Cogeco Câble inc.
TSX : CCA

January 11, 2007 23:59 ET

Cogeco Cable revises its guidance due to strong first quarter 2007 results

MONTREAL, Jan. 11 - Today, Cogeco Cable Inc. (TSX: CCA)
announced its financial results for the first quarter ended November 30, 2006.

Growth from business acquisition

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

The newly acquired Portuguese operations, Cabovisao-Televisao por Cabo,
S.A. (Cabovisao), is on its way to achieving its 2007 financial projections,
supported by the increase of about 21,300 revenue generating units (RGUs(1)).
"Cabovisao is progressing according to our plan", said Mr. Louis Audet,
President and CEO of Cogeco Cable. The Portuguese operations generated revenue
of $54.1 million while operating income before amortization was $18.3 million
for an operating margin of 33.9%.

Exceptional growth from the Canadian operations propels financial results

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

"The Canadian operation's first quarter of fiscal 2007 was certainly one
of Cogeco Cable's best. RGU growth increased revenue and operating income
before amortization, thus exceeding our expectations," continued Mr. Audet.
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.

Solid consolidated financial results

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

On a consolidated basis, revenue increased by 54.8%, operating income
before amortization by 46% and net income by 39.3% compared to the same period
last year. The Corporation's first quarter operating margin was 37.7% compared
to 40% last year due to newly acquired Cabovisao's lower but rising operating
margin.

Improved 2007 financial projections

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

The first quarter's higher than expected results from the Canadian
operations lead the Corporation to revise most of its projections upwards for
the fiscal 2007. Management 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%.

"For the following quarters, we will continue to provide to our customers
a superior offering, through various improvements. We look forward to the rest
of fiscal 2007 with a high degree of confidence, thanks to the commitment of
dedicated teams in Canada and in Portugal," concluded Mr. Audet.

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



(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

Quarters ended November 30,
(unaudited)

($000s, except percentages
and per share data) 2006 2005 % Change
---------- ---------- ----------

Revenue $ 222,002 $ 143,413 54.8
Operating income before
amortization 83,662 57,302 46.0

Net income 12,535 8,998 39.3

Cash flow from operations (1) 62,060 43,389 43.0
Less:
Capital expenditures and increase
in deferred charges 74,383 33,678 -
---------- ----------
Free cash flow (1) (12,323) 9,711 -

Per share data
Basic net income $ 0.31 $ 0.23 34.8

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


FORWARD-LOOKING STATEMENT

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

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

MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)

CORPORATE STRATEGIES AND OBJECTIVES

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

Continuous improvement of the service offering and a larger customer base



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 its 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 is
a key activity on which the Integration Committee is focusing.

Continuous improvement of networks and equipment

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

Tight control over costs, business processes

- First quarter of fiscal 2007 operating costs of the Canadian operations
increased by 17.9% essentially in line with revenue growth during the
same period;
- The design of internal controls over financial reporting as per
National Instrument 52-109 is still underway. As discussed in the 2006
annual MD&A, the Corporation had identified certain material weaknesses
in the design of internal controls over financial reporting and there
have been no changes to the identified material weaknesses since
August 31, 2006.


RGU Growth

As at November 30, 2006, the consolidated number of RGUs increased by 5.2%
to reach nearly 2.3 million units. As at August 31, 2006, the Corporation 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 customer growth during the first quarter
2007, management 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 Growth

During the first quarter of fiscal 2007, revenue for the Canadian
operations increased by 17.1% to reach $167.9 million mainly due to stronger
RGU growth. In its fiscal 2007 revised projections announced at the end of the
last quarter of fiscal 2006, the Corporation had expected to achieve revenue
growth between 10% and 12%. The Portuguese subsidiary generated revenue of
$54.1 million during the first quarter of fiscal 2007, as expected by
management.

Free Cash Flow

For the first quarter, Cogeco Cable generated a negative free cash flow of
$12.3 million compared to a positive free cash flow of $9.7 million for the
same period last year mainly due to higher capital expenditures necessary to
sustain RGU growth, 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
$74.4 million of which $64.8 million was intended to support Canadian
operations and the remainder was earmarked for the Portuguese operations. In
light of the stronger than expected RGU growth in the first quarter of fiscal
2007, capital expenditures and deferred charges are expected to reach
$255 million. Fiscal 2007 revised free cash flow should be between $10 million
to $15 million. Please consult the "Fiscal 2007 financial guidelines" section
for further details.



-----------------------
(1) See "Customer statistics" section for detailed explanations.
(2) See "Non-GAAP financial measures" section for explanations.


CUSTOMER STATISTICS

Canadian operations
Net additions % of Penetration
Quarters ended (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
about equal to 21,415 for the same period last year. Customers continue to
demonstrate strong interest in the HD technology.



Portuguese Operations

Net additions % of Penetration
November 30, Quarters ended (1)
2006 November 30, 2006 November 30, 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 Corporation's guidelines. Basic service grew by 7,253 customers, HSI by
8,077 customers and Telephony by 5,934 customers.

ACCOUNTING POLICIES AND ESTIMATES

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

RELATED PARTY TRANSACTIONS

Cogeco Cable is a subsidiary of COGECO Inc., which holds 39.2% of the
Corporation's equity shares, representing 86.6% of the Corporation's voting
shares. Under a management agreement, the Corporation pays COGECO Inc. monthly
management fees equal to 2% of its total revenue for certain executive,
administrative, legal, regulatory, strategic and financial planning, and
additional services. In 1997, management fees were capped at $7 million per
year, subject to annual upward adjustments based on increases in the Consumer
Price Index in Canada. Accordingly, for fiscal 2007, management fees have been
set at a maximum of $8.6 million. Management fees for the first quarter of
fiscal 2007 stood at $4.4 million compared to $2.9 million for the same period
last year. Most of the increase of $1.6 million is due to the revenue
generated from the acquisition of Cabovisao. Furthermore, Cogeco Cable granted
318,735 stock options to COGECO Inc.'s employees during the first quarter of
2007, compared to 31,743 in the first quarter of 2006. From the 318,735 stock
options granted in the first quarter of fiscal 2007, 262,400 are conditional
to the achievement of certain yearly financial objectives by the Portuguese
subsidiary, Cabovisao, over a period of three years. Details regarding the
management agreement and stock options granted to COGECO Inc.'s employees are
provided in the MD&A of the Corporation's 2006 annual report. There were no
other material related party transactions during fiscal years 2007 and 2006.



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 ((euro)2)
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.



FIXED CHARGES

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

Amortization $ 44,309 $ 28,277 56.7

Financial expense 21,221 13,582 56.2


For the first quarter, amortization amounted to $44.3 million compared to
$28.3 million for the same period last year. Amortization for the Canadian
operations amounted to $31.7 million during the quarter compared to
$28.3 million for the same period last year. The increase in amortization is
due to the higher level of capital expenditures arising from the demand for
customer premise equipment, scalable infrastructure, upgrade/rebuild, support
capital and deferred charges. Amortization for the first quarter of the
Portuguese operations amounted to $12.6 million.

During the first quarter, financial expense increased by $7.6 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.

INCOME TAXES

For the first quarter of fiscal 2007, income taxes amounted $5.6 million
compared to $6.4 million in fiscal 2006. Income taxes for the Canadian
operations amounted to $4.2 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 Canadian
operations was mainly attributable to the elimination of Canadian federal
capital tax on January 1, 2006. Income tax for the first quarter of the
Portuguese operations amounted to $1.4 million and represented essentially
withholding taxes payable on financial expense of Cabovisao.

NET INCOME

Net income for first quarter of fiscal 2007 amounted to $12.5 million, or
$0.31 per share, compared to $9 million, or $0.23 per share, for the same
period last year. Net income has increased essentially due to the growth in
operating income before amortization exceeding those of the fixed charges.



CASH FLOW AND LIQUIDITY

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

Operating Activities
Cash flow from operations $ 62,060 $ 43,389
Changes in non-cash operating items (71,909) (42,787)
---------- ----------
$ (9,849) $ 602
---------- ----------
---------- ----------

Investing Activities(1) $ (74,070) $ (33,678)
---------- ----------
---------- ----------

Financing Activities(1) $ 29,695 $ 53,698
---------- ----------
---------- ----------

Net change in cash and cash equivalents $ (54,224) $ 20,622
Effect of exchange rate changes on cash
and cash equivalents denominated in
foreign currencies 1,616 -
Cash and cash equivalents at beginning 71,516 61
---------- ----------
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
$62 million, 43% 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 Portuguese subsidiary, Cabovisao,
following the terms of the acquisition.

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



Quarters ended November 30,
($000s) 2006 2005
---------- ----------
Customer Premise Equipment(1) $ 39,417 $ 15,423
Scalable Infrastructure 11,986 3,672
Line Extensions 2,551 2,552
Upgrade / Rebuild 10,856 6,974
Support Capital 2,361 1,392
---------- ----------
Total Capital Expenditures(2) $ 67,171 $ 30,013
---------- ----------
Deferred charges and others 7,104 3,665
---------- ----------
Total other investing activities $ 74,275 $ 33,678
---------- ----------

(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 first quarter, capital expenditures increased compared to last
year mainly as a result of the following factors:

- The increase in customer premise equipment expenditures for the first
quarter of fiscal 2007 resulted from 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 the Corporation
at the end of the quarter to serve expected RGU growth in the coming
months.

- The growth in capital expenditures for scalable infrastructure was
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 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 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.

The Corporation incurred a deficit in free cash flow for the first quarter
of fiscal 2007 in the amount of $12.3 million compared to a surplus of $9.7
million in the preceding year. The first quarter free cash flow decrease over
the same period last year is due to a higher level of capital expenditures
(including the acquisition of customer premise equipment amounting to
approximately $12 million at the end of the quarter) and deferred charges
generated by better-than-projected RGU growth and to support the Digital
Telephony service roll-out, partly offset by the growth in operating income
before amortization.

During the first quarter, the level of Indebtedness increased by
$31.1 million due to a decrease of $71.9 million in non-cash operating items
explained by the repayment of certain suppliers subsequent to the Cabovisao
acquisition and a free cash flow deficit of $12.3 million, mostly offset by a
$54.2 million decrease in cash and cash equivalents. For the same period last
year, Indebtedness increased by $55.3 million mainly due to a decline in
non-cash operating items of $42.8 million and a net change in cash and cash
equivalents of $20.6 million, partly offset by generated free cash flow of
$9.7 million. In addition, a dividend of $0.04 per share for subordinate and
multiple voting shares, totalling $1.6 million, was paid during the first
quarter of fiscal years 2007 and 2006.

As at November 30, 2006, Cogeco Cable had a working capital deficiency of
$332.7 million compared to $314.9 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 Cable
maintains a working capital deficiency due to a low level of accounts
receivable since the majority of the Corporation's customers pay before their
services are rendered, contrary to accounts payable and accrued liabilities,
which are paid after products or services are rendered. In addition, the
Corporation generally uses cash and cash equivalents to reduce Indebtedness.

As at November 30, 2006 the Corporation had used $658 million of its
$900 million Term Facility.

FINANCIAL POSITION

Since August 31, 2006, there have been major changes to "Fixed Assets",
"Preliminary Goodwill", "Accounts Payable and accrued liabilities",
"Indebtedness", "Cash and cash equivalents" and "Foreign currency translation
adjustment".

The $47.2 million rise in fixed assets is mainly related to increased
capital expenditures to sustain RGU growth during the quarter as well as
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 $65.1 million and $52.6 million reductions in accounts
payable and accrued liabilities and cash and cash equivalents respectively,
are related to payments made with regards to the acquisition of Cabovisao.
Indebtedness increased by $63.5 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 Cable's share data as of December 31, 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 24,328,683 532,541

Options to Purchase Subordinate Voting Shares
Outstanding options 1,274,647
Exercisable options 564,186


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

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

DIVIDEND DECLARATION

At its January 10, 2007 meeting, the Board of Directors of Cogeco Cable
declared a quarterly eligible dividend of $0.06 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 Corporation's financial
results explain the increase of 50% of the dividend from $0.04 to $0.06 per
share.

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 MD&A of the 2006 annual report, the Corporation's
investment in the Portuguese subsidiary, 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 the Corporation
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.

FISCAL 2007 FINANCIAL GUIDELINES

Given the stronger-than-expected demand for basic cable, Digital
Television, HSI and Digital Telephony services during the first quarter and
various service enhancements offered recently, Cogeco Cable has revised upward
its 2007 guideline for basic cable, Digital Television, HSI and Digital
Telephony customer additions. Subsequent to these adjustments, projected
revenue and operating income before amortization were revised upward. The
operating margin should remain at about 38% even with the continued deployment
of the Digital Telephony to occur during the course of fiscal 2007.

As a result of increased customer additions, Cogeco Cable will have to
purchase more digital terminals, cable modems and equipment. Consequently,
management is raising its guidance for capital expenditures and deferred
charges from between $225 million and $230 million to $255 million, and for
amortization from $182 million to $192 million. The Corporation should
generate free cash flow of $10 million to $15 million. Projected net income
should stand at about $48 million.

In furtherance of its existing line of business and external growth
strategy, the Corporation may investigate further cable system acquisition
opportunities, including cable systems located outside Canada over time.



Consolidated

Revised Projections Projections
($ million, except customer January 10, October 16,
data) 2007 2006
Fiscal 2007 Fiscal 2007
------------------- -------------------
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
Net income 48 45
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 service 105,000 to 110,000 67,000 to 72,000
RGUs 287,000 to 305,000 202,000 to 222,000


Canadian operations
Revised Projections Projections
($ million, except customer January 10, October 16,
data) 2007 2006
Fiscal 2007 Fiscal 2007
------------------- -------------------
Financial Guidelines
Revenue 701 665 to 670
Operating income before
amortization 280 264 to 267
Operating margin About 40% About 40%
Capital expenditures and
deferred charges 210 180 to 183

Customer Addition Guidelines
Basic service 12,000 to 15,000 0 to 5,000
HSI service 60,000 to 65,000 30,000 to 35,000
Digital Television service 60,000 to 65,000 55,000 to 60,000
Telephony service 80,000 to 85,000 42,000 to 47,000
RGUs 212,000 to 230,000 127,000 to 147,000


Portuguese operations

Revised Projections Projections
($ million, except customer January 10, October 16,
data) 2007 2006
Fiscal 2007 Fiscal 2007
------------------- -------------------
Financial Guidelines
Revenue 224 215
Operating income before
amortization 75 71
Operating margin About 33% About 33%
Capital expenditures and
deferred charges 45 45 to 47

Customer Addition Guidelines
Basic service 25,000 25,000
HSI service 25,000 25,000
Telephony service 25,000 25,000
RGUs 75,000 75,000


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 the Corporation was using an average rate of $1.40 last
October.

UNCERTAINTIES AND MAIN RISK FACTORS

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

NON-GAAP FINANCIAL MEASURES

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

Cash Flow from Operations

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



Quarters ended November 30,
($000s) 2006 2005
----------- -----------
Cash flow from operating activities $ (9,849) $ 602
Changes in non-cash operating items 71,909 42,787
----------- -----------
Cash flow from operations $ 62,060 $ 43,389
----------- -----------
----------- -----------

Free Cash Flow

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

Quarters ended November 30,
($000s) 2006 2005
----------- -----------
Cash flow from operations $ 62,060 $ 43,389
Acquisition of fixed assets (66,966) (30,013)
Increase in deferred charges (7,212) (3,665)
Assets acquired under capital leases
- as per Note 10 b) (205) -
----------- -----------
Free cash flow $ (12,323) $ 9,711
----------- -----------
----------- -----------


ADDITIONAL INFORMATION

This MD&A was prepared on January 10, 2007. Additional information
relating to the Corporation, including its Annual Information Form, is
available on the SEDAR Web site at www.sedar.com.

ABOUT COGECO CABLE

Cogeco Cable (www.cogeco.ca), a telecommunications company offering a
diverse range of services to its customers in Canada and in Portugal, is the
second largest cable operator in Ontario, Québec and Portugal, in terms of the
number of basic cable service customers served. The Corporation 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 networks, Cogeco Cable provides its
residential and commercial customers with analog and digital video and audio
services, high speed Internet access as well as telephony services. The
Corporation provides about 1,649,000 revenue-generating units (RGUs) to
approximately 1,439,000 homes passed in its Canadian service territory and
about 650,000 RGUs to approximately 829,000 homes passed in its Portuguese
service territory. Cogeco Cable's subordinate voting shares are listed on the
Toronto Stock Exchange (CCA).



Analyst Conference Call: Thursday, January 11, 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 16, 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 $ 222,002 $ 143,413 $ 174,875 $ 140,178
Operating income before
amortization 83,662 57,302 72,864 60,720
Operating margin 37.7% 40% 41.7% 43.3%
Amortization 44,309 28,277 34,801 29,460
Financial expense 21,221 13,582 16,374 14,004
Income taxes (recovery) 5,597 6,445 (12,298) 6,220
Net income 12,535 8,998 33,987 11,036

Cash flow from operations 62,060 43,389 56,714 46,509

Net income per share $ 0.31 $ 0.23 $ 0.85 $ 0.28


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 41.1% 41.6% 40.3% 40%
Amortization 29,048 31,396 28,656 31,988
Financial expense 13,634 13,954 13,776 13,840
Income taxes (recovery) 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


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 third and fourth quarters'
operating margin is usually higher as lower or no management fees are paid to
COGECO Inc. Under a Management Agreement, Cogeco Cable pays a fee equal to 2%
of its total revenue subject to a maximum amount.



COGECO CABLE 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 CABLE INC.
CONSOLIDATED STATEMENTS OF INCOME

Three months ended November 30,
-------------------------------------------------------------------------
(In thousands of dollars,
except per share data) 2006 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)
Revenue
Service $ 221,114 $ 142,759
Equipment 888 654
-------------------------------------------------------------------------
222,002 143,413

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

Operating income before amortization 83,662 57,302
Amortization (note 3) 44,309 28,277
-------------------------------------------------------------------------

Operating income 39,353 29,025
Financial expense (note 7) 21,221 13,582
-------------------------------------------------------------------------

Income before income taxes 18,132 15,443
Income taxes (note 4) 5,597 6,445
-------------------------------------------------------------------------

Net income $ 12,535 $ 8,998
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Earnings per share (note 5)
Basic $ 0.31 $ 0.23
Diluted 0.31 0.22
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO CABLE INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

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

Balance at beginning $ 117,760 $ 58,604

Net income 12,535 8,998

Dividends on multiple voting shares (628) (628)

Dividends on subordinate voting shares (972) (972)
-------------------------------------------------------------------------
Balance at end $ 128,695 $ 66,002
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO CABLE INC.
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------
November 30, August 31,
2006 2006
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (audited)

Assets
Current
Cash and cash equivalents $ 18,908 $ 71,516
Restricted cash 512 569
Accounts receivable 48,107 43,728
Income tax receivable 787 -
Prepaid expenses 6,710 6,265
-------------------------------------------------------------------------
75,024 122,078
-------------------------------------------------------------------------

Income tax receivable 892 -
Fixed assets 1,068,703 1,021,538
Deferred charges 48,847 47,327
Customer base (note 6) 989,552 989,552
Preliminary goodwill (note 6) 451,040 422,108
-------------------------------------------------------------------------
$ 2,634,058 $ 2,602,603
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Liabilities and Shareholders' equity
Liabilities
Current
Bank indebtedness $ 29,322 $ -
Accounts payable and accrued liabilities 217,954 283,087
Income tax liabilities 3,908 444
Deferred and prepaid income 29,654 26,652
Current portion of long-term debt (note 7) 126,863 126,851
-------------------------------------------------------------------------
407,701 437,034
-------------------------------------------------------------------------

Long-term debt (note 7) 1,224,265 1,190,126
Deferred and prepaid income 11,458 10,525
Pension plans liabilities and accrued
employees benefits 2,366 2,091
Future income tax liabilities 219,841 217,636
-------------------------------------------------------------------------
1,865,631 1,857,412
-------------------------------------------------------------------------

Shareholders' equity
Capital stock (note 8) 630,689 630,458
Contributed surplus - stock-based compensation 1,683 1,425
Retained earnings 128,695 117,760
Foreign currency translation adjustment (note 9) 7,360 (4,452)
-------------------------------------------------------------------------
768,427 745,191
-------------------------------------------------------------------------
$ 2,634,058 $ 2,602,603
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO CABLE 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 $ 12,535 $ 8,998
Items not affecting cash and cash equivalents
Amortization (note 3) 44,309 28,277
Amortization of deferred financing costs 646 241
Future income taxes (note 4) 3,911 5,620
Other 659 253
-------------------------------------------------------------------------
62,060 43,389
Changes in non-cash operating items (note 10a)) (71,909) (42,787)
-------------------------------------------------------------------------
(9,849) 602
-------------------------------------------------------------------------

Cash flow from investing activities
Acquisition of fixed assets (note 10b)) (66,966) (30,013)
Increase in deferred charges (7,212) (3,665)
Decrease in restricted cash 91 -
Other 17 -
-------------------------------------------------------------------------
(74,070) (33,678)
-------------------------------------------------------------------------

Cash flow from financing activities
Increase in bank indebtedness 29,322 15,646
Increase in long-term debt 10,000 40,000
Repayment of long-term debt (8,255) (348)
Issue of subordinate voting shares 228 -
Dividends on multiple voting shares (628) (628)
Dividends on subordinate voting shares (972) (972)
-------------------------------------------------------------------------
29,695 53,698
-------------------------------------------------------------------------

Net change in cash and cash equivalents (54,224) 20,622
Effect of exchange rate changes on cash and
cash equivalents denominated in foreign
currencies 1,616 -
Cash and cash equivalents at beginning 71,516 61
-------------------------------------------------------------------------
Cash and cash equivalents at end $ 18,908 $ 20,683
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See supplemental cash flow information in note 10.

COGECO CABLE 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 Cable 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 Cable 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 Corporation's activities are comprised of all cable, high-speed
Internet access and telephony services. The Corporation considers its cable
distribution, high-speed Internet access and telephony activities as a single
operating segment. The Corporation's activities are carried out in Canada and
in Portugal.

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

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



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

Revenue $ 167,931 $ 143,413 $ 54,071 $ -
Operating costs 98,160 83,243 35,740 -
Management fees 4,440 2,868 - -
Operating income before
amortization 65,331 57,302 18,331 -
Amortization 31,704 28,277 12,605 -
Operating income 33,627 29,025 5,726 -
Financial expense 21,764 13,582 (543) -
Income taxes 4,218 6,445 1,379 -
Net income 7,645 8,998 4,890 -
-------------------------------------------------------------------------
Net assets
employed(1)(2) $ 1,714,890 $ 1,642,485 $ 641,194 $ -
Total assets(2) 1,846,144 1,782,332 787,914 -
Fixed assets(2) 771,954 704,590 296,749 -
Preliminary goodwill(2) - - 451,040 -
Acquisition of fixed
assets 57,588 30,013 9,583 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

Revenue $ 222,002 $ 143,413
Operating costs 133,900 83,243
Management fees 4,440 2,868
Operating income before
amortization 83,662 57,302
Amortization 44,309 28,277
Operating income 39,353 29,025
Financial expense 21,221 13,582
Income taxes 5,597 6,445
Net income 12,535 8,998
-------------------------------------------------------------------------
Net assets
employed(1)(2) $ 2,356,084 $ 1,642,485
Total assets(2) 2,634,058 1,782,332
Fixed assets(2) 1,068,703 704,590
Preliminary goodwill(2) 451,040 -
Acquisition of fixed
assets 67,171 30,013
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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


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

Fixed assets $ 39,263 $ 22,949
Deferred charges 5,046 5,328
-------------------------------------------------------------------------
$ 44,309 $ 28,277
-------------------------------------------------------------------------
-------------------------------------------------------------------------


4. Income Taxes

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

Current $ 1,686 $ 825
Future 3,911 5,620
-------------------------------------------------------------------------
$ 5,597 $ 6,445
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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 35.14 % (35.09 % in 2005) $ 6,371 $ 5,419
Loss or income subject to lower or higher
tax rates (50) (8)
Increase in income taxes as a result of
increase in substantially enacted tax rates - 162
Large corporation tax - 825
Effect of foreign income tax rate differences (824) -
Other 100 47
-------------------------------------------------------------------------
Income taxes at effective income tax rate $ 5,597 $ 6,445
-------------------------------------------------------------------------
-------------------------------------------------------------------------


5. Earnings per Share

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

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

Net income $ 12,535 $ 8,998
Weighted average number of multiple voting
and subordinate voting shares outstanding 40,002,441 39,984,586
Effect of dilutive stock options(1) 224,302 195,214
-------------------------------------------------------------------------
Weighted average number of diluted multiple
voting and subordinate voting shares
outstanding 40,226,743 40,179,800
-------------------------------------------------------------------------

Earnings per share
Basic $ 0.31 $ 0.23
Diluted 0.31 0.22
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) For the three months period ended November 30, 2006, 141,740 stock
options (143,248 in 2005) 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. Customer Base and Preliminary Goodwill

-------------------------------------------------------------------------
Customer Preliminary
base goodwill
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Balance as at August 31, 2006 $ 989,552 $ 422,108
Foreign currency translation adjustment - 28,932
-------------------------------------------------------------------------
Balance as at November 30, 2006 $ 989,552 $ 451,040
-------------------------------------------------------------------------
-------------------------------------------------------------------------


As mentioned in the Corporation's 2006 annual consolidated financial
statements, management is currently carrying out a more specific analysis and
changes will be made to the allocation of the excess of consideration over net
assets acquired as the information becomes available. For example, since the
measurement of the fair value of fixed assets had not yet been completed at
the time of the preliminary allocation, fixed assets have been presented at
cost. The measurement of indefinite and finite-lived intangible assets is also
under way. Furthermore, in accordance with the Portuguese Companies Income Tax
Code, accumulated tax losses can not be deducted if the ownership of at least
50% of the social capital changes from the moment when the tax losses were
generated, unless an authorization is granted before such change in the
ownership takes place. To this effect, a request for preservation of tax
losses was filed by Cabovisao on July 28, 2006. These losses have not been
included in the preliminary purchase price allocation. Finally, the
Corporation 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

-------------------------------------------------------------------------
Maturity Interest November 30, August 31,
rate 2006 2006
-------------------------------------------------------------------------
(unaudited) (audited)

Parent company
Term Facility
Term loan 2011 5.42(1) $ 50,000 $ 150,000
Term loan -
(euro)17,358,700 2011 4.69(1) 26,274 24,573
Revolving loan
Canadian currency 2011 5.46(1) 10,000 -
Euro currency -
(euro)311,500,000
((euro)317,000,000
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

Subsidiaries
Obligations under
capital leases 2010 6.42 - 8.36 4,718 5,009
-------------------------------------------------------------------------
1,351,128 1,316,977
Less: current portion 126,863 126,851
-------------------------------------------------------------------------
$ 1,224,265 $ 1,190,126
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(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.
(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 Corporation 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 $20,246,000 ($13,048,000 in 2005).


8. Capital Stock

Authorized, an unlimited number

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

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



Multiple voting shares, 10 votes per share.

Subordinate voting shares, 1 vote per share.

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

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

24,321,339 subordinate voting shares
(24,308,112 as at August 31, 2006) 532,343 532,112
-------------------------------------------------------------------------
$ 630,689 $ 630,458
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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 24,308,112 $ 532,112 24,293,486 $ 531,874
Shares issued for cash
under the Employee
Stock Purchase Plan
and the Stock
Option Plan 13,227 228 14,626 228
Compensation expense
previously recorded in
contributed surplus for
options exercised - 3 - 10
-------------------------------------------------------------------------
Balance at end 24,321,339 $ 532,343 24,308,112 $ 532,112
-------------------------------------------------------------------------
-------------------------------------------------------------------------


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 quarter, the Corporation
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 Corporation also granted 376,000
conditional stock options with an exercise price of $26.63 of which 262,400
stock options were granted to COGECO Inc.'s employees. These options vest over
a period of three years beginning one year after the day such options are
granted and are exercisable over ten years. The vesting of these options is
conditional to the achievement of certain yearly financial objectives by the
Portuguese subsidiary, Cabovisao-Televisao por Cabo, S.A., over a period of
three years. The Corporation 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 months 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 Corporation'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 $ 8,998
Pro forma 8,978

Basic earnings per share
As reported $ 0.23
Pro forma 0.22

Diluted earnings per share
As reported $ 0.22
Pro forma 0.22
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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 32% 39%

Risk-free interest rate 4.05% 3.70%

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


The fair value of stock options granted for the three month period ended
November 30, 2006 was $7.37 ($9.46 in 2005) per option.

As at November 30, 2006, the Corporation had outstanding stock options
providing for the subscription of 1,274,647 subordinate voting shares. These
stock options, which include 376,000 conditional stock options, can be
exercised at various prices ranging from $7.05 to $40.75 and at various dates
up to October 13, 2016.

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:



-------------------------------------------------------------------------
Three Twelve
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 2006
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Accounts receivable $ (3,253) $ (1,036)

Income tax receivable (1,593) (286)

Prepaid expenses (360) 568

Accounts payable and accrued liabilities (73,915) (43,548)

Income tax liabilities 3,280 (678)

Deferred and prepaid income 3,932 2,193
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$ (71,909) $ (42,787)
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b) Other information

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

Fixed asset acquisitions through
capital leases $ 205 $ -

Interest paid 24,132 15,957

Income taxes paid 889 1,789
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11. 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 November 30,
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2006 2006
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(unaudited) (unaudited)


Contributory defined benefit pension plans $ 230 $ 174
Defined contribution pension plan and
collective registered retirement savings plan 528 383
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$ 758 $ 557
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Contact Information

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