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