,931 26,616 5,459 12.9 2.7

(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 61,336 as
at November 30, 2006 compared to 61,208 as at August 31, 2006.
(4) An audit of homes passed in Ontario has been completed during the
first quarter of fiscal 2007 and, as a result, the number of homes
passed has been reduced by 42,386.


All services generated higher growth in the first quarter compared to the
same period last year, except for the Digital Television service. During the
first quarter, the growth in Digital Telephony is mostly attributable to the
launch of this service in new markets. Coverage of homes passed has now
reached 72% compared to 21% last year. The net additions of basic service
customers in the first quarter reached 16,240, which represents the highest
growth in many years, compared to a gain of 10,903 for the same period last
year. The number of net additions of HSI service stood at 28,935 compared to
22,993 for the same period last year, which is also a new high. The growth of
HSI and basic service customers compared to the same period last year is
mostly due to the enhancement of the product offering, the impact of the
bundled offer of Television, HSI and Digital Telephony services (Cogeco
Complete Connexion), and promotional activities.
The net additions of Digital Television service customers stood at 21,224
essentially equal to the growth generated during the same period last year.
Customers continue to demonstrate strong interest in the HD technology.

Portuguese Operations

Net
additions % of
Quarter Penetra-
ended tion(1)
November November November
30, 30, 30,
2006 2006 2006
---------- ---------- -----------
RGUs(2) 650,305 21,264 -
Basic service customers 276,947 7,253 -
HSI service customers 144,355 8,077 52.1
Telephony service customers 229,003 5,934 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.

For the first quarter, all services generated customer growth, in line
with the Cogeco Cable's guidelines. Basic service grew by 7,253 customers,
HSI by 8,077 customers and Telephony by 5,934 customers.


OPERATING RESULTS

Quarters ended November 30,

($000s, except percentages) 2006 2005 % Change
---------- ---------- -----------
Revenue $ 222,002 $ 143,413 54.8

Operating costs 133,900 83,243 60.9
Management fees - COGECO Inc. 4,440 2,868 54.8

Operating income before
amortization 83,662 57,302 46.0

Operating margin 37.7% 40.0%


Revenue

Consolidated revenue for the first quarter increased by $78.6 million to
reach $222 million.
For the first quarter, revenue for the Canadian operations rose by
$24.5 million or 17.1% compared to the same period in fiscal 2006. This growth
is explained mainly by an increase in the number of HSI, Digital Telephony,
Digital Television and basic service customers as mentioned in the "Customer
Statistics" section, together with rate increases implemented in June and
August of 2006. Monthly rate increases of at most $3 per customer and
averaging $2 per basic service customer took effect on June 15, 2006 in
Ontario and on August 1, 2006 in Québec.
The Portuguese subsidiary's revenue amounted to $54.1 million for the
first quarter of fiscal 2007. Monthly rate increases of at most $3 (2 euros)
per HSI and Telephony customer thus averaging $1 per basic customer took
effect on November 1, 2006.

Operating Costs

For the first quarter of fiscal 2007, consolidated operating costs
increased by $50.7 million to reach $133.9 million.
For the first quarter, Canadian operations' operating costs, including
network fees but excluding management fees payable to COGECO Inc., rose by
$14.9 million or 17.9%. During the first quarter, network fees increased by
16.2% compared to the same period the year before. Network fees increase was
mainly attributable to the introduction of Digital Telephony service and RGU
growth. The increase in other operating costs was related to servicing
additional RGUs, including Digital Telephony. For the first quarter,
Cabovisao's operating costs amounted to $35.7 million.

Operating Income Before Amortization

For the first quarter of fiscal 2007, consolidated operating income before
amortization increased by $26.4 million to reach $83.7 million. Cabovisao's
operating income before amortization for the first quarter amounted to $18.3
million.
For the first quarter, operating income before amortization for the
Canadian operations rose by 14%, compared to the same period 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 40% to
38.9% in the first quarter of fiscal 2007, as a result of the launch of the
Digital Telephony service. The Portuguese operations generated an operating
margin of 33.9% for the first quarter. As a result, Cogeco Cable's first
quarter 2007 operating margin declined to 37.7% from 40% for the same period
last year, as expected.

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 increased by CDN$5.5 million
during the first quarter compared to August 31, 2006 due to the Canadian
dollar's depreciation. Since the Senior Secured Notes Series A are fully
hedged, the fluctuation is offset by a variation in deferred credit described
in Note 7 of the first quarter 2007 interim financial statements. The
$67.3 million deferred credit represents the difference between the
quarter-end exchange rate and the exchange rate on the cross-currency swap
agreements, which determine the liability for interest and principal payments
on the Senior Secured Notes Series A.
As noted in the 2006 MD&A of the annual report, the cable subsidiary's
investment in Cabovisao, is exposed to market risk attributable to
fluctuations in foreign currency exchange rate, primarily changes in the
values of the Canadian dollar versus the euro. This risk is mitigated since
the major part of the purchase price for Cabovisao was borrowed directly in
euros. This debt is designated as a hedge of net investments in
self-sustaining subsidiaries and accordingly, Cogeco Cable realized a foreign
exchange gain of $11.8 million in the first quarter of fiscal 2007 which is
deferred and recorded in the foreign currency translation adjustment.

MEDIA SECTOR
------------

OPERATING RESULTS

Quarters ended November 30,

($000s, except percentages) 2006 2005 % Change
---------- ---------- -----------
Revenue $ 41,341 $ 37,116 11.4

Operating costs 38,287 34,667 10.4

Operating income before
amortization 3,054 2,449 24.7

Operating margin 7.4% 6.6% -

Revenue

During the first quarter, revenue increased by $4.2 million or 11.4% to
reach $41.3 million. Radio revenue has increased by 17.8% and television
revenue by 10% mainly due to improved audience ratings. Furthermore, TQS is
the only conventional television network in the Francophone market to have
improved its audience ratings in the fall of 2006.

Operating Income Before Amortization

Operating income before amortization increased in the first quarter by
$0.6 million to reach $3.1 million, a growth of 24.7%. TQS operating income
before amortization slightly decreased as a result of greater investment in
television programming. Radio operating income before amortization improved
due to revenue growth.

FISCAL 2007 FINANCIAL GUIDELINES

In the cable sector, first quarter 2007 stronger than expected RGU growth
in Canada resulted in the revision of the financial guidelines. In addition,
financial guidelines for the Portuguese operations were revised only to
reflect the improvement of the euro currency compared to the Canadian dollar.
As a result, for guideline purposes the euro is converted at an average rate
of $1.45 while Cogeco Cable was using an average rate of $1.40 last October.
In furtherance of its existing line of business and external growth strategy,
Cogeco Cable may investigate further cable system acquisition opportunities,
including cable systems located outside Canada over time.
The media sector financial guidelines remain unchanged.

Revised
($ million, except Projections Projections
customer data) January 10, 2007 October 16, 2006
Fiscal 2007 Fiscal 2007
------------------ ------------------
Cable sector-
Financial Guidelines
Revenue 925 880 to 885
Operating income before
amortization 355 335 to 338
Operating margin About 38% About 38%
Financial expense 87 85
Amortization 192 182
Capital expenditures and
deferred charges 255 225 to 230
Free cash flow 10 to 15 20 to 25

Customer Addition Guidelines
Basic service 37,000 to 40,000 25,000 to 30,000
HSI service 85,000 to 90,000 55,000 to 60,000
Digital Television service 60,000 to 65,000 55,000 to 60,000
Telephony services 105,000 to 110,000 67,000 to 72,000
RGU 287,000 to 305,000 202,000 to 222,000

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 1,050 to 1,060 1,010 to 1,020
Operating income before
amortization 356 to 358 336 to 341
Net income 15 15
Free Cash Flow 5 to 10 15 to 20



UNCERTAINTIES AND MAIN RISK FACTORS

There has been no significant change in the risk factors and uncertainties
facing COGECO as described in the Company's MD&A of the 2006 annual report.

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'" and "free cash flow".

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 November 30,

2006 2005
---------- -----------
Cash flow from operating activities $ (19,723) $ (5,071)
Changes in non-cash operating items 85,758 51,913
---------- -----------
Cash flow from operations $ 66,035 $ 46,842
---------- -----------
---------- -----------

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 November 30,

2006 2005
---------- -----------
Cash flow from operations $ 66,035 $ 46,842
Acquisition of fixed assets (67,198) (30,328)
Increase in deferred charges (7,212) (3,715)
Assets acquired under capital leases - as per
Note 10 b) (205) -
---------- -----------
Free cash flow $ (8,580) $ 12,799
---------- -----------
---------- -----------


ADDITIONAL INFORMATION

This MD&A was prepared on January 10, 2007. 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 1,649,000 revenue-generating units (RGU) to
approximately 1,439,000 homes passed in its Canadian service territory and
650,000 RGUs to approximately 829,000 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: Thursday January 11th, 2007 at 11:00 a.m. (EST)
Media representatives may attend as listeners only

Please use the following dial-in number to have
access to the conference call by dialling 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: 8541008
By Internet at: www.cogeco.ca/investors

A rebroadcast of the conference call will be
available until January 16th, 2007 by dialling:
Canada and USA access number: 1 888 203-1112
International access number: + 1 719 457-0820
Confirmation code: 8541008


Supplementary Quarterly Financial Information

Quarters ended November 30, August 31,
2006 2005 2006 2005
---------- ---------- ---------- -----------
($000, except percentages
and per share data)

Revenue $ 263,292 $ 180,478 $ 199,351 $ 164,210
Operating income before
amortization 88,367 60,593 68,645 56,485
Operating margin 33.6% 33.6% 34.4% 34.4%
Amortization 45,839 29,883 36,446 30,769
Financial expense 21,759 13,961 16,864 14,366
Impairment losses - - - -
Income taxes (recovery) 6,463 6,611 (13,950) 5,052
Non-controlling interest 7,557 5,455 19,022 5,422
Net income (loss) 6,751 4,593 10,300 630

Cash flow from operations 66,035 46,842 51,729 43,215

Net income (loss) per
share $ 0.41 $ 0.28 $ 0.62 $ 0.04


Quarters ended May 31, February 28,
2006 2005 2006 2005
---------- ---------- ---------- -----------
($000, except percentages
and per share data)

Revenue $ 189,718 $ 173,418 $ 177,359 $ 166,566
Operating income before
amortization 66,111 63,814 57,765 54,616
Operating margin 34.8% 36.8% 32.6% 32.8%
Amortization 30,658 32,783 30,217 33,383
Financial expense 14,120 14,441 14,231 14,237
Impairment losses - - - 52,531
Income taxes (recovery) 8,461 5,869 5,706 (130)
Non-controlling interest 7,293 5,603 4,842 (16,940)
Net income (loss) 5,529 4,964 2,679 (28,524)

Cash flow from operations 52,093 48,699 41,644 40,962

Net income (loss) per
share $ 0.33 $ 0.30 $ 0.16 $ (1.74)


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 is generally lower in those quarters.


COGECO INC.
Customer Statistics

November 30, August 31,
2006 2006
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Homes Passed
Ontario(1) 961,976 1,002,187
Québec 477,132 474,717
--------- ----------
Canada 1,439,108 1,476,904
Portugal 829,152 826,369
--------- ----------
Total 2,268,260 2,303,273
--------- ----------
--------- ----------

Revenue Generating Units
Ontario 1,170,287 1,104,157
Québec 478,664 451,779
--------- ----------
Canada 1,648,951 1,555,936
Portugal 650,305 629,041
--------- ----------
Total 2,299,256 2,184,977
--------- ----------
--------- ----------

Basic Service Customers
Ontario 599,376 587,289
Québec 250,041 245,888
--------- ----------
Canada 849,417 833,177
Portugal 276,947 269,694
--------- ----------
Total 1,126,364 1,102,871
--------- ----------
--------- ----------

Discretionnary Service Customers
Ontario 469,976 463,783
Québec 197,669 192,895
--------- ----------
Canada 667,645 656,678
Portugal - -
--------- ----------
Total 667,645 656,678
--------- ----------
--------- ----------

Pay TV Service Customers
Ontario 85,884 84,425
Québec 40,815 38,455
--------- ----------
Canada 126,699 122,880
Portugal 55,689 54,089
--------- ----------
Total 182,388 176,969
--------- ----------
--------- ----------

High Speed Internet Service Customers
Ontario 290,018 269,328
Québec 81,997 73,752
--------- ----------
Canada 372,015 343,080
Portugal 144,355 136,278
--------- ----------
Total 516,370 479,358
--------- ----------
--------- ----------

Digital Video Service Customers
Ontario 227,314 213,556
Québec 121,274 113,808
--------- ----------
Canada 348,588 327,364
Portugal - -
--------- ----------
Total 348,588 327,364
--------- ----------
--------- ----------

Telephony Service Customers
Ontario 53,579 33,984
Québec 25,352 18,331
--------- ----------
Canada 78,931 52,315
Portugal 229,003 223,069
--------- ----------
Total 307,934 275,384
--------- ----------
--------- ----------

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


COGECO INC.
CONSOLIDATED STATEMENTS OF INCOME

Three months ended November 30,
-------------------------------------------------------------------------
(In thousands of dollars, except
per share data) 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Revenue $ 263,292 $ 180,478

Operating costs 174,925 119,885
-------------------------------------------------------------------------

Operating income before amortization 88,367 60,593

Amortization (note 3) 45,839 29,883
-------------------------------------------------------------------------

Operating income 42,528 30,710

Financial expense (note 7) 21,759 13,961
-------------------------------------------------------------------------

Income before income taxes and following items 20,769 16,749

Income taxes (note 4) 6,463 6,611

Non-controlling interest 7,557 5,455

Loss on dilution resulting from shares issued
by a subsidiary 7 -

Share in the earnings of a general partnership 9 (90)
-------------------------------------------------------------------------

Net income $ 6,751 $ 4,593
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Earnings per share (note 5)
Basic and diluted $ 0.41 $ 0.28
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

Three months ended November 30,
-------------------------------------------------------------------------
(In thousands of dollars) 2006 2005
-------------------------------------------------------------------------
(unaudited) (unaudited)

Balance at beginning $ 204,734 $ 185,762

Net income 6,751 4,593

Dividends on multiple voting shares (116) (116)

Dividends on subordinate voting shares (919) (913)
-------------------------------------------------------------------------

Balance at end $ 210,450 $ 189,326
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO INC.
CONSOLIDATED BALANCE SHEETS

-------------------------------------------------------------------------
(In thousands of dollars) November 30, August 31,
2006 2006
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (audited)

Assets
Current
Cash and cash equivalents $ 18,908 $ 71,516
Restricted cash 512 569
Accounts receivable 91,764 71,989
Income tax receivable 866 -
Prepaid expenses 7,685 7,204
Broadcasting rights 17,325 15,632
-------------------------------------------------------------------------
137,060 166,910
-------------------------------------------------------------------------
Income tax receivable 892 -
Broadcasting rights 19,906 18,083
Investments 539 539
Fixed assets 1,095,152 1,048,998
Deferred charges 50,655 49,433
Broadcasting licenses and customer base (note 6) 1,017,892 1,017,892
Preliminary goodwill (note 6) 451,040 422,108
-------------------------------------------------------------------------
$2,773,136 $2,723,963
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Shareholders' equity
Liabilities
Current
Bank indebtedness $ 47,616 $ 7,891
Accounts payable and accrued liabilities 246,753 312,837
Broadcasting rights payable 13,190 7,721
Income tax liabilities 4,717 666
Deferred and prepaid income 29,728 26,737
Current portion of long-term debt (note 7) 126,911 126,904
-------------------------------------------------------------------------
468,915 482,756
-------------------------------------------------------------------------

Long-term debt (note 7) 1,243,383 1,209,254
Share in the partner's deficiency of a general
partnership 832 841
Deferred and prepaid income 11,458 10,525
Broadcasting rights payable 5,861 5,777
Pension plans liabilities and accrued employee
benefits 12,073 11,098
Future income tax liabilities 214,021 211,848
Non-controlling interest 479,428 472,605
-------------------------------------------------------------------------
2,435,971 2,404,704
-------------------------------------------------------------------------
Shareholders' equity
Capital stock (note 8) 117,672 117,552
Contributed surplus - stock-based compensation 1,683 1,425
Retained earnings 210,450 204,734
Foreign currency translation adjustment (note 9) 7,360 (4,452)
-------------------------------------------------------------------------
337,165 319,259
-------------------------------------------------------------------------
$ 2,773,136 $2,723,963
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO INC.
CONSOLIDATED STATEMENTS OF CASH FLOW

Three months ended November 30,
-------------------------------------------------------------------------
(In thousands of dollars) 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Cash flow from operating activities
Net income $ 6,751 $ 4,593
Items not affecting cash and cash equivalents
Amortization (note 3) 45,839 29,883
Amortization of deferred financing costs 646 241
Future income taxes (note 4) 3,879 5,327
Non-controlling interest 7,557 5,455
Other 1,363 1,343
-------------------------------------------------------------------------
66,035 46,842
Changes in non-cash operating items (note 10a)) (85,758) (51,913)
-------------------------------------------------------------------------
(19,723) (5,071)
-------------------------------------------------------------------------

Cash flow from investing activities
Acquisition of fixed assets (note 10b)) (67,198) (30,328)
Increase in deferred charges (7,212) (3,715)
Decrease in restricted cash 91 -
Other 22 -
-------------------------------------------------------------------------
(74,297) (34,043)
-------------------------------------------------------------------------

Cash flow from financing activities
Increase in bank indebtedness 39,725 21,669
Increase in long-term debt 10,000 40,500
Repayment of long-term debt (8,270) (371)
Issue of subordinate voting shares 120 -
Dividends on multiple voting shares (116) (116)
Dividends on subordinate voting shares (919) (913)
Issue of subordinate voting shares by a
subsidiary to non-controlling interest 228 -
Dividends paid by a subsidiary to non-controlling
interest (972) (972)
-------------------------------------------------------------------------
39,796 59,797
-------------------------------------------------------------------------

Net change in cash and cash equivalents (54,224) 20,683
Effect of exchange rate changes on cash and cash
equivalents denominated in foreign currencies 1,616 -
Cash and cash equivalents at beginning 71,516 -
-------------------------------------------------------------------------
Cash and cash equivalents at end $ 18,908 $ 20,683
-------------------------------------------------------------------------
-------------------------------------------------------------------------
See supplemental cash flow information in note 10.


COGECO INC.
Notes to Consolidated Financial Statements
November 30, 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 November 30, 2006
and August 31, 2006 as well as its results of operations and its cash flow for
the three month periods ended November 30, 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.

2. 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 November 30,
(unaudited) 2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Revenue $ 222,002 $ 143,413 $ 41,341 $ 37,116
Operating costs 138,340 86,111 38,287 34,667
Operating income before
amortization 83,662 57,302 3,054 2,449
Amortization 44,309 28,277 1,485 1,567
Operating income 39,353 29,025 1,569 882
Financial expense 21,221 13,582 187 114
Income taxes 5,597 6,445 152 (37)
-------------------------------------------------------------------------
Net assets
employed (1)(2) $2,356,084 $1,642,485 $ 80,853 $ 85,282
Total assets (2) 2,634,058 1,782,332 130,357 131,772
Fixed assets (2) 1,068,703 704,590 25,828 27,141
Preliminary goodwill (2) 451,040 - - -
Acquisition of fixed
assets 67,171 30,013 232 315
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Head Office
and elimination Consolidated
------------------------------------------------ -----------------------
Three months
ended November 30,
(unaudited) 2006 2005 2006 2005
------------------------------------------------ -----------------------
------------------------------------------------ -----------------------

Revenue $ (51) $ (51) $ 263,292 $ 180,478
Operating costs (1,702) (893) 174,925 119,885
Operating income before
amortization 1,651 842 88,367 60,593
Amortization 45 39 45,839 29,883
Operating income 1,606 803 42,528 30,710
Financial expense 351 265 21,759 13,961
Income taxes 714 203 6,463 6,611
------------------------------------------------ -----------------------
Net assets
employed (1)(2) $ 10,301 $ 5,751 $2,447,238 $1,733,518
Total assets (2) 8,721 6,799 2,773,136 1,920,903
Fixed assets (2) 621 691 1,095,152 732,422
Preliminary goodwill (2) - - 451,040 -
Acquisition of fixed
assets - - 67,403 30,328
------------------------------------------------ -----------------------
------------------------------------------------ -----------------------

(1) Total assets less cash and cash equivalents, accounts payable and
accrued liabilities, broadcasting rights payable and deferred and
prepaid income.
(2) As at November 30, 2006 and 2005.


The following tables sets out certain geographic market information based
on client's location:

Three months ended November 30,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Revenue
Canada $ 209,221 $ 180,478
Portugal 54,071 -
-------------------------------------------------------------------------
$ 263,292 $ 180,478
-------------------------------------------------------------------------
-------------------------------------------------------------------------


As at November 30,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Fixed assets
Canada $ 798,403 $ 732,422
Portugal 296,749 -
-------------------------------------------------------------------------
Total $1,095,152 $ 732,422
-------------------------------------------------------------------------

Preliminary goodwill
Canada $ - $ -
Portugal 451,040 -
-------------------------------------------------------------------------
Total $ 451,040 $ -
-------------------------------------------------------------------------

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


3. Amortization

Three months ended November 30,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Fixed assets $ 40,495 $ 24,176
Deferred charges 5,344 5,707
-------------------------------------------------------------------------
$ 45,839 $ 29,883
-------------------------------------------------------------------------
-------------------------------------------------------------------------


4. Income Taxes

Three months ended November 30,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Current $ 2,584 $ 1,284
Future 3,879 5,327
-------------------------------------------------------------------------
$ 6,463 $ 6,611
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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

Three months ended November 30,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Income taxes at combined income tax rate
of 34.74 % (34.84 % in 2005) $ 7,216 $ 5,804
Loss or income subject to lower or higher tax
rates (33) -
Decrease in income taxes as a result of decreases
in substantially enacted tax rates - (91)
Large corporation tax - 837
Effect of foreign income tax rate differences (824) -
Other 104 61
-------------------------------------------------------------------------
Income taxes at effective income tax rate $ 6,463 $ 6,611
-------------------------------------------------------------------------
-------------------------------------------------------------------------


5. Earnings per Share

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

Three months ended November 30,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Net income $ 6,751 $ 4,593
Weighted average number of multiple voting and
subordinate voting shares outstanding 16,556,333 16,450,004
Effect of dilutive stock options (1) 96,624 158,692
-------------------------------------------------------------------------
Weighted average number of diluted multiple
voting and subordinate voting shares
outstanding 16,652,957 16,608,696
-------------------------------------------------------------------------

Earnings per share
Basic and diluted $ 0.41 $ 0.28
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) For the three month period ended November 30, 2006, 36,443 (43,843 in
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.


6. Preliminary Goodwill and Other Intangible Assets

-------------------------------------------------------------------------
Total
Broadcas- other Prelimi-
Customer ting intangible nary
base licenses assets goodwill
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Balance as at
August 31, 2006 $ 989,772 $ 28,120 $1,017,892 $ 422,108
Foreign currency
translation adjustment - - - 28,932
-------------------------------------------------------------------------
Balance as at
November 30, 2006 $ 989,772 $ 28,120 $1,017,892 $ 451,040
-------------------------------------------------------------------------
-------------------------------------------------------------------------

As mentioned in the Company's 2006 annual consolidated financial
statements, management of the Company's subsidiary, Cogeco Cable Inc., 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.


7. Long-Term Debt

-------------------------------------------------------------------------
Interest November 30, August 31,
Maturity rate 2006 2006
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (audited)
Parent company
Term Facility 2009 6.63%(1) $ 19,000 $ 19,000
Obligations under capital
leases 2010 6.49 - 6.61 131 138

Subsidiaries
Term Facility
Term loan 2011 5.42 (1) 150,000 150,000
Term loan -
17,358,700 euros 2011 4.69 (1) 26,274 24,573
Revolving loan
Canadian currency 2011 5.46 (1) 10,000 -
Euro currency -
311,500,000 euros
(317,000,000 euros as
at August 31, 2006) 2011 4.69 (1) 471,486 448,745
Senior Secured Debentures
Series 1 2009 6.75 150,000 150,000
Senior - Secured Notes
Series A -
US $150 million 2008 6.83 (2) 171,330 165,795
Series B 2011 7.73 175,000 175,000
Second Secured Debentures
Series A 2007 8.44 125,000 125,000
Deferred credit (3) 2008 - 67,320 72,855
Obligations under capital
leases 2010 6.42 - 8.36 4,718 5,009
Other - - 35 43
-------------------------------------------------------------------------
1,370,294 1,336,158
Less: current portion 126,911 126,904
-------------------------------------------------------------------------
$1,243,383 $1,209,254
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) Average interest rate on debt as at November 30, 2006, including
stamping fees.
(2) 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.
(3) The deferred credit represents the amount which would have been
payable as at November 30, 2006 and August 31, 2006 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 month period ended November 30,
2006 amounted to $20,451,000 ($13,209,000 in 2005).


8. 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.

-------------------------------------------------------------------------
November 30, August 31,
2006 2006
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (audited)
Issued

1,849,900 multiple voting shares $ 12 $ 12
14,714,553 subordinate voting shares
(14,702,556 as at August 31, 2006) 117,660 117,540
-------------------------------------------------------------------------
$ 117,672 $ 117,552
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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

-------------------------------------------------------------------------
Three months ended Twelve months ended
November 30, 2006 August 31, 2006
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (audited)
-------------------------------------------------------------------------
Number of Number of
shares Amount shares Amount
-------------------------------------------------------------------------

Balance at beginning 14,702,556 $ 117,540 14,600,104 $ 116,155
Shares issued for cash
under the Employee Stock
Purchase Plan and
the Stock Option Plan 11,997 120 102,452 1,385
-------------------------------------------------------------------------
Balance at end 14,714,553 $ 117,660 14,702,556 $ 117,540
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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 first quarter, no stock options were granted
to employees by COGECO Inc. However, the Company's subsidiary, Cogeco Cable
Inc., granted 197,407 stock options (123,342 in 2005) with an exercise price
of $26.63 ($29.05 in 2005), of which 56,335 stock options (31,743 in 2005)
were granted to COGECO Inc.'s employees. The Company's subsidiary also granted
376,000 conditional stock options with an exercise price of $26.63 of which
262,400 stock options were granted to COGECO Inc.'s employees. These options
vest over a period of three years beginning one year after the day such
options were granted and are exercisable over ten years. The vesting of these
options is conditional to the achievement of certain yearly financial
objectives by the Portuguese subsidiary, Cabovisao-Televisao por Cabo, S.A.,
over a period of three years. The Company records compensation expense for
options granted on or after September 1, 2003. As a result, a compensation
expense of $ 261,000 ($163,000 in 2005) was recorded for the three month
period ended November 30, 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 and
earnings per share for the three month period ended November 30, 2005 would
have been reduced to the following pro forma amounts:

Three months ended November 30,
-------------------------------------------------------------------------
2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited)
Net income
As reported $ 4,593
Pro forma 4,585

Basic and diluted earnings per share
As reported $ 0.28
Pro forma 0.28
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-------------------------------------------------------------------------


The fair value of stock options granted by the Company's subsidiary,
Cogeco Cable Inc., for the three month period ended November 30, 2006 was
$7.37 ($9.46 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 32% 39%
Risk-free interest rate 4.05% 3.70%
Expected life in years 4.0 4.0
-------------------------------------------------------------------------


As at November 30, 2006, the Company had outstanding stock options
providing for the subscription of 303,779 subordinate voting shares. These
stock options can be exercised at various prices ranging from $10.00 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 first
quarter, 170,269 stock options (no stock options granted in 2005) were granted
by TQS Inc. No compensation expense ($30,000 in 2005) was recorded during the
three month period ended November 30, 2006 related to this plan.


9. 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 is as follows:

-------------------------------------------------------------------------
Twelve
Three months months
ended ended
November 30, August 31,
2006 2006
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (audited)

Effect of exchange rate variation on translation
of net investments in self-sustaining foreign
subsidiaries $ 29,758 $ (12,412)
Effect of exchange rate variation on translation
of long-term debt designated as hedge of net
investments in self-sustaining subsidiaries
(net of income taxes of $1,703,000 for the
twelve month period ended August 31, 2006) (22,398) 7,960
-------------------------------------------------------------------------
$ 7,360 $ (4,452)
-------------------------------------------------------------------------
-------------------------------------------------------------------------


10. Statements of Cash Flow

a) Changes in non-cash operating items

Three months ended November 30,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Accounts receivable $ (18,649) $ (12,216)
Income tax receivable (1,672) (493)
Prepaid expenses (3,516) 641
Broadcasting rights (396) (7,258)
Accounts payable and accrued liabilities (74,866) (42,558)
Broadcasting rights payable 5,553 8,087
Income tax liabilities 3,867 (299)
Deferred and prepaid income 3,921 2,183
-------------------------------------------------------------------------
$ (85,758) $ (51,913)
-------------------------------------------------------------------------
-------------------------------------------------------------------------


b) Other information

Three months ended November 30,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Fixed asset acquisitions through capital leases $ 205 $ -
Interest paid 24,618 16,374
Income taxes paid 1,279 2,076
-------------------------------------------------------------------------
-------------------------------------------------------------------------


11. 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 ended November 30,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Contributory defined benefit pension plans $ 819 $ 1,118
Defined contribution pension plan and collective
registered retirement savings plans 621 487
-------------------------------------------------------------------------
$ 1,440 $ 1,605
-------------------------------------------------------------------------
-------------------------------------------------------------------------


12. 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.

On November 30, 2006, COGECO Inc. has confirmed that CRTI will not
exercise its right to purchase the 40% interest that CTV holds in TQS Holdco,
following the change of control of BGM on August 31, 2006 that triggered the
right for CRTI to acquire all the shares of CTV in TQS Holdco.

Furthermore, CRTI, CTV and TQS Holdco have amended the Shareholder's
Agreement to postpone the beginning of the Second Put Option Period provided
in the Agreement from February 15, 2007 to January 1, 2009.

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