Press release details

Cogeco Cable posts strong results stemming from solid growth in the Canadian operations and increases its dividend despite a write-off of its Cabovisão investment

PRESS RELEASE

For immediate release

Cogeco Cable posts strong results stemming from solid growth in the Canadian

operations and increases its dividend despite a write-off of its Cabovisão investment

Montréal, July 7, 2011 – Today, Cogeco Cable Inc. (TSX: CCA) (“Cogeco Cable” or the “Corporation”) announced its financial

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

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

• Revenue increased by 7.4% to reach $342.9 million, and by 5.6% to reach $1,011 million;

• Operating income before amortization

(1)

increased by 13.7% to $144.1 million when compared to the third quarter of

fiscal 2010, and by 9.7% to $407.9 million when compared to the first nine months of the prior fiscal year;

• Operating margin

(1)

increased to 42% from 39.7% in the quarter, and to 40.3% from 38.9% in the first nine months

when compared to the same periods of the prior year;

• In the third quarter of fiscal 2011, a write-off of the Corporation’s net investment in Cabovisão was recorded through a

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

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

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

marketing initiatives designed to generate RGU growth in the near term;

• In the first nine months, the Corporation redeemed the $175 million Senior Secured Notes Series B, bearing interest

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

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

redemption, which increased financial expense;

• Net loss amounted to $182 million in the third quarter, compared to net income of $31.2 million for the same period of

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

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

(1)

would have amounted

to $43.9 million, an increase of $12.7 million, or 40.6% when compared to the third quarter of the prior year;

• For the first nine months of fiscal 2011, net loss amounted to $117.2 million, also as a result of the write-off of the

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

amounted to $117.6 million, which included a favourable income tax adjustment of $29.8 million related to the

reduction of Ontario provincial corporate income tax rates for the Canadian operations. Excluding these adjustments,

adjusted net income

(1)

of $108.6 million in the first nine months of fiscal 2011 represents a progression of

$20.8 million, or 23.7% when compared to $87.9 million in the first nine months of fiscal 2010;

• Free cash flow

(1)

reached $61.2 million for the quarter, an increase of $11.2 million, or 22.5%, when compared to

$50 million in the comparable quarter of the prior year. For the first nine months, free cash flow amounted to

$79.3 million, compared to $155.9 million in the comparable period of fiscal 2010. This reduction is primarily due to

the recognition of current income tax expense relating to the modifications to the corporate structure which reduced

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

• Quarterly dividends of $0.17 per share were paid to the holders of subordinate and multiple voting shares, a quarterly

increase of $0.03 per share, or 21.4%, when compared to quarterly dividends of $0.14 per share in the first nine

months of fiscal 2010. Dividend payments in the first nine months totalled $0.51 per share in fiscal 2011, compared to

$0.42 per share in fiscal 2010. In addition, the Board of Directors declared a dividend of $0.20 per share payable in

the fourth quarter of fiscal 2011, an increase of 42.9% when compared to the prior year, reflecting the continued

strong financial performance;

• Revenue-generating units (“RGU”)

(2)

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

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

“Cogeco Cable’s solid results in the third quarter of fiscal 2011 are attributable to the performance of our Canadian operations,

which generated continued RGU and revenue growth. As the Corporation’s consolidated results and future outlook remain

(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.

positive, the quarterly dividend has been increased from $0.17 to $0.20 per share. However, the Portuguese economy is still in

a recession and the budgetary deficit remains high. To curtail its deficit, the Portuguese government has increased the income

and sales tax rates, reduced its spending on social programs, which were necessary to reform the economy. As a result, there

is a downward pressure on customer spending since there is less disposable income. For Cabovisão, this situation has

translated into net customer losses and service downgrades by customers across all the services in the third quarter of

fiscal 2011. Management considers that this situation, as evidenced by the customer losses, is more significant and persistent

than expected, resulting in the write-off of Cogeco Cable’s investment in the Portuguese subsidiary. Despite this loss, we

expect to meet most of fiscal 2011 financial targets”, declared Louis Audet, President and CEO of Cogeco Cable.

“In the past weeks, we have concluded an agreement to acquire all of the shares of Quiettouch Inc., a leading independent

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

Canada. We expect the transaction, which will boost our business offering, to close during the last quarter of fiscal 2011. The

overall performance to date in fiscal 2011 lead us to issue robust fiscal 2012 preliminary financial guidelines, which exclude

the financial projections from the acquisition of Quiettouch Inc. until the transaction has been completed. We expect to

continue to generate growth for most of our key performance indicators, with 225,000 RGU net additions, operating income

before amortization reaching $580 million and free cash flow of $95 million,” declared Mr. Audet.

ABOUT COGECO CABLE

Cogeco Cable (www.cogeco.ca) is a telecommunications company, the second largest hybrid fibre coaxial cable operator in Ontario, Québec

and Portugal. Through its two-way broadband cable networks, Cogeco Cable provides its residential customers with Audio, Analogue and

Digital Television, as well as HSI and Telephony services. Cogeco Cable also provides, to its commercial customers, data networking,

e-business applications, video conferencing, hosting services, Ethernet, private line, Voice over Internet Protocol (“VoIP”), HSI access, data

storage, data security and co-location services and other advanced communication solutions. Cogeco Cable’s subordinate voting shares are

listed on the Toronto Stock Exchange (TSX: CCA).

– 30 –

Source:

Cogeco Cable Inc.

Pierre Gagné

Senior Vice President and Chief Financial Officer

Tel.: 514-764-4700

Information:

Media

René Guimond

Vice President, Public Affairs and Communications

Tel.: 514-764-4746

Analyst Conference Call:

Thursday

,

July 7

,

2011

at 11:00 a.m. (EDT)

Media representatives may attend as listeners only.

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

minutes before the start of the conference:

Canada/USA Access Number: 1 866 321-8231

International Access Number: + 1 416 642-5213

Confirmation Code: 3298006

By Internet at www.cogeco.ca/investors

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

Canada and USA access number: 1 888 203-1112

International access number: + 1 647 436-0148

Confirmation code: 3298006

SHAREHOLDERS’ REPORT

Third quarter ended May 31, 2011

FINANCIAL HIGHLIGHTS

Quarters ended May 31, Nine months ended May 31,

2011

2010

Change

2011

2010

Change

($000, except percentages and per share data)

$

$

%

$

$

%

Operations (unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenue

342,910

319,291

7.4

1,010,998

957,053

5.6

Operating income before amortization

(1)

144,085

126,700

13.7

407,885

371,919

9.7

Operating margin

(1)

42.0%

39.7%

–

40.3%

38.9%

–

Operating income

78,444

62,929

24.7

214,175

176,744

21.2

Impairment of goodwill and fixed assets

225,873

–

–

225,873

–

–

Net income (loss)

(182,019)

31,185

–

(117,231)

117,640

–

Adjusted net income

(1)

43,854

31,185

40.6

108,642

87,858

23.7

Cash Flow

Cash flow from operating activities

148,147

112,451

31.7

295,813

222,870

32.7

Cash flow from operations

(1)

131,746

119,243

10.5

286,998

367,790

(22.0)

Capital expenditures and increase in deferred charges

70,562

69,283

1.8

207,677

211,883

(2.0)

Free cash flow

(1)

61,184

49,960

22.5

79,321

155,907

(49.1)

Financial Condition

(2)

Fixed assets

–

–

–

1,151,049

1,325,077

(13.1)

Total assets

–

–

–

2,543,743

2,

702,819

(5.9)

Indebtedness

(3)

–

–

–

958,012

958,939

(0.1)

Shareholders’ equity

–

–

–

1,002,256

1,

136,301

(11.8)

RGU growth 41,819

64,241

(34.9)

189,767

222,808

(14.8)

Per Share Data

(4)

Earnings (loss) per share

Basic

(3.74)

0.64

–

(2.41)

2.42

–

Diluted

(3.74)

0.64

–

(2.41)

2.42

–

Adjusted earnings per share

(1)

Basic

0.90

0.64

40.6

2.24

1.81

23.8

Diluted

0.90

0.64

40.6

2.22

1.80

23.3

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

not

be comparable to similar measures presented by other companies. For more details, please consult the “Non-

GAAP financial measures” section of the

Management’s discussion and analysis.

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

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

(4) Per multiple and subordinate voting share.

MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)

Third quarter ended May 31, 2011

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

FORWARD-LOOKING STATEMENTS

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

may relate to Cogeco Cable’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 Corporation’s future operating results and economic performance and its objectives and strategies are

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

performance and business prospects and opportunities, which Cogeco Cable believes are reasonable as of the current date. While

management considers these assumptions to be reasonable based on information currently available to the Corporation, they may prove to be

incorrect. The Corporation cautions the reader that the economic downturn experienced over the past few years makes forward-looking

information and the underlying assumptions subject to greater uncertainty and that, consequently, they may not materialize, or the results

may significantly differ from the Corporation’s expectations. It is impossible for Cogeco Cable to predict with certainty the impact that the

current economic downturn may have on future results. Forward-looking information is also subject to certain factors, including risks and

uncertainties (described in the “Uncertainties and main risk factors” section of the Corporation’s 2010 annual Management’s Discussion and

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

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

development of new products and services, the enhancement of existing products and services, and the introduction of competing products

having technological or other advantages, many of which are beyond the Corporation’s control. Therefore, future events and results may vary

significantly from what management currently foresee. The reader should not place undue importance on forward-looking information and

should not rely upon this information as of any other date. While management may elect to, the Corporation is under no obligation (and

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

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

accordance with Canadian Generally Accepted Accounting Principles and the MD&A included in the Corporation’s 2010 Annual Report.

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

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

CORPORATE STRATEGIES AND OBJECTIVES

Cogeco Cable Inc.’s (“Cogeco Cable” or the “Corporation”) objectives are to improve profitability and create shareholder value. The strategies

for reaching those objectives are sustained growth through the diversification and the improvement of products, services, clientele and

territories, as well as the continuous improvement of networks and equipment and tight controls over costs and business processes. The

Corporation measures its performance, with regards to these objectives by monitoring operating income before amortization

(1)

, operating

margin

(1)

, revenue-generating units (“RGU”)

(2)

growth and free cash flow

(1)

.

During the first nine months of fiscal 2011, the Corporation invested approximately $100 million in its network infrastructure and equipment to

upgrade its capacity, improve its robustness and extend its territories in order to better serve and increase its service offerings for new and

existing clientele.

RGU growth and penetration of service offerings

During the nine month period ended May 31, 2011, the number of RGU increased by 189,767, or 6%, to reach 3,369,116 RGU, mainly as a

result of targeted marketing initiatives in the Canadian operations and of the continuing interest for high definition (“HD”) television service,

which offset the lower customer growth in the European operations resulting primarily from the impact of further austerity measures

announced by the Portuguese government in recent months which adversely impact consumer spending. In light of the lower RGU growth in

the European operations during the first nine months of fiscal 2011, the Corporation has revised its guidelines from 275,000 RGU as issued on

January 12, 2011 to 250,000 net additions, for growth of approximately 7.9% when compared to August 31, 2010. RGU growth is expected to

stem primarily from the Canadian operations and reflect the continued strong interest in Digital Television services, enhanced service offerings

and promotional activities. Please consult the “Fiscal 2011 financial guidelines” section for further details.

Operating income before amortization and operating margin

First nine-month operating income before amortization increased by 9.7% when compared to the same period of fiscal 2010 to reach

$407.9 million, in line to achieve management’s revised projection of $545 million in operating income before amortization for fiscal 2011.

Operating margin increased to 40.3% from 38.9% in the first nine months of the prior year. An operating margin of approximately 40.1% is

expected for the 2011 fiscal year.

Free cash flow

For the nine month period ended May 31, 2011, Cogeco Cable achieved free cash flow of $79.3 million, compared to $155.9 million for the

first nine months of the previous fiscal year, a decrease of $76.6 million. The decrease in free cash flow reflects the timing of the recognition of

income tax liabilities as a result of modifications made to the corporate structure in fiscal 2009. As a result of an increase in capital

expenditures expected in the last quarter of fiscal 2011, management maintains its revised free cash flow guideline of $70 million for the 2011

fiscal year.

Other

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

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

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

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

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

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

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

OPERATING RESULTS – CONSOLIDATED OVERVIEW

Quarters ended May 31, Nine months ended May 31,

2011

2010

Change

2011

2010

Change

($000, except percentages)

$

$

%

$

$

%

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenue

342,910

319,291

7.4

1,010,998

957,053

5.6

Operating costs

198,825

192,591

3.2

593,941

576,115

3.1

Management fees - COGECO Inc.

–

–

–

9,172

9,019

1.7

Operating income before amortization

144,085

126,700

13.7

407,885

371,919

9.7

Operating margin

42.0%

39.7%

40.3%

38.9%

Revenue

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

months, revenue amounted to $1,011 million, an increase of $53.9 million, or 5.6% when compared to the first nine months of fiscal 2010. For

further details on the Corporation’s operating results, please refer to the “Canadian operations” and “European operations” sections.

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

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

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

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

Operating costs

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

prior year. For the first nine months of 2011, operating costs amounted to $593.9 million, an increase of $17.8 million, or 3.1%, when

compared to the same period of fiscal 2010. For further details on the Corporation’s operating results, please refer to the “Canadian

operations” and “European operations” sections.

Operating income before amortization and operating margin

Fiscal 2011 operating income before amortization increased by $17.4 million, or 13.7%, to reach $144.1 million in the third quarter, and by

$36 million, or 9.7%, in the first nine months to reach $407.9 million. Cogeco Cable’s third-quarter operating margin increased to 42% from

39.7% in the comparable period of the prior year. For the first nine months, the operating margin grew to 40.3% from 38.9% in the comparable

period of fiscal 2010. For further details on the Corporation’s operating results, please refer to the “Canadian operations” and “European

operations” sections.

RELATED PARTY TRANSACTIONS

Cogeco Cable is a subsidiary of COGECO Inc., which holds 32.2% of the Corporation’s equity shares, representing 82.6% of the votes

attached to the Corporation’s voting shares. Under a management agreement, the Corporation pays COGECO Inc. monthly management fees

equal to 2% of its total revenue, capped annually and subject to an adjustment based on the increase in the Consumer Price Index in Canada,

for certain executive, administrative, legal, regulatory, strategic and financial planning and additional services. Accordingly, for fiscal 2011,

management fees have been set at a maximum of $9.2 million, which were paid within the first six months of the fiscal year. For fiscal 2010,

management fees were capped at $9 million, and were fully paid in the first half of the year.

Cogeco Cable granted 35,800 stock options to COGECO Inc.’s employees during the first nine months of fiscal 2011, compared to 33,266 for

the same period last year. During the third quarter and first nine months, Cogeco Cable charged COGECO Inc. amounts of $59,000 and

$174,000, respectively, with respect to Cogeco Cable’s options granted to COGECO Inc.’s employees, compared to $63,000 and $240,000 in

the comparable periods of the prior year.

Cogeco Cable has also established an incentive share unit plan for senior executives and designated employees. During the first nine months

of this year, the Corporation granted 10,000 incentive share units to COGECO Inc.’s employees, compared to 9,981 incentive share units in

the first nine months of fiscal 2010. During the third quarter and first nine months of fiscal 2011, the Corporation charged COGECO Inc.

amounts of $59,000 and $156,000 with respect to these incentive share units, compared to $27,000 and $64,000, respectively, in the

comparable periods of the previous fiscal year.

Details regarding the management agreement and stock options and incentive share units granted to COGECO Inc.’s employees are provided

in the Corporation’s 2010 Annual Report.

There were no other material related party transactions during the periods covered.

FIXED CHARGES

Quarters ended May 31, Nine months ended May 31,

2011

2010

Change

2011

2010

Change

($000, except percentages)

$

$

%

$

$

%

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Amortization

65,641

63,771

2.9

193,710

195,175

(0.8)

Financial expense

16,043

16,684

(3.8)

56,868

47,858

18.8

Third-quarter 2011 amortization amounted to $65.6 million, $1.9 million, or 2.9% higher when compared to $63.8 million for the same period of

the prior year. The increase is mainly due to additional capital expenditures in the Canadian operations arising from customer premise

equipment acquisitions to support RGU growth, partly offset by a reduction in amortization in the European operations stemming from certain

acquired assets that are now fully amortized. For the first nine months, amortization was essentially the same at $193.7 million when

compared to $195.2 million in the first nine months of the prior year.

Financial expense amounted to $16 million in the third quarter compared to $16.7 million in the prior year. Lower financial expense is mainly

attributable to the impact of the lower interest rate on the $200 million Senior Secured Debentures Series 2 issued on November 16, 2010

compared to the Senior Secured Notes Series B issued in 2001. In the first nine months of fiscal 2011, financial expense amounted to

$56.9 million, compared to $47.9 million in the same period of the prior year. Financial expense in the first nine months includes the payment

of a make-whole premium amounting to $8.8 million on the early repayment, on December 22, 2010, of the $175 million Senior Secured Notes

Series B due on October 31, 2011. The remaining variances are mainly attributable to the financial expense impact of fluctuations in the level

of bank indebtedness, combined with the impact of the lower interest rate on the $200 million Senior Secured Debentures Series 2 issued on

November 16, 2010.

IMPAIRMENT OF GOODWILL AND FIXED ASSETS

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

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

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

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

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

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

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

details. In accordance with current accounting standards, management considered that this situation combined with net customer losses in the

third quarter, which were significantly more important and persistent than expected, will continue to negatively impact the financial results of

the European operations and indicate a decrease in the value of the Corporation’s investment in the Portuguese subsidiary. As a result, the

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

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

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

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

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

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

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

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

necessary to estimate future cash flows.

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

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

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

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

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

recognized in the third quarter of the 2011 fiscal year.

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

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

($000)

Impairment of goodwill 29,344

Impairment of fixed assets 196,529

Impairment loss

225,873

Income taxes

–

Impairment loss net of income taxes

225,873

INCOME TAXES

Fiscal 2011 third-quarter income tax expense amounted to $18.5 million, compared to $15.1 million in the prior year. The increase of

$3.5 million, or 23.2%, is mainly due to operating income before amortization growth, partly offset by the previously announced declines in the

enacted Canadian federal and provincial income tax rates.

In the first nine months, income tax expense amounted to $48.7 million, compared to $11.2 million in the first nine months of fiscal 2010. The

income tax expense in the first nine months of the prior year included a favourable impact of $29.8 million from 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”). Excluding this impact in the prior year, income tax

expense would have amounted to $41 million. Fiscal 2011 income tax expense increase is mainly due to operating income before amortization

growth and the decrease in amortization, partly offset by the increase in financial expense and the previously announced declines in the

enacted Canadian federal and provincial income tax rates.

NET INCOME (LOSS)

For the three and nine month periods ended May 31, 2011, net losses amounted to $182 million, or $3.74 per share, and $117.2 million, or

$2.41 per share, respectively, as a result of the previously described impairment loss of $225.9 million. For the comparable periods of fiscal

2010, net income amounted to $31.2 million, or $0.64 per share in the quarter, and $117.6 million, or $2.42 per share in the first nine months.

Fiscal 2010 first nine months net income included the reduction of Ontario provincial corporate income tax rates described in the “Income

Taxes” section.

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

(1)

amounted to $43.9 million, or $0.90 per share

(1)

in the third quarter, representing growth of $12.7 million and of $0.26 per share, or 40.6%

each, when compared to $31.2 million, or $0.64 per share in the prior year. Adjusted net income in the first nine months of fiscal 2011 grew by

$20.8 million, or 23.7%, and $0.43 per share, or 23.8%, to reach $108.6 million or $2.24 per share when compared to $87.9 million or

$1.81 per share in the comparable period of the prior year. Net income progression for both periods has resulted mainly from the growth in

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

$6.4 million, net of income taxes.

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

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

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

CASH FLOW AND LIQUIDITY

Quarters ended May 31, Nine months ended May 31,

2011

2010

2011

2010

($000)

$

$

$

$

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Operating activities

Cash flow from operations

131,746

119,243

286,998

367,790

Changes in non-cash operating items

16,401

(6,792)

8,815

(144,920)

148,147

112,451

295,813

222,870

Investing activities

(1)

(70,346)

(69,260)

(207,461

)

(211,597)

Financing activities

(1)

(8,359)

(39,946)

(28,541

)

(34,979)

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

foreign currency 573

(846)

438

(1,746)

Net change in cash and cash equivalents 70,015

2,399

60,249

(25,452)

Cash and cash equivalents, beginning of period

26,076

11,607

35,842

39,458

Cash and cash equivalents, end of period 96,091

14,006

96,091

14,006

(1) Excludes assets acquired under capital leases.

Fiscal 2011 third-quarter cash flow from operations reached $131.7 million compared to $119.2 million in the third quarter of the prior year.

The increase of $12.5 million, or 10.5%, is mainly attributable to the increase in operating income before amortization, partly offset by the

decrease in current income tax recovery. Changes in non-cash operating items generated cash inflows of $16.4 million, mainly as a result of

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

liabilities. In the prior year, changes in non-cash operating items required cash outflows of $6.8 million, mainly as a result of an increase in

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

For the first nine months of fiscal 2011, cash flow from operations amounted to $287 million, $80.8 million or 22%, lower than the comparable

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

structure which reduced the future income tax expense accordingly and to the payment of a make-whole premium amounting to

$8.8 million on the early repayment of the Senior Secured Notes Series B, partly offset by the increase in operating income before

amortization. Changes in non-cash operating items generated cash inflows of $8.8 million, mainly as a result of an increase in income tax

liabilities and a decrease in income taxes receivable, partly offset by a decrease in accounts payable and accrued liabilities. In the prior year,

changes in non-cash operating items required cash outflows of $144.9 million, mainly as a result of decreases in accounts payable and

accrued liabilities and in income tax liabilities, combined with increases in income taxes receivable and accounts receivable, partly offset by an

increase in deferred and prepaid revenue and other liabilities.

Investing activities, including capital expenditures segmented according to the National Cable Television Association (“NCTA”) standard

reporting categories, are as follows:

Quarters ended May 31, Nine months ended May 31,

2011

2010

2011

2010

($000)

$

$

$

$

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Customer premise equipment

(1)

25,015

16,890

79,54

9

76,995

Scalable infrastructure

17,587

14,151

54,

734

44,491

Line extensions

3,652

6,916

11,597

18,704

Upgrade / Rebuild

12,449

14,687

33,627

40,372

Support capital

9,078

14,105

19,635

23,268

Total capital expenditures

(2)

67,781

66,749

199,142

203,830

Increase in deferred charges and others 2,565

2,511

8,

319

7,908

Total investing activities

(2)

70,346

69,260

207,

461

211,738

(1) Includes mainly home terminal devices as well as new and replacement drops.

(2) Includes capital leases, which are excluded from the statements of cash flows.

Fiscal 2011 third-quarter total capital expenditures amounted to $67.8 million, an increase of 1.5% when compared to $66.7 million in the third

quarter of the prior year due to the following factors:

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

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

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

compared to the third quarter of the prior year;

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

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

For the first nine months of fiscal 2011, total capital expenditures amounted to $199.1 million, a decrease of 2.3% when compared to

$203.8 million in the comparable period of the prior year due to the following factors:

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

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

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

when compared to the same period of the prior year;

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

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

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

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

Deferred charges and others are mainly attributable to reconnect and additional service activation costs. For the third quarter and first nine

months, the increase in deferred charges and others amounted to $2.6 million and $8.3 million, respectively, essentially the same when

compared to $2.5 million and $7.9 million for the same periods of the 2010 fiscal year.

In the third quarter, free cash flow amounted to $61.2 million, compared to $50 million in the comparable period of fiscal 2010, representing an

increase of $11.2 million, or 22.5%. The growth in free cash flow over the prior year is due to the increase in operating income before

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

For the first nine months, free cash flow amounted to $79.3 million, compared to $155.9 million in the same period of fiscal 2010, representing

a decrease of $76.6 million, or 49.1%. The decline in free cash flow over the prior year is due to an increase of $107.8 million in current

income tax expense stemming primarily from modifications to the corporate structure and the increase in financial expense, which offset the

increase in operating income before amortization and the decrease in capital expenditures in the first nine months of fiscal 2011.

In the third quarter of fiscal 2011, Indebtedness affecting cash remained essentially the same due to the free cash flow of $61.2 million and the

cash inflows of $16.4 million from the changes in non-cash operating items, offset by the increase in cash and cash equivalents of $70 million

and the dividend payment of $8.3 million described below. In the third quarter of fiscal 2010, Indebtedness affecting cash decreased by

$32.9 million mainly due to the free cash flow of $50 million, partly offset by the dividend payment of $6.8 million described below, the cash

outflows of $6.8 million from the changes in non-cash operating items and the increase in cash and cash equivalents of $2.4 million.

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

During the third quarter of fiscal 2011, a dividend of $0.17 per share was paid to the holders of subordinate and multiple voting shares,

totalling $8.3 million, compared to a dividend of $0.14 per share, or $6.8 million the year before.

In the first nine months of fiscal 2011, Indebtedness affecting cash decreased by $6.3 million mainly due to the free cash flow of $79.3 million,

and the cash inflows of $8.8 million from the changes in non-cash operating items, offset by the increase in cash and cash equivalents of

$60.2 million and the dividend payment of $24.8 million described below. Indebtedness mainly decreased through the repayment, on

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

early repayment, combined with a net repayment of $27.4 million on the Corporation’s Term Revolving Facility. The Senior Secured Notes

Series B were repaid from the net proceeds of $198.3 million as a result of the issuance, on November 16, 2010, of Senior Secured

Debentures Series 2 (“Fiscal 2011 debentures”). In the first nine months of fiscal 2010, Indebtedness affecting cash decreased by

$12.9 million mainly due to the free cash flow of $155.9 million and the decrease in cash and cash equivalents of $25.5 million, partly offset by

the cash outflows of $144.9 million from the changes in non-cash operating items and the dividend payment of $20.4 million described below.

Indebtedness mainly decreased through a net repayment of $54.7 million on the Corporation’s Term Facility, partly offset by an increase of

$44.7 million in bank indebtedness.

During the first nine months of fiscal 2011, quarterly dividends of $0.17 per share, for a total of $0.51 per share, were paid to the holders of

subordinate and multiple voting shares, totalling $24.8 million, compared to quarterly dividends of $0.14 per share, for a total of $0.42 per

share, or $20.4 million the year before.

As at May 31, 2011, the Corporation had a working capital deficiency of $126.8 million compared to $195.5 million at August 31, 2010. The

decrease in the deficiency is mainly attributable to an increase in cash and cash equivalents and decreases in accounts payable and accrued

liabilities and future income tax liabilities. The decrease was partly offset by an increase in income tax liabilities and a decrease in income

taxes receivable. As part of the usual conduct of its business, Cogeco Cable maintains a working capital deficiency due to a low level of

accounts receivable as a large portion of the Corporation’s customers pay before their services are rendered, unlike accounts payable and

accrued liabilities, which are paid after products are delivered or services are rendered, thus enabling the Corporation to use cash and cash

equivalents to reduce Indebtedness.

At May 31, 2011, the Corporation had used $112.5 million of its $750 million Term Revolving Facility for a remaining availability of

$637.5 million.

FINANCIAL POSITION

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

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

“derivative financial instruments”, “fixed assets” and “goodwill”.

The increase of $66.7 million in income taxes liabilities and the decreases of $29.4 million in future income tax liabilities, $7 million in future

income tax assets and $6.3 million in income taxes receivable primarily reflect the timing of the recognition of income tax liabilities as a result

of modifications made to the corporate structure combined with the increase in operating income before amortization. The

$59.7 million decrease in accounts payable and accrued liabilities is related to the timing of supplier payments. The decrease of

$20.2 million in long-term debt and the $60.2 million increase in cash and cash equivalents are due to the factors previously discussed in the

“Cash Flow and Liquidity” section combined with the fluctuations in foreign exchange rates. The $19.4 million decrease in derivative financial

instruments is due to the factors discussed in the “Financial management” section. The decreases of $174 million in fixed assets and

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

$28.5 million in goodwill are primarily attributable to the impairment loss recorded in the third quarter of the fiscal year, combined with the

capital expenditures discussed in the “Cash Flow and Liquidity” section which surpassed the amortization expense and the impact of the

depreciation of the Euro in relation to the Canadian dollar.

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

Number of

shares/options

Amount

($000)

Common shares

Multiple voting shares

15,691,100

98,346

Subordinate voting shares

33,073,656

898,327

Options to purchase Subordinate voting shares

Outstanding options

562,787

Exercisable options

393,802

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

capital leases and guarantees. Cogeco Cable’s obligations, as discussed in the 2010 Annual Report, have not materially changed since

August 31, 2010, except as mentioned below.

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

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

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

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

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

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

remainder for working capital and general corporate purposes.

DIVIDEND DECLARATION

At its July 6, 2011 meeting, the Board of Directors of Cogeco Cable declared a quarterly eligible dividend of $0.20 per share for subordinate

and multiple voting shares, payable on August 3, 2011, to shareholders of record on July 20, 2011, an increase of 42.9% compared to the

dividend of $0.14 per share declared last year. The increased dividend mainly reflects the strong financial performance of the Canadian

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

the Corporation based upon the Corporation’s financial condition, results of operations, capital requirements and such other factors as the

Board of Directors, at its sole discretion, deems relevant. There is therefore no assurance that dividends will be declared, and if declared, the

amount and frequency may vary.

FINANCIAL MANAGEMENT

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

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

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

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

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

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

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

The Corporation has also entered into cross-currency swap agreements to set the liability for interest and principal payments on its

US$190 million Senior Secured Notes Series A maturing on October 1, 2015. These agreements have the effect of converting the U.S.

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

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

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

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

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

income (loss), net of income taxes. In the first nine months of the prior year, amounts due under the US$190 million Senior Secured Notes

Series A decreased by $9.8 million due to the US dollar’s depreciation over the Canadian dollar. The fair value of cross-currency swaps

decreased by a net amount of $3.2 million, of which $9.8 million offsets the foreign exchange gain on the debt denominated in US dollars. The

difference of $6.5 million was recorded as an increase of other comprehensive income (loss), net of income taxes.

Furthermore, the Corporation’s net investment in self-sustaining foreign subsidiaries was exposed to market risk attributable to fluctuations in

foreign currency exchange rates, primarily changes in the values of the Canadian dollar versus the Euro. This risk was mitigated since the

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

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

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

recorded in the consolidated statement of comprehensive income (loss), net of income taxes. The exchange rate used to convert the Euro

currency into Canadian dollars for the balance sheet accounts as at May 31, 2011 was $1.3939 per Euro compared to $1.3515 per Euro as at

August 31, 2010. The average exchange rates prevailing during the third quarter and first nine months of fiscal 2011 used to convert the

operating results of the European operations were $1.3809 per Euro and $1.3670 per Euro, respectively, compared to $1.3472 per Euro and

$1.4703 per Euro in the comparable periods of fiscal 2010. Since the Corporation’s consolidated financial statements are expressed in

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

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

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

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

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

Nine months ended May 31, 2011

As reported

Exchange rate

impact

($000)

$

$

(unaudited)

(unaudited)

Revenue

128,971

12,897

Operating income before amortization

14,427

1,443

Net loss

(250,955

)

(25,096)

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

dollar with regards to purchases of equipment, as the majority of customer premise equipment is purchased and subsequently paid in US

dollars. Please consult the “Foreign Exchange Risk” section in note 14 of the Interim Financial Statements for further details.

CANADIAN OPERATIONS

CUSTOMER STATISTICS

Net additions (losses)

% of Penetration

(1)

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

May 31, 2011 2011

2010

2011

2010

2011

2010

RGU

2,526,591 52,384

36,561

176,014

147,007

–

–

Basic Cable service customers

879,354 (1,401

)

402

4,849

9,267

–

–

HSI service customers

593,468 6,989

6,527

34,411

35,101

69.5

65.3

Digital Television service customers

648,862 34,080

13,388

89,444

43,548

74.6

63.0

Telephony service customers

404,907 12,716

16,244

47,310

59,091

49.6

42.7

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

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

Canadian operations continue to generate RGU growth despite higher penetration rates, category maturity and aggressive competition. Basic

Cable service customer net losses stood at 1,401 for the quarter, compared to net additions of 402 in the third quarter of the prior year. For the

first nine months, Basic Cable service customers increased by 4,849, compared to 9,267 in the prior year. Third quarter Basic Cable service

customer losses are usual and due to the end of the school year for college and university students. Basic Cable service net additions in the

first nine months of fiscal 2011 were mainly due to expansions in the network and the bundling effect of continued growth in HSI and

Telephony services. In the quarter, Telephony service customers grew by 12,716 compared to 16,244 for the same period last year, and the

number of net additions to the HSI service stood at 6,989 customers compared to 6,527 customers in the third quarter of the prior year. For

the first nine months, net additions of Telephony service customers amounted to 47,310 compared to 59,091 for the same period last year,

and the number of HSI service customers grew by 34,411 compared to 35,101 in the first nine months of the prior year. HSI and Telephony

net additions continue to stem from the enhancement of the product offering, the impact of the bundled offer (Cogeco Complete Connection)

of Television, HSI and Telephony services, and promotional activities. For the three and nine month periods ended May 31, 2011, additions to

the Digital Television service stood at 34,080 and 89,444 customers, compared to 13,388 and 43,548 for the comparable periods of the prior

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

and the continuing interest for HD television service.

OPERATING RESULTS

Quarters ended May 31, Nine months ended May 31,

2011

2010

Change

2011

2010

Change

($000, except percentages)

$

$

%

$

$

%

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenue

299,263

275,675

8.6

882,027

811,465

8.7

Operating costs

161,188

155,292

3.8

479,397

455,038

5.4

Management fees - COGECO Inc.

–

–

–

9,172

9,019

1.7

Operating income before amortization

138,075

120,383

14.7

393,458

347,408

13.3

Operating margin

46.1%

43.7%

44.6%

42.8%

Revenue

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

services and rate increases implemented in April 2011 and in the second half of fiscal 2010, third-quarter revenue rose by $23.6 million, or

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

levy amounting to 1.5% of gross Cable Television service revenue imposed by the Canadian Radio-television and Telecommunications

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

Commission (“CRTC”) in order to finance the Local Programming Improvement Fund (“LPIF”) also contributed to the revenue growth in the

first nine months of fiscal 2011.

Operating costs

For the three and nine month periods ended May 31, 2011, operating costs increased by $5.9 million, or 3.8%, at $161.2 million, and by

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

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

Operating income before amortization

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

growth exceeding the increase in operating costs. Cogeco Cable’s Canadian operations’ operating margin increased to 46.1% in the third

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

amounted to $393.5 million, $46.1 million, or 13.3%, higher than in the same period of the prior year. The operating margin increased to 44.6%

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

growth.

EUROPEAN OPERATIONS

CUSTOMER STATISTICS

Net additions (losses)

% of Penetration

(1)

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

May 31, 2011 2011

2010

2011

2010

2011

2010

RGU

842,525 (10,565

)

27,680

13,753

75,801

–

–

Basic Cable service customers

258,127 (1,973

)

498

(2,140)

(804)

–

–

HSI service customers

164,992 (2,229

)

5,793

1,805

16,795

63.9

62.0

Digital Television service customers

169,762 (6,041

)

16,779

9,910

45,082

65.8

57.2

Telephony service customers

249,644 (322

)

4,610

4,178

14,728

96.7

93.3

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

Economic conditions in Portugal continued to be difficult. During the third quarter of fiscal 2011, and as part of the negotiated financial

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

combined with reductions in government spending on social programs. Please consult the “Impairment of goodwill and fixed assets” section

for further details. These measures are expected to put further downwards pressure on consumer spending. The rate of growth for our

services has diminished in this environment, with net customer losses across all of the Corporation’s services in the European operations in

the third quarter of fiscal 2011. The number of Basic Cable service customers decreased by 1,973 in the third quarter, compared to an

increase of 498 customers in the comparable period of the prior year. For the first nine months, Basic Cable service customers decreased by

2,140 in fiscal 2011, compared to 804 in fiscal 2010. HSI service customers decreased by 2,229 for the quarter compared to an increase of

5,793 in the third quarter of the prior year. In the first nine months, net customer additions to the HSI service amounted to 1,805 compared to

16,795 in the first nine months of fiscal 2010. The number of Digital Television service customers decreased by 6,041 customers in the third

quarter of fiscal 2011, compared to a growth of 16,779 customers in the same quarter of fiscal 2010, and increased by 9,910 in the first nine

months of fiscal 2011 compared to 45,082 in the first nine months of the prior year. The number of Telephony service customers fell by 322 in

the three months ended May 31, 2011, compared to a growth of 4,610 customers in the same period of the prior year. For the first nine

months, Telephony service customer net additions amounted to 4,178 in fiscal 2011 compared to 14,728 in fiscal 2010.

OPERATING RESULTS

Quarters ended May 31, Nine months ended May 31,

2011

2010

Change

2011

2010

Change

($000, except percentages)

$

$

%

$

$

%

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Revenue

43,647

43,616

0.1

128,971

145,588

(11.4)

Operating costs

37,637

37,299

0.9

114,544

121,077

(5.4)

Operating income before amortization

6,010

6,317

(4.9)

14,427

24,511

(41.1)

Operating margin

13.8%

14.5%

11.2%

16.8%

Revenue

In the third quarter of fiscal 2011 revenue remained essentially the same at $43.6 million when compared to the same period of the prior year

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

partly offset by lower revenue in local currency as a result of a decreased demand for services. First nine-month revenue amounted to

$129 million, $16.6 million, or 11.4%, less than in the prior year. The decline in revenue in the first nine months was mainly due to RGU losses

combined with the lower value of the Euro in relation to the Canadian dollar. Revenue from the European operations in the local currency for

the three and nine-month periods ended May 31, 2011 amounted to €31.6 million and €94.3 million, decreases of €0.8 million, or 2.3%, and

€4.6 million, or 4.6%, respectively, when compared to the same periods of the prior year.

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

Operating costs

Fiscal 2011 third-quarter operating costs remained essentially the same at $37.6 million when compared to $37.3 million in the third quarter of

the prior year, primarily due to the higher value of the Euro in relation to the Canadian dollar in the third quarter of the 2011 fiscal year. 2011

first nine-months operating costs decreased by $6.5 million, or 5.4%, at $114.5 million, mainly reflecting RGU losses combined with the lower

value of the Euro in relation to the Canadian dollar. These decreases in operating costs offset increases related to additional marketing

initiatives and the launch of new HD channels by Cabovisão. Operating costs of the European operations for the third quarter and first nine

months in the local currency amounted to €27.3 million, essentially the same when compared to €27.7 million, and €83.8 million, an increase

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

Operating income before amortization

Operating income before amortization amounted to $6 million in the third quarter, compared to $6.3 million for the same period of the prior

year. In the first nine months, operating income before amortization decreased by $10.1 million, or 41.1%, at $14.4 million. The reductions are

mainly due to decreases in revenue which outpaced the decreases in operating costs. European operations’ operating margin decreased to

13.8% in the third quarter and 11.2% in the first nine months of fiscal 2011 from 14.5% and 16.8%, respectively, in the third quarter and first

nine months of fiscal 2010. Operating income before amortization in the local currency amounted to €4.4 million compared to €4.7 million in

the third quarter of the prior year, representing a decrease of 7.1%, and €10.5 million compared to €16.5 million in the first nine months,

representing a decrease of 36.2%.

FISCAL 2011 FINANCIAL GUIDELINES

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

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

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

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

to increases in taxes. The rate of growth for our services has diminished, with net customer losses and service downgrades by customers in

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

impairment loss recorded by the Corporation, management has revised its net income guideline for the 2011 fiscal year to a net loss of

approximately $85 million, from net income of $140 million as issued on January 12, 2011.

Additionally, net customer additions are now expected to amount to approximately 250,000 RGU, or 7.9% when compared to August 31, 2010,

from 275,000 RGU as issued on January 12, 2011. RGU growth in the fourth quarter of fiscal 2011 will stem primarily from the growth in

Digital Television service customers and promotional activities in the Canadian operations. The decrease in revenue stemming from the

revision of the RGU growth guideline is expected to be offset by strong continuing interest for HD television services in the Canadian

operations, and an increase in operating costs attributable to the launch of new HD channels and increased marketing initiatives. Accordingly,

management has not revised its other financial projections for the 2011 fiscal year.

FISCAL 2012 PRELIMINARY FINANCIAL GUIDELINES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Management anticipates that the decline in the customer base of the European operations, which began during the second half of fiscal 2011,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

increase in operating costs.

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

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

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

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

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

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

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

requirements.

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

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

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

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

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

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

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

$85 million when compared to the revised fiscal 2011 projection when the impact of the non-cash impairment loss of $225.9 million in the

European operations is excluded.

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

Consolidated

Preliminary

projections

Fiscal 2012

Revised

projections

January 12, 2011

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

Financial guidelines

Revenue 1,420 1,360

Operating income before amortization 580 545

Operating margin 40.8% 40.1%

Amortization

220 265

Financial expense 60 72

Current income taxes 75 63

Net income (loss)

(1)

225 (85)

Capital expenditures and increase in deferred charges 350 340

Free Cash Flow 95 70

Net customer addition guidelines

RGU

(1)

225,000 250,000

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

CONTROLS AND PROCEDURES

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

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

financial reporting, as defined in NI 52-109. Cogeco Cable’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 Corporation’s disclosure controls and procedures and internal

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

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

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

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

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

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

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

UNCERTAINTIES AND MAIN RISK FACTORS

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

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

ACCOUNTING POLICIES AND ESTIMATES

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

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

Report.

Future accounting pronouncements

Adoption of International accounting standards

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

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

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

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

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

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

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

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

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

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

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

operations:

Phase Area of impact Key activities Status

Scoping and

diagnostic

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

by the transition to IFRS.

Completed

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

that will be required in subsequent phases.

Impact analysis,

evaluation and

design

For each area

identified in the

scoping and

diagnostic phase

Identify the specific changes required to existing accounting policies. Completed

Analyse policy choices permitted under IFRS.

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

Pervasive Identify impacts on information systems and business processes. Completed

Prepare draft IFRS consolidated financial statement template.

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

Implementation

and review

For each area

identified in the

scoping and

diagnostic phase

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

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

choices.

In progress - to be

completed in fiscal

2011

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

To be completed during

fiscal 2011

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

financial statements.

In progress - to be

completed in fiscal

2011

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

processes.

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

completed during fiscal

2012

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

Prepare IFRS compliant financial statements.

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

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

Corporation.

To be completed

throughout transition

and post-conversion

periods

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

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

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

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

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

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

conversion.

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

expects to meet its target date for migration.

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

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

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

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

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

International

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

IFRS 3 – Business

combinations

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

past business combinations.

The Corporation has elected not to restate business combinations

completed prior to September 1, 2010.

IFRS 2 – Share-

based payments

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

instruments that were granted after November 7 2002 and which

vested after the date of transition to IFRS.

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

equity instruments granted after November 7, 2002 and which vested

after the date of transition to IFRS.

IAS 16 – Property,

plant and

equipment

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

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

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

The Corporation has elected not to use the fair value of any of its

property, plant and equipment as their deemed cost at the date of

transition to IFRS.

IAS 19 – Employee

benefits

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

gains and losses at the date of transition to IFRS.

The Corporation has elected to recognise all actuarial gains and losses

at the date of transition to IFRS.

IAS 23 – Borrowing

costs

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

costs relating to qualifying assets for which the commencement

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

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

borrowing costs relating to assets for which the commencement date for

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

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

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

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

International

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

IAS 16 – Property,

plant and

equipment

IFRS requires that each significant component of an asset be

depreciated separately.

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

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

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

reduce property, plant and equipment and retained earnings by an

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

taxes. Depreciation expense is also expected to be different under

IFRS.

IAS 19 – Employee

benefits

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

service cost on an accelerated basis compared to Canadian GAAP.

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

recognition of actuarial gains and losses on defined benefit pension

plans. One of these choices permits the immediate recognition of

actuarial gains and losses as a component of other comprehensive

income, which was not permitted under Canadian GAAP.

The Corporation has elected to recognize actuarial gains and losses

immediately as a component of other comprehensive income. The

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

market interest rates and actual returns on plan assets.

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

described above will result in a decrease in opening retained earnings

and an increase in pension plan liabilities and accrued employee

benefits of approximately $4 million before the impact of related income

taxes.

IFRS 2 – Share-

based payment

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

stock-based compensation awards, while Canadian GAAP

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

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

value based on an option pricing model.

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

stock-based compensation awards will result in an accelerated

recognition of the expense for the Corporation. At the date of transition

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

difference in accounting policies will result in a decrease in opening

retained earnings and an increase in contributed surplus (equity settled

employee compensation reserve in the Corporation’s IFRS financial

statements) by an amount of approximately $1 million. As a result of this

adjustment, operating expense related to employee benefits are

expected to be slightly lower in the Corporation’s first IFRS financial

statements.

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

International

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

IAS 36 –

Impairment of

assets

For the purposes of impairment testing, IFRS requires that assets

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

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

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

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

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

impairment testing whereby the carrying values were first compared

to the undiscounted future cash flows in order to determine the

existence of an impairment, and subsequently compared to the fair

value to determine the amount of the impairment.

IFRS also requires the reversal of a previous impairment loss on

assets other than goodwill in the event a change in circumstances

indicates that the impairment no longer exists or has decreased.

The reversal of prior impairment losses is not permitted under

Canadian GAAP.

The Corporation has identified and

tested its CGUs for impairment at the

date of the opening IFRS balance sheet and no impairment was

identified.

IAS 38 – Intangible

assets

Intangible assets with indefinite lives are not amortized under IFRS

or Canadian GAAP. However, IFRS requires full retrospective

application, including the reversal of amortization which was not

reversed under the transitional provisions of Canadian GAAP.

On transition to IFRS, the Corporation will reverse all amortization

recorded on intangible assets with indefinite lives. The impact will

increase

opening retained earnings and increase intangible assets by an

amount of approximately $51 million, before the impact of related

income taxes, on the opening IFRS balance sheet.

IFRS 3 – Business

combinations

Acquisition-related costs, which the Corporation capitalized under

Canadian GAAP, are expensed under IFRS.

In accordance with the IFRS 1 election described above, the

Corporation will apply the requirements of IFRS 3 prospectively from the

date of transition. As part of the application of IFRS 3, the Corporation

will be required to expense acquisition-related costs capitalized on

acquisitions completed since the date of transition to IFRS.

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

will be required to reverse the retroactive adjustment to intangible assets

acquired in prior business acquisition stemming from the recognition of

deferred income taxes upon application of CICA Handbook section

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

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

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

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

income taxes, at the transition date.

IAS 39 – Financial

instruments:

recognition and

measurement

The criteria and method used for assessing hedge effectiveness

may be different under IFRS than Canadian GAAP.

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

accounting under IFRS to all hedging arrangements which the

Corporation recorded under Canadian GAAP. The hedging

documentation and hedge effectiveness tests have been updated to

conform to the requirements of IAS 39.

IAS 23 – Borrowing

costs

IFRS requires that borrowing costs be capitalized on qualifying

assets purchased or constructed by the entity. Canadian GAAP

permitted a policy choice to capitalize or expense these costs,

which the Corporation elected to expense.

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

have no impact on the Corporation’s opening IFRS balance sheet.

Borrowing costs will be capitalized on any qualifying assets purchased

or constructed after the date of transition to IFRS.

IAS 12 – Income

taxes

Recognition and measurement criteria for deferred tax assets and

liabilities may differ. IFRS also requires that temporary differences

relating to current assets and current liabilities be presented as

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

classified as current under Canadian GAAP.

The differences related to the recognition and measurement of income

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

opening IFRS balance sheet. The Corporation is currently assessing the

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

differences are also being assessed.

IAS 37 –

Provisions,

contingent

liabilities and

contingent assets

The threshold for the recognition of a provision is different under

IFRS than Canadian GAAP. Presentation differences also exist

between the two sets of accounting standards.

The Corporation is currently assessing the impact of these differences.

IAS 1 –

Presentation of

financial

statements

Additional disclosures are required under IFRS. Presentation

differences also exist between IFRS and Canadian GAAP, the most

notable of which are presentation choices for the Statement of

income and the Statement of comprehensive income and

Statement of cash flows.

The Corporation has elected to present items of revenue and expense

on its Consolidated statement of income according to the nature of the

item. The Consolidated statement of comprehensive income will be

presented separately from the Consolidated statement of income.

Multiple deliverable revenue arrangements

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

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

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

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

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

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

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

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

NON-GAAP FINANCIAL MEASURES

This section describes non-GAAP financial measures used by Cogeco Cable 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

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

prescribed by Canadian GAAP and therefore, may not be comparable to similar measures presented by other companies. These measures

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

“adjusted earnings per share”.

Cash flow from operations and free cash flow

Cash flow from operations is used by Cogeco Cable’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 Corporation 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 Cable’s management and investors, to measure its ability to repay debt, distribute capital to its

shareholders and finance its growth.

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

Quarters ended May 31, Nine months ended May 31,

2011

2010

2011

2010

($000)

$

$

$

$

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Cash flow from operating activities 148,147

112,451

295,813

222,870

Changes in non-cash operating items

(16,401)

6,792

(8,815

)

144,920

Cash flow from operations 131,746

119,243

286,998

367,790

Free cash flow is calculated as follows:

Quarters ended May 31, Nine months ended May 31,

2011

2010

2011

2010

($000)

$

$

$

$

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Cash flow from operations 131,746

119,243

286,998

367,790

Acquisition of fixed assets

(67,781)

(66,749)

(199,142

)

(203,689)

Increase in deferred charges

(2,781)

(2,534)

(8,

535

)

(8,053)

Assets acquired under capital

leases – as per note 12 c)

–

–

–

(141)

Free cash flow 61,184

49,960

79,321

155,907

Operating income before amortization and operating margin

Operating income before amortization is used by Cogeco Cable’s management and investors to assess the Corporation’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 Corporation's

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

dividing operating income before amortization by revenue.

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

are calculated as follows:

Quarters ended May 31, Nine months ended May 31,

2011

2010

2011

2010

($000, except percentages)

$

$

$

$

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Operating income 78,444

62,929

214,175

176,744

Amortization

65,641

63,771

193,710

195,175

Operating income before amortization 144,085

126,700

407,885

371,919

Revenue

342,910

319,291

1,010,998

957,053

Operating margin 42.0%

39.7%

40.3%

38.9%

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

Adjusted net income and adjusted earnings per share

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

earnings per share from ongoing operations without the impact of certain adjustments, net of income taxes, which could affect the

comparability of the Corporation’s financial results. The exclusion of these adjustments does not indicate that they are non-recurring.

The most comparable Canadian GAAP financial measures are net income and earnings per share. Adjusted net income and adjusted

earnings per share are calculated as follows:

Quarters ended May 31, Nine months ended May 31,

2011

2010

2011

2010

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

$

$

$

$

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Net income (loss) (182,019)

31,185

(117,231

)

117,640

Adjustments:

Impairment of goodwill and fixed assets

225,873

–

225,873

–

Reduction of Ontario provincial corporate income tax rates

–

–

–

(29,782)

Adjusted net income 43,854

31,185

108,642

87,858

Weighted average number of multiple voting and subordinate voting shares outstanding

48,641,624

48,509,886

48,556,353

48,522,312

Effect of dilutive stock options

170,585

164,884

180,866

134,525

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

104,627

59,004

94,317

40,817

Weighted average number of diluted multiple voting and subordinate voting shares

outstanding

48,916,836

48,733,774

48,831,536

48,697,654

Adjusted earnings per share

Basic

0.90

0.64

2.24

1.81

Diluted

0.90

0.64

2.22

1.80

SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION

Quarters ended

(1)

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

($000, except percentages and per share

data)

2011

2010

2011

2010

2010

2009 2010 2009

$

$

$

$

$

$ $ $

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited)

(unaudited) (unaudited) (unaudited)

Revenue

342,910

319,291

336,569

320,397

331,519

317,365 324,323 307,807

Operating income before amortization

144,085

126,700

134,372

122,613

129,428

122,606 138,177 143,892

Operating margin

42.0%

39.7%

39.9%

38.3%

39.0%

38.6% 42.6% 46.7%

Operating income

78,444

62,929

69,293

56,774

66,438

57,041 74,481 75,624

Impairment of goodwill and fixed assets

225,873

–

–

–

–

– – –

Income taxes

18,547

15,060

14,017

11,952

16,101

(15,766)

17,772 22,005

Net income (loss)

(182,019)

31,185

31,151

29,789

33,637

56,666 39,663 44,698

Adjusted net income

43,854

31,185

31,151

29,789

33,637

26,884 39,663 26,123

Cash flow from operating activities

148,147

112,451

92,663

114,037

55,003

(3,618)

194,414 175,450

Cash flow from operations

131,746

119,243

118,819

118,318

36,433

130,229 127,024 108,631

Capital expenditures and increase in

deferred charges

70,562

69,283

70,668

74,379

66,447

68,221 107,799 93,872

Free cash flow

61,184

49,960

48,151

43,939

(30,014)

62,008 19,225 14,759

Earnings (loss) per share

(2)

Basic

(3.74)

0.64

0.64

0.61

0.69

1.17 0.82 0.92

Diluted

(3.74)

0.64

0.64

0.61

0.69

1.16 0.81 0.92

Adjusted earnings per share

(2)

Basic

0.90

0.64

0.64

0.61

0.69

0.55 0.82 0.54

Diluted

0.90

0.64

0.64

0.61

0.69

0.55 0.81 0.54

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

(2) Per multiple and subordinate voting share.

ADDITIONAL INFORMATION

This MD&A was prepared as of July 6, 2011. Additional information relating to the Corporation, including its Annual Report and Annual

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

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

SEASONAL VARIATIONS

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

and HSI service are generally lower in the second half of the fiscal year as a result of a decrease in economic activity due to the beginning of

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

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

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

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

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

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

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

/s/ Jan Peeters

/s/ Louis Audet

Jan Peeters

Chairman of the Board

Louis Audet

President and Chief Executive Officer

Cogeco Cable Inc.

Montréal, Québec

July 7, 2011

INTERIM FINANCIAL STATEMENTS

Third quarter ended May 31, 2011

COGECO CABLE INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(unaudited)

Interim Financial Statements COGECO CABLE INC. Q3 2011 21

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

(In thousands of dollars, except per share data)

$

$

$

$

Revenue

Service

341,019

316,964

1,001,803

948,727

Equipment

1,891

2,327

9,195

8,326

342,910

319,291

1,010,998

957,053

Operating costs

198,825

192,591

593,941

576,115

Management fees – COGECO Inc.

–

–

9,172

9,019

Operating income before amortization 144,085

126,700

407,885

371,919

Amortization (note 3)

65,641

63,771

193,710

195,175

Operating income 78,444

62,929

214,175

176,744

Financial expense (note 4)

16,043

16,684

56,868

47,858

Impairment of goodwill and fixed assets (note 5)

225,873

–

225,873

–

Income (loss) before income taxes (163,472)

46,245

(68,566

)

128,886

Income taxes (note 6)

18,547

15,060

48,665

11,246

Net income (loss) (182,019)

31,185

(117,231

)

117,640

Earnings (loss) per share (note 7)

Basic and diluted

(3.74)

0.64

(2.41

)

2.42

COGECO CABLE INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

Interim Financial Statements COGECO CABLE INC. Q3 2011 22

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

(In thousands of dollars)

$

$

$

$

Net income (loss) (182,019)

31,185

(117,231

)

117,640

Other comprehensive income (loss)

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

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

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

483

4,140

(16,250

)

(784)

Reclassification to financial expense of unrealized losses on derivative financial instruments

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

($230,000 and $1,316,000 in 2010)

460

1,480

16,201

8,469

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

subsidiaries

8,952

(25,349)

7,199

(48,939)

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

investment in self-sustaining foreign subsidiaries

(3,731)

16,958

(3,330

)

35,531

6,164

(2,771)

3,820

(5,723)

Comprehensive income (loss) (175,855)

28,414

(113,411

)

111,917

COGECO CABLE INC.

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (DEFICIT)

(unaudited)

Interim Financial Statements COGECO CABLE INC. Q3 2011 23

Nine months ended May 31,

2011

2010

(In thousands of dollars)

$

$

Balance at beginning, as previously reported

123,025

17,172

Changes in accounting policies

–

(24,279)

Balance at beginning, as restated

123,025

(7,107)

Net income (loss)

(117,231

)

117,640

Excess of the value attributed to incentive share units at issuance over the

price paid for the acquisition of the subordinate voting shares

11

–

Dividends on multiple voting shares

(8,001

)

(6,591)

Dividends on subordinate voting shares

(16,760

)

(13,789)

Balance at end

(18,956

)

90,153

COGECO CABLE INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

Interim Financial Statements COGECO CABLE INC. Q3 2011 24

May 31, 2011

August 31, 2010

(In thousands of dollars)

$

$

Assets

Current

Cash and cash equivalents (note 12 b))

96,091

35,842

Accounts receivable (note 14)

71,691

67,064

Income taxes receivable

38,530

44,800

Prepaid expenses and other

14,909

13,669

Future income tax assets

4,523

6,133

225,744

167,508

Fixed assets

1,151,049

1,325,077

Deferred charges

26,230

26,974

Intangible assets (note 8)

1,014,077

1,017,658

Goodwill (note 8)

116,243

144,695

Derivative financial instruments

–

5,085

Future income tax assets

10,400

15,822

2,543,743

2,702,819

Liabilities and Shareholders’ equity

Liabilities

Current

Accounts payable and accrued liabilities

175,348

235,087

Income tax liabilities

67,269

558

Deferred and prepaid revenue

47,161

45,602

Derivative financial instrument

132

1,189

Current portion of long-term debt (note 9)

2,322

2,296

Future income tax liabilities

60,356

78,267

352,588

362,999

Long-term debt (note 9)

932,442

952,687

Derivative financial instruments

15,339

–

Deferred and prepaid revenue and other liabilities

13,250

12,234

Pension plan liabilities and accrued employees benefits

4,367

3,624

Future income tax liabilities

223,501

234,974

1,541,487

1,566,518

Shareholders’ equity

Capital stock (note 10)

993,032

988,830

Contributed surplus

6,001

6,087

Retained earnings (deficit)

(18,956)

123,025

Accumulated other comprehensive income (note 11)

22,179

18,359

1,002,256

1,136,301

2,543,743

2,702,819

COGECO CABLE INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

Interim Financial Statements COGECO CABLE INC. Q3 2011 25

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

(In thousands of dollars)

$

$

$

$

Cash flow from operating activities

Net income (loss)

(182,019)

31,185

(117,231

)

117,640

Adjustments for:

Amortization (note 3)

65,641

63,771

193,710

195,175

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

658

751

2,254

2,259

Impairment of goodwill and fixed assets (note 5)

225,873

–

225,873

–

Future income taxes

20,815

20,917

(21,631

)

48,726

Stock-based compensation (note 10)

640

355

1,900

1,255

Loss on disposals and write-offs of fixed assets

231

2,443

1,635

2,505

Other

(93)

(179)

488

230

131,746

119,243

286,998

367,790

Changes in non-cash operating items (note 12 a))

16,401

(6,792)

8,815

(144,920)

148,147

112,451

295,813

222,870

Cash flow from investing activities

Acquisition of fixed assets (note 12 c))

(67,781)

(66,749)

(199,142

)

(203,689)

Increase in deferred charges

(2,781)

(2,534)

(8,535

)

(8,053)

Other

216

23

216

145

(70,346)

(69,260)

(207,461

)

(211,597)

Cash flow from financing activities

Increase in bank indebtedness

–

1,070

–

44,743

Net repayments under the Term Facility and Term Revolving Facility

–

(33,156)

(27,392

)

(54,735)

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

–

–

198,295

–

Repayments of long-term debt

(652)

(813)

(177,165

)

(2,882)

Issuance of subordinate voting shares (note 10)

561

–

4,740

283

Acquisition of subordinate voting shares held in

trust under the Incentive Share Unit Plan

(note 10)

–

(264)

(2,258

)

(2,008)

Dividends on multiple voting shares

(2,667)

(2,197)

(8,001

)

(6,591)

Dividends on subordinate voting shares

(5,601)

(4,586)

(16,760

)

(13,789)

(8,359)

(39,946)

(28,541

)

(34,979)

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

foreign currency 573

(846)

438

(1,746)

Net change in cash and cash equivalents 70,015

2,399

60,249

(25,452)

Cash and cash equivalents at beginning

26,076

11,607

35,842

39,458

Cash and cash equivalents at end 96,091

14,006

96,091

14,006

See supplemental cash flow information in note 12.

COGECO CABLE INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO CABLE INC. Q3 2011 26

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 (“GAAP”), present fairly the financial position of Cogeco Cable Inc. (“the Corporation”)

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

ended May 31, 2011 and 2010.

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

notes should be read in conjunction with Cogeco Cable Inc.’s annual consolidated financial statements for the year ended

August 31, 2010. These unaudited interim consolidated financial statements have been prepared using the same accounting policies and

methods as the most recent annual consolidated financial statements.

Future accounting pronouncements

Multiple deliverable revenue arrangements

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

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

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

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

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

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

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

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

this EIC will not be applicable to the Corporation.

2. Segmented information

The Corporation’s activities are comprised of Cable Television, High Speed Internet (“HSI”), Telephony and other telecommunications

services. The Corporation considers its Cable Television, HSI, Telephony and other telecommunications activities as a single operating

segment. The Corporation’s activities are carried out in Canada and in Europe.

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

Canada Europe Consolidated

2011

2010

2011

2010

2011

2010

Three months ended May 31,

$

$

$

$

$

$

Revenue

299,263

275,675

43,647

43,616

342,910

319,291

Operating costs

161,188

155,292

37,637

37,299

198,825

192,591

Operating income before amortization

138,075

120,383

6,010

6,317

144,085

126,700

Amortization

52,001

47,446

13,640

16,325

65,641

63,771

Operating income (loss)

86,074

72,937

(7,630

)

(10,008)

78,444

62,929

Financial expense (revenue)

16,050

16,612

(7

)

72

16,043

16,684

Impairment of goodwill and fixed assets

–

–

225,873

–

225,873

–

Income taxes

18,470

16,060

77

(1,000)

18,547

15,060

Net income (loss)

51,554

40,265

(233,573

)

(9,080)

(182,019)

31,185

Total assets

(1)

2,489,999

2,407,059

53,744

295,760

2,543,743

2,702,819

Fixed assets

(1)

1,124,879

1,094,971

26,170

230,106

1,151,049

1,325,077

Intangible assets

(1)

1,014,077

1,017,658

–

–

1,014,077

1,017,658

Goodwill

(1)

116,243

116,243

–

28,452

116,243

144,695

Acquisition of fixed assets

59,847

54,838

7,934

11,911

67,781

66,749

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

COGECO CABLE INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO CABLE INC. Q3 2011 27

2. Segmented information (continued)

Canada Europe Consolidated

2011

2010

2011

2010

2011

2010

Nine months ended May 31,

$

$

$

$

$

$

Revenue

882,027

811,465

128,971

145,588

1,010,998

957,053

Operating costs

479,397

455,038

114,544

121,077

593,941

576,115

Management fees – COGECO Inc.

9,172

9,019

–

–

9,172

9,019

Operating income before amortization

393,458

347,408

14,427

24,511

407,885

371,919

Amortization

153,642

139,663

40,068

55,512

193,710

195,175

Operating income (loss)

239,816

207,745

(25,641)

(31,001)

214,175

176,744

Financial expense (revenue)

56,953

48,692

(85)

(834)

56,868

47,858

Impairment of goodwill and fixed assets

–

–

225,873

–

225,873

–

Income taxes

49,139

12,019

(474)

(773)

48,665

11,246

Net income (loss)

133,724

147,034

(250,955)

(29,394)

(117,231

)

117,640

Total assets

(1)

2,489,999

2,407,059

53,744

295,760

2,543,743

2,702,819

Fixed assets

(1)

1,124,879

1,094,971

26,170

230,106

1,151,049

1,325,077

Intangible assets

(1)

1,014,077

1,017,658

–

–

1,014,077

1,017,658

Goodwill

(1)

116,243

116,243

–

28,452

116,243

144,695

Acquisition of fixed assets

(2)

173,069

162,689

26,073

41,141

199,142

203,830

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

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

3. Amortization

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Fixed assets

61,772

59,878

182,090

183,406

Deferred charges

2,675

2,699

8,039

8,187

Intangible assets

1,194

1,194

3,581

3,582

65,641

63,771

193,710

195,175

4. Financial expense

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Interest on long-term debt

14,631

15,544

54,893

47,094

Foreign exchange losses (gains)

(113)

409

(1,578

)

(470)

Amortization of deferred transaction costs

399

408

1,240

1,222

Other

1,126

323

2,313

12

16,043

16,684

56,868

47,858

COGECO CABLE INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO CABLE INC. Q3 2011 28

5. Impairment of goodwill and fixed assets

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Impairment of goodwill

29,344

–

29,344

–

Impairment of fixed assets

196,529

–

196,529

–

225,873

–

225,873

–

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

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

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

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

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

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

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

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

indicate a decrease in the value of the Corporation’s investment in the Portuguese subsidiary. As a result, the Corporation tested goodwill

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

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

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

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

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

Corporation completed its impairment test on goodwill and concluded that goodwill was impaired at May 31, 2011. As a result, a non-

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

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

management judgement was necessary to estimate future cash flows.

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

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

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

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

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

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

COGECO CABLE INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO CABLE INC. Q3 2011 29

6. Income taxes

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Current

(2,268)

(5,857)

70,296

(37,480)

Future

20,815

20,917

(21,631

)

48,726

18,547

15,060

48,665

11,246

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

income tax rates and the consolidated income tax expense:

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Income (loss) before income taxes

(163,472)

46,245

(68,566

)

128,886

Combined income tax rate

28.91 %

31.52 %

28.91 %

31.51 %

Income tax expense (recovery) at combined income tax rate

(47,259)

14,576

(19,822

)

40,616

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

(1,697)

(1,907)

(4,105

)

(7,536)

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

rates

–

–

–

(29,782)

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

of goodwill and fixed assets

59,856

–

59,856

–

Utilization of pre-acquisition tax losses

–

–

–

4,432

Income taxes arising from non-deductible expenses

123

280

447

583

Effect of foreign income tax rate differences

7,725

2,177

12,358

4,301

Other

(201)

(66)

(69

)

(1,368)

Income tax expense at effective income tax rate

18,547

15,060

48,665

11,246

7. Earnings (loss) per share

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

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Net income (loss)

(182,019)

31,185

(117,231

)

117,640

Weighted average number of multiple voting and subordinate voting shares outstanding

48,641,624

48,509,886

48,556,353

48,522,312

Effect of dilutive stock options

(1)(2)

–

164,884

–

134,525

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

Plan

(1)

–

59,004

–

40,817

Weighted average number of diluted multiple voting and subordinate voting shares

outstanding

48,641,624

48,733,774

48,556,353

48,697,654

Earnings (loss) per share

Basic and diluted

(3.74)

0.64

(2.41

)

2.42

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

month periods ended May

31, 2011 amounted to 275,212 and 275,183.

(2) For the three and nine-month periods ended May 31, 2011, 69,309 stock options (103,101 and 104,183 in

2010) 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.

COGECO CABLE INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO CABLE INC. Q3 2011 30

8. Goodwill and other intangible assets

May 31, 2011

August 31, 2010

$

$

Customer relationships

24,525

28,106

Customer base

989,552

989,552

1,014,077

1,017,658

Goodwill

116,243

144,695

1,130,320

1,162,353

a) Intangible assets

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

Customer

relationships

Customer

base

Total

$

$

$

Balance at August 31, 2010

28,106

989,552

1,017,658

Amortization (note 3)

(3,581)

–

(3,581)

Balance at May 31, 2011

24,525

989,552

1,014,077

b) Goodwill

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

$

Balance at August 31, 2010

144,695

Impairment (note 5)

(29,344)

Foreign currency translation adjustment

892

Balance at May 31, 2011

116,243

COGECO CABLE INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO CABLE INC. Q3 2011 31

9. Long-term debt

Maturity Interest rate

May 31, 2011

August 31,

2010

%

$

$

Parent company

Term Revolving Facility

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

3.25

(1)(2)

97,573

121,635

Senior Secured Notes

Series A – US$190,000,000 2015

7.00

(3)

182,944

201,387

Series B 2018 7.60

54,637

54,609

Senior Secured Debentures Series 1 2014 5.95

297,857

297,379

Senior Secured Debentures Series 2

(4)

2020 5.15

198,367

–

Senior Secured Notes Series B 2011

(5)

7.73

–

174,738

Senior Unsecured Debenture 2018 5.94

99,822

99,806

Subsidiaries

Obligations under capital leases 2013 6.71 – 9.93

3,564

5,429

934,764

954,983

Less current portion

2,322

2,296

932,442

952,687

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

(2) On January 21, 2009, the Corporation entered into a swap agreement with a financial institution to fix the floating benchmark interest rate

with respect to

a portion of Euro-denominated loans outstanding under the Term Revolving Facility, and previously th

e Term Facility, for a notional amount of

€111.5 million which has been reduced to €95.8 million on July 28, 2009 and to €69.6 million on July 28,

2010. The interest swap rate to hedge the

Euro-denominated loans has been fixed at 2.08% until the settlement of the swap agreement on June 28,

2011. In addition to the interest swap rate of

2.08%, the Corporation will continue to pay the applicable margin on these Euro-denominated loans in accordance with the Term Revolving Facility.

(3) Cross-currency swap agreements have resulted in an effective interest rate of 7.24% on the Canadian dollar equivalent of the US denominated debt.

(4) On November 16, 2010, the Corporation completed pursuant to a public debt offering, the issue of $200 million Senior Secured De

bentures Series 2 (the

"Debentures") for net proceeds of $198.3 million, net of discounts and transaction costs. These Debentures mature on November

16, 2020 and bear

interest at 5.15% per annum payable semi-annually. These debentures are indirectly secure

d by a first priority fixed and floating charge and a security

interest on substantially all present and future real and personal property and undertaking of every nature and kind of the C

orporation and certain of its

subsidiaries.

(5) On December 22, 2010, the Corporation redeemed the 7.73% Senior Secured Notes Series B in the aggregate principal amount of $175

million. As a

result, the aggregate redemption cash consideration that the Corporation paid totalled $183.8 million, excluding accrued interest. T

he excess of the

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

COGECO CABLE INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO CABLE INC. Q3 2011 32

10. Capital stock

Authorized

Unlimited number of:

Class A Preference shares, without voting rights, redeemable by the Corporation and retractable at the option of the holder at any time at

a price of $1 per share, carrying a cumulative preferential cash dividend at a rate of 11% of the redemption price per year.

Class B Preference shares, without voting rights, could be issued in series.

Multiple voting shares, 10 votes per share.

Subordinate voting shares, 1 vote per share.

Issued

May 31, 2011

August 31, 2010

$

$

15,691,100 multiple voting shares

98,346

98,346

33,073,656 subordinate voting shares (32,885,337 at August 31, 2010)

898,327

892,332

996,673

990,678

101,428 subordinate voting shares held in trust under the Incentive Share Unit Plan (57,409 at August 31, 2010)

(3,641)

(1,848)

993,032

988,830

During the first nine months, subordinate voting share transactions were as follows:

Number of shares Amount

$

Balance at August 31, 2010

32,885,337 892,332

Shares issued for cash under the Employee Stock Option Plan

188,319 4,740

Compensation expense previously recorded in contributed surplus for options exercised

– 1,255

Balance at May 31, 2011

33,073,656 898,327

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

Number of shares Amount

$

Balance at August 31, 2010

57,409 1,848

Subordinate voting shares acquired

57,203 2,258

Subordinate voting shares distributed to employees

(13,184)

(465)

Balance at May 31, 2011

101,428 3,641

COGECO CABLE INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO CABLE INC. Q3 2011 33

10. Capital stock (continued)

Stock-based plans

The Corporation offers, for certain executives a Stock Option Plan, which is described in the Corporation’s annual consolidated financial

statements. During the first nine months of 2011, the Corporation granted 69,500 stock options (66,174 in 2010) with an exercise price of

$39.00 to $44 ($31.82 to $38.86 in 2010) of which 35,800 stock options (33,266 in 2010) were granted to COGECO Inc.’s employees.

These options vest equally over a period of five years beginning one year after the day such options are granted and are exercisable

over ten years. During the three and nine-month periods ended May 31, 2011, the Corporation charged COGECO Inc. an amount of

$59,000 and $174,000 ($63,000 and $240,000 in 2010) with respect to the Corporation’s options granted to COGECO Inc.’s employees.

As a result, a compensation expense of $80,000 and $272,000 ($155,000 and $534,000 in 2010) was recorded for the three and nine-

month periods ended May 31, 2011.

The weighted average fair value of stock options granted for the nine-month period ended May 31, 2011 was $9.55 ($8.11 in 2010) per

option. The weighted average fair value of each option granted was estimated at the grant date for purposes of determining stock-based

compensation expense using the binomial option pricing model based on the following assumptions:

2011

2010

%

%

Expected dividend yield

1.44

1.49

Expected volatility

29

29

Risk-free interest rate

2.05

2.67

Expected life in years

4.9

4.8

Under the Stock Option Plan, the following options were granted by the Corporation and are outstanding at May 31, 2011:

Outstanding at August 31, 2010

716,760

Granted

69,500

Exercised

(188,319)

Forfeited

(34,706)

Expired

(448)

Outstanding at May 31, 2011

562,787

Exercisable at May 31, 2011

391,802

The Corporation also offers a senior executive and designated employee Incentive Share Unit Plan (“ISU Plan”), which is described in

the Corporation’s annual consolidated financial statements. During the first nine months of 2011, the Corporation granted 60,388 (63,666

in 2010) Incentive Share Units ("ISUs”) of which 10,000 (9,981 in 2010) ISUs were granted to COGECO Inc.’s employees. The

Corporation establishes the value of the compensation related to the ISUs granted based on the fair value of the Corporation’s

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

less one day. A trust was created for the purpose of purchasing these shares on the stock market in order to protect against stock price

fluctuation. The Corporation instructed the trustee to purchase 57,203 (62,436 in 2010) subordinate voting shares of the Corporation on

the stock market. These shares were purchased for cash consideration aggregating $2,258,000 ($2,008,000 in 2010) and are held in

trust for the participants until they are fully vested. The trust, considered as a variable interest entity, is consolidated in the Corporation’s

financial statements with the value of the acquired shares presented as subordinate voting shares held in trust under the ISU Plan in

reduction of capital stock. A compensation expense of $362,000 and $1,043,000 ($143,000 and $309,000 in 2010) was recorded for the

three and nine-month periods ended May 31, 2011 related to this plan. During the three and nine-month periods ended May 31, 2011,

the Corporation charged COGECO Inc. an amount of $59,000 and $156,000 ($27,000 and $64,000 in 2010) with respect to the

Corporation’s ISUs granted to COGECO Inc.’s employees. Under the ISU Plan, the following ISUs were granted by the Corporation and

are outstanding at May 31, 2011:

Outstanding at August 31, 2010

57,409

Granted

60,388

Distributed

(13,184)

Forfeited

(885)

Outstanding at May 31, 2011

103,728

COGECO CABLE INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO CABLE INC. Q3 2011 34

10. Capital stock (continued)

The Corporation also offers a Deferred Share Unit Plan (“DSU Plan”) which is described in the Corporation’s annual consolidated

financial statements. During the first nine months of 2011, 4,521 (4,422 in 2010) Deferred Share Units (“DSUs”) were awarded to the

participants in connection with the DSU Plan. A compensation expense of $80,000 and $255,000 (reduction of compensation expense of

$33,000 and compensation expense of $108,000 in 2010) was recorded for the three and nine-month periods ended May 31, 2011 for

the liability related to this plan. Under the DSU Plan, the following DSUs were issued by Cogeco Cable Inc. and are outstanding at

May 31, 2011:

Outstanding at August 31, 2010

10,855

Issued

4,521

Dividend equivalents

166

Outstanding at May 31, 2011

15,542

11. Accumulated other comprehensive income

Translation of a net

investment in self-

sustaining foreign

subsidiaries

Cash flow

hedges

Total

$

$

$

Balance at August 31, 2010

15,439

2,920

18,359

Other comprehensive income (loss)

3,869

(49

)

3,820

Balance at May 31, 2011

19,308

2,871

22,179

12. Statements of cash flows

a) Changes in non-cash operating items

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Accounts receivable

8,115

4,775

(4,349

)

(6,321)

Income taxes receivable

4,770

(6,758)

6,335

(36,897)

Prepaid expenses and other

(288)

(114)

(1,116

)

(1,636)

Accounts payable and accrued liabilities

8,533

(5,397)

(61,308

)

(67,979)

Income tax liabilities

(6,714)

77

66,698

(40,120)

Deferred and prepaid revenue and other liabilities

1,985

625

2,555

8,033

16,401

(6,792)

8,815

(144,920)

b) Cash and cash equivalents

May 31, 2011

August 31, 2010

$

$

Cash

89,121

35,842

Cash equivalents

(1)

6,970

–

96,091

35,842

(1) At May 31, 2011, term deposit of €5,000,000, bearing interest at 0.65%, maturing on June 20, 2011.

COGECO CABLE INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO CABLE INC. Q3 2011 35

12. Statements of cash flows (continued)

c) Other information

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Fixed asset acquisitions through capital leases

–

–

–

141

Financial expense paid

19,401

20,597

61,736

52,211

Income taxes paid (received)

(324)

(27)

(2,734

)

39,537

13. Employee future benefits

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

pension plans or a collective registered retirement savings plan, which are described in the Corporation’s annual consolidated financial

statements. The total expense related to these plans is as follows:

Three months ended May 31,

Nine months ended May 31,

2011

2010

2011

2010

$

$

$

$

Contributory defined benefit pension plans

513

377

1,448

1,131

Defined contribution pension plans and collective registered retirement savings plan

1,322

1,171

3,863

3,346

1,835

1,548

5,311

4,477

14. Financial and capital management

a) Financial management

Management’s objectives are to protect Cogeco Cable 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 Corporation if a customer or counterparty to a financial asset fails to meet its

contractual obligations. The Corporation is exposed to credit risk arising from the derivative financial instruments, cash and cash

equivalents and trade accounts receivable, the maximum exposure of which is represented by the carrying amounts reported on the

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 Corporation.

The Corporation reduces this risk by completing transactions with financial institutions that carry a credit rating equal to or superior to its

own credit rating. The Corporation assesses the creditworthiness of the counterparties in order to minimize the risk of counterparties

default under the agreements. At May 31, 2011, management believes that the credit risk relating to its derivative financial instruments is

minimal, since the lowest credit rating of the counterparties to the agreements is “A”.

Cash and cash equivalents consist mainly of highly liquid investments, such as term deposits. The Corporation has deposited the cash

and cash equivalents with reputable financial institutions, from which management believes the risk of loss to be remote.

COGECO CABLE INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO CABLE INC. Q3 2011 36

14. Financial and capital management (continued)

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

particularly in Portugal, the Corporation’s credit exposure is higher than usual but it is difficult to predict the impact this could have on the

Corporation’s account receivable balances. To mitigate such risk, the Corporation continuously monitors the financial condition of its

customers and reviews the credit history or worthiness of each new large customer. At May 31, 2011, no customer balance represents a

significant portion of the Corporation’s consolidated trade accounts receivable. The Corporation establishes an allowance for doubtful

accounts based on specific credit risk of its customers by examining such factors as the number of overdue days of the customer’s

balance outstanding as well as the customer’s collection history. The Corporation believes that its allowance for doubtful accounts is

sufficient to cover the related credit risk. The Corporation has credit policies in place and has established various credit controls,

including credit checks, deposits on accounts and advance billing, and has also established procedures to suspend the availability of

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

large and diversified clientele dispersed throughout its market areas in Canada and Europe, there is no significant concentration of credit

risk. The following table provides further details on the Corporation’s accounts receivable balances:

May 31, 2011

August 31, 2010

$

$

Trade accounts receivable

69,672

67,189

Allowance for doubtful accounts

(6,939)

(7,478)

62,733

59,711

Other accounts receivable

8,958

7,353

71,691

67,064

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

receivable past due is defined as amount outstanding beyond normal credit terms and conditions for the respective customers. A large

portion of the Corporation’s customers are billed in advance and are required to pay before their services are rendered. The Corporation

considers amount outstanding at the due date as trade accounts receivable past due.

May 31, 2011

August 31, 2010

$

$

Net trade accounts receivable not past due

47,921

42,817

Net trade accounts receivable past due

14,812

16,894

62,733

59,711

COGECO CABLE INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO CABLE INC. Q3 2011 37

14. Financial and capital management (continued)

Liquidity risk

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

manages liquidity risk through the management of its capital structure and access to different capital markets. It also manages liquidity

risk by continuously monitoring actual and projected cash flows to ensure sufficient liquidity to meet its obligations when due. At

May 31, 2011, the available amount of the Corporation’s Term Revolving Facility was $637.5 million. Management believes that the

committed Term Revolving Facility will, until its maturity in July 2014, provide sufficient liquidity to manage its long-term debt maturities

and support working capital requirements.

The following table summarizes the contractual maturities of the financial liabilities and related capital amounts:

2011 2012

2013

2014 2015

Thereafter

Total

$ $

$

$ $

$

$

Accounts payable and accrued

liabilities

(1)

161,890 –

–

– –

–

161,890

Long-term debt

(2)

– –

–

397,573 –

539,034

936,607

Derivative financial instruments

Cash outflows (Canadian dollar)

– –

–

– –

201,875

201,875

Cash inflows (Canadian dollar

equivalent of US dollar) – –

–

– –

(184,034

)

(184,034)

Obligations under capital leases

(3)

663 2,296

889

7 –

–

3,855

162,553 2,296

889

397,580 –

556,875

1,120,193

(1) Excluding accrued interest.

(2) Principal excluding obligations under capital leases.

(3) Including interest.

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

next five years and thereafter, based on the principal amount and interest rate prevailing on the outstanding debt at May 31, 2011 and

their respective maturities:

2011 2012

2013

2014 2015

Thereafter

Total

$ $

$

$ $

$

$

Interest payments on long-term

debt 9,718 54,320

54,320

53,923 33,298

95,528

301,107

Interest payments on derivative

financial instruments 659 14,614

14,614

14,614 14,614

7,306

66,421

Interest receipts on derivative

financial instruments (526)

(12,882)

(12,882

)

(12,882)

(12,882)

(6,442

)

(58,496)

9,851 56,052

56,052

55,655 35,030

96,392

309,032

Interest rate risk

The Corporation is exposed to interest rate risks for both fixed interest rate and floating interest rate instruments. Fluctuations in interest

rates will have an effect on the valuation and collection or repayment of these instruments. At May 31, 2011, all of the Corporation’s long-

term debt was at fixed rate, except for the Corporation’s Term Revolving Facility. However, on January 21, 2009, the Corporation entered

into a swap agreement with a financial institution to fix the floating benchmark interest rate with respect to a portion of the Euro-

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

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

hedge the Euro-denominated loans has been fixed at 2.08% until the settlement of the swap agreement on June 28, 2011. In addition to

the interest swap rate of 2.08%, the Corporation will continue to pay the applicable margin on the revolving loans in accordance with the

Term Revolving Facility. The Corporation elected to apply cash flow hedge accounting on this derivative financial instrument. The

sensitivity of the Corporation’s annual financial expense to a variation of 1% in the interest rate applicable to the Term Revolving Facility

is approximately nil based on the outstanding debt at May 31, 2011 and taking into consideration the effect of the interest rate swap

agreement.

COGECO CABLE INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO CABLE INC. Q3 2011 38

14. Financial and capital management (continued)

Foreign exchange risk

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

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

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

the Corporation 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 Corporation elected to apply cash flow hedge accounting on these

derivative financial instruments.

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

denominated in US dollars or Euros. At May 31, 2011, cash and cash equivalents in US dollars amounted to US$18,842,000

(US$13,613,000 at August 31, 2010) while accounts payable denominated in US dollars amounted to US$8,901,000 (US$15,850,000 at

August 31, 2010). At May 31, 2011, Euro-denominated cash and cash equivalents amounted to €171,000 (€187,000 at August 31, 2010)

while there were no accounts payable denominated in Euros at May 31, 2011 and at August 31, 2010. Due to their short-term nature, the

risk arising from fluctuations in foreign exchange rates is usually not significant. The impact of a 10% change in the foreign exchange

rates (US dollar and Euro) would change financial expense by approximately $1 million.

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

in foreign currency exchange rates, primarily changes in the values of the Canadian dollar versus the Euro. This risk is mitigated since

the major part of the purchase price for Cabovisão was borrowed directly in Euros. At May 31, 2011, the net investment amounted to

€1,692,000 (€182,104,000 at August 31, 2010) while long-term debt denominated in Euros amounted to €70,000,000 (€90,000,000 at

August 31, 2010). The exchange rate used to convert the Euro currency into Canadian dollars for the balance sheet accounts at

May 31, 2011 was $1.3939 per Euro compared to $1.3515 per Euro at August 31, 2010. The impact of a 10% change in the exchange

rate of the Euro into Canadian dollars would change financial expense by approximately $0.4 million and other comprehensive income

(loss) by approximately $9.5 million.

Fair value

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

instruments with the same risk, principal and remaining maturity. Fair values are estimated at a specific point in time, by discounting

expected cash flows at rates for debts of the same remaining maturities and conditions. These estimates are subjective in nature and

involve uncertainties and matters of significant judgement, and therefore, cannot be determined with precision. In addition, income taxes

and other expenses that would be incurred on disposition of these financial instruments are not reflected in the fair values. As a result,

the fair values are not necessarily the net amounts that would be realized if these instruments were settled. The Corporation has

determined the fair value of its financial instruments as follows:

a) The carrying amount of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximates

fair value because of the short-term nature of these instruments.

b) Interest rates under the terms of the Corporation’s Term Revolving Facility are based on bankers’ acceptance, LIBOR, EURIBOR,

bank prime rate loan or US base rate loan plus applicable margin. Therefore, the carrying value approximates fair value for the Term

Revolving Facility, since the Term Revolving Facility has conditions similar to those currently available to the Corporation.

c) The fair value of the Senior Secured Debentures Series 1 and 2, Senior Secured Notes Series A and B and Senior Unsecured

Debenture are based upon current trading values for similar financial instruments.

d) The fair values of obligations under capital leases are not significantly different from their carrying amounts.

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

May 31, 2011

August 31, 2010

Carrying value Fair value

Carrying value

Fair value

$ $

$

$

Long-term debt

934,764 1,009,619

954,983

1,050,696

COGECO CABLE INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2011

(unaudited)

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

Interim Financial Statements COGECO CABLE INC. Q3 2011 39

14. Financial and capital management (continued)

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

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

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

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

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

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

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

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

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

b) Capital management

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

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

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

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

of distribution to shareholders.

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

related to derivative financial instruments.

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

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

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

total indebtedness. At May 31, 2011 and August 31, 2010, the Corporation was in compliance with all of its debt covenants and was not

subject to any other externally imposed capital requirements.

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

May 31, 2011

August 31, 2010

Net indebtedness

(1)

/ shareholders’ equity

0.9

0.8

Net indebtedness

(1)

/ operating income before amortization

(2)

1.6

1.8

Operating income before amortization

(2)

/ financial expense

(2)

7.4

7.9

(1) Net indebtedness is defined as the total of bank indebtedness, principal on long-term debt and obligations under

derivative financial instruments, less

cash and cash equivalents.

(2) Calculation based on operating income before amortization and financial expense for the twelve-month periods ended May 31,

2011 and

August 31, 2010.

15. Subsequent event

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

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

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

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

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

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

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

Shareholder’s Report COGECO CABLE INC. Q3 2011 40

CUSTOMER STATISTICS

(unaudited)

May 31, 2011

August 31, 2010

Homes passed

Canada 1,614,210

1,593,743

Portugal

(1)

905,692

905,359

Total

2,519,902

2,499,102

Homes connected

(2)

Canada 992,332

979,590

Portugal 266,680

269,194

Total

1,259,012

1,248,784

Revenue-generating units

(3)

Canada 2,526,591

2,350,577

Portugal 842,525

828,772

Total

3,369,116

3,179,349

Basic Cable service customers

Canada 879,354

874,505

Portugal 258,127

260,267

Total

1,137,481

1,134,772

High Speed Internet service customers

Canada 593,468

559,057

Portugal 164,992

163,187

Total

758,460

722,244

Digital Television service customers

Canada 648,862

559,418

Portugal 169,762

159,852

Total

818,624

719,270

Telephony service customers

Canada 404,907

357,597

Portugal 249,644

245,466

Total

654,551

603,063

(1) The Corporation is currently assessing the number of homes passed.

(2) Represents the sum of Basic Cable service customers and High Speed Internet (“HSI”) and Telephony service customers who do no

t subscribe to the Basic

Cable service.

(3) Represents the sum of Basic Cable, HSI, Digital Television and Telephony service customers.