COGECO REPORTS CONTINUOUS GROWTH IN CABLE SECTOR AND INTEGRATION OF NEWLY ACQUIRED RADIO STATIONS

Press release

For immediate release

COGECO reports continuous growth in cable sector

and integration of newly acquired radio stations

Montréal, April 8, 2011 – Today, COGECO Inc. (TSX: CGO) (“COGECO” or the “Company”) announced its financial results

for the second quarter and first six months of fiscal 2011, ended February 28, 2011.

For the second quarter and first six months of fiscal 2011:

•

Revenue increased by 6.6% to reach $350.6 million in the quarter, and by 5.5% to reach $693.4 million in the first

six months;

•

Operating income before amortization

(1)

grew by 9.3% to reach $136 million in the quarter and by 7.6% to reach

$273 million in the first six months when compared to the same periods of fiscal 2010;

•

Operating margin

(1)

increased to 38.8% when compared to 37.8% in the quarter, and to 39.4% from 38.6% in the

first six months of the year when compared to fiscal 2010;

•

In the second quarter, Cogeco Cable redeemed the $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 during the second quarter and first six months;

•

Net income amounted to $10.6 million essentially the same when compared to $10.5 million in the second quarter of

the prior year. For the first six months of fiscal 2011, net income amounted to $26.6 million, compared to

$33.3 million in the prior year. In the first half of fiscal 2010, net income 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 cable subsidiary. Excluding this amount, net income in the first six months of fiscal 2011

represents a growth of $3 million, or 12.6%, when compared to adjusted net income

(1)

of $23.6 million in the

corresponding period of fiscal 2010;

•

Free cash flow

(1)

of $48.2 million was posted in the second quarter, $2.4 million, or 5.3% higher than $45.8 million in

the comparable period of the prior year. In the first six months, free cash flow amounted to $23.9 million, compared

to $112.9 million in the first half of fiscal 2010. 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 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

half of fiscal 2010. Dividend payments in the first six months totalled $0.24 per share in fiscal 2011, compared to

$0.20 per share in fiscal 2010;

•

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 57,079 net additions in the second quarter and by

147,948 net additions in the first six months for a total of 3,327,297 RGU at February 28, 2011.

“In the second quarter, COGECO has continued to show solid growth in its cable sector and has finalized the Québec Radio

Stations Acquisition. In the cable sector, Cogeco Cable increased its customer base with 57,079 RGU net additions essentially

in its Digital Television, HSI and Telephony services from both its Canadian and European operations during the second

quarter. We are on target to deliver the performance we have projected by providing to our customers a superior offering

through various improvements and the best-in-class customer service,” said Louis Audet, President and CEO of COGECO. “

(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.

(2)

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

“With the completion of the acquisition Corus Entertainment Inc.’s Québec radio stations on February 1

, 2011, Cogeco

Diffusion, COGECO’s radio subsidiary, became one of Québec's largest radio broadcasters. The integration of the newly

acquired radio stations is going according to plan. Cogeco Diffusion now operates thirteen (13) radio stations throughout the

province of Québec that positively contribute to our revenue. Cogeco Diffusion has converted its Gatineau, Trois-Rivières and

Sherbrooke stations to the CKOI brand. Five (5) stations strong, the CKOI network now focuses on men 25-54 with music,

sports and local news. Women 25-54 are well served with the RYTHME FM network; its flagship Montreal station has

increased its leadership position in the French market,” declared 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: COGECO Inc.

Pierre Gagné

Senior Vice President and Chief Financial Officer

Tel.: 514-764-4700

Information: Media

Marie Carrier

Director, Communications

Tel.: 514-764-4761

Analyst Conference Call: Friday, April 8, 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 dialling five minutes

before the start of the conference:

Canada/USA Access Number: 1 800 820-0231

International Access Number: + 1 416 640-5926

Confirmation Code: 5366022

By Internet at www.cogeco.ca/investors

A rebroadcast of the conference call will be available until April 15, 2011, by dialling:

Canada and USA access number: 1 888 203-1112

International access number: + 1 647 436-0148

Confirmation code: 5366022

SHAREHOLDERS’ REPORT

Second quarter ended February 28, 2011

COGECO INC. Q2 2011

FINANCIAL HIGHLIGHTS

Quarters ended February 28, Six months ended February 28,

2011 2010 Change 2011 2010 Change

($000, except percentages and

per share data)

(unaudited)

(unau

dited)

(unaudited)

Operations

Revenue 350,644 329,087 6.6 693,410 657,090 5.5

Operating income before amortization

(1)

135,952 124,363 9.3 272,983 253,626 7.6

Operating margin

(1)

38.8% 37.8% – 39.4% 38.6% –

Operating income 70,525 58,370 20.8 144,417 121,932 18.4

Net income 10,645 10,511 1.3 26,620 33,259 (20.0)

Adjusted net income

(1)

10,645 10,511 1.3 26,620 23,639 12.6

Cash Flow

Cash flow from operating activities 96,664 117,498 (17.7)

154,236 116,088 32.9

Cash flow from operations

(1)

120,675 120,331 0.3 163,174 255,849 (36.2)

Capital expenditures and increase in deferred charges 72,462 74,549 (2.8)

139,261 142,936 (2.6)

Free cash flow

(1)

48,213 45,782 5.3 23,913 112,913 (78.8)

Financial condition

(2)

Fixed assets – – – 1,349,932 1,328,866 1.6

Total assets – – – 2,856,927 2,744,656 4.1

Indebtedness

(3)

– – – 1,034,004 961,354 7.6

Shareholders’ Equity – – – 403,146 381,635 5.6

RGU growth

57,079 68,782 (17.0)

147,948 158,567 (6.7)

Per Share Data

(4)

Earnings per share

Basic 0.64 0.63 1.6 1.59 1.99 (20.1)

Diluted 0.63 0.63 – 1.58 1.98 (20.2)

Adjusted earnings per share

(1)

Basic 0.64 0.63 1.6 1.59 1.41 12.8

Diluted 0.63 0.63 – 1.58 1.41 12.1

(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 February 28, 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.

COGECO INC. Q2 2011

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

(MD&A)

Second quarter ended February 28, 2011

Management’s Discussion and Analysis COGECO INC. Q2 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 six months of fiscal 2011, the Company’s subsidiary, Cogeco Cable Inc. (“Cogeco Cable” or the “Cable subsidiary”), invested

approximately $66.3 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 six months ended February 28, 2011, the number of RGU in the Cable subsidiary increased by 147,948, or 4.7%, to reach

3,327,297 RGU, mainly as a result of targeted marketing initiatives in the Canadian operations and customer acquisition and retention

strategies in the European operations designed to improve penetration, and to the continuing interest for high definition (“HD”) television

service. As a result of the sustained growth in the first half of the fiscal year, Cogeco Cable expects to achieve its fiscal 2011 revised

guidelines of 275,000 net additions, representing growth of approximately 8.6% when compared to August 31, 2010. RGU growth is expected

to stem primarily from the continued strong interest in Digital Television services, enhanced service offerings, and through promotional

activities.

Operating income before amortization and operating margin

For the first half of fiscal 2011, operating income before amortization grew by $19.4 million, or 7.6%, to reach $273 million, and operating

margin increased to 39.4%, from 38.6%, in line to achieve Management’s revised projection of $560 million in operating income before

amortization for fiscal 2011.

Free cash flow

For the six month period ended February 28, 2011, COGECO achieved free cash flow of $23.9 million, compared to $112.9 million for the first

half of the previous fiscal year, a decrease of $89 million. The decrease in free cash flow in the first six 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. Management

expects to achieve its free cash flow revised guidelines for fiscal 2011 of $80 million.

Other

BBM Canada’s fall 2010 survey and radio broadcast week measures from August 31, 2010 to February, 28, 2011, conducted with the Portable

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

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.

OPERATING RESULTS – CONSOLIDATED OVERVIEW

Quarters ended February 28, Six months ended February 28,

2011 2010 Change 2011 2010 Change

($000, except percentages)

(unaudited)

Revenue 350,644 329,087 6.6 693,410 657,090 5.5

Operating costs 214,692 204,724 4.9 420,427 403,464 4.2

Operating income before amortization 135,952 124,363 9.3 272,983 253,626 7.6

Operating margin 38.8% 37.8% 39.4% 38.6%

Revenue

Fiscal 2011 second-quarter revenue improved by $21.6 million, or 6.6%, to reach $350.6 million primarily due to the cable sector and to the

one-month results of the Québec Radio Stations Acquisition. Revenue amounted to $693.4 million in the first six months of fiscal 2011,

$36.3 million, or 5.5%, higher than in the first half of fiscal 2010.

(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. Q2 2011 5

Cable revenue increased by $16.2 million, or 5%, for the second quarter and by $30.3 million, or 4.8%, in the first half when compared to the

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

Revenue from the radio activities improved by $5.4 million, or 62% in the second quarter and by $6 million, or 31%, in the first six months,

mainly from the Québec Radio Stations Acquisition.

Operating costs

For the second quarter and first half of fiscal 2011, operating costs amounted to $214.7 million and $420.4 million, increases, mainly in the

cable sector as well as from the Québec Radio Stations Acquisition, of $10 million, or 4.9%, and of $17 million, or 4.2%, when compared to the

prior year.

Operating costs in the Cable sector increased by $4.4 million, or 2.2%, for the second quarter and by $11.7 million, or 3%, in the first half when

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

section.

Operating costs from the radio activities grew by $5.2 million in the second quarter and $5.1 million in the first six months, representing

increases of 77.9% in the quarter and 35.5% in the first six months, mainly from the Québec Radio Stations Acquisition.

Operating income before amortization and operating margin

Mainly as a result of growth in the cable sector, operating income before amortization grew by $11.6 million, or 9.3%, in the second quarter to

reach $136 million, and by $19.4 million, or 7.6%, at $273 million for the first half of fiscal 2011, when compared to the same periods the

previous year. COGECO’s second quarter operating margin increased to 38.8%, from 37.8% in the second quarter of the previous year. For

the first six months, COGECO’s operating margin increased to 39.4% from 38.6% in the first half of fiscal 2010. For further details on the

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

FIXED CHARGES

Quarters ended February 28, Six months ended February 28,

2011 2010 Change 2011 2010 Change

($000, except percentages)

(unaudited)

Amortization 65,427 65,993 (0.9)

128,566 131,694 (2.4)

Financial expense 24,501 15,187 61.3 41,406 31,464 31.6

Second-quarter 2011 amortization amounted to $65.4 million, compared to $66 million for the same period of the prior year. For the first half of

fiscal 2011, amortization amounted to $128.6 million, compared to $131.7 million in the prior year. The decreases are mainly attributable to the

Cable subsidiary’s reduction in amortization in the European operations stemming from certain acquired assets that are now fully amortized

and the depreciation of the Euro in relation to the Canadian dollar in fiscal 2011, partly offset by additional capital expenditures in the

Canadian operations arising from customer premise equipment acquisitions to support RGU growth.

Financial expense amounted to $24.5 million in the second quarter compared to $15.2 million in the prior year. In the first six months of

fiscal 2011, financial expense amounted to $41.4 million, compared to $31.5 million in the first half of the prior year. Financial expense

increases are primarily due to 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, partly offset by the impact of the lower

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

expense impact from fluctuations in the level of bank indebtedness.

INCOME TAXES

Fiscal 2011 second-quarter income tax expense amounted to $14.3 million, compared to $12.5 million in the prior year. The increase of

$1.8 million, or 14%, is mainly due to operating income before amortization growth, partly offset by an increase in financial expense and the

previously announced annual declines in the enacted Canadian federal and provincial income tax rates.

For the first six months, income tax expense amounted to $32.5 million, compared to an income tax recovery of $1.3 million in the prior year.

The income tax recovery in the first six 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 $28.5 million for the first six months of fiscal 2010. The increases in fiscal

2011 income tax expense are mainly due to the operating income before amortization growth combined with the decrease in amortization,

partly offset by the increase in financial expense and the previously announced annual declines in the enacted Canadian federal and provincial

income tax rates.

Management’s Discussion and Analysis COGECO INC. Q2 2011 6

NON-CONTROLLING INTEREST

The non-controlling interest represents a participation of approximately 67.8% in Cogeco Cable’s results. During the three and six month

periods ended February 28, 2011, the net income attributable to non-controlling interest amounted to $21.2 million and $43.9 million,

respectively, due to the cable sector’s positive results, compared to $20.2 million in the second quarter of fiscal 2010, and $58.5 million in the

first half of fiscal 2010 mainly as a result of the income tax recovery from the reduction of Ontario provincial corporate income tax rates.

NET INCOME

Fiscal 2011 second quarter net income amounted to $10.6 million, or $0.64 per share, essentially the same when compared to $10.5 million,

or $0.63 per share for the same period in 2010, as the growth in operating income before amortization in the second quarter of fiscal 2011 was

offset by the make-whole premium on early repayment of debt described in the “Fixed charges” section amounting to $2 million net of income

taxes and non-controlling interest.

Net income in the first half of fiscal 2011 amounted to $26.6 million, or $1.59 per share. In the comparable period of fiscal 2010, net income

amounted to $33.3 million, or $1.99 per share which included the reduction of Ontario provincial corporate income tax rates described in the

“Income Taxes” section. Excluding this prior year effect, fiscal 2011 net income increased by $3 million, or 12.6%, and $0.18 per share, or

12.8%, when compared to adjusted net income

(1)

of $23.6 million, or $1.41 per share

(1)

, for the first half of fiscal 2010. Net income progression

has resulted mainly from the growth in operating income before amortization and the decrease in amortization expense, partly offset by 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 February 28, Six months ended February 28,

2011

2010

2011

2010

($000)

(unaudited)

Operating activities

Cash flow from operations 120,675 120,331 163,174 255,849

Changes in non-cash operating items (24,011)

(2,833)

(8,938)

(139,761)

96,664 117,498 154,236 116,088

Investing activities

(1)

(148,345)

(74,447)

(215,144)

(142,673)

Financing activities

(1)

(119,631)

(42,694)

51,636 4,759

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

foreign currency 94 (1,102)

(135)

(900)

Net change in cash and cash equivalents (171,218)

(745)

(9,407)

(22,726)

Cash and cash equivalents, beginning of period 197,653 17,477 35,842 39,458

Cash and cash equivalents, end of period 26,435 16,732 26,435 16,732

(1)

Excludes assets acquired under capital leases.

Fiscal 2011 second quarter cash flow from operations reached $120.7 million, essentially the same when compared to $120.3 million in the

second quarter of the prior year. Changes in non-cash operating items required cash outflows of $24 million, mainly as a result of decreases in

accounts payable and accrued liabilities and income tax liabilities, combined with increases in accounts receivable and prepaid expenses and

other. In the prior year, changes in non-cash operating items required cash outflows of $2.8 million, mainly as a result of increases in income

taxes receivable and accounts receivable, partly offset by increases in accounts payable and accrued liabilities and deferred and prepaid

revenue and other liabilities.

In the first six months of fiscal 2011, cash flow from operations reached $163.2 million, $92.7 million, or 36.2%, 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 the increase in financial expense. Changes in non-

cash operating items required cash outflows of $8.9 million, mainly as a result of a decrease in accounts payable and accrued liabilities and an

increase in accounts receivable, partly offset by an increase in income tax liabilities. In the prior year, changes in non-cash operating items

required cash outflows of $139.8 million, mainly as a result of decreases in accounts payable and accrued liabilities and income tax liabilities

and increases in income taxes receivable and accounts receivable.

In the second quarter of fiscal 2011, investing activities amounted to $148.3 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 $73.9 million, or 99.3% when compared to $74.4 million for the corresponding period of last year. In the first half of

fiscal 2011, investing activities amounted to $215.1 million compared to $142.7 million in the first six months of fiscal 2010, an increase of

$72.5 million, or 50.8%.

(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. Q2 2011 7

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 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.

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 taxes 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 income and other liabilities (7,390)

Non-current future income taxes liabilities (10,656)

Non-current liabilities related to assets held for sale (975)

86,165

Capital expenditures amounted to $70.2 million in the second quarter, a decrease of $1.9 million, or 2.6%, when compared to $72.1 million in

the second quarter of the prior fiscal year. The most significant variations are in the cable sector and are due to the following factors:

• Decreases in upgrades and rebuilds and in line extensions which surpassed the increase in scalable infrastructure. This net

decrease stems from the timing of the various initiatives undertaken by Cogeco Cable in order to expand its network and improve its

capacity;

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

the Canadian operations, which offset the decrease in customer premise equipment spending reflecting lower RGU growth in the

European operations and the depreciation of the value of the Euro relative to the Canadian dollar.

Management’s Discussion and Analysis COGECO INC. Q2 2011 8

In the first half of fiscal 2011, capital expenditures amounted to $133.5 million, a decrease of $3.8 million, or 2.7%, when compared to

$137.3 million in the second quarter of the prior fiscal year. The most significant variations are in the cable sector and are due to the following

factors:

• A decrease in customer premise equipment spending mainly due to lower RGU growth in the European operations and the

depreciation of the value of the Euro relative to the Canadian dollar, partly offset by an increase in customer premise equipment

spending to support RGU growth in the Canadian operations;

• 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;

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

In the second quarter, free cash flow amounted to $48.2 million, compared to $45.8 million in the comparable period of fiscal 2010,

representing an increase of $2.4 million, or 5.3%. The growth in free cash flow over the prior year is due to the increase in operating income

before amortization in the second quarter of fiscal 2011, partly offset by the increase in financial expense.

In the first six months, free cash flow amounted to $23.9 million, a decrease of $89 million, or 78.8%, when compared to $112.9 million in the

first half of fiscal 2010. The decline in free cash flow over the prior year is due to an increase of $104.2 million in current income tax expense in

the cable sector stemming 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 half of fiscal 2011.

In the second quarter of fiscal 2011, Indebtedness affecting cash decreased by $116.6 million mainly due to the decrease in cash and cash

equivalents of $171.2 million and the free cash flow of $48.2 million, partly offset by the Québec Radio Stations Acquisition for a net amount of

$75.9 million, the cash outflows of $24 million from the changes in non-cash operating items and the dividend payment of $7.6 million

described below. Indebtedness mainly decreased through 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, partly offset by a net increase of

$59.9 million on the Company’s Term Revolving Facilities. In the second quarter of the prior year, Indebtedness affecting cash decreased by

$37.1 million mainly due to the free cash flow of $45.8 million, partly offset by the dividend payment of $6.3 million described below and the

decrease in non-cash operating items of $2.8 million. Indebtedness mainly decreased through a net repayment of $36.5 million on Cogeco

Cable’s Term Facility.

During the second 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 second 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 second quarter of the prior year.

In the first half of fiscal 2011, indebtedness affecting cash increased by $65.5 million mainly due to the Québec Radio Stations Acquisition for

a net amount of $75.9 million, the dividend payments totalling $15.2 million described below and the cash outflows of $8.9 million from the

changes in non-cash operating items. The increase was partly offset by the free cash flow of $23.9 million generated in the first half of the

fiscal year and the decrease in cash and cash equivalents of $9.4 million. 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 $46.1 million on the Company’s Term Revolving Facilities. The increase was partly offset by the repayment of the $175 million Senior

Secured Notes Series B described above. For the comparable period of fiscal 2010, Indebtedness affecting cash increased by $19.5 million

mainly due to the decrease in non-cash operating items of $139.8 million and the dividend payment of $12.6 million described below, partly

offset by the free cash flow of $112.9 million and the decrease in cash and cash equivalents of $22.7 million. Indebtedness mainly increased

through an increase of $49.6 million in bank indebtedness, partly offset by net repayments totalling $28.1 million on the Company’s Term

Facilities, including net repayments of $21.6 million by the cable subsidiary.

During the first six months of fiscal 2011, quarterly dividends of $0.12 per share, for a total of $0.24 per share, were paid to the holders of

subordinate and multiple voting shares, totalling $4 million, compared to quarterly dividends of $0.10 per share, for a total of $0.20 per share,

or $3.4 million the year before. In addition, dividends paid by a subsidiary to non-controlling interests in the first half of fiscal 2011 amounted to

$11.2 million, for consolidated dividend payments of $15.2 million, compared to $9.2 million for consolidated dividend payments of

$12.6 million in the first half of the prior year.

As at February 28, 2011, the Company had a working capital deficiency of $164.2 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 decreases in accounts payable and accrued liabilities

and future income tax liabilities, combined with an increase in accounts receivable. This decrease was partly offset by an increase in income

tax liabilities and a decrease in cash and cash equivalents. 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 February 28, 2011, the Company had used $74 million of its $100 million Term Revolving Facility for a remaining availability of $26 million.

Cogeco Cable had used $101.8 million of its $750 million Term Revolving Facility for a remaining availability of $648.2 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 “income tax liabilities”, “future income tax liabilities”, “future

income tax assets”, “accounts payable and accrued liabilities”, “long-term debt”, “cash and cash equivalents”, “broadcasting licences”,

“goodwill”, “assets held for sale”, “accounts receivable”, “fixed assets”, “derivative financial instruments”, “deferred and prepaid revenue and

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

Management’s Discussion and Analysis COGECO INC. Q2 2011 9

The increase of $74.9 million in income tax liabilities and the decreases of $43.2 million in future income tax liabilities and $7.1 million in future

income tax assets 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. The $55.9 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 increase of

$51 million in long-term debt and the $9.4 million decrease in cash and cash equivalents 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 $48.2 million in broadcasting

licences, $27 million in goodwill and $10.3 million in assets held for sale stem from the Québec Radio Stations Acquisition. The $30.8 million

increase in accounts receivable is due to the Québec Radio Stations acquisition combined with the increase in revenues and the timing of

payments received from customers. The $21.1 million increase in fixed assets reflects 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 $20 million decrease in derivative financial instruments is due to

the factors discussed in the “Financial management” section. The increases of $8 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 $34.2 million increase in non-

controlling interest is due to improvements in the cable subsidiary’s operating results in the current fiscal year.

A description of COGECO’s share data as at March 31, 2011 is presented in the table below:

Number of

Amount

($000)

Common

Multiple voting shares

Subordinate voting shares

1,842,860

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 April 7, 2011 meeting, the Board of Directors of COGECO declared a quarterly eligible dividend of $0.12 per share for subordinate and

multiple voting shares, payable on May 5, 2011, to shareholders of record on April 21, 2011. 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, their 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 maturity of the swap agreement on July 28, 2011. In addition to the interest rate swap of

2.08%, Cogeco Cable will continue to pay the applicable margin on these loans in accordance with its Term Revolving Facility. In the first six

months of fiscal 2011, the fair value of interest rate swap increased by $0.8 million, which is recorded as an increase of other comprehensive

income, net of income taxes and non-controlling interest, compared to a decrease of $0.2 million which was recorded as a decrease of other

comprehensive income, net of income taxes and non-controlling interest, 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

Management’s Discussion and Analysis COGECO INC. Q2 2011 10

principal portion of the debt has been fixed at $1.0625 per US dollar. In the first half of fiscal 2011, amounts due under the US$190 million

Senior Secured Notes Series A decreased by $18.1 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 $20.9 million, of which a decrease of $18.1 million offsets the foreign exchange gain on

the debt denominated in US dollars. The difference of $2.8 million was recorded as a decrease of other comprehensive income, net of income

taxes and non-controlling interest. In the first six months of the prior year, amounts due under the US$190 million Senior Secured Notes Series

A decreased by $8.1 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 $7.2 million, of which $8.1 million offsets the foreign exchange gain on the debt denominated in US dollars. The difference of

$0.9 million was recorded as an increase of other comprehensive income, net of income taxes and non-controlling interest.

Furthermore, Cogeco Cable’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 values 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. This debt is designated as a hedge of a net investment in self-

sustaining foreign subsidiaries and, accordingly, Cogeco Cable recorded a foreign exchange loss of $1.4 million in the first six months of

fiscal 2011, compared to $5 million in the comparable period of the prior year, which is deferred and recorded in the consolidated statement of

comprehensive income, net of non-controlling interest. The exchange rate used to convert the Euro currency into Canadian dollars for the

balance sheet accounts as at February 28, 2011 was $1.3406 per Euro compared to $1.3515 per Euro as at August 31, 2010. The average

exchange rates prevailing during the second quarter and first six months of fiscal 2011 used to convert the operating results of the European

operations were $1.3369 per Euro and $1.3601 per Euro, respectively, compared to $1.4905 per Euro and $1.5318 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 six month period ended February 28, 2011:

Six months ended February 28, 2011 As reported

Exchange rate

impact

($000) $ $

(unaudited)

Revenue 85,324 8,532

Operating income before amortization 8,417 842

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 14

of the consolidated financial statements for further details.

CABLE SECTOR

CUSTOMER STATISTICS

Net additions (losses) % of Penetration

(1)

Quarters ended February 28, Six months ended February 28, February 28,

February 28, 2011

2011

2010

2011

2010

2011

2010

RGU 3,327,297 57,079 68,782 147,948 158,567 – –

Basic Cable service customers 1,140,855 (1,543)

(794)

6,083 7,563 – –

HSI service customers 753,700 10,992 16,861 31,456 39,576 67.4 63.6

Digital Television service customers 790,585 29,666 26,243 71,315 58,463 69.9 59.0

Telephony service customers 642,157 17,964 26,472 39,094 52,965 59.4 53.3

(1)

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

In the cable sector, second quarter and first six-month RGU net additions amounted to 57,079 and 147,948, respectively, compared to 68,782

and 158,567 RGU in the comparable periods of the previous fiscal year.

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

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

lower RGU growth in the European operations. Economic conditions in Portugal continued to be difficult, and Management has not yet

detected clear signs of a sustained economic recovery. Consequently, Cogeco Cable continues to closely control costs and is focusing on

generating RGU growth in the near term.

Basic Cable service customers net losses stood at 1,543 for the quarter, compared to 794 in the second quarter of the prior year. For the first

six months, Basic Cable service customers increased by 6,083, compared to 7,563 in the prior year. In the quarter, Telephony service

customers grew by 17,964 compared to 26,472 for the same period last year, and the number of net additions to the HSI service stood at

10,992 customers compared to 16,861 customers in the second quarter of the prior year. For the first six months, net additions of Telephony

service customers amounted to 39,094 compared to 52,965 for the same period last year, and the number HSI service customers grew by

31,456 compared to 39,576 in the first half of the prior year. HSI and Telephony net additions continue to stem from the enhancement of the

Management’s Discussion and Analysis COGECO INC. Q2 2011 11

product offering, the impact of the bundled offer (Cogeco Complete Connection) of Television, HSI and Telephony services in the Canadian

operations, and promotional activities. For the three and six-month periods ended February 28, 2011, additions to the Digital Television service

stood at 29,666 and 71,315 customers, compared to 26,243 and 58,463 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.

OPERATING RESULTS

Quarters ended February 28, Six months ended February 28,

2011 2010 Change 2011 2010 Change

($000, except percentages)

(unaudited)

Revenue 336,569 320,397 5.0 668,088 637,762 4.8

Operating costs 199,669 195,106 2.3 395,116 383,524 3.0

Management fees – COGECO Inc. 2,528 2,678 (5.6)

9,172 9,019 1.7

Operating income before amortization 134,372 122,613 9.6 263,800 245,219 7.6

Operating margin 39.9% 38.3% 39.5% 38.4%

Revenue

Fiscal 2011 second-quarter revenue improved by $16.2 million, or 5%, to reach $336.6 million, when compared to the prior year. For the first

half of fiscal 2011, revenue amounted to $668.1 million, $30.3 million, or 4.8% higher when compared to $637.8 million in the comparable

period of fiscal 2010.

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

Television services, rate increases implemented in the second half of fiscal 2010 and the revenue related to the new levy amounting to 1.5%

of gross Cable Television service revenue imposed by the CRTC in order to finance the new Local Programming Improvement Fund (“LPIF”),

the Canadian operations’ second-quarter revenue rose by $23.1 million, or 8.5%, to reach $294.5 million, and first six-month revenue

increased by $47 million, or 8.8%, at $582.8 million.

In the second quarter of fiscal 2011 the European operations’ revenue decreased by $6.9 million, or 14.1%, at $42.1 million. First six-month

revenue amounted to $85.3 million, $16.6 million, or 16.3%, less than in the prior year. These declines in revenue were mainly due to the

depreciation of the Euro in relation to the Canadian dollar and reflect the impact of retention strategies implemented in the second half of fiscal

2009 in order to offset the recurring intense promotions and advertising initiatives from competitors in the Portuguese market. Revenue from

the European operations in the local currency for the three and six-month periods ended February 28, 2011 amounted to €31.5 million and

€62.7 million, decreases of €1.4 million, or 4.2%, and €3.8 million, or 5.7%, respectively, when compared to the same periods of the prior year.

Operating costs

For the second quarter of fiscal 2011, operating costs, excluding management fees payable to COGECO Inc., increased by $4.6 million, to

reach $199.7 million, an increase of 2.3% compared to the prior year. For the first six months, operating costs, excluding management fees

payable to COGECO Inc. amounted to $395.1 million, $11.6 million, or 3% higher than in the first half of fiscal 2010.

In the Canadian operations, for the three and six months ended February 28, 2011, operating costs excluding management fees payable to

COGECO Inc. increased by $7.6 million, or 4.9%, at $161.8 million, and by $18.5 million, or 6.2%, at $318.2 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 second-quarter operating costs decreased by $3 million, or 7.4%, at $37.9 million. 2011 first-half

operating costs decreased by $6.9 million, or 8.2%, at $76.9 million. These decreases were mainly due to the decline of the value of the Euro

over the Canadian dollar which surpassed increases in operating costs related to additional marketing initiatives and the launch of new HD

channels by Cabovisão. Operating costs of the European operations for the second quarter and first six months in the local currency

amounted to €28.4 million, an increase of €0.9 million, or 3.3%, and €56.5 million, an increase of €1.8 million, or 3.4%, respectively, when

compared to the corresponding periods of the prior year.

Operating income before amortization and operating margin

Fiscal 2011 second-quarter operating income before amortization increased by $11.8 million, or 9.6%, to reach $134.4 million. Cogeco Cable’s

second-quarter operating margin increased to 39.9% from 38.4% in the comparable period of the prior year. For the first six months of

fiscal 2011, operating income before amortization amounted to $263.8 million, an increase of $18.6 million, or 7.6%, when compared to the

first half of fiscal 2010. The operating margin increased to 39.5% in the first half of fiscal 2011 from 38.4% in the first six months of the prior

year.

Operating income before amortization in the Canadian operations rose by $15.6 million, or 13.6%, to reach $130.2 million in the second

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

increased to 44.2% in the second quarter compared to 42.2% for the same period of the prior year. In the first half of fiscal 2011, operating

income before amortization amounted to $255.4 million, $28.4 million, or 12.5%, higher than in the first half of the prior year. The operating

margin increased to 43.8% from 42.4% when compared to the first six months of fiscal 2010. The growth in the operating margin for both

periods stems from rate increases and RGU growth.

For the European operations, operating income before amortization decreased to $4.1 million in the second quarter from $8 million for the

Management’s Discussion and Analysis COGECO INC. Q2 2011 12

same period of the prior year, representing a decrease of $3.9 million, or 48.3%. In the first six months, operating income before amortization

decreased by $9.8 million, or 53.7%, at $8.4 million. The reductions are mainly due to decreases in revenue which outpaced the decreases in

operating costs. European operations’ operating margin decreased to 9.9% in the second quarter and first six months of fiscal 2011 from

16.4% in the second quarter and 17.8% in the first six months of fiscal 2010. Operating income before amortization in the local currency

amounted to €3.1 million compared to €5.4 million in the second quarter of the prior year, representing a decrease of 42.3%, and €6.2 million

compared to €11.8 million in the first six months, representing a decrease of 47.7%.

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 February 28, 2011, and have concluded that they were adequate. Furthermore, no significant changes to

the internal controls over financial reporting occurred during the quarter ended February 28, 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 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.

Management’s Discussion and Analysis COGECO INC. Q2 2011 13

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’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.

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.

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.

Management’s Discussion and Analysis COGECO INC. Q2 2011 14

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

follows:

Quarters ended February 28, Six months ended February 28,

2011 2010 2011 2010

($000)

(unaudited)

Cash flow from operating activities 96,664 117,498 154,236 116,088

Changes in non-cash operating items 24,011 2,833 8,938 139,761

Cash flow from operations 120,675 120,331 163,174 255,849

Free cash flow is calculated as follows:

Quarters ended February 28, Six months ended February 28,

2011 2010 2011 2010

($000)

(unaudited)

Cash flow from operations 120,675 120,331 163,174 255,849

Acquisition of fixed assets (70,200) (72,094) (133,507) (137,276)

Increase in deferred charges (2,262) (2,455) (5,754) (5,519)

Assets acquired under capital leases – as per note 12 c) – – – (141)

Free cash flow 48,213 45,782 23,913 112,913

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 February 28, Six months ended February 28,

2011 2010 2011 2010

($000, except percentages)

(unaudited)

(una

udited)

Operating income 70,525 58,370 144,417 121,932

Amortization 65,427 65,993 128,566 131,694

Operating income before amortization 135,952 124,363 272,983 253,626

Revenue 350,644 329,087 693,410 657,090

Operating margin 38.8% 37.8% 39.4% 38.6%

Management’s Discussion and Analysis COGECO INC. Q2 2011 15

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 excluding unusual adjustments. This allows the Company to isolate the unusual adjustments in order to

evaluate the net income and earnings per share from ongoing activities.

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 February 28, Six months ended February 28,

2011 2010 2011 2010

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

(unaudited)

Net income 10,645 10,511 26,620 33,259

Adjustments:

Reduction of Ontario provincial corporate income tax rates, net of non

controlling interest – – – (9,620)

Adjusted net income 10,645 10,511 26,620 23,639

Weighted average number of multiple

voting and subordinate voting shares

outstanding 16,713,884 16,714,030 16,721,074 16,721,865

Effect of dilutive stock options 10,283 14,436 11,060 11,152

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

Unit Plan 95,358 71,862 84,627 63,745

Weighted average number of diluted multiple voting and subordinate voting

shares outstanding 16,819,525 16,800,328 16,816,761 16,796,762

Adjusted earnings per share

Basic 0.64 0.63 1.59 1.41

Diluted 0.63 0.63 1.58 1.41

Supplementary Quarterly Financial Information

Quarters ended

(1)

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

($000, except percentages and per share data) 2011 2010 2010 2009 2010 2009 2010 2009

(unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)

Revenue 350,644 329,087 342,766 328,003 333,671 316,284 330,933 316,310

Operating income before amortization 135,952 124,363 137,031 129,263 137,785 144,654 127,928 126,624

Operating margin 38.8% 37.8% 40.0% 39.4% 41.3% 45.7% 38.7% 40.0%

Operating income 70,525 58,370 73,892 63,562 73,942 76,244 64,008 62,623

Net income 10,645 10,511 15,975 22,748 12,265 14,631 10,740 10,704

Adjusted net income 10,645 10,511 15,975 13,128 12,265 7,647 10,740 9,157

Cash flow from operating activities 96,664 117,498 57,572 (1,410)

198,492 177,032 110,756 99,873

Cash flow from operations 120,675 120,331 42,499 135,518 127,230 108,744 119,140 92,718

Capital expenditures and increase in deferred

charges 72,462 74,549 66,799 68,387 108,515 94,002 69,511 60,302

Free cash flow 48,213 45,782 (24,300)

67,131 18,715 14,742 49,629 32,416

Earnings per share

(2)

Basic 0.64 0.63 0.95 1.36 0.73 0.87 0.64 0.64

Diluted 0.63 0.63 0.95 1.35 0.73 0.87 0.64 0.64

Adjusted earnings per share

(2)

Basic 0.64 0.63 0.95 0.79 0.73 0.46 0.64 0.55

Diluted 0.63 0.63 0.95 0.78 0.73 0.46 0.64 0.55

(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 April 7, 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. Q2 2011 16

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 services 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 operating margin in the third and fourth

quarters is generally higher as the maximum amount payable to COGECO under the management agreement is usually reached in the

second quarter of the year. As part of the management agreement between Cogeco Cable and COGECO, Cogeco Cable pays management

fees to COGECO equivalent to 2% of its revenue subject to an annual maximum amount, which is adjusted annually to reflect the increase in

the Canadian Consumer Price index. As the fiscal 2011 maximum amount of $9.2 million has been reached in the second quarter, Cogeco

Cable will not pay management fees in the second half of fiscal 2011. Similarly, as the maximum amount of $9 million 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 Louis Audet

Chairman of the Board President and Chief Executive Officer

COGECO Inc.

Montréal, Québec

April 8, 2011

INTERIM FINANCIAL STATEMENTS

Second quarter ended February 28, 2011

COGECO INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

Interim Financial Statements COGECO INC. Q2 2011 18

Three months ended February 28,

Six months ended February 28,

(In thousands of dollars, except per share data) 2011

2010

2011 2010

$ $

Revenue 350,644

329,087

693,410 657,090

Operating costs 214,692

204,724

420,427 403,464

Operating income before amortization 135,952

124,363

272,983 253,626

Amortization (note 4) 65,427

65,993

128,566 131,694

Operating income 70,525

58,370

144,417 121,932

Financial expense (note 5) 24,501

15,187

41,406 31,464

Income before income taxes and the following items 46,024

43,183

103,011 90,468

Income taxes (note 6) 14,277

12,525

32,521 (1,293)

Gain on dilution resulting from the issuance of shares by a subsidiary (56)

(18)

(61) (18)

Non-controlling interest 21,158

20,165

43,931 58,520

Net income 10,645

10,511

26,620 33,259

Earnings per share (note 7)

Basic 0.64

0.63

1.59 1.99

Diluted 0.63

0.63

1.58 1.98

COGECO INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

Interim Financial Statements COGECO INC. Q2 2011 19

Three months ended February 28, Six months ended February 28,

(In thousands of dollars) 2011 2010 2011 2010

$ $ $ $

Net income

10,645 10,511 26,620 33,259

Other comprehensive income (loss)

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

net of income tax recovery of $2,334,000 and $3,300,000 ($333,000 and $2,474,000

in 2010) and non-controlling interest of $8,050,000 and $11,346,000 ($782,000 and

$3,333,000 in 2010) (3,816) (373) (5,387) (1,591)

Reclassification to net income of unrealized losses on derivative financial instruments

designated as cash flow hedges, net of income tax recovery of $1,411,000 and

$2,328,000 ($79,000 and $1,086,000 in 2010) and non-controlling interest of

$6,155,000 and $10,667,000 ($345,000 and $4,731,000 in 2010) 2,922 165 5,074 2,258

Unrealized gains (losses) on translation of a net inve

stment in self

sustaining foreign

subsidiaries, net of non-controlling interest of $943,000 and $1,185,000 ($17,813,000

and $15,969,000 in 2010) 447 (8,503) (568) (7,621)

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

$560,000 and $271,000 ($13,988,000 and $12,573,000 in 2010) (266) 6,676 130 6,000

(713) (2,035) (751) (954)

Comprehensive income

9,932 8,476 25,869 32,305

COGECO INC.

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

(unaudited)

Interim Financial Statements COGECO INC. Q2 2011 20

Six months ended February 28,

(In thousands of dollars) 2011 2010

$ $

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 26,620 33,259

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) 45 (430)

Dividends on multiple voting shares (442) (366)

Dividends on subordinate voting shares (3,572) (2,988)

Balance at end

275,820 233,503

COGECO INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

Interim Financial Statements COGECO INC. Q2 2011 21

(In thousands of dollars) February 28, 2011 August 31, 2010

$ $

Assets

Cur

rent

Cash and cash equivalents (note 12 b)) 26,435 35,842

Accounts receivable (note 14) 105,344 74,560

Income taxes receivable 43,935 45,400

Prepaid expenses and other 15,258 14,189

Future income tax assets 5,308 6,133

Assets held for sale (note 15) 436 –

196,716

176,124

Investments 539 739

Fixed assets 1,349,932 1,328,866

Deferred charges 27,483 27,960

Intangible assets (note 8) 1,088,804 1,042,998

Goodwill (note 8) 171,692 144,695

Derivative financial instruments – 5,085

Future income tax assets 11,883 18,189

Assets held for sale (note 15) 9,878 –

2,856,927

2,744,656

Liabilities and Shareholders' equity

Liabilities

Current

Bank indebtedness – 2,328

Accounts payable and accrued liabilities 192,911 248,775

Income tax liabilities 75,450 558

Deferred and prepaid revenue 45,414 45,602

Derivative financial instrument 356 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 9) 2,454 2,329

Future income tax liabilities 38,017 78,267

Liabilities related to assets held for sale (note 15) 1,280 –

360,882 379,048

Long-term debt (note 9) 1,003,575 952,741

Derivative financial instruments 15,781 –

Deferred and prepaid revenue and other liabilities 20,377 12,234

Pension plan liabilities and accrued employees benefits 12,496 10,568

Future income tax liabilities 235,740 238,699

Liabilities related to assets held for sale (note 15) 976 –

1,649,827 1,593,290

Non

controllin

g interest

803,954

769,731

Shareholders' equity

Capital stock (note 10) 119,332 119,527

Contributed surplus 2,811 3,005

Retained earnings 275,820 253,169

Accumulated other comprehensive income (note 11) 5,183 5,934

403,146

381,635

2,856

,927

2,744,656

COGECO INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

Interim Financial Statements COGECO INC. Q2 2011 22

Three months ended February 28, Six months ended February 28,

(In thousands of dollars) 2011 2010 2011 2010

$ $ $ $

Cash flow from operating activities

Net income 10,645 10,511 26,620 33,259

Adjustments for:

Amortization (note 4) 65,427 65,993 128,566 131,694

Amortization of deferred transaction costs and discounts on long-term debt 983 780 1,761 1,542

Future income taxes 19,431 22,232 (42,468) 28,636

Non-controlling interest 21,158 20,165 43,931 58,520

Gain on dilution resulting from the issuance of shares by a subsidiary (56) (18) (61) (18)

Stock-based compensation (note 10) 1,315 856 1,993 1,564

Loss (gain) on disposals and write-offs of fixed assets 1,084 (36) 1,404 62

Other 688 (152) 1,428 590

120,675 120,331 163,174 255,849

Changes in non-cash operating items (note 12 a)) (24,011) (2,833) (8,938) (139,761)

96,664 117,498 154,236 116,088

Cash flow from investing activities

Acquisition of fixed assets (note 12 c)) (70,200) (72,094) (133,507) (137,276)

Increase in deferred charges (2,262) (2,455) (5,754) (5,519)

Business acquisition, net of cash and cash equivalents acquired (note 2) (75,883) – (75,883) –

Other – 102 – 122

(148,345) (74,447) (215,144) (142,673)

Cash flow from financing activities

Increase (decrease) in bank indebtedness (740) 3,305 (2,328) 49,629

Net increases (repayments) under the Term Facilities and Term Revolving Facilities

59,903 (39,495) 46,103 (28,070)

Issuance of long-term debt, net of discounts and transaction costs (25) – 198,295 –

Repayments of long-term debt (175,703) (862) (176,529) (2,086)

Issuance of subordinate voting shares (note 10) 629 353 629 353

Acquisition of subordinate voting shares held in trust under the Incentive

Share Unit Plan (note 10) – – (1,282) (1,049)

Dividends on multiple voting shares (221) (182) (442) (366)

Dividends on subordinate voting shares (1,786) (1,494) (3,572) (2,988)

Issuance of shares by a subsidiary to non-controlling interest 3,889 283 4,179 283

Acquisition by a subsidiary from non-controlling interest of subordinate voting shares

held in trust under the Incentive Share Unit Plan (note 10) – – (2,258) (1,744)

Dividends paid by a subsidiary to non-controlling interest (5,577) (4,602) (11,159) (9,203)

(119,631) (42,694) 51,636 4,759

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

a foreign currency 94 (1,102) (135) (900)

Net change in cash and cash equivalents (171,218) (745) (9,407) (22,726)

Cash and cash equivalents at beginning 197,653 17,477 35,842 39,458

Cash and cash equivalents at end 26,435 16,732 26,435 16,732

See supplemental cash flow information in note 12.

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q2 2011 23

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

February 28, 2011 and August 31, 2010 as well as its results of operations and its cash flows for the three and six month periods ended

February 28, 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

February 28, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q2 2011 24

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 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 taxes 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 income and other liabilities (7,390)

Non-current future income taxes liabilities (10,656)

Non-current liabilities related to assets held for sale (975)

86,165

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q2 2011 25

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

Three months ended February 28, 2011 2010 2011 2010 2011 2010

$ $ $ $ $ $

Revenue 336,569 320,397 14,075 8,690 350,644 329,087

Operating costs 202,197 197,784 12,495 6,940 214,692 204,724

Operating income before amortization 134,372 122,613 1,580 1,750 135,952 124,363

Amortization 65,079 65,839 348 154 65,427 65,993

Operating income 69,293 56,774 1,232 1,596 70,525 58,370

Financial expense 24,125 15,033 376 154 24,501 15,187

Income taxes 14,017 11,952 260 573 14,277 12,525

Gain on dilution resulting from the issuance of

shares by a subsidiary (56)

(18)

– – (56)

(18)

Non-controlling interest 21,158 20,165 – – 21,158 20,165

Net income 10,049 9,642 596 869 10,645 10,511

Total assets

(1)

2,694,331 2,702,819 162,596 41,837 2,856,927 2,744,656

Fixed assets

(1)

1,333,314 1,325,077 16,618 3,789 1,349,932 1,328,866

Intangible assets

(1)

1,015,271 1,017,658 73,533 25,340 1,088,804 1,042,998

Goodwill

(1)

144,465 144,695 27,227 – 171,692 144,695

Acquisition of fixed assets

(2)

68,152 71,924 2,048 170 70,200 72,094

(1)

At February 28, 2011 and August 31, 2010.

(2)

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

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q2 2011 26

3. Segmented Information (continued)

Cable Other and eliminations Consolidated

Six months ended February 28, 2011 2010 2011 2010 2011 2010

$ $ $ $ $ $

Revenue 668,088 637,762 25,322 19,328 693,410 657,090

Operating costs 404,288 392,543 16,139 10,921 420,427 403,464

Operating income before amortization 263,800 245,219 9,183 8,407 272,983 253,626

Amortization 128,069 131,404 497 290 128,566 131,694

Operating income 135,731 113,815 8,686 8,117 144,417 121,932

Financial expense 40,825 31,174 581 290 41,406 31,464

Income taxes 30,118 (3,814)

2,403 2,521 32,521 (1,293)

Gain on dilution resulting from the issuance of

shares by a subsidiary (61)

(18)

– – (61)

(18)

Non-controlling interest 43,931 58,520 – – 43,931 58,520

Net income 20,918 27,953 5,702 5,306 26,620 33,259

Total assets

(1)

2,694,331 2,702,819 162,596 41,837 2,856,927 2,744,656

Fixed assets

(1)

1,333,314 1,325,077 16,618 3,789 1,349,932 1,328,866

Intangible assets

(1)

1,015,271 1,017,658 73,533 25,340 1,088,804 1,042,998

Goodwill

(1)

144,465 144,695 27,227 – 171,692 144,695

Acquisition of fixed assets

(2)

131,361 137,081 2,146 336 133,507 137,417

(1)

At February 28, 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 February 28, Six months ended February 28,

2011 2010 2011 2010

$ $ $ $

Revenue

Canada 308,583 280,120 608,086 555,118

Europe 42,061 48,967 85,324 101,972

350,644 329,087 693,410 657,090

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q2 2011 27

3. Segmented Information (continued)

February 28, 2011 August 31, 2010

$ $

Fixed assets

Canada 1,130,111 1,098,760

Europe 219,821 230,106

1,349,932 1,328,866

Intangible assets

Canada 1,088,804 1,042,998

Europe ― –

1,088,804 1,042,998

Goodwill

Canada 143,470 116,243

Europe 28,222 28,452

171,692 144,695

4. Amortization

Three months ended February 28, Six months ended February 28,

2011 2010 2011 2010

$ $ $ $

Fixed assets 61,525 62,117 120,785 123,818

Deferred charges 2,708 2,681 5,394 5,488

Intangible assets 1,194 1,195 2,387 2,388

65,427 65,993 128,566 131,694

5. Financial expense

Three months ended February 28, Six months ended February 28,

2011 2010 2011 2010

$ $ $ $

Interest on long-term debt 24,563 15,788 40,455 31,689

Foreign exchange gains (1,133) (391) (1,465) (879)

Amortization of deferred transaction costs 456 407 945 814

Other 615 (617) 1,471 (160)

24,501 15,187 41,406 31,464

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q2 2011 28

6. Income Taxes

Three months ended February 28, Six months ended February 28,

2011 2010 2011 2010

$ $ $ $

Current (5,154) (9,707) 74,989 (29,929)

Future 19,431 22,232 (42,468) 28,636

14,277 12,525 32,521 (1,293)

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

and the consolidated income tax expense (recovery):

Three months ended February 28, Six months ended February 28,

2011 2010 2011 2010

$ $ $ $

Income before income taxes

46,024 43,183 103,011 90,468

Combined income tax rate

28.91% 31.46% 28.91% 31.44%

Income taxes at combined income tax rate

13,306 13,585 29,781 28,447

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

(1,489) (3,247) (2,442) (5,669)

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

enacted tax rates

– – – (29,782)

Utilization of pre-acquisition tax losses

– – – 4,432

Income taxes arising from non-deductible expenses

160 97 330 306

Effect of foreign income tax rate differences

2,172 1,877 4,633 2,124

Other

128 213 219 (1,151)

Income taxes at effective income tax rate

14,277 12,525 32,521 (1,293)

7. Earnings per Share

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

Three months ended February 28, Six months ended February 28,

2011 2010 2011 2010

$ $ $ $

Net income

10,645 10,511 26,620 33,259

Weighted average number of multiple voting and subordinate voting shares

outstanding 16,713,884 16,714,030 16,721,074 16,721,865

Effect of dilutive stock options

(1)

10,283 14,436 11,060 11,152

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

Share Unit Plan 95,358 71,862 84,627 63,745

Weighted average number of diluted multiple vot

ing and subordinate voting

shares outstanding 16,819,525 16,800,328 16,816,761 16,796,762

Earnings per share

Basic

0.64 0.63 1.59 1.99

Diluted

0.63 0.63 1.58 1.98

(1)

For the three and six month periods ended February 28, 2011, no stock options (32,782 in 2010) were excluded from the calculation of diluted earnings per 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

February 28, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q2 2011 29

8. Goodwill and Other Intangible Assets

February 28, 2011 August 31, 2010

$ $

Customer relationships 25,719 28,106

Broadcasting licenses 73,313 25,120

Customer base 989,772 989,772

1,088,804 1,042,998

Goodwill 171,692 144,695

1,260,496 1,187,693

a) Intangible assets

During the first six 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) (2,387)

– – (2,387)

Balance at February 28, 2011 25,719 73,313 989,772 1,088,804

b) Goodwill

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

Balance at August 31, 2010 144,695

Business acquisition (note 2) 27,227

Foreign currency translation adjustment (230)

Balance at February 28, 2011 171,692

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q2 2011 30

9. Long-Term Debt

Maturity Interest rate February 28, 2011 August 31, 2010

% $ $

Parent company

Term Revolving Facility 2014

(1)

3.32

(2)

74,000 –

Obligations under capital lease 2013 9.29 62 72

Subsidiaries

Term Revolving Facility

Revolving loan – €70,000,000 (€90,000,000 at August 31, 2010) 2014 3.00

(2)(3)

93,842

121,635

Senior Secured Notes

Series A – US$190,000,000 2015 7.00

(4)

183,424

201,387

Series B 2018 7.60 54,628

54,609

Senior Secured Debentures Series 1 2014 5.95 297,697

297,379

Senior Secured Debentures Series 2

(5)

2020 5.15 198,334

–

Senior Secured Notes Series B 2011

(6)

7.73 ―

174,738

Senior Unsecured Debenture 2018 5.94 99,817

99,806

Obligations under capital leases 2013 6.71 – 9.93 4,216

5,429

Other 2011 – 9 15

1,006,029 955,070

Less current portion

2,454 2,329

1,003,575 952,741

(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 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 acquisition of Corus Québec radios stations 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 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 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.

(2)

Interest rate on debt as at February 28, 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 swap agreement maturity of 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 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 denominated 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

interest 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 the 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 redemption 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

February 28, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q2 2011 31

10. 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 share, 1 vote per share.

Issued

February 28, 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

95,358 subordinate voting shares held in trust under the Incentive Share Unit Plan (71,862 at August 31, 2010) (2,656) (1,832)

119,332 119,527

During the first six 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 February 28, 2011 14,989,338 121,976

During the first six months, subordinate voting shares held in trust under the Incentive Share Unit Plan transactions were as follows:

Number of shares Amount

Balance, beginning of year 71,862 1,832

Subordinate voting shares acquired 36,085 1,282

Subordinate voting shares distributed to employees (12,589) (458)

Balance at February 28, 2011 95,358 2,656

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q2 2011 32

10. 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 six months of 2011 and 2010, no stock options were granted to

employees by COGECO Inc. However, the Company’s subsidiary, Cogeco Cable Inc., granted 66,700 stock options (66,174 in 2010)

with an exercise price of $39.00 ($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 $141,000 and $307,000 ($219,000 and $556,000 in 2010) was

recorded for the three and six month periods ended February 28, 2011.

The fair value of stock options granted by the Company’s subsidiary, Cogeco Cable Inc., for the six months period ended

February 28, 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 February 28, 2011:

Outstanding at August 31, 2010 62,382

Exercised (30,000)

Expired (32,382)

Outstanding at February 28, 2011 –

Under Cogeco Cable Inc.’s Stock Option Plan, the following options were granted and are outstanding at February 28, 2011:

Outstanding at August 31, 2010 716,760

Granted 66,700

Exercised (165,487)

Forfeited / Cancelled (28,169)

Expired (448)

Outstanding at February 28, 2011 589,356

Exercisable at February 28, 2011 415,945

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q2 2011 33

10. 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 six months of 2011, the

Company granted 36,460 (41,571 in 2010) Incentive Share Units (“ISUs”) and Cogeco Cable Inc. granted 58,088 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 guard against stock price fluctuations. The Company and its subsidiary

instructed the trustees to purchase 36,085 and 57,203 subordinate voting shares (41,571 and 55,094 in 2010) on the stock market.

These shares were purchased for cash consideration of $1,282,000 ($1,049,000 in 2010) and $2,258,000 ($1,744,000 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 $783,000 and

$1,186,000 ($315,000 and $502,000 in 2010) was recorded for the three and six month periods ended February 28, 2011 related to these

plans.

Under the Company’s ISU Plan, the following ISUs were granted and are outstanding at February 28, 2011:

Outstanding at August 31, 2010 71,862

Granted 36,460

Distributed (12,589)

Outstanding at February 28, 2011 95,733

Under Cogeco Cable Inc.’s ISU Plan, the following ISUs were granted and are outstanding at February 28, 2011:

Outstanding at August 31, 2010 57,409

Granted 58,088

Distributed (9,153)

Forfeited / Cancelled (885)

Outstanding at February 28, 2011 105,459

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 six months of 2011 and 2010, 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 $391,000 and $500,000 ($322,000 and $506,000 in 2010) was recorded for the three and six

month periods ended February 28, 2011 for the liabilities related to these plans.

Under the Company’s DSU Plan, the following DSUs were issued and are outstanding at February 28, 2011:

Outstanding at August 31, 2010 21,630

Issued 6,302

Dividend equivalents 161

Outstanding at February 28, 2011 28,093

Under Cogeco Cable Inc.’s DSU Plan, the following DSUs were issued and are outstanding at February 28, 2011:

Outstanding at August 31, 2010 10,855

Issued 4,521

Dividend equivalents 109

Outstanding at February 28, 2011 15,485

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q2 2011 34

11. Accumulated Other Comprehensive Income

Translation of a net

investment in self-

sustaining foreign

subsidiaries

Cash flow

hedges Total

$ $ $

Balance as at August 31, 2010 4,993 941 5,934

Other comprehensive income (loss) (438) (313) (751)

Balance as at February 28, 2011 4,555 628 5,183

12. Statements of Cash Flows

a) Changes in non-cash operating items

Three months ended February 28, Six months ended February 28,

2011 2010 2011 2010

$ $ $ $

Accounts receivable (12,046)

(6,186)

(17,158)

(11,680)

Income taxes receivable (469)

(10,485)

1,540 (30,999)

Prepaid expenses and other (3,837)

(190)

(544)

(1,295)

Accounts payable and accrued liabilities (2,670)

8,869 (68,063)

(63,920)

Income tax liabilities (5,493)

(51)

74,721 (39,275)

Deferred and prepaid revenue and other liabilities 504 5,210 566 7,408

(24,011)

(2,833)

(8,938)

(139,761)

b) Cash and cash equivalents

February 28, 2011 August 31, 2010

$ $

Cash 13,029 35,842

Cash equivalents

(1)

13,406 –

26,435 35,842

(1)

At February 28, 2011, term deposit of €10,000,000, bearing interest at 1.40%, maturing on March 14, 2011.

c) Other information

Three months ended February 28, Six months ended February 28,

2011 2010 2011 2010

$ $ $ $

Fixed asset acquisitions through capital leases – – – 141

Financial expense paid 21,516 10,792 42,625 31,839

Income taxes paid (received) 828 1,679 (1,249) 41,196

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q2 2011 35

13. 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 February 28, Six months ended February 28,

2011 2010 2011 2010

$ $ $ $

Contributory defined benefit pension plans 1,007 870 1,922 1,740

Defined con

tribution pension plan

and collective registered retirement

savings plans 1,344

1,112 2,621

2,238

2,351 1,982 4,543 3,978

14. 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 February 28, 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 money market 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.

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q2 2011 36

14. Financial and Capital Management (continued)

The Company is also exposed to credit risk in relation to its trade accounts receivable. In the current global economic environment, 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 February 28, 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:

February 28, 2011 August 31, 2010

$ $

Trade accounts receivable 99,191 76,243

Allowance for doubtful accounts (8,462) (8,531)

90,729 67,712

Other accounts receivable 14,615 6,848

105,344 74,560

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.

February 28, 2011 August 31, 2010

$ $

Net trade accounts receivable not past due 59,711 46,291

Net trade accounts receivable past due 31,018 21,421

90,729 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

February 28, 2011, the available amount of the Company’s Term Revolving Facilities was $674.2 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.

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q2 2011 37

14. Financial and Capital Management (continued)

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)

175,007 – – – – – 175,007

Promissory note payable – 5,000 – – – – 5,000

Long-term debt

(2)

9 – – 467,842 – 539,566 1,007,417

Other liabilities – 1,272 1,231 1,183 1,145 2,180 7,011

Derivative financial instruments

Cash outflows (Canadian dollar) – – – – – 201,875 201,875

Cash inflows (Canadian dollar equivalent of US dollar) – – – – – (184,566) (184,566)

Obligations under capital leases

(3)

1,409 2,322 915 13 – – 4,659

176,425 8,594 2,146 469,038 1,145 559,055 1,216,403

(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 February 28, 2011

and their respective maturities:

2011 2012 2013 2014 2015 Thereafter Total

$ $ $ $ $ $ $

Interest payments on long-term debt 28,229 56,458 56,458 54,673 33,336 95,548 324,702

Interest payments on derivative financial instruments 8,892 14,614 14,614 14,614 14,614 7,306 74,654

Interest receipts on derivative financial instruments (7,626) (12,920) (12,920) (12,920) (12,920) (6,459) (65,765)

29,495 58,152 58,152 56,367 35,030 96,395 333,591

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 February 28, 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 swap agreement maturity 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 February 28, 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.

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q2 2011 38

14. Financial and Capital Management (continued)

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 February 28, 2011, cash and cash equivalents denominated in US dollars amounted to

US$18,144,000 (US$13,613,000 at August 31, 2010) while accounts payable denominated in US dollars amounted to US$3,656,000

(US$15,850,000 at August 31, 2010). At February 28, 2011, Euro-denominated bank indebtedness amounted to €205,000 (cash and

cash equivalents of €187,000 at August 31, 2010) while there were no accounts payable denominated in Euros at February 28, 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

$1.4 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 February 28, 2011, the net

investment amounted to €169,312,000 (€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 February 28, 2011 was $1.3406 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 by approximately $13.3 million net of non-controlling interest of $9 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.

The carrying value of all the Company’s financial instruments approximates fair value, except as otherwise noted in the following table:

February 28, 2011 August 31, 2010

Carrying value Fair value Carrying value Fair value

$ $ $ $

Long-term debt 1,006,029 1,067,301 955,070 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.

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q2 2011 39

14. Financial and Capital Management (continued)

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 February 28, 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:

February 28, 2011 August 31, 2010

Net indebtedness

(1)

/ shareholders’ equity 2.5 2.4

Net indebtedness

(1)

/ operating income before amortization

(2)

1.9 1.8

Operating income before amortization

(2)

/ financial expense

(2)

7.1 7.9

(1)

Net indebtedness is defined as the total of bank indebtedness, principal on long-term debt 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 February 28, 2011 and August 31, 2010.

COGECO INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

February 28, 2011

(unaudited)

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

Interim Financial Statements COGECO INC. Q2 2011 40

15. 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 February 28, 2011, were as follows:

Accounts receivable 436

Current assets held for sale 436

Fixed assets 2,138

Goodwill and other intangible assets 7,740

Non-current assets held for sale 9,878

Accounts payable and accrued liabilities 1,241

Income tax liabilities 21

Deferred and prepaid revenue 18

Current liabilities related to assets held for sale 1,280

Other liabilities 43

Future income tax liabilities 933

Non-current liabilities related to assets held for sale 976

Shareholders’ Report COGECO INC. Q2 2011 41

Cable Sector Customer Statistics

(unaudited)

February 28, 2011 August 31, 2010

Homes passed

Canada 1,604,702 1,593,743

Portugal

(1)

905,624 905,359

Total 2,510,326 2,499,102

Homes connected

(2)

Canada 993,649 979,590

Portugal 268,721 269,194

Total 1,262,370 1,248,784

Revenue-generating units

(3)

Canada 2,474,207 2,350,577

Portugal 853,090 828,772

Total 3,327,297 3,179,349

Basic Cable service customers

Canada 880,755 874,505

Portugal 260,100 260,267

Total 1,140,855 1,134,772

High Speed Internet service customers

Canada 586,479 559,057

Portugal 167,221 163,187

Total 753,700 722,244

Digital Television service customers

Canada 614,782 559,418

Portugal 175,803 159,852

Total 790,585 719,270

Telephony service customers

Canada 392,191 357,597

Portugal 249,966 245,466

Total 642,157 603,063

(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.

Back to press release

Press release details

COGECO REPORTS CONTINUOUS GROWTH IN CABLE SECTOR AND INTEGRATION OF NEWLY ACQUIRED RADIO STATIONS

SUSTAINABILITY

Cogeco Fund

Contact us