Cogeco Câble inc.
TSX : CCA

Cogeco Câble inc.

July 09, 2008 19:34 ET

Organic growth and acquisitions are key for Cogeco Cable in fiscal 2008 third-quarter

MONTREAL, QUEBEC--(Marketwire - July 9, 2008) - Today, Cogeco Cable Inc. (TSX:CCA) announced its financial results for the third quarter and first nine months ended May 31, 2008.

For the third quarter and first nine months of 2008:

- Consolidated revenue increased by 14.3% to $274.9 million and by 14% to $791.9 million, respectively;

- Consolidated operating income before amortization grew by 20% to reach $117.5 million and by 20.9% to $324.3 million, respectively;

- Consolidated net income amounted to $31.1 million, up by $10.8 million in the third quarter, and to $101.4 million, up by $53.1 million for the first nine months as compared to the prior year;

- Free cash flow(1) reached $36.9 million in the third quarter and $77.8 million for the first nine months;

- Operating margin grew to 42.7% from 40.7% and to 41% from 38.6%, in the third quarter and for the first nine months, respectively;

- Revenue-generating units (RGUs)(2) grew by 50,889 and 190,109 net additions, respectively, for a total of 2,675,774 RGUs at May 31, 2008.

External growth:

- In order to further develop its business telecommunications activities, the Corporation pursued its growth strategy and concluded the acquisition of all the assets of MaXess Networx®, ENWIN Energy Ltd.'s telecommunications division (City of Windsor's energy company). In addition, the Corporation announced the acquisition of all the assets of FibreWired Burlington Hydro Communications (Burlington Hydro Electric's telecommunications division). On June 13, Cogeco Cable announced its entry into the Greater Toronto Area market through the acquisition of all the shares of Toronto Hydro Telecom Inc., the telecommunications subsidiary of Toronto Hydro Corporation, subject to certain conditions, including regulatory approval by the Commissioner of Competition.



(1) Free cash flow does 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.

(2) Represents the sum of Basic Cable, High Speed Internet (HSI), Digital
Television and Telephony service customers.


"We are very pleased with our third-quarter results. Cogeco Cable's internal growth continued at a steady pace. Consequently, we are on track to attain our revised projections of last April, and expect that revenues should stand at $1,060 million, operating income before amortization at $440 million, net income at $123 million and free cash flow at $70 million for fiscal 2008," declared Louis Audet, President and CEO of Cogeco Cable. "Cogeco Cable is also pursuing its external growth strategy, as shown by the acquisitions of MaXess Networx® and FibreWired Burlington Hydro Communications, which will enhance our Cogeco Business Solutions offering. As for the acquisition of Toronto Hydro Telecom, this is a great growth opportunity for the Corporation as it provides us the ability to serve the business telecommunication market through the addition of owned and operated points of presence throughout the Greater Toronto Area, linked to our other broadband facilities extending over the dense telecommunications corridor from Windsor to Cornwall in Ontario".

Fiscal 2009 Preliminary Financial Guidelines:

The Corporation announces its 2009 preliminary guidelines, setting revenue outlook at about $1,165 million, an increase of $105 million compared to the revised fiscal 2008 projections issued in April 2008. Operating income before amortization should increase to approximately $495 million, an improvement of $55 million compared to the revised fiscal 2008 projections, and free cash flow(1) should grow by approximately $35 million to reach $105 million.



FINANCIAL HIGHLIGHTS

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($000, except Quarters ended May 31, Nine months ended May 31,
percentages
and per 2008 2007 Change 2008 2007 Change
share data) $ $ % $ $ %
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Revenue 274,944 240,612 14.3 791,879 694,566 14.0
Operating
income
before
amortization 117,490 97,874 20.0 324,308 268,327 20.9
Net income 31,142 20,381 52.8 101,416 48,323 -

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Cash flow
from
operations(1) 95,829 76,416 25.4 260,855 200,740 29.9
Less:
Capital
expenditures
and increase
in deferred
charges 58,928 57,817 1.9 183,040 185,044 (1.1)
Free cash
flow(1) 36,901 18,599 98.4 77,815 15,696 -

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Earnings
per share
Basic 0.64 0.45 42.2 2.09 1.14 83.3
Diluted 0.64 0.45 42.2 2.08 1.13 84.1
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(1) Cash flow from operations and free cash flow do not have standardized
definitions prescribed by Canadian generally accepted accounting
principles ("GAAP") and therefore, may not be comparable to similar
measures presented by other companies. For more details, please consult
the "Non-GAAP financial measures" section.


FORWARD-LOOKING STATEMENTS

Certain statements in this press release may constitute forward-looking information within the meaning of securities laws. Forward-looking information may relate to our future outlook and anticipated events, our business, our operations, our financial performance, our financial condition or our results, and, in some cases, can be identified by terminology such as "may"; "will"; "should"; "expect"; "plan"; "anticipate"; "believe"; "intend"; "estimate"; "predict"; "potential"; "continue"; "foresee", "ensure" or other similar expressions concerning matters that are not historical facts. In particular, statements regarding our future operating results and economic performance and our objectives and strategies are forward-looking statements. These statements are based on certain factors and assumptions, including expected growth, results of operations, performance and business prospects and opportunities, which we believe are reasonable as of the current date. While we consider these assumptions to be reasonable based on information currently available to us, they may prove to be incorrect. Forward-looking information is also subject to certain factors, including risks and uncertainties (described in the "Uncertainties and main risk factors" section of the Corporation's 2007 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 2007 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 sustained growth through the diversification and the improvement of products and services, as well as of clientele and territories; the continuous improvement of networks and equipment and tight cost control over business processes. The Corporation measures its performance, with regard to these objectives, by monitoring revenue growth, RGU(1) growth and free cash flow(2). Below are the recent achievements in furthering of Cogeco Cable's objectives.



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

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

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

Canadian operations

- Acquisitions:
- June 30, conclusion of the acquisition of all assets of FibreWired
Burlington Hydro Communications, Burlington Hydro Electric's
telecommunications division (City of Burlington's energy company) to
expand Cogeco Business Solutions' commercial broadband service
offering in Burlington, Ontario;

- June 13, announcement of the acquisition of all the shares of Toronto
Hydro Telecom Inc., the telecommunications subsidiary of Toronto
Hydro Corporation (City of Toronto's energy company); subject to
certain conditions, including regulatory approval by the Commissioner
of Competition, in order to further develop Cogeco Cable's business
telecommunications activities by entering the Greater Toronto Area
market;

- March 31, conclusion of the acquisition of all the assets of MaXess
Networx®, ENWIN Energy Ltd.'s telecommunications division (City of
Windsor's energy company) to strengthen Cogeco Business Solutions'
Data offering in Windsor, Ontario.

- High Speed Internet service:
- June 7, launch of Wi-Fi Internet access at LaSalle Park in
Burlington, Ontario;
- May 7, launch of Wi-Fi Internet access in Quebec with the deployment
of the first seven Quebec hotspots in Trois-Rivieres.

- Digital Television services:
- June 24, launch of Food Network On Demand, HGTV On Demand and
National Geographic On Demand in Ontario territories;
- May 6, launch of RDI HD and ARTV HD, two new High Definition (HD)
channels in Quebec;
- March 4, launch of Family On Demand in Ontario, a new On Demand
service.

- Telephony service:
- June 24, launch of Telephony in Maitland and Prescott, Ontario;
- June 17, launch of Telephony in Wickham, St-Cyrille-de-Wendover,
Morin-Heights, Shawbridge, St-Germain-de-Grantham and St-Prosper-de-
Dorchester, Quebec;
- June 4, launch of Telephony in Tillbury, Ontario;
- During the third quarter, the Telephony service was launched in the
following cities:
- St-Pie, St-Damase, Ste-Madeleine, Acton Vale, St-Thomas d'Aquin,
St-Dominique-de-Bagot, Val-David, St-Donat-de-Montcalm, St-Faustin,
St-Adolphe-d'Howard, Bic, Ste-Luce, Ste-Blandine, St-Fabien, St-
Gedeon and St-Martin-de-Beauce in Quebec;
- Kemptville, Acton, Winona, Smithville, Ridgeway, Huntsville,
Bracebridge and Gravenhurst, in Ontario.

- Customer service:
- Opening of a Cogeco Cable store located in Drummondville, Quebec.

European operations
- Digital Television services:
- Cabovisao - Televisao por Cabo, S.A. ("Cabovisao") continued its
Digital Television service deployment.

- Customer service:
- Opening of two (2) new Cabovisao stores located in Paivas (Seixal)
and Castelo Branco.

Continuous improvement of networks and equipment

- During the first nine months of fiscal 2008, the Corporation has invested
approximately $71.8 million in its infrastructure including headends and
upgrade/rebuild.

Tight cost control over business processes

- For the third quarter of 2008, consolidated operating costs increased by
10.3% while revenue grew by 14.3%;
- The Portuguese cable subsidiary maintained tight control over its costs
and continued to improve its business processes;
- The design of internal controls over financial reporting as per National
Instrument 52-109 is still underway. As discussed in the 2007 annual
MD&A, the Corporation had identified certain material weaknesses in the
design of internal controls over financial reporting and there has been
improvement in the design of internal controls on some significant
processes during the quarter. The documentation and remediation of
internal controls weaknesses are progressing normally.


RGU growth

During the first nine months ended May 31, 2008, the consolidated number of RGUs increased by 190,109, or 7.6% to reach 2,675,774 units, which is in line with the Corporation's revised RGU growth projections of 225,000 units, representing approximately 9%, for the fiscal year ending August 31, 2008. Please consult the fiscal 2008 revised projections in the "Fiscal 2009 preliminary financial guidelines" section for further details.

Revenue growth

Fiscal 2008 third-quarter revenue increased by $34.3 million, or 14.3%, to reach $274.9 million. During the first nine months of 2008, revenue increased by $97.3 million, or 14%, to reach $791.9 million. For fiscal 2008, the Corporation expects revenue to reach $1,060 million. Please consult the fiscal 2008 revised projections in the "Fiscal 2009 preliminary financial guidelines" section for further details.

Free cash flow

In the third quarter of fiscal 2008, Cogeco Cable generated free cash flow of $36.9 million, compared to $18.6 million for the same period last year. For the nine-month period ended May 31, 2008, the Corporation generated free cash flow of $77.8 million compared to $15.7 million the year before. The free cash flow improvements resulted mainly from an increase in operating income before amortization and a reduction in financial expense. Fiscal 2008 third-quarter and first nine month periods capital expenditures and deferred charges remained essentially the same compared to the corresponding periods of the prior year. Due to the usual higher level of capital expenditures in the fourth quarter, the Corporation projects free cash flow of $70 million for the fiscal year ending August 31, 2008. Please consult the fiscal 2008 revised projections in the "Fiscal 2009 preliminary financial guidelines" section for further details.



OPERATING RESULTS - CONSOLIDATED OVERVIEW

-------------------------------------------------------------------------
-------------------------------------------------------------------------
Quarters ended May 31, Nine months ended May 31,
($000,except 2008 2007 Change 2008 2007 Change
percentages) $ $ % $ $ %
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Revenue 274,944 240,612 14.3 791,879 694,566 14.0
Operating
costs 157,454 142,738 10.3 458,857 417,671 9.9
Management
fees -
COGECO Inc. - - - 8,714 8,568 1.7
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Operating
income
before
amortization 117,490 97,874 20.0 324,308 268,327 20.9
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Operating
margin 42.7% 40.7% 41.0% 38.6%
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Revenue

Fiscal 2008 third-quarter consolidated revenue improved by $34.3 million, or 14.3%, to reach $274.9 million, and, for the first nine-month period by $97.3 million, or 14% to reach $791.9 million. Driven by an increased number of RGUs combined with rate increases, 2008 third quarter Canadian operations revenue went up by $28.2 million, or 15.4%, and 2008 first nine-month period by $86.7 million, or 16.5%.

Fiscal 2008 third-quarter European operations revenue increased by $6.2 million, or 10.7%, to reach $64 million, and 2008 nine-month period by $10.6 million, or 6.3%, to reach $179.5 million compared to the same periods last year. European operations implemented rate increases and have generated lower RGU growth. Furthermore, the strength of the Euro against the Canadian dollar compared with last year has increased revenue growth when translated to Canadian dollars.

Operating costs

For the third quarter and the first nine months of fiscal 2008, operating costs, excluding management fees payable to COGECO Inc., increased by $14.7 million, or 10.3% and $41.2 million, or 9.9%, compared to last year, to reach $157.5 million and $458.9 million, respectively. The increase in operating costs for the third quarter and first nine-month period of 2008 was mainly attributable to servicing additional RGUs in Canada and Portugal. In addition, for the first nine-month period, operating costs were impacted by the timing of certain marketing initiatives in Portugal, including a major campaign to increase brand awareness, and costs related to the design of internal controls and review of business processes to comply with National Instrument 52-109.

Operating income before amortization

Fiscal 2008 third-quarter and first nine-month period operating income before amortization increased by $19.6 million, or 20%, to reach $117.5 million and by $56 million, or 20.9%, to reach $324.3 million, respectively, as a result of various rate increases and RGU growth generating additional revenues which outpaced operating cost increases. Cogeco Cable's 2008 third-quarter operating margin increased to 42.7% from 40.7% for the third quarter of fiscal 2007. The operating margin in Canada improved for the third-quarter of 2008 to 44.3% from 43.2% and in Europe to 37.7% from 32.7% compared to the same period of the prior year.

For the first nine months of fiscal 2008, the operating margin improved to 41% from 38.6% due to the reasons described above with the Canadian operating margin improving to 42.6% from 40.2% and the European operating margin to 35.4% from 33.7% when compared to the same period the year before.

RELATED PARTY TRANSACTIONS

Cogeco Cable is a subsidiary of COGECO Inc., which holds 32.3% of the Corporation's equity shares, representing 82.7% of the votes attached to the Corporation's voting shares. Under a management agreement, the Corporation pays COGECO Inc. monthly management fees equal to 2% of its total revenue for certain executive, administrative, legal, regulatory, strategic and financial planning and additional services. In 1997, management fees were capped at $7 million per year, subject to annual upwards adjustments based on increases in the Consumer Price Index in Canada. Accordingly, for fiscal 2008, management fees have been set at a maximum of $8.7 million, which was reached in the second quarter, and therefore, no management fees were paid in this third quarter. For fiscal 2007, management fees were set at a maximum of $8.6 million, and were fully paid in the first six months of the year.

Furthermore, Cogeco Cable granted 22,683 stock options to COGECO's employees during the first nine months of 2008, compared to 319,647 for the same period last year. Of these 319,647 stock options granted in the first nine months of fiscal 2007, 262,400 were conditional on the achievement of certain yearly financial objectives by the Portuguese subsidiary over a period of three years. During the third quarter and first nine months of fiscal 2008, Cogeco Cable charged COGECO Inc. an amount of $0.1 million and $0.3 million, respectively, with regards to Cogeco Cable's options granted to COGECO's employees. Details regarding the management agreement and stock options granted to COGECO Inc.'s employees are provided in the MD&A of the Corporation's 2007 Annual Report. There were no other material related party transactions during the first nine months of 2008.



FIXED CHARGES

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Quarters ended May 31, Nine months ended May 31,
($000, except 2008 2007 Change 2008 2007 Change
percentages) $ $ % $ $ %
--------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Amortization 58,209 47,278 23.1 166,885 135,159 23.5

Financial
expense 17,372 21,273 (18.3) 51,243 66,045 (22.4)
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Fiscal 2008 third quarter and first nine-month period amortization amounted to $58.2 million and to $166.9 million compared to $47.3 million and $135.2 million for the same periods the year before. Amortization expense increased for both periods mainly due to the following factors: the completion, in the fourth quarter of fiscal 2007 of the purchase price allocation of the Cabovisao acquisition, which includes the revaluation of tangible and intangible assets for an additional amortization expense of approximately $6.2 million and $16.4 million in the third quarter and first nine months, respectively, and additional capital expenditures arising from the required customer premise equipment to sustain RGU growth and to support the deployment of the Digital Television service in Portugal.

Fiscal 2008 third quarter and first nine-month period financial expense decreased by $3.9 million and $14.8 million, respectively, compared to the same periods in fiscal 2007 due to the reduction of the level of Indebtedness (defined as bank indebtedness and long-term debt) from the net proceeds of subordinate voting shares issued during fiscal 2007 as well as free cash flow generated during those periods. In addition, during the first nine-month period of fiscal 2007, the Corporation recorded a onetime charge of $2.6 million related to the early repayment of the Second Secured Debentures, Series A.

INCOME TAXES

Fiscal 2008 third quarter income tax expense amounted to $10.8 million compared to $8.9 million in fiscal 2007. The effective tax rate for the three months ended May 31, 2008 was 25.7% compared to 30.5% for the same period of 2007, mainly due to lower corporate income tax rates in Canada and to income tax reductions in European operations resulting from the revaluation of tangible and intangible assets upon the completion of the Cabovisao purchase price allocation in the fourth quarter of fiscal 2007.

For the first nine months of fiscal 2008, income tax expense amounted to $4.8 million compared to $18.8 million in 2007. Included in first nine-month 2008 expense is a recovery of $24 million related to the reduction in corporate income tax rates announced on October 16, 2007 by the Canadian federal government in its Economic Statement. According to the new tax initiatives, corporate income tax rates have been further reduced from 20.5% to 19.5% effective January 1, 2008, from 20% to 19% effective January 1, 2009, from 19% to 18% effective January 1, 2010, from 18.5% to 16.5% effective January 1, 2011, and to 15% effective January 1, 2012. These corporate income tax rates were considered substantively enacted on December 14, 2007. The effective tax rates for the first nine months of 2008 and 2007 were 4.5% and 28%, respectively. Excluding the effect of the tax rate reductions, the effective tax rate for the first nine months of 2008 was 27.1%.

NET INCOME

Fiscal 2008 third quarter net income amounted to $31.1 million, or $0.64 per share, compared to $20.4 million, or $0.45 per share, for the same period in 2007, an increase of 52.8% and 42.2%. First nine-month period net income amounted to $101.4 million, or $2.09 per share. Excluding the effect of the fiscal 2008 income tax rate reductions of $24 million, net income for the first nine months would have amounted to $77.4 million, or $1.60 per share, compared to $48.3 million, or $1.14 per share, in 2007, an increase of 60.2% and 40.4%, respectively. Net income progression, excluding the effect of the income tax rate reductions, has resulted mainly from the growth in operating income before amortization exceeding that of fixed charges.



CASH FLOW AND LIQUIDITY

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Quarters ended May 31, Nine months ended May 31,
($000) 2008 2007 2008 2007
$ $ $ $
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Operating activities
Cash flow from
operations 95,829 76,416 260,855 200,740
Changes in non-cash
operating items 16,970 (23,029) (11,720) (101,545)
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112,799 53,387 249,135 99,195
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Investing activities(1) (74,014) (53,548) (196,655) (179,801)
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Financing activities(1) 17,957 (14,920) (36,466) 30,260
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Effect of exchange rate
changes on cash and cash
equivalents denominated
in foreign currencies 1,063 (1,774) 1,265 1,486
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Net change in cash and
cash equivalents 57,805 (16,855) 17,279 (48,860)
Cash and cash
equivalents
at beginning 23,682 39,511 64,208 71,516
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Cash and cash equivalents
at end 81,487 22,656 81,487 22,656
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(1) Excludes assets acquired under capital leases.


Fiscal 2008 third quarter cash flow from operations reached $95.8 million, 25.4% higher than the comparable period last year, primarily due to the increase in operating income before amortization and to the reduction in financial expense. Changes in non-cash operating items generated higher cash inflows compared to the same period last year, mainly as a result of an increase in accounts payable and accrued liabilities and in income tax liabilities.

Fiscal 2008 first nine-month period cash flow from operations reached $260.9 million, an increase of 29.9% compared to the same period the year before, primarily due to the growth in operating income before amortization and to the reduction in financial expense. Changes in non-cash operating items generated lower cash outflows than for the same period last year, mainly as a result of a smaller decrease in accounts payable and accrued liabilities and an increase in income tax liabilities. The larger reduction in accounts payable and accrued liabilities in the first nine months of fiscal 2007 was due to non-recurring payments made by the Portuguese subsidiary in accordance with 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 May 31, Nine months ended May 31,
($000) 2008 2007 2008 2007
$ $ $ $
------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Customer Premise
Equipment(1) 20,238 18,985 70,477 76,188
Scalable
Infrastructure 8,627 10,940 30,726 31,700
Line Extensions 2,160 2,598 7,738 7,798
Upgrade / Rebuild 15,498 13,936 41,105 41,967
Support Capital 5,355 5,358 12,433 8,133
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Total Capital
Expenditures(2) 51,878 51,817 162,479 165,786
------------------------------------------------------------------------
Deferred charges and
Others 7,002 5,571 20,488 18,790
------------------------------------------------------------------------
Business acquisition
and related adjustments 16,105 (3,279) 16,105 (1,894)
------------------------------------------------------------------------
Decrease in
restricted cash - - - (88)
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Total investing
activities 74,985 54,109 199,072 182,594
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------------------------------------------------------------------------

(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.


Fiscal 2008 third quarter Total Capital Expenditures amounted to $51.9 million, essentially the same level when compared to the corresponding last year period, due to the following factors:

- An increase in customer premise equipment capital spending resulted from higher RGU growth fuelled in part by increased interest for High Definition technology for the Canadian operations combined with the deployment of Digital Television in Portugal, partly offset by lower RGU growth in Portugal.

- A decrease in scalable infrastructure capital spending mainly due to the timing of the expansion and headend improvements, system powering and equipment reliability to sustain increased customer demand for HSI and Telephony services.

- An increase in capital expenditures associated with network upgrades and rebuilds due to the construction costs incurred to increase the number of homes passed in Portugal.

Fiscal 2008 first nine-month period Total Capital Expenditures decreased to $162.5 million from $165.8 million for the same period last year due to the following factors:

- A reduction in customer premise equipment resulted from the timing to acquire such equipment in fiscal 2007, in the Canadian operations, to ensure the availability of equipment required to sustain expected RGU growth, partly offset by the deployment of Digital Television service in Portugal.

- An increase in support capital is due to the improvement in information systems to sustain the business operations and to the acquisition of vehicles.

Deferred charges and Others are mainly attributable to reconnect costs. Fiscal 2008 third quarter and first nine-month period capital spending amounted to $7 million and $20.5 million compared to $5.6 million and $18.8 million for the same periods the year before. The higher reconnect costs associated with RGUs in Canada combined with the deployment of the Digital Television service in Portugal explained the increases recorded so far in 2008.

In the third quarter and first nine months of fiscal 2008, the Corporation generated free cash flow amounting to $36.9 million and $77.8 million, respectively, compared to $18.6 million and $15.7 million for the same periods of the preceding year. The free cash flow improvements over last year's same periods are mainly due to an increase in operating income before amortization and to a reduction in financial expense. The aggregate amount of Total Capital Expenditures and Deferred charges increased by $1.1 million in the 2008 third quarter and decreased by $2 million for the first nine-month period compared to the corresponding periods of last year due to the factors explained above.

Indebtedness increased by $22.7 million in the third quarter of fiscal 2008. This increase is primarily due to the issuance by the Corporation on March 5, 2008 of a $100 million senior unsecured debenture by way of a private placement, the proceeds of which were used in part to reimburse the bank indebtedness of $17.7 million and to finance the acquisition of MaXess Networx® for $16.1 million. The debenture bears interest at a fixed rate of 5.936%, is redeemable at the Corporation's option at any time, in whole or in part, prior to maturity, at 100% of the principal amount plus a make-whole premium and will mature on March 5, 2018. The increase in Indebtedness was partly offset by repayments on the revolving credit facility of $58.6 million from the generated free cash flow of $36.9 million and the increase in non-cash operating items of $17 million. For the same period last year, Indebtedness decreased by $13.6 million. The reduction was mainly due to the generated free cash flow of $18.6 million and the net change of $16.9 million in cash and cash equivalents, partly offset by a decline of $23 million in non-cash operating items. In addition, during the third quarter of fiscal 2008, a dividend of $0.10 per share was paid to the holders of subordinate and multiple voting shares, totalling $4.9 million, compared to a dividend of $0.06 per share, or $2.7 million, for the third quarter of fiscal 2007.

During the first nine months of fiscal 2008, the level of Indebtedness decreased by $25.3 million mainly due to a net reduction of $123.1 million on the revolving credit facility. This decrease was partly offset by the issuance of a senior unsecured debenture as discussed above. For the same period last year, Indebtedness decreased by $153.1 million, mainly due to the completion of a public offering of 5,000,000 subordinate voting shares for a net proceeds of approximately $184.2 million, the generated free cash flow of $15.7 million and the net change of $48.9 million in cash and cash equivalents, partly offset by a decline of $101.5 million in non-cash operating items. In addition, quarterly dividends of $0.10 per share were paid to the holders of subordinate and multiple voting shares totalling $14.5 million during the first nine months of fiscal 2008 compared to quarterly dividends of $0.04 per share in the first quarter and $0.06 per share in the second and third quarters totalling $6.7 million for the same period the year before.

As at May 31, 2008, the Corporation had a working capital deficiency of $345.9 million compared to $120.7 million as at August 31, 2007. The greater deficiency is mainly attributable to the US$ 150 million Senior Secured Notes, Series A and the related derivative financial instruments of $91.3 million for an aggregate amount of $240.1 million due on October 31, 2008. Due to the nature of its business, 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, thus enabling the Corporation to use cash and cash equivalents to reduce Indebtedness.

As at May 31, 2008, the Corporation had used $366.8 million of its $900 million Term Facility, for a remaining availability of $533.2 million.

FINANCIAL POSITION

Since August 31, 2007, there have been major changes to the balance of Fixed assets, Cash and cash equivalents, Accounts payable and accrued liabilities, Income tax liabilities, Accounts receivable, Future income tax assets, Future income tax liabilities, Goodwill, Accumulated other comprehensive income (loss), Derivative financial instruments and Indebtedness.

The $55.5 million fixed assets rise is mainly related to increased capital expenditures to sustain RGU growth and by the appreciation of the Euro over the Canadian dollar. The $17.3 million increase in cash and cash equivalents is mainly related to the net proceeds of issuance of senior unsecured debentures, as discussed in the "Cash Flow and Liquidity" section, as well as the free cash flow generated of $77.8 million, partly offset by the net reduction of the revolving credit facility of $123.1 million, the acquisition of MaXess Networx® for $16.1 million, and dividends paid of $14.5 million. The $16.1 million reduction in accounts payable and accrued liabilities is related to the timing of payments made to suppliers. The $14.2 million increase in income tax liabilities is due to the utilization of most of the Corporation's tax losses carry forwards before fiscal 2008. The $5.7 million accounts receivable increase is essentially due to revenue growth and its related level of receivables. The $9.8 million reduction in future income tax assets is mainly due to the utilization of tax losses carried forward from prior years, and the $20.4 million future income tax liabilities reduction is mainly due to the corporate income tax rate reductions announced by the Canadian federal government and considered substantively enacted on December 14, 2007. The $25.2 million goodwill increase is due to the appreciation of the Euro over the Canadian dollar. The $15.1 million increase in accumulated other comprehensive income (loss) is mainly the result of the appreciation of the Euro over the Canadian dollar, partly offset by the changes in accounting policies related to financial instruments. The derivative financial instruments have increased by $91.3 million and Indebtedness has decreased by $83.4 million as a result of accounting changes and factors previously discussed in the "Cash Flow and Liquidity" section, net of the unfavourable impact of the appreciation of the Euro over the Canadian dollar. Please consult "Accounting policies and estimates" section for further details.

A description of Cogeco Cable's share data as of June 30, 2008 is presented in the table below:



------------------------------------------------------------------------
------------------------------------------------------------------------
Number of Amount
shares/options ($000)
------------------------------------------------------------------------
Common shares
Multiple voting shares 15,691,100 98,346
Subordinate voting shares 32,813,371 890,228
Options to purchase subordinate voting shares
Outstanding options 862,237
Exercisable options 332,210
------------------------------------------------------------------------
------------------------------------------------------------------------


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, as discussed in the 2007 annual MD&A, have not materially changed since August 31, 2007, with the exception of the new financing discussed in the "Cash Flow and Liquidity" section.

On June 30, 2008, Cogeco Cable completed the acquisition of all the assets of FibreWired Burlington Hydro Communications, Burlington Hydro Electric's telecommunications division (City of Burlington's energy company) for a total consideration of $12.5 million. FibreWired Burlington Hydro Communications operates a broadband network equipped with next generation Ethernet technology, provides Burlington organizations with the broadband capacity they need for data networking, high-speed Internet access, hosting services, e-business applications, video conferencing and other advanced communications. Cogeco Cable will use this network to expand its commercial broadband service offering in the area, which is in Cogeco Cable's footprint.

On June 13, 2008, Cogeco Cable announced the acquisition of all of the shares of Toronto Hydro Telecom Inc., the telecommunications subsidiary of Toronto Hydro Corporation (City of Toronto's energy company), subject to certain conditions, including regulatory approval by the Commissioner of Competition. Toronto Hydro Telecom Inc. offers data communications and other telecommunications services such as Ethernet, private line, Voice-over-Internet protocol ("VoIP"), high-speed Internet access, dark fibre, data storage, data security and co-location to a wide range of business customers and organizations throughout the Greater Toronto Area ("GTA"). This agreement will allow Cogeco Cable to further the development of its business telecommunications activities.

On March 31, 2008, Cogeco Cable completed the acquisition of all the assets of MaXess Networx®, ENWIN Energy Ltd.'s telecommunications division (City of Windsor's energy company), for a total cost, including acquisition costs, of $16.1 million. MaXess Networx® operates a broadband network equipped with next generation ATM and Ethernet technology and provides organizations in southwestern Ontario with the broadband capacity required for data networking, high-speed Internet access, e-business applications, video conferencing and other advanced communications.

DIVIDEND DECLARATION

At its July 9, 2008 meeting, the Board of Directors of Cogeco Cable declared a quarterly eligible dividend of $0.10 per share for subordinate and multiple voting shares, payable on August 6, 2008, to shareholders of record on July 23, 2008.

FOREIGN EXCHANGE MANAGEMENT

Cogeco Cable has entered into cross-currency swap agreements to set the liability for interest and principal payments on its US$150 million Senior Secured Notes. These agreements have the effect of converting the U.S. interest coupon rate of 6.83% per annum to an average Canadian dollar fixed interest rate of 7.254% per annum. The exchange rate applicable to the principal portion of the debt has been fixed at CAN$1.5910. Amounts due under the US$150 million Senior Secured Notes, Series A decreased by CAN$9.5 million at the end of the third quarter compared to August 31, 2007 due to the Canadian dollar's appreciation. The fair value of cross-currency swaps increased by a net amount of $7.8 million, of which $9.5 million offsets the foreign exchange gain on the $US debt. The difference of $1.7 million was recorded as an increase of other comprehensive income.

As noted in the MD&A of the 2007 Annual Report, the Corporation's investment in the Portuguese subsidiary, Cabovisao, is exposed to market risk attributable to fluctuations in foreign currency exchange rates, primarily changes in the values of the Canadian dollar versus the Euro. This risk is mitigated since the major part of the purchase price for Cabovisao was borrowed directly in Euros. This debt is designated as a hedge of net investments in self-sustaining foreign subsidiaries and, accordingly, the Corporation realized a foreign exchange gain of CAN$16.2 million in the first nine months of 2008, which is presented in other comprehensive income. The exchange rate used to convert the Euro into Canadian dollars for the balance sheet accounts as at May 31, 2008 was $1.5448 per Euro compared to $1.4390 per Euro as at August 31, 2007. The average exchange rates prevailing during the third quarter and first nine months of 2008 used to convert the operating results of the European operations were $1.5694 and $1.4851 per Euro, respectively, compared to $1.5202 and $1.4946 per Euro respectively, for the same periods last year.



CANADIAN OPERATIONS

CUSTOMER STATISTICS

-----------------------------------------------------------------------
-----------------------------------------------------------------------
Net additions (losses)

Quarters ended Nine months ended
May 31, May 31, May 31,
2008 2008 2007 2008 2007
-----------------------------------------------------------------------
RGUs(2) 1,948,999 36,658 35,768 160,491 192,916
Basic Cable service
customers 858,570 (520) (2,910) 9,413 18,607
HSI service
customers 464,668 8,480 11,030 48,832 60,393
Digital Television
service customers 425,596 11,585 8,583 45,717 43,768
Telephony service
customers 200,165 17,113 19,065 56,529 70,148
-----------------------------------------------------------------------
-----------------------------------------------------------------------

% of Penetration(1)

May 31,

2008 2007
-----------------------------------------------------------------------
RGUs(2)
Basic Cable service
customers
HSI service
customers 57.5 50.7
Digital Television
service customers 50.4 44.5
Telephony service
customers 28.1 18.5
-----------------------------------------------------------------------
-----------------------------------------------------------------------

(1) As a percentage of Basic Cable service customers in areas served.

(2) Represents the sum of Basic Cable service, HSI service, Digital
Television service and Telephony service customers.


Fiscal 2008 third quarter RGU net additions were higher than for the same period last year but the growth rate reflects an early sign of maturation in some services. The number of net losses for Basic Cable stood at 520 customers compared to 2,910 customers for the same period last year. Third-quarter Basic Cable service customer losses are due to the end of the school year for college and university students. In addition, 2007 third-quarter net losses were unusually high due to an aggressive promotional offer that ended in the third quarter of fiscal 2007 which resulted in a significant number of customer disconnections. Telephony customers grew by 17,113 to reach 200,165 compared to 19,065 for the same period last year. The lower growth is mostly attributable to the increased penetration in areas where the service is already offered and to fewer new areas where the service was launched. Telephony service coverage, as a percentage of homes passed, has now reached 83% compared to 77% last year.

The number of HSI net additions stood at 8,480 customers compared to 11,030 customers for the same period last year. During the third quarter of 2008, the growth in HSI customer net additions continues to stem from the enhancement of the product offering, the impact of the bundled offer (Cogeco Complete Connection) of Television, HSI and Telephony services, and promotional activities.

The Digital Television service net additions stood at 11,585 customers compared to 8,583 customers for the same period last year due to targeted marketing initiatives in 2008 to improve the penetration rate. It also reflects the continuing strong interest for High Definition technology.



OPERATING RESULTS

--------------------------------------------------------------------------
--------------------------------------------------------------------------
Quarters ended May 31, Nine months ended May 31,
($000, except 2008 2007 Change 2008 2007 Change
percentages) $ $ % $ $ %
--------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Revenue 210,928 182,763 15.4 612,337 525,620 16.5
Operating
costs 117,580 103,778 13.3 342,949 305,733 12.2
Management
fees -
COGECO Inc. - - - 8,714 8,568 1.7
--------------------------------------------------------------------------
Operating
income
before
amortization 93,348 78,985 18.2 260,674 211,319 23.4
--------------------------------------------------------------------------
Operating
margin 44.3% 43.2% 42.6% 40.2%
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Revenue

Fiscal 2008 third quarter and first nine months revenue rose by $28.2 million, or 15.4%, and $86.7 million, or 16.5%, to reach $210.9 million and $612.3 million, respectively. This growth is explained mainly by an increase in the number of Telephony, Digital Television and HSI service customers as mentioned in the "Customer Statistics" section, combined with the following rate increases implemented by the Corporation:



- In the second half of fiscal 2007:
- In March 2007; a monthly rate increase of $3 per Digital Television
service customer in Ontario;
- In April 2007; a monthly rate increase of $3 per Digital Television
service customer in Quebec and a rate increase of $1.50 per Analogue
Value Pak service customer in Ontario.
These rate increases represent an average increase of approximately $1.25
per Basic Cable service customer.

- In the first quarter of fiscal 2008:
- In October 2007 in Quebec; a rate increase of between $1 and $2 per
Analogue Basic Cable service customer without a bundle, a rate
increase of $0.50 per basic and tier service customer without a
bundle, and rate increases from $2 to $5 per HSI Lite service
customer and $5 per HSI Standard stand-alone service customer;
- In November 2007 in Ontario; a rate increase of between $1 and $2 per
Analogue Basic Cable service customer without a bundle, and rate
increases from $2 to $5 per HSI Lite service customer and $5 per HSI
Standard stand-alone service customer.
- Finally, a rebate of $5 per Telephony service customer with two
services bundled offers was also introduced in fiscal 2008 in Ontario
and in Quebec.
These rate adjustments implemented in fiscal 2008 represent an average
increase of approximately $0.50 per Basic Cable service customer.


Operating costs

Fiscal 2008 third quarter and first nine months operating costs, excluding management fees payable to COGECO Inc., increased by $13.8 million, or 13.3%, and $37.2 million, or 12.2%, to reach $117.6 million and $342.9 million, respectively. The operating costs increase is mainly attributable to servicing additional RGUs.

Operating income before amortization

Fiscal 2008 third quarter and first nine months operating income before amortization rose by $14.4 million, or 18.2%, to reach $93.3 million and by $49.4 million, or 23.4%, to reach $260.7 million, respectively. The operating income before amortization has risen due to the increased revenue outpacing the operating costs growth. Cogeco Cable's Canadian operations third-quarter operating margin increased to 44.3% from 43.2%, and for the nine-month period increased to 42.6% from 40.2%, mainly as a result of RGU growth and implemented rate increases.



EUROPEAN OPERATIONS

CUSTOMER STATISTICS

---------------------------------------------------------------------
---------------------------------------------------------------------
Net additions (losses)
Quarters ended Nine months ended
May 31, May 31, May 31,
2008 2008 2007 2008 2007
---------------------------------------------------------------------
RGUs(2) 726,775 14,231 16,666 29,618 58,196
Basic Cable service
customers 300,591 (1,069) 5,694 6,588 19,553
HSI service
customers 164,310 (1,615) 5,424 4,287 20,809
Digital Television
service customers 14,470 14,470 - 14,470 -
Telephony service
customers 247,404 2,445 5,548 4,273 17,834
---------------------------------------------------------------------
---------------------------------------------------------------------

% of Penetration(1)

May 31,
2008 2007
---------------------------------------------------------------------
RGUs(2)
Basic Cable service
customers
HSI service
customers 54.7 54.3
Digital Television
service customers 4.8 -
Telephony service
customers 82.3 83.3
---------------------------------------------------------------------
---------------------------------------------------------------------

(1) As a percentage of Basic Cable service customers in areas served.

(2) Represents the sum of Basic Cable service, HSI service and Telephony
service customers.


Fiscal 2008 third-quarter and first nine-month periods were marked by an unfavourable economic environment, aggressive marketing campaigns from competitors, including periodic intense price competition, and the arrival of multiple triple-play providers in the Portuguese market. Cabovisao was not matching the competition's highly discounted offering at all times. These factors were the main contributors to net customer losses in the Basic Cable and HSI services and lower customer growth in Telephony services compared to the same period last year. The Digital Television service was launched in the third quarter of 2008, with net additions of 14,470 customers in that period, surpassing management expectations. Fiscal 2008 third-quarter Basic Cable service decreased by 1,069 customers compared to a growth of 5,694 in 2007, HSI service decreased by 1,615 customers compared to an increase of 5,424 in 2007, and Telephony service grew by 2,445 customers compared to 5,548 for the same period of the preceding year. Management considers the current competitive dynamics in Portugal to be transitory. Cabovisao's performance since its acquisition by Cogeco Cable has exceeded management's original business plan and growth prospects for the long-term remain excellent in management's view.



OPERATING RESULTS

--------------------------------------------------------------------------
--------------------------------------------------------------------------
Quarters ended May 31, Nine months ended May 31,
($000, except 2008 2007 Change 2008 2007 Change
percentages) $ $ % $ $ %
--------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Revenue 64,016 57,849 10.7 179,542 168,946 6.3
Operating
costs 39,874 38,960 2.3 115,908 111,938 3.5
--------------------------------------------------------------------------
Operating
income
before
amortization 24,142 18,889 27.8 63,634 57,008 11.6
--------------------------------------------------------------------------
Operating
margin 37.7% 32.7% 35.4% 33.7%
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Revenue

Fiscal 2008 third-quarter and first nine months revenue increased by $6.2 million and $10.6 million to reach $64 million and $179.5 million, respectively, an increase of 10.7% and 6.3%, compared to fiscal 2007. This growth for the third quarter is mainly due to the following monthly rate increases implemented by Cabovisao: an increase of $1 (0.65 EUR) per Basic Cable service customer effective in March 2007, an increase averaging $1.50 (1 EUR) per Basic Cable customer and an increase averaging $0.90 (0.60 EUR) per HSI customer effective in January 2008, and the launch of Digital Television services. The growth for the first nine-month period is mainly due to the increase in the number of Basic Cable, HSI and Telephony service customers, and to the monthly rate increases described above, as well as the launch of Digital Television services. Revenue from the European operations in its local currency, for the third quarter and first nine months of fiscal 2008, amounted to 40.8 million EUR and 120.8 million EUR, an increase of 2.7 million EUR, or 7.2%, and 7.9 million EUR, or 6.9%, respectively.

Operating costs

For the third quarter and the first nine months of fiscal 2008, operating costs increased by $0.9 million and $4 million to reach $39.9 million and $115.9 million, respectively, an increase of 2.3% and 3.5% compared to last year. The increase in operating costs for the third quarter of 2008 is mainly attributable to the launch of Digital Television services as well as servicing additional RGUs. The operating costs increase for the nine-month period is due to servicing additional RGUs, timing of certain marketing initiatives, including a major campaign to increase brand awareness, and costs related to the design of internal controls and review of business processes to comply with National Instrument 52-109. Operating costs from the European operations in its local currency, for the third quarter and first nine months of fiscal 2008, amounted to 25 million EUR and 77.7 million EUR, a decrease of 0.7 million EUR, or 2.6%, and an increase of 2.8 million EUR, or 3.8%, respectively.

Operating income before amortization

Fiscal 2008 third quarter and first nine months operating income before amortization increased from $18.9 million to $24.1 million, an increase of 27.8% and from $57 million to $63.6 million, an increase of 11.6%, respectively. The operating income before amortization increased due to revenue growth outpacing the rise in operating costs. Fiscal 2008 third quarter European operations operating margin increased from 32.7% to 37.7%. For the first nine-month period of 2008, the operating margin increased from 33.7% to 35.4% . Operating income before amortization from the European operations in its local currency, for the third quarter and first nine months of fiscal 2008, amounted to 15.8 million EUR and 43.1 million EUR, an increase of 3.4 million EUR, or 27.3%, and 5 million EUR, or 13%, respectively.

FISCAL 2009 PRELIMINARY FINANCIAL GUIDELINES

The fiscal 2009 preliminary financial guidelines exclude the acquisition of Toronto Hydro Telecom Inc., which is subject to the approval by the Commissioner of Competition. The revised guidelines, with other changes as required, will be presented upon completion of the transaction and the release of the 2008 year-end results.

For fiscal 2009, Cogeco Cable expects to grow revenue and operating income before amortization. The preliminary guidelines take into consideration the global economical slowdown that is occurring and should continue during 2009. In Canada and Portugal, mortgage interest rate increases and higher commodity prices are leaving consumers with a lower level of disposable income. In addition, Portugal's anticipated gross domestic product growth for 2009 will be negatively impacted as the Government deficit will be one of the highest of the European Union in recent history, while the competitive landscape should remain unchanged. Results from this scenario should generate slower growth when compared to prior years.

The revenue increase of approximately 10% should come from the combined Canadian and European operations. The Canadian operations revenue should increase by approximately 13% from continued deployment of Telephony service, by expanded penetration of HSI service and Digital Television services in fiscal 2008 and 2009 and the impact of the rate increases implemented in fiscal 2008 in Ontario and in Quebec, averaging $1.75 per Basic Cable service customer for both divisions. Cogeco Cable plans to expand its Canadian Basic Cable Service clientele through consistently effective marketing, competitive product offerings and superior customer service. As the penetration of HSI, Telephony and Digital Television services increase, the demand for these products should slow, reflecting maturity. Revenue from European operations should increase by approximately 3.5% from 162 million EUR to 168 million EUR mainly from rate increases of approximately 1.30 EUR (CDN$2) per Basic Cable service customer implemented in fiscal 2008, sustained RGU growth from fiscal 2008 and 2009 and from the launch of Digital Television service in the second half of fiscal 2008. European operations should contribute to approximately 2% in revenue growth due to the effect of foreign exchange translation. For fiscal 2008, the expected Canadian dollar value of the Euro should be approximately $1.48 per Euro while for fiscal 2009, it is anticipated that the Euro should be converted at a rate of approximately $1.44 per Euro.

Growth in revenue and sustained cost control should help achieve a significant increase in operating income before amortization by approximately 12% to 13%. Cogeco Cable expects to achieve an operating margin of approximately 42.5%.

Cogeco Cable expects the amortization of capital assets and deferred charges to increase by $25 million, mainly due to capital expenditures and deferred charges for RGU additions in fiscal 2008 and 2009. Management expects that cash flows generated by operations will finance capital expenditures and deferred charges, expected to amount to $275 million, essentially the same as for fiscal 2008. The Corporation expects to generate free cash flow in the order of $105 million, an increase of approximately $35 million compared to fiscal 2008 projections. Generated free cash flow should be used primarily to reduce Indebtedness, thus improving the Corporation's leverage ratios. Given the anticipated decrease in Indebtedness, financial expense will decline by approximately $7 million. Net income of approximately $125 million should be achieved as a result of growth in operating income before amortization exceeding the increase in fixed charges.



Consolidated

-----------------------------------------------------------------------
-----------------------------------------------------------------------
Preliminary Revised Projections
Projections April 10, 2008
($ million, except customer Fiscal 2009 Fiscal 2008
data and operating margin) $ $
-----------------------------------------------------------------------
Financial Guidelines
Revenue 1,165 1,060
Operating income before amortization 495 440
Operating margin 42.5% 41% to 42%
Financial expense 65 72
Amortization 250 225
Net income 125 123
Capital expenditures and deferred
charges 275 275
Free cash flow 105 70

Customer Addition Guidelines
RGUs 175,000 225,000
-----------------------------------------------------------------------
-----------------------------------------------------------------------


The exchange rate used for the fiscal 2009 preliminary projections is $1.4400 per Euro compared to $1.4670 per Euro for the April 2008 revised projections.

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 2007 annual report, except for the Part II Licence Fees payable to the Canadian Radio-television and Telecommunications Commission (CRTC). On December 14, 2006, the Federal Court of Canada ruled that the Part II Licence Fees payable to the CRTC are an unlawful tax. Both the Plaintiffs (the members of the Canadian Association of Broadcasters, Videotron Ltee and CF Cable TV Inc.) and the Defendant (the Crown) have appealed this decision to the Federal Court of Appeal. The Defendant was seeking to reverse the Court decision that Part II Licence Fees are unlawful and the Plaintiffs were seeking a Court order requiring a refund of past fees paid. The Appeal hearing was held on December 4 and 5 in Ottawa and a decision was rendered on April 28, 2008 in favour of the Crown, to the effect that the fees are valid regulatory charges. On June 26 and 27, 2008, the Plaintiffs filed applications for leave to appeal to the Supreme Court of Canada. The Defendant must respond to these applications within 60 days. Cogeco Cable has accrued the full amount with respect to these fees for fiscal year 2007 and the first nine months of fiscal 2008.

ACCOUNTING POLICIES AND ESTIMATES

There has been no significant change in Cogeco Cable's accounting policies and estimates and future accounting pronouncements since August 31, 2007, except as described below. A description of the Corporation's policies and estimates can be found in the 2007 annual MD&A.

Financial instruments

Effective September 1, 2007, the Corporation adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1530, Comprehensive Income, Section 3855, Financial Instruments - Recognition and Measurement, Section 3861, Financial Instruments - Disclosure and Presentation, and Section 3865, Hedges.

Statement of Comprehensive Income

A new statement entitled consolidated statements of comprehensive income was added to the Corporation's consolidated financial statements and includes net income as well as other comprehensive income. Other comprehensive income represents changes in shareholders' equity arising from transactions and events from non-owner sources, such as changes in foreign currency translation adjustments of net investments in self-sustaining foreign subsidiaries and long-term debt designated as a hedge of net investments in self-sustaining foreign subsidiaries and changes in the fair value of effective cash flow hedging instruments.

Recognition and Measurement of Financial Instruments

Under these new standards, all financial assets, including derivatives, must be classified as available for sale, held for trading, held to maturity, or loans and receivables. All financial liabilities, including derivatives, must be classified as held for trading or other liabilities. All financial instruments classified as available for sale or held for trading are recognized at fair value on the consolidated balance sheet while financial instruments classified as loans and receivables or other liabilities will continue to be measured at amortized cost using the effective interest rate method. The standards allow the Corporation to designate certain financial instruments, on initial recognition, as held for trading.

All of the Corporation's financial assets are classified as held for trading or loans and receivables. The Corporation has classified its cash and cash equivalents as held for trading. Accounts receivable have been classified as loans and receivables. All of the Corporation's financial liabilities were classified as other liabilities, except for the cross-currency swaps, which were classified as held for trading. Held for trading assets and liabilities are carried at fair value on the balance sheet, with changes in fair value recorded in the consolidated statement of income, except for the changes in fair value of the cross-currency swaps, which are designated as cash flow hedges of the Senior Secured Notes, Series A and are recorded in other comprehensive income. Loans and receivables and all financial liabilities are carried at amortized cost using the effective interest method. Upon adoption, the Corporation determined that none of its financial assets are classified as available for sale or held to maturity. Except for the treatment of transaction costs and derivative financial instruments mentioned below, the provisions of the new accounting standards had no impact on the consolidated financial statements on September 1, 2007 and May 31, 2008.

Transaction costs

Effective September 1, 2007, transaction costs are capitalized on initial recognition and presented as a reduction of the related financing, except for transaction costs on the revolving loan and the swingline facility, which are presented as deferred charges. These costs are amortized over the term of the related financing using the effective interest rate method, except for transaction costs on the revolving loan and the swingline facility, which are amortized over the term of the related financing on a straight-line basis. Previously, all transaction costs were capitalized and amortized on a straight-line basis over the term of the related financing, over a period not exceeding five years. The impact of these adjustments reduced deferred charges by $1.2 million, reduced long-term debt by $3.1 million, increased future income tax liabilities by $0.6 million and increased retained earnings by $1.3 million.

Cash flow hedge

All derivatives are measured at fair value with changes in fair value recorded in the consolidated statements of income unless they are effective cash flow hedging instruments. The changes in fair value of cash flow hedging derivatives are recorded in other comprehensive income, to the extent effective, until the variability of cash flows relating to the hedged asset or liability is recognized in the consolidated statements of income. Any hedge ineffectiveness is recognized in the consolidated statement of income immediately. Accordingly, the Corporation's cross-currency swaps must be measured at fair value in the consolidated financial statements. Since these cross-currency swaps are used to hedge cash flows on Senior Secured Notes, Series A denominated in U.S. dollars, the changes in fair value are recorded in other comprehensive income. The impact of measuring the cross-currency swaps at fair value on the interim consolidated financial statements on September 1, 2007, increased derivative financial instrument liabilities by $83.5 million, decreased deferred credit presented in long-term debt by $80.2 million, decreased future income tax liabilities by $1.1 million and decreased opening accumulated other comprehensive income by $2.2 million. The impact of measuring the cross-currency swaps at fair value on the interim consolidated financial statements for the three month period ended May 31, 2008 decreased derivative financial instrument liabilities by $1.6 million, increased future income tax liabilities by $0.1 million and increased accumulated other comprehensive income by $0.2 million. The impact of measuring the cross-currency swaps at fair value on the interim consolidated financial statements for the nine month period ended May 31, 2008 increased derivative financial instrument liabilities by $7.8 million, decreased future income tax liabilities by $0.6 million and increased accumulated other comprehensive income by $1.1 million.

Net investment hedge

Financial statements of self-sustaining foreign subsidiaries are translated using the rate in effect at the balance sheet date for asset and liability items, and using the average exchange rates during the period for revenue and expenses. Adjustments arising from this translation are deferred and recorded as foreign currency translation adjustments in accumulated other comprehensive income and are included in income only when a reduction in the investment in these foreign subsidiaries is realized. Unrealized foreign exchange gains and losses on long-term debt denominated in foreign currencies, that is designated as a hedge of net investments in self-sustaining foreign subsidiaries are recorded as foreign currency translation adjustments in accumulated other comprehensive income, net of income taxes. As a result, an amount of $3.1 million was reclassified as at August 31, 2007 from the foreign currency translation adjustment to the accumulated other comprehensive income and the Corporation's comparative financial statements were restated in accordance with transitional provisions.

Embedded derivatives

All embedded derivatives that are not closely related to the host contracts, are measured at fair value, with changes in fair value recorded in the consolidated statement of income. On September 1, 2007, and at May 31, 2008, there are no significant embedded derivatives or non-financial derivatives that require separate fair value recognition on the consolidated balance sheet. In accordance with the new standards, the Corporation selected September 1, 2002, as its transition date for adopting the standard related to embedded derivatives.

Upcoming standards

In 2006, the CICA issued Handbook Section 3862, Financial Instruments - Disclosures, and Section 3863, Financial Instruments - Presentation. These Sections are to be applied to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007. The Corporation is currently evaluating the impact of these new standards.

Accounting changes

In July 2006, the CICA issued Section 1506, Accounting Changes, which modifies certain aspects of the previous standard. A reporting entity may not change its accounting method unless required by primary source of GAAP or to provide a more reliable and relevant presentation of the financial statements. In addition, changes in accounting methods must be applied retroactively and additional information must be disclosed. This Section applies to interim and annual financial statements relating to fiscal years beginning on or after January 1, 2007. During the first quarter of fiscal 2008, the Corporation adopted this new standard and concluded that it had no significant impact on these consolidated financial statements.

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 therefore, may not be comparable to 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 May 31, Nine months ended May 31,
2008 2007 2008 2007
($000) $ $ $ $
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Cash flow from
operating activities 112,799 53,387 249,135 99,195
Changes in non-cash
operating items (16,970) 23,029 11,720 101,545
-----------------------------------------------------------------------
Cash flow from
operations 95,829 76,416 260,855 200,740
-----------------------------------------------------------------------
-----------------------------------------------------------------------


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 May 31, Nine months ended May 31,
2008 2007 2008 2007
($000) $ $ $ $
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Cash flow from
operations 95,829 76,416 260,855 200,740
Acquisition of fixed
assets (50,907) (51,256) (160,062) (162,993)
Increase in deferred
charges (7,050) (6,000) (20,561) (19,258)
Assets acquired under
capital leases - as
per Note 12b) (971) (561) (2,417) (2,793)
-----------------------------------------------------------------------
Free cash flow 36,901 18,599 77,815 15,696
-----------------------------------------------------------------------
-----------------------------------------------------------------------


ADDITIONAL INFORMATION

This MD&A was prepared on July 9, 2008. Additional information relating to the Corporation, including its Annual Information Form, is available on the SEDAR website 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 Portugal, is the second largest cable operator in Ontario, Quebec and Portugal, in terms of the number of Basic Cable service customers served. Through its two-way broadband cable networks, Cogeco Cable provides its residential and commercial customers with Analogue and Digital Television, High Speed Internet and Telephony services. The Corporation provides approximately 2,676,000 revenue generating units (RGUs) to 2,410,000 homes passed in its Canadian and Portuguese service territories. Cogeco Cable's subordinate voting shares are listed on the Toronto Stock Exchange (TSX:CCA).



Analyst Conference Call: Thursday, July 10, 2008 at 11:00 A. M. (EDT)
Media representatives may attend as listeners
only.

Please use the following dial-in number to have
access to the conference call by dialing five
minutes before the start of the conference:

Canada/USA Access Number: 1 866 321-8231
International Access Number: + 1 416 642-5213
Confirmation Code: 4152342
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: + 1 647 436-0148
Confirmation code: 4152342


----------------------------------------------------------------------
Supplementary Quarterly Financial Information
(unaudited)

----------------------------------------------------------------------
Quarters ended May 31, February 29 / 28,
2008(1) 2007(1) 2008(1) 2007(1)
($000, except percentages
and per share data)
$ $ $ $
----------------------------------------------------------------------
Revenue 274,944 240,612 265,102 231,952
Operating income before
amortization 117,490 97,874 108,481 86,791
Operating margin 42.7% 40.7% 40.9% 37.4%
Amortization 58,209 47,278 55,989 43,572
Financial expense 17,372 21,273 16,959 23,551
Income taxes 10,767 8,942 (14,378) 4,261
Net income 31,142 20,381 49,911 15,407

Cash flow from operations 95,829 76,416 85,273 62,264

Earnings per share
Basic 0.64 0.45 1.03 0.37
Diluted 0.64 0.45 1.02 0.37
----------------------------------------------------------------------
----------------------------------------------------------------------

----------------------------------------------------------------------
Quarters ended November 30, August 31,
2007(1) 2006(1) 2007(1) 2006(1)
($000, except percentages
and per share data)
$ $ $ $
----------------------------------------------------------------------
Revenue 251,833 222,002 244,314 174,875
Operating income before
amortization 98,337 83,662 102,426 72,864
Operating margin 39.0% 37.7% 41.9% 41.7%
Amortization 52,687 44,309 54,164 34,801
Financial expense 16,912 21,221 18,524 16,374
Income taxes 8,375 5,597 (6,630) (12,298)
Net income 20,363 12,535 36,368 33,987

Cash flow from operations 79,753 62,060 83,825 56,714

Earnings per share
Basic 0.42 0.31 0.79 0.85
Diluted 0.42 0.31 0.78 0.85
----------------------------------------------------------------------
----------------------------------------------------------------------

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


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



COGECO CABLE INC.

Customer Statistics
May 31, August 31,
2008 2007
------------------------------------------------------------------------
------------------------------------------------------------------------

Homes Passed
Ontario(1) 1,023,089 997,498
Quebec 498,863 486,592
------------------------------------------------------------------------
Canada 1,521,952 1,484,090
Portugal 887,476 859,376
------------------------------------------------------------------------
Total 2,409,428 2,343,466
------------------------------------------------------------------------
------------------------------------------------------------------------

Revenue Generating Units
Ontario 1,365,816 1,256,244
Quebec 583,183 532,264
------------------------------------------------------------------------
Canada 1,948,999 1,788,508
Portugal 726,775 697,157
------------------------------------------------------------------------
Total 2,675,774 2,485,665
------------------------------------------------------------------------
------------------------------------------------------------------------

Basic Cable Service Customers
Ontario 600,000 594,889
Quebec 258,570 254,268
------------------------------------------------------------------------
Canada 858,570 849,157
Portugal 300,591 294,003
------------------------------------------------------------------------
Total 1,159,161 1,143,160
------------------------------------------------------------------------
------------------------------------------------------------------------

Discretionnary Service Customers
Ontario 495,082 468,764
Quebec 212,033 204,585
------------------------------------------------------------------------
Canada 707,115 673,349
Portugal - -
------------------------------------------------------------------------
Total 707,115 673,349
------------------------------------------------------------------------
------------------------------------------------------------------------

Pay TV Service Customers
Ontario 98,014 88,835
Quebec 45,540 42,180
------------------------------------------------------------------------
Canada 143,554 131,015
Portugal 57,671 54,723
------------------------------------------------------------------------
Total 201,225 185,738
------------------------------------------------------------------------
------------------------------------------------------------------------

High Speed Internet Service Customers
Ontario 349,274 316,363
Quebec 115,394 99,473
------------------------------------------------------------------------
Canada 464,668 415,836
Portugal 164,310 160,023
------------------------------------------------------------------------
Total 628,978 575,859
------------------------------------------------------------------------
------------------------------------------------------------------------

Digital Television Service Customers
Ontario 277,274 246,267
Quebec 148,322 133,612
------------------------------------------------------------------------
Canada 425,596 379,879
Portugal 14,470 -
------------------------------------------------------------------------
Total 440,066 379,879
------------------------------------------------------------------------
------------------------------------------------------------------------

Telephony Service Customers
Ontario 139,268 98,725
Quebec 60,897 44,911
------------------------------------------------------------------------
Canada 200,165 143,636
Portugal 247,404 243,131
------------------------------------------------------------------------
Total 447,569 386,767
------------------------------------------------------------------------
------------------------------------------------------------------------

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


COGECO CABLE INC.

CONSOLIDATED STATEMENTS OF INCOME

-----------------------------------------------------------------------
-----------------------------------------------------------------------
(In thousands of Three months ended Nine months ended
dollars, except per May 31, May 31,
share data) 2008 2007 2008 2007
$ $ $ $
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Revenue
Service 273,736 239,862 786,820 691,846
Equipment 1,208 750 5,059 2,720
-----------------------------------------------------------------------
274,944 240,612 791,879 694,566

Operating costs 157,454 142,738 458,857 417,671
Management fees -
COGECO Inc. - - 8,714 8,568
-----------------------------------------------------------------------

Operating income before
amortization 117,490 97,874 324,308 268,327
Amortization (note 4) 58,209 47,278 166,885 135,159
-----------------------------------------------------------------------

Operating income 59,281 50,596 157,423 133,168
Financial expense (note 5) 17,372 21,273 51,243 66,045
-----------------------------------------------------------------------

Income before income taxes 41,909 29,323 106,180 67,123
Income taxes (note 6) 10,767 8,942 4,764 18,800
-----------------------------------------------------------------------

Net income 31,142 20,381 101,416 48,323
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Earnings per share (note 7)
Basic 0.64 0.45 2.09 1.14
Diluted 0.64 0.45 2.08 1.13
-----------------------------------------------------------------------
-----------------------------------------------------------------------



COGECO CABLE INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

-----------------------------------------------------------------------
-----------------------------------------------------------------------
Three months ended May 31, Nine months ended May 31,
(In thousands of 2008 2007 2008 2007
dollars) $ $ $ $
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Net income 31,142 20,381 101,416 48,323

Other comprehensive
income

Unrealized gains
(losses) on
derivative
financial
instruments
designated as
cash flow hedges,
net of income
taxes expense
of $279,000 and
income taxes
recovery of
$908,000 1,272 - (6,879) -

Reclassification
of realized
losses (gains)
to net income
on derivative
financial
instruments
designated as
cash flow
hedges, net of
income taxes
recovery of
$199,000 and
income taxes
expense of
$1,465,000 (1,091) - 8,015 -

Unrealized gains
(losses) on
translation of
net investments
in self-sustaining
foreign
subsidiaries 23,042 (47,474) 47,432 9,584

Unrealized gains
(losses) on
translation of
long-term debts
designated as
hedge of net
investments in
self-sustaining
foreign
subsidiaries (net
of income taxes
recovery of
$1,703,000 in
2007) (16,019) 32,813 (31,282) (8,357)
-----------------------------------------------------------------------
7,204 (14,661) 17,286 1,227
-----------------------------------------------------------------------
Comprehensive
income 38,346 5,720 118,702 49,550
-----------------------------------------------------------------------
-----------------------------------------------------------------------



COGECO CABLE INC.

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

-----------------------------------------------------------------------
-----------------------------------------------------------------------
Nine months ended May 31,
(In thousands of dollars) 2008 2007
$ $
-----------------------------------------------------------------------
(unaudited) (unaudited)

Balance at beginning, as reported 181,952 117,760

Changes in accounting policies (note 1) 1,307 -
-----------------------------------------------------------------------
Balance at beginning, as restated 183,259 117,760

Net income 101,416 48,323

Subordinate voting shares issue costs, net of
related income taxes of $2,560,000 - (5,729)

Dividends on multiple voting shares (4,707) (2,510)

Dividends on subordinate voting shares (9,834) (4,210)
-----------------------------------------------------------------------

Balance at end 270,134 153,634
-----------------------------------------------------------------------
-----------------------------------------------------------------------



COGECO CABLE INC.

CONSOLIDATED BALANCE SHEETS

-----------------------------------------------------------------------
-----------------------------------------------------------------------
May 31, 2008 August 31, 2007
(In thousands of dollars) $ $
-----------------------------------------------------------------------
(unaudited) (audited)

Assets

Current
Cash and cash equivalents 81,487 64,208
Accounts receivable 52,630 46,945
Income taxes receivable 1,186 1,112
Prepaid expenses 6,198 7,606
Future income tax assets 8,145 17,986
-----------------------------------------------------------------------
149,646 137,857
-----------------------------------------------------------------------

Income taxes receivable 1,444 1,345
Fixed assets 1,174,975 1,119,498
Deferred charges 56,393 54,645
Intangible assets (note 8) 1,057,287 1,058,410
Goodwill (note 8) 367,772 342,584
-----------------------------------------------------------------------
2,807,517 2,714,339
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Liabilities and Shareholders' equity

Liabilities

Current
Accounts payable and accrued liabilities 194,385 210,496
Income tax liabilities 15,186 953
Deferred and prepaid income 28,471 29,837
Derivative financial instruments 91,285 -
Current portion of long-term debt (note 9) 166,252 17,292
-----------------------------------------------------------------------
495,579 258,578
-----------------------------------------------------------------------

Long-term debt (note 9) 778,231 1,010,634
Deferred and prepaid income 11,765 11,501
Pension plan liabilities and accrued
employees benefits 2,561 1,918
Future income tax liabilities 245,622 266,042
-----------------------------------------------------------------------
1,533,758 1,548,673
-----------------------------------------------------------------------

Shareholders' equity
Capital stock (note 10) 988,574 984,405
Contributed surplus - stock-based
compensation 3,106 2,419
Retained earnings 270,134 181,952
Accumulated other comprehensive income
(loss) (note 11) 11,945 (3,110)
-----------------------------------------------------------------------
1,273,759 1,165,666
-----------------------------------------------------------------------
2,807,517 2,714,339
-----------------------------------------------------------------------
-----------------------------------------------------------------------



COGECO CABLE INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

-----------------------------------------------------------------------
-----------------------------------------------------------------------
Three months ended Nine months ended
May 31, May 31,
(In thousands of 2008 2007 2008 2007
dollars) $ $ $ $
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Cash flow from operating
activities
Net income 31,142 20,381 101,416 48,323
Adjustments for:
Amortization (note 4) 58,209 47,278 166,885 135,159
Amortization of deferred
financing costs 730 532 2,183 1,713
Future income
taxes (note 6) 4,782 7,861 (12,480) 13,535
Stock-based compensation 739 803 1,961 2,036
Loss (gain) on disposal
of fixed assets 152 (130) 391 (169)
Other 75 (309) 499 143
-----------------------------------------------------------------------
95,829 76,416 260,855 200,740
Changes in non-cash
operating
items (note 12a)) 16,970 (23,029) (11,720) (101,545)
-----------------------------------------------------------------------
112,799 53,387 249,135 99,195
-----------------------------------------------------------------------
Cash flow from investing
activities
Acquisition of fixed
assets (note 12b)) (50,907) (51,256) (160,062) (162,993)
Increase in deferred
charges (7,050) (6,000) (20,561) (19,258)
Decrease in restricted
cash - - - 88
Business acquisition and
related adjustments
(note 2) (16,105) 3,279 (16,105) 1,894
Other 48 429 73 468
-----------------------------------------------------------------------
(74,014) (53,548) (196,655) (179,801)
-----------------------------------------------------------------------

Cash flow from financing
activities
Decrease in bank
indebtedness (17,697) - - -
Increase in long-term
debt 99,759 22,861 99,759 22,861
Repayment of long-term
debt (59,317) (36,475) (125,038) (175,947)
Issue of subordinate
voting shares 62 1,434 3,354 198,355
Subordinate voting
shares issue costs - (23) - (8,289)
Dividends on multiple
voting shares (1,569) (941) (4,707) (2,510)
Dividends on subordinate
voting shares (3,281) (1,776) (9,834) (4,210)
-----------------------------------------------------------------------
17,957 (14,920) (36,466) 30,260
-----------------------------------------------------------------------

Effect of exchange rate
changes on cash and cash
equivalents denominated
in foreign currencies 1,063 (1,774) 1,265 1,486
-----------------------------------------------------------------------
Net change in cash and
cash equivalents 57,805 (16,855) 17,279 (48,860)

Cash and cash
equivalents at beginning 23,682 39,511 64,208 71,516
-----------------------------------------------------------------------
Cash and cash
equivalents at end 81,487 22,656 81,487 22,656
-----------------------------------------------------------------------
-----------------------------------------------------------------------

See supplemental cash flow information in note 12.


COGECO CABLE INC.

Notes to Consolidated Financial Statements May 31, 2008

(unaudited)

(amounts in tables are in thousands of dollars, except number of shares and 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 ("GAAP"), contain all adjustments necessary to present fairly the financial position of Cogeco Cable Inc. ("the Corporation") as at May 31, 2008 and August 31, 2007 as well as its results of operations and its cash flow for the three and nine-month periods ended May 31, 2008 and 2007.

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, 2007. These unaudited interim consolidated financial statements follow the same accounting policies as the most recent annual consolidated financial statements, except for the adoption of the new accounting policies on financial instruments described below.

Financial instruments

Effective September 1, 2007, the Corporation adopted the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1530, Comprehensive Income, Section 3855, Financial Instruments - Recognition and Measurement, Section 3861, Financial Instruments - Disclosure and Presentation and Section 3865, Hedges.

Statement of Comprehensive Income

A new statement, entitled Consolidated Statements of Comprehensive Income, was added to the Corporation's consolidated financial statements and includes net income as well as other comprehensive income. Other comprehensive income represents changes in shareholders' equity arising from transactions and events from non-owner sources, such as changes in foreign currency translation adjustments of net investments in self-sustaining foreign subsidiaries and long-term debt designated as a hedge of net investments in self-sustaining foreign subsidiaries and changes in the fair value of effective cash flow hedging instruments.

Recognition and Measurement of Financial Instruments

Under these new standards, all financial assets, including derivatives, must be classified as available for sale, held for trading, held to maturity, or loans and receivables. All financial liabilities, including derivatives, must be classified as held for trading or other liabilities. All financial instruments classified as available for sale or held for trading are recognized at fair value on the consolidated balance sheet while financial instruments classified as loans and receivables or other liabilities will continue to be measured at amortized cost using the effective interest rate method. The standards allow the Corporation to designate certain financial instruments, on initial recognition, as held for trading.

All of the Corporation's financial assets are classified as held for trading or loans and receivables. The Corporation has classified its cash and cash equivalents as held for trading. Accounts receivable has been classified as loans and receivables. All of the Corporation's financial liabilities were classified as other liabilities, except for the cross-currency swaps, which were classified as held for trading. Held for trading assets and liabilities are carried at fair value on the consolidated balance sheet, with changes in fair value recorded in the consolidated statements of income, except for the changes in fair value of the cross-currency swaps, which are designated as cash flow hedges of the Senior Secured Notes Series A and are recorded in other comprehensive income. Loans and receivables and all financial liabilities are carried at amortized cost using the effective interest method. Upon adoption, the Corporation determined that none of its financial assets are classified as available for sale or held to maturity. Except for the treatment of transaction costs and derivative financial instruments mentioned below, the provisions of the new accounting standards had no impact on the consolidated financial statements on September 1, 2007 and May 31, 2008.

Transaction costs

Effective September 1, 2007, transaction costs are capitalized on initial recognition and presented as a reduction of the related financing, except for transaction costs on the revolving loan and the swingline facility, which are presented as deferred charges. These costs are amortized over the term of the related financing using the effective interest rate method, except for transaction costs on the revolving loan and the swingline facility, which are amortized over the term of the related financing on a straight-line basis. Previously, all transaction costs were capitalized and amortized on a straight-line basis over the term of the related financing, over a period not exceeding five years. The impact of these adjustments reduced deferred charges by $1.2 million, reduced long-term debt by $3.1 million, increased future income tax liabilities by $0.6 million and increased retained earnings by $1.3 million.

Cash flow hedge

All derivatives are measured at fair value with changes in fair value recorded in the consolidated statements of income unless they are effective cash flow hedging instruments. The changes in fair value of cash flow hedging derivatives are recorded in other comprehensive income, to the extent effective, until the variability of cash flows relating to the hedged asset or liability is recognized in the consolidated statements of income. Any hedge ineffectiveness is recognized in the consolidated statements of income immediately. Accordingly, the Corporation's cross-currency swaps must be measured at fair value in the consolidated financial statements. Since these cross-currency swaps are used to hedge cash flows on Senior Secured Notes Series A denominated in U.S. dollars, the changes in fair value are recorded in other comprehensive income. The impact of measuring the cross-currency swaps at fair value on the interim consolidated financial statements on September 1, 2007, increased derivative financial instrument liabilities by $83.5 million, decreased deferred credit presented in long-term debt by $80.2 million, decreased future income tax liabilities by $1.1 million and decreased opening accumulated other comprehensive income by $2.2 million. The impact of measuring the cross-currency swaps at fair value on the interim consolidated financial statements for the three-month period ended May 31, 2008 decreased derivative financial instrument liabilities by $1.6 million, increased future income tax liabilities by $0.1 million and increased accumulated other comprehensive income by $0.2 million. The impact of measuring the cross-currency swaps at fair value on the interim consolidated financial statements for the nine-month period ended May 31, 2008 increased derivative financial instrument liabilities by $7.8 million, decreased future income tax liabilities by $0.6 million and increased accumulated other comprehensive income by $1.1 million.

Net investment hedge

Financial statements of self-sustaining foreign subsidiaries are translated using the rate in effect at the balance sheet date for asset and liability items, and using the average exchange rates during the period for revenue and expenses. Adjustments arising from this translation are deferred and recorded as foreign currency translation adjustments in accumulated other comprehensive income and are included in income only when a reduction in the investment in these foreign subsidiaries is realized. Unrealized foreign exchange gains and losses on long-term debt denominated in foreign currency, that is designated as a hedge of net investments in self-sustaining foreign subsidiaries are recorded as foreign currency translation adjustments in accumulated other comprehensive income, net of income taxes. As a result, an amount of $3.1 million was reclassified as at August 31, 2007 from the foreign currency translation adjustment to the accumulated other comprehensive income and the Corporation's comparative financial statements were restated in accordance with transitional provisions.

Embedded derivatives

All embedded derivatives that are not closely related to the host contracts are measured at fair value, with changes in fair value recorded in the consolidated statements of income. On September 1, 2007 and as at May 31, 2008, there are no significant embedded derivatives or non-financial derivatives that require separate fair value recognition on the consolidated balance sheet. In accordance with the new standards, the Corporation selected September 1, 2002, as its transition date for adopting the standard related to embedded derivatives.

Upcoming standards

In 2006, the CICA issued Handbook Section 3862, Financial Instruments - Disclosures, and Section 3863, Financial Instruments - Presentation. These Sections are to be applied to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007. The Corporation is currently evaluating the impact of these new standards.

Accounting changes

In July 2006, the CICA issued Section 1506, Accounting Changes, which modifies certain aspects of the previous standard. A reporting entity may not change its accounting method unless required by primary source of GAAP or to provide a more reliable and relevant presentation of the financial statements. In addition, changes in accounting methods must be applied retroactively and additional information must be disclosed. This Section applies to interim and annual financial statements relating to fiscal years beginning on or after January 1, 2007. During the first quarter, the Corporation adopted this new standard and concluded that it had no significant impact on these consolidated financial statements.

Future accounting pronouncements

Goodwill and intangible assets

In February 2008, the CICA issued Section 3064, Goodwill and intangible assets, replacing Section 3062, Goodwill and other intangible assets and Section 3450, Research and development costs. The new Section establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062. The new Section will be applicable to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2008. The Corporation is currently evaluating the impact of the adoption of this new Section on its consolidated financial statements.

2. Business acquisition

Acquisition of MaXess Networx®

On March 31, 2008, the Corporation completed the acquisition of all the assets of MaXess Networx®, ENWIN Energy Ltd.'s telecommunications division (City of Windsor's energy company) for a total consideration of $15.6 million. MaXess Networx® operates a broadband network equipped with next generation ATM and Ethernet technology and provides organizations in south-western Ontario with the broadband capacity required for data networking, high-speed Internet access, e-business applications, video conferencing and other advanced communications.

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



The allocation of the purchase price of the acquisition is as follow:

$
-----------------------------------------------------------------------
(unaudited)

Consideration paid
Assets purchase price 15,555
Acquisition costs 550
-----------------------------------------------------------------------
16,105
-----------------------------------------------------------------------

Net assets acquired
Accounts receivable 276
Prepaid expenses 511
Fixed assets 13,794
Customer relationships 1,890
Accounts payable and accrued liabilities assumed (350)
Deferred and prepaid income (16)
-----------------------------------------------------------------------
16,105
-----------------------------------------------------------------------


3. Segmented Information

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

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



-------------------------------------------------------------------------
-------------------------------------------------------------------------
Canada Europe
-------------------------------------------------------------------------
Three months ended May 31,
(unaudited) 2008 2007 2008 2007
$ $ $ $
-------------------------------------------------------------------------
Revenue 210,928 182,763 64,016 57,849
Operating costs 117,580 103,778 39,874 38,960
Operating income before
amortization 93,348 78,985 24,142 18,889
Amortization 38,219 33,624 19,990 13,654
Operating income 55,129 45,361 4,152 5,235
Financial expense (revenue) 17,493 19,191 (121) 2,082
Income taxes 12,157 8,629 (1,390) 313
Net income 25,479 17,541 5,663 2,840
-------------------------------------------------------------------------
Net assets employed(1)(2) 1,806,367 1,744,616 685,042 653,681
Total assets(2) 2,009,214 1,955,218 798,303 759,121
Fixed assets(2) 855,634 811,982 319,341 307,516
Goodwill(2) - - 367,772 342,584
Acquisition of fixed assets 39,572 43,237 12,306 8,580
-------------------------------------------------------------------------
-------------------------------------------------------------------------

-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated
-------------------------------------------------------------------------
Three months ended May 31,
(unaudited) 2008 2007
$ $
-------------------------------------------------------------------------
Revenue 274,944 240,612
Operating costs 157,454 142,738
Operating income before amortization 117,490 97,874
Amortization 58,209 47,278
Operating income 59,281 50,596
Financial expense (revenue) 17,372 21,273
Income taxes 10,767 8,942
Net income 31,142 20,381
-------------------------------------------------------------------------
Net assets employed(1)(2) 2,491,409 2,398,297
Total assets(2) 2,807,517 2,714,339
Fixed assets(2) 1,174,975 1,119,498
Goodwill(2) 367,772 342,584
Acquisition of fixed assets 51,878 51,817
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

(2) As at May 31, 2008 and August 31, 2007.

-------------------------------------------------------------------------
-------------------------------------------------------------------------
Canada Europe
-------------------------------------------------------------------------
Nine months ended May 31,
(unaudited) 2008 2007 2008 2007
$ $ $ $
-------------------------------------------------------------------------
Revenue 612,337 525,620 179,542 168,946
Operating costs 342,949 305,733 115,908 111,938
Management fees - COGECO Inc. 8,714 8,568 - -
Operating income before
amortization 260,674 211,319 63,634 57,008
Amortization 110,990 96,391 55,895 38,768
Operating income 149,684 114,928 7,739 18,240
Financial expense (revenue) 51,327 64,256 (84) 1,789
Income taxes 8,341 16,086 (3,577) 2,714
Net income 90,016 34,586 11,400 13,737
-------------------------------------------------------------------------
Net assets employed(1)(2) 1,806,367 1,744,616 685,042 653,681
Total assets(2) 2,009,214 1,955,218 798,303 759,121
Fixed assets(2) 855,634 811,982 319,341 307,516
Goodwill(2) - - 367,772 342,584
Acquisition of fixed assets 125,042 136,815 37,437 28,971
-------------------------------------------------------------------------
-------------------------------------------------------------------------

-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated
-------------------------------------------------------------------------
Nine months ended May 31,
(unaudited) 2008 2007
$ $
-------------------------------------------------------------------------
Revenue 791,879 694,566
Operating costs 458,857 417,671
Management fees - COGECO Inc. 8,714 8,568
Operating income before amortization 324,308 268,327
Amortization 166,885 135,159
Operating income 157,423 133,168
Financial expense (revenue) 51,243 66,045
Income taxes 4,764 18,800
Net income 101,416 48,323
-------------------------------------------------------------------------
Net assets employed(1)(2) 2,491,409 2,398,297
Total assets(2) 2,807,517 2,714,339
Fixed assets(2) 1,174,975 1,119,498
Goodwill(2) 367,772 342,584
Acquisition of fixed assets 162,479 165,786
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

(2) As at May 31, 2008 and August 31, 2007.


4. Amortization

-----------------------------------------------------------------------
-----------------------------------------------------------------------
Three months ended May 31, Nine months ended May 31,
2008 2007 2008 2007
$ $ $ $
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Fixed assets 49,953 42,268 142,646 120,026
Deferred charges 5,481 5,010 16,473 15,133
Intangible assets 2,775 - 7,766 -
-----------------------------------------------------------------------
58,209 47,278 166,885 135,159
-----------------------------------------------------------------------
-----------------------------------------------------------------------


5. Financial expense

------------------------------------------------------------------------
------------------------------------------------------------------------
Three months ended May 31, Nine months ended May 31,
2008 2007 2008 2007
$ $ $ $
------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Interest on
long-term debt 17,455 17,944 50,534 60,523
Amortization of
deferred financing
costs 408 532 1,222 1,713
Other (491) 2,797 (513) 3,809
------------------------------------------------------------------------
17,372 21,273 51,243 66,045
------------------------------------------------------------------------
------------------------------------------------------------------------


6. Income Taxes

-----------------------------------------------------------------------
-----------------------------------------------------------------------
Three months ended May 31, Nine months ended May 31,
2008 2007 2008 2007
$ $ $ $
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Current 5,985 1,081 17,244 5,265
Future 4,782 7,861 (12,480) 13,535
-----------------------------------------------------------------------
10,767 8,942 4,764 18,800
-----------------------------------------------------------------------
-----------------------------------------------------------------------

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

-----------------------------------------------------------------------
-----------------------------------------------------------------------
Three months ended May 31, Nine months ended May 31,
2008 2007 2008 2007
$ $ $ $
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Income before
income taxes 41,909 29,323 106,180 67,123
Combined income
tax rate 33.51% 34.96% 33.51% 34.96%
Income taxes at
combined income
tax rate 14,044 10,251 35,581 23,466
Loss or income
subject to lower
or higher tax
rates (1,006) (707) (1,688) (473)
Decrease in
future income
taxes as a result
of decreases
in substantively
enacted tax rates - - (24,002) -
Income taxes
arising from
non-deductible
expenses 292 193 585 523
Effect of foreign
income tax rate
differences (2,821) (788) (6,198) (3,037)
Benefit related
to prior years'
minimum income
taxes paid - - - (1,475)
Other 258 (7) 486 (204)
-----------------------------------------------------------------------
Income taxes at
effective income
tax rate 10,767 8,942 4,764 18,800
-----------------------------------------------------------------------
-----------------------------------------------------------------------


7. Earnings per Share

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

------------------------------------------------------------------------
------------------------------------------------------------------------
Three months ended May 31, Nine months ended May 31,
2008 2007 2008 2007
$ $ $ $
------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Net income 31,142 20,381 101,416 48,323

Weighted average
number of multiple
voting and
subordinate
voting shares
outstanding 48,502,621 45,254,307 48,460,946 42,290,852

Effect of dilutive
stock options(1) 247,271 405,175 294,950 323,832
------------------------------------------------------------------------

Weighted average
number of diluted
multiple voting
and subordinate
voting shares
outstanding 48,749,892 45,659,482 48,755,896 42,614,684
------------------------------------------------------------------------

Earnings per share
Basic 0.64 0.45 2.09 1.14
Diluted 0.64 0.45 2.08 1.13
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) For the three and nine-month periods ended May 31, 2008, 114,879 and
103,963 stock options (713 and 47,845 in 2007) 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.


8. Goodwill and Other Intangible Assets

---------------------------------------------------------------------
---------------------------------------------------------------------
May 31, 2008 August 31, 2007
$ $
---------------------------------------------------------------------
(unaudited) (audited)

Customer relationships 67,735 68,858
Customer base 989,552 989,552
---------------------------------------------------------------------
1,057,287 1,058,410
Goodwill 367,772 342,584
---------------------------------------------------------------------
1,425,059 1,400,994
---------------------------------------------------------------------
---------------------------------------------------------------------


a) Intangible assets

During the first nine months, intangible assets variations were as follows:

-----------------------------------------------------------------------
-----------------------------------------------------------------------
Customer Customer
relationships base Total
$ $ $
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)

Balance as at August 31, 2007 68,858 989,552 1,058,410

Business acquisition (note 2) 1,890 - 1,890

Amortization (7,766) - (7,766)

Foreign currency translation
adjustment 4,753 - 4,753
-----------------------------------------------------------------------
Balance as at May 31, 2008 67,735 989,552 1,057,287
-----------------------------------------------------------------------
-----------------------------------------------------------------------


b) Goodwill

During the first nine months, goodwill variation was as follows:

-----------------------------------------------------------------------
-----------------------------------------------------------------------
$
-----------------------------------------------------------------------
(unaudited)

Balance as at August 31, 2007 342,584

Foreign currency translation
adjustment 25,188
-----------------------------------------------------------------------
Balance as at May 31, 2008 367,772
-----------------------------------------------------------------------
-----------------------------------------------------------------------


9. Long-Term Debt

-------------------------------------------------------------------------
-------------------------------------------------------------------------
Maturity Interest rate May 31, 2008 August 31, 2007
% $ $
-------------------------------------------------------------------------
(unaudited) (audited)

Parent company
Term Facility
Term loan -
EUR 104,551,500 2011 5.56(1) 160,631 150,450
Term loan -
EUR 17,358,700 2011 5.06(1) 26,638 24,979
Revolving loan -
EUR 115,500,000
(EUR 196,725,000
as at August 31,
2007) 2011 5.19(1) 178,424 283,087
Senior Secured
Debentures
Series 1 2009 6.75 149,753 150,000
Senior - Secured
Notes
Series A - US$150
million 2008 6.83(2) 148,782 158,430
Series B 2011 7.73 174,291 175,000
Senior Unsecured
Debenture(3) 2018 5.94 99,759 -
Deferred credit(4) 2008 - - 80,220

Subsidiaries
Obligations under
capital leases 2012 6.42 - 8.30 6,205 5,760
-------------------------------------------------------------------------
944,483 1,027,926

Less current
portion 166,252 17,292
-------------------------------------------------------------------------
778,231 1,010,634
-------------------------------------------------------------------------
-------------------------------------------------------------------------


(1) Average interest rate on debt as at May 31, 2008, 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) On January 8, 2008, the Corporation and the Solidarity Fund QFL entered
into an agreement to issue a $100 million senior unsecured debenture by
way of a private placement, subject to usual market conditions. The
debenture is redeemable at the Corporation's option at any time, in
whole or in part, prior to maturity, at 100% of the principal amount
plus a make-whole premium.

(4) The deferred credit represents the amount that was deferred for hedge
accounting purposes as at August 31, 2007 under cross-currency swaps
entered into by the Corporation to hedge Senior Secured Notes Series A
denominated in U.S. dollars. In accordance with the standards on
financial instruments, the Corporation's cross-currency swaps are now
presented as derivative financial instrument liabilities (see note 1).


10. 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.



--------------------------------------------------------------------------
--------------------------------------------------------------------------
May 31, 2008 August 31,2007
$ $
--------------------------------------------------------------------------
(unaudited) (audited)
Issued

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

32,813,371 subordinate voting shares
(32,663,587 as at August 31, 2007) 890,228 886,059
--------------------------------------------------------------------------
988,574 984,405
--------------------------------------------------------------------------
--------------------------------------------------------------------------


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

------------------------------------------------------------------------
------------------------------------------------------------------------
Nine months ended Twelve months ended
May 31, 2008 August 31, 2007
------------------------------------------------------------------------
Number of Amount Number of Amount
shares $ shares $
------------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Balance at
beginning 32,663,587 886,059 24,308,112 532,112

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

Shares issued for
cash under the
Employee Stock
Purchase Plan and
the Stock Option
Plan 149,784 3,354 355,475 7,014

Compensation expense
previously
recorded in
contributed surplus
for options exercised - 815 - 983
------------------------------------------------------------------------
Balance at end 32,813,371 890,228 32,663,587 886,059

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


Stock-based plans

The Corporation offers, for the benefit of its employees and those of its subsidiaries, an Employee Stock Purchase Plan and a Stock Option Plan for certain executives, which are described in the Corporation's annual consolidated financial statements. During the first nine months, the Corporation granted 113,084 stock options (201,587 in 2007) with an exercise price of $41.45 to $49.82 ($26.63 to $44.54 in 2007) of which 22,683 stock options (57,247 in 2007) were granted to COGECO Inc.'s employees. In 2007, the Corporation also granted 376,000 conditional stock options with an exercise price of $26.63, of which 262,400 stock options were granted to COGECO Inc.'s employees. These conditional options vest over a period of three years beginning one year after the day such options are granted and are exercisable over ten years. The vesting of these options is conditional to the achievement of certain yearly financial objectives by the Portuguese subsidiary, Cabovisao - Televisao por Cabo, S.A., over a period of three years. During the three and nine-month periods ended May 31, 2008, the Corporation charged an amount of $99,000 and $280,000 with regards to the Corporation's options granted to Cogeco Inc.'s employees. The Corporation records compensation expense for options granted on or after September 1, 2003. As a result, a compensation expense of $496,000 and $1,222,000 ($538,000 and $1,439,000 in 2007) was recorded for the three and nine-month periods ended May 31, 2008.

The fair value of stock options granted for the nine-month period ended May 31, 2008 was $12.59 ($7.39 in 2007) per option. The fair value of each option granted was estimated at the grant date for purposes of determining the stock-based compensation expense using the binomial option pricing model based on the following assumptions:



----------------------------------------------------------------------
----------------------------------------------------------------------
2008 2007
% %
----------------------------------------------------------------------
(unaudited) (audited)

Expected dividend yield 0.90 1.27

Expected volatility 27 32

Risk-free interest rate 4.25 4.05

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


As at May 31, 2008, the Corporation had outstanding stock options providing for the subscription of 862,237 subordinate voting shares. These stock options, which include 250,667 conditional stock options, can be exercised at various prices ranging from $7.05 to $49.82 and at various dates up to May 17, 2018.

The Corporation also had a Performance Unit Plan for key employees, which was terminated in June 2007. A compensation expense of $265,000 and $597,000 was recorded for the three and nine-month periods ended May 31, 2007 related to this plan.

In April 2007, the Corporation established a deferred share unit plan ("DSU Plan") which is described in the Corporation's annual consolidated financial statements. During the first nine months, the Corporation awarded 3,559 deferred share units to the participants in connection with the DSU Plan. A compensation expense of $144,000 was recorded for the three and nine month periods ended May 31, 2008 related to this plan.



11. Accumulated Other Comprehensive Income (Loss)

------------------------------------------------------------------------
------------------------------------------------------------------------
Translation of net
investments in self-
sustaining foreign
subsidiaries Cash flow hedges Total
$ $ $
------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)

Balance as at August
31, 2007 (3,110) - (3,110)

Cumulative effect of
changes in accounting
policy (note 1) - (2,231) (2,231)

Other comprehensive
income 16,150 1,136 17,286
------------------------------------------------------------------------
Balance as at May 31,
2008 13,040 (1,095) 11,945
------------------------------------------------------------------------
------------------------------------------------------------------------


12. Statements of Cash Flow

a) Changes in non-cash operating items

-----------------------------------------------------------------------
-----------------------------------------------------------------------
Three months ended May 31, Nine months ended May 31,
2008 2007 2008 2007
$ $ $ $
------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Accounts
receivable (174) 4,665 (4,594) (4,374)

Income taxes
receivable 32 1,679 4 (2,586)

Prepaid expenses 1,209 (993) 1,778 (586)

Accounts payable
and accrued
liabilities 10,133 (28,876) (22,366) (97,382)

Income tax
liabilities 5,511 2 14,352 349

Deferred and
prepaid income 259 494 (894) 3,034
-----------------------------------------------------------------------
16,970 (23,029) (11,720) (101,545)
-----------------------------------------------------------------------
-----------------------------------------------------------------------


b) Other information

-----------------------------------------------------------------------
-----------------------------------------------------------------------
Three months ended May 31, Nine months ended May 31,
2008 2007 2008 2007
$ $ $ $
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Fixed asset
acquisitions
through capital
leases 971 561 2,417 2,793

Financial expense
paid 20,215 25,098 52,099 69,082

Income taxes paid
(received) 524 (681) 2,997 6,983
-----------------------------------------------------------------------
-----------------------------------------------------------------------


13. Employee Future Benefits

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



-----------------------------------------------------------------------
-----------------------------------------------------------------------
Three months ended May 31, Nine months ended May 31,
2008 2007 2008 2007
$ $ $ $
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Contributory
defined benefit
pension plans 283 230 847 690

Defined
contribution
pension plan and
collective
registered
retirement
savings plan 767 678 2,206 1,703
-----------------------------------------------------------------------
1,050 908 3,053 2,393
-----------------------------------------------------------------------
-----------------------------------------------------------------------


14. Contingent liability

The Canadian Radio-television and Telecommunications Commission ("CRTC") collects two different types of fees from broadcast licensees. These are known as Part I and Part II fees. In 2003 and 2004, lawsuits were commenced in the Federal Court, alleging that the Part II licence fees are taxes rather than fees and that the regulations authorizing them are unlawful. On December 14, 2006, the Federal Court ruled that the CRTC did not have the jurisdiction to charge Part II fees. The Court ruled that licensees were not entitled to a refund of past fees paid. Both the Crown and the applicants have appealed this case to the Federal Court of Appeal. The applicants are seeking an order requiring a refund of past fees paid. The Crown is seeking to reverse the finding that Part II fees are unlawful. On October 1st, 2007, the CRTC sent a letter to all broadcast licensees, including Cogeco Cable Inc. The letter stated that the CRTC will not collect Part II license fees due on November 30, 2007, and subsequent years, unless the Federal Court of appeal or the Supreme Court of Canada (should the case be appealed to that level) reverses the Federal Court's decision. The Appeal hearing was held on December 4th and 5th, 2007 in Ottawa and a decision was rendered on April 28, 2008 in favour of the Crown, to the effect that the fees are valid regulatory charges. On June 26 and 27, 2008, the Plaintiffs filed applications for leave to appeal to the Supreme Court of Canada. The Defendant must respond to these applications within 60 days. The Corporation have accrued the full amount with respect to these fees for fiscal year 2007 and the first nine months of fiscal 2008.

15. Subsequent events

Acquisition of FibreWired Burlington Hydro Communications

On May 1, 2008, the Corporation announced the acquisition of all the assets of FibreWired Burlington Hydro Communications, Burlington Hydro Electric's telecommunications division (City of Burlington's energy company) for a total purchase price of $12.5 million. FibreWired Burlington Hydro Communications operates a broadband network equipped with next generation ATM and Ethernet technology. This enables FibreWired Burlington Hydro Communications to provide organizations in Burlington with the broadband capacity required for data networking, high-speed Internet access, e-business applications, video conferencing and other advanced communications. The Corporation, which also offers broadband services to organizations in Burlington, will use this network to expand its service offering in the area. FibreWired Burlington Hydro Communications customers will also benefit from the Corporation's suite of business products and gain access to the Corporation's extensive fibre network spanning Ontario and Quebec. The acquisition was completed on June 30, 2008.

Acquisition of Toronto Hydro Telecom Inc.

On June 13, 2008 the Corporation announced the acquisition of all of the shares of Toronto Hydro Telecom Inc. ("THTI"), the telecommunications subsidiary of Toronto Hydro Corporation (City of Toronto's energy company) for a total purchase price of $200 million, subject to certain conditions, including regulatory approval by the Commissioner of Competition. In addition, the Corporation will assume a working capital deficiency and liabilities of approximately $4 million. THTI offers data communications and other telecommunications services such as Ethernet, private line, Voice-over-Internet protocol ("VoIP"), high-speed Internet access, dark fibre, data storage, data security and co-location to a wide range of business customers and organizations throughout the Greater Toronto Area ("GTA"). This agreement will allow the Corporation to further the development of its business telecommunications activities.

16. Comparative figures

Certain comparative figures have been reclassified to conform to the current year's presentation.

Contact Information

  • Source: Cogeco Cable Inc.
    Pierre Gagne
    Vice President, Finance and Chief Financial Officer
    514-764-4700
    or
    Information:
    Media
    Marie Carrier
    Director, Corporate Communications
    514-764-4700