Cogeco Communications Inc. — Interim / Quarterly Report 2021

Jul 15, 2021

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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Three and nine-month periods ended May 31, 2021

COGECO COMMUNICATIONS INC. INTERIM CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

(unaudited)

		Three months	ended May 31,	Nine months	ended May 31,
	Notes	2021	2020	2021	2020
(In thousands of Canadian dollars, except per share data)		$	$	$	$
Revenue	3	624,308	605,821	1,877,769	1,779,115
Operating expenses	6	321,457	304,921	945,126	907,694
Management fees – Cogeco Inc.	17	5,852	6,183	17,557	17,227
Integration, restructuring and acquisition costs	4	1,225	12	4,770	5,531
Depreciation and amortization	7	128,156	129,041	379,260	374,413
Financial expense	8	33,506	40,356	100,555	91,791
Profit before income taxes		134,112	125,308	430,501	382,459
Income taxes	9	31,326	28,584	102,260	82,016
Profit for the period		102,786	96,724	328,241	300,443
Profit for the period attributable to:
Owners of the Corporation		95,702	90,771	305,317	284,340
Non-controlling interest		7,084	5,953	22,924	16,103
		102,786	96,724	328,241	300,443
Earnings per share
Basic	10	2.02	1.89	6.42	5.84
Diluted	10	2.01	1.87	6.36	5.78

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 36

COGECO COMMUNICATIONS INC.

INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

	Three months	ended May 31,	Nine months	ended May 31,
	2021	2020	2021	2020
(In thousands of Canadian dollars)	$	$	$	$
Profit for theperiod	102,786	96,724	328,241	300,443
Other comprehensive (loss) income
Items to be subsequently reclassified to profit or loss
Cash flow hedging adjustments
Net change in fair value of hedging derivative financial instruments	5,745	(24,260)	25,918	(34,089)
Related income taxes	(1,523)	6,429	(6,868)	9,033
	4,222	(17,831)	19,050	(25,056)
Foreign currency translation adjustments
Net foreign currency translation differences on net investments in foreign
operations	(91,657)	49,181	(144,057)	68,050
Net changes on translation of long-term debt designated as hedges of net
investments in foreign operations	23,907	(13,964)	37,830	(19,188)
Related income taxes	228	(176)	365	(244)
	(67,522)	35,041	(105,862)	48,618
	(63,300)	17,210	(86,812)	23,562
Items not to be subsequently reclassified to profit or loss
Defined benefit plans actuarial adjustments
Remeasurement of net defined benefit liability or asset	2,142	3,871	7,662	3,839
Related income taxes	(567)	(1,025)	(2,030)	(1,017)
	1,575	2,846	5,632	2,822
	(61,725)	20,056	(81,180)	26,384
Comprehensive income for the period	41,061	116,780	247,061	326,827
Comprehensive income for the period attributable to:
Owners of the Corporation	52,598	100,882	253,394	296,960
Non-controllinginterest	(11,537)	15,898	(6,333)	29,867
	41,061	116,780	247,061	326,827

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 37

COGECO COMMUNICATIONS INC.

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(unaudited)

Years ended August 31, 2015 and 2014 (In thousands of Canadian dollars)	Equityattributable to owners of the Corporation Share capital Share-based payment reserve Accumulated other comprehensive income (loss) Retained earnings Equity attributable to non-controlling interest Total shareholders' equity $ $ $ $ $ $
Balance at August 31, 2019	(Note 13) (Note 14) 1,023,390 13,526 31,028 1,131,845 359,689 2,559,478
Profit for the period Other comprehensive income for theperiod	— — — 284,340 16,103 300,443 — — 9,798 2,822 13,764 26,384
Comprehensive income for theperiod	— — 9,798 287,162 29,867 326,827
Issuance of subordinate voting shares under the Stock Option Plan Share-based payment (Notes 13 D) and 17) Share-based payment previously recorded in share-based payment reserve for options exercised Dividends (Note 13 C)) Purchase and cancellation of subordinate voting shares Acquisition of subordinate voting shares held in trust under the Incentive and Performance Share Unit Plans Distribution to employees of subordinate voting shares held in trust under the Incentive and Performance Share Unit Plans	6,670 — — — — 6,670 — 5,218 — — — 5,218 1,129 (1,129) — — — — — — — (84,597) — (84,597) (39,085) — — (106,817) — (145,902) (5,643) — — — — (5,643) 3,859 (3,126) — (733) — —
Total (distributions to) contributions byshareholders	(33,070) 963 — (192,147) — (224,254)
Balance at May 31, 2020	990,320 14,489 40,826 1,226,860 389,556 2,662,051
Balance at August 31, 2020	984,963 16,347 (7,117) 1,274,053 373,504 2,641,750
Profit for the period Other comprehensive income (loss) for theperiod	— — — 305,317 22,924 328,241 — — (57,555) 5,632 (29,257) (81,180)
Comprehensive income (loss) for theperiod	— — (57,555) 310,949 (6,333) 247,061
Issuance of subordinate voting shares under the Stock Option Plan Share-based payment (Notes 13 D) and 17) Share-based payment previously recorded in share-based payment reserve for options exercised Dividends (Note 13 C)) Purchase and cancellation of subordinate voting shares Acquisition of subordinate voting shares held in trust under the Incentive and Performance Share Unit Plans Distribution to employees of subordinate voting shares held in trust under the Incentive and Performance Share Unit Plans	3,702 — — — — 3,702 — 4,412 — — — 4,412 665 (665) — — — — — — — (91,178) — (91,178) (20,826) — — (64,666) — (85,492) (4,439) — — — — (4,439) 5,064 (4,891) — (173) — —
Total distributions to shareholders	(15,834) (1,144) — (156,017) — (172,995)
Balance at May 31, 2021	969,129 15,203 (64,672) 1,428,985 367,171 2,715,816

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 38

COGECO COMMUNICATIONS INC. INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(unaudited)

	Notes	May 31, 2021	August 31, 2020
(In thousands of Canadian dollars)		$	$
Assets
Current
Cash and cash equivalents	15 B)	305,440	366,497
Restricted cash	11	161,008	—
Trade and other receivables		83,022	83,013
Income taxes receivable		3,495	3,283
Prepaid expenses and other		35,580	29,266
Derivative financial instruments		1,178	—
		589,723	482,059
Non-current
Restricted cash	11	27,000	—
Other assets		43,239	45,109
Property, plant and equipment		2,263,435	2,088,930
Intangible assets		2,675,708	2,800,401
Goodwill		1,417,285	1,381,024
Deferred tax assets		3,640	6,674
		7,020,030	6,804,197
Liabilities and Shareholders' equity
Liabilities
Current
Bank indebtedness		6,384	7,610
Trade and other payables		234,164	211,052
Provisions		26,414	33,864
Income tax liabilities		8,149	39,897
Contract liabilities and other liabilities		54,214	47,162
Government subsidies received in advance	11	161,008	—
Derivative financial instruments		—	3,834
Currentportion of long-term debt	12	225,933	29,569
		716,266	372,988
Non-current
Long-term debt	12	2,851,405	3,087,033
Derivative financial instruments		45,080	67,375
Contract liabilities and other liabilities		8,733	10,965
Government subsidies received in advance	11	27,000	—
Pension plan liabilities and accrued employee benefits		6,866	13,490
Deferred tax liabilities		648,864	610,596
		4,304,214	4,162,447
Shareholders' equity
Equity attributable to owners of the Corporation
Share capital	13 B)	969,129	984,963
Share-based payment reserve		15,203	16,347
Accumulated other comprehensive loss	14	(64,672)	(7,117)
Retained earnings		1,428,985	1,274,053
		2,348,645	2,268,246
Equityattributable to non-controllinginterest		367,171	373,504
		2,715,816	2,641,750
		7,020,030	6,804,197

Commitments and contingencies (Note 18) Subsequent event (Note 19)

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 39

COGECO COMMUNICATIONS INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

		Three months	ended May 31,	Nine months	ended May 31,
	Notes	2021	2020	2021	2020
(In thousands of Canadian dollars)		$	$	$	$
Cash flows from operating activities
Profit for the period		102,786	96,724	328,241	300,443
Adjustments for:
Depreciation and amortization	7	128,156	129,041	379,260	374,413
Financial expense	8	33,506	40,356	100,555	91,791
Income taxes	9	31,326	28,584	102,260	82,016
Share-based payment		2,177	1,864	5,931	5,821
Gain on disposals and write-offs of property, plant and equipment		(863)	(1,593)	(607)	(338)
Defined benefitplans expense, net of contributions		424	5	(482)	924
		297,512	294,981	915,158	855,070
Changes in non-cash operating activities	15 A)	15,536	19,512	(9,779)	(56,310)
Interest paid		(30,342)	(38,816)	(91,472)	(108,272)
Income taxes (paid) received		(18,085)	6,552	(76,395)	(27,414)
		264,621	282,229	737,512	663,074
Cash flows from investing activities
Acquisition of property, plant and equipment		(126,570)	(123,653)	(358,006)	(355,795)
Business combinations, net of cash and cash equivalents acquired	5	—	(81,745)	(394,296)	(81,745)
Proceeds on disposals ofproperty, plant and equipment		568	5,285	2,392	7,164
		(126,002)	(200,113)	(749,910)	(430,376)
Cash flows from financing activities
Increase (decrease) in bank indebtedness		6,384	—	(1,226)	—
Net (decrease) increase under the revolving facilities		(8,740)	—	171,772	—
Repayment of notes, debentures and credit facilities		(5,158)	(5,859)	(16,112)	(63,603)
Repayment of lease liabilities		(1,196)	(1,352)	(3,339)	(3,762)
Repayment of balance due on business combinations		—	—	(1,258)	(3,228)
Increase in deferred transaction costs		—	(98)	—	(620)
Issuance of subordinate voting shares	13 B)	2,265	1,326	3,702	6,670
Purchase and cancellation of subordinate voting shares	13 B)	(48,967)	(59,425)	(85,492)	(145,902)
Acquisition of subordinate voting shares held in trust under the
Incentive and Performance Share Unit Plans	13 B)	—	—	(4,439)	(5,643)
Dividendspaid	13 C)	(30,153)	(27,796)	(91,178)	(84,597)
		(85,565)	(93,204)	(27,570)	(300,685)
Effect of exchange rate changes on cash and cash equivalents denominated in a
foreign currency		(13,787)	2,987	(21,089)	5,277
Net change in cash and cash equivalents		39,267	(8,101)	(61,057)	(62,710)
Cash and cash equivalents, beginningof theperiod		266,173	501,895	366,497	556,504
Cash and cash equivalents, end of the period		305,440	493,794	305,440	493,794

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 40

COGECO COMMUNICATIONS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS May 31, 2021

(unaudited)

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

NATURE OF OPERATIONS

Cogeco Communications Inc. ("Cogeco Communications" or the "Corporation") is a communications corporation operating in Canada under the Cogeco Connexion name in Québec and Ontario, and in the United States under the Atlantic Broadband brand (in 11 states along the East Coast, from Maine to Florida). Cogeco Communications provides residential and business customers with Internet, video and telephony services through its two-way broadband fibre networks.

The Corporation is a subsidiary of Cogeco Inc. ("Cogeco"), which as of May 31, 2021 held 33.2% of the Corporation's equity shares, representing 83.3% of the votes attached to the Corporation's voting shares. Cogeco Communications is a Canadian public corporation whose subordinate voting shares are listed on the Toronto Stock Exchange ("TSX") under the trading symbol "CCA".

The Corporation's registered office is located at 1 Place Ville Marie, Suite 3301, Montréal, Québec, H3B 3N2.

1. BASIS OF PRESENTATION

These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standards ("IAS") 34, Interim financial reporting , as issued by the International Accounting Standards Board ("IASB") and do not include all the information required for annual financial statements. Certain information and footnote disclosure normally included in annual financial statements were omitted or condensed where such information is not considered material to the understanding of the Corporation's interim financial information. As such, these condensed interim consolidated financial statements should be read in conjunction with the Corporation's 2020 annual consolidated financial statements.

The condensed interim consolidated financial statements have been prepared with the same accounting policies and methods of computation followed by the Corporation in its 2020 annual consolidated financial statements. The accounting policies have been applied consistently to all periods presented in the condensed interim consolidated financial statements. Certain comparative amounts in the condensed interim consolidated financial statements have been reclassified in order to conform to the fiscal 2021 consolidated financial statements presentation.

The condensed interim consolidated financial statements have been prepared on a going concern basis using historical cost, except for financial instruments and derivative financial instruments, cash-settled share-based payment arrangements and pension plan assets, which are measured at fair value, and for defined benefit obligation and provisions, which are measured at present value.

Financial information is presented in Canadian dollars, which is the functional currency of the Corporation.

The results of operations for the interim period are not necessarily indicative of the results of operations for the full year. The Corporation does not expect seasonality to be a material factor in quarterly results, except that the number of Internet and video services customers are generally lower in the second half of a fiscal year as a result of the beginning of the vacation period, the end of the television season, and students leaving their campuses at the end of the school year. Cogeco Communications offers its services in several towns with educational institutions. In the American broadband services segment, certain areas are also subject to seasonal fluctuations during the winter and summer seasons.

The condensed interim consolidated financial statements were approved by the Board of Directors of the Corporation at its meeting held on July 14, 2021.

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 41

COGECO COMMUNICATIONS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS May 31, 2021

(unaudited)

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

2. ACCOUNTING POLICY DEVELOPMENTS

A) ADOPTION OF NEW ACCOUNTING STANDARDS, AMENDMENTS TO STANDARDS AND INTERPRETATIONS

Amendments to IFRS 3

In October 2018, the IASB amended IFRS 3, Business combinations , to clarify the definition of a business, with the objective of assisting entities in determining whether a transaction should be accounted for as a business combination or as an asset acquisition. Effective September 1, 2020, the Corporation adopted these amendments, which had no impact on the consolidated financial statements. The effects, if any, of these amendments, will be dependent on the facts and circumstances of any future acquisitions and they may affect whether those future acquisitions are accounted for as business combinations or as asset acquisitions, along with the allocation of the purchase price between the net identifiable assets acquired and goodwill.

B) NEW ACCOUNTING STANDARDS, AMENDMENTS TO STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE

Amendments to IAS 12

In May 2021, the IASB amended IAS 12, Income taxes , to clarify how companies should account for deferred tax on certain transactions that on initial recognition give rise to equal taxable and deductible temporary differences (e.g. leases and decommissioning provisions). The amendments narrow the scope of the initial recognition exemption so that it does not apply to these transactions. As a result, companies will need to recognize both a deferred tax asset and a deferred tax liability when accounting for such transactions. The amendments are effective for annual reporting periods beginning on or after January 1, 2023, with early application permitted. The Corporation does not expect any impact on its consolidated financial statements upon adoption of these amendments.

Amendments to IAS 1

In February 2021, the IASB amended IAS 1, Presentation of financial statements, to require entities to disclose their material accounting policy information rather than their significant accounting policies. Further amendments to IAS 1 are made to explain how an entity can identify a material accounting policy. The amendments are effective for annual reporting periods beginning on or after January 1, 2023, with earlier application permitted. The Corporation is in the process of determining the extent of the impact on its consolidated financial statements disclosure.

3. REVENUE

					Three months	ended May 31,
	Canadian broadband services		American broadband services			Consolidated
	2021	2020	2021	2020	2021	2020
	$	$	$	$	$	$
Residential(1)	315,100	287,547	234,164	245,361	549,264	532,908
Commercial	37,623	32,802	32,819	34,517	70,442	67,319
Other	613	198	3,989	5,396	4,602	5,594
	353,336	320,547	270,972	285,274	624,308	605,821

(1) Includes revenue from Internet, video and telephony residential customers, bulk residential customers and Internet resellers customers.

					Nine months	ended May 31,
	Canadian broadband services		American broadband services			Consolidated
	2021	2020	2021	2020	2021	2020
	$	$	$	$	$	$
Residential(1)	926,473	862,639	725,174	697,364	1,651,647	1,560,003
Commercial	108,288	100,199	100,689	98,739	208,977	198,938
Other	1,486	737	15,659	19,437	17,145	20,174
	1,036,247	963,575	841,522	815,540	1,877,769	1,779,115

(1) Includes revenue from Internet, video and telephony residential customers, bulk residential customers and Internet resellers customers.

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 42

COGECO COMMUNICATIONS INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS May 31, 2021

(unaudited)

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

4. OPERATING SEGMENTS

The Corporation's segment profit (loss) is reported in two operating segments: Canadian broadband services and American broadband services. The reporting structure reflects how the Corporation manages its business activities to make decisions about resources to be allocated to the segments and to assess their performance.

The Canadian and American broadband services segments provide a wide range of Internet, video and telephony services primarily to residential customers, as well as business services across their coverage areas. The Canadian broadband services activities are carried out by Cogeco Connexion in the provinces of Québec and Ontario and the American broadband services activities are carried out by Atlantic Broadband in 11 states: Connecticut, Delaware, Florida, Maine, Maryland, New Hampshire, New York, Pennsylvania, South Carolina, Virginia and West Virginia.

The Corporation and its chief operating decision maker assess the performance of each operating segment based on its segment profit (loss), which is equal to Revenue less Operating expenses . Transactions between operating segments are measured at the amounts agreed to between the parties.

The column entitled "Corporate and eliminations" is comprised of the corporate activities and consolidation elimination entries.

Three months ended May 31, 2021	Three months ended May 31, 2021
Canadian broadband services American broadband services $ $	Corporate and eliminations Consolidated $ $
Revenue 353,336 270,972 — 624,308 Operating expenses 164,351 149,458 7,648 321,457 Management fees – Cogeco Inc. — — 5,852 5,852
Segment profit (loss) 188,985 121,514 (13,500) 296,999 Integration, restructuring and acquisition costs(1) 1,225 Depreciation and amortization 128,156 Financial expense 33,506
Profit before income taxes 134,112 Income taxes 31,326
Profit for theperiod 102,786
Acquisition of property, plant and equipment 57,230 67,579 1,761 126,570

(1) Comprised primarily of due diligence costs related to the acquisition of WideOpenWest's Ohio broadband systems, announced on June 30, 2021 (see Note 19), and costs related to the acquisition and integration of DERYtelecom, which was completed on December 14, 2020.

			Three months ended	May 31, 2020
	Canadian	American
	broadband	broadband	Corporate and
	services	services	eliminations	Consolidated
	$	$	$	$
Revenue	320,547	285,274	—	605,821
Operating expenses	143,809	155,843	5,269	304,921
Management fees – Cogeco Inc.	—	—	6,183	6,183
Segment profit (loss)	176,738	129,431	(11,452)	294,717
Integration, restructuring and acquisition costs				12
Depreciation and amortization				129,041
Financial expense				40,356
Profit before income taxes				125,308
Income taxes				28,584
Profit for theperiod				96,724
Acquisition of property, plant and equipment	61,217	61,184	1,252	123,653

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 43

COGECO COMMUNICATIONS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS May 31, 2021

(unaudited)

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

			Nine months ended	May 31, 2021
	Canadian	American
	broadband	broadband	Corporate and
	services	services	eliminations	Consolidated
	$	$	$	$
Revenue	1,036,247	841,522	—	1,877,769
Operating expenses	471,440	451,953	21,733	945,126
Management fees – Cogeco Inc.	—	—	17,557	17,557
Segment profit (loss)	564,807	389,569	(39,290)	915,086
Integration, restructuring and acquisition costs(1)				4,770
Depreciation and amortization				379,260
Financial expense				100,555
Profit before income taxes				430,501
Income taxes				102,260
Profit for theperiod				328,241
Acquisition of property, plant and equipment	180,294	174,485	3,227	358,006

(1) Comprised primarily due diligence costs related to the acquisition of WideOpenWest's Ohio broadband systems, announced on June 30, 2021 (see Note 19), and costs related to the acquisition and integration of DERYtelecom, which was completed on December 14, 2020.

			Nine months ended	May 31, 2020
	Canadian	American
	broadband	broadband	Corporate and
	services	services	eliminations	Consolidated
	$	$	$	$
Revenue	963,575	815,540	—	1,779,115
Operating expenses	445,510	445,243	16,941	907,694
Management fees – Cogeco Inc.	—	—	17,227	17,227
Segment profit (loss)	518,065	370,297	(34,168)	854,194
Integration, restructuring and acquisition costs(1)				5,531
Depreciation and amortization				374,413
Financial expense				91,791
Profit before income taxes				382,459
Income taxes				82,016
Profit for theperiod				300,443
Acquisition of property, plant and equipment	202,108	151,965	1,722	355,795

(1) Comprised primarily of costs associated with organizational changes initiated across the Corporation resulting in cost optimization, as well as costs related to the acquisition and integration of Thames Valley Communications, completed on March 10, 2020 and of iTéract, completed on May 1, 2020.

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 44

COGECO COMMUNICATIONS INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS May 31, 2021

(unaudited)

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

5. BUSINESS COMBINATION

Acquisition of DERYtelecom

On December 14, 2020, the Corporation's subsidiary, Cogeco Connexion, completed the acquisition of DERYtelecom, the third largest cable operator in the province of Québec, for a purchase price of $403 million, subject to customary post-closing adjustments. The transaction was executed essentially through an asset purchase. This acquisition enables Cogeco Connexion to expand its activities in more than 200 municipalities in Québec and adds approximately 100,000 customers to its customer base. The purchase price was financed through a combination of cash on hand and borrowings under Cogeco Communications' Term Revolving Facility.

The Corporation is currently assessing the fair value of the assets acquired and the liabilities assumed at the date of acquisition, for which the valuation process of certain assets remains to be finalized. The preliminary allocation of the purchase price was based on the estimated fair value of the assets acquired and the liabilities assumed at the date of acquisition, which is subject to material adjustments until the fair value assessment is completed. The items that are mainly subject to change are Property, plant and equipment , Intangible assets and Goodwill . The Corporation will finalize the purchase price allocation over the coming quarters. Final adjustment to the purchase price allocation could also impact depreciation, amortization and income tax expenses recognized since the initial accounting of the DERYtelecom business acquisition.

The preliminary allocation of the purchase price based on the estimated fair value of assets acquired and the liabilities assumed at the date of acquisition is as follows:

	At May 31, 2021
	Preliminary
	$
Purchase price
Consideration paid	403,000
Preliminaryworkingcapital adjustments	(8,500)
	394,500
Net assets acquired
Cash and cash equivalents acquired	204
Trade and other receivables	5,093
Prepaid expenses and other	1,456
Property, plant and equipment	235,001
Intangible assets	41,350
Goodwill	138,320
Trade and other payables	(17,358)
Provisions	(1,657)
Contract liabilities and other liabilities	(6,615)
Long-term debt	(1,294)
	394,500

The amount of goodwill, which is expected to be mostly deductible for tax purposes, is mainly attributable to the expected growth in both residential and business services and the expertise of the workforce. As the transaction was executed essentially through an asset purchase, the goodwill is also attributable to the realization of expected tax benefits.

In connection with this acquisition, the Corporation incurred acquisition-related costs of $3.3 million, recognized within Integration, restructuring and acquisition costs in the Corporation's consolidated statement of profit and loss.

During the three and nine-month periods ended May 31, 2021, the Corporation recognized $27.9 million and $51.3 million of revenue related to the operations generated by the acquisition of DERYtelecom. The results of operations of DERYtelecom are reported in the Canadian broadband services operating segment.

Had the business combination been effective at September 1, 2020, the consolidated revenue of the Corporation would have been $1.909 billion for the nine-month period ended May 31, 2021. Management considers the "pro forma" supplemental information to represent an approximate measure of the performance of the combined group and to provide a reference point for comparison in future periods. The "pro forma" supplemental information is based on estimates and assumptions that management believes to be reasonable.

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 45

COGECO COMMUNICATIONS INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS May 31, 2021

(unaudited)

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

6. OPERATING EXPENSES

	Three months	ended May 31,	Nine months	ended May 31,
Years ended August 31,	2021	2020	2021	2020
	$	$	$	$
Salaries, employee benefits and outsourced services	101,295	93,308	292,217	277,050
Service delivery costs	172,729	170,313	512,041	496,326
Customer related costs	19,292	20,459	59,717	65,097
Other externalpurchases	28,141	20,841	81,151	69,221
	321,457	304,921	945,126	907,694

7. DEPRECIATION AND AMORTIZATION

	Three months	ended May 31,	Nine months	ended May 31,
	2021	2020	2021	2020
	$	$	$	$
Depreciation of property, plant and equipment(1)	118,489	113,952	345,097	330,750
Amortization of intangible assets	9,667	15,089	34,163	43,663
	128,156	129,041	379,260	374,413

(1) Includes depreciation of right-of-use assets amounting to $1.5 million and $4.4 million ($1.8 million and $5.1 million in 2020) for the three and nine-month periods of fiscal 2021.

8. FINANCIAL EXPENSE

	Three months ended May 31,	Three months ended May 31,	Nine months	ended May 31,
	2021	2020	2021	2020
	$	$	$	$
Interest on long-term debt, excluding interest on lease liabilities	30,282	39,484	95,688	118,531
Interest on lease liabilities	326	391	988	1,150
Gain on debt modification(1)	—	—	—	(22,898)
Net foreign exchange loss	1,669	348	992	379
Amortization of deferred transaction costs	183	218	579	893
Capitalized borrowing costs	(41)	(169)	(132)	(462)
Other	1,087	84	2,440	(5,802)
	33,506	40,356	100,555	91,791

(1) On February 3, 2020, the Senior Secured Term Loan B Facility was amended and the most significant change consisted in the reduction of the interest rate by 0.25%. As a result, the Corporation recognized a gain on debt modification of $22.9 million in fiscal 2020.

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 46

COGECO COMMUNICATIONS INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS May 31, 2021

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

9. INCOME TAXES

	Three months ended May 31,	Three months ended May 31,	Nine months ended May 31,	Nine months ended May 31,
	2021	2020	2021	2020
	$	$	$	$
Current	6,504	15,845	44,739	43,919
Deferred	24,822	12,739	57,521	38,097
	31,326	28,584	102,260	82,016

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

	Three months	ended May 31,	Nine months	ended May 31,
	2021	2020	2021	2020
	$	$	$	$
Profit before income taxes	134,112	125,308	430,501	382,459
Combined Canadian income tax rate	26.5 %	26.5 %	26.5 %	26.5 %
Income taxes at combined Canadian income tax rate	35,540	33,207	114,083	101,352
Difference in operations' statutory income tax rates	600	626	2,366	1,633
Impact on income taxes arising from non-deductible expenses and non-taxable profit	351	385	680	(760)
Tax impacts related to foreign operations	(4,765)	(5,610)	(14,800)	(18,223)
Other	(400)	(24)	(69)	(1,986)
Income taxes at effective income tax rate	31,326	28,584	102,260	82,016
Effective income tax rate	23.4 %	22.8 %	23.8 %	21.4 %

10. EARNINGS PER SHARE

The following table provides the components used in the calculation of basic and diluted earnings per share:

	Three months	ended May 31,	Nine months	ended May 31,
	2021	2020	2021	2020
	$	$	$	$
Profit for theperiod attributable to owners of the Corporation	95,702	90,771	305,317	284,340
Weighted average number of multiple and subordinate voting shares
outstanding	47,281,140	48,101,129	47,567,025	48,715,564
Effect of dilutive stock options(1)	272,621	209,660	233,967	250,409
Effect of dilutive incentive share units	69,981	75,798	72,756	74,390
Effect of dilutiveperformance share units	98,121	115,410	101,270	112,872
Weighted average number of diluted multiple and subordinate voting shares
outstanding	47,721,863	48,501,997	47,975,018	49,153,235

(1) For the three and nine-month periods ended May 31, 2021, 2,700 and 185,335 stock options (209,225 and 205,150 in 2020) were excluded from the calculation of diluted earnings per share due to the exercise price of the stock options being greater than the average share price of the subordinate voting shares.

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 47

COGECO COMMUNICATIONS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS May 31, 2021 (unaudited)

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

11. RESTRICTED CASH AND GOVERNMENT SUBSIDIES RECEIVED IN ADVANCE

On March 22, 2021, Cogeco Communications announced that Cogeco Connexion will carry out 13 high-speed Internet network expansion projects in several regions of Québec, in collaboration with the provincial and federal governments. These regional infrastructure projects represent an investment of approximately $240 million, of which $208 million will come from the provincial and federal governments, in the form of government subsidies.

Once these projects are completed, more than 54,000 homes and businesses will be connected to Cogeco Connexion's high-speed Internet services. These digital infrastructure investment projects are scheduled to be completed by September 2022. On March 26, 2021, Cogeco Connexion received $187.5 million of the $208 million expected government subsidies, to be used to pay for a portion of the expansion projects, with the remainder expected to be received upon completion of the projects. The amount of subsidies may vary depending on actual construction scope and costs. The projects are also subject to penalties, except for events out of Cogeco Connexion's control, if their delivery extends beyond September 2022. As at May 31, 2021, the $187.5 million subsidies received in advance were classified as Restricted cash with a corresponding liability in Government subsidies received in advance, on the consolidated statement of financial position. The Government subsidies received in advance will be recognized essentially as a reduction of the cost of property, plant and equipment, based on the cost incurred in connection with these projects over the expected costs.

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 48

COGECO COMMUNICATIONS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS May 31, 2021

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

12. LONG-TERM DEBT

	May 31, 2021	August 31, 2020
	$	$
Notes, debentures and credit facilities	3,038,106	3,072,511
Lease liabilities	37,629	41,235
Balance due on business combinations	1,600	2,856
Other	3	—
	3,077,338	3,116,602
Less currentportion	225,933	29,569
	2,851,405	3,087,033

Notes, debentures and credit facilities

Notes, debentures and credit facilities
		Interest
	Maturity	rate	May 31, 2021	August 31, 2020
		%	$	$
Corporation
Term Revolving Facility
Revolving loan	January 2025	1.62(2)	9,987	—
Revolving loan – US$127 million(1)	January 2025	1.29(2)	153,314	—
Senior Secured Notes
Series A - US$25 million	September 2024	4.14	30,124	32,538
Series B - US$150 million	September 2026	4.29	180,630	195,123
Senior Secured Notes - US$215 million	June 2025	4.30	258,935	279,687
Senior Secured Debentures Series 3	February 2022	4.93	199,839	199,671
Senior Secured Debentures Series 4	May 2023	4.18	299,285	299,027
Subsidiaries
First Lien Credit Facilities
Senior Secured Term Loan B Facility - US$1,614 million (US$1,626.8 million at August 31, 2020)	January2025	2.09(2) (3)	1,905,992	2,066,465
			3,038,106	3,072,511
Less currentportion			220,361	22,171
			2,817,745	3,050,340

(1) An amount of US$127 million drawn under the Corporation's Term Revolving Facility was hedged until June 30, 2021, using a cross-currency swap agreement which sets the amount redeemable at maturity at $153.0 million and the effective interest rate on the Canadian dollar equivalent at 1.37%.

(2) Interest rate on debt includes the applicable credit spread.

(3) As of May 31, 2021, a US subsidiary of the Corporation had entered into interest rate swap agreements to fix the interest rate on a notional amount of US$770 million of its LIBOR based loans. These agreements have the effect of converting the floating US LIBOR base rate into fixed rates ranging from 2.017% to 2.262% for maturities between January 31, 2023 and November 30, 2024, under the Senior Secured Term Loan B Facility. Taking into account these agreements, the effective interest rate on the Senior Secured Term Loan B Facility is 3.07%.

In April 2021, Cogeco Connexion contracted a new unsecured letter of credit which was submitted to Innovation, Science and Economic Development ("ISED") Canada as a pre-auction deposit, with the application to bid at the 3500 MHz spectrum auction. In accordance with the rules of confidentiality established by ISED Canada respecting communications during the auction process, the Corporation is forbidden from disclosing the amount of this letter of credit.

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 49

COGECO COMMUNICATIONS INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS May 31, 2021

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

13. SHARE CAPITAL

A) 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.

B) ISSUED AND PAID

	May 31,	August 31,
	2021	2020
	$	$
15,691,100 multiple voting shares	98,346	98,346
31,546,198 subordinate votingshares (32,231,433 at August 31, 2020)	886,437	902,896
	984,783	1,001,242
74,663 subordinate voting shares held in trust under the Incentive Share Unit Plan (76,957 at August 31, 2020)	(6,461)	(6,346)
104,328 subordinate votingshares held in trust under the Performance Share Unit Plan (115,222 at August 31, 2020)	(9,193)	(9,933)
	969,129	984,963

During the first nine months of fiscal 2021, subordinate voting share transactions were as follows:

	Number of shares	Amount
		$
Balance at August 31, 2020	32,231,433	902,896
Shares issued for cash under the Stock Option Plan	57,365	3,702
Share-based payment previously recorded in share-based payment reserve for options exercised	—	665
Purchase and cancellation of subordinate votingshares(1)	(742,600)	(20,826)
Balance at May 31, 2021	31,546,198	886,437

(1) During the third quarter and first nine months of fiscal 2021, under its Normal Course Issuer Bid ("NCIB") program, the Corporation purchased and cancelled 414,000 and 742,600 (601,900 and 1,397,400 in 2020) subordinate voting shares with an average stated value of $11.6 million and $20.8 million ($16.8 million and $39.1 million in 2020), for consideration of $49.0 million and $85.5 million ($59.4 million and $145.9 million in 2020). The excess of the purchase price over the average stated value of the shares totalled $37.4 million and $64.7 million ($42.6 million and $106.8 million in 2020) and was charged to retained earnings.

Normal course issuer bid

On April 30, 2021, the Corporation announced that the TSX accepted the renewal of its notice of intention for a NCIB, enabling it to acquire for cancellation up to 2,068,000 subordinate voting shares from May 4, 2021 to May 3, 2022. Under its previous NCIB that commenced on May 4, 2020 and ended on May 3, 2021, the Corporation could purchase for cancellation a maximum of 1,809,000 subordinate shares.

On September 2, 2020, Cogeco Communications ceased repurchasing shares under the NCIB as a result of an unsolicited proposal to acquire the Corporation. During the second quarter of fiscal 2021, Cogeco Communications resumed the repurchasing of shares.

The Corporation has also entered into an automatic share purchase plan ("ASPP") with a designated broker to allow for the purchase of subordinate voting shares under the NCIB at times when the Corporation would ordinarily not be permitted to purchase shares due to regulatory restrictions or self-imposed blackout periods. Such purchases are executed by the broker based on parameters established by the Corporation prior to the pre-established ASPP period.

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 50

COGECO COMMUNICATIONS INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS May 31, 2021

(unaudited)

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

During the first nine months of fiscal 2021, the transactions pertaining to the subordinate voting shares held in trust under the Incentive Share Unit Plan were as follows:

	Number of shares	Amount
		$
Balance at August 31, 2020	76,957	6,346
Subordinate voting shares acquired	24,255	2,311
Subordinate votingshares distributed to employees	(26,549)	(2,196)
Balance at May 31, 2021	74,663	6,461

During the first nine months of fiscal 2021, the transactions pertaining to the subordinate voting shares held in trust under the Performance Share Unit Plan were as follows:

	Number of shares	Amount
		$
Balance at August 31, 2020	115,222	9,933
Subordinate voting shares acquired	22,337	2,128
Subordinate votingshares distributed to employees	(33,231)	(2,868)
Balance at May 31, 2021	104,328	9,193

C) DIVIDENDS

For the nine-month period ended May 31, 2021, quarterly eligible dividends of $0.64 per share, for a total of $1.92 per share or $91.2 million, were paid to the holders of multiple and subordinate voting shares, compared to quarterly eligible dividends of $0.58 per share, for a total of $1.74 per share or $84.6 million, for the nine-month period ended May 31, 2020.

	Three months ended May 31,	Three months ended May 31,	Nine months ended May 31,	Nine months ended May 31,
	2021	2020	2021	2020
	$	$	$	$
Dividends on multiple voting shares	10,042	9,101	30,127	27,303
Dividends on subordinate votingshares	20,111	18,695	61,051	57,294
	30,153	27,796	91,178	84,597

At its July 14, 2021 meeting, the Board of Directors of Cogeco Communications declared a quarterly eligible dividend of $0.64 per share for multiple and subordinate voting shares, payable on August 11, 2021 to shareholders of record on July 28, 2021.

D) SHARE-BASED PAYMENT PLANS

The Corporation offers an Employee Stock Purchase Plan for the benefit of its employees and those of its subsidiaries and a Stock Option Plan to its executive officers and designated employees. No more than 10% of the outstanding subordinate voting shares are available for issuance under these plans. Furthermore, the Corporation offers an Incentive Share Unit Plan ("ISU Plan") and a Performance Share Unit Plan ("PSU Plan") for executive officers and designated employees, and a Deferred Share Unit Plan ("DSU Plan") for members of the Board of Directors. A detailed description of these plans can be found in the 2020 annual consolidated financial statements of the Corporation.

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 51

COGECO COMMUNICATIONS INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS May 31, 2021

(unaudited)

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

Under the Stock Option Plan, the following options were granted by the Corporation and are outstanding at May 31, 2021:

		Weighted
		average
	Options	exercise price
		$
Outstanding at August 31, 2020	786,799	78.49
Granted	156,125	94.69
Exercised(1)	(57,365)	64.53
Cancelled	(39,755)	89.19
Outstanding at May 31, 2021	845,804	81.93
Exercisable at May 31, 2021	377,679	68.24

(1) The weighted average share price for options exercised during the nine-month period was $113.65.

The weighted average fair value of stock options granted for the nine-month period ended May 31, 2021 was $14.86 per option. The weighted average fair value of each option granted was estimated at the grant date for purposes of determining share-based payment expense using the Black-Scholes option pricing model based on the following weighted-average assumptions:

	%
Expected dividend yield	2.75
Expected volatility	24.79
Risk-free interest rate	0.43
Expected life (inyears)	5.9

Under the ISU Plan, the following ISUs were granted by the Corporation and are outstanding at May 31, 2021:

Outstanding at August 31, 2020	76,141
Granted(1)	26,025
Distributed	(26,549)
Cancelled	(6,417)
Outstanding at May 31, 2021	69,200

(1) The weighted average fair value of the ISUs granted during the nine-month period was $95.28.

Under the PSU Plan, the following PSUs were granted by the Corporation and are outstanding at May 31, 2021:

Outstanding at August 31, 2020	112,886
Granted(1)	33,075
Distributed	(33,231)
Cancelled	(16,255)
Dividend equivalents	1,777
Outstanding at May 31, 2021	98,252

(1) The weighted average fair value of the PSUs granted during the nine-month period was $94.80.

Under the DSU Plan, the following DSUs were issued by the Corporation and are outstanding at May 31, 2021:

Outstanding at August 31, 2020	50,958
Issued(1)	8,512
Dividend equivalents	997
Outstanding at May 31, 2021	60,467

(1) The weighted average fair value of the DSUs issued during the nine-month period was $98.48.

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 52

COGECO COMMUNICATIONS INC. NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS May 31, 2021

(unaudited)

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

The following table shows the compensation expense recorded with regards to the Corporation's share-based payment plans:

	Three months ended May 31,	Three months ended May 31,	Nine months ended May 31,	Nine months ended May 31,
	2021	2020	2021	2020
	$	$	$	$
Stock options	237	200	620	548
ISUs	492	561	1,497	1,429
PSUs	466	481	1,046	1,262
DSUs	414	(74)	1,270	454
	1,609	1,168	4,433	3,693

14. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

	Cash flow hedge	Foreign currency
	reserve	translation	Total
	$	$	$
Balance at August 31, 2019	(33,842)	64,870	31,028
Other comprehensive income (loss)	(25,056)	34,854	9,798
Balance at May31, 2020	(58,898)	99,724	40,826
Balance at August 31, 2020	(52,184)	45,067	(7,117)
Other comprehensive income (loss)	19,050	(76,605)	(57,555)
Balance at May 31, 2021	(33,134)	(31,538)	(64,672)

15. ADDITIONAL CASH FLOW INFORMATION

A) CHANGES IN NON-CASH OPERATING ACTIVITIES

	Three months ended May 31,	Three months ended May 31,	Nine months ended May 31,	Nine months ended May 31,
	2021	2020	2021	2020
	$	$	$	$
Trade and other receivables	26,373	13,746	6,069	1,846
Prepaid expenses and other	3,997	4,484	(6,009)	(4,763)
Other assets	(138)	(1,021)	(1,298)	(5,435)
Trade and other payables	(5,180)	3,504	1,880	(48,082)
Provisions	(11,218)	1,535	(10,416)	(4,852)
Contract liabilities and other liabilities	1,702	(2,736)	(5)	4,976
	15,536	19,512	(9,779)	(56,310)

B) CASH AND CASH EQUIVALENTS

B) CASH AND CASH EQUIVALENTS
	May	31, 2021	August 31, 2020
		$	$
Cash		135,280	366,497
Cash equivalents(1)		170,160	—
		305,440	366,497

(1) Comprised of high interest bank deposits.

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 53

COGECO COMMUNICATIONS INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS May 31, 2021

(unaudited)

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

16. FINANCIAL INSTRUMENTS

A) FINANCIAL RISK MANAGEMENT

Management's objectives are to protect the Corporation and its subsidiaries against material economic exposures and variability of results, and against certain financial risks including credit, liquidity, interest rate, foreign exchange and market risks, which are described in the Corporation's annual consolidated financial statements.

Credit risk

The Corporation is exposed to credit risk arising from the derivative financial instruments, cash and cash equivalents, restricted cash, and trade accounts receivable, the maximum exposure of which is represented by the carrying amounts reported on the condensed interim consolidated statements of financial position.

The Corporation reduces the credit risk with regards to the derivative financial instruments by completing transactions with financial institutions that carry a credit rating equal to or superior to its own credit rating. At May 31, 2021, management believes this credit risk to be minimal, since the lowest credit rating of the counterparties to the agreements is "A" by Standard & Poor's rating services ("S&P").

Cash equivalents consist mainly of highly liquid money market short-term investments. The Corporation has deposited the cash and cash equivalents, and the restricted cash with reputable financial institutions, for which management believes the risk of loss to be remote.

To mitigate the credit risk in relation to its trade accounts receivable, the Corporation continuously monitors the financial condition of its customers and reviews the credit history or worthiness of each new large customer. 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. Furthermore, a large portion of the Corporation's customers are billed and pay before the services are rendered. The Corporation believes that its allowance for doubtful accounts is sufficient to cover the related credit risk. Since the Corporation has a large and diversified clientele dispersed throughout its market areas in Canada and the United States, there is no significant concentration of credit risk.

Liquidity risk

At May 31, 2021, the Corporation had used $167.0 million of its $750 million Term Revolving Facility for a remaining availability of $583.0 million. In addition, two subsidiaries related to Atlantic Broadband benefit from a Senior Secured Revolving Facility of $181.1 million (US$150 million), of which $2.9 million (US$2.4 million) was used at May 31, 2021 for a remaining availability of $178.2 million (US$147.6 million).

Interest rate risk

The Corporation is exposed to interest rate risk on its floating interest rate instruments. Interest rate fluctuations will have an effect on the repayment of these instruments. At May 31, 2021, all of the Corporation's long-term debt was at fixed rate, except for the amounts drawn under the Term Revolving Facility and First Lien Credit Facilities which are subject to floating interest rates.

To reduce the risk on the floating interest rate instruments and mitigate the impact of interest rate variations, the Corporation's US subsidiary entered into fixed interest rate swap agreements. The following table shows the interest rate swaps outstanding at May 31, 2021:

Type	of hedge	Notional amount(1)	Receive interest rate	Payinterest rate	Maturity	Hedged item
Cash	flow	US$770 million	US LIBOR base rate	2.017% - 2.262%	January 2023 - November 2024	Senior Secured Term Loan B

(1) Two tranches amounting to US$330 million have matured on January 31, 2021.

The sensitivity of the Corporation's annual financial expense to an increase of 1% in the interest rate applicable to the unhedged portion of these facilities would represent an increase of approximately $11.8 million based on the outstanding debt and swap agreements at May 31, 2021.

Foreign exchange risk

The Corporation is exposed to foreign exchange risk with respect to the interest associated with its notes, debentures and credit facilities denominated in US dollars. The impact of a 10% increase in the exchange rate of the US dollar into Canadian dollars would increase the annual financial expense by approximately $8.0 million based on the outstanding debt and swap agreements at May 31, 2021.

Furthermore, a foreign currency exposure arises from the Corporation's net investment in its US subsidiary, as a result of the translation of the net investment into the Corporation's functional currency. A portion of the Corporation's net investment in its US subsidiary is hedged by the Corporation's US dollar denominated Senior Secured Notes, which the Corporation has designated as hedges of the net investment, while a portion is economically hedged by its subsidiary's US dollar denominated First Lien Credit Facilities.

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 54

COGECO COMMUNICATIONS INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS May 31, 2021

(unaudited)

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

The exchange rate used to translate the US dollar currency into Canadian dollars for the consolidated statement of financial position accounts at May 31, 2021 was $1.2072 ($1.3042 at August 31, 2020) per US dollar. A 10% decrease in the exchange rate of the US dollar into Canadian dollar would decrease other comprehensive income by approximately $91 million.

B) FAIR VALUE OF FINANCIAL INSTRUMENTS

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

		May 31, 2021		August 31, 2020
	Carrying value	Fair value	Carrying value	Fair value
	$	$	$	$
Notes, debentures and credit facilities	3,038,106	3,158,005	3,072,511	3,224,816

C) CAPITAL MANAGEMENT

The Corporation's objectives in managing capital are to ensure sufficient liquidity to support the capital requirements of its various businesses, including growth opportunities. The Corporation manages its capital structure and makes adjustments in light of general economic conditions, the risk characteristics of the underlying assets and the Corporation's working capital requirements. Management of the capital structure involves the issuance of new debt, the repayment of existing debt, the issuance or repurchase of equity and distributions to shareholders.

The capital structure of the Corporation is composed of shareholders' equity, cash and cash equivalents, bank indebtedness and long-term debt.

At May 31, 2021 and August 31, 2020, 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, 2021	August 31, 2020
Net indebtedness(1)/ adjusted EBITDA(2)	2.3	2.4
Adjusted EBITDA(2)/ financial expense(2)	8.6	7.5

(1) Net indebtedness is defined as the total of bank indebtedness and principal on long-term debt, less cash and cash equivalents.

(2) Calculation based on adjusted EBITDA and financial expense for the twelve-month period ended May 31, 2021, which includes 5.5 months of DERYtelecom operations, and for the year ended August 31, 2020. Financial expense for the year ended August 31, 2020 excludes the gain on debt modification of $22.9 million, which is consistent with the covenants calculation.

17. RELATED PARTY TRANSACTIONS

Cogeco Communications is a subsidiary of Cogeco, which as of May 31, 2021 held 33.2% of the Corporation's equity shares, representing 83.3% of the votes attached to the Corporation's voting shares.

Cogeco provides executive, administrative, financial, strategic planning and additional services to the Corporation under a Management Services Agreement (the "Agreement"). The methodology used to establish the management fees is based on the costs incurred by Cogeco plus a reasonable mark-up. Provision is made for future adjustments upon the request of either Cogeco or the Corporation from time to time during the term of the Agreement. For the three and nine-month periods ended May 31, 2021, management fees paid to Cogeco amounted to $5.9 million and $17.6 million, respectively, compared to $6.2 million and $17.2 million for the same periods of fiscal 2020.

No direct remuneration is payable to Cogeco's executive officers by the Corporation. However, during the nine-month periods ended May 31, 2021 and 2020, the Corporation granted stock options and PSUs to these executive officers, as executive officers of Cogeco Communications, and issued DSUs to Board directors of Cogeco, as shown in the following table:

	Nine	months ended May 31,
	2021	2020
Stock options	69,200	110,875
PSUs	10,375	14,375
DSUs	792	1,847

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 55

COGECO COMMUNICATIONS INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS May 31, 2021

(unaudited)

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

The following table shows the amounts that the Corporation charged Cogeco with regards to the Corporation's stock options, ISUs and PSUs granted to these executive officers, as well as DSUs issued to Board directors of Cogeco:

		Three months	ended May 31,	ended May 31,	Nine months	ended May 31,
	May	31, 2021	May	31, 2020	May 31, 2021	May 31, 2020
		$		$	$	$
Stock options		274		331	885	901
ISUs		—		8	6	30
PSUs		233		351	358	1,048
DSUs		61		6	249	149
		568		696	1,498	2,128

18. COMMITMENTS AND CONTINGENCIES

A) COMMITMENTS

Capital investments

During the nine-month period ended May 31, 2021, the Corporation entered into service contracts in connection with its high-speed Internet expansion projects. In addition, the Corporation has accelerated the purchases of certain equipment in order to avoid potential supply chain shortages and to support its network expansion projects. As at May 31, 2021, the Corporation's contractual commitments related to these capital investments amounted to approximately $201.6 million. The Corporation may terminate certain of these contracts by giving formal notice prior to an agreed upon period.

B) CONTINGENCIES

Final rates for aggregated wholesale Internet access services

On May 27, 2021, the Canadian Radio-television and Telecommunications Commission ("CRTC") released Telecom Decision 2021-181, which ruled on applications by cable carriers (including the Corporation) and telecommunications carriers to review and vary Telecom Order 2019-288, in which the CRTC had set new rates for aggregated wholesale Internet access services. In this decision, the CRTC overturned the 2019 rate reductions and made the interim rates it had previously established in 2016, with certain adjustments, final. As a result of the CRTC's decision, the Corporation will be required to make retroactive payments to wholesale Internet access customers for the period of March to October 2016 and has recognized an amount of $4.6 million as a reduction of revenue during the third quarter of fiscal 2021.

On May 28, 2021, TekSavvy Solutions Inc. ("TekSavvy") petitioned the Governor in Council to overturn Telecom Decision 2021-181 and reinstate the CRTC's 2019 rate decision. The Governor in Council has yet to issue its decision on this petition. On June 28, 2021, TekSavvy filed a motion for leave to appeal the decision before the Federal Court of Appeal, which is currently pending.

19. SUBSEQUENT EVENT

Acquisition of WideOpenWest's Ohio broadband systems

On June 30, 2021, Cogeco Communications announced that its subsidiary, Atlantic Broadband, had entered into a definitive agreement with WideOpenWest, Inc. ("WOW") to purchase all of its broadband systems located in Ohio ("Ohio broadband systems"). The Ohio broadband systems are valued at US$1.125 billion, plus transaction and financing costs. The Ohio broadband systems pass approximately 688,000 homes and businesses in Cleveland and Columbus and served approximately 196,000 Internet, 61,000 video and 35,000 telephony customers, as of March 31, 2021.

The purchase price and transaction costs will be financed through US$900 million of committed secured debt financing provided to Atlantic Broadband, and excess cash on hand. The acquisition is subject to regulatory approvals along with other customary closing conditions and is expected to close in the first quarter of fiscal 2022.

COGECO COMMUNICATIONS INC. Q3 2021 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS 56