2008 Annual Report

2008 ANNUAL REPORT

PROFILE

COGECO INC. (“COGECO” OR “THE COMPANY”) IS A DIVERSIFIED COMMUNICATIONS COMPANY WITH SHARES LISTED ON THE TORONTO STOCK EXCHANGE (“TSX”), UNDER THE SYMBOL CGO. THE COMPANY STRIVES TO MEET THE COMMUNICATION NEEDS OF CONSUMERS AND ADVERTISERS THROUGH CABLE DISTRIBUTION AND RADIO BROADCASTING.

COGECO CABLE INC. (“COGECO CABLE”), THE CABLE SUBSIDIARY, BUILDS ON ITS CABLE DISTRIBUTION BASE BY OFFERING ANALOGUE AND DIGITAL TELEVISION, HIGH SPEED INTERNET AND TELEPHONY SERVICES.

COGECO CABLE PROVIDES 2,716,874 REVENUE-GENERATING UNITS TO THE 2,427,534 HOMES PASSED BY ITS CABLE NETWORK IN THE TERRITORIES IT SERVES. IT IS THE SECOND LARGEST CABLE TELECOMMUNICATIONS COMPANY IN ONTARIO, QUÉBEC, AND PORTUGAL IN TERMS OF BASIC CABLE SERVICE CUSTOMERS.

COGECO CABLE FOCUSES ITS ATTENTION ON THE SATISFACTION OF RESIDENTIAL AND BUSINESS CUSTOMERS’ VARIED ELECTRONIC COMMUNICATION NEEDS BY INVESTING IN STATE-OF-THE-ART BROADBAND NETWORK FACILITIES, DELIVERING A WIDE RANGE OF SERVICES OVER THESE FACILITIES WITH GREAT SPEED AND RELIABILITY AT ATTRACTIVE PRICES, AND STRIVING TO PROVIDE SUPERIOR CUSTOMER SERVICE AND GROWING PROFITABILITY.

THROUGH ITS COGECO RADIO-TELEVISION INC. SUBSIDIARY (“CRTI”), COGECO OPERATES AND WHOLLY-OWNS THE RYTHME FM NETWORK WHICH HAS FOUR RADIO STATIONS THROUGHOUT THE PROVINCE OF QUÉBEC, IN MONTRÉAL, QUÉBEC CITY, AND IN THE MAURICIE AND EASTERN TOWNSHIPS REGIONS, AS WELL AS RADIO STATION 933 IN QUÉBEC CITY.

COGECO ENDEAVOURS TO REMAIN AT THE FOREFRONT OF THE COMMUNICATIONS SECTOR THROUGH SOUND INVESTMENTS IN FACILITIES, THE OFFERING OF LEADING EDGE COMMUNICATIONS SERVICES WHILE PURSUING INCREASED PROFITABILITY.

ANNUAL REPORT FINANCIAL HIGHLIGHTS 3 CABLE SECTOR CUSTOMER STATISTICS 84 MANAGEMENT'S DISCUSSION AND ANALYSIS 4 BOARD OF DIRECTORS AND CORPORATE MANAGEMENT 86 CONSOLIDATED FINANCIAL STATEMENTS 44 CORPORATE INFORMATION 88 FIVE-YEAR FINANCIAL HIGHLIGHTS 81 SUBSIDIARIES AND OPERATING UNITS 90 INVESTOR INFORMATION 82

COGECO INC. 2008 1

FORWARD-LOOKING STATEMENTS Certain statements in this annual report may constitute forward-looking information within the meaning of securities laws. Forward- looking information may relate to COGECO’s future outlook and anticipated events, business, operations, financial performance, financial condition or results and, in some cases, can be identified by terminology such as "may"; "will"; "should"; "expect"; "plan"; "anticipate"; "believe"; "intend"; "estimate"; "predict"; "potential"; "continue"; "foresee", "ensure" or other similar expressions concerning matters that are not historical facts. In particular, statements regarding the Company’s future operating results and economic performance and its objectives and strategies are forward-looking statements. These statements are based on certain factors and assumptions including expected growth, results of operations, performance and business prospects and opportunities, which COGECO believes are reasonable as of the current date. While management considers these assumptions to be reasonable based on information currently available to the Company, they may prove to be incorrect. Forward-looking information is also subject to certain factors, including those described in the “Uncertainties and Main Risk Factors” section starting on page 14 of this Management’s Discussion and Analysis (“MD&A”) that could cause actual results to differ materially from what COGECO currently expects. These factors include technological changes, changes in market and competition, governmental or regulatory developments, general economic conditions, the development of new products and services, the enhancement of existing products and services, and the introduction of competing products having technological or other advantages, many of which are beyond the Company’s control. Therefore, future events and results may vary significantly from what management currently foresees. The reader should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While management may elect to, the Company is under no obligation (and expressly disclaims any such obligation), and does not undertake to update or alter this information before the next quarter.

This analysis should be read in conjunction with the Company’s management’s discussion and analysis, consolidated financial statements and the notes thereto, prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). Throughout this discussion, all amounts are in Canadian dollars unless otherwise indicated.

Acronyms

ARPU AVERAGE MONTHLY SERVICE REVENUE PER BASIC CABLE SERVICE CUSTOMER ATM ASYNCHRONOUS TRANSFER MODE DOCSIS DATA OVER CABLE SERVICE INTERFACE SPECIFICATIONS DVR DIGITAL VIDEO RECORDER (SAME AS PERSONAL VIDEO RECORDER OR PVR)

€ EURO CURRENCY EU EUROPEAN UNION HD HIGH DEFINITION HSI HIGH SPEED INTERNET IP INTERNET PROTOCOL Kbps KILOBITS PER SECOND Mbps MEGABITS PER SECOND MHz MEGAHERTZ NTSC NATIONAL TELEVISION SYSTEM COMMITTEE PAL PHASE ALTERNATING LINE RGU REVENUE GENERATING UNITS INCLUDE BASIC CABLE, HSI, DIGITAL TELEVISION AND TELEPHONY SERVICE CUSTOMERS SVOD SUBSCRIPTION VIDEO ON DEMAND SERVICES VOD VIDEO ON DEMAND SERVICES VoIP VOICE-OVER-INTERNET PROTOCOL Wi-Fi WIRELESS FIDELITY

2 COGECO INC. 2008

FINANCIAL HIGHLIGHTS

(1) (2) (in thousands of dollars, except rates of 2008 2007 CHANGE return and ratios and per share data) $ $ %

OPERATIONS REVENUE 1,108,900 969,335 14.4 OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE (3) AMORTIZATION 448,894 371,235 20.9 INCOME FROM CONTINUING OPERATIONS 43,165 85,623 (49.6) LOSS FROM DISCONTINUED OPERATIONS (18,057) (10,883) 65.9 NET INCOME 25,108 74,740 (66.4)

CASH FLOW (3) CASH FLOW FROM OPERATIONS 362,788 283,565 27.9 (3) FREE CASH FLOW 100,436 29,424 –

FINANCIAL CONDITION TOTAL ASSETS 3,059,481 2,836,759 7.9 (4) INDEBTEDNESS 1,164,006 1,053,583 10.5 SHAREHOLDERS’ EQUITY 421,026 392,460 7.3

RATES OF RETURN AND RATIOS (3) OPERATING MARGIN 40.5% 38.3% (6)(7) RETURN ON EQUITY 8.7% 6.3% NET INDEBTEDNESS(5) / OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE AMORTIZATION 2.5 2.7 OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE AMORTIZATION / FINANCIAL EXPENSE 6.4 4.3

(8) PER SHARE DATA (BASIC) INCOME FROM CONTINUING OPERATIONS 2.59 5.16 (49.8) LOSS FROM DISCONTINUED OPERATIONS (1.08) (0.66) 63.6 NET INCOME 1.50 4.50 (66.7) WEIGHTED AVERAGE NUMBER OF OUTSANDING SHARES 16,684,809 16,605,828 0.5

(1) INCLUDES THE RESULTS OF COGECO DATA SERVICES INC. SINCE THE DATE OF ACQUISITION OF CONTROL ON JULY 31, 2008. (2) THE COMPARATIVE FIGURES REFLECT THE RECLASSIFICATION OF DISCONTINUED OPERATIONS. PLEASE REFER TO NOTE 19 ON PAGE 76 OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR FURTHER DETAILS. (3) 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 FURTHER DETAILS, PLEASE CONSULT THE “NON-GAAP FINANCIAL MEASURES” SECTION ON PAGE 36 OF THE MANAGEMENT’S DISCUSSION AND ANALYSIS. (4) INDEBTEDNESS IS DEFINED AS THE TOTAL OF BANK INDEBTEDNESS, DERIVATIVE FINANCIAL INSTRUMENTS AND LONG-TERM DEBT. (5) NET INDEBTEDNESS IS DEFINED AS INDEBTEDNESS NET OF CASH AND CASH EQUIVALENTS. (6) NET INCOME APPLICABLE TO MULTIPLE AND SUBORDINATE VOTING SHARES / AVERAGE SHAREHOLDERS’ EQUITY. (7) CALCULATIONS WERE MADE EXCLUDING THE GAIN OR LOSS ON DILUTION RESULTING FROM THE ISSUANCE OF SHARES BY A SUBSIDIARY, LOSS FROM DISCONTINUED OPERATIONS AND INCOME TAX ADJUSTMENTS NET OF NON-CONTROLLING INTEREST. SEE “NON-GAAP FINANCIAL MEASURES” SECTION OF THE MANAGEMENT’S DISCUSSION AND ANALYSIS ON PAGE 36 FOR FURTHER DETAILS. (8) PER MULTIPLE AND SUBORDINATE VOTING SHARE.

Financial Highlights COGECO INC. 2008 3

MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)

MANAGEMENT'S DISCUSSION AND ANALYSIS OVERVIEW OF THE BUSINESS 5 NON-GAAP FINANCIAL MEASURES 36 PERFORMANCE HIGHLIGHTS 21 THREE-YEAR ANNUAL FINANCIAL HIGHLIGHTS OPERATING AND FINANCIAL RESULTS 23 AND QUARTERLY FINANCIAL HIGHLIGHTS 38 CASH FLOW ANALYSIS 27 FISCAL 2009 FINANCIAL GUIDELINES 42 FINA NCIAL POS ITION 30 ADDITIONAL INFORMATION 43 CAPITAL RESOURCES AND LIQUIDITY 31

4 COGECO INC. 2008 Management’s Discussion and Analysis

OVERVIEW OF THE BUSINESS

COGECO is a diversiﬁed communications company that provides Cable Television, HSI, Telephony services and other telecommunications services to its residential and commercial customers in Canada and in Portugal through Cogeco Cable Inc. (“Cogeco Cable”) and is engaged in Radio broadcasting in Canada through Cogeco Radio-Télévision Inc. (“CRTI”).

Cogeco Cable is the second largest cable system operator in Ontario, Québec and Portugal in terms of the number of Basic Cable service customers served. Cogeco Cable’s operations are supported by hybrid fibre and co-axial cable broadband networks. Cogeco Cable provides its residential customers with Audio, Analogue and Digital Television as well as HSI and Telephony services. In Canada, Cogeco Cable provides, as at August 31, 2008, Basic Cable service to 857,094 customers, Digital Television service to 441,746 customers, HSI service to 473,467 customers and Telephony service to 219,601 customers. In Portugal, through its indirect subsidiary Cabovisão—Televisão por Cabo, S.A. (“Cabovisão”), Cogeco Cable provides, as at August 31, 2008, Basic Cable service to 296,135 customers, Digital Television service to 24,452 customers, HSI service to 159,301 customers and Telephony service to 245,078 customers. Cogeco Cable provides its business customers data networking, e-business applications, video conferencing, hosting services, Ethernet, private line, VoIP, HSI access, dark fibre, data storage, data security and co-location services, and other advanced communications services.

Through its subsidiary, CRTI, COGECO wholly-owns and operates the RYTHME FM network which has four radio stations: in Montréal (105.7), Québec City (91.9), Trois-Rivières (100.1) and Sherbrooke (93.7) as well as a repeater station in Magog (98.1). It also wholly-owns Station 933 in Québec City.

CORPORATE OBJECTIVES AND STRATEGIES COGECO’s business objective is to maximize shareholder value by increasing proﬁtability, notably operating income before amortization, and by ensuring continued growth. To achieve these objectives, COGECO uses strategies, speciﬁc to each activity sector which, in turn, are supported by tight controls over the Company’s costs and improved business processes.

The main strategies used to reach COGECO’s objectives in the cable sector focus on sustained corporate growth and continuous improvement of networks and equipment.

The radio operations focus on continuous improvement of its programming in order to increase its market share and thereby its profitability.

TIGHT CONTROL OVER COSTS AND IMPROVED BUSINESS PROCESSES The Company maximizes proﬁtability and shareholder value by maintaining strict controls over spending. In order to achieve this, COGECO has to become more efficient with its processes making its offer more attractive to customers. In addition, tight controls over processes ensure that shareholders receive timely information on the Company’s development.

CABLE SECTOR Sustained corporate growth Cogeco Cable’s business strategy is driven by a focus on customer satisfaction leading to growth. In addition, by constantly improving its service offerings and by acquiring new businesses, Cogeco Cable attracts new customers and, by extension ensures sustained growth. To meet the growing consumer demands, Cogeco Cable makes its decisions based on research studies conducted with its customers, on analyses of the trends occurring in its markets and by taking into account industry developments in the formulation of its strategies. To sustain its external growth strategy, Cogeco Cable relies on knowledgeable counselling, meticulous studies coupled with rigorous and stringent acquisition criteria.

Cogeco Cable’s service offerings are adapted regularly so that they constantly meet or exceed the demands of its clients in its various markets. Cogeco Cable offers a full array of broadband telecommunications services, including Analogue and Digital Television, HD, VOD, SVOD, HSI, Telephony, individually and in bundles for its residential customers and several data communication services to its business customers. The continuous improvement of cable subsidiary’s service offerings as well as its superior level of customer service, not only attract new customers; they entice existing customers to subscribe to Cogeco Cable’s other services.

In Canada, Cogeco Cable expects its Cogeco Complete Connection, which includes Digital Television, HSI and Telephony services, to continue to play a major role in revenue growth. In addition, Cogeco Cable will continue to improve its VOD offer by forging new partnerships with major studios and the program suppliers, its HD Television by gradually proposing a more diverse offering according to availability, and its HSI services by introducing constant enhancements to its services in order to meet the growing expectations of its residential customers.

Management’s Discussion and Analysis COGECO INC. 2008 5

For its business customers, Cogeco Cable expects its Cogeco Business Solutions to bring broadband capacity required for data networking, HSI access, hosting services, e-business applications, video conferencing and other advanced communications. Throughout the Greater Toronto Area (“GTA”), Cogeco Data Services (“CDS”) offers data communications and other telecommunications services such as Ethernet, private line, VoIP, HSI access, dark fibre, data storage, data security and co-location to a wide range of business customers and organizations.

In Portugal, Analogue and Digital Television, HSI and Telephony services will be supported with better targeted marketing efforts to respond to adverse market conditions and a difficult economic environment. During 2009, Cogeco Cable will continue the deployment of its Digital Television service to many of its residential and business customers. The introduction of this service paves the way to a unique television experience, which will eventually allow interactivity and VOD.

These strategies should generate customer growth and increase ARPU, thus generating higher revenue.

Continuous improvement of networks and equipment To ensure the development of new quality services, Cogeco Cable keeps a close eye on technological advancements and continually invests to improve its network and to purchase technologically advanced equipement.

Cogeco Cable constantly seeks advanced digital compression and multiplexing techniques in order to deliver a growing number of channels with the best possible signal quality to its customers while providing better bandwidth management. The HSI platform is constantly adapted to support subscriber growth and the increased need for higher speed.

OTHER SECTOR The Company’s other sector includes radio operations, head office activities and eliminations.

RYTHME FM network, the youngest radio network in Québec with stations only four years old, is progressing very well. Since 2004, RYTHME FM has maintained its leadership position in the Montréal market with the female audience in the 25-54 year age range and has continued to improve in its other markets. The new network positioning “RYTHME FM, ça me fait du bien” (“RYTHME FM, makes me feel good”) and the new strategic direction taken with its 2009 programming will contribute to maintain its leadership position in the Montréal market and to gain share in its other markets.

CRTI also operates, through Cogeco Diffusion Inc. (“CDI”), the radio station 933 in Québec City, devoted to opinion and classic rock that caters to men between the ages of 25 and 54. In 2008, the 933 continued to consolidate its position and became one of the top stations in the Québec City market. In 2009, 933 will continue to rely on a bold array of hosts to maintain its position in its market.

Groupe Force Radio Inc. CDI operates, jointly with Corus Québec since June 4, 2007, Groupe Force-Radio Inc., a corporation constituted under the authority of Part 1A of the Companies Act (Québec) for the sale of advertisings to national advertisers for the radio stations operated by CDI and Corus in Québec.

The Portable People Meter (“PPM”) survey system was introduced in the Montréal market in 2008. This new survey system will ensure more precise radio ratings.

ANTICIPATED RESULTS OF THESE STRATEGIES The successful implementation of the above-described strategies should result in heightened proﬁtability and ensure continued growth that will be measured based on the following criteria (these criteria are described in greater detail on page 42 in “Fiscal 2009 Financial Guidelines”):

• COGECO expects its operating income before amortization(1) to improve in each of its business sectors. o In the cable sector, the improvement will stem from growth in RGU attributable to improved penetration of the various services offered, the rate increases implemented in fiscal 2008 and the recent acquisitions completed in fiscal 2008. RGU are expected to grow by approximately 100,000, an increase of 3.7% compared to August 31, 2008. The lower growth compared to the prior year is mainly a reflection of the difficult economic environment and the intensive competition in Portugal. Canadian operations’ growth in RGU will stem from continued deployment of the Telephony service and expanded penetration of HSI and Digital Television services.

(1) OPERATING INCOME BEFORE AMORTIZATION DOES NOT HAVE A STANDARDIZED DEFINITION PRESCRIBED BY CANADIAN GAAP AND THEREFORE, MAY NOT BE COMPARABLE TO SIMILAR MEASURES PRESENTED BY OTHER COMPANIES. FOR FURTHER DETAILS, PLEASE CONSULT THE “NON-GAAP FINANCIAL MEASURES” SECTION ON PAGE 36.

6 COGECO INC. 2008 Management’s Discussion and Analysis

o Radio operations should continue to enjoy sustained growth. Management will focus on maintaining leadership in the key Montréal market while continuing to improve performance in its other regional markets. • The Company estimates that it will generate free cash ﬂow(1) of approximately $95 million. The majority of the free cash ﬂow will be applied to reduce Indebtedness.

CABLE NETWORKS

CANADA Cogeco Cable provides its residential and business customers cable, data and telecommunication services in Canada through state-of-the-art fibre optic and broadband distribution networks. It is Cogeco Cable’s general policy to fully own its distribution networks, head-ends and data centres as well as its transmission equipment and access facilities. As at August 31, 2008, Digital Television and VOD services were respectively available to approximately 98% and 92% of homes passed, and approximately 94% of homes passed were served by a two-way cable plant. Including the acquisitions of assets from MaXess Networx® and FibreWired Burlington Hydro Communications as well as the acquisition of all the shares of Cogeco Data Services Inc. (formerly known as Toronto Hydro Telecom Inc.), Cogeco Cable’s inter-city optical fibre network now extends over 9,126 kilometres and includes 96,173 kilometres of optical fibre. Cogeco Cable has deployed optical fibre to nodes serving clusters of typically 1,000 homes passed, with multiple fibres per node in most cases, which allows Cogeco Cable to further extend the capacity of the fibre plant to smaller clusters of 500 homes rapidly if and when necessary. This process known as “Node Splitting” leads to further improvement in the quality and reliability and an increase in the capacity of two-way services such as HSI, VOD and Telephony.

Cogeco Cable currently acquires DOCSIS 2.0 equipment and continues to use the DOCSIS 1.1 standard for its IP platform. DOCSIS allows the prioritization of the signal packets that must be transmitted in real time, such as those of the Telephony service, so as to ensure a continuous transmission flow. When appropriate, the DOCSIS 2.0 transmission mode can be activated to increase the speed and capacity of the return path, thus making it possible to provide very high speed symmetrical services, which are particularly well suited for commercial customer applications. DOCSIS 2.0 is also more robust, allowing for the use of portions of the return path spectrum that are normally not usable in a DOCSIS 1.1 mode. In addition, the cable industry, in collaboration with CableLabs, has created a new standard, DOCSIS 3.0, compatible with the earlier versions, which will make it possible to further increase IP transmission speeds up to 160 Mbps. Cogeco Cable plans to gradually deploy DOCSIS 3.0 head-end and customer premise equipment in 2009.

Cogeco Cable has implemented an infrastructure with 550 MHz and 750 MHz capacity, depending on the cable system. The infrastructure with 550 MHz capacity allows for the transmission of up to 80 analogue channels, and the 750 MHz infrastructure allows for the transmission of up to 110 analogue channels. For reference purposes, each analogue channel (representing 6 MHz of bandwidth), with the current compression, multiplexing and modulation technologies used by Cogeco Cable allows for the transmission of up to 13 standard definition digital television signals, or of up to 3 HD signals.

Cogeco Cable is currently testing the Switched Digital Video (“SDV”) technology in a limited sample system in the province of Ontario in order to assess the applicability of this technology to its network. These trials are expected to lead to further deployment of this technology in fiscal 2009 and 2010. The SDV technology allows Cogeco Cable to selectively broadcast the Digital Television channels that are currently being viewed by customers, effectively allowing Cogeco Cable to offer a greater selection of digital channels, and is used particularly for low viewership content and channels.

Cogeco Cable is also in the process of assessing the applicability of the Digital Terminal Adaptor (“DTA”) technology, which is currently in the early phases of laboratory testing. If laboratory testing provides conclusive evidence and subsequent business models demonstrate viability, deployment of this technology could begin as early as fiscal 2009. DTA technology converts Digital Television signals to Analogue signals in the viewer’s home through a device installed on the television set. Deployment of this technology would allow for a broader use of Digital Television service and for the further conversion of Analogue channel capacity.

PORTUGAL

Cabovisão provides its cable services through state-of-the-art 750 MHz broadband distribution networks. Cabovisão fully owns its distribution networks, head-ends and drops. Digital Television service has been introduced during the second half of fiscal 2007 and all existing Analogue set-tops have been replaced by Digital set-tops during fiscal year 2008. VOD service is not currently offered but is planned for launch in fiscal 2009. HSI service using fully certified DOCSIS technology is offered to 100% of homes passed and served by a two-way cable plant. Telephony service is also offered to 100% of homes passed, initially through the use of proprietary network interface units (“NIU”), and, since 2007, with standard based electronic multimedia terminal adapters (“e-MTA”). Cabovisão currently uses class-5 circuit switches and class-5 advanced softswitches. Cabovisão’s intercity fibre optic network

(1) FREE CASH FLOW DOES NOT HAVE A STANDARDIZED DEFINITION PRESCRIBED BY CANADIAN GAAP AND THEREFORE, MAY NOT BE COMPARABLE TO SIMILAR MEASURES PRESENTED BY OTHER COMPANIES. FOR FURTHER DETAILS, PLEASE CONSULT THE “NON-GAAP FINANCIAL MEASURES” SECTION ON PAGE 36.

Management’s Discussion and Analysis COGECO INC. 2008 7

extends over 2,136 kilometres and includes 196,869 kilometres of optical fibre. Cabovisão has deployed optical fibre to nodes serving clusters of typically 1,200 homes passed, with many fibres per node in most cases, which allows Cabovisão to further extend the fibre plant to smaller clusters of 500 homes rapidly with relative ease if and when necessary. Node splitting leads to further improvement in the quality and reliability of the network and services and allows for increasing traffic of two-way services, such as HSI and Telephony.

Cabovisão has implemented an infrastructure with 750 MHz capacity essentially in all of its systems. In Portugal and in most of Europe, PAL B and PAL G television standards are used and each analogue channel requires 7 MHz (PAL B is used up to 300MHz) and 8 MHz (PAL G is used above 300 MHz) of bandwidth compared to 6 MHz in North America, which uses the NTSC standards. An infrastructure with 750 MHz capacity in Portugal allows for the transmission of up to 83 Analogue channels. For reference purposes, each Analogue channel (representing 7 or 8 MHz of bandwidth), with the current compression, multiplexing and modulation technologies used by Cabovisão, allows for the transmission of up to 13 standard definition Digital Television signals, or of up to 3 HD signals.

KEY PERFORMANCE INDICATORS COGECO is dedicated to increasing shareholder value and consequently focuses on optimizing proﬁtability while efficiently managing its use of capital without jeopardizing future growth. The following key performance indicators are closely monitored to ensure that business strategies and objectives are closely aligned with shareholder value creation. The key performance indicators are not measurements in accordance with Canadian GAAP and should not be considered an alternative to other measures of performance in accordance with GAAP. The Company’s method of calculating key performance indicators may differ from other companies and, accordingly, these key performance indicators may not be comparable to similar measures presented by other companies.

RETURN ON EQUITY Return on Equity is deﬁned as net income excluding unusual items that are non-recurring revenue or expense items, such as gains or losses on dilution resulting from the issuance of shares by a subsidiary, loss from discontinued operations and income tax adjustments net of non-controlling interest, divided by average shareholders’ equity (computed on the basis of the beginning and ending balance for a given ﬁscal year). Return on Equity measures the Company’s effectiveness in generating net income on a given capital base from our shareholders. COGECO’s key goal in the coming years is to achieve a return on equity of 10%.

OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE AMORTIZATION GROWTH AND OPERATING MARGIN(1) Operating income before amortization excludes unusual items that are non-recurring revenue or expense items, such as impairment of goodwill and intangible assets, discountinued operations and restructuring charges. Operating margin is calculated by dividing operating income before amortization by revenue. Operating income before amortization growth and operating margin are benchmarks commonly used in the telecommunications industry, as they allow comparisons with companies that have different capital structures and are more current measures since they exclude the impact of historical investments in assets. Operating income before amortization indicators assess COGECO’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 flow from operations excluding the impact of the capital structure chosen. Consequently, operating income before amortization is one of the key metrics used by the financial community to value the business and its financial strength.

FREE CASH FLOW Free cash flow is defined as cash flows from operations less capital expenditures (including assets acquired under capital leases that are disclosed in note 17 B) on page 73, which are not reflected in the consolidated statements of cash flows) and the increase in deferred charges. The financial community also closely follows this indicator since it measures the Company’s ability to repay debt, distribute capital to its shareholders and finance its growth.

CABLE SECTOR RGU growth and penetration of service offerings RGU expansion is a critical driver of revenue growth and measures the success of the marketing strategy and the competitiveness of the service offering and pricing. Penetration statistics measure Cogeco Cable’s market share. Cogeco Cable computes the penetration for Basic Cable services as a percentage of homes passed and, in the case of all other services, as a percentage of Basic Cable service customers in the cable systems where the service is offered.

(1) OPERATING MARGIN DOES NOT HAVE A STANDARDIZED DEFINITION PRESCRIBED BY CANADIAN GAAP AND THEREFORE, MAY NOT BE COMPARABLE TO SIMILAR MEASURES PRESENTED BY OTHER COMPANIES. FOR FURTHER DETAILS, PLEASE CONSULT THE “NON-GAAP FINANCIAL MEASURES” SECTION ON PAGE 36.

8 COGECO INC. 2008 Management’s Discussion and Analysis

OTHER SECTOR Market share Market share measures the sector’s ability to generate revenue. In radio, there are PPM periodical surveys, which provide market share of hours tuned to each radio station in any given market.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in accordance with Canadian GAAP requires management to adopt accounting policies and to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities and revenue and expenses during the reporting year. A summary of the Company’s significant accounting policies is presented in note 1 on page 50 of the consolidated financial statements. The following accounting policies were identified as critical to COGECO’s business operations:

PURCHASE PRICE ALLOCATIONS The allocations of the purchase prices for the Company’s acquisitions involves considerable judgement in determining the fair values assigned to the tangible and intangible assets acquired and the liabilities assumed on acquisition. Among other things, the determination of these fair values involved the use of discounted cash flow analyses, estimated future margins and estimated future customers. Should actual rates and cash flows differ from these estimates, revisions to the carrying value of the related assets and liabilities acquired may be required, including revisions that may impact net income in future periods.

IMPAIRMENT OF FIXED ASSETS AND INTANGIBLE ASSETS WITH DEFINITE LIVES The Company reviews, when a triggering event occurs, the carrying values of its fixed assets and intangible assets with definite lives 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. An impairment loss is recognized when the carrying amount of an asset or group of assets held for use exceeds the sum of the undiscounted cash flows expected from its use and eventual disposal. The impairment loss is measured as the amount by which the asset’s carrying amount exceeds its fair value. Future cash flows are based on internal forecasts and consequently, considerable management judgement is necessary to estimate future cash flows. Significant changes in assumptions could result in an impairment of these assets.

IMPAIRMENT OF INTANGIBLE ASSETS WITH INDEFINITE LIVES AND GOODWILL The valuation of customer base, broadcasting licenses and goodwill are subject to review for impairment annually or whenever significant events or changes in circumstances occur, to determine if the carrying value can be recovered. In conducting impairment testing, the Company compares the carrying value to the sum of the expected future discounted cash flows. Future cash flows are based on internal forecasts and discounted by using a weighted average cost of capital rate. Considerable management judgement is necessary to estimate future cash flows. Significant changes in assumptions could result in an impairment of these assets. The Company’s impairment tests are performed as at August 31 of each fiscal year.

INCOME TAXES The Company uses assumptions to estimate income tax expense as well as future income tax liabilities. This process includes estimating the actual amount of income taxes payable and evaluating income tax loss carryforwards and temporary differences as a result of differences between the values of the items reported for accounting and tax purposes. Realisation of future income tax assets is dependent upon generating sufficient taxable income during the period in which temporary differences are expected to be recovered or settled. The likelihood of realisation of future income tax assets is evaluated by considering such factors as estimated future earnings based on internal forecasts, prudent and feasible tax planning strategies and reversal of temporary differences that result in future income tax liabilities. Future income tax assets and liabilities are calculated according to enacted or substantively enacted income tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. Future income tax assets are recognized only to the extent that, in the opinion of management, it is more likely than not that the future income tax assets will be realized. Accordingly, changes in assumptions will directly impact the reported amount of income tax expense.

FOREIGN CURRENCY TRANSLATION Financial statements of self-sustaining foreign subsidiaries are translated into Canadian dollars using the rate in effect at the balance sheet date for asset and liability items, and using the average exchange rates during the period for revenue and expenses. Adjustments arising from this translation are deferred and recorded in the foreign currency translation adjustment in accumulated other comprehensive income and are included in income only when a reduction in the investment in these foreign subsidiaries is realized.

Management’s Discussion and Analysis COGECO INC. 2008 9

Other assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the exchange rates prevailing at the balance sheet date for monetary items and at the transaction date for non-monetary items. Revenue and expenses are translated at average rates prevailing during the period except for transactions being hedged, which are translated using the terms of the hedges. Amounts payable or receivable on cross-currency swap agreements, all of which are used to hedge foreign currency debt obligations, are recorded concurrently with the unrealized gains and losses on the obligations being hedged. Other foreign exchange gains and losses are included in net income, except for unrealized foreign exchange gains and losses on long-term debt denominated in foreign currencies that is designated as a hedge of a net investment in a self-sustaining foreign subsidiary, which are included in the foreign currency translation adjustment in accumulated other comprehensive income net of income taxes and non-controlling interest.

CONTINGENCIES AND COMMITMENTS The Company is subject to various claims and contingencies related to lawsuits, taxes and commitments under contractual and other commercial obligations. The contractual and other commercial obligations primarily relate to network fees and operating lease agreements for use of transmission facilities. The Company recognizes liabilities for contingencies and commitments when a loss is probable and can be reasonably estimated based on currently available information. Signiﬁcant changes in assumptions as to the likelihood and estimates of a loss could result in the recognition of an additional liability.

ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company’s revenue is earned mostly from residential and business customers in the cable sector and from business customers in the other sector. Accordingly, allowance for doubtful accounts is calculated by examining such factors as the number of overdue days of the customer’s balance owing as well as the customer’s collection history with the Company. As a result, conditions causing ﬂuctuations in the aging of customer accounts will directly impact the reported amount of bad debt expense.

ACCRUED LIABILITIES The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of accrued liabilities at the date of the financial statements and the reported amounts expensed during the year. Actual results could differ from those estimates.

AMORTIZATION POLICIES AND USEFUL LIVES COGECO amortizes ﬁxed assets and intangible assets with deﬁnite lives over the estimated useful lives of the items. In estimating useful lives, the Company considers such factors as life expectancy of the assets, changing technologies and cable and radio industry trends. The Company reviews its useful lives estimates on a regular basis. If changes in the above-mentioned factors happen more quickly than anticipated, COGECO may have to shorten the estimated lives of certain assets, which could result in a higher amortization expense in future periods.

CABLE SECTOR Revenue recognition The Company considers revenue to be earned as services are rendered, provided that ultimate collection is reasonably assured. The Company earns revenue from several sources. The recognition of revenue from the principal sources is as follows:

• Monthly fees from Basic Cable Television and related services, HSI and Telephony services are recognized when services are provided; • Since management considers the sale of home terminal devices as a single unit of accounting of a multiple element arrangement, equipment revenue is recorded upon activation of the service; • Installation revenue is deferred and amortized over the average life of a customer’s subscription. Management considers that installation revenue is part of a multiple element arrangement and has no standalone value. Accordingly, installation revenue is deferred and amortized at the same pace as Basic Cable Television, HSI and Telephony services monthly fees are earned; • Promotional offers are accounted for as deductions from revenue when customers take advantage of such offers.

Amounts received or invoiced that do not comply with these criteria are accounted for as deferred and prepaid income.

Capitalization of direct labour and overhead As outlined in the recommendations of the Canadian Institute of Chartered Accountants (“CICA”) with respect to property, plant and equipment, capitalization of costs includes the expenditures to acquire, construct, develop or improve an item of property, plant or equipment, and includes all costs directly attributable to those activities. The cost of an item includes direct construction or software development costs, such as materials and labour and overhead costs directly attributable to the construction or software

10 COGECO INC. 2008 Management’s Discussion and Analysis

development activity. The cost to enhance the service potential of an item is considered an improvement and as a result is capitalized. Costs incurred in the maintenance of service potential are expensed.

Cogeco Cable capitalizes direct labour and direct overhead costs incurred to construct new assets, enhance existing assets and connect new customers. Although capitalization of ﬁnancial expense is permitted for construction activities, it is Cogeco Cable’s policy not to capitalize them.

Capitalization of costs to acquire customers, subsidies on equipment and launch costs Cogeco Cable incurs signiﬁcant costs to reconnect customers and to attract new Basic Cable, HSI, Digital Television and Telephony service customers. These costs include material and labour costs incurred to reconnect customers as well as subsidies given to customers on the sale of home terminal devices. Reconnect costs are capitalized up to a maximum amount not exceeding the revenue generated by the reconnect activity. These costs are amortized over the average life of a customer’s subscription, not exceeding four years. The average life of a customer’s subscription is reviewed annually and changes could have a signiﬁcant impact on the amortization expense.

In prior years, Cogeco Cable incurred significant marketing costs during the launch of new services, such as new digital tiers, VOD, HSI and Telephony services. These costs have been capitalized and are amortized over a period of five years, the estimated period during which these costs provide benefits for Cogeco Cable.

OTHER SECTOR Revenue recognition CRTI’s advertising revenue is recorded when the advertising airs on its radio stations. The radio operations also occasionally enter into barter transactions under which goods and services are acquired in exchange for advertising. These goods and services are accounted for at their fair value.

Capitalization of start-up costs related to the implementation of new radio standards Start-up costs include costs incurred to launch new radio stations as well as operating losses before amortization incurred in the ﬁrst year of their operation. These costs are recorded as deferred charges and amortized over a period of three years.

ADOPTION OF NEW ACCOUNTING STANDARDS

ADOPTED DURING FISCAL 2008

FINANCIAL INSTRUMENTS Effective September 1, 2007, the Company adopted the CICA Handbook Section 1530, Comprehensive Income, Section 3855, Financial Instruments – Recognition and Measurement, Section 3861, Financial Instruments – Disclosure and Presentation, Section 3865, Hedges and Section 3251, Equity.

Statements of comprehensive income A new statement, entitled consolidated statements of comprehensive income, was added to the Company’s consolidated financial statements and includes net income as well as other comprehensive income. Other comprehensive income represents changes in shareholders’ equity arising from transactions and events from non-owner sources, such as changes in foreign currency translation adjustments of a net investment in self-sustaining foreign subsidiaries, long-term debt designated as a hedge of a net investment in self-sustaining foreign subsidiaries, and changes in the fair value of effective cash flow hedging instruments.

Recognition and measurement of financial instruments Under these new standards, all financial assets, including derivatives, must be classified as available-for-sale, held-for-trading, held- to-maturity, or loans and receivables. All financial liabilities, including derivatives, must be classified as held-for-trading or other liabilities. All financial instruments classified as available-for-sale or held-for-trading are recognized at fair value on the consolidated balance sheet while financial instruments classified as loans and receivables or other liabilities will continue to be measured at amortized cost using the effective interest rate method. The standards allow the Company the option to designate certain financial instruments, on initial recognition, as held-for-trading.

Management’s Discussion and Analysis COGECO INC. 2008 11

comprehensive income. Loans and receivables and all financial liabilities are carried at amortized cost using the effective interest rate method. Upon adoption, the Company determined that none of its financial assets are classified as available-for-sale or held-to- maturity. Except for the treatment of transaction costs and derivative financial instruments mentioned below, the provisions of the new accounting standards had no impact on the consolidated financial statements on September 1, 2007 and August 31, 2008.

Transaction costs Effective September 1, 2007, transaction costs are capitalized on initial recognition and presented as a reduction of the related financing, except for transaction costs on the revolving loan and the swingline facility, which are presented as deferred charges. These costs are amortized over the term of the related financing using the effective interest rate method, except for transaction costs on the revolving loan and the swingline facility, which are amortized over the term of the related financing on a straight-line basis. Previously, all transaction costs were capitalized and amortized on a straight-line basis over the term of the related financing, a period not exceeding five years. The impact of these adjustments at September 1, 2007 reduced deferred charges by $1.2 million, reduced long-term debt by $3.1 million, increased future income tax liabilities by $0.6 million and increased retained earnings by $1.3 million.

Cash flow hedge All derivatives are measured at fair value with changes in fair value recorded in the consolidated statements of income unless they are effective cash flow hedging instruments. The changes in fair value of cash flow hedging derivatives are recorded in other comprehensive income, to the extent effective, until the variability of cash flows relating to the hedged asset or liability is recognized in the consolidated statements of income. Any hedge ineffectiveness is recognized in the consolidated statements of income immediately. Accordingly, the Company’s cross-currency swap agreements must be measured at fair value in the consolidated financial statements. Since these cross-currency swap agreements are used to hedge cash flows on Senior Secured Notes Series A denominated in US dollars, the changes in fair value are recorded in other comprehensive income. The impact of measuring the cross-currency swap agreements at fair value on September 1, 2007, increased derivative financial instrument liabilities by $83.5 million, decreased deferred credit presented in long-term debt by $80.2 million, decreased future income tax liabilities by $1.1 million and decreased opening accumulated other comprehensive income by $2.2 million. The impact of measuring the cross- currency swap agreements at fair value on the consolidated financial statements for the year ended August 31, 2008 decreased derivative financial instrument liabilities by $3.7 million, increased future income tax liabilities by $0.9 million, increased non- controlling interest by $1.3 million and increased accumulated other comprehensive income by $0.6 million.

Net investment hedge Financial statements of self-sustaining foreign subsidiaries are translated using the rate in effect at the balance sheet date for asset and liability items, and using the average exchange rates during the period for revenue and expenses. Adjustments arising from this translation are deferred and recorded as foreign currency translation adjustments in accumulated other comprehensive income and are included in income only when a reduction in the investment in these foreign subsidiaries is realized. Unrealized foreign exchange gains and losses on long-term debt denominated in foreign currency that is designated as a hedge of a net investment in self-sustaining foreign subsidiaries are recorded as foreign currency translation adjustments in accumulated other comprehensive income, net of income taxes. As a result, an amount of $1.4 million was reclassified as at September 1, 2006 from the foreign currency translation adjustment to accumulated other comprehensive income and the Company’s comparative financial statements were restated in accordance with transitional provisions.

Embedded derivatives All embedded derivatives that are not closely related to the host contracts are measured at fair value, with changes in fair value recorded in the consolidated statements of income. On September 1, 2007 and as at August 31, 2008, there were no significant embedded derivatives or non-financial derivatives that require separate fair value recognition on the consolidated balance sheets. In accordance with the new standards, the Company selected September 1, 2002, as its transition date for adopting the standard related to embedded derivatives.

ACCOUNTING CHANGES In July 2006, the CICA issued Section 1506, Accounting Changes, which modifies certain aspects of the previous standard. A reporting entity may not change its accounting method unless required by a primary source of GAAP or to provide a reliable and more relevant presentation of the financial statements. In addition, changes in accounting methods must be applied retroactively and additional information must be disclosed. This Section applies to interim and annual financial statements relating to fiscal years beginning on or after January 1, 2007. During the first quarter of fiscal 2008, the Company adopted this new standard and concluded that it had no significant impact on these consolidated financial statements.

12 COGECO INC. 2008 Management’s Discussion and Analysis

FUTURE ACCOUNTING PRONOUNCEMENTS

FINANCIAL INSTRUMENTS In December 2006, the CICA issued Section 3862, Financial Instruments – Disclosures, Section 3863, Financial Instruments – Presentation, and Section 1535, Capital Disclosures. All three Sections will be applicable to financial statements relating to fiscal years beginning on or after October 1, 2007. Accordingly, the Company will adopt the new standards for its fiscal year beginning September 1, 2008. Section 3862 on financial instrument disclosures requires the disclosure of information about the significance of financial instruments for the entity's financial position and performance and the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and how the entity manages those risks. Section 3863 on the presentation of financial instruments is unchanged from the presentation requirements included in Section 3861. Section 1535 on capital disclosures requires the disclosure of information about an entity's objectives, policies and processes for managing capital. The Company is currently evaluating the impact of the adoption of these new Sections on its consolidated financial statements.

GOODWILL AND INTANGIBLE ASSETS In February 2008, the CICA issued Section 3064, Goodwill and intangible assets, replacing Section 3062, Goodwill and other intangible assets and Section 3450, Research and development costs. The new Section establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. The standards concerning goodwill are unchanged from the standards included in the previous Section 3062. The new Section will be applicable to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2008. The Company is currently evaluating the impact of the adoption of this new Section on its consolidated financial statements.

HARMONIZATION OF CANADIAN AND INTERNATIONAL STANDARDS In March 2006, the Accounting Standards Board of the CICA released its new strategic plan, which proposed to abandon Canadian GAAP and effect a complete convergence to the International Financial Reporting Standards (“IFRS”).

In April 2008, the CICA published an exposure draft as guidance which requires the transition to IFRS to replace Canadian GAAP as currently employed by Canadian publicly accountable enterprises. The changeover will occur no later than fiscal years beginning on or after January 1, 2011. Accordingly, the Company expects that its first interim consolidated financial statements presented in accordance with IFRS will be for the three-month period ended November 30, 2011, and its first annual consolidated financial statements presented in accordance with IFRS will be for the year ended August 31, 2012.

IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant differences in recognition, measurement and disclosure requirements. As a result, the Company is developing a plan to convert its consolidated financial statements to IFRS. The plan highlights the need to identify key accounting policy changes as the first step in the conversion process. Once these changes have been identified, other elements of the plan will be addressed. The Company has selected an external advisor to assist with the project and is currently in the process of assessing the differences between IFRS and the Company’s current accounting policies.

As implications of the conversion are identified, information technology and data system impacts will be assessed. Similarly, impacts on business activities will be assessed as differences are identified between the Company’s current accounting policies and IFRS. Changes in accounting policies are likely. These changes may materially impact the Company’s consolidated financial statements.

CONTROLS AND PROCEDURES The application of Bill 198 and its regulations represents an exercise in continuous improvement, which is leading the Company to formalize processes and control measures that are already in place and to introduce new ones. COGECO has chosen to make this a strategic endeavour, which will result in operational improvements and better management.

The President and Chief Executive Officer and the Vice President, Finance and Chief Financial Officer, together with management, have evaluated the effectiveness of the Company’s disclosure controls and procedures and the design of internal controls over financial reporting as of August 31, 2008 and 2007. They have concluded that the Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company is complete and reliable. However, certain material weaknesses were identified in the design of internal controls over financial reporting at these dates.

On August 1, 2006, Cogeco Cable purchased Cabovisão in Portugal. During the fiscal year ended August 31, 2007, management conducted a project to review the design of internal controls over financial reporting of significant processes. As at August 31, 2008, some key internal controls are still under evaluation and implementation. Some controls over access to databases, segregation of duties and policy design are under review as well as some automated controls and will be remediated during the 2009 fiscal year.

Management’s Discussion and Analysis COGECO INC. 2008 13

On July 31, 2008, Cogeco Cable purchased CDS (formerly known as Toronto Hydro Telecom Inc.). Management will evaluate and implement key internal controls over significant processes during the next 2009 year.

In recent years, increased penetration of Digital Television, HSI and Telephony services and the launch of different types of home terminal devices in Canada has heightened the complexity of tracking such customer premise equipment. Existing information systems at Cogeco Cable in Canada record such equipment located in its warehouse as fixed assets rather than as inventory, and the home terminal devices are subject to amortization once received. COGECO’s management has initiated a project to implement new processes and software to monitor and track its home terminal devices from their initial purchase to their return by customers. The implementation of such a system could result in an adjustment in the carrying value of these Canadian assets.

During the fiscal year ending August 31, 2008, management has documented evidence of existing controls and designed and implemented new and enhanced automated and manual internal controls over financial reporting for many processes. There are still some material weaknesses related to access controls over various databases and automated controls. Therefore, some modifications to the segregation of duties are currently being implemented. As required under NI 52-109, Management anticipates certifying design and effectiveness of internal controls over financial reporting within the 2009 fiscal year.

UNCERTAINTIES AND MAIN RISK FACTORS This section outlines general and specific risks faced by COGECO and its subsidiaries which could significantly affect the financial condition, operating results or business of the Company. It does not purport to cover all contingencies, or to describe all possible factors that might have an inﬂuence on the Company or its activities at any point in time. Furthermore, the risks and uncertainties outlined in this section may or may not materialize in the end, may evolve differently than expected or may have different consequences than those that are being presently anticipated.

COGECO applies an on-going risk management process that includes an annual assessment of risks for the Company and its subsidiaries, under the oversight of the Audit Committee. As part of this process, the Company endeavours to identify risks that are liable to have a major impact on the Company’s financial situation, revenue or activities, and to mitigate such risks proactively as may be reasonable and appropriate in the circumstances. This section reflects management’s current views on uncertainties and the main risk factors.

RISKS PERTAINING TO MARKETS AND COMPETITION Cable sector Electronic communications markets continue to evolve rapidly and are increasingly competitive in both Canada and Portugal. Competitors offer video distribution, broadband HSI access, fixed telephone, mobile telephone and data services through various means of telecommunications facilities including terrestrial wireline and wireless networks as well as satellite. Rivalry extends over several elements, including the features of individual services, the composition of service bundles, prices and perceived value, promotional or introductory offers, duration of the commitment by the customer, terminal devices and customer service. Service bundles offered by competitors include double, triple or even quadruple-play offers combining Television, HSI, fixed and/or mobile telecommunications to residential and commercial customers.

Cogeco Cable provides “double-play” and “triple-play” service bundles both in Canada and in Portugal, with various combinations of Telephony, HSI and Television distribution services being offered at attractive bundle prices, but does not offer “quadruple-play” service bundles that include mobile communications. Cogeco Cable continues to focus on its existing lines of service with a view to capturing the remaining growth opportunities for HSI, Digital Television and Telephony services in its footprint, making the most efficient use of its own hybrid fibre-coaxial (“HFC”) plant. As markets evolve and mobility becomes a more cost-effective substitute to wireline communications, Cogeco Cable may need to add mobility components to its service bundles, through suitable mobile virtual network (“MVNO”) arrangements with existing or future mobile operators, or otherwise through new wireless alternatives. The capital and operating expenditures eventually required to offer quadruple-play service bundles may not be offset by the incremental revenue that such new bundles would generate, thus resulting in downward pressure on operating margins.

In Canada, Cogeco Cable faces competition in its service areas mainly from a few large integrated telecommunications service providers. The largest, BCE Inc., offers through its various subsidiaries, income trusts and partnerships a full range of competitive voice, data and video services to residential, as well as to business customers in the Provinces of Ontario and Québec through a combination of fixed wireline (Bell Canada, Télébec), mobile wireless (Bell Mobility) and satellite (Bell TV) platforms. BCE Inc. is in the process of being acquired by a group of institutional investors led by the Ontario Teachers’ Pension Plan, with closing of the transaction expected to take place by the end of December 2008. It is not known at this time to what extent the changes in the ownership and management of this major competitor will affect market dynamics in the two Provinces, notably with respect to the anticipated rollout of IPTV services over its fixed wireline platform. Telus Communications Company competes with all of Cogeco Cable’s services in the Lower St. Lawrence area of the Province of Québec through the use of its wireline network, and throughout Cogeco Cable’s Canadian footprint through the use of its mobile telecommunications network. However, Cogeco Cable’s Telephony

14 COGECO INC. 2008 Management’s Discussion and Analysis

service is provided with the assistance of certain Telus carrier services through a long-term contractual arrangement. Star Choice Television Network Incorporated, an indirect subsidiary of Shaw Communications Inc., competes for video and audio distribution services throughout Cogeco Cable’s Canadian footprint. Rogers Wireless Communications Inc., a subsidiary of Rogers Communications Inc., operates a mobile telecommunications network in Ontario and Québec and is the owner of the Inukshuk broadband wireless network in partnership with Bell Mobility. Rogers Cablesystems Inc., the cable subsidiary of Rogers Communications Inc., is now licensed to extend its services in the Burlington, Oakville and Milton areas, which are part of Cogeco Cable’s footprint in Ontario, although there has not been any significant cable overwiring to date. Videotron Ltd., an indirect subsidiary of Quebecor Inc., offers competitive mobile telecommunications services in Cogeco Cable’s Québec footprint. Cogeco Cable also competes with other telecommunications service providers, including Vonage, Primus and Rogers Home Phone (formerly known as Sprint), with alternative service providers that use resale or third-party access arrangements in effect, and with smaller facilities-based competitors such as Maskatel in certain local markets within its network footprint. It is anticipated that, as a result of the advanced wireless spectrum (“AWS”) auction completed earlier this year, there will be several new entrants in the wireless telecommunications markets in Canada on a national, regional or local basis with advanced wireless voice, HSI, data and video services, and that incumbent wireless carriers will use the new spectrum to provide such advanced wireless services in competition with the new entrants, thus resulting in increased competition for the fixed telephony, HSI, data and Television services of Cogeco Cable.

In Portugal, Cogeco Cable’s indirect subsidiary Cabovisão faces tough competition for all its lines of business mainly from incumbent telecommunications carrier Portugal Telecom, SGPS, S.A. (“PT”), and Zon Multimedia, SGPS, S.A. (“Zon”), as well as from Sonaecom, SGPS, S.A. (“Sonaecom”), a subsidiary of diversified Portuguese conglomerate Sonae, SGPS, S.A. (“Sonae”). Zon owns TV Cabo, the largest cable telecommunications operator in Portugal, and also offers a direct-to-home satellite distribution service to the Portuguese market. Zon’s cable plant overlaps the major part of Cabovisão’s footprint in Portugal. Zon will be adding mobile voice and data services as well as VOD and HD to its service offering starting in the fall of 2008. PT’s national telephone network, PT Communicações, which offers a full range of fixed wireline and mobile wireless telecommunications services throughout Portugal, is aggressively pursuing the rollout of Meo, its competitive IPTV service over its telephone plant, and is offering its own direct-to-home satellite service launched earlier this year. In addition, PT has been selected by Portuguese regulatory authorities to offer a new digital terrestrial television service throughout Portugal which may have an adverse effect on subscriptions to basic and pay services of cable operators, likely starting in 2009. Sonaecom owns and operates the Clix (Residential Fixed Telephony, HSI and IPTV), Novis (Business Telephony Solutions) and Optimus (Wireless Telephony and Wireless HSI) services, which provide voice, data, HSI, video and mobile services to the residential and business markets. Cabovisão, Zon, PT and Sonaecom all have competitive triple-play offers available in the Portuguese market. Cabovisão is pursuing the rollout of a Digital Television service in order to improve signal security and quality, provide an expanded choice of programming, make better use of the distribution capacity of its network and better compete with the digital television service offerings of its competitors, but this new Digital Television service is less penetrated than that of its main competitors. The competitive television service offerings are all Digital.

The level of piracy of television signals and the actual penetration of illicit reception of television distribution services in households within Cogeco Cable’s service areas may also have a significant effect on Cogeco Cable’s business and the competitiveness of its service offerings.

Other sector CDI conducts all of its commercial radio activities in the francophone market of the Province of Québec. CDI’s radio stations compete for audience and advertising revenue with networks and stations controlled respectively by broadcasting groups Astral Media Inc., Corus Entertainment Inc. and Groupe Radio Nord Inc., and with other local radio stations. CDI also competes for audience with the networks and radio stations of Société Radio-Canada (“SRC”) and with satellite radio. The method used for audience measurements in the Montréal radio market will change with the use of PPMs, starting with the fall 2008 survey; this change may cause a significant variation in the measured audience share of stations broadcasting in the Montréal market. The Canadian Radio-television and Telecommunications Commission (“CRTC”) issued on October 3, 2008 a call for applications for a new commercial FM station in the Québec City market; this may result in the licensing of yet another commercial radio station in that market, with a possible competitive impact starting in fiscal 2010.

TECHNOLOGICAL RISKS Cable sector The evolution of telecommunications technologies unfolds at breathtaking speed, fuelled by a highly competitive global market for Digital content, consumer electronics and broadband products and services. Cogeco Cable continues to monitor the development of technologies used for the transmission, distribution, reception and storage of data and their deployment by various existing or potential competitors in the broadband telecommunications markets.

There are now several terrestrial and satellite transmission technologies available to deliver a range of electronic communications services to homes and to commercial establishments with varying degrees of ﬂexibility and efficiencies, and thus compete with cable

Management’s Discussion and Analysis COGECO INC. 2008 15

telecommunications. On the other hand, cable telecommunications also continue to benefit from rapid improvements, particularly in the areas of modulation, digital compression, fractioning of optoelectronic links, multiplexing, HD distribution and switched video distribution.

Cogeco Cable’s management remains of the view that broadband wireline distribution over fibre and coaxial cable will continue to be an efficient, reliable, economical and competitive platform for the distribution of a full range of electronic communications products and services for the foreseeable future. The competitiveness of the cable broadband telecommunications platform will however continue to require additional capital investment on a timely basis in an increasingly competitive and uncertain market environment.

The growth in penetration of broadband connections of all types, the rapid increase in transmission speeds offered by competitors in the market and the deployment of the more powerful and efficient MPEG-4 video compression standard and of other similar compression technologies promote the increased distribution and consumption of video content directly over the Internet. This may eventually lead to fragmentation of the retail market for existing Analogue and Digital Television distribution services provided by Cogeco Cable and gradual disintermediation through direct transactions between video content suppliers and Cogeco Cable’s customers. In this context, revenue and margins derived from Cogeco Cable’s HSI access service may not entirely compensate for the loss of revenue or margin derived from Cogeco Cable’s Television services in the future. Alternative voice and data communications services are proliferating over the Internet, resulting in the risk that fragmentation and disintermediation may also occur in the future with respect to Cogeco Cable’s Telephony service.

Electronic communications increasingly rely on advanced security technology, devices, control systems and software to ensure conditional access, appropriate billing and service integrity. Security and business systems technology is provided worldwide by a small pool of global suppliers on a proprietary basis. As other providers of electronic communications, Cogeco Cable depends on the effectiveness of such technology for many of its services and the ability of technological solutions providers to offer cost-effective and timely solutions to deal with security breaches or new developments required in the marketplace.

REGULATORY RISKS Cable sector In Canada, electronic communications facilities and services are subject to regulatory requirements depending mainly on the type of facilities involved, the incumbent status of service providers and their relative market power, the technology used and whether the activities are categorized as telecommunications or broadcasting. Canadian cable telecommunications facilities and services are subject to various requirements mainly under federal legislation governing broadcasting, radiocommunication, telecommunications, copyright and privacy, and under provincial legislation governing consumer protection and access to certain municipal property and municipally-owned support structures. Licenses and broadcasting certificates are still required for the operation of larger (Class 1 and 2) cable systems, while smaller (Class 3) cable systems are now mostly license-exempt. Various license and license exemption conditions continue to apply in Canada. Canadian cable telecommunications operators are also subject to Canadian ownership and control requirements. Changes in the regulatory framework or licenses, which are subject to periodic renewal, may affect Cogeco Cable’s existing business activities or future prospects. Following a comprehensive review of the regulatory framework for broadcasting distribution and for pay and specialty television in Canada conducted earlier this year, the CRTC published its conclusions on October 30, 2008. The CRTC has decided not to impose new fees for the carriage of the over-the-air television signals of Canadian conventional television stations by broadcasting distribution undertakings. However, the CRTC has decided to impose a new remittance amounting to 1% of revenue derived from the broadcasting activities of broadcasting distribution undertakings to a new independent fund with a view to supporting local programming content of conventional television stations in smaller Canadian television markets. This remittance, which is in addition to the current 5% Canadian program funding requirement applicable to broadcasting distribution undertakings, and which may not be passed on to customers, will likely impact the Cogeco Cable’s regulatory costs starting with the next fiscal year. Other elements of the CRTC policy statement, such as retransmission consent for Canadian distant signals, may also have an impact on costs. The CRTC has launched several other material proceedings, including on the regulatory framework that should apply to VOD services and the contribution that should be required from “new media” activities, such as the use of video content through Internet access services.

The CRTC has forborne from regulating the residential and business local access telephone services of the incumbent telephone companies in most of the geographic markets served by Cogeco Cable in Ontario and Québec. As a result, Bell Canada and Telus are now free to price and bundle their residential and business local access telephone services and to extend general or specific promotional offers without prior regulatory approval in the forborne local exchange areas within Cogeco Cable’s footprint.

The telecommunications markets in Portugal have been fully open to competition since January 1, 2000, and there are no foreign ownership restrictions applying to electronic communications service providers or the ownership of broadband telecommunications facilities in Portugal. Competitors are essentially free to bundle and price services based on competitive market considerations. However, situations have arisen where either PT or Zon have been able to use their market power to respectively constrain access to certain support structures and to a premium content service, Sport TV HD. These situations have been addressed through

16 COGECO INC. 2008 Management’s Discussion and Analysis

complaints to the Autoridade da Concorrência (“AdC”) under applicable competition law, but the proceedings are still pending and the final outcomes are not known at this time.

The European Commission launched, on June 29, 2006, a broad policy review initiative on electronic communications with a view to boosting competition among telecommunications operators of EU member states and building a single market for services that use radio spectrum. New EU telecommunications policy initiatives may eventually have an impact in the medium- to long-term on Cabovisão’s electronic communications activities and the future state of competition for the provision of electronic communications in Portugal.

RISKS PERTAINING TO OPERATING COSTS Cable sector Cogeco Cable applies itself to keeping its cost of goods sold in check so as to secure continued operating margin growth. The two largest drivers of cost of goods sold are network fees paid to audio and television service suppliers as well as data transport and connectivity charges, mostly for Telephony and HSI traffic.

The market for audio and video programming services in Canada is already characterized by high levels of supplier integration and structural rigidities imposed by the CRTC’s regulatory framework for broadcasting distribution, which is presently under review. While Cogeco Cable has been able to conclude satisfactory distribution agreements with Canadian and foreign programming service suppliers to date, there is no assurance that network fees will not increase by larger increments in future years. There is also no assurance that programming service suppliers will not change other material terms of distribution agreements or extend preferences for the distribution of their content to competing distributors, or push for the distribution of their content over the Internet in the future. In Portugal, the offering of new Digital audio and television services by Cabovisão requires the conclusion of suitable arrangements with program suppliers. The negotiation of these arrangements is under way, but is not concluded as yet.

Since the markets for data transport and connectivity remain very competitive in Canada and Portugal, Cogeco Cable and Cabovisão have negotiated cost effective arrangements in the past for voice and data traffic. However, as overall traffic increases and capacity on existing broadband telecommunications facilities becomes more widely used, Cogeco Cable may not be able to secure further cost efficiencies in the future.

Furthermore, the Part II Licence Fees payable to the CRTC are currently under litigation. On December 14, 2006, the Federal Court of Canada ruled that the Part II Licence Fees payable to the CRTC are an unlawful tax. Both the Plaintiffs (the members of the Canadian Association of Broadcasters, Videotron Ltee and CF Cable TV Inc.) and the Defendant (the Crown) have appealed this decision to the Federal Court of Appeal. The Defendant was seeking to reverse the Court decision that Part II Licence Fees are unlawful and the Plaintiffs were seeking a Court order requiring a refund of past fees paid. The Appeal hearing was held on December 4 and 5, 2007 in Ottawa and a decision was rendered on April 28, 2008 in favour of the Crown, to the effect that the fees are valid regulatory charges. On June 26 and 27, 2008, the Plaintiffs filed applications for leave to appeal to the Supreme Court of Canada. The Defendant filed its response on September 29, 2008 and the matter is currently pending. The Company has accrued the full amount with respect to these fees for fiscal years 2007 and 2008.

RISKS PERTAINING TO INFORMATION SYSTEMS Flexible, reliable and cost-effective information systems are an essential requirement for the handling of sophisticated service options, customer account management, internal controls, provisioning, billing and the rollout of new services. Cogeco Cable uses different customer relations management tools and databases for its operation respectively in Ontario, Québec and Portugal. The agreement with Amdocs, the main third-party supplier of customer information systems in Ontario, and the agreement with Concurrent, the third-party supplier of the VOD information system in Canada, were both renewed in 2008. There is however no assurance that these or other information systems will be able to adequately meet future business or competitive requirements.

RISKS PERTAINING TO DISASTERS AND OTHER CONTINGENCIES Cogeco Cable has a disaster recovery plan for dealing with the occurrence of natural disasters, quarantine, power failures, terrorist acts, intrusions, computer hacking or data corruption, but the operations and facilities of Cabovisão are not yet integrated into this plan. Cabovisão’s insurance coverage has been integrated into Cogeco Cable’s insurance coverage. The emergency plans and procedures that are in place cannot provide the assurance that the effect of any disaster can and will be mitigated as planned. Cogeco Cable is not insured against the loss of data, hacking or malicious interference with its electronic communications and systems, or against losses resulting from natural disasters. In Canada, it relies on data protection and recovery systems that it has put in place with third-party service providers. In Portugal, similar arrangements with third parties have not been implemented as yet.

Management’s Discussion and Analysis COGECO INC. 2008 17

FINANCIAL RISKS Cable telecommunications is a very capital-intensive business that requires substantial and recurring investment in property, plant, equipment and customer acquisition. Cogeco Cable depends on capital markets for the availability of additional capital that it must deploy to support its internal and external growth. There is no assurance that future capital requirements will be met when needed, or that the cost to secure such needed incremental capital will not increase Cogeco Cable’s weighted average cost of capital. Through its recent issuance of new Senior Secured Notes on October 1, 2008, Cogeco Cable will be able to repay debt instruments maturing in 2008 and 2009. Cogeco Cable entered into cross-currency swap agreements to fix the liability for interest and principal payments on its US-denominated Senior Secured Notes Series A. However, the global financial markets crisis and the ensuing global economic slowdown may extend further and constrain Cogeco Cable’s ability to meet its future financing requirements, both internal and external, increase its weighted average cost of capital and cause other cost increases from counterparties also faced with liquidity problems and higher cost of capital.

Cogeco Cable’s debt financing structure involves the borrowing of money from third parties by Cogeco Cable and the subsequent investment of equity and debt by Cogeco Cable into its direct and indirect subsidiaries. This financing structure requires that Cogeco Cable be able to receive upstream ﬂows of funds from its subsidiaries through capital repayments, interest payments, dividend payments, management fees or other distributions that are sufficient to meet its corporate debt obligations. Future changes to corporate tax, currency exchange and other legal requirements applicable to Cogeco Cable, or to its direct or indirect subsidiaries could adversely affect such upstream ﬂows of funds or the effectiveness of Cogeco Cable’s existing debt financing structure.

Cogeco Cable’s leverage and corporate risk profile is liable to vary from time to time as a result of new developments in its business activities and the investments required to support internal growth as well as external growth through acquisitions. More particularly, leverage may fluctuate as Cogeco Cable completes further business acquisitions domestically or abroad, and the risk profile may differ from one acquisition to the other depending on the characteristics of the acquired business and its relevant market. The development of new services or additional lines of business, and the acquisition of new business properties, may not necessarily generate the anticipated results or benefits. There is no assurance that Cogeco Cable will be able to maintain or increase distributions to shareholders by way of dividends or otherwise.

The acquisition of Cabovisão has been financed through corporate credit facilities of Cogeco Cable. The major part of the purchase price for the shares of Cabovisão (approximately €461.8 million) was borrowed directly in Euros and a second tranche of $150 million was initially borrowed in Canadian dollars and subsequently drawn in Euros (€104.6 million). The remainder of the purchase price is assumed liabilities. There are no financial hedging arrangements in effect at this time for currency ﬂuctuation risk on interest payments resulting from these borrowings, however there is a partially offsetting relationship between the borrowings in Euros and the inter-corporate debt interest payments and cash distributions in Euros originating from the European subsidiaries. Also, for the purposes of this acquisition, Cogeco Cable has set up an acquisition structure involving one of its operating Canadian subsidiaries and intermediate holding and financing entities located in Luxembourg with a view of maximizing returns. Cogeco Cable is still considering various options to extend the term loan with alternate sources of Euro-denominated financing.

HUMAN RESOURCES COGECO maintains appropriate labour relations both in Canada and in Portugal, but there is no assurance that requisite collective agreements will be established or renewed without conﬂict or disruption to the provision of its services. COGECO also maintains appropriate relations with its key personnel. COGECO’s success depends to a significant extent on its ability to attract and retain its managers and skilled employees in an increasingly competitive market. COGECO’s inability or failure to recruit, retain or adequately train its human resources may have a materially adverse effect on COGECO’s business and future prospects.

CONTROLLING SHAREHOLDER AND HOLDING STRUCTURE Cogeco Cable is controlled by COGECO through the holding of multiple voting shares of Cogeco Cable, and COGECO is in turn controlled by Gestion Audem Inc., a company controlled by Mr. Henri Audet and members of his family (the Audet Family), through the holding of multiple and subordinate voting shares of COGECO. Both Cogeco Cable and COGECO are reporting issuers with subordinate voting shares listed on the Toronto Stock Exchange. Pursuant to the Conﬂicts Agreement in effect between Cogeco Cable and COGECO, all cable properties must be owned or controlled by Cogeco Cable. COGECO is otherwise free to own and operate any other business or invest as it deems appropriate. It is possible that situations could arise where the respective interests of the controlling shareholder, COGECO, and other shareholders of Cogeco Cable, or the respective interests of the Audet Family and other shareholders of COGECO could differ.

DISCONTINUED OPERATIONS In October 2007, the Board of Directors of TQS, an indirect subsidiary of the Company, engaged CIBC World Markets to advise on and assess strategic options for the TQS network in the face of financial difficulties. TQS’ position in the Québec Francophone over- the-air television market deteriorated markedly in spite of the measures and investments initiated by the Company over the previous

18 COGECO INC. 2008 Management’s Discussion and Analysis

months. The gradual loss of advertising revenue to specialty TV networks and content accessible over the Internet, combined with increased production costs, the CRTC’s refusal to grant general interest television networks the same ability to charge subscriber fees for signal distribution as the speciality television networks, the programming strategy of SRC, which acts like a commercial player rather than a publicly-owned television broadcaster and SRC’s notice of disaffiliation in Saguenay, Sherbrooke and Trois- Rivières after a 50-year partnership all contributed to this decision. After considering CIBC World Markets’ report, the Board of Directors of TQS concluded that it was in the best interest of TQS, its employees and creditors to request court protection. On December 18, 2007, the Québec Superior Court issued an order under the Companies’ Creditors Arrangement Act (Canada) protecting TQS, its subsidiaries and its parent 3947424 Canada Inc. (“TQS Group”) from claims by their creditors for an initial suspension period ending on January 17, 2008, which period was afterwards renewed. Under the order, RSM Richter Inc. was appointed as monitor, with a mandate to support the applicants, under Court supervision, in preparing a creditors arrangement plan. On March 10, 2008, the Québec Superior Court agreed with TQS’s Board of Director’s decision to accept the offer made by Remstar Corporation Inc. (“Remstar”) to acquire all shares of the TQS Group held by CRTI and CTV Television Inc., the two shareholders of TQS. On May 22, 2008, the plan of arrangement proposed by Remstar was approved by the creditors of the TQS Group and subsequently approved by the Superior Court of Québec on June 4, 2008. On June 26, 2008, the CRTC approved the proposed transfer of ownership and control of TQS to Remstar and on August 29, 2008, the transfer of ownership and control of TQS to Remstar was completed. This new transaction allows a new ownership group to pursue the broadcasting activities of TQS.

Effective December 18, 2007, the Company has ceased to consolidate the financial statements of the TQS Group. Accordingly, the investment in the TQS Group as at August 31, 2007, as well as its results of operations and its cash flows for the period of September 1, 2007 to December 18, 2007 and for the year ended August 31, 2007 have been reclassified as discontinued operations.

The Company has no investment in the TQS Group as at August 31, 2008. The assets and liabilities related to the discontinued operations as at August 31, 2007, were as follows:

(in thousands of dollars) $

ACCOUNTS RECEIVABLE 23,611 PREPAID EXPENSES 442 BROADCASTING RIGHTS 14,647

CURRENT ASSETS 38,700

BROADCASTING RIGHTS 17,456 FIXED ASSETS 21,653 BROADCASTING LICENSES 3,000

NON-CURRENT ASSETS 42,109

BANK INDEBTEDNESS 8,173 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 28,893 BROADCASTING RIGHTS PAYABLE 8,531 INCOME TAX LIABILITIES 141 DEFERRED AND PREPAID INCOME 42 CURRENT PORTION OF LONG-TERM DEBT 251

CURRENT LIABILITIES 46,031

SHARE IN THE PARTNERS’ DEFICIENCY OF A GENERAL PARTNERSHIP 518 BROADCASTING RIGHTS PAYABLE 4,408 PENSION PLAN LIABILITIES 1,444 NON-CONTROLLING INTEREST 11,219

LONG-TERM LIABILITIES 17,589

Management’s Discussion and Analysis COGECO INC. 2008 19

The results of the discontinued operations were as follows:

YEARS ENDED AUGUST 31, 2008 2007 (in thousands of dollars) $ $

REVENUE 38,499 102,972 OPERATING COSTS 35,822 108,496

OPERATING INCOME (LOSS) BEFORE AMORTIZATION 2,677 (5,524) AMORTIZATION 1,364 4,583

OPERATING INCOME (LOSS) 1,313 (10,107) FINANCIAL EXPENSE 291 925 IMPAIRMENT OF ASSETS 30,298 –

LOSS BEFORE INCOME TAXES AND THE FOLLOWING ITEMS (29,276) (11,032) INCOME TAXES – 7,011 NON-CONTROLLING INTEREST (11,219) (7,257)

SHARE IN THE EARNINGS OF A GENERAL PARTNERSHIP – 97

LOSS FROM DISCONTINUED OPERATIONS (18,057) (10,883)

The cash flows of the discontinued operations were as follows:

YEARS ENDED AUGUST 31, 2008 2007 (in thousands of dollars) $ $

CASH FLOWS FROM OPERATING ACTIVITIES (4,676) (469) CASH FLOWS FROM INVESTING ACTIVITIES (133) (2,926) CASH FLOWS FROM FINANCING ACTIVITIES 4,106 2,555

CASH FLOWS FROM DISCONTINUED OPERATIONS (703) (840)

20 COGECO INC. 2008 Management’s Discussion and Analysis

PERFORMANCE HIGHLIGHTS

CABLE SECTOR

CUSTOMER STATISTICS

CANADIAN OPERATIONS

NET ADDITIONS % OF PENETRATION(1) 2008 2007 AUGUST 31 AUGUST 31, INITIAL 2008 ACTUAL GUIDELINES(2) ACTUAL 2008 2007

RGU 1,991,908 203,400 190,000 232,572 NA NA BASIC CABLE SERVICE CUSTOMERS 857,094 7,937 10,000 15,980 NA NA (3) HSI SERVICE CUSTOMERS 473,467 57,631 55,000 72,756 57.7 52.2 DIGITAL TELEVISION SERVICE CUSTOMERS 441,746 61,867 45,000 52,515 52.4 45.8 TELEPHONY SERVICE CUSTOMERS(4) 219,601 75,965 80,000 91,321 30.5 21.7

(1) AS A PERCENTAGE OF BASIC CABLE SERVICE IN AREAS SERVED. (2) ACCORDING TO THE FISCAL 2007 ANNUAL REPORT. (3) CUSTOMERS SUBSCRIBING ONLY TO HSI SERVICE TOTALLED 75,433 AS AT AUGUST 31, 2008 COMPARED TO 70,402 AT AUGUST 31, 2007. (4) CUSTOMERS SUBSCRIBING ONLY TO TELEPHONY SERVICE TOTALLED 1,311 AS AT AUGUST 31, 2008 COMPARED TO 782 AT AUGUST 31, 2007.

All services generated lower growth in fiscal 2008 compared to fiscal 2007, except for the Digital Television service. During fiscal 2008, Telephony service customers grew by 75,965 to reach 219,601 compared to a growth of 91,321 in fiscal 2007. This growth is mostly attributable to the launch of the service in new markets and increased penetration in areas where the service is already offered. Coverage of homes passed has now reached 84% compared to 78% last year. The net additions of Basic Cable service customers reached 7,937, compared to 15,980 in fiscal 2007. The number of customers adhering to the HSI service stood at 57,631 compared to 72,756 in fiscal 2007. The decreased growth in these services reflects early signs of maturation of the market.

The net additions of Digital Television service customers stood at 61,867 compared to 52,515 in fiscal 2007. The increase in net additions is due to targeted marketing initiatives in 2008 to improve the penetration rate. It also reflects the continuing strong interest for HD technology.

EUROPEAN OPERATIONS

NET ADDITIONS (LOSSES) % OF PENETRATION(1) 2008 2007 AUGUST 31 AUGUST 31, INITIAL 2008 ACTUAL GUIDELINES(2) ACTUAL 2008 2007

RGU 724,966 27,809 69,000 68,116 NA NA BASIC CABLE SERVICE CUSTOMERS 296,135 2,132 20,000 24,309 NA NA HSI SERVICE CUSTOMERS(3) 159,301 (722) 20,000 23,745 53.8 54.4 DIGITAL TELEVISION SERVICE CUSTOMERS(4) 24,452 24,452 9,000 – 8.3 – TELEPHONY SERVICE CUSTOMERS(5) 245,078 1,947 20,000 20,062 82.8 82.7

(1) AS A PERCENTAGE OF BASIC CABLE SERVICE CUSTOMERS IN AREAS SERVED. (2) ACCORDING TO THE FISCAL 2007 ANNUAL REPORT. (3) CUSTOMERS SUBSCRIBING ONLY TO HSI SERVICE TOTALLED 8,176 AS AT AUGUST 31, 2008 COMPARED TO 8,370 AT AUGUST 31, 2007. (4) THE DIGITAL TELEVISION SERVICE WAS LAUNCHED IN THE THIRD QUARTER OF 2008. (5) CUSTOMERS SUBSCRIBING ONLY TO TELEPHONY SERVICE TOTALLED 10,201 AS AT AUGUST 31, 2008 COMPARED TO 8,119 AT AUGUST 31, 2007.

Fiscal 2008 was marked by an unfavourable economic climate in the Iberian Peninsula, aggressive marketing campaigns from competitors and from the emergence of multiple triple-play providers in the Portuguese market. Cabovisão chose not to match the competition’s intensive advertising programs due to the difficult economic environment. These factors were the main contributors to net customer losses in HSI, and lower customer growth in Basic Cable and Telephony services compared to the same period last year. The Digital Television service was launched in the third quarter of 2008, with net additions of 24,452 customers since the launch, surpassing management expectations. Fiscal 2008 Basic Cable service increased by 2,132 customers compared to 24,309 in 2007, HSI service decreased by 722 customers compared to an increase of 23,745 in 2007, and Telephony service increased by

Management’s Discussion and Analysis COGECO INC. 2008 21

1,947 customers compared to 20,062 for the same period of the preceding year. Management considers the current adverse market conditions in Portugal to be transitory. However, management anticipates that the difficult economic and competitive environment will continue throughout the next fiscal year and is currently aligning its marketing strategy to respond to the current market conditions prevailing in Portugal.

FINANCIAL RESULTS AND CASH FLOWS

CABLE SECTOR

For the 2008 fiscal year, Cogeco Cable achieved consolidated revenue growth of 14.7%, or $137.9 million, to reach $1,076.8 million. The Canadian operations revenue rose by 16.7%, reaching $833.1 million, surpassing the initial target, set at 13.4%. Revenue growth for the Canadian operations resulted primarily from an increased number of RGU combined with rate increases and the impact of the acquisitions of MaXess Networx®, FibreWired Burlington Hydro Communications, and CDS (the “recent acquisitions”). Revenue from the European operations amounted to $243.7 million, representing a growth of 8.4% over the prior year, which is slightly above the 2008 original guidelines, but lower than expected in local currency due to a lower growth in RGU. The average foreign exchange conversion rate prevailing during fiscal 2008 was $1.5098 per Euro compared to a guideline of $1.4250 per Euro.

Consolidated operating income before amortization rose by $74.7 million, or 20.1%, to reach $445.4 million. Operating income before amortization from Canadian operations increased by $64 million, or 21.9%, reaching $356.9 million, thus exceeding the initial target of 15.4%. European operations’ operating income before amortization amounted to $88.5 million, an increase of $10.6 million, or 13.7%, exceeding its initial objective of $87 million, but lower than expected in local currency. These results are attributable to various rate increases and RGU growth generating additional revenue which outpaced operating cost increases in both the Canadian and European operations. The impact of the recent acquisitions has also contributed to the increase in operating income before amortization in Canadian Operations.

Amortization increased by $39 million to reach $228.3 million, which is $13.3 million higher than expected, due to the completion of the purchase price allocation of the Cabovisão acquisition which included the revaluation of the fair value of tangible assets and intangible assets for an additional amortization expense of approximately $18.7 million in the fiscal year combined with the impact of the recent acquisitions.

Financial expense decreased by $15.5 million at $69.1 million, slightly better than management’s guideline of $72 million, due to the reduction of the level of Indebtedness from the net proceeds of the issuances of subordinate voting shares during fiscal 2007. Also in 2007, a one-time charge of $2.6 million related to the early repayment of the Second Secured Debentures Series A contributed to an increase in financial expense for that year.

Cogeco Cable reports net income 40.3% higher than its initial forecasts, standing at $133.3 million, mainly due to income tax rate reductions of $24 million during the year. Excluding the impact of these rate reductions, net income surpassed the initial forecast by 15.1% due to the growth in operating income before amortization exceeding that of fixed charges.

Capital expenditures, including assets acquired under capital leases, and the increase in deferred charges amounted to $261.5 million, in line with the initial expectation of $260 million. Capital expenditures for the current year were primarily the result of RGU growth driven by increased interest for HD technology and expansions and improvements to the network infrastructure during the year. The increase in deferred charges was lower in the current year due to the reduction in reconnect costs caused by lower- than-anticipated RGU growth. Free cash ﬂow of $98.9 million was generated, higher than the $65 million target initially expected. The variance in free cash ﬂow is the result of an increase in operating income before amortization and a decrease in financial expense, partly offset by increased capital expenditures to support the RGU growth.

OTHER SECTOR

The other sector includes radio operations, head office activities and eliminations. In fiscal 2008, revenue in the other sector increased by 5.4% to reach $32.1 million, compared to $30.5 million in the prior year, mainly due to improved radio ratings for the Montréal RYTHME FM station, which ranks No. 1 in the Montréal market for the female audience between 25 and 54 years of age. Operating income before amortization of $3.5 million was generated during fiscal 2008 compared to $0.5 million in fiscal 2007, an increase of $3 million.

22 COGECO INC. 2008 Management’s Discussion and Analysis

OPERATING AND FINANCIAL RESULTS

OPERATING RESULTS

YEARS ENDED AUGUST 31, 2008 2007 CHANGE (in thousands of dollars, except percentages) $ $ %

REVENUE 1,108,900 969,335 14.4 OPERATING COSTS 660,006 598,100 10.4

OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE AMORTIZATION 448,894 371,235 20.9

OPERATING MARGIN 40.5% 38.3%

The Company’s revenue totalled $1,108.9 million, an increase of $139.6 million, or 14.4% compared to the prior year. This growth resulted from an increase in cable revenue, which went up by $137.9 million, or 14.7%, for ﬁscal 2008, driven by an increased number of RGU combined with rate increases and the recent acquisitions. Revenue from the other sector increased by $1.7 million, or 5.4%, in the ﬁscal year, due to favourable ratings for the Company’s radio stations.

Operating costs amounted to $660 million in ﬁscal 2008, compared to $598.1 million in ﬁscal 2007. With respect to operating income before amortization, it increased to $448.9 million in fiscal 2008 from $371.2 million in 2007, an increase of $77.7 million, or 20.9%. The cable sector contributed an increase of $74.7 million and the remainder was due to the other sector.

FIXED CHARGES

YEARS ENDED AUGUST 31, 2008 2007 CHANGE

(in thousands of dollars, except percentages) $ $ %

AMORTIZATION 229,724 191,221 20.1 FINANCIAL EXPENSE 70,669 86,056 (17.9)

Fiscal 2008 amortization amounted to $229.7 million compared to $191.2 million in ﬁscal 2007. The increase in amortization stemmed from the cable sector and is attributable to several factors: the completion in the fourth quarter of fiscal 2007 of the purchase price allocation of the Cabovisão acquisition, which included the revaluation of tangible and intangible assets for an additional amortization expense of approximately $18.7 million in the 2008 fiscal year and additional capital expenditures arising from the required customer premise equipment to sustain RGU growth and to support the deployment of the Digital Television service in Portugal. The impact of the recent acquisitions in the cable sector also contributed to the increase in the amortization expense for the 2008 fiscal year.

Fiscal 2008 ﬁnancial expense decreased by $15.4 million compared to the prior year. During the year, the Company’s cable subsidiary reduced its level of Indebtedness (defined as bank indebtedness, derivative financial instruments and long-term debt) from the net proceeds of subordinate voting shares issued during fiscal 2007 as well as free cash flow, net of the impact of increases in long-term debt in the second half of fiscal 2008 to finance the recent acquisitions in the cable sector. In addition, during fiscal 2007, Cogeco Cable recorded a one-time charge of $2.6 million related to the early repayment of its Second Secured Debentures, Series A.

The average interest rate was 6.2% in ﬁscal 2008 compared to 6.3% in ﬁscal 2007. The average interest rate reduction is discussed in the “Capital Structure” section on page 31.

INCOME TAXES

For ﬁscal 2008, income tax expense amounted to $15 million compared to $11.3 million for fiscal 2007.

Included in the 2008 expense is a recovery of $24 million, mainly from the cable sector, related to the reduction in corporate income tax rates announced on October 16, 2007 by the Canadian federal government in its Economic Statement. According to the new tax initiatives, corporate income tax rates have been reduced from 20.5% to 19.5% effective January 1, 2008, and will be reduced from 20% to 19% effective January 1, 2009, from 19% to 18% effective January 1, 2010, from 18.5% to 16.5% effective January 1, 2011, and to 15% effective January 1, 2012. These corporate income tax rates were considered substantively enacted on December 14, 2007. The income tax reductions also resulted from the amortization impact of the revaluation of tangible and

Management’s Discussion and Analysis COGECO INC. 2008 23

intangible assets upon the completion of the Cabovisão purchase price allocation in the fourth quarter of fiscal 2007. In addition, the fiscal 2007 expense in the cable sector was reduced by a non-cash adjustment of $16.2 million due to the recognition of benefits stemming from prior years’ income tax losses and minimum income tax paid, and a reduction of Canadian federal enacted income tax rates which were to take effect in January 2011.

Excluding these adjustments, income taxes for fiscal 2008 would have amounted to $39 million, compared to $27.5 million for the prior year. The increase in income taxes is mainly due to the increase in operating income before amortization exceeding the increase in fixed charges.

Cabovisão, Cogeco Cable’s subsidiary, has income tax losses of approximately €80.5 million ($125.5 million), which may be used to reduce future years’ taxable income subject to confirmation by the Portuguese tax authorities. In accordance with the Portuguese Companies Income Tax Code (“CIRC”), tax losses incurred in a financial year can be carried forward and deducted from taxable profits of one or more of the following six taxation years. However, the CIRC provides for certain exceptions whereby the general rule stated above ceases to apply. One such exception is that tax losses cannot be deducted if the ownership of at least 50% of the social capital changes from the moment when the tax losses were generated, unless a request is filed before such change in the ownership takes place, subject to approval by the Portuguese tax authorities. To this effect, a request for preservation of tax losses was filed by Cabovisão on July 28, 2006, and Cabovisão has not yet obtained a response from the Portuguese tax authorities. Until such a response is received, Cabovisão may only use tax losses generated since the acquisition. The benefits resulting from the tax losses generated prior to the acquisition have not been recognized in the financial statements and will be recorded as a reduction of goodwill upon realisation. Furthermore, the Portuguese tax authorities have reviewed Cabovisão’s tax returns for years 2003 and 2004 which resulted in notices of assessment to reduce tax losses by €7.3 million for fiscal year 2003 and by €29.6 million for fiscal year 2004. Cabovisão does not agree with the assessments of the tax authorities and has initiated legal proceedings against the Portuguese tax authorities.

LOSS (GAIN) ON DILUTION RESULTING FROM THE ISSUANCE OF SHARES BY A SUBSIDIARY

During fiscal 2008, the Company’s subsidiary, Cogeco Cable Inc. issued 5,543 subordinate voting shares pursuant to its Employee Stock Purchase Plan and 157,481 subordinate voting shares pursuant to its Employee Stock Option Plan for cash consideration of $221,000 and $3,429,000, respectively.

In addition, during fiscal 2007, Cogeco Cable completed two public offerings totalling 8,000,000 subordinate voting shares for gross proceeds of $346 million. The offerings resulted in net proceeds to Cogeco Cable of approximately $331.1 million, which were used to reduce long-term indebtedness and the working capital deficiency. Cogeco Cable also issued 7,344 subordinate voting shares pursuant to its Employee Stock Purchase Plan and 348,131 subordinate voting shares pursuant to its Employee Stock Option Plan for cash consideration of $198,000 and $6,816,000, respectively.

As a result of these share issuances in 2008 and 2007, COGECO’s interest in Cogeco Cable decreased from 39.2% to 32.3% and a loss on dilution of $0.1 million was recorded in fiscal 2008 compared to a gain on dilution of $57.9 million in fiscal 2007.

NON-CONTROLLING INTEREST

The non-controlling interest represents a participation of approximately 67.7% in Cogeco Cable’s results. During fiscal 2008, the non-controlling interest amounted to $90.2 million due to the cable sector’s strong results. The non-controlling interest for the prior year amounted to $54.8 million.

NET INCOME

Fiscal 2008 net income amounted to $25.1 million, or $1.50 per share, compared to $74.7 million, or $4.50 per share for the prior year. The net income decrease in fiscal 2008 was due to the following factors: a gain on dilution amounting to $57.9 million recorded in fiscal 2007, a loss from discontinued operations of $18.1 million recorded in fiscal 2008 compared to a loss from discontinued operations of $10.9 million in 2007, partially offset by positive income tax adjustments from the cable sector, net of non-controlling interest, of $7.9 million in fiscal 2008 compared to $5.3 million in fiscal 2007. Excluding the effect of the adjustments described above, net income(1) would have amounted to $35.4 million, or $2.12 per share, compared to $22.4 million, or $1.35 per share in 2007, an increase of 57.6% and 57%, respectively. The increase in net income, excluding all adjustments described above, is mainly due to the growth in operating income before amortization exceeding those of the fixed charges in the cable sector.

(1) NET INCOME EXCLUDING ADJUSTMENTS DOES NOT HAVE A STANDARDIZED DEFINITION PRESCRIBED BY CANADIAN GAAP AND THEREFORE, MAY NOT BE COMPARABLE TO SIMILAR MEASURES PRESENTED BY OTHER COMPANIES. FOR FURTHER DETAILS, PLEASE CONSULT THE “NON-GAAP FINANCIAL MEASURES” SECTION ON PAGE 36.

24 COGECO INC. 2008 Management’s Discussion and Analysis

CABLE SECTOR

YEARS ENDED AUGUST 31, 2008 2007 CHANGE (in thousands of dollars, except percentages) $ $%

REVENUE 1,076,787 938,880 14.7

OPERATING COSTS 622,649 559,559 11.3 MANAGEMENT FEES – COGECO INC. 8,714 8,568 1.7 OPERATING INCOME BEFORE AMORTIZATION 445,424 370,753 20.1

OPERATING MARGIN 41.4% 39.5%

REVENUE

Fiscal 2008 consolidated revenue increased by $137.9 million, or 14.7%, compared to the same period last year to reach $1,076.8 million.

Revenue from the Canadian operations rose by $119 million, or 16.7%, compared to ﬁscal 2007, mainly as a result of the various factors discussed below:

• HSI service net customer additions during fiscal 2008, of about 58,000, and the full-year impact of the 2007 net additions of about 73,000 customers, generated incremental revenue of approximately $26.6 million over fiscal 2007; • Telephony service net customer additions during fiscal 2008, of about 76,000, and the full-year impact of the 2007 net additions of about 91,000 customers, generated incremental revenue of about $43.4 million over fiscal 2007 due to continued service rollout in Cogeco Cable’s markets and the increased penetration in areas where the service is already offered; • Basic Cable service net customer growth during fiscal 2008, of about 8,000, and the full-year impact of the 2007 net additions of about 16,000 customers, contributed to improve revenue by $11.4 million; • The recent acquisitions generated incremental revenue of $7.1 million; • Various rate increases during fiscal 2007 and 2008 generated incremental revenue of about $10.3 million as a result of the following net rate increases implemented by Cogeco Cable:

o In the second half of fiscal 2007: • In March 2007, a monthly rate increase of $3 per Digital Television service customer in Ontario; • In April 2007, a monthly rate increase of $3 per Digital Television service customer in Québec and a rate increase of $1.50 per Analogue Value Pak service customer in Ontario. These rate increases represent an average increase of approximately $1.25 per Basic Cable service customer.

o In the first quarter of fiscal 2008: • In October 2007 in Québec, a rate increase of between $1 and $2 per Analogue Basic Cable service customer without a bundle, a rate increase of $0.50 per Basic Cable and tier service customer without a bundle, and rate increases from $2 to $5 per HSI Lite service customer and $5 per HSI Standard stand-alone service customer; • In November 2007 in Ontario, a rate increase of between $1 and $2 per Analogue Basic Cable service customer without a bundle, and rate increases from $2 to $5 per HSI Lite service customer and $5 per HSI Standard standalone service customer; • Finally, a rebate of $5 per Telephony service customer with two bundled service offers was also introduced in fiscal 2008 in Ontario and in Québec. o In the fourth quarter of fiscal 2008: • In July 2008 in Ontario, a rate increase of $2 for all Digital TV packages, slightly offset by targeted reductions in HD access fees in certain markets and monthly equipment rental fees of selected digital receivers; a $2 rate increase to HSI Standard service in a bundle and a $5 rate increase to HSI Pro service in a bundle; • In July 2008 in Québec, a reduction of $4 for the monthly equipment rental fee of the standard definition-DVR receiver. These rate adjustments implemented in fiscal 2008 represent an average increase of approximately $1.60 per Basic Cable service customer.

In addition, new Digital services and VOD services contributed to the revenue growth by an amount of $7.6 million and equipment rentals were more favoured over equipment sales and generated net additional revenue of $7 million.

Management’s Discussion and Analysis COGECO INC. 2008 25

In ﬁscal 2008, ARPU increased by $10.67, or 15.3%, to reach $80.42 as a result of improved penetration of all services combined with rate increases.

Revenue from the European operations amounted to $243.7 million compared to $224.8 million in fiscal 207, and increase of $18.9 million, or 8.4%. Revenue from the European operations in the local currency for fiscal 2008 amounted to €161.3 million, an increase of €9.5 million or 6.2%, which is slightly below the Company’s 2008 guidelines provided in the 2007 Annual Report. The growth for fiscal 2008 is mainly due to following monthly rate increases implemented by Cabovisão: an increase of $1 (€0.65) per Basic Cable service customer effective in March 2007, an increase averaging $1.50 (€1) per Basic Cable customer and an increase averaging $0.90 (€0.60) per HSI customer effective in January 2008, as well as to the increase in RGU including the launch of Digital Television services. The Portuguese ARPU stood at $68.53 for fiscal 2008 compared to $63.66 in 2007.

OPERATING COSTS AND MANAGEMENT FEES

Fiscal 2008 consolidated operating costs increased by $63.1 million, or 11.3%, to reach $622.6 million.

The Canadian operations’ operating costs, excluding management fees payable to COGECO rose by $54.9 million, or 13.3%, and are primarily related to servicing additional RGU and the impact of the recent acquisitions. European operating costs amounted to $155.2 million for fiscal 2008 compared to $147 million for 2007. The increase is primarily due to the increase in RGU.

Management fees paid to COGECO amounted to $8.7 million, an increase of 1.7% over fiscal 2007.

OPERATING INCOME BEFORE AMORTIZATION

Fiscal 2008 consolidated operating income before amortization increased by $74.7 million, or 20.1%, to reach $445.4 million.

In ﬁscal 2008, operating income before amortization for the Canadian operations rose by $64 million or 21.9%, compared to ﬁscal 2007 as a result of various rate increases and RGU growth generating additional revenue which outpaced operating cost increases. The inclusion of the recent acquisitions also contributed to the growth in operating income before amortization. Cogeco Cable’s operating margin for the Canadian operations increased to 42.8% compared to 41% for the same period last year. Driven by increases in revenue that exceeded increases in operating costs, European operations generated an operating income before amortization of $88.5 million for fiscal 2008 corresponding to an operating margin of 36.3% compared to operating income before amortization of $77.9 million corresponding to an operating margin of 34.6% in fiscal 2007.

OTHER SECTOR

YEARS ENDED AUGUST 31, 2008 2007 CHANGE (in thousands of dollars, except percentages) $ $ %

REVENUE 32,137 30,455 4.0

OPERATING COSTS 28,643 29,973 (4.4) OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE AMORTIZATION 3,470 482 –

OPERATING MARGIN 10.8% 1.6%

Revenue in the other sector increased by $1.7 million, or 5.4% compared to ﬁscal 2007. All radio stations contributed to the increase in revenue mainly due to favourable ratings, especially for the Montréal RYTHME FM station, which ranks No. 1 in the Montréal market for the female audience between 25 and 54 years of age.

The $1.3 million, or 4.4%, decrease in operating costs is mainly attributable to cost containment measures.

In 2008, the operating income before amortization was $3.5 million compared to $0.5 million for the previous year stemming from the increase in revenue and the decrease in operating costs.

26 COGECO INC. 2008 Management’s Discussion and Analysis

CASH FLOW ANALYSIS

YEARS ENDED AUGUST 31, 2008 2007 (in thousands of dollars) $ $

OPERATING ACTIVITIES CASH FLOW FROM OPERATIONS(1) 362,788 283,565

CHANGES IN NON-CASH OPERATING ITEMS 35,703 (73,003) 398,491 210,562

(2) INVESTING ACTIVITIES (487,106) (248,904)

(2) FINANCING ACTIVITIES 59,240 32,702 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS DENOMINATED IN FOREIGN CURRENCIES 1,271 1,243

CASH FLOW FROM CONTINUING OPERATIONS (28,104) (4,397)

CASH FLOW FROM DISCONTINUED OPERATIONS (703) (840)

NET CHANGE IN CASH AND CASH EQUIVALENTS (28,807) (5,237) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 66,279 71,516 CASH AND CASH EQUIVALENTS, END OF YEAR 37,472 66,279

(1) CASH FLOW FROM OPERATIONS DOES NOT HAVE A STANDARDIZED DEFINITION PRESCRIBED BY CANADIAN GAAP AND THEREFORE, MAY NOT BE COMPARABLE TO SIMILAR MEASURES PRESENTED BY OTHER COMPANIES. FOR FURTHER DETAILS, PLEASE CONSULT THE “NON-GAAP FINANCIAL MEASURES” SECTION ON PAGE 36. (2) EXCLUDES ASSETS ACQUIRED UNDER CAPITAL LEASES.

OPERATING ACTIVITIES

Fiscal 2008 cash flow from operations reached $362.8 million, an increase of 27.9% compared to the same period the year before, primarily due to the growth in operating income before amortization and to a reduction in financial expense, partly offset by the growth in current income taxes in the cable sector.

Changes in non-cash operating items generated cash inflows of $35.7 million compared to cash outflows of $73 million for the same period last year, attributable to the cable sector and mainly as a result of increases in accounts payable and accrued liabilities and in income tax liabilities, partly offset by increases in accounts receivable and prepaid expenses. In fiscal 2007, the reduction in accounts payable and accrued liabilities was due to non-recurring payments made by the Portuguese cable subsidiary in accordance with the terms of the acquisition.

INVESTING ACTIVITIES

BUSINESS ACQUISITIONS IN FISCAL 2008

On March 31, 2008, the Company’s subsidiary, Cogeco Cable, completed the acquisition of all the assets of MaXess Networx®, ENWIN Energy Ltd.’s (City of Windsor’s energy company) telecommunications division for a total consideration of $15.6 million. MaXess Networx® operates a broadband network equipped with next generation ATM and Ethernet technology and provides organizations in south-western Ontario with the broadband capacity required for data networking, HSI access, e-business applications, video conferencing and other advanced communications.

On June 30, 2008, Cogeco Cable completed the acquisition of all the assets of FibreWired Burlington Hydro Communications, Burlington Hydro Electric's (City of Burlington’s energy company) telecommunications division for a total consideration of $12.6 million. FibreWired Burlington Hydro Communications operates a broadband network equipped with next generation ATM and Ethernet technology, provides Burlington’s organizations with the broadband capacity required for data networking, HSI access, hosting services, e-business applications, video conferencing and other advanced communications.

On July 31, 2008, Cogeco Cable completed the acquisition of all the shares of Toronto Hydro Telecom Inc, the telecommunications subsidiary of Toronto Hydro Corporation (City of Toronto’s energy company) for a total consideration of $200 million. In addition, Cogeco Cable assumed a working capital deficiency and certain liabilities totalling approximately $4 million. Toronto Hydro Telecom Inc., which now operates under the name of Cogeco Data Services Inc., offers data communications and other telecommunications

Management’s Discussion and Analysis COGECO INC. 2008 27

services such as Ethernet, private line, VoIP, HSI access, dark fibre, data storage, data security and co-location to a wide range of business customers and organizations throughout the Greater Toronto Area (“GTA”). This acquisition allows Cogeco Cable to further the development of its business telecommunications activities.

These acquisitions were accounted for using the purchase method. The results have been consolidated as of the acquisition dates.

The allocation of the purchase price of these acquisitions was as follows:

CDS(1) OTHER TOTAL (in thousands of dollars) $ $ $

CONSIDERATION PAID PURCHASE PRICE OF SHARES OR ASSETS 200,000 28,113 228,113 ACQUISITION COSTS 1,988 852 2,840

201,988 28,965 230,953

NET ASSETS ACQUIRED CASH AND CASH EQUIVALENTS 1,230 – 1,230 ACCOUNTS RECEIVABLE 4,575 968 5,543 PREPAID EXPENSES 535 612 1,147 FIXED ASSETS 57,098 19,102 76,200 DEFERRED CHARGES – 24 24 CUSTOMER RELATIONSHIPS 33,983 4,220 38,203 GOODWILL 112,228 4,662 116,890 FUTURE INCOME TAX ASSETS 2,335 – 2,335 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES ASSUMED (4,380) (361) (4,741) DEFERRED AND PREPAID INCOME AND OTHER LIABILITIES ASSUMED (4,958) (262) (5,220) PENSION PLAN LIABILITIES AND ACCRUED EMPLOYEE BENEFITS (356) – (356) FUTURE INCOME TAX LIABILITIES (302) – (302)

201,988 28,965 230,953

(1) THE PURCHASE PRICE ALLOCATION OF CDS IS PRELIMINARY AND WILL BE FINALIZED DURING THE 2009 FISCAL YEAR.

FISCAL 2007 ADJUSTMENTS RELATED TO FISCAL 2006 BUSINESS ACQUISITION

On June 2, 2006, the Company’s subsidiary, Cogeco Cable Inc. entered into an agreement with Cable Satisfaction International Inc. (“CSII”), Catalyst Fund Limited Partnership I and Cabovisão, to purchase, for a total consideration of €461.8 million ($667.5 million), all the shares of Cabovisão, the second largest cable telecommunications company in Portugal, an indirect wholly-owned subsidiary of CSII. The price includes the purchase of senior debt and reimbursement of certain other Cabovisão liabilities. The acquisition was completed on August 1, 2006 and the ﬁnal purchase price has been determined following completion of a post-closing working capital adjustment that occurred on March 9, 2007. According to the agreement, the ﬁnal purchase price was reduced by an amount of €2.2 million ($3.4 million).

The acquisition was accounted for using the purchase method. The results of Cabovisão have been consolidated as of the acquisition date.

28 COGECO INC. 2008 Management’s Discussion and Analysis

In 2007, management completed its valuation of tangible and intangible assets acquired and liabilities assumed and the final allocation is as follows:

(in thousands of dollars) $

CONSIDERATION PAID PURCHASE PRICE OF SHARES 304,188 WORKING CAPITAL ADJUSTMENT (3,371) SECURED LENDERS’ DEBT AND CERTAIN SPECIFIED CABOVISÃO LIABILITIES 274,761 ACQUISITION COSTS 6,299

581,877

NET ASSETS ACQUIRED CASH AND CASH EQUIVALENTS 5,711 RESTRICTED CASH 489 ACCOUNTS RECEIVABLE 16,570 PREPAID EXPENSES 1,324 FIXED ASSETS 323,796 CUSTOMER RELATIONSHIPS 71,684 GOODWILL 344,004 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES ASSUMED (60,433) OTHER SPECIFIED CABOVISÃO LIABILITIES ASSUMED (91,914) FUTURE INCOME TAX LIABILITIES (29,354) 581,877

The final allocation resulted in an increase in fixed assets of $36.1 million, an increase in customer relationships of $71.7 million and an increase in future income tax liabilities of $29.4 million, as well as a decrease in accounts payable and accrued liabilities assumed of $4.9 million. The net impact of these adjustments, combined with the reduction of the purchase price, reduced goodwill by $87 million (see note 11 B) of the consolidated financial statements on page 65).

Also, in accordance with the CIRC, accumulated tax losses cannot be deducted if the ownership of at least 50% of the social capital changes from the moment when the tax losses were generated, unless a request is filed before such change in the ownership takes place, subject to approval by the Portuguese tax authorities. To this effect, a request for preservation of tax losses was filed by Cabovisão on July 28, 2006, and Cabovisão has not yet obtained a response from the Portuguese tax authorities. Consequently, the losses generated prior to the acquisition have not been included in the purchase price allocation, but will be recorded as a reduction of goodwill upon realisation (see note 6 on page 60 of the consolidated financial statements).

CAPITAL EXPENDITURES

In ﬁscal 2008, capital expenditures, including assets acquired under capital leases, increased by $10.6 million compared to the prior year to reach $234.7 million mainly as a result of the following factors in the cable sector:

• An increase in support capital due to the improvement in information systems to sustain the business operations, to the acquisition of vehicles and to leasehold improvements in the Company’s head office; • An increase in scalable infrastructure capital spending mainly due to the timing of the expansion and head-end improvements, system powering and equipment reliability to sustain increased customer demand for HSI and Telephony services.

INCREASE IN DEFERRED CHARGES

The increase in deferred charges amount to $27.7 million in fiscal 2008 compared to $30 million in ﬁscal 2007. Lower RGU growth explained the lower increase recorded in 2008.

Management’s Discussion and Analysis COGECO INC. 2008 29

FREE CASH FLOW AND FINANCING ACTIVITIES

For fiscal 2008, free cash ﬂow amounted to $100.4 million compared to $29.4 million last ﬁscal year as a result of an increase in operating income before amortization and a reduction in financial expense net of increases in capital expenditures and current income taxes in the cable sector.

During fiscal 2008, the level of Indebtedness affecting cash increased by $72.9 million, mainly due to the recent acquisitions in the cable sector for an aggregate amount of $231 million, offset by the free cash flow of $100.4 million, a reduction of $28.8 million in cash and cash equivalents and an increase of $35.7 million in non-cash operating items. In addition, on March 5, 2008, the cable subsidiary issued a $100 million Senior Unsecured Debenture by way of a private placement, the proceeds of which were primarily used to finance the recent acquisitions. The Senior Unsecured Debenture bears interest at a fixed rate of 5.936%, is redeemable at Cogeco Cable’s option at any time, in whole or in part, prior to maturity, at 100% of the principal amount plus a make-whole premium and will mature on March 5, 2018.

During fiscal 2007, the level of Indebtedness decreased by $294.8 million, mainly due to the completion by Cogeco Cable of the two public offerings described below, for net proceeds of approximately $331.1 million that were used to reimburse the Second Secured Debentures Series A and a portion of the Term Facility, the free cash flow of $29.4 million and a reduction of $5.2 million in cash and cash equivalents, partly offset by a decline of $73 million in non-cash operating items.

During ﬁscal 2007, the Company’s subsidiary, Cogeco Cable, completed two public offerings for a total issuance of 8,000,000 subordinate voting shares for combined gross proceeds of $346 million. On February 2, 2007, Cogeco Cable announced the completion of its ﬁrst public offering of 5,000,000 subordinate voting shares for gross proceeds of $192.5 million and on August 9, 2007, Cogeco Cable completed its second public offering of 3,000,000 subordinate shares for gross proceeds of $153.5 million. These offerings resulted in net proceeds to Cogeco Cable of approximately $331.1 million which was used to reduce long-term debt and the working capital deficiency.

In fiscal 2008, the Company paid quarterly dividends of $0.07 per share to the holders of subordinate and multiple voting shares totalling $4.7 million, compared to quarterly dividends of $0.0625 per share in the first quarter and $0.07 per share in the last three quarters totalling $4.5 million in fiscal 2007. Dividends paid by a subsidiary to non-controlling interests were $13.1 million during fiscal 2008, bringing the consolidated dividend payments to $17.8 million.

FINANCIAL POSITION

Since August 31, 2007, except for the changes in the presentation of assets and liabilities related to discontinued operations, there have been major changes to the balance of fixed assets, cash and cash equivalents, accounts payable and accrued liabilities, income tax liabilities, future income tax assets, future income tax liabilities, accounts receivable, goodwill, customer relationships, accumulated other comprehensive income (loss), non-controlling interest, derivative financial instruments and Indebtedness.

The $138.3 million increase in fixed assets is mainly related to the cable sector and attributable to increased capital expenditures to sustain RGU growth, the fixed assets acquired through recent acquisitions and to the appreciation of the Euro over the Canadian dollar. The $28.8 million decrease in cash and cash equivalents is mainly due to the reduction of Indebtedness in the cable sector. The $38.6 million increase in accounts payable and accrued liabilities is related to the timing of payments made to suppliers and to the impact of the recent acquisitions in the cable sector. The $19.6 million increase in income tax liabilities and the $2.1 million net reduction in future income tax assets are mainly due to the utilization of most of Cogeco Cable’s Canadian tax loss carry forwards before fiscal 2008, partly offset by the impact of the recent acquisitions. The $11.3 million future income tax liabilities reduction, also attributable to the cable sector, is mainly due to the corporate income tax rate reductions announced by the Canadian federal government and considered substantively enacted on December 14, 2007. The $12.2 million accounts receivable increase is essentially due to revenue growth and its related level of receivables and the recent acquisitions in the cable sector, as well as the appreciation of the Euro over the Canadian dollar. The $145.2 million goodwill increase and the $32.6 million increase in customer relationships are due to the recent acquisitions as well as the appreciation of the Euro over the Canadian dollar in the cable sector. The $6 million increase in accumulated other comprehensive income (loss) is mainly the result of the appreciation of the Euro over the Canadian dollar, partly offset by the changes in accounting policies related to financial instruments in the cable sector. The $95.4 million increase in non-controlling interest is mainly due to the improved results in the cable sector. Indebtedness has increased by $110.4 million as a result of the unfavourable impact of the appreciation of the Euro over the Canadian dollar in addition to the accounting changes and factors previously discussed in the “Cash Flow Analysis” section on page 27. For further details on the changes in accounting policies, please consult the “Adoption of new accounting standards” section on page 11.

30 COGECO INC. 2008 Management’s Discussion and Analysis

CAPITAL RESOURCES AND LIQUIDITY

CAPITAL STRUCTURE

The table below summarizes debt-related ﬁnancial ratios over the last two ﬁscal years and the fiscal 2009 guidelines.

2009 (1) YEARS ENDED AUGUST 31, GUIDELINES 2008 2007 $ $ $

AVERAGE COST OF INDEBTEDNESS 6.5% 6.2% 6.3% FIXED RATE INDEBTEDNESS 51% 58% 54% AVERAGE TERM: LONG-TERM DEBT (IN YEARS) 3.7 2.6 2.9 NET INDEBTEDNESS(2) / SHAREHOLDER’S EQUITY 2.3 2.7 2.5 NET INDEBTEDNESS(2) / OPERATING INCOME FROM CONTINUING 2.0 2.5 2.7 OPERATIONS BEFORE AMORTIZATION OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE AMORTIZATION / FINANCIAL EXPENSE 7.2 6.4 4.3

(1) SEE THE “FISCAL 2009 FINANCIAL GUIDELINES” SECTION ON PAGE 42 FOR FURTHER DISCUSSION. (2) INDEBTEDNESS NET OF CASH AND CASH EQUIVALENTS.

In 2008, the average cost of Indebtedness decreased due to the repayment by the cable subsidiary, in fiscal 2007, of the Second Secured Debentures Series A with a coupon rate of 8.44% which is higher than the average cost of Indebtedness, combined with a reduction of the amount drawn on Cogeco Cable’s Euro-denominated revolving loan with an interest rate of 5.25% in favour of its Canadian dollar-denominated revolving loan with an interest rate of 3.99%. These factors were partly offset by a $6.8 million reduction in the Company’s Term Facility bearing interest at the rate of 6.0582% from cash flows generated by the Company.

For fiscal 2008, the average tenure of the long-term debt decreased due to the expiry of the Cogeco Cable’s US$150 million Senior Secured Notes Series A and the related derivative financial instruments of $79.8 million on October 31, 2008. For fiscal 2009, the average tenure of long-term debt will increase due to the completion by the cable subsidiary, on October 1, 2008, pursuant to a private placement, of the issuance of US$190 million Senior Secured Notes Series A maturing October 1, 2015, and $55 million Senior Secured Notes Series B maturing October 1, 2018 with coupon rates of 7.00% and 7.60%, respectively, payable semi- annually. Cogeco Cable has entered into cross-currency swap agreements to fix the liability for interest and principal payments on US$190 million of its Senior Secured Notes Series A. Taking into account these agreements, the effective interest rate of the Senior Secured Notes Series A is 7.24% and the exchange rate applicable to the principal portion of the US dollar-denominated debt has been fixed at $1.0625.

In fiscal 2009, the financial leverage ratio should continue to improve as management expects a growth in operating income before amortization and a reduction in Indebtedness net of cash and cash equivalents, as a result of the free cash flow. The operating income before amortization over financial expense ratio should also improve as a result of an increase in operating income before amortization. See “Fiscal 2009 Financial Guidelines” section on page 42 for further details.

Management’s Discussion and Analysis COGECO INC. 2008 31

OUTSTANDING SHARE DATA

A description of COGECO’s share data as at September 30, 2008 is presented in the table below. Additional details are provided in note 14 on page 68.

AMOUNT NUMBER OF SHARES/ (in thousands OPTIONS of dollars)

COMMON SHARES MULTIPLE VOTING SHARES 1,842,860 12 SUBORDINATE VOTING SHARES 14,897,586 120,037 OPTIONS TO PURCHASE SUBORDINATE VOTING SHARES OUTSTANDING OPTIONS 123,758 EXERCISABLE OPTIONS 123,758

During fiscal 2008 and 2007, COGECO did not award any stock options, and its subsidiary, Cogeco Cable, granted 113,084 stock options in fiscal 2008 (577,587 in fiscal 2007).

FINANCING AND LIQUIDITY

The Term Facility and the operating line of credit of the Parent company are secured by a first fixed and floating charge on certain assets of the Company and certain of its subsidiaries except for permitted encumbrances, including funded obligations subject to a maximum amount. The provisions under these facilities provide for restrictions on the operations and activities of the Company. Generally, the most significant restrictions are related to permitted investments, dividends on multiple and subordinate voting shares and reimbursement of long-term debt as well as incurrence and maintenance of certain financial ratios primarily linked to financial expense, total indebtedness and shareholders’ equity.

On December 14, 2007, the Company concluded an amended and restated credit agreement with a group of Canadian banks led by the Canadian Imperial Bank of Commerce (“CIBC”), which will now act as agent for the banking syndicate. The Term Facility of $50 million, including a swingline limit of $5 million, is renewable on an annual basis, subject to lenders’ approval, and if not renewed it matures three years after its issuance or the last renewal, as the case may be. The Term Facility is secured by all assets of COGECO and its subsidiaries, excluding the capital stock of Cogeco Cable Inc. and guaranteed by its subsidiaries, Cogeco Radio-Television Inc. and Cogeco Diffusion Inc. Under the terms and conditions of the amended and restated credit agreement, the Company must comply with certain restrictive covenants, including the requirement to maintain certain financial ratios. The Term Facility bears interest rates based, at the Company’s option, on bankers’ acceptance, LIBOR, EURIBOR, bank prime rate or US base rate plus fees, and commitment fees are payable on the unused portion. As at August 31, 2008, the Company had used $19 million of its $50 million Term Facility for a remaining availability of $31 million and was in compliance with all of its covenants.

Prior to December 14, 2007, the Company benefited from a Term Facility of $40 million, provided by a syndicate of ﬁnancial institutions. The Term Facility could have been extended for an additional year at each anniversary date of the facility, subject to the lenders’ approval.

On July 28, 2008, the Company’s subsidiary, Cogeco Cable, repaid €10.5 million, representing 10% of the amount drawn, on the third tranche of its $900 million Term Facility, which was reduced to $885 million accordingly.

Cogeco Cable benefits from an $885 million credit facility in the form of a Term Facility and an operating line of credit with a group of financial institutions. The Term Facility is composed of four tranches: a first tranche, a revolving loan for an amount of $700 million available in Canadian, US or Euro currencies; a second tranche, a swingline of $25 million available in Canadian or US currencies; a third tranche of $150 million, fully drawn, available in Canadian currency, and a fourth tranche of €17.4 million fully drawn. On August 14, 2007, the Term Facility was amended to permit EURIBOR loans under the third tranche in an amount not exceeding the equivalent of $150 million subject to reductions as mentioned below. On August 22, 2007, the third tranche of the Term Facility of $150 million was drawn in Euros. The amount drawn in Euros of €104.6 million was established at the prevailing exchange rate at that date. In accordance with the amended credit agreement, the amount available under the first tranche of $700 million can be temporarily reduced in the event of an increase in the exchange rate affecting the amount drawn under the third and fourth tranches. The Term Facility is repayable on July 28, 2011, except for the third tranche of €104.6 million; €10.5 million of which was repaid on July 28, 2008; the remainder of which is repayable as follows: €15.7 million on July 28, 2009, €26.1 million on July 28, 2010 and the balance on July 28, 2011. Earlier repayments can be made without penalty. The Term Facility requires commitment fees, and interest rates are based on bankers’ acceptance, LIBOR, EURIBOR, bank prime rate loan or US base rate loan plus stamping fees.

32 COGECO INC. 2008 Management’s Discussion and Analysis

The Term Facility is secured by a first fixed and ﬂoating charge on the assets of the cable subsidiary and certain of its subsidiaries, and provides for certain permitted encumbrances, including purchased money obligations, existing funded obligations and charges granted by any subsidiary prior to the date when it becomes a subsidiary, subject to a maximum amount. The provisions under these facilities provide for restrictions on the operations and activities of Cogeco Cable. 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. As at August 31, 2008, Cogeco Cable had used $467.6 million of its $885 million Term Facility for a remaining availability of $417.4 million and was in compliance with all of its covenants.

The Company continues to satisfy the various conditions stipulated in its ﬁnancing agreements whilst being on schedule to meet interest and principal repayment obligations. Of all of the Company’s debt instruments, the bank facilities usually set the most restrictive limitations on the Company’s activities and operations. The most important restrictions cover maintaining certain ﬁnancial ratios, authorized investments, disposal of assets, reimbursement of long-term debt and distributions to shareholders.

Transfers of funds from non-wholly owned subsidiaries to COGECO are subject to approval by the subsidiaries’ Board of Directors and may also be restricted under the terms and conditions of certain debt instruments. In accordance with applicable corporate and securities laws, signiﬁcant transfers of funds from COGECO may be subject to approval by minority shareholders.

On March 5, 2008, Cogeco Cable issued a $100 million Senior Unsecured Debenture by way of private placement. As previously discussed, the proceeds of this issuance were primarily used to finance the recent acquisitions.

On October 1, 2008, Cogeco Cable completed, pursuant to a private placement, the issuance of US$190 million Senior Secured Notes Series A maturing October 1, 2015, and $55 million Senior Secured Notes Series B maturing October 1, 2018. The Senior Secured Notes Series B bear interest at the coupon rate of 7.60% per annum, payable semi-annually. In addition, the cable subsidiary entered into cross-currency swap agreements to fix the liability for interest and principal payments on the Senior Secured Notes Series A, which bear interest at the coupon rate of 7.00% per annum, payable semi-annually. Taking into account these agreements, the effective interest rate of the Senior Secured Notes Series A is 7.24% and the exchange rate applicable to the principal portion of the US dollar-denominated debt has been fixed at $1.0625. The net proceeds of $255 million will be used to repay the US$150 million Senior Secured Notes Series A maturing on October 31, 2008, including the related derivative financial instruments, for a total of $238.7 million and to reduce existing Indebtedness.

As at August 31, 2008, the Company had a working capital deficiency of $611.8 million compared to $127.3 million as at August 31, 2007. The increased deficiency is mainly attributable to the principal repayments on the long-term debt due within the next fiscal year of $413.1 million as described below. As part of the usual conduct of its cable business, COGECO maintains a working capital deficiency due to a low level of accounts receivable since the majority of the cable subsidiary’s customers pay before their services are rendered, unlike accounts payable and accrued liabilities, which are paid after products are delivered or services are rendered, thus enabling Cogeco Cable to use cash and cash equivalents to reduce Indebtedness.

During the next ﬁve years, the required principal repayments on COGECO’s long-term debt, excluding those under capital leases, amount to $1,047.7 million. Cogeco Cable’s US$150 million Senior Secured Notes Series A and the related derivative financial instruments for a total of $238.7 million, the $150 million Senior Secured Debentures Series 1 and the €15.7 million ($24.4 million) portion of the third tranche of its Term Facility will have to be repaid in fiscal 2009 for a total amount of $413.1 million. The €26.1 million ($40.7 million) portion of the third tranche of the cable subsidiary’s Term Facility will have to be repaid in fiscal 2010. The remaining portion of Cogeco Cable’s Term Facility drawn for an amount of $399.8 million and the Company’s Term Facility of $19 million will have to be repaid in fiscal 2011 for an aggregate amount of $418.5 million. Finally, Cogeco Cable’s Senior Secured Notes Series B of $175 million will have to be repaid in fiscal 2012. Based on the aggregate availability of $448.4 million as at August 31, 2008 under its committed Term Facilities, the anticipated free cash flow of $95 million for fiscal 2009 as well as the private placement concluded by Cogeco Cable on October 1, 2008 for net proceeds of $255 million discussed above, the Company has the ability to manage its long-term debt maturities until the expiry of its Term Facilities. In the years to come, management expects to use most of its annual free cash flows to reduce Indebtedness. Management believes that the committed Term Facilities will provide sufficient liquidity to manage the maturities of its long-term debt and satisfy working capital requirements and that the next key refinancing milestones are related to the maturities of the Company’s Term Facility in December 2010 and of Cogeco Cable’s Term Facility in July 2011. Refer to page 18 of this MD&A for a detailed description of financial risks.

In fiscal 2008, Fitch Ratings (“Fitch”) initiated rating coverage on Cogeco Cable. Fitch assigned a rating of BBB- for the Senior Secured Debentures and Notes. In fiscal 2007, Dominion Bond Rating Service (“DBRS”) and Standard & Poor’s Ratings Services (“S&P”) upgraded Cogeco Cable’s ratings. DBRS upgraded the rating of the Senior Secured Debentures and Notes to a BBB (low) from a BB (high) rating based on the lower leverage as a result of the issue of 8,000,000 subordinate voting shares to reduce Indebtedness. S&P also upgraded the Senior Secured Debentures and Notes to a BBB- (positive outlook) from a BB+ rating due to the issue of 8,000,000 subordinate voting shares to reduce Indebtedness.

Management’s Discussion and Analysis COGECO INC. 2008 33

FOREIGN EXCHANGE MANAGEMENT

The Company has established guidelines whereby currency swap agreements can be used to manage risks associated with ﬂuctuations in exchange rates related to its US dollar denominated long-term debt. All such agreements are exclusively used for hedging purposes. In order to minimize the risk of counter-party default, COGECO completes transactions with ﬁnancial institutions that carry a credit rating equal or superior to its own credit rating.

The Company’s subsidiary, Cogeco Cable has entered into cross-currency swap agreements to set the liability for interest and principal payments on its US$150 million Senior Secured Notes. These agreements have the effect of converting the US interest coupon rate of 6.83% per annum to an average Canadian dollar ﬁxed interest rate of 7.254% per annum. The exchange rate applicable to the principal portion of the debt has been ﬁxed at $1.5910. Amounts due under the US$150 million Senior Secured Notes, Series A increased by $0.9 million at August 31, 2008 compared to August 31, 2007 due to the Canadian dollar’s appreciation. The fair value of cross-currency swap agreements decreased by a net amount of $3.7 million, of which $0.9 million offset the foreign exchange gain on the US-denominated debt. The difference of $2.8 million was recorded as an increase of other comprehensive income, net of income taxes of $0.9 million and non-controlling interest of $1.3 million. Cogeco Cable has also entered into cross-currency swap agreements to set the liability for interest and principal on its new US$190 million financing completed on October 1, 2008 as previously discussed.

Furthermore, Cogeco Cable’s net investment in self-sustaining foreign subsidiaries is exposed to market risk attributable to fluctuations in foreign currency exchange rates, primarily changes in the value of the Canadian dollar versus the Euro. This risk is mitigated since the major part of the purchase price for Cabovisão was borrowed directly in Euros. This debt is designated as a hedge of a net investment in self-sustaining foreign subsidiaries and, accordingly, Cogeco Cable realized a foreign exchange gain of $18.8 million in 2008, which is presented net of non-controlling interest of $12.7 million in the consolidated statements of comprehensive income. The exchange rate used to convert the Euro into Canadian dollars for the balance sheet accounts as at August 31, 2008 was $1.5580 per Euro compared to $1.4390 per Euro as at August 31, 2007. The average exchange rate prevailing during the 2008 year used to convert the operating results of the European operations was $1.5098 per Euro compared to $1.4803 per Euro for fiscal 2007.

The following table shows the Canadian dollar equivalents of the Euro-denominated results of operations. Based on the Company’s fiscal 2008 results of operations, a 10% change in the average exchange rate of the Euro currency into Canadian dollar would increase or decrease the full-year revenue, operating income before amortization and net income by the following amounts:

YEARS ENDED AUGUST 31, 2008 AS REPORTED EXCHANGE RATE IMPACT (in thousands of dollars) $ $

REVENUE 243,690 24,369 OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE AMORTIZATION 88,495 8,850 NET INCOME 16,988 1,699

34 COGECO INC. 2008 Management’s Discussion and Analysis

COMMITMENTS AND GUARANTEES

COGECO and its subsidiaries’ contractual obligations as at August 31, 2008 are shown in the table below:

YEARS ENDED AUGUST 31, 2009 2010 2011 2012 2013 THERE- TOTAL AFTER (in thousands of dollars) $ $ $ $ $ $ $ LONG-TERM DEBT(1) 413,102 40,736 418,812 175,002 – 100,000 1,147,652 CAPITAL LEASE OBLIGATIONS (2) 3,909 2,915 1,686 951 – – 9,461 OPERATING LEASES AND OTHERS(3) 27,382 20,599 16,166 13,958 12,679 26,480 117,264 OTHER LONG-TERM OBLIGATIONS(4) – – – – – – 1,161,759 TOTAL CONTRACTUAL OBLIGATIONS(5) 444,393 64,250 436,664 189,911 12,679 126,480 2,436,136

(1) INCLUDES PRINCIPAL REPAYMENTS AND THE IMPACT OF CROSS-CURRENCY SWAP AGREEMENTS BUT EXCLUDES CAPITAL LEASES. (2) INCLUDES PRINCIPAL REPAYMENTS AND FINANCIAL EXPENSE. (3) INCLUDES LEASE AGREEMENTS AND OTHER LONG-TERM CONTRACTS AND LICENSE CONDITIONS. (4) OTHER LONG-TERM LIABILITIES REFLECTED ON COGECO’S BALANCE SHEET INCLUDES DEFERRED AND PREPAID INCOME AND OTHER LIABILITIES, PENSION PLAN LIABILITIES AND ACCRUED EMPLOYEE BENEFITS, FUTURE INCOME TAX LIABILITIES AND NON-CONTROLLING INTEREST. THE NATURE OF THOSE OBLIGATIONS PREVENTS THE COMPANY FROM ESTIMATING AN ANNUAL BREAKDOWN. (5) ANNUAL BREAKDOWN EXCLUDES OTHER LONG-TERM OBLIGATIONS.

At August 31, 2008, CRTI is committed to paying an amount of $0.7 million over a three-year period ($0.9 million over a four-year period at August 31, 2007) for the beneﬁt of Canadian artists. This commitment is included in “License conditions” in the table above.

In the normal course of business, the Company and its subsidiaries enter into agreements containing features that meet the criteria for a guarantee. In connection with the acquisition or sale of businesses or assets, in addition to possible indemnification relating to failure to perform covenants and breach of representations and warranties, the Company’s subsidiaries, Cogeco Cable and CRTI have agreed to indemnify the seller or the purchaser against claims related to events that occurred prior to the date of acquisition or sale. The term and amount of such indemnification will sometimes be limited by the agreement. The nature of these indemnification agreements prevents the Company from estimating the maximum potential liability required to be paid to guaranteed parties. In management’s opinion, the likelihood that a significant liability will be incurred under these obligations is low. The Company and its subsidiaries have purchased directors’ and officers’ liability insurance with a deductible per loss. As at August 31, 2008 and 2007, no liability associated with these indemnifications has been recorded.

Under the terms of the Term Facility, the Senior Secured Notes and the Second Secured Debentures Series A, the Company’s cable subsidiary, Cogeco Cable, has agreed to indemnify the other parties against changes in regulation relative to withholding taxes and costs incurred by the lenders due to changes in laws. These indemnifications extend for the term of the related financings and do not provide any limit on the maximum potential liability. The nature of the indemnification agreement prevents Cogeco Cable from estimating the maximum potential liability it could be required to pay. As at August 31, 2008 and 2007, no liability associated with these indemnifications has been recorded.

During fiscal 2008, the Company’s subsidiary, Cogeco Cable, guaranteed the payment by Cabovisão of stamp taxes for the 2000 through 2002 years amounting to €1.7 million and withholding taxes for the 2004 year amounting to €2 million assessed by the Portuguese tax authorities, which are currently being challenged by Cabovisão. Even though the principal amounts in dispute are fully recorded in the books of its subsidiary Cabovisão, Cogeco Cable may be required to pay the amounts following final judgements, up to a maximum aggregate amount of €3.7 million ($5.7 million), should Cabovisão fail to pay such required amounts.

In addition, during fiscal 2007, the cable subsidiary guaranteed the payment by Cabovisão of certain taxes for municipal rights of way assessed by the Municipality of Seixal in Portugal for the years 2004 and 2005, totalling €5.7 million, which are currently being challenged by Cabovisão. Trustworthy financial guarantees were required under applicable Portuguese law in order for Cabovisão to challenge these amounts and withhold payment thereof until a final judgement, no longer subject to appeal, is rendered by the Portuguese courts having jurisdiction in this matter. As a result, Cogeco Cable may be required to pay, upon written demand by the Municipality of Seixal, the required amounts following final judgement, up to a maximum aggregate amount of €5.7 million ($8.9 million), should Cabovisão fail to pay such required amounts.

The Company’s subsidiary CRTI indemnifies certain of its on-air hosts against charges, costs and expenses as a result of any lawsuit, resulting from judicial or administrative proceedings in which they are named as defending party and arising from the performance of their services. The claims covered by such indemnifications are subject to statutory or other legal limitation periods. The nature of the indemnification agreements prevents the Company’s subsidiary from making a reasonable estimate of the maximum potential amount it could be required to pay to beneficiaries of such indemnification agreements. The Company has

Management’s Discussion and Analysis COGECO INC. 2008 35

purchased employees’ and contractuals’ liability insurance with a deductible per loss. As at August 31, 2008 and 2007, no liability associated with these indemniﬁcations has been recorded.

Supplementary information on guarantees is presented in note 20 on page 78.

NON-GAAP FINANCIAL MEASURES

This section describes non-GAAP financial measures used by COGECO throughout this MD&A. It also provides reconciliations between these non-GAAP measures and the most comparable GAAP financial measures. These financial measures do not have standard definitions prescribed by Canadian GAAP and may not be comparable with similar measures presented by other companies. These measures include “cash flow from operations”, “free cash flow”, “operating income before amortization”, “operating margin” and “net income excluding gain or loss on dilution resulting from the issuance of shares by a subsidiary, loss from discontinued operations and income tax adjustments, net of non-controlling interest”.

CASH FLOW FROM OPERATIONS AND FREE CASH FLOW

Cash flow from operations is used by COGECO’s management and investors to evaluate cash flows generated by operating activities excluding the impact of changes in non-cash operating items. This allows the Company to isolate the cash flow from operating activities from the impact of cash management decisions. Cash flow from operations is subsequently used in calculating the non-GAAP measure “free cash flow”. Free cash flow is used by COGECO’s management and investors to measure the Company’s ability to repay debt, distribute capital to its shareholders and finance its growth.

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

YEARS ENDED AUGUST 31, 2008 2007 (in thousands of dollars) $ $

CASH FLOW FROM OPERATING ACTIVITIES 398,491 210,562 CHANGES IN NON-CASH OPERATING ITEMS (35,703) 73,003

CASH FLOW FROM OPERATIONS 362,788 283,565

Free cash flow is calculated as follows:

YEARS ENDED AUGUST 31, 2008 2007 (in thousands of dollars) $ $

CASH FLOW FROM OPERATIONS 362,788 283,565 ACQUISITION OF FIXED ASSETS (229,181) (221,015) INCREASE IN DEFERRED CHARGES (27,696) (30,042) ASSETS ACQUIRED UNDER CAPITAL LEASES – AS PER NOTE 17 B) ON PAGE 73 (5,475) (3,084) FREE CASH FLOW 100,436 29,424

36 COGECO INC. 2008 Management’s Discussion and Analysis

OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE AMORTIZATION AND OPERATING MARGIN

Operating income before amortization is used by COGECO’s management and investors to assess the Company’s ability to seize growth opportunities in a cost effective manner, to finance its ongoing operations and to service its debt. Operating income before amortization is a proxy for cash flow from operations excluding the impact of the capital structure chosen, and is one of the key metrics used by the financial community to value the business and its financial strength. Operating margin is a measure of the proportion of the Company's revenue which is left over, before taxes, to pay for its fixed costs, such as interest on Indebtedness. Operating margin is calculated by dividing operating income from continuing operations 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:

YEARS ENDED AUGUST 31, 2008 2007 (in thousands of dollars, except percentages) $ $

OPERATING INCOME FROM CONTINUING OPERATIONS 219,170 180,014

AMORTIZATION 229,724 191,221 OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE AMORTIZATION 448,894 371,235 REVENUE 1,108,900 969,335 OPERATING MARGIN 40.5% 38.3%

NET INCOME EXCLUDING THE GAIN OR LOSS ON DILUTION RESULTING FROM THE ISSUANCE OF SHARES BY A SUBSIDIARY, LOSS FROM DISCONTINUED OPERATIONS AND INCOME TAX ADJUSTMENTS NET OF NON-CONTROLLING INTEREST Net income excluding the gain or loss on dilution resulting from the issuance of shares by a subsidiary, loss from discontinued operations and income tax adjustments net of non-controlling interest is used by COGECO’s management and investors in order to evaluate what would have been the net income excluding these adjustments. This allows the Company to isolate the one time adjustments in order to evaluate the net income from ongoing activities.

The most comparable Canadian GAAP financial measure is net income. Net income excluding the gain or loss on dilution resulting from the issuance of shares by a subsidiary, loss from discontinued operations and income tax adjustments net of non-contolling interest is calculated as follows:

YEARS ENDED AUGUST 31, 2008 2007 (in thousands of dollars) $ $

NET INCOME 25,108 74,740 ADJUSTMENTS: LOSS (GAIN) ON DILUTION RESULTING FROM THE ISSUANCE OF SHARES BY A SUBSIDIARY 104 (57,930) LOSS FROM DISCONTINUED OPERATIONS 18,057 10,883 INCOME TAX ADJUSTMENTS NET OF NON-CONTROLLING INTEREST (7,909) (5,256)

NET INCOME EXCLUDING ABOVE ADJUSTMENTS 35,360 22,437

Management’s Discussion and Analysis COGECO INC. 2008 37

THREE-YEAR ANNUAL FINANCIAL HIGHLIGHTS AND QUARTERLY FINANCIAL HIGHLIGHTS

THREE-YEAR ANNUAL FINANCIAL HIGHLIGHTS

YEARS ENDED AUGUST 31, 2008(1) 2007(2) 2006(2)(3) (in thousands of dollars, except per share data) $ $ $

REVENUE 1,108,900 969,335 646,750 OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE AMORTIZATION 448,894 371,235 259,517 INCOME FROM CONTINUING OPERATIONS 43,165 85,623 27,934 LOSS FROM DISCONTINUED OPERATIONS (18,057) (10,883) (4,833) NET INCOME 25,108 74,740 23,101 FREE CASH FLOW 100,436 29,424 34,266 TOTAL ASSETS 3,059,481 2,836,759 2,723,963 LONG TERM LIABILITIES 1,898,814 2,129,445 1,921,948 PER SHARE DATA(4)

BASIC INCOME FROM CONTINUING OPERATIONS 2.59 5.16 1.69 LOSS FROM DISCONTINUED OPERATIONS (1.08) (0.66) (0.29) NET INCOME 1.50 4.50 1.40

DILUTED INCOME FROM CONTINUING OPERATIONS 2.58 5.13 1.68 LOSS FROM DISCONTINUED OPERATIONS (1.08) (0.65) (0.29) NET INCOME 1.50 4.48 1.39

DIVIDEND 0.28 0.2725 0.25

(1) INCLUDES THE RESULTS OF CDS SINCE THE DATE OF ACQUISITION OF CONTROL ON AUGUST 1, 2006. (2) THE COMPARATIVE FIGURES REFLECT THE RECLASSIFICATION OF DISCONTINUED OPERATIONS. PLEASE REFER TO NOTE 19 ON PAGE 76 OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR FURTHER DETAILS. (3) INCLUDES THE RESULTS OF CABOVISÃO SINCE THE DATE OF ACQUISITION OF CONTROL ON AUGUST 1, 2006. (4) PER MULTIPLE AND SUBORDINATE VOTING SHARE.

38 COGECO INC. 2008 Management’s Discussion and Analysis

QUARTERLY FINANCIAL HIGHLIGHTS COGECO’s revenue has consistently grown over the last eight quarters mainly as a result of improved penetration of HSI, Telephony, Basic Cable and Digital Television services, rate increases and the recent acquisitions in the cable sector in fiscal 2008.

Furthermore, COGECO has focused on improving its quarterly operating income before amortization and cash ﬂow from operations compared to the prior year. Management believes that this kind of consistent ﬁnancial performance leads to strong shareholder value creation.

CRTI’s revenue and operating income before amortization are usually weaker in the second and fourth quarters due to the seasonal factors explained below. Consequently, COGECO’s revenue, operating income before amortization and net income are usually lower in the second and fourth quarters.

FISCAL 2008 FISCAL 2007

(1) (2) (2) (2) (2) (2) QUARTERS ENDED NOV. 30 FEB. 29 MAY 31 AUG. 31 NOV. 30 FEB. 28 MAY 31 AUG. 31

(in thousands of dollars, except percentages and per share data) $$$$$ $ $ $ REVENUE CABLE 251,833 265,102 274,944 284,908 223,002 231,952 240,612 244,314 OTHER(3) 8,422 6,792 8,934 7,965 8,231 6,426 8,812 6,986 260,255 271,894 283,878 292,873 230,233 238,378 249,424 251,300 OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE AMORTIZATION CABLE 98,337 108,481 117,490 121,116 83,662 86,791 97,874 102,426 OTHER 2,872 865 (286) 19 3,709 687 (2,083) (1,831) OPERATING INCOME BEFORE AMORTIZATION 101,209 109,346 117,204 121,135 87,371 87,478 95,791 100,595 OPERATING MARGIN FROM CONTINUING OPERATIONS CABLE 39.0% 40.9% 42.7% 42.5% 37.5% 37.4% 40.7% 41.9% CONSOLIDATED 38.9% 40.2% 41.3% 41.4% 37.8% 36.7% 38.4% 40.0% INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND OTHER ITEMS(4) 30,802 35,627 40,894 41,178 21,002 19,545 26,463 26,948 NET INCOME FROM CONTINUING OPERATIONS 7,656 16,315 9,538 9,656 6,846 36,655 5,025 37,097 NET LOSS FROM DISCONTINUED OPERATIONS (17,632) (425) – – (95) (2,109) (1,966) (6,713) NET INCOME (LOSS) (9,976) 15,890 9,538 9,656 6,751 34,546 3,059 30,384 CASH FLOW FROM CONTINUING OPERATIONS 81,377 85,374 96,068 99,969 65,197 63,353 76,862 78,153 EARNINGS (LOSS) PER SHARE(5) BASIC INCOME FROM CONTINUING OPERATIONS 0.46 0.98 0.57 0.58 0.41 2.21 0.30 2.23 LOSS FROM DISCONTINUED OPERATIONS (1.06) (0.03) – – (0.01) (0.13) (0.12) (0.40) NET INCOME (LOSS) (0.60) 0.95 0.57 0.58 0.41 2.08 0.18 1.83 DILUTED INCOME FROM CONTINUING OPERATIONS 0.46 0.97 0.57 0.58 0.41 2.20 0.30 2.21 LOSS FROM DISCONTINUED OPERATIONS (1.06) (0.03) – – (0.01) (0.13) (0.12) (0.40) NET INCOME (LOSS) (0.60) 0.95 0.57 0.58 0.41 2.07 0.18 1.81

(1) THE ADDITION OF QUARTERLY INFORMATION MAY NOT CORRESPOND TO THE ANNUAL TOTAL DUE TO ROUNDING. (2) THE RESULTS FOR THE FIRST QUARTER OF FISCAL 2008 AND ALL COMPARATIVE FIGURES REFLECT THE RECLASSIFICATION OF DISCONTINUED OPERATIONS. PLEASE REFER TO NOTE 19 ON PAGE 76 OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR FURTHER DETAILS. (3) INCLUDES RADIO OPERATIONS, HEAD OFFICE ACTIVITIES AND ELIMINATIONS (4) INCOME BEFORE INCOME TAXES, NON-CONTROLLING INTEREST, SHARE IN THE LOSS OF A GENERAL PARTNERSHIP AND GAIN OR LOSS ON DILUTION RESULTING FROM THE ISSUANCE OF SHARES BY A SUBSIDIARY. (5) PER MULTIPLE AND SUBORDINATE VOTING SHARE.

Management’s Discussion and Analysis COGECO INC. 2008 39

SEASONAL VARIATIONS Cogeco Cable’s operating results are not generally subject to material seasonal ﬂuctuations. However, the loss in Basic Cable service customers is usually greater, and the addition of HSI service customers is generally lower in the third quarter, mainly due to students leaving their campuses at the end of the school year. Cogeco Cable offers its services in several university and college towns such as Kingston, Windsor, St. Catharines, Hamilton, Peterborough, Trois-Rivières and Rimouski in Canada, and Aveiro, Covilhã, Evora, Guarda and Coimbra in Portugal.

Furthermore, the operating margin in the third and fourth quarters is generally higher as the maximum amount payable to COGECO under the management agreement is usually reached in the second quarter of the year. As part of the management agreement between Cogeco Cable and COGECO, Cogeco Cable pays management fees to COGECO equivalent to 2% of its revenue subject to an annual maximum amount, which is adjusted annually to reflect the increase in the Consumer Price index in Canada. For fiscal 2008 and 2007, the maximum amounts of $8.7 million and $8.6 million, respectively, were attained in the second quarters and therefore, no management fees were paid in the third or fourth quarters of the 2008 and 2007 fiscal years.

The other sector’s operating results may be subject to signiﬁcant seasonal variations. Advertising revenue depends on audience ratings and the market for radio advertising expenditures in the Province of Québec. Audience ratings may vary due to a number of factors, including on-air personalities, programming content and promotional activities. Advertising level may also vary due to many factors, including general economic and consumer retail market conditions and cycles. Advertising sales, mainly for national advertising, are normally weaker in the second and fourth quarters and, accordingly, the operating margin is generally lower in those quarters.

2008 VS 2007 FOURTH QUARTER OPERATING RESULTS In the cable sector, Canadian operations’ fourth-quarter 2008 RGU net additions were higher than for the same period last year but reflect an early sign of maturation in some services. The net loss of customers for Basic Cable in the Canadian market stood at 1,476 customers compared to 2,627 customers for the same period last year. Fourth-quarter Basic Cable service customer losses reflect traditional seasonality and are due to the end of the school year for college and university students. In addition, 2007 fourth- quarter net losses were unusually high due to an attractive promotional offer that ended in the third quarter of fiscal 2007 which resulted in a higher than normal number of customer disconnections for the fourth quarter of fiscal 2007. The number of net additions to HSI service stood at 8,799 customers compared to 12,363 customers for the same period last year. Telephony customers grew in Canada, with net additions of 19,436 to reach 219,601 compared to a growth of 21,173 for the same period last year. Canadian net additions of Digital Television service stood at 16,150 customers compared to 8,747 customers for the same period last year due to targeted marketing initiatives in 2008 to improve the penetration rate and the continuing strong interest for HD technology.

European operations’ 2008 fourth-quarter and fiscal year were marked by an unfavourable economic climate in the Iberian Peninsula, aggressive advertising campaigns from competitors and from the emergence of multiple triple-play providers in the Portuguese market. Cabovisão chose not to match the competition’s intensive advertising programs due to the difficult economic environment. The Digital Television service was launched in the third quarter of 2008, with net additions of 9,982 customers in the fourth quarter, for a total of 24,452 net additions since the launch, surpassing management expectations. Fiscal 2008 fourth-quarter Basic Cable service decreased by 4,456 customers compared to a growth of 4,756 in 2007. HSI service decreased by 5,009 customers compared to an increase of 2,936 in 2007, and Telephony service decreased by 2,326 customers compared to a growth of 2,228 for the same period of the preceding year.

Consolidated revenue for the fourth quarter rose by $41.6 million, or 16.5% compared to the same period last year. Cable revenue, driven by an increased number of RGU combined with rate increases and the recent acquisitions went up by $40.6 million, or 16.6%. Other sector revenue increased by $1 million, or 14%, in the fourth quarter 2008 due favourable ratings for the Company’s radio stations.

Operating income before amortization grew by $20.5 million, or 20.4%, to reach $121.1 million in the fourth quarter 2008, compared to $100.6 million for the same period last year. The cable sector contributed to an increase of $18.7 million and the remainder was due to the other sector.

In the cable sector, operating costs increased by $21.9 million, or 15.4%, of which $17.6 million, representing an increase of 16.5%, are attributable to the Canadian operations. The rise in costs is mainly due to servicing additional RGU and the impact of the recent acquisitions. For the fourth quarter 2008, operating costs in the European operations amounted to $39.3 million compared to $35 million for the same period in 2007. In the other sector, there was an overall decrease in operating costs due to cost containment measures.

40 COGECO INC. 2008 Management’s Discussion and Analysis

Net income for the fourth quarter 2008 amounted to $9.7 million, or $0.58 per share, compared to $30.4 million, or $1.83 per share for the same period last year. The net income decrease in the fourth quarter of fiscal 2008 was mainly due the following factors in the fourth of quarter of fiscal 2007: a gain on dilution of $27 million resulting from the issuance of shares by Cogeco Cable and a reduction in income taxes, net of non-controlling interest, of $4.8 million, partly offset by the loss of $6.7 million from discontinued operations and the increase in operating income before amortization in fiscal 2008 in the cable sector.

Excluding the effect of the adjustments described above, net income for the fourth quarter of fiscal 2008 would have amounted to $9.7 million, or $0.58 per share, compared to $5.3 million, or $0.32 per share, for the same period in 2007, improvements of 82.2% and 81.3%, respectively. The increase in net income, excluding all adjustments described above, is mainly due to the growth in operating income before amortization exceeding those of the fixed charges.

Cash ﬂow from operations increased by $21.8 million, or 27.9%, to reach $100 million, mainly due to the increase in operating income before amortization and to the increase in future income taxes in the cable sector. Changes in non-cash operating items generated higher cash inflows compared to the same period last year, mainly as a result of an increase in accounts payable and accrued liabilities and in income tax liabilities, net of increases in accounts receivable and prepaid expenses.

In the fourth quarter of fiscal 2008, investing activities, other than for business acquisitions, stood at $76 million compared to $68.4 million in the prior year mainly due to capital expenditures of $68.9 million and from an increase of $7 million in deferred charges in the cable sector. The capital expenditures from the cable sector increased by $10.5 million compared to the same period last year due to the following factors:

• An increase in customer premise equipment capital spending resulting from higher RGU growth fuelled in part by increased interest for HD technology for the Canadian operations combined with the deployment of Digital Television in Portugal, partly offset by lower RGU growth in Portugal; • An increase in scalable infrastructure capital spending mainly due to the timing of the expansion and the head-end improvements, system powering and equipment reliability to sustain increased customer demand for HSI and Telephony services; • An increase in capital expenditures associated with the network upgrade and rebuild due to the construction costs incurred to increase the number of homes passed in Portugal.

Deferred charges and others are mainly attributable to reconnect costs. The increase in deferred charges in the fourth quarter amounted to $7 million compared to $10.8 million for the same period the year before. Lower RGU growth explained the lower increases recorded in 2008.

In the fourth quarter of 2008, the Company generated free cash flow amounting to $21 million, compared to $9.1 million for the same period of the preceding year. The free cash flow improvement over the prior year is mainly due to the cable sector and attributable to an increase in operating income before amortization and a reduction in financial expense net of increases in capital expenditures.

In the fourth quarter of 2008, Indebtedness affecting cash increased by $102.6 million. This increase is primarily due to the increase, in the cable sector, in long-term debt to finance the recent acquisitions completed in the quarter for an aggregate amount of $214.8 million and the increase in bank indebtedness, partly offset by the cash inflows of $46.1 million from the changes in non-cash operating items, the free cash flow of $21 million, and the use of cash and cash equivalents.

During the fourth quarter of fiscal 2007, the level of Indebtedness decreased by $138.1 million. The decrease in the level of Indebtedness was essentially due to the repayment of Term Facility in the amount of $146.5 million using the public offering net proceeds of $146.9 million in the cable sector. In addition, dividends of $0.07 per share for subordinate and multiple voting shares, totalling $1.2 million, were paid by the Company during the fourth quarters of fiscal 2008 and fiscal 2007. Dividends paid by a subsidiary to non-controlling interests were $3.3 million during the fourth quarter of fiscal 2008, for consolidated dividend payments of $4.5 million.

On August 9, 2007, the Company’s subsidiary, Cogeco Cable announced the completion of a public offering of 3,000,000 subordinate voting shares for gross proceeds of $153.5 million. The offering resulted in net proceeds to Cogeco Cable of approximately $146.9 million, which were used to reduce long-term indebtedness and working capital deficiency.

Management’s Discussion and Analysis COGECO INC. 2008 41

FISCAL 2009 FINANCIAL GUIDELINES

CABLE SECTOR

For fiscal 2009, Cogeco Cable expects to grow revenue and operating income before amortization. The guidelines take into consideration the global economical slowdown that is occurring and should continue throughout 2009. In Canada and Portugal, mortgage interest rate increases and higher commodity prices are leaving consumers with a lower level of disposable income. In addition, Portugal’s anticipated gross domestic product growth for 2009 will be negatively impacted as the Government deficit will be one of the highest of the European Union in recent history, while the competitive landscape should remain unchanged. Results from this scenario should generate slower growth when compared to prior years. These guidelines are also taking into account the recent acquisitions completed in fiscal 2008.

The revenue increase of approximately 12% should essentially come from Canadian operations as well as from the recent acquisitions. The Canadian operations revenue should increase by approximately 12.7% from continued deployment of the Telephony service, by expanded penetration of the HSI and Digital Television services in fiscal 2008 and 2009, by the impact of the rate increases implemented in fiscal 2008 in Ontario and in Québec, averaging $1.60 per Basic Cable service customer for both divisions. Cogeco Cable plans to expand its Canadian Basic Cable service clientele through consistently effective marketing, competitive product offerings and superior customer service. As the penetration of HSI, Telephony and Digital Television services increases, the demand for these products should slow, reflecting maturity. Revenue from European operations should decrease by approximately 2.4% from €161.3 million to €157.4 million mainly due to a decline in RGU partly offset by rate increases of approximately €1.60 ($2.40) per Basic Cable service customer implemented in fiscal 2008 and by the launch of Digital Television service in the second half of fiscal 2008. For fiscal 2008, the average Canadian dollar value of the Euro was $1.5098 per Euro while for fiscal 2009. it is anticipated that the Euro should be converted at a rate of approximately $1.50 per Euro, thus the foreign exchange rates are not expected to have a significant impact on revenue in fiscal 2009.

Growth in revenue and sustained cost control should help achieve a significant increase in operating income before amortization by approximately 14% to reach $508 million. Cogeco Cable expects to achieve an operating margin of approximately 42%.

Cogeco Cable expects the amortization of capital assets and deferred charges to increase by approximately $47 million, mainly due to capital expenditures and deferred charges for RGU additions in fiscal 2008 and 2009 and to the impact of the recent acquisitions. Management expects that cash flows generated by operations will finance capital expenditures and deferred charges, expected to amount to $300 million, an increase compared to fiscal 2008 mainly due to the recent acquisitions. Cogeco Cable expects to generate free cash flow in the order of $90 million, a decrease of approximately $9 million compared to fiscal 2008. Generated free cash flow should be used primarily to reduce Indebtedness, thus improving Cogeco Cable’s leverage ratios. Given the increase in the level of Indebtedness in the second half of fiscal 2008 due to recent acquisitions, partly offset by the expected generated free cash flow for fiscal 2009, financial expense should increase slightly to $70 million. Net income of approximately $107 million should be achieved as a result of growth in operating income before amortization exceeding the increase in fixed charges.

OTHER SECTOR Revenue should increase to approximately $33 million mainly due to improved audience ratings in radio and operating income before amortization should reach $5 million.

CONSOLIDATED FINANCIAL GUIDELINES For ﬁscal 2009, COGECO expects to improve operating income before amortization by approximately 14%. Free cash ﬂow should generate approximately $95 million and net income of approximately $35 million should be earned as a result of growth in operating income before amortization outpacing fixed charges.

42 COGECO INC. 2008 Management’s Discussion and Analysis

CONSOLIDATED

PROJECTIONS FISCAL 2009 (in millions of dollars) $

FINANCIAL GUIDELINES REVENUE 1,243 OPERATING INCOME BEFORE AMORTIZATION 513 NET INCOME 35 FREE CASH FLOW 95

CABLE SECTOR

PROJECTIONS FISCAL 2009 (in millions of dollars, except net customer additions and operating margin) $

FINANCIAL GUIDELINES REVENUE 1,210 OPERATING INCOME BEFORE AMORTIZATION 508 OPERATING MARGIN 42% FINANCIAL EXPENSE 70 AMORTIZATION 275 CAPITAL EXPENDITURES AND DEFERRED CHARGES 300 FREE CASH FLOW 90

NET CUSTOMER ADDITION GUIDELINES RGU 100,000

The exchange rate used for fiscal 2009 projections is $1.50 per Euro.

OTHER SECTOR

PROJECTIONS FISCAL 2009 (in millions of dollars) $

FINANCIAL GUIDELINES REVENUE 33 OPERATING INCOME BEFORE AMORTIZATION 5

ADDITIONAL INFORMATION

This MD&A was prepared on November 5, 2008. Additional information relating to the Company, including its Annual Information Form, is available on the SEDAR website at www.sedar.com.

Management’s Discussion and Analysis COGECO INC. 2008 43

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS MANAGEMENT'S RESPONSIBILITY 45 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS 47 AUDITORS' REPORT 45 CONSOLIDATED BALANCE SHEETS 48 CONSOLIDATED STATEMENTS OF INCOME 46 CONSOLIDATED STATEMENTS OF CASH FLOWS 49 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 50

44 COGECO INC. 2008 Consolidated Financial Statements

MANAGEMENT’S RESPONSIBILITY

RELATED TO THE CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements of COGECO Inc. (the “Company”) and the financial information contained in this annual report are the responsibility of management. The consolidated financial statements include amounts determined by management based on estimates, which in their opinion are reasonable and fair. The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles and have been approved by the Board of Directors. Operating and financial information used elsewhere in the annual report is consistent with that of the consolidated financial statements.

In fulfilling its responsibilities, management of COGECO Inc. and its subsidiaries has developed, and continues to improve administrative and accounting systems in order to provide reasonable assurance that assets are safeguarded against loss or unauthorized use and maintains internal accounting controls to ensure that financial records are reliable for preparing the financial statements. The Board of Directors carries out its responsibility for the financial statements in this annual report principally through its Audit Committee, which reviews the annual consolidated financial statements of the Company and recommends their approval to the Board of Directors. The committee periodically meets with management and the external auditors to discuss the results of the external and internal examinations and matters having an impact on financial information.

The external auditors appointed by the shareholders, Samson Bélair/Deloitte & Touche s.e.n.c.r.l., Chartered Accountants, are responsible for making an independent examination of the consolidated ﬁnancial statements in accordance with Canadian generally accepted auditing standards and to issue an opinion on the statements. The external auditors have free access to the Audit Committee, with or without the presence of management. Their report follows.

LOUIS AUDET PIERRE GAGNÉ PRESIDENT AND CHIEF EXECUTIVE OFFICER VICE-PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER

Montréal, October 28, 2008

AUDITORS’ REPORT

TO THE SHAREHOLDERS OF COGECO INC.

We have audited the consolidated balance sheets of COGECO Inc. as at August 31, 2008 and 2007 and the consolidated statements of income, comprehensive income, retained earnings and cash ﬂows for the years then ended. These ﬁnancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at August 31, 2008 and 2007 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

CHARTERED ACCOUNTANTS

Montréal, October 28, 2008

Consolidated Financial Statements COGECO INC. 2008 45

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED AUGUST 31, 2008 2007 (in thousands of dollars, except per share data) $ $

REVENUE 1,108,900 969,335 OPERATING COSTS (NOTE 1 L)) 660,006 598,100

OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE AMORTIZATION 448,894 371,235

AMORTIZATION (NOTE 4) 229,724 191,221

OPERATING INCOME FROM CONTINUING OPERATIONS 219,170 180,014

FINANCIAL EXPENSE (NOTE 5) 70,669 86,056 INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND THE FOLLOWING ITEMS 148,501 93,958 INCOME TAXES (NOTE 6) 14,985 11,343 LOSS (GAIN) ON DILUTION RESULTING FROM THE ISSUANCE OF SHARES BY A 104 (57,930) SUBSIDIARY (NOTE 7) NON-CONTROLLING INTEREST 90,152 54,824 SHARE IN THE LOSS OF A GENERAL PARTNERSHIP 95 98 INCOME FROM CONTINUING OPERATIONS 43,165 85,623 LOSS FROM DISCONTINUED OPERATIONS (NOTE 19) (18,057) (10,883)

NET INCOME 25,108 74,740

EARNINGS (LOSS) PER SHARE (NOTE 8) BASIC INCOME FROM CONTINUING OPERATIONS 2.59 5.16 LOSS FROM DISCONTINUED OPERATIONS (1.08) (0.66) NET INCOME 1.50 4.50 DILUTED INCOME FROM CONTINUING OPERATIONS 2.58 5.13 LOSS FROM DISCONTINUED OPERATIONS (1.08) (0.65) NET INCOME 1.50 4.48

46 COGECO INC. 2008 Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED AUGUST 31, 2008 2007 (in thousands of dollars) $ $

NET INCOME 25,108 74,740 OTHER COMPREHENSIVE INCOME UNREALIZED GAINS ON DERIVATIVE FINANCIAL INSTRUMENTS DESIGNATED AS CASH FLOW HEDGES, NET OF INCOME TAX EXPENSE OF $1,045,000 AND NON- CONTROLLING INTEREST OF $1,800,000 861 – RECLASSIFICATION OF REALIZED GAINS TO NET INCOME ON DERIVATIVE FINANCIAL INSTRUMENTS DESIGNATED AS CASH FLOW HEDGES, NET OF INCOME TAX RECOVERY OF $134,000 AND NON-CONTROLLING INTEREST OF $499,000 (237) – UNREALIZED GAINS ON TRANSLATION OF A NET INVESTMENT IN SELF-SUSTAINING FOREIGN SUBSIDIARIES, NET OF NON-CONTROLLING INTEREST OF $35,978,000 ($6,012,000 IN 2007) 17,206 2,888 UNREALIZED LOSSES ON TRANSLATION OF LONG-TERM DEBTS DESIGNATED AS HEDGES OF A NET INVESTMENT IN SELF-SUSTAINING FOREIGN SUBSIDIARIES, NET OF NON- CONTROLLING INTEREST OF $23,281,000 (NET OF INCOME TAX RECOVERY OF $1,685,000 AND NON-CONTROLLING INTEREST OF $5,106,000 IN 2007) (11,133) (2,452)

6,697 436 COMPREHENSIVE INCOME 31,805 75,176

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

YEARS ENDED AUGUST 31, 2008 2007 (in thousands of dollars) $ $

BALANCE AS REPORTED, BEGINNING OF YEAR 274,946 204,734 CHANGES IN ACCOUNTING POLICIES (NOTE 1 B)) 424 – BALANCE AS RESTATED, BEGINNING OF YEAR 275,370 204,734 NET INCOME 25,108 74,740 DIVIDENDS ON MULTIPLE VOTING SHARES (516) (503) DIVIDENDS ON SUBORDINATE VOTING SHARES (4,154) (4,025) BALANCE, END OF YEAR 295,808 274,946

Consolidated Financial Statements COGECO INC. 2008 47

CONSOLIDATED BALANCE SHEETS

AS AT AUGUST 31, 2008 2007 (in thousands of dollars) $ $ ASSETS CURRENT CASH AND CASH EQUIVALENTS 37,472 66,279 ACCOUNTS RECEIVABLE 64,910 52,734 INCOME TAXES RECEIVABLE 3,569 3,138 PREPAID EXPENSES 13,271 8,675 FUTURE INCOME TAX ASSETS (NOTE 6) 8,661 17,986 CURRENT ASSETS RELATED TO DISCONTINUED OPERATIONS (NOTE 19) – 38,700 127,883 187,512

INCOME TAXES RECEIVABLE – 1,345 INVESTMENTS 739 739 FIXED ASSETS (NOTE 9) 1,261,610 1,123,270 DEFERRED CHARGES (NOTE 10) 57,841 55,450 INTANGIBLE ASSETS (NOTE 11) 1,116,382 1,083,750 GOODWILL (NOTE 11) 487,805 342,584 FUTURE INCOME TAX ASSETS (NOTE 6) 7,221 – NON-CURRENT ASSETS RELATED TO DISCONTINUED OPERATIONS (NOTE 19) – 42,109 3,059,481 2,836,759

LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES CURRENT BANK INDEBTEDNESS (NOTE 12) 10,302 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 259,038 220,450 INCOME TAX LIABILITIES 20,793 1,209 DEFERRED AND PREPAID INCOME 32,859 29,837 DERIVATIVE FINANCIAL INSTRUMENTS 79,791 – CURRENT PORTION OF LONG-TERM DEBT (NOTE 13) 336,858 17,327 CURRENT LIABILITIES RELATED TO DISCONTINUED OPERATIONS (NOTE 19) – 46,031 739,641 314,854

LONG-TERM DEBT (NOTE 13) 737,055 1,036,256 SHARE IN THE PARTNERS’ DEFICIENCY OF A GENERAL PARTNERSHIP – 518 DEFERRED AND PREPAID INCOME AND OTHER LIABILITIES 11,859 11,501 PENSION PLANS LIABILITIES AND ACCRUED EMPLOYEE BENEFITS 9,645 7,378 FUTURE INCOME TAX LIABILITIES (NOTE 6) 256,307 267,646 NON-CONTROLLING INTEREST 883,948 788,557 LONG-TERM LIABILITIES RELATED TO DISCONTINUED OPERATIONS (NOTE 19) – 17,589 2,638,455 2,444,299 COMMITMENTS AND CONTINGENCIES (NOTE 20) SHAREHOLDERS’ EQUITY CAPITAL STOCK (NOTE 14) 120,049 119,078 TREASURY SHARES (NOTE 14) (1,522) (1,054) CONTRIBUTED SURPLUS 1,727 499 RETAINED EARNINGS 295,808 274,946 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (NOTE 15) 4,964 (1,009) 421,026 392,460 3,059,481 2,836,759

ON BEHALF OF THE BOARD OF DIRECTORS,

JAN PEETERS PIERRE L. COMTOIS DIRECTOR DIRECTOR

48 COGECO INC. 2008 Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED AUGUST 31, 2008 2007 (in thousands of dollars) $ $

CASH FLOW FROM OPERATING ACTIVITIES INCOME FROM CONTINUING OPERATIONS 43,165 85,623 ADJUSTMENTS FOR: AMORTIZATION (NOTE 4) 229,724 191,221 AMORTIZATION OF DEFERRED TRANSACTION COSTS 3,310 2,226 FUTURE INCOME TAXES (NOTE 6) (9,451) 7,945 NON-CONTROLLING INTEREST 90,152 54,824 LOSS (GAIN) ON DILUTION RESULTING FROM THE ISSUANCE OF SHARES BY A SUBSIDIARY (NOTE 7) 104 (57,930) STOCK-BASED COMPENSATION 2,801 (988) LOSS ON DISPOSAL OF FIXED ASSETS 1,324 220 OTHER 1,659 424 362,788 283,565 CHANGES IN NON-CASH OPERATING ITEMS (NOTE 17 A)) 35,703 (73,003)

398,491 210,562 CASH FLOW FROM INVESTING ACTIVITIES ACQUISITION OF FIXED ASSETS (NOTE 17 B)) (229,181) (221,015) INCREASE IN DEFERRED CHARGES (27,696) (30,042) BUSINESS ACQUISITIONS AND RELATED ADJUSTMENTS, NET OF CASH AND CASH EQUIVALENTS ACQUIRED (NOTE 2) (229,723) 1,265 DECREASE IN RESTRICTED CASH – 591 OTHER (506) 297 (487,106) (248,904) CASH FLOW FROM FINANCING ACTIVITIES INCREASE (DECREASE) IN BANK INDEBTEDNESS 10,302 (1,724) INCREASE IN LONG-TERM DEBT, NET OF ISSUE COSTS 194,897 6,538 REPAYMENT OF LONG-TERM DEBT (132,327) (299,598) ISSUE OF SUBORDINATE VOTING SHARES 971 1,526 ACQUISITION OF TREASURY SHARES (NOTE 14) (468) (1,054) DIVIDENDS ON MULTIPLE VOTING SHARES (516) (503) DIVIDENDS ON SUBORDINATE VOTING SHARES (4,154) (4,025) ISSUE OF SHARES BY A SUBSIDIARY TO NON-CONTROLLING INTEREST, NET OF ISSUE COSTS 3,650 338,124 DIVIDENDS PAID BY A SUBSIDIARY TO NON-CONTROLLING INTEREST (13,115) (6,582) 59,240 32,702 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS DENOMINATED IN FOREIGN CURRENCIES 1,271 1,243 CASH FLOW FROM CONTINUING OPERATIONS (28,104) (4,397) CASH FLOW FROM DISCONTINUED OPERATIONS (NOTE 19) (703) (840) NET CHANGE IN CASH AND CASH EQUIVALENTS (28,807) (5,237) CASH AND CASH EQUIVALENT, BEGINNING OF YEAR 66,279 71,516 CASH AND CASH EQUIVALENTS, END OF YEAR 37,472 66,279

SEE SUPPLEMENTAL CASH FLOW INFORMATION IN NOTE 17.

Consolidated Financial Statements COGECO INC. 2008 49

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Years ended August 31, 2008 and 2007

NATURE OF OPERATIONS

COGECO Inc. (the “Company”) is a Canadian public company whose shares are listed on the Toronto Stock Exchange (“TSX”). The Company is engaged in Cable Television, High Speed Internet (“HSI”), Telephony services and other telecommunications services to its residential and commercial customers in Canada and in Portugal through Cogeco Cable Inc. and in Radio broadcasting through Cogeco Radio-Télévision Inc.

Effective December 18, 2007, the Company has ceased to consolidate the financial statements of TQS Inc., its subsidiaries and 3947424 Canada Inc. (see note 19).

1. SIGNIFICANT ACCOUNTING POLICIES The consolidated ﬁnancial statements are prepared in conformity with Canadian generally accepted accounting principles (“GAAP”).

A) CONSOLIDATION PRINCIPLES

The consolidated financial statements include the accounts of the Company and its subsidiaries, as well as those of variable interest entities for which the Company is the primary beneficiary. Business acquisitions are accounted for under the purchase method and operating results are included in the consolidated financial statements as of the date of the acquisition of control. Other investments are recorded at cost, except for an investment of 20% in a general partnership, Canal Indigo, which was accounted for under the equity method until it was disposed of by the Company in March 2008.

Business segments and percentages in interest of the main subsidiaries are as follows:

SEGMENT PRINCIPAL SUBSIDIARIES PERCENTAGE OF INTEREST VOTING RIGHTS % %

CABLE COGECO CABLE INC. 32.3 82.7

OTHER COGECO RADIO-TÉLÉVISION INC. 100.0 100.0

B) RECENT ACCOUNTING PRONOUNCEMENTS AND CHANGES IN ACCOUNTING POLICIES

ADOPTED DURING FISCAL 2008

i. FINANCIAL INSTRUMENTS

Effective September 1, 2007, the Company adopted the Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 1530, Comprehensive Income, Section 3855, Financial Instruments – Recognition and Measurement, Section 3861, Financial Instruments – Disclosure and Presentation, Section 3865, Hedges and Section 3251, Equity.

50 COGECO INC. 2008 Notes to the Consolidated Financial Statements

amortized cost using the effective interest rate method. The standards allow the Company the option to designate certain financial instruments, on initial recognition, as held-for-trading.

All of the Company's financial assets are classified as held-for-trading or loans and receivables. The Company has classified its cash and cash equivalents as held-for-trading. Accounts receivable have been classified as loans and receivables. All of the Company’s financial liabilities were classified as other liabilities, except for the Company’s subsidiary’s cross-currency swap agreements, which were classified as held-for-trading. Held-for-trading assets and liabilities are carried at fair value on the consolidated balance sheet, with changes in fair value recorded in the consolidated statements of income, except for the changes in fair value of the cross-currency swap agreements, which are designated as cash flow hedges of the Senior Secured Notes Series A and are recorded in other comprehensive income. Loans and receivables and all financial liabilities are carried at amortized cost using the effective interest rate method. Upon adoption, the Company determined that none of its financial assets are classified as available-for-sale or held-to-maturity. Except for the treatment of transaction costs and derivative financial instruments mentioned below, the provisions of the new accounting standards had no impact on the consolidated financial statements on September 1, 2007 and August 31, 2008.

Transaction costs Effective September 1, 2007, transaction costs are capitalized on initial recognition and presented as a reduction of the related financing, except for transaction costs on the revolving loan and the swingline facility, which are presented as deferred charges. These costs are amortized over the term of the related financing using the effective interest rate method, except for transaction costs on the revolving loan and the swingline facility, which are amortized over the term of the related financing on a straight-line basis. Previously, all transaction costs were capitalized and amortized on a straight-line basis over the term of the related financing, a period not exceeding five years. The impact of these adjustments on September 1, 2007 reduced deferred charges by $1.2 million, reduced long-term debt by $3.1 million, increased future income tax liabilities by $0.6 million, increased non-controlling interest by $0.9 million and increased retained earnings by $0.4 million.

Cash flow hedge All derivatives are measured at fair value with changes in fair value recorded in the consolidated statements of income unless they are effective cash flow hedging instruments. The changes in fair value of cash flow hedging derivatives are recorded in other comprehensive income, to the extent effective, until the variability of cash flows relating to the hedged asset or liability is recognized in the consolidated statements of income. Any hedge ineffectiveness is recognized in the consolidated statements of income immediately. Accordingly, the Company’s subsidiary’s cross-currency swap agreements must be measured at fair value in the consolidated financial statements. Since these cross-currency swap agreements are used to hedge cash flows on Senior Secured Notes Series A denominated in US dollars, the changes in fair value are recorded in other comprehensive income. The impact of measuring the cross-currency swap agreements at fair value on September 1, 2007, increased derivative financial instruments liabilities by $83.5 million, decreased deferred credit presented in long-term debt by $80.2 million, decreased future income tax liabilities by $1.1 million, decreased non-controlling interest by $1.5 million and decreased opening accumulated other comprehensive income by $0.7 million. The impact of measuring the cross-currency swap agreements at fair value on the consolidated financial statements for the year ended August 31, 2008 decreased derivative financial instruments liabilities by $3.7 million, increased future income tax liabilities by $0.9 million, increased non-controlling interest by $1.3 million and increased accumulated other comprehensive income by $0.6 million.

Net investment hedge Financial statements of self-sustaining foreign subsidiaries are translated using the rate in effect at the balance sheet date for asset and liability items, and using the average exchange rates during the period for revenue and expenses. Adjustments arising from this translation are deferred and recorded as foreign currency translation adjustment in accumulated other comprehensive income and are included in income only when a reduction in the investment in these foreign subsidiaries is realized. Unrealized foreign exchange gains and losses on long-term debt denominated in foreign currency that is designated as a hedge of a net investment in self-sustaining foreign subsidiaries are recorded as foreign currency translation adjustments in accumulated other comprehensive income, net of income taxes and non-controlling interest. As a result, an amount of $1.4 million was reclassified as at September 1, 2006 from the foreign currency translation adjustment to accumulated other comprehensive income and the Company’s comparative financial statements were restated in accordance with transitional provisions.

Embedded derivatives All embedded derivatives that are not closely related to the host contracts are measured at fair value, with changes in fair value recorded in the consolidated statements of income. On September 1, 2007 and as at August 31, 2008, there were no significant embedded derivatives or non-financial derivatives that require separate fair value recognition on the consolidated balance sheets. In accordance with the new standards, the Company selected September 1, 2002 as its transition date for adopting the standard related to embedded derivatives.

Notes to the Consolidated Financial Statements COGECO INC. 2008 51

ii. ACCOUNTING CHANGES

In July 2006, the CICA issued Section 1506, Accounting Changes, which modifies certain aspects of the previous standard. A reporting entity may not change its accounting method unless required by a primary source of GAAP or to provide a reliable and more relevant presentation of the financial statements. In addition, changes in accounting methods must be applied retroactively and additional information must be disclosed. This Section applies to interim and annual financial statements relating to fiscal years beginning on or after January 1, 2007. During the first quarter of fiscal 2008, the Company adopted this new standard and concluded that it had no significant impact on these consolidated financial statements.

FUTURE ACCOUNTING PRONOUNCEMENTS

iii. FINANCIAL INSTRUMENTS

In December 2006, the CICA issued Section 3862, Financial Instruments – Disclosures, Section 3863, Financial Instruments – Presentation, and Section 1535, Capital Disclosures. All three Sections will be applicable to financial statements relating to fiscal years beginning on or after October 1, 2007. Accordingly, the Company will adopt the new standards for its fiscal year beginning September 1, 2008. Section 3862 on financial instrument disclosures requires the disclosure of information about the significance of financial instruments for the entity's financial position and performance and the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and how the entity manages those risks. Section 3863 on the presentation of financial instruments is unchanged from the presentation requirements included in Section 3861. Section 1535 on capital disclosures requires the disclosure of information about an entity's objectives, policies and processes for managing capital. The Company is currently evaluating the impact of the adoption of these new Sections on its consolidated financial statements.

iv. GOODWILL AND INTANGIBLE ASSETS

In February 2008, the CICA issued Section 3064, Goodwill and intangible assets, replacing Section 3062, Goodwill and other intangible assets and Section 3450, Research and development costs. The new Section establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062. The new Section will be applicable to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2008. The Company is currently evaluating the impact of the adoption of this new Section on its consolidated financial statements.

v. HARMONIZATION OF CANADIAN AND INTERNATIONAL STANDARDS

In March 2006, the Accounting Standards Board of the CICA released its new strategic plan, which proposed to abandon Canadian GAAP and effect a complete convergence to the International Financial Reporting Standards (“IFRS”).

52 COGECO INC. 2008 Notes to the Consolidated Financial Statements

C) REVENUE RECOGNITION

The Company considers revenue to be earned as services are rendered, provided that ultimate collection is reasonably assured. The Company earns revenue from several sources. The recognition of revenue from the principal sources is as follows:

• Revenue from Cable Television, HSI and Telephony services is recognized when services are provided; • Revenue generated from sales of home terminal devices is recorded as equipment revenue upon activation of services; • Installation revenue is deferred and amortized over the average life of a customer’s subscription; • Promotional offers are accounted for as deductions from revenue when customers take advantage of such offers; • Advertising revenue is recognized when aired.

Amounts received or invoiced that do not comply with these criteria are accounted for as deferred and prepaid income.

D) FIXED ASSETS

Fixed assets are recorded at cost. During construction of new assets, direct costs plus a portion of overhead costs are capitalized. Financial expenses during construction are expensed in the year in which they were incurred. Amortization is recorded mainly on a straight-line basis over the estimated useful lives over the following periods:

BUILDINGS 10 TO 50 YEARS CABLE SYSTEMS 4 TO 15 YEARS BROADCASTING, PROGRAMMING AND PRODUCTION EQUIPMENT 3 TO 20 YEARS HOME TERMINAL DEVICES 3 TO 5 YEARS ROLLING STOCK AND EQUIPMENT UNDER CAPITAL LEASES 5 YEARS OTHER EQUIPMENT 2 TO 10 YEARS LEASEHOLD IMPROVEMENTS LEASE TERM

The Company reviews, when a triggering event occurs, the carrying values of its fixed assets 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. An impairment loss is recognized when the carrying amount of an asset or group of assets held for use exceeds the sum of the undiscounted cash ﬂows expected from its use and eventual disposal. The impairment loss is measured as the amount by which the asset’s carrying amount exceeds its fair value.

Legal obligations associated with site restoration costs on the retirement of property are recognized in the period in which they can be reasonably estimated based on currently available information. The obligations are initially measured at fair value and an equal amount is recorded to ﬁxed assets. Over time, the discounted asset retirement obligations accrete due to the increase in the fair value resulting from the passage of time. This accretion amount is charged to income. The initial costs are depreciated over the useful lives of the related fixed assets or the remaining leasehold engagement when applicable. The Company’s subsidiary, Cogeco Cable Inc., does not record an asset retirement obligation in connection with its cable systems. The Company’s subsidiary expects to renew all of its agreements with utility companies to access their support structures in the future, making the retirement date relating to these assets undeterminable.

E) DEFERRED CHARGES

Deferred charges include new service launch costs, equipment subsidies, reconnect costs, start-up costs related to the implementation of new radio stations and transaction costs. New service launch costs are amortized using the straight-line method, over a period not exceeding five years. Equipment subsidies and reconnect costs are amortized over the average life of a customer’s subscription, not exceeding four years. Start-up costs related to the implementation of new radio stations are amortized using the straight-line method over a period of three years and transaction costs on the revolving loan and the swingline facility are amortized over the term of the related financing on a straight-line basis.

F) INTANGIBLE ASSETS

Intangible assets with definite lives, such as customer relationships, are recorded at cost and amortized on a straight-line basis over the average life of a customer’s subscription, ranging from four to eight years. The Company reviews, when a triggering event occurs, the carrying values of its intangible assets with definite lives 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. An impairment loss is recognized when the carrying amount of an asset or group of assets held for use exceeds the sum of the undiscounted cash ﬂows

Notes to the Consolidated Financial Statements COGECO INC. 2008 53

expected from its use and eventual disposal. The impairment loss is measured as the amount by which the asset’s carrying amount exceeds its fair value.

Intangible assets with indefinite lives, such as customer base and broadcasting licenses, are not amortized, but tested for impairment annually or more frequently if changes in circumstances indicate a potential impairment. In conducting impairment testing, the Company compares the carrying value to the sum of the expected future discounted cash ﬂows. When the impairment test indicates that the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to the excess.

G) GOODWILL

Goodwill represents the difference between the price paid and the fair value attributed to tangible and intangible assets upon the acquisition of cable systems and radio broadcasting stations. Goodwill is not amortized but tested for impairment annually or more frequently if changes in circumstances indicate a potential impairment. The impairment test ﬁrst consists of a comparison of the fair value of the reporting unit to which goodwill is assigned with its carrying amount. When the carrying amount of a reporting unit exceeds its fair value, the fair value of the reporting unit’s goodwill is compared with its carrying amount to measure the amount of the impairment loss, if any. Any impairment loss is charged to earnings in the period in which the loss is incurred. The Company uses the discounted cash ﬂow method to determine the fair value of reporting units.

H) INCOME TAXES

Income taxes are accounted for under the asset and liability method. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements’ carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Future income tax assets are recognized only to the extent that, in the opinion of management, it is more likely than not that the future income tax asset will be realized.

I) STOCK-BASED COMPENSATION

The Company measures stock options granted to employees based on the fair value at the grant date by using the binomial pricing model and a compensation expense is recognized on a straight-line basis over the vesting period, which is three to four years, with a corresponding increase in the contributed surplus. When the stock options are exercised, capital stock is credited by the sum of the consideration paid and the related portion previously recorded in the contributed surplus.

The Performance Unit Plans of the Company and its subsidiary are recognized as a compensation expense and as an accrued liability as of the date units are granted to employees, over the vesting period, which is three years. The accrued liability is re- measured at the end of each reporting period by using the average of the shares’ trading price as at the closing date of the reporting period and the twelve preceding Fridays.

The Company measures incentive share units granted to employees based on the fair value of the Company’s subordinate voting shares at the date of grant and a compensation expense is recognized over the vesting period, which is three years, with a corresponding increase in the contributed surplus.

The Deferred Share Unit Plan of the Company and its subsidiary is recognized as a compensation expense and as an accrued liability as of the date units are granted to ofﬁcers. The accrued liability is re-measured at the end of each reporting period, until settlement, using the shares’ trading price at the closing date of the reporting period.

J) EMPLOYEE FUTURE BENEFITS

The pension costs, recorded in operating costs, related to the deﬁned contribution pension plan and collective registered retirement savings plans are equivalent to the contributions that the Company is required to pay in exchange for services provided by employees.

Pension costs for defined beneﬁt pension plans are determined using actuarial methods and are funded through contributions determined in accordance with the projected beneﬁt method prorated on service. Pension expense is charged to operating costs and includes:

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

54 COGECO INC. 2008 Notes to the Consolidated Financial Statements

• The amortization of past service costs and amendments over the expected average remaining service life of the active employee group covered by the plans, which is nine to eleven years; and • The interest cost of pension obligations, the expected return on pension fund assets and the amortization of cumulative unrecognized net actuarial gains and losses in excess of 10% of the greater of the beneﬁt obligation or fair value of plan assets over the expected average remaining service life of the active employee group covered by the plans, which is nine to eleven years. The Company uses the fair value of plan assets to evaluate plan assets for the purpose of calculating the expected return on plan assets.

K) NON-MONETARY TRANSACTIONS

In the normal course of its business, the Company enters into non-monetary transactions under which goods and services are acquired in exchange for advertising or other services. Non-monetary transactions with commercial substance, which would otherwise be payable in cash, are accounted for at their fair value.

L) FOREIGN CURRENCY TRANSLATION

Financial statements of self-sustaining foreign subsidiaries are translated using the rate in effect at the balance sheet date for asset and liability items, and using the average exchange rates during the period for revenue and expenses. Adjustments arising from this translation are deferred and recorded in the foreign currency translation adjustment in accumulated other comprehensive income and are included in income only when a reduction in the investment in these foreign subsidiaries is realized.

Other assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the exchange rates prevailing at the balance sheet date for monetary items and at the transaction date for non-monetary items. Revenue and expenses are translated at the average rates prevailing during the period except for transactions being hedged, which are translated using the terms of the hedges. Amounts payable or receivable on cross-currency swap agreements, all of which are used to hedge foreign currency debt obligations, are recorded concurrently with the unrealized gains and losses on the obligations being hedged. Other foreign exchange gains and losses are included in net income, except for unrealized foreign exchange gains and losses on long- term debt denominated in foreign currency that is designated as a hedge of a net investment in self-sustaining foreign subsidiaries, which are included in the foreign currency translation adjustment in accumulated other comprehensive income, net of income taxes and non-controlling interest. During ﬁscal year 2008, the Company recognized a foreign exchange loss amounting to $191,000 (foreign exchange gain of $102,000 in 2007) in the consolidated statements of income.

M) DERIVATIVE FINANCIAL INSTRUMENTS

The Company’s subsidiary, Cogeco Cable Inc., uses cross-currency swap agreements as derivative financial instruments to manage risks from fluctuations in exchange rates related to its long-term debt. On September 1, 2007, the Company’s subsidiary classified all of its derivative financial instruments as held-for-trading. Held-for-trading assets and liabilities are carried at fair value on the consolidated balance sheet, with changes in fair value recorded in the consolidated statements of income, except for the changes in fair value of the cross-currency swap agreements, which are designated as cash flow hedges of the Senior Secured Notes Series A and are recorded in other comprehensive income (note 1 B) i.). Prior to September 1, 2007, the Company accounted for financial instruments under the accrual method, as hedges and, accordingly, the carrying value of the financial instruments was not adjusted to reflect their current value. The Company does not hold or use any derivative instruments for speculative trading purposes. Net receipts or payments arising from cross-currency swap agreements are recognized as financial expenses.

N) CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and highly liquid investments that have an original maturity of three months or less.

O) USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities and revenue and expenses during the reporting year. Significant areas requiring the use of management estimates relate to the determination of pension plan liabilities and accrued employee benefits, the determination of accrued liabilities, the determination of allowance for doubtful accounts, the determination of the fair value of assets acquired and liabilities assumed in business combinations, the evaluation of the carrying amount of home terminal devices, the useful lives of assets for amortization, the determination of future cash ﬂows for the purpose of impairment testing on fixed assets, goodwill and intangible assets with definite and indefinite lives, the discount rate used for the purpose of impairment testing on goodwill and intangible assets with indefinite lives, the provision for

Notes to the Consolidated Financial Statements COGECO INC. 2008 55

income taxes and determination of future income tax assets and liabilities, and the determination of the fair value of financial instruments, including all derivative financial instruments. Actual results could differ from these estimates.

2. BUSINESS ACQUISITIONS AND RELATED ADJUSTMENTS

A) BUSINESS ACQUISITIONS IN FISCAL 2008

On March 31, 2008, the Company’s subsidiary, Cogeco Cable Inc., completed the acquisition of all the assets of MaXess Networx®, ENWIN Energy Ltd.’s telecommunications (City of Windsor’s energy company) division for a total consideration of $15.6 million. MaXess Networx® operates a broadband network equipped with next generation ATM and Ethernet technology and provides organizations in south-western Ontario with the broadband capacity required for data networking, HSI access, e-business applications, video conferencing and other advanced communications.

On June 30, 2008, the Company’s subsidiary, Cogeco Cable Inc., completed the acquisition of all the assets of FibreWired Burlington Hydro Communications, Burlington Hydro Electric's (City of Burlington’s energy company) telecommunications division for a total consideration of $12.6 million. FibreWired Burlington Hydro Communications operates a broadband network equipped with next generation ATM and Ethernet technology, provides Burlington’s organizations with the broadband capacity required for data networking, HSI access, hosting services, e-business applications, video conferencing and other advanced communications.

On July 31, 2008, the Company’s subsidiary, Cogeco Cable Inc., completed the acquisition of all of the shares of Toronto Hydro Telecom Inc., the telecommunications subsidiary of Toronto Hydro Corporation (City of Toronto’s energy company) for a total consideration of $200 million. In addition, Cogeco Cable Inc. assumed a working capital deficiency and liabilities of approximately $4 million. Toronto Hydro Telecom Inc., which now operates under the name of Cogeco Data Services Inc. (“CDS”), offers data communications and other telecommunications services such as Ethernet, private line, VoIP, HSI access, dark fibre, data storage, data security and co-location to a wide range of business customers and organizations throughout the Greater Toronto Area (“GTA”).

These acquisitions were accounted for using the purchase method. The results have been consolidated as of the acquisition dates.

The allocation of the purchase price of these acquisitions is as follows:

CDS(1) OTHER TOTAL (in thousands of dollars) $$ $

CONSIDERATION PAID PURCHASE PRICE OF SHARES OR ASSETS 200,000 28,113 228,113 ACQUISITION COSTS 1,988 852 2,840

201,988 28,965 230,953

(1) THE PURCHASE PRICE ALLOCATION OF CDS IS PRELIMINARY AND WILL BE FINALIZED DURING THE 2009 FISCAL YEAR.

56 COGECO INC. 2008 Notes to the Consolidated Financial Statements

B) FISCAL 2007 ADJUSTMENTS RELATED TO FISCAL 2006 BUSINESS ACQUISITION

On June 2, 2006, the Company’s subsidiary, Cogeco Cable Inc., entered into an agreement with Cable Satisfaction International Inc. (“CSII”), Catalyst Fund Limited Partnership I and Cabovisão—Televisão por Cabo, S.A. (“Cabovisão”), to purchase, for a total consideration of €461.8 million ($667.5 million), all the shares of Cabovisão, the second largest cable telecommunications company in Portugal, an indirect wholly-owned subsidiary of CSII. The price includes the purchase of senior debt and reimbursement of certain other Cabovisão liabilities. The acquisition was completed on August 1, 2006 and the final purchase price has been determined following completion of a post-closing working capital adjustment that occurred on March 9, 2007. According to the agreement, the final purchase price was reduced by an amount of €2,194,000 ($3,371,000).

The acquisition was accounted for using the purchase method. The results of Cabovisão have been consolidated as of the acquisition date.

In 2007, management completed its valuations of tangible and intangible assets acquired and liabilities assumed and the final allocation is as follows:

(in thousands of dollars) $

CONSIDERATION PAID PURCHASE PRICE OF SHARES 304,188 WORKING CAPITAL ADJUSTMENT (3,371) SECURED LENDERS’ DEBT AND CERTAIN SPECIFIED CABOVISÃO LIABILITIES 274,761 ACQUISITION COSTS 6,299

581,877

The ﬁnal allocation resulted in an increase in ﬁxed assets of $36,144,000, an increase in customer relationships of $71,684,000 and an increase in future income tax liabilities of $29,354,000, as well as a decrease in accounts payable and accrued liabilities assumed of $4,849,000. The net impact of these adjustments, combined with the reduction of the purchase price, reduced goodwill by $87,020,000 (see note 11 B)).

Also, in accordance with the Portuguese Companies Income Tax Code (“CIRC”), accumulated tax losses cannot be deducted if the ownership of at least 50% of the social capital changes from the moment when the tax losses were generated, unless a request is ﬁled before such change in the ownership takes place, subject to approval by the Portuguese tax authorities. To this effect, a request for preservation of tax losses was ﬁled by Cabovisão on July 28, 2006, and Cabovisão has not yet obtained a response from the Portuguese tax authorities. Consequently, the losses generated prior to the acquisition have not been included in the purchase price allocation, but will be recorded as a reduction of goodwill upon realisation (see note 6).

Notes to the Consolidated Financial Statements COGECO INC. 2008 57

3. SEGMENTED INFORMATION The Company’s activities are divided into two business segments: Cable and other. The Cable segment is comprised of Cable Television, HSI and Telephony services, and the other segment is comprised of radio and head office activities, as well as eliminations.

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

CABLE OTHER CONSOLIDATED 2008 2007 2008 2007 2008 2007 (in thousands of dollars) $ $ $ $ $ $

REVENUE 1,076,787 938,880 32,113 30,455 1,108,900 969,335 OPERATING COSTS 631,363 568,127 28,643 29,973 660,006 598,100 OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE AMORTIZATION 445,424 370,753 3,470 482 448,894 371,235 AMORTIZATION 228,299 189,323 1,425 1,898 229,724 191,221 OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS 217,125 181,430 2,045 (1,416) 219,170 180,014 FINANCIAL EXPENSE 69,111 84,569 1,558 1,487 70,669 86,056 INCOME TAXES 14,732 12,170 253 (827) 14,985 11,343 LOSS (GAIN) ON DILUTION RESULTING FROM THE ISSUANCE OF SHARES BY A SUBSIDIARY – – 104 (57,930) 104 (57,930) NON-CONTROLLING INTEREST – – 90,152 54,824 90,152 54,824 SHARE IN THE LOSS OF A GENERAL PARTNERSHIP – – 95 98 95 98 INCOME (LOSS) FROM CONTINUING OPERATIONS 133,282 84,691 (90,117) 932 43,165 85,623

LOSS FROM DISCONTINUED OPERATIONS – – (18,057) (10,883) (18,057) (10,883)

TOTAL ASSETS 3,019,155 2,714,339 40,326 122,420 3,059,481 2,836,759 TOTAL ASSETS RELATED TO DISCONTINUED OPERATIONS – – – 80,809 – 80,809 FIXED ASSETS 1,257,965 1,119,498 3,645 3,772 1,261,610 1,123,270 INTANGIBLE ASSETS 1,091,042 1,058,410 25,340 25,340 1,116,382 1,083,750 GOODWILL 487,805 342,584 – – 487,805 342,584 ACQUISITION OF FIXED ASSETS(1) 233,916 223,966 740 133 234,656 224,099

(1) INCLUDES CAPITAL LEASES THAT ARE EXCLUDED FROM THE CONSOLIDATED STATEMENTS OF CASH FLOWS.

58 COGECO INC. 2008 Notes to the Consolidated Financial Statements

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

2008 2007 (in thousands of dollars) $ $

REVENUE CANADA 865,210 744,525 EUROPE 243,690 224,810 1,108,900 969,335

2008 2007 (in thousands of dollars) $ $

FIXED ASSETS CANADA 944,328 815,754 EUROPE 317,282 307,516

1,261,610 1,123,270

INTANGIBLE ASSETS CANADA 1,052,608 1,014,892 EUROPE 63,774 68,858

1,116,382 1,083,750

GOODWILL CANADA 116,890 – EUROPE 370,915 342,584 487,805 342,584

4. AMORTIZATION

2008 2007 (in thousands of dollars) $ $ FIXED ASSETS 196,197 166,895 DEFERRED CHARGES 22,595 21,765 INTANGIBLE ASSETS 10,932 2,561 229,724 191,221

5. FINANCIAL EXPENSE

2008 2007 (in thousands of dollars) $ $

INTEREST ON LONG-TERM DEBT 69,675 81,266 AMORTIZATION OF DEFERRED TRANSACTION COSTS 1,629 2,226 OTHER (635) 2,564 70,669 86,056

Notes to the Consolidated Financial Statements COGECO INC. 2008 59

6. INCOME TAXES

2008 2007 (in thousands of dollars) $ $

CURRENT 24,436 3,398 FUTURE (9,451) 7,945 14,985 11,343

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

2008 2007 (in thousands of dollars) $ $

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 148,406 93,860 COMBINED INCOME TAX RATE 33.39% 34.80% INCOME TAXES AT COMBINED INCOME TAX RATE 49,553 32,663 ADJUSTMENTS FOR LOSSES OR INCOME SUBJECT TO LOWER OR HIGHER TAX RATES (2,240) (1,035) DECREASE IN FUTURE INCOME TAXES AS A RESULT OF DECREASES IN SUBSTANTIVELY ENACTED TAX RATES (24,146) (6,318) INCOME TAXES ARISING FROM NON-DEDUCTIBLE EXPENSES 825 757 EFFECT OF FOREIGN INCOME TAX RATE DIFFERENCES (9,193) (5,103) BENEFITS RELATED TO PRIOR YEARS’ MINIMUM INCOME TAXES PAID AND NON-CAPITAL LOSS CARRYFORWARDS – (9,878) OTHER 186 257 INCOME TAXES AT EFFECTIVE INCOME TAX RATE 14,985 11,343

60 COGECO INC. 2008 Notes to the Consolidated Financial Statements

The following table shows future income taxes resulting from temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the amounts used for tax purposes, as well as tax loss carryforwards:

2008 2007 (in thousands of dollars) $ $

FUTURE INCOME TAX ASSETS NON-CAPITAL LOSS AND OTHER TAX CREDIT CARRYFORWARDS 7,260 18,963 DEFERRED AND PREPAID INCOME 6,471 6,783 SHARE ISSUE COSTS 2,672 3,729 OTHER 4,436 3,277

TOTAL FUTURE INCOME TAX ASSETS 20,839 32,752

FUTURE INCOME TAX LIABILITIES FIXED ASSETS 80,725 86,104 DEFERRED CHARGES 16,891 16,131 INTANGIBLE ASSETS 162,889 179,490 OTHER 759 687

TOTAL FUTURE INCOME TAX LIABILITIES 261,264 282,412

NET FUTURE INCOME TAX LIABILITIES 240,425 249,660

FINANCIAL STATEMENT PRESENTATION CURRENT FUTURE INCOME TAX ASSETS 8,661 17,986 LONG-TERM FUTURE INCOME TAX ASSETS 7,221 – LONG-TERM FUTURE INCOME TAX LIABILITIES 256,307 267,646

240,425 249,660

As at August 31, 2008, the Company’s Canadian subsidiaries had accumulated federal and provincial income tax losses amounting to approximately $7,630,000 and $16,207,000, respectively, the beneﬁts of which have been recognized in these ﬁnancial statements. These losses expire as follows:

2009 2010 2014 2026 2027 2028 (in thousands of dollars) $ $ $ $ $ $ FEDERAL – – – 382 147 7,101 PROVINCIAL 6,696 762 2,007 381 147 6,214

The Company’s indirect subsidiary, Cabovisão, has income tax losses of approximately €80,540,000 ($125,482,000), which may be used to reduce future years’ taxable income. In accordance with the CIRC, tax losses incurred in a financial year can be carried forward and deducted from taxable profits of one or more of the following six taxation years. However, the CIRC provides for certain exceptions whereby the general rule stated above ceases to apply. One such exception is that tax losses cannot be deducted if the ownership of at least 50% of the social capital changes from the moment when the tax losses were generated, unless a request is filed before such change in the ownership takes place, subject to approval by the Portuguese tax authorities. To this effect, a request for preservation of tax losses was filed by Cabovisão on July 28, 2006, and Cabovisão has not yet obtained a response from the Portuguese tax authorities. Until such a response is received. Cabovisão may only use tax losses generated since the acquisition. Furthermore, the Portuguese tax authorities have reviewed Cabovisão’s tax returns for years 2003 and 2004, which has resulted in notices of assessment to reduce tax losses by €7,284,000 for fiscal year 2003 and by €29,567,000 for fiscal year 2004. Cabovisão does not agree with the assessments of the tax authorities and has initiated legal proceedings against the Portuguese tax authorities.

Notes to the Consolidated Financial Statements COGECO INC. 2008 61

The benefits resulting from these tax losses have not been recognized in these ﬁnancial statements. These losses expire as follows:

2009 2010 2011 2012

(in thousands of dollars) $ $ $ $

22,361 7,556 62,616 32,949

7. LOSS (GAIN) ON DILUTION RESULTING FROM THE ISSUANCE OF SHARES BY A SUBSIDIARY During fiscal 2008, the Company’s subsidiary, Cogeco Cable Inc. issued 5,543 subordinate voting shares (7,344 shares in 2007) pursuant to its Employee Stock Purchase Plan and 157,481 subordinate voting shares (348,131 shares in 2007) pursuant to its Employee Stock Option Plan for cash consideration of $221,000 ($198,000 in 2007) and $3,429,000 ($6,816,000 in 2007), respectively. In addition, during fiscal 2007, the Company’s subsidiary, Cogeco Cable Inc., completed two public offerings totalling 8,000,000 subordinate voting shares. The offerings resulted in gross proceeds of $345,950,000 and net proceeds of $331,110,000. As a result of these share issuances in 2008 and 2007, COGECO Inc.’s interest in Cogeco Cable Inc. decreased from 32.5% to 32.3% (39.2% to 32.5% in 2007) and a loss on dilution of $104,000 (gain on dilution of $57,930,000 in 2007) was recorded in 2008.

8. EARNINGS (LOSS) PER SHARE The following table provides a reconciliation between basic and diluted earnings (loss) per share:

2008 2007 (in thousands of dollars, except number of shares and per share data) $ $

INCOME FROM CONTINUING OPERATIONS 43,165 85,623 LOSS FROM DISCONTINUED OPERATIONS (18,057) (10,883) NET INCOME 25,108 74,740 WEIGHTED AVERAGE NUMBER OF MULTIPLE VOTING AND SUBORDINATE VOTING SHARES OUTSTANDING 16,684,809 16,605,828 (1) EFFECT OF DILUTIVE STOCK OPTIONS 60,299 97,168 WEIGHTED AVERAGE NUMBER OF DILUTED MULTIPLE VOTING AND SUBORDINATE VOTING SHARES OUTSTANDING 16,745,108 16,702,996

EARNINGS (LOSS) PER SHARE BASIC INCOME FROM CONTINUING OPERATIONS 2.59 5.16 LOSS FROM DISCONTINUED OPERATIONS (1.08) (0.66) NET INCOME 1.50 4.50

DILUTED INCOME FROM CONTINUING OPERATIONS 2.58 5.13 LOSS FROM DISCONTINUED OPERATIONS (1.08) (0.65) NET INCOME 1.50 4.48

(1) IN 2008, A TOTAL OF 33,182 STOCK OPTIONS (18,222 IN 2007) WERE EXCLUDED FROM THE CALCULATION OF DILUTED EARNINGS PER SHARE SINCE THE EXERCICE PRICE OF THE OPTIONS WAS GREATER THAN THE AVERAGE SHARE PRICE OF THE SUBORDINATE VOTING SHARES.

62 COGECO INC. 2008 Notes to the Consolidated Financial Statements

9. FIXED ASSETS

2008 2007 (in thousands of dollars) $ $

COST LAND 4,303 4,076 BUILDINGS 42,581 40,250 CABLE SYSTEMS 1,711,584 1,511,830 BROADCASTING, PROGRAMMING AND PRODUCTION EQUIPMENT 44,342 49,692 HOME TERMINAL DEVICES 259,675 212,516 ROLLING STOCK AND EQUIPMENT UNDER CAPITAL LEASES 16,958 11,540 OTHER EQUIPMENT 41,405 29,189 LEASEHOLD IMPROVEMENTS 18,562 5,616

2,139,410 1,864,709

ACCUMULATED AMORTIZATION BUILDINGS 11,404 10,101 CABLE SYSTEMS 708,703 605,339 BROADCASTING, PROGRAMMING AND PRODUCTION EQUIPMENT 22,122 28,373 HOME TERMINAL DEVICES 111,471 77,236 ROLLING STOCK AND EQUIPMENT UNDER CAPITAL LEASES 6,957 5,020 OTHER EQUIPMENT 13,948 12,144 LEASEHOLD IMPROVEMENTS 3,195 3,226

877,800 741,439

1,261,610 1,123,270

10. DEFERRED CHARGES

2008 2007 (in thousands of dollars) $ $

NEW SERVICE LAUNCH COSTS 518 927 EQUIPMENT SUBSIDIES 1,530 2,860 RECONNECT COSTS 50,952 43,251 START-UP COSTS RELATED TO THE IMPLEMENTATION OF NEW RADIO STATIONS 90 805 TRANSACTION COSTS 4,751 7,607 57,841 55,450

Notes to the Consolidated Financial Statements COGECO INC. 2008 63

11. GOODWILL AND OTHER INTANGIBLE ASSETS

2008 2007 (in thousands of dollars) $ $

CUSTOMER RELATIONSHIPS 101,490 68,858 BROADCASTING LICENSES 25,120 25,120 CUSTOMER BASE 989,772 989,772 1,116,382 1,083,750 GOODWILL 487,805 342,584 1,604,187 1,426,334

A) INTANGIBLE ASSETS

During fiscal 2008, intangible asset variations were as follows:

CUSTOMER BROADCASTING CUSTOMER RELATIONSHIPS LICENSES BASE TOTAL (in thousands of dollars) $ $ $ $

BALANCE, BEGINNING OF YEAR 68,858 25,120 989,772 1,083,750

BUSINESS ACQUISITIONS (NOTE 2) 38,203 – – 38,203 AMORTIZATION (10,932) – – (10,932) FOREIGN CURRENCY TRANSLATION ADJUSTMENT 5,361 – – 5,361 BALANCE, END OF YEAR 101,490 25,120 989,772 1,116,382

During fiscal 2007, intangible asset variations were as follows:

CUSTOMER BROADCASTING CUSTOMER RELATIONSHIPS LICENSES BASE TOTAL (in thousands of dollars) $ $ $ $

BALANCE, BEGINNING OF YEAR – 25,120 989,772 1,014,892 BUSINESS ACQUISITIONS AND RELATED ADJUSTMENTS (NOTE 2) 71,684 – – 71,684 AMORTIZATION (2,561) – – (2,561) FOREIGN CURRENCY TRANSLATION ADJUSTMENT (265) – – (265)

BALANCE, END OF YEAR 68,858 25,120 989,772 1,083,750

At August 31, 2008 and 2007, the Company and its subsidiaries, Cogeco Cable Inc. and Cogeco Radio-Télévision Inc., tested the value of customer base and broadcasting licenses for impairment and concluded that no impairment existed.

64 COGECO INC. 2008 Notes to the Consolidated Financial Statements

B) GOODWILL

During ﬁscal years 2008 and 2007, goodwill variation was as follows:

2008 2007 (in thousands of dollars) $ $

BALANCE, BEGINNING OF YEAR 342,584 422,108 BUSINESS ACQUISITIONS AND RELATED ADJUSTMENTS (NOTE 2) 116,890 – ADJUSTMENT TO THE ALLOCATION OF THE PURCHASE PRICE OF A PRIOR YEAR ACQUISITION (NOTE 2) – (87,020) FOREIGN CURRENCY TRANSLATION ADJUSTMENT 28,331 7,496

BALANCE, END OF YEAR 487,805 342,584

On March 9, 2007, the Company’s subsidiary, Cogeco Cable Inc., and Cable Satisfaction International Inc. came to an agreement for a final adjustment to the working capital of Cabovisão that was outstanding since the date of acquisition. According to the agreement, the final purchase price was reduced by an amount of €2,194,000 ($3,371,000). Also, during 2007, the purchase price allocation related to the 2006 acquisition of Cabovisão was adjusted to reflect final valuations of tangible and intangible assets acquired and liabilities assumed on acquisition. The impact of these adjustments reduced goodwill by $87,020,000 (see note 2).

At August 31, 2008 and 2007, the Company’s subsidiary tested the value of goodwill for impairment and concluded that no impairment existed.

12. BANK INDEBTEDNESS The available line of credit of the Company amounts to $5,000,000, none of which was used at August 31, 2008 and 2007. This line of credit requires commitment fees and currently bears interest at bank prime rate plus 0.875%. At August 31, 2008, the interest rate on bank indebtedness was 5.625% (7.25% in 2007). This line of credit matures at the same time, is secured on the same basis and is subject to the same restrictions as the Term Facility (note 13 a)).

The Company’s subsidiary, Cogeco Cable Inc. has a swingline facility available for an amount of $25,000,000, of which $10,093,000 was used at August 31, 2008 (none at August 31, 2007). This facility requires commitment fees and bears interest at bank prime rate. At August 31, 2008, the interest rate on bank indebtedness is 4.75% (6.25% in 2007). This facility, which matures on July 28, 2011, is secured on the same basis and is subject to the same restrictions as the Term Facility (note 13 b)).

Notes to the Consolidated Financial Statements COGECO INC. 2008 65

13. LONG-TERM DEBT

INTEREST MATURITY RATE 2008 2007 (in thousands of dollars) % $ $

PARENT COMPANY TERM FACILITY 2011 4.93(1) 18,748 25,538 OBLIGATIONS UNDER CAPITAL LEASES 2010 6.49 – 6.61 77 108

SUBSIDIARIES TERM FACILITY TERM LOAN – €94,096,350 (€104,551,500 IN 2007) 2011 5.31(1) 145,832 150,450 TERM LOAN – €17,358,700 2011 5.25(1) 26,881 24,979 REVOLVING LOAN – €126,000,000 (€196,725,000 IN 2007) 2011 5.25(1) 196,308 283,087 REVOLVING LOAN 2011 3.99(1) 94,375 – SENIOR SECURED DEBENTURES SERIES 1 2009 6.75 149,814 150,000 SENIOR SECURED NOTES SERIES A – US$150 MILLION 2008 6.83 159,233 158,430 SERIES B 2011 7.73 174,338 175,000 SENIOR UNSECURED DEBENTURE 2018 5.94 99,768 – DEFERRED CREDIT 2008 – – 80,220 OBLIGATIONS UNDER CAPITAL LEASES 2013 6.42 – 8.30 8,492 5,760 OTHER –– 47 11

1,073,913 1,053,583 LESS CURRENT PORTION 336,858 17,327 737,055 1,036,256

(1) AVERAGE INTEREST RATE ON DEBT AS AT AUGUST 31, 2008, INCLUDING STAMPING FEES.

a) The Term Facility and the operating line of credit of the Parent company are secured by a first fixed and floating charge on certain assets of the Company and certain of its subsidiaries except for permitted encumbrances, including funded obligations subject to a maximum amount. The provisions under these facilities provide for restrictions on the operations and activities of the Company. Generally, the most significant restrictions are related to permitted investments, dividends on multiple and subordinate voting shares and reimbursement of long-term debt as well as incurrence and maintenance of certain financial ratios primarily linked to financial expense, total indebtedness and shareholders’ equity.

On December 14, 2007, the Company concluded an amended and restated credit agreement with a group of Canadian banks led by the Canadian Imperial Bank of Commerce (“CIBC”), which will now act as agent for the banking syndicate. The Term Facility of $50,000,000, including a swingline limit of $5,000,000, is renewable on an annual basis, subject to lenders’ approval, and if not renewed it matures three years after its issuance or the last renewal, as the case may be. The Term Facility is secured by all assets of COGECO Inc. and its subsidiaries, excluding the capital stock of Cogeco Cable Inc. and guaranteed by its subsidiaries, Cogeco Radio-Television Inc. and Cogeco Diffusion Inc. Under the terms and conditions of the amended and restated credit agreement, the Company must comply with certain restrictive covenants, including the requirement to maintain certain financial ratios. The Term Facility bears interest rates based, at the Company’s option, on bankers’ acceptance, LIBOR, EURIBOR, bank prime rate or US base rate plus fees, and commitment fees are payable on the unused portion.

Prior to December 14, 2007, the Company benefited from a Term Facility of $40,000,000, provided by a syndicate of ﬁnancial institutions. The Term Facility could have been extended for an additional year at each anniversary date of the facility, subject to the lenders’ approval.

b) On July 28, 2008, the Company’s subsidiary, Cogeco Cable Inc., repaid €10,455,150, representing 10% of the amount drawn, on the third tranche of its $900,000,000 Term Facility, which was reduced to $885,000,000 accordingly. Cogeco Cable Inc. benefits from an $885,000,000 credit facility in the form of a Term Facility and an operating line of credit with a group of financial institutions. The Term Facility is composed of four tranches: a ﬁrst tranche, a revolving loan for an amount of

66 COGECO INC. 2008 Notes to the Consolidated Financial Statements

$700,000,000 available in Canadian, US or Euro currencies; a second tranche, a swingline of $25,000,000 available in Canadian or US currencies; a third tranche of $150,000,000 fully drawn, available in Canadian currency; and a fourth tranche of €17,358,700 fully drawn. On August 14, 2007, the Term Facility was amended to permit EURIBOR loans under the third tranche in an amount not exceeding the equivalent of $150,000,000 subject to reductions as mentioned below. On August 22, 2007, the third tranche of the Term Facility of $150,000,000 was drawn in Euros. The amount drawn in Euros of €104,551,500 was established at the prevailing exchange rate at that date. In accordance with the amended credit agreement, the amount available under the first tranche of $700,000,000 can be temporarily reduced in the event of an increase in the exchange rate affecting the amount drawn under the third and fourth tranches. The Term Facility is repayable on July 28, 2011, except for the third tranche of €104,551,500; €10,455,150 of which was repaid on July 28, 2008; the remainder of which is repayable as follows: €15,682,725 on July 28, 2009, €26,137,875 on July 28, 2010 and the balance on July 28, 2011. Earlier repayments can be made without penalty. The Term Facility requires commitment fees, and interest rates are based on bankers’ acceptance, LIBOR, EURIBOR, bank prime rate loan or US base rate loan plus stamping fees. The Term Facility is secured by a first fixed and floating charge on the assets of the Company’s subsidiary and certain of its subsidiaries, and provides for certain permitted encumbrances, including purchased money obligations, existing funded obligations and charges granted by any subsidiary prior to the date when it becomes a subsidiary, subject to a maximum amount. The provisions under these facilities provide for restrictions on the operations and activities of the Company’s subsidiary. 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. As at August 31, 2008, Cogeco Cable Inc. was in compliance with all of its covenants. c) The Senior Secured Debentures Series 1 are redeemable at the Company’s subsidiary, Cogeco Cable Inc.’s option, in whole or in part, at the greater of par value or the Canada bond yield plus 0.3%. These debentures mature on June 4, 2009 and bear interest at 6.75% per annum, payable semi-annually. These debentures are indirectly secured by a first fixed and floating charge and a security interest on all assets of Cogeco Cable Inc. and certain of its subsidiaries. d) The Senior Secured Notes are senior secured obligations and rank equally and rateably with all existing and future senior indebtedness. These notes are indirectly secured by a first fixed and floating charge and a security interest on all assets of Cogeco Cable Inc. and certain of its subsidiaries. The notes are redeemable at the Company’s subsidiary Cogeco Cable Inc.’s option at any time, in whole or in part, prior to maturity, at 100% of the principal amount plus a make-whole premium. The Series A mature on October 31, 2008 and the Series B mature on October 31, 2011. The Senior Secured Notes Series B bear interest at an interest coupon rate of 7.73% per annum, payable semi-annually. On November 1, 2001, the Company’s subsidiary, Cogeco Cable Inc., entered into cross-currency swap agreements to fix the liability for interest and principal payments on US$150,000,000 of its Senior Notes Series A, which have an interest coupon rate of 6.83% per annum, payable semi-annually. These agreements have resulted in an effective interest rate of 7.254% on the Canadian dollar equivalent of the US debt. The exchange rate applicable to the principal portion of the debt has been fixed at $1.5910. e) On March 5, 2008, the Company’s subsidiary, Cogeco Cable Inc., issued a $100,000,000 Senior Unsecured Debenture by way of a private placement, subject to usual market conditions. The debenture bears interest at a fixed rate of 5.936% per annum, payable semi-annually. The debenture matures on March 5, 2018 and is redeemable at Cogeco Cable’s option at any time, in whole or in part, prior to maturity, at 100% of the principal amount plus a make-whole premium. f) The deferred credit represents the amount that was deferred for hedge accounting purposes as at August 31, 2007 under cross-currency swap agreements entered into by the Company’s subsidiary, Cogeco Cable Inc., to hedge Senior Secured Notes Series A denominated in US dollars. In accordance with the standards on financial instruments, the Company’s subsidiary’s cross-currency swap agreements are now presented as derivative financial instrument liabilities (see note 1 B) i.). g) On February 2, 2007, the Company’s subsidiary, Cogeco Cable Inc., gave a notice of redemption to purchase on March 5, 2007, all of its 8.44% Second Secured Debentures Series A (the “Notes”) in the aggregate principal amount of $125,000,000. Concurrently, the Company’s subsidiary also made an offer to purchase for cancellation on February 12, 2007, all of the validly issued and held Notes upon receipt by the Trustee of a written notice of acceptance by the holders of Notes. As a result, a total of $89,257,000 of Notes were redeemed on February 12, 2007, for a total cash consideration of $91,038,000. The remaining Notes of $35,743,000 were redeemed on March 5, 2007, for a total cash consideration of $36,550,000. The excess of the redemption price over the aggregate principal amount was recorded as financial expense. These debentures were secured by second fixed charges on certain assets and floating charges on all assets of Cogeco Cable Inc. and certain of its subsidiaries.

Notes to the Consolidated Financial Statements COGECO INC. 2008 67

h) Principal repayments due on long-term debt for the next ﬁve years, excluding those under capital leases, are as follows:

2009 2010 2011 2012 2013 (in thousands of dollars) $$$$ $

333,752 40,736 418,812 175,002 –

i) Minimum payments due under capital leases total $9,461,000, of which $892,000 represents financial expense, and are as follows:

2009 2010 2011 2012 2013 (in thousands of dollars) $$$$ $

3,909 2,915 1,686 951 –

14. CAPITAL STOCK

AUTHORIZED

Unlimited number of:

Preferred shares of ﬁrst and second rank, could be issued in series and non-voting, except when speciﬁed in the Articles of Incorporation of the Company or in the Law.

Multiple voting shares, 20 votes per share.

Subordinate voting shares, 1 vote per share.

ISSUED

2008 2007 (in thousands of dollars, except number of shares) $ $

1,842,860 MULTIPLE VOTING SHARES 12 12 14,897,586 SUBORDINATE VOTING SHARES (14,829,792 IN 2007) 120,037 119,066 120,049 119,078

During the year, subordinate voting shares transactions were as follows:

2008 2007 NUMBER OF NUMBER OF SHARES AMOUNT SHARES AMOUNT (in thousands of dollars, except number of shares) $ $

BALANCE, BEGINNING OF YEAR 14,829,792 119,066 14,702,556 117,540 SHARES ISSUED FOR CASH UNDER THE EMPLOYEE STOCK PURCHASE PLAN AND THE STOCK OPTION PLAN 67,794 971 120,196 1,526 CONVERSION OF MULTIPLE VOTING SHARES INTO SUBORDINATE VOTING SHARES ––7,040 – BALANCE, END OF YEAR 14,897,586 120,037 14,829,792 119,066

During ﬁscal year 2008, the Company issued 294 subordinate voting shares (178 shares in 2007) pursuant to its Employee Stock Purchase Plan for a cash consideration of $9,000 ($5,000 in 2007) and issued 67,500 subordinate voting shares (120,018 shares in 2007) pursuant to its Employee Stock Option Plan for a cash consideration of $962,000 ($1,521,000 in 2007).

68 COGECO INC. 2008 Notes to the Consolidated Financial Statements

STOCK-BASED PLANS

The Company offers, for the beneﬁt of its employees and those of certain of its subsidiaries, an Employee Stock Purchase Plan and a Stock Option Plan for certain executives. Under these plans, no more than 10% of the outstanding subordinate voting shares are available.

Stock Purchase Plans The Employee Stock Purchase Plans are accessible to all employees up to a maximum of 5% of their annual salary. The subscription date is December 31 and the subscription price is based on the average market price of the shares of the last ﬁve business days of November less 10%. A maximum of 270,000 shares of COGECO Inc. and 167,500 shares of Cogeco Cable Inc. are available, up to 40,000 annually, under these plans.

Stock Option Plans The Company and its subsidiary, Cogeco Cable Inc., offer for the beneﬁt of certain executives Stock Option Plans. Under the plans’ conditions, the minimum purchase price at which options are granted is not less than the fair value of such shares at the time the option is granted. Granted options vest 20% per year beginning the day such options are granted and are exercisable over 10 years. For the exercise of options granted to senior executive ofﬁcers on or after October 17, 2003, an amount equivalent to 20% of net gain after related taxes must be kept in shares of the Company until termination of employment with the Company or retirement.

A total of 1,545,700 subordinate voting shares are reserved for the purpose of COGECO Inc.’s Stock Option Plan. Under the plan, the following options were granted by the Company and are outstanding as at August 31:

2008 2007 WEIGHTED WEIGHTED AVERAGE AVERAGE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE

$ $

OUTSTANDING, BEGINNING OF YEAR 195,418 21.58 315,776 18.21 EXERCISED (67,500) 14.26 (120,018) 12.67 FORFEITED (4,160) 22.54 (340) 37.50

OUTSTANDING, END OF YEAR 123,758 25.55 195,418 21.58

EXERCISABLE, END OF YEAR 123,758 25.55 195,418 21.58

At August 31, 2008, the range of exercise prices, the weighted average exercise price and the weighted average remaining contractual life of COGECO Inc.’s options are as follows:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE WEIGHTED AVERAGE WEIGHTED WEIGTHED REMAINING AVERAGE AVERAGE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE $ $ $ 20.95 TO 21.40 90,576 2.20 21.17 90,576 21.17 37.50 33,182 2.17 37.50 33,182 37.50

123,758 2.19 25.55 123,758 25.55

During ﬁscal years 2008 and 2007, no stock options were granted to employees by COGECO Inc.

Notes to the Consolidated Financial Statements COGECO INC. 2008 69

A total of 2,400,000 subordinate voting shares are reserved for the purpose of Cogeco Cable Inc.’s Stock Option Plan. Under the plan, the following options were granted by Cogeco Cable Inc. and are outstanding as at August 31:

2008 2007 WEIGHTED WEIGHTED AVERAGE AVERAGE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE $ $ OUTSTANDING, BEGINNING OF YEAR 942,714 24.91 715,571 20.88 GRANTED 113,084 48.71 577,587 26.69 EXERCISED (157,481) 21.77 (348,131) 19.58 FORFEITED (53,593) 27.25 (2,313) 26.71

OUTSTANDING, END OF YEAR 844,724 28.53 942,714 24.91

EXERCISABLE, END OF YEAR 320,551 25.55 239,067 21.58

At August 31, 2008, the range of exercise prices, the weighted average exercise price and the weighted average remaining contractual life of Cogeco Cable Inc.’s options are as follows:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE NUMBER CONTRACTUAL EXERCICE NUMBER EXERCICE RANGE OF EXERCICE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE $ $ $ 7.05 3,710 4.17 7.05 3,710 7.05 15.70 TO 18.12 56,035 5.20 16.51 56,035 16.51 21.50 TO 26.63 585,087 7.70 25.83 196,698 24.97 29.05 TO 33.12 85,937 7.22 29.21 39,375 29.19 36.10 TO 45.59 18,833 8.74 41.54 5,709 40.42 49.82 95,122 9.17 49.82 19,024 49.82

844,724 7.66 28.53 320,551 25.55

During ﬁscal year 2008, Cogeco Cable Inc. granted 113,084 stock options (201,587 in 2007) with an exercise price ranging from $41.45 to $49.82 ($26.63 to $44.54 in 2007), of which 22,683 stock options (57,247 in 2007) were granted to COGECO Inc.’s employees. In 2007, the Company’s subsidiary also granted 376,000 conditional stock options with an exercise price of $26.63 of which 262,400 stock options were granted to COGECO Inc.’s employees. These conditional options vest equally over a period of three years beginning one year after the day such options are granted and are exercisable over ten years. The vesting of these options is conditional to the achievement of certain yearly ﬁnancial objectives by the Portuguese subsidiary, Cabovisão, over a period of three years.

The Company and its subsidiary, Cogeco Cable Inc., recorded compensation expense for options granted on or after September 1, 2003. As a result, a compensation expense of $2,101,000 ($1,977,000 in 2007) was recorded for the year ended August 31, 2008.

70 COGECO INC. 2008 Notes to the Consolidated Financial Statements

The fair value of each option granted by Cogeco Cable Inc. was estimated on the grant date for purposes of determining stock- based compensation expense using the binomial option pricing model based on the following assumptions:

2008 2007 % %

EXPECTED DIVIDEND YIELD 0.90 1.27 EXPECTED VOLATILITY 27 32 RISK-FREE INTEREST RATE 4.25 4.05 EXPECTED LIFE IN YEARS 4.0 4.0

The fair value of stock options granted by Cogeco Cable Inc. for the year ended August 31, 2008 was $12.59 ($7.39 in 2007) per option.

For the purpose of compensation expense, stock-based compensation costs are amortized to expense on a straight-line basis over the vesting period, which is three to four years.

Deferred Share Unit Plans In April 2007, the Company and its subsidiary, Cogeco Cable Inc., established Deferred Share Unit Plans (“DSU Plans”) to assist in the attraction and retention of qualiﬁed individuals to serve on the Board of the Company. Each existing or new member of the Board may elect to be paid a percentage of the annual retainer in the form of deferred share units (“DSUs”) with the balance, if any, being paid in cash. The number of DSUs that a member is entitled to receive is based on the average closing price of the subordinate shares on the Toronto Stock Exchange for the twenty consecutive trading days immediately preceding the date of grant. Dividend equivalents are awarded with respect to DSUs in a member’s account on the same basis as if the member was a shareholder of record of subordinate shares on the relevant record date, and the dividend equivalents are credited to the individual’s account as additional DSUs. DSUs are redeemable upon an individual ceasing to be a member of the Board or in the event of the death of a member. During the year, 5,891 and 3,559 deferred share units were awarded to the participants in connection with the DSU Plans by the Company and its subsidiary, respectively. A compensation expense of $347,000 was recorded related to these plans.

Incentive Share Unit Plan Effective October 13, 2006, the Company established a senior executives and designated employee incentive share unit plan which, in effect, replaces the Performance Unit Plan. According to the plan, senior executives and designated employees periodically receive a given number of units (“Incentive Share Units”) which entitled the participant to receive subordinate voting shares of the Company after three years less one day from the date of grant. During fiscal year 2008, the Company granted 12,852 (25,895 in 2007) Incentive Share Units. The Company establishes the value of the compensation related to the units granted based on the fair value of the Company’s subordinate voting shares at the date of grant and a compensation expense is recognized over the vesting period, which is three years. A trust was created for the purpose of purchasing these shares on the stock exchange in order to guard against stock price fluctuation. The Company instructed the trustee to purchase 12,852 (25,895 in 2007) subordinate voting shares of the Company on the stock market. These shares were purchased for a cash consideration of $468,000 ($1,054,000 in 2007) and are held in trust for participants until they are completely vested. The trust, considered as a variable interest entity, is consolidated in the Company’s financial statements with the value of the acquired shares presented as treasury shares in reduction of capital stock. A compensation expense of $353,000 ($181,000 in 2007) was recorded related to this plan.

Performance Unit Plans The Company and its subsidiary, Cogeco Cable Inc., also had Performance Unit Plans for key employees, which were terminated in June 2007. The value of a performance unit granted was equal to the closing price of the subordinate shares of the Company and its subsidiary on the Toronto Stock Exchange on the trading day preceding the date of grant of the unit. The units credited to the participant’s account became vested to the participant on the third anniversary of the date of grant of the said performance units. During ﬁscal year 2007, no performance units were granted by the Company or by the Company’s subsidiary, Cogeco Cable Inc. In 2007, an expense amounting to $4,659,000 was recorded and in the fourth quarter of 2007, payments totalling $7,805,000 were made related to the termination of these plans.

Notes to the Consolidated Financial Statements COGECO INC. 2008 71

15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

2008 2007 TRANSLATION OF A TRANSLATION OF A NET INVESTMENT IN NET INVESTMENT IN SELF-SUSTAINING CASH SELF-SUSTAINING FOREIGN FLOW FOREIGN SUBSIDIARIES HEDGES TOTAL SUBSIDIARIES (in thousands of dollars) $ $ $ $ BALANCE, BEGINNING OF YEAR (1,009) – (1,009) (1,445) CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING POLICIES (NOTE 1 B)) – (724) (724) – OTHER COMPREHENSIVE INCOME 6,073 624 6,697 436

BALANCE, END OF YEAR 5,064 (100) 4,964 (1,009)

16. FINANCIAL INSTRUMENTS

FAIR VALUE

The Company uses the following methods and assumptions to evaluate fair value of financial instruments:

Cash and cash equivalents, accounts receivable, bank indebtedness and accounts payable and accrued liabilities The carrying amount in the consolidated balance sheets approximates fair value because of the short-term nature of these instruments.

Long-term debt a) Financial expense under the terms of the Company’s Term Facilities are based upon banker’s acceptance, LIBOR, EURIBOR, bank prime rate loan or US base rate loan plus stamping fees. Therefore, the carrying value is considered to represent fair value for the Term Facilities.

b) The fair value of the Senior Secured Debentures Series 1, Senior Secured Notes Series A and B and Second Unsecured Debenture is based upon current trading values for similar financial instruments.

c) The carrying values of obligations under capital leases approximate the fair value of these ﬁnancial instruments due to their terms.

d) The fair value of the derivative ﬁnancial instruments is based upon available information about the financial instruments and market conditions.

The estimated fair values of long-term debt instruments and derivative instruments are as follows:

2008 2007

CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE (in thousands of dollars) $ $ $ $

LONG-TERM DEBT 1,073,913 1,068,469 973,363 990,485 DERIVATE FINANCIAL INSTRUMENTS LIABILITY 79,791 79,791 80,220 83,499

Fair values are estimated at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

72 COGECO INC. 2008 Notes to the Consolidated Financial Statements

CREDIT RISK

The Company’s credit risk arises from the possibility that counterparts to the cross-currency swap agreements may default on their obligations. The Company reduces risks by completing transactions with ﬁnancial institutions that carry a credit rating equal to or superior to its own credit rating. In addition, since the Company has a large and diversified clientele, credit risk concentration from customers is minimal.

INTEREST RATE RISK

The Company has exposure 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.

FOREIGN EXCHANGE RISK

The Company’s net investment in self-sustaining foreign subsidiaries are 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. As at August 31, 2008, the net investment totalled €446,051,000 (€449,941,000 in 2007) while long-term debt denominated in Euros totalled €237,455,000 (€318,835,000 in 2007).

The Company is also exposed to foreign exchange risk due to cash and cash equivalents, bank indebtedness and accounts payable denominated in US dollars or Euros. As at August 31, 2008, the bank indebtedness denominated in US dollars totalled US$286,000 (cash and cash equivalents of US$2,407,000 in 2007) while accounts payable denominated in US dollars totalled US$16,121,000 (US$10,360,000 in 2007). At August 31, 2008, Euro-denominated cash and cash equivalents totalled €219,000 (€4,441,000 in 2007).

17. STATEMENTS OF CASH FLOW

A) CHANGES IN NON-CASH OPERATING ITEMS

2008 2007 (in thousands of dollars) $ $

ACCOUNTS RECEIVABLE (6,398) (3,203) INCOME TAXES RECEIVABLE 1,122 (4,554) PREPAID EXPENSES (3,673) (1,968) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 26,976 (68,130) INCOME TAX LIABILITIES 19,562 663 DEFERRED AND PREPAID INCOME AND OTHER LIABILITIES (1,886) 4,189 35,703 (73,003)

B) FIXED ASSETS

During the year, ﬁxed asset acquisitions amounted to $234,656,000 ($224,099,000 in 2007), $5,475,000 ($3,084,000 in 2007) of which were acquired through capital leases. Disbursements for the acquisition of ﬁxed assets totalled $229,181,000 ($221,015,000 in 2007).

C) OTHER INFORMATION

2008 2007 (in thousands of dollars) $ $

FINANCIAL EXPENSES PAID 65,608 84,154 INCOME TAXES PAID 3,585 6,864

Notes to the Consolidated Financial Statements COGECO INC. 2008 73

18. EMPLOYEE FUTURE BENEFITS The Company and its Canadian subsidiaries offer their employees contributory defined beneﬁt pension plans, a defined contribution pension plan or collective registered retirement savings plans. With respect to the last two plans, the Company and its subsidiaries’ obligations are limited to the payment of the monthly employer’s portion. Expenses related to these two plans amounted to $3,110,000 in fiscal 2008 ($2,393,000 in 2007).

The defined beneﬁt pension plans provide pensions based on the number of years of service and the average salary during the employment of each participant. In addition, the Company and its subsidiaries offer certain executives a supplementary pension plan. The Company measures plans’ assets at fair value and the accrued beneﬁt obligation as at August 31 of each year for all plans. The most recent actuarial valuation of the pension plans was as of August 31, 2007 and the next required valuation will be as of August 31, 2008.

The following table provides a reconciliation of the change in the plans’ beneﬁt obligations and plans’ assets at fair value and a statement of the funded status as at August 31:

2008 2007 (in thousands of dollars) $ $

ACCRUED BENEFIT OBLIGATION ACCRUED BENEFIT OBLIGATION, BEGINNING OF YEAR 31,238 29,338 CURRENT SERVICE COST 1,613 1,458 PAST SERVICE COST 141 – INTEREST COST 1,800 1,682 CONTRIBUTIONS BY PLANS’ PARTICIPANTS 417 410 BENEFITS PAID (1,214) (1,248) ACTUARIAL GAIN ON OBLIGATION (1,282) (402) ACCRUED BENEFIT OBLIGATION, END OF YEAR 32,713 31,238

PLANS’ ASSETS AT FAIR VALUE PLANS’ ASSETS AT FAIR VALUE, BEGINNING OF YEAR 17,041 14,906 ACTUAL RETURN (LOSS) ON PLANS’ ASSETS (722) 1,627 CONTRIBUTIONS BY PLANS’ PARTICIPANTS 417 410 EMPLOYER CONTRIBUTIONS 1,277 1,346 BENEFITS PAID (1,214) (1,248)

PLANS’ ASSETS AT FAIR VALUE, END OF YEAR 16,799 17,041

FUNDED STATUS

PLANS’ ASSETS AT FAIR VALUE 16,799 17,041 ACCRUED BENEFIT OBLIGATION 32,713 31,238

PLANS’ DEFICIT 15,914 14,197 UNAMORTIZED ACTUARIAL LOSSES (6,871) (6,655) UNAMORTIZED PAST SERVICE COST (286) (164)

NET ACCRUED BENEFIT LIBILITY 8,757 7,378

The accrued beneﬁt liability is included in the Company’s balance sheet under “Pension plans liabilities and accrued employee benefits”.

74 COGECO INC. 2008 Notes to the Consolidated Financial Statements

2008 2007 (in thousands of dollars) $ $

DEFINED BENEFIT PENSION COSTS CURRENT SERVICE COST 1,613 1,458 PAST SERVICE COST 141 – INTEREST COST 1,800 1,682 ACTUAL LOSS (RETURN) ON PLANS’ ASSETS 722 (1,627) ACTUARIAL GAIN ON OBLIGATION (1,282) (402) COST BEFORE ADJUSTMENTS TO RECOGNIZE THE LONG-TERM NATURE OF EMPLOYEE FUTURE BENEFITS 2,994 1,111 DIFFERENCE BETWEEN PAST SERVICE COST AND AMORTIZATION OF PAST SERVICE COST (122) 20 DIFFERENCE BETWEEN EXPECTED RETURN AND ACTUAL RETURN (LOSS) ON PLANS’ ASSETS (1,876) 594 DIFFERENCE BETWEEN ACTUARIAL GAIN AND AMORTIZATION OF NET ACTUARIAL LOSS 1,660 960 NET BENEFIT COST 2,656 2,685

Plan assets consist of:

2008 2007 % %

EQUITY SECURITIES 53 58 DEBT SECURITIES 45 40 OTHER 2 2

TOTAL 100 100

The signiﬁcant weighted average assumptions used in measuring the Company’s pension and other obligations are as follows:

2008 2007 % %

ACCRUED BENEFIT OBLIGATION DISCOUNT RATE 5.50 5.50 RATE OF COMPENSATION INCREASE 4.75 4.75

DEFINED BENEFIT PENSION COSTS DISCOUNT RATE 5.50 5.50 EXPECTED LONG-TERM RATE RETURN ON PLANS’ ASSETS 7.25 7.25 RATE OF COMPENSATION INCREASE 5.00 5.00

Notes to the Consolidated Financial Statements COGECO INC. 2008 75

19. DISCONTINUED OPERATIONS In October 2007, the Board of Directors of TQS, an indirect subsidiary of the Company, engaged CIBC World Markets to advise on and assess strategic options for the TQS network in the face of financial difficulties. TQS’ position in the Québec Francophone over- the-air television market deteriorated markedly in spite of the measures and investments initiated by the Company over the previous months. The gradual loss of advertising revenue to specialty TV networks and content accessible over the Internet, combined with increased production costs, the Canadian Radio-television and Telecommunications Commision’s (“CRTC”) refusal to grant general interest television networks the same ability to charge subscriber fees for signal distribution as the speciality television networks, the programming strategy of Société Radio-Canada (“SRC”), which acts like a commercial player rather than a publicly-owned television broadcaster and SRC’s notice of disaffiliation in Saguenay, Sherbrooke and Trois-Rivières after a 50-year partnership all contributed to this decision. After considering CIBC World Markets’ report, the Board of Directors of TQS concluded that it was in the best interest of TQS, its employees and creditors to request court protection. On December 18, 2007, the Québec Superior Court issued an order under the Companies’ Creditors Arrangement Act (Canada) protecting TQS, its subsidiaries and its parent 3947424 Canada Inc. (“TQS Group”) from claims by their creditors for an initial suspension period ending on January 17, 2008, which period was afterwards renewed. Under the order, RSM Richter Inc. was appointed as monitor, with a mandate to support the applicants, under Court supervision, in preparing a creditors arrangement plan. On March 10, 2008, the Québec Superior Court agreed with TQS’s Board of Director’s decision to accept the offer made by Remstar Corporation Inc. (“Remstar”) to acquire all shares of the TQS Group held by Cogeco Radio-Television Inc. and CTV Television Inc., the two shareholders of TQS. On May 22, 2008, the plan of arrangement proposed by Remstar was approved by the creditors of the TQS Group and subsequently approved by the Superior Court of Québec on June 4, 2008. On June 26, 2008, the CRTC approved the proposed transfer of ownership and control of TQS to Remstar and on August 29, 2008, the transfer of ownership and control of TQS to Remstar was completed. This new transaction allows a new ownership group to pursue the broadcasting activities of TQS.

Effective December 18, 2007, the Company has ceased to consolidate the financial statements of the TQS Group. Accordingly, the investment in the TQS Group as at August 31, 2007, as well as its results of operations and its cash flows for the period of September 1, 2007 to December 18, 2007 and for the year ended August 31, 2007, have been reclassified as discontinued operations.

76 COGECO INC. 2008 Notes to the Consolidated Financial Statements

The Company has no investment in the TQS Group as at August 31, 2008. The assets and liabilities related to the discontinued operations as at August 31, 2007, were as follows:

(in thousands of dollars) $

ACCOUNTS RECEIVABLE 23,611 PREPAID EXPENSES 442 BROADCASTING RIGHTS 14,647

CURRENT ASSETS 38,700

BROADCASTING RIGHTS 17,456 FIXED ASSETS 21,653 BROADCASTING LICENSES 3,000

NON-CURRENT ASSETS 42,109

CURRENT LIABILITIES 46,031

SHARE IN THE PARTNER’S DEFICIENCY OF A GENERAL PARTNERSHIP 518 BROADCASTING RIGHTS PAYABLE 4,408 PENSION PLAN LIABILITIES 1,444 NON-CONTROLLING INTEREST 11,219

LONG-TERM LIABILITIES 17,589

Notes to the Consolidated Financial Statements COGECO INC. 2008 77

The results of the discontinued operations were as follows:

2008 2007 (in thousands of dollars) $ $

REVENUE 38,499 102,972 OPERATING COSTS 35,822 108,496

OPERATING INCOME (LOSS) BEFORE AMORTIZATION 2,677 (5,524) AMORTIZATION 1,364 4,583

OPERATING INCOME (LOSS) 1,313 (10,107) FINANCIAL EXPENSE 291 925 IMPAIRMENT OF ASSETS 30,298 –

LOSS BEFORE INCOME TAXES AND THE FOLLOWING ITEMS (29,276) (11,032) INCOME TAXES – 7,011 NON-CONTROLLING INTEREST (11,219) (7,257) SHARES IN THE LOSS OF A GENERAL PARTNERSHIP – 97

LOSS FROM DISCONTINUED OPERATIONS (18,057) (10,883)

The cash flows of the discontinued operations were as follows:

2008 2007 (in thousands of dollars) $ $

CASH FLOWS FROM OPERATING ACTIVITIES (4,676) (469) CASH FLOWS FROM INVESTING ACTIVITIES (133) (2,926) CASH FLOWS FROM FINANCING ACTIVITIES 4,106 2,555

CASH FLOWS FROM DISCONTINUED OPERATIONS (703) (840)

20. COMMITMENTS AND CONTINGENCIES

COMMITMENTS

Lease agreements and other long-term contracts As at August 31, 2008, the Company and its subsidiaries are committed under lease agreements and other long-term contracts to make annual payments as follows:

2014 AND 2009 2010 2011 2012 2013 THEREAFTER (in thousands of dollars) $ $ $ $ $ $

LEASE AGREEMENTS 14,710 13,916 13,643 12,005 11,864 21,980 OTHER LONG TERM CONTRACTS 12,402 6,413 2,403 1,953 815 4,500 27,112 20,329 16,046 13,958 12,679 26,480

License conditions According to radio licenses’ conditions, Cogeco Radio-Télévision Inc. is committed to contribute for the benefit of Canadian artists, minimum annual amounts of $150,000 beginning September 1, 2003 and $120,000 beginning September 1, 2004 for a total amount of $1,890,000 over a period of seven years. As at August 31, 2008, the remaining amount to be contributed is $660,000 ($930,000 at August 31, 2007).

78 COGECO INC. 2008 Notes to the Consolidated Financial Statements

CONTINGENCIES

The Company and its subsidiaries are involved in matters involving litigation arising out of the ordinary course and conduct of its business. Although such matters cannot be predicted with certainty, management does not consider the Company’s exposure to litigation to be signiﬁcant to these financial statements.

DISCLOSURE OF GUARANTEES

In the normal course of business, the Company and its subsidiaries enter into agreements containing features that meet the criteria of a guarantee including the following:

Stamp taxes and withholding taxes During fiscal 2008, the Company’s subsidiary, Cogeco Cable Inc., guaranteed the payment by Cabovisão of stamp taxes for the 2000 through 2002 years amounting to €1.7 million and withholding taxes for the 2004 year amounting to €2 million assessed by the Portuguese tax authorities, which are currently being contested by Cabovisão. Even though the principal amounts in dispute are fully recorded in the books of its subsidiary Cabovisão, the Company’s subsidiary may be required to pay the amounts following final judgements, up to a maximum aggregate amount of €3.7 million ($5.7 million), should Cabovisão fail to pay such required amounts.

Taxes for municipal rights of way During the second quarter of fiscal 2007, the Company’s subsidiary, Cogeco Cable Inc., has guaranteed the payment by Cabovisão of certain taxes for municipal rights of way assessed by the Municipality of Seixal in Portugal for the years 2004 and 2005 totalling €5.7 million (the “Tax Amounts”), which are currently being challenged by Cabovisão. Trustworthy financial guarantees were required under applicable Portuguese law in order for Cabovisão to challenge the Tax Amounts and withhold payment thereof until a ﬁnal judgement no longer subject to appeal is rendered by the Portuguese courts having jurisdiction in this matter. As a result, the Company’s subsidiary may be required to pay, upon written demand by the Municipality of Seixal, the required amounts following ﬁnal judgement up to a maximum aggregate amount of €5.7 million ($8.9 million), should Cabovisão fail to pay such required amounts.

Business acquisitions and asset disposals In connection with the acquisition or sale of a business or assets, in addition to possible indemnification relating to failure to perform covenants and breach of representations and warranties, the Company’s subsidiaries, Cogeco Cable Inc. and Cogeco Radio- Télévision Inc., have agreed to indemnify the seller or the purchaser against claims related to events that occurred prior to the date of acquisition or sale. The term and amount of such indemnification will sometimes be limited by the agreement. The nature of these indemnification agreements prevents the Company from estimating the maximum potential liability required to be paid to guaranteed parties. In management’s opinion, the likelihood that a significant liability will be incurred under these obligations is low. The Company’s subsidiary, Cogeco Cable Inc., has purchased directors’ and officers’ liability insurance with a deductible per loss. As at August 31, 2008 and 2007, no liability has been recorded associated with these indemnifications.

Long-term debt Under the terms of the Term Facility and the Senior Secured Notes, the Company’s subsidiary, Cogeco Cable Inc., has agreed to indemnify the other parties against changes in regulations relative to withholding taxes and costs incurred by the lenders due to changes in laws. These indemniﬁcations extend for the term of the related ﬁnancings and do not provide any limit on the maximum potential liability. The nature of the indemnification agreement prevents the Company from estimating the maximum potential liability it could be required to pay. As at August 31, 2008 and 2007, no liability has been recorded associated with these indemnifications.

Loan guarantee The Company’s subsidiary, Cogeco Radio-Télévision Inc. has guaranteed the credit facility of a general partnership, Canal Indigo, up to a maximum amount of $500,000, which was fully paid by Cogeco Radio-Télévision Inc. during fiscal 2008. As at August 31, 2007, no liability was recorded associated with this loan guarantee, except for the share in the partners’ deﬁciency of a general partnership for an amount of $518,000.

Employees and contractuals indemnification agreements The Company’s subsidiary, Cogeco Radio-Télévision Inc., indemnifies certain of its on-air hosts against charges, costs and expenses as a result of any lawsuit, resulting from judicial or administrative proceeds in which they are named as defending party and arising from the performance of their service. The claims covered by such indemnification are subject to statutory or other legal limitation periods. The nature of the indemnification agreements prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to beneficiaries of such indemnification agreements. The Company has purchased employees’ and contractual’s liability insurance with a deductible per loss. As at August 31, 2008 and 2007, no liability has been recorded associated with these indemnifications.

Notes to the Consolidated Financial Statements COGECO INC. 2008 79

21. NON-MONETARY TRANSACTIONS During ﬁscal year 2008, the Company’s subsidiaries, Cogeco Cable Inc. and Cogeco Radio-Télévision Inc., have entered into non- monetary transactions. An amount of $6,628,000 ($6,579,000 in 2007) of revenue and $6,758,000 ($6,828,000 in 2007) of operating costs were recorded.

22. GOVERNMENTAL ASSISTANCE In 2007, the Company’s subsidiary, Cogeco Cable Inc., received tax credits related to research and development costs in the amount of $1,706,000. These credits were accounted for as a reduction of the related expenses.

23. SUBSEQUENT EVENT On October 1, 2008, the Company’s subsidiary, Cogeco Cable Inc., completed, pursuant to a private placement, the issue of US$190 million Senior Secured Notes Series A maturing October 1, 2015, and $55 million Senior Secured Notes Series B maturing October 1, 2018. The Senior Secured Notes Series B bear interest at the coupon rate of 7.60% per annum, payable semi-annually. In addition, the Company’s subsidiary entered into cross-currency swap agreements to fix the liability for interest and principal payments on its Senior Secured Notes Series A, which bear interest at the coupon rate of 7.00% per annum, payable semi-annually. Taking into account these agreements, the effective interest rate of the Senior Secured Notes Series A is 7.24% and the exchange rate applicable to the principal portion of the US dollar-denominated debt has been fixed at $1.0625.

24. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform to the current year’s presentation. Financial information for the previous year has been restated to reflect the termination of our investment in the TQS Group, which is no longer consolidated since December 18, 2007 (see note 19).

80 COGECO INC. 2008 Notes to the Consolidated Financial Statements

FIVE-YEAR FINANCIAL HIGHLIGHTS

(1) (2) (2)(3) (2) (2) (in thousands of dollars, except other 2008 2007 2006 2005 2004 statistics, per share data and ratios) $ $ $ $ $ OPERATIONS REVENUE 1,108,900 969,335 646,750 572,691 541,205 OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE AMORTIZATION(4) 448,894 371,235 259,517 229,117 207,038 FINANCIAL EXPENSE 70,669 86,056 58,869 57,196 59,377 INCOME BEFORE INCOME TAXES AND OTHER ITEMS(5) 148,501 93,958 78,053 45,872 6,964 INCOME (LOSS) FROM CONTINUING OPERATIONS 43,165 85,623 27,934 10,473 (11,582) INCOME (LOSS) FROM DISCONTINUED OPERATIONS (18,057) (10,883) (4,833) (30,286) 982 NET INCOME (LOSS) 25,108 74,740 23,101 (19,813) (10,600) CASH FLOW CASH FLOW FROM OPERATIONS(4) 362,788 283,565 199,166 172,644 148,162 ACQUISITIONS OF FIXED ASSETS AND INCREASE IN DEFERRED CHARGES 262,352 254,141 164,900 128,300 104,980 BUSINESS ACQUISITIONS AND RELATED ADJUSTMENTS 229,723 (1,265) 577,431 – – FREE CASH FLOW(4) 100,436 29,424 34,266 44,344 43,182 FINANCIAL CONDITION FIXED ASSETS 1,261,610 1,123,270 1,025,770 701,975 692,316 NET ASSETS EMPLOYED(6) 2,707,951 2,427,883 2,248,522 1,634,226 1,616,520 TOTAL ASSETS 3,059,481 2,836,759 2,649,263 1,801,874 1,763,066 INDEBTEDNESS 1,164,006 1,053,583 1,337,860 717,019 540,577 SHAREHOLDERS’ EQUITY 421,026 392,460 319,259 302,589 325,047 OTHER STATISTICS NUMBER OF SHARES OUTSTANDING AT FISCAL YEAR-END 16,740,446 16,672,652 16,552,456 16,450,004 16,372,356 WEIGHTED AVERAGE NUMBER OF OUSTANDING SHARES 16,684,809 16,605,828 16,507,666 16,419,584 16,343,673 (7) PER SHARE DATA (BASIC) OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE AMORTIZATION 26.90 22.36 15.72 13.95 12.67 INCOME (LOSS) FROM CONTINUING OPERATIONS 2.59 5.16 1.69 0.64 (0.71) INCOME (LOSS) FROM DISCONTINUED OPERATIONS (1.08) (0.66) (0.29) (1.84) 0.06 NET INCOME (LOSS) 1.50 4.50 1.40 (1.21) (0.65) RETURN RATIOS OPERATING MARGIN(4)(8) 40.5% 38.3% 40.1% 40.0% 38.3% RETURN ON AVERAGE NET ASSETS EMPLOYED(9) 17.5% 15.9% 13.4% 14.1% 12.6% RETURN ON EQUITY(10)(11) 8.7% 6.3% 4.8% 3.0% 1.7% FINANCIAL RATIOS NET INDEBTEDNESS(12) / OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE AMORTIZATION 2.5 2.7 4.9 3.1 2.6 OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE AMORTIZATION / FINANCIAL EXPENSE 6.4 4.3 4.4 4.0 3.5 NET INDEBTEDNESS(12) / SHAREHOLDERS’ EQUITY 2.7 2.5 4.0 2.4 1.7

(1) INCLUDES THE RESULTS OF COGECO DATA SERVICES INC. (“CDS”) SINCE THE DATE OF ACQUISITION OF CONTROL ON JULY 31, 2008. (2) THE COMPARATIVE FIGURES REFLECT THE RECLASSIFICATION OF DISCONTINUED OPERATIONS. PLEASE REFER TO NOTE 19 ON PAGE 76 OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR FURTHER DETAILS. (3) INCLUDES THE RESULTS OF CABOVISÃO SINCE THE DATE OF ACQUISITION OF CONTROL ON AUGUST 1, 2006. (4) 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 FURTHER DETAILS, PLEASE CONSULT THE “NON-GAAP FINANCIAL MEASURES” SECTION ON PAGE 36 OF THE MANAGEMENT’S DISCUSSION AND ANALYSIS. (5) INCOME BEFORE INCOME TAXES, NON-CONTROLLING INTEREST, GAIN OR LOSS ON DILUTION RESULTING FROM THE ISSUANCE OF SHARES BY A SUBSIDIARY, SHARE IN THE LOSS OF A GENERAL PARTNERSHIP AND LOSS FROM DISCONTINUED OPERATIONS. (6) TOTAL ASSETS LESS CASH AND CASH EQUIVALENTS, ASSETS RELATED TO DISCONTINUED OPERATIONS, BANK INDEBTEDNESS, ACCOUNTS PAYABLE AND ACCRUED LIABILITIES AND DEFERRED AND PREPAID INCOME AND OTHER LIABILITIES. (7) PER MULTIPLE AND SUBORDINATE VOTING SHARE. (8) OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE AMORTIZATION / REVENUE. (9) OPERATING INCOME FROM CONTINUING OPERATIONS BEFORE AMORTIZATION / AVERAGE NET ASSETS EMPLOYED. (10) NET INCOME APPLICABLE TO MULTIPLE AND SUBORDINATE VOTING SHARES / AVERAGE SHAREHOLDERS’ EQUITY. (11) CALCULATIONS WERE MADE EXCLUDING NON-RECURRING ADJUSTMENTS. SEE “NON-GAAP FINANCIAL MEASURES” ON PAGE 36 OF THE MANAGEMENT’S DISCUSSION AND ANALYSIS FOR FURTHER DETAILS. (12) INDEBTEDNESS NET OF CASH AND CASH EQUIVALENTS.

Five-year Financial Highlights COGECO INC. 2008 81

INVESTOR INFORMATION

CONSOLIDATED CAPITALIZATION

AS AT AUGUST 31, 2008(1) 2007(2) 2006(2)(3) (in thousands of dollars) $ $ $

INDEBTEDNESS 1,164,006 1,053,583 1,337,860 SHAREHOLDERS’ EQUITY 421,026 392,460 319,259 TOTAL 1,585,032 1,446,043 1,657,119

(1) INCLUDES THE RESULTS OF CDS SINCE THE DATE OF ACQUISITION OF CONTROL ON JULY 31, 2008. (2) THE COMPARATIVE FIGURES REFLECT THE RECLASSIFICATION OF DISCONTINUED OPERATIONS. PLEASE REFER TO NOTE 19 ON PAGE 76 OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR FURTHER DETAILS. (3) INCLUDES THE RESULTS OF CABOVISÃO SINCE THE DATE OF ACQUISITION OF CONTROL ON AUGUST 1, 2006.

CREDIT RATINGS OF COGECO CABLE

In fiscal 2007, Dominion Bond Rating Service (“DBRS”) and Standard and Poor’s Rating Services (“S&P”) upgraded Cogeco Cable’s credit rating. On January 17, 2008, Fitch Ratings (“Fitch”) initiated rating coverave on Cogeco Cable.

AS AT AUGUST 31, 2008 S&P(1) Fitch DBRS

SENIOR SECURED NOTES SERIES A AND B BBB– BBB– BBB (LOW) SENIOR SECURED DEBENTURES SERIES 1 BBB– BBB– BBB (LOW)

(1) ON AUGUST 14, 2007, S&P REVISED COGECO CABLE’S OUTLOOK TO “POSITIVE” FROM “STABLE”.

SHARE INFORMATION

AS AT AUGUST 31, 2008 REGISTRAR / TRANSFER AGENT NUMBER OF MULTIPLE VOTING SHARES COMPUTERSHARE TRUST (20 VOTES PER SHARE) OUTSTANDING 1,842,860 COMPANY OF CANADA NUMBER OF SUBORDINATE VOTING SHARES 100 UNIVERSITY AVENUE, (1 VOTE PER SHARE) OUTSTANDING 14,897,586 9TH FLOOR TORONTO, ON M5J 2Y1 TEL.: 514-982-7555 STOCK EXCHANGE LISTING THE TORONTO STOCK EXCHANGE TEL.: 1 800-564-6253 TRADING SYMBOL CGO FAX: 416-263-9394

82 COGECO INC. 2008 Investor Information

DIVIDEND POLICY

The Company declared an annual eligible dividend of $0.28 during fiscal 2008 composed of quarterly eligible dividends of $0.07 (an eligible dividend of $0.0625 per share in the first quarter and $0.07 per share in the last three quarters totalling $0.2725 per share, on an annual basis, was paid in fiscal 2007) to the holders of subordinate voting shares and multiple voting shares. The declaration, amount and date of any future dividend will continue to be considered and approved by the Board of Directors of the Company based upon the Company’s financial condition, results of operations, capital requirements and such other factors as the Board of Directors, at its sole discretion, deems relevant. There is therefore no assurance that dividends will be declared, and if declared, their amount and timing may vary.

TRADING STATISTICS

2008 QUARTERS ENDED NOV. 30 FEB. 29 MAY 31 AUG. 31 TOTAL

(in dollars, except subordinate voting share volumes) $ $ $ $

THE TORONTO STOCK EXCHANGE HIGH 41.00 39.59 34.99 34.86 LOW 34.01 29.50 26.77 29.93 CLOSE 34.23 30.25 31.81 34.26 VOLUME (SHARES) 1,003,007 1,448,300 1,477,591 675,036 4,603,934

2007 QUARTERS ENDED NOV. 30 FEB. 28 MAY 31 AUG. 31 TOTAL

(in dollars, except subordinate voting share volumes) $ $ $ $

THE TORONTO STOCK EXCHANGE HIGH 27.50 41.00 41.43 44.57 LOW 21.75 26.76 35.26 33.66 CLOSE 27.25 39.36 38.25 38.36 VOLUME (SHARES) 1,229,294 1,688,906 487,721 620,568 4,026,489

Investor Information COGECO INC. 2008 83

CABLE SECTOR CUSTOMER STATISTICS

NUMBER OF CUSTOMERS 2008 2007 2006(1) 2005 2004 HOMES PASSED (2) CANADA 1,531,611 1,484,090 1,476,904 1,448,733 1,423,256 PORTUGAL 895,923 859,376 826,369 – – TOTAL 2,427,534 2,343,466 2,303,273 1,448,733 1,423,256 (3) HOMES CONNECTED CANADA 933,838 917,524 894,385 876,490 873,546 PORTUGAL 308,553 304,939 274,798 – – TOTAL 1,242,391 1,222,463 1,169,183 876,490 873,546 REVENUE-GENERATING UNITS (4) CANADA 1,991,908 1,788,508 1,555,936 1,347,733 1,271,899 PORTUGAL 724,966 697,157 629,041 – – TOTAL 2,716,874 2,485,665 2,184,977 1,347,733 1,271,899 BASIC CABLE SERVICE CUSTOMERS CANADA 857,094 849,157 833,177 821,433 823,855 PENETRATION AS A PERCENTAGE OF HOMES PASSED 56.0% 57.2% 56.4% 56.7% 57.9% PORTUGAL 296,135 294,003 269,694 – – PENETRATION AS A PERCENTAGE OF HOMES PASSED 33.1% 34.2% 32.6% – – TOTAL 1,153,229 1,143,160 1,102,871 821,433 823,855 HSI SERVICE CUSTOMERS CANADA 473,467 415,836 343,080 277,648 239,608 (5) PENETRATION AS A PERCENTAGE OF BASIC CABLE 57.7% 52.2% 44.3% 37.7% 33.4% PORTUGAL 159,301 160,023 136,278 – – (5) PENETRATION AS A PERCENTAGE OF BASIC CABLE 53.8% 54.4% 50.5% – – TOTAL 632,768 575,859 479,358 277,648 239,608 DIGITAL TELEVISION SERVICE CUSTOMERS (3) CANADA 441,746 379,879 327,364 247,204 208,436 (5) PENETRATION AS A PERCENTAGE OF BASIC CABLE 52.4% 45.8% 40.0% 30.7% 25.8% PORTUGAL 24,452 –– – – (5) PENETRATION AS A PERCENTAGE OF BASIC CABLE 8.3% –– – – TOTAL 466,198 379,879 327,364 247,204 208,436 TELEPHONY SERVICE CANADA 219,601 143,636 52,315 1,448 – (5) PENETRATION AS PERCENTAGE OF BASIC CABLE 30.5% 21.7% 10.4% 0.2% – PORTUGAL 245,078 243,131 223,069 – – (5) PENETRATION AS PERCENTAGE OF BASIC CABLE 82.8% 82.7% 82.7% – – TOTAL 464,679 386,767 275,384 1,448 –

(1) INCLUDES THE RESULTS OF CABOVISÃO SINCE THE DATE OF ACQUISITION OF CONTROL ON AUGUST 1, 2006 (2) AN AUDIT OF HOMES PASSED IN ONTARIO WAS COMPLETED DURING FISCAL 2007 AND, AS A RESULT, THE NUMBER OF HOMES PASSED WAS REDUCED BY 42,386. (3) HSI AND TELEPHONY SERVICE CUSTOMERS WHO DO NOT SUBSCRIBE TO OTHER CABLE SERVICES AND BASIC CABLE SERVICE CUSTOMERS. (4) THE NUMBER OF DIGITAL TELEVISION SERVICE CUSTOMERS FOR FISCAL 2005 WAS RESTATED TO REFLECT CHANGES BROUGHT ABOUT BY COGECO CABLE’S BILLING IMPROVEMENT PROGRAM, WHICH HAS ALLOWED COGECO CABLE TO IDENTIFY DIGITAL TELEVISION CUSTOMER ACCOUNTS THAT WERE NOT CANCELLED WHEN THEY BECAME INACTIVE. THIS CHANGE RESULTED IN A DOWNWARD ADJUSTMENT OF 8,085 CUSTOMERS AS AT AUGUST 31, 2005. (5) CALCULATED ON THE BASIS OF THE SYSTEMS WHERE THE SERVICE IS OFFERED.

84 COGECO INC. 2008 Cable Sector Customer Statistics

HOMES PASSED BASIC CABLE SERVICE

% OF CUSTOMERS PENETRATION(1) BREAKDOWN ONTARIO 1,029,121 596,229 57.9

QUÉBEC 502,490 260,865 51.9

CANADA 1,531,611 857,094 56.0

PORTUGAL 895,923 296,135 33.1

TOTAL 2,427,534 1,153,229 47.5

(1) AS A PERCENTAGE OF HOMES PASSED.

Cable Sector Customer Statistics COGECO INC. 2008 85

BOARD OF DIRECTORS AND CORPORATE MANAGEMENT

BOARD OF DIRECTORS

zS JAN PEETERS z PIERRE L. COMTOIS, B. SC., COM., ADM. A. Montréal (Québec) Montréal (Québec) President and Chief Executive Officer Vice-Chairman of the Board and Chief Investment Board Chair Officer Olameter Inc. Optimum Asset Management Inc. Board Chair Director

LOUIS AUDET, Eng., MBA S CLAUDE A. GARCIA, B.A., B. COM. Westmount (Québec) Montréal (Québec) President and Chief Executive Officer Corporate Director COGECO Inc. and Cogeco Cable Inc. Director Director S GERMAINE GIBARA, MA., CFA MARIO BERTRAND Montréal (Québec) Monaco President Managing Partner Avvio Management Inc. OMC Ltd and Wolfgang Entertainment Inc. Director Director DAVID MCAUSLAND, B.C.L., LL.B. zS JACQUELINE L. BOUTET, C.M., M.M., ICD-D Beaconsfield (Québec) Montréal (Québec) Lawyer and Corporate Director President Director Jacqueline L. Boutet Inc. Director LEGEND : z ANDRÉ BROUSSEAU, B.A., B.PED., L.PÉD.L. z MEMBER OF THE AUDIT COMMITTEE Trois-Rivières (Québec) S MEMBER OF THE HUMAN RESOURCES COMMITTEE Corporate Director MEMBER OF THE CORPORATE GOVERNANCE COMMITTEE Director MEMBER OF THE STRATEGIC OPPORTUNITIES COMMITTEE

86 COGECO INC. 2008 Board of Directors and Corporate Management

MANAGEMENT

LOUIS AUDET CHRISTIAN JOLIVET President and Chief Executive Officer Chief Legal Officer and Secretary

ELIZABETH ALVES YVES MAYRAND Senior Director, Internal Audit Vice President, Corporate Affairs

MARIE CARRIER ÉRIC SIMON Director, Corporate Communications Director, Financial Planning

PIERRE GAGNÉ ALEX TESSIER Vice President, Finance and Chief Financial Officer Treasurer

Board of Directors and Corporate Management COGECO INC. 2008 87

CORPORATE INFORMATION

HEAD OFFICE ANNUAL MEETING 5 Place Ville Marie The Annual Shareholders Meeting will be held at 4 p.m. Suite 1700 on Wednesday, December 17, 2008, at the Stock Exchange Montréal (Québec) Tower, 800 Square Victoria, 4th floor, Montréal (Québec) H3B 0B3 Tel.: 514-764-4700 AUDITORS Fax: 514-874-2625 Samson Bélair/Deloitte & Touche, s.e.n.c.r.l. www.cogeco.ca 1 Place Ville Marie Suite 3000 Montréal (Québec) H3B 4T9

LEGAL COUNSEL Fraser Milner Casgrain LLP 1 Place Ville Marie Suite 3900 Montréal (Québec) H3B 4M7

QUARTER ENDS November, February, May

YEAR-END August 31

88 COGECO INC. 2008 Corporate Information

INQUIRIES

The Annual Report, Annual Information Form and Quarterly Reports are available in the Investor Relations section of the Company’s website (www.cogeco.ca) or upon request by calling 514-764-4700.

Des versions françaises du rapport annuel, de la notice annuelle et des rapports trimestriels sont disponibles à la section Relations avec les investisseurs du site Internet de la Compagnie (www.cogeco.ca) ou sur demande au 514-764-4700.

INVESTORS AND ANALYSTS For ﬁnancial information about the Company, please contact the Department of Finance.

SHAREHOLDERS For any inquiries other than a change of address, ﬁnancial information or a change of registration of shares, please contact the Legal Affairs Department of the Company.

DUPLICATE COMMUNICATIONS Some shareholders may receive more than one copy of publications such as Quarterly Reports and the Annual Report. Every effort is made to avoid such duplication. Shareholders who receive duplicate mailings should advise Computershare Trust Company of Canada.

WHISTLE BLOWING PROCEDURES REGARDING ACCOUNTING, INTERNAL ACCOUNTING CONTROLS OR AUDITING MATTERS

Any employee of COGECO Inc., or of any of its subsidiaries, with concerns regarding questionable accounting or auditing matters may submit a complaint on such concerns on a conﬁdential basis, with protection from reprisals, to the Chief Legal Ofﬁcer of the Company, or directly to the Board Chair where there is reason to believe that an organized offence has been authorized at a high level or that reprisals would be authorized at a high level. These complaints will be reviewed as to substance and materiality under the direction of the Audit Committee and the oversight of the Chief Legal Officer or the Board Chair as the case may be, and the Internal Auditor or such other persons as the Audit Committee determines to be appropriate.

Corporate Information COGECO INC. 2008 89

SUBSIDIARIES AND OPERATING UNITS

CABLE SECTOR OTHER SECTOR

COGECO CABLE INC. COGECO RADIO-TELEVISION INC. / COGECO DIFFUSION INC. 5 Place Ville Marie Suite 1700 5 Place Ville Marie Montréal (Québec) H3B 0B3 Suite 1700 Tel.: 514-764-4700 Montréal (Québec) H3B 0B3 Fax: 514-874-2625 Tel.: 514-764-4700 www.cogeco.ca Fax: 514-874-2625 www.cogeco.ca J. FRANÇOIS AUDET Vice President, Telecommunications RICHARD LACHANCE Vice President, Radio FRANÇOIS BEAULIEU RYTHME FM NETWORK Vice President and Chief Information Officer ANDRÉ ST-AMAND Vice President, Programming DENIS BÉLANGER Vice President, Technology Development 105.7 RYTHME FM Laval/Montréal (Québec) JACQUES GRAVEL RICHARD LACHANCE Vice President, Network Services General Manager and Québec Operations 91.9 RYTHME FM JULES GRENIER Québec (Québec) Vice President, Portugal JEAN-PAUL LEMIRE General Manager RENÉ GUIMOND Vice President, Development, New Media 93.7 RYTHME FM Estrie (Québec) ANDRÉ DAVID HÉLÈNE LAURIN General and Sales Manager Vice President, Administration and Control 100.1 RYTHME FM CHRIS MACFARLANE Mauricie (Québec) Vice President, Corporate Engineering RICHARD LACHANCE Acting General Manager RON A. PERROTTA Vice President, Marketing and Strategic Planning 933 Québec (Québec) LOUISE ST-PIERRE JEAN-PAUL LEMIRE Vice President, Customer Service General Manager and Ontario Operations

90 COGECO INC. 2008 Subsidiaries and Operating Units