CUSTOMER GROWTH DRIVES COGECO CABLE’S FINANCIAL RESULTS

PRESS RELEASE

For immediate release

Customer growth drives Cogeco Cable’s financial results

Montréal, October 16, 2006 – Today, Cogeco Cable Inc. (TSX: CCA) announced its financial results

for the fourth quarter and fiscal year ended August 31, 2006.

Growth by business acquisition

With the acquisition of Cabovisão – Televisão por Cabo, S.A., (Cabovisão) as a contributing factor,

the number of revenue-generating units

(RGUs) jumped from about 1,348,000 at the beginning of

the fiscal year to approximately 2,185,000 at the end of August 2006. "The arrival of Cabovisão in our

Corporation, with about 629,000 RGUs, is very promising," said Mr. Louis Audet, President and CEO

of Cogeco Cable. “We are in a very good position to sustain growth, in Canada with more than

208,000 RGUs added to our base as a result of the positive impact of our Digital Telephony service

and, with the well-trained and enthusiastic people in Portugal, who are working to grow our position in

that market.”

Customer growth drives progress

During the fourth quarter, the Canadian operations reported strong RGU increases, adding more than

44,000 compared to about 10,000 for the same period last year and growing revenue by 12.7% while

operating income before amortization improved by 11.8%. On a consolidated basis, revenue

increased by 24.8%, operating income before amortization by 20% while net income more than

tripled to reach $34 million.

2007 projections

For the Canadian operations, management is maintaining its 2007 preliminary projections of last July.

In Portugal, we expect to add more than 75,000 RGUs, essentially equally divided between basic

cable, High Speed Internet (HSI), and telephony. Revenue generated from the Portuguese

operations should exceed $215 million and operating income before amortization should reach

approximately $70 million, an operating margin of 33%. Consequently, Cogeco Cable’s operating

margin should be approximately 38%.

“For fiscal 2007, all Cogeco Cable employees, here and abroad will aim to increase customer

satisfaction through improved customer service and enhanced product and service offerings. We will

maintain tight controls over the Corporation’s costs and we will work to continue to improve our

business processes. With regards to our new Portuguese subsidiary, the Cabovisão integration plan

is well advanced and we believe Cabovisão will contribute to the creation of value for Cogeco Cable’s

shareholders as early as this fiscal year”, concluded Mr. Audet.

Revenue-generating units represent the sum of basic service, Digital Television service, HSI service and Telephony service customers.

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FINANCIAL HIGHLIGHTS

Fourth Quarters ended Augus t 31,

Years ended August 31,

($000s, except percentages and

(unaudited) (audited)

per share data)

2006 2005 %

Change

2006 2005 %

Change

Revenue $ 174,875 $

140,178 24.8 $

620,001 $ 554,404 11.8

Operating income before

amortization

72,864

60,720

20.0

252,978

227,521

11.2

Net income 33,987 11,036 208.0 65,556 28,721 128.3

Cash flow from operations

(1)

56,714 46,509 21.9 194,739 170,938 13.9

Less:

Capital expenditures and

increase in deferred charges

53,279

46,259 15.2 164,446 125,671 30.9

Free cash flow

(1)

3,435 250 —- 30,293 45,267 (33.1)

Per share data

Basic net income $ 0.85 $

0.28 203.6 $

1.64 $ 0.72 127.8

(1) Cash flow from operations and free cash flow do not have standard definitions prescribed by Canadian generally accepted accounting

principles (GAAP) and should be treated accordingly. For more details, please consult the Non-GAAP financial measures section.

FORWARD-LOOKING STATEMENT

Certain statements in this press release may constitute forward-looking information within the meaning of

securities laws. Forward-looking information may relate to our future outlook and anticipated events, our

business, our operations, our financial performance, our financial condition or our results and, in some cases,

can be identified by terminology such as "may"; "will"; "should"; "expect"; "plan"; "anticipate"; "believe"; "intend";

"estimate"; "predict"; "potential"; "continue"; “foresee”, “ensure” or other similar expressions concerning matters

that are not historical facts. In particular, statements regarding our future operating results and economic

performance and our objectives and strategies are forward-looking statements. These statements are based on

certain factors and assumptions, including expected growth, results of operations, performance and business

prospects and opportunities, which we believe are reasonable as of the current date. While we consider these

assumptions to be reasonable based on information currently available to us, they may prove to be incorrect.

Forward-looking information is also subject to certain factors, including risks and uncertainties (described in

“Uncertainty and main risk factors” of the Corporation’s 2005 annual MD&A) that could cause actual results to

differ materially from what we currently expect. These factors include technological changes, changes in

market and competition, governmental or regulatory developments, general economic conditions, the

development of new products and services, the enhancement of existing products and services, and the

introduction of competing products having technological or other advantages, many of which are beyond our

control. Therefore, future events and results may vary significantly from what we currently foresee. You should

not place undue importance on forward-looking information and should not rely upon this information as of any

other date. While we may elect to, we are under no obligation (and expressly disclaim any such obligation) and

do not undertake to update or alter this information before next qua rter.

This analysis should be read in conjunction with the Corporation’s financial statements, and the notes thereto,

prepared in accordance with Canadian GAAP and the MD&A included in the Corporation’s 2005 Annual

Report. Throughout this discussion, all amounts are in Canadian dollars unle s s otherwise indicated.

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MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)

CORPORATE STRATEGIES AND OBJECTIVES

Cogeco Cable’s objectives are to improve profitability and create shareholder value. The strategies

for reaching those objectives are constant corporate growth through the diversification and

improvement of products and services as well as clientele and territories, effective management of

capital and tight cost control. The Corporation measures its performance with regard to these

objectives with revenue growth, RGU

growth and free cash flow

. Below are the recent

achievements in furtherance of Cogeco Cable’s objectives.

Sustained corporate growth and diversification of clientele and territories

• On August 1, 2006, the Corporation completed the acquisition of Cabovisão, the second

largest cable operator in Portugal in terms of the number of basic service cable customers

served. On August 31, 2006, Cabovisão had 826,369 homes passed, 629,041 RGUs and

269,694 basic service customers, offering analog television, HSI and telephony services. In

addition, only one-month of financial results is incorporated in those of the fourth quarter and

fiscal year 2006.

Diversification and improvement of products and services

• Digital Television services:

o Launch of five new high definition (HD) channels, and two new standard definition

channels in most Ontario territories;

• Digital Telephony service:

o Available to 66% of homes passed in Cogeco Cable’s territories, as at August 31,

2006;

o Since June 1, 2006, deployment of Digital Telephony service in Niagara Falls,

Pelham, Wallaceburg, Essex, Cornwall, Gananoque, North Bay, Peterborough,

Sarnia, Beamsville, Bright’s Grove, Corunna, Lindsay in Ontario, and Salaberry-de-

Valleyfield, Magog, St-Sauveur, Piedmont, Ste-Adèle, St-Jovite, Mont-Tremblant,

Alma, Roberval and Ste-Agathe in Québec.

• HSI service:

o Download speed increase:

 Standard HSI service went from a maximum speed of 7 Mbps to up to

10 Mbps.

 Pro HSI service went from a maximum speed of 10 Mbps to up to 16 Mbps.

RGU Growth

During the year, the number of RGUs for the Canadian operations increased by 15.4%. In the third

quarter of 2006, the Corporation had anticipated RGU growth between 13% and 15% for all of fiscal

year 2006. Higher than anticipated HSI, Digital Television, Digital Telephony and basic customer

growth allowed Cogeco Cable to exceed the fiscal year objectives. With the acquisition of Cabovisão

on August 1, 2006, the Corporation added 629,041 RGUs for a total of 2,184,977.

Revenue Growth

During the year, revenue for the Canadian operations increased by 8.8% mainly due to stronger RGU

growth. In its third quarter 2006 revised guidelines, the Corporation had expected to achieve revenue

growth between 8% and 9%. The Portuguese subsidiary generated revenue of $16.9 million during

the fourth quarter and fiscal year 2006.

See « Customer statistics” section for detailed explanations

2 See “ Non-GAAP financial measures “ section for explanations

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Free Cash Flow

For the fiscal year 2006, Cogeco Cable generated a higher than anticipated free cash flow of

$30.3 million of which its Canadian operations generated $29.3 million. Capital expenditures and

deferred charges amounted to $164.4 million of which $160.2 million was intended to support

Canadian operations and the remainder was earmarked for the Portuguese operations.

CUSTOMER STATISTICS

Canadian operations

Net additions (losses) % of Penetration

(1)

Fourth Quarters

Fiscal Years

August 31,

2006 2006 2005 2006 2005 2006 2005

RGUs

(2)

1,555,936 44,243 9,559 208,203 81,834

Basic service customers

833,177 685 (5,891) 11,744 (2,422)

HSI service customers

(3)

343,080 12,601 2,775 65,432 38,040 44.3 37.7

Digital Television service customers 327,364 10,563 11,227 80,160 44,768 40.0 31.7

Digital Telephony service customers 52,315 20,394 1,448 50,867 1,448 10.4 0.2

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

(2) Represent the sum of basic service, HSI service, Digital Television service and Digital Telephony service customers.

(3) Customers subscribing only to Internet services totalled 61,208 as at August 31, 2006 compared to 55,057 as at August 31, 2005.

All services generated higher growth in the fourth quarter compared to the same period last year,

except for the Digital Television service. During fiscal year 2006, the growth in Digital Telephony is

mostly attributable to the launch of this service in new markets. Coverage of homes passed has now

reached 66% compared to 21% last year. For the first time in many years, the net additions of basic

service customers was positive in the fourth quarter and amounted to 685 compared to a loss of

5,891 for the same period last year. The number of net additions of HSI service stood at 12,601

compared to 2,775 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 promotional activities, enhancement of the

product offering and the impact of the bundled offer of Television, HSI and Digital Telephony services

(triple play).

The net additions of Digital Television service customers stood at 10,563 compared to 11,227 for the

same period last year. For the fourth quarter of fiscal 2006, the increase in the number of customers

is essentially similar to the fourth quarter of fiscal 2005. Customers continue to show strong interest

in the high definition (HD) technology

Portuguese Operations

Net additions (losses) % of Penetration

(1)

Fourth Quarters

Fiscal Years

August 31,

2006

(3)

2005

2006

(3)

2005 2006 2005

RGUs

(2)

629,041 3,141

_____

3,141

_____ _____ _____

Basic service customers

269,694 1,117

_____

1,117

_____ _____ _____

HSI service customers

136,278 1,165

_____

1,165

_____ 50.5 _____

Telephony service customers 223,069 859 _____ 859 _____ 82.7 _____

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

(2) Represent the sum of basic service, HSI service and Telephony service customers.

(3) Customer additions are for the month of August 2006.

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For the one-month operation period as a subsidiary, all services generated customer growth. Basic

service customers grew by 1,117; HSI by 1,165 customers and telephony by 859 customers.

ACCOUNTING POLICIES AND ESTIMATES

Foreign Currency Translation

Financial statements of self-sustaining foreign subsidiaries are translated using the rate in effect at

the balance sheet date for assets and liabilities, and using the average exchange rates during the

year for revenues and expenses. Adjustments arising from this translation are deferred and recorded

in the foreign currency translation adjustment account and are included in income only when a

reduction in the investment in these foreign subsidiaries is realized.

Other assets and liabilities denominated in foreign currencies are translated in Canadian dollars at

the prevailing exchange rates at the balance sheet date for monetary items and at the transaction

date for non-monetary items. Revenues and expenses are translated at average rates prevailing

during the period except for transactions being hedged which were translated using the terms of the

hedges. Amounts payable or receivable on cross-currency swaps, all of which are used to hedge

foreign currency debt obligations are recorded concurrently with the unrealized gains and losses on

the obligations being hedged. Other foreign exchange gains and losses are included in net income,

except for unrealized foreign exchange gains and losses on long-term debt denominated in foreign

currencies, designated as a hedge of a net investment in a self-sustaining foreign subsidiary, which

are included in the foreign currency translation adjustment account.

Non-Monetary Transactions

In June 2005, the Canadian Institute of Chartered Accountants issued Handbook Section 3831, Non-

Monetary Transactions, which revised and replaced the current standards on non-monetary

transactions. Under the new section, the criterion for measuring non-monetary transactions at fair

value is modified to focus on the assessment of commercial substance instead of the culmination of

the earnings process. A non-monetary transaction has commercial substance when the entity’s future

cash flows are expected to change significantly as a result of the transaction. These standards are

effective for non-monetary transactions initiated in periods beginning on or after January 1, 2006.

During the third quarter, the Corporation adopted these new standards and concluded that they had

no significant impact on its consolidated financial statements.

There has been no other significant change in Cogeco Cable’s accounting policies and estimates

since August 31, 2005. A description of these policies and estimates can be found in the

Corporation’s 2005 annual MD&A.

RELATED PARTY TRANSACTIONS

Cogeco Cable is a subsidiary of COGECO Inc., which holds 39.2% of the Corporation’s equity

shares, representing 86.6% of the Corporation’s voting shares. Under a management agreement, the

Corporation pays COGECO Inc. monthly management fees equal to 2% of its total revenue for

certain executive, administrative, legal, regulatory, strategic and financial planning, and additional

services. In 1997, management fees were capped at $7 million per year, subject to annual upward

adjustments based on increases in the Consumer Price Index in Canada. Accordingly, for fiscal year

2006, management fees have been set at a maximum of $8.4 million. Cogeco Cable granted 31,743

stock options to COGECO Inc.’s employees during fiscal year 2006, compared to 38,397 in the 2005

fiscal year. The Corporation did not grant any stock options to COGECO Inc.’s employees during the

fourth quarter of fiscal years 2006 and 2005. Further details regarding the management agreement

and stock options granted to COGECO Inc.’s employees are provided in the Corporation’s 2005

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annual MD&A. There were no other material related party transactions during fiscal years 2006 and

2005.

OPERATING RESULTS

Quarters ended August 31,

Years ended August 31,

($000s, except percentages)

2006

2005 %

Change

2006

2005

Change

Revenue $ 174,875 $

140,178 24.8 $

620,001 $ 554,404 11.8

Operating costs 102,011 79,458 28.4 358,631 318,704 12.5

Management fees -

COGECO Inc.

- -

8,392 8,179 2.6

Operating income before

amortization

72,864 60,720 20.0 252,978 227,521 11.2

Operating margin 41.7 %

43.3 %

40.8 % 41.0 %

Revenue

Consolidated revenue for the fourth quarter and fiscal year 2006 increased by $34.7 million and

$65.6 million, respectively.

For the fourth quarter and fiscal year 2006, revenue for the Canadian operations rose by

$17.8 million and $48.7 million or 12.7% and 8.8 % respectively compared to the same periods of

fiscal 2005. This growth is explained mainly by an increase in the number of HSI, Digital Telephony

and basic service customers as mentioned in the “Customer Statistics” section, together with rate

increases implemented in June and August of 2005. Monthly rate increases of at most $3 per

customer and averaging $0.50 per basic service customer took effect on June 15, 2005 in Ontario

and on August 1, 2005 in Québec. The monthly rate for certain bundled services has increased by

$1 in Ontario, and other limited rate increases for selective tier services were implemented in

Québec. Furthermore, an August 2005 reduction in digital terminal rental rates was more than offset

by a greater number of customers renting digital terminals. In addition, monthly rate increases of up

to $3 per customer, averaging $2 per basic service customer, took effect on June 15, 2006 in

Ontario, and in August 1, 2006 in Québec. The Portuguese subsidiary’s revenue amounted to

$16.9 million for the fourth quarter and for fiscal year 2006.

Operating Costs

Consolidated operating costs for the fourth quarter and the fiscal year 2006 increased by

$22.6 million and $39.9 million, respectively.

For the fourth quarter and fiscal year 2006, Canadian operations’ operating costs including network

fees but excluding management fees payable to COGECO Inc. rose by $10.7 million or 13.4%, and

by $28 million or 8.8%, respectively. During the fourth quarter and fiscal year 2006, network fees

increased by 18.8% and 9.3% respectively, compared to the same periods last year. Network fees

increase was mainly attributable to the introduction of Digital Telephony service, the wholesale rate

increase for APTN as mandated by the CRTC and RGU growth. These fees were partly offset by the

decline of IP transport costs even with the growth in the number of HSI customers. The increase in

other operating costs was related to servicing additional RGUs, including Digital Telephony. For the

fourth quarter and fiscal year 2006, Cabovisão’s operating costs amounted to $11.9 million.

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Operating Income Before Amortization

Consolidated operating income before amortization for the fourth quarter and fiscal year 2006

increased by $ 12.1 million and $25.5 million, respectively. Cabovisão’s operating income before

amortization for the fourth quarter and fiscal year 2006 amounted to $5.0 million.

For the fourth quarter and fiscal year 2006, operating income before amortization for the Canadian

operations rose by 11.8% and 9.0% respectively, compared to the same periods last year as the

increase in revenue outpaced the rise in operating costs. Cogeco Cable’s operating margin for the

Canadian operations decreased slightly from 43.3% to 43% in the fourth quarter of fiscal year 2006,

as a result of the launch of the Digital Telephony service. For fiscal year 2006, the operating margin

increased slightly to 41.1% compared to 41%. The Portuguese operations generated an operating

margin of 29.5% for the fourth quarter and fiscal year 2006. As a result, Cogeco Cable’s fourth

quarter 2006 operating margin declined to 41.7% from 43.3% for the same period last year and in

fiscal year 2006 to 40.8% from 41% in fiscal year 2005.

FIXED CHARGES

Quarters ended August 31, Years ended August 31,

($000s, except

percentages)

2006 2005 %

Change

2006

2005 %

Change

Amortization $ 34,801 $

29,460 18.1 $

120,782 $ 125,088 (3.4)

Financial expense 16,374 14,004 16.9 57,366 $ 55,692 3.0

Amortization for the Canadian operations amounted to $30.4 million for the fourth quarter of fiscal

year 2006 compared to $29.5 million for the same period last year. Amortization increased during the

fourth quarter of fiscal year 2006 due to the higher level of capital expenditures arising from the

demand for customer premise equipment, scalable infrastructure, upgrade/rebuild, support capital

and deferred charges. Amortization for the one-month operation of the Portuguese operations

amounted to $4.4 million.

Amortization for the Corporation amounted to $120.8 million for fiscal year 2006 compared to

$125.1 million for the same period last year. In fiscal year 2006, amortization declined since many

cable modems and digital terminals were fully amortized.

During the fourth quarter and fiscal year 2006, financial expense increased compared to the same

periods last year. This is due to the higher level of Indebtedness (defined as bank indebtedness and

long-term debt) required to finance the acquisition of the Portuguese subsidiary Cabovisão.

INCOME TAXES

For the fourth quarter of fiscal year 2006, income taxes represented a recovery of $12.3 million

compared to an expense of $6.2 million in 2005 despite operating income growth. The income tax

decrease was mainly attributable to a change in the Canadian federal enacted income tax rate for the

Canadian operations. On May 2, 2006, the Federal government announced its intention to reduce the

corporate income tax rate progressively from 21% to 19% effective in January 2010 and to eliminate

the corporate surtax of 1.12% on January 1, 2008. These measures were considered substantially

enacted on June 6, 2006, and as a result an adjustment of $20 million was recorded in the fourth

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quarter of fiscal year 2006 to reduce future income taxes. Income taxes for fiscal year 2006

amounted to $9.3 million compared to $18 million for the same period last year. The Portuguese

operations had no material impact on the income tax expense for the period.

NET INCOME

Net income for fourth quarter of fiscal year 2006 amounted to $34 million, or $0.85 per share,

compared to $11 million, or $0.28 per share, for the same period last year. Excluding the effect of the

income tax recovery of $20 million, net income would have stood at $14 million for the quarter or

$0.35 per share. For fiscal year 2006, net income amounted to $65.6 million, or $1.64 per share,

$45.6 million or $1.14 respectively excluding the impact of the income tax recovery, compared to

$28.7 million, or $0.72 per share for the same period in fiscal 2005. Net income has increased in

these periods due to the growth in operating income before amortization. The Portuguese subsidiary

had no significant impact on the net income.

CASH FLOW AND LIQUIDITY

Quarters ended August 31,

Years ended August 31,

($000s)

2006

2005

2006 2005

Operating Activities

Cash flow from operations $

56,714

46,509 $

194,739 $ 170,938

Changes in non-cash operating items 50,495

46,096 1,051 23,657

107,209

92,605 $

195,790 $ 194,595

Investing Activities

(1)

(630,523)

(45,895)

(739,022) $ (123,703)

Financing Activities

(1)

595,543

(46,649)

615,400 $ (70,831)

Net change in cash and cash equivalents

72,229

61 $

72,168

(1) Excludes assets acquired under capital leases.

During the fourth quarter of fiscal year 2006, cash flow from operations reached $56.7 million, 21.9%

higher than the comparable period last year, primarily due to the increase in operating income before

amortization. Changes in non-cash operating items generated greater cash inflows than the same

period last year, mainly as a result of an increase in accounts payable and accrued liabilities resulting

from an increase in capital expenditures.

During fiscal year 2006, cash flow from operations reached $194.7 million or 13.9% higher than the

same period last year, primarily due to the increase in operating income before amortization.

Changes in non-cash operating items generated lower cash inflows compared to last year mainly as

a result of lower increases in accounts payable and deferred and prepaid income.

On June 2, 2006, the Corporation entered into an agreement with Cable Satisfaction International

Inc. (“CSII”), Catalyst Fund Limited Partnership I and Cabovisão to purchase, for a total consideration

of €465.7 million, all the shares of the second largest cable operator in Portugal, an indirect wholly-

owned subsidiary of CSII. The price included the purchase of senior debt and reimbursement of

certain other Cabovisão liabilities. The acquisition was completed on August 1, 2006. The final

purchase price will be determined following the completion of a post-closing working capital

adjustment. The Corporation is assuming a €20 million working capital deficiency.

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The acquisition was accounted for using the purchase method. The results of Cabovisão have been

consolidated as of the acquisition date.

The preliminary allocation of the purchase price of the acquisition is as follows:

(amounts are in thousands of dollars)

Consideration

Paid

Estimated share purchase price $304,188

Secured lenders debt and certain specified Cabovisão liabilities 274,761

Acquisition costs 4,193

583,142

Amounts outstanding

Preliminary working capital adjustment 2,432

585,574

Net assets acquired

Cash and cash equivalents 5,711

Restricted cash 489

Accounts receivable 16,570

Prepaid expenses 1,324

Fixed assets 287,652

Accounts payable and accrued liabilities assumed (65,282)

Other specified Cabovisão liabilities assumed (91,914)

154,550

Excess of consideration over net assets acquired $431,024

Preliminary allocation of excess of consideration over net assets acquired

Preliminary goodwill $431,024

Other investing activities, including capital expenditures segmented according to the National Cable

Television Association (NCTA) standard reporting categories, are as follows:

Quarters ended August 31,

Years ended August 31,

($000s)

2006

2005

2006

2005

Customer Premise Equipment

(1)

$ 16,011 $

12,901 $

59,441 $ 44,526

Scalable Infrastructure

10,195

10,397

25,298

19,363

Line Extensions

3,756

3,574

11,205

10,416

Upgrade / Rebuild

11,221

13,158

39,709

34,096

Support Capital

3,167

1,413

8,186

3,888

Total Capital Expenditures

(2)

44,350

41,443

143,839

112,289

Deferred charges and others

9,010

4,816

20,650

13,338

Total other investing activities

53,360

46,259

164,489

125,627

(1) Includes mainly new and replacement drops as well as home terminal devices.

(2) Includes capital leases, which are excluded from the statements of cash flow.

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During the fourth quarter and fiscal year 2006, capital expenditures increased compared to last year

mainly as a result of the following factors:

¾ The increase in customer premise equipment for the fourth quarter of fiscal year 2006

resulted primarily from greater demand for HSI and Digital Telephony services. For fiscal year

2006, the increase in customer premise equipment resulted primarily from a rise in the

number of digital terminals rented to customers, a greater ratio of digital terminals per digital

home, and the increase in the number of Digital Telephony and HSI customers.

¾ For fiscal year 2006, the growth in scalable infrastructure was mainly attributable to the

support of the Digital Telephony rollout.

¾ For fiscal year 2006, expenditures associated with the network upgrade and rebuild program

rose due to the acceleration of the program to expand the bandwidth to 750 MHz and 550

MHz for the Ontario and Québec networks, respectively, and to improve network reliability. An

increase in the number of households with access to the two-way service was also a factor

and the percentage of customers with access to the two-way service rose from 89% as at

August 31, 2005 to 93% as at August 31, 2006.

Capital expenditures by the Portuguese operations amounted to $4.2 million during the fourth quarter

and fiscal year 2006.

The fourth quarter and fiscal year 2006 increases of deferred charges are explained by higher

reconnect costs attributable to the significant level of RGU increase.

Free cash flow for the fourth quarter of fiscal year 2006 recorded a surplus of $3.4 million compared

to $0.3 million the year before. For fiscal year 2006, free cash flow amounted to $30.3 million

compared to $45.3 million last year. The fourth quarter free cash flow increase over the same period

last year is due to growth in operating income before amortization, partly offset by a higher level of

capital expenditures and deferred charges generated by better-than-projected RGU growth and

support the Digital Telephony service roll-out.

For fiscal year 2006, free cash flow decrease over fiscal 2005, mainly as a result of increased capital

expenditures and deferred charges generated by overall RGU growth, including improved service

penetration as well as the launch of the Digital Telephony service.

During the fourth quarter, the level of Indebtedness increased by $607.2 million due to the Cabovisão

acquisition, the increase in cash and cash equivalents of $71.5 million and to the fees related to the

new Term Facility of $900,000,000, partly offset by an increase in non-cash operating items of $50.5

million. For the same period last year, Indebtedness declined by $45.1 million mainly due to non-cash

operating items of $46.1 million. In addition, a dividend of $0.04 per share for subordinate and

multiple voting shares, totalling $1.6 million, was paid during the fourth quarter of fiscal years 2006

and 2005.

In fiscal year 2006, the level of Indebtedness grew by $631.7 million due to the acquisition of

Cabovisão completed in the fourth quarter, the increase and cash and cash equivalents of

$71.5 million and to the fees related to the new Term Facility of $900,000,000, partly offset by

generated free cash flow of $30.3 million. For the same period last year, Indebtedness declined by

$67.6 million essentially due to generated free cash flow of $45.3 million and an increase in non-cash

operating items of $23.7 million. Dividends totalling $6.4 million were paid during fiscal year 2006

compared to $4 million the year before.

As at August 31, 2006, Cogeco Cable had a working capital deficiency of $315 million compared to

$121.5 million as at August 31, 2005. The greater deficiency is mainly attributable to the increase in

the current portion of long-term debt as the Corporation’s $125 million Second Secured Debentures

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Series A matures in less than a year and the Cabovisão working capital deficiency of $93.2 million at

the end of fiscal year 2006. Cogeco Cable maintains a working capital deficiency due to a low level of

accounts receivable since the majority of the Corporation’s customers pay before their services are

rendered, unlike accounts payable and accrued liabilities, which are paid after products or services

are rendered. In addition, the Corporation generally uses cash and cash equivalents to reduce

Indebtedness.

As at August 31, 2006, the Corporation had used $623.3 million of its Term Facility. On July 28,

2006, the Term Facility and the operating line of credit of the Corporation were restructured by an

amended and restated credit agreement for credit facilities totalling $900,000,000. The Term Facility

is composed of four tranches: a first tranche, a revolving term facility for an amount of $700,000,000

available in Canadian, U.S. or euro currencies; a second tranche, a swingline of $25,000,000

available in Canadian or U.S. currencies; a third tranche of $150,000,000 fully drawn, and a fourth

tranche of 17,358,700 Euros fully drawn. The Term Facility is repayable on July 28, 2011, except for

the third tranche of $150,000,000 which is repayable as follows: $15,000,000 on July 28, 2008,

$22,500,000 on July 28, 2009, $37,500,000 on July 28, 2010 and the balance on July 28, 2011.

Earlier repayments can be made without penalty. The Term Facility requires commitment fees, and

interest rates are based, on bankers’ acceptance, LIBOR, EURIBOR, bank prime rate loan or U.S.

base rate loan plus stamping fees. The Term Facility is secured by a first fixed and floating charge on

the assets of the Corporation and certain of its subsidiaries except for permitted encumbrances,

including purchased money obligations, existing funded obligations and charges granted by any

subsidiary prior to the date when it becomes a subsidiary subject to a maximum amount.

FINANCIAL POSITION

As at August 31, 2006, the Corporation balance sheet included the assets and liabilities of the

recently acquired subsidiary, Cabovisão. Please refer to the ‘’Cash Flow and Liquidity’’ section for

details.

The $43.5 million rise in fixed assets for the Canadian operations was mainly related to increased

capital expenditures. Deferred charges increased by $9.1 million mostly due to fees related to the

new financing and RGUs growth and Indebtedness increased by $624.5 million, due to the factors

previously discussed in the “Cash Flow and Liquidity” section.

A description of Cogeco Cable’s share data as of September 30, 2006 is presented in the table

below:

Number of

shares/options

Amount

($000s)

Common Shares

Multiple voting shares

Subordinate voting shares

15,691,100

24,308,112

98,346

532,112

Options to Purchase Subordinate Voting Shares

Outstanding options

Exercisable options

715,571

433,855

In the normal course of business, Cogeco Cable has incurred financial obligations, primarily in the

form of long-term debt, operating and capital leases and guarantees. Except for the matters related

to the acquisition of Cabovisão and the new financing, Cogeco Cable’s obligations, discussed in the

2005 annual MD&A, have not materially changed since August 31, 2005.

- 12 -

DIVIDEND DECLARATION

At its October 13, 2006 meeting, the Board of Directors of Cogeco Cable declared a quarterly

dividend of $0.04 per share for subordinate and multiple voting shares, payable on November 10,

2006, to shareholders of record on October 27, 2006.

FOREIGN EXCHANGE MANAGEMENT

Cogeco Cable has entered into cross-currency swap agreements to set the liability for interest and

principal payments on its US$150 million Senior Secured Notes. These agreements have the effect

of converting the US interest coupon rate of 6.83% per annum to an average Canadian dollar ﬁxed

interest rate of 7.254% per annum. The exchange rate applicable to the principal portion of the debt

has been ﬁxed at CDN$1.5910. Amounts due under the US$150 million Senior Secured Notes Series

A decreased by CDN$12.3 million at the end of of fiscal year 2006 compared to August 31, 2005 due

to the Canadian dollar’s appreciation. Since the Senior Secured Notes Series A are fully hedged, the

fluctuation is offset by a variation in deferred credit described in Note 9 of the fourth quarter interim

financial statements. The $72.9 million deferred credit represents the difference between the quarter-

end exchange rate and the exchange rate on the cross-currency swap agreements, which determine

the liability for interest and principal payments on the Senior Secured Notes Series A.

FISCAL 2007 FINANCIAL GUIDELINES

($ million, except customer data)

Revised Projections,

October 16, 2006

Fiscal 2007

Preliminary

Projections,

Fiscal 2007

Financial Guidelines

Revenue 880 to 885 660 to 670

Operating income before amortization 335 to 338 264 to 267

Operating margin About 38% About 40%

Financial expense 85 55

Amortization 182 128

Net income 45 53

Capital expenditures and deferred charges 225 to 230 180

Free cash flow 20 to 25 25 to 30

Customer Addition Guidelines

Basic service 25,000 to 30,000 3,000 to 6,000

HSI service 55,000 to 60,000 35,000 to 40,000

Digital Television service 55,000 to 60,000 55,000 to 60,000

Telephony service 67,000 to 72,000 45,000 to 50,000

RGU 202,000 to 222,000 138,000 to 156,000

The preliminary financial guidelines for fiscal 2007 exclude Cabovisão. In its revised projections,

management has maintained its preliminary financial guidelines for the Canadian operations and

added those of Cabovisão.

Canadian Operations

The revenue increase of approximately 10% to 12% should result mainly from expanded penetration

of HSI and Digital Telephony services as well as the full-year impact of the 2006 RGU additions. In

addition, rate increases of up to $3 per customer in Quebec and Ontario, thus averaging $2 per basic

service customer as well as improved penetration of Digital Television services will also contribute to

the revenue increase. Cogeco Cable plans to expand its basic service clientele through effective

marketing, competitive product offering and superior customer service. As the penetration of HSI

and Digital Television services increase, the demand for these products will likely slow down but

- 13 -

should be offset by increased demand for Digital Telephony service. As a result, the Canadian

operations operating income before amortization should increase by 6% to 8% to reach $264 million

to $267 million, for an operating margin of about 40%. Amortization of capital assets and deferred

charges are expected to increase by $11 million, as a result of capital expenditures and deferred

charges that will be incurred for the RGU growth of fiscal 2007 and the full-year impact of the 2006

RGU growth. Compared to fiscal year 2006, the rise in capital expenditures and deferred charges will

result primarily from an increase of approximately $6 million associated with the scalable

infrastructure related to the head end equipment to support HSI, Digital Television services and video

on demand (VOD), $7 million related to customer premise equipment and $4 million related to

support capital for the upgrade of business information systems.

Portuguese Operations

RGUs should increase by approximately 75,000 essentially equally divided between basic cable, HSI

and telephony customers. As a result, revenue should reach $215 million to $220 million, using a

conversion rate of $1.40 per euro, while operating income before amortization should amount to

between $69 million to $71 million for an operating margin of approximately 33%. Capital

expenditures to support the projected revenue growth including $4.4 million for the launch of the

Digital Television service should reach $45 million to $50 million, or approximately 22% of projected

revenue. Amortization of capital assets and deferred charges should amount to $54 million.

Consolidated Outlook

The revenue increase of approximately 41% to 42% should result primarily from the full-year impact

of Cabovisão operations and from the growth of between 202,000 to 222,000 RGUs. Cogeco Cable

expects to achieve an operating income before amortization of approximately $335 million to

$338 million generating an operating margin of about 38%.

Capital expenditures and deferred charges are expected to be at around $225 million to $230 million

due to the inclusion of Cabovisão’s operations and to RGU growth. Amortization should amount to

$182 million. Financial expense should increase by $30 million to reach $85 million as a result of the

additional indebtedness to finance the Cabovisão acquisition.

Management expects that cash flows generated by operations will finance capital expenditures and

deferred charges. The Corporation expects to generate free cash flow in the order of $20 million to

$25 million due to the expected launch of the Digital Television service in Portugal. Free cash flow

that is generated should be used primarily to reduce Indebtedness, thus improving the Corporation’s

leverage ratios. Net income of approximately $45 million should be achieved as a result of growth in

operating income before amortization exceeding the increase in fixed charges.

RISK FACTORS AND UNCERTAINTIES

This section outlines general as well as more specific risks faced by Cogeco Cable and its

subsidiaries that could significantly affect the financial condition, operating results or business of the

Corporation. It does not purport to cover all contingencies, or to describe all possible factors that

might have an influence on the Corporation or its activities at any point in time. Furthermore, the ri sks

and uncertainties outlined in this section may or may not materialize in the end, may evolve

differently than expected, or may have different consequences than those that are being currently

anticipated.

Cogeco Cable applies an on-going risk management process that includes a quarterly assessment of

risks for the Corporation and its subsidiaries, under the oversight of the Audit Committee. As part of

this process, the Corporation endeavours to identify risks that are liable to have a major impact on

the Corporation’s financial situation, revenue or activities, and to mitigate such risks proactively as

- 14 -

may be reasonable and appropriate under the circumstances. This section reflects current views on

uncertainties and main risk factors considered as a part of this process.

Risks Pertaining to Markets and Competition

Broadband telecommunications markets in Canada and Portugal are very dynamic and highly

competitive. They involve intense rivalry between a variety of terrestrial wireline and wireless, as well

as satellite, service providers over a widening suite of broadband services that include fixed and

mobile voice communications, Internet access, data communications, audio and video content

delivery, electronic programming guides and navigation, security and other related or incidental

services. While cable broadband telecommunications providers have entered into the voice and data

communications markets traditionally dominated by incumbent telephone companies, the telephone

companies are increasingly involved in audio and video content delivery, as part of a global

phenomenon known as convergence. A number of new competitors have also entered various

telecommunications markets through the use of the Internet and access to the facilities of telephone

and cable telecommunications companies.

In this converged environment, competition increasingly unfolds over bundles of services offered at

attractive package rates, as competitors strive to meet all the communications needs of residential

and business customers and thus obtain maximum share of their overall communications budget.

Rivalry extends over the composition of service bundles, bundle prices and perceived value,

promotional or introductory offers, term of commitment by the customer, terminal devices and

customer service. The substantial cost of broadband facilities and broadband customer acquisition,

combined with the significant annual growth rates of revenue generating units achieved by

competitors generally tend to make outright price wars on individual services and service bundles

less appealing as a competitive strategy. As markets mature and penetration gains for high speed

Internet access, digital video and digital telephony services abate, retail pricing strategies may

become more aggressive, with resulting downward pressure on operating margins of both individual

services and service bundles.

Cogeco Cable provides “double-play” and “triple-play” service bundles in its various geographic

markets, with various combinations of voice, Internet and video distribution services being offered at

attractive bundle prices. “Quadruple-play” service bundles that include mobile communications have

appeared in these markets, but so far they have had limited effect in the marketplace. Cogeco Cable

continues to focus at this time on its existing lines of service with a view to capturing the remaining

growth opportunities for HSI, Digital Television and Digital Telephony services in its footprint, making

the most efficient use of its own hybrid fibre-coaxial (HFC) plant. Mobile telephone operators are now

offering audio and video content distribution directly to their mobile telephone customers, but this new

form of content distribution has so far had no measurable impact on the use of wireline and satellite

content distribution. As markets evolve and mobility becomes a more cost-effective substitute to

wireline communications, Cogeco Cable and its subsidiaries may need to add mobility components to

its service bundles, through suitable mobile virtual network arrangements with existing mobile

operators.

In Canada, Cogeco Cable faces competition in its service areas mainly from two national direct-to-

home satellite distribution services, Star Choice and Bell ExpressVu (the latter controlled by BCE

Inc., the largest and most widely integrated Canadian telecommunications company), and from

incumbent telephone companies Telus, Bell Canada (controlled by BCE Inc.) and Bell Nordiq (also

controlled by BCE Inc.). Star Choice and Bell ExpressVu both offer a wide range of competitive audio

and video services on a fully digital basis. Telus, Bell Canada and Bell Nordiq all offer a wide range

of business and residential Internet access, voice and data telecommunications services. Rogers,

Telus and Bell Canada respectively operate mobile telecommunications services in Ontario and

Quebec. In addition, Telus now offers audio and video distribution services in the Lower St. Lawrence

area in direct competition with Cogeco Cable. Telus and Bell Canada have recently announced that

they will become income trusts. However, Cogeco Cable and Telus cooperate in other parts of

- 15 -

Cogeco Cable’s footprint to offer Cogeco Cable’s Digital Telephony service. Bell Canada offers a

new digital telephone service in Ontario and Québec and is expected to launch some time in 2007 a

new digital video distribution service over its wireline network, starting with larger urban centres in

Ontario and Québec, some of which are included in Cogeco Cable’s cable network footprint. Cogeco

Cable also competes with other telecommunications service providers, including Vonage, Primus and

Rogers Home Phone (formerly known as Sprint), and with alternative service providers who use

resale or third-party access arrangements in effect. Although spectrum has been allocated for

broadband wireless distribution alternatives for quite some time, this form of wireless competition has

been slow to develop in Cogeco Cable’s footprint. It may however become a more significant

competitive factor in coming years.

In Portugal, Cogeco Cable’s subsidiary Cabovisão faces competition in its service areas mainly from

incumbent telecommunications carrier Portugal Telecom, SGPS, S.A. (PT) and its subsidiaries, from

diversified Portuguese conglomerate Sonae, SGPS, S.A. (Sonae) and its subsidiaries, and from

telecommunications operator ONI, whose main shareholder is Energias do Portugal (EDP), the

incumbent electricity service provider in Portugal. In addition to the national telephone network

operator PT Communicações, PT owns TV Cabo, the largest cable broadband operator in Portugal,

which also offers a direct-to-home satellite television distribution service to the Portuguese market.

Sonae owns and operates the Clix and Novis services, which provide voice, data, and high speed

Internet services respectively to the residential and business markets. PT and Sonae, provide mobile

telecommunications services in Portugal, through their respective subsidiaries TMN and OPTIMUS,

as well as Vodaphone. Other competitors include AR Telecom (formerly known as Jazztel), Tele 2

and Redvo Telecom, a recently launched broadband microwave distribution service using WiMax

technology. Until recently, Cabovisão has been the only provider of full “triple-play” service bundles

in its footprint, but Clix has recently launched a digital video distribution service over telephone lines,

and its competitive “triple-play” service bundles are expected to extend progressively to

approximately 60% of Cabovisão’s footprint. TV Cabo has started offering telephone services on

Session Initiation Protocol (SIP) as well as a digital video service, and is thus also in a position to

offer competitive “triple-play” service bundles to approximately 60% of Cabovisão’s footprint.

Cabovisão’s video distribution services are analog only, and do not include true video-on-demand at

this time, but Cabovisão is actively considering the opportunity and timing for the roll-out of its own

digital services, as its HFC plant has the capacity to accommodate digital services in addition to all its

existing analog services.

The broadband telecommunications competitive landscape in Portugal differs from that prevailing in

Canada mainly in the following respects: the density of urban dwelling units within the Corporation’s

footprint in Portugal is approximately double that of its footprint in Canada, there is overlapping

competitive cable plant over approximately 60% of Cabovisão’s footprint and this competitive cable

plant is presently controlled by the incumbent telephone company, but there is only one Portuguese

direct-to-home satellite competitor, and direct-to-home satellite service penetration is very limited in

urban areas.

The level of piracy of video signals and the actual penetration of illicit reception of video distribution

services in households within the Corporation’s service areas may also have a significant effect on

the Corporation’s business and the competitiveness of its service bundles.

Technological Risks

The evolution of telecommunications technologies is very rapid, fuelled by a highly competitive global

market for digital content, consumer electronics and broadband products and services. The

Corporation monitors the development of technologies used for the transmission, distribution,

reception and storage of data and their deployment by various existing or potential competitors in the

broadband telecommunications markets.

- 16 -

There are now several terrestrial and satellite transmission technologies available to deliver a range

of electronic communications services to the home with varying degrees of flexibility and efficiency,

and they compete with cable broadband telecommunications. While the broadband over power line

(BPL) alternative has made little headway to date, the competitive threat posed by other alternatives

such as 3G and Wi-Max broadband wireless technologies, advanced digital subscriber line

technologies such as VDSL+, and the deployment of fibre to the premises (FTTP) or close to the

premises (FTTN) by incumbent telephone companies is growing with each passing year.

On the other hand, cable telecommunications also continue to benefit from rapid improvements,

particularly in the areas of modulation, digital compression, fractioning of optoelectronic links,

multiplexing, HD distribution and switched video distribution. Management of the Corporation remains

of the view that broadband wireline distribution over fibre and coaxial cable will continue to be an

efficient, reliable, economical and competitive platform for the distribution of a full range of electronic

communications products and services for the foreseeable future. The competitiveness of the cable

broadband telecommunications platform will however continue to require additional capital

investment on a timely basis in an increasingly competitive and uncertain market environment.

The growth in penetration of broadband connections of all types, the rapid increase in transmission

speeds offered by competitors in the market, and the emergence of the more powerful MPEG-4 video

standard promote the increased distribution and consumption of video content directly over the

Internet. Video content, which is bandwidth-intensive, already accounts for over 50% of total peer-to-

peer data traffic on the Internet. This may lead eventually to fragmentation of the retail market for

existing analog and digital video distribution services provided by the Corporation, and gradual

disintermediation as between video content suppliers and the Corporation’s customers. In this

context, revenue and margins derived from the Corporation’s high speed Internet access services

may not entirely compensate for the loss of revenue or margin derived from the Corporation’s video

distribution services in the future. Alternative voice and data communications services are

proliferating as well over the Internet, with the resulting risk that fragmentation and disintermediation

may also occur in the future with respect to the Corporation’s digital telephone service.

Electronic communications increasingly rely on advanced security technology and devices to ensure

conditional access and service integrity. Security technology is provided worldwide by a small pool of

global suppliers on a proprietary basis. Like other providers of electronic communications, the

Corporation depends on the effectiveness of security technology for many of its services and the

ability of security technology providers to offer cost-effective and timely solutions as, if and when

existing levels of security are compromised.

Regulatory Risks

In Canada, broadband telecommunications facilities and services are subject to regulatory

requirements depending mainly on the type of facilities involved, the incumbent status of service

providers and their relative market power, the technology used and whether the activities are

categorized as telecommunications or broadcasting. Canadian cable broadband telecommunications

facilities and services are subject to various requirements mainly under federal legislation governing

broadcasting, radiocommunication, telecommunications, copyright, and privacy, and under provincial

legislation governing consumer protection and access to certain property and power utilities support

structures. Licences are still required for the operation of larger (Class 1 and 2) cable systems, while

smaller (Class 3) cable systems are now mostly licence-exempt. Various licence and licence

exemption conditions continue to apply in Canada. Canadian cable operators are also subject to

Canadian ownership and control requirements.

A recently published report by the Telecommunications Policy Review Panel (TPRP) contains a

broad set of recommendations that include a timely transition to deregulation of all

telecommunications services, the creation of a specialized telecommunications competition tribunal,

a review of the Telecommunications Act (Canada), and the removal of ownership restrictions for

- 17 -

telecommunications carriers, subject to certain conditions. The report also considers that the

traditional separation of broadcasting distribution and telecommunications activities for regulatory

purposes is no longer appropriate in a converged market environment. The federal government is

expected to table a new bill on telecommunications in the near future. The federal government has

also requested that the CRTC report back by the end of 2006 and provide answers to a broad range

of questions on the future of the Canadian broadcasting system, which includes the distribution of

broadcasting services.

While this overall policy review process is unfolding, two key telecommunications decisions of the

CRTC concerning respectively the regulatory status of voice-over-IP (VOIP) local access telephone

services of incumbent telephone companies and forbearance from regulation of local access

telecommunications services still regulated by the CRTC have been challenged by incumbent

telephone companies. The CRTC confirmed on September 1, 2006 its decision to continue regulating

VOIP local access telephone services of incumbent telephone companies until certain conditions are

met, but has agreed to reconsider the required threshold of 25% loss of market share by incumbent

telephone companies in the relevant markets in order for deregulation to occur. This decision may be

further challenged by incumbent telephone companies. It is not known at this time whether the

federal government will require the reconsideration of, or will set aside, the decision of the CRTC

respecting regulatory forbearance for local access telephone services generally. The ultimate

outcome and timing of the policy review process and challenges to these key telecommunications

decisions may have a significant impact on the development of the Corporation’s new digital

telephone service line of business, and incidentally on the marketing strategies for service bundles

that include digital telephone service.

The CRTC has recently initiated a policy review proceeding for over-the-air television in Canada that

raises the possible establishment of fees for carriage of conventional over-the-air television signals

by broadcasting distributors, including cable, telephone and satellite distributors. The World

Intellectual Property Organization (WIPO) is also considering the issue of fees for carriage as part of

its proceedings leading to the drafting of a new multilateral treaty concerning the protection of

broadcasting signals. At present, Canadian broadcasting distributors pay carriage fees to pay and

specialty programming services, but not to conventional over-the-air television services. Next year,

the CRTC is also expected to launch a review of its broadcasting distribution policies. The ultimate

outcome and timing of these policy initiatives may have a significant impact on the Corporation’s cost

of sales for its analog and digital services and the penetration of its various tiers of video distribution

services.

In Portugal, a broad reform of national legislation respecting electronic communications has already

occurred with the publication of Law 5/2004 (Electronic Communications Law, known as REGICOM)

on February 10, 2004, in line with the basic requirements of applicable European Commission

directives. Under this new national legislation, the Autoridade Nacional das Comunicações

(ANACOM), has implemented a general authorization regime which no longer involves the issuance

of licences for wireline telecommunications activities. The telecommunications markets in Portugal

are fully open to competition since January 1, 2000, and there are no foreign ownership restrictions

applying to electronic communications service providers or the ownership of broadband

telecommunications facilities in Portugal. Much of ANACOM’s regulatory oversight is focused at

present on the analysis of the competitive state of relevant telecommunications markets and the

adoption of selected measures where significant market power by a competitor is found to exist in a

relevant market. ANACOM has analyzed 16 of the 18 relevant retail and wholesale markets

identified by the European Commission and found that PT has significant market power in most of

these markets. As a result, various specific regulatory requirements apply to the provision of certain

services by PT companies. In addition, pursuant to Directive 2002/77/EC of the European

Commission (Competition Directive), the cable television and telecommunications network operations

of incumbent telephone companies in EU member states must be kept separate, and conducted

through separate entities. TV Cabo, Cabovisão’s direct cable competitor for video distribution and

HSI services, is operated through PT Multimedia, an entity separate from PT Comunicações, which

- 18 -

operates PT’s telecommunications network (telephony and ADSL HSI services), and services

provided by each of these entities are billed separately. The ownership and operating conditions of

various entities of PT, including PT Multimedia, may however change in the foreseeable future as a

result of the pending takeover bid by Sonae, alternative bids by other interested parties, or ownership

or restructuring proposals put forward by PT itself. There is a possible scenario of having two full

triple play companies, PT Comunicações and PT Multimedia, owned by separate groups, with the

conclusion of the pending takeover bid by Sonae, with each significant market power and possible

new regulatory requirements as a result.

On June 29, 2006, the European Commission launched a broad policy review initiative on electronic

communications with a view to boosting competition among telecommunications operators of EU

member states and building a single market for services that use radio spectrum. The ultimate

outcome and timing of these legislative proposals, and their transposition into Portuguese domestic

law and policies, may eventually have an impact on the future on Cabovisão’s electronic

communications activities and on the future state of competition for the provision of electronic

communications in Portugal.

Risks Pertaining to Operating Costs

Cogeco Cable applies itself on to keeping its cost of goods sold in check so as to secure continued

operating margin growth. The two largest drivers of cost of goods sold are network fees paid to audio

and video service suppliers, and data transport and connectivity charges, mostly for Internet traffic.

The market for audio and video programming services in Canada is already characterized by high

levels of supplier integration, structural rigidities imposed by the CRTC’s regulatory framework for

broadcasting distribution, and the resulting strong bargaining position of program suppliers. The

recently announced takeover of CHUM Limited by Bell Globemedia Inc., if approved by the CRTC

and the Commissioner of Competition, would significantly increase the level of concentration of

Canadian conventional over-the-air, specialty and pay television programming services in the

Canadian marketplace generally, and significantly would increase the market power of Bell

Globemedia Inc. The renewal of Cogeco Cable’s affiliation agreements for CHUM and Bell

Globemedia specialty services are currently under negotiation.

As the markets for data transport and connectivity remain very competitive in Canada and Portugal,

Cogeco Cable and Cabovisão have negotiated cost effective arrangements in the past for voice and

data traffic. However, as overall traffic increases and capacity on existing broadband

telecommunications facilities becomes more widely used, the Corporation may not be able to secure

further cost efficiencies in the future.

In Portugal, the offering of new digital audio and video services by Cabovisão will require the

negotiation of suitable arrangements with existing or new program suppliers,. Although affiliation

arrangements and program service bundling and retailing are less constrained by regulations in

Portugal than in Canada, the negotiation of such new arrangements has not yet taken place.

Risks Pertaining to Information Systems

Flexible, reliable and cost-effective information systems are an essential requirement for the handling

of sophisticated service options, customer account management, internal controls, provisioning,

billing and the roll-out of new services. The Corporation uses different customer relations

management tools and databases for its operation respectively in Ontario, Québec and Portugal. The

agreement with the main third-party supplier of information systems in Ontario will expire in 2008,

and the terms that would apply for the continued use of the relevant information systems in Ontario

are under negotiation.

- 19 -

Risks Pertaining to Disasters

The Corporation has a disaster recovery plan for dealing with the occurrence of natural disasters,

quarantine, power failures, terrorist acts, intrusions, computer hacking or data corruption, but the

operations and facilities of Cabovisão are not yet integrated into this plan, given the fact that

Cabovisão became a subsidiary of Cogeco Cable only on August 1, 2006. Cabovisão’s insurance

coverage has been integrated in Cogeco Cable’s insurance coverage. The emergency plans and

procedures that are in place cannot provide the assurance that the effect of any disaster can and will

be mitigated as planned. Cogeco Cable is not insured against the loss of data and relies on data

protection and recovery systems that it has put in place with third-party service providers in Canada.

Risks Pertaining to the Financing of the Cabovisão Acquisition

The acquisition of Cabovisão has been financed through corporate credit facilities of Cogeco Cable.

The major part of the purchase price for Cabovisão (approximately €465.7 million) was borrowed

directly in Euros, and €104 million was borrowed in Canadian dollars and subsequently converted

into Euros. The remainder of the purchase price is assumed liabilities. There are no financial hedging

arrangements in effect at this time for interest fluctuation risks on interest payments resulting from

these borrowings, but there is a natural hedging effect between the borrowings in Euros and the

inter-corporate debt interest payments and cash distributions in Euros originating from the European

subsidiaries. Also, for the purposes of this acquisition, Cogeco Cable has set up a structure involving

one of its operating Canadian subsidiaries and intermediate holding and financing entities located in

Luxembourg with a view to maximizing returns. The Corporation is presently considering financial

arrangements to extend the term with alternate sources of financing and to set the interest rate of the

Term Facilty.

NON-GAAP FINANCIAL MEASURES

This section describes Non-GAAP financial measures used by Cogeco Cable throughout this MD&A.

It also provides reconciliations between these Non-GAAP measures and the most comparable GAAP

financial measures. These financial measures do not have standard definitions prescribed by

Canadian GAAP and may not be comparable with similar measures presented by other companies.

These measures include “cash flow from operations” and “free cash flow”.

Cash Flow from Operations

Cash flow from operations is used by Cogeco Cable’s management and investors to evaluate cash

flow generated by operating activities excluding the impact of changes in non-cash operating items.

This allows the Corporation to isolate the cash flow from operating activities from the impact of cash

management decisions. Cash flow from operations is subsequently used in calculating the Non-

GAAP measure, “free cash flow”. Cash flow from operations is calculated as follows:

($ 000)

Quarters ended August 31, Years ended August 31,

2006

2005

2006

2005

Cash flow from operating activities $ 107,209 $ 92,605 $ 195,790 $ 194,595

Changes in non-cash operating items (50,495)

(46,096)

(1,051) (23,657)

Cash flow from operations $ 56,714 $ 46,509 $ 194,739 $ 170,938

- 20 -

Free Cash Flow

Free cash flow is used, by Cogeco Cable’s management and investors, to measure its ability to repay

debt, distribute capital to its shareholders and finance its growth. Free cash flow is calculated as

follows:

($ 000) Quarters ended August 31, Years ended August 31,

2006 2005 2006 2005

Cash flow from operations $ 56,714 $ 46,509 $ 194,739 $ 170,938

Acquisition of fixed assets (44,082)

(41,079)

(140,941) (110,365)

Increase in deferred charges (8,929)

(4,816)

(20,607) (13,382)

Assets acquired under capital leases – as

per Note 12 b) (268)

(364) (2,898) (1,924)

Free cash flow $ 3,435 $ 250 $ 30,293 $ 45,267

ADDITIONAL INFORMATION

This MD&A was prepared on October 16, 2006. Additional information relating to the Corporation,

including its Annual Information Form, is available on the SEDAR Web site at www.sedar.com.

ABOUT COGECO CABLE

Cogeco Cable (www.cogeco.ca), a telecommunications company offering a diverse range of services

to its customers in Canada and in Portugal, is the second largest cable operator in Ontario, Québec

and Portugal, in terms of the number of basic cable service customers served. The Corporation

invests in state-of-the-art broadband network facilities, delivers a wide range of services over these

facilities with great speed and reliability at attractive prices, and strives to provide both superior

customer care and growing profitability to satisfy its customers’ varied electronic communication

needs. Through its two-way broadband cable networks, Cogeco Cable provides its residential and

commercial customers with analog and digital video and audio services, high speed Internet access

as well as telephony services. The Corporation provides about 1,556,000 revenue-generating units

(RGUs) to approximately 1,477,000 homes passed in its Canadian service territory and 629,000

RGUs to approximately 826,000 homes passed in its Portuguese service territory. Cogeco Cable’s

subordinate voting shares are listed on the Toronto Stock Exchange (CCA).

– 30 –

Source: Cogeco Cable Inc.

Pierre Gagné

Vice President, Finance and Chief Financial Officer

Tel.: (514) 874-2600

Information: Media

Marie Carrier

Director, Corporate Communications

Tel.: (514) 874-2600

- 21 -

Analyst Conference Call: Monday October 16

at 11:00 a.m. (Eastern Daylight Time)

Media representatives may attend as listeners only.

Please use the following dial-in number to have access to the

conference call by dialing 10 minutes before the start of the

conference:

Canada/USA Access Number: 1 800 967-7134

International Access Number: +1 719 457-2625

Confirmation Code: 1255847

By Internet at: www.cogeco.ca/investors

A rebroadcast of the conference call will be available until

October 23 by dialing:

Canada and USA access number: 1 888 203-1112

International access number: + 1 719 457-0820

Confirmation code: 1255847

- 22 -

Supplementary Quarterly Financial Information

Quarters ended Fiscal 2006 Fiscal 2005

Nov.30 Feb. 28 May 31 Aug.31 Nov.30 Feb. 28 May 31 Aug. 31

($000, except percentages

and per share data)

Revenue $ 143,413 $ 147,757 $ 153,956 $

174,875 $

135,766 $

138,389 $ 140,071 $

140,178

Operating income

before amortization

57,302

59,568 63,244 72,864

53,194

55,297 58,310

60,720

Operating margin 40.0% 40.3% 41.1% 41.7% 39.2% 40.0% 41.6% 43.3%

Amortization 28,277 28,656 29,048 34,801 32,244 31,988 31,396 29,460

Financial expense 13,582 13,776 13,634 16,374 13,894 13,840 13,954 14,004

Income taxes 6,445 6,936 8,191 (12,298) 3,229 3,856 4,715 6,220

Net income 8,998 10,200 12,371 33,987 3,827 5,613 8,245 11,036

Cash flow from

operations

43,389 44,940 49,696 56,714 39,192 41,675 43,562 46,509

Net income per share $ 0.23 $ 0.26 $ 0.31 $

0.85 $

0.10 $

0.14 $ 0.21 $

0.28

Cogeco Cable’s operating results are not generally subject to material seasonal ﬂuctuations.

However, the loss of basic service customers is usually greater, and the addition of HSI customers is

generally lower in the third quarter, mainly due to students leaving campuses at the end of the school

year. Cogeco Cable offers its services in several university and college towns such as Kingston,

Windsor, St. Catharines, Hamilton, Peterborough, Trois-Rivières and Rimouski. Furthermore, the

fourth quarter’s operating margin is usually higher as no management fees are paid to COGECO Inc.

Under a Management Agreement, Cogeco Cable pays a fee equal to 2% of its total revenue su bject

to a maximum amount. Since the maximum amount was reached during the third quarter of fiscal

years 2006 and 2005, Cogeco Cable paid no management fees during fiscal year 2006 and 2005

fourth quarters.

COGECO CABLE INC. - 23 -

Customer Statistics

ugust 31, August 31,

2006 2005

Homes Passe

Ontario 1 002 187 986 401

Québec 474 717 462 332

Canada 1 476 90

1 448 733

Portugal 826 369 -

Total 2 303 273 1 448 733

Revenue Generating Unit

Ontario 1 104 157 968 749

Québec 451 779 378 984

Canada 1 555 936 1 347 733

Portugal 629 041 -

Total 2 184 977 1 347 733

Basic Service Customer

Ontario 587 289 581 631

Québec 245 888 239 802

Canada 833 177 821 433

Portugal 269 694 -

Total 1 102 871 821 433

Discretionnary Service Customer

Ontario 463 783 461 038

Québec 192 895 183 320

Canada 656 678 644 358

Portugal - -

Total 656 678 644 358

Pay TV Service Customer

Ontario 84 425 80 817

Québec 38 455 35 407

Canada 122 880 116 224

Portugal 100 079 -

Total 222 959 116 224

High Speed Internet Service Customer

Ontario 269 328 226 133

Québec 73 752 51 515

Canada 343 080 277 648

Portugal 136 278 -

Total 479 358 277 648

Digital Video Service Customers

Ontario 213 556 159 734

Québec 113 808 87 470

Canada 327 364 247 204

Portugal - -

Total 327 364 247 204

Telephony Service Customer

Ontario 33 984 1 251

Québec 18 331 197

Canada 52 315 1 448

Portugal 223 069 -

Total 275 384 1 448

- 24 -

COGECO CABLE INC.

CONSOLIDATED STATEMENTS OF INCOME

Three months ended August 31, Twelve months ended August 31,

(In thousands of dollars, except per share data)

2006

2005

2006

2005

(unaudited)

(audited)

Revenue

Service

$ 174,494

$ 139,064

$ 617,806

$ 550,711

Equipment

381

1,114

2,195

3,693

174,875

140,178

620,001

554,404

Operating costs

102,011

79,458

358,631

318,704

Management fees – COGECO Inc.

8,392

8,179

Operating income before amo rtizatio n 72,864

60,720

252,978

227,521

Amortization (note 5)

34,801

29,460

120,782

125,088

Operating income 38,063

31,260

132,196

102,433

Financial expense (note 9)

16,374

14,004

57,366

55,692

Income before income taxes 21,689

17,256

74,830

46,741

Income taxes (note 6)

(12,298)

6,220

9,274

18,020

Net income $ 33,987

$ 11,036

$ 65,556

$ 28,721

Earnings per share (no t e 7)

Basic

$0.85

$0.28

$1.64

$0.72

Diluted

0.85

0.27

1.63

0.72

- 25 -

COGECO CABLE INC.

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

Twelve months ended August 31,

(In thousands of dollars)

2006

2005

(audited)

Balance at beginning $ 58,604

$ 33,880

Net income

65,556

28,721

Dividends on multiple voting shares

(2,512)

(1,569)

Dividends on subordinate voting shares

(3,888)

(2,428)

Balance at end $ 117,760

$ 58,604

- 26 -

COGECO CABLE INC.

CONSOLIDATED BALANCE SHEETS

(In thousands of dollars)

August 31,

2006

August 31,

2005

(audited)

Assets

Current

Cash and cash equivalents

$ 71,516

$61

Restricted cash

569

Accounts receivable

43,728

26,485

Prepaid expenses

6,265

3,946

122,078

30,492

Fixed assets

1,021,538

697,526

Deferred charges

47,327

38,226

Customer base (note 8)

989,552

Goodwill (note 8)

422,108

$ 2,602,603

$ 1,755,796

Liabilities and Shareholders’ equity

Liabilities

Current

Accounts payable and accrued li abilities

$ 283,087

$ 125,090

Income tax liabilities

444

678

Deferred and prepaid income

26,652

24,907

Current portion of long-term debt (note 9)

126,851

1,322

437,034

151,997

Long-term debt (note 9)

1,190,126

691,159

Deferred and prepaid income

10,525

10,522

Pension plans liabiliti es and accrued employees be nefits

2,091

1,903

Future income tax liabilities

217,636

210,731

1,857,412

1,066,312

Shareholders’ equity

Capital stock (note 10)

630,458

630,220

Contributed surplus – stock-based compensation

1,425

660

Retained earnings

117,760

58,604

Foreign currency translation adjustment (note 11)

(4,452)

745,191

689,484

$ 2,602,603

$ 1,755,796

- 27 -

COGECO CABLE INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

Three months ended August 31, Twelve months ended August 31,

(In thousands of dollars)

2006

2005

2006

2005

(unaudited)

(audited)

Cash flow from operating activities

Net income

$ 33,987

$ 11,036

$ 65,556

$ 28,721

Items not affecting cash and cash equivalents

Amortization (note 5)

34,801

29,460

120,782

125,088

Amortization of deferred financing costs

416

241

1,140

958

Future income taxes (note 6)

(13,398)

5,804

5,200

15,208

Stock-based compensation

220

636

681

Loss on disposal of fixed assets

957

1,129

Other

(134)

(252)

296

200

56,714

46,509

194,739

170,938

Changes in non-cash oper ating items (note 12a))

50,495

46,096

1,051

23,657

107,209

92,605

195,790

194,595

Cash flow from investing activities

Acquisition of fixed assets (not e 12b))

(44,082)

(41,079)

(140,941)

(110,365)

Increase in deferred charges

(8,929)

(4,816)

(20,607)

(13,382)

Business acquisition, net of cash and cash equivalents

acquired (note 3)

(577,431)

Increase in restricted cash

(91)

Other

(630,523)

(45,895)

(739,022)

(123,703)

Cash flow from financing activities

Decrease in bank indebtednes s

(7,693)

(16,812)

(5,410)

Increase in long-term debt

633,402

Repayment of long-term debt

(18,518)

(28,258)

(1,720)

(62,166)

Increase in deferred financing costs

(10,110)

Issue of subordinate voting shares

228

742

Dividends on multiple voting shares

(628)

(627)

(2,512)

(1,569)

Dividends on subordinate voting shares

(972)

(3,888)

(2,428)

595,543

(46,649)

615,400

(70,831)

Net change in cash and cas h equivalents 72,229

72,168

Effect of exchange rate changes on cash and cash

equivalents denominated i n foreign currencies

(713)

Cash and cash equivalents at beginning

Cash and cash equivalents at end $ 71,516

$61

$ 71,516

$61

- 28 -

See supplemental cash flow information in note 12.

COGECO CABLE INC.

Notes to Consolidated Financial Statements

August 31, 20 06

(amounts in tables are in thousands of dollars, except per share data)

1. Basis of Presentation

In the opinion of management, the accompanying unaudited interim consolidated financial statements, prepared in

accordance with Canadian generally accepted accounting principles, contain all adjustments necessary to present

fairly the financial position of Cogeco Cable Inc. as at August 31, 2006 and 2005 as well as its results of operations

and its cash flow for the three and twelve month periods ended August 31, 2006 and 2005.

While management believes that the disclosures presented are adequate, these unaudited interim consolidated

financial statements and notes should be read in conjunction with Cogeco Cable Inc.’s annual consolidated financial

statements. These unaudited interim consolidated financial statements follow the same accounting policies as the

most recent annual consolidated financial statements, except as m entioned in note 2.

The interim consolidated financial statements for the three month period ended August 31, 2005 have not been

subject to a review by the Corporation’s external auditors.

2. Recent accounting pronouncements

Non-Monetary Transactions

In June 2005, the Canadian Institute of Chartered Accountants issued Handbook section 3831, Non-Monetary

Transactions, which revised and replaced the current standards on non-monetary transactions. Under the new

section, the criterion for measuring non-monetary transactions at fair value is modified to focus on the assessment of

commercial substance instead of the culmination of the earnings process. A non-monetary transaction has

commercial substance when the entity’s future cash flows are expected to change significantly as a result of the

transaction. These standards are effective for non-monetary transactions initiated in periods beginning on or after

January 1, 2006. During the third quarter, the Corporation adopted these new standards and concluded that they had

no significant impact on these consolidated financial statements.

3. Business acquisition

Acquisition of Cabovisão – Televi são por Cabo, S.A.

On June 2, 2006, the Corporation entered into an agreement with Cable Satisfaction International Inc. (“CSII”),

Catalyst Fund Limited Partnership I and Cabovisão – Televisão por Cabo, S.A. (“Cabovisão”), to purchase, for a total

consideration of €465.7 million, all the shares of the second largest cable operator in Portugal, an indirect wholly-

owned subsidiary of CSII. The price includes the purchase of senior debt and reimbursement of certain other

Cabovisão liabilities. The acquisition was completed on August 1, 2006. The final purchase price will be determined

following completion of a post-closing working capital adjustment. The Corporation is assuming a €20 million working

capital deficiency of Cabovisão.

The acquisition was accounted for using the purchase method. The results of Cabovisão have been consolidated as

of the acquisition date.

- 29 -

COGECO CABLE INC.

Notes to Consolidated Financial Statements

August 31, 20 06

(amounts in tables are in thousands of dollars, except per share data)

3. Business acquisition (continued)

The preliminary allocation of the purchase price of the acquisition is as follows:

Consideration

Paid

Estimated share purchase price $

304,188

Secured lenders debt and certain specified Cabovisão liabilities

274,761

Acquisition costs

4,193

583,142

Amounts outstanding

Preliminary working capital adjustment

2,432

585,574

Net assets acquired

Cash and cash equivalents

5,711

Restricted cash

489

Accounts receivable

16,570

Prepaid expenses

1,324

Fixed assets

287,652

Accounts payable and ac c rued lia bilities assume d

(65,282)

Other specified Cabovisão liabilities assumed

(91,914)

154,550

Excess of consideration over net assets acquired $

431,024

Preliminary allocation of excess of consideration over net assets acquired

Preliminary goodwill $

431,024

In order to finance the cash component of the transaction, the Term Facility and the operating line of credit of the

Corporation were restructured by an amended and restated credit agreement (see note 9).

Management is currently carrying out a more specific analysis and changes will be made to the allocation of the

excess of consideration over net assets acquired as the information becomes available. For example, since the

measurement of the fair value of fixed assets had not yet been completed at the time of the preliminary allocation,

fixed assets have been presented at cost. The measurement of indefinite and finite-lived intangible assets is also

under way. Furthermore, in accordance with the Portuguese Companies Income Tax Code, accumulated tax losses

can not be deducted if the ownership of at least 50% of the social capital changes from the moment when the tax

losses were generated, unless an authorization is granted before such change in the ownership takes place. To this

effect, a request for preservation of tax losses was fil ed by Cabovisão on July 28, 2006. These losses have not been

included in the preliminary purchase price allocation. Finally, the Corporation did not complete the assessment of

possible costs related to the restructuring and integration of the activities of Cabovisão potentially giving rise to the

recognition of a liability in the allocation of the purchase price. As a result, the actual amounts allocated to the

identifiable assets acquired and liabilities assumed and the related operating results will vary according to the

amounts initially recorded, and such differences could be significant.

- 30 -

COGECO CABLE INC.

Notes to Consolidated Financial Statements

August 31, 20 06

(amounts in tables are in thousands of dollars, except per share data)

4. Segmented Information

The Corporation’s activities are comprised of all cable, high-speed Internet access and telephony services. The

Corporation considers its cable distribution, high-speed Internet access and telephony activities as a single operating

segment. The Corporation’s activities are carried out in Canada and in Portugal.

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

The principal financi al information per business segment is pre sente d in the tables below:

Canada Portugal

Consolidated

Three months ended August 31,

(unaudited)

2006 2005 2006 2005 2006 2005

Revenue $ 158,009 $ 140,178 $ 16,866 $- $ 174,875 $ 140,178

Operating costs 90,116 79,458 11,895 - 102,011 79,458

Management fees - - - - - -

Operating income before amortization 67,893 60,720 4,971 - 72,864 60,720

Amortization 30,373 29,460 4,428 - 34,801 29,460

Operating income 37,520 31,260 543 - 38,063 31,260

Financial expense 16,103 14,004 271 - 16,374 14,004

Income taxe s (12,612) 6,220 314 - (12,298) 6,220

Net income (loss) 34,029 11,036 (42) - 33,987 11,036

Net assets employed

(1) (2)

$ 1,649,631 $ 1,595,216 $ 561,192 $- $ 2,210,823 $ 1,595,216

Total assets

(2)

1,842,312 1,755,796 760,291 - 2,602,603 1,755,796

Fixed assets

(2)

741,024 697,526 280,514 - 1,021,538 697,526

Goodwill

(2)

- - 422,108 - 422,108 -

Acquisition of fixed assets 40,145 41,443 4,205 - 44,350 41,443

(1)

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

(2)

As at August 31, 2006 and 2005.

- 31 -

COGECO CABLE INC.

Notes to Consolidated Financial Statements

August 31, 20 06

(amounts in tables are in thousands of dollars, except per share data)

4. Segmented Information (continued)

Canada Portugal

Consolidated

Twelve months ended August 31,

(audited)

2006 2005 2006 2005 2006 2005

Revenue $ 603,135 $ 554,404 $ 16,866 $- $ 620,001 $ 554,404

Operating costs 346,736 318,704 11,895 - 358,631 318,704

Management fees 8,392 8,179 - - 8,392 8,179

Operating income before amortization 248,007 227,521 4,971 - 252,978 227,521

Amortization 116,354 125,088 4,428 - 120,782 125,088

Operating income 131,653 102,433 543 - 132,196 102,433

Financial expense 57,095 55,692 271 - 57,366 55,692

Income taxe s 8,960 18,020 314 - 9,274 18,020

Net income (loss) 65,598 28,721 (42) - 65,556 28,721

Net assets employed

(1) (2)

$ 1,649,631 $ 1,595,216 $ 561,192 $- $ 2,210,823 $ 1,595,216

Total assets

(2)

1,842,312 1,755,796 760,291 - 2,602,603 1,755,796

Fixed assets

(2)

741,024 697,526 280,514 - 1,021,538 697,526

Goodwill

(2)

- - 422,108 - 422,108 -

Acquisition of fixed assets 139,634 112,289 4,205 - 143,839 112,289

(1)

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

(2)

As at August 31, 2006 and 2005.

5. Amortization

Three months ended August 31, Twelve months ended August 31,

2006 2005 2006 2005

(unaudited) (unaudited) (audited) (audited)

Fixed assets $ 29,872 $ 23,985 $ 100,306 $ 102,597

Deferred charges 4,929 5,475 20,476 22,491

$ 34,801 $ 29,460 $ 120,782 $ 125,088

- 32 -

COGECO CABLE INC.

Notes to Consolidated Financial Statements

August 31, 20 06

(amounts in tables are in thousands of dollars, except per share data)

6. Income taxes

Three months ended August 31, Twelve months ended August 31,

2006 2005 2006 2005

(unaudited) (unaudited) (audited) (audited)

Current $ 1,100 $ 416 $ 4,074 $ 2,812

Future (13,398) 5,804 5,200 15,208

$ (12,298) $ 6,220 $ 9,274 $ 18,020

The following table provides the reconciliation between Canadian statutory federal and provincial income taxes and

the consolidated income tax expense:

Three months ended August 31, Twelve months ended August 31,

2006 2005 2006 2005

(unaudited) (unaudited) (audited) (audited)

Income taxes at combined income tax rate of 35.09 %

(34.96 % in 2005)

7,611

6,033

26,258

16,341

Loss or income subject to lower or higher tax rates (363) (204) (226) (218)

Decrease in income taxes as a result of decreases in

substantially enacted tax rates

(19,982)

(19,820)

Large corporation tax (1,815) 165 600 1,482

Income taxes arising from non-deductible expenses 1,430 - 1,430 -

Withholding taxes on interest of a foreign subsidiary 314 - 314 -

Other 507 226 718 415

Income taxes at effective income tax rate $ (12,298) $ 6,220 $ 9,274 $ 18,020

- 33 -

COGECO CABLE INC.

Notes to Consolidated Financial Statements

August 31, 20 06

(amounts in tables are in thousands of dollars, except per share data)

7. Earnings per share

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

Three months ended August 31, Twelve months ended August 31,

2006 2005 2006 2005

(unaudited) (unaudited) (audited) (audited)

Net income $ 33,987 $ 11,036 $ 65,556 $ 28,721

Weighted average number of multiple voting and

subordinate voting shares outstanding

39,993,757

39,983,975

39,990,239

39,964,857

Effect of dilutive stock options

(1)

129,091 213,087 172,784 161,587

Weighted average number of diluted multiple voting and

subordinate voting shares outstanding

40,122,848

40,197,062

40,163,023

40,126,444

Earnings per share

Basic $ 0.85 $ 0.28 $ 1.64 $0.72

Diluted 0.85 0.27 1.63 0.72

(1)

For the three and twelve month periods ended August 31, 2006, 172,844 and 150,647 stock options (19,906 and 55,665 in 2005) were excluded from the

calculation of diluted earnings per share since the exercise price of the options was greater than the average share price of the subordinate voting shares.

8. Customer base and goodwill

Customer

Base

Goodwill

Total

(audited) (audited) (audited)

Balance, beginning of year $ 989,552 $ - $ 989,552

Business acquisition (note 3)

- 431,024 431,024

Foreign currency translation adjustment

- (8,916) (8,916)

$ 989,552 $ 422,108 $ 1,411,660

- 34 -

COGECO CABLE INC.

Notes to Consolidated Financial Statements

August 31, 20 06

(amounts in tables are in thousands of dollars, except per share data)

9. Long-term debt

Maturity Interest rate

August 31,

2006

August 31,

2005

(audited) (audited)

Parent company

Term Facility

(1)

Term loan 2011 5.71

(2)

$ 150,000 $-

Term loan - €17,358,700 2011 4.50

(2)

24,573 -

Revolving loan – €317,000,000 2011 4.50

(2)

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)

165,795 178,065

Series B 2011 7.73

175,000 175,000

Second Secured Debentures Series A 2007 8.44

125,000 125,000

Deferred credit

(4)

2008 –

72,855 60,585

Subsidiaries

Obligations under capital leases 2010 6.42 – 8.36

5,009 3,831

1,316,977 692,481

Less current portion

126,851 1,322

$ 1,190,126 $ 691,159

(1)

On July 28, 2006, the Term Facility and the operating line of credit of the Corporation were restructured by an amended and restated credit

agreement for credit facilities totalling $900,000,000. The Term Facility is composed of four tranches: a first tranche, a revolving Term

Facility for an amount of $700,000,000 available in Canadian , U.S. or Euro currencies; a second tranche, a swingline of $25,000,000

available in Canadian or U.S. currencies; a third tranche of $150,000,000 fully draw n, and a fourth tranche of €17,358,700 fully drawn . The

Term Facility is repayable on July 28, 2011, except for t he third tra n che of $150 ,000, 000 which is repa yable as follows: $15,000, 000 on Jul y

28, 2008, $22,500,000 on July 28, 2009, $37 ,500,000 on July 28, 2010 and t he balance on Jul y 28, 2011. Earlier repa yments can be made

without penalty. The Term Facility requires commitment fees, and interest rates are based, on bankers’ acceptance, LIBOR, EURIBOR,

bank prime rate loan or U.S. base rate loan plus stamping fees. The Term Facility is secured by a first fixed and floating charge on the

assets of the Corporation and certain of its subsidiaries except for permitted encumbrances, including purchased money obligations,

existing funded obligations and charges granted by any subsidiary prior to the date when it becomes a subsidiary subject to a maximum

amount. The provisions under these facilities provide for restrictions on the operations and activities of the Corporation. Gen erally, the most

significant restrictions relate to permitted investments, dividends on multiple and subordinate voting shares and reimbursement of long-term

debt as well as incurrence and maintenance of certain financial ra tios primarily linked to the operating income before amortization, fina ncial

expense and total indebtedness.

(2)

Average interest rate on debt as at August 31, 2006, including stamping fees.

(3)

Cross-currency swap agreements have resulted in an effective interest rate of 7.254% on the Canadian dollar equivalent of the U.S.

denominated debt.

(4)

The deferred credit represents the amount which would have been payable as at August 31, 2006 and August 31, 2005 under cross-

currency swaps entered into by the Corporation to hedge Senior Secured Notes Series A denominated in US dollars.

Interest on long-term debt for the three and twelve month periods ended August 31, 2006 amounted to $15,675,000

and $55,240,000 ($13,17 4,000 and $52,868,00 0 in 2005).

- 35 -

COGECO CABLE INC.

Notes to Consolidated Financial Statements

August 31, 20 06

(amounts in tables are in thousands of dollars, except per share data)

10. Capital Stock

Authorized, an unlimited number

Class A Preference shares, without voting rights, redeemable by the Corporation and retractable at the option of the

holder at any time at a price of $1 per share, carrying a cumulative preferential cash dividend at a rate of 11% of the

redemption price per year.

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

Multiple voting shares, 10 votes per share.

Subordinate voting shares, 1 vote per share.

August 31,

2006

August 31,

2005

(audited) (audited)

Issued

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

24,308,112 subordinate voting shares (24,293,486 as at August 31, 2005) 532,112 531,874

$ 630,458 $ 630,220

During the period, subordin ate voting share transactions were as follows:

Twelve months ended Twelve months ended

August 31, 2006 August 31, 2005

(audited) (audited)

Number of

Amount

Number of

Amount

Balance at beginning 24,293,486 $ 531,874 24,232,815 $ 531,070

Shares issued for cash under the Employee Stock Purchase Plan

and the Stock Option Plan

14,626

228

60,671

742

Compensation expense previously recorded in contributed

surplus for options exercised

Balance at end 24,308,112 $ 532,112 24,293,486 $ 531,874

- 36 -

COGECO CABLE INC.

Notes to Consolidated Financial Statements

August 31, 20 06

(amounts in tables are in thousands of dollars, except per share data)

10. Capital Stock (continued)

Stock-based plans

The Corporation established for the benefit of its employees and those of its subsidiaries, an Employee Stock

Purchase Plan and a Stock Option Plan for certain executives which are described in the Corporation’s annual

consolidated financial statements. During the year, the Corporation granted 136,059 stock options (140,766 in 2005)

with an exercise price ranging from $24.15 to $29.05 ($21.50 in 2005) of which 31,743 stock options (38,397 in 2005)

were granted to COGECO Inc.’s employees. The Corporation records compensation expense for options granted on

or after September 1, 2003. As a result, a compensation expense of $202,000 and $775,000 ($132,000 and

$484,000 in 2005) was recorded for the three and twelve month periods ended August 31, 2006. If compensation

expense had been recognized using the fair value-based method at the grant date for options granted between

September 1, 2001 and August 31, 2003, the Corporation’s net income and earnings per share for the three and

twelve month periods ended August 31, 2006 and 2005 would have been reduced to the following pro forma amount s:

Three months ended August 31, Twelve months ended August 31,

2006 2005 2006 2005

(unaudited) (unaudited) (audited) (audited)

Net income

As reported $ 33,987 $ 11,036 $ 65,556 $ 28,721

Pro forma 33,967 10,940 65,475 28,337

Basic earnings per share

As reported $ 0.85 $ 0.28 $ 1.64 $ 0.72

Pro forma 0.85 0.27 1.64 0.71

Diluted earnings per share

As reported $ 0.85 $ 0.27 $ 1.63 $ 0.72

Pro forma 0.85 0.27 1.63 0.71

The fair value of each option granted was estimated on the grant date for purposes of determining stock-based

compensation expense us ing the Binomial option pricing model based on the following assumptions:

2006 2005

Expected dividend yield

1.27 % 1.27 %

Expected volatility

39 % 43 %

Risk-free interest rate

3.70 % 3.70 %

Expected life in years

4.0 4.0

The fair value of stock options granted for the twelve month period ended August 31, 2006 was $9.32 ($7.46 in 2005)

per option.

As at August 31, 2006, the Corporation had outstanding stock options providing for the subscription of 715,571

subordinate voting shares. These stock options can be exercised at various prices ranging from $7.05 to $40.75 and

at various dates up to July 31, 2016.

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COGECO CABLE INC.

Notes to Consolidated Financial Statements

August 31, 20 06

(amounts in tables are in thousands of dollars, except per share data)

11. 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 for 2006 is as follows:

(audited)

Effect of exchange rate variation on translation of net investments in self-sustaining foreign subsidiaries $ (12,412)

Effect of exchange rate variation on translation of long-term debt designated as hedge of a net investments

in self-sustaining subsidiaries, net of income taxes of $1,703,000

7,960

$ (4,452)

12. Statements of cas h flow

a) Changes in non-cash operating items

Three months ended August 31, Twelve months ended August 31,

2006 2005 2006 2005

(unaudited) (unaudited) (audited) (audited)

Accounts receivable $ 1,023 $ 1,159 $ (1,131) $ 4,554

Income tax receivable 178 - - -

Prepaid expenses 244 (1,177) (1,020) 589

Accounts payable and accrued liabilities 48,788 46,846 1,681 15,688

Income tax liabilities 450 (501) (228) (166)

Deferred and prepaid income (188) (231) 1,749 2,992

$ 50,495 $ 46,096 $ 1,051 $ 23,657

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COGECO CABLE INC.

Notes to Consolidated Financial Statements

August 31, 20 06

(amounts in tables are in thousands of dollars, except per share data)

12. Statements of cas h flow (continued)

b) Other information

Three months ended August 31, Twelve months ended August 31,

2006 2005 2006 2005

(unaudited) (unaudited) (audited) (audited)

Fixed asset acquisitions through capital leases $ 268 $ 364 $ 2,898 $ 1,924

Interest paid 11,805 11,055 54,892 54,438

Income taxes paid 478 917 4,308 2,978

13. Employee future benefits

The Corporation and its subsidiaries offer their employees contributory defined benefit pension plans, a defined

contribution pension plan or a collective registered retirement savings plan which are described in the Corporation’s

annual consolidated financi al statements. The total expenses related to these pla ns are as follows:

Three months ended August 31, Twelve months ended August 31,

2006 2005 2006 2005

(unaudited) (unaudited) (audited) (audited)

Contributory defined benefit pension plans $ 426 $ 205 $ 1,044 $ 657

Defined contribution pension plan and collective

registered retirement savings plan

407

307

1,522

1,239

$ 833 $ 512 $ 2,566 $ 1,896

14. Comparative figures

Certain comparative figures have been reclassified in order to conform to the presentation adopted in the current

period.

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CUSTOMER GROWTH DRIVES COGECO CABLE’S FINANCIAL RESULTS

SUSTAINABILITY

Cogeco Fund

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