STRONG PERFORMANCE FOR COGECO LEADS TO AN UPWARD REVISION OF ITS FISCAL 2010 GUIDELINES

Press release

For immediate release

Strong performance for COGECO leads to an

upward revision of its fiscal 2010 guidelines

Montréal, January 13, 2010 – Today, COGECO Inc. (TSX: CGO) (“COGECO” or the “Company”) announced its financial

results for the first quarter 2010, ended November 30, 2009.

For the first quarter of fiscal 2010:

• Revenue increased by 6.4% to reach $328 million;

• Operating income before amortization

(1)

grew by 7.1% to reach $129.3 million;

• Net income amounted to $22.7 million. Excluding a favourable income tax adjustment of $29.8 million related to

the reduction of Ontario provincial corporate income tax rates

for the cable subsidiary, adjusted net income

(1)

would have amounted to $13.1 million, an increase of $2.3 million, or 20.9% compared to $10.9 million for the

same quarter of fiscal 2009;

• Free cash flow

(1)

reached $67.1 million for the quarter, representing an increase of $45.4 million when compared

to the first quarter of fiscal 2009;

• Operating margin

(1)

for the quarter remained the same as the in the prior year at 39.4% compared to 39.1% for

the same quarter of fiscal 2009;

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

(2)

grew by 89,785 net additions in the quarter, for a total of

2,982,023 RGU at November 30, 2009.

“COGECO shows signs of good vitality as the economy begins to recover from the recent turmoil. Cogeco Cable’s

financial results for the first quarter of fiscal 2010 exhibit continued RGU, revenue and operating income before

amortization progression. Our Canadian operations have grown at a steady pace, as demonstrated by net additions of

63,172 RGU. In our European operations, the first quarter results evidence that our customer base has begun to stabilize

as a result of the customer retention and acquisition plans implemented in response to the difficult competitive

environment experienced in the prior year, with a growth of 26,613 RGU. As for the radio activities, Rythme FM is still the

first choice in Montréal. Announcers and listeners continue to choose our radio stations. In light of these positive results,

management has revised most of its guidelines for the 2010 fiscal year. Projected RGU growth, revenue, operating

income before amortization, net income and free cash flow have been increased to reflect the favourable financial results

generated in the first quarter of the year”, declared Louis Audet, President and CEO of COGECO.

(1)

The indicated terms do not have standard definitions prescribed by Canadian Generally Accepted Accounting Principles (“GAAP”) and therefore, may not be

comparable to similar measures presented by other companies. For more details, please consult the “Non-GAAP financial measures” section of the

Management’s discussion and analysis.

(2)

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

- 2 -

FINANCIAL HIGHLIGHTS

Quarters ended November 30,

2009 2008

(1)

Change

($000, except percentages and per share data) $ $ %

(unaudited) (unaudited)

Operations

Revenue 328,003 308,375 6.4

Operating income before amort iz ati o n

(2)

129,263 120,711 7.1

Operating margin

(2)

39.4% 39.1% –

Operating income 63,562 59,829 6.2

Net income 22,748 10,861 –

Adjusted net income

(2)

13,128 10,861 20.9

Cash Flow

Cash flow from operating activities

(1,410) 26,477 -

Cash flow from operations

(2)

135,518 91,633 47.9

Free cash flow

(2)

67,131 21,771 –

Financial condition

(3)

Total assets

2,673,573 2,670,128 0.1

Indebtedness

(4)

1,123,375 1,064,542 5.5

Shareholders’ Equity 353,483 332,122 6.4

Per Share Data

(5)

Earnings per share

Basic 1.36 0.65 –

Diluted 1.35 0.65 –

Adjusted earnings per share

(2)

Basic 0.79 0.65 21.5

Diluted 0.78 0.65 20.0

(1)

Certain comparative figures have been restated to reflect the applicatio n of the Canadian Institute of Chartered Account ants (“CICA”) Handbook Section 306 4.

Please refer to the “Accounting policies and estimates” section of the Management’s discussion and analysis for more details.

(2)

The indicated terms do not have standardiz ed def inition s prescr ibed by Canadia n Generally Acc epted Accounting Pri nciples (“GAAP ”) and therefo re, may not be

comparable to similar measures presented by other companies. For more details, please consult the “Non-GAAP financial measures” section of the

Management’s discussion and analysis.

(3)

At November 30, 2009 and August 31, 2009.

(4)

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

(5)

Per multiple and subordinate voting share.

FORWARD-LOOKING STATEMENTS

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

Forward-looking information may relate to COGECO’s future outlook and anticipated events, business, operations,

financial performance, financial condition or results and, in some cases, can be identified by terminology such as "may ";

"will"; "should"; "expect"; "plan"; "anticipate"; "believe"; "intend"; "estimate"; "predict"; "potential"; "continue"; "foresee",

"ensure" or other similar expressions concerning matters that are not historical facts. In particular, statements regarding

the Company’s future operating results and economic performance and its objectives and strategies are forward-looking

statements. These statements are based on certain factors and assumptions including expected growth, results of

operations, performance and business prospects and opportunities, which COGECO believes are reasonable as of the

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

to the Company, they may prove to be incorrect. The Company cautions the reader that the current adverse economic

conditions make forward-looking information and the underlying assumptions subject to greater uncertainty and that,

consequently, they may not materialize, or the results may significantly differ from the Company’s expectations. It is

impossible for COGECO to predict with certainty the impact that the current economic downtown may have on future

results. Forward-looking information is also subject to certain factors, including risks and uncertainties (described in the

“Uncertainties and main risk factors” section of the Company’s 2009 annual Management’s Discussion and Analysis

(MD&A)) that could cause actual results to differ materially from what COGECO currently expects. These factors include

technological changes, changes in market and competition, governmental or regulatory developments, general economic

conditions, the development of new products and services, the enhancement of existing products and services, and the

introduction of competing products having technological or other advantages, many of which are beyond the Company’s

control. Therefore, future events and results may vary significantly from what management currently foresees. The reader

should not place undue importance on forward-looking information and should not rely upon this information as of any

- 3 -

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

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

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

prepared in accordance with Canadian GAAP and the MD&A included in the Company’s 2009 Annual Report. Throughout

this discussion, all amounts are in Canadian dollars unless otherwise indicated.

MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)

CORPORATE STRATEGI ES AND OBJECTIVES

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

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

and business processes, are specific to each sector. For the cable sector, sustained corporate growth and the continuous

improvement of networks and equipment are the main strategies used. The radio activities focus on continuous

improvement of programming in order to increase market share, and, thereby, profitability. COGECO uses growth of

revenue and operating income before amortization

(1)

, free cash flow

(1)

and revenue-generating units (“RGU”)

(2)

growth in

order to measure its performance against these objectives for the cable sector. Below are the Company’s recent

achievements in furthering the corporate obje ctives.

Cable sector

During the first quarter of fiscal 2010, Cogeco Cable invested approximately $28.7 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. Furthermore, Cogeco Cable has maintained its vigilance over operating

costs, which increased at the same pace as the growth in revenue despite the increase in operating costs in the European

operations related to customer retention strategies put in place in the second half of fiscal 2009.

Other

Fall’s BBM Canada survey conducted with the Portable People Meter (“PPM”) shows that Rythme FM has maintained its

leadership position with audiences in the adult and female categories in the Montréal and Trois-Rivières markets. The

other Rythme FM stations continue to gain market share. Furthermore, the FM 93 station in Québec City has pr eserved its

position as the preferred station in this very competitive market.

RGU growth and service offerings in the cable se ctor

During the first three months ended November 30, 2009, the number of RGU increased by 89,785, or 3.1%, to reach

2,982,023 RGU, in line to surpass Cogeco Cable’s RGU growth projections of 125,000 net additions issued on

October 29, 2009. In light of this performance, management has revised its guidelines and RGU growth is now expected

to reach 150,000 net additions for the fiscal year ended August 31, 2010, representing an increase of 5% when compared

to the prior year. Please consult the revised proje ctio ns in the “Fiscal 2010 financial guidelines” section for further details.

Revenue, operating income before am ortization

For the first quarter of fiscal 2010, revenue increased by $19.6 million, or 6.4%, to reach $328 million while operating

income before amortization grew by $8.6 million, or 7.1%, to reach $129.3 million. Given the improved performance,

management expects to attain $1,325 million for the 2010 fiscal year, which represents an increase of $40 million when

compared to the projections of $1,285 million issued on October 29, 2009. Management expects to achieve an operating

income before amortization of $512 million for the fiscal year, $26 million higher than the amount of $486 million projected

on October 29, 2009. Please consult the revised projections in the “Fiscal 2010 financial guidelines” section for further

details.

(1)

The indicated terms do not have standardiz ed def inition s prescr ibed by Canadia n Generally Acc epted Accounting Pri nciples (“GA AP”) and ther efore, may not be

comparable to similar measures presented by other companies. For more details, please consult the “Non-GAAP financial measures” section.

(2)

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

- 4 -

Free cash flow

In the first three months of fiscal 2010, COGECO generated free cash flow of $67.1 million compared to $21.8 million for

the same period last year. Free cash flow growth results mainly from the cable sector and is due to an increase in cash

flow from operations

(1)

, including the reduction in current income taxes stemming from modifications made to the

corporate structure and by the decrease in capital expenditures. Management has revised its free cash flow guidelines to

$140 million for the 2010 fiscal year, an increase of $10 million, or 7.7%, when compared to the guideline of $130 million

issued on October 29, 2009. Please consult the revised projections in the “Fiscal 2010 financial guidelines” section for

further details.

OPERATING RESULTS – CONSOLIDATED OVERVIEW

Quarters ended November 30,

2009 2008

(1)

Change

($000, except percentages) $ $ %

(unaudited) (unaudited)

Revenue 328,003 308,375 6.4

Operating costs 198,740 187,664 5.9

Operating income before amort iz ati o n 129,263 120,711 7.1

Operating margin

(2)

39.4% 39.1%

(1)

Certain comparative figures have been restated to reflect the applicatio n of the Canadian Institute of Chartered Account ants (“CICA”) Handbook Section 306 4.

Please refer to the “Accounting policies and estimates” section for more details.

(2)

The indicated terms do not have standardized definitions prescribed by Canadian GAAP and therefore, may not be comparable to similar measures presented by

other companies. For more details, please consult the “Non-GAAP financial measures” section.

Revenue

Fiscal 2010 first-quarter revenue improved, mainly in its cable sector, by $19.6 million, or 6.4%, to reach $328 million.

Cable revenue, driven by increased RGU, the introduction of HSI usage billing and rate increases implemented at the end

of fiscal 2009 in its Canadian operations, went up by $17.9 million, or 6% over the comparable period of the prior year.

Canadian cable operations revenue increased by $27 million, or 11.4%, compared to the same period of last year. The

increase in revenue for the cable sector has however been limited by its European operations whose revenue decreased

by $9.1 million, or 14.6%, compared to the same period of the prior year, mainly due to a lower number of Basic Cable

service customers compared to the same period of last year and to the impact of retention strategies implemented in the

second half of fiscal 2009 in order to reduce customer attrition, partly offset by the strength of the Euro compared to the

Canadian dollar. First-quarter revenue from the European operations in the local currency amounted to €33.7 million, a

decrease of €6.5 million, or 16.1% compared to the same period of the prior year.

Operating costs

For the first three months of fiscal 2010, operating costs increased by $11.1 million to reach $198.7 million, an increase of

5.9% compared to the prior year, mainly due to the cable sector. Operating costs in the Canadian operations increased

due to the servicing of additional RGU and the additional levy amounting to 1.5% of gross Cable Television service

revenue imposed by the Canadian Radio-television and Telecommunications Commission (“CRTC”) in order to finance a

new Local Programming Improvement Fund (“LPIF”) for the benefit of conventional television broadcasters operating local

stations. In Europe, operating costs increased due to marketing initiatives, including the launch of new channels, and the

appreciation of the Euro over the Canadian dollar, partly offset by cost reduction initiatives, such as a headcount reduction

plan.

(1)

The indicated terms do not have standardized definitions prescribed by Canadian GAAP and therefore, may not be comparable to similar measures presented by

other companies. For more details, please consult the “Non-GAAP financial measures” section.

- 5 -

Operating income before amortization and opera ting margin

Operating income before amortization grew, essentially in its cable segment, by $8.6 million, or 7.1%, to reach

$129.3 million in the first quarter of fiscal 2010 compared to the corresponding period of the prior year. The cable sector

contributed to the growth by $6.9 million during the first quarter of the fiscal year. COGECO’s first quarter operating

margin increased to 39.4%, from 39.1% for the same period of the prior year.

FIXED CHARGES

Quarters ended November 30,

2009 2008

(1)

Change

($000, except percentages) $ $ %

(unaudited) (unaudited)

Amortization 65,701 60,882 7.9

Financial expens e

16,277 23,778 (31.5)

(1)

Certain comparative figures have been restated to reflect the application of the CICA Handbook Section 3064. Please refer to the “Accounting policies and

estimates” section for more details.

First-quarter 2010 amor tization amounted to $65.7 million, compared to $60.9 million for the same period of the prior year.

The increase is mainly due to the cable sector and attributable to additional capital expenditures arising from customer

premise equipment acquisitions to sustain RGU and to the appreciation of the Euro currency over the Canadian dollar.

First-quarter financial expense amounted to $16.3 million compared to $23.8 million in the first quarter of the prior year.

The financial expense of the current quarter includes a foreign exchange gain of $0.5 million, compared to a foreign

exchange loss of $3.8 million in the prior year. The loss in the prior year was essentially due to the unusually high US

dollar volatility, as the majority of customer premise equipment is purchased and subsequently paid in US dollars. The

remaining decrease of $3.2 million is mainly attributable to the cable sector and is due to interest rate reductions and a

decrease in Indebtedness (defined as the total of bank indebtedness, principal on long-term debt and obligations under

derivative financial instruments) when compared with the comparable quarter of the previous fiscal year.

INCOME TAXES

Fiscal 2010 first-quarter income tax recovery amounted to $13.8 million which includes, in the cable sector, the impact of

the reduction in corporate income tax rates announced on March 26, 2009 by the Ontario provincial government and

considered substantively enacted on November 16, 2009 (the “reduction of Ontario provincial corporate income tax

rates”). These lower corporate income tax rates reduced future income tax expense by $29.8 million in the first three

months of fiscal 2010. Excluding the effect of this reduction, income tax expense would have amounted to $16 million for

the first three months of fiscal 2010, compared to $9.6 million for the same period of last year. The increase in income tax

expense in fiscal 2010 is mainly due to the improvement in operating income before amortization surpassing that of the

fixed charges in the Canadian operations of the cable sector.

NON-CONTROLLING INTEREST

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

quarter of fiscal 2010, the income attributable to non-controlling interest amounted to $38.4 million due to the strong cable

sector’s result s. The non-controlling interest for the comparable period of last year amounted to $15.5 million.

- 6 -

NET INCOME

Fiscal 2010 first quarter net income amounted to $22.7 million, or $1.36 per share. Net income for the first quarter of fiscal

2010 includes the favourable impact in the cable sector of $29.8 million from the reduction of Ontario provincial corporate

income tax rates described above. Excluding the impact of the income tax adjustments, adjusted net income

(1)

would have

amounted to $13.1 million, or $0.79 per share

(1)

, compared to $10.9 million, or $0.65 per share in the prior year,

representing increases of 20.9% and 21.5%, respectively. Please consult the “Non-GAAP financial measures” section for

further details. Net income progression for the quarter has resulted from the growth of the financial results in the Canadian

operations of the cable sector, partly offset by the decline in the financial results of the European operations of the cable

sector as previously discussed.

CASH FLOW AND LIQUIDITY

Quarters ended November 30,

2009 2008

(1)

($000) $ $

(unaudited) (unaudited)

Operating activities

Cash flow from operations

(2)

135,518 91,633

Changes in non-cash operating items (136,928) (65,156)

(1,410) 26,477

Investing activities

(3)

(68,226) (68,907)

Financing activities

(3)

47,453 38,776

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

foreign currencies 202 687

Net change in cash and cash equivalents (21,981) (2,967)

Cash and cash equivalents, beginning of period 39,458 37,472

Cash and cash equivalents, end of period 17,477 34,505

(1)

Certain comparative figures have been restated to reflect the application of the CICA Handbook Section 3064. Please refer to the “Accounting policies and

estimates” section for more details.

(2)

Cash flow from operations does not have a standardized definition prescribed by Canadian GAAP and therefore, may not be comparable to similar measures

presented by other companies. For more details, please consult the “Non-GAAP financial measures” section.

(3)

Excludes assets acquired under capital leases.

Fiscal 2010 first quarter cash flow from operations reached $135.5 million, 47.9% higher than the comparable period last

year, primarily due to the cable sector and attributable to the reduction in current income taxes stemming from

modifications made to the corporate structure, the increase in operating income before amortization and the reduction in

financial expense. Changes in non-cash operating items required cash outflows of $136.9 million, mainly as a result of

decreases in accounts payable and accrued liabilities and income tax liabilities and an increase in income taxes

receivable. In the prior year, the cash outflows of $65.2 million were mainly the result of a decrease in accounts payable

and accrued liabilities and in income tax liabilities. The significant decreases in income tax liabilities in both fiscal years

are due to payments made during the first quarter of the current year related to the prior fiscal year.

In the first quarter of fiscal 2010, total capital expenditures amounted to $65.2 million, essentially the same when

compared to $65.7 million for the corresponding period of last year. The most significant variations are due to the

following factors:

• A decrease in support capital spending as the prior year included the acquisition of a power generator for the

Canadian data comm unications subsidiary;

• An increase in customer premise equipment spending which reflects higher RGU growth and the appreciation of

the Euro over the Canadian dollar.

Deferred charges and others are mainly attributable to reconnect costs. For the first quarter, the increase in deferred

charges and others amounted to $3 million, essentially the same when compared to $3.2 million for the same period of

the prior year.

(1)

The indicated terms do not have standardized definitions prescribed by Canadian GAAP and therefore, may not be comparable to similar measures presented by

other companies. For more details, please consult the “Non-GAAP financial measures” section.

- 7 -

In the first quarter, COGECO generated free cash flows of $67.1 million compared to $21.8 million in the prior year,

representing an increase of $45.4 million. The growth in free cash flow for the quarter is mainly due to an increase in cash

flow from operations, including the reduction in current income taxes stemming from modifications made to the corporate

structure and the decrease in capital expenditures in the cable sector. The aggregate amount of total capital expenditures

and deferred charges and others decreased by $1.5 million for the quarter ended November 30, 2009 compared to the

corresponding period of the prior year due to the factors explained above.

In the first quarter of 2010, Indebtedness affecting cash increased by $56.5 million mainly due to the decrease in non-

cash operating items of $136.9 million and the aggregate dividend payments of $6.3 million described below, partly offset

by the free cash flow of $67.1 million and the decrease in cash and cash equivalents of $22 million. Indebtedness mainly

increased through an increase of $46.3 million in bank indebtedness and a net amount of $14.9 million drawn on the

Cogeco Cable’s revolving loans. In the first quarter of 2009, Indebtedness affecting cash increased by $43.8 million due to

the reduction of non-cash operating items of $65.2 million, partly offset by the free cash flow of $21.8 million.

Indebtedness was increased through the issuance by Cogeco Cable of Senior Secured Notes, Series A and Series B, for

net proceeds of approximately $255 million, net of the repayment of US$150 million Senior Secured Notes Series A and

the related derivative financial instrument for a total of $238.7 million, and by an increase of $23.5 million in bank

indebtedness.

During the first quarter of fiscal 2010, a dividend of $0.10 per share was paid by the Company to the holders of

subordinate and multiple voting shares, totalling $1.7 million, compared to a dividend of $0.08 per share, or $1.3 million

the year before. In addition, dividends paid by a subsidiary to non-controlling interests in the first quarter of fiscal 2010

amounted to $4.6 million, for consolidated dividend payments of $6.3 million.

As at November 30, 2009, the Company had a working capital deficiency of $197.2 million compared to $245.8 million as

at August 31, 2009. The decrease in the deficiency is mainly attributable to the cable sector and due to the reduction in

accounts payable and accrued liabilities stemming from the timing of payments made to suppliers and in income tax

liabilities stemming from income tax payments relating to the 2009 fiscal year, and to an increase in income taxes

receivable as a result of modifications made to the corporate structure. These decreases have been partially offset by the

increase in bank indebtedness and the decreases in cash and cash equivalents resulting from the above mentioned

payments, and by the increase in the current portion of future income tax liabilities also stemming from the modifications

made to the corporate structure. 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 cable subsidiary’s customers pay before their

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

services are rendered, thus enablin g Cogeco Cable to use cash and cash e quivalents to reduce Indebtedness.

At November 30, 2009, Cogeco Cable had used $268.6 million of its $862.5 million Term Facility for a remaining

availability of $593.9 million and the Company had drawn $7.7 million of its $50 million Term Facility, for a remaining

availability of $42.3 million.

On October 1, 2008, the Cogeco Cable completed, pursuant to a private placement, the issuance of US$190 million

Senior Secured Notes Series A maturing October 1, 2015, and $55 million Senior Secured Notes Series B maturing

October 1, 2018. The Senior Secured Notes Series B bear interest at the coupon rate of 7.60% per annum, payable semi-

annually. The Cogeco Cable has entered into cross-currency swap agreements to fix the liability for interest and principal

payments on the Senior Secured Notes Series A in the amount of US$190 million, which bear interest at the coupon rate

of 7.00% per annum, payable semi-annually. Taking into account these agreements, the effective interest rate on the

Senior Secured Notes Series A is 7.24% and the exchange rate applicable to the principal portion of the US dollar-

denominated debt has been fixed at $1.0625 per US dollar.

Transfers of funds from non-wholly owned subs idiaries to COGECO are subject to approval by the subsidiaries’ Board 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, 2009, there have been significant changes to the balances of “accounts payable and accrued liabilities”,

“income taxes receivable”, “income tax liabilities”, “future income tax liabilities”, “fixed assets”, “bank indebtedness”, “long-

term debt”, “derivative financial instruments” and “cash and cash equivalents”.

- 8 -

The $72.1 million decrease in accounts payable and accrued liabilities is related to the timing of payments made to

suppliers mostly in the cable sector. The increases of $20.5 million in income taxes receivable and $20.2 million in the

current portion of future income tax liabilities are mainly due to modifications made to the corporate structure in the cable

sector. The $39.2 million decrease in income tax liabilities is due to income tax payments made in the first quarter of the

2010 fiscal year relating to the 2009 fiscal year in the cable sector . The $17.8 million decrease in long-term future income

tax liabilities is mainly due to reduction, in the cable sector, of Ontario provincial corporate income tax rates. The

$6.3 million increase in fixed assets is mainly related to capital expenditures to sustain RGU growth in the cable sector.

The increases of $46.3 million in bank indebtedness, $5.3 million in long-term debt and $5.9 million in net derivative

financial instrument liabilities and the decrease of $22 million in cash and cash equivalents are due to the factors

previously discussed in the “Cash Flow and Liquidity” section and the fluctuations in foreign exchange and interest rates.

A description of COGECO’s share data as at December 31, 2009 is pre se nted in the table below:

Number of shares/options Amount

($000)

Common shares

Multiple voting shares

Subordinate voting shares

1,842,860

14,942,470

120,994

Options to purchase subordinate voting shares

Outstanding options

Exercisable options

79,650

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

operating and capital leases and guarantees. COGECO’s obligations, discussed in the 2009 Annual Report, have not

materially changed since August 31, 2009.

DIVIDEND DECLARATION

At its January 12, 2010 meeting, the Board of Directors of COGECO declared a quarterly eligible dividend of $0.10 per

share for subordinate and multiple voting shares, payable on February 9, 2010, to shareholders of record on January

26, 2010. The declaration, amount and date of any future dividend will continue to be considered and approved by the

Board of Directors of the Company based upon the Company’s financial condition, results of operations, capital

requirements and such other factors as the Board of Directors, at its sole discretion, deems relevant. There is therefore no

assurance that dividends will be declar ed, and if declared, their amount and frequency may vary.

FINANCIAL MANAGEME NT

During fiscal 2009, the Company’s cable subsidiary, Cogeco Cable, entered into a swap agreement with a financial

institution to fix the floating benchmark interest rate with respect to the Euro-denominated Term Loan facilities for a

notional amount of €111.5 million. The interest rate swap to hedge the Term Loans has been fixed at 2.08% until their

maturity at July 28, 2011. The notional value of the swap will decrease in line with the amortization schedule of the Term

Loans and stood at €95.8 million at November 30, 2009. In addition to the interest rate swap of 2.08%, Cogeco Cable will

continue to pay the applicable margin on these Term Loans in accordance with its Term Facility. In the first three months

of the fiscal year, the fair value of interest rate swap decreased by $0.1 million, which is recorded as a decrease of other

comprehensi ve income net of income taxes.

In the previous fiscal year, Cogeco Cable 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 in October 1, 2015. These agreements

have the effect of converting the U.S. interest coupon rate of 7.00% per annum to an average Canadian dollar interest

rate of 7.24% per annum. The exchange rate applicable to the principal portion of the debt has been ﬁxed at $1.0625 per

US dollar. In the first quarter of the 2010 fiscal year, amounts due under the US$190 million Senior Secured Notes

Series A decreased by $7.5 million due to the US dollar’s depreciation compared to the Canadian dollar. The fair value of

cross-currency swaps decreased by a net amount of $5.8 million, of which $7.5 million offsets the foreign exchange gain

on the debt denominated in US dollars. The difference of $1.7 million was recorded as an increase of other

comprehensive income, net of income taxes of $1.1 million.

- 9 -

Cogeco Cable’s net investment in the self-sustaining foreign subsidiary, Cabovisão – Televisão por Cabo, S.A.

(“Cabovisão”), is exposed to market risk attributable to fluctuations in foreign currency exchange rates, primarily changes

in the values of the Canadian dollar versus the Euro. This risk is mitigated since the major part of the purchase price for

Cabovisão was borrowed directly in Euros. This debt is designated as a hedge of the net investment in self-sustaining

foreign subsidiaries and accordingly, Cogeco Cable realized a foreign exchange gain of $0.6 million in the first three

months of fiscal 2010, which is presented in other comprehensive income. The exchange rate used to convert the Euro

into Canadian dollars for the balance sheet accounts at November 30, 2009 was $1.5852 per Euro compared to $1.5698

per Euro at August 31, 2009. The average exchange rate prevailing during the first quarter used to convert the operating

results of the European operations was $1.5732 per Euro, compared to $1.5462 per Euro for the same period of the prior

year.

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

into Canadian dollars on European operating results in the cable sector for the first nine months ended

November 30, 2009:

Quarter ended November 30, 2009 As reported

Exchange rate

impact

($000) $ $

(unaudited) (unaudited)

Revenue 53,005 5,301

Operating income before amort iz ati o n 10,176 1,018

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

relative to the Canadian dollar with regards to purchases of equipment, as the majority of customer premise equipment in

the cable sector is purchased and subsequently paid in US dollars. Please consult the “Fixed charges” section of this

MD&A and the Foreign Exchange Risk section in note 13 of the consolidated financial statements for further detail s.

CABLE SECTOR

CUSTOMER STATISTICS

Net additions % of Penetration

(1)

November 30, Quarters ended November 30, November 30,

2009 2009 2008 2009 2008

RGU 2,982,023 89,785 52,714 – –

Basic Cable service customers

1,132,642 8,357 798 – –

HSI service custome r s 681,381 22,715 14,300 62.8 58.1

Digital Television service customers 633,371 32,220 23,617 56.6 43.0

Telephony service customers 534,629 26,493 13,999 50.8 45.9

(1)

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

In the cable sector, first quarter RGU net additions were higher than for the same period of last year with a growth of

89,785 compared to 52,714.

The Canadian operations’ net additions to RGU of 63,172 were essentially the same as compared to 65,463 for the same

period of the prior year, and continue to generate RGU growth despite early signs of maturation of some of its services.

The number of net additions for Basic Cable service customers stood at 8,919 compared to 8,833 for the same period of

the prior year, mainly due to the beginning of the school year for college and university students and from expansions in

the network. Telephony service customers grew by 20,641 compared to 18,901 for the same period last year, and the

number of net additions to HSI service stood at 17,506 customers for the quarter, compared to 19,509 customers for the

same period last year. HSI and Telephony net additions continue to stem from the enhancement of the product offering,

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

promotional activities. Telephony service coverage, as a percentage of homes passed, is now above 90% compared to

87% at November 30, 2008. The Digital Television service net additions stood at 16,106 customers compared to

18,220 customers for the first quarter, and are due to targeted marketing initiatives to improve penetration and to the

continuing strong interest for HD television service.

- 10 -

The European operations net additions have begun to stabilize and reflect the benefits of the Portuguese subsidiary’s

customer retention and acquisition strategies launched at the end of the 2009 fiscal year in order to reduce the customer

attrition brought on by the difficult competitive landscape in Portugal and economic environment in the Iberian Peninsula

throughout the previous fiscal year. The RGU net additions for the first three months of fiscal 2010 amounted to 26,613

compared to net losses of 12,749 for the same period of the previous year. Basic Cable service customers decreased by

562 customers compared to a decrease of 8,035 customers in the comparable period of the prior year. HSI service

customers increased by 5,209 customers compared to a decrease of 5,209 customers in the first three months of fiscal

2009. The number of Digital Television service customers grew by 16,114 customers in the first quarter of the current

fiscal year compared to 5,397 customers in the first quarter of the prior year. Telephony service customers increased by

5,852 customers compared to a loss of 4,902 customers for the same period of the preceding year.

OPERATING RESULTS

Quarters ended November 30,

2009 2008

(1)

Change

($000, except percentages) $ $ %

(unaudited) (unaudited)

Revenue 317,365 299,438 6.0

Operating costs 188,418 177,727 6.0

Management fees – COGECO Inc. 6,341 5,981 6.0

Operating income from before amortization 122,606 115,730 5.9

Operating margin 38.6% 38.6%

(1)

Certain comparative figures have been restated to reflect the application of the CICA Handbook Section 3064. Please refer to the “Accounting policies and

estimates” section for more details.

Revenue

Fiscal 2010 first-quarter revenue improved by $17.9 million, or 6%, to reach $317.4 million when compared to the prior

year. Driven by the introduction of HSI usage billing, RGU growth and the impact of rate increases implemented in the

second half of fiscal 2009 in Ontario, first quarter Canadian operations revenue went up by $27 million, or 11.4% over the

comparable period of the prior year.

Fiscal 2010 first-quarter European operations revenue decreased by $9.1 million, or 14.6%, at $53 million, compared to

the same period of the prior year, mainly due to lower Basic Cable service customers compared to the same period of last

year and to the impact of retention strategies implemented in the second half of fiscal 2009 in order to reduce customer

attrition, partly offset by the strength of the Euro compared to the Canadian dollar. Revenue from the European operations

in the local currency for the first quarte r amounted to €33.7 million, a decrease of €6.5 million, or 16.1%.

Operating costs

For the first three months of fiscal 2010, operating costs, excluding management fees payable to COGECO Inc.,

increased by $10.7 million to reach $188.4 million, an increase of 6% compared to the prior year. Operating costs

increased due to the servicing of additional RGU and the additional levy amounting to 1.5% of gross Cable Television

service revenue imposed by the CRTC in order to finance a new LPIF for the benefit of conventional television

broadcasters operating local stations in Canada, and in Europe, due to marketing initiatives, including the launch of new

channels, and the appreciation of the Euro over the Canadian dollar, partly offset by cost reduction initiatives, such as a

headcount reduction plan.

Operating income before amortization and opera ting margin

Fiscal 2010 first quarter operating income before amortization increased by $6.9 million, or 5.9%, to reach $122.6 million,

as a result of RGU growth and rate adjustments generating additional revenues which outpaced operating cost increases

in the first three months of the year. Cogeco Cable’s first quarter operating margin remained the same when compared to

the prior year, amounting to 38.6%. The operating margin in Canada improved to 42.5% from 40% which offset the

decrease in the European operating ma rgin to 19.2% from 33.5%.

- 11 -

FISCAL 2010 FINANCIAL GUIDELINES

Given the improved performance of the Company during the first quarter, the expected trend for fiscal 2010 and the

Ontario provincial corporate income tax rate reductions announced on March 26, 2009 and considered substantively

enacted on November 16, 2009, management has revised most of its guidelines for the 2010 fiscal year. The Company

now expects revenue to attain $1,325 million and operating income before amortization should reach $512 million. Free

cash flow should generate approximately $140 million and net income of approximately $45 million should b e achieved.

Consolidated

Revised Projections Projections

January 12, 2010 October 29, 2009

Fiscal 2010 Fiscal 2010

(in millions of dollars) $ $

Financial guidelines

Revenue 1,325 1,285

Operating income before amort iz ati o n 512 486

Financial expens e 69 70

Current income taxes (40)

(55)

Net income 45 30

Capital expenditures and increase in deferred charges 341 341

Free cash flow

140 130

Cable sector

Cogeco Cable has revised upwards its guidelines to reflect the HSI usage billing and to charge back the LPIF costs to its

Canadian Cable Television service customers. RGU growth should also increase due to the continued demand for cable

telecommunications services. In addition, the projected foreign currency exchange rate from the Euro to the Canadian

dollar is revised upwards. During the last segment of fiscal 2009, Cabovisão launched new channels and implemented

retention strategies, which combined with new marketing and other operating initiatives, have helped reduce customer

attrition since their implementation. However, Cabovisão is still facing fierce competition in the Portuguese market.

Subsequent to these adjustments, projected revenue and operating income before amortization were revised upwards.

The increase in projected revenue from $1,250 million to $1,290 million should come from both the Canadian and

European operations. The operating income before amortization should increase to $505 million from $481 million and, as

a result, operating margin should increase to 39.1% from 38.5%.

As a result of the revised projections, free cash flow is now expected to reach $135 million from the $125 million initially

projected.

Revised Projections Projections

January 12, 2010 October 29, 2009

(in millions of dollars, except RGU growth and operating margin) Fiscal 2010 Fiscal 2010

Financial guidelines

Revenue 1,290 1,250

Operating income before amort iz ati o n 505 481

Operating margin 39.1% 38.5%

Amortization 273 273

Financial expens e 69 70

Current income taxes (40) (55)

Capital expenditures and increase in deferred charges 341 341

Free cash flow 135 125

RGU growth 150,000 125,000

The exchange rate used for the fiscal 2010 revised projections is $1.55 per Euro compared to $1.50 per Euro for the

October 29, 2009 projections.

- 12 -

CONTROLS AND PRO CEDURES

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

together with management, are responsible for establis hing and maintaining adequate disclosure controls and procedures

and internal controls over financial reporting, as defined in NI 52-109. COGECO’s internal control framework is based on

the criteria published in the report “Internal Control-Integrated Framework” issued by the Committee of Sponsoring

Organizations of the Treadway Commission and is designed to provide reasonable assurance regarding the reliability of

financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP.

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

procedures and internal controls over financial reporting as of November 30, 2009, and have concluded that they were

adequate.

UNCERTAINTIES AND M AIN RISK FACTORS

There has been no significant change in the uncertainties and main risk factors faced by the Company since

August 31, 2009. A detailed description of the uncertainties and main risk factors faced by COGECO can be found in the

2009 Annual Report.

ACCOUNTING POLICIES AND ESTIMATES

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

pronouncements since August 31, 2009, except as described below. A description of the Company’s policies and

estimates can be found in the 2009 Annual Report.

Goodwill and intangible assets

In February 2008, the CICA issued Section 3064, Goodwill and intangible assets, replacing Section 3062, Goodwill and

other intangible assets and Section 3450, Research and development costs. The new Section established standards for

the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of

intangible assets by profit-oriented enterprises. Standards concerning goodwill remained unchanged from the standards

included in the previous Section 3062. The new Section was applicable to interim and annual financial statements relating

to fiscal years beginning on or after October 1, 2008, with retroactive application. The adoption of Section 3064 eliminated

the deferral of new service launch costs which are now recognized as an expense when they are incurred. Reconnect and

additional services activation costs are capitalized up to an amount not exceeding the revenue generated by the

reconnect activity. Consequently, the Company adjusted opening retained earnings on a retroactive basis and the prior

period comparative figures have been restated. The adoption of this new section had the following impact on the

Company’s consolidated financial statements:

Consolidated statement of income

Increase (decrease)

Quarter ended November 30, 2008

($000) $

(unaudited)

Operating costs 3,993

Amortization of deferred charges

(3,181)

Future income tax expens e

(209)

Non-controlling interest (411)

Net income (192)

- 13 -

Consolidated balance shee t s

Increase (decrease) August 31, 2009 September 1, 2008

($000) $ $

(unaudited) (unaudited)

Deferred charges (34,551)

(32,405)

Future income tax liabili ties

(10,229)

(9,624)

Non-controlling interes t (16,428)

(15,376)

Retained earnings (7,894)

(7,405)

FUTURE ACCOUNTING PRO NOUN CEMENTS

Harmonization of Canadian and International accounting standards

Throughout the quarter, the Company has continued its project for the transition from Canadian GAAP to International

Financial Reporting Standards (“IFRS”). The conversion project is progressing according to the established plan and the

Company expects to meet its target dat e for migration. Please refer to the 2009 Annual Report for more details.

NON-GAAP FINANCI AL MEASURES

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

reconciliations between these non-GAAP measures and the most comparable GAAP financial measures. These financial

measures do not have standard definitions prescribed by Canadian GAAP and may not be comparable with similar

measures presented by other companies. These measures include “cash flow from operations”, “free cash flow”,

“operating income before amortization”, “operating margin”, “adjusted net income”, and “adjusted earnings per share”.

Cash flow from operations and fr ee cash flow

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

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

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

subsequently used in calculating the non-GAAP measure “free cash flow”. Free cash flow is used by COGECO’s

management and investors to measure COGECO’s ability to repay debt, distribute capital to its shar eholders and finance

its growth.

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

is calculated as follows:

Quarters ended November 30,

2009 2008

(1)

($000) $ $

(unaudited) (unaudited)

Cash flow from operating activities (1,410) 26,477

Changes in non-cash operating items 136,928 65,156

Cash flow from operations 135,518 91,633

- 14 -

Free cash flow is calculated as follows:

Quarters ended November 30,

2009 2008

(1)

($000) $ $

(unaudited) (unaudited)

Cash flow from operations 135,518 91,633

Acquisition of fixed assets (65,182) (65,709)

Increase in deferred charges (3,064) (3,214)

Assets acquired under capital leases – as per note 11 c) (141) (939)

Free cash flow 67,131 21,771

(1)

Certain comparative figures have been restated to reflect the application of the CICA Handbook Section 3064. Please refer to the “Accounting policies and

estimates” section for more details.

Operating income before amortization and opera ting margin

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

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

Operating income before amortization is a proxy for cash flows from operations excluding the impact of the capital

structure chosen, and is one of the key metrics used by the financial community to value the business and its financial

strength. Operating margin is a measure of the proportion of the Company's revenue which is left over, before taxes, to

pay for its fixed costs, such as interest on Indebtedness. Operating margin is calculated by dividing operating income

before amortization by revenue.

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

operating margin are calculated as follows:

Quarters ended November 30,

2009 2008

(1)

($000, except percentages) $ $

(unaudited) (unaudited)

Operating income 63,562 59,829

Amortization 65,701 60,882

Operating income before amortization 129,263 120,711

Revenue 328,003 308,375

Operating margin 39.4% 39.1%

(1)

Certain comparative figures have been restated to reflect the application of the CICA Handbook Section 3064. Please refer to the “Accounting policies and

estimates” section for more details.

- 15 -

Adjusted net income and adjusted earnings per share

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

what would have been the net income and earnings per share excluding unusual adjustments. This allows the Company

to isolate the unusual adjustments in order to evaluate the net income and earnings per share from ongoing activities.

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

mentioned non-GAAP financial measures are calculated as follows:

Quarters ended November 30,

2009 2008

(1)

($000) $ $

(unaudited) (unaudited)

Net income 22,748 10,861

Adjustment for the reduction of Ontario provincial corporate income tax rates (9,620)

–

Adjusted net income 13,128 10,861

Weighted average number of multiple voting and subordinate voting shares outstanding 16,721,277 16,701,699

Effect of dilutive stock options 6,594 20,386

Effect of dilutive incentive share units 64,053 38,747

Weighted average number of diluted multiple voting and subordinate voting shares outstanding 16,791,924 16,760,832

Adjusted earnings per share

Basic 0.79 0.65

Diluted 0.78 0.65

(1)

Certain comparative figures have been restated to reflect the application of the CICA Handbook Section 3064. Please refer to the “Accounting policies and

estimates” section for more details.

ADDITIONAL INFORMATION

This MD&A was prepared on January 12, 2010. Additional information relating to the Company, including its Annual

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

ABOUT COGECO

COGECO is a diversified communications company. Through its Cogeco Cable subsidiary, COGECO provides its

residential customers with Audio, Analogue and Digital Television, as well as HSI and Telephony services using its two-

way broadband cable networks. Cogeco Cable also provides, to its commercial customers, data networking, e-business

applications, video conferencing, hosting services, Ethernet, private line, VoIP, HSI access, dark fibre, data storage, data

security and co-location services and other advanced communication solutions. Through its subsidiary, Cogeco Diffusion

Inc., COGECO owns and operates the Rythme FM radio stations in Montréal, Québec City, Trois-Rivières and

Sherbrooke, as well as the FM 93 radio station in Québec City. COGECO’s subordinate voting shares are listed on the

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

Stock Exchange (TSX: CCA).

– 30 –

- 16 -

Source: COGECO Inc.

Pierre Gagné

Senior Vice President and Chief Financial Officer

Tel.: 514-764-4700

Information: Media

Marie Carrier

Director, Corporate Communications

Tel.: 514-764-4700

Analyst Conference Call: Wednesday, January 13, 2010 at 11:00 A.M. (EST)

Media representatives may attend as listeners only.

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

five minutes before the start of the conference:

Canada/USA Access Nu mber: 1 888 300-0053

International Access Number: + 1 647 427-3420

Confirmation Code: 5342110

By Internet at www.cogeco.ca/investors

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

Canada and USA access number: 1 800 642-1687

International access number: + 1 706 645-9291

Confirmation code: 5342110

- 17 -

Supplementary Quarterly Financial Information

(unaudited)

Quarters ended November 30, August 31, May 31, February 28 / 29,

($000, except percentages and per share data) 2009 2008

(1)

2009

(1)

2008

(1)(2)

2009

(1)

2008

(1)(2)

2009

(1)

2008

(1)(2)

Revenue 328,003 308,375 316,284 292,873 316,310 283,878 311,825 271,894

Operating income from contin ui ng op erati ons

before amortization

(2)

129,263 120,711 144,654 117,557 126,624 112,639 123,505 105,893

Operating margin

(2)

39.4% 39.1% 45.7% 40.1% 40.0% 39.7% 39.6% 38.9%

Operating income from contin ui ng op erati ons 63,562 59,829 76,244 58,664 62,623 57,114 60,171 52,769

Impairment of goodwill and intan gi bl e ass ets – – – – – – 399,648 –

Net income (loss) from continuing operations 22,748 10,861 14,631 9,332 10,704 9,221 (115,210) 16,296

Net loss from discontinued operations – – – – – – – (425)

Net income (l oss) 22,748 10,861 14,631 9,332 10,704 9,221 (115,210) 15,871

Adjusted net income

(2)(3)

13,128 10,861 7,647 9,332 9,157 9,221 8,741 8,387

Cash flow from operating activities from

continuing operations (1,410) 26,477 177,032 141,590 99,873 108,326 117,322 89,312

Cash flow from operations from continuing

operations

(2)

135,518 91,633 108,744 95,507 92,718 91,501 97,193 81,744

Free cash flow

(2)

67,131 21,771 14,742 20,981 32,416 37,107 32,089 19,374

Earnings (loss) per share

(4)

Basic

Income (loss) from continuing operations 1.36 0.65 0.87 0.56 0.64 0.55 (6.88) 0.98

Loss from discontinued operations – – – – – – – (0.03)

Net income (l oss) 1.36 0.65 0.87 0.56 0.64 0.55 (6.88) 0.95

Adjusted net income

(2)(3)

0.79 0.65 0.46 0.56 0.55 0.55 0.52 0.50

Diluted

Income (loss) from continuing operations 1.35 0.65 0.87 0.56 0.64 0.55 (6.88) 0.97

Loss from discontinued operations – – – – – – – (0.03)

Net income (l oss) 1.35 0.65 0.87 0.56 0.64 0.55 (6.88) 0.95

Adjusted net income

(2)(3)

0.78 0.65 0.46 0.56 0.55 0.55 0.52 0.50

(1)

Certain comparativ e figures have been restated to reflect the application of the Canadian Institute of Chartered Accountants (“ CICA”) Handbook Section 3064.

Please refer to the “Accounting policies and estimates” section of the Management’s discussion and analysis for more details.

(2)

Certain comparative figures have been reclassified to reflect the reclassification of foreign exchange gains or losses from operating costs to financial expense.

(3)

The indicated terms do not have standardiz ed def inition s prescr ibed by Canadia n Generally Acc epted Accounting Pri nciples (“GAAP ”) and therefo re, may not be

comparable to similar measures presented by other companies. For more details, please consult the “Non-GAAP financial measures” section of the

Management’s discussion and analysis.

(4)

Per multiple and subordinate voting share.

SEASONAL VARIATIONS

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

Cable service customers is usually greater, and the addition of HSI service customers is generally lower, in the second

half of the fiscal year as a result of a decrease in economic activity due to the beginning of the vacation period, the end of

the television seasons, and students leaving their campuses at the end of the school year. Cogeco Cable offers its

services in several university and college towns such as Kingston, Windsor, St. Catharines, Hamilton, Peterborough,

Trois-Rivières and Rimouski in Canada, and Aveiro, Covilhã, Evora, Guarda and Coimbra in Portugal. Furthermore, the

operating margin in the third and fourth quarters is generally higher as the maximum amount payable to COGECO under

the management agreement is usually reached in the second quarter of the year. As part of the management agreement

between Cogeco Cable and COGECO, Cogeco Cable pays management fees to COGECO equivalent to 2% of its

revenue subject to an annual maximum amount, which is adjusted annually to reflect the increase in the Canadian

Consumer Price index. For fiscal 2009, the maximum amount of $9 million was attained in the second quarter and

therefore, no management fees were paid in the third or fourth quarters of the 2009 fiscal year. For the current fiscal year,

the maximum amount has been set at $9 million.

- 18 -

Cable Sector Customer Statistics

(unaudited)

November 30, 2009 August 31, 2009

Homes passed

Ontario 1,052,470 1,049,818

Québec 518,163 515,327

Canada 1,570,633 1,565,145

Portugal

(1)

905,197 905,129

Total 2,475,830 2,470,274

Homes connected

(2)

Ontario 667,017 658,690

Québec 288,535 285,944

Canada 955,552 944,634

Portugal 268,202 269,022

Total 1,223,754 1,213,656

Revenue-generating units

Ontario 1,526,556 1,483,324

Québec 696,479 676,539

Canada 2,223,035 2,159,863

Portugal 758,988 732,375

Total 2,982,023 2,892,238

Basic Cable service customers

Ontario 604,028 597,651

Québec 269,696 267,154

Canada 873,724 864,805

Portugal 258,918 259,480

Total 1,132,642 1,124,285

High Speed Internet service customers

Ontario 387,497 374,906

Québec 145,061 140,146

Canada 532,558 515,052

Portugal 148,823 143,614

Total 681,381 658,666

Digital Television service customers

Ontario 336,270 326,227

Québec 178,234 172,171

Canada 514,504 498,398

Portugal 118,867 102,753

Total 633,371 601,151

Telephony service customer s

Ontario 198,761 184,540

Québec 103,488 97,068

Canada 302,249 281,608

Portugal 232,380 226,528

Total 534,629 508,136

(1)

Cogeco Cable is currently assessing the number of homes passed.

(2)

Includes Basic Cable service customers and HSI and Telephony service customers who do not subscribe to other cable services.

- 19 -

COGECO INC.

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

Three months ended November 30,

(In thousands of dollars, except per share data)

2009

2008

(restated, see note 1)

Revenue

328,003

308,375

Operating costs

198,740

187,664

Operating income before amortization

129,263

120,711

Amortization (note 3)

65,701

60,882

Operating income

63,562

59,829

Financial expense (note 4)

16,277

23,778

Income before income taxes and the following items

47,285

36,051

Income taxes (note 5)

(13,818)

9,639

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

─

Non-controlling interest

38,355

15,525

Net income

22,748

10,861

Earnings per share (note 6)

Basic

1.36

0.65

Diluted

1.35

0.65

- 20 -

COGECO INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

Three months ended November 30,

(In thousands of dollars)

2009

2008

(restated, see note 1)

Net income

22,748

10,861

Other comprehensive income

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

income taxes recovery of $2,141,000 and non-controlling interest of $2,551,000 (income taxes

expense of $3,387,000 and non-controlling interest of $17,451,000 in 2008)

(1,218)

8,338

Reclassification to net income of realized losses (gains) on derivative financial instruments

designated as cash flow hedges, net of income taxes recovery of $1,007,000 and non-controlling

interest of $4,386,000 (income taxes expense of $4,323,000 and non-controlling interest of

$19,211,000 in 2008)

2,093

(9,180)

Unrealized gains on translation of a net investment in self-sustaining foreign subsidiaries, net of non-

controlling interest of $1,844,000 ($4,114,000 in 2008)

882

1,966

Unrealized losses on translation of long-term debts designated as hedges of a net investment in self-

sustaining foreign subsidiaries, net of non-controlling interest of $1,415,000 ($2,273,000 in 2008)

(676)

(1,086)

1,081

Comprehensive income

23,829

10,899

- 21 -

COGECO INC.

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

(unaudited)

Three months ended November 30,

(In thousands of dollars) 2009 2008

$ $

(restated, see note 1)

Balance at beginning, as reported 211,922 295,808

Changes in accounting policies (note 1) (7,894) (7,405)

Balance at beginning, as restated 204,028 288,403

Net income 22,748 10,861

Dividends on multiple voting shares (184) (147)

Dividends on subordinate voting shares (1,494) (1,192)

Balance at end 225,098 297,925

- 22 -

COGECO INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(In thousands of dollars) November 30, 2009 August 31, 2009

$ $

(restated, see note 1)

Assets

Current

Cash and cash equivalents (note 11 b)) 17,477 39,458

Accounts receivable 71,659 66,076

Income taxes receivable 25,766 5,228

Prepaid expenses 15,941 14,805

Future income tax assets 4,934 4,275

135,777 129,842

Investments 739 739

Fixed assets 1,312,049 1,305,769

Deferred charges 23,912 24,062

Intangible assets (note 7) 1,046,581 1,047,774

Goodwill (note 7) 149,615 153,695

Derivative financial instruments ─ 4,236

Future income tax assets 4,900 4,011

2,673,573 2,670,128

Liabilities and Shareholders' equity

Liabilities

Current

Bank indebtedness 46,740 416

Accounts payable and accrued liabilities 183,171 255,281

Income tax liabilities 2,154 41,358

Deferred and prepaid revenue 36,059 33,877

Current portion of long-term debt (note 8) 44,693 44,706

Future income tax liabilities 20,209 ─

333,026 375,638

Long-term debt (note 8) 1,024,573 1,019,258

Derivative financial instruments 3,842 2,168

Deferred and prepaid revenue and other liabilities 12,918 12,900

Pension plan liabilities and accrued employees benefits 11,379 10,453

Future income tax liabilities 216,934 234,710

1,602,672 1,655,127

Non-controlling interest 717,418 682,879

Shareholders' equity

Capital stock (note 9) 121,006 121,006

Treasury shares (note 9) (2,896) (1,847)

Contributed surplus 2,866 2,607

Retained earnings 225,098 204,028

Accumulated other comprehensive income (note 10) 7,409 6,328

353,483 332,122

2,673,573 2,670,128

- 23 -

COGECO INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

Three months ended November 30,

(In thousands of dollars)

2009 2008

$ $

(restated, see note 1)

Cash flow from operating activities

Net income 22,748 10,861

Adjustments for:

Amortization (note 3)

65,701 60,882

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

762 717

Future income taxes (note 5)

6,404 2,615

Non-controlling interest

38,355 15,525

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

─ 26

Stock-based compensation

708 89

Loss on disposal of fixed assets

98 223

Other

742 695

135,518 91,633

Changes in non-cash operating items (note 11 a)) (136,928) (65,156)

(1,410) 26,477

Cash flow from investing activities

Acquisition of fixed assets (note 11 c)) (65,182) (65,709)

Increase in deferred charges (3,064) (3,214)

Other 20 16

(68,226) (68,907)

Cash flow from financing activities

Increase in bank indebtedness 46,324 23,459

Net increase under the term facilities 11,425 5,294

Issuance of long-term debt, net of discounts and transaction costs ─ 254,771

Repayment of long-term debt and settlement of derivative financial instrument (1,224) (239,747)

Acquisition of treasury shares (note 9) (1,049) ─

Dividends on multiple voting shares (184) (147)

Dividends on subordinate voting shares (1,494) (1,192)

Issuance of shares by a subsidiary non-controlling interest ─ 278

Acquisition of treasury shares by a subsidiary from non-controlling interest (note 9) (1,744) ─

Dividends paid by a subsidiary to non-controlling interest (4,601) (3,940)

47,453 38,776

Effect of exchange rate changes on cash and cash equivalents denominated in foreign currencies 202 687

Net change in cash and cash equivalents (21,981) (2,967)

Cash and cash equivalents at beginning 39,458 37,472

Cash and cash equivalents at end 17,477 34,505

See supplemental cash flow information in note 11.

- 24 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2009

(unaudited)

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

1. Basis of Presentation

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

accordance with Canadian generally accepted accounting principles, present fairly the financial position of

COGECO Inc. (“the Company”) as at November 30, 2009 and August 31, 2009 as well as its results of operations and

its cash flows for the three month periods ended November 30, 2009 and 2008.

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

financial statements and notes should be read in conjunction with COGECO Inc.’s annual consolidated financial

statements for the year ended August 31, 2009. These unaudited interim consolidated financial statements follow the

same accounting policies as the most recent annual consolidated financial statements, except for the adoption of the

new accounting policies described below.

Goodwill and intangible assets

In February 2008, the CICA issued Section 3064, Goodwill and intangible assets, replacing Section 3062,

Goodwill and other intangible assets and Section 3450, Research and development costs. The new Section

establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its

initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill remained

unchanged from the standards included in the previous Section 3062. The new Section was applicable to interim and

annual financial statements relating to fiscal years beginning on or after October 1, 2008, with retroactive

application. The adoption of Section 3064 eliminated the deferral of new service launch costs which are now

recognized as an expense when they are incurred. Reconnect and additional services activation costs ar e capitalized

up to an amount not exceeding the revenue generated by the reconnect activity. Consequently, the Company

adjusted opening retained earnings on a retroactive basis and the prior period comparative figures have been

restated. The adoption of this new section had the following impacts on the Company’s consolidated financial

statements.

Consolidated statement of income

Three months ended November 30, 2008

Increase (decrease) $

Operating costs 3,993

Amortization of deferred charges (3,181)

Future income tax expense (209)

Non-controlling interest (411)

Net income (192)

Consolidated balance shee ts

August 31, 2009 September 1, 2008

Increase (decrease) $ $

Deferred charges (34,551) (32,405)

Future income tax liabilities (10,229) (9,624)

Non-controlling interest (16,428) (15,376)

Retained earnings (7,894) (7,405)

- 25 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2009

(unaudited)

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

2. Segmented Information

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

of Cable Television, High Speed Internet, Telephony and other telecommunications services, and the other segment

is comprised of radio and head office activities, as well as eliminations. The Cable segment’s activities are carried out

in Canada and in Europe.

The principal financi al information per business segment is pre se nted in the tables below:

Cable Other and eliminations Consolidated

Three months ended November 30, 2009

2008

2009

2008

2009

2008

(restated)

Revenue 317,365

299,438

10,638

8,937

328,003

308,375

Operating costs 194,759

183,708

3,981

3,956

198,740

187,664

Operating income before amortization 122,606

115,730

6,657

4,981

129,263

120,711

Amortization 65,565

60,746

136

65,701

60,882

Operating income 57,041

54,984

6,521

4,845

63,562

59,829

Financial expense 16,141

23,394

136

384

16,277

23,778

Income taxes (15,766)

8,645

1,948

994

(13,818)

9,639

Loss on dilution resulting from the

issuance of shares by a subsidiary

─

Non-controlling interest 38,355

15,525

─

38,355

15,525

Net income 18,311

7,394

4,437

3,467

22,748

10,861

Total assets

(1)

2,632,154

2,630,912

41,419

39,216

2,673,573

2,670,128

Fixed assets

(1)

1,308,488

1,302,238

3,561

3,531

1,312,049

1,305,769

Intangible assets

(1)

1,021,241

1,022,434

25,340

1,046,581

1,047,774

Goodwill

(1)

149,615

153,695

─

149,615

153,695

Acquisition of fixed assets

(2)

65,157

66,606

166

65,323

66,648

(1)

At November 30, 2009 and August 31, 2009.

(2)

Includes capital leases that are excluded from the consolidated statements of cash flows.

- 26 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2009

(unaudited)

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

2. Segmented Information (continued)

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

Three months ended November 30,

2009 2008

$ $

Revenue

Canada 274,998 246,311

Europe 53,005 62,064

328,003 308,375

November 30, 2009 August 31, 2009

$ $

Fixed assets

Canada 1,025,914 1,015,298

Europe 286,135 290,471

1,312,049 1,305,769

Intangible assets

Canada 1,046,581 1,047,774

Europe ─ ─

1,046,581 1,047,774

Goodwill

Canada 116,243 116,243

Europe 33,372 37,452

149,615 153,695

3. Amortization

Three months ended November 30,

2009 2008

$ $

(restated)

Fixed assets 61,701 54,406

Deferred charges 2,807 2,607

Intangible assets 1,193 3,869

65,701 60,882

- 27 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2009

(unaudited)

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

4. Financial expense

Three months ended November 30,

2009 2008

$ $

Interest on long-term debt 15,901 20,270

Foreign exchange losses (gains) (488) 3,784

Amortization of deferred transaction costs 407 407

Other 457 (683)

16,277 23,778

5. Income Taxes

Three months ended November 30,

2009 2008

$ $

(restated)

Current (20,222) 7,024

Future 6,404 2,615

(13,818) 9,639

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

the consolidated income ta x expense:

Three months ended November 30,

2009 2008

$ $

(restated)

Income before income taxes 47,285 36,051

Combined income tax rate 31.43% 32.46%

Income taxes at combined income tax rate 14,862 11,702

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

(2,422) (194)

Decrease in future income taxes as a result of decrease in substantively enacted tax rates (29,782) ─

Utilization of pre-acquisition tax losses 4,432 ─

Income taxes arising from non-deductible expenses 209 117

Effect of foreign income tax rate differences 247 (1,604)

Other (1,364) (382)

Income taxes at effective income tax rate (13,818) 9,639

- 28 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2009

(unaudited)

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

6. Earnings per Share

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

Three months ended November 30,

2009 2008

$ $

(restated)

Net income 22,748 10,861

Weighted average number of multiple voting and subordinate voting shares outstanding 16,721,277 16,701,699

Effect of dilutive stock options

(1)

6,594 20,386

Effect of dilutive incentive share units 64,053 38,747

Weighted average number of diluted multiple voting and subordinate voting shares outstanding 16,791,924 16,760,832

Earnings per share

Basic 1.36 0.65

Diluted 1.35 0.65

(1)

For the three month period ended November 30, 2009, 32,782 stock options (32,782 in 2008) were excluded from the calculation of diluted earnings per

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

7. Goodwill and Other Intangible Assets

November 30, 2009 August 31, 2009

$ $

Customer relationships 31,689 32,882

Broadcasting licenses

25,120 25,120

Customer base

989,772 989,772

1,046,581 1,047,774

Goodwill

149,615 153,695

1,196,196 1,201,469

- 29 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2009

(unaudited)

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

7. Goodwill and Other Intangible Assets (continued)

a) Intangible assets

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

Customer

relationships

Broadcasting

licenses

Customer

Base

Total

$ $ $ $

Balance as at August 31, 2009 32,882 25,120 989,772 1,047,774

Amortization (1,193) ─ ─ (1,193)

Balance as at November 30, 2009 31,689 25,120 989,772 1,046,581

b) Goodwill

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

Balance as at August 31, 2009 153,695

Recognition of pre-acquisition tax losses (4,432)

Foreign currency translation adjustment 352

Balance as at November 30, 2009 149,615

On November 25, 2009, Cogeco Cable Inc.’s subsidiary, Cabovisão-Televisão por Cabo, S.A., received approval to

its request for preservation of tax losses for the years preceeding the 2006 taxation year. Accordingly, the recognition

of these pre-acquisition tax losses in the three month period ended November 30, 2009, has reduced goodwill by

approximately $4.4 million.

- 30 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2009

(unaudited)

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

8. Long-Term Debt

Maturity

Interest rate November 30, 2009 August 31, 2009

% $ $

Parent company

Term Facility 2011

3.02

(1)

5,905 9,382

Obligations under capital leases 2013

6.61 – 9.29 86 91

Subsidiaries

Term Facility

Term loan – €78,413,625 2011

1.19

(1)(2)

123,949 122,674

Term loan – €17,358,700 2011

1.19

(1)(2)

27,423 27,142

Revolving loan – €40,000,000 2011

1.19

(1)

63,408 62,792

Revolving loan 2011

2.25 15,000 ─

Senior Secured Notes Series B 2011

7.73 174,582 174,530

Senior Secured Notes

Series A – US$190 million 2015

7.00 199,169 206,606

Series B 2018

7.60 54,584 54,576

Senior Secured Debentures Series 1 2014

5.95 296,922 296,860

Senior Unsecured Debenture 2018

5.94 99,791 99,786

Obligations under capital leases 2013

6.73 – 9.93 8,422 9,496

Other ─

─ 25 29

1,069,266 1,063,964

Less current portion 44,693 44,706

1,024,573 1,019,258

(1)

Interest rate on debt as at November 30, 2009, including stamping fees.

(2)

On January 21, 2009, the Company’s subsidiary, Cogeco Cable Inc., entered into a swap agreement with a financial institution to fix the floating benchmark

interest rate with respect to the Euro-denominated Term Loan facilities for a notional amount of €111.5 million. The interest swap rate to hedge the Term

Loans has been fixed at 2.08% until their maturity on July 28, 2011. The notional value of the swap will decrease in line with the amortization schedule of the

Term Loans. In addition to the interest swap rate of 2.08%, the Company’s subsidiary will continue to pay the applicable margin on these Term Loans in

accordance with the Term Facility.

- 31 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2009

(unaudited)

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

9. Capital Stock

Authorized, an unlimited number

Preferred shares of first and second rank, could be issued in series and non-voting, except when specified in the

Articles of Incorporation of the Company or in the Law.

Multiple voting shares, 20 votes per share.

Subordinate voting share, 1 vote per share.

Issued

November 30, 2009 August 31, 2009

$ $

1,842,860 multiple voting shares 12 12

14,942,470 subordinate voting shares 120,994 120,994

121,006 121,006

Stock-based plans

The Company offers, for the benefit of its employees and those of its subsidiaries, an Employee Stock Purchase Plan

and a Stock Option Plan for certain executives, which are described in the Company’s annual consolidated financial

statements. During the first three months of 2010 and 2009, no stock options were granted to employees by

COGECO Inc. However, the Company’s subsidiary, Cogeco Cable Inc., granted 63,695 stock options

(133,381 in 2008) with an exercise price of $31.82 ($34.46 in 2008), of which 33,266 stock options (29,711 in 2008)

were granted to COGECO Inc.’s employees. As a result, a compensation expense of $337,000 ($101,000 in 2008)

was recorded for the three month period ended November 30, 2009.

The weighted average fair value of stock options granted by the Company’s subsidiary, Cogeco Cable Inc., for the

three month period ended November 30, 2009 was $8.11 ($8.96 in 2008) per option. The weighted average fair value

was estimated at the grant date for purposes of determining stock-based compensation expense using the binomial

option pricing model base d on the following assumptions:

2009 2008

% %

Expected dividend yield

1.49 1.40

Expected volatility

29 29

Risk-free interest rate

2.67 4.22

Expected life in years

4.8 4.0

- 32 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2009

(unaudited)

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

9. Capital Stock (continued)

At November 30, 2009, the Company had outstanding stock options providing for the subscription of 79,650

subordinate voting shares. These stock options can be exercised at various prices ranging from $20.95 to $37.50 and

at various dates up to October 1 9, 2011.

The Company also offers a senior executive and designated employee incentive share unit plan (the “Incentive Share

Unit Plan”) which is described in the Company’s annual consolidated financial statements. Effective October 29, 2009,

the Company’s subsidiary, Cogeco Cable Inc., established a similar plan for senior executives and designated

employees. During the first three months of 2010, the Company granted 41,571 (17,702 in 2008) and Cogeco Cable

Inc. granted 55,094 Incentive Share Units. The Company and its subsidiary instructed the trustee to purchase 41,571

and 55,094 subordinate voting shares on the stock market. These shares were purchased in November 2009 for cash

considerations aggregating $1,049,000 ($326,000 in 2008) and $1,744,000, respectively, and are held in trust for

participants until they are completely vested. The Trusts, considered as variable interest entities, are consolidated in

the Company’s financial statements with the value of the acquired shar es presented as treasury shares in reduction of

capital stock or non-controlling interest. A compensation expense of $187,000 ($108,000 in 2008) was recorded for

the three month period ended November 30, 2009 related to these plans.

The Company and its subsidiary, Cogeco Cable Inc., offer deferred share unit plans (“DSU Plans”) which are

described in the Company’s annual consolidated financial statements. During the first quarter of 2010, the Company

and its subsidiary did not award any deferred share unit to the participants in connection with the DSU Plans. A

compensation expense of $184,000 (reduction of expense of $120,000 in 2008) was recorded for the three month

period ended Novem ber 30, 2009 for the liabilities related to these p lans.

10. Accumulated Other Comprehensive Income

Translation of a net

investment in self-

sustaining foreign

subsidiaries

Cash flow hedges

Total

$ $ $

Balance as at August 31, 2009 7,634 (1,306) 6,328

Other comprehensive income 206 875 1,081

Balance as at November 2009 7,840 (431) 7,409

- 33 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2009

(unaudited)

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

11. Statements of Cash Flows

a) Changes in non-cash operating items

Three months ended November 30,

2009 2008

$ $

Accounts receivable (5,494) (3,189)

Income taxes receivable (20,514) (2,885)

Prepaid expenses (1,105) 1,337

Accounts payable and accrued liabilities (72,789) (44,644)

Income tax liabilities (39,224) (17,001)

Deferred and prepaid revenue and other liabilities 2,198 1,226

(136,928) (65,156)

b) Cash and cash equivalents

November 30, 2009 August 31, 2009

$ $

Cash 7,173 23,760

Cash equivalents

(1)

10,304 15,698

17,477 39,458

(1)

Term deposit of €6,500,000, 0.30%, maturing on December 4, 2009 (€10,000,000, 0.67%, maturing on September 14, 2009 at August 31, 2009).

c) Other information

Three months ended November 30,

2009 2008

$ $

Fixed asset acquisitions through capital leases 141 939

Financial expense paid 21,047 21,751

Income taxes paid 39,517 26,916

- 34 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2009

(unaudited)

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

12. Employees Future Benefits

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

defined contribution pension plan or collective registered retirement savings plans, which are described in the

Company’s annual con solidated financial statements. The total expenses related to these plans are as follows:

Three months ended November 30,

2009 2008

$ $

Contributory defined benefit pension plans 870 747

Defined contribution pension plan and collective registered retirement savings plans 1,126 923

1,996 1,670

13. Financial and Capital Management

a) Financial management

Management’s objectives are to protect COGECO Inc. and its subsidiaries against material economic exposures and

variability of results and against certain financial risks including credit risk, liquidity risk, interest rate risk and foreign

exchange risk.

Credit risk

Credit risk represents the risk of financial loss for the Company if a customer or counterparty to a financial asset fails

to meet its contractual obligations. The Company is exposed to credit risk arising from the derivative financial

instruments, cash and cash equivalents and trade accounts receivable, the maximum exposure of which is

represented by the carrying amounts reported on the balance sheet.

Credit risk from the derivative financial instruments arises from the possibility that counterparties to the cross-currency

swap and interest rate swap agreements may default on their obligations in instances where these agreements have

positive fair values for the Company. The Company reduces this risk by completing transactions with financial

institutions that carry a credit rating equal to or superior to its own credit rating. The Company assesses the

creditworthiness of the counterparties in order to minimize the risk of counter parties default under the agreements. At

November 30, 2009, management believes that the credit risk relating to its swaps is minimal, since the lowest credit

rating of the counterparties to the agree m ents is “A”.

Cash and cash equivalents consist mainly of highly liquid investments, such as money market deposits. The

Company has deposited the cash and cash equivalents with reputable financial institutions, from which management

believes the risk of loss to be remote.

- 35 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2009

(unaudited)

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

13. Financial and Capital Management (continued)

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

environment, the Company’s credit exposure is higher but it is difficult to predict the impact this could have on the

Company’s accounts receivable balances. To mitigate such risk, the Company continuously monitors the financial

condition of its customers and reviews the credit history or worthiness of each new major customer. At November 30,

2009, no customer balance represents a significant portion of the Company’s consolidated trade receivables. The

Company establishes an allowance for doubtful accounts based on specific credit risk of its customers by examining

such factors as the number of overdue days of the customer’s balance outstanding as well as the customer’s

collection history. The Company believes that its allowance for doubtful accounts is sufficient to cover the related

credit risk. The Company has credit policies in place and has established various credit controls, including credit

checks, deposits on accounts and advan ce billing, and has also established procedur es to suspend the availability of

services when customers have fully utilized approved credit limits or have violated existing payment terms. Since the

Company has a large and diversified clientele dispersed throughout its market area in Canada and Portugal, there is

no significant concentration of credit risk. The following table provides further details on the Company’s accounts

receivable balances:

November 30, 2009 August 31, 2009

$ $

Trade accounts receivable 81,815 75,044

Allowance for doubtful accounts

(16,779) (17,261)

65,036 57,783

Other accounts receivable

6,623 8,293

71,659 66,076

The following table provides further details on trade accounts receivable, net of allowance for doubtful accounts.

Trade accounts receivable past due is defined as amount outstanding beyond normal credit terms and conditions for

the respective customers. A large portion of Cogeco Cable Inc.’s customers are billed in advance and are required to

pay before their services are rendered. The Company considers amount outstanding at the due date as trade

accounts receivable past due.

November 30, 2009 August 31, 2009

$ $

Net trade accounts receivable not past due 46,434 43,136

Net trade accounts receivable past due

18,602 14,647

65,036 57,783

- 36 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2009

(unaudited)

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

13. Financial and Capital Management (continued)

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The

Company manages liquidity risk through the management of its capital structure and access to different capital

markets. It also manages liquidity risk by continuously monitoring actual and projected cash flows to ensure sufficient

liquidity to meet its obligations when due. At November 30, 2009, the available amount of the Company’s Term

Facilities was $636.2 million. Management believes that the committed Term Facilities will, until their maturities in July

2011 and December 2011, 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 amo unts:

2010 2011 2012 2013 2014 Thereafter Total

$ $ $ $ $ $ $

Bank indebtedness 46,740 ─ ─ ─ ─ ─ 46,740

Accounts payable and accrued liabilities 183,171 ─ ─ ─ ─ ─ 183,171

Long-term debt

(1)

56,443 173,809 181,000 ─ 300,000 355,564 1,066,816

Derivative financial instruments

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

Cash inflows (Canadian dollar

equivalent of US dollar)

─

(200,564)

Obligations under capital leases

(2)

2,892 3,339 2,324 915 41 ─ 9,511

289,246 177,148 183,324 915 300,041 356,875 1,307,549

(1)

Principal excluding obligations under capital leases.

(2)

Including interest.

The following table is a summary of interest payable on long-term debt (excluding interest on capital leases) that are

due for each of the next five years and thereafter, based on the principal amount and interest rate prevailing on the

current debt at November 30, 2009 and their respective maturities:

2010 2011 2012 2013 2014 Thereafter Total

$ $ $ $ $ $ $

Interest payments on long-term debt 43,690 57,606 44,313 42,005 37,543 53,054 278,211

Interest payments on derivative

financial instruments

14,081 17,473 14,614 14,614 14,614 15,831 91,227

Interest receipts on derivative financial

instruments

(11,841) (15,241) (14,039) (14,039) (14,039) (15,209) (84,408)

45,930 59,838 44,888 42,580 38,118 53,676 285,030

- 37 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2009

(unaudited)

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

13. Financial and Capital Management (continued)

Interest rate risk

The Company is exposed to interest rate risks for both fixed interest rate and ﬂoating interest rate instruments.

Fluctuations in interest rates will have an effect on the valuation and collection or repayment of these instruments. At

November 30, 2009, all of the Company’s long-term debt was at fixed rate, except for the Company’s Term Facilities.

However, on January 21, 2009, the Company’s subsidiary, Cogeco Cable Inc., entered into a swap agreement with a

financial institution to fix the floating benchmark interest rate with respect to the Euro-denominated Term Loan

facilities for a notional amount of €111.5 million. The interest swap rate to hedge the Term Loans has been fixed at

2.08% until their maturity on July 28, 2011. The notional value of the swap will decrease in line with the amortization

schedule of the Term Loans. In addition to the interest swap rate of 2.08%, the Company’s subsidiary will continue to

pay the applicable margin on these Term Loans in accordance with the Term Facility. The Company’s subsidiary

elected to apply cash flow hedge accounting on this derivative financial instrument. The sensitivity of the Company’s

annual financial expense to a variation of 1% in the interest rate applicable to the Term Facilities is approximately

$0.8 million based on the current debt at November 30, 2009 and taking into consideration the effect of the interest

rate swap agreement.

Foreign exchange risk

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

mitigate this risk, the Company has established guidelines whereby currency swap agreemen ts can be used to fix the

exchange rates applicable to its US dollar denominated long-term debt. All such agreements are exclusively used for

hedging purposes. Accordingly, on October 2, 2008, the Company’s subsidiary, Cogeco Cable Inc., entered into

cross-currency swap agreements to set the liability for interest and principal payments on its US$190 million Senior

Secured Notes Series A issued on October 1, 2008. These agreements have the effect of converting the US interest

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

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

cash flow hedge accounting on these derivative financial instruments.

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

accounts payable denominated in US dollars or Euros. At November 30, 2009, cash and cash equivalents

denominated in US dollars amounted to US$2,309,000 (US$5,555,000 at August 31, 2009) while accounts payable

denominated in US dollars amounted to US$4,014,000 (US$14,997,000 at August 31, 2009). At November 30, 2009,

Euro-denominated cash and cash equivalents amounted to €607,000 (bank indebtedness of €299,000 at August 31,

2009) while accounts payable denominated in Euros amounted to €146,000 (€26,000 at August 31, 2009). Due to

their short-term nature, the risk arising from fluctuations in foreign exchange rates is usually not significant. The

impact of a 10% change in the foreign exchange rates (US dollar and Euros) would change financial expense by

approximately $0.1 million.

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

attributable to fluctuations in foreign currency exchange rates, primarily changes in the values of the Canadian dollar

versus the Euro. This risk is mitigated since the major part of the purchase price for Cabovisão-Televisão por Cabo,

S.A. was borrowed directly in Euros. At November 30, 2009, the net investment amounted to €175,302,000

(€183,220,000 at August 31, 2009) while long-term debt denominated in Euros amounted to €135,772,000

(€135,772,000 at August 31, 2009). The exchange rate used to convert the Euro currency into Canadian dollars for

the balance sheet accounts at November 30, 2009 was $1.5852 per Euro compared to $1.5698 per Euro at

August 31, 2009. The impact of a 10% change in the exchange rate of the Euro into Canadian dollars would change

financial expense by approximately $0.5 million and other comprehensive income by approximately $2 million.

- 38 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2009

(unaudited)

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

13. Financial and Capital Management (continued)

Fair value

Fair value is the amount at which willing parties would accept to exchange a financial instrument based on the current

market for instruments with the same risk, principal and remaining maturity. Fair values are estimated at a specific

point in time, by discounting expected cash flows at rates for debts of the same remaining maturities and conditions.

These estimates are subjective in nature and involve uncertainties and matters of significant judgement, and

therefore, cannot be determined with precision. In addition, income taxes and other expenses that would be incurred

on disposition of these financial instruments are not reflected in the fair values. As a result, the fair values are not

necessarily the net amounts that would be realized if these instruments were settled.

The carrying values of obligations under capital leases approximate the fair value of these ﬁnancial instruments due to

their terms.

November 30, 2009 August 31, 2009

Carrying value

Fair value Carrying value Fair value

$ $ $ $

Long-term debt 1,069,266 1,160,418 1,063,964 1,126,449

b) Capital management

The Company’s objectives in managing capital are to ensure su fficient liquidity to support the capital requirements of

its various businesses, including growth opportunities. The Company manages its capital structure and makes

adjustments in light of general economic conditions, the risk characteristics of the underlying assets and the

Company’s working capital requirements. Management of the capital structure involves the is suance of new debt, the

repayment of existing debts using cash g enerated by operations and the level of distribution to shareholders.

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

assets or liabilities related to derivative financial instru ments.

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

Generally, the most significant restrictions relate to permitted investments and dividends on multiple and subordinate

voting shares, as well as incurrence and maintenance of certain financial ratios primarily linked to the operating

income before amortization, financial expense and total indebtedness. At November 30, 2009, and August 31, 2009,

the Company was in compliance with all debt covenants and was not subject to any other externally imposed capital

requirements.

- 39 -

COGECO INC.

Notes to Consolidated Financial Statements

November 30, 2009

(unaudited)

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

13. Financial and Capital Management (continued)

The following table summarizes certain of the key ratios used to monitor and manage the Company’s capital structure:

November 30, 2009 August 31, 2009

(restated)

Net indebtedness

(1)

/ Shareholders’ equity 3.1 3.1

Net indebtedness

(1)

/ Operating income before amortization

(2)

2.1 2.0

Operating income before amortization

(2)

/ Financial expense

(2)

8.3 7.3

(1)

Net indebtedness is defined as the total of bank indebtedness, principal on long-term debt and obligations under derivative financial instruments, less cash

and cash equivalents.

(2)

Calculation based on operating income before amortization for the last twelve month period ended November 30, 2009, and August 31, 2009.

14. Comparative Figures

Certain comparative figures have been reclas sified to conform to the current year’s presentation.

Back to press release

Press release details

STRONG PERFORMANCE FOR COGECO LEADS TO AN UPWARD REVISION OF ITS FISCAL 2010 GUIDELINES

SUSTAINABILITY

Cogeco Fund

Contact us