COGECO Inc.
TSX : CGO

COGECO Inc.

April 11, 2007 17:05 ET

Steadily Increasing Results at COGECO

MONTREAL, QUEBEC--(CCNMatthews - April 11, 2007) - Today, COGECO Inc. (TSX:CGO) announced its financial results for the second quarter ended February 28, 2007.

In the second quarter of fiscal year 2007, COGECO's results showed substantial growth, thanks to the cable sector. On a consolidated basis, revenue increased by 47.2% standing at $261.1 million, operating income before amortization increased by 44.8%, reaching $83.7 million, and net income, excluding the gain on dilution attributable to the issuance of shares by the cable subsidiary, increased by 32.7% compared to the same period last year. The cable subsidiary continued to add revenue generating units (RGUs) and improved its overall financial results. The media sector is still committed to gain market share and its results for the first six months were essentially stable.

Cable sector

Cogeco Cable has continued to exceed its last financial projections during the second quarter. RGUs grew by 84,399, compared to 55,109 for the same period last year. For the Canadian operations, RGUs increased by 64,133 compared to 55,109 for the same period last year, an increase of 16%. For the Portuguese operations, with net additions of 20,266 RGUs, the total now stands at 670,571.

Cogeco Cable's revenue has increased by 57%, standing at $232 million and operating income before amortization by 45.7%, reaching $86.8 million.

"We are exceeding our projections of last January. All our operating units are well positioned to provide a premium customer service and a very competitive offering. We are very pleased with the progression we are experiencing, thanks to our Portuguese subsidiary and the improvement in the penetration of all of our services including our Digital Telephony in Canada," said Mr. Louis Audet, President and CEO of COGECO.

Media Sector

"RYTHME FM revenue echoes our position in the markets. TQS continues to invest in programming to recapture market share and to counteract the difficult market conditions that continue to prevail for generalist televisions. Furthermore the sector was impacted by the warm weather of the first half of the second quarter which had an incidence on the advertising enthusiasm in these markets," added Mr. Audet.

Improved 2007 financial projections

The second quarter results lead the Company to adjust upwardly its financial projections for fiscal 2007. Consolidated revenue should reach between $1,075 million and $1,080 million, operating income before amortization should increase to $365 million and net income should increase to approximately $50 million.

Cogeco Cable has recently implemented rate increases in Canada and in Portugal. In addition, debt reduction from the issuance in early February of subordinate voting shares will diminish financial expense. The combination of these factors will improve Cogeco Cable revenue, operating income before amortization and net income. For fiscal 2007, Cogeco Cable's consolidated revenue should reach $945 million, operating income before amortization should reach approximately $365 million, while the operating margin should increase to about 39%. For the media sector, management maintains its initial 2007 financial projections.

"COGECO will exceed its original goals for fiscal 2007. Our cable subsidiary revised its guidelines to reflect its ability to deliver good results and our media sector is maintaining its pace to fulfill its objectives," concluded Mr. Audet.

FINANCIAL HIGHLIGHTS



Quarters ended February 28,
($000s, except percentages and (unaudited)
per share data) %
2007 2006 Change
---------------------------------------------------------------------
Revenue $261,120 $177,359 47.2

Operating income before amortization 83,669 57,765 44.8

Net income 34,546 2,679 -

Cash flow from operations (1) 59,266 41,644 42.3
Less:
Capital expenditures and increase
in deferred charges 53,386 40,316 32.4
---------------------------------------------------------------------
Free cash flow (1) 5,880 1,328 -

Per share data
Basic net income 2.08 0.16 -


Six months ended February 28,
($000s, except percentages and (unaudited)
per share data) %
2007 2006 Change
---------------------------------------------------------------------
Revenue $524,412 $357,837 46.6

Operating income before amortization 172,036 118,358 45.4

Net income 41,297 7,272 -

Cash flow from operations (1) 125,301 88,486 41.6
Less:
Capital expenditures and increase
in deferred charges 128,001 74,359 72.1
---------------------------------------------------------------------
Free cash flow (1) (2,700) 14,127 -

Per share data
Basic net income 2.49 0.44 -

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


FORWARD-LOOKING STATEMENT

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

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

MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)

CORPORATE STRATEGIES AND OBJECTIVES

COGECO's objectives are to maximize shareholder value by increasing profitability and by ensuring continued growth. The strategies for reaching those objectives are, for the cable sector, constant corporate growth through the diversification and improvement of products and services as well as clientele and territories, effective management of capital and tight cost control. The media sector focuses on continuous improvement of its programming to increase its market share, and therefore, its profitability. The Company measures its performance with regard to these objectives with operating income before amortization growth, free cash flow(1) and RGU(2) growth for the cable sector. Below are the first semester achievements of the cable and media sectors in furtherance of COGECO's objectives.

Tight control over costs, business processes

- During the second quarter and the first six months of fiscal 2007, the Company's operating costs increased by 48.4% and 47.1 %, respectively, over the same period last year, essentially in line with revenue growth;

- The design of internal controls over financial reporting as per National Instrument 52-109 is still underway. As discussed in the 2006 annual MD&A, the Company had identified certain material weaknesses in the design of internal controls over financial reporting. During the first quarter of fiscal 2007, the employees of the media sector have received the corporate Code of Ethics. Other than this remediation, there have been no changes to the identified material weaknesses since August 31, 2006. The documentation and remediation of internal controls are progressing.



Cable sector

Sustained corporate growth
Canadian operations
- Digital Television services:
- Addition to Cogeco On Demand of "Academie de hockey McDonald" in
Quebec;
- Signature of an agreement with Twentieth Century Fox Film
Corporation for the VOD offering;
- Addition of three HD channels to the HD offering in Ontario
- Digital Telephony service:
- Available to 74% of homes passed in Cogeco Cable's territories,
as at February 28, 2007;
- Since January 11, 2007, deployment of the Digital Telephony
service in Leamington, Kingsville and Brockville in Ontario, as
well as Asbestos in Quebec.
- High Speed Internet service:
- Access to F-Secure security service to Cogeco Cable business
customers, free of charge;
- Access to Wi-Fi connection for Cogeco Cable Ontario customers in
Burlington, Oakville and Hamilton.

Portuguese operations and its integration
- Cabovisao - Televisao por Cabo, S.A. (Cabovisao) is in the process of
completing its plan to launch its Digital Television service during
fiscal 2007;
- The integration process is essentially completed.

Continuous improvement of networks and equipment
- During the first six months of fiscal 2007, Cogeco Cable has
invested in its infrastructure including head-ends and
upgrade/rebuild for an amount approximating $49 million.

Effective management of capital
- Cogeco Cable, the cable subsidiary, issued 5 million subordinate
voting shares at a price of $38.50 for total net proceeds of $184.2
million which was used to reduce long-term debt;
- Cogeco Cable reimbursed its $125 million 8.44% Second Secured
Debentures due July 31, 2007, as well as a portion of its $900
million Term Facility including its bank indebtedness from the
proceeds of the subordinate voting shares issue.

Media sector

- During the second quarter, TQS has continued to invest in its
programming in order to recapture market share thus resulting in an
improvement of the year to date audience market share compared to
last year.
- RYTHME FM is committed to keeping its leadership position in the
Montreal market. Across Quebec, other RYTHME FM stations and station
93(3) in Quebec City are consolidating their position.

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


RGU growth

During the first six months of fiscal 2007, the consolidated number of RGUs increased by 9% to reach almost 2.4 million units, en route towards the achievement of Cogeco Cable's January 2007 revised projections of 13% to 14% for the fiscal year 2007.

Revenue and Operating income before amortization growth

During the second quarter and first six months, consolidated revenue increased respectively by 47.2% to reach $261.1 million and by 46.6% to reach $524.4 million. For the same periods, operating income before amortization grew by $25.9 million, or 44.8%, to reach $83.7 million and by $53.7 million, or 45.4%, to reach $172 million, mainly due to stronger RGU growth and to the consolidation of the financial results of Cabovisao acquired on August 1, 2006 in the cable sector. Considering the improved performance of the cable sector during the first six months of fiscal 2007, management has revised upwards its projections for the fiscal year 2007 to reflect rate increases to occur in Canada and in Portugal and the strengthening of the euro currency over the Canadian dollar. Subsequent to these adjustments, revenue is now expected to reach between $1,075 million and $1,080 million while operating income before amortization should increase to $365 million. Please consult the "Fiscal 2007 financial guidelines" section for further details.

Free cash flow

In the second quarter of fiscal 2007, COGECO generated free cash flow of $5.9 million, compared to $1.3 million for the same period last year. For the six month period ended February 28, 2007, the Company generated a negative free cash flow of $2.7 million compared to a positive free cash flow of $14.1 million for the same period the year before, mainly due to higher capital expenditures necessary to sustain RGU growth in the cable sector. The increase in capital expenditures for the cable sector in the semester also includes the acquisition of customer premise equipment amounting to approximately $10 million to serve expected RGU growth in the coming months.

Capital expenditures and deferred charges amounted to $53.4 million and $128 million for the second quarter and first six months of 2007. Considering the strong demand for HSI and Digital Telephony services in Canada in the first six months of fiscal 2007 in the cable sector, Cogeco Cable has revised the level of capital expenditures required in its infrastructure to increase its capacity. Fiscal 2007 capital expenditures and deferred charges are now expected to reach $267 million. The revised free cash flow for fiscal 2007 should be between $10 million to $15 million. Please consult the "Fiscal 2007 financial guidelines" section for further details.



OPERATING RESULTS -- CONSOLIDATED OVERVIEW
Quarters ended February 28,
($000s, except percentages) %
2007 2006 Change
--------------------------------------------------------------------

Revenue $261,120 $177,359 47.2

Operating costs 177,451 119,594 48.4

Operating income before amortization 83,669 57,765 44.8

Operating margin 32.0 % 32.6 %


Six months ended February 28,
($000s, except percentages) %
2007 2006 Change
--------------------------------------------------------------------

Revenue $524,412 $357,837 46.6

Operating costs 352,376 239,479 47.1

Operating income before amortization 172,036 118,358 45.4

Operating margin 32.8 % 33.1 %


Revenue

Revenue, for the second quarter and the first six months of 2007 rose by $83.8 million, or 47.2%, to reach $261.1 million and by $166.6 million, or 46.6%, to reach $524.4 million respectively, compared to the same periods last year. Cable revenue, driven by a strong RGU growth together with rate increases and the consolidation of the financial results of Cabovisao, went up by $84.2 million, or 57%, and $162.8 million, or 55.9%, respectively, in the second quarter and the first six months of fiscal 2007. Media revenue decreased by $0.4 million or 1.5% in the second quarter essentially due to a decrease in television advertising revenue, and increased by $3.8 million, or 5.7%, in the first six months due to higher television and radio advertising revenue.

Operating income before amortization

Operating income before amortization grew by $25.9 million, or 44.8%, to reach $83.7 million in the second quarter of fiscal 2007 and by $53.7 million, or 45.4%, to reach $172 million in the first six months of fiscal 2007 compared to the corresponding periods of last year. The cable sector contributed to an increase of $27.2 million and $53.6 million during the second quarter and the first six months. For the same periods, the media sector had a negative impact of $0.4 million in the quarter and a positive impact of $0.2 million in the first six months.



FIXED CHARGES

Quarters ended February 28,
($000s, except percentages) %
2007 2006 Change
--------------------------------------------------------------------
Amortization $45,112 $30,217 49.3

Financial expense 24,181 14,231 69.9


Six months ended February 28,
($000s, except percentages) %
2007 2006 Change
--------------------------------------------------------------------
Amortization $90,951 $60,100 51.3

Financial expense 45,940 28,192 63.0


Amortization amounted to $45.1 million and $91 million during the second quarter and the first six months of fiscal 2007 compared to $30.2 million and $60.1 million for the same periods the year before. Amortization increased mainly as a result of the consolidation of the financial results of Cabovisao and to the increased capital expenditures arising from the customer growth resulting in higher demand for customer premise equipment, scalable infrastructure, upgrade/rebuild, support capital and deferred charges in the cable sector.

During the second quarter and first six months of fiscal 2007, financial expense increased by $10 million and $17.7 million respectively, compared to the same periods in fiscal 2006. This is due to the higher level of Indebtedness (defined as bank indebtedness and long-term debt) required to finance the acquisition of the Portuguese subsidiary, Cabovisao, in the cable sector. In addition, in the second quarter, there was a one-time charge of $2.6 million related to the early repayment of the Second Secured Debentures Series A of Cogeco Cable. The cable subsidiary has revised its guidelines to reflect the impact of the share issuance on the financial expense. Please consult the "Fiscal 2007 financial guidelines" section for further details.

INCOME TAXES

For the second quarter of fiscal 2007, income taxes amounted to $2.6 million compared to $5.7 million in fiscal 2006. For the first six months of fiscal 2007, income taxes amounted to $9 million compared to $12.3 million for the same period last year. The income tax decreases were attributable to the cable sector's and mainly due to the elimination of Canadian federal capital tax on January 1, 2006 and to the recognition of benefits related to prior years' minimum income tax paid.

NON-CONTROLLING INTEREST

The non-controlling interest represents an interest of approximately 65% in Cogeco Cable's results and a 40% interest in TQS Inc. The non-controlling interest in Cogeco Cable's results increased from approximately 61% to approximately 65% during the second quarter following the completion of a public offering of 5,000,000 subordinate voting shares on February 2, 2007 made by the cable subsidiary, Cogeco Cable. During the second quarter and first six months of fiscal 2007, the non-controlling interest amounted to $8.2 million and $15.8 million, mainly due to the cable sector results. The non-controlling interest for the comparable periods of last year amounted to $4.8 million and $10.3 million respectively.

NET INCOME

Net income for the second quarter of fiscal 2007 amounted to $34.5 million, or $2.08 per share, compared to $2.7 million, or $0.16 per share, for the same period last year. For the first six months of fiscal 2007, net income stood at $41.3 million, or $2.49 per share, compared to $7.3 million, or $0.44 per share for the comparable period last year. Excluding a gain on dilution of $31 million attributable to the issuance of shares by Cogeco Cable, net income for the second quarter would have amounted to $3.6 million or $0.21 per share and to $10.3 million or $0.62 per share for the first six months of 2007. The net income increase, excluding the gain on dilution, is the result of the rise in operating income before amortization outpacing fixed charges growth.



CASH FLOW AND LIQUIDITY

Quarters ended Six months ended
February 28, February 28,
($000s) 2007 2006 2007 2006
---------------------------------------------------------------------

Operating Activities
Cash flow from
operations $59,266 $41,644 $125,301 $88,486
Changes in non-cash
operating items 4,328 2,828 (81,430) (49,085)
---------------------------------------------------------------------
$63,594 $44,472 $43,871 $39,401
---------------------------------------------------------------------
---------------------------------------------------------------------

Investing Activities (1) $(52,725) $(59,092) $(127,022) $(93,135)
---------------------------------------------------------------------
---------------------------------------------------------------------

Financing Activities (1) $10,157 $(6,063) $49,953 $53,734
---------------------------------------------------------------------
---------------------------------------------------------------------
Net change in cash and
cash equivalents $21,026 $(20,683) $(33,198) $-
Effect of exchange rate
changes on cash and cash
equivalents denominated
in currencies 1,644 - 3,260 -
Cash and cash
equivalents at
beginning 18,908 20,683 71,516 -
---------------------------------------------------------------------
Cash and cash
equivalents at end $41,578 $- $41,578 $-
---------------------------------------------------------------------
---------------------------------------------------------------------

(1) Excludes assets acquired under capital leases.



During the second quarter of 2007, cash flow from operations reached $59.3 million, 42.3% higher than for the comparable period last year, primarily due to the increase in operating income before amortization partly offset by an increase in financial expense in the cable sector, and by a decline in the operating income before amortization in the media sector. Changes in non-cash operating items generated greater cash inflows than for the same period last year, mainly as a result of increases in accounts payable and accrued liabilities and decreases in prepaid expenses, partly offset by variations in income tax receivables and payables combined with an increase in broadcasting rights.

During the first six months of fiscal 2007, cash flow from operations reached $125.3 million, an increase of 41.6% compared to the same period the year before, mostly due to the increase in operating income before amortization partly offset by an increase in financial expense in the cable sector. Changes in non-cash operating items generated greater cash outflows than the same period last year, mainly as a result of a decrease in accounts payable and accrued liabilities from non recurring payments made by the Portuguese subsidiary in accordance with the terms of the acquisition, and by increases in accounts and income tax receivables, partly offset by a lower increase in broadcast rights.

On March 9, 2007, Cogeco Cable and Cable Satisfaction International Inc. have come to an agreement for a final adjustment of the working capital which was still outstanding since the date of acquisition, and consequently, the preliminary goodwill has been reduced by $3.3 million. The remaining adjustment to the purchase price is due to the re-evaluation of costs related to the acquisition of Cabovisao.

In the second quarter of fiscal 2007, investing activities stood at $52.7 million mainly due to capital expenditures of $45.3 million and an increase in deferred charges of $6 million. For the first six months, investing activities stood at $127 million due capital expenditures of $112.5 million and an increase in deferred charges of $13.3 million.

During the second quarter and first six months of fiscal 2007, the increases related to capital expenditures compared to the same periods last year are mainly due to the integration of Cabovisao and the following factors in the cable sector:



- The increase in customer premise equipment expenditures resulted from
a greater demand for HSI and Digital Telephony services, from a rise
in the number of digital terminals rented to customers and from a
greater ratio of digital terminals per digital home. Furthermore,
customer premise equipment representing approximately $10 million was
acquired by Cogeco Cable during the first semester to serve expected
RGU growth in the coming months.

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

- The increase in capital expenditures associated with the network
upgrade and rebuild program for the Canadian operations was due to
the acceleration of the program to expand the bandwidth to 750 MHz
and 550 MHz for the Ontario and Quebec networks, and to improve
network reliability. An increase in the number of households with
access to two- way service was also a factor and the percentage of
customers with access to two-way service rose from 91% as at February
28, 2006 to 93% as at February 28, 2007.

- The Portuguese operations capital expenditures amounted to $10.8
million and $20.4 million respectively for the second quarter and the
first six months of fiscal 2007, essentially to support RGU growth.


The second quarter and first six months of fiscal 2007 increases in deferred charges are explained by higher reconnect costs attributable to the significant level of RGU growth.

In the second quarter of fiscal 2007, the Company generated free cash flow in the amount of $5.9 million compared to $1.3 million the preceding year. For the first six months of fiscal 2007, the Company incurred a deficit in free cash flow in the amount of $2.7 million compared to a surplus of $14.1 million for the same period the year before. The second quarter free cash flow increase over the same period last year is attributable to the cable sector and mainly due to growth in operating income before amortization, partly offset by higher level of capital expenditures and deferred charges to serve RGU growth and to support Digital Telephony service roll-out and by the increase in financial expense. The first six months free cash flow decrease compared to the same period in 2006 is attributable to the cable sector and mainly due to a higher level of capital expenditures (including the acquisition of customer premise equipment amounting to approximately $10 million to serve RGU growth in the coming months), deferred charges generated by RGU growth, to support the Digital Telephony service roll-out and by the increase in financial expense, partly offset by the growth in operating income before amortization.

On February 2, 2007, the cable subsidiary, Cogeco Cable, announced the completion of a public offering of 5,000,000 subordinate voting shares for gross proceeds of $192.5 million. The offering resulted in net proceeds to Cogeco Cable of approximately $184.2 million which was used to reduce long-term indebtedness and working capital deficiency.

During the second quarter of 2007, the level of Indebtedness decreased by $176 million. On February 2, 2007, the cable subsidiary, Cogeco Cable, gave notice of redemption and offered to purchase all of its 8.44% Second Secured Debentures, Series A, in the aggregate principal amount of $125 million due July 31, 2007 (the "Notes"). As at February 28, 2007, $89.3 million of the Notes have been repaid and the remainder was repaid on March 5, 2007. The decrease in Indebtedness was also due to the repayment of a portion of Cogeco Cable's Term Facility amounting to $81.3 million including its bank indebtedness. For the same period last year, Indebtedness decreased by $5.5 million mainly due to free cash flow of $1.3 million, a rise in non-cash operating items of $2.8 million and a net decrease in cash and cash equivalents of $20.7 million, partly offset by an increase in restricted cash of $20.3 million. In addition, a dividend of $0.07 per share for subordinate and multiple voting shares, totalling $1.2 million, was paid during the second quarter of fiscal 2007 compared to a dividend of $0.0625 per share or $1 million for the second quarter of fiscal 2006.

During the first half of fiscal 2007, the level of Indebtedness decreased by $134.5 million mainly due to the repayment of the Notes for $89.3 million and the repayment of $49.1 million of Cogeco Cable's Term Facility. For the same period last year, Indebtedness grew by $56.3 million mainly due to a decline in non-cash operating items of $49.1 million and an increase in restricted cash of $20.3 million partly offset by generated free cash flow of $14.1 million. In addition, dividends totalling $2.2 million were paid during the first six months of fiscal 2007 compared to $2.1 million for the same period the year before.

As at February 28, 2007, the working capital deficiency was reduced by an amount of $126.5 million mainly as a result of the $125 million portion of the net proceeds of the share issuance being used to reimburse $89.3 million of the Senior Secured debentures Series A on February 12, 2007 in the cable subsidiary. The remaining portion of $35.7 million, presented as cash and cash equivalents as at February 28, 2007, was used to reimburse the remainder of these debentures, on March 5, 2007. COGECO maintains a working capital deficiency due to a low level of accounts receivable since the majority of the cable subsidiary's customers pay before their services are rendered, contrary to accounts payable and accrued liabilities, which are paid after products or services are rendered. In addition, the cable subsidiary generally uses cash and cash equivalents to reduce Indebtedness.

As at February 28, 2007, the cable subsidiary had used $617.2 million of its $900 million Term Facility and the Company had drawn $16.5 million of its Term Facility.

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

FINANCIAL POSITION

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

The $61.7 million rise in fixed assets is mainly related to increased capital expenditures to sustain RGU growth in the cable sector during the first six months as well as anticipated growth in the coming months. The increase of $32.8 million in preliminary goodwill is mainly the result of the appreciation of the euro currency over the Canadian dollar partly offset by an adjustment of $6 million to the purchase price following a resolution of the working capital adjustments and the reevaluation of costs related to the acquisition of Cabovisao in the cable sector. The $20.5 million increase in accounts receivable is essentially due to an increase in the general level of receivables in line with the revenue growth, the resolution of the working capital adjustments and to the euro currency appreciation over the Canadian dollar in the cable sector. The $57.5 million and $29.9 million reductions in accounts payable and accrued liabilities and cash and cash equivalents respectively, are related to payments made with regards to the acquisition of Cabovisao. The $15.9 million increase in foreign currency translation adjustment is the result of the appreciation of the euro currency over the Canadian dollar. The non-controlling interest rise of $174.2 million is due to the impact of the share issuance of Cogeco Cable and the decrease in indebtedness by $89.3 million is the result of the factors previously discussed in the "Cash Flow and Liquidity" section.

A description of COGECO's share data as at March 31, 2007 is presented in the table below:



Number of shares/ Amount
options ($000s)
-----------------------------------------------------------------------
Common Shares
Multiple voting shares 1,849,900 12
Subordinate voting shares 14,745,231 117,997

Options to Purchase Subordinate Voting Shares
Outstanding options 273,279
Exercisable options 273,279


In the normal course of business, COGECO incurred financial obligations, primarily in the form of long-term debt, operating and capital leases and guarantees. COGECO's obligations, described in the MD&A of the 2006 annual report, have not materially changed since August 31, 2006 except for the repayment of the $125 million Second Secured Debentures Series A and the partial repayment of $49.1 million of the $900 million Term Facility in the cable sector discussed in the Cash Flow and Liquidity section. Furthermore, during the second quarter, Cogeco Cable has guaranteed the payment by Cabovisao of certain taxes for municipal rights of way assessed by the Municipality of Seixal in Portugal for the years 2004 and 2005 totalling euro5.7 million (the "Tax Amounts"), which are currently being challenged by Cabovisao. Trustworthy financial guarantees were required under applicable Portuguese law in order for Cabovisao to challenge the Tax Amounts and withhold payment thereof until a final judgment no longer subject to appeal is rendered by the Portuguese courts having jurisdiction in this matter. As a result, the Cogeco Cable may be required to pay, upon written demand by the Municipality of Seixal, the required amounts following final judgment up to a maximum aggregate amount of euro5.7 million, should Cabovisao fail to pay such required amounts.

DIVIDEND DECLARATION

At its April 11, 2007 meeting, the Board of Directors of COGECO declared a quarterly eligible dividend of $0.07 per share for subordinate and multiple voting shares, payable on May 9, 2007, to shareholders of record on April 25, 2007.



CABLE SECTOR

CUSTOMER STATISTICS

Canadian operations
Net additions
Quarters ended Six months ended
February 28, February 28, February 28,
2007 2007 2006 2007 2006
------------------------------------------------------------------------
RGUs(2) 1,713,084 64,133 55,109 157,148 115,879
Basic service customers 854,694 5,277 3,505 21,517 14,408
HSI service customers(3) 392,443 20,428 17,460 49,363 40,453
Digital Television
service customers 362,549 13,961 24,547 35,185 45,962
Digital Telephony service
customers 103,398 24,467 9,597 51,083 15,056


% of Penetration(1)(4)

February 28,

2007 2006
------------------------------------------------------------------------
RGUs(2)
Basic service customers
HSI service customers(3) 49.3 41.9
Digital Television service customers 43.3 35.8
Digital Telephony service customers 16.2 5.7


(1) As a percentage of basic service customers in areas served.
(2) Represent the sum of basic service, HSI service, Digital Television
service and Digital Telephony service customers.
(3) Customers subscribing only to Internet services totalled 63,884 as at
February 28, 2007 compared to 59,292 as at February 28, 2006.
(4) An audit of homes passed in Ontario has been completed during the
first quarter of fiscal 2007 and, as a result, the number of homes
passed has been reduced by 42,386.


All services generated higher growth in the second quarter of 2007 compared to the same period last year, except for the Digital Television service. During the second quarter, Digital Telephony customers grew by 24,467 to reach 103,398 compared to a growth of 9,597 for the same period last year. This growth is mostly attributable to the launch of the service in new markets. Coverage of homes passed has now reached 74% compared to 34% last year. The net additions of basic service customers in the second quarter reached 5,277, compared to 3,505 for the same period last year. The number of net additions of HSI service stood at 20,428 compared to 17,460 for the same period last year. The growth of HSI and basic service customers compared to the same period last year is mostly due to the enhancement of the product offering, the impact of the bundled offer of Television, HSI and Digital Telephony services (Cogeco Complete Connection), and promotional activities.

The net additions of Digital Television service customers stood at 13,961 compared to 24,547 for the same period last year. The decrease in net additions this quarter compared to the same quarter last year reflects a maturing of the digital TV segment following a period of robust growth, especially in the second quarter of fiscal 2006. Nevertheless, customers continue to demonstrate strong interest in HD technology. Secondly, Cogeco Cable adjusted the service offering and price gap differential between analog TV services and Digital Television services in the second half of fiscal 2006 which has also contributed to a moderation of the strong growth experienced in the first half of fiscal 2006.



Portuguese operations

Net additions
Quarter Six months
ended ended
February 28, February 28, February 28,
2007 2007 2007
------------------------------------------------------------------------
RGUs(2) 670,571 20,266 41,530
Basic service customers 283,553 6,606 13,859
HSI service customers 151,663 7,308 15,385
Telephony service customers 235,355 6,352 12,286


% of Penetration(1)

February 28, 2007
------------------------------------------------------------------------
RGUs(2)
Basic service customers
HSI service customers 53.5
Telephony service customers 83.0


(1) As a percentage of basic service customers in areas served.
(2) Represent the sum of basic service, HSI service and Telephony service
customers.


For the second quarter, all services generated customer growth in line with Cogeco Cable's guidelines. Basic service grew by 6,606 customers, HSI by 7,308 customers and Telephony by 6,352 customers.



OPERATING RESULTS

Quarters ended February 28,
($000s, except percentages) %
2007 2006 Change
------------------------------------------------------------------------

Revenue $231,952 $147,757 57.0

Operating costs 141,033 85,232 65.5

Management fees - COGECO Inc. 4,128 2,957 39.6

Operating income before
amortization 86,791 59,568 45.7

Operating margin 37.4 % 40.3 %


Six months ended February 28,
($000s, except percentages) %
2007 2006 Change
------------------------------------------------------------------------
Revenue $453,954 $291,170 55.9

Operating costs 274,933 168,475 63.2

Management fees - COGECO Inc. 8,568 5,825 47.1

Operating income before
amortization 170,453 116,870 45.8

Operating margin 37.5 % 40.1 %


Revenue

In the second quarter of fiscal 2007, consolidated revenue grew by $84.2 million, or 57%, to reach $232 million and by $162.8 million, or 55.9% to reach $454 million for the first six months of 2007, mainly due to strong RGU growth, the consolidation of the financial results of the Portuguese operations acquired on August 1, 2006 and rate increases. Canadian operations revenue, driven by an increased number of customers in basic, HSI, Digital Telephony and Digital television services as well as rate increases, went up by $27.2 million, or 18.4% in the second quarter and by $51.7 million, or 17.8%, in the first six months. The Portuguese operations revenue amounted to $57 million for the second quarter of fiscal 2007 and to $111.1 million for the first six month period of fiscal 2007.

Operating costs

For the second quarter and the first six months, operating costs excluding management fees payable to COGECO Inc. increased by $55.8 million and $106.5 million to reach $141 million and $274.9 million respectively, an increase of 65.5% and 63.2% compared to last year. The increase in operating costs is mainly attributable to the inclusion of the operating costs of Cabovisao, the introduction of Digital Telephony service and to servicing additional RGU in Canada.

Operating income before amortization

Operating income before amortization, for the second quarter and the first six months, increased by $27.2 million, or 45.7%, to reach $86.8 million and by $53.6 million, or 45.8% to reach $170.5 million, as a result of RGU growth, Cabovisao acquisition and rate increases outpacing operating costs. Cogeco Cable's second quarter and first six months' operating margin declined respectively from 40.3% to 37.4% and from 40.1% to 37.5% respectively as a result of the Digital Telephony deployment in Canada and the consolidation of the Portuguese operations lower operating margin.

Foreign exchange management

Cogeco Cable has entered into cross-currency swap agreements to set the liability for interest and principal payments on its US$150 million Senior Secured Notes. These agreements have the effect of converting the US interest coupon rate of 6.83% per annum to an average Canadian dollar ?xed interest rate of 7.254% per annum. The exchange rate applicable to the principal portion of the debt has been fixed at CDN$1.5910. Amounts due under the US$150 million Senior Secured Notes Series A increased by CDN$9.7 million at the end of the second quarter compared to August 31, 2006 due to the Canadian dollar's depreciation. Since the Senior Secured Notes Series A are fully hedged, the fluctuation is offset by a variation in deferred credit described in Note 7 of the second quarter 2007 interim financial statements. The CDN$63.2 million deferred credit represents the difference between the quarter-end exchange rate and the exchange rate on the cross-currency swap agreements, which determine the liability for interest and principal payments on the Senior Secured Notes Series A.

As noted in the MD&A of the 2006 annual report, the cable subsidiary's investment in the Portuguese subsidiary, Cabovisao, is exposed to market risk attributable to fluctuations in foreign currency exchange rate, primarily changes in the values of the Canadian dollar versus the euro. This risk is mitigated since the major part of the purchase price for Cabovisao was borrowed directly in euros. This debt is designated as a hedge of net investments in self-sustaining foreign subsidiaries and accordingly, Cogeco Cable realized a foreign exchange gain of CDN$15.9 million in the first six months of fiscal 2007 which is deferred and recorded in the foreign currency translation adjustment. The exchange rate used by the cable subsidiary to convert the euro currency into Canadian dollar for the balance sheet accounts as at February 28, 2007 was $1.5479 per euro compared to $1.4156 per euro as at August 31, 2006. The average exchange rate used to convert the operating results of the Portuguese operations for the second quarter and the first six months of fiscal 2007 were $1.5146 per euro and $1.4818 per euro, respectively.



MEDIA SECTOR

OPERATING RESULTS
Quarters ended February 28,
($000s, except percentages) %
2007 2006 Change
------------------------------------------------------------------------

Revenue $29,219 $29,653 (1.5)
Operating costs 32,559 32,545 -
Operating income (loss)
before amortization (3,340) (2,892) (15.5)
Operating margin (11.4)% (9.8)%


Six months ended February 28,
($000s, except percentages) %
2007 2006 Change
------------------------------------------------------------------------

Revenue $70,560 $66,769 5.7
Operating costs 70,846 67,212 5.4
Operating income (loss)
before amortization (286) (443) 35.4
Operating margin (0.4)% (0.7)%


Revenue

During the second quarter of fiscal 2007, revenue stood at $29.2 million, a slight decrease of $0.4 million, or 1.5%, compared to the same period last year. For the first six month period of 2007, revenue increased by $3.8 million, or 5.7% to reach $70.6 million. Radio revenue has increased by 12% and 15.2% respectively, mainly due to improved audience ratings. Television revenue has decreased by 4.5% in the second quarter mainly due to the warmer climate that occurred in its first half, coupled with a difficult market for generalist television services. In addition, as opposed to the same quarter in fiscal 2006, Loft Story wasn't aired during the second quarter of fiscal 2007, impacting slightly TQS advertising revenue. For the first six months, television revenue has increased by 3.6% due to improved audience market share; TQS was the only conventional television network in the Francophone market to have improved its audience ratings during the first six month period of fiscal 2007.

Operating income before amortization

The operating income before amortization declined by $0.4 million in the second quarter of fiscal 2007 and slightly increased by $0.2 million in the first six months of fiscal 2007 compared to last year. For the second quarter and first six months, TQS's operating income before amortization decreased as a result of greater investment in television programming, combined with lower revenue growth. Radio's operating income before amortization decreased in the second quarter due to an increase in operating expenses and improved for the first six months due to revenue growth.

FISCAL 2007 FINANCIAL GUIDELINES

Cable sector

Given the improved performance of the cable sector during the first six months of fiscal 2007, management has revised upward its guidelines in that sector for the fiscal year 2007 to reflect rate increases in Canada and in Portugal, the strengthening of the euro currency over the Canadian dollar, the impact of the share issuance, the repayment of long-term debt and the reduction of financial expense.

Subsequent to these adjustments, projected revenue and operating income before amortization were revised upward, operating margin should increase at about 39% and financial expense should decrease following the repayment of long-term debt. The increase in projected revenue should come essentially from the Canadian operations mainly due to the strong RGU growth during the first six months of fiscal 2007 as well as rate increases of $3 per Digital Television customer, representing approximately $1 per basic service customer, effective in March 2007 in Ontario and in April 2007 in Quebec. Furthermore, Analog Value Pack rates will also increase by $1.50 per customer in April 2007 in Ontario. For the Portuguese operations, rate increases of approximately euro0.65 (CDN$1) per basic service customer were implemented effective in March 2007. These rate increases should generate approximately $6.8 million of additional revenue during the current fiscal year. At last, the revised guidelines reflect the improvement of the euro currency compared to the Canadian dollar and as a result, for guideline purposes, the euro is converted at an average rate of $1.50 per euro while the Corporation was using an average rate of $1.45 per euro last January.

Management is also raising its guidance for capital expenditures and deferred charges from $255 million to $260 million to increase the capacity of its infrastructure to sustain growth. The cable subsidiary should generate free cash flow of $15 million.

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

Media sector

Media sector is maintaining its 2007 original financial guidelines.



Revised Revised
Projections Projections
($ million, except customer data) April 11, 2007 January 10, 2007
Fiscal 2007 Fiscal 2007
-----------------------------------------------------------------------
Consolidated Financial Guidelines
Revenue 1,075 to 1,080 1,050 to 1,060
Operating income before
amortization 365 356 to 358
Net income 50 15
Free Cash Flow 10 to 15 5 to 10

Cable sector--
Financial Guidelines
Revenue 945 925
Operating income before
amortization 365 355
Operating margin About 39% About 38%
Financial expense 85 87
Amortization 192 192
Capital expenditures and
deferred charges 260 255
Free cash flow 15 10 to 15

Customer Addition Guidelines
Basic service 37,000 to 40,000 37,000 to 40,000
HSI service 85,000 to 90,000 85,000 to 90,000
Digital Television service 60,000 to 65,000 60,000 to 65,000
Telephony services 105,000 to 110,000 105,000 to 110,000
RGU 287,000 to 305,000 287,000 to 305,000

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


UNCERTAINTIES AND MAIN RISK FACTORS

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

ACCOUNTING POLICIES AND ESTIMATES

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

NON-GAAP FINANCIAL MEASURES

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

Cash flow from operations

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



Quarters ended Six months ended
($ 000) February 28, February 28,
2007 2006 2007 2006
---------------------------------------------------------------------
Cash flow from operating
activities $63,594 $44,472 $43,871 $39,401
Changes in non-cash
operating items (4,328) (2,828) 81,430 49,085
---------------------------------------------------------------------
Cash flow from operations
$59,266 $41,644 $125,301 $88,486
---------------------------------------------------------------------
---------------------------------------------------------------------


Free cash flow

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



Quarters ended Six months ended
($ 000) February 28, February 28,
2007 2006 2007 2006
---------------------------------------------------------------------
Cash flow from operations $59,266 $41,644 $125,301 $88,486
Acquisition of fixed
assets (45,313) (34,994) (112,511) (65,322)
Increase in deferred
charges (6,046) (3,784) (13,258) (7,499)
Assets acquired under
capital leases -- as
per Note 10 b) (2,027) (1,538) (2,232) (1,538)
---------------------------------------------------------------------
Free cash flow $5,880 $1,328 $(2,700) $14,127
---------------------------------------------------------------------
---------------------------------------------------------------------


ADDITIONAL INFORMATION

This MD&A was prepared on April 11, 2007. Additional information relating to the Company, including its Annual Information Form, is available on the SEDAR Web site at www.sedar.com.

ABOUT COGECO

COGECO is a diversified communications company. Through its Cogeco Cable subsidiary, COGECO provides about 1,713,000 revenue-generating units (RGUs) to approximately 1,448,000 homes passed in its Canadian service territory and about 671,000 RGUs to approximately 835,000 homes passed in its Portuguese service territory. Through its two-way broadband cable networks, Cogeco Cable provides its residential and commercial customers with analog and Digital Television and services, High Speed Internet access as well as Telephony services. Through its Cogeco Radio-Television subsidiary, COGECO holds a 60% interest and operates the TQS network, six TQS television stations, and three French CBC-affiliated television stations in partnership with CTV Television. Cogeco Radio-Television also wholly owns and operates the RYTHME FM radio stations in Montreal, Quebec City, Trois-Rivieres and Sherbrooke as well as the 93(3) station in Quebec City. COGECO's subordinate voting shares are listed on the Toronto Stock Exchange (CGO). The subordinate voting shares of Cogeco Cable are also listed on the Toronto Stock Exchange (CCA).



Analyst Conference Call: Thursday, April 12, 2007 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 dialling 10
minutes before the start of the Conference:

Canada/USA Access Number: 1 800 967-7134
International Access Number: +1 719 457-2625
Confirmation Code: 8541008
By Internet at: www.cogeco.ca/investors

A rebroadcast of the conference call will be
available until April 26, 2007 by dialling:
Canada and USA access number: 1 888 203-1112
International access number: + 1 719 457-0820
Confirmation code: 8541008


Supplementary Quarterly Financial Information

Quarters ended February 28, November 30,
2007(1) 2006 2006(1) 2005
----------------------------------------------------------------------
($000, except percentages
and per share data)

Revenue $261,120 $177,359 $263,292 $180,478
Operating income before
amortization 83,669 57,765 88,367 60,593
Operating margin 32.0 % 32.6 % 33.6 % 33.6 %
Amortization 45,112 30,217 45,839 29,883
Financial expense 24,181 14,231 21,759 13,961
Income taxes 2,580 5,706 6,463 6,611
Non-controlling interest 8,240 4,842 7,557 5,455
Gain (loss) on dilution 30,990 - (7) -
Net income 34,546 2,679 6,751 4,593

Cash flow from
operations 59,266 41,644 66,035 46,842

Net income per share $2.08 $0.16 $0.41 $0.28


Quarters ended August 31, May 31,
2006(1) 2005 2006 2005
----------------------------------------------------------------------
($000, except percentages
and per share data)

Revenue $199,351 $164,210 $189,718 $173,418
Operating income before
amortization 68,645 56,485 66,111 63,814
Operating margin 34.4 % 34.4 % 34.8 % 36.8 %
Amortization 36,446 30,769 30,658 32,783
Financial expense 16,864 14,366 14,120 14,441
Income taxes (13,950) 5,052 8,461 5,869
Non-controlling interest 19,022 5,422 7,293 5,603
Gain (loss) on dilution - - - 16
Net income 10,300 630 5,529 4,964

Cash flow from
operations 51,729 43,215 52,093 48,699

Net income per share $0.62 $0.04 $0.33 $0.30


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


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



COGECO INC.
Customer Statistics
February 28, August 31,
2007 2006
------------------------
------------------------
Homes Passed
Ontario (1) 968,455 1,002,187
Quebec 479,818 474,717
------------------------
Canada 1,448,273 1,476,904
Portugal 835,461 826,369
------------------------
Total 2,283,734 2,303,273
------------------------
------------------------

Revenue Generating Units
Ontario 1,212,796 1,104,157
Quebec 500,288 451,779
------------------------
Canada 1,713,084 1,555,936
Portugal 670,571 629,041
------------------------
Total 2,383,655 2,184,977
------------------------
------------------------

Basic Service Customers
Ontario 603,077 587,289
Quebec 251,617 245,888
------------------------
Canada 854,694 833,177
Portugal 283,553 269,694
------------------------
Total 1,138,247 1,102,871
------------------------
------------------------

Discretionnary Service Customers
Ontario 473,010 463,783
Quebec 200,537 192,895
------------------------
Canada 673,547 656,678
Portugal - -
------------------------
Total 673,547 656,678
------------------------
------------------------

Pay TV Service Customers
Ontario 88,756 84,425
Quebec 42,241 38,455
------------------------
Canada 130,997 122,880
Portugal 53,926 54,089
------------------------
Total 184,923 176,969
------------------------
------------------------

High Speed Internet Service Customers
Ontario 303,471 269,328
Quebec 88,972 73,752
------------------------
Canada 392,443 343,080
Portugal 151,663 136,278
------------------------
Total 544,106 479,358
------------------------
------------------------

Digital Video Service Customers
Ontario 235,424 213,556
Quebec 127,125 113,808
------------------------
Canada 362,549 327,364
Portugal - -
------------------------
Total 362,549 327,364
------------------------
------------------------

Telephony Service Customers
Ontario 70,824 33,984
Quebec 32,574 18,331
------------------------
Canada 103,398 52,315
Portugal 235,355 223,069
------------------------
Total 338,753 275,384
------------------------
------------------------


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


COGECO INC.
CONSOLIDATED STATEMENTS OF INCOME

Three months ended Six months ended
February 28, February 28,
(In thousands of
dollars, except
per share data) 2007 2006 2007 2006
------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Revenue $261,120 $177,359 $524,412 $357,837

Operating costs 177,451 119,594 352,376 239,479
------------------------------------------------------------------------

Operating income
before amortization 83,669 57,765 172,036 118,358

Amortization (note 3) 45,112 30,217 90,951 60,100
------------------------------------------------------------------------

Operating income 38,557 27,548 81,085 58,258

Financial expense
(note 7) 24,181 14,231 45,940 28,192
------------------------------------------------------------------------

Income before income
taxes and the
following items 14,376 13,317 35,145 30,066

Income taxes (note 4) 2,580 5,706 9,043 12,317

Non-controlling
interest 8,240 4,842 15,797 10,297

Gain on dilution
resulting from
shares issued by a
subsidiary (30,990) - (30,983) -

Share in the earnings
(loss) of a
general partnership - (90) 9 (180)
------------------------------------------------------------------------

Net income $34,546 $2,679 $41,297 $7,272
------------------------------------------------------------------------
------------------------------------------------------------------------

Earnings per share
(note 5)
Basic $2.08 $0.16 $2.49 $0.44
Diluted 2.07 0.16 2.48 0.44
------------------------------------------------------------------------
------------------------------------------------------------------------



COGECO INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

Six months ended February 28,
------------------------------------------------------------------------
(In thousands of dollars) 2007 2006
------------------------------------------------------------------------
------------------------------------------------------------------------
(unaudited) (unaudited)

Balance at beginning $204,734 $185,762

Net income 41,297 7,272

Dividends on multiple voting shares (245) (231)

Dividends on subordinate voting shares (1,950) (1,831)
------------------------------------------------------------------------

Balance at end $243,836 $190,972
------------------------------------------------------------------------
------------------------------------------------------------------------



COGECO INC.
CONSOLIDATED BALANCE SHEETS

----------------------------------------------------------------------
(In thousands of dollars) February 28, August 31,
2007 2006
----------------------------------------------------------------------
(unaudited) (audited)

Assets
Current
Cash and cash equivalents $41,578 $71,516
Restricted cash 526 569
Accounts receivable 92,443 71,989
Income tax receivable 3,346 -

Prepaid expenses 6,679 7,204
Broadcasting rights 18,711 15,632
----------------------------------------------------------------------
163,283 166,910
----------------------------------------------------------------------

Income tax receivable 1,277 -
Broadcasting rights 18,864 18,083
Investments 539 539
Fixed assets 1,110,667 1,048,998
Deferred charges 50,791 49,433
Broadcasting licenses and customer
base (note 6) 1,017,892 1,017,892
Preliminary goodwill (note 6) 454,884 422,108
----------------------------------------------------------------------
$2,818,197 $2,723,963
----------------------------------------------------------------------
----------------------------------------------------------------------

Liabilities and Shareholders' equity
Liabilities
Current
Bank indebtedness $15,361 $7,891
Accounts payable and accrued liabilities 255,347 312,837
Broadcasting rights payable 13,686 7,721
Income tax liabilities 1,976 666
Deferred and prepaid income 28,096 26,737
Current portion of long-term debt (note 7) 38,077 126,904
----------------------------------------------------------------------
352,543 482,756
----------------------------------------------------------------------

Long-term debt (note 7) 1,201,352 1,209,254
Share in the partner's deficiency of a
general partnership 832 841
Deferred and prepaid income 11,713 10,525
Broadcasting rights payable 5,242 5,777
Pension plan liabilities and accrued
employee benefits 13,752 11,098
Future income tax liabilities 210,963 211,848
Non-controlling interest 646,811 472,605
----------------------------------------------------------------------
2,443,208 2,404,704
----------------------------------------------------------------------

Shareholders' equity
Capital stock (note 8) 118,009 117,552
Contributed surplus - stock-based
compensation 1,708 1,425
Retained earnings 243,836 204,734
Foreign currency translation
adjustment (note 9) 11,436 (4,452)
----------------------------------------------------------------------
374,989 319,259
----------------------------------------------------------------------

$2,818,197 $2,723,963
----------------------------------------------------------------------
----------------------------------------------------------------------



COGECO INC.
CONSOLIDATED STATEMENTS OF CASH FLOW


Three months ended Six months ended
February 28, February 28,
------------------------------------------------------------------------
(In thousands of dollars) 2007 2006 2007 2006
------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Cash flow from
operating
activities
Net income $34,546 $2,679 $41,297 $7,272
Items not affecting
cash and cash
equivalents
Amortization (note 3) 45,112 30,217 90,951 60,100
Amortization of
deferred financing
costs 535 240 1,181 481
Future income taxes
(note 4) (500) 3,891 3,379 9,218
Non-controlling
interest 8,240 4,842 15,797 10,297
Gain on dilution
resulting from
shares issued by
a subsidiary (30,990) - (30,983) -
Stock-based
compensation 2,121 (258) 3,088 170
Other 202 33 591 948
------------------------------------------------------------------------
59,266 41,644 125,301 88,486
Changes in non-cash
operating items
(note 10a)) 4,328 2,828 (81,430) (49,085)
------------------------------------------------------------------------
63,594 44,472 43,871 39,401
------------------------------------------------------------------------

Cash flow from
investing
activities
Acquisition of
fixed assets
(note 10b)) (45,313) (34,994) (112,511) (65,322)
Increase in
deferred
charges (6,046) (3,784) (13,258) (7,499)
Decrease (increase)
in restricted cash (3) (20,322) 88 (20,322)
Costs related to
business acquisition (1,385) - (1,385) -
Other 22 8 44 8
------------------------------------------------------------------------
(52,725) (59,092) (127,022) (93,135)
------------------------------------------------------------------------

Cash flow from
financing
activities
Increase (decrease)
in bank
indebtedness (32,255) 5,952 7,470 27,621
Increase in
long-term
debt - - - 30,000
Repayment of
long-term debt (143,730) (11,450) (142,000) (1,321)
Issue of
subordinate
voting shares 337 1,274 457 1,274
Dividends on
multiple
voting shares (129) (115) (245) (231)
Dividends on
subordinate voting
shares (1,031) (918) (1,950) (1,831)
Issue of subordinate
voting shares by a
subsidiary to
non-controlling
interest, net of
issue costs 188,427 166 188,655 166
Dividends paid by a
subsidiary to
non-controlling
interest (1,462) (972) (2,434) (1,944)
------------------------------------------------------------------------
10,157 (6,063) 49,953 53,734
------------------------------------------------------------------------

Net change in cash
and cash equivalents 21,026 (20,683) (33,198) -

Effect of exchange
rate changes on cash
and cash equivalents
denominated in
foreign currencies 1,644 - 3,260 -

Cash and cash
equivalents at
beginning 18,908 20,683 71,516 -
------------------------------------------------------------------------
Cash and cash
equivalents at end $41,578 - $41,578 -
------------------------------------------------------------------------
------------------------------------------------------------------------

See supplemental cash flow information in note 10.



COGECO INC.
Notes to Consolidated Financial Statements
February 28, 2007
(amounts in tables are in thousands of dollars, except per share data)


1. Basis of Presentation

In the opinion of management, the accompanying unaudited interim consolidated financial statements, prepared in accordance with Canadian generally accepted accounting principles, contain all adjustments necessary to present fairly the financial position of COGECO Inc. as at February 28, 2007 and August 31, 2006 as well as its results of operations and its cash flow for the three and six month periods ended February 28, 2007 and 2006.

While management believes that the disclosures presented are adequate, these unaudited interim consolidated financial statements and notes should be read in conjunction with COGECO Inc.'s annual consolidated financial statements for the year ended August 31, 2006. These unaudited interim consolidated financial statements follow the same accounting policies as the most recent annual consolidated financial statements.

2. Segmented Information

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

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



Cable Media
-----------------------------------------------------------------------
Three months ended
February 28,
(unaudited) 2007 2006 2007 2006
-----------------------------------------------------------------------
Revenue $231,952 $147,757 $29,219 $29,653
Operating costs 145,161 88,189 32,559 32,545
Operating income
(loss) before
amortization 86,791 59,568 (3,340) (2,892)
Amortization 43,572 28,656 1,496 1,522
Operating income
(loss) 43,219 30,912 (4,836) (4,414)
Financial expense 23,551 13,776 292 208
Income taxes 4,261 6,936 (1,872) (1,690)
-----------------------------------------------------------------------
Net assets
employed
(1)(2) $2,382,997 $2,210,823 $72,589 $70,550
Total assets (2) 2,686,828 2,602,603 121,041 112,609
Fixed assets (2) 1,084,918 1,021,538 25,172 26,794
Preliminary
goodwill (2) 454,884 422,108 - -
Acquisition
of fixed assets 46,798 35,696 542 729
-----------------------------------------------------------------------
-----------------------------------------------------------------------





Head Office and
elimination Consolidated
-----------------------------------------------------------------------
Three months ended
February 28,
(unaudited) 2007 2006 2007 2006
-----------------------------------------------------------------------
Revenue $(51) $(51) $261,120 $177,359
Operating costs (269) (1,140) 177,451 119,594
Operating income
(loss) before
amortization 218 1,089 83,669 57,765
Amortization 44 39 45,112 30,217
Operating income
(loss) 174 1,050 38,557 27,548
Financial expense 338 247 24,181 14,231
Income taxes 191 460 2,580 5,706
-----------------------------------------------------------------------
Net assets
employed
(1) (2) $6,949 $7,477 $2,462,535 $2,288,850
Total assets (2) 10,328 8,751 2,818,197 2,723,963
Fixed assets (2) 577 666 1,110,667 1,048,998
Preliminary
goodwill (2) - - 454,884 422,108
Acquisition
of fixed assets - 107 47,340 36,532
-----------------------------------------------------------------------
-----------------------------------------------------------------------

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

(2) As at February 28, 2007 and August 31, 2006.



Cable Media
-----------------------------------------------------------------------
Six months ended
February 28,
(unaudited) 2007 2006 2007 2006
-----------------------------------------------------------------------
Revenue $453,954 $291,170 $70,560 $66,769
Operating costs 283,501 174,300 70,846 67,212
Operating
income (loss)
before
amortization 170,453 116,870 (286) (443)
Amortization 87,881 56,933 2,981 3,089
Operating
income (loss) 82,572 59,937 (3,267) (3,532)
Financial
expense 44,772 27,358 479 322
Income taxes 9,858 13,381 (1,720) (1,727)
-----------------------------------------------------------------------
Net assets
employed
(1) (2) $2,382,997 $2,210,823 $72,589 $70,550
Total assets (2) 2,686,828 2,602,603 121,041 112,609
Fixed assets (2) 1,084,918 1,021,538 25,172 26,794
Preliminary
goodwill (2) 454,884 422,108 - -
Acquisition
of fixed assets 113,969 65,709 774 1,044
-----------------------------------------------------------------------
-----------------------------------------------------------------------



Head Office
and elimination Consolidated
-----------------------------------------------------------------------
Six months ended
February 28,
(unaudited) 2007 2006 2007 2006
-----------------------------------------------------------------------
Revenue $(102) $(102) $524,412 $357,837
Operating costs (1,971) (2,033) 352,376 239,479
Operating income
(loss) before
amortization 1,869 1,931 172,036 118,358
Amortization 89 78 90,951 60,100
Operating
income (loss) 1,780 1,853 81,085 58,258
Financial expense 689 512 45,940 28,192
Income taxes 905 663 9,043 12,317
-----------------------------------------------------------------------
Net assets
employed
(1) (2) $6 ,949 $7,477 $2,462,535 $2,288,850
Total assets (2) 10,328 8,751 2,818,197 2,723,963
Fixed assets (2) 577 666 1,110,667 1,048,998
Preliminary
goodwill (2) - - 454,884 422,108
Acquisition of
fixed assets - 107 114,743 66,860
-----------------------------------------------------------------------
-----------------------------------------------------------------------

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

(2) As at February 28, 2007 and August 31, 2006.


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


Three months ended Six months ended
February 28, February 28,
-----------------------------------------------------------------------
2007 2006 2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue
Canada $204,094 $177,359 $413,315 $357,837
Portugal 57,026 - 111,097 -
-----------------------------------------------------------------------
$261,120 $177,359 $524,412 $357,837
-----------------------------------------------------------------------
-----------------------------------------------------------------------


As at As at
February 28, August 31,
-----------------------------------------------------------------------
2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (audited)
Fixed assets
Canada $807,707 $768,484
Portugal 302,960 280,514
-----------------------------------------------------------------------
Total $1,110,667 $1,048,998
-----------------------------------------------------------------------

Preliminary goodwill
Canada - -
Portugal 454,884 422,108
-----------------------------------------------------------------------
Total $454,884 $422,108
-----------------------------------------------------------------------
-----------------------------------------------------------------------


3. Amortization

Three months ended Six months ended
February 28, February 28,
-----------------------------------------------------------------------
2007 2006 2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Fixed assets $39,737 $24,661 $80,232 $48,837
Deferred charges 5,375 5,556 10,719 11,263
-----------------------------------------------------------------------
$45,112 $30,217 $90,951 $60,100
-----------------------------------------------------------------------
-----------------------------------------------------------------------


4. Income Taxes

Three months ended Six months ended
February 28, February 28,
-----------------------------------------------------------------------
2007 2006 2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Current $3,080 $1,815 $5,664 $3,099
Future (500) 3,891 3,379 9,218
-----------------------------------------------------------------------
$2,580 $5,706 $9,043 $12,317
-----------------------------------------------------------------------
-----------------------------------------------------------------------


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



Three months ended Six months ended
February 28, February 28,
-----------------------------------------------------------------------
2007 2006 2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Income before
income taxes $14,376 $13,227 $35,154 $29,886
Combined income
tax rate 33.93% 34.84% 34.40% 34.84%
Income taxes
at combined
income tax
rate $4,877 $4,608 $12,093 $ 10,412
Loss or income
subject to
lower or higher
tax rates 557 266 524 266
Decrease in
income taxes
as a result of
increase in
substantially
enacted tax
rates - - - (91)
Large corporation
tax - 807 - 1,644
Effect of
foreign income
tax rate
differences (1,425) - (2,249) -
Benefit related
to prior years'
minimum income
tax paid (1,475) - (1,475) -
Other 46 25 150 86
-----------------------------------------------------------------------
Income taxes
at effective
income tax rate $2,580 $5,706 $9,043 $12,317
-----------------------------------------------------------------------
-----------------------------------------------------------------------


5. Earnings per Share

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


Three months ended Six months ended
February 28, February 28,
-----------------------------------------------------------------------
2007 2006 2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Net income $34,546 $2,679 $41,297 $7,272

Weighted average
number of multiple
voting and
subordinate
voting
shares
outstanding 16,569,120 16,497,105 16,562,691 16,473,425

Effect of
dilutive stock
options (1) 116,223 111,718 106,424 135,205
-----------------------------------------------------------------------
Weighted average
number of
diluted
multiple
voting and
subordinate
voting shares
outstanding 16,685,343 16,608,823 16,669,115 16,608,630
-----------------------------------------------------------------------

Earnings per
share
Basic $2.08 $0.16 $2.49 $0.44
Diluted 2.07 0.16 2.48 0.44
-----------------------------------------------------------------------
-----------------------------------------------------------------------

(1) For the three and six month periods ended February 28, 2007, 36,443
(36,443 and 40,143 in 2006) stock options were excluded from the
calculation of diluted earnings per share since the exercise price of
the options was greater than the average share price of the
subordinate voting shares.


6. Preliminary Goodwill and Other Intangible Assets

-----------------------------------------------------------------------
Total other
Customer Broadcasting intangible Preliminary
base licenses assets goodwill
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Balance as at
August 31, 2006 $989,772 $28,120 $1,017,892 $422,108
Adjustment to the
purchase price - - - (5,955)
Foreign currency
translation
adjustment - - - 38,731
-----------------------------------------------------------------------
Balance as at
February 28, 2007 $989,772 $28,120 $1,017,892 $454,884
-----------------------------------------------------------------------
-----------------------------------------------------------------------


On March 9, 2007, the Company's subsidiary, Cogeco Cable Inc., and Cable Satisfaction International Inc. came to an agreement for a final adjustment to the working capital which was outstanding since the date of acquisition. According to the agreement, the Company's subsidiary has recorded an account receivable of an amount of euros 2,194,000 which was received on March 16, 2007 and as a result, the purchase price was reduced accordingly. The remaining adjustment to the purchase price is due to the reevaluation of costs related to the acquisition of Cabovisao - Televisao por Cabo, S.A. ("Cabovisao").

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



7. Long-Term Debt

-----------------------------------------------------------------------
Maturity Interest February 28, August 31,
rate 2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (audited)
Parent company

Term Facility 2010 (1) 6.69 % (2) $16,500 $19,000
Obligations under
capital leases 2010 6.49 - 6.61 123 138

Subsidiaries
Term Facility
Term loan 2011 5.46 (2) 150,000 150,000
Term loan -
euros 17,358,700 2011 4.94 (2) 26,869 24,573
Revolving loan
Euro currency -
euros 284,500,000
(euros 317,000,000
as at August 31,
2006) 2011 4.94 (2) 440,378 448,745
Senior Secured
Debentures Series 1 2009 6.75 150,000 150,000
Senior - Secured
Notes
Series A - US
$150 million 2008 6.83 (3) 175,470 165,795
Series B 2011 7.73 175,000 175,000
Second Secured
Debentures Series A 2007 (4) 8.44 35,743 125,000
Deferred credit (5) 2008 - 63,180 72,855
Obligations under
capital leases 2010 6.32 - 8.18 6,136 5,009
Other - - 30 43
-----------------------------------------------------------------------
1,239,429 1,336,158
Less: current portion 38,077 126,904
-----------------------------------------------------------------------
$1,201,352 $1,209,254
-----------------------------------------------------------------------
-----------------------------------------------------------------------

(1) COGECO Inc.'s Term Facility has been extended for an additional year
in December 2006.

(2) Average interest rate on debt as at February 28, 2007, including
stamping fees.

(3) Cross-currency swap agreements have resulted in an effective interest
rate of 7.254% on the Canadian dollar equivalent of the U.S.
denominated debt of the Company's subsidiary, Cogeco Cable Inc.

(4) On February 2, 2007, the Company's subsidiary, Cogeco Cable Inc.,
gave a notice of redemption to purchase on March 5, 2007 all of its
8.44% Second Secured Debentures Series A ("the Notes") in the
aggregate principal amount of $125,000,000. Concurrently, the
Company's subsidiary also made an offer to purchase for cancellation
on February 12, 2007, all of the validly issued and held Notes upon
receipt by the Trustee of a written notice of acceptance by the
holders of Notes. As a result, a total of $89,257,000 of Notes were
redeemed on February 12, 2007, for a total cash consideration of
$91,038,000. The remaining Notes of $35,743,000 were redeemed on March
5, 2007, for a total cash consideration of $36,550,000. The excess of
the redemption price over the aggregate principal amount was recorded
as financial expense.

(5) The deferred credit represents the amount which would have been
payable as at February 28, 2007 and August 31, 2006 under cross-
currency swaps entered into by the Company's subsidiary, Cogeco Cable
Inc., to hedge Senior Secured Notes Series A denominated in US
dollars.

Interest on long-term debt for the three and six month periods ended
February 28, 2007 amounted to $22,532,000 and $42,983,000 ($13,442,000 and
$26,651,000 in 2006).

8. Capital Stock

Authorized, an unlimited number

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

Multiple voting shares, 20 votes per share.

Subordinate voting share, 1 vote per share.


February 28, August 31,
2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (audited)
Issued

1,849,900 multiple voting shares $12 $12

14,745,231 subordinate voting shares
(14,702,556 as at August 31, 2006) 117,997 117,540
-----------------------------------------------------------------------
$118,009 $117,552
-----------------------------------------------------------------------
-----------------------------------------------------------------------


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


Six months ended Twelve months ended
-----------------------------------------------------------------------
February 28, 2007 August 31, 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (audited)
-----------------------------------------------------------------------
Number of Number of
shares Amount shares Amount
-----------------------------------------------------------------------
Balance at
beginning 14,702,556 $117,540 14,600,104 $116,155

Shares issued for
cash under the
Employee Stock
Purchase Plan
and the Stock
Option Plan 42,675 457 102,452 1,385
-----------------------------------------------------------------------
Balance at end 14,745,231 $117,997 14,702,556 $117,540
-----------------------------------------------------------------------
-----------------------------------------------------------------------


Stock-based plans

The Company established, for the benefit of its employees and those of its subsidiaries, an Employee Stock Purchase Plan and a Stock Option Plan for certain executives which are described in the Company's annual consolidated financial statements. During the first six months, no stock options were granted to employees by COGECO Inc. However, the Company's subsidiary, Cogeco Cable Inc., granted 200,874 stock options (126,059 in 2006) with an exercise price of $26.63 to $33.12 ($25.12 to $29.05 in 2006), of which 57,247 stock options (31,743 in 2006) were granted to COGECO Inc.'s employees. The Company's subsidiary also granted 376,000 conditional stock options with an exercise price of $26.63 of which 262,400 stock options were granted to COGECO Inc.'s employees. These options vest over a period of three years beginning one year after the day such options were granted and are exercisable over ten years. The vesting of these options is conditional to the achievement of certain yearly financial objectives by the Portuguese subsidiary, Cabovisao-Televisao por Cabo, S.A., over a period of three years. The Company records compensation expense for options granted on or after September 1, 2003. As a result, a compensation expense of $640,000 and $901,000 ($203,000 and $366,000 in 2006) was recorded for the three and six month periods ended February 28, 2007. If compensation expense had been recognized using the fair value-based method at the grant date for options granted between September 1, 2001 and August 31, 2003, the Company's net income and earnings per share for the three and six month periods ended February 28, 2006 would have been reduced to the following pro forma amounts:



Three months Six months
ended ended
-----------------------------------------------------------------------
February 28, February 28,
2006 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (unaudited)
Net income
As reported $2,679 $7,272
Pro forma 2,671 7,256

Basic and diluted earnings per share
As reported $0.16 $0.44
Pro forma 0.16 0.44
-----------------------------------------------------------------------
-----------------------------------------------------------------------


The fair value of stock options granted by the Company's subsidiary, Cogeco Cable Inc., for the six month period ended February 28, 2007 was $7.38 ($9.44 in 2006) per option. The fair value was estimated at the grant date for purposes of determining stock-based compensation expense using the Binomial option pricing model based on the following assumptions:



-----------------------------------------------------------------------
2007 2006
-----------------------------------------------------------------------
Expected dividend yield 1.27 % 1.27 %
Expected volatility 32 % 39 %
Risk-free interest rate 4.05 % 3.70 %
Expected life in years 4.0 4.0
-----------------------------------------------------------------------


As at February 28, 2007, the Company had outstanding stock options providing for the subscription of 273,279 subordinate voting shares. These stock options can be exercised at various prices ranging from $10.00 to $37.50 and at various dates up to October 19, 2011.

TQS Inc., an indirect subsidiary of the Company, has also a stock option plan for certain executives and key employees which is described in the Company's annual consolidated financial statements. During the first six months, 170,269 stock options (no stock options granted in 2006) were granted by TQS Inc. No compensation expense ($124,000 and $154,000 in 2006) was recorded for the three and six month periods ended February 28, 2007 related to this plan.

9. Foreign Currency Translation Adjustment

The change in the foreign currency translation adjustment included in shareholders' equity is the result of the fluctuation in the exchange rates on translation of net investments in self-sustaining foreign operations and foreign exchange gains or losses related to long-term debt denominated in foreign currency used to hedge net investments. The net change in foreign currency translation adjustment is as follows:



Six months Twelve months
ended ended
-----------------------------------------------------------------------
February 28, August 31,
2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (audited)
Effect of exchange rate
variation on translation of
net investments in self
sustaining foreign
subsidiaries $44,646 $(12,412)

Effect of exchange rate
variation on translation of
long-term debt designated
as hedge of net investments
in self-sustaining
subsidiaries (net of income
taxes of $1,703,000 for the
twelve month period ended
August 31, 2006) (33,210) 7,960
-----------------------------------------------------------------------
$11,436 $(4,452)
-----------------------------------------------------------------------
-----------------------------------------------------------------------




10. Statements of Cash Flow

a) Changes in non-cash operating items

Three months ended Six months ended
February 28, February 28,
-----------------------------------------------------------------------
2007 2006 2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Accounts receivable $3,258 $3,276 $(15,391) $(8,940)
Income tax
receivable (2,847) (493) (4,519) (986)
Prepaid expenses 4,140 (1,181) 624 (540)
Broadcasting rights (3,464) (536) (3,860) (7,794)
Accounts payable
and accrued
liabilities 7,382 280 (67,484) (42,278)
Broadcasting
right payable (123) 1,758 5,430 9,845
Income tax
liabilities (2,616) - 1,251 (299)
Deferred and
prepaid income (1,402) (276) 2,519 1,907
-----------------------------------------------------------------------
$4,328 $2,828 $(81,430) $(49,085)
-----------------------------------------------------------------------
-----------------------------------------------------------------------


b) Other information

Three months ended Six months ended
February 28, February 28,
-----------------------------------------------------------------------
2007 2006 2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Fixed asset
acquisitions
through
capital leases $2,027 $1,538 $2,232 $1,538

Interest paid 20,050 11,614 44,668 27,988
Income taxes paid 7,217 2,308 8,496 4,384
-----------------------------------------------------------------------
-----------------------------------------------------------------------


11. Employee Future Benefits

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



Three months ended Six months ended
February 28, February 28,
-----------------------------------------------------------------------
2007 2006 2007 2006
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Contributory
defined benefit
pension plans $807 $706 $1,626 $1,824

Defined
contribution
pension plan
and collective
registered
retirement
savings plans 618 461 1,239 948
-----------------------------------------------------------------------
$1,425 $1,167 $2,865 $2,772
-----------------------------------------------------------------------
-----------------------------------------------------------------------


12. Contingencies and guarantees

Second Put and Call Options of TQS Inc.

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

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

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

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

Guarantees of payment to the Municipality of Seixal

During the second quarter, the Company's subsidiary, Cogeco Cable Inc., has guaranteed the payment by Cabovisao of certain taxes for municipal rights of way assessed by the Municipality of Seixal in Portugal for the years 2004 and 2005 totalling euros 5.7 million (the "Tax Amounts"), which are currently being challenged by Cabovisao. Trustworthy financial guarantees were required under applicable Portuguese law in order for Cabovisao to challenge the Tax Amounts and withhold payment thereof until a final judgment no longer subject to appeal is rendered by the Portuguese courts having jurisdiction in this matter. As a result, the Company's subsidiary may be required to pay, upon written demand by the Municipality of Seixal, the required amounts following final judgment up to a maximum aggregate amount of ?5.7 million, should Cabovisao fail to pay such required amounts.

Contact Information

  • Source:
    COGECO Inc.
    Pierre Gagne, Vice President,
    Finance and Chief Financial Officer
    514-874-2600
    or
    Information:
    Media
    Marie Carrier
    Director, Corporate Communications
    514-874-2600