Cogeco Câble inc.
TSX : CCA

July 10, 2006 23:59 ET

Cogeco Cable reports substantial growth and expects sustained improvements for fiscal 2007

MONTREAL, July 10 - Today, Cogeco Cable Inc. (TSX: CCA)
announced its financial results for the third quarter of fiscal 2006, ended
May 31.

Major customer growth
---------------------

Cogeco Cable reported strong increases in its revenue-generating units(1)
(RGU), adding more than 48,000 RGUs, compared to 6,400 for the same period
last year, driving a revenue increase of 9.9%. Operating income before
amortization has improved by 8.5% while net income jumped by 50% to stand at
$12.4 million.

Revised 2006 guidelines
-----------------------

"Our operations continue to improve, exceeding most of our projections.
Therefore, we have revised our 2006 guidelines, setting our revenue
expectations to about $600 million, operating income before amortization to
approximately $245 million and free cash flow(2) should remain between
$20 million and $25 million", said Mr. Louis Audet, President and Chief
Executive Officer of Cogeco Cable.

Growth by business acquisition
------------------------------

On June 2, Cogeco Cable entered into an agreement with Cable Satisfaction
International Inc. (CSII), Catalyst Fund Limited Partnership I (Catalyst) and
Cabovisao - Televisao por Cabo, S.A. ("Cabovisao"), to purchase, at a cost of
(euro) 464.9 million, all the shares of the second largest cable operator in
Portugal, an indirect wholly-owned subsidiary of CSII. This agreement and its
execution by the monitor and interim receiver RSM Richter Inc. on behalf of
CSII was approved by the Superior Court of Québec on July 4, 2006, thus
fulfilling one of the conditions precedent to the sale and purchase of the
Cabovisao shares. Cogeco Cable is pleased with Cabovisao's growth potential
and expects to make attractive additions to the services already provided to
its customers. "This acquisition is consistent with Cogeco Cable's strategy to
pursue external growth opportunities and Cabovisao is well positioned in the
high-growth cable telecommunications market in Portugal", stated Mr. Audet.

2007 projections - Canada
-------------------------

For fiscal 2007, Cogeco Cable expects continued increases in high-speed
Internet (HSI), digital video and digital telephony services. Revenue from the
Canadian operations should consequently improve by between 10% and 12%. An
operating margin of approximately 40% should be achieved despite the launch of
digital telephony in most of the Corporation's networks. Growth in revenue and
sustained cost control should help achieve an increase in operating income
before amortization of approximately 9%.
"For the future, we are confident that the number of Canadian customers
will continue to grow, thanks to our strong offering, which is in line with
customer demand. As for Cabovisao, we are dedicated to the successful
integration of our newest and promising asset to ensure the creation of value
for Cogeco Cable's shareholders", concluded Mr. Audet.

(1) Revenue-generating units represent the sum of basic service, digital
video service, HSI service and digital telephony service customers.
(2) See "Non-GAAP financial measures" section for explanations.

<<
FINANCIAL HIGHLIGHTS

Quarters ended May 31, Nine months ended May 31,
($000s, except (unaudited) (unaudited)
percentages and % %
per share data) 2006 2005 Change 2006 2005 Change
------- ------ ------ ------ ------ -------

Revenue $ 153,956 $ 140,071 9.9 $ 445,126 $ 414,226 7.5
Operating
income before
amortization 63,244 58,310 8.5 180,114 166,801 8.0

Net income 12,371 8,245 50.0 31,569 17,685 78.5

Cash flow
from
operations(1) 49,696 43,562 14.1 138,025 124,429 10.9
Less:
Capital
expenditures
and
increase in
deferred
charges 38,009 25,692 47.9 111,167 79,412 40.0
------ ------ ------- ------
Free cash
flow(1) 11,687 17,870 (34.6) 26,858 45,017 (40.3)

Per share
data
Basic net
income $ 0.31 $ 0.21 47.6 $ 0.79 $ 0.44 79.5

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

FORWARD-LOOKING STATEMENT

Certain statements in this press release may constitute forward-looking
information within the meaning of securities laws. Forward-looking information
may relate to our future outlook and anticipated events, our business, our
operations, our financial performance, our financial condition or our results
and, in some cases, can be identified by terminology such as "may"; "will";
"should"; "expect"; "plan"; "anticipate"; "believe"; "intend"; "estimate";
"predict"; "potential"; "continue"; "foresee", "ensure" or other similar
expressions concerning matters that are not historical facts. In particular,
statements regarding our future operating results and economic performance and
our objectives and strategies are forward-looking statements. These statements
are based on certain factors and assumptions, including expected growth,
results of operations, performance and business prospects and opportunities,
which we believe are reasonable as of the current date. While we consider
these assumptions to be reasonable based on information currently available to
us, they may prove to be incorrect. Forward-looking information is also
subject to certain factors, including risks and uncertainties (described in
"Uncertainty and main risk factors" of the Corporation'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 Corporation's
financial statements, and the notes thereto, prepared in accordance with
Canadian GAAP and the MD&A included in the Corporation's Annual Report.
Throughout this discussion, all amounts are in Canadian dollars unless
otherwise indicated.

MANAGEMENT'S DISCUSSION AND ANALYSIS

CORPORATE STRATEGIES AND OBJECTIVES

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

Diversification and improvement of products and services
- Digital video services:
- Addition of WWE 24/7 to Cogeco Cable's digital video offer;
- Digital telephony service:
- Now available to 50% of homes passed in Cogeco Cable's territories;
- Deployment of digital telephony service in Grimsby, Stoney Creek,
Welland, Port Colborne, Dundas, Milton, Georgetown, Ancaster, Fort
Erie, Pelham, Wallaceburg, Niagara Falls and Essex, Ontario, and in
Shawinigan, Grand-Mère, Louiseville and St-Georges-de-Beauce,
Québec.
- High-speed Internet service:
- Download speed increase of Cogeco Cable's Standard HSI service to a
maximum of 7 Mbps and its combined upload and download bit cap for
each HSI service: from 30 Gb to 100 Gb for the Pro service, from
15 Gb to 60 Gb for the Standard service and from 2 Gb to 10 Gb for
the Lite service. In the last few weeks, Cogeco Cable has completed
the improvement of its Pro HSI service by increasing its speed from
up to 10 Mbps to up to 16 Mbps. As for the Standard HSI service, its
speed will be increased from up to 7 Mbps to up to 10 Mbps before
the end of July 2006;
- Significant upgrade of the free security suite, which provides pop
up blockers, anti-spyware and protection with the introduction of
F-Secure Pex 6 in all our territories.
Sustained corporate growth and diversification of clientele and
territories
- Acquisition:
- On June 2, 2006, Cogeco Cable entered into an agreement with Cable
Satisfaction International Inc. (CSII), Catalyst Fund Limited
Partnership I (Catalyst) and Cabovisao-Televisao por Cabo, S.A., to
purchase, at a cost of (euro) 464.9 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 final
purchase price will be determined following completion of a post-
closing working capital adjustment. Cogeco Cable is assuming a
(euro) 20 million working capital deficiency. The transaction, which
was approved by the Superior Court of Québec on July 4, 2006, is
still subject to the fulfilment of certain conditions of closing,
including the implementation of the plan of arrangement previously
approved by the court in March 2004, as amended.
Cogeco Cable will finance the acquisition of Cabovisao through an
underwritten credit facility of $900 million over five years
committed by a major Canadian Chartered Bank.

(*) See "Customer statistics" section for detailed explanations.

RGU growth

During the first nine months, the number of RGUs increased by 12.2%. The
Corporation had anticipated RGU growth between 10% and 11% for all of fiscal
2006. Higher than anticipated HSI, digital video and digital telephony
customer growth allowed Cogeco Cable to exceed its objective in the first nine
months of the fiscal year. Therefore, management revised its guidelines in the
third quarter and now believes it will reach RGU growth between 13% and 15% by
August 31, 2006. Please consult the "Fiscal 2006 and 2007 financial
guidelines" section for further details.

Revenue growth

During the first nine months, revenue increased by 7.5% mainly due to
stronger RGU growth. The Corporation had expected to reach revenue growth
between 7% and 8% in its second quarter - revised guideline for 2006, and
maintains this guideline. Please consult the "Fiscal 2006 and 2007 financial
guidelines" section for further details.

Free cash flow

In the first nine months, Cogeco Cable generated free cash flow of
$26.9 million. In light of the stronger than expected RGU growth in the first
nine months of fiscal 2006, capital expenditures and deferred charges are
expected to surpass the $160 million guideline and reach between $163 million
and $168 million. In fiscal 2006, free cash flow will remain at the revised
level set in the previous quarter of $20 million to $25 million. Please
consult the "Fiscal 2006 and 2007 financial guidelines" section for further
details.

CUSTOMER STATISTICS
Net additions (losses)
Quarters ended Nine months ended
May 31, May 31,
------------------ --------------------
May 31,
2006 2006 2005 2006 2005
--------- ------- ------- ------- -------
RGUs(2) 1,511,693 48,081 6,378 163,960 72,275
Basic service
customers 832,492 (3,349) (3,523) 11,059 3,469
HSI service
customers(3) 330,479 12,378 5,731 52,831 35,265
Digital video
service
customers(4) 316,801 23,635 4,170 69,597 33,541
Digital
telephony
service
customers 31,921 15,417 - 30,473 -



% of Penetration(1)

May 31,
--------------------

2006 2005
------- -------
RGUs(2)
Basic service customers
HSI service customers(3) 43.1 37.6
Digital video service customers(4) 38.8 30.0
Digital telephony service customers 7.6 -

(1) As a percentage of basic service customers in areas served.
(2) Represent the sum of basic service, HSI service, digital video
service and digital telephony service customers.
(3) Customers subscribing only to Internet services totaled 60,786 as at
May 31, 2006 compared to 59,292 as at February 28, 2006.
(4) In fiscal 2005, the number of digital video service customers was
restated to reflect changes brought about by our billing improvement
program, which has allowed us to identify digital video service
customer accounts that were not cancelled when they became inactive.
This change resulted in a downward adjustment of approximately 7,800
customers as at May 31, 2005.

Except for basic service customers, all services generated higher growth
in the third quarter compared to the same period last year. The number of net
additions of HSI service and digital video service customers stood at 12,378
and 23,635 compared to 5,731 and 4,170 for the same period last year. The
number of net additions of HSI service customers was higher than the
comparable period last year, due to promotional activities, enhancement of the
product offering and the impact of the bundled offer of three services. The
increase in the number of digital video service customers stems from the
growing interest in this technology and the growing demand for the high-
definition (HD) format among customers, as well as attractive promotional
offers, and the snowball effect of the telephony offering.
For the third quarter of fiscal 2006, basic service customer numbers
declined by 3,349 compared to a reduction of 3,523 for the same period last
year. These losses are mainly attributable to students leaving their campuses
at the end of the school year. Cogeco Cable offers its services in several
cities, with universities and colleges, such as Kingston, Windsor, Hamilton,
St. Catharines, Peterborough, Trois-Rivières and Rimouski.
On May 31, 2006, 38,204 customers were subscribing to the digital
telephony service including pending orders compared to 18,783 customers
including pending orders as at February 28, 2006.

ACCOUNTING POLICIES AND ESTIMATES

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 Corporation 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 Cable's accounting
policies and estimates since August 31, 2005. A description of these policies
and estimates can be found in the Corporation's 2005 annual MD&A.

RELATED PARTY TRANSACTIONS

Cogeco Cable is a subsidiary of COGECO Inc., which holds 39.2% of the
Corporation's equity shares. Under a management agreement, the Corporation
pays COGECO Inc. monthly management fees equal to 2% of its total revenue for
certain executive, administrative, legal, regulatory, strategic and financial
planning, and additional services. In 1997, management fees were capped at
$7 million per year, subject to annual upward adjustments based on increases
in the Consumer Price Index in Canada. Accordingly, for fiscal 2006,
management fees have been set at a maximum of $8.4 million. Cogeco Cable
granted 31,743 stock options to COGECO Inc.'s employees during the first
quarter of fiscal 2006, compared to 38,397 in the first quarter of fiscal
2005. The Corporation did not grant any stock options to COGECO Inc.'s
employees during second and third quarters of fiscal 2006 and 2005. Further
details regarding the management agreement and stock options granted to COGECO
Inc.'s employees are provided in the Corporation's 2005 annual MD&A. There
were no other material related party transactions during the third quarters
and first nine months of fiscal 2006 and 2005.

OPERATING RESULTS


($000s, except
percentages) Quarters ended May 31, Nine months ended May 31,
% %
2006 2005 Change 2006 2005 Change
------- ------ ------ ------ ------ -------

Revenue $ 153,956 $ 140,071 9.9 $ 445,126 $ 414,226 7.5

Operating
costs 88,145 79,054 11.5 256,620 239,239 7.3
Management fees
- COGECO Inc. 2,567 2,707 (5.2) 8,392 8,186 2.5

Operating income
before
amortization 63,244 58,310 8.5 180,114 166,801 8.0

Operating
margin 41.1% 41.6% 40.5% 40.3%


For the third quarter and first nine months of fiscal 2006, revenue rose
by $13.9 million or 9.9% and by $30.9 million or 7.5% respectively, compared
to the same periods last year. Revenue growth during these periods is mainly
attributable to an increased number of customers of digital video, HSI and
digital telephony services as mentioned in the "Customer Statistics" section,
as well as to 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.

Operating Costs

For the third quarter and first nine months of fiscal 2006, operating
costs, excluding management fees payable to COGECO Inc., rose by $9.1 million
or 11.5% and by $17.4 million or 7.3% respectively. Operating costs also
include network fees. Network fees increased by 11.2% and 6.5% during the
third quarter and first nine months respectively, compared to the same periods
last year. These increases are mainly the result of the introduction of
digital telephony service, the Canadian Radio-television and
Telecommunications Commission mandated APTN wholesale rate increase and RGU
growth, partly offset by IP transport costs that have declined despite HSI
customer growth. Other operating costs increased in order to serve additional
RGUs, including digital telephony.

Operating Income before Amortization

For the third quarter and first nine months of fiscal 2006, operating
income before amortization rose by 8.5% and 8.0% respectively, compared to the
same periods last year as the increase in revenue outpaced the rise in
operating costs. Cogeco Cable's operating margin decreased from 41.6% to 41.1%
in the third quarter of fiscal 2006, due to the launch of digital telephony
service. For the first nine months of fiscal 2006, the operating margin stood
at 40.5% compared to 40.3% for the same period last year.

FIXED CHARGES

($000s, except
percentages) Quarters ended May 31, Nine months ended May 31,
% %
2006 2005 Change 2006 2005 Change

Amortization $ 29,048 $ 31,396 (7.5) $ 85,981 $ 95,628 (10.1)

Financial
expense $ 13,634 $ 13,954 (2.3) $ 40,992 $ 41,688 (1.7)



During the third quarter and first nine months of fiscal 2006,
amortization amounted to $29 million and $86 million compared to $31.4 million
and $95.6 million for the same periods last year. Amortization declined during
these periods since many cable modems and digital terminals were fully
amortized.
For the third quarter and first nine months of fiscal 2006, financial
expense decreased slightly compared to the same periods last year. This is due
to the lower level of Indebtedness (defined as bank indebtedness and long-term
debt) during these periods, partially offset by increases in the short-term
interest rate on the Term Facility.

INCOME TAXES

In the third quarter and first nine months of fiscal 2006, income taxes
amounted to $8.2 million and $21.6 million respectively, compared to
$4.7 million and $11.8 million for the same periods last year. The income tax
increases were mainly attributable to the growth in operating income before
amortization combined with a decline in fixed charges.
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% by January 1,
2008. These measures were considered substantially enacted on June 6, 2006,
and therefore will reduce future income taxes by approximately $18 million for
the next quarter ending August 31, 2006.

NET INCOME

Net income for the third quarter amounted to $12.4 million, or $0.31 per
share, compared to $8.2 million, or $0.21 per share, for the same period last
year. For the first nine months of fiscal 2006, net income amounted to
$31.6 million, or $0.79 per share compared to $17.7 million, or $0.44 per
share for the same period in fiscal 2005. Net income increases in these
periods were attributable to the growth in operating income before
amortization combined with a decline in fixed charges.

CASH FLOW AND LIQUIDITY


Quarters ended May 31, Nine months ended May 31,
($000s)
2006 2005 2006 2005
----------- ----------- ----------- -----------
Operating Activities
Cash flow from
operations $ 49,696 $ 43,562 $ 138,025 $ 124,429
Changes in non-cash
operating items (4,132) 15 (49,444) (22,439)
----------- ----------- ----------- -----------
$ 45,564 $ 43,577 $ 88,581 $ 101,990
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

Investing
Activities(1) $ (16,458) $ (24,115) $ (108,499) $ (77,808)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

Financing
Activities(1) $ (29,106) $ (19,462) $ 19,857 $ (24,182)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net change in cash
and cash
equivalents $ - $ - $ (61) $ -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

(1) Excludes assets acquired under capital leases.


During the third quarter of fiscal 2006, cash flow from operations
reached $49.7 million, or 14.1% higher than for the comparable period last
year, due primarily to the increase in operating income before amortization.
Changes in non-cash operating items generated greater cash outflow than for
the same period last year, mainly as a result of relatively stable accounts
receivable compared to a decrease for the same period in fiscal 2005.
During the first nine months of fiscal 2006, cash flow from operations
reached $138 million, or 10.9% higher than for the same period last year, due
primarily to the increase in operating income before amortization. Changes in
non-cash operating items generated greater cash outflow than last year mainly
as a result of a larger decrease in accounts payable and accrued liabilities
caused by increased capital expenditures incurred in late fiscal 2005.
Investing activities, including capital expenditures segmented according
to the National Cable Television Association (NCTA) standard reporting
categories, are as follows:

Quarters ended May 31, Nine months ended May 31,
($000s)
2006 2005 2006 2 2005
----------- ----------- ----------- -----------

Customer Premise
Equipment(1) $ 13,824 $ 4,935 $ 43,430 $ 31,625
Scalable
Infrastructure 4,488 3,760 15,103 8,966
Line Extensions 2,606 2,074 7,449 6,842
Upgrade / Rebuild 11,882 10,554 28,488 20,938
Support Capital 980 1,140 5,019 2,475
----------- ----------- ----------- -----------
Total Capital
Expenditures(2) $ 33,780 $ 22,463 $ 99,489 $ 70,846
----------- ----------- ----------- -----------
Deferred charges
and others 4,199 3,212 11,640 8,522
----------- ----------- ----------- -----------
Decrease in
restricted cash (20,322) - - -
----------- ----------- ----------- -----------
Total investing
activities $ 17,657 $ 25,675 $ 111,129 $ 79,368
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

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


During the third quarter and first nine months of fiscal 2006, the
increase related to capital expenditures is mainly due to the following
factors:

- The increase in customer premise equipment in the third quarter of
fiscal 2006 results primarily from an increase in digital terminals,
cable modems and more home terminal devices related to the digital
telephony service. For the first nine months of fiscal 2006, the
increase in customer premise equipment results 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 customers.

- The growth in scalable infrastructure is 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 households with access to two-way service was also a factor
and the percentage of customers with access to two-way service rose
from 88% as at May 31, 2005 to 92% as at May 31, 2006.

The third quarter and first nine months increases in deferred charges are
explained by higher reconnect costs attributable to the significant level of
RGU increase, which includes the digital telephony customer growth. During the
third quarter, the $20.3 million decrease in restricted cash was the result of
a reimbursement of a deposit in escrow. This deposit of 15 million euro was
intended for the business acquisition described in the "Corporate Strategies
and Objectives" section and was reimbursed with accumulated interest thereon.
Free cash flow of $11.7 million and $26.9 million were generated during
the third quarter and first nine months of fiscal 2006 respectively as a
result of increased cash flow from operations partly offset by increased
capital expenditures and deferred charges. In the third quarter and first nine
months of fiscal 2006, free cash flow declined compared to the same periods
last year. This is attributable to increased capital expenditures and deferred
charges that support digital telephony service and better-than-expected RGU
growth.
During the third quarter, the level of Indebtedness decreased by
$27.5 million mainly due to generated free cash flow of $11.7 million and a
net decrease in restricted cash of $20.3 million, partly offset by a decline
in non-cash operating items of $4.1 million. For the same period last year,
Indebtedness declined by $18.7 million mainly due to generated free cash flow
of $17.9 million. In addition, a dividend of $0.04 per share for subordinate
and multiple voting shares, totalling $1.6 million, was paid during the third
quarter of fiscal 2006 compared to a dividend of $0.02 per share or
$0.8 million for the third quarter of fiscal 2005.
During the first nine months of fiscal 2006, the level of Indebtedness
grew by $24.5 million mainly due to a decline in non-cash operating items of
$49.4 million partly offset by generated free cash flow of $26.9 million. For
the same period last year, Indebtedness declined by $22.5 million essentially
due to generated free cash flow of $45 million partly offset by a decline in
non-cash operating items of $22.4 million. Dividends totalling $4.8 million
were paid during the first nine months of fiscal 2006 compared to $2.4 million
for the same period the year before.
As at May 31, 2006, Cogeco Cable had a working capital deficiency of
$98.3 million compared to $121.5 million as at August 31, 2005. This
improvement is mainly attributable to a reduction in the level of accounts
payable and accrued liabilities, as discussed in the "Financial Position"
section, partly offset by an increase in the current portion of Indebtedness.
This increase is explained by a greater utilization of bank indebtedness and
an increase in the current portion of long-term debt as the Corporation's Term
Facility matures in less than a year. Cogeco Cable maintains a working capital
deficiency due to low accounts receivable since the majority of the
Corporation's customers pay before their services are rendered, unlike
accounts payable and accrued liabilities, which are paid after products or
services are rendered. Additionally, the Corporation generally uses cash and
cash equivalents to reduce Indebtedness.
As at May 31, 2006, the Corporation had utilized $18 million of its Term
Facility. During the second quarter, Cogeco Cable amended its Term Facility so
that the committed amount, which should have been reduced to $95 million on
January 31, 2006, was maintained at its prior level of $270 million. Based on
existing bank covenants, Cogeco Cable could have used the entire committed
amount under the Term Facility. Going forward, Cogeco Cable expects to
generate free cash flow and thus further reduce its leverage ratio net of cash
and cash equivalents.

FINANCIAL POSITION

Since August 31, 2005, there have been major changes to the "Fixed
assets," "Accounts payable and accrued liabilities," and "Indebtedness" items
on the balance sheet. The $28.8 million rise in fixed assets was mainly
related to increased capital expenditures as well as lower amortization
expense. Accounts payable and accrued liabilities declined by $47.1 million as
the use of working capital was tightly managed at fiscal 2005 year-end.
Indebtedness increased by $27.1 million, due to the factors previously
discussed in the "Cash Flow and Liquidity" section.
A description of Cogeco Cable's share data as of June 30, 2006 is
presented in the table below:

Number of Amount
shares/options ($000s)
-------------- -------------
Common Shares
Multiple voting shares 15,691,100 98,346
Subordinate voting shares 24,301,634 532,040

Options to Purchase Subordinate
Voting Shares
Outstanding options 716,148
Exercisable options 452,443


In the normal course of business, Cogeco Cable has incurred financial
obligations, primarily in the form of long-term debt, operating and capital
leases and guarantees. Cogeco Cable's obligations have not materially changed
since August 31, 2005 and are described in the 2005 annual MD&A.

DIVIDEND DECLARATION

At its July 7, 2006 meeting, the Board of Directors of Cogeco Cable
declared a quarterly dividend of $0.04 per share for subordinate and multiple
voting shares, payable on August 3, 2006, to shareholders of record on
July 21, 2006.

FOREIGN EXCHANGE MANAGEMENT

Cogeco Cable has entered into cross-currency swap agreements to fix 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$12.8 million at the end
of the third quarter 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 6 of the third quarter interim financial statements. The
$73.4 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.

FISCAL 2006 AND FISCAL 2007 FINANCIAL GUIDELINES

($ million, except Preliminary Projections, Revised Projections,
customer data) Fiscal 2007 July 10, 2006
----------------------- ---------------------
Financial Guidelines
Revenue 660 to 670 599 to 602
Operating income before
amortization 264 to 267 242 to 245
Operating margin About 40% 40.5%
Financial expense 55 55
Amortization 128 117
Net income 53 45
Capital expenditures and
deferred charges 180 163 to 168
Free cash flow 30 20 to 25

Customer Addition Guidelines
Basic service 3,000 to 6,000 3,000 to 6,000
HSI service 35,000 to 40,000 55,000 to 60,000
Digital video service 55,000 to 60,000 75,000 to 80,000
Digital telephony service 45,000 to 50,000 45,000 to 50,000
RGU 138,000 to 156,000 178,000 to 196,000


($ million, except Revised Projections,
customer data) April 10, 2006
---------------------
Financial Guidelines
Revenue 593 to 600
Operating income before
amortization 236 to 240
Operating margin About 40%
Financial expense 56
Amortization 116
Net income 40
Capital expenditures and
deferred charges 160
Free cash flow 20 to 25

Customer Addition Guidelines
Basic service 3,000 to 6,000
HSI service 47,000 to 49,000
Digital video service 59,000 to 62,000
Digital telephony service 32,000 to 37,000
RGU 138,000 to 154,000


Fiscal 2006 Financial Guidelines

Given the stronger-than-expected demand for digital video, HSI and
digital telephony services during the first nine months and various service
enhancements offered recently, Cogeco Cable has revised upward its 2006
guideline for digital video, HSI and digital telephony customer additions.
Subsequent to these adjustments, projected revenue and operating income before
amortization were revised upward. The operating margin should also increase to
about 40.5% even if some additional network maintenance expenses are expected
to occur during the last quarter of fiscal 2006.
As a result of increased customer additions, Cogeco Cable will have to
purchase more digital terminals, cable modems and equipment and is raising its
capital expenditures and deferred charges as well as amortization guidelines
from $160 million to between $163 million and $168 million and to
$117 million, respectively. The Corporation should generate free cash flow of
$20 million to $25 million, which remains unchanged from last quarter's
projection, as a result of higher anticipated operating income before
amortization offset by higher capital expenditures and deferred charges.
Projected net income should be at about $45 million.

Fiscal 2007 Preliminary Financial Outlook

The fiscal 2007 financial guidelines exclude Cabovisao, which will be
presented when the transaction is completed and 2006 year-end results will be
published. The increase of approximately 10% to 12% in revenue should result
mainly from expanded penetration of HSI service in fiscal 2006 and 2007, and
from rate increases implemented in Québec, in June 2006 and in Ontario, in
August 2006; of at most $3 per customer and averaging $1 per basic service
customer. Improved penetration of digital video services and continued
deployment of digital telephony will also contribute to revenue increase.
Cogeco Cable plans to expand its basic service clientele through consistently
effective marketing, competitive product offers and superior customer service.
As the penetration of HSI and digital video services increase, the demand for
these products will likely slow down but should be offset by increased demand
for digital telephony services.
Cogeco Cable expects to achieve an operating margin of approximately 40%,
despite the launch of digital telephony in most of its networks. Growth in
revenue and sustained cost control should help achieve an increase in
operating income before amortization of approximately 9%.
Cogeco Cable expects the amortization of capital assets and deferred
charges to increase by $11 million, mainly due to capital expenditures and
deferred charges for RGU additions in fiscal 2006 and 2007. Management expects
that cash flows generated by operations will finance capital expenditures and
deferred charges, expected to amount to $180 million. The Corporation expects
to generate free cash flow in the order of $30 million, i.e. an increase of
approximately $5 to $10 million compared to the 2006 forecasts. An increase in
free cash flow is expected despite the continued deployment of digital
telephony. Free cash flow that is generated should be used primarily to reduce
Indebtedness, thus improving the Corporation's leverage ratios. Given the
anticipated decrease in Indebtedness, financial expense will slightly decline.
Net income of approximately $53 million should be achieved as a result of
growth in operating income before amortization exceeding the increase in fixed
charges.
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 video services and video on demand,
$7 million related to customer premise equipments and $4 million related to
support capital with respect to upgrade of business information systems.

RISK FACTORS AND UNCERTAINTIES

There have been no significant changes in the risk factors and
uncertainties facing Cogeco Cable as described in the Corporation's 2005
annual MD&A.

NON-GAAP FINANCIAL MEASURES

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

Cash flow from operations

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

($ 000) Quarters ended May 31, Nine months ended May 31,
2006 2005 2006 2005
----------- ----------- ----------- -----------
Cash flow from
operating
activities $ 45,564 $ 43,577 $ 88,581 $ 101,990
Changes in non-
cash operating
items 4,132 (15) 49,444 22,439
----------- ----------- ----------- -----------
Cash flow from
operations $ 49,696 $ 43,562 $ 138,025 $ 124,429
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------


Free cash flow

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

($ 000) Quarters ended May 31, Nine months ended May 31,
2006 2005 2006 2005
----------- ----------- ----------- -----------
Cash flow from
operations $ 49,696 $ 43,562 $ 138,025 $ 124,429
Acquisition of
fixed assets (32,581) (20,903) (96,859) (69,286)
Increase in
deferred charges (4,229) (3,229) (11,678) (8,566)
Assets acquired
under capital
leases - as
per Note 8 b) (1,199) (1,560) (2,630) (1,560)
----------- ----------- ----------- -----------
Free cash flow $ 11,687 $ 17,870 $ 26,858 $ 45,017
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------


ADDITIONAL INFORMATION

This MD&A was prepared on July 7, 2006. Additional information relating
to the Corporation, including its Annual Information Form, is available on the
SEDAR Web site at www.sedar.com.

ABOUT COGECO CABLE

Cogeco Cable (www.cogeco.ca) is the second largest cable operator in both
Ontario and Québec, and ranks fourth in Canada in terms of the number of basic
cable service customers served. Cogeco Cable invests in state-of-the-art
broadband network facilities, delivers a wide range of services over these
facilities with great speed and reliability at attractive prices, and strives
to provide both superior customer care and growing profitability to satisfy
its customers' varied electronic communication needs. Through its two-way
broadband cable infrastructure, Cogeco Cable provides its residential and
commercial customers with analog and digital video and audio services, high-
speed Internet access as well as digital telephony service. The Corporation
provides about 1,512,000 revenue-generating units to approximately 1,469,000
households in its service territory. Cogeco Cable's subordinate voting shares
are listed on the Toronto Stock Exchange (CCA).

Analyst Conference Call: Monday July 10th 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: 1 800 500-0177
International Access Number: +1 719 457-2679
Confirmation Code: 5307043
By Internet at: www.cogeco.ca/investors

A rebroadcast of the conference call will be
available until July 17 by dialing:
Canada and USA access number: 1 888 203-1112
International access number: + 1 719 457-0820
Confirmation code: 5307043


Supplementary Quarterly Financial Information

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

Revenue $ 153,956 $ 140,071 $ 147,757 $ 138,389
Operating income
before
amortization 63,244 58,310 59,568 55,297
Operating margin 41.10% 41.60% 40.30% 40.00%
Amortization 29,048 31,396 28,656 31,988
Financial expense 13,634 13,954 13,776 13,840
Income taxes 8,191 4,715 6,936 3,856
Net income 12,371 8,245 10,200 5,613

Cash flow from
operations 49,696 43,562 44,940 41,675

Net income
per share $ 0.31 $ 0.21 $ 0.26 $ 0.14

Quarters ended November 30, August 31,
2005 2004 2005 2004
-------------------------- -------------------------
($000, except
percentages and
per share data)

Revenue $ 143,413 $ 135,766 $ 140,178 $ 133,053
Operating income
before
amortization 57,302 53,194 60,720 54,290
Operating margin 40.00% 39.20% 43.30% 40.80%
Amortization 28,277 32,244 29,460 32,476
Financial expense 13,582 13,894 14,004 13,871
Income taxes 6,445 3,229 6,220 1,474
Net income 8,998 3,827 11,036 6,469

Cash flow from
operations 43,389 39,192 46,509 41,025

Net income
per share $ 0.23 $ 0.1 $ 0.28 $ 0.16


Cogeco Cable's operating results are not generally subject to material
seasonal fluctuations. However, the loss of basic service customers is usually
greater, and the addition of HSI customers is generally lower in the third
quarter, mainly due to students leaving campuses at the end of the school
year. Cogeco Cable offers its services in several university and college towns
such as Kingston, Windsor, St. Catharines, Hamilton, Peterborough, Trois-
Rivières and Rimouski. Furthermore, the fourth quarter's operating margin is
usually higher as no management fees are paid to COGECO Inc. Under a
Management Agreement, Cogeco Cable pays a fee equal to 2% of its total revenue
subject to a maximum amount. Since the maximum amount was reached at the end
of the third quarter of fiscal 2006 and 2005, Cogeco Cable paid no management
fees during fiscal 2006 and 2005 fourth quarters.

COGECO CABLE INC.
Customer Statistics
May 31, August 31,
2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Homes Passed
Ontario 997,881 986,401
Québec 471,128 462,332
-------------------------------------------------------------------------
1,469,009 1,448,733
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Revenue Generating Units
Ontario 1,081,998 968,749
Québec 429,695 378,984
-------------------------------------------------------------------------
1,511,693 1,347,733
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic Service Customers
Ontario 588,397 581,631
Québec 244,095 239,802
-------------------------------------------------------------------------
832,492 821,433
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Discretionnary Service Customers
Ontario 466,947 461,038
Québec 190,049 183,320
-------------------------------------------------------------------------
656,996 644,358
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Pay TV Service Customers
Ontario 85,739 80,817
Québec 37,927 35,407
-------------------------------------------------------------------------
123,666 116,224
-------------------------------------------------------------------------
-------------------------------------------------------------------------
High Speed Internet Service Customers
Ontario 262,888 226,133
Québec 67,591 51,515
-------------------------------------------------------------------------
330,479 277,648
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Digital Video Customers
Ontario 209,871 159,734
Québec 106,930 87,470
-------------------------------------------------------------------------
316,801 247,204
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Digital Telephony
Ontario 20,842 1,251
Québec 11,079 197
-------------------------------------------------------------------------
31,921 1,448
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF INCOME

Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
(In thousands of
dollars, except
per share data) 2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Revenue
Service $ 153,381 $ 139,522 $ 443,312 $ 411,647
Equipment 575 549 1,814 2,579
-------------------------------------------------------------------------
153,956 140,071 445,126 414,226

Operating costs 88,145 79,054 256,620 239,239
Management fees
- COGECO Inc. 2,567 2,707 8,392 8,186
-------------------------------------------------------------------------

Operating income
before
amortization 63,244 58,310 180,114 166,801
Amortization
(note 3) 29,048 31,396 85,981 95,628
-------------------------------------------------------------------------

Operating income 34,196 26,914 94,133 71,173
Financial expense
(note 6) 13,634 13,954 40,992 41,688
-------------------------------------------------------------------------

Income before
income taxes 20,562 12,960 53,141 29,485
Income taxes
(note 4) 8,191 4,715 21,572 11,800
-------------------------------------------------------------------------

Net income $ 12,371 $ 8,245 $ 31,569 $ 17,685
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Earnings per
share (note 5)
Basic and
diluted $ 0.31 $ 0.21 $ 0.79 $ 0.44
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS


Nine months ended May 31,
-------------------------------------------------------------------------
(In thousands of dollars) 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Balance at beginning $ 58,604 $ 33,880

Net income 31,569 17,685

Dividends on multiple voting shares (1,884) (942)

Dividends on subordinate voting shares (2,916) (1,456)
-------------------------------------------------------------------------
Balance at end $ 85,373 $ 49,167
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO CABLE INC.
CONSOLIDATED BALANCE SHEETS

-------------------------------------------------------------------------
(In thousands of dollars) May 31, August 31,
2006 2005
-------------------------------------------------------------------------
(unaudited) (audited)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Assets
Current
Cash and cash equivalents $ - $ 61
Accounts receivable 28,639 26,485
Income tax receivable 178 -
Prepaid expenses 5,210 3,946
-------------------------------------------------------------------------
34,027 30,492
-------------------------------------------------------------------------

Fixed assets 726,371 697,526
Deferred charges 33,633 38,226
Customer base 989,552 989,552
-------------------------------------------------------------------------
$ 1,783,583 $ 1,755,796
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Liabilities and Shareholders' equity
Liabilities
Current
Bank indebtedness $ 7,693 $ -
Accounts payable and accrued liabilities 77,983 125,090
Income tax liabilities - 678
Deferred and prepaid income 26,784 24,907
Current portion of long-term debt (note 6) 19,827 1,322
-------------------------------------------------------------------------
132,287 151,997
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Long-term debt (note 6) 692,082 691,159
Deferred and prepaid income 10,582 10,522
Pension plans liabilities and accrued
employee benefits 2,311 1,903
Future income tax liabilities 229,329 210,731
-------------------------------------------------------------------------
1,066,591 1,066,312
-------------------------------------------------------------------------

Shareholders' equity
Capital stock (note 7) 630,386 630,220
Retained earnings 85,373 58,604
Contributed surplus - stock-based compensation 1,233 660
-------------------------------------------------------------------------
716,992 689,484
-------------------------------------------------------------------------
$ 1,783,583 $ 1,755,796
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF CASH FLOW


Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
(In thousands
of dollars) 2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Cash flow from
operating
activities
Net income $ 12,371 $ 8,245 $ 31,569 $ 17,685
Items not
affecting cash and
cash equivalents
Amortization
(note 3) 29,048 31,396 85,981 95,628
Amortization
of deferred
financing costs 243 242 724 717
Future income
taxes (note 4) 7,455 3,269 18,598 9,404
Other 579 410 1,153 995
-------------------------------------------------------------------------
49,696 43,562 138,025 124,429
Changes in non-cash
operating items
(note 8a)) (4,132) 15 (49,444) (22,439)
-------------------------------------------------------------------------
45,564 43,577 88,581 101,990
-------------------------------------------------------------------------

Cash flow from
investing
activities
Acquisition of
fixed assets
(note 8b)) (32,581) (20,903) (96,859) (69,286)
Increase in
deferred charges (4,229) (3,229) (11,678) (8,566)
Decrease in
restricted cash 20,322 - - -
Other 30 17 38 44
-------------------------------------------------------------------------
(16,458) (24,115) (108,499) (77,808)
-------------------------------------------------------------------------

Cash flow from
financing
activities
Increase (decrease)
in bank
indebtedness (15,081) 1,627 7,693 11,402
Increase in
long-term debt - - 18,000 -
Repayment of
long-term debt (12,425) (20,371) (1,202) (33,908)
Issue of
subordinate voting
shares - 82 166 722
Dividends on
multiple voting
shares (628) (314) (1,884) (942)
Dividends on
subordinate voting
shares (972) (486) (2,916) (1,456)
-------------------------------------------------------------------------
(29,106) (19,462) 19,857 (24,182)
-------------------------------------------------------------------------

Net change in cash
and cash
equivalents - - (61) -
Cash and cash
equivalents at
beginning - - 61 -
-------------------------------------------------------------------------
Cash and cash
equivalents at
end $ - $ - $ - $ -
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See supplemental cash flow information in note 8.


COGECO CABLE INC.
Notes to Consolidated Financial Statements
May 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 Cable Inc. as at May 31, 2006 and August 31, 2005 as well as
its results of operations and its cash flow for the three and nine
month periods ended May 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 Cable Inc.'s
annual consolidated financial statements for the year ended
August 31, 2005. These unaudited interim consolidated financial
statements follow the same accounting policies as the most recent
annual consolidated financial statements.

The interim consolidated financial statements for the three and nine
month periods ended May 31, 2005 have not been subject to a review by
the Corporation'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 Corporation adopted
these new standards and concluded that they had no significant impact
on these consolidated financial statements.

3. Amortization

Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Fixed assets $ 24,006 $ 25,824 $ 70,434 $ 78,612

Deferred charges 5,042 5,572 15,547 17,016
-------------------------------------------------------------------------
$ 29,048 $ 31,396 $ 85,981 $ 95,628
-------------------------------------------------------------------------
-------------------------------------------------------------------------


4. Income taxes

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


Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Current $ 736 $ 1,446 $ 2,974 $ 2,396

Future 7,455 3,269 18,598 9,404
-------------------------------------------------------------------------
$ 8,191 $ 4,715 $ 21,572 $ 11,800
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Income tax at
combined income
tax rate of 35.09 %
(34.96 % in 2005) $ 7,215 $ 4,531 $ 18,647 $ 10,308

Loss or income
subject to
lower or higher
tax rates 45 (279) 137 (14)

Increase in income
taxes as a result
of increases in
substantially
enacted tax rates - - 162 -

Large corporation tax 795 367 2,415 1,317

Other 136 96 211 189
-------------------------------------------------------------------------
Income tax at
effective income
tax rate $ 8,191 $ 4,715 $ 21,572 $ 11,800
-------------------------------------------------------------------------
-------------------------------------------------------------------------


On May 2, 2006, the Federal government announced its intention to
reduce the corporate income tax rate progressively from 21% to 19% in
January 2010 and to eliminate the corporate surtax of 1.12% by
January 1, 2008. These measures were considered substantially enacted
on June 6, 2006, and therefore will reduce future income taxes by
approximately $18 million for the next three month period ending
August 31, 2006.

5. Earnings per share

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

Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Net income $ 12,371 $ 8,245 $ 31,569 $ 17,685

Weighted average
number of multiple
voting and
subordinate voting
shares
outstanding 39,992,734 39,976,292 39,989,053 39,958,414

Effect of dilutive
stock options(1) 204,512 158,430 187,348 144,420
-------------------------------------------------------------------------

Weighted average
number of
diluted multiple
voting and
subordinate
voting shares
outstanding 40,197,246 40,134,722 40,176,401 40,102,834
-------------------------------------------------------------------------

Earnings per
share

Basic and
diluted $ 0.31 $ 0.21 $ 0.79 $ 0.44
-------------------------------------------------------------------------
-------------------------------------------------------------------------


6. Long-term debt

-------------------------------------------------------------------------
Interest May 31, August 31,
Maturity rate 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (audited)

Parent company
Term Facility (1) 2007 4.97(2) $ 18,000 $ -
Senior Secured
Debentures Series 1 2009 6.75 150,000 150,000
Senior -
Secured Notes
Series A -
US $150 million 2008 6.83 (3) 165,225 178,065
Series B 2011 7.73 175,000 175,000
Second Secured
Debentures Series A 2007 8.44 125,000 125,000
Deferred credit (4) 2008 - 73,425 60,585

Subsidiaries

Obligations under
capital leases 2010 6.42 - 8.36 5,259 3,831
-------------------------------------------------------------------------
711,909 692,481
Less current portion 19,827 1,322
-------------------------------------------------------------------------
$ 692,082 $ 691,159
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) In January 2006, the Corporation amended its Term Facility so that
the committed amount, which should have been reduced to $95,000,000
on January 31, 2006, was maintained at its prior level of
$270,000,000.
(2) Average interest rate on debt as of May 31, 2006, including stamping
fees.
(3) Cross-currency swap agreements have resulted in an effective interest
rate of 7.254% on the Canadian dollar equivalent of the U.S.
denominated debt.
(4) The deferred credit represents the amount which would have been
payable as at May 31, 2006 and August 31, 2005 under cross-currency
swaps entered into by the Corporation to hedge Senior Secured Notes
Series A denominated in US dollars.

Interest on long-term debt for the three and nine month periods ended May
31, 2006 amounted to $13,264,000 and $39,565,000 ($13,228,000 and $39,694,000
in 2005).


7. Capital Stock

Authorized, an unlimited number

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

Class B Preference shares, without voting rights, issuable in series.

Multiple voting shares, 10 votes per share.

Subordinate voting shares, 1 vote per share.

-------------------------------------------------------------------------
May 31, August 31,
2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (audited)

Issued

15,691,100 multiple voting shares $ 98,346 $ 98,346
24,301,634 subordinate voting shares
(24,293,486 as at August 31, 2005) 532,040 531,874
-------------------------------------------------------------------------
$ 630,386 $ 630,220
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

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

Balance at
beginning 24,293,486 $ 531,874 24,232,815 $ 531,070
Shares issued for
cash under the
Employee Stock
Purchase Plan
and the Stock
Option Plan 8,148 166 60,671 742
Compensation
expense previously
recorded in
contributed
surplus for
options exercised - - - 62
-------------------------------------------------------------------------
Balance at end 24,301,634 $ 532,040 24,293,486 $ 531,874
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Stock-based plans

The Corporation 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
Corporation's annual consolidated financial statements. During the
first nine months, the Corporation granted 126,059 stock options
(140,766 in 2005) with an exercise price ranging from $25.12 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 Corporation
records compensation expense for options granted on or after
September 1, 2003. As a result, a compensation expense of $207,000
and $573,000 ($133,000 and $352,000 in 2005) was recorded for the
three and nine month periods ended May 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 Corporation's net income and earnings per share for the
three and nine month periods ended May 31, 2006 and 2005 would have
been reduced to the following pro forma amounts:


Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Net income
As reported $ 12,371 $ 8,245 $ 31,569 $ 17,685
Pro forma 12,350 8,149 31,508 17,397

Basic earnings
per share
As reported $ 0.31 $ 0.21 $ 0.79 $ 0.44
Pro forma 0.31 0.20 0.79 0.44

Diluted earnings
per share
As reported $ 0.31 $ 0.21 $ 0.79 $ 0.44
Pro forma 0.31 0.20 0.78 0.43
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The fair value of each option granted 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
-------------------------------------------------------------------------

The fair value of stock options granted for the nine month period ended
May 31, 2006 was $9.44 ($7.46 in 2005) per option.

As at May 31, 2006, the Corporation had outstanding stock options
providing for the subscription of 716,148 subordinate voting shares.
These stock options can be exercised at various prices ranging from
$7.05 to $40.75 and at various dates up to January 11, 2016.


8. Statements of cash flow

a) Changes in non-cash operating items

Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Accounts receivable $ 146 $ 4,530 $ (2,154) $ 3,395
Income tax receivable 329 - (178) -
Prepaid expenses (695) 1,071 (1,264) 1,766
Accounts payable and
accrued liabilities (3,924) (6,506) (47,107) (31,158)
Income tax liabilities - 1,120 (678) 335
Deferred and
prepaid income 12 (200) 1,937 3,223
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$ (4,132) $ 15 $ (49,444) $ (22,439)
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-------------------------------------------------------------------------

b) Other information

Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Fixed asset
acquisitions through
capital leases $ 1,199 $ 1,560 $ 2,630 $ 1,560
Interest paid 15,822 16,026 43,087 43,383
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Income taxes paid 407 326 3,830 2,061
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9. Employee future benefits

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

Three months ended May 31, Nine months ended May 31,
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Contributory
defined benefit
pension plans $ 222 $ 156 $ 618 $ 452
Defined contribution
pension plan and
collective registered
retirement savings plan 356 270 1,115 932
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$ 578 $ 426 $ 1,733 $ 1,384
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-------------------------------------------------------------------------


10. Subsequent event

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

On June 2, 2006, the Corporation entered into an agreement with Cable
Satisfaction International Inc. ("CSII"), Catalyst Fund Limited
Partnership I ("Catalyst") and Cabovisao - Televisao por Cabo, S.A.
("Cabovisao"), to purchase, at a cost of (euro) 464.9 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 final purchase price will be determined following
completion of a post-closing working capital adjustment.
The Corporation is assuming a (euro) 20 million working capital
deficiency. The transaction, which was approved by the Superior Court
of Quebec on July 4, 2006, is still subject to the fulfilment of
certain conditions of closing, including the implementation of the
plan of arrangement previously approved by the court in March 2004,
as amended. The Corporation will finance the acquisition of Cabovisao
through an underwritten credit facility of $900 million over five
years committed by a major Canadian Chartered Bank.
>>

Contact Information

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