Strong first quarter financial results and upward revision of its fiscal 2011 financial guidelines for COGECO Inc.

Press release

For immediate release

Strong first quarter financial results and upward revision of its fiscal 2011

financial guidelines for COGECO Inc.

Montréal, January 13, 2011 – Today, COGECO Inc. (TSX: CGO) (“COGECO” or the “Company”) announced its financial

results for the first quarter of fiscal 2011, ended November 30, 2010.

For the first quarter of fiscal 2011:

•

Revenue increased by 4.5% to reach $342.8 million;

•

Operating income before amortization

(1)

grew by 6% to reach $137 million when compared to the first quarter of

fiscal 2010;

•

Operating margin

(1)

increased to 40% when compared to 39.4% in the first quarter of fiscal 2010. The growth in the

operating margin stems primarily from the cable subsidiary, and reflects rate increases implemented in the second

half of fiscal 2010, partly offset by the continued impact of the retention strategies and additional marketing activities

in the European operations;

•

Net income amounted to $16 million compared to $22.7 million in the first quarter of the prior year. In the first

quarter of the prior year, 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 quarter of fiscal 2011 represents a growth of $2.8 million, or 21.7%,

when compared to adjusted net income

(1)

of $13.1 million in the corresponding period of fiscal 2010;

•

In the first quarter of the year, a negative free cash flow

(1)

of $24.3 million was posted which included the recognition

of current income tax expense of $78.1 million primarily attributable to the 2010 fiscal year, as a result of previous

modifications made to the corporate structure in the cable sector. For the same period of last year, a positive free

cash flow of $67.1 million was generated which included a one-time tax recovery of $22.2 million also stemming

from the modified corporate structure;

•

A dividend of $0.12 per share was paid to the holders of subordinate and multiple voting shares, an increase of

$0.02 per share, or 20%, when compared to a dividend of $0.10 per share the year before;

•

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

(2)

grew by 90,869 net additions in the first quarter, for a total of

3,270,218 RGU at November 30, 2010.

“COGECO’s first quarter financial results are very positive. Cogeco Cable demonstrates strong internal growth and is in an

excellent position to achieve superior performance in 2011. In Canada, this quarter generated an increase of 70,690 RGU. Our

European operations continued to improve, adding 20,179 RGU in Portugal”, said Louis Audet, President and CEO of

COGECO.

“As for the radio activities, we are well positioned to increase our leadership now that the transaction to acquire Corus

Quebec’s radio stations is about to be concluded in the following weeks. In light of these positive results, management has

revised most of its guidelines for the 2011 fiscal year. Projected RGU growth, operating income before amortization, operating

margin and free cash flow have been increased to reflect the expected trend generated by the strong financial results we

delivered in this quarter”, declared Louis Audet, President and CEO of COGECO Inc.

(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.

- 2 -

FINANCIAL HIGHLIGHTS

Quarters ended November 30,

2010 2009 Change

($000, except percentages and

per share data)

(unaudited)

Operations

Revenue 342,766 328,003 4.5

Operating income before amortization

(1)

137,031 129,263 6.0

Operating margin

(1)

40.0% 39.4% –

Operating income 73,892 63,562 16.3

Net income 15,975 22,748 (29.8)

Adjusted net income

(1)

15,975 13,128 21.7

Cash Flow

Cash flow from operating activities 57,572 (1,410)

–

Cash flow from operations

(1)

42,499 135,518 (68.6)

Capital expenditures and increase in deferred charges 66,799 68,387 (2.3)

Free cash flow

(1)

(24,300)

67,131 –

Financial condition

(2)

Fixed assets 1,329,837 1,328,866 0.1

Total assets 2,890,734 2,744,656 5.3

Indebtedness

(3)

1,144,213 961,354 19.0

Shareholders’ Equity 394,565 381,635 3.4

RGU growth

90,869 89,785 1.2

Per Share Data

(4)

Earnings per share

Basic 0.95 1.36 (30.1)

Diluted 0.95 1.35 (29.6)

Adjusted earnings per share

(1)

Basic 0.95 0.79 20.3

Diluted 0.95 0.78 21.8

(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 November 30, 2010 and August 31, 2010.

(3)

Indebtedness is defined as the total of bank indebtedness, principal on long-term debt and obligations under derivative financial instruments. On November 16, 2010,

Cogeco Cable completed the issuance of $200 million Senior Secured Debentures Series 2. Proceeds from the issuance were mainly used to redeem Cogeco Cable’s

$175 million Senior Secured Notes Series B on December 22, 2010.

(4)

Per multiple and subordinate voting share.

- 3 -

FORWARD-LOOKING STATEMENTS

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

information may relate to 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 analysis 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)

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

approximately $30 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 three months ended November 30, 2010, the number of RGU in the Cable subsidiary increased by 90,869, or 2.9%, to reach

3,270,218 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 strong RGU growth in the first quarter of the year, Cogeco Cable expects to surpass its fiscal 2011 guidelines of

250,000 net additions, and accordingly is revising the RGU growth guideline to 275,000 net additions for the 2011 fiscal year, 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. Please consult the fiscal 2011 revised

projections in the “Fiscal 2011 financial guidelines” section for further details.

Operating income before amortization and operating margin

For the first quarter of fiscal 2011, operating income before amortization grew by $7.8 million, or 6%, to reach $137 million, and operating

margin increased to 40%, from 39.4%. Primarily as a result of the increase in the RGU growth guideline, and to include the projections related

to the forthcoming acquisition of 11 Québec radio stations from Corus Entertainment Inc. (the “Québec Radio Stations Acquisition”) in light of

the Canadian Radio-television and Telecommunications Commission’s (“CRTC”) decision rendered on December 17, 2010, Management has

increased the projection for fiscal 2011 operating income before amortization to $560 million, an increase of $22 million, or 4.1% over the

projection of $538 million in operating income before amortization issued on October 27, 2010. Please consult the fiscal 2011 revised

projections in the “Fiscal 2011 financial guidelines” section for further details.

Free cash flow

For the three-month period ended November 30, 2010, COGECO reports negative free cash flow of $24.3 million, compared to positive free

cash flow of $67.1 million in the first quarter of the prior fiscal year, representing a decrease of $91.4 million. The negative free cash flow in the

first quarter of fiscal 2011 reflects the timing of the recognition of income tax liabilities as a result of modifications made to the corporate

structure of Cogeco Cable in fiscal 2009, and will return to positive free cash flow in the second and following quarters of the 2011 fiscal year.

Mainly as a result of the improvement of the operating income before amortization and the Québec Radio Stations Acquisition, Management

(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.

- 4 -

expects an increase in cash flow from operations

(1)

in fiscal 2011 while the increase in capital expenditures and increase in deferred charges

should remain unchanged from the October 27, 2010 guidance. Management has revised its free cash flow guidelines for fiscal 2011 to

$80 million, an increase of $20 million, or 33.3%, when compared to the free cash flow guideline of $60 million issued on October 27, 2010.

Please consult the fiscal 2011 revised projections in the “Fiscal 2011 financial guidelines” section for further details.

Other

BBM Canada’s fall 2010 survey in the Montréal region, conducted with the Portable People Meter (“PPM”), shows that Rythme FM has

maintained its leadership position in this competitive market.

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

$80 million in cash, subject to customary closing adjustments and conditions, including approval by the CRTC. On June 30, 2010, the

Company submitted its transfer application for approval 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. Management believes the applications filed by Astral are without merit and the Company will

vigorously challenge them with a view to having them dismissed by the Court. Management still plans to close the transaction with Corus on

February 1, 2011.

OPERATING RESULTS – CONSOLIDATED OVERVIEW

Quarters ended November 30,

2010 2009 Change

($000, except percentages)

(unaudited)

Revenue 342,766 328,003 4.5

Operating costs 205,735 198,740 3.5

Operating income before amortization 137,031 129,263 6.0

Operating margin 40.0% 39.4%

Revenue

Fiscal 2011 first-quarter revenue improved, mainly from the cable sector, by $14.8 million, or 4.5%, to reach $342.8 million. Cable revenue

increased by $14.2 million, or 4.5%, for the first quarter when compared to the prior year. For further details on the Company’s operating

results, please refer to the “Cable sector” section.

Operating costs

For the first quarter of fiscal 2011, operating costs amounted to $205.7 million, an increase, mainly in the cable sector, of $7 million, or 3.5%,

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

Operating income before amortization and operating margin

Operating income before amortization grew by $7.8 million, or 6%, to reach $137 million in the first quarter of fiscal 2011 when compared to

the same period the previous year. The cable sector contributed to the growth by $6.8 million during the first quarter of fiscal 2010. COGECO’s

first-quarter operating margin increased to 40%, from 39.4% in the first quarter of the previous year. For further details on the Company’s

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

FIXED CHARGES

Quarters ended November 30,

2010 2009 Change

($000, except percentages)

(unaudited)

Amortization

63,139 65,701 (3.9)

Financial expense 16,905 16,277 3.9

First-quarter 2011 amortization amounted to $63.1 million, compared to $65.7 million for the same period of the prior year. The decrease is

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.

(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.

- 5 -

First-quarter financial expense amounted to $16.9 million, compared to $16.3 million in the prior year. The financial expense for the first

quarter of the current year includes a foreign exchange gain of $0.3 million, compared to $0.5 million in the first quarter of the prior year. The

variance in foreign exchange gains is mainly due to fluctuations in the relative value of the US dollar to the Canadian dollar, with the US dollar

affecting mainly the Canadian operations as the majority of customer premise equipment is purchased and subsequently paid in US dollars.

The remaining increase of $0.5 million in the first quarter is due to the timing of fluctuations in bank indebtedness when compared with the

same period of the previous fiscal year.

INCOME TAXES

Fiscal 2011 first-quarter income tax expense amounted to $18.2 million, compared to an income tax recovery of $13.8 million in the

comparable period of the prior year. The income tax recovery in the first quarter 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 $16 million for the first quarter of fiscal 2010.

Fiscal 2011 first quarter income tax expense increase is mainly due to the operating income before amortization growth combined with the

decrease in amortization, partly offset by the previously announced annual declines in the enacted Canadian federal and provincial income tax

rates.

NON-CONTROLLING INTEREST

The non-controlling interest represents a participation of approximately 67.7% in Cogeco Cable’s results. During the first quarter of fiscal 2011,

the income attributable to non-controlling interest amounted to $22.8 million due to the cable sector’s positive results, compared to

$38.4 million in the first quarter 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 first quarter net income amounted to $16 million, or $0.95 per share, compared to $22.7 million, or $1.36 per share for the same

period in 2010 which was favourably affected by the reduction of Ontario provincial corporate income tax rates described in the “Income taxes”

section. Excluding this prior year impact, adjusted net income

(1)

would have amounted to $13.1 million, or $0.79 per share

(1)

in the first quarter

of fiscal 2010. The growth in net income of $2.8 million, or 21.7%, and of $0.16 per share, or 20.3%, when compared to the adjusted net

income in the prior year, has resulted mainly from the growth in operating income before amortization and the decrease in amortization

expense in the first three months of the fiscal year.

CASH FLOW AND LIQUIDITY

Quarters ended November 30,

2010

2009

($000)

(unaudited)

Operating activities

Cash flow from operations 42,499 135,518

Changes in non-cash operating items 15,073 (136,928)

57,572 (1,410)

Investing activities

(1)

(66,799)

(68,226)

Financing activities

(1)

171,267 47,453

Effect of exchange rate changes on cash and cash equivalents denominated in a foreign currency (229)

202

Net change in cash and cash equivalents 161,811 (21,981)

Cash and cash equivalents, beginning of period 35,842 39,458

Cash and cash equivalents, end of period 197,653 17,477

(1)

Excludes assets acquired under capital leases.

Fiscal 2011 first quarter cash flow from operations reached $42.5 million, 68.6% lower than the comparable period last year, primarily due to

the recognition of current income tax expense relating to the modifications to the corporate structure of the cable subsidiary which took effect

in the prior year. Changes in non-cash operating items generated cash inflows of $15.1 million, mainly as a result of an increase in income tax

liabilities, partly offset by a decrease in accounts payable and accrued liabilities. In the prior year, changes in non-cash operating items

required cash outflows of $136.9 million, mainly as a result of decreases in accounts payable and accrued liabilities and income tax liabilities

and an increase in income taxes receivable.

(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.

- 6 -

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

$66.8 million, a decrease of $1.4 million, or 2.1% when compared to $68.2 million for the corresponding period of last year. The most

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

• A decrease in customer premise equipment spending in the Cable subsidiary, mainly due to the timing of equipment purchases in

the Canadian operations and the depreciation of the value of the Euro relative to the Canadian dollar, which offset the increase in

customer premise equipment spending required to support RGU growth in the European operations;

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

• An increase in support capital reflecting mainly the improvement of business information systems.

In the first quarter, negative free cash flow amounted to $24.3 million, compared to positive free cash flow of $67.1 million in the comparable

period of fiscal 2010, representing a decrease of $91.4 million. The decline in free cash flow over the prior year is due to an increase of

$100.4 million in current income tax expense, mainly from modifications made to the corporate structure, which offset the increase in operating

income before amortization in the first quarter of fiscal 2011.

In the first quarter of fiscal 2011, indebtedness affecting cash increased by $182.1 million mainly due to the increase in cash and cash

equivalents of $161.8 million from the net proceeds of $198.3 million as a result of the issuance by Cogeco Cable, on November 16, 2010, of

Senior Secured Debentures Series 2 (“Fiscal 2011 debentures”) to repay on December 22, 2010, the cable subsidiary’s $175 million Senior

Secured Notes Series B due on October 31, 2011 and the related make-whole premium on early repayment. Indebtedness affecting cash also

increased due to negative free cash flow of $24.3 million and the dividend payment of $7.6 million described below, partly offset by the cash

inflows of $15.1 million from the changes in non-cash operating items. Indebtedness mainly increased through the issuance of the Fiscal 2011

debentures described above, partly offset by a net repayment of $13.8 million on the Term Revolving Facility in the cable sector. Indebtedness

affecting cash increased by $56.5 million in the prior year, mainly due to the decrease in non-cash operating items of $136.9 million and the

aggregate dividend payments of $6.3 million described below, partly offset by the free cash flow of $67.1 million and the decrease in cash and

cash equivalents of $22 million. Indebtedness mainly increased through an increase of $46.3 million in bank indebtedness and a net amount of

$14.9 million drawn on the Cogeco Cable’s Term Facility.

During the first 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 first 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 first quarter of the prior year.

As at November 30, 2010, the Company had a working capital deficiency of $166.6 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 an increase in cash and cash equivalents and a

decrease in accounts payable and accrued liabilities. This decrease was partly offset by an increase in the current portion of the long-term

debt, combined with an increase in income tax liabilities which exceeded the decrease in future income tax liabilities, reflecting the

modifications made to the corporate structure of the cable subsidiary. 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 November 30, 2010, Cogeco Cable had used $114.5 million of its $750 million Term Revolving Facility for a remaining availability of

$635.5 million and the Company had access to the full amount of $50 million available under its Term Revolving Facility.

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 “accounts payable and accrued liabilities”, “income tax

liabilities”, “future income tax assets”, “future income tax liabilities”, “long-term debt”, “derivative financial instruments” “cash and cash

equivalents” and “non-controlling interest”.

The $66.1 million decrease in accounts payable and accrued liabilities is related to the timing of payments made to suppliers. The increase of

$80.2 million in income taxes liabilities and the decreases of $10 million in future income tax assets and of $71.9 million in future income tax

liabilities primarily reflect the timing of the recognition of income tax liabilities as a result of modifications made to the corporate structure in the

cable subsidiary. The increase of $175 million in the current portion of the long-term debt reflects the maturity in 2011 of Cogeco Cable’s

Senior Secured Notes Series B which were redeemed on December 22, 2010 pursuant to the issuance of the Fiscal 2011 debentures. The

$161.8 million increase in cash and cash equivalents is due to the factors previously discussed in the “Cash flow and liquidity” section

combined with the fluctuations in foreign exchange rates. The decrease of $5.8 million in derivative financial instruments is due to factors

discussed in the “Financial management” section. The $15.4 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 December 31, 2010 is presented in the table below:

Number of

shares/options

Amount

($000)

Common

Multiple voting shares

Subordinate voting shares

1,842,860

14,959,338

121,347

Options to

purchase

subordinate

voting shares

Outstanding options

Exercisable options

30,000

- 7 -

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. 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.

DIVIDEND DECLARATION

At its January 12, 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 February 9, 2011, to shareholders of record on January 26, 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

quarter of fiscal 2011, the fair value of interest rate swap increased by $0.5 million, which is recorded as an increase of other comprehensive

income, net of income taxes and non-controlling interest, compared to a decrease of $0.1 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

principal portion of the debt has been fixed at $1.0625 per US dollar. During the first three months of fiscal 2011, amounts due under the

US$190 million Senior Secured Notes Series A decreased by $7.6 million due to the US dollar’s depreciation relative to the Canadian dollar.

The fair value of cross-currency swaps decreased by a net amount of $6.3 million, of which a decrease of $7.6 million offsets the foreign

exchange gain on the debt denominated in US dollars. The difference of $1.2 million was recorded as an increase of other comprehensive

income, net of income taxes and non-controlling interest. In the first quarter of fiscal 2010, amounts due under the US$190 million Senior

Secured Notes Series A decreased by $7.5 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 $5.8 million, of which $7.5 million offsets the foreign exchange gain on the debt denominated in

US dollars. The difference of $1.7 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, the cable subsidiary recorded a foreign exchange loss of $1.9 million in the first quarter,

compared to a foreign exchange gain of $0.6 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 November 30, 2010 was $1.3326 per Euro compared to $1.3515 per Euro as at August

31, 2010. The average exchange rate prevailing during the first quarter of fiscal 2011 used to convert the operating results of the European

operations was $1.3833 per Euro compared to $1.5732 per Euro in the first quarter 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 in the cable sector for the first three months ended November 30, 2010:

Three months ended November 30, 2010 As reported

Exchange rate

impact

($000) $ $

(unaudited)

Revenue 43,263 4,326

Operating income before amortization 4,271 427

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 13

of the consolidated financial statements for further details.

- 8 -

CABLE SECTOR

CUSTOMER STATISTICS

Net additions % of Penetration

(1)

Quarters ended November 30, November 30,

November 30,

2010

2009

2010

2009

RGU 3,270,218 90,869 89,785

Basic Cable service customers 1,142,398 7,626 8,357

HSI service customers 742,708 20,464 22,715 66.6 62.8

Digital Television service customers 760,919 41,649 32,220 67.2 56.6

Telephony service customers 624,193 21,130 26,493 58.0 50.8

(1)

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

In the cable sector, first quarter RGU net additions amounted to 90,869, compared to 89,785 RGU in the comparable period of the previous

fiscal year.

Fiscal 2011 first-quarter RGU net additions were higher than in the comparable period of the prior year, and the Canadian operations continue

to generate RGU growth despite higher penetration rates, category maturity and aggressive competition. During the last half of fiscal 2010,

Cogeco Cable’s European operations generated net basic subscriber growth as a result of its general policy re-assessment during the last half

of the 2009 calendar year. 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. The rate of growth for our services has diminished in this environment.

The net customer additions for Basic Cable service customers stood at 7,626 for the first quarter, compared to 8,357 in the first quarter of the

prior year. Basic Cable service net additions in fiscal 2011 were mainly due to expansions in the network and the combined effect of continued

growth in HSI and Telephony services in the Canadian operations. In the quarter, Telephony service customers grew by 21,130 compared to

26,493 for the same period last year, and the number of net additions to the HSI service stood at 20,464 customers compared to 22,715

customers in the first quarter of the prior year. HSI and Telephony net additions continue to stem from the enhancement of the product

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

operations, and promotional and customer retention activities throughout the cable subsidiary’s operations. For the three-month period ended

November 30, 2010, additions to the Digital Television service stood at 41,649 customers, compared to 32,220 for the comparable period 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 November 30,

2010 2009 Change

($000, exc

ept percentages)

(unaudited)

Revenue 331,519 317,365 4.5

Operating costs 195,447 188,418 3.7

Management fees – COGECO Inc. 6,644 6,341 4.8

Operating income from before amortization 129,428 122,606 5.6

Operating margin 39.0% 38.6%

Revenue

Fiscal 2011 first-quarter revenue improved by $14.2 million, or 4.5%, to reach $331.5 million, when compared to the prior year.

Driven by RGU growth and 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’ first-quarter revenue rose by $23.9 million, or 9%, to reach $288.3 million.

In the first quarter of fiscal 2011 European operations’ revenue decreased by $9.7 million, or 18.4%, at $43.3 million, mainly due to the decline

of the Euro in relation to the Canadian dollar and reflecting the impact of retention strategies implemented in the second half of fiscal 2009 in

order to curtail customer attrition. Revenue from the European operations in the local currency for the 2011 first quarter amounted to

€31.3 million, a decrease of €2.4 million, or 7.2%, when compared to the same period of the prior year.

- 9 -

Operating costs

For the first quarter of fiscal 2011, operating costs, excluding management fees payable to COGECO Inc., increased by $7 million, to reach

$195.4 million, an increase of 3.7% compared to the prior year.

In the Canadian operations, for the three months ended November 30, 2010, operating costs excluding management fees payable to

COGECO Inc. increased by $10.9 million, or 7.5%, at $156.5 million. The increase in operating costs is mainly attributable to servicing

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

As for the European operations, fiscal 2011 first-quarter operating costs decreased by $3.8 million, or 9%, at $39 million, 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 first quarter in the local

currency amounted to €28.2 million, an increase of €1 million, or 3.5% when compared to the corresponding period of the prior year.

Operating income before amortization and operating margin

Fiscal 2011 first-quarter operating income before amortization increased by $6.8 million, or 5.6%, to reach $129.4 million. Cogeco Cable’s first-

quarter operating margin increased to 39% from 38.6% in the comparable period of the prior year.

Operating income before amortization in the Canadian operations rose by $12.7 million, or 11.3%, to reach $125.2 million in the first quarter,

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

increased to 43.4% in the first quarter compared to 42.5% for the same period of the prior year. The growth in the operating margin for the first

quarter stems from rate increases, RGU growth and the introduction in the second quarter of fiscal 2010 of customer billing for the new LPIF

which offset the associated operating costs.

For the European operations, operating income before amortization decreased to $4.3 million in the first quarter from $10.2 million for the

same period of the prior year, representing a decrease of $5.9 million, or 58%, mainly due to decreases in revenue which outpaced the

decreases in operating costs. European operations’ operating margin decreased to 9.9% from 19.2% in the first quarter of fiscal 2011.

Operating income before amortization in the local currency amounted to €3.1 million compared to €6.5 million in the first quarter of the prior

year, representing a decrease of 52.2%.

FISCAL 2011 FINANCIAL GUIDELINES

Consolidated

Management has revised upwards its guidelines to include the projections related to the forthcoming Québec Radio Stations Acquisition in

light of the expected closing date of February 1, 2011 and to reflect the improved performance of the cable sector in the first quarter of fiscal

2011.

As a result of these factors, projected revenue, operating income before amortization, net income and free cash flow were revised upwards.

The projected revenue should increase to $1,442 million from $1,380 million. The operating income before amortization should increase to

$560 million from $538 million and net income should increase to about $50 million. Free cash flow should increase to $80 million from $60

million.

Revised projections Projections

January 12, 2011 October 27, 2010

Fiscal 2011 Fiscal 2011

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

Financial guidelines

Revenue 1,442 1,380

Operating income before amortization 560 538

Financial expense 75 70

Current income taxes 64 65

Net income 50 45

Capital expenditures and increase in deferred charges 341 341

Free cash flow 80 60

Cable sector

Given the improved financial results during the first quarter and the expected trend, guidelines for the 2011 fiscal year were revised upwards to

reflect higher than expected RGU growth and average revenue per unit in its Canadian operations mainly attributable to effective marketing

strategies and the continued demand for cable telecommunications services. For its European operations, Management has taken into

consideration the impact of the rate increases implemented in January 2011 combined with the impact on consumer spending of the increase

of the value added tax from 21% to 23%, which may impact customers’ capacity to pay for their products and services, among others, and

from the austerity measures recently introduced by the Portuguese government.

- 10 -

Subsequent to these adjustments, projected revenue, operating income before amortization, operating margin, net income and free cash flow

were revised upwards. The increase in projected revenue to $1,360 million from $1,340 million should come from the Canadian operations.

The operating income before amortization should increase to $545 million from $530 million, operating margin should increase to 40.1% from

39.6% and net income should increase to about $140 million. Amortization expense has been reduced to $265 million from $275 million to

reflect the impact of lower than expected capital expenditures in fiscal 2010 as well as the revised timing of 2011 capital expenditures.

As a result of the revised projections, free cash flow is now expected to reach $70 million from the $55 million initially anticipated last October.

Revised projections Projections

January 12, 2011 October 27, 2010

Fiscal 2011 Fiscal 2011

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

Financial guidelines

Revenue 1,360 1,340

Operating income before amortization 545 530

Operating margin 40.1% 39.6%

Amortization 265 275

Financial expense 72 70

Current income taxes 63 65

Net income 140 120

Capital expenditures and increase in deferred charges 340 340

Free cash flow 70 55

Net customer additions guidelines

RGU 275,000 250,000

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 November 30, 2010, and have concluded that they were adequate. Furthermore, no significant changes

to the internal controls over financial reporting occurred during the quarter ended November 30, 2010.

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

Except as mentioned below, 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.

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

$80 million in cash, subject to customary closing adjustments and conditions, including approval by the CRTC. On June 30, 2010, the

Company submitted its transfer application for approval 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. Management believes the applications filed by Astral are without merit and the Company will

vigorously challenge them with a view to having them dismissed by the Court. Management still plans to close the transaction with Corus on

February 1, 2011.

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

Harmonization of Canadian and 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

- 11 -

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

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

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

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

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

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

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

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

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

operations:

Phase Area of impact Key activities Status

Scoping and

diagnostic

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

transition to IFRS.

Completed

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

be required in subsequent phases.

Impact analysis,

evaluation and

design

For each area

identified in the

scoping and

diagnostic phase

Identify the specific changes required to existing accounting policies. Completed

Analyse policy choices permitted under IFRS.

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

Pervasive Identify impacts on information systems and business processes. Completed

Prepare draft IFRS consolidated financial statement template.

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

Implementation and

review

For each area

identified in the

scoping and

diagnostic phase

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

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

In progress - to be

completed in fiscal 2011

Communicate impact on accounting policies and business processes to external stakeholders. To be completed during

fiscal 2011

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

statements.

In progress - to be

completed in fiscal 2011

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

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

completed during fiscal

2012

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

Prepare IFRS compliant financial statements.

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

Continually review IFRS and implement changes to the standards as they apply to the Company. To be completed

throughout transition and

post-conversion periods

The Company’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 harmonization of

Canadian and 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”.

- 12 -

Cash flow from operations and free cash flow

Cash flow from operations is used by COGECO’s management and investors to evaluate cash flows generated by operating activities

excluding the impact of changes in non-cash operating items. This allows the Company to isolate the cash flows from operating activities from

the impact of cash management decisions. Cash flow from operations is subsequently used in calculating the non-GAAP measure “free cash

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

shareholders and finance its growth.

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

follows:

Quarters ended November 30,

2010 2009

($000)

(unaudited)

Cash flow from operating activities 57,572 (1,410)

Changes in non-cash operating items (15,073) 136,928

Cash flow from operations 42,499 135,518

Free cash flow is calculated as follows:

Quarters ended November 30,

2010 2009

($000)

(unaudited)

Cash flow from operations 42,499 135,518

Acquisition of fixed assets (63,307) (65,182)

Increase in deferred charges (3,492) (3,064)

Assets acquired under capital leases – as per note 11 c) – (141)

Free cash flow (24,300) 67,131

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 November 30,

2010 2009

($000, except percentages)

(unaudited)

Operating income 73,892 63,562

Amortization 63,139 65,701

Operating income before amortization 137,031 129,263

Revenue 342,766 328,003

Operating margin 40.0% 39.4%

- 13 -

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 November 30,

2010 2009

($000

, except number of shares and per sh

are data

)

(unaudited)

Net income 15,975 22,748

Adjustments:

Reduction of Ontario provincial corporate income tax rates

, net of non

controlling interest – (9,620)

Adjusted net income 15,975 13,128

Weighted av

erage number of multiple voting and subordinate voting shares

outstanding 16,728,184 16,721,277

Effect of dilutive stock options 10,970 6,594

Effect of dilutive

subordinate voting shares held in trust under the Incentive Share

Unit Plan 74,014 64,053

Weighted average number of diluted multiple voting and subordinate voting

shares outstanding 16,813,168 16,791,924

Adjusted earnings per share

Basic 0.95 0.79

Diluted 0.95 0.78

ADDITIONAL INFORMATION

This MD&A was prepared on January 12, 2011. Additional information relating to the Company, including its Annual Information Form, is

available on the SEDAR website at www.sedar.com.

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, data networking, e-business applications, video conferencing, hosting services,

Ethernet, private line, VoIP, HSI access, dark fibre, data storage, data security and co-location services and other advanced communication

solutions. Through its subsidiary, Cogeco Diffusion Inc., COGECO owns and operates the Rythme FM radio stations in Montréal, Québec City,

Trois-Rivières and Sherbrooke, as well as the FM 93 radio station in Québec City. 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 –

- 14 -

Source: COGECO Inc.

Pierre Gagné

Senior Vice President and Chief Financial Officer

Tel.: 514-764-4700

Information: Media

René Guimond

Vice-President, Public Affairs and Communications

Tel.: 514-764-4700

Analyst Conference Call: Thursday, January 13, 2011 at 11:00 a.m. (EST)

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: 1 888 300-0053

International Access Number: + 1 647 427-3420

Confirmation Code: 27875882

By Internet at www.cogeco.ca/investors

A rebroadcast of the conference call will be available until January 20, 2011, by dialling:

Canada and USA access number: 1 800 642-1687

International access number: + 1 706 645-9291

Confirmation code: 27875882

- 15 -

Supplementary Quarterly Financial Information

(unaudited)

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

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

Revenue 342,766 328,003 333,671 316,284 330,933 316,310 329,087 311,825

Operating income before amortization

(1)

137,031 129,263 137,785 144,654 127,928 126,624 124,363 123,505

Operating margin

(1)

40.0% 39.4% 41.3% 45.7% 38.7% 40.0% 37.8% 39.6%

Operating income 73,892 63,562 73,942 76,244 64,008 62,623 58,370 60,171

Impairment of goodwill and intangible assets – – – – – – – (399,648)

Net income (loss) 15,975 22,748 12,265 14,631 10,740 10,704 10,511 (115,210)

Adjusted net income

(1)

15,975 13,128 12,265 7,647 10,740 9,157 10,511 8,741

Cash flow from operating activities 57,572 (1,410)

198,492 177,032 110,756 99,873 117,498 117,322

Cash flow from operations

(1)

42,499 135,518 127,230 108,744 119,140 92,718 120,331 97,193

Capital expenditures and increase in deferred

charges 66,799 68,387 108,515 94,002 69,511 60,302 74,549 65,104

Free cash flow

(1)

(24,300)

67,131 18,715 14,742 49,629 32,416 45,782 32,089

Earnings (loss) per share

(2)

Basic 0.95 1.36 0.73 0.87 0.64 0.64 0.63 (6.90)

Diluted 0.95 1.35 0.73 0.87 0.64 0.64 0.63 (6.90)

Adjusted earnings per share

(1)(2)

Basic 0.95 0.79 0.73 0.46 0.64 0.55 0.63 0.52

Diluted 0.95 0.78 0.73 0.46 0.64 0.55 0.63 0.52

(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)

Per multiple and subordinate voting share.

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. For the current fiscal year, the maximum amount has been set at $9.2 million, which is expected to be

paid in the first six months of fiscal 2011. For fiscal 2010, the maximum amount of $9 million was attained in the second quarter and therefore,

no management fees were paid in the third or fourth quarters of the 2010 fiscal year.

- 16 -

Cable Sector Customer Statistics

(unaudited)

November 30, 2010 August 31, 2010

Homes passed

Canada 1,600,938 1,593,743

Portugal

(1)

905,445 905,359

Total 2,506,383 2,499,102

Homes connected

(2)

Canada 990,533 979,590

Portugal 269,553 269,194

Total 1,260,086 1,248,784

Revenue-generating units

(3)

Canada 2,421,267 2,350,577

Portugal 848,951 828,772

Total 3,270,218 3,179,349

Basic Cable service customers

Canada 881,543 874,505

Portugal 260,855 260,267

Total 1,142,398 1,134,772

High Speed Internet service customers

Canada 575,929 559,057

Portugal 166,779 163,187

Total 742,708 722,244

Digital Television service customers

Canada 588,332 559,418

Portugal 172,587 159,852

Total 760,919 719,270

Telephony service customers

Canada 375,463 357,597

Portugal 248,730 245,466

Total 624,193 603,063

(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.

- 17 -

COGECO INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

Three months ended November 30,

(In thousands of dollars, except per share data)

2010

2009

Revenue

342,766 328,003

Operating costs

205,735 198,740

Operating income before amortization

137,031 129,263

Amortization (note 3)

63,139 65,701

Operating income

73,892 63,562

Financial expense (note 4)

16,905 16,277

Income before income taxes and the following items

56,987 47,285

Income taxes (note 5)

18,244 (13,818)

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

(5) ─

Non-controlling interest

22,773 38,355

Net income

15,975 22,748

Earnings per share (note 6)

Basic

0.95 1.36

Diluted

0.95 1.35

- 18 -

COGECO INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

Three months ended November 30,

(In thousands of dollars)

2010

2009

Net income

15,975 22,748

Other comprehensive income (loss)

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

tax recovery of $966,000 ($2,141,000 in 2009) and non-controlling interest of $3,296,000

($2,551,000 in 2009)

(1,571)

(1,218)

Reclassification to net income of unrealized losses on derivative financial instruments designated as

cash flow hedges, net of income tax recovery of $917,000 ($1,007,000 in 2009) and non-controlling

interest of $4,512,000 ($4,386,000 in 2009)

2,152

2,093

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

of non-controlling interest of $2,128,000 ($1,844,000 in 2009)

(1,015)

882

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 $831,000 ($1,415,000 in 2009)

396

(676)

(38) 1,081

Comprehensive income

15,937 23,829

- 19 -

COGECO INC.

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

(unaudited)

Three months ended November 30,

(In thousands of dollars)

2010

2009

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

15,975 22,748

Excess of the value attributed to the incentive share units at issuance over the price paid for the acquisition

of the subordinate voting shares

―

Dividends on multiple voting shares

(221) (184)

Dividends on subordinate voting shares

(1,786) (1,494)

Balance at end

267,182 225,098

- 20 -

COGECO INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(In thousands of dollars)

November 30, 2010

August 31, 2010

Assets

Current

Cash and cash equivalents (note 11 b))

197,653 35,842

Accounts receivable (note 13)

79,534 74,560

Income taxes receivable

43,362 45,400

Prepaid expenses and other

10,869 14,189

Future income tax assets

4,799 6,133

336,217 176,124

Investments

739 739

Fixed assets

1,329,837 1,328,866

Deferred charges

28,277 27,960

Intangible assets (note 7)

1,041,805 1,042,998

Goodwill (note 7)

144,297 144,695

Derivative financial instruments

― 5,085

Future income tax assets

9,562 18,189

2,890,734 2,744,656

Liabilities and Shareholders' equity

Liabilities

Current

Bank indebtedness

740 2,328

Accounts payable and accrued liabilities

182,671 248,775

Income tax liabilities

80,767 558

Deferred and prepaid revenue

45,361 45,602

Derivative financial instrument

674 1,189

Current portion of long-term debt (note 8)

177,339 2,329

Future income tax liabilities

15,257 78,267

502,809 379,048

Long-term debt (note 8)

953,206 952,741

Derivative financial instruments

1,263 –

Deferred and prepaid revenue and other liabilities

12,532 12,234

Pension plan liabilities and accrued employees benefits

11,417 10,568

Future income tax liabilities

229,787 238,699

1,711,014 1,593,290

Non-controlling interest

785,155 769,731

Shareholders' equity

Capital stock (note 9)

118,703 119,527

Contributed surplus

2,784 3,005

Retained earnings

267,182 253,169

Accumulated other comprehensive income (note 10)

5,896 5,934

394,565 381,635

2,890,734 2,744,656

- 21 -

COGECO INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

Three months ended November 30,

(In thousands of dollars)

2010

2009

Cash flow from operating activities

Net income

15,975 22,748

Adjustments for:

Amortization (note 3)

63,139 65,701

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

778 762

Future income taxes

(61,899) 6,404

Non-controlling interest

22,773 38,355

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

(5) ─

Stock-based compensation

678 708

Loss on disposals and write-offs of fixed assets

320 98

Other

740 742

42,499 135,518

Changes in non-cash operating items (note 11 a))

15,073 (136,928)

57,572 (1,410)

Cash flow from investing activities

Acquisition of fixed assets (note 11 c))

(63,307) (65,182)

Increase in deferred charges

(3,492) (3,064)

Other

― 20

(66,799) (68,226)

Cash flow from financing activities

Increase (decrease) in bank indebtedness

(1,588) 46,324

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

(13,800) 11,425

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

198,320 ─

Repayments of long-term debt

(826) (1,224)

Acquisition of subordinate voting shares held in trust under the Incentive Share Unit Plan (note 9)

(1,282) (1,049)

Dividends on multiple voting shares

(221) (184)

Dividends on subordinate voting shares

(1,786) (1,494)

Issuance of shares by a subsidiary to non-controlling interest

290 ─

Acquisition by a subsidiary from non

controlling interest of subordinate voting shares held in trust under the

Incentive Share Unit Plan (note 9)

(2,258)

(1,744)

Dividends paid by a subsidiary to non-controlling interest

(5,582) (4,601)

171,267 47,453

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

(229) 202

Net change in cash and cash equivalents

161,811 (21,981)

Cash and cash equivalents at beginning

35,842 39,458

Cash and cash equivalents at end

197,653 17,477

See supplemental cash flow information in note 11.

- 22 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2010

(unaudited)

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

1. Basis of Presentation

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

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

30, 2010 and August 31, 2010 as well as its results of operations and its cash flows for the three-month periods ended

November 30, 2010 and 2009.

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 harmonization of Canadian and International accounting standards taking effect at that same

date, this EIC will not be applicable to the Company.

2. 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 November 30,

2010

2009

2010

2009

2010

2009

Revenue

331,519 317,365 11,247 10,638 342,766 328,003

Operating costs

202,091 194,759 3,644 3,981 205,735 198,740

Operating income before amortization

129,428 122,606 7,603 6,657 137,031 129,263

Amortization

62,990 65,565 149 136 63,139 65,701

Operating income

66,438 57,041 7,454 6,521 73,892 63,562

Financial expense

16,700 16,141 205 136 16,905 16,277

Income taxes

16,101 (15,766) 2,143 1,948 18,244 (13,818)

Gain on dilution resulting from the issuance of

shares by a subsidiary

(5)

―

(5)

―

Non-controlling interest

22,773 38,355 ― ─ 22,773 38,355

Net income

10,869 18,311 5,106 4,437 15,975 22,748

Total assets

(1)

2,847,210 2,702,819 43,524 41,837 2,890,734 2,744,656

Fixed assets

(1)

1,326,099 1,325,077 3,738 3,789 1,329,837 1,328,866

Intangible assets

(1)

1,016,465 1,017,658 25,340 25,340 1,041,805 1,042,998

Goodwill

(1)

144,297 144,695 ― – 144,297 144,695

Acquisition of fixed assets

(2)

63,209 65,157 98 166 63,307 65,323

(1)

At November 30, 2010 and August 31, 2010.

(2)

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

- 23 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2010

(unaudited)

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

2. Segmented Information (continued)

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

Three months ended November 30,

2010

2009

Revenue

Canada

299,503 274,998

Europe

43,263 53,005

342,766 328,003

November 30, 2010

August 31, 2010

Fixed assets

Canada

1,106,812 1,098,760

Europe

223,025 230,106

1,329,837 1,328,866

Intangible assets

Canada

1,041,805 1,042,998

Europe

― –

1,041,805 1,042,998

Goodwill

Canada

116,243 116,243

Europe

28,054 28,452

144,297 144,695

3. Amortization

Three months ended November 30,

2010 2009

$ $

Fixed assets

59,260 61,701

Deferred charges

2,686 2,807

Intangible assets

1,193 1,193

63,139 65,701

4. Financial expense

Three months ended November 30,

2010

2009

Interest on long-term debt

15,892 15,901

Foreign exchange gains

(332) (488)

Amortization of deferred transaction costs

489 407

Other

856 457

16,905 16,277

- 24 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2010

(unaudited)

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

5. Income Taxes

Three months ended November 30,

2010

2009

Current

80,143 (20,222)

Future

(61,899) 6,404

18,244 (13,818)

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 November 30,

2010

2009

Income before income taxes

56,987 47,285

Combined income tax rate

28.91% 31.43%

Income taxes at combined income tax rate

16,475 14,862

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

(953) (2,422)

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

170 209

Effect of foreign income tax rate differences

2,461 247

Other

91 (1,364)

Income taxes at effective income tax rate

18,244 (13,818)

6. Earnings per Share

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

Three months ended November 30,

2010

2009

Net income

15,975 22,748

Weighted average number of multiple voting and subordinate voting shares outstanding

16,728,184 16,721,277

Effect of dilutive stock options

(1)

10,970 6,594

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

74,014 64,053

Weighted average number of diluted multiple voting and subordinate voting shares outstanding

16,813,168 16,791,924

Earnings per share

Basic

0.95 1.36

Diluted

0.95 1.35

(1)

For the three-month period ended November 30, 2009, 32,782 stock options were excluded from the calculation of diluted earnings per share as the exercise price of

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

- 25 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2010

(unaudited)

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

7. Goodwill and Other Intangible Assets

November 30, 2010

August 31, 2010

Customer relationships

26,913 28,106

Broadcasting licenses

25,120 25,120

Customer base

989,772 989,772

1,041,805 1,042,998

Goodwill

144,297 144,695

1,186,102 1,187,693

a) Intangible assets

During the first three 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

Amortization

(1,193) – – (1,193)

Balance at November 30, 2010

26,913 25,120 989,772 1,041,805

b) Goodwill

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

Balance at August 31, 2010

144,695

Foreign currency translation adjustment

(398)

Balance at November 30, 2010

144,297

- 26 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2010

(unaudited)

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

8. Long-Term Debt

Maturity Interest rate

November 30, 2010

August 31, 2010

Parent company

Term Revolving Facility

2013 ─ ─ ─

Obligations under capital lease

2013 9.29 68 72

Subsidiaries

Term Revolving Facility

Revolving loan — €80,000,000 (€90,000,000 at August 31, 2010)

2014 2.81

(1)(2)

106,608 121,635

Senior Secured Notes Series B

2011

(3)

7.73 174,793 174,738

Senior Secured Notes

Series A – US$190,000,000

2015 7.00

(4)

193,859 201,387

Series B

2018 7.60 54,619 54,609

Senior Secured Debentures Series 1

2014 5.95 297,538 297,379

Senior Secured Debentures Series 2

(5)

2020 5.15 198,326 ─

Senior Unsecured Debenture

2018 5.94 99,812 99,806

Obligations under capital leases

2013 6.71 – 9.93 4,910 5,429

Other

2011 ─ 12 15

1,130,545 955,070

Less current portion

177,339 2,329

953,206 952,741

(1)

Interest rate on debt as at November 30, 2010, including applicable margin.

(2)

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.

(3)

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 $183,771,000, excluding accrued interest. The

excess of the redemption price over the aggregate principal amount will be recorded as financial expense during the second quarter of fiscal 2011.

(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"). 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.

- 27 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2010

(unaudited)

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

9. 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

November 30, 2010

August 31, 2010

1,842,860 multiple voting shares

12 12

14,959,338 subordinate voting shares

121,347 121,347

121,359 121,359

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

(2,656) (1,832)

118,703 119,527

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

Number of shares

Amount

Balance at August 31, 2010

71,862 1,832

Subordinate voting shares acquired

36,085 1,282

Subordinate voting shares distributed to employees

(12,589) (458)

Balance at November 30, 2010

95,358 2,656

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 three-month periods ended November 30, 2010 and 2009, no stock

options were granted to employees by COGECO Inc. However, the Company’s subsidiary, Cogeco Cable Inc., granted 66,700 stock

options (63,695 in 2009) with an exercise price of $39.00 ($31.82 in 2009), of which 35,800 stock options (33,266 in 2009) 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 $166,000 ($337,000 in 2009) was recorded for the three-

month period ended November 30, 2010.

- 28 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2010

(unaudited)

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

9. Capital Stock (continued)

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

November 30, 2010 was $9.55 ($8.11 in 2009) 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:

2010

2009

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

At November 30, 2010, the Company had outstanding stock options providing for the subscription of 30,000 subordinate voting shares.

These stock options can be exercised at $20.95 and up to October 19, 2011.

Under the Company’s Stock Option Plan, the following options were granted and are outstanding at November 30, 2010:

Outstanding at August 31, 2010

62,382

Expired

(32,382)

Outstanding at November 30, 2010

30,000

Exercisable at November 30, 2010

30,000

Under Cogeco Cable Inc.’s Stock Option Plan, the following options were granted and are outstanding at November 30, 2010:

Outstanding at August 31, 2010

716,760

Granted

66,700

Exercised

(11,660)

Forfeited / Cancelled

(3,170)

Expired

(448)

Outstanding at November 30, 2010

768,182

Exercisable at November 30, 2010

576,369

- 29 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2010

(unaudited)

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

9. 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 three–month period ended

November 30, 2010, the Company granted 36,085 (41,571 in 2009) Incentive Share Units (“ISUs”) and Cogeco Cable Inc. granted 58,088

ISUs (55,094 in 2010) of which, 10,000 ISUs (9,981 in 2009) were granted to Cogeco Inc.’s employees. The Company and its subsidiary

establish the value of the compensation related to the ISUs granted based on the fair value of the Company and its subsidiary’s

subordinate voting shares at the date of grant and a compensation expense is recognized over the vesting period, which is three years. A

Trust was created for the purpose of purchasing subordinate voting shares of the Company and Cogeco Cable Inc. on the stock market in

order to guard against stock price fluctuation. The Company and its subsidiary instructed the trustee to purchase 36,085 and 57,203

subordinate voting shares (41,571 and 55,094 in 2009) on the stock market. These shares were purchased for cash consideration of

$1,282,000 ($1,049,000 in 2009) and $2,258,000 ($1,744,000 in 2009), respectively, and are held in trust for participants until they are

completely vested. The 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 trust under the ISU Plans in reduction of capital stock or non-

controlling interest. A compensation expense of $403,000 ($187,000 in 2009) was recorded for the three-month period ended November

30, 2010 related to these plans.

Under the Company’s ISU Plan, the following ISUs were granted and are outstanding at November 30, 2010:

Outstanding at August 31, 2010

71,862

Granted

36,085

Distributed

(12,589)

Outstanding at November 30, 2010

95,358

Under Cogeco Cable Inc.’s ISU Plan, the following ISUs were granted and are outstanding at November 30, 2010:

Outstanding at August 31, 2009

57,409

Granted

58,088

Forfeited / Cancelled

(885)

Outstanding at November 30, 2010

114,612

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 three-month periods ended November 30, 2010 and 2009, the Company

and its subsidiary did not issue any Deferred Share Units (“DSUs”) to the participants in connection with the DSU Plans. A compensation

expense of $109,000 ($184,000 in 2009) was recorded for the three-month period ended November 30, 2010 for the liabilities related to

these plans.

Under the Company’s DSU Plan, the following DSUs were issued and are outstanding at November 30, 2010:

Outstanding at August 31, 2010

21,630

Dividend equivalents

Outstanding at November 30, 2010

21,704

- 30 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2010

(unaudited)

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

9. Capital Stock (continued)

Under Cogeco Cable Inc.’s DSU Plan, the following DSUs were awarded and are outstanding at November 30, 2010:

Outstanding at August 31, 2010

10,855

Dividend equivalents

Outstanding at November 30, 2010

10,902

10. Accumulated Other Comprehensive Income

Translation of

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)

(619) 581 (38)

Balance as at November 30, 2010

4,374 1,522 5,896

11. Statements of Cash Flows

a) Changes in non-cash operating items

Three months ended November 30,

2010

2009

Accounts receivable

(5,112) (5,494)

Income taxes receivable

2,009 (20,514)

Prepaid expenses and other

3,293 (1,105)

Accounts payable and accrued liabilities

(65,393) (72,789)

Income tax liabilities

80,214 (39,224)

Deferred and prepaid revenue and other liabilities

62 2,198

15,073 (136,928)

b) Cash and cash equivalents

November 30, 2010

August 31, 2010

Cash 184,327 35,842

Cash equivalents

(1)

13,326 –

197,653 35,842

(1)

At November 30, 2010, term deposit of €10,000,000, bearing interest at 0.90%, maturing on December 6, 2010.

- 31 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2010

(unaudited)

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

11. Statements of Cash Flows (continued)

c) Other information

Three months ended November 30,

2010

2009

Fixed asset acquisitions through capital leases

― 141

Financial expense paid

21,109 21,047

Income taxes paid (received)

(2,077) 39,517

12. Employee Future Benefits

The Company and its Canadian subsidiaries offer to their employees contributory defined benefit pension plans, a defined contribution

pension plan 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 November 30,

2010

2009

Contributory defined benefit pension plans

915 870

Defined contribution pension plan and collective registered retirement savings plans

1,277 1,126

2,192 1,996

13. 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 November 30, 2010, 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.

- 32 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2010

(unaudited)

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

13. 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 November 30, 2010, 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:

November 30, 2010

August 31, 2010

Trade accounts receivable

79,894 76,243

Allowance for doubtful accounts

(9,011) (8,531)

70,883 67,712

Other accounts receivable

8,651 6,848

79,534 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.

November 30, 2010

August 31, 2010

Net trade accounts receivable not past due

50,087 46,291

Net trade accounts receivable past due

20,796 21,421

70,883 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

November 30, 2010, the available amount of the Company’s Term Revolving Facilities was $685.5 million. Management believes that the

committed Term Revolving Facilities will, until their maturities in July 2013 and July 2014, provide sufficient liquidity to manage its long-

term debt maturities and support working capital requirements.

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COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2010

(unaudited)

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

13. 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

Bank indebtedness

740 ― ― ― ― ― 740

Accounts payable and accrued liabilities

(1)

168,102 ― ― ― ― ― 168,102

Long-term debt

(2)

175,012 ― ― 406,608 ― 550,054 1,131,674

Derivative financial instruments

Cash outflows (Canadian dollar)

― ― ― ― ― 201,875 201,875

Cash inflows (Canadian dollar equivalent of US dollar)

― ― ― ― ― (195,054) (195,054)

Obligations under capital leases

(3)

2,203 2,322 915 13 ― ― 5,453

346,057 2,322 915 406,621 ― 556,875 1,312,790

(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 current debt at November 30, 2010 and

their respective maturities:

2011

2012

2013

2014

2015

Thereafter

Total

Interest payments on long-term debt

47,859 54,918 54,918 54,543 34,070 95,915 342,223

Interest payments on derivative financial instruments

9,828 14,614 14,614 14,614 14,614 7,306 75,590

Interest receipts on derivative financial instruments

(8,567) (13,654) (13,654) (13,654) (13,654) (6,826) (70,009)

49,120 55,878 55,878 55,503 35,030 96,395 347,804

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 November 30, 2010, 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 $0.1 million based on the current debt at November 30, 2010 and taking into consideration the effect

of the interest rate swap agreement.

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COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2010

(unaudited)

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

13. Financial and Capital Management (continued)

Foreign exchange risk

The Company is exposed to foreign exchange risk related to its long-term debt denominated in US dollars. In order to mitigate this risk,

the Company has established guidelines whereby currency swap agreements can be used to fix the exchange rates applicable to its US

dollar denominated long-term debt. All such agreements are exclusively used for hedging purposes. Accordingly, on October 2, 2008, the

Company’s subsidiary, Cogeco Cable Inc., entered into cross-currency swap agreements to set the liability for interest and principal

payments on its US$190 million Senior Secured Notes Series A issued on October 1, 2008. These agreements have the effect of

converting the US interest coupon rate of 7.00% per annum to an average Canadian dollar interest rate of 7.24% per annum. The

exchange rate applicable to the principal portion of the debt has been fixed at $1.0625. The Company’s subsidiary elected to apply cash

flow hedge accounting on these derivative financial instruments.

The Company is also exposed to foreign exchange risk on cash and cash equivalents, bank indebtedness and accounts payable

denominated in US dollars or Euros. At November 30, 2010, cash and cash equivalents denominated in US dollars amounted to

US$6,748,000 (US$13,613,000 at August 31, 2010) while accounts payable denominated in US dollars amounted to US$13,268,000

(US$15,850,000 at August 31, 2010). At November 30, 2010, Euro-denominated bank indebtedness amounted to €384,000 (cash and

cash equivalents of €187,000 at August 31, 2010) while accounts payable denominated in Euros amounted to €6,000 (€nil at

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

$0.7 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 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. At November 30, 2010, the net

investment amounted to €176,206,000 (€182,104,000 at August 31, 2010) while long-term debt denominated in Euros amounted to

€80,000,000 (€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 November 30, 2010 was $1.3326 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 $4.1 million net of non-controlling interest of 8.7 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 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 is considered to represent fair value

for the Term Revolving Facilities.

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:

November 30, 2010

August 31, 2010

Carrying value

Fair value

Carrying value

Fair value

Long-term debt

1,130,545 1,213,214 955,070 1,050,783

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COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2010

(unaudited)

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

13. Financial and Capital Management (continued)

In accordance with CICA Handbook Section 3862, Financial instruments – disclosures, all financial instruments recognized at fair value

on the consolidated balance sheet must be classified based on the three fair value hierarchy levels, which are as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices)

or indirectly (i.e., derived from prices); and

• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The Company considers that its derivative financial instruments are classified as Level 2 under the fair value hierarchy. The fair value of

derivative financial instruments are estimated using valuation models that reflect projected future cash flows over contractual terms of the

derivative financial instruments and observable market data, such as interest and currency exchange rate curves.

b) Capital management

The Company’s objectives in managing capital are to ensure sufficient liquidity to support the capital requirements of its various

businesses, including growth opportunities. The Company manages its capital structure and makes adjustments in light of general

economic conditions, the risk characteristics of the underlying assets and the Company’s working capital requirements. Management of

the capital structure involves the issuance of new debt, the repayment of existing debts using cash generated by operations and the level

of distribution to shareholders.

The capital structure of the Company is composed of shareholders’ equity, bank indebtedness, long-term debt and assets or liabilities

related to derivative financial instruments.

The provisions under the Term Revolving Facilities provide for restrictions on the operations and activities of the Company. Generally, the

most significant restrictions relate to permitted investments and dividends on multiple and subordinate voting shares, as well as

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

total indebtedness. At November 30, 2010, 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:

November 30, 2010

August 31, 2010

Net indebtedness

(1)

/ shareholders’ equity

2.4 2.4

Net indebtedness

(1)

/ operating income before amortization

(2)

1.8 1.8

Operating income before amortization

(2)

/ financial expense

(2)

8.0 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 November 30, 2010 and August 31, 2010.

14. Subsequent event

Acquisition of Corus Entertainment Inc.’s Québec radio stations

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

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

Telecommunications Commission (the “CRTC”). On June 30, 2010, the Company submitted its transfer application for approval 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. Management believes the applications filed by Astral are without merit and the Company will vigorously challenge them with a view

to having them dismissed by the Court. Management still plans to close the transaction with Corus on February 1

, 2011.

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Press release details

Strong first quarter financial results and upward revision of its fiscal 2011 financial guidelines for COGECO Inc.

SUSTAINABILITY

Cogeco Fund

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