Press release details

Solid results and higher dividend for COGECO stemming from continuous growth in Canadian cable operations despite a write-off of Cogeco Cable’s Cabovisão investment

PRESS RELEASE

For immediate release

Solid results and higher dividend for COGECO stemming from continuous growth in

Canadian cable operations despite a write-off of Cogeco Cable’s Cabovisão investment

Montréal, July 7, 2011 – Today, COGECO Inc. (TSX: CGO) (“COGECO” or the “Company”) announced its financial results

for the third quarter and first nine months of fiscal 2011, ended May 31, 2011.

For the third quarter and first nine months of fiscal 2011:

• Revenue increased by 13.3% to reach $375 million in the quarter, and by 8.1% to reach $1,068.4 million in the first

nine months;

• Operating income before amortization

(1)

grew by 15.5% to reach $147.8 million in the quarter and by 10.3% to reach

$420.8 million in the first nine months when compared to the same periods of fiscal 2010;

• Operating margin

(1)

increased to 39.4% in the third quarter and first nine months, compared to 38.7% and 38.6%,

respectively, in the third quarter and first nine months of fiscal 2010;

• In the third quarter of fiscal 2011, a write-off of Cogeco Cable Inc.’s net investment in Cabovisão was recorded

through a non-cash impairment loss in the amount of $225.9 million as a result of the severe decline in the economic

environment in Portugal, with the Country ultimately requiring financial assistance from the International Monetary

Fund and the European Central Bank, combined with subscriber losses in the third quarter despite additional

marketing initiatives designed to generate RGU growth in the near term. Net of non-controlling interest, the

impairment loss reduced the Company’s net income by an amount of $72.7 million in the third quarter and first nine

months of fiscal 2011;

• In the first nine months, Cogeco Cable Inc. redeemed its $175 million Senior Secured Notes Series B, bearing

interest at 7.73%, from the net proceeds of the issuance, in the first quarter of fiscal 2011, of the $200 million Senior

Secured Debentures Series 2, bearing interest at 5.15%. A one-time make-whole premium of $8.8 million was paid

on the redemption, which increased financial expense;

• Net loss amounted to $56.7 million in the third quarter, compared to net income of $10.7 million for the same period

of the previous fiscal year. The net loss in the third quarter of fiscal 2011 was due to the write-off of Cogeco Cable’s

net investment in Cabovisão described above. Excluding this amount, adjusted net income

(1)

would have amounted

to $16 million, an increase of $5.3 million, or 49% when compared to the third quarter of the prior year;

• For the first nine months of fiscal 2011, net loss amounted to $30.1 million, also as a result of the write-off of Cogeco

Cable Inc.’s net investment in Cabovisão described above. In the first nine months of fiscal 2010, net income

amounted to $44 million, which included a favourable income tax adjustment, net of non-controlling interest, of

$9.6 million related to the reduction of Ontario provincial corporate income tax rates for the Company’s Canadian

operations. Excluding these adjustments, adjusted net income

(1)

of $42.6 million in the first nine months of fiscal 2011

represents a progression of $8.2 million, or 24% when compared to $34.4 million in the first nine months of fiscal

2010;

• Free cash flow

(1)

of $63.6 million was posted in the third quarter, $13.9 million, or 28.1% higher than $49.6 million in

the comparable period of the prior year. In the first nine months, free cash flow amounted to $87.5 million, compared

to $162.5 million in the first nine months of fiscal 2010. This reduction is primarily due to the recognition of current

income tax expense relating to the modifications to the cable subsidiary’s corporate structure which reduced the

future income tax expense accordingly and to the increase in financial expense;

• Quarterly dividends of $0.12 per share were paid to the holders of subordinate and multiple voting shares, a quarterly

increase of $0.02 per share, or 20%, when compared to quarterly dividends of $0.10 per share in the first nine

months of fiscal 2010. Dividend payments in the first nine months totalled $0.36 per share in fiscal 2011, compared to

$0.30 per share in fiscal 2010. In addition, the Board of Directors declared a dividend of $0.14 per share payable in

the fourth quarter of fiscal 2011, an increase of 40% when compared to the prior year, reflecting the continued strong

financial performance;

(1) The indicated terms do not have standard 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 of the

Management’s Discussion and Analysis.

• On February 1, 2011, the Company concluded its acquisition of Corus Entertainment Inc.’s Québec radio stations

(the “Québec Radio Stations Acquisition”) for $80 million, subject to customary closing adjustments and conditions;

• In the cable sector, revenue-generating units (“RGU”)

(2)

grew by 41,819 net additions in the quarter and 189,767 net

additions in the first nine months, for a total of 3,369,116 RGU at May 31, 2011.

“COGECO’s solid results in the third quarter of fiscal 2011 are mainly attributable to the performance of Cogeco Cable’s

Canadian operations, which generated continued RGU and revenue growth,” declared Louis Audet, President and CEO of

COGECO. “However, in the European operations, customer losses and service reductions have become more significant and

persistent than Cogeco Cable’s management expected. This situation is due to economic measures taken by the Portuguese

government to reform the economy and reduce the deficit, which led to a decrease in customer spending capacity. Under

these prevailing circumstances Cogeco Cable wrote-off its investment in its Portuguese subsidiary, Cabovisão.”

“As for our Canadian business activities, Cogeco Cable has concluded in the past weeks an agreement to acquire all of the

shares of Quiettouch Inc., a leading independent provider of outsourced managed information technology and infrastructure

services to mid-market and larger enterprises in Canada. We expect the transaction, which will boost our business offering, to

close during the last quarter of fiscal 2011,” continued Mr. Audet.

“On the radio front, Cogeco Diffusion completed its first full quarter since the acquisition Corus Entertainment Inc.’s Québec

radio stations was completed on February 1

st

, 2011. The integration of the newly acquired radio stations, which contributed

positively to our quarterly results, continues to go according to plan. COGECO now has a stronger position in the Québec

radio market, with 13 stations in five regions. Cogeco Diffusion has also submitted to the CRTC a licence request to operate

two AM stations in the Montréal market, which would be entirely dedicated to weather and traffic. A decision is expected in the

coming months,” added Mr. Audet.

“Despite the Cabovisão situation, we expect to meet most of fiscal 2011 financial targets. Our results and future outlook

remain positive, which is why the quarterly dividend has been increased from $0.12 to $0.14 per share. As for our fiscal 2012

preliminary guidelines, we expect to continue to generate growth for most of our key performance indicators, with operating

income before amortization growing by 6.3% and free cash flow, by 31.3%”, said Mr. Audet.

ABOUT COGECO

COGECO (www.cogeco.ca) is a diversified communications company. Through its Cogeco Cable subsidiary, COGECO provides its residential

customers with Audio, Analogue and Digital Television, as well as HSI and Telephony services using its two-way broadband cable networks.

Cogeco Cable also provides, to its commercial customers, through its subsidiary Cogeco Data Services, data networking, e-business

applications, video conferencing, hosting services, Ethernet, private line, VoIP, HSI access, data storage, data security and co-location

services and other advanced communication solutions. Through its Cogeco Diffusion subsidiary, COGECO owns and operates 13 radio

stations across most of Québec with complementary radio formats serving a wide range of audiences. COGECO’s subordinate voting shares

are listed on the Toronto Stock Exchange (TSX: CGO). The subordinate voting shares of Cogeco Cable are also listed on the Toronto Stock

Exchange (TSX: CCA).

– 30 –

Source:

C

OGECO

Inc.

Pierre Gagné

Senior Vice President and Chief Financial Officer

Tel.: 514-764-4700

Information:

Media

René Guimond

Vice President, Public Affairs and Communications

Tel.: 514-764-4746

Analyst Conference Call:

Thursday

,

July

7

,

2011

at 11:00 a.m. (EDT)

Media representatives may attend as listeners only.

Please use the following dial-in number to have access to the conference call by dialing five

minutes before the start of the conference:

Canada/USA Access Number: 1 866 321-8231

International Access Number: + 1 416 642-5213

Confirmation Code: 3298006

By Internet at www.cogeco.ca/investors

A rebroadcast of the conference call will be available until July 14, 2011, by dialing:

Canada and USA access number: 1 888 203-1112

International access number: + 1 647 436-0148

Confirmation code: 3298006

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

SHAREHOLDERS’ REPORT

Third quarter ended May 31

,

SHAREHOLDERS’ REPORT

,

2011

FINANCIAL HIGHLIGHTS

Quarters ended May 31, Nine months ended May 31,

2011

2010

Change

2011

2010

Change

($000, except percentages and per share data)

$

$

%

$

$

%

Operations (unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenue

374,957

330,933

13.3

1,068,367

988,023

8.1

Operating income before amortization

(1)

147,807

127,928

15.5

420,790

381,554

10.3

Operating margin

(1)

39.4%

38.7%

–

39.4%

38.6%

–

Operating income

81,535

64,008

27.4

225,952

185,940

21.5

Impairment of goodwill and fixed assets

225,873

–

–

225,873

–

–

Net income (loss)

(56,672)

10,740

–

(30,052)

43,999

–

Adjusted net income

(1)

16,007

10,740

49.0

42,627

34

,379

24.0

Cash Flow

Cash flow from operating activities

147,244

110,756

32.9

301,480

226,844

32.9

Cash flow from operations

(1)

135,161

119,140

13.4

298,335

374,989

(20.4)

Capital expenditures and increase in deferred charges

71,587

69,511

3.0

210,848

212,447

(0.8)

Free cash flow

(1)

63,574

49,629

28.1

87,487

162,542

(46.2)

Financial Condition

(2)

Fixed assets

–

–

–

1,168,001

1,328,866

(12.1)

Total assets

–

–

–

2,707,787

2,744,656

(1.3)

Indebtedness

(3)

–

–

–

1,033,075

961,354

7.5

Shareholders’ equity

–

–

–

346,745

381,635

(9.1)

RGU growth 41,819

64,241

(34.9)

189,767

222,808

(14.8)

Per Share Data

(4)

Earnings (loss) per share

Basic

(3.39)

0.64

–

(1.80)

2.63

–

Diluted

(3.39)

0.64

–

(1.80)

2.62

–

Adjusted earnings per share

(1)

Basic

0.96

0.64

50.0

2.55

2.06

23.8

Diluted

0.95

0.64

48.4

2.53

2.05

23.4

(1) The indicated terms 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 of the

Management’s Discussion and Analysis.

(2) At May 31, 2011 and August 31, 2010.

(3) Indebtedness is defined as the total of bank indebtedness, promissory note payable, principal on long-

term debt and obligations under derivative financial

instruments.

(4) Per multiple and subordinate voting share.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Third quarter ended May 31

,

MANAGEMENT’S DISCUSSION AND ANALYSIS

,

2011

MANAGEMENT’S DISCUSSION AND ANALYSIS

(MD&A)

Management’s Discussion and Analysis COGECO INC. Q3 2011 3

FORWARD-LOOKING STATEMENTS

Certain statements in this report 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 Company’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 Company, they may prove to be incorrect. The

Company cautions the reader that the economic downturn experienced over the past two 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 Company’s expectations. It is impossible for COGECO to predict with certainty the impact that the current economic downturn 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 Company’s 2010 annual Management’s Discussion and Analysis (MD&A)) that could cause

actual results to differ materially from what COGECO currently expects. 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 the Company’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 Company is under no obligation (and expressly disclaims any such obligation), and does not

undertake to update or alter this information before the next quarter.

This report should be read in conjunction with the Company’s consolidated financial statements, and the notes thereto, prepared in

accordance with Canadian GAAP and the MD&A included in the Company’s 2010 Annual Report. Throughout this discussion, all amounts are

in Canadian dollars unless otherwise indicated.

Management’s Discussion and Analysis COGECO INC. Q3 2011 4

CORPORATE STRATEGIES AND OBJECTIVES

COGECO Inc.’s (“COGECO” or the “Company”) objectives are to maximize shareholder value by increasing profitability and ensuring

continued growth. The strategies employed to reach these objectives, supported by tight controls over costs and business processes, are

specific to each sector. For the cable sector, sustained corporate growth and the continuous improvement of networks and equipment are the

main strategies used. The radio activities focus on continuous improvement of programming in order to increase market share, and, thereby,

profitability. COGECO uses operating income before amortization

(1)

, operating margin

(1)

, free cash flow

(1)

and revenue-generating units

(“RGU”)

(2)

growth in order to measure its performance against these objectives for the cable sector.

Cable sector

During the first nine months of fiscal 2011, the Company’s subsidiary, Cogeco Cable Inc. (“Cogeco Cable” or the “Cable subsidiary”), invested

approximately $100 million in its network infrastructure and equipment to upgrade its capacity, improve its robustness and extend its territories

in order to better serve and increase its service offerings for new and existing clientele.

RGU growth and service offerings in the cable sector

During the first nine months ended May 31, 2011, the number of RGU in the Cable subsidiary increased by 189,767, or 6%, to reach

3,369,116 RGU, mainly as a result of targeted marketing initiatives in the Canadian operations and to the continuing interest for high definition

(“HD”) television service, which offset the lower customer growth in the European operations resulting primarily from the impact of further

austerity measures announced by the Portuguese government in recent months which adversely impact consumer spending. In light of the

lower RGU growth in the European operations during the first nine months of fiscal 2011, Cogeco Cable has revised its guidelines from

275,000 as issued on January 12, 2011 to 250,000 net additions, or approximately 7.9% when compared to August 31, 2010. RGU growth is

expected to stem primarily from the Canadian operations of the cable subsidiary and reflect the continued strong interest in Digital Television

services, enhanced service offerings and promotional activities. Please consult the “Fiscal 2011 financial guidelines” section for further details.

Operating income before amortization and operating margin

For the first nine months of fiscal 2011, operating income before amortization grew by $39.2 million, or 10.3%, to reach $420.8 million, in line

to achieve management’s revised projection of $560 million in operating income before amortization for fiscal 2011. Operating margin

increased to 39.4%, from 38.6% in the first nine months of the year.

Free cash flow

For the nine-month period ended May 31, 2011, COGECO achieved free cash flow of $87.5 million, compared to $162.5 million for the

comparable period of the previous fiscal year, a decrease of $75.1 million. The decrease in free cash flow in the first nine months of

fiscal 2011 reflects the timing of the recognition of income tax liabilities as a result of modifications made to Cogeco Cable’s corporate

structure in fiscal 2009. As a result of an increase in capital expenditures expected in the last quarter of fiscal 2011, management maintains its

revised free cash flow guideline of $80 million for the 2011 fiscal year.

Other

BBM Canada’s spring 2011 survey and radio broadcast week measures from February 28, 2011 to May 29, 2011, conducted with the Portable

People Meter (“PPM”), show that Rythme FM has maintained its leadership position in the competitive Montréal region market.

On June 27, 2011, Cogeco Cable concluded an agreement to acquire all of the shares of Quiettouch Inc. (the “Quiettouch acquisition”), a

leading independent provider of outsourced managed information technology and infrastructure services to mid-market and larger enterprises

in Canada. Quiettouch offers a full suite of differentiated services that allow customers to outsource their mission-critical information

technology infrastructure and application requirements, including managed infrastructure and hosting, virtualization, firewall services, data

backup with end-to-end monitoring and reporting, and enhanced and traditional colocation services. Quiettouch operates three data centres in

Toronto and Vancouver, as well as a fibre network within key business areas of downtown Toronto. The transaction is subject to certain

arrangements and commercial approvals, and is expected to close during the last quarter of fiscal 2011.

On April 30, 2010, the Company concluded an agreement with Corus Entertainment Inc. (“Corus”) to acquire its Québec radio stations

(“Québec Radio Stations Acquisition”) for $80 million, subject to customary closing adjustments and conditions, which was concluded on

February 1, 2011.

(1) The indicated terms 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.

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

Management’s Discussion and Analysis COGECO INC. Q3 2011 5

OPERATING RESULTS – CONSOLIDATED OVERVIEW

Quarters ended May 31, Nine months ended May 31,

2011

2010

Change

2011

2010

Change

($000, except percentages)

$

$

%

$

$

%

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenue

374,957

330,933

13.3

1,068,367

988,023

8.1

Operating costs

227,150

203,005

11.9

647,577

606,469

6.8

Operating income before amortization

147,807

127,928

15.5

420,790

381,554

10.3

Operating margin

39.4%

38.7%

39.4%

38.6%

Revenue

Fiscal 2011 third-quarter revenue improved by $44 million, or 13.3%, to reach $375 million primarily due to the cable sector and the results of

the Québec Radio Stations Acquisition. Revenue amounted to $1,068.4 million in the first nine months of fiscal 2011, $80.3 million, or 8.1%,

higher than in the same period of fiscal 2010.

Cable revenue increased by $23.6 million, or 7.4%, for the third quarter and by $53.9 million, or 5.6%, in the first nine months when compared

to the same periods of the prior year. For further details on Cogeco Cable’s operating results, please refer to the “Cable sector” section.

Revenue from the radio activities improved by $20.4 million in the third quarter and by $26.4 million in the first nine months, mainly as a result

of the Québec Radio Stations Acquisition.

Operating costs

For the third quarter and first nine months of fiscal 2011, operating costs amounted to $227.2 million and $647.6 million, increases of

$24.1 million, or 11.9%, and of $41.1 million, or 6.8%, when compared to the prior year, mainly from the Québec Radio Stations Acquisition

combined with increases in the cable sector.

Operating costs in the Cable sector increased by $6.2 million, or 3.2%, for the third quarter and by $17.8 million, or 3.1%, in the first nine

months when compared to the same periods of the prior year. For further details on Cogeco Cable’s operating results, please refer to the

“Cable sector” section.

Operating costs from the other activities, including radio activities, grew by $17.9 million in the third quarter and $23.1 million in the first nine

months, mainly from the Québec Radio Stations Acquisition.

Operating income before amortization and operating margin

Mainly as a result of the Québec Radio Stations Acquisition and growth in the cable sector, operating income before amortization grew by

$19.9 million, or 15.5%, in the third quarter to reach $147.8 million, and by $39.2 million, or 10.3%, at $420.8 million for the first nine months of

fiscal 2011, when compared to the same periods the previous year. COGECO’s operating margin increased to 39.4% in the three and

nine-month periods ended May 31, 2011, from 38.7% in the third quarter and 38.6% in the first nine months of the previous year. For further

details on the Company’s operating results, please refer to the “Cable sector” section.

FIXED CHARGES

Quarters ended May 31, Nine months ended May 31,

2011

2010

Change

2011

2010

Change

($000, except percentages)

$

$

%

$

$

%

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Amortization

66,272

63,920

3.7

194,838

195,614

(0.4)

Financial expense

16,766

16,824

(0.3)

58,172

48,288

20.5

Third-quarter 2011 amortization amounted to $66.3 million, compared to $63.9 million for the same period of the prior year. The increase is

mainly due to additional capital expenditures in Cogeco Cable’s Canadian operations arising from customer premise equipment acquisitions to

support RGU growth, partly offset by a reduction in amortization in the European operations stemming from certain acquired assets that are

now fully amortized. For the first nine months, amortization was essentially the same at $194.8 million when compared to $195.6 million in the

first nine months of the prior year.

Financial expense amounted to $16.8 million in the third quarter essentially the same when compared to the prior year. In the first nine months

of fiscal 2011, financial expense amounted to $58.2 million, compared to $48.3 million in the first nine months of the prior year. Financial

expense in the first nine months includes the payment, in the Cable sector, of a make-whole premium amounting to $8.8 million on the early

repayment, on December 22, 2010, of the $175 million Senior Secured Notes Series B due on October 31, 2011. The remaining variance is

mainly attributable to the financial expense impact of fluctuations in the level of bank indebtedness, combined with the impact of the lower

interest rate on the $200 million Senior Secured Debentures Series 2 issued by Cogeco Cable on November 16, 2010.

Management’s Discussion and Analysis COGECO INC. Q3 2011 6

IMPAIRMENT OF GOODWILL AND FIXED ASSETS

During the third quarter of fiscal 2011, the economic environment in Portugal continued to deteriorate, with the Country ultimately requiring

financial assistance from the International Monetary Fund and the European Central Bank. As part of the negotiated financial assistance

package, the Portuguese government has committed to financial reforms which include increases in sales and income taxes combined with

reductions in government spending on social programs. These measures are expected to put further downwards pressure on consumer

spending capacity. The rate of growth for Cogeco Cable’s services has diminished in this environment, with net customer losses and service

downgrades by customers in the European operations in the third quarter of fiscal 2011. Please refer to the “Cable sector” section for further

details. In accordance with current accounting standards, Cogeco Cable’s management considered that this situation combined with net

customer losses in the third quarter, which were significantly more important and persistent than expected, will continue to negatively impact

the financial results of the European operations and indicate a decrease in the value of Cogeco Cable’s investment in its Portuguese

subsidiary. As a result, Cogeco Cable tested goodwill and all long-lived assets for impairment at May 31, 2011.

Goodwill is tested for impairment using a two step approach. The first step consists of determining whether the fair value of the reporting unit

to which goodwill is assigned exceeds the net carrying amount of that reporting unit, including goodwill. In the event that the net carrying

amount exceeds the fair value, a second step is performed in order to determine the amount of the impairment loss. The impairment loss is

measured as the amount by which the carrying amount of the reporting unit’s goodwill exceeds its fair value. Cogeco Cable completed its

impairment test on goodwill and concluded that goodwill was impaired at May 31, 2011. As a result, a non-cash impairment loss of

$29.3 million was recorded in the third quarter of the 2011 fiscal year. Fair value of the reporting unit was determined using the discounted

cash flow method. Future cash flows were based on internal forecasts and consequently, considerable management judgement was

necessary to estimate future cash flows.

Long-lived assets with finite useful lives, such as fixed assets, are tested for impairment by comparing the carrying amount of the asset or

group of assets to the expected future undiscounted cash flows to be generated by the asset or group of assets. The impairment loss is

measured as the amount by which the asset’s carrying amount exceeds its fair value. Accordingly, Cogeco Cable completed its impairment

test on the fixed assets of the Portuguese subsidiary at May 31, 2011, and determined that the carrying value of these assets exceeded the

expected future undiscounted cash flows to be generated by these assets. As a result, a non-cash impairment loss of $196.5 million was

recognized in the third quarter of the 2011 fiscal year.

The impairment of goodwill and fixed assets (the “impairment loss”), which effectively wrote-off Cogeco Cable’s net investment in Cabovisão

affected the Company’s financial results as follows for the third quarter and first nine months of fiscal 2011:

($000)

Impairment of goodwill 29,344

Impairment of fixed assets 196,529

Impairment loss

225,873

Income taxes –

Non-controlling interest (153,194)

Impairment loss net of income taxes and non-controlling interest 72,679

INCOME TAXES

Fiscal 2011 third-quarter income tax expense amounted to $19 million, compared to $15.3 million in the prior year. The increase of

$3.7 million, or 24%, is mainly due to operating income before amortization growth, partly offset by the previously announced declines in the

enacted Canadian federal and provincial income tax rates.

For the first nine months, income tax expense amounted to $51.5 million, compared to $14 million in the prior year. The income tax expense in

the first nine months of the prior year included the impact, in the cable sector, of the reduction in corporate income tax rates announced on

March 26, 2009 by the Ontario provincial government and considered substantively enacted on November 16, 2009 (the “reduction of Ontario

provincial corporate income tax rates”), which reduced future income tax expense by $29.8 million. Excluding this prior year impact, income

tax expense would have amounted to $43.8 million for the first nine months of fiscal 2010. Fiscal 2011 income tax expense increase is mainly

due to operating income before amortization growth, partly offset by the increase in financial expense and the previously announced declines

in the enacted Canadian federal and provincial income tax rates.

NON-CONTROLLING INTEREST

The non-controlling interest represents a participation of approximately 67.8% in Cogeco Cable’s results. During the third quarter of fiscal 2011

the loss attributable to non-controlling interest amounted to $123.4 million, and $79.5 million for the nine months ended May 31, 2011, due to

the impairment loss recorded in the cable sector. The income attributable to non-controlling interest for the comparable periods of the prior

year amounted to $21.1 million and $79.6 million, respectively.

NET INCOME (LOSS)

For the three and nine-month periods ended May 31, 2011, net losses amounted to $56.7 million, or $3.39 per share, and $30.1 million, or

$1.80 per share, respectively, as a result of the previously described impairment loss of $72.7 million, net of income tax and non-controlling

interest. For the comparable periods of fiscal 2010, net income amounted to $10.7 million, or $0.64 per share in the quarter, and $44 million,

or $2.63 per share in the first nine months. Fiscal 2010 first nine months net income included the reduction of Ontario provincial corporate

income tax rates described in the “Income Taxes” section, which increased net income by an amount of $9.6 million net of non-controlling

interest.

Management’s Discussion and Analysis COGECO INC. Q3 2011 7

Excluding the impairment loss in the current year and the reduction of income tax rates in the prior year, fiscal 2011 adjusted net income

(1)

amounted to $16 million, or $0.96 per share

(1)

in the third quarter, representing growth of $5.3 million, or 49%, and of $0.32 per share, or 50%,

when compared to $10.7 million, or $0.64 per share in the prior year. Adjusted net income in the first nine months of fiscal 2011 grew by

$8.2 million, or 24%, and $0.49 per share, or 23.8%, to reach $42.6 million or $2.55 per share when compared to $34.4 million or $2.06 per

share in the comparable period of the prior year. Net income progression for both periods has resulted mainly from the growth in operating

income before amortization, partly offset in the first nine months by the make-whole premium on early repayment of debt of $2 million, net of

income taxes and non-controlling interest.

CASH FLOW AND LIQUIDITY

Quarters ended May 31, Nine months ended May 31,

2011

2010

2011

2010

($000)

$

$

$

$

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Operating activities

Cash flow from operations

135,161

119,140

298,335

374,989

Changes in non-cash operating items

12,083

(8,384)

3,145

(148,145)

147,244

110,756

301,480

226,844

Investing activities

(1)

(71,371)

(69,488)

(286,515

)

(212,161)

Financing activities

(1)

(12,147)

(36,043)

39,489

(31,284)

Effect of exchange rate changes on cash and cash equivalents denominated in a

foreign currency 573

(846)

438

(1,746)

Net change in cash and cash equivalents 64,299

4,379

54,892

(18,347)

Cash and cash equivalents, beginning of period

26,435

16,732

35,842

39,458

Cash and cash equivalents, end of period 90,734

21,111

90,734

21,111

(1) Excludes assets acquired under capital leases.

Fiscal 2011 third quarter cash flow from operations reached $135.2 million, compared to $119.1 million in the third quarter of the prior year.

The increase of $16 million, or 13.4%, is mainly attributable to the increase in operating income before amortization, partly offset by the

decrease in current income tax recovery. Changes in non-cash operating items generated cash inflows of $12.1 million, mainly as a result of

an increase in accounts payable and accrued liabilities and a decrease in income taxes receivable, partly offset by a decrease in income tax

liabilities. In the prior year, changes in non-cash operating items required cash outflows of $8.4 million, mainly as a result of an increase in

income taxes receivable and a decrease in accounts payable and accrued liabilities.

In the first nine months of fiscal 2011, cash flow from operations reached $298.3 million, $76.7 million, or 20.4%, lower than the comparable

period last year. This reduction is primarily due to the recognition of current income tax expense relating to the modifications to Cogeco

Cable’s corporate structure which reduced the future income tax expense accordingly and to the payment of a make-whole premium

amounting to $8.8 million on the early repayment of the Senior Secured Notes Series B, also in the cable sector, partly offset by the increase

in operating income before amortization. Changes in non-cash operating items generated cash inflows of $3.1 million, mainly as a result of an

increase in income tax liabilities and a decrease in income taxes receivable, partly offset by a decrease in accounts payable and accrued

liabilities and an increase in accounts receivable. In the prior year, changes in non-cash operating items required cash outflows of $148.1

million, mainly as a result of decreases in accounts payable and accrued liabilities and in income tax liabilities, combined with increases in

income taxes receivable and accounts receivable, partly offset by an increase in deferred and prepaid revenue and other liabilities.

In the third quarter of fiscal 2011, investing activities, including mainly capital expenditures and the increase in deferred charges, amounted to

$71.4 million, an increase of $1.9 million, or 2.7% when compared to $69.5 million for the corresponding period of last year. The most

significant variations are in the cable sector and are due to the following factors:

• An increase in customer premise equipment spending mainly due to the timing of equipment purchases to support RGU growth in

the Canadian operations. This increase was partly offset by the decrease in customer premise equipment spending reflecting lower

RGU growth in the European operations, net of the impact of the higher value of the Euro relative to the Canadian dollar when

compared to the third quarter of the prior year;

• A decrease in support capital spending since there were prior year acquisitions of new facilities in the Canadian operations.

In the first nine months of fiscal 2011, investing activities amounted to $286.5 million as a result of the net outflows related to the Québec

Radio Stations Acquisition for an amount of $75.9 million described below, capital expenditures and the increase in deferred charges. This

represents an increase of $74.4 million, or 35% when compared to $212.2 million for the corresponding period of last year.

On April 30, 2010, the Company concluded an agreement with Corus to acquire its Québec radio stations for $80 million, subject to customary

closing adjustments and conditions, including approval by the Canadian Radio-television and Telecommunications Commission (“CRTC”). On

June 30, 2010, the Company submitted its application for approval of the Québec Radio Stations Acquisition to the CRTC. On

December 17, 2010, the CRTC approved the transaction essentially as proposed. On January 11, 2011, the Company was served with an

application by Astral to the Court for leave to appeal the CRTC decision approving the transaction, and a related application by Astral for a

stay of execution of that decision until final judgement of the Court. On February 21, 2011 the Court has rejected applications filed by Astral in

the matter of the Québec Radio Stations Acquisition. The transaction with Corus was concluded on February 1, 2011.

(1) The indicated terms do not have standardized definitions prescribed by Canadian 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.

Management’s Discussion and Analysis COGECO INC. Q3 2011 8

Pursuant to this acquisition, and as part of the CRTC’s decision on the Company’s transfer application, the Company has put up for sale two

radio stations acquired in the transaction, CFEL-FM in the Québec City market and CJTS-FM in the Sherbrooke market. Accordingly, the

assets and liabilities of the two acquired radio stations put up for sale have been classified as held for sale in the preliminary purchase price

allocation presented below. In addition to the two acquired radio stations above, and also as part of the CRTC’s decision, the Company has

put up for sale radio station CJEC-FM, which it owned prior to the Québec Radio Stations Acquisition, in the Québec City market. Radio

stations for which divestiture has been required by the CRTC, and the sale process, are managed by a trustee approved by the CRTC

pursuant to a voting trust agreement.

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

allocation of the purchase price of the acquisition, pending the completion of the valuation of the net assets acquired, is as follows:

$

(unaudited)

Consideration

Paid

Purchase of shares

75,000

Acquisition costs

1,530

76,530

Promissory note payable, non-interest bearing and due on February 1, 2012

5,000

Investment previously accounted for

200

Acquisition costs previously recorded as deferred charges

435

Preliminary working capital adjustment payable

4,000

86,165

Net assets acquired

Cash and cash equivalents

647

Accounts receivable

14,132

Income tax receivable

92

Prepaid expenses and other

527

Current future income tax assets

1,018

Fixed assets

11,497

Deferred charges and other

99

Broadcasting licenses

48,193

Goodwill

27,227

Non-current future income tax assets

2,272

Non-current assets held for sale

9,531

Accounts payable and accrued liabilities assumed

(9,058)

Income tax liabilities assumed

(194)

Current liabilities related to assets held for sale

(797)

Deferred and prepaid revenue and other liabilities

(7,390)

Non-current future income tax liabilities

(10,656)

Non-current liabilities related to assets held for sale

(975)

86,165

In the first nine months of fiscal 2011, capital expenditures amounted to $202.3 million, a decrease of $1.9 million, or 0.9%, when compared to

$204.2 million in the first nine months of the prior fiscal year. The most significant variations are in the cable sector and are due to the

following factors:

• An increase in customer premise equipment spending mainly due to the timing of equipment purchases to support RGU growth in

the Canadian operations. This increase was partly offset by the decrease in customer premise equipment spending reflecting lower

RGU growth in the European operations combined with the impact of the lower value of the Euro relative to the Canadian dollar

when compared to the same period of the prior year;

• An increase in scalable infrastructure in the Canadian operations to improve network capacity in existing areas served;

• Decreases in upgrades and rebuilds and in line extensions stemming from the timing of the various initiatives undertaken by Cogeco

Cable in order to expand its network and improve its capacity;

• A decrease in support capital spending since there were prior year acquisitions of new facilities in the Canadian operations.

In the third quarter, free cash flow amounted to $63.6 million, compared to $49.6 million in the comparable period of fiscal 2010, representing

an increase of $13.9 million, or 28.1%. The growth in free cash flow over the prior year is due to the increase in operating income before

amortization, partly offset by the decrease in current income tax recovery.

In the first nine months, free cash flow amounted to $87.5 million, a decrease of $75.1 million, or 46.2%, when compared to $162.5 million in

the first nine months of fiscal 2010. The decline in free cash flow over the prior year is due to an increase of $109.3 million in current income

tax expense in the cable sector stemming primarily from modifications to Cogeco Cable’s corporate structure and the increase in financial

expense, which offset the increase in operating income before amortization and the decrease in capital expenditures in the first nine months of

fiscal 2011.

Management’s Discussion and Analysis COGECO INC. Q3 2011 9

In the third quarter of fiscal 2011, Indebtedness affecting cash decreased by $5.1 million mainly due to the free cash flow of $63.6 million and

the cash inflows of $12.1 million from the changes in non-cash operating items, offset by the increase in cash and cash equivalents of

$64.3 million and the dividend payment of $7.6 million described below. Indebtedness mainly decreased through a net repayment of

$4.4 million on the Company’s Term Revolving Facilities. In the third quarter of the prior year, Indebtedness affecting cash decreased by

$29.5 million mainly due to the free cash flow of $49.6 million, partly offset by the cash outflows of $8.4 million from the changes in non-cash

operating items, the dividend payment of $6.3 million described below and the increase in cash and cash equivalents of $4.4 million.

Indebtedness mainly decreased through a net repayment of $33.2 million on Cogeco Cable’s Term Facility.

During the third quarter of fiscal 2011, a dividend of $0.12 per share was paid by the Company to the holders of subordinate and multiple

voting shares, totalling $2 million, compared to a dividend of $0.10 per share, or $1.7 million the year before. In addition, dividends paid by a

subsidiary to non-controlling interests in the third quarter of fiscal 2011 amounted to $5.6 million, for consolidated dividend payments of

$7.6 million, compared to $4.6 million, for consolidated dividend payments of $6.3 million in the third quarter of the prior year.

In the first nine months of fiscal 2011, Indebtedness affecting cash increased by $60.5 million mainly due to the Québec Radio Stations

Acquisition for a net amount of $75.9 million, the increase in cash and cash equivalents of $54.9 million and the dividend payments totalling

$22.8 million described below. The increase was partly offset by the free cash flow of $87.5 million generated in the first nine months of the

fiscal year and the cash inflows of $3.1 million from the changes in non cash operating items. Indebtedness mainly increased through the

issuance, on November 16, 2010, of Senior Secured Debentures Series 2 (“Fiscal 2011 debentures”) for net proceeds of $198.3 million and a

net increase of $41.7 million on the Company’s Term Revolving Facilities. The increase was partly offset by the repayment, on

December 22, 2010, of Cogeco Cable’s $175 million Senior Secured Notes Series B due on October 31, 2011 and the related make-whole

premium on early repayment. For the comparable period of fiscal 2010, Indebtedness affecting cash decreased by $10.1 million mainly due to

the free cash flow of $162.5 million and the decrease in cash and cash equivalents of $18.3 million, partly offset by the cash outflows of

$148.1 million from the changes in non-cash operating items and the dividend payment of $18.8 million described below. Indebtedness mainly

decreased through net repayments totalling $61.2 million on the Company’s Term Facilities, including net repayments of $54.7 million by the

cable subsidiary, partly offset by an increase of $54.1 million in bank indebtedness.

During the first nine months of fiscal 2011, quarterly dividends of $0.12 per share, for a total of $0.36 per share, were paid to the holders of

subordinate and multiple voting shares, totalling $6 million, compared to quarterly dividends of $0.10 per share, for a total of $0.30 per share,

or $5 million the year before. In addition, dividends paid by a subsidiary to non-controlling interests in the first nine months of fiscal 2011

amounted to $16.8 million, for consolidated dividend payments of $22.8 million, compared to $13.8 million for consolidated dividend payments

of $18.8 million in the first nine months of the prior year.

As at May 31, 2011, the Company had a working capital deficiency of $135.3 million compared to $202.9 million as at August 31, 2010. The

decrease in the deficiency is mainly attributable to the cable sector and caused by increases in cash and cash equivalents and accounts

receivable and decreases in accounts payable and accrued liabilities and future income tax liabilities. The decrease was partly offset by an

increase in income tax liabilities and a decrease in income taxes receivable. As part of the usual conduct of its business, COGECO maintains

a working capital deficiency due to a low level of accounts receivable as a large portion of Cogeco Cable’s customers pay before their services

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

enabling the cable subsidiary to use cash and cash equivalents to reduce Indebtedness.

At May 31, 2011, the Company had used $72.9 million of its $100 million Term Revolving Facility for a remaining availability of $27.1 million.

Cogeco Cable had used $112.5 million of its $750 million Term Revolving Facility for a remaining availability of $637.5 million.

Transfers of funds from non-wholly owned subsidiaries to COGECO are subject to approval by the subsidiaries’ Boards of Directors and may

also be restricted under the terms and conditions of certain debt instruments. In accordance with applicable corporate and securities laws,

significant transfers of funds from COGECO may be subject to approval by minority shareholders.

FINANCIAL POSITION

Since August 31, 2010, there have been significant changes to the balances of “fixed assets”, “income tax liabilities”, “future income tax

liabilities”, “income taxes receivable”, “cash and cash equivalents”, “long-term debt”, “intangible assets”, “assets held for sale”, “accounts

payable and accrued liabilities”, “accounts receivable”, “derivative financial instruments”, “deferred and prepaid revenue and other liabilities”,

“promissory note payable”, “goodwill” and “non-controlling interest”.

The $160.9 million decrease in fixed assets reflects the impairment loss recorded in the third quarter of the fiscal year, partly offset by the

assets acquired in the Québec Radio Stations Acquisition and the capital expenditures discussed in the “Cash Flow and Liquidity” section

which surpassed the amortization expense and the impact of the depreciation of the Euro in relation to the Canadian dollar. The increase of

$68.2 million in income tax liabilities and the decreases of $18.7 million in future income tax liabilities, $6.6 million in income taxes receivable

primarily reflect the timing of the recognition of income tax liabilities as a result of modifications made to Cogeco Cable’s corporate structure,

combined with the impact of the Québec Radio Stations Acquisition and the increase in operating income before amortization. The increases

of $54.9 million in cash and cash equivalents and $49.7 million in long-term debt are due to the factors previously discussed in the “Cash Flow

and Liquidity” section combined with the fluctuations in foreign exchange rates. The increases of $44.6 million in intangible assets and

$11.6 million in assets held for sale mainly stem from the Québec Radio Stations Acquisition. The $44 million decrease in accounts payable

and accrued liabilities is related to the timing of supplier payments, partly offset by the Québec Radio Stations Acquisition. The

$28.5 million increase in accounts receivable is due to the Québec Radio Stations acquisition combined with the increase in revenue and the

timing of payments received from customers. The $19.4 million decrease in derivative financial instruments is due to the factors discussed in

the “Financial management” section. The increases of $10 million in deferred and prepaid revenue and other liabilities and $5 million in

promissory note payable are mainly due to the Québec Radio Stations acquisition. The decrease of $1.2 million in goodwill also reflects the

Québec Radio Stations Acquisition, entirely offset by the impairment loss recorded in the cable sector. The $89.6 million decrease in non-

controlling interest is due to the impairment loss recorded in the European operations of the cable sector, partly offset by improvements in the

operating results of the cable subsidiary’s Canadian operations in the current fiscal year.

Management’s Discussion and Analysis COGECO INC. Q3 2011 10

A description of COGECO’s share data as at June 30, 2011 is presented in the table below:

Number of

shares/options

Amount

($000)

Common shares

Multiple voting shares

1,842,860

12

Subordinate voting shares

14,989,338

121,976

In the normal course of business, COGECO has incurred financial obligations, primarily in the form of long-term debt, operating and capital

leases and guarantees. COGECO’s obligations, discussed in the 2010 Annual Report, have not materially changed since August 31, 2010,

except as mentioned below.

On November 16, 2010, Cogeco Cable completed, pursuant to a public debt offering, the issue of $200 million Senior Secured Debentures

Series 2 for net proceeds of $198.3 million, net of discounts and transaction costs. These debentures mature on November 16, 2020 and bear

interest at 5.15% per annum, payable semi-annually. These debentures are indirectly secured by a first priority fixed and floating charge and a

security interest on substantially all present and future real and personal property and undertaking of every nature and kind of Cogeco Cable

and certain of its subsidiaries. The net proceeds of sale of the debentures were used to redeem in full, on December 22, 2010, Cogeco

Cable’s Senior Secured Notes Series B due October 31, 2011 for an amount of $175 million plus accrued interest and make-whole premium,

and the remainder for working capital and general corporate purposes.

The Company benefits from Term Revolving Facility of up to $100 million with a group of financial institutions led by a large Canadian bank,

which acts as agent for the banking syndicate. The Term Revolving Facility of up to $100 million includes a swingline limit of $7.5 million, is

extendable by additional one-year periods on an annual basis, subject to lenders’ approval, and if not extended, matures three years after its

issuance or the last extension, as the case may be. The Term Revolving Facility is composed of two tranches of $50 million each, one of

which was subject to the completion of the Québec Radio Stations Acquisition and which became available on February 1, 2011 with the

conclusion of the transaction. The Term Revolving Facility was extended at that same date and currently matures on February 1, 2014. The

Term Revolving Facility can be repaid at any time without penalty. The Term Revolving Facility is indirectly secured by a first priority fixed and

floating charge and a security interest on substantially all present and future real and personal property and undertaking of every nature and

kind of the Company and certain of its subsidiaries, excluding the capital stock and assets of the Company’s subsidiary, Cogeco Cable, and

guaranteed by its subsidiaries excluding Cogeco Cable. Under the terms and conditions of the credit agreement, the Company must comply

with certain restrictive covenants. Generally, the most significant restrictions are related to permitted investments, dividends on multiple and

subordinate voting shares and reimbursement of long-term debt as well as incurrence and maintenance of certain financial ratios primarily

linked to the operating income before amortization, financial expense and total indebtedness. The Term Revolving Facility bears interest, at

the Company’s option, on bankers’ acceptance, LIBOR in Euros or in US dollars, bank prime rate or US base rate plus the applicable margin,

and commitment fees are payable on the unused portion.

DIVIDEND DECLARATION

At its July 6, 2011 meeting, the Board of Directors of COGECO declared a quarterly eligible dividend of $0.14 per share for subordinate and

multiple voting shares, payable on August 3, 2011, to shareholders of record on July 20, 2011, an increase of 40% compared to the dividend

of $0.10 per share declared last year. The increased dividend mainly reflects the strong financial performance of Cogeco Cable’s Canadian

operations. The declaration, amount and date of any future dividend will continue to be considered and approved by the Board of Directors of

the Company based upon the Company’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.

FINANCIAL MANAGEMENT

Cogeco Cable has entered into a swap agreement with a financial institution to fix the floating benchmark interest rate with respect to a portion

of the Euro-denominated loans outstanding under the Term Revolving Facility, and previously the Term Facility, for a notional amount of

€111.5 million, which has been reduced to €95.8 million on July 28, 2009, and to €69.6 million on July 28, 2010. The interest rate swap to

hedge these loans has been fixed at 2.08% until the settlement of the swap agreement on June 28, 2011. In addition to the interest rate swap

of 2.08%, Cogeco Cable continued to pay the applicable margin on these loans in accordance with its Term Revolving Facility. In the first nine

months of fiscal 2011, the fair value of the interest rate swap increased by $1.1 million, which is recorded as an increase of other

comprehensive income (loss), net of income taxes and non-controlling interest, compared to an increase of $0.6 million in the prior year.

Cogeco Cable has also 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. In the first nine months of fiscal 2011, amounts due under the

US$190 million Senior Secured Notes Series A decreased by $18.6 million due to the US dollar’s depreciation relative to the Canadian dollar.

The fair value of cross-currency swaps decreased by a net amount of $20.4 million, of which a decrease of $18.6 million offsets the foreign

exchange gain on the debt denominated in US dollars. The difference of $1.8 million was recorded as a decrease of other comprehensive

income (loss), net of income taxes and non-controlling interest. In the first nine months of the prior year, amounts due under the

US$190 million Senior Secured Notes Series A decreased by $9.8 million due to the US dollar’s depreciation over the Canadian dollar. The

fair value of cross-currency swaps decreased by a net amount of $3.2 million, of which $9.8 million offsets the foreign exchange gain on the

debt denominated in US dollars. The difference of $6.5 million was recorded as an increase of other comprehensive income (loss), net of

income taxes and non-controlling interest.

Furthermore, Cogeco Cable’s net investment in self-sustaining foreign subsidiaries was 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 was mitigated since the

major part of the purchase price for Cabovisão was borrowed directly in Euros. This debt was designated as a hedge of a net investment in

self-sustaining foreign subsidiaries and, accordingly, Cogeco Cable recorded a foreign exchange gain of $3.9 million in the first nine months of

Management’s Discussion and Analysis COGECO INC. Q3 2011 11

fiscal 2011, compared to a foreign exchange loss of $13.4 million in the comparable period of the prior year, which was deferred and recorded

in the consolidated statement of comprehensive income (loss), net of income taxes and non-controlling interest. The exchange rate used to

convert the Euro currency into Canadian dollars for the balance sheet accounts as at May 31, 2011 was $1.3939 per Euro compared to

$1.3515 per Euro as at August 31, 2010. The average exchange rates prevailing during the third quarter and first nine months of fiscal 2011

used to convert the operating results of the European operations were $1.3809 per Euro and $1.3670 per Euro, respectively, compared to

$1.3472 per Euro and $1.4703 per Euro in the comparable periods of fiscal 2010. Since Cogeco Cable’s consolidated financial statements are

expressed in Canadian dollars but a portion of its business is conducted in the Euro currency, exchange rate fluctuations can increase or

decrease revenue, operating income before amortization, net income and the carrying value of assets and liabilities.

The following table shows the Canadian dollar impact of a 10% fluctuation in the average exchange rate of the Euro currency into Canadian

dollars on European operating results for the nine month period ended May 31, 2011:

Nine months ended May 31, 2011

As reported

Exchange rate

impact

($000)

$

$

(unaudited)

(unaudited)

Revenue

128,971

12,897

Operating income before amortization

14,427

1,443

The Company is also impacted by foreign currency exchange rates, primarily changes in the values of the US dollar relative to the Canadian

dollar with regards to purchases of equipment, as the majority of customer premise equipment in the cable sector is purchased and

subsequently paid in US dollars. Please consult the “Fixed charges” section of this MD&A and the “Foreign Exchange Risk” section in note 15

of the consolidated financial statements for further details.

CABLE SECTOR

CUSTOMER STATISTICS

Net additions (losses)

% of Penetration

(1)

Quarters ended May 31, Nine months ended May 31, May 31,

May 31, 2011 2011

2010

2011

2010

2011

2010

RGU

3,369,116 41,819

64,241

189,767

222,808

–

–

Basic Cable service customers

1,137,481 (3,374

)

900

2,709

8,463

–

–

HSI service customers

758,460 4,760

12,320

36,216

51,896

68.2

64.6

Digital Television service customers

818,624 28,039

30,167

99,354

88,630

72.6

61.6

Telephony service customers

654,551 12,394

20,854

51,488

73,819

60.9

55.1

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

In the cable sector, third quarter and first nine-month RGU net additions amounted to 41,819 and 189,767 RGU, respectively, compared to

64,241 and 222,808 RGU in the comparable periods of the previous fiscal year.

Fiscal 2011 third-quarter and first nine month RGU net additions were lower than in the comparable periods of the prior year, as the strong

RGU growth generated by the Canadian operations, despite higher penetration rates, category maturity and aggressive competition, was

offset by RGU losses in the European operations reflecting the continuing difficult economic conditions in Portugal. During the third quarter of

fiscal 2011, and as part of the negotiated financial assistance package, the Portuguese government has committed to financial reforms which

include increases in sales and income taxes combined with reductions in government spending on social programs. Please consult the

“Impairment of goodwill and fixed assets” section for further details. These measures are expected to put further downwards pressure on

consumer spending. The rate of growth for our services has diminished in this environment, with net customer losses across all of Cogeco

Cable’s services in the European operations in the third quarter of fiscal 2011.

Basic Cable service customers net losses stood at 3,374 for the quarter, compared to growth of 900 in the third quarter of the prior year. For

the first nine months, Basic Cable service customers increased by 2,709, compared to 8,463 in the prior year. In the quarter, Telephony

service customers grew by 12,394 compared to 20,854 for the same period last year, and the number of net additions to the HSI service stood

at 4,760 customers compared to 12,320 customers in the third quarter of the prior year. For the first nine months, net additions of Telephony

service customers amounted to 51,488 compared to 73,819 for the same period last year, and the number HSI service customers grew by

36,216 compared to 51,896 in the first nine months of the prior year. HSI and Telephony net additions continue 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 in the Canadian operations. For the three and nine month periods ended May 31, 2011, additions to the Digital

Television service stood at 28,039 and 99,354 customers, compared to 30,167 and 88,630 for the comparable periods of the prior year. Digital

Television service net additions are due to targeted marketing initiatives to improve penetration, the launch of new HD channels and the

continuing interest for HD television service.

Management’s Discussion and Analysis COGECO INC. Q3 2011 12

OPERATING RESULTS

Quarters ended May 31, Nine months ended May 31,

2011

2010

Change

2011

2010

Change

($000, except percentages)

$

$

%

$

$

%

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenue

342,910

319,291

7.4

1,010,998

957,053

5.6

Operating costs

198,825

192,591

3.2

593,941

576,115

3.1

Management fees - COGECO Inc.

–

–

–

9,172

9,019

1.7

Operating income before amortization

144,085

126,700

13.7

407,885

371,919

9.7

Operating margin

42.0%

39.7%

40.3%

38.9%

Revenue

Fiscal 2011 third-quarter revenue improved by $23.6 million, or 7.4%, to reach $342.9 million, when compared to the prior year. For the first

nine months of fiscal 2011, revenue amounted to $1,011 million, $53.9 million, or 5.6%, higher when compared to $957.1 million in the

comparable period of fiscal 2010.

Driven by RGU growth combined with an increase in rentals of home terminal devices stemming from the strong growth in Digital Television

services and rate increases implemented in April 2011 and in the second half of fiscal 2010, the Canadian operations’ third-quarter revenue

rose by $23.6 million, or 8.6%, to reach $299.3 million, and first nine-month revenue increased by $70.6 million, or 8.7%, at $882 million.

In the third quarter of fiscal 2011 revenue from the European operations remained essentially the same at $43.6 million when compared to the

same period of the prior year as a result of the higher value of the Euro in relation to the Canadian dollar in the third quarter of the year when

compared to the prior year, partly offset by lower revenue in local currency as a result of a decreased demand for services. First nine-month

European operations revenue amounted to $129 million, $16.6 million, or 11.4%, less than in the prior year. The decline in revenue in the first

nine months was mainly due to RGU losses combined with the lower value of the Euro in relation to the Canadian dollar. Revenue from the

European operations in the local currency for the three and nine-month periods ended May 31, 2011 amounted to €31.6 million and

€94.3 million, decreases of €0.8 million, or 2.3%, and €4.6 million, or 4.6%, respectively, when compared to the same periods of the prior year.

Operating costs

For the third quarter of fiscal 2011, operating costs increased by $6.2 million, to reach $198.8 million, an increase of 3.2% compared to the

prior year. For the first nine months, operating costs amounted to $593.9 million, $17.8 million, or 3.1% higher than in the same period of

fiscal 2010.

In the Canadian operations, for the three and nine month periods ended May 31, 2011, operating costs increased by $5.9 million, or 3.8%, at

$161.2 million, and by $24.4 million, or 5.4%, to reach $479.4 million, respectively. The increases in operating costs are mainly attributable to

servicing additional RGU, the launch of new HD channels and additional marketing initiatives.

As for the European operations, fiscal 2011 third-quarter operating costs remained essentially the same at $37.6 million when compared to

$37.3 million in the third quarter of the prior year, primarily due to the higher value of the Euro in relation to the Canadian dollar in the third

quarter of the 2011 fiscal year. 2011 first nine-months operating costs decreased by $6.5 million, or 5.4%, at $114.5 million, mainly reflecting

RGU losses combined with the lower value of the Euro in relation to the Canadian dollar. These decreases in operating costs offset increases

related to additional marketing initiatives and the launch of new HD channels by Cabovisão. Operating costs of the European operations for

the third quarter and first nine months in the local currency amounted to €27.3 million, essentially the same when compared to €27.7 million,

and €83.8 million, an increase of €1.4 million, or 1.7%, respectively, when compared to the corresponding periods of the prior year.

Operating income before amortization and operating margin

Fiscal 2011 third-quarter operating income before amortization increased by $17.4 million, or 13.7%, to reach $144.1 million. Cogeco Cable’s

third-quarter operating margin increased to 42% from 39.7% in the comparable period of the prior year. For the first nine months of fiscal 2011,

operating income before amortization amounted to $407.9 million, an increase of $36 million, or 9.7%, when compared to the first nine months

of fiscal 2010. The operating margin increased to 40.3% in the first nine months of fiscal 2011 from 38.9% in the same period of the prior year.

Operating income before amortization in the Canadian operations rose by $17.7 million, or 14.7%, to reach $138.1 million in the third quarter,

mainly due to revenue growth exceeding the increase in operating costs. Cogeco Cable’s Canadian operations’ operating margin increased to

46.1% in the third quarter compared to 43.7% for the same period of the prior year. In the first nine months of fiscal 2011, operating income

before amortization amounted to $393.5 million, $46.1 million, or 13.3%, higher than in the same period of the prior year. The operating margin

increased to 44.6% from 42.8% when compared to the first nine months of fiscal 2010. The growth in the operating margin stems from rate

increases and RGU growth.

For the European operations, operating income before amortization amounted to $6 million in the third quarter, compared to $6.3 million for

the same period of the prior year. In the first nine months, operating income before amortization decreased by $10.1 million, or 41.1%, at

$14.4 million. The reductions are mainly due to decreases in revenue which outpaced the decreases in operating costs. European operations’

operating margin decreased to 13.8% in the third quarter and 11.2% in the first nine months of fiscal 2011 from 14.5% and 16.8%,

respectively, in the third quarter and first nine months of fiscal 2010. Operating income before amortization in the local currency amounted to

€4.4 million compared to €4.7 million in the third quarter of the prior year, representing a decrease of 7.1%, and €10.5 million compared to

€16.5 million in the first nine months, representing a decrease of 36.2%.

Management’s Discussion and Analysis COGECO INC. Q3 2011 13

FISCAL 2011 FINANCIAL GUIDELINES

In the third quarter of fiscal 2011, a non-cash impairment loss of Cogeco Cable’s investment in Cabovisão was recorded in the amount of

$225.9 million as a result of the severe decline in the economic environment in Portugal, with the Country ultimately requiring financial

assistance from the International Monetary Fund and the European Central Bank. As part of the negotiated financial assistance package, the

Portuguese government has committed to financial reforms which are expected to put further downwards pressure on consumer spending due

to increases in taxes. The rate of growth for Cogeco Cable’s services has diminished, with net customer losses and service downgrades by

customers in the European operations in the third quarter of fiscal 2011. In order to reflect the impact of this unfavourable economic

environment and the impairment loss recorded by Cogeco Cable, the cable subsidiary has revised its net income guideline for the 2011 fiscal

year to a net loss of approximately $85 million, from net income of $140 million as issued on January 12, 2011. As a result of this revision in

Cogeco Cable, COGECO now expects a net loss of approximately $20 million for fiscal 2011.

Additionally, net customer additions in the cable sector are now expected to amount to approximately 250,000 RGU, or 7.9% when compared

to August 31, 2010, from 275,000 RGU as issued by Cogeco Cable on January 12, 2011. RGU growth in the fourth quarter of fiscal 2011 will

stem primarily from the growth in Digital Television service customers and promotional activities in the Canadian operations. The decrease in

revenue stemming from the revision of the RGU growth guideline is expected to be offset by strong continuing interest for HD television

services in the Canadian operations, and an increase in operating costs attributable to the launch of new HD channels and increased

marketing initiatives. Accordingly, management has not revised its other financial projections for the 2011 fiscal year.

FISCAL 2012 PRELIMINARY FINANCIAL GUIDELINES

Consolidated

For fiscal 2012, COGECO expects revenue of approximately $1,530 million and operating income before amortization should amount to

approximately $595 million, as a result of Cogeco Cable’s 2012 preliminary guidelines and the full year impact of the Québec Radio Stations

Acquisition. Free cash flow should generate approximately $105 million and net income of $80 million should be earned. The fiscal 2012

financial guidelines exclude the Quiettouch acquisition by Cogeco Cable, which is subject to customary closing adjustments and conditions.

Preliminary

projections

Fiscal 2012

Revised

projections

January 12, 2011

(in millions of dollars, except operating margin) $ $

Financial guidelines

Revenue 1,530 1,442

Operating income before amortization 595 560

Financial expense 63 75

Current income taxes 76 64

Net income (loss)

(1)

80 (20)

Capital expenditures and increase in deferred charges 351 341

Free Cash Flow 105 80

(1) The net loss guideline for fiscal 2011 was revised on July 6, 2011.

Cable sector

For fiscal 2012, Cogeco Cable expects to achieve revenue of $1,420 million, representing growth of $60 million, or 4.4% when compared to

the revised fiscal 2011 guidelines issued on January 12, 2011. The preliminary guidelines take into consideration the current uncertain global

economic environment. In Canada, while the recovery phase seems sustainable, recent reforms to the mortgage market and further tightening

from the Bank of Canada will nonetheless constrain housing market activity and should coincide with a contraction in consumer spending. In

previous recessionary periods, demand for cable telecommunications services has generally proven to be resilient, however there is no

assurance that demand would remain resilient in a prolonged difficult economic environment. In Portugal, during the third quarter of

fiscal 2011, the unfavourable economic environment continued to deteriorate, with the Country ultimately requiring financial assistance from

the International Monetary Fund and the European Central Bank. As part of the negotiated financial assistance package, the Portuguese

government has committed to financial reforms which include increases in sales and income taxes combined with reductions in government

spending on social programs. These measures are expected to put further downwards pressure on consumer spending and the rate of growth

for our services has diminished and is expected to continue to slowdown in this environment. These preliminary guidelines also take into

consideration the competitive environment that prevails in Portugal and, in Canada, the deployment of new technologies such as Fibre to the

Home (“FTTH”), Fibre to the Node (“FTTN”) and Internet Protocol Television (“IPTV”) by the incumbent telecommunications providers.

Revenue from the Canadian operations should increase as a result of RGU growth stemming from targeted marketing initiatives to improve

penetration rates of the Digital Television, HSI and Telephony services. Furthermore, the Digital Television service should continue to benefit

from the customers’ ongoing strong interest in Cogeco Cable’s growing HD service offerings. Canadian operations revenue will also benefit

from the impact of rate increases implemented in April 2011 in Ontario and Québec, averaging $2 per Basic Cable service customer. Cogeco

Cable’s strategies include consistently effective marketing, competitive product offerings and superior customer service, which combined, lead

to the expansion and loyalty of the Canadian operations’ Basic Cable Service clientele. As the penetration of HSI, Telephony and Digital

Television services increase, the new demand for these products should slow, reflecting early signs of maturity.

Cogeco Cable anticipates that the decline in the customer base of the European operations, which began during the second half of

fiscal 2011, is likely to continue in the next year. Net losses are expected in Basic Cable and Digital Television service customers partly offset

by net additions coming from HSI and Telephony service customers. Management is expected to maintain its retention strategies and

marketing initiatives implemented over the last few years, but the economic difficulties being experienced by the European market at large and

Management’s Discussion and Analysis COGECO INC. Q3 2011 14

the competitive environment which has plagued the Portuguese telecommunications industry for the past years are continuing to negatively

impact the financial results of the European operations. As a result of the economic environment in Portugal, revenue in local currency is

expected to decrease in fiscal 2012. For fiscal 2012, it is anticipated that the Euro should be converted at a rate of approximately $1.35 per

Euro, essentially the same when compared to the revised fiscal 2011 guidelines issued on January 12, 2011.

As a result of increased costs to service additional RGU, inflation and manpower increases, as well as the continuation of the marketing

initiatives and retention strategies launched in Portugal in the past few years, consolidated operating costs are expected to expand by

approximately $25 million, or 3.1% in the 2012 fiscal year when compared to the revised projections for fiscal 2011.

For fiscal 2012, Cogeco Cable expects operating income before amortization of $580 million, an increase of $35 million, or 6.4% when

compared to the revised fiscal 2011 projections issued on January 12, 2011. The operating margin is expected to reach approximately 40.8%

in fiscal 2012, compared to revised projections of 40.1% for the 2011 fiscal year, reflecting revenue growth which is expected to exceed the

increase in operating costs.

Cogeco Cable expects the amortization of capital assets and deferred charges to decrease by $45 million for fiscal 2012, mainly from the

impairment loss in the third quarter of fiscal 2011 in the European operations, partly offset by capital expenditures and deferred charges

related to RGU growth and other initiatives of fiscal 2012 in the Canadian operations and by the full year impact of those of fiscal 2011. Cash

flows from operations should finance capital expenditures and the increase in deferred charges amounting to $350 million, an increase of

$10 million when compared to the revised fiscal 2011 projections. Capital expenditures projected for the 2012 fiscal year are mainly due to

customer premise equipment required to support RGU growth, scalable infrastructure for product enhancements and the deployment of new

technologies, line extensions to expand existing territories, and support capital to improve business information systems and support facility

requirements.

Fiscal 2012 free cash flow is expected to amount to $95 million, an increase of $25 million, or 35.7% when compared to the projected free

cash flow of $70 million for fiscal 2011, resulting from the growth in operating income before amortization. Generated free cash flow should be

used primarily to reduce Indebtedness, thus improving Cogeco Cable’s leverage ratios. Financial expense will be reduced to $60 million from

the projected $72 million in fiscal 2011 revised projections, as a result of an anticipated decrease in Indebtedness and the one-time make-

whole premium on the early repayment, in fiscal 2011, of the Senior Secured Notes Series B, partly offset by a slight increase in Cogeco

Cable’s cost of debt reflecting current market conditions. As a result, net income of approximately $225 million should be achieved compared

to a net loss of $85 million for the revised fiscal 2011 projections. Fiscal 2012 projected net income represents an increase of $85 million when

compared to the revised fiscal 2011 projection when the impact of the non-cash impairment loss of $225.9 million in the European operations

is excluded.

The fiscal 2012 financial guidelines exclude the Quiettouch acquisition, which is subject to customary closing adjustments and conditions.

Preliminary

projections

Fiscal 2012

Revised

projections

January 12, 2011

(in millions of dollars, except net customer additions and operating margin) $ $

Financial guidelines

Revenue 1,420 1,360

Operating income before amortization 580 545

Operating margin 40.8% 40.1%

Amortization

220 265

Financial expense 60 72

Current income taxes 75 63

Net income (loss)

(1)

225 (85)

Capital expenditures and increase in deferred charges 350 340

Free Cash Flow 95 70

Net customer addition guidelines

RGU

(1)

225,000 250,000

(1) Net loss and net customer addition guidelines for fiscal 2011 were revised on July 6, 2011.

CONTROLS AND PROCEDURES

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 and internal controls over

financial reporting, as defined in NI 52-109. COGECO’s internal control framework is based on the criteria published in the report “Internal

Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission and is designed to

provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in

accordance with Canadian GAAP.

The CEO and CFO, supported by management, evaluated the design of the Company’s disclosure controls and procedures and internal

controls over financial reporting as at May 31, 2011, and have concluded that they were adequate. Furthermore, no significant changes to the

internal controls over financial reporting occurred during the quarter ended May 31, 2011.

However, in the first quarter of fiscal 2011, the Company introduced a new financial suite under an integrated Oracle platform. This project

was required in order to adequately support the implementation of the International Financial Reporting Standards (“IFRS”) and to remain

Management’s Discussion and Analysis COGECO INC. Q3 2011 15

current with the operational platform used by the Company. Following the introduction of this new financial suite, internal controls over

financial reporting have been updated in order to support adequate disclosure controls and procedures.

UNCERTAINTIES AND MAIN RISK FACTORS

There has been no significant change in the uncertainties and main risk factors faced by the Company since August 31, 2010. A detailed

description of the uncertainties and main risk factors faced by COGECO can be found in the 2010 Annual Report.

ACCOUNTING POLICIES AND ESTIMATES

There has been no significant change in COGECO’s accounting policies, estimates and future accounting pronouncements since

August 31, 2010, except as described below. A description of the Company’s policies and estimates can be found in the 2010 Annual Report.

Future accounting pronouncements

Adoption of International accounting standards

In March 2006, the Canadian Accounting Standards Board (“AcSB”) of the Canadian Institute of Chartered Accountants (“CICA”) released its

new strategic plan, which proposed to abandon Canadian GAAP and effect a complete convergence to the IFRS for Canadian publicly

accountable entities. This plan was confirmed in subsequent exposure drafts issued in April 2008, March 2009 and October 2009. The

changeover will occur no later than fiscal years beginning on or after January 1, 2011. Accordingly, the Company’s first interim consolidated

financial statements presented in accordance with IFRS will be for the quarter ending November 30, 2011, and its first annual consolidated

financial statements presented in accordance with IFRS will be for the year ending August 31, 2012.

IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant differences in recognition, measurement and

disclosure requirements. The Company has established a project team including representatives from various areas of the organization to plan

and complete the transition to IFRS. This team reports periodically to the Audit Committee, which oversees the IFRS implementation project

on behalf of the Board of Directors. The Company is assisted by external advisors as required.

The implementation project consists of three primary phases, which may occur concurrently as IFRS are applied to specific areas of

operations:

Phase Area of impact Key activities Status

Scoping and

diagnostic

Pervasive Perform a high-level impact assessment to identify key areas that are expected to be impacted

by the transition to IFRS.

Completed

Rank IFRS impacts in order of priority to assess the timing and complexity of transition efforts

that will be required in subsequent phases.

Impact analysis,

evaluation and

design

For each area

identified in the

scoping and

diagnostic phase

Identify the specific changes required to existing accounting policies. Completed

Analyse policy choices permitted under IFRS.

Present analysis and recommendations on accounting policy choices to the Audit Committee.

Pervasive Identify impacts on information systems and business processes. Completed

Prepare draft IFRS consolidated financial statement template.

Identify impacts on internal controls over financial reporting and other business processes.

Implementation

and review

For each area

identified in the

scoping and

diagnostic phase

Test and execute changes to information systems and business processes. Completed

Obtain formal approval of required accounting policy changes and selected accounting policy

choices.

In progress - to be

completed in fiscal

2011

Communicate impact on accounting policies and business processes to external stakeholders.

To be completed during

fiscal 2011

Pervasive Gather financial information necessary for opening balance sheet and comparative IFRS

financial statements.

In progress - to be

completed in fiscal

2011

Update and test internal control processes over financial reporting and other business

processes.

Collect financial information necessary to compile IFRS-compliant financial statements. In progress - to be

completed during fiscal

2012

Provide training to employees and end-users across the organization.

Prepare IFRS compliant financial statements.

Obtain the approval from the Audit Committee of the IFRS consolidated financial statements.

Continually review IFRS and implement changes to the standards as they apply to the

Company.

To be completed

throughout transition

and post-conversion

periods

The Company has completed all activities included in the scoping and diagnostic and impact analysis, evaluation and design phases. The

Company has also completed its implementation of a new financial suite under an integrated Oracle platform in order to adequately support

Management’s Discussion and Analysis COGECO INC. Q3 2011 16

the implementation of IFRS. This financial suite will facilitate the completion of the Company’s transition project and the conversion of the

results of operations for fiscal 2011 to be presented as comparative figures to the fiscal 2012 IFRS financial statements. The effects on other

information technology, data systems, and internal controls have also been assessed, no significant modifications are necessary on

conversion.

The Company’s project for the transition from Canadian GAAP to IFRS is progressing according to the established plan and the Company

expects to meet its target date for migration.

Upon conversion to IFRS, an entity is required to apply the guidance contained in these standards retrospectively without limitation unless

there is a specific exemption which modifies this requirement. IFRS 1 – First-time adoption of international financial reporting standards

applies only for first-time adopters of IFRS and contains several mandatory exceptions and optional exemptions to be applied to these entities’

first IFRS financial statements. Management has completed its analysis of the impact of most of the significant transitional optional

exemptions, and Cogeco Cable’s elections to be applied at the date of transition to IFRS for these exemptions are as follows:

International

standard Summary of the optional IFRS 1 exemption Application and impact for the Company

IFRS 3 – Business

combinations

A first-time adopter may elect not to apply IFRS 3 retrospectively to

past business combinations.

The Company has elected not to restate business combinations

completed prior to September 1, 2010.

IFRS 2 – Share-

based payments

A first-time adopter may elect to apply IFRS 2 only to equity

instruments that were granted after November 7 2002 and which

vested after the date of transition to IFRS.

The Company has elected to apply the requirements of IFRS 2 only to

equity instruments granted after November 7, 2002 and which vested

after the date of transition to IFRS.

IAS 16 – Property,

plant and

equipment

A first-time adopter may elect to measure an item of property, plant

and equipment at its fair value at the date of transition to IFRS and

use that fair value as its deemed cost at that date.

The Company has elected not to use the fair value of any of its property,

plant and equipment as their deemed cost at the date of transition to

IFRS.

IAS 19 – Employee

benefits

A first-time adopter may elect to recognise all cumulative actuarial

gains and losses at the date of transition to IFRS.

The Company has elected to recognise all actuarial gains and losses at

the date of transition to IFRS.

IAS 23 – Borrowing

costs

A first-time adopter may elect to apply IAS 23 only to borrowing

costs relating to qualifying assets for which the commencement

date for capitalisation is on or after the date of transition to IFRS.

The Company has elected to apply the requirements of IAS 23 only to

borrowing costs relating to assets for which the commencement date for

capitalisation is on or after the date of transition to IFRS.

The Company is currently completing the evaluation of the differences between IFRS and Canadian GAAP. The most significant differences in

accounting policies adopted on and after transition to IFRS with respect to the recognition, measurement, presentation and disclosure of

financial information, along with the related expected financial statement impacts, are expected to be in the following key accounting areas:

International

standard Summary of the difference between IFRS and Canadian GAAP Application and impact for the Company

IAS 16 – Property,

plant and

equipment

IFRS requires that each significant component of an asset be

depreciated separately.

The Company will apply IAS 16 retroactively to all items of property,

plant and equipment. The impact of the retroactive application on the

Company’s opening IFRS balance sheet at the date of transition will

reduce property, plant and equipment and retained earnings by an

amount of approximately $6 million before the impact of related income

taxes and non-controlling interest. Depreciation expense is also

expected to be different under IFRS.

IAS 19 – Employee

benefits

IAS 19 requires an entity to recognize the expense related to past

service cost on an accelerated basis compared to Canadian GAAP.

Furthermore, IAS 19 allows an entity a policy choice for the

recognition of actuarial gains and losses on defined benefit pension

plans. One of these choices permits the immediate recognition of

actuarial gains and losses as a component of other comprehensive

income, which was not permitted under Canadian GAAP.

The Company has elected to recognize actuarial gains and losses

immediately as a component of other comprehensive income. The

impact of this policy choice will depend on the future fluctuations in

market interest rates and actual returns on plan assets.

In addition, at the date of transition, the IFRS 1 optional election

described above will result in a decrease in opening retained earnings

and an increase in pension plan liabilities and accrued employee

benefits of approximately $14 million before the impact of related

income taxes and non-controlling interest.

IFRS 2 – Share-

based payment

IFRS 2 requires the graded-vesting method for the recognition of

stock-based compensation awards, while Canadian GAAP

permitted the straight-line method. IFRS 2 also requires that an

entity measure cash-settled stock-based payments at their fair

value based on an option pricing model.

The requirement to use the graded-vesting method for the recognition of

stock-based compensation awards will result in an accelerated

recognition of the expense for the Company. At the date of transition to

IFRS, and reflecting the IFRS 1 exemption described above, this

difference in accounting policies will result in a decrease in opening

retained earnings and an increase in contributed surplus (equity settled

employee compensation reserve in the Company’s IFRS financial

statements) by an amount of approximately $1 million before the impact

of non-controlling interest. As a result of this adjustment, operating

expense related to employee benefits are expected to be slightly lower

in the Company’s first IFRS financial statements.

Management’s Discussion and Analysis COGECO INC. Q3 2011 17

International

standard Summary of the difference between IFRS and Canadian GAAP Application and impact for the Company

IAS 36 –

Impairment of

assets

For the purposes of impairment testing, IFRS requires that assets

be grouped into cash generating units (“CGU”s). IFRS then

requires a one-step approach whereby the carrying value of the

CGU is compared to the higher of fair value less costs to sell and

the value in use. Canadian GAAP required grouping at the lowest

level of independent cash flows and used a two-step approach for

impairment testing whereby the carrying values were first compared

to the undiscounted future cash flows in order to determine the

existence of an impairment, and subsequently compared to the fair

value to determine the amount of the impairment.

IFRS also requires the reversal of a previous impairment loss on

assets other than goodwill in the event a change in circumstances

indicates that the impairment no longer exists or has decreased.

The reversal of prior impairment losses is not permitted under

Canadian GAAP.

The Company has identified and tested its CGUs for impairment at the

date of the opening IFRS balance sheet and no impairment was

identified.

IAS 38 – Intangible

assets

Intangible assets with indefinite lives are not amortized under IFRS

or Canadian GAAP. However, IFRS requires full retrospective

application, including the reversal of amortization which was not

reversed under the transitional provisions of Canadian GAAP.

On transition to IFRS, the Company will reverse all amortization

recorded on intangible assets with indefinite lives. The impact will

increase opening retained earnings and increase intangible assets by a

n

amount of approximately $58 million, before the impact of related

income taxes and non-controlling interest, on the opening IFRS balance

sheet.

IFRS 3 – Business

combinations

Acquisition-related costs, which the Company capitalized under

Canadian GAAP, are expensed under IFRS.

In accordance with the IFRS 1 election described above, the Company

will apply the requirements of IFRS 3 prospectively from the date of

transition. As part of the application of IFRS 3, the Company will be

required to expense acquisition-related costs capitalized on acquisitions

completed since the date of transition to IFRS.

Also as a result of the IFRS 1 election described above, the Company

will be required to reverse the retroactive adjustment to intangible assets

acquired in prior business acquisition stemming from the recognition of

deferred income taxes upon application of CICA Handbook section

3465, Income taxes. The impact will decrease intangible assets by an

amount of approximately $73 million, deferred income tax liabilities by

an amount of approximately $62 million and retained earnings by an

amount of approximately $11 million, before the impact of related

income taxes and non-controlling interest, at the transition date.

IAS 39 – Financial

instruments:

recognition and

measurement

The criteria and method used for assessing hedge effectiveness

may be different under IFRS than Canadian GAAP.

Upon transition to IFRS, the Company will continue to apply hedge

accounting under IFRS to all hedging arrangements which the Company

recorded under Canadian GAAP. The hedging documentation and

hedge effectiveness tests have been updated to conform to the

requirements of IAS 39.

IAS 23 – Borrowing

costs

IFRS requires that borrowing costs be capitalized on qualifying

assets purchased or constructed by the entity. Canadian GAAP

permitted a policy choice to capitalize or expense these costs,

which the Company elected to expense.

In light of the Company’s election under IFRS 1, this difference will have

no impact on the Company’s opening IFRS balance sheet. Borrowing

costs will be capitalized on any qualifying assets purchased or

constructed after the date of transition to IFRS.

IAS 12 – Income

taxes

Recognition and measurement criteria for deferred tax assets and

liabilities may differ. IFRS also requires that temporary differences

relating to current assets and current liabilities be presented as

non-current liabilities and non-current assets, whereas these were

classified as current under Canadian GAAP.

The differences related to the recognition and measurement of income

taxes are expected to have a material impact on the Company’s opening

IFRS balance sheet. The Company is currently assessing the impact of

these differences. The impact on income taxes of other IFRS differences

are also being assessed.

IAS 37 –

Provisions,

contingent

liabilities and

contingent assets

The threshold for the recognition of a provision is different under

IFRS than Canadian GAAP. Presentation differences also exist

between the two sets of accounting standards.

The Company is currently assessing the impact of these differences.

IAS 1 –

Presentation of

financial

statements

Additional disclosures are required under IFRS. Presentation

differences also exist between IFRS and Canadian GAAP, the most

notable of which are presentation choices for the Statement of

income and the Statement of comprehensive income and

Statement of cash flows.

The Company has elected to present items of revenue and expense on

its Consolidated statement of income according to the nature of the

item. The Consolidated statement of comprehensive income will be

presented separately from the Consolidated statement of income.

Multiple deliverable revenue arrangements

In December 2009, the Emerging Issues Committee (“EIC”) of the Canadian AcSB issued a new abstract concerning multiple deliverable

revenue arrangements, EIC-175, Multiple deliverable revenue arrangements, which amended EIC-142, Revenue arrangements with multiple

deliverables. EIC-175 requires a vendor to allocate arrangement consideration at the inception of the arrangement to all deliverables using the

relative selling price method, thereby eliminating the use of the residual value method. The amendment also changes the level of evidence of

the standalone selling price required to separate deliverables when more objective evidence of the selling price is not available. EIC-175

should be adopted prospectively to revenue arrangements entered into or materially modified in the first annual fiscal period beginning on or

after January 1, 2011, with early adoption permitted. The Company has elected not to early-adopt this EIC, and in light of the adoption of

International accounting standards taking effect at that same date, this EIC will not be applicable to the Company.

Management’s Discussion and Analysis COGECO INC. Q3 2011 18

NON-GAAP FINANCIAL MEASURES

This section describes non-GAAP financial measures used by COGECO throughout this MD&A. It also provides reconciliations between these

non-GAAP measures and the most comparable GAAP financial measures. These financial measures do not have standard definitions

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

“cash flow from operations”, “free cash flow”, “operating income before amortization”, “operating margin”, “adjusted net income”, and “adjusted

earnings per share”.

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 items. This allows the Company 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-GAAP measure “free cash

flow”. Free cash flow is used by COGECO’s management and investors to measure COGECO’s ability to repay debt, distribute capital to its

shareholders and finance its growth.

The most comparable Canadian GAAP financial measure is cash flow from operating activities. Cash flow from operations is calculated as

follows:

Quarters ended May 31, Nine months ended May 31,

2011

2010

2011

2010

($000)

$

$

$

$

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Cash flow from operating activities 147,244

110,756

301,480

226,844

Changes in non-cash operating items

(12,083)

8,384

(3,145

)

148,145

Cash flow from operations 135,161

119,140

298,335

374,989

Free cash flow is calculated as follows:

Quarters ended May 31, Nine months ended May 31,

2011

2010

2011

2010

($000)

$

$

$

$

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Cash flow from operations 135,161

119,140

298,335

374,989

Acquisition of fixed assets

(68,806)

(66,963)

(202,313

)

(204,239)

Increase in deferred charges

(2,781)

(2,548)

(8,535

)

(8,067)

Assets acquired under capital leases

– as per note 13 c)

–

–

–

(141)

Free cash flow 63,574

49,629

87,487

162,542

Operating income before amortization and operating margin

Operating income before amortization is used by COGECO’s management and investors to assess the Company’s ability to seize growth

opportunities in a cost effective manner, to finance its ongoing operations and to service its debt. Operating income before amortization 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. Operating margin is a measure of the proportion of the Company's revenue which

is available, before taxes, to pay for its fixed costs, such as interest on Indebtedness. Operating margin is calculated by dividing operating

income before amortization by revenue.

The most comparable Canadian GAAP financial measure is operating income. Operating income before amortization and operating margin

are calculated as follows:

Quarters ended May 31, Nine months ended May 31,

2011

2010

2011

2010

($000, except percentages)

$

$

$

$

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Operating income 81,535

64,008

225,952

185,940

Amortization

66,272

63,920

194,838

195,614

Operating income before amortization 147,807

127,928

420,790

381,554

Revenue

374,957

330,933

1,068,367

988,023

Operating margin 39.4%

38.7%

39.4%

38.6%

Management’s Discussion and Analysis COGECO INC. Q3 2011 19

Adjusted net income and adjusted earnings per share

Adjusted net income and adjusted earnings per share are used by COGECO’s management and investors to evaluate what would have been

the net income and earnings per share from ongoing operations without the impact of certain adjustments, net of income taxes and non-

controlling interest, which could affect the comparability of the Company’s financial results. The exclusion of these adjustments does not

indicate that they are non-recurring.

The most comparable Canadian GAAP financial measures are net income and earnings per share. These above-mentioned non-GAAP

financial measures are calculated as follows:

Quarters ended May 31, Nine months ended May 31,

2011

2010

2011

2010

($000, except numbers of shares and per share data)

$

$

$

$

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Net income (loss) (56,672)

10,740

(30,052

)

43,999

Adjustments:

Impairment of goodwill and fixed assets, net of non-controlling interest

72,679

–

72,679

–

Reduction of Ontario provincial corporate income tax rates, net of non-controlling interest

–

–

–

(9,620)

Adjusted net income 16,007

10,740

42,627

34,379

Weighted average number of multiple voting and subordinate voting shares outstanding

16,736,587

16,730,336

16,726,302

16,724,720

Effect of dilutive stock options

–

9,300

7,835

10,969

Effect of dilutive subordinate voting shares held in trust under the Incentive Share Unit Plan

95,611

71,862

88,329

66,480

Weighted average number of diluted multiple voting and subordinate voting shares

outstanding

16,832,198

16,811,498

16,822,466

16,802,169

Adjusted earnings per share

Basic

0.96

0.64

2.55

2.06

Diluted

0.95

0.64

2.53

2.05

SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION

Quarters ended

(1)

May 31, February 28, November 30, August 31,

($000, except percentages and per share

data)

2011

2010

2011

2010

2010

2009 2010 2009

$

$

$

$

$

$ $ $

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited) (unaudited) (unaudited)

Revenue

374,957

330,933

350,644

329,087

342,766

328,003 333,671 316,284

Operating income before amortization

147,807

127,928

135,952

124,363

137,031

129,263 137,785 144,654

Operating margin

39.4%

38.7%

38.8%

37.8%

40.0%

39.4% 41.3% 45.7%

Operating income

81,535

64,008

70,525

58,370

73,892

63,562 73,942 76,244

Impairment of goodwill and fixed assets

225,873

–

–

–

–

– – –

Income taxes

19,007

15,334

14,277

12,525

18,244

(13,818)

17,623 22,306

Net income (loss)

(56,672)

10,740

10,645

10,511

15,975

22,748 12,265 14,631

Adjusted net income

16,007

10,740

10,645

10,511

15,975

13,128 12,265 7,647

Cash flow from operating activities

147,244

110,756

96,664

117,498

57,572

(1,410)

198,492 177,032

Cash flow from operations

135,161

119,140

120,675

120,331

42,499

135,518 127,230 108,744

Capital expenditures and increase in

deferred charges

71,587

69,511

72,462

74,549

66,799

68,387 108,515 94,002

Free cash flow

63,574

49,629

48,213

45,782

(24,300)

67,131 18,715 14,742

Earnings (loss) per share

(2)

Basic

(3.39)

0.64

0.64

0.63

0.95

1.36 0.73 0.87

Diluted

(3.39)

0.64

0.63

0.63

0.95

1.35 0.73 0.87

Adjusted earnings per share

(2)

Basic

0.96

0.64

0.64

0.63

0.95

0.79 0.73 0.46

Diluted

0.95

0.64

0.63

0.63

0.95

0.78 0.73 0.46

(1) The addition of quarterly information may not correspond to the annual total due to rounding.

(2) Per multiple and subordinate voting share.

ADDITIONAL INFORMATION

This MD&A was prepared on July 6, 2011. Additional information relating to the Company, including its Annual Report and Annual Information

Form, is available on the SEDAR website at www.sedar.com.

Management’s Discussion and Analysis COGECO INC. Q3 2011 20

SEASONAL VARIATIONS

Cogeco Cable’s operating results are not generally subject to material seasonal fluctuations. However, the customer growth in the Basic Cable

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 seasons, 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 Aveiro, Covilhã, Evora, Guarda and Coimbra in Portugal. Furthermore, the third and fourth quarter operating

margins are usually higher as no management fees are paid to COGECO Inc. Under the management Agreement, Cogeco Cable pays a fee

equal to 2% of its total revenue subject to a maximum amount. As the maximum amount has been reached in the second quarter of fiscal

2011, Cogeco Cable will not pay management fees in the second half of fiscal 2011. Similarly, as the maximum amount was paid in the first

six months of fiscal 2010, Cogeco Cable paid no management fees in the second half of the previous fiscal year.

/s/ Jan Peeters

/s/ Louis Audet

Jan Peeters

Chairman of the Board

Louis Audet

President and Chief Executive Officer

COGECO Inc.

Montréal, Québec

July 7, 2011

INTERIM FINANCIAL STATEMENTS

Third quarter ended May 31

,

INTERIM FINANCIAL STATEMENTS

,

2011

COGECO INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(unaudited)

Interim Financial Statements COGECO INC. Q3 2011 22

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

(In thousands of dollars, except per share data)

$

$

$

$

Revenue 374,957

330,933

1,068,367

988,023

Operating costs

227,150

203,005

647,577

606,469

Operating income before amortization 147,807

127,928

420,790

381,554

Amortization (note 4)

66,272

63,920

194,838

195,614

Operating income 81,535

64,008

225,952

185,940

Financial expense (note 5)

16,766

16,824

58,172

48,288

Impairment of goodwill and fixed assets (note 6)

225,873

–

225,873

–

Income (loss) before income taxes and the following items (161,104)

47,184

(58,093

)

137,652

Income taxes (note 7)

19,007

15,334

51,528

14,041

Loss (gain) on dilution resulting from the issuance of shares by a subsidiary

1

–

(60

)

(18)

Non-controlling interest

(123,440)

21,110

(79,509

)

79,630

Net income (loss) (56,672)

10,740

(30,052

)

43,999

Earnings (loss) per share (note 8)

Basic

(3.39)

0.64

(1.80

)

2.63

Diluted

(3.39)

0.64

(1.80

)

2.62

COGECO INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

Interim Financial Statements COGECO INC. Q3 2011 23

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

(In thousands of dollars)

$

$

$

$

Net income (loss) (56,672)

10,740

(30,052

)

43,999

Other comprehensive income (loss)

Unrealized gains (losses) on derivative financial instruments designated as cash flow hedges,

net of income tax expense of $183,000 and income tax recovery of $3,117,000 (income

tax expense of $622,000 and income tax recovery of $1,852,000 in 2010) and non-

controlling interest of $328,000 and $11,018,000 ($2,802,000 and $531,000 in 2010)

155

1,338

(5,232

)

(253)

Reclassification to financial expense of unrealized losses on derivative financial instruments

designated as cash flow hedges, net of income tax recovery of $72,000 and $2,400,000

($230,000 and $1,316,000 in 2010) and non-controlling interest of $312,000 and

$10,979,000 ($1,002,000 and $5,733,000 in 2010)

148

478

5,222

2,736

Unrealized gains (losses) on translation of a net investment in self-sustaining foreign

subsidiaries, net of non-controlling interest of $6,070,000 and $4,885,000 ($17,159,000

and $33,128,000 in 2010)

2,882

(8,190)

2,314

(15,811)

Unrealized gains (losses) on translation of long-term debt designated as hedges of a net

investment in self-sustaining foreign subsidiaries, net of non-controlling interest of

$2,530,000 and $2,259,000 ($11,479,000 and $24,052,000 in 2010)

(1,201)

5,479

(1,071

)

11,479

1,984

(895)

1,233

(1,849)

Comprehensive income (loss) (54,688)

9,845

(28,819

)

42,150

COGECO INC.

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

(unaudited)

Interim Financial Statements COGECO INC. Q3 2011 24

Nine months ended May 31,

2011

2010

(In thousands of dollars)

$

$

Balance at beginning, as previously reported

253,169

211,922

Changes in accounting policies

–

(7,894)

Balance at beginning, as restated

253,169

204,028

Net income (loss)

(30,052

)

43,999

Excess of the value attributed to the incentive share units at issuance (price paid for the acquisition of the subordinate voting

shares) over the price paid for the acquisition of the subordinate voting shares (value attributed to the incentive share units at

issuance)

56

(430)

Dividends on multiple voting shares

(663

)

(553)

Dividends on subordinate voting shares

(5,360

)

(4,467)

Balance at end

217,150

242,577

COGECO INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

Interim Financial Statements COGECO INC. Q3 2011 25

May 31, 2011

August 31, 2010

(In thousands of dollars)

$

$

Assets

Current

Cash and cash equivalents (note 13 b))

90,734

35,842

Accounts receivable (note 15)

103,011

74,560

Income taxes receivable

38,805

45,400

Prepaid expenses and other

16,106

14,189

Future income tax assets

5,541

6,133

Assets held for sale (note 16)

1,639

–

255,836

176,124

Investments

539

739

Fixed assets

1,168,001

1,328,866

Deferred charges

27,051

27,960

Intangible assets (note 9)

1,087,610

1,042,998

Goodwill (note 9)

143,470

144,695

Derivative financial instruments

–

5,085

Future income tax assets

15,369

18,189

Assets held for sale (note 16)

9,911

–

2,707,787

2,744,656

Liabilities and Shareholders’ equity

Liabilities

Current

Bank indebtedness

–

2,328

Accounts payable and accrued liabilities

204,805

248,775

Income tax liabilities

68,776

558

Deferred and prepaid revenue

47,577

45,602

Derivative financial instrument

132

1,189

Promissory note payable, non-interest bearing and due on February 1, 2012 (note 2)

5,000

–

Current portion of long-term debt (note 10)

2,349

2,329

Future income tax liabilities

60,356

78,267

Liabilities related to assets held for sale (note 16)

2,153

–

391,148

379,048

Long-term debt (note 10)

1,002,462

952,741

Derivative financial instruments

15,339

–

Deferred and prepaid revenue and other liabilities

20,242

12,234

Pension plan liabilities and accrued employees benefits

12,866

10,568

Future income tax liabilities

237,882

238,699

Liabilities related to assets held for sale (note 16)

971

–

1,680,910

1,593,290

Non-controlling interest

680,132

769,731

Shareholders’ equity

Capital stock (note 11)

119,318

119,527

Contributed surplus

3,110

3,005

Retained earnings

217,150

253,169

Accumulated other comprehensive income (note 12)

7,167

5,934

346,745

381,635

2,707,787

2,744,656

COGECO INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

Interim Financial Statements COGECO INC. Q3 2011 26

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

(In thousands of dollars)

$

$

$

$

Cash flow from operating activities

Net income (loss)

(56,672)

10,740

(30,052

)

43,999

Adjustments for:

Amortization (note 4)

66,272

63,920

194,838

195,614

Amortization of deferred transaction costs and discounts on long-term debt

1,141

772

2,902

2,314

Impairment of goodwill and fixed assets (note 6)

225,873

–

225,873

–

Future income taxes

20,507

21,264

(21,961

)

49,900

Non-controlling interest

(123,440)

21,110

(79,509

)

79,630

Loss (gain) on dilution resulting from the issuance of shares by a subsidiary

1

–

(60

)

(18)

Stock-based compensation (note 11)

994

450

2,987

2,014

Loss on disposals and write-offs of fixed assets

231

2,443

1,635

2,505

Other

254

(1,559)

1,682

(969)

135,161

119,140

298,335

374,989

Changes in non-cash operating items (note 13 a))

12,083

(8,384)

3,145

(148,145)

147,244

110,756

301,480

226,844

Cash flow from investing activities

Acquisition of fixed assets (note 13 c))

(68,806)

(66,963)

(202,313

)

(204,239)

Increase in deferred charges

(2,781)

(2,548)

(8,535

)

(8,067)

Business acquisition, net of cash and cash equivalents acquired (note 2)

–

–

(75,883

)

–

Other

216

23

216

145

(71,371)

(69,488)

(286,515

)

(212,161)

Cash flow from financing activities

Increase (decrease) in bank indebtedness

–

4,444

(2,328

)

54,073

Net repayments under the Term Facilities and Term Revolving Facilities

(4,424)

(33,150)

41,679

(61,220)

Issuance of long-term debt, net of discounts and transaction costs

–

–

198,295

–

Repayments of long-term debt

(660)

(821)

(177,189

)

(2,907)

Issuance of subordinate voting shares (note 11)

–

–

629

353

Acquisition

of subordinate voting shares held in trust under the Incentive Share Unit Plan

(note 11)

(14)

–

(1,296

)

(1,049)

Dividends on multiple voting shares

(221)

(187)

(663

)

(553)

Dividends on subordinate voting shares

(1,788)

(1,479)

(5,360

)

(4,467)

Issuance of shares by a subsidiary to non-controlling interest

561

–

4,740

283

Acquisition by a subsidiary from non

-controlling interest of subordinate voting shares held in

trust under the Incentive Share Unit Plan (note 11)

–

(264)

(2,258

)

(2,008)

Dividends paid by a subsidiary to non-controlling interest

(5,601)

(4,586)

(16,760

)

(13,789)

(12,147)

(36,043)

39,489

(31,284)

Effect of exchange rate changes on cash and cash equivalents denominated in a

foreign currency 573

(846)

438

(1,746)

Net change in cash and cash equivalents 64,299

4,379

54,892

(18,347)

Cash and cash equivalents at beginning

26,435

16,732

35,842

39,458

Cash and cash equivalents at end 90,734

21,111

90,734

21,111

See supplemental cash flow information in note 13.

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q3 2011 27

1. Basis of presentation

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

Canadian generally accepted accounting principles, present fairly the financial position of COGECO Inc. (“the Company”) as at

May 31, 2011 and August 31, 2010 as well as its results of operations and its cash flows for the three and nine-month periods ended

May 31, 2011 and 2010.

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

notes should be read in conjunction with COGECO Inc.’s annual consolidated financial statements for the year ended August 31, 2010.

These unaudited interim consolidated financial statements have been prepared using the same accounting policies and methods as the

most recent annual consolidated financial statements.

Future accounting pronouncements

Multiple deliverable revenue arrangements

In December 2009, the Emerging Issues Committee (“EIC”) of the Canadian Accounting Standards Board issued a new abstract

concerning multiple deliverable revenue arrangements, EIC-175, Multiple deliverable revenue arrangements, which amended EIC-142,

Revenue arrangements with multiple deliverables. EIC-175 requires a vendor to allocate arrangement consideration at the inception of

the arrangement to all deliverables using the relative selling price method, thereby eliminating the use of the residual value method. The

amendment also changes the level of evidence of the standalone selling price required to separate deliverables when more objective

evidence of the selling price is not available. EIC-175 should be adopted prospectively to revenue arrangements entered into or

materially modified in the first annual fiscal period beginning on or after January 1, 2011, with early adoption permitted. The Company

has elected not to early-adopt this EIC, and in light of the adoption of International accounting standards taking effect at that same date,

this EIC will not be applicable to the Company.

2. Business acquisition

On April 30, 2010, the Company concluded an agreement with Corus Entertainment Inc. (“Corus”) to acquire its Québec radio stations for

$80 million, subject to customary closing adjustments and conditions, including approval by the Canadian Radio-television and

Telecommunications Commission (“CRTC”). On June 30, 2010, the Company submitted its application for approval of the acquisition to

the CRTC. On December 17, 2010, the CRTC approved the transaction essentially as proposed. On January 11, 2011, the Company

was served with an application by Astral Media Radio Inc. (“Astral”) to the Federal Court of Appeal (“Court”) for leave to appeal the CRTC

decision approving the transaction, and a related application by Astral for a stay of execution of that decision until final judgement of the

Court. On February 21, 2011 the Court rejected applications filed by Astral in the matter of COGECO’s acquisition of the Corus radio

stations in Québec. The transaction with Corus was concluded on February 1, 2011.

Pursuant to this acquisition, and as part of CRTC’s decision on the Company’s transfer application, the Company has put up for sale two

radio stations acquired, CFEL-FM in the Québec City market and CJTS-FM in the Sherbrooke market. Accordingly, the assets and

liabilities of the two acquired radio stations put up for sale have been classified as held for sale in the preliminary purchase price

allocation presented below. In addition to the two acquired radio stations above, and also as part of the CRTC’s decision, the Company

has put up for sale radio station CJEC-FM, which it owned prior to the acquisition, in the Québec City market. Radio stations for which

divestiture has been required by the CRTC, and the sale process, are managed by a trustee approved by the CRTC pursuant to a voting

trust agreement.

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q3 2011 28

2. Business acquisition (continued)

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

preliminary allocation of the purchase price of the acquisition, pending the completion of the valuation of the net assets acquired, is as

follows:

$

Consideration

Paid

Purchase of shares

75,000

Acquisition costs

1,530

76,530

Promissory note payable, non-interest bearing and due on February 1, 2012

5,000

Investment previously accounted for

200

Acquisition costs previously recorded as deferred charges

435

Preliminary working capital adjustment payable

4,000

86,165

Net assets acquired

Cash and cash equivalents

647

Accounts

receivable

14,132

Income taxes receivable

92

Prepaid expenses and other

527

Current future income tax assets

1,018

Fixed assets

11,497

Deferred charges and other

99

Broadcasting licenses

48,193

Goodwill

27,227

Non-current future income tax assets

2,272

Non-current assets held for sale

9,531

Accounts payable and accrued liabilities assumed

(9,058)

Income tax liabilities assumed

(194)

Current liabilities related to assets held for sale

(797)

Deferred and prepaid revenue and other liabilities

(7,390)

Non-current future income tax liabilities

(10,656)

Non-current liabilities related to assets held for sale

(975)

86,165

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q3 2011 29

3. Segmented information

The Company’s activities are divided into two business segments: Cable and other. The Cable segment is comprised of Cable

Television, High Speed Internet, Telephony and other telecommunications services, and the other segment is comprised of radio and

head office activities, as well as eliminations. The Cable segment’s activities are carried out in Canada and in Europe.

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

Cable Other and eliminations Consolidated

2011

2010

2011

2010

2011

2010

Three months ended May 31,

$

$

$

$

$

$

Revenue

342,910

319,291

32,047

11,642

374,957

330,933

Operating costs

198,825

192,591

28,325

10,414

227,150

203,005

Operating income before amortization

144,085

126,700

3,722

1,228

147,807

127,928

Amortization

65,641

63,771

631

149

66,272

63,920

Operating income

78,444

62,929

3,091

1,079

81,535

64,008

Financial expense

16,043

16,684

723

140

16,766

16,824

Impairment of goodwill and fixed assets

225,873

–

–

–

225,873

–

Income taxes

18,547

15,060

460

274

19,007

15,334

Loss on dilution resulting from the issuance of shares

by a subsidiary

1

–

–

–

1

–

Non-controlling interest

(123,440)

21,110

–

–

(123,440)

21,110

Net income (loss)

(58,580)

10,075

1,908

665

(56,672)

10,740

Total assets

(1)

2,543,743

2,702,819

164,044

41,837

2,707,787

2,744,656

Fixed assets

(1)

1,151,049

1,325,077

16,952

3,789

1,168,001

1,328,866

Intangible assets

(1)

1,014,077

1,017,658

73,533

25,340

1,087,610

1,042,998

Goodwill

(1)

116,243

144,695

27,227

–

143,470

144,695

Acquisition of fixed assets

67,781

66,749

1,025

214

68,806

66,963

(1) At May 31, 2011 and August 31, 2010.

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q3 2011 30

3. Segmented information (continued)

Cable Other and eliminations Consolidated

2011

2010

2011

2010

2011

2010

Nine months ended May 31,

$

$

$

$

$

$

Revenue

1,010,998

957,053

57,369

30,970

1,068,367

988,023

Operating costs

603,113

585,134

44,464

21,335

647,577

606,469

Operating income before amortization

407,885

371,919

12,905

9,635

420,790

381,554

Amortization

193,710

195,175

1,128

439

194,838

195,614

Operating income

214,175

176,744

11,777

9,196

225,952

185,940

Financial expense

56,868

47,858

1,304

430

58,172

48,288

Impairment of goodwill and fixed assets

225,873

–

–

–

225,873

–

Income taxes

48,665

11,246

2,863

2,795

51,528

14,041

Gain on dilution resulting from the issuance of shares

by a subsidiary

(60)

(18

)

–

–

(60)

(18)

Non-controlling interest

(79,509)

79,630

–

–

(79,509)

79,630

Net income (loss)

(37,662)

38,028

7,610

5,971

(30,052)

43,999

Total assets

(1)

2,543,743

2,702,819

164,044

41,837

2,707,787

2,744,656

Fixed assets

(1)

1,151,049

1,325,077

16,952

3,789

1,168,001

1,328,866

Intangible assets

(1)

1,014,077

1,017,658

73,533

25,340

1,087,610

1,042,998

Goodwill

(1)

116,243

144,695

27,227

–

143,470

144,695

Acquisition of fixed assets

(2)

199,142

203,830

3,171

550

202,313

204,380

(1) At May 31, 2011 and August 31, 2010.

(2) Includes fixed assets acquired through capital leases that are excluded from the consolidated statements of cash flows.

The following tables set out certain geographic market information based on client location:

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Revenue

Canada

331,310

287,317

939,396

842,435

Europe

43,647

43,616

128,971

145,588

374,957

330,933

1,068,367

988,023

May 31, 2011

August 31, 2010

$

$

Fixed assets

Canada

1,141,831

1,098,760

Europe

26,170

230,106

1,168,001

1,328,866

Intangible assets

Canada

1,087,610

1,042,998

Europe

–

–

1,087,610

1,042,998

Goodwill

Canada

143,470

116,243

Europe

–

28,452

143,470

144,695

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q3 2011 31

4. Amortization

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Fixed assets

62,430

60,027

183,215

183,845

Deferred charges

2,648

2,699

8,042

8,187

Intangible assets

1,194

1,194

3,581

3,582

66,272

63,920

194,838

195,614

5. Financial expense

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Interest on long-term debt

15,234

15,588

55,689

47,277

Foreign exchange losses (gains)

(113)

409

(1,578

)

(470)

Amortization of deferred transaction costs

474

408

1,419

1,222

Other

1,171

419

2,642

259

16,766

16,824

58,172

48,288

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q3 2011 32

6. Impairment of goodwill and fixed assets

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Impairment of goodwill

29,344

–

29,344

–

Impairment of fixed assets

196,529

–

196,529

–

225,873

–

225,873

–

During the third quarter of fiscal 2011, the economic environment in Portugal continued to deteriorate, with the Country ultimately

requiring financial assistance from the International Monetary Fund and the European Central Bank. As part of the negotiated financial

assistance package, the Portuguese government has committed to financial reforms which include increases in sales and income taxes

combined with reductions in government spending on social programs. These measures are expected to put further downwards pressure

on consumer spending capacity. The rate of growth for our services has diminished in this environment, with net customer losses and

service downgrades by customers in the European operations in the third quarter of fiscal 2011. In accordance with current accounting

standards, management considered that this situation combined with net customer losses in the third quarter, which were significantly

more important and persistent than expected, will continue to negatively impact the financial results of the European operations and

indicate a decrease in the value of Cogeco Cable Inc.’s investment in its Portuguese subsidiary. As a result, the Company’s subsidiary

tested goodwill and all long-lived assets for impairment at May 31, 2011.

Goodwill is tested for impairment using a two step approach. The first step consists of determining whether the fair value of the reporting

unit to which goodwill is assigned exceeds the net carrying amount of that reporting unit, including goodwill. In the event that the net

carrying amount exceeds the fair value, a second step is performed in order to determine the amount of the impairment loss. The

impairment loss is measured as the amount by which the carrying amount of the reporting unit’s goodwill exceeds its fair value. The

Company’s subsidiary completed its impairment test on goodwill and concluded that goodwill was impaired at May 31, 2011. As a result,

a non-cash impairment loss of $29.3 million was recorded in the third quarter of the 2011 fiscal year. Fair value of the reporting unit was

determined using the discounted cash flow method. Future cash flows were based on internal forecasts and consequently, considerable

management judgement was necessary to estimate future cash flows.

Long-lived assets with finite useful lives, such as fixed assets, are tested for impairment by comparing the carrying amount of the asset or

group of assets to the expected future undiscounted cash flows to be generated by the asset or group of assets. The impairment loss is

measured as the amount by which the asset’s carrying amount exceeds its fair value. Accordingly, the Company’s subsidiary completed

its impairment test on the fixed assets of the Portuguese subsidiary at May 31, 2011, and determined that the carrying value of these

assets exceeded the expected future undiscounted cash flows to be generated by these assets. As a result, a non-cash impairment loss

of $196.5 million was recognized in the third quarter of the 2011 fiscal year.

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q3 2011 33

7. Income taxes

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Current

(1,500)

(5,930)

73,489

(35,859)

Future

20,507

21,264

(21,961

)

49,900

19,007

15,334

51,528

14,041

The following table provides the reconciliation between income tax expense (recovery) at the Canadian statutory federal and provincial

income tax rates and the consolidated income tax expense:

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Income (loss) before income taxes

(161,104)

47,184

(58,093

)

137,652

Combined income tax rate

28.91 %

31.47 %

28.91 %

31.45 %

Income tax expense (recovery) at combined income tax rate

(46,576)

14,848

(16,795

)

43,295

Adjustment for losses or income subject to lower or higher tax rates

(1,697)

(1,894)

(4,139

)

(7,563)

Decrease in future income taxes as a result of decrease in substantively enacted tax

rates

–

–

–

(29,782)

Decrease in income tax recovery arising from the non-deductible impairment of

goodwill and fixed assets

59,856

–

59,856

–

Utilization of pre-acquisition tax losses

–

–

–

4,432

Income taxes arising from non-deductible expenses

128

289

458

595

Effect of foreign income tax rate differences

7,725

2,177

12,358

4,301

Other

(429)

(86)

(210

)

(1,237)

Income tax expense at effective income tax rate

19,007

15,334

51,528

14,041

8. Earnings (loss) per share

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

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Net income (loss)

(56,672)

10,740

(30,052

)

43,999

Weighted average number of multiple voting and subordinate voting shares outstanding

16,736,587

16,730,336

16,726,302

16,724,720

Effect of dilutive stock options

(1)(2)

–

9,300

–

10,969

Effect of dilutive subordinate voting shares held in trust under the Incentive Share Unit

Plan

(1)

–

71,862

–

66,480

Weighted average number of diluted multiple voting and subordinate voting shares

outstanding

16,736,587

16,811,498

16,726,302

16,802,169

Earnings (loss) per share

Basic

(3.39)

0.64

(1.80

)

2.63

Diluted

(3.39)

0.64

(1.80

)

2.62

(1) The weighted average dilutive potential number of subordinate voting shares which were anti-dilutive for the three and nine-

month periods ended

May 31, 2011 amounted to 95,611 and 96,164.

(2) For the three and nine-month periods ended May 31, 2011, no stock options (32,782 in 2010) were excluded from the calculation of diluted earnings p

er

share because the exercise price of the options was greater than the average share price of the subordinate voting shares.

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q3 2011 34

9. Goodwill and other intangible assets

May 31, 2011

August 31, 2010

$

$

Customer relationships

24,525

28,106

Broadcasting licenses

73,313

25,120

Customer base

989,772

989,772

1,087,610

1,042,998

Goodwill

143,470

144,695

1,231,080

1,187,693

a) Intangible assets

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

Customer

relationships

Broadcasting

licenses

Customer

Base

Total

$

$

$

$

Balance at August 31, 2010

28,106 25,120

989,772

1,042,998

Business acquisition (note 2)

– 48,193

–

48,193

Amortization (note 4)

(3,581)

–

–

(3,581)

Balance at May 31, 2011

24,525 73,313

989,772

1,087,610

b) Goodwill

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

$

Balance at August 31, 2010

144,695

Business acquisition (note 2)

27,227

Impairment (note 6)

(29,344)

Foreign currency translation adjustment

892

Balance at May 31, 2011

143,470

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q3 2011 35

10. Long-term debt

Maturity Interest rate

May 31,

2011

August 31,

2010

%

$

$

Parent company

Term Revolving Facility 2014

(1)

3.39

(2)

69,984

–

Obligations under capital leases 2013

9.29

57

72

Subsidiaries

Term Revolving Facility

Revolving loan – €70,000,000 (€90,000,000 at August 31, 2010) 2014

3.25

(2)(3)

97,573

121,635

Senior Secured Notes

Series A – US$190,000,000 2015

7.00

(4)

182,944

201,387

Series B 2018

7.60

54,637

54,609

Senior Secured Debentures Series 1 2014

5.95

297,857

297,379

Senior Secured Debentures Series 2

(5)

2020

5.15

198,367

–

Senior Secured Notes Series B 2011

(6)

7.73

–

174,738

Senior Unsecured Debenture 2018

5.94

99,822

99,806

Obligations under capital leases 2013

6.71 – 9.93

3,564

5,429

Other 2011

–

6

15

1,004,811

955,070

Less current portion

2,349

2,329

1,002,462

952,741

(1) The Company benefits from a Term Revolving Facility of up to $100 million

with a group of financial institutions led by a large Canadian bank, which acts

as agent for the banking syndicate. The Term Revolving Facility of up to $100 million includes a swing

line limit of $7.5 million, is extendable by additional

one-year periods on an annual basis, subject to lenders’ approval, and if not extended, matures three years after its issuance or

the last extension, as

the case may be. The Term Revolving Facility is composed of two tranches of $50 million

each, one of which was subject to the completion of the

acquisition of Corus Québec radios stations and which became available on February 1, 2011 with the conclusion of the transac

tion. The Term

Revolving Facility was extended at that same date and currently matures on February 1, 2014. The Term Revolving Facility can be repaid at any ti

me

without penalty. The Term Revolving Facility is indirectly secured by a first priority fixed and floating charge and a security

interest on substantially all

present and future real and personal property and undertaking of every nature and kind of the Company and certain of its subs

idiaries, excluding the

capital stock and assets of the Company’s subsidiary, Cogeco Cable Inc., and

guaranteed by its subsidiaries excluding Cogeco Cable Inc. Under the

terms and conditions of the credit agreement, the Company must comply with certain restrictive covenants. Generally, the most

significant restrictions

are related to permitted investments, dividends on multiple and subordinate voting shares and reimbursement of long-

term debt as well as incurrence

and maintenance of certain financial ratios primarily linked to the operating income before amortization, financial expense and total indebtedne

ss. The

Term Revolving Facility bears interest, at the Company’s option, on bankers’ acceptance, LIBOR in Euros or in US dollars, ban

k prime rate or US base

rate plus the applicable margin, and commitment fees are payable on the unused portion.

(2) Interest rate on debt as at May 31, 2011, including applicable margin.

(3) On January 21, 2009, the Company’s subsidiary, Cogeco Cable Inc., entered into a swap agreement with a financial institution

to fix the floating

benchmark interest rate with respect to a portion of Euro-

denominated loans outstanding under the Term Revolving Facility, and previously the Term

Facility for a notional amount of €111.5 million which have been reduced to €95.8 million on July 28, 2009 and to €69.6 million

on July 28, 2010. The

interest swap rate to hedge the Euro-

denominated loans has been fixed at 2.08% until the settlement of the swap agreement maturity on June 28, 2011.

In addition to the interest swap rate of 2.08%, the Company’s subsidiary will continue to pay the applicable margin on these Euro-

denominated loans in

accordance with the Term Revolving Facility.

(4) Cross-currency swap agreements have resulted in an effective interest rate of 7.24% on the Canadian dollar equivalent of the US den

ominated debt of

the Company’s subsidiary, Cogeco Cable Inc.

(5) On November 16, 2010 the Company’s subsidiary, Cogeco Cable Inc., completed pursuant to a public debt offering, the issue of $200 million

Senior

Secured Debentures Series 2 (the "Debentures") for net proceeds of $198.3 million

net of discounts and transaction costs. These Debentures mature on

November 16, 2020 and bear interest at 5.15% per annum payable semi-

annually. These debentures are indirectly secured by a first priority fixed and

floating charge and a security inte

rest on substantially all present and future real and personal property and undertaking of every nature and kind of the

Company’s subsidiary and certain of its subsidiaries.

(6) On December 22, 2010, the Company’s subsidiary, Cogeco Cable Inc., redeemed t

he 7.73% Senior Secured Notes Series B in the aggregate principal

amount of $175 million. As a result, the aggregate redemption cash consideration that the Company’s subsidiary paid totalled $183.8 million

excluding

accrued interest. The excess of the rede

mption price over the aggregate principal amount was recorded as financial expense during the second quarter

of fiscal 2011.

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q3 2011 36

11. Capital stock

Authorized

Unlimited number of:

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

of the Company or in the Law.

Multiple voting shares, 20 votes per share.

Subordinate voting shares, 1 vote per share.

Issued

May 31, 2011

August 31, 2010

$

$

1,842,860 multiple voting shares

12

12

14,989,338 subordinate voting shares (14,959,338 at August 31, 2010)

121,976

121,347

121,988

121,359

95,733 subordinate voting shares held in trust under the Incentive Share Unit Plan (71,862 at August 31, 2010)

(2,670)

(1,832)

119,318

119,527

During the first nine months, subordinate voting share transactions were as follows:

Number of shares Amount

$

Balance at August 31, 2010

14,959,338 121,347

Shares issued for cash under the Employee Stock Option Plan

30,000

629

Balance at May 31, 2011

14,989,338 121,976

During the first nine months, subordinate voting shares held in trust under the Incentive Share Unit Plan transactions were as follows:

Number of shares Amount

$

Balance at August 31, 2010

71,862 1,832

Subordinate voting shares acquired

36,460 1,296

Subordinate voting shares distributed to employees

(12,589)

(458)

Balance at May 31, 2011

95,733 2,670

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q3 2011 37

11. Capital stock (continued)

Stock-based plans

The Company and its subsidiary, Cogeco Cable Inc., offer, for certain executives Stock Option Plans, which are described in the

Company’s annual consolidated financial statements. During the first nine months of 2011 and 2010, no stock options were granted to

employees by COGECO Inc. However, the Company’s subsidiary, Cogeco Cable Inc., granted 69,500 stock options (66,174 in 2010)

with an exercise price of $39.00 to $44.00 ($31.82 to $38.86 in 2010), of which 35,800 stock options (33,266 in 2010) were granted to

COGECO Inc.’s employees. These options vest over a period of five years beginning one year after the day such options are granted

and are exercisable over ten years. As a result, a compensation expense of $139,000 and $446,000 ($218,000 and $774,000 in 2010)

was recorded for the three and nine-month periods ended May 31, 2011.

The fair value of stock options granted by the Company’s subsidiary, Cogeco Cable Inc., for the nine-month period ended May 31, 2011

was $9.55 ($8.11 in 2010) per option. The weighted average fair value was estimated at the grant date for purposes of determining stock-

based compensation expense using the binomial option pricing model based on the following assumptions:

2011

2010

%

%

Expected dividend yield

1.44

1.49

Expected volatility

29

29

Risk-free interest rate

2.05

2.67

Expected life in years

4.9

4.8

Under the Company’s Stock Option Plan, the following options were granted and are outstanding at May 31, 2011:

Outstanding at August 31, 2010

62,382

Exercised

(30,000)

Expired

(32,382)

Outstanding at May 31, 2011

–

Under Cogeco Cable Inc.’s Stock Option Plan, the following options were granted and are outstanding at May 31, 2011:

Outstanding at August 31, 2010

716,760

Granted

69,500

Exercised

(188,319)

Forfeited

(34,706)

Expired

(448)

Outstanding at May 31, 2011

562,787

Exercisable at May 31, 2011

391,802

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q3 2011 38

11. Capital stock (continued)

The Company and its subsidiary, Cogeco Cable Inc., also offers senior executive and designated employee Incentive Share Unit Plans

(“ISU Plans”) which are described in the Company’s annual consolidated financial statements. During the first nine months of 2011, the

Company granted 36,460 (41,571 in 2010) Incentive Share Units (“ISUs”) and Cogeco Cable Inc. granted 60,388 ISUs (63,666 in 2010)

of which, 10,000 ISUs (9,981 in 2010) were granted to COGECO Inc.’s employees. The Company and its subsidiary established the

value of the compensation related to the ISUs granted based on the fair value of the subordinate voting shares at the date of grant and a

compensation expense is recognized over the vesting period, which is three years less one day. Two trusts were created for the purpose

of purchasing these shares on the stock market in order to protect against stock price fluctuations. The Company and its subsidiary

instructed the trustees to purchase 36,460 and 57,203 subordinate voting shares (41,571 and 62,436 in 2010) on the stock market.

These shares were purchased for cash consideration of $1,296,000 ($1,049,000 in 2010) and $2,258,000 ($2,008,000 in 2010),

respectively, and are held in trust for participants until they are completely vested. These trusts, considered as variable interest entities,

are consolidated in the Company’s financial statements with the value of the acquired shares presented as subordinate voting shares

held in trusts under the ISU Plans in reduction of capital stock or non-controlling interest. A compensation expense of $648,000 and

$1,834,000 ($338,000 and $840,000 in 2010) was recorded for the three and nine-month periods ended May 31, 2011 related to these

plans.

Under the Company’s ISU Plan, the following ISUs were granted and are outstanding at May 31, 2011:

Outstanding at August 31, 2010

71,862

Granted

36,460

Distributed

(12,589)

Outstanding at May 31, 2011

95,733

Under Cogeco Cable Inc.’s ISU Plan, the following ISUs were granted and are outstanding at May 31, 2011:

Outstanding at August 31, 2010

57,409

Granted

60,388

Distributed

(13,184)

Forfeited

(885)

Outstanding at May 31, 2011

103,728

The Company and its subsidiary, Cogeco Cable Inc., offer Deferred Share Unit Plans (“DSU Plans”) which are described in the

Company’s annual consolidated financial statements. During the first nine months of 2011, the Company and its subsidiary issued

respectively 6,302 and 4,521 (6,987 and 4,422 in 2010) Deferred Share Units (“DSUs”) to the participants in connection with the DSU

Plans. A compensation expense of $207,000 and $707,000 (reduction of compensation expense of $106,000 and compensation expense

of $400,000 in 2010) was recorded for the three and nine-month periods ended May 31, 2011 for the liabilities related to these plans.

Under the Company’s DSU Plan, the following DSUs were issued and are outstanding at May 31, 2011:

Outstanding at August 31, 2010

21,630

Issued

6,302

Dividend equivalents

240

Outstanding at May 31, 2011

28,172

Under Cogeco Cable Inc.’s DSU Plan, the following DSUs were issued and are outstanding at May 31, 2011:

Outstanding at August 31, 2010

10,855

Issued

4,521

Dividend equivalents

166

Outstanding at May 31, 2011

15,542

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q3 2011 39

12. Accumulated other comprehensive income

Translation of a net

investment in self-

sustaining foreign

subsidiaries

Cash flow

hedges

Total

$

$

$

Balance at August 31, 2010

4,993

941

5,934

Other comprehensive income (loss)

1,243

(10

)

1,233

Balance at May 31, 2011

6,236

931

7,167

13. Statements of cash flows

a) Changes in non-cash operating items

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Accounts receivable

1,498

1,793

(15,660

)

(9,887)

Income taxes receivable

5,212

(5,671)

6,752

(36,670)

Prepaid expenses and other

(741)

(437)

(1,285

)

(1,732)

Accounts payable and accrued liabilities

10,606

(3,780)

(57,457

)

(67,700)

Income tax liabilities

(6,526)

(914)

68,195

(40,189)

Deferred and prepaid revenue and other liabilities

2,034

625

2,600

8,033

12,083

(8,384)

3,145

(148,145)

b) Cash and cash equivalents

May 31, 2011

August 31, 2010

$

$

Cash

83,764

35,842

Cash equivalents

(1)

6,970

–

90,734

35,842

(1) At May 31, 2011, term deposit of €5,000,000, bearing interest at 0.65%, maturing on June 20, 2011.

c) Other information

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Fixed asset acquisitions through capital leases

–

–

–

141

Financial expense paid

19,751

20,702

62,376

52,541

Income taxes paid (received)

(22)

(196)

(1,271

)

41,000

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q3 2011 40

14. Employee future benefits

The Company and its Canadian subsidiaries offer to their employees contributory defined benefit pension plans, defined contribution

pension plans or collective registered retirement savings plans, which are described in the Company’s annual consolidated financial

statements. The total expense related to these plans is as follows:

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Contributory defined benefit pension plans

1,009

874

2,931

2,614

Defined contribution pension plans and collective registered retirement savings plans

1,363

1,200

3,984

3,438

2,372

2,074

6,915

6,052

15. Financial and capital management

a) Financial management

Management’s objectives are to protect COGECO Inc. and its subsidiaries against material economic exposures and variability of results

and against certain financial risks including credit risk, liquidity risk, interest rate risk and foreign exchange risk.

Credit risk

Credit risk represents the risk of financial loss for the Company if a customer or counterparty to a financial asset fails to meet its

contractual obligations. The Company is exposed to credit risk arising from the derivative financial instruments, cash and cash

equivalents and trade accounts receivable, the maximum exposure of which is represented by the carrying amounts reported on the

balance sheet.

Credit risk from the derivative financial instruments arises from the possibility that counterparties to the cross-currency swap and interest

rate swap agreements may default on their obligations in instances where these agreements have positive fair values for the Company.

The Company reduces this risk by completing transactions with financial institutions that carry a credit rating equal to or superior to its

own credit rating. The Company assesses the creditworthiness of the counterparties in order to minimize the risk of counterparties default

under the agreements. At May 31, 2011, management believes that the credit risk relating to its derivative financial instruments is

minimal, since the lowest credit rating of the counterparties to the agreements is “A”.

Cash and cash equivalents consist mainly of highly liquid investments, such as term deposits. The Company has deposited the cash and

cash equivalents with reputable financial institutions, from which management believes the risk of loss to be remote.

The Company is also exposed to credit risk in relation to its trade accounts receivable. In the current global economic environment,

particularly in Portugal, the Company’s credit exposure is higher than usual but it is difficult to predict the impact this could have on the

Company’s accounts receivable balances. To mitigate such risk, the Company continuously monitors the financial condition of its

customers and reviews the credit history or worthiness of each new large customer. At May 31, 2011, no customer balance represents a

significant portion of the Company’s consolidated trade accounts receivable. The Company establishes an allowance for doubtful

accounts based on specific credit risk of its customers by examining such factors as the number of overdue days of the customer’s

balance outstanding as well as the customer’s collection history. The Company believes that its allowance for doubtful accounts is

sufficient to cover the related credit risk. The Company has credit policies in place and has established various credit controls, including

credit checks, deposits on accounts and advance billing, and has also established procedures to suspend the availability of services

when customers have fully utilized approved credit limits or have violated existing payment terms. Since the Company has a large and

diversified clientele dispersed throughout its market areas in Canada and Europe, there is no significant concentration of credit risk. The

following table provides further details on the Company’s accounts receivable balances:

May 31, 2011

August 31, 2010

$

$

Trade accounts receivable

101,293

76,243

Allowance for doubtful accounts

(8,709)

(8,531)

92,584

67,712

Other accounts receivable

10,427

6,848

103,011

74,560

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q3 2011 41

15. Financial and capital management (continued)

The following table provides further details on trade accounts receivable, net of allowance for doubtful accounts. Trade accounts

receivable past due is defined as amount outstanding beyond normal credit terms and conditions for the respective customers. A large

portion of Cogeco Cable Inc.’s customers are billed in advance and are required to pay before their services are rendered. The Company

considers amount outstanding at the due date as trade accounts receivable past due.

May 31, 2011

August 31, 2010

$

$

Net trade accounts receivable not past due

61,894

46,291

Net trade accounts receivable past due

30,690

21,421

92,584

67,712

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company manages

liquidity risk through the management of its capital structure and access to different capital markets. It also manages liquidity risk by

continuously monitoring actual and projected cash flows to ensure sufficient liquidity to meet its obligations when due. At May 31, 2011,

the available amount of the Company’s Term Revolving Facilities was $664.6 million. Management believes that the committed Term

Revolving Facilities will, until their maturities in February 2014 and July 2014, provide sufficient liquidity to manage its long-term debt

maturities and support working capital requirements.

The following table summarizes the contractual maturities of the financial liabilities and related capital amounts:

2011 2012

2013

2014 2015

Thereafter

Total

$ $

$

$ $

$

$

Accounts payable and accrued

liabilities

(1)

191,347 –

–

– –

–

191,347

Promissory note payable – 5,000

–

– –

–

5,000

Long-term debt

(2)

6 –

–

467,573 –

539,034

1,006,613

Other liabilities – 1,253

1,231

1,183 1,145

2,180

6,992

Derivative financial instruments

Cash outflows (Canadian dollar)

– –

–

– –

201,875

201,875

Cash inflows (Canadian dollar

equivalent of US dollar) – –

–

– –

(184,034

)

(184,034)

Obligations under capital leases

(3)

669 2,322

915

13 –

–

3,919

192,022 8,575

2,146

468,769 1,145

559,055

1,231,712

(1) Excluding accrued interest.

(2) Principal excluding obligations under capital leases.

(3) Including interest.

The following table is a summary of interest payable on long-term debt (excluding interest on capital leases) that is due for each of the

next five years and thereafter, based on the principal amount and interest rate prevailing on the outstanding debt at May 31, 2011 and

their respective maturities:

2011 2012

2013

2014 2015

Thereafter

Total

$ $

$

$ $

$

$

Interest payments on long-term

debt 10,311 56,692

56,692

54,912 33,298

95,529

307,434

Interest payments on derivative

financial instruments 659 14,614

14,614

14,614 14,614

7,306

66,421

Interest receipts on derivative

financial instruments (526)

(12,882)

(12,882

)

(12,882)

(12,882)

(6,442

)

(58,496)

10,444 58,424

58,424

56,644 35,030

96,393

315,359

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q3 2011 42

15. Financial and capital management (continued)

Interest rate risk

The Company is exposed to interest rate risks for both fixed interest rate and floating interest rate instruments. Fluctuations in interest

rates will have an effect on the valuation and collection or repayment of these instruments. At May 31, 2011, all of the Company’s long-

term debt was at fixed rate, except for the Company’s Term Revolving Facilities. However, on January 21, 2009, the Company’s

subsidiary, Cogeco Cable Inc., entered into a swap agreement with a financial institution to fix the floating benchmark interest rate with

respect to a portion of the Euro-denominated loans outstanding under the Term Revolving Facility and previously the Term Facility, for a

notional amount of €111.5 million which have been reduced to €95.8 million on July 28, 2009 and to €69.6 million on July 28, 2010. The

interest swap rate to hedge the Euro-denominated loans has been fixed at 2.08% until the settlement of the swap agreement on

July 28, 2011. In addition to the interest swap rate of 2.08%, the Company’s subsidiary will continue to pay the applicable margin on

these in accordance with the Term Revolving Facility. The Company’s subsidiary elected to apply cash flow hedge accounting on this

derivative financial instrument. The sensitivity of the Company’s annual financial expense to a variation of 1% in the interest rate

applicable to the Term Revolving Facilities is approximately $0.7 million based on the outstanding debt at May 31, 2011 and taking into

consideration the effect of the interest rate swap agreement.

Foreign exchange risk

The Company is exposed to foreign exchange risk related to its long-term debt denominated in US dollars. In order to mitigate this risk,

the Company has established guidelines whereby currency swap agreements can be used to fix the exchange rates applicable to its US

dollar denominated long-term debt. All such agreements are exclusively used for hedging purposes. Accordingly, on October 2, 2008, the

Company’s subsidiary, Cogeco Cable Inc., 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 issued on October 1, 2008. These agreements have the effect of

converting the US 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. The Company’s subsidiary elected to apply cash

flow hedge accounting on these derivative financial instruments.

The Company is also exposed to foreign exchange risk on cash and cash equivalents, bank indebtedness and accounts payable

denominated in US dollars or Euros. At May 31, 2011, cash and cash equivalents denominated in US dollars amounted to

US$18,842,000 (US$13,613,000 at August 31, 2010) while accounts payable denominated in US dollars amounted to US$8,901,000

(US$15,850,000 at August 31, 2010). At May 31, 2011, Euro-denominated cash and cash equivalents amounted to €171,000 (€187,000

at August 31, 2010) while there were no accounts payable denominated in Euros at May 31, 2011 and August 31, 2010. Due to their

short-term nature, the risk arising from fluctuations in foreign exchange rates is usually not significant. The impact of a 10% change in the

foreign exchange rates (US dollar and Euro) would change financial expense by approximately $1 million.

Furthermore, Cogeco Cable Inc.’s net investment in self-sustaining foreign subsidiaries is exposed to market risk attributable to

fluctuations in foreign currency exchange rates, primarily changes in the value of the Canadian dollar versus the Euro. This risk is

mitigated since the major part of the purchase price for Cabovisão was borrowed directly in Euros. At May 31, 2011, the net investment

amounted to €1,692,000 (€182,104,000 at August 31, 2010) while long-term debt denominated in Euros amounted to €70,000,000

(€90,000,000 at August 31, 2010). The exchange rate used to convert the Euro currency into Canadian dollars for the balance sheet

accounts at May 31, 2011 was $1.3939 per Euro compared to $1.3515 per Euro at August 31, 2010. The impact of a 10% change in the

exchange rate of the Euro into Canadian dollars would change financial expense by approximately $0.4 million and other comprehensive

income (loss) by approximately $3.1 million net of non-controlling interest of $6.5 million.

Fair value

Fair value is the amount at which willing parties would accept to exchange a financial instrument based on the current market for

instruments with the same risk, principal and remaining maturity. Fair values are estimated at a specific point in time, by discounting

expected cash flows at rates for debts of the same remaining maturities and conditions. These estimates are subjective in nature and

involve uncertainties and matters of significant judgement, and therefore, cannot be determined with precision. In addition, income taxes

and other expenses that would be incurred on disposition of these financial instruments are not reflected in the fair values. As a result,

the fair values are not necessarily the net amounts that would be realized if these instruments were settled. The Company has

determined the fair value of its financial instruments as follows:

a) The carrying amount of cash and cash equivalents, accounts receivable, bank indebtedness and accounts payable and accrued

liabilities approximates fair value because of the short-term nature of these instruments.

b) Interest rates under the terms of the Company’s Term Revolving Facilities are based on bankers’ acceptance, LIBOR, EURIBOR,

bank prime rate loan or US base rate loan plus applicable margin. Therefore, the carrying value approximates fair value for the Term

Revolving Facilities since the Term Revolving Facilities have financing conditions similar to those currently available to the

Company.

c) The fair value of the Senior Secured Debentures Series 1 and 2, Senior Secured Notes Series A and B and Senior Unsecured

Debenture are based upon current trading values for similar financial instruments.

d) The fair values of obligations under capital leases are not significantly different from their carrying amounts.

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q3 2011 43

15. Financial and capital management (continued)

The carrying value of all the Company’s financial instruments approximates fair value, except as otherwise noted in the following table:

May 31, 2011

August 31, 2010

Carrying value Fair value

Carrying value

Fair value

$ $

$

$

Long-term debt

1,004,811 1,079,666

955,070

1,050,783

In accordance with CICA Handbook Section 3862, Financial instruments – disclosures, all financial instruments recognized at fair value

on the consolidated balance sheet must be classified based on the three fair value hierarchy levels, which are as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as

prices) or indirectly (i.e., derived from prices); and

• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The Company considers that its derivative financial instruments are classified as Level 2 under the fair value hierarchy. The fair value of

derivative financial instruments are estimated using valuation models that reflect projected future cash flows over contractual terms of the

derivative financial instruments and observable market data, such as interest and currency exchange rate curves.

b) Capital management

The Company’s objectives in managing capital are to ensure sufficient liquidity to support the capital requirements of its various

businesses, including growth opportunities. The Company manages its capital structure and makes adjustments in light of general

economic conditions, the risk characteristics of the underlying assets and the Company’s working capital requirements. Management of

the capital structure involves the issuance of new debt, the repayment of existing debts using cash generated by operations and the level

of distribution to shareholders.

The capital structure of the Company is composed of shareholders’ equity, bank indebtedness, long-term debt and assets or liabilities

related to derivative financial instruments.

The provisions under the Term Revolving Facilities provide for restrictions on the operations and activities of the Company. 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 the operating income before amortization, financial expense and

total indebtedness. At May 31, 2011, and August 31, 2010, the Company was in compliance with all debt covenants and was not subject

to any other externally imposed capital requirements.

The following table summarizes certain of the key ratios used to monitor and manage the Company’s capital structure:

May 31, 2011

August 31, 2010

Net indebtedness

(1)

/ shareholders’ equity

2.7

2.4

Net indebtedness

(1)

/ operating income before amortization

(2)

1.7

1.8

Operating income before amortization

(2)

/ financial expense

(2)

7.4

7.9

(1) Net indebtedness is defined as the total of bank indebtedness, principal on long-

term debt, promissory note payable and obligations under derivative

financial instruments, less cash and cash equivalents.

(2) Calculation based on operating income before amortization and financial expense for the twelve-month periods ended May 31,

2011 and

August 31, 2010.

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q3 2011 44

16. Assets held for sale

Pursuant to the acquisition of Corus Québec radio stations (see note 2), and as part of the CRTC’s decision on the Company’s transfer

application, the Company has put up for sale two radio stations acquired in the transaction, CFEL-FM in the Québec City market and

CJTS-FM in the Sherbrooke market. In addition to the two acquired radio stations above, and also as part of the CRTC’s decision, the

Company has put up for sale radio station CJEC-FM, which it owned prior to the acquisition, in the Québec City market. Radio stations

for which divestiture has been required by the CRTC, and the sale process, is being managed by a trustee approved by the CRTC

pursuant to a voting trust agreement. Accordingly, the assets and liabilities of the three radio stations put up for sale have been classified

as held for sale as of February 1, 2011 in the Company’s consolidated balance sheet.

The assets and liabilities related to the three radio stations held for sale as at May 31, 2011, were as follows:

$

Accounts receivable

1,619

Prepaid expenses

20

Current assets held for sale 1,639

Fixed assets

2,171

Goodwill and other intangible assets

7,740

Non-current assets held for sale 9,911

Accounts payable and accrued liabilities

1,922

Income tax liabilities

184

Deferred and prepaid revenue

47

Current liabilities related to assets held for sale 2,153

Other liabilities

38

Future income tax liabilities

933

Non-current liabilities related to assets held for sale 971

17. Subsequent event

On June 27, 2011, the Company’s subsidiary, Cogeco Cable Inc., concluded an agreement to acquire all of the shares of Quiettouch Inc.

(“Quiettouch”), a leading independent provider of outsourced managed information technology and infrastructure services to mid-market

and larger enterprises in Canada. Quiettouch offers a full suite of differentiated services that allow customers to outsource their mission-

critical information technology infrastructure and application requirements, including managed infrastructure and hosting, virtualization,

firewall services, data backup with end-to-end monitoring and reporting, and enhanced and traditional colocation services. Quiettouch

operates three data centres in Toronto and Vancouver, as well as a fibre network within key business areas of downtown Toronto. The

transaction is subject to certain arrangements and commercial approvals, and is expected to close during the last quarter of fiscal 2011.

Shareholder’s Report COGECO INC. Q3 2011 45

CABLE SECTOR CUSTOMER STATISTICS

(unaudited)

May 31, 2011

August 31, 2010

Homes passed

Canada 1,614,210

1,593,743

Portugal

(1)

905,692

905,359

Total

2,519,902

2,499,102

Homes connected

(2)

Canada 992,332

979,590

Portugal 266,680

269,194

Total

1,259,012

1,248,784

Revenue-generating units

(3)

Canada 2,526,591

2,350,577

Portugal 842,525

828,772

Total

3,369,116

3,179,349

Basic Cable service customers

Canada 879,354

874,505

Portugal 258,127

260,267

Total

1,137,481

1,134,772

High Speed Internet service customers

Canada 593,468

559,057

Portugal 164,992

163,187

Total

758,460

722,244

Digital Television service customers

Canada 648,862

559,418

Portugal 169,762

159,852

Total

818,624

719,270

Telephony service customers

Canada 404,907

357,597

Portugal 249,644

245,466

Total

654,551

603,063

(1) Cogeco Cable is currently assessing the number of homes passed.

(2) Represents the sum of Basic Cable service customers and High Speed Internet (“HSI”) and Telephony service customers

who do not subscribe to the Basic

Cable service.

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