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

MONTREAL, QUEBEC, Jul 9, 2008 (Marketwire via COMTEX) -- CCA | Quote | Chart | News | PowerRating -- Today, Cogeco Cable Inc. (TSX:CCA) announced its financial results for the third quarter and first nine months ended May 31, 2008.

For the third quarter and first nine months of 2008:

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

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

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

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

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

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

External growth:

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

(1) Free cash flow does not have standard definitions prescribed by Canadian generally accepted accounting principles (GAAP) and should be treated accordingly. For more details, please consult the "Non-GAAP financial measures" section. (2) Represents the sum of Basic Cable, High Speed Internet (HSI), Digital Television and Telephony service customers.

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

Fiscal 2009 Preliminary Financial Guidelines:

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

FINANCIAL HIGHLIGHTS ------------------------------------------------------------------------- ------------------------------------------------------------------------- ($000, except Quarters ended May 31, Nine months ended May 31, percentages and per 2008 2007 Change 2008 2007 Change share data) $ $ % $ $ % ------------------------------------------------------------------------- (unaudited) (unaudited) (unaudited) (unaudited) Revenue 274,944 240,612 14.3 791,879 694,566 14.0 Operating income before amortization 117,490 97,874 20.0 324,308 268,327 20.9 Net income 31,142 20,381 52.8 101,416 48,323 - ------------------------------------------------------------------------- Cash flow from operations(1) 95,829 76,416 25.4 260,855 200,740 29.9 Less: Capital expenditures and increase in deferred charges 58,928 57,817 1.9 183,040 185,044 (1.1) Free cash flow(1) 36,901 18,599 98.4 77,815 15,696 - ------------------------------------------------------------------------- Earnings per share Basic 0.64 0.45 42.2 2.09 1.14 83.3 Diluted 0.64 0.45 42.2 2.08 1.13 84.1 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Cash flow from operations and free cash flow do not have standardized definitions prescribed by Canadian generally accepted accounting principles ("GAAP") and therefore, may not be comparable to similar measures presented by other companies. For more details, please consult the "Non-GAAP financial measures" section.

FORWARD-LOOKING STATEMENTS

Certain statements in this press release may constitute forward-looking information within the meaning of securities laws. Forward-looking information may relate to our future outlook and anticipated events, our business, our operations, our financial performance, our financial condition or our results, and, in some cases, can be identified by terminology such as "may"; "will"; "should"; "expect"; "plan"; "anticipate"; "believe"; "intend"; "estimate"; "predict"; "potential"; "continue"; "foresee", "ensure" or other similar expressions concerning matters that are not historical facts. In particular, statements regarding our future operating results and economic performance and our objectives and strategies are forward-looking statements. These statements are based on certain factors and assumptions, including expected growth, results of operations, performance and business prospects and opportunities, which we believe are reasonable as of the current date. While we consider these assumptions to be reasonable based on information currently available to us, they may prove to be incorrect. Forward-looking information is also subject to certain factors, including risks and uncertainties (described in the "Uncertainties and main risk factors" section of the Corporation's 2007 annual MD&A) that could cause actual results to differ materially from what we currently expect. These factors include technological changes, changes in market and competition, governmental or regulatory developments, general economic conditions, the development of new products and services, the enhancement of existing products and services and the introduction of competing products having technological or other advantages, many of which are beyond our control. Therefore, future events and results may vary significantly from what we currently foresee. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While we may elect to, we are under no obligation (and expressly disclaim any such obligation), and do not undertake, to update or alter this information before next quarter.

This analysis should be read in conjunction with the Corporation's financial statements, and the notes thereto, prepared in accordance with Canadian GAAP and the MD&A included in the Corporation's 2007 Annual Report. Throughout this discussion, all amounts are in Canadian dollars unless otherwise indicated.

MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)

CORPORATE STRATEGIES AND OBJECTIVES

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

(1) See the "Customer statistics" section for detailed explanations. (2) See the "Non-GAAP financial measures" section for explanations. Continuous improvement of the service offering and expansion of the customer base Canadian operations - Acquisitions: - June 30, conclusion of the acquisition of all assets of FibreWired Burlington Hydro Communications, Burlington Hydro Electric's telecommunications division (City of Burlington's energy company) to expand Cogeco Business Solutions' commercial broadband service offering in Burlington, Ontario; - June 13, announcement of the acquisition of all the shares of Toronto Hydro Telecom Inc., the telecommunications subsidiary of Toronto Hydro Corporation (City of Toronto's energy company); subject to certain conditions, including regulatory approval by the Commissioner of Competition, in order to further develop Cogeco Cable's business telecommunications activities by entering the Greater Toronto Area market; - March 31, conclusion of the acquisition of all the assets of MaXess Networx(R), ENWIN Energy Ltd.'s telecommunications division (City of Windsor's energy company) to strengthen Cogeco Business Solutions' Data offering in Windsor, Ontario. - High Speed Internet service: - June 7, launch of Wi-Fi Internet access at LaSalle Park in Burlington, Ontario; - May 7, launch of Wi-Fi Internet access in Quebec with the deployment of the first seven Quebec hotspots in Trois-Rivieres. - Digital Television services: - June 24, launch of Food Network On Demand, HGTV On Demand and National Geographic On Demand in Ontario territories; - May 6, launch of RDI HD and ARTV HD, two new High Definition (HD) channels in Quebec; - March 4, launch of Family On Demand in Ontario, a new On Demand service. - Telephony service: - June 24, launch of Telephony in Maitland and Prescott, Ontario; - June 17, launch of Telephony in Wickham, St-Cyrille-de-Wendover, Morin-Heights, Shawbridge, St-Germain-de-Grantham and St-Prosper-de- Dorchester, Quebec; - June 4, launch of Telephony in Tillbury, Ontario; - During the third quarter, the Telephony service was launched in the following cities: - St-Pie, St-Damase, Ste-Madeleine, Acton Vale, St-Thomas d'Aquin, St-Dominique-de-Bagot, Val-David, St-Donat-de-Montcalm, St-Faustin, St-Adolphe-d'Howard, Bic, Ste-Luce, Ste-Blandine, St-Fabien, St- Gedeon and St-Martin-de-Beauce in Quebec; - Kemptville, Acton, Winona, Smithville, Ridgeway, Huntsville, Bracebridge and Gravenhurst, in Ontario. - Customer service: - Opening of a Cogeco Cable store located in Drummondville, Quebec. European operations - Digital Television services: - Cabovisao - Televisao por Cabo, S.A. ("Cabovisao") continued its Digital Television service deployment. - Customer service: - Opening of two (2) new Cabovisao stores located in Paivas (Seixal) and Castelo Branco. Continuous improvement of networks and equipment - During the first nine months of fiscal 2008, the Corporation has invested approximately $71.8 million in its infrastructure including headends and upgrade/rebuild. Tight cost control over business processes - For the third quarter of 2008, consolidated operating costs increased by 10.3% while revenue grew by 14.3%; - The Portuguese cable subsidiary maintained tight control over its costs and continued to improve its business processes; - The design of internal controls over financial reporting as per National Instrument 52-109 is still underway. As discussed in the 2007 annual MD&A, the Corporation had identified certain material weaknesses in the design of internal controls over financial reporting and there has been improvement in the design of internal controls on some significant processes during the quarter. The documentation and remediation of internal controls weaknesses are progressing normally.

RGU growth

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

Revenue growth

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

Free cash flow

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

OPERATING RESULTS - CONSOLIDATED OVERVIEW ------------------------------------------------------------------------- ------------------------------------------------------------------------- Quarters ended May 31, Nine months ended May 31, ($000,except 2008 2007 Change 2008 2007 Change percentages) $ $ % $ $ % ------------------------------------------------------------------------- (unaudited) (unaudited) (unaudited) (unaudited) Revenue 274,944 240,612 14.3 791,879 694,566 14.0 Operating costs 157,454 142,738 10.3 458,857 417,671 9.9 Management fees - COGECO Inc. - - - 8,714 8,568 1.7 ------------------------------------------------------------------------- Operating income before amortization 117,490 97,874 20.0 324,308 268,327 20.9 ------------------------------------------------------------------------- Operating margin 42.7% 40.7% 41.0% 38.6% ------------------------------------------------------------------------- -------------------------------------------------------------------------

Revenue

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

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

Operating costs

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

Operating income before amortization

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

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

RELATED PARTY TRANSACTIONS

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

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

FIXED CHARGES -------------------------------------------------------------------------- -------------------------------------------------------------------------- Quarters ended May 31, Nine months ended May 31, ($000, except 2008 2007 Change 2008 2007 Change percentages) $ $ % $ $ % -------------------------------------------------------------------------- (unaudited) (unaudited) (unaudited) (unaudited) Amortization 58,209 47,278 23.1 166,885 135,159 23.5 Financial expense 17,372 21,273 (18.3) 51,243 66,045 (22.4) -------------------------------------------------------------------------- --------------------------------------------------------------------------

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

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

INCOME TAXES

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

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

NET INCOME

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

CASH FLOW AND LIQUIDITY ------------------------------------------------------------------------- ------------------------------------------------------------------------- Quarters ended May 31, Nine months ended May 31, ($000) 2008 2007 2008 2007 $ $ $ $ ------------------------------------------------------------------------- (unaudited) (unaudited) (unaudited) (unaudited) Operating activities Cash flow from operations 95,829 76,416 260,855 200,740 Changes in non-cash operating items 16,970 (23,029) (11,720) (101,545) ------------------------------------------------------------------------- 112,799 53,387 249,135 99,195 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Investing activities(1) (74,014) (53,548) (196,655) (179,801) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Financing activities(1) 17,957 (14,920) (36,466) 30,260 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents denominated in foreign currencies 1,063 (1,774) 1,265 1,486 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net change in cash and cash equivalents 57,805 (16,855) 17,279 (48,860) Cash and cash equivalents at beginning 23,682 39,511 64,208 71,516 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash and cash equivalents at end 81,487 22,656 81,487 22,656 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Excludes assets acquired under capital leases.

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

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

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

------------------------------------------------------------------------ ------------------------------------------------------------------------ Quarters ended May 31, Nine months ended May 31, ($000) 2008 2007 2008 2007 $ $ $ $ ------------------------------------------------------------------------ (unaudited) (unaudited) (unaudited) (unaudited) Customer Premise Equipment(1) 20,238 18,985 70,477 76,188 Scalable Infrastructure 8,627 10,940 30,726 31,700 Line Extensions 2,160 2,598 7,738 7,798 Upgrade / Rebuild 15,498 13,936 41,105 41,967 Support Capital 5,355 5,358 12,433 8,133 ------------------------------------------------------------------------ Total Capital Expenditures(2) 51,878 51,817 162,479 165,786 ------------------------------------------------------------------------ Deferred charges and Others 7,002 5,571 20,488 18,790 ------------------------------------------------------------------------ Business acquisition and related adjustments 16,105 (3,279) 16,105 (1,894) ------------------------------------------------------------------------ Decrease in restricted cash - - - (88) ------------------------------------------------------------------------ Total investing activities 74,985 54,109 199,072 182,594 ------------------------------------------------------------------------ ------------------------------------------------------------------------ (1) Includes mainly new and replacement drops as well as home terminal devices. (2) Includes capital leases, which are excluded from the statements of cash flow.

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

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

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

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

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

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

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

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

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

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

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

As at May 31, 2008, the Corporation had a working capital deficiency of $345.9 million compared to $120.7 million as at August 31, 2007. The greater deficiency is mainly attributable to the US$ 150 million Senior Secured Notes, Series A and the related derivative financial instruments of $91.3 million for an aggregate amount of $240.1 million due on October 31, 2008. Due to the nature of its business, Cogeco Cable maintains a working capital deficiency due to a low level of accounts receivable since the majority of the Corporation's customers pay before their services are rendered, contrary to accounts payable and accrued liabilities, which are paid after products or services are rendered, thus enabling the Corporation to use cash and cash equivalents to reduce Indebtedness.

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

FINANCIAL POSITION

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

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

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

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

In the normal course of business, Cogeco Cable has incurred financial obligations, primarily in the form of long-term debt, operating and capital leases and guarantees. Cogeco Cable's obligations, as discussed in the 2007 annual MD&A, have not materially changed since August 31, 2007, with the exception of the new financing discussed in the "Cash Flow and Liquidity" section.

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

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

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

DIVIDEND DECLARATION

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

FOREIGN EXCHANGE MANAGEMENT

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

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

CANADIAN OPERATIONS CUSTOMER STATISTICS ----------------------------------------------------------------------- ----------------------------------------------------------------------- Net additions (losses) Quarters ended Nine months ended May 31, May 31, May 31, 2008 2008 2007 2008 2007 ----------------------------------------------------------------------- RGUs(2) 1,948,999 36,658 35,768 160,491 192,916 Basic Cable service customers 858,570 (520) (2,910) 9,413 18,607 HSI service customers 464,668 8,480 11,030 48,832 60,393 Digital Television service customers 425,596 11,585 8,583 45,717 43,768 Telephony service customers 200,165 17,113 19,065 56,529 70,148 ----------------------------------------------------------------------- ----------------------------------------------------------------------- % of Penetration(1) May 31, 2008 2007 ----------------------------------------------------------------------- RGUs(2) Basic Cable service customers HSI service customers 57.5 50.7 Digital Television service customers 50.4 44.5 Telephony service customers 28.1 18.5 ----------------------------------------------------------------------- ----------------------------------------------------------------------- (1) As a percentage of Basic Cable service customers in areas served. (2) Represents the sum of Basic Cable service, HSI service, Digital Television service and Telephony service customers.

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

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

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

OPERATING RESULTS -------------------------------------------------------------------------- -------------------------------------------------------------------------- Quarters ended May 31, Nine months ended May 31, ($000, except 2008 2007 Change 2008 2007 Change percentages) $ $ % $ $ % -------------------------------------------------------------------------- (unaudited) (unaudited) (unaudited) (unaudited) Revenue 210,928 182,763 15.4 612,337 525,620 16.5 Operating costs 117,580 103,778 13.3 342,949 305,733 12.2 Management fees - COGECO Inc. - - - 8,714 8,568 1.7 -------------------------------------------------------------------------- Operating income before amortization 93,348 78,985 18.2 260,674 211,319 23.4 -------------------------------------------------------------------------- Operating margin 44.3% 43.2% 42.6% 40.2% -------------------------------------------------------------------------- --------------------------------------------------------------------------

Revenue

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

- In the second half of fiscal 2007: - In March 2007; a monthly rate increase of $3 per Digital Television service customer in Ontario; - In April 2007; a monthly rate increase of $3 per Digital Television service customer in Quebec and a rate increase of $1.50 per Analogue Value Pak service customer in Ontario. These rate increases represent an average increase of approximately $1.25 per Basic Cable service customer. - In the first quarter of fiscal 2008: - In October 2007 in Quebec; a rate increase of between $1 and $2 per Analogue Basic Cable service customer without a bundle, a rate increase of $0.50 per basic and tier service customer without a bundle, and rate increases from $2 to $5 per HSI Lite service customer and $5 per HSI Standard stand-alone service customer; - In November 2007 in Ontario; a rate increase of between $1 and $2 per Analogue Basic Cable service customer without a bundle, and rate increases from $2 to $5 per HSI Lite service customer and $5 per HSI Standard stand-alone service customer. - Finally, a rebate of $5 per Telephony service customer with two services bundled offers was also introduced in fiscal 2008 in Ontario and in Quebec. These rate adjustments implemented in fiscal 2008 represent an average increase of approximately $0.50 per Basic Cable service customer.

Operating costs

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

Operating income before amortization

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

EUROPEAN OPERATIONS CUSTOMER STATISTICS --------------------------------------------------------------------- --------------------------------------------------------------------- Net additions (losses) Quarters ended Nine months ended May 31, May 31, May 31, 2008 2008 2007 2008 2007 --------------------------------------------------------------------- RGUs(2) 726,775 14,231 16,666 29,618 58,196 Basic Cable service customers 300,591 (1,069) 5,694 6,588 19,553 HSI service customers 164,310 (1,615) 5,424 4,287 20,809 Digital Television service customers 14,470 14,470 - 14,470 - Telephony service customers 247,404 2,445 5,548 4,273 17,834 --------------------------------------------------------------------- --------------------------------------------------------------------- % of Penetration(1) May 31, 2008 2007 --------------------------------------------------------------------- RGUs(2) Basic Cable service customers HSI service customers 54.7 54.3 Digital Television service customers 4.8 - Telephony service customers 82.3 83.3 --------------------------------------------------------------------- --------------------------------------------------------------------- (1) As a percentage of Basic Cable service customers in areas served. (2) Represents the sum of Basic Cable service, HSI service and Telephony service customers.

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

OPERATING RESULTS -------------------------------------------------------------------------- -------------------------------------------------------------------------- Quarters ended May 31, Nine months ended May 31, ($000, except 2008 2007 Change 2008 2007 Change percentages) $ $ % $ $ % -------------------------------------------------------------------------- (unaudited) (unaudited) (unaudited) (unaudited) Revenue 64,016 57,849 10.7 179,542 168,946 6.3 Operating costs 39,874 38,960 2.3 115,908 111,938 3.5 -------------------------------------------------------------------------- Operating income before amortization 24,142 18,889 27.8 63,634 57,008 11.6 -------------------------------------------------------------------------- Operating margin 37.7% 32.7% 35.4% 33.7% -------------------------------------------------------------------------- --------------------------------------------------------------------------

Revenue

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

Operating costs

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

Operating income before amortization

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

FISCAL 2009 PRELIMINARY FINANCIAL GUIDELINES

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

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

The revenue increase of approximately 10% should come from the combined Canadian and European operations. The Canadian operations revenue should increase by approximately 13% from continued deployment of Telephony service, by expanded penetration of HSI service and Digital Television services in fiscal 2008 and 2009 and the impact of the rate increases implemented in fiscal 2008 in Ontario and in Quebec, averaging $1.75 per Basic Cable service cus

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