Strong first quarter results for COGECO Inc.

PRESS RELEASE

For immediate release

Montréal, January 26, 2012 – Today, COGECO Inc. (TSX: CGO) (“COGECO” or the “Corporation”) announced its financial

results for the first quarter of fiscal 2012, ended November 30, 2011, in accordance with the newly adopted International

Financial Repor ting Standards (“IFRS”).

For the first quarter of fiscal 2012:

• Revenue increased by 13.4% to reach $387.5 million;

• Operating income before dep reciation and amortization

(1)

increased by 5.6% to reach $145 million when compared

to the first quarter of fiscal 2011;

• Operating margin

(1)

decreased to 37.4% from 40.2% in the first quarter when compared to the same period of the

previous fiscal year, mainly as a consequence of the expenditures incurred to migrate Cogeco Cable’s Television

service customers from analog to digital distribution and by the growth from the radio activities for which the

operating margin is genera lly lower than for the cable sector;

• Profit for the period increased by 20.4% to reach $4 7.9 million when com pared to $39.8 milli on in the first quarter of

the prior year;

• In the first quarter of the year, a positive free cash flow

(1)

of $27.6 million was generated compared to a negative

free cash flow of $24.3 million for the same period of the prior year. This variance is mostly attributable to the

difference in the recognition of current income tax expense for both periods combined with the improvement of

operating income before dep reciation and amortization, partl y offset by the increase in acquisition of propert y, plant

and equipment;

• A quarterly dividend of $0.18 per share was paid to the holders of subordinate and multiple voting shares, an

increase of $0.06 per share, or 50%, when compared to a dividend paid of $0.12 per share in the first quarter of

fiscal 2011;

• In the cable sector, primary service units (“PSU”)

(2)

grew by 45,129 net additions in the first quarter, for a total of

2,609,683 PSU as at November 30, 2011.

“COGECO Inc. reported very favorable results for the first quarter. Cogeco Cable improved on last year’s first-quarter

performance, adding a total of 45,129 PSU. Although our quarterly perfor mance was even better than last year’s, we must stay

the course with our vigilant and disciplined approach to operating controls given the economic uncertainty in world markets,”

stated COGECO President and CEO Louis Audet.

“With regards to our radio operations, we successfully integrated our newly acquired radio stations. The latest survey results

for fall 2011 show that we’ve adopted winning strategies, as most of our stations scored excellent performance ratings,

particularly in Montréal and Québec C ity, where we’re market leaders,” added Mr. Audet.

(1)

The indicated terms do not have standard definitions prescribed by IFRS and therefore, may not be comparable to similar measures presented by other companies. For

more details, please consult the “Non-IFRS financial measures” section of the Management’s Discussion and Analysis.

(2)

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

ABOUT COGECO

COGECO is a diversified communications Corporation. Through its Cogeco Cable subsidiary, COGECO provides its residential customers

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

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

video conferencing, hosting services, Ethernet, private line, VoIP, HSI access, data storage, co-location services, managed IT services, cloud

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

stations across most of Québec with complementary radio formats serving a wide range of audiences. Cogeco Diffusion also operat es Cogec o

News, its news agency, feeding 24 independent and community radio stations across Québec. COGECO’s subordinate voting shares are

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

Exchange (TSX: CCA).

– 30 –

Source: COGECO Inc.

Pierre Gagné

Senior Vice President and Chief Financial Officer

Tel.: 514-764-4700

Information: Media

René Guimond

Vice-President, Public Affairs and Communications

Tel.: 514-764-4700

Analyst Conference Call: Thursday, January 26, 2012 at 9:30 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: 1 888 820-0231

International Access Number: + 1 416 640-5926

Confirmation Code: 8378457

By Internet at www.cogeco.ca/investors

A rebroadcast of the conference call will be available until April 26, 2012, by dialling:

Canada and USA access number: 1 888 203-1112

International access number: + 1 647 436-0148

Confirmation code: 8378457

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COGECO INC. Q1 2012

FINANCIAL HIGHLIGHTS

Quarters ended November 30,

2011 2010 Change

($000, except percentages an

er share data)

$ $

(unaudited) (unaudited)

perations

Revenue 387,538 341,714 13.4

Operating income before depreciation and amortizat i on

(1)

145,009 137,267 5.6

Operating margin

(1)

37.4% 40.2% –

Operating income 78,102 75,287 3.7

Profit for the period 47,923 39,808 20.4

Profit for the period attributable to the owners of the Corporation 18,770 16,391 14.5

ash Flow

Cash flow from operating acti vities 15,702 57,615 (72.7)

Cash flow from operations

(1)

109,397 42,542 –

Acquisitions of property, plant and equipment and intangible asset s 81,838 66,842 22.4

Free cash flow

(1)

27,559 (24,300) –

Financial condition

(2)

Property, plant and equipment 1,287,081 1,272,251 1.2

Total assets 2,840,309 2,871,648 (1.1)

Indebtedness

(3)

1,103,343 1,056,214 4.5

Shareholders’ Equity 1,075,323 1,040,680 3.3

Equity attributable to owners of the Corporation 355,259 342,525 3.7

Primary service units

(4)

growth 45,129 49,220 (8.3)

Per Share Data

(5)

Earnings per share

Basic 1.12 0.98 14.3

Diluted 1.11 0.97 14.4

(1)

The indicated terms do not have standardized definitions prescribed by International Financial Reporting Standards (“IFRS”) and therefore, may not be comparable to

similar measures presented by other companies. For more details, please consult the “Non-IFRS financial measures” section of the Management’s Discussion and

Analysis.

(2)

At November 30, 2011 and August 31, 2011.

(3)

Indebtedness is defined as the total of bank indebtedness, promissory note payable, principal on long-term debt, balance due on a business acquisition and obligations

under derivative financial instruments.

(4)

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

(5)

Per multiple and subordinate voting share.

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Management’s Discussion and Analysis (MD&A) COGECO INC. Q1 2012 3

TRANSITION TO IFRS

On January 1, 2011, the Canadian generally accepted accounting principles (“GAAP”), as used b y publicly accountable enterprises, were fully

converged to International Financial Reporting Standards (“IFRS”). Accordingly, the Corporation has prepared its first condensed interim

consolidated financial statements for the three-month period ended November 30, 2011 in accordance with IFRS. Prior to the adoption of

IFRS, for all periods up to and including the year ended August 31, 2011, the Corporation’s consolidated financial statements were prepared in

accordance with Canadian GAAP. IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant differences related

to recognition, measurement and disclosures.

The date of the opening balance sheet under IFRS and the date of transition to IFRS are September 1, 2010. The finan cial data f or fiscal 2011

have therefore been restated. The Corporation is also required to apply IFRS accounting policies retrospectively to determine its opening

statement of financial position, subject to certain exemptions. However, the Corporation is not required to restate figures for periods prior to

September 1, 2010 that were previously prepared in accordance with Canadian GAAP.

The new significant accounting policies under IFRS are disclosed in Note 2 to the condensed interim consolidated financial statements for the

three-month period ended November 30, 2011, while Note 17 explains adjustments made by the Corporation in preparing its IFRS opening

consolidated balance sheet as of September 1, 2010 and in restating its previously published Canadian GAAP condensed interim

consolidated financial statements for the three-month period ended November 30, 2010 and the year ended August 31, 2011. Note 17 also

provides details on exemption choices made by the Corporation with respect to the general principle of retrospective application of IFRS. The

changes to critical accounting policies as a result of IFRS, and their impacts on accounting estimates, are described under “Changes in critical

accounting policies and estimates” below.

FORWARD-LOOKING STATEMENTS

Certain statements in this Management’s Discussion and Analysis (“MD&A ”) may constitute forward-looking infor mation 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 ot her similar expressions concerning

matters that are not historical facts. In particular, statements regarding the Corporation’s future operating results and economic performance

and its objectives and strategies are forward-looking statements. These statements are based on certain factors and assumptions including

expected growth, results of operations, performance and business prospects and opportunities, which COGECO believes are reasonable as of

the current date. While management considers these assumptions to be reasonable based on information currently available to the

Corporation, they may prove to be incorrect. The Corporation cauti ons the reader that the econo mic downturn experienced over the past few

years makes forward-looking information and the underlying assumptions subject to great er uncertainty and that, consequently, they may not

materialize, or the results may significantly differ from the Corporation ’s expectations. It is impossible for COGECO to predic

t with certainty the

impact that the current economic uncertainties may have on future results. Forward-looking information is also subject to certain factors,

including risks and uncertainties (described in the “Uncertainties and main risk factors ” section of the Corporation’s 2011 ann ual 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 Corporation’s control. Therefore, future events and results may vary significantly from what

management currently foresees. The reade r should not place undue importance on forward-looking information and should not rely upon this

information as of any other date. While management may elect to, the Corporation is under no obligation (and expressly disclaims any such

obligation), and does not undertake to update or alter this information before the next quarter.

All amounts are stated in Canadian dollars unless otherwise indicated. This report should be read in conjunction with the Corporation’s

consolidated financial statements and MD&A for the fiscal year ended August 31, 2011 included in the Corporation’s 2011 A nnual Report. It

should also be read in conjunction with the information on the adjustments to the fiscal 2011 financial figures upon adoption of IFRS, explained

in Note 17 of the condensed interim consolidated financial statements for the three-month period ended November 30, 2011.

Management’s Discussion and Analysis (MD&A) COGECO INC. Q1 2012 4

Corporate strategies and objectives

COGECO Inc.’s (“COGECO” or the “Corporation”) 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 gro wth and the continuous improvement of net works and equipment are the

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

profitability. COGECO uses operating income before depreciation and amortization

(1)

, operating margin

(1)

, free cash flow

(1)

and primary service

units (“PSU”)

(2)

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

Cable sector

During the first three months of fiscal 2012, the Corporation’s subsidiary, Cogeco Cable Inc. (“Cogeco Cable” or the “Cable subsidiary”),

invested approximately $33 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.

PSU growth and service offerings in the cable sector

During the first quarter ended November 30, 2011, the number of PSU in the Cable subsidiary increased by 45,129, or 1.8%, to reach

2,609,683 PSU, mainly as a result of targeted mar keting initiatives in the Canadian operations and of the continuing interest for high definition

(“HD”) television service which offset the loss in the European operations resulting primarily from a decreased demand for services. As of

fiscal 2012, Cogeco Cable has modified its key performance indicator for growth to a PSU concept instead of a revenue-generating units

(“RGU”) concept. Cogeco Cable expects a PSU growth of 90,000 net additions for the 2012 fiscal year which amounts in terms of RGU to

225,000 net additions for fiscal 2012 year as presented in the Fiscal 2012 financial guidelines of the 2011 Annual Report.

Operating income before depreciation and amortization and operating margin

First-quarter operating income before depreciation and amortization increased by 5.6% when compared to the first quarter of fiscal 2011 to

reach $145 million and operating margin decreased to 37.4% from 40.2%.

Free cash flow

For the three-month period ended November 30, 2011, COGECO reports positive free cash flow of $27.6 million, compared to negative free

cash flow of $24.3 million for the first quarter of the previous fiscal year, representing an increase of $51.9 million. This variance is mostly

attributable to the difference in the recognition of current income tax expense for both periods combined with the improvement of operating

income before depreciation and amortization, partly offset by the increase in acquisition of property, plant and equipment.

Other

BBM Canada’s fall 2011 survey in the Montréal region, conducted with the Portable People Meter (“PPM”), shows that 98.5 FM is the leading

radio station in the Montreal francophone market with listeners and men two years old and over (“2+”), while Rythme FM has mainta ined its

leadership position in the female 2+ segment. In the other Quebec regions, our radio stations registered good ratings.

On December 6, 2011, COGECO Inc. concluded an agreement to acquire Métromédia CMR Plus Inc. (“Métromédia”), subject to customary

closing adjustments and conditions. Métromédia is a Québec company that operates an advertising rep house in the public transit sector.

Métromédia represents over 100 public transit markets notably in Montréal, in oth er Québec regions as well as in major cities and numerous

markets in the rest of Canada. The transaction was completed on December 26, 2011.

On February 1, 2011, a subsidiary of the Corporation, Cogeco Diffusion Acquisitions Inc. (“Cogeco Diffusion”), completed the acquisition of 11

radio stations in the province of Québec (“Quebec Radio Stations Acquisition”), which was originally announced on April 30, 2010 and then

subject to the Canadian Radio-television and Telecommunications Commission (“CRTC”) approval. When the CRTC approved the Québec

Radio Stations Acquisition, there was an order to divest three radio stations in order to comply with the common ownership policy in the

Québec City and Sherbrooke markets.

On November 30, 2011, Cogeco Diffusion concluded an agreement for the sale of two of its four Québec City FM radio stations, CJEC-FM

and CFEL-FM, subject to CRTC approval and customary closing adjustments and conditions. On December 6, 2011, Cogeco Diffusion c

losed

its Sherbrooke radio station, CJTS-FM. On January 19, 2012, the CRTC approved the sale of CJEC-FM and CFEL-FM which should be

completed on January 30, 2012 and marked the end of the process established with the CRTC for the divestiture of these three radio stations.

(1)

The indicated terms do not have standardized definitions prescribed by IFRS and therefore, may not be comparable to similar measures presented by other companies.

For more details, please consult the “Non-IFRS financial measures” section.

(2)

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

Management’s Discussion and Analysis (MD&A) COGECO INC. Q1 2012 5

OPERATING RESULTS – CONSOLIDATED OVERVIEW

Quarters ended November 30,

2011 2010 Change

($000, except percentages)

$ $

(unaudited) (unaudited)

Revenue 387,538 341,714 13.4

Operating costs

(1)

242,529 204,447 18.6

Operating income before depreciation and amortization 145,009 137,267 5.6

Operating margin 37.4% 40.2% –

(1) Represents the sum of salaries, employee benefits and outsourced services as well as other external purchases included in the Interim Consolidated Statements of

Profit or Loss.

Revenue

Fiscal 2012 first-quarter revenue rose by $45.8 million, or 13.4 % to reach $387. 5 million primaril y due to the cable sector and t he result s of the

Québec Radio Stations Acquisition.

Cable revenue rose by $26.5 million, or 8%, to reach $356.9 million, when compared to the prior year. For further details on the Cogeco

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

Revenue from the radio activities improved by $19.4 million in the first quarter to reach $30.6 million, mainly as a result of the Québec Radio

Stations Acquisition.

Operating costs

For the first quarter of fiscal 2012, operating costs increased by $38.1 million to reach $242.5 million, an increase of 18.6% compared to the

first quarter of the prior year.

Operating costs in the Cable sector increased by $18.9 million, or 9.7%, fo r the first quarter when compared to the same period s of the prior

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

Operating costs from the other sector, including radio activities, grew by $19.2 million in the first, mainly from the Québec Radio Stations

Acquisition.

Operating income before depreciation and amortization and operating margin

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

amortization grew by $7.7 million, or 5.6%, in the first-quarter to reach $145 million, when compared to the same period of the previous year.

COGECO’s first-quarter operating margin decreased to 37.4%, from 40.2% in the first quarter of the previous year. This variation is mostly

attributable to the incremental deployment and support costs related to the migration of Television service customers from analog to digital in

the cable sector and from the growth in the ra dio activities for which the operating margin is generally lower than the cable sector. For further

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

FIXED CHARGES

Quarters ended November 30,

2011 2010 Change

($000, except percentages)

$ $

(unaudited) (unaudited)

Depreciation and amortization

66,907 61,980 7.9

Financial expense 17,667 16,862 4.8

First-quarter 2012 depreciation and amortization amounted to $66 .9 million, compared to $62 million for the same period of the prior year. The

increase is mainly due to additional acquisitions of property, plant and equipment i n the Cogeco Cable’s Canadian operations arising mainly

from customer premise equipment acquisitions to support PSU growth as well as reduction of the depreciation period for some home te rminal

devices in Canada, partly offset by the write-down of property, plant and equipment in Portugal in the third quarter of 2011.

First-quarter financial expense amounted to $17. 7 million, compared to $16.9 million in the prior year. The increase is mainly due to the ne w

financing related to the Québec Radio Stations Acquisition.

Management’s Discussion and Analysis (MD&A) COGECO INC. Q1 2012 6

INCOME TAXES

Fiscal 2012 first-quarter income tax expense amounted to $12.5 million, compared to $18.6 million in the prior year. Fiscal 2012 first quarter

income tax expense decrease is mainly due to the implementation of certain tax measures of the 2011 federal budget limiting the tax deferrals

for corporations with a significant interest in a partnership . Under the transitional relief measures, some income will be taxed over a p eriod of

five years rather than being taxed all in fiscal 2012 and, with the effect of the decrease in income tax rates over the five years, resulted in a tax

expense reduction of $3.5 million in the first quarter of fiscal 2012 in the cable sector.

The changes limiting the tax deferrals described above will have an additional cash outflow impact of approximately $13 million for Cogeco

Cable during the fiscal 2012, none of which have been disgorged during the qua rter.

PROFIT FOR THE PERIOD

Fiscal 2012 first quarter profit for the period amounted to $47,9 million compared to $39,8 million for the same period in fiscal 2011. Profit

progression for the period has resulted mainly from the operating income before depreciation and amortization growth and the decrease in

income tax expense in the first three months of the 2012 fiscal year.

Fiscal 2012 first quarter profit for the period attributable to the owners of the Corporation amounted to $18.8 million, or $1.12 per share,

compared to $16.4 million, or $0.98 per share, for the same period in fiscal 2011. Profit progression for the period has resulted mainly from the

operating income before depreciation and amorti zation growth and the decrease in income tax expense in the first three months of the 2012

fiscal year.

The non-controlling interest represents a participation of approximately 67.9% in Cogeco Cable’s results. During the first quarter of fiscal 2012,

the profit attributable to non-controlling interest amounted to $29.2 million due to the cable sector’s positive results, compared to $23.4 million

in the first quarter of fiscal 2011.

CASH FLOW AND LIQUIDITY

Quarters ended November 30,

2011

2010

($000)

(unaudited)

Operating activities

Cash flow from operations 109,397 42,542

Changes in non-cash operating activiti es (75,341) (62,762)

Amortization of deferred tr ansaction costs and discounts on long-term debt (762) (778)

Income taxes received ( paid) (36,027) 2,077

Current income tax expense 21,491 80,143

Financial expense paid (20,723) (20,469)

Financial expense 17,667 16,862

15,702 57,615

Investing activities (81,633) (66,842)

Financing activities 30,988 171,267

Effect of exchange rate changes on cash and cash equivalents denominated in a foreign currency (338) (229)

Net change in cash and cash equivalents (35,281) 161,811

Cash and cash equivalents, beginni ng of peri od 55,216 35,842

Cash and cash equivalents, end of period 19,935 197,653

Fiscal 2012 first-quarter cash flow from operations reached $109.4 million compared to $42.5 million for the same period last year. This

increase of $66.9 million is primarily due to the reduction in current income tax recovery, partly offset by the increase in operating income

before depreciation and amortization. Changes in non-cash operating activities generated cash outflows of $75.3 million compared to

$62.8 million for the same period in fiscal 2011, mainly as a result of a decrease in trade and other payables for both periods.

In the first quarter of fiscal 2012, investing activities, including mainly acquisitions of property, plant and equipment and intangible assets,

amounted to $81.6 million, an increase of $14.8 million, or 22.1% when compared to $66.8 million for the corresponding period of last year.

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

• An increase in customer premise equipment spending mainly due to the timing of equipment purchases to support PSU and Digital

Television growth in the Canadian operations and conversion from analog to digital distribution. This increase was partly offset by

the decrease in customer premise equipment spending reflecting PSU loss in the European op erations;

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

• An increase in support capital spending stemming from the construction and acquisition of new facilities in the Canadian operations.

Management’s Discussion and Analysis (MD&A) COGECO INC. Q1 2012 7

In the first quarter, positive free cash flow amounted to $27.6 million, compared to negative free cash flow of $24.3 million in the comparable

period of fiscal 2011, representing an increase of $51.9 million. The growth in free cash flow over the prior year is due to the increase in

operating income before depreciation and amortization combined with the current income tax expense reduction, partl y offset by the increase

in property, plant and equipment acquisitions.

In the first three months of fiscal 2012, Indebtedness affecting cash increased by $46.9 million mainly due to the cash outflows of $75.3 million

from the changes in non-cash operating activities, to $14.5 million and $3.1 million of income tax and financial expense payments made during

the quarter but recorded in 2011 fiscal year and dividend payment of $11.3 million, partly offset by the positive free cash flow of $27.6 million

and the decrease in cash and cash equivalents of $35.3 million. In the first three months of fiscal 2011, Indebtedness affecting cash increased

by $182.1 million mainly due to the cash outflows of $62.8 million from the changes in non-cash operating activities, increase in cash and cash

equivalents of $161.8 million, negative free cash flow of $24.3 million and the dividend payment of $7.6 million, partly offset by $80.1 million of

income tax expense recorded in the first quarter of fiscal 2011 but not paid due to modifications made to Cogeco Cable’s corporate structure.

Indebtedness in 2011 mainly increased through the issuance of $200 million Senior Secured Debentures Series 2 by Cogeco Cable Inc.,

partly offset by a net repayment of $13.8 million on the Cogeco Cable Term Revolving Facility.

During the first quarter of fiscal 2012, a dividend of $0.18 per share was paid by the Corporation to the holders of subordinate and multiple

voting shares, totalling $3 million, compared to a dividend of $0.12 per share, or $2 million the year before. In addition, dividends paid by a

subsidiary to non-controlling interests in the first quarter of fiscal 2012 amounted to $8.2 million, for consolidated dividend payments of

$11.3 million, compared to $5.6 million for consolidated dividend payments of $7.6 million in the first quarter of the prior year.

As at November 30, 2011, the Corporation had a working capital deficiency of $155.6 million compared to $188.7 million as at

August 31, 2011. The decrease in the deficiency is mainly attributable to the cable sector and caused by a decrease in trade and other

payables and income tax liabilities, partly offset by decreases in cash and cash equivalents and in income taxes receivable and by an increase

in bank indebtedness. 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 the Cogeco Cable’s customers pay before their services are rendered, unlike trade and other

payables, 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, 2011, the Corporation had used $39 million of its $100 million Term Revolving Facility for a remaining availability of

$61 million and Cogeco Cable had used $151.2 million of its $750 million Term Revolving Facility for a remaining availability of $598.8 million.

Transfers of funds from non-wholly owned subsidiaries to COGECO are subject to approval b y 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, 2011, there have been significant changes to the balances of, “trade and other payables”, “property, plant and equipment”,

“income taxes receivable”, “income tax liabilities”, “future income tax liabilities”, “long-term debt”, “cash and cash equivale

nts”, “bank

indebtedness” and “non-controlling interest”.

The $73 million decrease in trade and other payables is related to the timing of payments made to suppliers. The $14.8 million increase in

property, plant and equipment reflects the acquisitions discussed in the “Cash flow and Liquidity” section net from the depreciation expense.

The decrease of $24.3 million in income taxes receivable, of $38.8 million in income tax liabilities and of $7.8 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

combined with the increase in operating income before depreciatio n and amortization. The increase of $31.7 million in bank indebted ness, of

$23.5 million in long-term debt and the decrease of $35.3 million in cash and cash equivalents are due to the factors previously discussed in

the “Cash Flow and Liquidity” section. The $18.9 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, 2011 is presented in the table below:

Number of

shares/options

mount

($000)

Common shares

Multiple voting shares

Subordinate voting shares

1,842,860

14,989,338

121,976

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

leases and guarantees. COGECO’s obligations, discussed in the 2011 Annual Report, have not materially changed since August 31, 2011,

except as mentioned below.

On November 30, 2011, the Corporation renewed its credit agreement for a $100 million credit facility in the form of a four-year Term

Revolving Facility. The renewed Term Revolving Facility will mature on February 1, 2016, but may be extended by additional one-year periods

on an annual basis, subject to lenders’ approval. The Term Revolving Facility is indirectly secured by a first priority fixed and floating charge

on substantially all present and future real and personal property and undertaking of every nature and kind of the Corporation and cert ain of its

subsidiaries, excluding the capital stock and assets of the Corporation’s subsidiary, Cogeco Cable Inc., and guaranteed by its subsidiaries,

excluding Cogeco Cable.

Management’s Discussion and Analysis (MD&A) COGECO INC. Q1 2012 8

On November 7, 2011, the Corporation completed, pursuant to a private placement, the issue of 6.50 % Unsecured Notes for a total of

$35 million maturing November 7, 2021. Interest on these Notes is pa yable semi-annually in arrears on November 7 and May 7 of each year

commencing May 7, 2012. Net proceeds of approximately $35 million was used to reduce COGECO Inc.’s bank indebtedness.

On November 22, 2011, Cogeco Cable renewed its credit agreement for a $750 million credit facility, with an option to increase to a total

amount of up to $1 billion, subject to lenders’ participation, in the form of a five year Term Revolving Facility. The renewed Term Revolving

Facility was arranged by a group of financial institutions led by Canadian Imperial Bank of Commerce and Bank of Montreal. The renewed

Term Revolving Facility will mature on November 22, 2016, but may be extended by additional one-year periods on an annual basis, subject to

lenders’ approval. The Term Revo lving Facility is indirectly secured by a first priority fixed and floating charge 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, and provides for

certain permitted encumbrances, including purchased money obligations, existing funded obligations and charges granted by any subsidiary

prior to the date when it becomes a subsidiary, subject to a maximum amount.

DIVIDEND DECLARATION

At its January 25, 2012 meeting, the Board of Directors of COGECO declared a quarterly eligible dividend of $0.18 per share for multiple

voting and subordinate voting shares, payable on Februa ry 22, 2012, to shareholde rs of record on Fe bruary 8, 2012. The declaration, amount

and date of any future dividend will continue to be considered and approved by the Board of Directors of the Corporation based upon the

Corporation’s financial condition, results of operations, capital requirements and such other factors as the Board of Directors, at its sole

discretion, deems relevant. There is therefore no assurance that dividends will be declared, and if declared, their amount and frequency may

vary.

FINANCIAL MANAGEMENT

The Corporation has established guidelines whereby swap agreements can be used to manage risks associated with fluctuations in interest

and foreign currency exchange rates related to its long-term debt. A ll such agreements are exclusively used for hedging purposes. In or der to

minimize the risk of counter-party default, Cogeco Cable completes transactions with financial institutions that carry a credit rating equal or

superior to its own credit rating.

Cogeco Cable has 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 2012, amounts due under the US$190 million Senior

Secured Notes Series A increased by $7.8 million due to the US dollar’s appreciation relative to the Canadian dollar. The fair value of cross-

currency swaps increased by a net amount of $7 million, of which an increase of $7.8 million offsets the foreign exchange loss on the debt

denominated in US dollars. The difference of $0.7 million was recorded as a decre ase of other comprehensive income, net of income taxes. In

the first quarter 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 over the Canadian dollar. The fair value of cross-currency swaps decreased by a net amount of $6.3 million, of which

$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.

Furthermore, Cogeco Cable’s net investment in self-sustaining foreign subsidiaries is exposed to market risk attributable to fluctuations in

foreign currency exchange rates, primaril y changes in the values of the Canadian dollar versus the Euro. The Corporation record ed a foreign

exchange loss of $0.3 million in the first quarter, compared to a foreign exchange loss of $1.9 million in the comparable period of the prior

year, which was deferred and recorded in the interim consolidated statement of comprehensive income, net of income taxes. The exchange

rate used to convert the Euro currency into Canadian dollars for the balance sheet accounts as at November 30, 201 1 was $1.3706 per Euro

compared to $1.4071 per Euro as at August 31, 2011. The average exchange rate prevailing during the first quarter of fiscal 2012 used to

convert the operating results of the European operations was $1.3891 per Euro compared to $1.3833 per Euro in the first quarter of fiscal

2011. Since the Corporation’s condensed interim 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

depreciation and amortization, profit for the period 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 currenc y into Canadian

dollars on European operating results in the cable sector for the first three months ended November 30, 2011:

Three months ended November 30, 2011 As reported

Exchange rate

impact

($000) $ $

(unaudited) (unaudited)

Revenue 41,515 4,152

Operating income before depreciation and amortization 4,748 475

Profit for the period 3,399 340

The Corporation 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 certain 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” sectio n in note 14

of the consolidated financial statements for further details.

Management’s Discussion and Analysis (MD&A) COGECO INC. Q1 2012 9

CABLE SECTOR

CUSTOMER STATISTIC

Net additions % of Penetration

(1)

Quarters ended November 30, November 30,

November 30, 2011

2011

2010 2011

2010

PSU 2,609,683 45,129 49,220

Television service customers

(2)

1,137,219 3,457 7,626 44.9 45.6

HSI service customers 780,723 17,073 20,464 30.8 29.6

Telephony service customers 691,741 24,599 21,130 27.3 24.9

(1)

As a percentage of Homes Passed

(2)

The number of Television service customers includes 886,861 Digital Television service customers.

In the cable sector, first quarter PSU net additions amounted to 45,129, compared to 49,220 PSU in the comparable period of the previous

fiscal year.

Fiscal 2012 first-quarter PSU net additions were lower th an in the c o mparable perio d of th e p rior yea r, as the stron g PSU growth generated by

the Canadian operations, despite higher penetration rates, category maturity and aggressive competition, was offset by PSU losses in the

European operations reflecting the continuing difficult economic conditions in Portugal. The Portuguese government has implemented financial

reforms which include increases in sales and income taxes combined with reductions in government spending on social programs, thus

reducing consumer disposable income. These measures have generated consumer spending constraints while the intensity of the competitive

environment remained. The rate of growth for our services has diminished in this environment, with net customer losses in Television and HSI

service customers.

The net customer additions for Television service customers stood at 3,457 for the first quart er, compared to 7,626 for the sam e period of th e

prior year. Television service customers net additions in fiscal 2012 is mainly due to the back to school period for college and university

students, to network expansions and the bundling effect of continued gro wth in HSI and Telephony s ervices. In the quarter, Tele phony service

customers grew by 24,599 compared to 21,130 for the same period last year, and the number of net additions to the HSI service stood at

17,073 customers compared to 20,464 customers in the first qua rter of the prior year. HSI and Telephon y net additions continue to stem from

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

services, and promotional activities which was offset by the economic environment in Portugal. For the three month period ended November

30, 2011, additions to the Digital Television service which are included in the Television service customers, stood at 43,955 compared to

41,649 for the comparable periods of the prior year. Digital Television service net additions are due to targeted marketing initiatives to improve

penetration, the launch of new HD channels, the continuing interest for HD television service and the deployment of Digital Terminal Adapters

technology to migrate customer from analog to digital services.

OPERATING RESULTS

Quarters ended November 30,

2011 2010 Change

($000, except percentages)

$ $

(unaudited) (unaudited)

Revenue 356,939 330,467 8.0

Operating costs

(1)

213,226 194,316 9.7

Management fees - COGECO Inc. 7,142 6,644 7.5

Operating income before depreciation and amortization 136,571 129,507 5.5

Operating margin 38.3% 39.2%

(1) Represents the sum of salaries, employee benefits and outsourced services as well as other external purchases included in the Interim Consolidated Statements of

Profit or Loss.

Revenue

Fiscal 2012 first-quarter revenue rose by $26.5 million, or 8%, to reach $356.9 million, when compared to the prior year.

Revenue for the Canadian operations grew by $28.2 million, or 9.8%, to reach $315.4 million. The increase in revenue was driven by PSU

growth, rate increases implemented in October 2011 and April 2011 combined with the acquisitions of MTO Telecom Inc. (“MTO”) and

Quiettouch Inc. (“QTI”).

In the first quarter of fiscal 2012 European operation’s revenue decreased b y $1.7 million, or 4%, at $41.5 million as a result of a decreased

demand for services, partly offset by a higher value of the Euro over the Canadian dollar when compared to prior year. Revenue from the

European operations in the local currency for the 2012 first quarter amounted to €29.9 million, a decrease of €1.4 million, or 4.4%, when

compared to the same period of the prior year.

Management’s Discussion and Analysis (MD&A) COGECO INC. Q1 2012 10

Operating costs

For the first quarter of fiscal 2012, operating costs increased by $18.9 million, to reach $213.2 million, an increase of 9.7% compared to the

prior year.

In the Canadian operations, for the three months ended November 30, 2011, operating costs increased by $21.1 million, or 13.6%, at

$176.5 million. The increase in operating costs is mainly attributable to servicing additional PSU, the launch of new HD channels, additional

programming costs, deployment and support costs related to the migration of Television service customers from analog to digital and the

acquisitions of MTO and QTI.

As for the European operations, fiscal 2012 first-quarter operating costs decreased by $2.2 million, or 5.7%, at $36.8 million, mainly due to the

PSU losses and timing of marketing initiatives partly offset by a higher value of the Euro over the Canadian dollar when compared to prior

year. Operating costs of the European operations for the first quarter in the local currency amounted to €26.5 million, a decrease of

€1.7 million, or 6.1% when compared to the corresponding period of the prior year.

Operating income before depreciation and amortization and operating margin

Fiscal 2012 first-quarter operating income before depreciation and amortization increased by 5.5% to reach $136.6 million. Cogeco Cable’s

first-quarter operating margin decreased to 38.3% from 39.2% in the comparable period of the prior year.

Operating income before depreciation and amortization in the Canadian operations rose by $6.6 million, or 5.3%, to reach $131.8 million in the

first quarter, mainly due to the increased revenue exceeding the increase in opera ting costs. Cogeco Cable’s Canadian operations’ operating

margin decreased to 41.8% in the first quarter compared to 43.6% for the same period of the prior year mainly due to the incremental

deployment and support costs for the migration of Television service customers from analog to digital.

For the European operations, operating income before depreciation and amortization increased to $4.7 million in the first quarter from

$4.3 million for the same period of the prior year, representing an increase of $0.5 million, or 11.2%, mainly due to decreases in operating

costs which outpaced the decreases in revenue. European operat ions’ operating margin increased to 11.4% from 9.9% in the first quarter of

fiscal 2012. Operating income before depreciation and amortization in the local currenc y amounted to €3.4 million compared to €3.1 million in

the first quarter of the prior year, representing an increase of 10.7%.

CONTROLS AND PROCEDURES

The President and Chief Executive Officer (“CEO”) and the Senior Vice President and Chief Financial Officer (“CFO”), together with

Management, are responsible for establishing and maintaining adequate disclosure controls and procedures and internal controls over

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

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

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

accordance with IFRS.

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

controls over financial reporting as at November 30, 2011, and have concluded that the y were adequate. Furthermo re, no significant changes

to the internal controls over financial reporting occurred during the quarter ended November 30, 2011.

UNCERTAINTIES AND MAIN RISK FACTORS

There has been no significant change in the uncertainties and main risk factors faced by the Corporation since August 31, 2011.

A detailed

description of the uncertainties and main risk factors faced by COGECO can be found in the 2011 Annual Report.

CHANGES IN CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Corporation adopted the IFRS conceptual framework for its accounting policies on September 1, 2011 (see “Transition to IFRS” above”) .

Accordingly, the following paragraphs provide an analysis of accounting policies considered to be critical for which changes required under the

adoption of IFRS were determined to be material. This “Changes in critical accounting policies and estimates” section should be read in

conjunction with the Corporation’s annual MD&A for the 2011 year, which provides a description of other accounting policies considered to be

critical but for which the adoption of IFRS did not have a significant impact.

A. IMPAIRMENT OF NON FINANCIAL ASSETS

At the end of each reporting period, the Corporation reviews the carrying value of its property, plant and equipment and intang ible assets with

finite useful lives to determine whether there is any indication that those assets have suffered a n impairment loss. If an y such indication exists,

the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any.

Goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually, and whenever there is an indication that

the asset may be impaired.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash

flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money

and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

Management’s Discussion and Analysis (MD&A) COGECO INC. Q1 2012 11

For the purpose of impairment testing, assets that cannot be tested on an individual basis are grouped together into the smallest identifiable

group of assets that generates cash inflows that are largely independent of the cash inflows from other assets (“cash-generating unit” or

“CGU”). Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGU, or

otherwise they are allocated to the smallest group of CGU for which a reasonable and consistent allocation basis can be identified.

An impairment loss is recognized when the carrying amount of an asset or a CGU exceeds its recoverable amount for the amount of this

excess. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the

CGU and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. The impairment loss is recognized

immediately in profit or loss in the period in which the loss is incurred.

Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer

exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment

loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined,

net of depreciation or amortization, if no impairme nt loss had been recognized. A reversal of an impairment loss is recognized immediately in

profit or loss.

For the purpose of impairment testing, goodwill is allocated to each of the Corporati on’s CGUs that are expected to benefit from the synergies

of the related business combination. An impairment loss recognized for goodwill cannot be reversed.

B. PROVISIONS

Provisions represent liabilities of the Corporation for which the amount or timing is uncertain. A provision is recorded when the Corpor ation has

a legal or constructive present obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to

settle the obligation, and a reliable estimate can be made of the a mount of the obligation. The amount recognized represents management’s

best estimate of the amount required to settle the obligation at the end of the reporting period, taking into account the risks and uncertainties

surrounding the obligation. When the effect of the time value of mone y is material, the amount of a provision is determined by discounting the

expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the

liability. When discounting is used, the increase in the provision due to the passage of time is recognized as financial expense.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is

recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured r eliably.

C. EMPLOYEE BENEFITS

DEFINED BENEFIT PENSION PLANS

Pension costs for defined benefit pension plans are determined using the projected unit credit method (sometimes known as the accrued

benefit method pro-rated on service), with actuarial valuations being carried out at the end of each reporting period and are funded through

contributions determined in accordance with this method. The Corporation’s net obligation in respect of defined benefit pension plans is

calculated separately for each plan.

Pension expense is charged to salaries, employee benefits and outsourced services and includes:

 The cost of pension benefits provided in exchange for employees’ services rendered during the period;

 Vested past service costs which are recognized immediately;

 Unvested past service costs which are amortized on a straight-line basis over the vesting period; and

 The interest cost of pension obligations less the expected return on pension fund a ssets. The Co rp oration uses the f air value of plan

assets to evaluate plan assets for the purpose of calculating the expected return on plan assets.

The retirement benefit obligation recognized in the statement of fina ncial position represents the p res ent value of th e defined benefit obligation

as adjusted for unrecognized past service cost, and as reduced by the fair value of plan assets.

The Corporation recognizes actuarial gains or losses in other comprehensive income in the period in which they arise.

FUTURE ACCOUNTING DEVELOPMENTS IN CANADA

A number of new standards, interpretations and amendments to existing standards were issued by the International Accounting Standard

Board (“IASB”) that are mandatory but not yet effe ctive for the peri od ended N ovember 30, 20 11 or year ende d Augus t 31, 2012, and have not

been applied in preparing these condensed interim consolidated financial statements. The following standards may have a material impact on

the consolidated financial statements of the Corporation:

Effective for annual periods

starting on or afte

IFRS 9 Financial Instruments January 1, 2015 Early adoption permitted

IFRS 10 Consolidated Financial Statements January 1, 2013 Early adoption permitted

IFRS 12 Disclosure of Interests in Other Entities January 1, 2013 Early adoption permitted

IFRS 13 Fair Value Measurement January 1, 2013 Early adoption permitted

mendments to IAS 1 Presentation of Financial Statements January 1, 2013 Early adoption permitted

mendment to IAS 19 Employee Benefits January 1, 2013 Early adoption permitted

Management’s Discussion and Analysis (MD&A) COGECO INC. Q1 2012 12

IFRS 9 replaces the guidance in IAS 39 Financial Instruments: Recognition and Measurement on the classification and measurement of

financial assets and financial liabilities. The replacement of IAS 39 is a three-phase project with the objective of improving and simplifying the

reporting for financial instruments. This is the first phase of that project.

IFRS 10 replaces the consolidation requirements in IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation –

Special Purpose Entities. It provides a single model to be applied in the control analysis for all investees.

IFRS 12 establishes disclosure requirements for entities that have interests in subsidiaries, joint arrangements, associates and/or

unconsolidated structures entities.

IFRS 13 replaces the fair value measurement gu idance contained in individual IFRS with a single s ource of fair valu e measurement guidance.

The standard clarifies the definition of fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair

value measurements.

The amendments to IAS 1 require that an entity present separately the items of other comprehe nsive income (“OCI”) that may be reclassified

to profit or loss in the future from those that would never be reclassified to profit or loss.

The amendments to IAS 19 requires the recognition of actuarial gains and losses immediately in other comprehensive income, full recognition

of past service costs immediately in profit or loss, recognition of expected return on plan assets in profit or loss to be calculated based on the

rate used to discount the defined benefit obligation and additional disclosures explaining the characteristics of the Corporation’s defined

benefit pension plans.

The Corporation is in the process of determining the extent of the impact of these standards on its consolidated financial statements.

FISCAL 2012 FINANCIAL GUIDELINES

The Corporation has not modified its 2012 guidance with the recently announced acquisition of Métromédia. Since this transaction was

completed late December 2011, the Corporation will include the projected financial results in its 2012 revised guidance upon announcement of

the 2012 second quarter results.

NON-IFRS FINANCIAL MEASURES

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

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

prescribed by IFRS and therefore, may not be comparable to similar measures presented by other companies. These measures include “cash

flow from operations”, “free cash flow”, “operating income before depreciation and amortization” and “operating margin”.

Cash flow from operations and free cash flow

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

excluding the impact of changes in non-cash operating activities, amortization of deferred transaction costs and discounts on long-term debt,

income taxes paid or received, current income tax expense, financial expense paid and financial expense. This allows the Corpor

ation to

isolate the cash flows from operating activities from the impact of cash management decisions. Cash flow from operations is subsequently

used in calculating the non-IFRS measure, “free cash flow”. Free cash flow is used, by COGECO’s management and investors, to measure its

ability to repay debt, distribute capital to its shareholders and finance its growth.

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

Quarters ended November 30,

2011 2010

($000)

$ $

(unaudited) (unaudited)

Cash flow from operati ng activities 15,702 57,615

Changes in non-cash operating activiti es 75,341 62,762

Amortization of deferred tr ansaction costs and discounts on long-term debt 762 778

Income taxes paid (received) 36,027 (2,077)

Current income tax expense (21,491) (80,143)

Financial expense paid 20,723 20,469

Financial expense (17,667) (16,862)

Cash flow from operati ons 109,397 42,542

Management’s Discussion and Analysis (MD&A) COGECO INC. Q1 2012 13

Free cash flow is calculated as follows:

Quarters ended November 30,

2011 2010

($000)

$ $

(unaudited) (unaudited)

Cash flow from operati ons 109,397 42,542

Acquisition of property, plant and equipment (77,894) (63,350)

Acquisition of intangible assets (3,944) (3,492)

Free cash flow 27,559 (24,300)

Operating income before depreciation and amortization and operating margin

Operating income before depreciation and am ortization is used by COGECO’s management and investors to assess the Co rporation’s ability

to seize growth opportunities in a cost effective manner, to finance its ongoing operations and to service its debt. Operating income before

depreciation and amortization is a proxy for cash flows from operations excluding the impact of the capital structure c hosen, 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 Corporation's revenue which is available, before income taxes, to pay for its fixed costs, such as interest on Indebtedness. Operating

margin is calculated by dividing operating income before depreciation and amortization by revenue.

The most comparable IFRS financial measure is operating income. Operating income before depreciation and amortization and operating

margin are calculated as follows:

Quarters ended November 30,

2011 2010

($000, except percentages)

$ $

(unaudited) (unaudited)

Operating income 78,102 75,287

Depreciation and amortization 66,907 61,980

Operating income before depreciation and amortization 145,009 137,267

Revenue 387,538 341,714

Operating margin 37.4% 40.2%

Management’s Discussion and Analysis (MD&A) COGECO INC. Q1 2012 14

SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION

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

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

(1)

2011 2010

(1)

2011 2010

(1)

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

Revenue 387,538 341,714 374,531 333,671 373,905 330,933 349,593 329,087

Operating income before depreciation and

amortization 145,009 137,267 159,912 137,785 148,035 127,928 123,064 124,363

Operating margin 37.4% 40.2% 42.7% 41.3% 39.6% 38.7% 35.2% 37.8%

Operating income 78,102 75,287 107,545 73,942 82,612 64,008 58,627 58,370

Impairment of goodwill and intangible assets – – – – 225,873 – – –

Profit (loss) for the period 47,923 39,808 70,089 12,265 (179,202) 10,740 22,433 10,511

Profit (loss) for the period attributable to the owners

of the Corporation 18,770 16,391 23,317 – (56,303) – 634 –

djusted profit for the period attributable to the

owners of the Corporation

(2)

18,770 16,391 21,694 12,265 16,376 10,740 11,009 10,511

Cash flow from operating acti vities 15,702 57,615 226,804 198,492 147,398 110,756 83,519 117,498

Cash flow from operations 109,397 42,542 154,838 127,230 135,315 119,140 107,530 120,331

cquisitions of property, plant and equipment

and intangible assets 81,838 66,842 130,960 108,515 71,741 69,511 72,539 74,549

Free cash flow 27,559 (24,300) 23,878 18,715 63,574 49,629 34,991 45,782

Earnings (loss) per share

(3)

Basic 1.12 0.98 1.39 0.73 (3.36) 0.64 0.04 0.63

Diluted 1.11 0.97 1.38 0.73 (3.36) 0.64 0.04 0.63

Adjusted earnings per share

(2)(3)

Basic 1.12 0.98 1.30 0.73 0.98 0.64 0.66 0.63

Diluted 1.11 0.97 1.29 0.73 0.97 0.64 0.65 0.63

(1)

The numbers relating to fiscal year 2010 have not been restated to comply wit h the adopt ion of IFRS since the transition date for the Corporation is September 1, 2010.

(2)

In addition to the adjustments described in the “Non-IFRS financial measures” section, profit for the period attributable to the owners of the Corporation for the second

and the fourth quarter of fiscal 2011 has been adjusted to remove the integration, restructuring and acquisition costs, net of related income taxes, of $10.4 million and

$1.6 million respectively. Loss for the period attributable to the owners of the Corporation for the third quarter of fiscal 2011 has been adjusted to remove the impairment

of goodwill and property, plant and equipment, net of related income taxes, of $72.7 million.

(3)

Per multiple and subordinate voting share.

SEASONAL VARIATIONS

Cogeco Cable’s operating results are not generally subject to material seasonal fluctuations except as follows. The customer growth in the

Television 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. Fu rth ermore, th e oper ating margin in the third

and fourth quarters is generally higher as the maxi mum amount pa yable to CO GECO under the ma nagement ag reement is usually reach ed 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. As the maximum amount is expected

to be reached in the second quarter of fiscal 2012, Cogeco Cable will not pay management fees in the second half of fiscal 2012 . Similarly, as

the maximum amount was paid in the first six months of fiscal 2011, Cogeco Cable did not pay management fees in the second half of the

previous fiscal year.

ADDITIONAL INFORMATION

This MD&A was prepared on January 25, 2012. Additional information relating to the Corporation, including its Annual Information Form, is

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

/s/ Jan Peeters

/s/ Louis Audet

Jan Peeters Louis Audet

Chairman of the Board President and Chief Executive Officer

COGECO Inc.

Montréal, Québec

January 26, 2012

OND

TATE

irst quar

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INTER

Novemb

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er 30, 20

SOLI

ATED FINANCIAL

COGECO INC.

INTERIM CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

(unaudited)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 16

Three months ended November 30,

2011 2010

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

$ $

Revenue 387,538 341,714

Salaries, employee benefits and outsourced services 77,850 58,312

Other external purchases 164,679 146,135

Depreciation and amortization (note 5)

66,907 61,980

Operating income 78,102 75,287

Financial expense (note 6)

17,667 16,862

Profit before income taxes 60,435 58,425

Income taxes (no te 7)

12,512 18,617

Profit for the period 47,923 39,808

Profit for the period attributable to:

Owners of the Corporation 18,770 16,391

Non-controlling interest 29,153 23,417

47,923 39,808

Earnings per share (note 8)

Basic 1.12 0.98

Diluted 1.11 0.97

COGECO INC.

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 17

Three months ended November 30,

2011 2010

(In thousands of Canadian dollars)

$ $

Profit for the period 47,923 39,808

Other comprehensive income (loss)

Cash flow hedging adjustments

Net change in fair value of hedging derivative financial instruments 7,044 (5,833)

Net change in fair value of hedging derivative financial instruments reclassified to

financial expense (7,771) 7,581

Income tax recovery (expense) on cash flow hedging adjustments (245) 49

(972) 1,797

Foreign currency translation adjustments

Net foreign currency translation differences on translation of a net investment in foreign

operations (272) (3,143)

Net change in unrealized gains on translation of long-term debts designated as hedges of

a net investment in foreign operations

−

1,227

(272) (1,916)

Defined benefit plans actuarial gains (losses) adjustments

Net change in defined benefit plans actuarial gains (losses) (1,826) 1,712

Income tax recovery (expense) on defined benefit plans actuarial gains (losses)

adjustments 491 (461)

(1,335) 1,251

Other comprehensive income (loss) for the period (2,579) 1,132

Comprehensive income for the period 45,344 40,940

Comprehensive income for the period attributable to:

Owners of the Corporation 17,034 17,604

Non-controlling interest 28,310 23,336

45,344 40,940

COGECO INC.

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(unaudited)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 18

Equity attributable to owners

(In thousands of Canadian dollars)

Share capital

Contributed

surplus –

share-based

compensation

Accumulated

othe

comprehensive

income

Retained

earnings

Equity

attributable to

non-controlling

interests

Total

shareholders’

equit

(note 10) (note 11)

Balance at September 1, 2010 119,527 3,452 6,508 240,499 750,878 1,120,864

Profit for the period

−

16,391 23,417 39,808

Other comprehensive income (loss) for the period

−

1,213

−

(81) 1,132

Total comprehensive income for the period

−

1,213 16,391 23,336 40,940

Share-based compensation − 317 − − 253 570

Issuance of subordinate voting shares by a subsidiary to

non-controlling interest

−

(28)

−

318 290

Dividends on multiple voting shares

−

(221)

−

(221)

Dividends on subordinate voting shares

−

(1,786) (5,582) (7,368)

Effect of changes in ownership of a subsidiary on non-

controlling interest

−

5 (5)

−

cquisition of subordinate voting shares held in trust under

the Incentive Share Unit Plan (1,282) − − − − (1,282)

cquisition by a subsidiary from non-controlling interests of

subordinate voting shares held in tru st under the

Incentive Share Unit Plan

−

(2,258) (2,258)

Distribution to employees of subordinate voting shares

held in trust under the Incentive Share Unit Plan 458 (503)

−

Total contributions by and distributions to shareholders (824) (214) − (1,957) (7,274) (10,269)

Balance at November 30, 2010 118,703 3,238 7,721 254,933 766,940 1,151,535

Loss for the period

−

(32,352) (54,328) (86,680)

Other comprehensive income (loss) for the period

−

(4,713)

−

381 (4,332)

Total comprehensive loss for the period − − (4,713) (32,352) (53,947) (91,012)

Issuance of subordinate voting shares under the employee

stock option plan 629

−

629

Share-based compensation

−

1,203

−

1,132 2,335

Issuance of subordinate voting shares by a subsidiary to

non-controlling interest − (376) − − 4,826 4,450

Dividends on multiple voting shares − − − (700) − (700)

Dividends on subordinate voting shares − − − (5,660) (17,773) (23,433)

Effect of changes in ownership of a subsidiary on non-

controlling interest

−

55 (55)

−

cquisition of subordinate voting shares held in trust under

the Incentive Share Unit Plan (14)

−

(14)

cquisition by a subsidiary from non-controlling interests of

subordinate voting shares held in tru st under the

Incentive Share Unit Plan − − − − (110) (110)

Distribution to employees b y a subsidiary of subordinate voting

shares held in trust under the Incentive Share Unit Plan

−

(153)

−

11 142

−

Total contributions by and distributions to shareholders 615 674

−

(6,294) (11,838) (16,843)

Balance at August 31, 2011 119,318 3,912 3,008 216,287 701,155 1,043,680

Profit for the period − − − 18,770 29,153 47,923

Other comprehensive loss for the period − − (1,736) − (843) (2,579)

Total comprehensive income (loss) for the period

−

(1,736) 18,770 28,310 45,344

Share-based compensation

−

438

−

391 829

Issuance of subordinate voting shares by a subsidiary to

non-controlling interest

−

(121)

−

1,416 1,295

Dividends on multiple voting shares

−

(332)

−

(332)

Dividends on subordinate voting shares

−

(2,684) (8,244) (10,928)

Effect of changes in ownership of a subsidiary on non-

controlling interest

−

109 (109)

−

cquisition of subordinate voting shares held in trust under

the Incentive Share Unit Plan (1,710)

−

(1,710)

cquisition by a subsidiary from non-controlling interests of

subordinate voting shares held in tru st under the

Incentive Share Unit Plan − − − − (2,855) (2,855)

Distribution to employees of subordinate voting shares

held in trust under the Incentive Share Unit Plan 325 (442)

−

117

−

Total contributions by and distributions to shareholders (1,385) (125)

−

(2,790) (9,401) (13,701)

Balance at November 30, 2011 117,933 3,787 1,272 232,267 720,064 1,075,323

COGECO INC.

INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(unaudited)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 19

November 30,

2011

August 31,

2011

September 1,

2010

(In thousands of Canadian dollars)

$ $ $

Assets

Current

Cash and cash equivalents (note 12b))

19,935 55,216 35,842

Trade and other receivables (note 14)

111,178 100,297 74,560

Income taxes re ceivable 14,183 38,480 45,400

Prepaid expenses and other 14,792 14,020 14,189

Assets held for s ale (not e 15) 7,148 1,365

−

167,236 209,378 169,991

Non-current

Other assets 7,377 6,422 7,886

Property, plant and equipment 1,287,081 1,272,251 1,323,161

Intangible assets 1,124,469 1,125,519 1,046,944

Goodwill 226,573 225,802 144,695

Derivative financial instruments

− −

5,085

Deferred tax assets 27,573 26,390 27,992

Assets held for s ale (not e 15)

−

5,886

−

2,840,309 2,871,648 2,725,754

Liabilities and Shareholders’ equit y

Liabilities

Current

Bank indebtedness 31,688

−

2,328

Trade and other payables 197,243 270,246 235,830

Provisions 20,162 15,558 12,945

Income tax liabilities 21,120 59,935 558

Deferred and prepaid revenue 43,680 43,520 45,602

Promissory note payable, non-interest bearing and due on February 1, 2012 5,000 5,000

−

Derivative financial instrument

− −

1,189

Current portion of long-term debt (note 9)

1,790 2,119 2,329

Liabilities related to assets held for sale (note 15) 2,153 1,747

−

322,836 398,125 300,781

Non-current

Long-term debt (note 9)

1,040,179 1,016,663 952,741

Balance due on a business acquisition, bank prime rate plus 1% and payable in February 2013 11,400 11,400

−

Derivative financial instruments 7,364 14,408

−

Deferred and prepaid revenue and other liabilities 19,698 19,390 12,234

Pension plan liabilities and accrued employees benefits 37,517 33,718 24,335

Deferred tax liabilities 325,992 333,746 314,799

Liabilities related to assets held for sale (note 15)

−

518

−

1,764,986 1,827,968 1,604,890

Shareholders’ equity

Equity attributable to owners

Share capital (note 10) 117,933 119,318 119,527

Contributed surplus 3,787 3,912 3,452

Accumulated other comprehensive income (note 11) 1,272 3,008 6,508

Retained earnings 232,267 216,287 240,499

355,259 342,525 369,986

Non-controlling interest 720,064 701,155 750,878

1,075,323 1,043,680 1,120,864

2,840,309 2,871,648 2,725,754

COGECO INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 20

Three months ended November 30,

2011 2010

(In thousands of Canadian dollars)

$ $

Cash flow from operating activit ies

Profit for the period 47,923 39,808

djustments for:

Depreciation and amortization (note 5) 66,907 61,980

Income taxe s 12,512 18,617

Financial expense (note 6) 17,667 16,862

Share-based compensation (note 10) 1,014 679

Loss (gain) on disposals and write-offs of property, plant and equipment (19) 320

Other 1,789 503

147,793 138,769

Changes in non-cash operating activities (note 12 a)) (75,341) (62,762)

Income taxes received (paid) (36,027) 2,077

Financial expense paid (20,723) (20,469)

15,702 57,615

Cash flow from investing activities

cquisition of property, plant and equipment (77,894) (63,350)

cquisition o

intangible assets (3,944) (3,492)

Other 205

−

(81,633) (66,842)

Cash flow from financing activities

Increase (decrease) in bank indebtedness 31,688 (1,588)

Net repayments under the Term Revolving Facilities (18,767) (13,800)

Issuance of long-term debt, net of discounts and transaction costs 34,641 198,320

Repayments of long-term debt (614) (826)

Increase in deferred transaction costs (1,430)

−

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

Plan (note 10) (1,710) (1,282)

Dividends paid on multiple voting shares (332) (221)

Dividends paid on subordinate voting shares (2,684) (1,786)

Issuance of subordinate voting shares by a subsidiary to non-controlling interest 1,295 290

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

held in trust under the Incentive Share Unit Plan (note 10) (2,855) (2,258)

Dividends paid on subordinate voting shares by a subsidiary to non-controlling interest (8,244) (5,582)

30,988 171,267

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

foreign currency (338) (229)

Net change in cash and cash equivalents (35,281) 161,811

Cash and cash equivalents, beginning of the period 55,216 35,842

Cash and cash equivalents, end of the period 19,935 197,653

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 21

NATURE OF OPERATIONS

COGECO Inc. (the “Corporation” or the “Pa rent Corporation”) is a Canadian public corporation whose shares are listed on the Toront o Stock

Exchange (“TSX”). The Corporati on is engaged in Cable Television, High Speed Internet (“HSI”), Telephon y, managed information technology

and infrastructure, and other telecommunications services to its residential and commercial customers in Canada and in Portugal through

Cogeco Cable Inc. and in Radio broadcasting through Cogeco Diffusion Acquisitions Inc.

The Corporation's registered office is located at 5 Place Ville Marie, Suite 1700, Montréal, Québec, H3B 0B3.

1. BASIS OF PREPARATION

These condensed interim consolidated financial statements have been prepare d in accordance with International Accounting Standards

(“IAS”) 34 Interim Financial Reporting and do not include all of the information required for full annual financial statements. Certain

information and footnote disclosure normally included in annual financial statements were omitted or condensed where such information

is not considered material to the understanding of the Corporation’s interim financial information. As such, these condensed interim

consolidated financial statements should be read in conjunction with the Corporation’s 2011 annual financial statements.

These are the Corporation’s first condensed interim consolidated financial statements prepared in conformity with IAS 34 and

International financial reporting standards (“IFRS”) 1 First-time Ado ption of Internati onal Financial Reporting Standards has been applied.

An explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the

Corporation is provided in note 17.

The condensed interim consolidated financial statements have been prepared on a going concern basis using historical cost except for

derivative financial instruments, assets held for sale (see note 15) and cash-settled share-based payment arrangements, which are

measured at fair value.

Financial information is presented in Canadian dollars, which is the functional currency of COGECO I nc.

The results of operations for the interim period are not necessarily indicative of the results of operations for the full year. The Corporation

does not expect seasonality to be a material factor in quarterly resul ts.

The condensed interim consolidated financial statements were approved by the Board of Directors of COGECO Inc. at its meeting held

on January 25, 2012.

2. SIGNIFICANT ACCOUNTING POLICIES

These condensed interim consolidated financial statements have been prepared with the accounting policies the Corporation e xpects to

adopt in its annual August 31, 2012 consolidated financial statements.

The accounting policies set out below have been applied consistently to all periods presented in the condensed interim consolidated

financial statements and in preparing the opening consolidated statement of financial position as at September 1, 2010 for the purposes

of the transition to IFRS, unless otherwise indicated.

A. BASIS OF CONSOLIDATION

These condensed interim consolidated financial statements include the accounts of the Corporation and its subsidiaries.

Subsidiaries are entities controlled by the Corporation. Control is achieved where the Corporation has the power to govern the

financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are

included in the consolidated financial statements from the date that control commences until the date that control ceases. The

accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Corporation .

Business segments and percentage of interest in the principal operating subsidiaries are as follows:

Segment Principal subsidiaries Percentage of equity

interest

Voting rights

Cable Cogeco Cable Inc. 32.1 82.6

Other Cogeco Diffusion Acquisitions Inc. 100.0 100.0

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 22

The Corporation and its cable subsidiary, Cogeco Cable Inc., have established special purpose entities (“SPEs”) for the purpose of

mitigating the impact of stock price fluctuations in connection with its Incentive Share Unit Plans. A SPE is consolidated if, based on

an evaluation of the substance of its relationship with the Corpo ration and the SPEs’ risks and rewards, the Corporation concludes

that it controls the SPEs. SPEs controlled by the Corporation and Cogeco Cable Inc. were established under terms that impose strict

limitations on the decision-making powers of the SPEs’ management, resulting in the Corporation receiving the majority of the

benefits related to the SPEs’ operations and net assets, being exposed to the majority of risks incident to the SPEs’ activities, and

retaining the majority of the residual or ownership risks related to the SPEs or their assets.

All inter-company transactions and balances and any unrealized revenue and expenses are eliminated in preparing the interim

consolidated financial statements.

B. BUSINESS COMBINATIONS

Acquisitions on or after September 1, 2010

Business acquisitions are accounted for using the acquisition method. Goodwill is measured as the excess of the fair value of the

consideration transferred including the recognized amount of any non-controlling interest in the acquiree over the net recognized

amount of the identifiable assets acquired and liabilities assumed, all measured at the acquisition date.

The consideration transferred is measured as the sum of the fair values of assets transferred, liabilities incurred, and equity

instruments issued by the Corporation at the acquisition date, including any asset or liability resulting from a contingent

consideration arrangement, in exchange for control of the acquiree.

An obligation to pay contingent consideration is classified as an asset or a liability or as equity. Contingent consideration classified

as equity is not re-measured. Contingent consideration classified as an asset or a liability is measured either as a financial

instrument or as a provision. Changes in fair values that qualify as measurement period adjus tments for preliminary purchase price

allocations are adjusted in the current period against the cost of acquisition and such changes are applied on a retroactive basis.

Transaction costs, other than those associated with the issue of debt or equity securities and integration and restructuring costs, that

the Corporation incurs in connection with a business acquisition are recognized in profit or loss as incurred.

Acquisitions prior to September 1, 2010

As part of its transition to IFRS, the Corporation elected not to restate those business combinations that occurred prior to

September 1, 2010. In respect of acquisitions prior to that date, assets and liabilities are included in the statement of financial

position on the basis of their deemed cost at the date of acquisition, which represents the amounts recognized under previous

Canadian Generally Accepted Accounting Principles (“GAAP”) immediately after the date of acquisition.

C. REVENUE RECOGNITION

Revenue is measured at the fair value of the consideration received or receivable, net of returns and discounts. The Corporation

recognizes revenue from the sale of products or the rendering of services when the following conditions are met:

 The amount of revenue and related costs can be measured reliably;

 The significant risks and rewards of ownership have been transferred to customers and there is no continuing

management involvement with the goods; and

 The recovery of the consideration is probable.

More specifically, the Corporation’s principal sources of revenue are recognized as follows:

 Monthly subscription revenue received for Cable Television, HSI and Telephony services and rental of equipment are

recognized as the services are provided;

 Revenue from data services, long-distance and other pay-per-use services are recorded as the services are

provided;

 Revenue generated from the sale of home terminal devices or other equipment are recorded when the equipment is

delivered and accepted by the customers; and

 Revenue generated from the sale of advertising airtime are recognized when the advertisement has been aired.

MULTIPLE-ELEMENT ARRANGEMENTS

The Corporation offers certain pro ducts and services as part of multiple deliverable arrangements. The Corporation evaluates each

deliverable in an arrangement to determine whether such deliverable would represent a separate component. Components are

accounted separately when:

 The delivered elements have stand-alone value to the customers; and

 There is objective and reliable evidence of fair value of any undelivered elements.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 23

Consideration is measured and allocated amongst the components based upon their relative fair values and the relevant revenue

recognition policy is applied to them.

The Corporation considers that installation and activation fees are not separate components because they have no stand-alone

value. Accordingly, they are deferred and amortize d into revenue at the same pace as the related telecommunications services are

earned, which is the average life of a customer’s subscription for residential customers and the term of the agreement for

commercial customers.

Unearned revenue, such as payments for goods and services rec eiv ed in advance of delivery, a re recorded as deferred and prepaid

revenue until the service is provided or the product is delivered to the customer.

D. BARTER TRANSACTIONS

In the normal course of its business, the Corporation enters into barter transactions under which goods, advertising and other

services are acquired in exchange for advertising services. Such revenues and expenses are recorded at the estimated fair value of

goods and services received when goods and other services are received and at the estimated fair value of advertising provided

when advertising services are received.

E. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are carried at cost, less accumulated depreciation and accumulated impairment losses.

During construction of new assets, direct costs plus a portion of direct overhead costs directly attributable to the asset are

capitalized. Borrowing costs directly attributable to the acquisition or construction of qualifying assets, which require a substantial

amount of time to get ready for their intended use or sale, are capitalized until such time as the assets are substantially ready for

their intended use or sale. All other borrowing costs are recorded as financial expense in the period in which they are incurred.

Depreciation is recognized from the date the asset is ready for its intended use so as to write off the cost of assets, other than

freehold land and properties under construction, less their residual values over their useful lives, using the straight-line method.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where

shorter, the term of the relevant lease. The depreciation periods are as follows:

BUILDINGS 10 TO 40 YEARS

CABLE SYSTEMS 5 TO 20 YEARS

BROADCASTING, PROGRAMMING AND PRODUCTION EQUIPMENT 3 TO 10 YEARS

HOME TERMINAL DEVICES 3 TO 5 YEARS

ROLLING STOCK AND EQUIPMENT 5 YEARS

OTHER EQUIPMENT 2 TO 10 YEARS

LEASEHOLD IMPROVEMENTS LEASE TERM

When significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate

items (major components) of property, plant and equipment.

The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period, with

the effect of any changes in estimate accounted for on a prospective basis.

The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference

between the sale proceeds and the carrying amount of the asset and is recognized in profit or loss.

The Corporation does not record decommissioning obligations in connection with its cable distribution network. The Corporation

expects to renew all of its agreements with utility companies to access their support structures in the future, thus the resulting

present value of the obligation is not significant.

F. INTANGIBLE ASSETS

Intangible assets acquired separately are measured on initial recognition at cost. Intangible assets acquired in a business

combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date. Subse quent to

initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses.

The useful lives of intangible assets are assessed as either finite or indefinite.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 24

Intangible assets with finite useful lives are amortized over their useful life. The estimated useful lives are reviewed at the end of

each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible

assets with finite useful lives are amortized as follows:

 Customer relationships are amortized on a straight-line basis over the estimated us eful life, defined as the average

life of a commercial customer’s subscription, not exceeding eight years;

 Reconnect and additional service activation costs are capitalized up to a maximum amount not exceeding the

revenue generated by the reconnect activity and are amortized over the average life of a customer’s subscription, not

exceeding four years; and

 Direct and incremental costs associated with the acquisition of commercial customers are capitalized and amortized

over the term of the agreement.

Intangible assets with indefinite useful lives are those for which there is no foreseeable limit to their useful economic life as they

arise from contractual or other legal rights that can be renewed without significant cost. They comprised Cable Distribution

Undertaking Broadcasting Licenses (“Cable Distribution Licenses”) and Broadcasting Licenses. Cable Distribution Licenses are

comprised of broadcast authorities licenses and exemptions from licensing that allow access to homes and subscribers in a specific

area. Broadcasting Licenses are broadcast authorities licenses that allow access to a radio frequency in a specific market. The

Corporation has concluded that the Cable Distribution and Broadcasting Licenses have indefinite useful lives since there are no

legal, regulatory, contractual, economic or other factors that would prevent their renewals or limit the period over which they will

contribute to the Corporation’s cash flows. The Corporation reviews at the end of each reporting period whether event and

circumstances continue to support indefinite useful life assessment for these licenses. Intangible assets with indefinite useful lives

are not amortized, but tested for impairment at least annually, or more freq uently if there is any indication of impairment.

Goodwill represents the future economic benefits arising from a business combination that are not individually identified and

separately recognized. It is not amortized but tested for impairm ent at least annually, or whenever there is an indication of p ossible

impairment.

G. IMPAIRMENT OF NON FINANCIAL ASSETS

At the end of each reporting period, the Corporation reviews the carrying value of its property, plant and equipment and intangible

assets with finite useful lives to determine whether there is any ind ication that those assets may be impaired. If any such ind ication

exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any.

Goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually, or whenever there is an

indication that the asset may be impaired.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future

cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time

value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

For the purpose of impairment testing, assets that cannot be tested on an individual basis are grouped together into the smallest

identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets (“cash-

generating unit” or “CGU”). When a reasonable and consistent basis of allocation can be identified, corporate assets are also

allocated to individual CGU, or otherwise they are allocated to the smallest group of CGU for which a reasonable and consistent

allocation basis can be identified.

An impairment loss is recognized when the carrying amount of an asset or a C GU exceeds its recoverable amou nt fo r the a mount o f

this excess. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill

allocated to the CGU and then to reduce the carrying amount of the other assets in the CGU on a pro rata basis. The impairment

loss is recognized immediately in profit or loss in the period in which the loss is incurred.

Impairment losses recognized in prior periods are assessed at each reporting date for an y indications that the loss has decreased or

no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable

amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount

that would have been determined, net of depreciation or amortiza tion, if no impairment loss had been recognized. A reversal of an

impairment loss is recognized immediately in profit or loss.

For the purpose of impairment testing, goodwill is allocated to each of the Corporation’s CGUs that are expected to benefit from the

synergies of the related business combination. An impairment loss recognized for goodwill cannot be reversed.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 25

H. LEASES

LESSEE

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards incidental to

ownership of the asset to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are recognized as assets of the Corporation at their fair value at the inception of the lease or, if

lower, at the present value of the minimum lease payments as determined at the inception of the lease. Subsequent to initial

recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. The corresponding liability

is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between financial

expense and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability.

Financial expense and depreciation of the assets are recognized in profit or loss in the period they occur.

Rentals payable under operating leases are charged to the profit or loss statement on a straight line basis over the term of the

relevant lease.

LESSOR

The Corporation leases certain telecommunication equipment, p rimarily home terminal devices, to its customers. These leases are

classified as operating leases and rental revenue is recognized on a straight-line basis over the term of the relevant lease.

I. INCOME TAXES

Income tax expense represents the sum of the tax currently payable and deferred. Current and deferred taxes are recognized in

profit or loss, except when they relate to a business combination or to items that are recognized in other comprehensive income or

directly in equity.

CURRENT TAX

The tax currently payable is based on taxable profit for the year. The Corporation’s liability for current tax is calculated using tax

rates that have been enacted or substantively enacted at the end of the reporting period.

DEFERRED TAX

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial

reporting purposes and the amounts used for taxation purposes. Deferred tax assets and liabilities are not recognized if the

temporary difference arises from the initial recognition of goodwill or assets or liabilities in a transaction that is not a business

combination and that affects neither the taxable profit nor the accounting profit or is related to investments in subsidiaries to the

extent that the Corporation is able to control the reversal and it is probable that the temporary differences will not reverse in the

foreseeable future.

Deferred tax assets are generally recognized for unused tax losses and deductible temporary differences to the extent that it is

probable that taxable profits will be available against which, those deductible temporary differences can be utilized. Deferred tax

assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax ben efit will

be realized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is

settled or the asset realized, based on tax rates that have bee n enacted or substantively enacted a t the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the mann er in which the

Corporation expects, at the end of the repo rting period, to recover or settle the carrying amount of its a ssets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax

liabilities and when they relate to income taxes levied by the same taxation authority on the same taxable entit y, or on different tax

entities, but the Corporation intends to settle its current tax assets and liabilities on a net basis.

J. PROVISIONS

Provisions represent liabilities of the Corporation for which the amount or timing is uncertain. A provision is recorded when the

Corporation has a legal or constructive present obligation as a result of a past event and it is probable that an outfl ow of economic

benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount

recognized represents management’s best estimate of the amo unt required to settle the o bligation at the end of t he re porting period,

taking into account the risks and uncertainties surrounding the obligation. When the effect of the time value of mone y i s material, the

amount of a provision is determined by discounting the expected future cash flows at a pre-tax rate that reflects current market

assessments of the time value of money and the risks specific to the liability. When discounting is used, the increase in the provision

due to the passage of time is recognized as financial expense.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 26

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a

receivable is recognized as an asset if it is virtually certain that reimbursement will be received and t he amount of the recei vable can

be measured reliably.

K. SHARE-BASED PAYMENTS

EQUITY SETTLED AWARDS

The Corporation measures stock options granted to employees that vest rateably over the service period based on the fair value of

each tranche on grant date by using the Black-Scholes pricing model and a compensation expense is recognized on a straight-line

basis over the vesting period applicable to the tranche, with a corresponding increase in contributed surplus. Granted options vest

equally over a period of five years beginning one year after the day such options are granted. At the end of each reporting period,

the Corporation revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original

estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding

adjustment in contributed surplus. When the stock options are exercised, share capital is credited by the sum of the consideration

paid and the related portion previously recorded in contributed surplus.

The Corporation measures incentive share units (“ISUs”) granted to employees based on the fair value of the Corporation’s

subordinate voting shares at the date of grant and a compensation expense is recognized over the vesting period, with a

corresponding increase in contributed surplus. The total vesting period of each grant is three years less one day.

CASH SETTLED AWARDS

The fair value of the amount payable to Board directors in re spect of share appreciation rights under the Deferred Share Unit Plans

of the Corporation, which are settled in cash, is recognized as a compensation expense with a corresponding increase in pension

plan liabilities and accrued employee benefits as of the date units are awarded to Board directors. The accrued liability is re-

measured at the end of each reporting period, until settlement, using the average closing price of the subordinate vo ting shares on

the Toronto Stock Exchange for the twenty consecutive trading days immediately preceding by one day the closing date of the

reporting period. Any changes in the fair value of the liability are recognized in profit or loss.

L. EMPLOYEE BENEFITS

SHORT-TERM EMPLOYEE BENEFITS

Short-term employee benefits include wages, salaries, compensated absences, profit-sharing and bonuses. The y are measured on

an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be

paid under short-term cash bonus or profit sharing plans if the Corporation as a present legal or constructive obligation to pay thi s

amount as a result of past service provided by the employee and the obligation can be estimated reliably.

DEFINED CONTRIBUTION PENSION PLANS

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity

and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension

plans are recognized as an expense in the periods during which services are rendered by employees.

DEFINED BENEFIT PENSION PLANS

Pension costs for defined benefit pension plans are determined using the projected unit credit method (sometimes known as the

accrued benefit method pro-rated on se rvice), with actuarial valuations being carried out at the end of each re porting period, when

necessary, and are funded through contributions determined in accordance with this method. The Corporation’s net obligation in

respect of defined benefit pension plans is calculated separately for each plan.

Pension expense is charged to salaries, employee benefits and outsourced services and includes:

 The cost of pension benefits provided in exchange for employees’ services rendered during the period;

 Vested past service costs which are recognized immediately;

 Unvested past service costs which are amortized on a straight-line basis over the vesting period; and

 The interest cost of pension obligations less the expected return on pension fund a ssets. The Corporation uses the

fair value of plan assets to evaluate plan assets for the purpose of calculating the expected return on plan assets.

The retirement benefit obligation recognized in the statement of financial position represents the p resent value of th e defined benefit

obligation as adjusted for unrecognized past service costs and as reduced by the fair value of plan assets.

The Corporation recognizes actuarial gains or losses in other comprehensive income in the period in which they arise.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 27

M. FOREIGN CURRENCY TRANSLATION

FOREIGN CURRENCY TRANS ACTIONS

For the purpose of the consolidated financial statements, the profit or loss and financial position of each group entity are expressed

in Canadian dollars, which is the functional and presentation currency of the Corporation for the consolidated financial statements.

Transactions in foreign currencies are translated to the respective functional curren cy of the Corporation’s entities at the exchange

rate in effect at the transaction date. Monetary assets and liabilities denominated in foreign currencies at the reporting date are

translated to the functional currency at the exchange rate at that date. Foreign currency differences arising on translation are

recognized as financial expense in profit or loss, except for those arising on the translation of financial instruments designated as a

hedge of a net investment in foreign ope rations, and financial instruments designated and effective as hedging items in a cash-flow

hedge, which are recognized in other comprehensive income until the instruments are settled. Non-monetary items that are

measured in terms of historical cost are translated at historical rates at the date of the transaction.

FOREIGN OPERATIONS

The assets and liabilities of foreign operations, including goodwill and fair value adjustment arising on acquisition, are translated to

Canadian dollars using exchange rates prevailing at the end of the reporting period. Good will and fair value adjustments arising on

the acquisition of a foreign operation are treated as assets and liabilities of the foreig n operation and t ranslated at the rate prevailing

at the end of the reporting period.

Revenue and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated

significantly or significant transactions occurred during that period, in which case the exchange rates at the date of the transactions

are used. Exchange differences arising, if any, are recognized as foreign currency translation adjustment in other comprehensive

income and accumulated in equity.

The Corporation applies hedge accounting to foreign currency differences arising between the functional currency of the foreign

operation and the parent entity’s functional currency (Canadian dollars). Foreign currency differences arising on the translation of

the long-term debt designated as a hedge of a net investment in foreign operations are recognized in other comprehensive income

to the extent that the hedge is effective, and are presented within equity in the foreign currenc y translation adjustment balance. To

the extent that the hedge is ineffective, such differences are recognized in profit or loss. When the hedged part of a net investment is

disposed of, the relevant amount in the cumulative amount of foreign currency translation adjustment is transferred to profit or loss

as part of the profit or loss on disposal.

N. FINANCIAL INSTRUMENTS

CLASSIFICATION AND MEASUREMENT

All financial instruments, including derivatives, are included in the statement of financial position initially at fair value when the

Corporation becomes a party to the contractual obligations of the instrument.

Subsequent to initial recognition, non-derivative financial instruments are measured in accordance with their classification as

described below:

 Loans and receivables are financial assets with fixed or determinable payments that are not quoted on an open

market. Cash and cash equivalents and trade and other receivables are classified as loans and receivables. They

are measured at amortized cost using the effective interest method, less any impairment loss;

 Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities

(other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from

the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs

directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are

recognized immediately in profit or loss; and

 Trade and other payables and loans and borrowings are classified as other liabilities. They are measured at

amortized cost using the effective interest method. Directly attributable transaction costs are added to the initial fair

value of financial instruments except for those incurred in respect of the Term Revolving Facilities, which are

amortized over the term of the related financing on a straight-line basis.

Financial assets are derecognized only when the Corporation no longer holds the contractual rights to the cash flows of the asset or

when the Corporation transfers substantially all the risks and rewards of ownership of the financial asset to another entity. Financial

liabilities are derecognized only when the Corporation’s obligations are discharged, cancelled or expire.

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if,

there is a currently enforceable legal right to offset the re cognized amounts and there is an intention to settle on a net basis, or to

realize the assets and settle the liabilities simultaneously.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 28

DERIVATIVE FINANCIAL INSTRUMENTS, INCLUDING HEDGE ACCOUNTING

The Corporation uses cross-currency swaps as derivative financial instruments to manage foreign exchange risk related to its

foreign denominated long-term debt. The Corporation does not hold or use any derivative financial instruments for speculative

trading purposes.

Derivatives are recognized initially at fair value and related transaction costs are recognized in profit or loss as incurred. Subsequent

to initial recognition, derivatives are measured at fair value, and changes therein a re accounted for as described below. Net receipts

or payments arising from derivative agreements are recognized as financial expense.

On initial designation of the hedge, the Corporation formally documents the relationship between the hedging instrument(s) and

hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the

methods that will be used to assess the effectiveness of the hedging relationship. The Corporation makes an assessment, both at

the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to b e “highly

effective” in offsetting the changes in the cash flows of the respective hedged items during the period for which the hedge is

designated and whether the actual results of each hedge are within a range of 80-125 percent. For a cash flow hedge of a

forecasted transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash

flows that could ultimately affect reported profit or loss.

Cash flow hedge accounting

When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk

associated with a recognized asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective

portion of changes in the fair value of the derivative is recognized in accumulated other comprehensive income and presented in

unrealized gains or losses on cash flow hedges in equity. The amount recognized in accumulated other comprehensive income is

removed and included in profit or loss in the same period as th e hedged cash flows affect profit o r loss and in the same line item as

the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.

If the hedging instrument no longer meets the criteria for hedge accounting, expires, is sold, terminated, exercised, or the

designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in

accumulated other comprehensive income and presented in unrealized gains or losses on cash flow hedges in equity, remains there

until the forecasted hedged item affects profit or loss. If the forecasted hedged item is no longer expected to occur, then the balance

in accumulated other comprehensive income is recognized immediately in profit or loss.

In other cases the amount recognized in accumulated othe r comprehensive income is transferred to profit or loss in the same period

in which the hedged item affects profit or loss.

EMBEDDED DERIVATIVES

Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks

of the host contract and the embedded derivative are not closely related. A separate instrument with the same terms as the

embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through

profit or loss. At November 30, 2011 and 2010, August 31, 2011 and September 1, 2010, there were no significant embedded

derivatives or non-financial derivatives that require separate fair value recognition on the consolidated statements of financial

position.

IMPAIRMENT OF FINANCIAL ASSETS

Trade and other receivables (“receivables”) are assessed at each reporting date to determine whether there is objective evidence

that they are impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial

recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be

estimated reliably.

Objective evidence that receivables are impaired can include default or delinquency by a debtor or indications that a debtor will

enter bankruptcy.

The Corporation considers evidence of impairment for receivables at both a specific asset and aggregate basis. All individually

significant receivables are assessed for specific impairment. Those found not to be specifically impaired are then collectively

assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are

assessed on an aggregate basis for impairment by grouping together receivables with similar risk characteristics.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 29

An impairment loss in respect of receivables is calculated as the difference between its carrying amount and the present value of the

estimated future cash flows. Losses are recognized in profit or loss and reflected in an allowance account presented in reduction of

receivables. Interest on the impaired asset continues to be recognized through the unwinding of the discount. When a subsequen t

event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

O. CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and highly liquid investments that have an original maturity of three months or less.

P. EARNINGS PER SHARE

The Corporation presents basic and diluted earnings per share data for its multiple and subordinate voting shares. Basic earnings

per share is calculated by dividing the profit or loss attributable to owners of the Corporation by the weighted average number of

multiple and subordinate voting shares outstanding during the period, adjusted for subordinate voting shares held in trust under the

ISU Plan. Diluted earnings per share is determined by adjusting the weighted average number of multiple and subordinate voting

shares outstanding for the effects of all dilutive potential subordinate voting shares, which comprise stock options and ISUs granted

to employees.

Q. SEGMENT REPORTING

An operating segment is a component of the Corporation that engages in business activities from which it may earn revenue and

incur expenses, including revenue and expenses that relate to transaction with any of the Corporation’s other components. All

operating segments’ operating results are reviewed regularly by the Corporation’s Chief Operating Decision Maker (“CODM”) to

make decision about resources to be allocated to the segment and to assess its performance, and for which discrete financial

information is available. Segment results that are directly reported to the CODM include items directly attributable to a segment as

well as those that can be allocated on a reasonable basis.

R. ACCOUNTING JUDGEMENT AND USE OF ESTIMATES

The preparation of condensed interim consolidated financial statements in accordance with IFRS requires management to make

judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and

liabilities, revenue and expenses.

Significant areas requiring the use of management judgements and estimates relate to the following it ems:

 Allowance for doubtful accounts is established based on specific credit risk of the Corporation’s 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;

 Fair value of assets acquired and liabilities assumed in a business combination is estimated based on information

available at date of acquisition and involves considerable judgement in determining the fair values assigned to the

property, plant and equipment and intangible assets acquired and liabilities assumed on acquisition. Among other

things, the determination of these fair values involves the use of discounted cash flow analyses, estimated future

margins and estimated future customer counts;

 Measurement of property, plant and equipment and intangible assets with finite useful lives requires estimates for

determining the asset’s expected useful lives and residual values. Managem ent judgement is required to determine

the components and the depreciation method used;

 Management judgement is used to determine the timing of expected cash outflows related to decommissioning

provisions;

 The fair value of derivative financial instruments is estimated using valuation techniques based on several inputs

such as interest rates and volatilities and foreign exchange rates;

 The defined benefit pension plans liability is determined using actuarial calculations that are based on several

assumptions. The actuarial valuation uses the Corporation’s assumptions for the discount rate, expected long-term

rate of return on plan assets, rate of compensation increase and expected average remaining years of service of

employees;

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 30

 The impairment of non-financial assets requires the use of management judgement to identify the existence of

indicators of impairment and the determination of CGUs. Furthermore, when deter mining the recoverable amount of

a CGU, the Corporation uses significant estimates such as the estimation of future cash flows and discount rates

applicable; and

 Deferred tax assets and liabilities require estimates about the nature and timing of future permanent and temporary

differences, the expected timing of reversals of those tempora ry differences and th e future tax rates that will appl y to

those differences. Judgment is also required in determining the tax basis of indefinite life intangible assets and the

resulting tax rate used to measure deferred taxes.

Such judgments and estimates are based on the facts and information available to the management of the Corporation. Changes in

facts and circumstances may require the revision of previous estimates, and actual results could differ from these estimates.

3. NEW ACCO UNTING STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE

A number of new standards, interpretations and amendments to existing standards were issued by the International Accounting Standard

Board (“IASB”) that are mandatory but not yet effective for the period ended November 30, 2011 or year ended August 31, 2012, and

have not been applied in preparing these condensed interim consolidated financial statements. The following standards may have a

material impact on the consolidated financial statements of the Corporation:

Effective for annual periods

starting on or afte

IFRS 9 Financial Instruments January 1, 2015 Early adoption permitted

IFRS 10 Consolidated Financial Statements January 1, 2013 Early adoption permitted

IFRS 12 Disclosure of Interests in Other Entities January 1, 2013 Early adoption permitted

IFRS 13 Fair Value Measurement January 1, 2013 Early adoption permitted

mendments to IAS 1 Presentation of Financial Statements January 1, 2013 Early adoption permitted

mendment to IAS 19 Employee Benefits January 1, 2013 Early adoption permitted

IFRS 9 replaces the guidance in IAS 39 Financial Instruments: Recognition and Measurement on the classification and measurement of

financial assets and financial liabilities. The replacement of IAS 39 is a three-phase project with the o bjective of impro ving and simplifying

the reporting for financial instruments. This is the first phase of that project.

IFRS 10 replaces the consolidation requirements in IAS 27 Consolidated and Separ ate Financial Statements and SIC-12 Consolidation –

Special Purpose Entities. It provides a single model to be applied in the control analysis for all investees.

IFRS 12 establishes disclosure requirements for entities that have interests in subsidiaries, joint arrangements, associates and/or

unconsolidated structures entities.

IFRS 13 replaces the fair value measurement guidance contained in individual IFRS with a single source of fair value measurement

guidance. The standard clarifies the definition of fair value, establishes a framework for measuring fair value and sets out disclosure

requirements for fair value measurements.

The amendments to IAS 1 require that an entity present separately the items of other comprehensive income (“OCI”) that may be

reclassified to profit or loss in the future from those that would never be reclassified to profit or loss.

The amendments to IAS 19 requires the recognition of actuarial gains and losses immediately in other comprehensive income, full

recognition of past service costs immediately in profit or loss, recognition of expected return on plan assets in profit or loss to be

calculated based on the rate used to discount the defined benefit obligation and additional disclosures explaining the characteristics of

the Corporation’s defined benefit pension plans.

The Corporation is in the process of determining the extent of the impact of these standards on its consolidated financial statements.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 31

4. OPERATING SEGMENTS

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

Television, HSI, Telephony, managed information technology and infrastructure and other telecommunications services, and the other

segment is comprised of radio, 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 operating segment is presented in the tables below:

Cable Othe

Consolidated

Three months ended November 30, 2011 2010 2011 2010 2011 2010

$ $ $ $ $ $

Revenue 356,939

330,467

30,599 11,247 387,538

341,714

Salaries, employee benefits and outsourced services 59,374

51,675

18,476 6,637 77,850

58,312

Other external purchases 153,852

142,641

10,827 3,494 164,679

146,135

Management fees- COGECO Inc. 7,142

6,644

(7,142) (6,644 ) −

−

Depreciation and amortization 66,112

61,831

795 149 66,907

61,980

Operating income 70,459

67,676

7,643 7,611 78,102

75,287

Financial expense 16,718

16,657

949 205 17,667

16,862

Income taxe s 10,775

16,429

1,737 2,188 12,512

18,617

Profit for the period 42,966

34,590

4,957 5,218 47,923

39,808

Total assets

(1)

2,671,900

2,712,679

168,409 158,969 2,840,309

2,871,648

Property, plant and equipment

(1)

1,268,721

1,254,217

18,360 18,034 1,287,081

1,272,251

Intangible assets

(1)

1,044,551

1,045,601

79,918 79,918 1,124,469

1,125,519

Goodwill

(1)

208,993

208,796

17,580 17,006 226,573

225,802

Acquisition of property, plant and equipment 76,773

63,252

1,121 98 77,894

63,350

(1) At November 30, 2011 and August 31, 2011.

The principal following tables set out certain geographic market information based on clients’ locations:

Three months ended November 30,

2011 2010

$ $

Revenue

Canada 346,023 298,451

Europe 41,515 43,263

387,538 341,714

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 32

November 30, 2011 August 31, 2011

$ $

Property, plant and equipment

Canada 1,251,243 1,237,657

Europe 35,838 34,594

1,287,081 1,272,251

Intangible assets

Canada 1,124,469 1,125,519

Europe

−

1,124,469 1,125,519

Goodwill

Canada 226,573 225,802

Europe

−

226,573 225,802

5. DEPRECIATION AND AMORTIZATION

Three months ended November 30,

2011 2010

$ $

Property, plant and equipment 61,913 58,101

Intangible assets 4,994 3,879

66,907 61,980

6. FINANCIAL EXPENSE

Three months ended November 30,

2011 2010

$ $

Interest on long-term debt 14,894 15,892

Net foreign exchange losses (gains) 1,458 (332)

mortization of deferred transaction costs 475 489

Capitalized borrowing costs (372) (43)

Other 1,212 856

17,667 16,862

7. INCOME TAXES

Three months ended November 30,

2011 2010

$ $

Current 21,491 80,143

Deferred (8,979) (61,526)

12,512 18,617

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 33

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

rates and the consolidated income tax expense:

Three months ended November 30,

2011 2010

$ $

Profit before income taxes 60,435 58,425

Combined income tax rate 27.03% 28.91%

Income tax expense at combined income tax rate 16,336 16,891

djustment for losses or profit subject to lower or higher tax rates 258 (953)

Decrease in income taxes from changes in tax legislation on partnership income (3,450)

−

Income taxes arising from non-deductible expenses 56 170

Effect of foreign income tax rate differences

−

2,461

Other (688) 48

Income tax expense at effective income tax rate 12,512 18,617

8. EARNINGS PER SHARE

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

Three months ended November 30,

2011 2010

$ $

Profit for the period attributable to owners 18,770 16,391

Weighted average number of multiple voting and subordinate voting shares outstanding 16,737,638 16,728,184

Effect of dilutive stock options

−

10,970

Effect of dilutive incentive share units 102,704 74,014

Weighted average number of diluted multiple voting and subordinate voting shares

outstanding 16,840,342 16,813,168

Earnings per share

Basic 1.12 0.98

Diluted 1.11 0.97

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 34

9. LONG-TERM DEBT

Maturity Interest rate

November 30,

2011

August 31,

2011

% $ $

Parent Corporation

Term Revolving Facility

Revolving loans February 2016

(1)

3.30

(2)

30,963 69,849

Unsecured Notes

(3)

November 2021 6.50 34,641

−

Finance lease November 2013 9.29 47 52

Subsidiaries

Term Revolving Facility

Revolving loans November 2016

(4)

3.50

(2)

130,000 110,000

Senior Secured Notes

Series A – US$190,000,000 October 2015 7.00

(5)

192,876 185,049

Series B October 2018 7.60 54,655 54,646

Senior Secured Debentures Series 1 June 2014 5.95 298,186 298,016

Senior Secured Debentures Series 2 November 2020 5.15 198,435 198,400

Senior Unsecured Debenture March 2018 5.94 99,833 99,827

Finance leases October 2013 6.73 – 9.93 2,333 2,939

Other October 2011

–

−

1,041,969 1,018,782

Less current portion 1,790 2,119

1,040,179 1,016,663

(1) On November 30, 2011, the Corporation renewed its credit agreement for a $100 million credit facility in the form of a four-year Term Revolving Facility.

The renewed Term Revolving Facility will mature on February 1, 2016, but may be extended by additional one-year periods on an annual basis, subject

to lenders’ approval. The Term Revolving Facility is indirectly secured by a first priority fixed and floating charge on substantially all present and future

real and personal property and undertaking of every nature and kind of the Corporation and certain of its subsidiaries, excluding the capital stock and

assets of the Corporation’s subsidiary, Cogeco Cable Inc., and guaranteed by its subsidiaries, excluding Cogeco Cable Inc.

(2) Interest rate on debt at November 30, 2011, including applicable margin.

(3) On November 7, 2011, the Corporation completed, pursuant to a private placement, the issue of 6.50 % Unsecured Notes for a total of $35 million

maturing November 7, 2021. Interest on these Notes is payable semi-annually in arrears on November 7 and May 7 of each year commencing May 7,

2012. Net proceeds of approximately $35 million have been used to reduce COGECO Inc.’s bank indebtedness.

(4) On November 22, 2011, the Corporation’s subsidiary, Cogeco Cable Inc., renewed its credit agreement for a $750 million credit facility, with an option to

increase to a total amount of up to $1 billion, subject to lenders’ participation, in the form of a five year Term Revolving Facility. The renewed Term

Revolving Facility was arranged by a group of financial institutions led by Canadian Imperial Bank of Commerce and Bank of Montreal. The renewed

Term Revolving Facility will mature on November 22, 2016, but may be extended by additional one-year periods on an annual basis, subject to lenders’

approval. The Term Revolving Facility is indirectly secured by a first priority fixed and floating charge on substantially all present and future real and

personal property and undertaking of every nature and kind of Cogeco Cable Inc. and certain of its subsidiaries, and provides for certain permitted

encumbrances, including purchased money obligations, existing funded obligations and charges granted by any subsidiary prior to the date when it

becomes a subsidiary, subject to a maximum amount.

(5) Cross-currency swap agreements have resulted in an effective interest rate of 7.24% on the Canadian dollar equivalent of the US denominated debt.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 35

10. SHARE CAPITAL

Authorized

Unlimited number of:

Preferred shares of first and second rank, issuable in series and non-voting, except when specified in the Articles of

Incorporation of the Corporation or in the Law.

Multiple voting shares, 20 votes per share.

Subordinate voting shares , 1 vote per share.

Issued

November 30, 2011 August 31, 2011

$ $

1,842,860 multiple voting shares 12 12

14,989,338 subordinate voting shares 121,976 121,976

121,988 121,988

112,921 subordinate voting shares hel d in trus t under the Incentive Share Unit Plan (95,733 at

August 31, 2011) (4,055) (2,670)

117,933 119,318

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

Number of shares Amount

Balance at August 31, 2011 95,733 2,670

Subordinate voting shares acqu ired 34,890 1,710

Subordinate voting shares distributed to employees (17,702) (325)

Balance at November 30, 2011 112,921 4,055

Dividends

For the three-month period ended November 30, 2 011, a dividend of $0.18 per share was paid to the holders of multiple and subo rdinate

voting shares, totalling $3 million, compared to a dividend of $0.12 per share, or $2 million the year before.

Share-based payment plans

The Corporation and its subsidiary, Cogeco Cable Inc., offer for certain executives Stock Option Plans, which are described in the

Corporation’s annual consolidated financial statements. For the three-month periods ended November 30, 2011 and 2010, no stock

options were granted to employees by COGECO Inc. Under the Stock Option Plan of the Corporation, no options were outstanding at

November 30, 2011 and August 31, 2011. However, for the three-m onth period ended November 30, 2011, the Corporation’s subsidiary,

Cogeco Cable Inc., granted 87,400 stock options (66,700 in 2010) with an exercise price of $48.02 ($39.00 in 2010) of which 46,400

stock options (35,800 in 2010) were granted to the Corporation’s employees. These options vest equally over a period of five years

beginning one year after the day such options are granted and are exercisable over ten years. During the three-month period ended

November 30, 2011, Cogeco Cable Inc. charged COGECO Inc. an amount of $74,000 ($49,000 in 2010) with respect to the options

granted to COGECO Inc.’s employees. As a result, a compensati on expense of $1 62,000 ($167,000 in 2010) was recorded for the t hree-

month period ended November 30, 2011.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 36

The weighted average fair value of stock options granted by Cogeco Cable Inc. for the three-month period ended November 30, 2011

was $11.34 ($10.62 in 2010) per option. The weighted average fair value of each option granted was estimated at the grant date for

purposes of determining stock-based compensation expense using the Black-Sholes option pricing model based on the following

assumptions:

2011 2010

% %

Expected dividend yield 1.65 1.44

Expected volatility 26.84 29

Risk-free interest rate 1.76 2.25

Expected life in years 6.1 6.2

Under the Stock Option Plan, the following options were granted by Cogeco Cable Inc. and are outstanding at November 30, 2011:

Options

Weighted

average

exercise price

Outstanding at August 31, 2011 564,377 32.30

Granted 87,400 48.02

Exercised

(1)

(43,852) 29.52

Outstanding at November 30, 2011 607,925 34.76

Exercisable at November 30, 2011 406,191 31.61

(1) The weighted average share price for options exercised during the period was $49.48.

The Corporation and its subsidiary, Cogeco Cable Inc., also offers senior executive and designated employee Incentiv e Share Unit Plans

(“ISU Plans”), which are described in the Corporation’s annual consolidated financial statements. For the three-month period ended

November 30, 2011, 34,890 (36,085 in 2010) and 57,943 (58,088 in 2010) ISUs were granted by the Corporation and its subsidiary,

respectively. The Corporation and its subsidiary establish the value of the compensation related to the ISUs granted based on the fair

value of the subordinate voting shares at the date of grant and a c ompensation expense is recognized over the vesting period, which is

three years less one day. Two trusts were created for the purpose of purchasing these shares on the stock market in order to protect

against stock price fluctuation. The Corporation and its subsidiary instructed the trustees to purchase 34,890 (36,085 in 2010) and 57,821

(57,203 in 2010) subordinate voting shares on the stock market. These shares were purchased for cash consideration aggregating

$1,710,000 ($1,282,000 in 2010) and $2,855,000 ($2,258,000 in 2010) and are held in trusts for the participants until they are fully

vested. The trusts, considered as special purpose entities, are consolidated in the Corporation’s financial statements with the value of the

acquired shares presented as subordinate voting shares held in trust under the IS U Plans in reduction of share capital or non-c ontrolling

interest. A compensation expense of $667,000 ($403,000 in 2010) was recorded for the three-month period ended November 30, 2011

related to these plans. During the three-month period ended November 30, 2011, Cogeco Cable Inc. charged COGECO Inc. an amount

of $76,000 ($39,000 in 2010) with respect to the ISUs granted to COGECO Inc.’s employees.

Under the ISU Plan of the Corporation, the following ISUs were granted and are outstanding at November 30, 2011:

Outstanding at August 31, 2011 95,733

Granted 34,890

Distributed (17,702)

Forfeited (1,102)

Outstanding at November 30, 2011 111,819

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 37

Under the ISU Plan of Cogeco Cable Inc, the following ISUs were granted and are outstanding at November 30, 2011:

Outstanding at August 31, 2011 105,064

Granted 57,943

Outstanding at November 30, 2011 163,007

The Corporation and its subsidiary, Cogeco Cable Inc., also offer Deferred Share Unit Plans (“DSU Plans”) for members of the Bo ard of

directors which are described in the Corporation’s annual consolidated financial statements. For the three-month periods ended

November 30, 2011 and 2010, the Corporation did not issue any deferred share units (“DSUs”) to the participants in connection with the

DSU Plans. A compensation expense of $185,000 ($109,000 in 2010) was recorded for the three-month period ended November

30, 2011 for the liability related to these plans.

Under the DSU Plan of the Corporation, the following DSUs were issued and are outstanding at November 30, 2011:

Outstanding at August 31, 2011 22,415

Dividend equivalents 80

Outstanding at November 30, 2011 22,495

Under the DSU Plan of Cogeco Cable Inc., the following DSUs were issued and are outstanding at November 30, 2011:

Outstanding at August 31, 2011 15,608

Dividend equivalents 80

Outstanding at November 30, 2011 15,688

11. ACCUMULATED OTHER COMPREHENSIVE INCOME

Cash flow

hedges

Foreign

currenc

translation

Defined

benefit

pension plans Total

$ $ $ $

Balance at September 1, 2010 941 5,567 − 6,508

Other comprehensive income (loss) 581 (619) 1,251 1,213

Balance at November 30, 2010 1,522 4,948 1,251 7,721

Other comprehensive income (loss) (874) 1,694 (5,533) (4,713)

Balance at August 31, 2011 648 6,642 (4,282) 3,008

Other comprehensive loss (313) (88) (1,335) (1,736)

Balance at November 30, 2011 335 6,554 (5,617) 1,272

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 38

12. STATEMENTS OF CASH FLOWS

a) Changes in non -cash operating activities

Three months ended November 30,

2011 2010

$ $

Trade and other receivables (11,066) (5,112)

Prepaid expenses and other (829) 3,293

Trade and other payables (67,725) (60,356)

Provisions 4,604 (649)

Deferred and prepaid revenue and other liabilities (325) 62

(75,341) (62,762)

b) Cash and cash equivalents

November 30, 2011 August 31, 2011

$ $

Cash 15,823 50,995

Cash equivalents

(1)

4,112 4,221

19,935 55,216

(1) At November 30, 2011, term deposit of €3,000,000, bearing interest at 2%, maturing on December 27, 2011.

13. EMPLOYEE BENEFITS

The Corporation and its Canadian subsidiaries offer their employees contributory defined benefit pension plans, defined contribution

pension plans or collective registered retirement savings plans, which are described in the Corporation’s annual consolidated financial

statements. The total expense related to these plans is as follows:

Three months ended November 30,

2011 2010

$ $

Contributory defined benefit pension plans 2,073 915

Defined contribution pension plans and collective registered retirement savings plans 1,386 1,277

3,459 2,192

14. FINANCIAL INSTRUMENTS

a) Financial risk 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, liquidity, interest rate and foreign exchange risk.

Credit risk

Credit risk represents the risk of financial loss for the Corporation if a customer or counterparty to a financial asset fails to meet its

contractual obligations. The Corporation 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

statement of financial position.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 39

Credit risk from derivative financial instruments arises from the possibility that counterparties to the cross-currenc y swaps may default on

their obligations in instances where these agreements have positive fair values for the Corporation. T he Corporation reduces this risk by

completing transactions with financial institutions that carry a credit rating equal to or superior to its own credit rating. The Corporation

assesses the creditworthiness of the counterparties in order to minimize the risk of counterparties default under the agreements. At

November 30, 2011, management believes that the credit risk rel ating to its derivative financial instruments is minimal, since the lowest

credit rating of the counterparties to the agreements is “A”.

Cash and cash equivalents consist mainly of highly liquid investments, such as term deposits. The Corporation has deposited the cash

and cash equivalents with reputable financial institutions, for which management believes the risk of loss to be remote.

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

particularly in Portugal, the Corporation’s credit exposure is higher than usual but it is difficult to predict the impact this could have on the

Corporation’s account receivable balances. To mitigate such risk, the Corporation continuously monitors the financial condition of its

customers and reviews the credit history or worthiness of each new large customer. At November 30, 2011 and August 31, 2011, no

customer balance represented a significant portion of the Corporation’s consolidated trade accounts receivable. The Corporation

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 Corporation believes that its

allowance for doubtful accounts is sufficient to cover the related credit risk. The Corporation 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 Corporation has a large and diversified clientele dispersed throughout its market areas in Canada and in

Portugal, there is no significant concentration of credit risk. The following table provides further details on the Corporation’s accounts

receivable balances:

November 30, 2011 August 31, 2011

Trade accounts receivable 109,772 98,950

llowance for doubtful accounts (9,472) (8,725)

100,300 90,225

Other accounts receivable 10,878 10,072

111,178 100,297

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 the Corporation’s customers are billed in advance and are required to pay before their se rvices are rendered. Th e Corporation

considers amount outstanding at the due date as trade accounts receivable past due.

November 30, 2011 August 31, 2011

$ $

Net trade accounts receivable not past due 63,042 57,790

Net trade accounts receivable past due 37,258 32,435

100,300 90,225

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 40

Liquidity risk

Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they become due. The Corporation

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, 2011, the available amount of the Corporation’s Term Revolving Facilities was $659.7 million. Management believes that

the committed Term Revolving Facilities will, until their maturities in February and November 2016, provide sufficient liquidity to manage

its long-term debt maturities and support working capital requirements.

The following table summarizes the contractual maturities of the financial liabilities and related capital amounts:

Contractual cash flow s

Carrying

amount

2012

2013

2014

2015

2016

Thereafte

Total

Bank indebtedness

31,688 31,688

−−− −

−

31,688

Trade and other payables

(1)

183,802 183,802

−−− −

−

183,802

Provisions

20,162 20,162

−−− −

−

20,162

Promissory note payable

5,000 5,000

−−− −

−

5,000

Long-term debt

(2)

1,039,589

−−

300,000

−

224,857 520,000 1,044,857

Balance due on a business acquisition

11,400

−

11,400

−− −

−

11,400

Other liabilities

5,434 516 1,315 1,314 1,305 1,304 2,608 8,362

Derivatives financial instruments

7,364

−−−−

8,018

−

8,018

Finance leases

(3)

2,380 1,620 890 13

− −

−

2,523

1,306,819 242,788 13,605 301,327 1,305 234,179 522,608 1,315,812

(1) Excluding accrued interest.

(2) Principal excluding finance leases.

(3) Including interest.

The following table is a summary of interest p ayable on long-term debt (excluding interest on finance leases) that is due for each of the

next five years and thereafter, based on the principal amount and interest rate prevailing on the outstanding debt at November 30, 2011

and their respective maturities:

2012 2013 2014 2015 2016 Thereafte

Total

$ $ $ $ $ $ $

Interest payments on long-term

debt 40,160 59,684 59,684 41,834 34,452 82,323 318,137

Interest payments on derivative

financial instruments 7,307 14,614 14,614 14,614 7,307

−

58,456

Interest receipts on derivative

financial instruments (6,785) (13,570) (13,570) (13,570) (6,785) − (54,280)

40,682 60,728 60,728 42,878 34,974 82,323 322,313

Interest rate risk

The Corporation 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, 2011, all of the Corporation’s

long-term debt was at fixed rate, except for the Corporation’s Term Revolving Facilities. The sensitivity of the Corporation’s annual

financial expense to a variation of 1% in the interest rate applicable to the Term Revolving Facility is approximately $1.6 million based on

the current debt at November 30, 2011.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 41

Foreign exchang e risk

The Corporation is exposed to foreign exchange risk related to its long-ter m debt denominated in US dollars. In order to mitiga te this risk,

the Corporation 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 ag reements a re e xclusively used for hedging pur pos es. Accordingly, on October 2, 2008,

the Corporation’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. 06 25. The Co rpo ration elected to apply cash flow hedge

accounting on these derivative financial instruments.

The Corporation is also exposed to foreign exchange risk on cash and cash equivalents, bank indebtedness and trade and other

payables denominated in US dollars or Euros. The Corporation’s exposure to foreign currency risk is as follows:

November 30, 2011 August 31, 2011

Euro

Cash and cash equivalents 821 514 8,649 497

Trade and other payables 16,432 − 30,309 −

17,253 514 38,958 497

Due to their short-term nature, th e risk arising from fluctuations in foreign exchange rates is usually not significant. The impact of a 10%

fluctuation in the foreign exchange rates (US dollar and Euro) would change financial expense by approximately $1.5 million.

Furthermore, the Corporation’s net investment in a foreign operation 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. At November 30, 2011, the net

investment amounted to €8.6 million (€6.1 million at August 31, 2011). The exchange rate used to convert the Euro currency into

Canadian dollars for the statement of financial position accounts at November 30, 2011 was $1.3706 per Euro compared to $1.4071 per

Euro at August 31, 2011. The impact of a 10% fluctuation in the exchange rate of the Euro into Canadian dollars would change other

comprehensive income by approximately $1.2 million.

b) Fair value of financial instruments

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 Corporation has

determined the fair value of its financial instruments as follows:

a) The carrying amount of cash and cash equivalents, trade and other receivables, trades and other payables, provisions, promissory

note payable and balance due on a business acquisition approximates fair value because of the short-term nature of these

instruments.

b) Interest rates under the terms of the Corporation’s Term Revolving Facilities are based on bankers’ acceptance, LIBOR, EURIBOR,

bank prime rate loan or US base rate loan plus applicable margin. Therefore, the carrying value approximates fair value for the Term

Revolving Facilities, since the Term Revolving Facilities have conditions similar to those currently available to the Corporation.

c) The fair value of the Senior Secured Debentures Series 1 and 2, Senior Secured Notes Series A and B, Senior Unsecured

Debenture and Unsecured Notes are based upon current trading values for similar financial instruments.

d) The fair values of finance leases are not significantly different from their carrying amounts.

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

November 30, 2011 August 31, 2011

Carrying value Fair value Carrying value Fair value

$ $ $ $

Long-term debt 1,041,969 1,124,283 1,018,782 1,096,987

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 42

All financial instruments recognized at fair value on the consolidated statement of financial position must be measured 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 Corporation 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.

c) Capital management

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

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

economic conditions, the risk characteristics of the underl ying assets and the Corporation’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 Corpor ation is composed of shareholders’ equity, cash and cash equivalents, bank indebte dness, promissory

note payable, long-term debt, balance due on a business acquisition and assets or liabilities related to derivative financial instruments.

The provisions of the Term Revolv ing Facilities provide for restrictions on the operat ions and activities of the Corporation. Generally, the

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

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

and total indebtedness. At November 30, 2011 and 2010, August 31, 2011 and September 1, 2010, the Corporation was in compliance

with all of its 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 Corporation’s capital structure:

November 30, 2011 August 31, 2011

Net senior indebtedness

(1)

/ operating income before depreciation and amortization

(2)

1.7 1.5

Net indebtedness

(3)

/ operating income before depreciation and amortization

(2)

1.9 1.7

Operating income before amortization

(2)

/ financial expense

(2)

7.7 7.7

(1) Net senior 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 and principal on Senior Unsecured Debenture and Unsecured Notes.

(2) Calculation based on operating income before depreciation and amortization and financial expense for the twelve-month periods ended

November 30, 2011 and August 31, 2011.

(3) Net indebtedness is defined as the total of bank indebtedness, promissory note payable, principal on long-term debt, balance due on a business

acquisition and obligations under derivative financial instruments, less cash and cash equivalents.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 43

15. ASSETS HELD FOR SALE

Pursuant to the acquisition of 11 radio stations in the province of Québec by Cogeco Diffusion Acquisitions Inc. (“Cogeco Diffusion”), and

the decision by the Canadian Radio-Television and Telecommunications Commission (“CRTC”) regarding the Corporation’s transfer

application, the Corporation put for sale two radio stations acquired in the transaction, CFEL-FM in the Québec City market and CJTS-FM

in the Sherbrooke market. In addition to the two acquired radio stations above, and also as part of the CRTC’s decision, the Corporation

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

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

agreement. Accordingly, the assets and liabilities of the three radio stations put for sale have been classified as assets held for sale as of

February 1, 2011 in the Corporation’s consolidated statement of financial position (see note 16).

The estimated fair value of assets and liabilities related to the three radio stations held for sale at November 30, 2011 and

August 31, 2011, are as follows:

November 30, 2011 August 31, 2011

$ $

Trade and other receivables 1,676 1,360

Prepaid expenses 5 5

Property, plant and equipment 1,752 2,171

Broadcasting licences 3,267 3,267

Goodwill 448 448

Assets held for sale 7,148 7,251

Trade and other payables 1,171 1,456

Income tax liabilities 415 247

Deferred and prepaid revenue 68 44

Other liabilities 19 38

Deferred tax liabilities 480 480

Liabilities related to assets held for sale 2,153 2,265

Net assets held for sale 4,995 4,986

Financial statements presentation:

Current assets held for sale 7,148 1,365

Non-current assets held for sale

−

5,886

Current liabilities related to assets held for sale (2,153) (1,747)

Non-current liabilities related to assets held for sale (518)

Net assets held for sale 4,995 4,986

16. SUBSEQUENT EVENTS

Acquisition of Métromédia CMR Plus Inc.

On December 6, 2011, COGECO Inc. concluded an agreement to acquire Métromédia CMR Plus Inc. (“Métromédia”), subject to

customary closing adjustments and conditions. Métromédia is a Québec corporation that operates an advertising rep house in the public

transit sector. Métromédia represents over 100 public transit markets notably in Montréal, in other Québec regions as well as in major

cities and numerous markets in the rest of Canad a. The transaction was completed on December 2 6, 2011. The Cor poration is currently

in the process of determining the preliminary purchase price allocation.

Divestiture of the three radio stations to comply with the common ownership policy

On February 1, 2011, a subsidiary of the Corporation, Cogeco Diffusion, completed the acquisition of 11 radio stations in the province of

Québec, which was originally announced on April 30, 2010 and then subject to the CRTC approval. When the CRTC approved the

acquisition, there was an order to divest three radio stations in order to comply with the common o wnership policy in the Québec Cit y and

Sherbrooke markets.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 44

On November 30, 2011, Cogeco Diffusion concluded an agreement for the sale of two of its four Québec City FM radio stations, CJEC-

FM and CFEL-FM, subject to CRTC approval and customary closing adjustments and conditions. On December 6, 2011, Cogeco

Diffusion closed its Sherbrooke radio station, CJTS-FM. On January 19, 2012, the CRTC approved the sale of CJEC-FM and CFEL-FM

which should be completed on January 30, 2012 a nd marked the end of the process established with the CRTC for t he divestiture of the

three radio stations.

17. TRANSITION TO IFRS

As mentioned in note 1, these are the first condensed interim consolidated financial statements prepared in accordance with IFRS.

The significant accounting policies set out in note 2 have been applied in preparing the condensed interim consolidated financial

statements for the three months ended November 30, 2011, the comparative inform ation presented in the three mont hs ended Novem b er

30, 2010 and in the preparation of the opening IFRS statement of financial position as at September 1, 2010 (the Co rporation’s transition

date).

IFRS 1 elective exemptions and mandatory exceptions

IFRS 1 permits some exemption from full retrospective application of IFRS at the transition date. The Corporation elected the following

elective exemptions in preparing its opening IFRS financial statements:

a) Business combinations

A first-time adopter may elect not to apply IFRS 3, Business combinations, retrospectively to business acquisitions completed before

the transition date. The retrospective basis would require restatement of all business combinations that occurred prior to the

transition date. The Corporation has elected not to retrospectively apply IFRS 3 to business combinations completed prior to its

transition date and such business combinations have not been restated. Any assets or liabilities arising on business combinations

completed before the transition date have not been adjusted from the carrying value previously determined under Canadian GAAP

as a result of applying this exemption.

b) Employee benefits

The Corporation has elected to recognize all cumulative actuarial gains and losses that existed at its transition date in opening

retained earnings for all of its employee defined benefit pension plans. The Corporation also elected to prospectively disclose

required defined benefit pension plans amounts under IAS 19 Employee Benefits as the amounts are determined for each

accounting period from the date of transition instead of the current a nnual period and previous four annual periods.

c) Share-based payments

The Corporation has elected to apply the requirements of IFRS 2 , Share-based payments, only to equity instruments granted after

November 7, 2002 and which vested after the date of transition to IFRS.

d) Borrowing costs

The Corporation has elected to apply the requirements of IAS 23 Borrowing Costs only to borrowing costs relating to assets for

which the commencement date for capitalisation was on or after t he date of transition. Borrowing costs incurred before the date of

transition were expensed.

e) Financial assets and financial liabilities

At the date of transition, the Corporation has elected to reclassify cash and cash equivalents from held-for-trading to loans and

receivables.

The Corporation applied the following mandatory exceptions in preparing its opening IFRS financial statements:

a) Hedge accounting

Hedge accounting can only be applied prospectively from the transition date to transactions that satisfy the hedge accounting criteria

in IAS 39 at that date. Hedging relationships cannot be designated retrospectively and the supporting documentation cannot be

created retrospectively. As a result, only hedging relationships that satisfied the hedge accounting criteria as of its transition date are

reflected as hedges in the Corporation’s results under IFRS.

b) Estimates

Hindsight is not used to create or revise estimates. The estimates previously made by the Corporation under Canadian GAAP were

not revised for application of IFRS except where necessary to reflect any difference in accounting policies.

The Corporation has adjusted amounts reported previously in financial statements prepared in accordance with previous Canadian

GAAP. An explanation of how transition from previous Canadian GAAP to IFRS has affected the Corporation’s financial position and

financial performance is set out in the following tables and the notes that accompany the tables.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 45

Reconciliation of statement of financial position at September 1, 2010:

Notes Canadian GAAP IFRS adjustments IFRS reclassifications IFRS

Assets

Current

Cash and cash equivalents 35,842

− − 35,842

Trade and other receivables 74,560

− − 74,560

Income taxes receivable 45,400

− − 45,400

Prepaid expenses and other 14,189

− − 14,189

Deferred tax assets 6,133

− (6,133)

−

176,124

−

(6,133) 169,991

Non-current

Investments 739

−

(739)

−

Property, plant and equipment 3 1,328,866

(5,705)

−

1,323,161

Deferred charges 27,960

−

(27,960)

−

Other assets

−

7,886 7,886

Intangible assets 1,4 1,042,998

(16,867) 20,813 1,046,944

Goodwill 144,695

−

144,695

Derivative financial instruments 5,085

−

5,085

Deferred tax assets 5 18,189

3,670 6,133 27,992

2,744,656

(18,902) − 2,725,754

Liabilities and Shareholders’ equit y

Liabilities

Current

Bank indebtedness 2,328

−

2,328

Trade and other payables 248,775

−

(12,945) 235,830

Provisions

−

12,945 12,945

Income tax liabilities 558

−

558

Deferred and prepaid revenue 45,602

−

45,602

Derivative financial instrument 1,189

−

1,189

Current portion of long-term debt 2,329

−

2,329

Deferred tax liabilities 78,267

−

(78,267)

−

379,048

−

(78,267) 300,781

Non-current

Long-term debt 952,741

−−

952,741

Deferred and prepaid revenue and other liabilities 12,234

−−

12,234

Pension plan liabilities and accrued employees benefits 5 10,568 13,767

−

24,335

Deferred tax liabilities 1,3,4,7 238,699 (2,167) 78,267 314,799

1,593,290

11,600 − 1,604,890

Shareholders’ equity

Equity attributable to owners

Share capital 119,527

−−

119,527

Contributed surplus 2 3,005

447

−

3,452

Accumulated other comprehensive income 5,934

574

−

6,508

Retained earnings 1,2,3,4,5,7 253,169

(12,670)

−

240,499

381,635

(11,649)

−

369,986

Non-controlling interest 1,2,3,4,5,7 769,731

(18,853)

−

750,878

1,151,366

(30,502) − 1,120,864

2,744,656

(18,902)

−

2,725,754

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 46

Reconciliation of statement of financial position at November 30, 2010:

Notes Canadian GAAP IFRS adjustments IFRS reclassifications IFRS

Assets

Current

Cash and cash equivalents 197,653

− − 197,653

Trade and other receivables 79,534

− − 79,534

Income taxes receivable 43,362

− − 43,362

Prepaid expenses and other 10,869

− − 10,869

Deferred tax assets 4,799

− (4,799) −

336,217

−

(4,799) 331,418

Non-current

Investments 739

−

(739)

−

Property, plant and equipment 3,6 1,329,837

(4,503)

−

1,325,334

Deferred charges 28,277

−

(28,277)

−

Other assets

−

7,651 7,651

Intangible assets 1,4 1,041,805

(16,867) 21,365 1,046,303

Goodwill 144,297

−

144,297

Deferred tax assets 5 9,562

3,146 4,799 17,507

2,890,734

(18,224) − 2,872,510

Liabilities and Shareholders’ equit y

Liabilities

Current

Bank indebtedness 740

−

740

Trade and other payables 182,671

−

(12,296) 170,375

Provisions

−

12,296 12,296

Income tax liabilities 80,767

−

80,767

Deferred and prepaid revenue 45,361

−

45,361

Derivative financial instrument 674

−

674

Current portion of long-term debt 177,339

−

177,339

Deferred tax liabilities 15,257

−

(15,257)

−

502,809

−

(15,257) 487,552

Non-current

Long-term debt 953,206

−

953,206

Derivative financial instruments 1,263

−

1,263

Deferred and prepaid revenue and other liabilities 12,532

−

12,532

Pension plan liabilities and accrued employees benefits 5 11,417 11,818

−

23,235

Deferred tax liabilities 1,3,4,6,7 229,787 (1,857) 15,257 243,187

1,711,014

9,961 − 1,720,975

Shareholders’ equity

Equity attributable to owners

Share capital 118,703

−

118,703

Contributed surplus 2 2,784 454

−

3,238

Accumulated other comprehensive income 5,896 1,825

−

7,721

Retained earnings 1,2,3,4,5,6,7 267,182 (12,249)

−

254,933

394,565

(9,970)

−

384,595

Non-controlling interest 1,2,3,4,5,6,7 785,155

(18,215)

−

766,940

1,179,720

(28,185) − 1,151,535

2,890,734

(18,224)

−

2,872,510

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 47

Reconciliation of statement of financial position at August 31, 2011:

Notes Canadian GAAP IFRS adjustments IFRS reclassifications IFRS

Assets

Current

Cash and cash equivalents 55,216

−

55,216

Trade and other receivables 100,297

−

100,297

Income taxes receivable 38,480

−

38,480

Prepaid expenses and other 14,020

−

14,020

Deferred tax assets 5,350

−

(5,350)

−

Assets held for sale 1,365

−

1,365

214,728

−

(5,350) 209,378

Non-current

Investments 539

−

(539)

−

Property, plant and equipment 3,6 1,272,610

(359)

−

1,272,251

Deferred charges 26,847

−

(26,847)

−

Other assets

−

6,422 6,422

Intangible assets 1,4 1,121,422

(16,867) 20,964 1,125,519

Goodwill 1 239,664

(13,862)

−

225,802

Deferred tax assets 5 15,558

5,482 5,350 26,390

Assets held for sale 5,886

−

5,886

2,897,254

(25,606)

−

2,871,648

Liabilities and Shareholders’ equit y

Liabilities

Current

Trade and other payables 285,804

−

(15,558) 270,246

Provisions

−

15,558 15,558

Income tax liabilities 59,935

−

59,935

Deferred and prepaid revenue 43,520

−

43,520

Promissory note payable 5,000

−

5,000

Current portion of long-term debt 2,119

−

2,119

Deferred tax liabilities 85,201

−

(85,201)

−

Liabilities related to assets held for sale 1,747

−

1,747

483,326

−

(85,201) 398,125

Non-current

Long-term debt 1,016,663

−

1,016,663

Balance due on a business acquisition 11,400

−

11,400

Derivative financial instruments 14,408

−

14,408

Deferred and prepaid revenue and other liabilities 19,390

−

19,390

Pension plan liabilities and accrued employees benefits 5 13,215 20,503

−

33,718

Deferred tax liabilities 1,3,4,6,7 252,958 (4,413) 85,201 333,746

Liabilities related to assets held for sale 518

−

518

1,811,878

16,090

−

1,827,968

Shareholders’ equity

Equity attributable to owners

Share capital 119,318

−

119,318

Contributed surplus 2 3,488 424

−

3,912

Accumulated other comprehensive income 5 6,716 (3,708)

−

3,008

Retained earnings 1,2,3,4,5,6,7 235,879 (19,592)

−

216,287

365,401

(22,876)

−

342,525

Non-controlling interest 1,2,3,4,5,6,7 719,975

(18,820)

−

701,155

1,085,376

(41,696)

−

1,043,680

2,897,254

(25,606)

−

2,871,648

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 48

Reconciliation of profit or loss for the three months ended November 30, 2010:

Notes

Canadian

GAAP

IFRS

adjustments IFRS

Revenue 342,766 (1,052) 341,714

Salaries, employee benefits and outsourced services

(1)

58,312

−

58,312

Other external purchases

(1)

2,5 147,423 (1,288) 146,135

Depreciation and amortization 3 63,139 (1,159) 61,980

Operating income 73,892 1,395 75,287

Financial expense 6 16,905 (43) 16,862

Profit before income taxes 56,987 1,438 58,425

Income taxe s 5,6 18,244 373 18,617

Gains on dilution resulting from issuance of shares by a subsidiary (5) 5

−

Non-controlling interest 22,773 (22,773)

−

Profit for the period 15,975 23,833 39,808

Profit for the period attributable to:

Owners of the Corporation 15,975 416 16,391

Non-controlling interest

−

23,417 23,417

15,975 23,833 39,808

Earnings per share

Basic 0.95 0.02 0.98

Diluted 0.95 0.02 0.97

(1) Previously reported as operating costs under previous Canadian GAAP.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 49

Reconciliation of comprehensive income for the three months ended November 30, 2010:

Canadian

GAAP

IFRS

adjustments

IFRS

reclassifications IFRS

Profit for the period 15,975 23,833

−

39,808

Other comprehensive loss

Cash flow hedging adjustments

Net change in fair value of hedging derivative financial instruments (1,571) (3,296) (966) (5,833)

Net change in fair value of hedging derivative financial instruments reclassified to

financial expense 2,152 4,512 917 7,581

Income tax recovery on cash flow hedging adjustments

−

49 49

581 1,216 − 1,797

Foreign currency translation adjustments

Net foreign currency translation differences on translation of a net investment in

foreign operations (1,015) (2,128)

−

(3,143)

Net change in unrealized gains on translation of long-term debts designated as

hedges of a net investment in foreign operations 396 831 − 1,227

(619) (1,297)

−

(1,916)

Defined benefit plans actuarial gains adjustments

Net change in defined benefit plans actuarial gains

−

1,712

−

1,712

Income tax expense on defined benefit plans actuarial gains adjustments

−

(461)

−

(461)

−

1,251

−

1,251

Other comprehensive income (loss) for the period (38) 1,170

−

1,132

Comprehensive income for the period 15,937 25,003

−

40,940

Comprehensive income for the period attributable to:

Owners of the Corporation 15,937 1,667

−

17,604

Non-controlling interest

−

23,336

−

23,336

15,937 25,003

−

40,940

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 50

Reconciliation of profit or loss for the year ended August 31, 2011:

(In thousands of dollars, except per share data)

Notes

Canadian

GAAP

IFRS

adjustments IFRS

Revenue 1,443,769 (4,206) 1,439,563

Salaries, employee benefits and outsourced services

(1)

271,079

−

271,079

Integration, restructuring and acquisition costs 1

−

12,332 12,332

Other external purchases

(1)

2,5 593,100 (5,226) 587,874

Depreciation and amortization 3 249,012 (4,805) 244,207

Operating income 330,578 (6,507) 324,071

Financial expense 6 74,080 (541) 73,539

Impairment of goodwill and property, plant and equipment 225,873

−

225,873

Profit before income taxes 30,625 (5,966) 24,659

Income taxe s 1,5,6 71,992 (461) 71,531

Gains on dilution resulting from issuance of shares by subsidiary (60) 60

−

Non-controlling interest (32,328) 32,328

−

Loss for the year (8,979) (37,893) (46,872)

Loss for the year attributable to:

Owners of the Corporation (8,979) (6,982) (15,961)

Non-controlling interest

−

(30,911) (30,911)

(8,979) (37,893) (46,872)

Loss per share

Basic (0.54) (0.42) (0.95)

Diluted (0.54) (0.42) (0.95)

(1) Previously reported as operating costs under previous Canadian GAAP.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 51

Reconciliation of comprehensive loss for the year ended August 31, 2011:

Canadian GAAP

IFRS

adjustments

IFRS

reclassifications

IFRS

Loss for the year (8,979) (37,893)

−

(46,872)

Other comprehensive income (loss)

Cash flow hedging adjustments

Net change in fair value of hedging derivative financial instruments (4,943) (10,410) (2,953) (18,306)

Net change in fair value of hedging derivative financial instruments

reclassified to financial ex pense 4,650 9,775 2,124 16,549

Income tax recovery on cash flow hedging adjustments

−

829 829

(293) (635) − (928)

Foreign currency translation adjustments

Net foreign currency translation differences on translation of a net

investment in foreign operations 2,330 4,918

−

7,248

Net change in unrealized losses on translation of long-term debts

designated as hedges of a net investment in foreign operations (1,255) (2,648) − (3,903)

1,075 2,270

−

3,345

Defined benefit plans actuarial losses adjustments

Net change in defined benefit plans actuarial losses

−

(7,684)

−

(7,684)

Income tax recovery on defined benefit plans actuarial losses adjustments

−

2,067

−

2,067

−

(5,617)

−

(5,617)

Other comprehensive income (loss) for the year 782 (3,982)

−

(3,200)

Comprehensive loss for the year (8,197) (41,875)

−

(50,072)

Comprehensive loss for the year attributable to:

Owners of the Corporation (8,197) (11,264)

−

(19,461)

Non-controlling interest

−

(30,611)

−

(30,611)

(8,197) (41,875)

−

(50,072)

Reconciliation of the Statements of Cash Flows

In addition to the adjustments described above resulting from the accounting policy differences on adoption of IFRS, financial expense paid

and income taxes paid have been moved into the body of the consolidated statements of cash flows while they were disclosed as

supplementary information under Canadian GAAP. There were no other material changes to the statements of cash flows on adoption of

IFRS.

NOTES TO THE RECONCILIATIONS

1. BUSINESS COMBINATIONS

As described above, the Corporation has elected not to restate business combinations completed prior to the date of transition.

The requirements of IFRS 3 were applied prospectively to business combinations completed after the date of transition. As part of the

application of those requirements to business combinations completed in 2011, integration, restructuring and acquisition costs were

expensed when incurred in accordance with IFRS, while they were capitalized under Canadian GAAP.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 52

Consolidated statements of financial position

Increase (decrease) August 31,2011 November 30, 2010 September 1, 2010

Goodwill (10,237)

−

Retained earnings (8,752)

−

Non-controlling interest (1,485)

−

Consolidated statements of profit or loss

Increase (decrease) August 31, 2011 November 30, 2010

Integration, restructuring and acquisition costs

12,332

−

Deferred tax expense (2,095)

−

Profit or loss f or the per iod (10,237)

−

Also as a result of the IFRS 1 election on business combinations described above, any assets or liabilities arising on business

combinations completed before the transition date have not been adjusted from the carr ying value previously determined at the dates of

the business acquisitions under previous Canadian GAAP. As a result, the amo unt o f intangible assets stemming from the recognit ion of

deferred income taxes upon application of CICA Handbook section 3465, Income taxes, which occurred after the date of the business

combinations, has been reversed.

Consolidated statements of financial position

Increase (decrease) August 31, 2011 November 30, 2010 September 1, 2010

Intangible assets (74,823) (74,823) (74,823)

Deferred tax liabilities (63,096) (63,096) (63,096)

Retained earnings (3,922) (3,922) (3,922)

Non-controlling interest (7,805) (7,805) (7,805)

2. SHARE-BASED COMPENSATION

The Corporation’s share options granted vest in tranches over a specified vesting period. Under IFRS, when the only vesting condition is

service from the grant date to the vesting date of each tranche gr an ted, then each t ranche s hould be accounted for as a separat e sha re-

based payment arrangement (i.e. graded vesting method). Canadian GAAP permitted an accounting policy choice with respect to

graded vesting awards. As such, the Corporation treated arrangement as a single award and the share-based payment was amortized

on a straight-line basis over the vesting period. This difference resulted in an accelerated recognition of the expense for the

Corporation.

Consolidated statements of financial position

Increase (decrease) August 31, 2011 November 30, 2010 September 1, 2010

Contributed surplus – share-based compensa tion 424 454 447

Retained earnings (742) (743) (736)

Non-controlling interest 318 289 289

Consolidated statements of profit or loss

Increase (decrease) August 31, 2011 November 30, 2010

Salaries, employee benefits and outsource services (72) 1

Profit or loss f or the per iod 72 (1)

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 53

3. PROPERTY, PLANT AND EQUIPMENT

IAS 16 Property, Plant and Equipment requires that each significant component of an asset be depreciated separately

over their respective useful lives which resulted in a more detailed approach to determining the useful lives for certain

asset components under IFRS than thos e that were used under previous Canadian GAAP . The impact of the retroactive

application of IAS 16 is as follows:

Consolidated statements of financial position

Increase (decrease) August 31, 2011 November 30, 2010 September 1, 2010

Property, plant and equipment (900) (4,546) (5,705)

Deferred tax liabilities (229) (1,171) (1,470)

Retained earnings (217) (1,089) (1,368)

Non-controlling interest (454) (2,286) (2,867)

Consolidated statements of profit or loss

Increase (decrease) August 31, 2011 November 30, 2010

Depreciation and amortization (4,805) (1,159)

Deferred tax expense 1,241 299

Profit or loss f or the per iod 3,564 860

4. INTANGIBLE ASSETS

Under IFRS, intangible assets with indefinite useful lives are not amortized but tested at least annually for impairment. IAS 3 8, Intangible

assets, requires retrospective application of those requirements. Under Canadian GAAP, those assets were amortized until

September 1, 2001 and transitional provisions did not require the r eversal of amortization previously recorded. Therefore, on the date of

transition, the Corporation reversed all amortization recorded in respect of intangible assets with indefinite lives. The impact of

thechange is as follows:

Consolidated statements of financial position

Increase (decrease) August 31, 2011 November 30, 2010 September 1, 2010

Intangible assets 57,956 57,956 57,956

Deferred tax liabilities 8,844 8,844 8,844

Retained earnings 19,846 19,846 19,846

Non-controlling interest 29,266 29,266 29,266

5. EMPLOYEE BENEFITS

IAS 19 Employee Benefits permits an accounting policy choice with respect to the recognition of actuarial gains and losses. The

Corporation has elected to recognize all actuarial gains and losses immediately in other comprehensive income while under Canadian

GAAP they were accounted for using the corridor method. At the d ate of transition, all previously unrecognized actual gains and losses,

including the unamortized transitional obligation, were recognized in retained earnings. Also, the unrecognized actuarial gains and

losses exceeding the corridor that were recognized for the quarter ended November 30, 2010 under Canadian GAAP were reversed.

In addition, under IFRS, all unrecognized past service costs that were vested were recognized in retained earnings at the date of

transition whereas under Canadian GAAP past service costs were deferred and amortized on a straight-line basis over the remaining

service period of active employees at the date of employee benefit plan amendments. At the date of transition, all previously

unrecognized past service costs were fully vested and therefore were recognized in retained earnings.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 54

The impact from those changes is summarised as follows:

Consolidated statements of financial position

Increase (decrease) August 31, 2011 November 30, 2010 September 1, 2010

Deferred tax assets 5,482 3,146 3,670

Pension plan liabilities and accrued employee benefits 20,503 11,818 13,767

ccumulated other comprehensive income (4,282) 1,251

−

Retained earnings (7,324) (7,740) (7,879)

Non-controlling interest (3,415) (2,183) (2,218)

Consolidated statements of profit or loss

Increase (decrease) August 31, 2011 November 30, 2010

Salaries, employee benefits and outsourced services

(948) (237)

Deferred tax expense 255 63

Profit or loss f or the per iod 693 174

6. BORROWING COSTS

IFRS requires that borrowing costs be capitalized on qualifying assets whereas Canadian GAAP permitted an accounting policy choice

to capitalize or expense these costs, which the Corporation elected to expense.

As described above, the Corporation has elected to apply those requirements only to borrowing costs relating to assets for which the

commencement date for capitalisation is on or after the date of transition. Therefore, there is no impact at the date of transition since

those costs were already expensed. The impact of that change in respect of assets which commencement date for capitalization is after

the date of transition is as follows:

Consolidated statements of financial position

Increase (decrease) August 31, 2011 November 30, 2010 September 1, 2010

Property, plant and equipment 541 43 −

Deferred tax liabilities 138 11 −

Retained earnings 130 10 −

Non-controlling interest 273 22 −

Consolidated statements of profit or loss

Increase (decrease) August 31, 2011 November 30, 2010

Financial expense (541) (43)

Deferred tax expense 138 11

Profit or loss f or the per iod 403 32

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 55

7. INCOME TAXES

The expected manner of recovery of intangible assets with indefinite useful lives for purposes of calculating deferred taxes is different

under IFRS than under Canadian GAAP. The impact of applying IAS 12 on a retroactive basis is as follows:

Consolidated statements of financial position

Increase (decrease) August 31, 2011 November 30, 2010 September 1, 2010

Goodwill (3,625) − −

Deferred tax liabilities 49,930 53,555 53,555

Retained earnings (18,037) (18,037) (18,037)

Non-controlling interest (35,518) (35,518) (35,518)

In addition, IFRS also requires that temporary differences relating to current assets and current liabilities be presented as non-current

liabilities and non-current assets.

8. ADDITIONAL ANNUAL DISCLOSURE UNDER IFRS

As these interim consolidated financial statements are the first financial statements prepared using IFRS, certain additional annual

disclosures required under IFRS have been provided below for the year ended August 31, 2011, having taken into consideration the

adjustments made from Canadian GAAP to reconcile with IFRS as discussed above. Certain disclosures normally included in a set of

annual financial statements have been intentionally omitted or condensed as the Corporation does not consider such information

material to the understanding of the impact of IFRS on the consolidated financial statements.

i) GOODWILL AND OTHER INTANGIBLE ASSETS

August 31, 2011 September 1, 2010

Intangible assets with finite useful lives

Reconnect and additional service activation costs 20,964 20,813

Customer relationships 57,637 28,106

Intangible assets with indefinite useful lives

Cable Distribution Licences 967,000 967,000

Broadcasting Licences 79,918 31,025

1,125,519 1,046,944

Goodwill 225,802 144,695

1,351,321 1,191,639

At September 1, 2010 and August 31, 2011, the C orporation tested the value of goo dwill and intangible assets with indefinite useful lives

for impairment. The recoverable amount of each CGU is based on value in use calculations. The value in use was determined using cash

flow projections derived from financial budgets covering a five year period submitted to the Board of directors. They reflect management’s

expectation of revenue growth, expenses and margin for each CGU bas ed on past experience. Cash flows beyond the five year period

have been extrapolated using an estimated terminal gro wth rate d e termined with re gard to projected gro wth rates fo r the specifi c markets

in which the CGUs participate and are not considered to exceed the long-term average growth rates for those markets. Discount rates

applied to the cash flow forecasts are derived from the Corporatio n’s pre-tax weighted average cost of capital, adjusted for the different

risk profile of the individual CGUs. The recoverable amount of each CGU was determined to be higher than its carrying amount and no

impairment loss has been recognized at the transition date and at August 31, 2011.

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 56

ii) OTHER ASSETS

August 31, 2011 September 1, 2010

Transaction costs 5,258 6,701

Other 1,164 1,185

6,422 7,886

iii) PROVISIONS

August 31, 2011 September 1, 2010

Withholding and stamp taxes 7,383 7,494

Programming costs 7,428 1,671

Other 747 3,780

15,558 12,945

The provisions for withholding and stamp taxes relate to cont ingent liabilities for withholding and stamp taxes relating t o fiscal years prior

to the acquisition of the Portuguese subsidiary by Cogeco Cable Inc.

The provisions for programming costs include provision for increases as well as additional royalties or content costs as a result of

periodical audits from service providers.

The other provisions include provisions for contractual obligations, renewal of the collective bargaining agreement and other legal

obligations.

iv) DEFERRED TAXES

August 31, 2011 September 1, 2010

Property, plant and equipment (88,515) (86,218)

Intangible assets (154,519) (138,824)

Deferred and prepaid revenue 5,682 5,659

Share issuance costs

−

858

Partnerships income (86,801) (78,258)

Non-capital loss and other tax credit carryforwards, net of valuation allowance 4,848 2,833

Other 11,949 7,143

Net deferred tax liabilities (307,356) (286,807)

Financial statement presentation

Deferred tax assets 26,390 27,992

Deferred tax liabilities (333,746) (314,799)

Net deferred tax liabilities (307,356) (286,807)

COGECO INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2011

(unaudited)

(amounts in tables are in thousands of Can adian dollars, except number of sha res a nd per share data)

Condensed Interim Consolidated Financial Statements COGECO INC. Q1 2012 57

v) EMPLOYEE BENEFITS

The following table presents a reconciliation of the net defined benefit liability recognized in the consolidated statement of financial

position at the transition date and August 31, 2011:

August 31, 2011 September 1, 2010

Defined benefit obligations

54,463 44,276

Plan assets at fair value

22,951 21,729

Net defined benefit liability 31,512 22,547

The following table presents a reconciliation of the net benefit cost components recognized in the consolidated statement of profit or loss

at August 31, 2011:

September 1, 2010

Net benefit costs

Current service cost 2,019

Past service cost 99

Interest cost 2,533

Expected return on plan assets (1,292)

Net benefit costs 3,359

Cable Sector Customer Statistics COGECO INC. Q1 2012 58

Cable Sector Customer Statistics

(unaudited)

November 30, 2011 August 31, 2011

Primary service units

(1)

Canada 1,943,648 1,897,469

Portugal 666,035 667,085

Total 2,609,683 2,564,554

Digital Television service customer s

Canada 727,219 678,326

Portugal 159,642 164,580

Total 886,861 842,906

Analog Television service customers

Canada 155,218 199,659

Portugal 95,140 91,197

Total 250,358 290,856

Total Television service customers

Canada 882,437 877,985

Portugal 254,782 255,777

Total 1,137,219 1,133,762

High Speed Internet service customers

Canada 618,499 601,214

Portugal 162,224 162,436

Total 780,723 763,650

Telephony service customers

Canada 442,712 418,270

Portugal 249,029 248,872

Total 691,741 667,142

(1)

Represents the sum of Television, High Speed Internet (“HSI”) and Telephony servi ce cust omers.

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Strong first quarter results for COGECO Inc.

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