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COGECO Reports Strong Results for the Third Quarter of Fiscal 2014

- Adjusted EBITDA(1) increased by 5.5% and 18.3% compared to the third quarter and the first nine months periods of the prior year; and - Quarterly dividend of $0.22 per share, an increase of 15.8% compared to the same period last year.

Wednesday, July 09, 2014

COGECO Reports Strong Results for the Third Quarter of Fiscal 2014

21:12 EDT Wednesday, July 09, 2014

MONTRÉAL, QUÉBEC--(Marketwired - July 9, 2014) - Today, COGECO Inc. (TSX:CGO) ("COGECO" or the "Corporation") announced its financial results for the third quarter of fiscal 2014, ended May 31, 2014, in accordance with International Financial Reporting Standards ("IFRS").

For the third quarter and first nine months of fiscal 2014:

• Third quarter revenue increased by $31.6 million, or 6.3%, to reach $536.1 million mainly driven by growth in the Cable segment through the organic growth from all of our operating segments as well as favorable foreign exchange rates in our foreign operations. For the nine-month period ended May 31, 2014, revenue reached close to $1.6 billion, an increase of $242.0 million or 18.2%. Revenue increase is mainly attributable to the full year impact of the acquisitions, in the Cable segment, of Atlantic Broadband and Peer 1 Hosting(2) ("the recent acquisitions") which both occurred during fiscal 2013 combined with the organic growth from all of our operating segments and the favorable foreign exchange rates in our foreign operations;

• Adjusted EBITDA(1) increased by 5.5% to $233.1 million compared to the third quarter of fiscal 2013, and by 18.3% to $678.9 million for the first nine months when compared to the same period of the prior year. The rapid progression for both periods resulted mainly from the recent acquisitions and the organic growth as well as the favorable foreign exchange rates from our foreign operations compared to the same period of last year;

• During the third quarter of fiscal 2014, the Corporation's indirect cable subsidiary, Cogeco Cable Canada, recognized an impairment of $32.2 million of property, plant and equipment, capitalized wages and borrowing costs related to an Internet Protocol Television ("IPTV") solution project on which its Canadian operations had worked. As a result of the unexpected performance issues encountered with the platform, it had to be abandoned by Cogeco Cable Canada.

Subsequently, in order to enhance its competitiveness, the Cogeco Cable Canada subsidiary has concluded a partnership with TiVo Inc. ("TiVo"), a global leader in next-generation television services that enable viewers to consume content across all screens in and out-of-the home to be launched at Cogeco Cable Canada by mid-fiscal 2015. The TiVo solution was successfully launched in the first half of fiscal 2014 at Cogeco Cable's subsidiary, Atlantic Broadband with great customer acceptance;

• Profit for the third quarter amounted to $35.6 million of which $11.5 million, or $0.69 per share, is attributable to owners of the Corporation compared to profit of $50.0 million for the same period in fiscal 2013 of which $17.2 million, or $1.03 per share, is attributable to owners of the Corporation. The decline for the quarter is attributable to the impairment of property, plant and equipment explained above, partly offset by the improvement of the adjusted EBITDA. For the first nine months of fiscal 2014, profit for the period amounted to $150.9 million of which $51.9 million, or $3.10 per share, is attributable to owners of the Corporation compared to profit for the period of $146.1 million for the first nine months of fiscal 2013 of which $50.4 million, or $3.01 per share is attributable to owners of the Corporation. Profit progression for the period is mostly attributable to the improvement of the Cable segment's adjusted EBITDA stemming from the recent acquisitions and organic growth as well as the decrease in integration, restructuring and acquisition costs, partly offset by the impairment of property, plant and equipment explained above as well as the increases in financial expense and depreciation and amortization expense essentially related to the recent acquisitions;

• Third quarter free cash flow(1) reached $91.5 million compared to $44.7 million in the comparable quarter of the prior year. This increase is mainly due to the improvement of adjusted EBITDA explained above and the decrease in acquisitions of property, plant and equipment due to the timing of certain initiatives. For the nine-month period, free cash flow amounted to $255.6 million, compared to $97.1 million for the same period of fiscal 2013. The increase is mostly attributable to the improvement of adjusted EBITDA, the decrease in acquisitions of property, plant and equipment due to the timing of certain initiatives as well as the decrease in integration, restructuring and acquisition costs, partly offset by the increase in financial expense as a result of higher indebtedness level from the recent acquisitions;

• Fiscal 2014 third-quarter cash flow from operating activities reached $184.7 million compared to $167.6 million, an increase of $17.1 million or 10.2%, compared to the same period of the prior year. The increase is mainly attributable to the improvement of the adjusted EBITDA and the increase in non-cash operating activities, partly offset by the increase in financial expense paid. For the first nine months of fiscal 2014, cash flow from operating activities reached $432.6 million compared to $318.7 million, an increase of $113.8 million, or 35.7%, compared to the same period in fiscal 2013. The increase is mainly attributable to the improvement of the adjusted EBITDA as well as the decreases in integration, restructuring and acquisition costs and income taxes paid, partly offset by the increase in financial expense paid;

• A quarterly dividend of $0.22 per share was paid to the holders of subordinate and multiple voting shares, an increase of $0.03 per share, or 15.8%, when compared to a dividend of $0.19 per share paid in the third quarter of fiscal 2013. Dividend payments in the first nine-months totaled $0.66 per share in fiscal 2014, compared to $0.57 per share in fiscal 2013; and

• On March 5, 2014, the Corporation completed, pursuant to a private placement, the issuance of $50 million of Senior Unsecured Notes for net proceeds of $48.7 million, net of transaction costs of approximately $1.3 million. These unsecured notes bear interest at 6.00% per annum payable semi-annually and mature on March 5, 2020. The net proceeds of the Senior Unsecured Notes was used to reimburse a portion of the Corporation's Term Revolving Facility of $100 million which facility was consequently reduced to $50 million.

(1) The indicated terms do not have standard definitions prescribed by IFRS and therefore, may not be comparable to similar measures presented by other companies. For more details, please consult the "Non-IFRS financial measures" section of the Management's discussion and analysis.
(2) Peer 1 Hosting refers to Peer 1 Network (USA) Holdings Inc., Peer 1 (UK) Ltd. and Peer 1 Network Enterprises, Inc.

"I am happy to report that COGECO has generated solid financial results for its third quarter of 2014. The cable segment continues to grow and most of our performance indicators are on target with our objectives. These solid results demonstrate that with strong cost controls and a dynamic marketing strategy, Cogeco Cable continues to grow in this highly competitive industry," declared Louis Audet, President and Chief Executive Officer of COGECO Inc.

"Moreover, I am delighted that we were able to build on the success achieved by the TiVo video platform at our Atlantic Broadband subsidiary by extending our partnership to bring this world leading platform to our Canadian customers at our Cogeco Cable Canada subsidiary. We expect to launch by mid-fiscal 2015. Excluding the impact of the impairment related to the prior attempt at developing an alternate IPTV video platform, we expect to meet our fiscal 2014 guidance" added Louis Audet.

"We are also pleased with the financial results of our media business. The radio ratings of Cogeco Diffusion confirm our leadership in the Montreal market and good performance in most of our other markets across the province of Quebec. Furthermore, our transit advertising business, Cogeco Métromédia, continues to show improvements," concluded Louis Audet.

ABOUT COGECO

COGECO (www.cogeco.ca) is a diversified holding corporation. Through its Cogeco Cable Inc. subsidiary, COGECO provides to its residential and business customers analogue and digital television, high speed Internet and telephony services with its two-way broadband fibre networks. Cogeco Cable Inc. operates in Canada under the Cogeco Cable Canada name in Quebec and Ontario, and in the United States under the Atlantic Broadband name in Western Pennsylvania, Southern Florida, Maryland/Delaware and South Carolina. Through its subsidiaries, Cogeco Data Services and Peer 1 Hosting, Cogeco Cable Inc. provides to its commercial customers a suite of information technology services (colocation, managed and dedicated Hosting, managed IT, cloud and connectivity services) with 20 data centres, extensive fibre networks in Montreal and Toronto as well as points-of-presence in North America and Europe. Through its subsidiary, Cogeco Diffusion, COGECO owns and operates 13 radio stations across most of Quebec with complementary radio formats serving a wide range of audiences as well as Cogeco News, its news agency. COGECO also operates Métromédia, an out-of-home advertising company specialized in the public transit sector. COGECO's subordinate voting shares are listed on the Toronto Stock Exchange (TSX:CGO). The subordinate voting shares of Cogeco Cable Inc. are also listed on the Toronto Stock Exchange (TSX:CCA).

Analyst Conference Call: Thursday , July 10, 2014 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 five minutes before the start of the conference:
Canada/USA Access Number: 1 800-820-0231
International Access Number: + 1 416-640-5926
Confirmation Code: 2083261
By Internet at www.cogeco.ca/investors
A rebroadcast of the conference call will be available until July16, 2014, by dialing:
Canada and US access number: 1 888-203-1112
International access number: + 1 647-436-0148
Confirmation code: 2083261

FINANCIAL HIGHLIGHTS

Quarters ended Nine months ended
(in thousands of dollars, except percentages and per share data) May 31,
2014
May 31,
2013 (2)

Change
May 31,
2014
May 31,
2013 (2)

Change
$ $ % $ $ %
Operations
Revenue 536,067 504,434 6.3 1,571,515 1,329,543 18.2
Adjusted EBITDA(1) 233,083 220,878 5.5 678,930 574,034 18.3
Impairment of property, plant and equipment 32,197 - - 32,197 - -
Profit for the period 35,635 49,995 (28.7 ) 150,941 146,051 3.3
Profit for the period attributable to owners of the Corporation 11,469 17,185 (33.3 ) 51,915 50,391 3.0
Cash Flow
Cash flow from operating activities 184,706 167,641 10.2 432,552 318,731 35.7
Cash flow from operations(1) 176,491 158,172 11.6 509,128 399,797 27.3
Acquisitions of property, plant and equipment, intangible and other assets 84,960 113,492 (25.1 ) 253,537 302,666 (16.2 )
Free cash flow(1) 91,531 44,680 - 255,591 97,131 -
Financial Condition (3)
Property, plant and equipment - - - 1,794,227 1,874,866 (4.3 )
Total assets - - - 5,407,774 5,453,835 (0.8 )
Indebtedness(4) - - - 2,964,153 3,054,275 (3.0 )
Equity attributable to owners of the Corporation - - - 500,119 456,905 9.5
Per Share Data (5)
Earnings per share
Basic 0.69 1.03 (33.0 ) 3.10 3.01 3.0
Diluted 0.68 1.02 (33.3 ) 3.08 2.99 3.0
(1) The indicated terms do not have standardized definitions prescribed by International Financial Reporting Standards ("IFRS") and therefore, may not be comparable to similar measures presented by other companies. For more details, please consult the "Non-IFRS financial measures" section of the Management's discussion and analysis ("MD&A").
(2) Comparative figures have been adjusted to comply with the adoption of IAS 19 - Employee Benefits. For further details, please refer to Note 2 of the condensed interim consolidated financial statements.
(3) At May 31, 2014 and August 31, 2013.
(4) Indebtedness is defined as the aggregate of bank indebtedness, principal on long-term debt, balance due on a business combination and obligations under derivative financial instruments.
(5) Per multiple and subordinate voting share.

MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)

Three and nine-month periods ended May 31, 2014

FORWARD-LOOKING STATEMENTS

Certain statements in this Management's Discussion and Analysis ("MD&A") may constitute forward-looking information within the meaning of securities laws. Forward-looking information may relate to COGECO's future outlook and anticipated events, business, operations, financial performance, financial condition or 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 the Corporation's future operating results and economic performance and its 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 COGECO believes are reasonable as of the current date. While management considers these assumptions to be reasonable based on information currently available to the Corporation, they may prove to be incorrect. The Corporation cautions the reader that the economic downturn experienced over the past few years makes forward- looking information and the underlying assumptions subject to greater uncertainty and that, consequently, they may not materialize, or the results may significantly differ from the Corporation's expectations. It is impossible for COGECO to predict with certainty the impact that the current economic uncertainties may have on future results. 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 2013 annual MD&A as well as in the present MD&A) that could cause actual results to differ materially from what COGECO currently expects. These factors include namely risks pertaining to markets and competition, technology, regulatory developments, operating costs, information systems, disasters or other contingencies, financial risks related to capital requirements, human resources, controlling shareholder and holding structure, many of which are beyond the Corporation's control. Therefore, future events and results may vary significantly from what management currently foresees. The reader should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While management may elect to, the Corporation is under no obligation and does not undertake to update or alter this information at any particular time, except as may be required by law.

All amounts are stated in Canadian dollars unless otherwise indicated. This report should be read in conjunction with the Corporation's condensed interim consolidated financial statements and the notes thereto for the three and nine-month periods ended May 31, 2014, prepared in accordance with the International Financial Reporting Standards ("IFRS") and the MD&A included in the Corporation's 2013 Annual Report.

CORPORATE OBJECTIVES AND STRATEGIES

COGECO's objectives are to provide outstanding service to its customers and maximize shareholder value by increasing profitability and ensuring continued revenue growth. The strategies employed to reach these objectives, supported by tight controls over costs and business processes, are specific to each segment. The main strategies used to reach COGECO's objectives in the Cable segment focus on expanding its service offering, enhancing its existing services and bundles, improving customer experience and business processes as well as keeping a sound capital management and a strict control over spending. The radio activities focus on continuous improvement of its programming in order to increase its market share and thereby its profitability. The Corporation measures its performance, with regard to these objectives by monitoring adjusted EBITDA(1) and free cash flow(1).

KEY PERFORMANCE INDICATORS

ADJUSTED EBITDA

For the nine-month period ended May 31, 2014, adjusted EBITDA increased by 18.3% to reach $678.9 million compared to the same period of fiscal 2013. Improvement in the adjusted EBITDA is mainly attributable to the acquisitions, in the Cable segment, of Atlantic Broadband and Peer 1 Hosting(2) (the "recent acquisitions") which occurred at the end of the first quarter and in the second quarter of fiscal 2013, respectively, combined with the favorable foreign exchange rates benefiting our foreign operations and the financial results improvement from organic growth.

FREE CASH FLOW

For the nine-month period ended May 31, 2014, COGECO reported free cash flow of $255.6 million, an increase of $158.5 million compared to $97.1 million for the same period of the previous fiscal year. This variance is mostly attributable to the improvement of adjusted EBITDA explained above, the decrease in acquisitions of property, plant and equipment due to the timing of certain initiatives as well as the decrease in integration, restructuring and acquisition costs, partly offset by the increase in financial expense due to higher indebtedness level from the recent acquisitions.

BUSINESS DEVELOPMENTS AND OTHER

BBM Canada's spring 2014 survey in the Montréal region, conducted with the Portable People Meter ("PPM"), reported that 98.5 FM is the leading radio station in the Montreal French market amongst all listeners as well as men two years old and over ("2+"), while Rythme FM has maintained its leadership position in the women 2+ segment among the musical stations. Regarding the Montreal English market, The Beat is the leading radio station in the women 35-64 segment. In most of the Quebec regions, our radio stations registered good ratings.

During the third quarter of fiscal 2014, the Corporation's indirect cable subsidiary, Cogeco Cable Canada, recognized an impairment of $32.2 million of property, plant and equipment, capitalized wages and borrowing costs related to an Internet Protocol Television ("IPTV") solution project on which its Canadian operations had worked. As a result of the unexpected performance issues encountered with the platform, it had to be abandoned by Cogeco Cable Canada. Subsequently, in order to enhance its competitiveness, the Cogeco Cable Canada subsidiary has concluded a partnership with TiVo Inc. ("TiVo"), a global leader in next-generation television services that enable viewers to consume content across all screens in and out-of-the home to be launched at Cogeco Cable Canada by mid-fiscal 2015. The TiVo solution was successfully launched in the first half of fiscal 2014 at Cogeco Cable's subsidiary, Atlantic Broadband with great customer acceptance.

On June 30, 2014, Cogeco Cable's subsidiary, Atlantic Broadband, amended its First Lien Credit Facilities. Pursuant to the amendment, US$15 million of the Term Loan A Facility was converted into the Revolving Facility. In addition, the Revolving Facility was increased by US$35 million of which the proceeds were used to reimburse a portion of the Term Loan B. Giving effect to this amendment, the combined amounts borrowed under the Term Loan A, Term Loan B and the Revolving Facility have not changed. All other terms and conditions related to covenants, interest rates and maturity remained the same. In connection with the amendment, transaction costs of US$0.4 million were incurred which are expected to be more than off-set by interest expense savings over the next year.

(1) The indicated terms do not have standardized definitions prescribed by IFRS and therefore, may not be comparable to similar measures presented by other companies. For more details, please consult the "Non-IFRS financial measures" section.
(2) Peer 1 Hosting refers to Peer 1 Network (USA) Holdings Inc., Peer 1 (UK) Ltd. and Peer 1 Network Enterprises, Inc.

OPERATING AND FINANCIAL RESULTS

OPERATING RESULTS

Quarters ended Nine months ended
(in thousands of dollars, except percentages) May 31,
2014
$
May 31,
2013 (1)
$

Change
%
May 31,
2014
$
May 31,
2013 (1)
$

Change
%
Revenue 536,067 504,434 6.3 1,571,515 1,329,543 18.2
Operating expenses 302,984 283,556 6.9 892,585 755,509 18.1
Adjusted EBITDA 233,083 220,878 5.5 678,930 574,034 18.3
(1) Comparative figures have been adjusted to comply with the adoption of IAS 19 - Employee Benefits. For further details, please refer to Note 2 of the condensed interim consolidated financial statements.

REVENUE

Fiscal 2014 third-quarter revenue increased by $31.6 million or 6.3%, to reach $536.1 million. For the first nine months, revenue amounted to approximately $1.6 billion, an increase of $242.0 million, or 18.2% compared to the first nine months of fiscal 2013. The increase for both periods is mainly attributable to the Cable segment as explained below as well as from the improvement of the media business activities for the first nine months.

In the Cable segment, fiscal 2014 third-quarter revenue increased by $32.0 million, or 6.9%, to reach $496.4 million compared to the same period of last year. Revenue increased organically from all of our operating units combined with favorable foreign exchange rates for our foreign operations. For the first nine months of fiscal 2014, revenue amounted to approximately $1.5 billion, an increase of $235.4 million, or 19.3%, compared to the same period of fiscal 2013. Revenue increased was mainly attributable to the full year impact of the recent acquisitions which both occurred during fiscal 2013 combined with the organic growth from all of our operating segments and favorable foreign exchange rates in our foreign operations. For further details on the Cable segment's revenue, please refer to the "Cable segment" section.

OPERATING EXPENSES

For the third quarter of fiscal 2014, operating expenses increased by $19.4 million, to reach $303.0 million, an increase of 6.9% compared to the prior year. For the first nine months of the fiscal year, operating expenses amounted to $892.6 million, an increase of $137.1 million, or 18.1%, compared to the same period of fiscal 2013. The increase is mainly attributable to the Cable segment operating results.

Operating expenses in the Cable segment for the third quarter of fiscal 2014 increased by $17.7 million, to reach $267.1 million, an increase of 7.1% compared to the prior year. For the first nine months of the fiscal year, operating expenses amounted to $785.2 million, an increase of $130.9 million, or 20.0%, compared to the same period of fiscal 2013. Operating expenses increased was due to the full year impact of the recent acquisitions and the appreciation of the US dollar and British Pound currency compared to the Canadian dollar.

ADJUSTED EBITDA

Fiscal 2014 third-quarter adjusted EBITDA increased by $12.2 million, or 5.5%, to reach $233.1 million, of which the Cable segment contributed $229.4 million to the consolidated adjusted EBITDA. For the first nine months of fiscal 2014, the adjusted EBITDA increased by $104.9 million, or 18.3%, to reach $678.9 million, of which $662.5 million was contributed by the Cable segment. The increase for the quarter in the Cable segment is mainly attributable to the improvement from all of our operating segments as well as the favorable foreign exchange rates from our foreign operations compared to the same periods of last year while the increase for the first nine months is largely attributable to the full impact of the recent acquisitions. For further details on Cogeco Cable's operating results, please refer to the "Cable segment" section.

FIXED CHARGES

Quarters ended Nine months ended
(in thousands of dollars, except percentages) May 31,
2014
$
May 31,
2013 (1)
$

Change
%
May 31,
2014
$
May 31,
2013 (1)
$

Change
%
Depreciation and amortization 118,926 112,867 5.4 350,475 272,831 28.5
Financial expense 34,071 36,776 (7.4 ) 102,485 84,899 20.7
(1) Comparative figures have been adjusted to comply with the adoption of IAS 19 - Employee Benefits. For further details, please refer to Note 2 of the condensed interim consolidated financial statements.

For the three and nine-month periods ended May 31, 2014, depreciation and amortization expense amounted to $118.9 million and $350.5 million, respectively, compared to $112.9 million and $272.8 million for the same periods of last year. The increase for the quarter is mostly attributable to the appreciation of the US dollar and the British Pound currency compared to the Canadian dollar. The increase for the first nine months of fiscal 2014 results mainly from the full year impact of the recent acquisitions, which occurred at the end of the first quarter and in the second quarter of fiscal 2013 and by the currency appreciation of the US dollar and the British Pound compared to the Canadian dollar.

Fiscal 2014 third-quarter financial expense decreased by $2.7 million, or 7.4%, amounting to $34.1 million compared to $36.8 million in fiscal 2013 third-quarter as a result of a lower indebtedness level. For the first nine months of fiscal 2014, financial expense increased by $17.6 million, or 20.7%, at $102.5 million, compared to $84.9 million in the prior year as a result of the full year impact of financing costs related to the recent acquisitions in the Cable segment.

IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT

During the third quarter of fiscal 2014, the Corporation's indirect cable subsidiary, Cogeco Cable Canada, recognized an impairment of $32.2 million of property, plant and equipment, capitalized wages and borrowing costs related to an IPTV solution project on which its Canadian operations had worked. As a result of the unexpected performance issues encountered with the platform, it had to be abandoned by Cogeco Cable Canada.

INCOME TAXES

For the three and nine-month periods ended May 31, 2014, income tax expense amounted to $9.1 million and $39.1 million, respectively, compared to $19.1 million and $53.3 million, respectively, for the comparable periods in the prior year. The decrease is mostly attributable to the impairment of property, plant and equipment, the increase in fixed charges as well as the favorable impact of the tax structure following the recent acquisitions in the Cable segment, partly offset by the improvement in adjusted EBITDA.

PROFIT FOR THE PERIOD

For the three and nine-month periods ended May 31, 2014, profit for the period amounted to $35.6 million and $150.9 million, of which $11.5 million and $51.9 million, or $0.69 and $3.10 per share, are attributable to owners of the Corporation. For the comparable periods of fiscal 2013, profit for the period amounted to $50.0 million and $146.1 million, of which $17.2 million and $50.4 million, or $1.03 and $3.01 per share, was attributable to owners of the Corporation. The decline for the third quarter is attributable to the impairment of property, plant and equipment explained above, partly offset by the improvement of the adjusted EBITDA. Profit progression for the first nine months of fiscal 2014 is mostly attributable to the improvement of the adjusted EBITDA explained above as well as the decrease in integration, restructuring and acquisition costs, partly offset by the impairment of property, plant and equipment and the increase in fixed charges explained above.

The non-controlling interest represents a participation of approximately 68% in Cogeco Cable's results. For fiscal 2014 three and nine-month periods, the profit for the period attributable to non-controlling interest amounted to $24.2 million and $99.0 million compared to $32.8 million and $95.7 million in fiscal 2013.

CASH FLOW ANALYSIS

Quarters ended Nine months ended


(in thousands of dollars)
May 31,
2014
$
May 31,
2013 (2)
$
May 31,
2014
$
May 31,
2013 (2)
$
Cash flow from operations(1) 176,491 158,172 509,128 399,797
Changes in non-cash operating activities 13,340 (5,443 ) (82,379 ) (80,194 )
Amortization of deferred transaction costs and discounts on long-term debt (2,007 ) (3,520 ) (5,856 ) (7,237 )
Income taxes paid (16,672 ) (17,031 ) (55,888 ) (79,490 )
Current income tax expense 23,693 27,563 72,378 76,227
Financial expense paid (44,210 ) (28,876 ) (107,316 ) (75,271 )
Financial expense 34,071 36,776 102,485 84,899
Cash flow from operating activities 184,706 167,641 432,552 318,731
Cash flow from investing activities (84,935 ) (135,812 ) (252,932 ) (2,308,490 )
Cash flow from financing activities (123,482 ) (35,540 ) (194,277 ) 1,812,085
Effect of exchange rate changes on cash and cash equivalents denominated in foreign currencies (535 ) 1,089 1,390 1,794
Net change in cash and cash equivalents (24,246 ) (2,622 ) (13,267 ) (175,880 )
Cash and cash equivalents, beginning of the period 54,772 42,265 43,793 215,523
Cash and cash equivalents, end of the period 30,526 39,643 30,526 39,643
(1) The indicated terms do not have standard definitions prescribed by IFRS and therefore, may not be comparable to similar measures presented by other companies. For more details, please consult the "Non-IFRS financial measures" section of the Management's discussion and analysis.
(2) Comparative figures have been adjusted to comply with the adoption of IAS 19 - Employee Benefits. For further details, please refer to Note 2 of the condensed interim consolidated financial statements.

OPERATING ACTIVITIES

Fiscal 2014 third-quarter cash flow from operating activities reached $184.7 million compared to $167.6 million, an increase of $17.1 million or 10.2%, compared to the same period of prior year. The increase is mainly explained by the improvement of adjusted EBITDA of $12.2 million and by the increase of $18.8 million in non-cash operating activities as a result of an increase in trade and other payables compared to a decrease in the comparable period, partly offset by an increase of financial expense paid of $15.3 million. For the first nine months of fiscal 2014, cash flow from operating activities reached $432.6 million compared to $318.7 million, an increase of $113.8 million, or 35.7%, compared to the same period in fiscal 2013. The increase is mainly explained by the improvement of adjusted EBITDA of $104.9 million combined with a decrease of $23.6 million in income taxes paid and a decrease of $13.1 million in integration, restructuring and acquisition costs, partly offset by an increase of financial expense paid of $32.0 million.

For the three and nine-month periods ended May 31, 2014, cash flow from operations amounted to $176.5 million and $509.1 million, respectively, compared to $158.2 million and $399.8 million for the comparable periods in fiscal 2013 representing increases of $18.3 million, or 11.6%, and $109.3 million, or 27.3%, respectively. For both periods, the increases are mainly explained by the improvement of adjusted EBITDA of $12.2 million and $104.9 million, respectively.

INVESTING ACTIVITIES

For the three and nine-month periods ended May 31, 2014, investing activities amounted to $84.9 million and $252.9 million, respectively, mainly due to the acquisitions of property, plant and equipment, intangible and other assets. For the comparable periods of fiscal 2013, investing activities amounted to $135.8 million and $2.3 billion explained below.

BUSINESS COMBINATIONS IN FISCAL 2013

On January 31, 2013 and on April 3, 2013, the Corporation's subsidiary, Cogeco Cable Inc., acquired 100% of the issued and outstanding shares of Peer 1 Hosting one of the world's leading internet infrastructure providers, specializing in managed hosting, dedicated servers, cloud services and colocation. During the second quarter of fiscal 2014, Cogeco Cable finalized the purchase price allocation of Peer 1 Hosting which had no impact on the statement of profit or loss and comprehensive income for the three and nine-month periods ended May 31, 2013. The impact of the finalization on the statement of financial position at August 31, 2013, increased income tax receivable by $0.7 million, increased deferred tax assets by $4.4 million, decreased intangibles assets by $0.9 million, decreased goodwill by $2.8 million, increased deferred tax liabilities by $2.5 million, decreased accumulated other comprehensive income by $0.4 million and decreased non-controlling interest by $0.8 million.

On November 30, 2012, the Corporation's subsidiary, Cogeco Cable Inc., completed the acquisition of all the outstanding shares of Atlantic Broadband, an independent cable system operator formed in 2003, providing Analogue and Digital Television, as well as HSI and Telephony services to residential and small and medium business customers. During the first quarter of fiscal 2014 Cogeco Cable finalized the purchase price allocation of Atlantic Broadband which remained unchanged since the last adjustments made in the fourth quarter of fiscal 2013.

The final purchase price allocations of Atlantic Broadband and Peer 1 Hosting are as follows:

Peer 1 Atlantic
Hosting Broadband TOTAL
Final Final Final
$ $ $
Consideration
Paid
Purchase of shares 494,796 337,779 832,575
Working capital adjustments - 5,415 5,415
Repayment of secured debts and settlement of options outstanding 170,872 1,021,854 1,192,726
665,668 1,365,048 2,030,716
Net assets acquired
Cash and cash equivalents 10,840 5,480 16,320
Restricted cash 8,729 - 8,729
Trade and other receivables 12,772 12,012 24,784
Prepaid expenses and other 3,855 1,370 5,225
Income tax receivable 2,797 3,907 6,704
Other assets 2,462 - 2,462
Property, plant and equipment 150,013 302,211 452,224
Intangible assets 144,231 711,418 855,649
Goodwill 410,454 522,215 932,669
Deferred tax assets 8,872 98,592 107,464
Trade and other payables assumed (26,512 ) (27,620 ) (54,132 )
Provisions - (721 ) (721 )
Deferred and prepaid revenue and other liabilities assumed (3,388 ) (7,697 ) (11,085 )
Long-term debt assumed (1,735 ) - (1,735 )
Deferred tax liabilities (57,722 ) (256,119 ) (313,841 )
665,668 1,365,048 2,030,716

ACQUISITIONS OF PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE AND OTHER ASSETS

For the three and nine-month periods ended May 31, 2014, acquisition of property, plant and equipment amounted to $80.0 million and $239.9 million compared to $109.0 million and $289.0 million for the same periods of fiscal 2013, respectively, mainly as a result of the following factors in the Cable segment:

• A decrease in the quarter and for the nine-month period ended May 31, 2014 in scalable infrastructure and network upgrades and rebuild due to the deployment in fiscal 2012 and early fiscal 2013 of advanced technologies such as DOCSIS 3.0 and Switched Digital Video in existing areas served; and

• An increase in customer premise equipment for the three and nine-month periods ended May 31, 2014 mainly due to the launch of TiVo's digital entertainment services in the United States.

For the third quarter and the first nine months of fiscal 2014, the acquisition of intangible and other assets amounted to $4.9 million and $13.7 million, compared to $4.5 million and $13.7 million for the same periods last year, respectively.

FREE CASH FLOW AND FINANCING ACTIVITIES

In the third quarter of fiscal 2014, free cash flow amounted to $91.5 million, an increase of $46.9 million compared to fiscal 2013. This increase is mainly due to the improvement of adjusted EBITDA and the decrease in acquisitions of property, plant and equipment due to the timing of certain initiatives for the Cable segment. For the nine-month period, free cash flow amounted to $255.6 million, $158.5 million, higher than the same period of last year. This variance is mostly attributable to the improvement of adjusted EBITDA, the decrease in acquisitions of property, plant and equipment due to the timing of certain initiatives as well as the decrease in integration, restructuring and acquisition costs, partly offset by the increase in financial expense due to higher indebtedness level from the recent acquisitions in the Cable segment.

In the third quarter of fiscal 2014, cash decrease of $110.4 million was mainly due to a lower Indebtedness level provided from repayments of $163.6 million under the revolving facilities and of long-term debt amounting to $4.8 million, partly offset by an increase in bank indebtedness of $9.4 million and the issuance by COGECO Inc. of long-term debt of $48.7 million. In the third quarter of fiscal 2013, a higher Indebtedness level provided a cash increase of $22.0 million mainly due to the issuance, in the Cable segment, of $300 million Senior Secured Debentures Series "4" (the "Debentures") for a net proceed of $297.1 million, net of transaction costs of $2.9 million and the issuance of $410.4 million (US$400 million) Senior Unsecured Notes (the "2020 Notes") for a net proceed of $402.6 million (US$392.4 million), net of transaction costs of $7.8 million (US$7.6 million). In addition, the net proceeds under the Debentures and the 2020 Notes were used to repay the Canadian Term Facility amounting to $175 million, the US Term Facility amounting to $230.8 million (US$225 million), the $114.7 Revolving loan in connection with the financing of the acquisition of Peer 1 Hosting in the Cable segment and $192.4 million Term Revolving Facility.

For the nine-month period of fiscal 2014, a cash decrease of $148.2 million was mainly due to a lower Indebtedness level from repayments of $186.1 million under the revolving facilities and of long-term debt amounting to $10.9 million, partly offset by the issuance of long-term debt by COGECO Inc. of $48.7 million. For the nine-month period of fiscal 2013, a higher Indebtedness level provided for a cash increase of $1.9 billion, mainly due to the issuance of the 2020 Notes and the Debentures, described above, as well as draw-down on the existing Term Revolving Facility of $411.9 million (US$420 million) including the repayments made during the quarter explained above and the First Lien Credit of $637.4 million (US$660 million for a net proceed of US$641.5 million, net of transaction costs of US$18.5 million) to finance the acquisition of Atlantic Broadband as well the draw-down of $125.1 million, under Secured Credit Facilities to finance the acquisition of Peer 1 Hosting, net of the repayments made during the third quarter explained above.

During the third quarter of fiscal 2014, a quarterly dividend of $0.22 per share was paid to the holders of subordinate and multiple voting shares, totaling $3.7 million, compared to a dividend of $0.19 per share, or $3.2 million in the third quarter of fiscal 2013. Dividend payments in the first nine months totaled $0.66 per share, or $11.1 million, compared to $0.57 per share, or $9.5 million the year before. In addition, dividends paid by a subsidiary to non-controlling interest in the third quarter amounted to $9.9 million and $29.7 million for the first nine months, compared to $8.6 million and $25.7 million, respectively, for the comparable periods of the prior year.

As at May 31, 2014, the Corporation had a working capital deficiency of $164.9 million compared to $223.1 million at August 31, 2013. The $58.2 million deficiency reduction is mainly due to the decrease of $83.9 million in trade and other payables and the increase of $14.3 million in trade and other receivables, partly offset by the decrease of $13.3 million in cash and cash equivalents and the increase of income tax liabilities of $21.7 million as a result of generated free cash flow. As part of the usual conduct of its business, COGECO maintains a working capital deficiency due to a low level of accounts receivable since a large proportion of the Corporation's customers pay before their services are rendered, unlike trade and other payables, which are usually paid after products are delivered or services are rendered, thus enabling the Corporation to use cash and cash equivalents to reduce Indebtedness.

At May 31, 2014, the Corporation had used $17.1 million of its $50 million Term Revolving Facility for a remaining availability of $32.9 million and Cogeco Cable had used $476.2 million of its $800 million amended and restated Term Revolving Facility for a remaining availability of $323.8 million. In addition, two subsidiaries of Cogeco Cable also benefit from a Revolving Facility of $108.4 million (US$100 million) related to its acquisition of Atlantic Broadband, of which $1.1 million (US$1.0 million) was used at May 31, 2014 for a remaining availability of $107.3 million (US$99 million).

FINANCIAL POSITION

Since August 31, 2013, the following balances have changed significantly: "trade and other receivables", "property, plant and equipment", "goodwill", "trade and other payables", "income tax liabilities", "deferred tax liabilities", "cash and cash equivalents" and "long-term debt".

Trade and other receivable increased by $14.3 million due to the timing of billings made to customers. Property, plant and equipment decreased by $80.6 million mainly due to the impairment of property, plant and equipment of $32.2 million in the Cable segment as well as depreciation expense exceeding the acquisitions discussed in the "Cash flow analysis" section, taking into account the impact of the US dollar and British Pound currency appreciation against the Canadian dollar. Goodwill increased by $29.3 million as a result of the US dollar and the British Pound currency appreciation against the Canadian dollar during the first nine months of fiscal 2014. The decrease of $83.9 million in trade and other payables is related to the timing of payments made to suppliers. The income tax liabilities increase of $21.7 million is due to the excess of current income tax expense over income tax paid. The decrease of $28.6 million in deferred tax liabilities result of the impairment of property, plant and equipment and the increase in current income taxes. The decreases of $13.3 million in cash and cash equivalents and of $91.2 million in long- term debt are due to the factors previously discussed in the "Cash flow analysis" section, partly offset by the appreciation of the US dollar and British Pound currency compared to the Canadian dollar.

OUTSTANDING SHARE DATA

A description of COGECO's share data at June 30, 2014 is presented in the table below. Additional details are provided in note 12 of the condensed interim consolidated financial statements.

Amount
Number of (in thousands
shares of dollars)
Common shares
Multiple voting shares 1,842,860 12
Subordinate voting shares 14,989,338 121,976

FINANCING

In the normal course of business, COGECO has incurred financial obligations, primarily in the form of long-term debt, operating and finance leases and guarantees. COGECO's obligations, as discussed in the 2013 Annual Report, have not materially changed since August 31, 2013, except as mentioned below.

On March 5, 2014, the Corporation completed, pursuant to a private placement, the issuance of $50 million of Senior Unsecured Notes for net proceeds of $48.7 million, net of transaction costs of approximately $1.3 million. These unsecured notes bear interest at 6.00% per annum payable semi-annually and mature on March 5, 2020. Half of the Senior Unsecured Notes are guaranteed on a senior unsecured basis, jointly and severally, by its subsidiaries except for the unrestricted subsidiaries. The net proceeds of the Senior Unsecured Notes was used to reimburse a portion of the Corporation's Term Revolving Facility of $100 million which facility was consequently reduced to $50 million.

On December 20, 2013, the Corporation amended its Term Revolving Facility. Under the terms of the amendment, the maturity was extended by an additional year until February 1, 2018. In addition, the amendment reduced the margin for the calculation of the interest rate and reduced restrictions on some covenants including financial ratios.

On November 22, 2013, the Corporation's subsidiary, Cogeco Cable, amended and restated its Term Revolving Facility of $800 million with a syndicate of lenders. The maturity was extended until January 22, 2019 and can be further extended annually. The amendments reduced the margin for the calculation of the interest rate and reduced restrictions on some covenants. The amended and restated Term Revolving Facility also replaced Cogeco Cable's Secured Credit Facilities coming to maturity on January 27, 2017 which was fully repaid on November 22, 2013. This amended and restated Term Revolving Facility is comprised of two tranches: a first tranche, a Canadian tranche, amounting to $788 million and the second tranche, a UK tranche, amounting to $12 million. Both Cogeco Cable and Peer 1 (UK) Ltd. can borrow under the UK tranche. The Canadian tranche is available in Canadian dollars, US dollars, Euros and British Pound and interest rates are based on banker's acceptance, US dollar base rate loans, LIBOR loans in US dollars, Euros or British Pound, plus the applicable margin. The UK tranche is available in British Pounds and interest rates are based on British Pounds base rate loans and British Pounds LIBOR loans. The Term Revolving Facility is indirectly secured by first priority fixed and floating charges and a security interest on substantially all present and future real and personal properties and undertaking of every nature and kind of Cogeco Cable and certain of its subsidiaries, and provides for certain 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 this facility provide for restrictions on the operations and activities of Cogeco Cable. Generally, the most significant restrictions relate to permitted investments and dividends on multiple and subordinate voting shares, as well as incurrence and maintenance of certain financial ratios primarily linked to operating income before amortization, financial expense and total indebtedness.

FINANCIAL MANAGEMENT

The Corporation's subsidiary, Cogeco Cable Inc., had entered into cross-currency swap agreements to set the liability for interest and principal payments on its US$190 million Senior Secured Notes Series A maturing on October 1, 2015. These agreements have the effect of converting the U.S. interest coupon rate of 7.00% per annum to an average Canadian dollar interest rate of 7.24% per annum. The exchange rate applicable to the principal portion of the debt has been fixed at $1.0625 per US dollar. Cogeco Cable elected to apply cash flow hedge accounting on these derivative financial instruments. During the first nine months of fiscal 2014, amounts due under the US$190 million Senior Secured Notes Series

A increased by $5.9 million due to the US dollar's appreciation relative to the Canadian dollar. The fair value of cross-currency swaps asset increased by a net amount of $6.1 million, of which an increase of $5.9 million offsets the foreign exchange loss on the debt denominated in US dollars. The difference of $0.2 million was recorded as an increase of other comprehensive income. During the first nine months of fiscal 2013, amounts due under the US$190 million Senior Secured Notes Series A increased by $9.7 million due to the US dollar's appreciation over the Canadian dollar. The fair value of cross-currency swaps liability decreased by a net amount of $9.3 million, of which a decrease of $9.7 million offsets the foreign exchange loss on the debt denominated in US dollars. The difference of $0.4 million was recorded as a decrease of other comprehensive income.

In addition, on July 22, 2013, the Corporation's subsidiary, Cogeco Cable Inc., had entered into interest rate swap agreements to fix the interest rate on US$200 million of its LIBOR based loans. These agreements have the effect of converting the floating US LIBOR base rate at an average fixed rate of 0.39625% under the Term Revolving Facility until July 25, 2015. Cogeco Cable elected to apply hedge accounting on these derivative financial instruments. During the first nine months of fiscal 2014, the fair value of interest rate swaps asset decreased by a net amount of $0.8 million which was recorded as a decrease of other comprehensive income.

The sensitivity of the Corporation's annual financial expense to a variation of 1% in the interest rate applicable to the Term Revolving Facilities and First Lien Credit Facilities is approximately $6.5 million based on the outstanding debt at May 31, 2014.

Furthermore, Cogeco Cable's investment in foreign operations is exposed to market risk attributable to fluctuations in foreign currency exchange rates, primarily changes in the values of the Canadian dollar versus the US dollar and British Pound. This risk was mitigated since the major part of the purchase prices for Atlantic Broadband and Peer 1 Hosting were borrowed directly in US dollars and British Pounds. At May 31, 2014, the investments for Atlantic Broadband and Peer 1 Hosting amounted to US$1.1 billion and £62.7 million while long-term debt hedging these investments were US$859.5 million and £56.0 million.The exchange rate used to convert the US dollar currency and British Pound currency into Canadian dollars for the statement of financial position accounts at May 31, 2014 was $1.0842 per US dollar and $1.8173 per British Pound. The impact of a 10% change in the exchange rate of the US dollar and British Pound into Canadian dollars would change other comprehensive income by approximately $26.9 million.

Since Cogeco Cable's condensed interim consolidated financial statements are expressed in Canadian dollars but a portion of its business is conducted in US dollar and British Pound currency, exchange rate fluctuations can increase or decrease the Corporation's operating results. For the three and nine-month periods ended May 31, 2014, the average rates prevailing used to convert the operating results of the Cable segment were as follows:

Quarters ended Nine months ended
May 31, May 31, May 31, May 31,
2014 2013 Change 2014 2013 Change
$ $ % $ $ %
US dollar vs Canadian dollar 1.0997 1.0211 7.7 1.0759 1.0091 6.6
British Pound vs Canadian dollar 1.8405 1.5545 18.4 1.7664 1.5565 13.5

The following table highlights in Canadian dollars, the impact of a 10% increase in US dollar or British Pound against the Canadian dollar as the case may be, of Cogeco Cable's operating results for the three and nine-month periods ended May 31, 2014:

Cable segment
Quarters ended Nine months ended
As Exchange rate As Exchange rate
reported impact reported impact
(in thousands of dollars) $ $ $ $
Revenue 496,448 13,990 1,457,436 40,388
Operating expenses 267,059 9,370 785,235 26,497
Management fees - COGECO Inc. - - 9,674 -
Adjusted EBITDA 229,389 4,620 662,527 13,891
Acquisitions of property, plant and equipment, intangible and other assets 84,452 4,578 250,347 13,110

DIVIDEND DECLARATION

At its July 9, 2014 meeting, the Board of Directors of COGECO declared a quarterly eligible dividend of $0.22 per share for multiple voting and subordinate voting shares, payable on August 6, 2014, to shareholders of record on July 23, 2014. The declaration, amount and date of any future dividend will continue to be considered and approved by the Board of Directors of the Corporation based upon the Corporation's financial condition, results of operations, capital requirements and such other factors as the Board of Directors, at its sole discretion, deems relevant. There is therefore no assurance that dividends will be declared, and if declared, the amount and frequency may vary.

CABLE SEGMENT

CUSTOMER STATISTICS

Consolidated
Net additions (losses) Net additions (losses)
Consolidated UNITED STATES CANADA Quarters ended Nine months ended
May 31,
2014
May 31,
2014
May 31,
2013
May 31,
2014
May 31,
2013
PSU (1) 2,452,118 495,674 1,956,444 (2,509 ) (1,079 ) (15,539 ) 20,783
Television service customers 1,034,991 227,160 807,831 (9,620 ) (8,407 ) (31,961 ) (21,143 )
HSI service customers 865,597 188,795 676,802 7,811 4,603 27,152 27,340
Telephony service customers 551,530 79,719 471,811 (700 ) 2,725 (10,730 ) 14,586
(1) Represents the sum of Television, High Speed Internet ("HSI") and Telephony service customers.

At May 31, 2014, PSU reached 2,452,118 of which 1,956,444 came from Canada and 495,674 came from the United States. For the three and nine-month periods ended May 31, 2014, PSU net losses stood at 2,509 and 15,539 compared to 1,079 and net additions of 20,783 for the comparable periods of fiscal 2013, respectively. Fiscal 2014 third-quarter and first nine months net losses for Television service customers stood at 9,620 and 31,961 compared to 8,407 and 21,143, HSI service customers grew by 7,811 and 27,152 compared to 4,603 and 27,340 and the Telephony service customers net losses stood at 700 and 10,730 compared to net additions of 2,725 and 14,586 for the comparable periods of fiscal 2013. HSI net additions continued to stem from the enhancement of the product offering and the positive impact of the bundle offer.

In Canada, PSU decreased by 5,633 for the third-quarter of fiscal 2014, compared to a decrease of 1,013 for the comparable period last year. For the first nine months of fiscal 2014, PSU decreased by 23,678, compared to an increase of 17,089 for the comparable period in 2013. The decrease is explained by service category maturity and a much more competitive environment for all services.

In the United States, PSU increased by 3,124 for the third-quarter of fiscal 2014, compared to a decrease of 66 for the same period of prior year. For the first nine months of fiscal 2014, PSU increased by 8,139, compared to an increase of 3,694 for the comparable period in 2013. The increase is explained by additional HSI and Telephony services, offset by losses in the Television service.

OPERATING AND FINANCIAL RESULTS

OPERATING RESULTS

Quarters ended Nine months ended
(in thousands of dollars, except percentages) May 31,
2014
$
May 31,
2013 (1)
$

Change
%
May 31,
2014
$
May 31,
2013 (1)
$

Change
%
Revenue 496,448 464,497 6.9 1,457,436 1,222,080 19.3
Operating expenses 267,059 249,315 7.1 785,235 654,327 20.0
Management fees - COGECO Inc. - - - 9,674 9,569 1.1
Adjusted EBITDA 229,389 215,182 6.6 662,527 558,184 18.7
Operating margin 46.2 % 46.3 % 45.5 % 45.7 %

REVENUE

Fiscal 2014 third-quarter revenue increased by $32.0 million, or 6.9%, to reach $496.4 million driven by the organic growth from all of our operating segments combined with favorable foreign exchange rates for our foreign operations. For the nine-month period ended May 31, 2014, revenue reached approximately $1.5 billion, an increase of $235.4 million, or 19.3% mainly as a result of the full year impact of the recent acquisitions which both occurred during fiscal 2013 combined with the organic growth from all of our operating segments and favorable foreign exchange rates in our foreign operations.

OPERATING EXPENSES AND MANAGEMENT FEES

For the third quarter of fiscal 2014, operating expenses increased by $17.7 million, to reach $267.1 million, an increase of 7.1% compared to the prior year. For the first nine months of the fiscal year, operating expenses amounted to $785.2 million, an increase of $130.9 million, or 20.0%, compared to the same period of fiscal 2013. Operating expenses increased is due to the full year impact of the recent acquisitions and the appreciation of the US dollar and British Pound currency against the Canadian dollar.

For the third quarter of fiscal 2014 and 2013, there was no management fees paid to COGECO Inc. For the first nine months of the fiscal year 2014, management fees paid to COGECO Inc. amounted to $9.7 million, 1.1% higher compared to $9.6 million in the comparable period of fiscal 2013.

ADJUSTED EBITDA

For the three and nine-month periods ended May 31, 2014, adjusted EBITDA increased by $14.2 million, or 6.6%, to reach $229.4 million, and by $104.3 million, or 18.7%, to reach $662.5 million, respectively, compared to the comparable periods of the prior year. The increases for the quarter is mainly attributable to the improvement from all our operating segments as well as the favorable foreign exchange rates compared to the same periods of last year while the increase for the first nine months is largely attributable to the full year impact of the recent acquisitions.

FISCAL 2014 REVISED FINANCIAL GUIDELINES

As a result of revised projections in the Cable segment described below, the Corporation revised its consolidated projection for the 2014 fiscal year. Profit for the year should decrease from $240 million to $215 million and consequently, profit for the year attributable to owners of the Corporation should amount to $70 million compared to $77 million for the revised projections issued on April 9, 2014.

Fiscal 2014 revised guidelines are as follows:

Revised projections Revised projections
July 9, 2014 April 9, 2014
Fiscal 2014 Fiscal 2014
(in millions of dollars) $ $
Financial guidelines
Revenue 2,105 2,105
Adjusted EBITDA 915 915
Integration, restructuring and acquisition costs 4 -
Financial expense 137 137
Current income tax expense 99 103
Profit for the year 215 240
Profit for the year attributable to owners of the Corporation 70 77
Acquisitions of property, plant and equipment, intangible and other assets 430 430
Free cash flow(1) 245 245
(1) Free cash flow is calculated as adjusted EBITDA less, integration, restructuring and acquisition costs, financial expense, current income tax expense and acquisitions of property, plant and equipment, intangible and other assets.

CABLE SEGMENT

Giving effect to the impairment of property, plant and equipment of $32.2 million which occurred during the third quarter of fiscal 2014 in the Canadian operations as well as additional integration, restructuring and acquisitions costs related to restructuring activities, Cogeco Cable revised downwards its fiscal 2014 projected profit for the year compared to the one issued on April 9, 2014. Profit for the year is now expected to reach $210 million, a decrease of $25 million, or 10.6%, compared to the April 9, 2014 projections.

Fiscal 2014 revised financial guidelines are as follows:

July 9, 2014 April 9, 2014
Fiscal 2014 Fiscal 2014
(in millions of dollars, except operating margin and capital intensity) $ $
Financial guidelines
Revenue 1,955 1,955
Adjusted EBITDA 895 895
Operating margin 45.8 % 45.8 %
Integration, restructuring and acquisition costs 4 -
Depreciation and amortization 470 470
Financial expense 130 130
Current income tax expense 96 100
Profit for the year 210 235
Acquisitions of property, plant and equipment, intangible and other assets 425 425
Free cash flow(1) 240 240
Capital intensity 21.7 % 21.7 %
(1) Free cash flow is calculated as adjusted EBITDA less, integration, restructuring and acquisition costs, financial expense, current income tax expense and acquisitions of property, plant and equipment, intangible and other assets.

FISCAL 2015 PRELIMINARY FINANCIAL GUIDELINES

For fiscal 2015, COGECO expects revenue to reach $2.19 billion and adjusted EBITDA should reach $945 million, as a result of the Cable segment's 2015 preliminary guidelines and the projected results of the radio and transit advertising activities. Free cash flow should reach approximately $270 million and profit for the year attributable to the owners of the Corporation $88 million.

Revised
Preliminary projections
projections July 9, 2014
Fiscal 2015 Fiscal 2014
(in millions of dollars) $ $
Financial guidelines
Revenue 2,185 2,105
Adjusted EBITDA 945 915
Integration, restructuring and acquisition costs - 4
Financial expense 132 137
Current income tax expense 105 99
Profit for the year 265 215
Profit for the year attributable to owners of the Corporation 88 70
Acquisitions of property, plant and equipment, intangible and other assets 438 430
Free cash flow(1) 270 245
(1) Free cash flow is calculated as adjusted EBITDA less integration, restructuring and acquisition costs, financial expense, current income tax expense and acquisitions of property, plant and equipment, intangible and other assets.

CABLE SEGMENT

Fiscal 2015 preliminary financial guidelines take into consideration the current uncertain global economic and the intense competitive environment that prevails in Canada, the United States and Europe by the incumbent telecommunications or IT infrastructure providers, as the case may be. In addition, these preliminary financial guidelines are supported by Cogeco Cable's objectives which are to improve profitability to create shareholder value. Cogeco Cable focus on customer's needs by offering services at attractive prices, expanding its offering with respect to geography and by diversifying its product and services. As Cogeco Cable operates in an industry characterized by rapid technological innovation which requires substantial capital, Cogeco Cable will continue the expansion and upkeep of its networks and data centre facilities as well as the launch and expansion of new or additional services. Cogeco Cable recognizes that customer service is a key brand attribute that has potential to differentiate its services compared to its competitors and that superior customer service earns their loyalty and retention. As the cost containment is a core element of financial performance and remains a key factor to maintain strong operating margins, Cogeco Cable intends to continue executing its strategy of tight operating and capital cost controls and rigorous customer-related processes.

For fiscal 2015, Cogeco Cable expects to achieve revenue of $2.03 billion, representing a growth of $75 million or 3.8% compared to the revised fiscal 2014 projection issued on July 9, 2014. In the Cable segment, revenue should stem primarily from targeted marketing initiatives to improve penetration rates of HSI and Telephony services in the commercial and business sector while the penetration of residential Telephony and Television services should slow in Canada, reflecting service category maturity and intense competition. Furthermore, Digital video and HSI services should continue to benefit from customers' ongoing interest in TiVo's digital entertainment services in the United States as well as the projected launch of TiVo services in Canada. Cable segment will also benefit from the impact of rate increases in most of its services. In its Enterprise services operations, revenue growth should stem primarily from managed hosting and colocation services due to the expansion of Barrie data centre facility as well as from the migration of services in the portfolio that generate revenue with higher margins. In addition, the construction of a new data centre facility in Kirkland, Montreal,is expected be completed in the first half of fiscal 2015 and should begin generating revenue. The revenue growth should also be driven by connectivity services as a result of network expansions and new customer installations.

Fiscal 2015 operating expenses are expected to expand by approximately $45 million, or 4.2%, compared to the 2014 revised projections due to additional expenditures to support the Enterprise services segment growth, salary increases as well as the continuation of the marketing initiatives and retention strategies. These increases should be partly offset by cost reduction initiatives from improved systems and processes and by the restructuring activities that was completed in fiscal 2014.

For fiscal 2015, Cogeco Cable expects adjusted EBITDA of $925 million, an increase of $30 million, or 3.4%, compared to the 2014 revised projections. The operating margin is expected to reach approximately 45.6% in fiscal 2015, compared to the revised projections for the 2014 fiscal year of 45.8%, reflecting lower margins business activities from the Enterprise services operations as well as operating expenses increasing slightly faster than the revenue.

Cogeco Cable expects the depreciation and amortization of property, plant and equipment and intangible assets to decrease by $5 million for fiscal 2015, mainly from the increase in capital expenditures with longer useful lives resulting in lower depreciation and amortization expense for fiscal 2015. Cash flows from operations should finance capital expenditures which are expected to reach $430 million compared to $425 million for the 2014 revised projections. Fiscal 2015 capital expenditures should increase mainly due to the completion of the expansion of the Barrie data centre facility and the construction of a new data centre in Kirkland in the Enterprise services segment.

Fiscal 2015 free cash flow is expected to amount to $270 million, an increase of $30 million, or 12.5% compared to the projected free cash flow of $240 million due to the adjusted EBITDA growth, partly offset by additional capital expenditures. As a result, generated free cash flow will reduce Indebtedness net of cash and cash equivalent, thus improving Cogeco Cable's net leverage ratios. Financial expense should amount to $125 million, a decrease of $5 million, or 3.8%, from lower Indebtedness level. Finally, profit for the year should reach approximately $260 million compared to $210 million for the 2014 revised projections.

Fiscal 2015 preliminary financial guidelines are as follows:

projections July 9, 2014
Fiscal 2015 Fiscal 2014
(in millions of dollars, except operating margin and capital intensity) $ $
Financial guidelines
Revenue 2,030 1,955
Adjusted EBITDA 925 895
Operating margin 45.6 % 45.8 %
Integration, restructuring and acquisition costs - 4
Depreciation and amortization 465 470
Financial expense 125 130
Current income tax expense 100 96
Profit for the year 260 210
Acquisitions of property, plant and equipment, intangible and other assets 430 425
Free cash flow(1) 270 240
Capital intensity 21.2 % 21.7 %
(1) Free cash flow is calculated as adjusted EBITDA less, integration, restructuring and acquisition costs, financial expense, current income tax expense and acquisitions of property, plant and equipment, intangible and other assets.

CONTROLS AND PROCEDURES

Internal control over financial reporting ("ICFR") is a process designed to provide reasonable, but not absolute, assurance regarding the reliability of financial reporting and of the preparation of financial statements for external purposes in accordance with IFRS. The President and Chief Executive Officer ("CEO") and the Senior Vice President and Chief Financial Officer ("CFO"), together with Management, are responsible for establishing and maintaining adequate disclosure controls and procedures ("DC&P") and ICFR, as defined in National Instrument 52-109. COGECO's internal control framework is based on the criteria published in the updated version released in May 2013 of the report Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission .

The CEO and CFO, supported by Management, evaluated the design of the Corporation's DC&P and ICFR as at May 31, 2014, and concluded that, as described below, there exists a material weakness in ICFR at Peer 1 Hosting. A material weakness in ICFR exists if there exists a deficiency or combination of deficiencies in ICFR such that there is a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

The Corporation's subsidiary, Cogeco Cable, acquired 96.57% of the issued and outstanding shares of Peer 1 Hosting on January 31, 2013 pursuant to the public offer made by Cogeco Cable, through its indirectly wholly-owned subsidiary 0957926 B.C. LTD. The remaining shares of Peer 1 Hosting were acquired on April 3, 2013. Management has been working diligently since the acquisition to complete its review of the design of ICFR at Peer 1 Hosting. Despite these efforts, Management has not to date completed its review. During the course of the portion of the review that has been completed, Management identified certain deficiencies in ICFR at Peer 1 Hosting principally relating to the financial statements close and inadequate segregation of duties over certain information system access controls.

Management has committed additional resources in order to complete the review of Peer 1 Hosting's ICFR and bring them in line with Cogeco Cable's design standards by 2014 calendar year, and has progressed in terms of the implementation of a number of measures to address the deficiencies described above. More specifically, Management has implemented several detailed review processes that provide for a more granular level of analysis. Moreover, access rights are being adjusted to reflect proper segregation of duties, and a series of corporate policies have been introduced to enhance Peer 1 Hosting's overall control environment. The Corporation cannot currently assess the potential impact of any further design deficiencies which may be identified during the completion of its review of Peer 1 Hosting's ICFR.

Based on the review completed to date, the CEO and the CFO believe that (i) the Corporation's interim filings for the three and nine-month periods ended May 31, 2014 do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, and (ii) the interim financial report together with the other financial information included in the interim filings fairly present, in all material respects, the financial condition, financial performance and cash flows of COGECO for the three and nine-month periods ended May 31, 2014.

Peer 1 Hosting represents 10% of revenue, -16% of profit for the period, 15% of total assets, 17% of current assets, 15% of non current assets, 6% of current liabilities and 16% of non current liabilities of the condensed consolidated interim financial statements for the nine-month period ended May 31, 2014.

UNCERTAINTIES AND MAIN RISK FACTORS

A detailed description of the uncertainties and main risk factors faced by the Corporation can be found in the 2013 Annual Report, available at www.sedar.com and www.cogeco.ca. Except as described below, there has been no significant change in the uncertainties and main risk factors faced by the Corporation since August 31, 2013.

On October 24, 2013, the Canadian Radio-television and Telecommunications Commission ("CRTC") issued Broadcasting Notice of Invitation inviting Canadians to express their views on the future of the television system in Canada. The initial phases of the "Let's Talk TV" public proceeding and the issuance by the federal government on November 11, 2013 of Order in Council PC 2013-1167 directing the CRTC to report on the ability of Canadian consumers to subscribe to pay and specialty television services on a service-by-service basis have led to the issuance by the CRTC on April 24, 2014 of Notice of Public Hearing CRTC 2014-190 setting up a proposed new broadcasting regulatory approach. If adopted at the conclusion of this proceeding, the new regulatory framework would provide, among other things, that broadcasting distribution undertakings ("BDUs") offer to their customers: a) a small basic service comprised only of local television stations, mandatory services under subsection 9(1) (h) of the Broadcasting Act, as well as the relevant provincial educational services, the community channel and the provincial legislature service in the area served by the BDU; and b) all other licensed or exempted programming services and non-Canadian services as discretionary services on a pick-and-pay and on a build-your-own-package basis. BDUs would however be allowed to continue offering discretionary programming services in pre-assembled packages to subscribers in the same manner as they do now. This new regulatory framework would have a significant impact on the broadcasting distribution business of Cogeco Cable and other BDUs by forcing the removal of American conventional television networks and of popular sports and other specialty services from the basic service tier and requiring the handling of pick-and-pay and build-your- own-package options for all discretionary programming services. On June 27, 2014, Cogeco Cable filed a comprehensive intervention with the CRTC as part of this proceeding and has requested to appear at a public hearing to be held by the CRTC starting on September 8, 2014. At this time, it is not possible to determine the final outcome of this important regulatory proceeding, the timetable for its implementation or its impact on the broadcasting distribution activities and future financial outlook of Cogeco Cable.

On November 26, 2013, Rogers Communications and the National Hockey League ("NHL") announced that they had concluded a twelve-year comprehensive broadcast and multimedia licensing agreement respecting all national rights to NHL games on all platforms in all languages in Canada, beginning with the 2014-2015 season. Rogers Communications also announced that it had selected CBC and TVA for separate sublicensing deals for English-language broadcasts of "Hockey Night in Canada" and all national French-language multimedia rights, respectively. Cogeco Cable has concluded multi-years agreements for the distribution of the Sportsnet and TVA Sport specialty programming services which include NHL hockey games in their respective programming. These agreements are factored into the financial guidelines issued by Cogeco Cable.

FUTURE ACCOUNTING DEVELOPMENTS IN CANADA

A number of new standards, interpretations and amendments to existing standards issued by the International Accounting Standard Board ("IASB") are effective for annual periods starting on or after January 1, 2013 and have been applied in preparing the condensed interim consolidated financial statements for the three and nine-month periods ended May 31, 2014.

NEW ACCOUNTING STANDARDS

The Corporation adopted the following new accounting standards on September 1, 2013. The impacts of the application of this standard are described in Note 2 of the condensed interim consolidated financial statements.

• Amendment to IAS 19, Employee Benefits : The principal difference in the amended standard is that the expected long-term rate of return on plan assets will no longer be used to calculate the defined benefit pension costs. The defined benefit pension costs concepts of "interest cost" and "expected return on plan assets" are replaced by the concept of "net interest" calculated by applying the discount rate to the net liability or asset. The net interest cost takes into account the change any contributions and benefit payments have on the net defined benefit liability or asset during the period.

The Corporation also adopted the following standards on September 1, 2013 which had no impact on the condensed interim consolidated financial statements.

Amendments to IFRS 7 Financial Instruments: Disclosures
IFRS 10 Consolidated Financial Statements
IFRS 12 Disclosure of Interest in Other Entities
IFRS 13 Fair Value Measurement

CHANGES IN CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There has been no significant change in COGECO's accounting policies, estimates and future accounting pronouncements since August 31, 2013. A description of the Corporation's policies and estimates can be found in the 2013 Annual Report, available at www.sedar.com and www.cogeco.ca.

NON-IFRS FINANCIAL MEASURES

This section describes non-IFRS financial measures used by COGECO throughout this MD&A. It also provides reconciliations between these non-IFRS measures and the most comparable IFRS financial measures. These financial measures do not have standard definitions prescribed by IFRS and therefore, may not be comparable to similar measures presented by other companies. These measures include "cash flow from operations", "free cash flow" and "adjusted EBITDA".

CASH FLOW FROM OPERATIONS AND FREE CASH FLOW

Cash flow from operations is used by COGECO's management and investors to evaluate cash flows generated by operating activities, excluding the impact of changes in non-cash operating activities, amortization of deferred transaction costs and discounts on long-term debt, income taxes paid, current income tax expense, financial expense paid and financial expense. This allows the Corporation to isolate the cash flows from operating activities from the impact of cash management decisions. Cash flow from operations is subsequently used in calculating the non-IFRS measure, "free cash flow". Free cash flow is used, by COGECO's management and investors, to measure its ability to repay debt, distribute capital to its shareholders and finance its growth.

The most comparable IFRS measure is cash flow from operating activities. Cash flow from operations is calculated as follows:

Quarters ended Nine months ended
May 31, May 31, May 31, May 31,
2014 2013 (1) 2014 2013 (1)
(in thousands of dollars) $ $ $ $
Cash flow from operating activities 184,706 167,641 432,552 318,731
Changes in non-cash operating activities (13,340 ) 5,443 82,379 80,194
Amortization of deferred transaction costs and discounts on long-term debt 2,007 3,520 5,856 7,237
Income taxes paid 16,672 17,031 55,888 79,490
Current income tax expense (23,693 ) (27,563 ) (72,378 ) (76,227 )
Financial expense paid 44,210 28,876 107,316 75,271
Financial expense (34,071 ) (36,776 ) (102,485 ) (84,899 )
Cash flow from operations 176,491 158,172 509,128 399,797
(1) Comparative figures have been adjusted to comply with the adoption of IAS 19 - Employee Benefits. For further details, please refer to Note 2 of the condensed interim consolidated financial statements.

Free cash flow is calculated as follows:

Quarters ended Nine months ended
May 31, May 31, May 31, May 31,
2014 2013 (1) 2014 2013 (1)
(in thousands of dollars) $ $ $ $
Cash flow from operations 176,491 158,172 509,128 399,797
Acquisition of property, plant and equipment (80,017 ) (108,976 ) (239,865 ) (289,016 )
Acquisition of intangible and other assets (4,943 ) (4,516 ) (13,672 ) (13,650 )
Free cash flow 91,531 44,680 255,591 97,131
(1) Comparative figures have been adjusted to comply with the adoption of IAS 19 - Employee Benefits. For further details, please refer to Note 2 of the condensed interim consolidated financial statements.

ADJUSTED EBITDA

Adjusted EBITDA is used by COGECO's management and investors to assess the Corporation's ability to seize growth opportunities in a cost effective manner, to finance its ongoing operations and to service its debt. Adjusted EBITDA is a proxy for cash flows from operations excluding the impact of the capital structure chosen, and is one of the key metrics used by the financial community to value the business and its financial strength.

The most comparable IFRS financial measure is profit for the period. Adjusted EBITDA is calculated as follows:

Quarters ended Nine months ended
May 31, May 31, May 31, May 31,
2014 2013 (1) 2014 2013 (1)
(in thousands of dollars) $ $ $ $
Profit for the period 35,635 49,995 150,941 146,051
Income taxes 9,068 19,080 39,052 53,341
Financial expense 34,071 36,776 102,485 84,899
Impairment of property, plant and equipment 32,197 - 32,197 -
Depreciation and amortization 118,926 112,867 350,475 272,831
Integration, restructuring and acquisitions costs 3,186 2,160 3,780 16,912
Adjusted EBITDA 233,083 220,878 678,930 574,034
(1) Comparative figures have been adjusted to comply with the adoption of IAS 19 - Employee Benefits. For further details, please refer to Note 2 of the condensed interim consolidated financial statements.

SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION

Quarters ended May 31, February 28, November 30, August 31,
(in thousands of dollars, except per share data) 2014
$
2013 (2)
$
2014
$
2013 (2)
$
2013
$
2012 (2)
$
2013 (2)
$
2012
$
Revenue 536,067 504,434 518,477 458,501 516,971 366,608 504,714 356,685
Adjusted EBITDA 233,083 220,878 221,807 196,272 224,040 156,884 224,608 163,617
Impairment of property, plant and equipment 32,197 - - - - - - -
Income taxes 9,068 19,080 14,147 15,089 15,837 19,172 10,374 33,625
Profit for the period 35,635 49,995 58,467 48,950 56,839 47,106 43,770 44,900
Profit for the period attributable to owners of the Corporation 11,469 17,185 17,391 14,676 23,055 18,530 13,869 13,889
Cash flow from operating activities 184,706 167,641 187,611 157,095 60,235 (6,005 ) 233,464 203,193
Cash flow from operations 176,491 158,172 173,415 140,124 159,222 101,501 162,138 119,612
Acquisitions of property, plant and equipment, intangible and other assets 84,960 113,492 81,997 106,019 86,580 83,155 108,756 124,638
Free cash flow 91,531 44,680 91,418 34,105 72,642 18,346 53,382 (5,026 )
Earnings per share
Basic 0.69 1.03 1.04 0.88 1.38 1.11 0.83 0.83
Diluted 0.68 1.02 1.03 0.87 1.37 1.10 0.82 0.83
(1) Per multiple and subordinate voting share.
(2) These figures have been adjusted to comply with the adoption of IAS 19 - Employee Benefits.

SEASONAL VARIATIONS

COGECO's operating results are not generally subject to material seasonal fluctuations except as follows. In the Cable segment, the number of customers in the Television service and HSI service are generally lower in the second half of the fiscal year as a result of a decrease in economic activity due to the beginning of the vacation period, the end of the television season, and students leaving their 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 in Canada and in the Pennsylvania region, and to a lesser extent in South Carolina, Maryland/Delaware in the United States. In the United States, the Miami region is also subject to seasonal fluctuations due to the winter season residents returning home from late Spring through the Fall.

ADDITIONAL INFORMATION

This MD&A was prepared on July 9, 2014. Additional information relating to the Corporation, including its Annual Information Form, is available on the SEDAR website at www.sedar.com.

Jan Peeters Louis Audet
Chairman of the Board President and Chief Executive Officer

COGECO Inc.

Montréal, Québec

July 9, 2014

FOR FURTHER INFORMATION PLEASE CONTACT:

Contact Information:
Source:
COGECO Inc.
Pierre Gagne
Senior Vice President and Chief Financial Officer
514-764-4700


Information:
Media
Rene Guimond
Vice-President, Public Affairs and Communications
514-764-4700

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