CGO Annual Report 2012 - DRAFT 6corpo.cogeco.com/cgo/application/files/6215/0636/7626/... · 2020....

COGECO INC. 2012 1

PROFILE

COGECO Inc. (“COGECO” or “the Corporation”) is a diversified holding corporation with subordinate voting shares listed on the Toronto Stock Exchange (“TSX”), under the symbol CGO. The Corporation’s current holdings are concentrated in various segments of the communications sector.

COGECO’s subsidiary, Cogeco Cable Inc. (“Cogeco Cable” or the “cable subsidiary”) provides its residential customers with Analogue and Digital Television, High Speed Internet (“HSI”) and Telephony services. Cogeco Cable provides 1.97 million primary service units (“PSU”) to approximately 1.6 million homes passed by its cable network in the territories it serves.

Cogeco Cable, through its subsidiary Cogeco Data Services Inc. (“CDS”), also provides to its commercial customers, data networking, e-business applications, video conferencing, hosting services, Ethernet, private line, Voice over Internet Protocol (“VoIP”), HSI access, data storage, data security, co-location services, managed IT services, cloud services and other advanced communication solutions.

Through its subsidiary, Cogeco Diffusion Acquisitions Inc. (“CDI”), COGECO wholly-owns and operates thirteen (13) radio stations across most of Québec with complementary radio formats serving a wide range of audiences, as well as Cogeco News. CDI also operates Métromédia CMR Plus Inc. (“Métromédia”), an advertising representation house specialized in the public transit sector that holds exclusive advertising rights in the Province of Québec where it also represents its business partners active across other Canadian markets.

Cogeco Cable’s subordinate voting shares are listed on the Toronto Stock Exchange (TSX: CCA).

2 COGECO INC. 2012

Annual ReportFinancial highlights ....................................................................... 3 Message to shareholders .............................................................. 4 Management’s Discussion and Analysis (MD&A) ......................... 6 Consolidated financial statements .............................................. 39 Investor information .................................................................... 95

Cable segment customer statistics .............................................. 97 Board of Directors and corporate management .......................... 98 Corporate information ................................................................ 100 Subsidiaries and operating segments ....................................... 102

Financial highlights COGECO INC. 2012 3

FINANCIAL HIGHLIGHTS

Years ended August 31, 2012 2011 Change

(in thousands of dollars, PSU growth and Per Share Data) $ $ %

Operations

Revenue 1,406,353 1,267,286 11.0

Operating income before depreciation and amortization(1) 606,842 559,595 8.4

Operating income 324,989 343,471 (5.4)

Profit for the year from continuing operations 174,246 197,864 (11.9)

Profit (loss) for the year from discontinued operations 55,446 (244,736) –

Profit (loss) for the year 229,692 (46,872) –

Profit (loss) for the year attributable to owners of the Corporation 77,051 (15,961) –

Cash Flow

Cash flow from operating activities 448,764 502,167 (10.6)

Cash flow from operations(1) 447,110 418,983 6.7

Acquisitions of property, plant and equipment, intangible and other assets 378,369 307,490 23.1

Free cash flow(1) 68,741 111,493 (38.3)

Financial Condition

Property, plant and equipment 1,343,904 1,272,251 5.6

Total assets 3,103,919 2,871,648 8.1

Indebtedness(2) 1,180,971 1,056,214 11.8

Equity attributable to owners of the Corporation 397,799 342,525 16.1

PSU growth(3) 71,664 106,310 (32.6)

Per Share Data(4)

Earnings (loss) per share attributable to owners of the Corporation

From continuing and discontinued operations

Basic 4.61 (0.95) –

Diluted 4.58 (0.95) –

From continuing operations

Basic 3.54 3.75 (5.6)

Diluted 3.52 3.75 (6.1)

From discontinued operations

Basic 1.07 (4.71) –

Diluted 1.06 (4.71) –

Weighted average number of multiple and subordinate voting shares outstanding 16,724,063 16,728,863 –

(1) The indicated terms do not have standardized definitions prescribed by International Financial Reporting Standards (“IFRS”) and therefore, may not be

comparable to similar measures presented by other companies. For more details, please consult the “Non-IFRS financial measures” section of theManagement’s discussion and analysis (“MD&A”).

(2) Indebtedness is defined as the total of bank indebtedness, promissory note payable, principal on long-term debt, balance due on business acquisitions andobligations under derivative financial instruments.

(3) Represents the sum of Television, High Speed Internet (“HSI”) and Telephony service customers. (4) Per multiple and subordinate voting share.

4 COGECO INC. 2012 Message to shareholders

MESSAGE TO SHAREHOLDERS

Dear Shareholders: COGECO Inc. (“COGECO”) takes pride in its success, bolstered by strong financial results in fiscal 2012 that continue to reflect the vitality and sustained growth for which your Corporation is known. Driven to attain our corporate goals, we are proud of having achieved the great majority of those we set for ourselves for this past fiscal year. On a consolidated basis, revenue for fiscal 2012 rose by 11%, and operating income before depreciation and amortization(1) grew by 8.4%. Profit for the year amounted to $229.7 million and the Corporation generated free cash flow(1) of $68.7 million. The strength of our financial position relies fundamentally on an ability to support a competitive marketing strategy, to apply sound cost management, as well as to quickly and effectively integrate recent acquisitions. COGECO CABLE Integration and consolidation The year 2012 was indelibly marked by major integration and consolidation actions in all our areas of activity. Cogeco Data Services Inc. (“CDS”), our data communications subsidiary, moved ahead in successfully integrating the activities of Toronto-based Quiettouch Inc. (“QTI”) and Montréal-based MTO Telecom Inc. (“MTO”), both acquired in 2011. With the implementation of a brand-new leading-edge data centre in the very heart of Toronto’s business district, intended for easy-access connections that provide short transit times with Canada’s largest businesses and financial institutions, CDS provides a first-rate solution to an increasingly essential need in the telecommunications industry. The data hosting activities of CDS anticipate organic growth of more than 10% annually, which is very promising for the coming years. Given the importance of CDS activities within Cogeco Cable, its operating results are now presented as segmented information in the public disclosure of Cogeco Cable’s operating results. Initiatives 2012 results are a reflection of Cogeco Cable’s ability to continue making our customers the focus of our priorities and respond effectively to their constantly growing requirements. In the area of residential services, we continued the deployment of the DOCSIS 3.0 technology and 83% of our customers now enjoy very-high-speed Internet service, among the fastest in the territories we serve. We expect this project to be completed throughout our markets in the fall. It is also worth noting that the first phase migration of analogue packages to digital technology was completed, providing for more efficient use of bandwidth to offer our customers higher-performance and more diversified services. All these initiatives and enhancements led us to an increase of 71,664 primary service units (“PSU”) in Canada. Growth in the residential area is clearly moderating, and this is likely to continue next year. In the commercial services area, Cogeco Cable still sees strong growth among small- and medium-sized enterprises. Despite the considerable challenges and issues we must face in a highly competitive industry, Cogeco Cable has fulfilled its main goal, which is to support its growth and continuously improve its networks and processes. SOCIAL RESPONSIBILITY – AT THE HEART OF OUR ACTION In the area of corporate social responsibility (“CSR”), 2012 marks the first year in which COGECO published Carbon Disclosure Project (“CDP”) and Global Reporting Initiative (“GRI”) reports. This is a major step in our Corporation’s environmental, social and economic commitment. In addition, we have set greenhouse gas reduction targets to reduce our environmental footprint. The measures applied under the 2011 program, such as assessing and reducing carbon emissions, producing less waste and raising awareness of re-use, recycling and composting, have continued throughout 2012. This is generating a favourable response from our customers, business partners and employees. Our Corporation will pursue its efforts in 2013 to further reduce its carbon footprint by adopting management practices that will produce additional energy savings. REGULATORY MATTERS With regards to regulation, fiscal 2012 was marked by the first Canadian Radio-television and Telecommunications Commission (“CRTC”) rulings handed down after the publication of the new regulatory framework on vertical integration. These rulings were issued in response to, on the one hand, a dispute between Bell Media Inc. and several independent distributors and, on the other, the proposed acquisition by BCE Inc., Bell Media’s parent, of Astral Media Inc., Canada’s main independent television programming service supplier. Cogeco Cable considers that BCE already holds excessive market power in programming and distribution on the various electronic platforms across Canada and that it has the opportunity to abuse its dominant position—as well as an economic interest to do so—despite the new regulatory framework. In our opinion, its current status as Canada’s largest communications firm is reason enough to prevent it from further increasing its dominant position to the detriment of competition and of the best interests of Canadian consumers. In order to stop the takeover, Cogeco Cable and many other communications stakeholders as well as the main consumer advocacy groups have publicly and strongly opposed BCE’s proposed acquisition of Astral Media. On October 18, 2012, the CRTC decided to deny BCE’s applications entirely.

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

companies. For more details, please consult the “Non-IFRS financial measures” section of the MD&A.

Message to shareholders COGECO INC. 2012 5

OTHER Radio broadcasting and outdoor advertising Although ranked 2nd in size, Cogeco Diffusion Acquisitions Inc. (“CDI”) is today’s leading radio broadcaster in Québec. In Montreal, 98.5 FM and Rythme FM hold the number one position in their category. FM 93 and 102.9 FM are also among the most popular stations in Québec City. Building on the success of talk radio in Montreal and Québec City, CDI extended its talk network to Trois-Rivières, Gatineau and Sherbrooke in August 2012, thus creating the largest private talk radio network in Québec. CDI’s commercial activities now include Métromédia CMR Plus Inc. (“Métromédia”). Acquired in early 2012, Métromédia specializes in billboard and poster advertising in public transport and holds the exclusive rights to advertising on buses in a number of Québec municipalities, including Montreal, as well as in the Montreal metro. 2013 OUTLOOK Fiscal 2013 will be a time of North American expansion. Cogeco Cable will extend its operations south of the border following the closing of the transaction to acquire Atlantic Broadband (“Atlantic”), an independent cable system operator formed in 2003 which, at August 31, 2012, was serving about 251,000 Television service customers providing Analogue and Digital Television, High-Speed Internet (“HSI”) and Telephony services. The transaction, valued at US$1.36 billion, is the largest in Cogeco Cable’s history. Ranked the 13th-largest cable television system operator in the United States, Atlantic operates cable systems in Pennsylvania, Florida, Maryland, Delaware and South Carolina. This acquisition represents substantial growth opportunities for Cogeco Cable, including higher penetration among small- and medium-sized enterprises, as well as the potential to optimize the packaging of services in the residential area. Upon completion of this transaction, Cogeco Cable will serve more than 2.45 million PSU in Canada and the United States. The transaction is expected to close by the end of calendar 2012. CDI will continue to integrate and consolidate its activities in fiscal 2013, both in radio broadcasting and billboard and poster advertising. Our priorities will be to confirm our leadership position and support the continuous improvement of our processes and methodologies in order to ensure growth in sales by providing our advertising partners with more striking media offerings. Excluding the Atlantic acquisition in the Cable segment, COGECO expects to generate $1.490 billion in revenue, $630 million in operating income before depreciation and amortization and $195 million in profit for the year during fiscal 2013. ACKNOWLEDGEMENTS We wish to thank the members of our Board of Directors for their wise advice and their unstinting support, which enabled your Corporation to continue its rise. We wish in particular to thank André Brousseau, who is leaving the Board. Mr. Brousseau joined the COGECO Board in 1996 and has been a member of the Human Resources and Audit committees. On behalf of the Board and the entire COGECO team, we express our gratitude for his outstanding contribution. We should also point out that, in terms of quality of governance, the latest edition of the Annual Corporate Governance Survey published by The Globe and Mail Report on Business in November 2011 ranks Cogeco Cable among the top rated Canadian companies characterized by a dual-category share structure and family control. In conclusion, we wish to acknowledge the dedication of our 3,700 employees, who contribute to COGECO’s success on a daily basis, having made theirs our corporate values of dedication to customers, teamwork, innovation, respect and integrity. We regard these values as the five fingers of a hand that we extend to serve a customer or to establish close links with business partners and with the communities we have the privilege of serving. By living our mission and our values, our team is helping to make COGECO a leader in the Canadian telecommunications industry. Louis Audet President and Chief Executive Officer

Jan Peeters Board Chair

6 COGECO INC. 2012 Management’s Discussion and Analysis (MD&A)

MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)

Management’s Discussion and Analysis (MD&A) Forward-looking statements .......................................................... 7 Overview of the business .............................................................. 8 Performance highlights ............................................................... 21 Operating and financial results ................................................... 21 Cash flow analysis ...................................................................... 23 Financial position ........................................................................ 26 Capital resources and liquidity .................................................... 26

Cable segment ............................................................................ 30 Three-year annual financial highlights and quarterly financial

highlights .................................................................................. 32 Fiscal 2013 financial guidelines ................................................... 36 Non-IFRS financial measures ...................................................... 37 Additional information .................................................................. 38

Management’s Discussion and Analysis (MD&A) COGECO INC. 2012 7

FORWARD-LOOKING STATEMENTS Certain statements in this Management’s Discussion and Analysis (“MD&A”) 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 Corporation’s future operating results and economic performance and its objectives and strategies are forward-looking statements. These statements are based on certain factors and assumptions including expected growth, results of operations, performance and business prospects and opportunities, which COGECO believes are reasonable as of the current date. While management considers these assumptions to be reasonable based on information currently available to the Corporation, they may prove to be incorrect. The Corporation cautions the reader that the economic downturn experienced over the past few years makes forward-looking information and the underlying assumptions subject to greater uncertainty and that, consequently, they may not materialize, or the results may significantly differ from the Corporation’s expectations. It is impossible for COGECO to predict with certainty the impact that the current economic uncertainties may have on future results. Forward-looking information is also subject to certain factors, including risks and uncertainties (described in the “Uncertainties and main risk factors” section starting on page 15 of the 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 Corporation’s control. Therefore, future events and results may vary significantly from what management currently foresee. The reader should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While management may elect to, the Corporation is under no obligation (and expressly disclaims any such obligation), and does not undertake to update or alter this information before the next quarter. As described in note 1 to the consolidated financial statements for year ended August 31, 2012, Canadian Generally Accepted Accounting Principles (“GAAP”), which were previously used in preparing the consolidated financial statements, were replaced on the adoption of International Financial Reporting Standards (“IFRS”) on January 1, 2011. The Corporation’s consolidated financial statements for the year ended August 31, 2012 have therefore been prepared in accordance with IFRS. Comparative figures for 2011 have also been restated. All amounts are stated in Canadian dollars unless otherwise indicated. This report should be read in conjunction with the Corporation’s consolidated financial statements and the notes thereto as well as the information on the adjustments to the fiscal 2011 financial figures upon adoption of IFRS, explained in Note 28 of the consolidated financial statements for year ended August 31, 2012. Acronyms DTA Digital Terminal Adapter

DOCSIS Data Over Cable Service Interface Specifications

€ Euro Currency

FTTH Fibre to the Home

HD High Definition

HSI High Speed Internet

IP Internet Protocol

Mbps Megabits per second

MHz Megahertz

PSU Primary service units include Television, HSI and Telephony service customers.

RFoG Radio Frequency Over Glass

SD Standard Definition

SDV Switched Digital Video

SVOD Subscription Video on Demand Services

VOD Video on Demand Services

VoIP Voice-over-Internet Protocol


OVERVIEW OF THE BUSINESS COGECO Inc. (“COGECO” or the “Corporation”) is a diversified holding corporation that provides Cable Television, High Speed Internet (“HSI”), Telephony services and other telecommunications services to its residential and commercial customers in Canada through Cogeco Cable Inc. (“Cogeco Cable” or the “cable subsidiary”) and is engaged in Radio broadcasting in Canada through Cogeco Diffusion Acquisitions Inc. (“CDI”) and in advertising representation specialized in the public transport sector through Métromédia CMR Plus Inc. (“Métromédia”). Cogeco Cable is the second largest hybrid fibre coaxial cable operator in Ontario and Québec. Cogeco provides a wide range of Analogue and Digital Television, HSI and Telephony services primarily to residential customers as well as business solutions, including data networking, Ethernet, hosting, HSI access and VoIP services, to small and medium sized businesses. As at August 31, 2012, the Corporation provides Television service to 863,115 customers, Digital Television service to 771,503 customers, HSI service to 634,534 customers and Telephony service to 471,484 customers. Through its subsidiary Cogeco Data Services Inc. (“CDS”), Cogeco Cable also provides to its commercial customers data centre, managed IT and connectivity services for medium and large enterprises and public sector customers. It also provides high-performance Ethernet broadband connectivity services to carriers including provision of physical space and power within its high security data centres and a new suite of managed IT and infrastructure services, as well as a full suite of connectivity services provisioned over its wholly-owned optical networks. CDI wholly-owns and operates thirteen (13) radio stations across most of Québec with complementary radio formats serving a wide range of audiences: Rythme FM, CKOI FM, 98.5 FM, 92.5 The Beat and Radio Circulation 730 AM in Montréal; FM 93 and 102.9 FM in Québec City; 104.7 FM in Gatineau; CIME FM in Saint-Jérôme; Rythme FM and 107.7 FM in Sherbrooke as well as Rythme FM and 106.9 FM in Trois Rivières. CDI also operates Cogeco News, one of Quebec’s largest news agencies, feeding close to 24 affiliates, independent and community radio stations as well as Métromédia, an advertising representation house specialized in the public transit sector that holds exclusive advertising rights in the Province of Québec where it also represents its business partners active across other Canadian markets.

On July 18, 2012, Cogeco Cable announced an agreement to acquire all of the shares of Atlantic Broadband ("Atlantic") an independent cable system operator formed in 2003 which, at August 31, 2012, was serving about 251,000 Television service customers providing Analogue and Digital Television, as well as HSI and Telephony services. Ranked the 13th-largest cable television system operator in the United States, Atlantic operates cable systems in Pennsylvania, Florida, Maryland, Delaware and South Carolina. The transaction is valued at US$1.36 billion and expected to be financed through a combination of cash on hand, a draw-down on its existing Term Revolving Facility of approximately US$550 million and US$660 million of borrowings under a new committed non-recourse debt financing at Atlantic. The transaction is subject to usual closing conditions, including Hart-Scott-Rodino Antitrust Improvements Act approval, Federal Communications Commission (“FCC”) approval, state and local regulatory approvals and other customary conditions. Cogeco Cable expects the transaction to close by the end of calendar 2012. On February 29, 2012, Cogeco Cable completed the sale of its Portuguese subsidiary, Cabovisão – Televisão por Cabo, S.A. (“Cabovisão”) for a cash consideration of €45 million or approximately $59.3 million. Operating results from European operations have therefore been classified as discontinued operations. For further details, please refer to the “Disposal of subsidiary and discontinued operations” section on page 31. On December 6, 2011, COGECO Inc. concluded an agreement to acquire Métromédia, subject to customary closing adjustments and conditions. Métromédia is a Québec company that operates an advertising representation house in the public transit sector. Métromédia represents over 100 public transit markets notably in Montréal, in other Québec regions as well as in major cities and numerous markets in the rest of Canada. The transaction was completed on December 26, 2011. On February 1, 2011, CDI completed the acquisition of 11 radio stations in the province of Québec (“Quebec Radio Stations Acquisition”), which was originally announced on April 30, 2010 and then subject to the Canadian Radio-television and Telecommunications Commission (“CRTC”) approval. When the CRTC approved the Québec Radio Stations Acquisition, there was a requirement to divest three radio stations to comply with the common ownership policy in the Québec City and Sherbrooke markets. On November 30, 2011, CDI concluded an agreement for the sale of two of its four Québec City FM radio stations, CJEC-FM and CFEL-FM for a cash consideration of $4.6 million, subject to CRTC approval and customary closing adjustments and conditions. On December 6, 2011, CDI closed its Sherbrooke radio station, CJTS-FM. On January 19, 2012, the CRTC approved the sale of CJEC-FM and CFEL-FM which have been completed on January 30, 2012 and marked the end of the process established with the CRTC for the divestiture of these three radio stations.

CORPORATE OBJECTIVES AND STRATEGIES COGECO’s objectives are to maximize shareholder value by increasing profitability, notably the operating income before depreciation and amortization(1) and ensuring continued revenue growth. The strategies employed to reach these objectives, supported by tight controls over costs and business processes, are specific to each sector. The main strategies used to reach COGECO’s objectives in the Cable segment focus on sustained corporate growth and continuous improvement of networks and equipment. The radio activities focus on continuous improvement of its programming in order to increase its market share and thereby its profitability.


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


TIGHT CONTROL OVER COSTS AND IMPROVED BUSINESS PROCESSES The Corporation 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 Corporation’s development.

CABLE SEGMENT Cogeco Cable’s objectives are to improve profitability and create shareholder value. To achieve these objectives, the Corporation has developed strategies that focus on expanding its service offering, enhancing its existing services and bundles, improving customer experience and business processes as well as keeping a sound capital management and a strict control over spending. These strategies will be supported by developing continuously the infrastructure network in accordance with sound capital expenditures management. Genuine customer service will arise by focusing on customer needs with services at attractive prices while taking into account the competitive landscape and the economic environment, using a variety of sales channels, simplifying and tightening customer-related processes thus providing better cost controls.

ANTICIPATED RESULTS OF THESE STRATEGIES The successful implementation of the previously 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 36 in “Fiscal 2013 financial guidelines”): COGECO expects to achieve operating income before depreciation and amortization of $630 million in fiscal 2013 as a result of PSU

growth, rate increases implemented in June and July 2012 in the Cable segment as well as the full year impact of the Métromédia Acquisition and the improved results of the radio activities;

The Corporation expects to generate a free cash flow(1) of $115 million resulting from the growth in operating income before depreciation and amortization and by a reduction in acquisitions of property, plant and equipment and intangible assets. Generated free cash flow should be used primarily to reduce Indebtedness, thus improving the Corporation’s leverage ratios;

Cable segment PSU are expected to grow by approximately 50,000 in the coming year, stemming from targeted marketing initiatives to improve penetration rates of the Digital Television, HSI and Telephony services. Furthermore, the Digital Television service should continue to benefit from the customers’ ongoing strong interest in the Corporation’s growing HD service offerings. Revenue will also benefit from the impact of rate increases implemented in June 2012 in Quebec and July 2012 in Ontario, ranging on average between $2 to $3 per HSI and Telephony service customers.

Please refer to the “Key performance indicators” section on page 10 for further details on the fiscal 2012 results and achievements.

CABLE SEGMENT NETWORKS AND INFRASTRUCTURE

CABLE SERVICES Cogeco Cable provides its Television, HSI, Telephony and Business solutions services through state-of-the-art fibre optic and two-way broadband distribution networks. It is Cogeco Cable’s general policy to fully own its distribution networks and head-ends as well as its transmission equipment and access facilities. As at August 31, 2012, Digital Television, VOD and Telephony services were available to approximately 99%, 97% and 94% of homes passed, respectively, and approximately 97% of homes passed were served by a two-way cable plant.

Cogeco Cable’s inter-city optical fibre network extends for a distance of over 10,000 kilometres. This includes over 110,000 kilometres of optical fibre. Cogeco Cable has deployed optical fibre to nodes serving clusters of typically 500 or less homes passed, with multiple fibres per node in most cases, which allows Cogeco Cable to rapidly extend the capacity of the fibre plant to clusters of 250 homes or less if and when necessary. This process, known as “Node Splitting”, leads to further improvement in the quality and reliability while increasing the capacity of two-way services such as HSI, VOD and Telephony.

Cogeco Cable currently uses under DOCSIS standards within its IP platform. The DOCSIS has numerous advanced features, including the prioritization of packets to ensure a continuous transmission and quality of service delivery. This prioritization is important for services that need to be transmitted in real time, such as those of the Telephony service. The DOCSIS 3.0 standard is currently available to 83% of homes passed served by Cogeco Cable two-way cable plant. This technology provides a flexible and expandable platform to further increase IP transmission speeds up to 160 Mbps and beyond and for providing other products like symmetrical services, which are particularly well suited for commercial customer applications.

Cogeco Cable has implemented an infrastructure with 550 MHz and 750 MHz capacity, depending on the cable system and customer needs. 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 15 SD digital television signals, or up to 3 HD signals.

In order to increase the bandwidth capacity of its cable systems, Cogeco Cable completed during the last fiscal year the first phase of its program to convert into digital signals the remaining analogue channels in its systems. Cogeco Cable deployed DTAs to its customers having


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


analogue television equipment. DTAs convert Digital Television signals to analogue signals in the viewer’s home through a device installed on the television set. The first phase of the program allowed Cogeco Cable to recover an average of 30 analogue channels per system in Ontario and an average of 20 analogue channels per system in Québec. The second phase of this project, which will allow the recovery of the remaining analogue bandwidth, is expected to be completed over the next three years.

Cogeco Cable also deployed the SDV technology in its systems to further increase bandwidth capacity. SDV technology allows Cogeco Cable to selectively broadcast only 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. SDV technology currently serves 61% of homes passed served by a two-way cable plant.

Cogeco Cable is deploying the FTTH technology in new residential subdivision developments which meet specific criteria of size, proximity to the existing plant and service penetration rate. The FTTH topology selected is RFoG. The primary benefit of RFoG is the ability to leverage existing Cable Modem Termination Systems (“CMTS”), cable modem investments and back-office systems, all while maintaining service continuity with existing video, VoIP, and preparing for higher speed Internet services.

ENTERPRISE SERVICES Cogeco Cable’s subsidiary, Cogeco Data Services Inc. ("CDS"), operates a 2,250 kilometre fibre optic network that extends throughout the Greater Toronto Area and the Greater Montreal Area. The multiple facilities based infrastructure (Ethernet, Dense Wave Division Multiplexing and Multiprotocol Label Switching (“MPLS”) connects well over 1,000 commercial buildings within these two areas and enables high bandwidth services. CDS currently has three data centre facilities in Toronto and a small facility in Vancouver. These facilities have state of the art 24/7/365 monitoring, power redundancy, support, biometrics and onsite security providing a protected controlled environment for the provision of hosting and colocation services. CDS opened a new phase of its data centre facility in downtown Toronto in the summer of 2012 targeting customers that require close proximity to Toronto’s business and financial district. CDS also has two data centre facilities west of the city’s business district for customers requiring facilities in close proximity to Toronto and a small facility in Vancouver for customers requiring access to the west coast. In addition, CDS is building out a facility north of Toronto scheduled for commercial availability in the summer of 2013. It also recently announced its plan to create a large data hosting facility in Montréal, scheduled to open in the Spring of 2014. CDS has introduced a new suite of managed IT services, including server, operating system, application and network management that allow its customers to outsource certain IT functions. These services are provided on customer-owned equipment hosted in the CDS’ secure data centre facilities. In addition, CDS provides its customers with compute, backup and storage services on its dedicated and shared infrastructure. CDS' connectivity services are delivered via its all-optical standards-based networks in Toronto and Montreal. These networks provide CDS with the capacity and flexibility to provide its customers with managed connectivity services that can easily scale as their business grows. These services include managed wavelengths, Metro Ethernet and MPLS services that enable organizations to connect to their offices, data centres and suppliers and run their applications across multiple locations.

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 IFRS and should not be considered an alternative to other measures of performance in accordance with IFRS. The Corporation’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.

Original projectionsOctober 25, 2011(1)

Fiscal 2012

Revised projectionsJuly 11, 2012(1)

Fiscal 2012Actual

Fiscal 2012

Achievementof the revised projections(2)

Fiscal 2012(in millions of dollars, except percentages and PSU growth) $ $ $

Financial guidelines

Operating income before depreciation and amortization 615 600 607 Surpassed

Free cash flow 110 100 69 Under-achieved

PSU growth 90,000(3) 72,000 71,664 Achieved

(1) The original projections included the Portuguese subsidiary, Cabovisão, which was sold on February 29, 2012 and excluded the acquisition of Métromédia, which was completed on December 26, 2011. Revised projections were changed to adjust for these two transactions and take into account Management’s view of the 2012 fiscal year.

(2) Achievement of the projections is defined as within 1% above or below the projected amount. (3) The PSU growth projections amounts in terms of RGU to 225,000 net additions as presented in the Fiscal 2012 financial guidelines of the 2011 Annual

Report.


OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION Operating income before depreciation and amortization is a benchmark 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 depreciation and amortization evolution assesses 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 depreciation and amortization is a proxy for cash flow from operations(1) excluding the impact of the capital structure chosen. Consequently, operating income before depreciation and amortization is one of the key metrics used by the financial community to value the business and its financial strength. In the 2011 annual report, the Corporation projected operating income before depreciation and amortization of $615 million for the 2012 year, which was then decreased to $600 million in the revised projections issued on July 11, 2012 in order to reflect the sale of the Cogeco Cable’s Portuguese subsidiary in the second quarter of fiscal 2012, the PSU growth increase at a lower pace than expected as a consequence of a more competitive environment and tightening of credit controls and the acquisition of Métromédia. Operating income before depreciation and amortization for the 2012 fiscal year amounted to $607 million, surpassing the Corporation’s revised projections mainly as a result of PSU growth and rate increases.

FREE CASH FLOW Free cash flow is defined as cash flow from operations less acquisitions of property, plant and equipment, intangible and other assets. The financial community also closely follows this indicator since it measures the corporation’s ability to repay debt, distribute capital to its shareholders and finance its growth. On july 11, 2012, cogeco issued revised fiscal 2012 free cash flow projections of $100 million, a decrease of $10 million over the initial projections of $110 million issued in the 2011 annual report as a result of the sale of the portuguese subsidiary. For the 2012 fiscal year, free cash flow amounted to $69 million, under-achieving the corporation’s revised projections mainly due to the higher acquisitions of property, plant and equipment, intangible and other assets than projected, partly offset by the improvement of operating income before depreciation and amortization.

CABLE SEGMENT PSU growth and penetration of service offerings As of fiscal 2012, Cogeco Cable has modified its key performance indicator for growth to a PSU concept instead of a revenue-generating units (“RGU”) concept. PSU expansion is an important driver of revenue growth and measures the success of the marketing strategy and the competitiveness of the service offerings and pricing. For the 2012 fiscal year, as revised on July 11, 2012, Cogeco Cable’s projected growth of 72,000 PSU, which was achieved with 71,664 PSU as a result of targeted marketing initiatives and the continuing interest for HD television service. Penetration statistics measure Cogeco Cable’s market share. Cogeco Cable computes the penetration for all its services as a percentage of homes passed. For further details please consult the customer statistics on the “Cable segment” section on page 30. OTHER Radio activities In 2012, CDI fully integrated the stations acquired from Corus and delivered strong financial results. In the Montréal French-language market, CDI’s stations have dominated the competition, capturing almost all of the gains recorded in that market over the past 12 months. Driven by the solid performance of its flagship stations 98.5 FM and Rythme 105.7 FM, which are number 1 and 2 respectively in the Montréal radio market, the CDI Montréal French cluster has earned a share of available radio revenue above its audience ratings. As for the all-traffic station, it is continuing to make its mark in the Greater Montréal Area. Bolstered by the exceptional growth in ratings recorded this past year by its 98.5 FM talk radio station in Montréal and propelled by its success, CDI also completed the launch of its FM talk radio network at the end of August 2012. The stations acquired from Corus in the Gatineau, Sherbrooke and Trois-Rivières markets used to operate in a hybrid format mixing music and talk. Today they have their own distinctive personalities with programming that is entirely focused on public affairs, cultural events, and news.

(1) Cash flow from operations does not have a standardized definition prescribed by IFRS and therefore, may not be comparable to similar measures presented by

other companies. For further details, please consult the “Non-IFRS Financial Measures”.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES Preparation of the consolidated financial statements in accordance with IFRS 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 Corporation’s significant accounting policies is presented in note 2 of the consolidated financial statements. The following accounting policies were identified as critical to COGECO’s business operations.

REVENUE RECOGNITION Revenue is measured at the fair value of the consideration received or receivable, net of returns and discounts. The Corporation recognizes revenue from the sale of products or the rendering of services when the following conditions are met:

The amount of revenue and related costs can be measured reliably; The significant risks and rewards of ownership have been transferred to customers and there is no continuing management

involvement with the goods; and The recovery of the consideration is probable.

More specifically, the Corporation’s principal sources of revenue are recognized as follows:

Monthly subscription revenue received for Cable Television, HSI and Telephony services and rental of equipment are recognized as the services are provided;

Revenue from data services, long-distance and other pay-per-use services are recorded as the services are provided; Revenue from managed services, Internet connectivity, dark fibre services and other advance communication solutions are recorded

as the services are provided; Revenue generated from the sale of home terminal devices or other equipment are recorded when the equipment is delivered and

accepted by the customers; and Revenue generated from the sale of advertising airtime and advertising display are recognized when the advertisement has been

aired or displayed.

ALLOWANCE FOR DOUBTFUL ACCOUNTS Allowance for doubtful accounts is established based on specific credit risk of the Corporation’s customers by examining such factors as the number of overdue days of the customer’s balance outstanding as well as the customer’s collection history. As a result, conditions causing fluctuations in the aging of customer accounts will directly impact the reported amount of bad debt expenses.

BUSINESS COMBINATIONS Fair value of assets acquired and liabilities assumed in a business combination is estimated based on information available at date of acquisition and involves considerable judgement in determining the fair values assigned to the property, plant and equipment and intangible assets acquired and liabilities assumed on acquisition. Among other things, the determination of these fair values involves the use of discounted cash flow analyses, estimated future margins and estimated future customer counts.

CAPITALIZATION OF PROPERTY, PLANT AND EQUIPMENT During construction of new assets, direct costs plus overhead costs directly attributable to the asset are capitalized. Borrowing costs directly attributable to the acquisition or construction of qualifying assets, which require a substantial amount of time to get ready for their intended use or sale, are capitalized until such time the assets are substantially ready for their intended use or sale. All other borrowing costs are recorded as financial expense in the period in which they are incurred.

CAPITALIZATION OF INTANGIBLE ASSETS Reconnect and additional service activation costs are capitalized up to a maximum amount not exceeding the revenue generated by the reconnect activity. Direct and incremental costs associated with the acquisition of commercial customers are capitalized.

USEFUL LIVES OF PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS Measurement of property, plant and equipment and intangible assets with finite useful lives requires estimates for determining the asset’s expected useful lives and residual values. Management judgement is required to determine the components and the depreciation method used.

PROVISIONS Management judgement is used to determine the timing, likelihood and to quantify expected cash outflows.

FAIR VALUE MEASUREMENT OF DERIVATIVE FINANCIAL INSTRUMENTS The fair value of derivative financial instruments is estimated using valuation techniques based on several inputs such as interest rates and volatilities and foreign exchange rates.


MEASUREMENT OF DEFINED BENEFIT ASSETS AND LIABILITIES The defined benefit pension plans liabilities are determined using actuarial calculations that are based on several assumptions. The actuarial valuation uses the Corporation’s assumptions for the discount rate, expected long-term rate of return on plan assets, rate of compensation increase and expected average remaining years of service of employees. If the actuarial assumptions are found to be significantly different from the actual data subsequently observed, it could impact the reported amount of pension cost recognized in profit or loss, the actuarial gains and losses recognized directly in other comprehensive income, and the net assets or net liabilities related to these obligations presented in the consolidated statement of financial position.

MEASUREMENTS OF ASSETS The impairment of non-financial assets requires the use of management judgement to identify the existence of indicators of impairment and the determination of cash-generating units (“CGU”s). Furthermore, when determining the recoverable amount of a CGU, the Corporation uses significant estimates such as the estimation of future cash flows and discount rates applicable. Any significant modification of market conditions could translate into an inability to recover the carrying amounts of non-financial assets.

DEFERRED TAXES Deferred tax assets and liabilities require estimates about the nature and timing of future permanent and temporary differences, the expected timing of reversals of those temporary differences and the future tax rates that will apply to those differences. Judgment is also required in determining the tax basis of indefinite life intangible assets and the resulting tax rate used to measure deferred taxes.

FINANCIAL INSTRUMENTS

Classification and measurement

All financial instruments, including derivatives, are included in the statement of financial position initially at fair value when the Corporation becomes a party to the contractual obligations of the instrument.

Subsequent to initial recognition, non-derivative financial instruments are measured in accordance with their classification as described below:

Loans and receivables are financial assets with fixed or determinable payments that are not quoted on an open market. Cash and cash

equivalents and trade and other receivables are classified as loans and receivables. They are measured at amortized cost using the effective interest method, less any impairment loss;

Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss; and

Trade and other payables and loans and borrowings are classified as other liabilities. They are measured at amortized cost using the effective interest method. Directly attributable transaction costs are added to the initial fair value of financial instruments except for those incurred in respect of the Term Revolving Facility, which are amortized over the term of the related financing on a straight-line basis.

Derivative financial instruments and hedge accounting

The Corporation uses cross-currency swaps as derivative financial instruments to manage foreign exchange risk related to its foreign denominated long-term debt. The Corporation does not hold or use any derivative financial instruments for speculative trading purposes.

Derivatives are recognized initially at fair value and related transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognized in profit or loss. Net receipts or payments arising from derivative agreements are recognized as financial expense. When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in accumulated other comprehensive income and presented in unrealized gains or losses on cash flow hedges in equity. The amount recognized in other accumulated comprehensive income is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss and in the same line item as the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.

Embedded derivatives

Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related. A separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. At August 31, 2012 and 2011 and September 1, 2010, there were no significant embedded derivatives or non-financial derivatives that require separate fair value recognition on the consolidated statements of financial position.


CONTINGENCIES AND COMMITMENTS The Corporation 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 Corporation 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.

ADOPTION OF NEW ACCOUNTING STANDARDS

TRANSITION TO IFRS On January 1, 2011, the Canadian GAAP, as used by publicly accountable enterprises, were fully converged to IFRS. Accordingly, the Corporation has prepared its first annual consolidated financial statements for the year ended August 31, 2012 in accordance with IFRS. Prior to the adoption of IFRS, for all periods up to and including the year ended August 31, 2011, the Corporation’s consolidated financial statements were prepared in accordance with Canadian GAAP. IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant differences related to recognition, measurement and disclosures. For further details on the Corporation’s transition to IFRS, please refer to Note 28 of the consolidated financial statements. The date of the opening financial position under IFRS and the date of transition to IFRS are September 1, 2010. The financial data for fiscal 2011 have therefore been restated. The Corporation is also required to apply IFRS accounting policies retrospectively to determine its opening statement of financial position, subject to certain exemptions. However, the Corporation is not required to restate figures for periods prior to September 1, 2010 that were previously prepared in accordance with Canadian GAAP. Upon conversion to IFRS, an entity is required to apply IFRS 1 First-time Adoption of which provides guidance for an entity’s initial adoption of IFRS. IFRS 1 generally requires to apply IFRS accounting policies retrospectively. However, IFRS 1 does include certain elective and mandatory exemptions from full retrospective application of IFRS at the transition date. The Corporation elected the following elective exemptions in preparing its opening IFRS Statement of financial position:

Business combinations A first-time adopter may elect not to apply IFRS 3, Business combinations, retrospectively to business acquisitions completed before the transition date. The retrospective basis would require restatement of all business combinations that occurred prior to the transition date. The Corporation has elected not to retrospectively apply IFRS 3 to business combinations completed prior to its transition date and such business combinations have not been restated. Any assets or liabilities arising on business combinations completed before the transition date have not been adjusted from the carrying value previously determined under Canadian GAAP as a result of applying this exemption.

Employee benefits The Corporation has elected to recognize all cumulative actuarial gains and losses that existed at its transition date in opening retained earnings for all of its employee defined benefit pension plans. The Corporation also elected to prospectively disclose required defined benefit pension plans amounts under IAS 19 Employee Benefits as the amounts are determined for each accounting period from the date of transition instead of the current annual period and previous four annual periods.

Share-based payments The Corporation has elected to apply the requirements of IFRS 2, Share-based payments, only to equity instruments granted after November 7, 2002 and which vested after the date of transition to IFRS.

Borrowing costs The Corporation has elected to apply the requirements of IAS 23 Borrowing Costs only to borrowing costs relating to assets for which the commencement date for capitalization was on or after the date of transition. Borrowing costs incurred before the date of transition were expensed. Financial assets and financial liabilities At the date of transition, the Corporation has elected to reclassify cash and cash equivalents from held-for-trading to loans and receivables.

Leases At the date of transition, the Corporation has elected to apply the transitional provisions in IFRIC 4, Determining Whether an Arrangement Contains a Lease, thereby determining whether the Corporation has any arrangements that exist at the date of transition to IFRS that contain a lease on the basis of facts and circumstances existing at that date. Also, the Corporation has elected to apply an additional exemption by which an entity which has assessed arrangements which may contain leases under previous GAAP is permitted to maintain this assessment and not re-assess these arrangements under IFRIC 4.


FUTURE ACCOUNTING DEVELOPMENTS IN CANADA A number of new standards, interpretations and amendments to existing standards were issued by the International Accounting Standard Board (“IASB”) that are mandatory but not yet effective for the year ended August 31, 2012, and have not been applied in preparing the consolidated financial statements. The following standards may have a material impact on future consolidated financial statements of the Corporation:

Effective for annual periods starting on or after IFRS 9 Financial Instruments January 1, 2015 Early adoption permittedIFRS 10 Consolidated Financial Statements January 1, 2013 Early adoption permittedIFRS 12 Disclosure of Interests in Other Entities January 1, 2013 Early adoption permittedIFRS 13 Fair Value Measurement January 1, 2013 Early adoption permittedAmendments to IAS 1 Presentation of Financial Statements July 1, 2012 Early adoption permittedAmendments to IAS 19 Employee Benefits January 1, 2013 Early adoption permitted

IFRS 9 replaces the guidance in IAS 39 Financial Instruments: Recognition and Measurement on the classification and measurement of financial assets and financial liabilities. The replacement of IAS 39 is a three-phase project with the objective of improving and simplifying the reporting for financial instruments. This is the first phase of that project. IFRS 10 replaces the consolidation requirements in IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation – Special Purpose Entities. It provides a single model to be applied in the control analysis for all investees. IFRS 12 establishes disclosure requirements for entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structures entities. IFRS 13 replaces the fair value measurement guidance contained in individual IFRS with a single source of fair value measurement guidance. The standard clarifies the definition of fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. The amendments to IAS 1 require that an entity present separately the items of other comprehensive income (“OCI”) that may be reclassified to profit or loss in the future from those that would never be reclassified to profit or loss. The amendments to IAS 19 requires the recognition of actuarial gains and losses immediately in OCI, full recognition of past service costs immediately in profit or loss, recognition of expected return on plan assets in profit or loss to be calculated based on the rate used to discount the defined benefit obligation and additional disclosures explaining the characteristics of the Corporation’s defined benefit pension plans. The Corporation is in the process of determining the extent of the impact of these standards on its consolidated financial statements.

CONTROLS AND PROCEDURES The President and Chief Executive Officer (“CEO”) and the Senior Vice President and Chief Financial Officer (“CFO”), together with Management, are responsible for establishing and maintaining adequate disclosure controls and procedures and internal controls over financial reporting, as defined in National Instrument 52-109. COGECO’s internal control framework is based on the criteria published in the report Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. The CEO and CFO, supported by Management, evaluated the design and operation of the Corporation’s disclosure controls and procedures and internal controls over financial reporting as of August 31, 2012, and have concluded that they are effective. Furthermore, no significant changes to the internal controls over financial reporting occurred during the year ended August 31, 2012.

UNCERTAINTIES AND MAIN RISK FACTORS This section outlines general as well as more specific risks faced by COGECO and its subsidiaries that could significantly affect the financial condition, operating results or business of the Corporation. It does not purport to cover all contingencies, or to describe all possible factors that might have an influence on the Corporation 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 a quarterly assessment of risks for the Corporation and its subsidiaries, under the oversight of the Audit Committee. As part of this process, the Corporation endeavours to identify risks that are liable to have a major impact on the Corporation’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 Electronic communications markets continue to be very competitive and to evolve rapidly in North America. Competitors offer video distribution, broadband HSI access, fixed telephone, mobile telephone and fixed and mobile data services through various means of telecommunications facilities, including terrestrial wireline and wireless networks as well as satellite. Rivalry extends over several elements comprising the value proposition, including the features of individual services, the composition of service bundles, the range of content or service options, quality of service, speed of delivery, regular introductory and promotional pricing or special offers, duration of the commitment by the customer, terminal devices, multiplatform delivery and customer service. Service bundles offered by competitors include up to “quadruple-play” offers combining television, HSI, fixed and mobile telecommunications to residential and commercial customers. Cogeco Cable provides “double-play” and “triple-play” service bundles in Canada, 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, as Cogeco Cable does not offer mobile telephone or Internet services. The Corporation 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 offerings, through suitable mobile virtual network (“MVNO”) arrangements with existing or future mobile operators, or otherwise through new wireless alternatives. There is no assurance that appropriate MVNO arrangements will be concluded by the Corporation when needed, and their impact on the financial results cannot be assessed at this time. Also, the capital and operating expenditures eventually required to offer quadruple-play service bundles and mobile services may not be offset by the incremental revenue that such new bundles or mobile services would generate, thus resulting in downward pressure on operating margins. Cogeco Cable currently faces competition in its service areas mainly from a few large integrated electronic communications service providers. The largest, BCE Inc. (“Bell”), offers through its various operating entities a full range of competitive voice, data and video services to residential as well as to business customers in the Provinces of Québec and Ontario through a combination of fixed wireline, mobile terrestrial wireless and satellite platforms. Bell is actively competing for television customers in the television distribution market not only with satellite distribution but also increasingly with its fibre optic IPTV service TELUS Communications Company (“TELUS”) competes with all of Cogeco Cable’s services in the Lower St. Lawrence area of the Province of Québec, through its own fibre optic IPTV service and wireline telecommunications network, and with Cogeco Cable’s telecommunications services throughout Cogeco Cable’s footprint through its mobile telecommunications network. However, Cogeco Cable’s Telephony service is provided with the assistance of certain TELUS carrier services pursuant to a contractual arrangement. The agreement with TELUS is currently the subject of negotiations for a multi-year renewal. Shaw Direct, the direct-to-home satellite service of Shaw Communications Inc. (“Shaw”), competes for television customers throughout Cogeco Cable’s footprint. Rogers Wireless Communications Inc., a subsidiary of Rogers Communications Inc. (“Rogers”), operates a mobile telecommunications network in Ontario and Québec and is the owner of the Inukshuk broadband wireless network in partnership with Bell. Rogers Cablesystems Inc., the cable subsidiary of Rogers, is 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. Vidéotron Ltd. (“Vidéotron”), an indirect subsidiary of Québecor Inc., offers competitive telecommunications services in Cogeco Cable’s Québec footprint and is actively marketing its mobile telecommunications services in Québec. Other advanced wireless service mobile telecommunications service operators, including Wind and Public Mobile, are also operating in the market in Ontario and Québec. The federal government has announced that it will make additional spectrum available for advanced mobile telecommunications services across Canada through an auction process to be held in 2013. As a result of this auction, competition in mobile telecommunications, including telephony and Internet access services, is likely to increase further. This may lead to more attractive pricing and flexible service options, which may in turn cause increased substitution between wireline and wireless telecommunications services, a phenomenon often referred to as “cord cutting”. Cogeco Cable also competes within its network footprint with other telecommunications service providers, including third parties using Cogeco Cable’s own wireline network facilities pursuant to its third party Internet access tariff. Competition from Over-the-top (“OTT”) services such as Netflix, Google TV and Apple TV, is also rising in North America, with the resulting risk that consumers may increasingly migrate to consumption of television content through their broadband connection rather than through their traditional cable television subscription services, and consume less on-demand television content on the the VOD or SVOD platforms of cable television service providers, a phenomenon often referred to as “cord shaving”. Revenue and margins derived from the Corporation’s HSI access services may not entirely compensate for the eventual loss of revenue or margin derived from the Corporation’s Television services in the future. Alternative voice and data communications services are also proliferating over the Internet, resulting in the risk that fragmentation and disintermediation may also occur in the future with respect to the Corporation’s Telephony service. Cogeco Data Services faces direct competition from a number of providers of business telecommunications solutions, data hosting and cloud computing service providers, including Bell, Rogers, TELUS and MTS Allstream. These service providers offer services directly or through white label partnerships for a similar suite of services to those offered by CDS. In the enterprise and mid-market segments, CDS competes on its data centre offerings with Bell (directly and with Q9 recently acquired by Bell) and TELUS and in some cases data centre service providers like Peer1, Primus and Savvis. CDS also faces competition from other managed IT providers like Sungard and smaller specialized firms. For its managed IT and infrastructure services CDS is likely to also face some competition from larger integrators like IBM.

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


TECHNOLOGICAL RISKS The rapid evolution of telecommunications technologies is fuelled by a highly competitive global market for digital content, consumer electronics and broadband products and services. The Corporation 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 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, switched video distribution and ultra high speed passive optical networks. Management of the Corporation believes that broadband wireline distribution over fibre and coaxial cable continues to be an efficient, reliable, economical and competitive platform for the distribution of a full range of electronic communications products and services. However, competitive market forces drive the further deployment of fibre optic facilities right up to the user premises, both for business and residential customers. The competitiveness of the cable broadband telecommunications platform will therefore continue to require substantial additional capital investment on a timely basis in an increasingly competitive and uncertain market environment. In particular, additional capital investment will be required over the medium term to transition fully the Corporation’s legacy wireline network to IP delivery for all services from the head end to the customer, and to deploy increased capacity and speed in a more competitive marketplace. As IP based traffic continues to grow very rapidly over the Corporation’s networks and new technology, systems, software and equipment is deployed more quickly in order to manage this increased traffic, there is a growing risk of facing unexpected technical problems, with a resulting impact on service interruptions and mean time to restoration. In a technologically complex environment, the Corporation faces growing challenges in preventing malware, hacking or other intrusions. Electronic communications increasingly rely on advanced security technology, terminal 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, the Corporation 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 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, privacy and anti-spamming, and under provincial legislation governing consumer protection and access to certain municipal electrical power utility support structures. Broadcasting licences and broadcasting certificates are required for the operation of larger cable systems. Various licence and licence exemption conditions apply in Canada. Canadian cable operators are also subject to Canadian ownership and control requirements. Changes in the regulatory framework or licences, which are subject to periodic renewal, may affect the Corporation’s existing business activities or future prospects. The government of Canada has recently changed the requirements respecting the Canadian ownership and control of telecommunications carriers. As a result of these changes, telecommunications carriers with less than 10% of market share in Canada may be owned and controlled by non-Canadians. This change may lead to additional competition from new industry players in Canada or to more investment and financial resources coming from non-Canadian investors in support of the competitive activities of new entrants on the telecommunications market in Canada. On September 21, 2011, the CRTC issued a new broadcasting regulatory policy dealing with the issues arising from vertical integration in the industry. The CRTC has decided to prohibit companies from offering television programs on an exclusive basis to their mobile or Internet customers and to make programs available on television also available to competitors under fair and reasonable terms. The CRTC also adopted a code of conduct to prevent anti-competitive behaviour. In order to protect Canadians from losing a television service during negotiations, broadcasters are required to continue providing the service to distributors, and distributors must continue to offer it to their subscribers. The CRTC adopted earlier this year amendments to the Broadcasting Distribution Regulations as well as to other regulations and orders in order to implement the new vertical integration framework. Based on initial experience with complaints and dispute resolution following the announcement of this framework, management is of the view that the level of vertical integration within the Canadian broadcasting system is such that the opportunity and the incentive for abuse of dominant position remains a concern in the Canadian downstream television distribution market. On March 16, 2012, Bell, the largest Canadian communications company, announced that it had concluded an agreement to acquire Astral Media Inc, (“Astral”), the largest remaining Canadian independent programming service supplier, subject to requisite regulatory approvals. Based on the view that this transaction, if authorized by the CRTC and the Commissioner of Competition, would significantly increase the level of vertical integration in the Canadian broadcasting and communications industries and compound the opportunity and incentive for abuse of dominance, the Corporation strongly opposed this proposed transaction. Following a public hearing held in early September of this year, the CRTC decided on October 18, 2012 to deny the proposed transaction in its entirety.


In Broadcasting Regulatory Policy CRTC 2010-167, the CRTC proposed to establish a value-for-signal (“VFS”) regime providing the right for Canadian private local television stations to opt for either continued regulatory protection for the carriage of their signal and simultaneous program substitution by BDUs, or the negotiation of compensation for the value of the distribution of their service by BDUs with the possibility to require deletion on all other distributed signals of all programs for which they have respectively acquired exclusive contractual exhibition rights. Concurrently with this policy announcement, the CRTC issued Broadcasting Order CRTC 2010-168 referring a question to the Federal Court of Appeal on the CRTC’s authority under the Broadcasting Act to establish the proposed VFS regime. The Federal Court of Appeal, by majority decision, ruled that the CRTC had the statutory authority under the Broadcasting Act to implement the VFS regime. On September 29, 2011, the Corporation obtained leave to appeal this decision to the Supreme Court of Canada, and the appeal was heard on April 17, 2012. The Supreme Court of Canada has yet to issue its final judgment on this matter. Should it be confirmed and left unchanged, the VFS regime would further enhance the bargaining power of large vertically integrated broadcasting groups in obtaining higher wholesale fees from independent BDUs and Canadian customers to broadcasting distribution services. In another reference initiated by the CRTC, the Supreme Court of Canada ruled that the transmission of program content by ISPs through Internet service connections does not constitute broadcasting and cannot therefore be regulated by the CRTC under the Broadcasting Act.

RISKS PERTAINING TO OPERATING COSTS COGECO 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 sales are network fees paid to audio and video programming service suppliers as well as data transport and connectivity charges, mostly for Telephony and HSI traffic. The market for audio and video content services in Canada is characterized by high levels of supplier integration and structural rigidities imposed by the CRTC’s regulatory framework for broadcasting distribution. While Cogeco Cable has generally 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. As a result of a final offer arbitration decision issued by the CRTC on July 20, 2012 (Broadcasting Decision CRTC 2012-393), Cogeco Cable was required to sign an agreement for the distribution of 29 Bell television programming services on Bell’s terms, and to pay retroactive fee increases and interest charges going back to January 1st, 2011 for these services. The impact of these increased retroactive fees and charges has been fully taken into account in the Corporations financial results and statements for the fiscal year ended August 31, 2012. The agreement with Bell for these 29 services will expire on December 31, 2015. As a result of Broadcasting Decision CRTC 2012-574 issued on October 18, 2012, which denied entirely Bell’s applications to acquire Astral, the CRTC has effectively precluded Bell from taking over the control of the Astral television programming services that Cogeco Cable distributes to its customers. On October 22, Bell formally requested that the federal government issue a policy direction to the CRTC pursuant to section 7 of the Broadcasting Act with a view to revisiting this decision and prevailing upon reapplication to the CRTC. The federal government has indicated that it does not intend to interfere with the decision of the CRTC. It is also possible that Bell will seek leave to appeal the decision of the CRTC to the Federal Court of Appeal. Cogeco Cable has however successfully negotiated new multi-year programming service agreements with other large Canadian television programming service suppliers such as Québecor Media, Shaw Media and Astral without the need for dispute resolution by the CRTC. Since the markets for data transport and connectivity remain very competitive in North America, Cogeco Cable has 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, the Corporation may not be able to secure further cost efficiencies in the future.

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. The Corporation uses different customer relations management tools and databases for its operations respectively in Ontario and Québec. There is no assurance that these or other information systems will be able to adequately meet future business or competitive requirements, that current licensing agreements can be extended without material changes, or that new agreements can be successfully concluded on a timely and cost effective basis in order to replace existing systems as, if and when needed.

RISKS PERTAINING TO DISASTERS AND OTHER CONTINGENCIES The Corporation has disaster recovery and business continuity plans for dealing with the occurrence of natural disasters, quarantine, power failures, terrorist acts, intrusions, computer hacking or data corruption. COGECO 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 affecting the cable or fibre network. In Canada, it relies on in-house and third-party service providers for data protection and recovery systems. The Corporation completed the implementation of a comprehensive business continuity program for its Canadian operations and has tested the implementation of this plan in Ontario and in Quebec. The emergency plans and procedures that are in place cannot however provide the assurance that the effect of any actual disaster can and will be mitigated as planned.


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 the Corporation’s weighted average cost of capital. The Corporation entered into cross-currency and interest rate swap agreements to fix the liability for interest and principal payments on certain of its long-term debts. The volatility of global financial markets may constrain the Corporation’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 the Corporation 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 the Corporation or to its direct or indirect subsidiaries could adversely affect such upstream flows of funds or the effectiveness of the Corporation’s existing debt financing structure. The Corporation’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 the Corporation completes further business acquisitions domestically or abroad, including the planned acquisition of Atlantic, 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 Corporation is exposed to interest rate risks for fixed interest rate instruments as they mature, and for floating interest rate instruments in the normal course. The Corporation’s debt is however very predominantly subject to fixed rates and its debt maturities are staggered over several years. Market conditions may have an impact on the Corporation’s defined benefit pension plans as there is no assurance that the actual rate of return on plan assets will approximate the assumed rate of return used in the most recent actuarial valuation. Market driven changes may impact the assumptions used in future actuarial valuations and could result in the Corporation being required to make contributions in the future that differ significantly from the current contributions to the Corporation’s defined benefit pension plans.

HUMAN RESOURCES COGECO recognizes the importance of its employees’ involvement regarding the corporation’s business strategy and the risks associated with a significant reduction in employee engagement. To mitigate these risks, it offers a competitive remuneration program, maintains good relationships with its key employees and its unionized employees and establishes talent management and skills development strategies. An employee engagement survey also allows for measuring their level of involvement and which key elements should be targeted. Within the scope of a collective agreement renewal process, though results may be difficult to predict, the Corporation ensures that a corporate governance policy is enacted in order to clearly identify issues.

CONTROLLING SHAREHOLDER AND HOLDING STRUCTURE COGECO is 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 television undertakings must be owned or controlled by Cogeco Cable. COGECO is otherwise free to own and operate any other business or to 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.

ENVIRONMENTAL POLICY

OVERVIEW COGECO’s environmental policy provides that respect for the environment is one of the fundamental principles set out in the COGECO group Corporate Code of Ethics. COGECO makes a point of adhering to this key principle in all its activities, business relationships and dealings with other stakeholders. It contributes to the broader application of this principle primarily through the delivery of efficient electronic communication. The policy has four main objectives: to ensure a more efficient and responsible use of resources, including energy, water and materials; to eliminate, reduce and control pollution and waste as much as possible; to make continual improvements by remaining abreast of best practices applied through benchmarking; and to be an agent of change by collaborating with other stakeholders (partners, suppliers, clients, employees) in a coordinated implementation of environmentally responsible practices.


The responsibility of COGECO’s environmental footprint is assigned to an officer of the Corporation and is supported by leaders throughout the organization. A committee-based approach is in place for corporate as well as for regionally-oriented initiatives in furtherance of the policy. As the company has embraced Corporate Social Responsibility, the environmental policy will evolve to take on a more inclusive approach. Corporate Social Responsibility is based on the three pillars: Environment responsibility, Social responsibility and Economic responsibility.

FISCAL 2012 ACTIVITIES AND ACHIEVEMENTS We broadened our environment program to become a component of a corporate social responsibility program throughout 2012. Initiatives from the 2011 program continued, such as carbon calculation and reduction, waste management and recycling, awareness and communications campaigns. Some examples of COGECO’s programs and initiatives include:

Our corporate social responsibility communications were officially started with the release of the first Corporate Social Responsibility Report which adheres to the Global Reporting Initiative framework; and the first publication of our greenhouse gas emissions and reduction, mitigation and adaptation initiatives by responding to the Carbon Disclosure Project;

New social responsibility sections were created on both the external and internal websites. We are also active in social media to engage with our customers and communities on our initiatives;

The Corporation has calculated its green house gas emissions and identified targets for emissions reduction. The targets are as follow: decrease air travel by 10% by PSU over 5 years, decrease energy consumption by 2% by PSU over 5 years, decrease total vehicle emissions by 500 tons of CO2e over 5 years;

A Risk Assessment of our top suppliers was conducted to evaluate their environmental and social practices; A waste management process in the Corporation’s facilities that diverted approximately 500,000 pounds of electronic waste from

landfills; A decrease of the Corporation’s fleet fuel consumption by over 13,000 litres through a three pronged approach, which will also

decrease greenhouse gas emissions; The new facility in Trois-Rivières (Québec), opened in December 2011, has many energy and water saving technologies such as

thermal energy heating and cooling, low flush toilets and eco-friendly lighting. The Corporation’s retrofit of its Burlington (Ontario) facility included many environmentally friendly projects that undertake to recycle surplus products where ever possible; and

20% of COGECO’s facilities underwent environmental assessments provided by a third party.

Many other activities were undertaken by the Corporation’s regional green committees, focused on internal initiatives in order to reduce COGECO’s carbon footprint, such as awareness and communications campaigns, campaigns promoting the reduction of consumables and opting for environmentally sensitive options where possible. COGECO participated in several activities such as Car Free Day, Earth Week and Earth Hour events. FISCAL 2013 CORPORATE SOCIAL RESPONSIBILITY FOCUS In fiscal 2013, the Corporation will continue to monitor its environmental performance, its progress towards its targets and decrease its carbon footprint by looking for fleet and building technology and management practices that will result in additional energy savings. Furthermore, we will further engage with our suppliers and employees on the topics of corporate social responsibility. COGECO will address the energy-efficiency of the set top boxes sold to its customers. The Corporation will expand its responsibility towards the societies in which it operates by strengthening the Corporate Social Responsibility program. In fiscal 2013, COGECO will also file a second Carbon Disclosure Project report.

MEASUREMENT To achieve its corporate social responsibility goals of continually reducing energy consumption, improving energy efficiency, COGECO has developed key performance indicators, for social, economic and environment which are tracked and reported on monthly or quarterly, as appropriate. The indicators are communicated to the Management level employees. The Corporation continues to believe that Cable services have a smaller environmental impact as compared to many other industries. However, COGECO is committed to progressively reducing its environmental footprint in respect of the communities in which it operates and achieving an improved balance between its environmental, social and economic objectives. The corporate social responsibility program, currently limited to Cable services will evolve and expand to include other subsidiaries, affiliates and controlled entities.


PERFORMANCE HIGHLIGHTS

Original projectionsOctober 25, 2011(1)

Fiscal 2012

Revised projectionsJuly 11, 2012(1)

Fiscal 2012Actual

Fiscal 2012

Achievementof the revised projections(2)

Fiscal 2012(in millions of dollars, except percentages and PSU growth) $ $ $


Revenue 1,567 1,410 1,406 Achieved

Operating income before depreciation and amortization 615 600 607 Surpassed

Financial expense 67 69 69 Achieved

Current income taxes expense 76 90 88 Surpassed

Profit for the year attributable to owners of the Corporation 80 77 77 Achieved

Acquisitions of property, plant and equipment, intangible and other assets 362 345 378 Under-achieved

Free cash flow 110 100 69 Under-achieved

(1) The original projections included the Portuguese subsidiary, Cabovisão, which was sold on February 29, 2012 and excluded the acquisition of Métromédia,which was completed on December 26, 2011. Revised projections were changed to adjust for these two transactions and take into account Management’s view of the 2012 fiscal year.

(2) Achievement of the projections is defined as within 1% above or below the projected amount. For the 2012 fiscal year, the Corporation achieved or surpassed most of its revised projections issued on July 11, 2012. Revenue and operating income before depreciation and amortization targets were achieved when compared to the revised projections, mainly as a result of the achievement of the projected PSU growth in the Cable segment. For further details on the Corporation’s operating results, please refer to the “Operating and financial results” section. Profit for the year attributable to owners of Corporation amounting to $77 million met the revised projection issued on July 11, 2012, mainly due to the improvement of operating income before depreciation and amortization. For further details on the Corporation’s operating results, please refer to the “Profit (loss) for the year” section. The Corporation under-achieved its revised projection of free cash flow as a result of higher capital expenditures than expected in the Cable segment. The increase in acquisitions of property, plant and equipment, intangible and other assets is mainly due to customer premise equipment to support PSU growth, to facility expansions and improvements to the network infrastructure. For further details please refer to the “Cash flow analysis” section.

OPERATING AND FINANCIAL RESULTS

OPERATING RESULTS

Years ended August 31, 2012 2011 Change(in thousands of dollars, except percentages) $ $ %

Revenue 1,406,353 1,267,286 11.0

Operating expenses 799,511 707,691 13.0

Operating income before depreciation and amortization 606,842 559,595 8.4

REVENUE For the 2012 fiscal year, consolidated revenue increased by $139.1 million, or 11%, to reach $1.406 billion, when compared to the same period last year, primarily due to the Cable segment, the recent acquisition of Métromédia and the full year impact of the Québec Radio Stations Acquisition. Cable segment revenue increased by $93 million, or 7.9%, when compared to last year, primarily by PSU growth, rate increases as well as the acquisitions of Quiettouch Inc. (“QTI”) and MTO Telecom Inc. (“MTO”) during the fourth quarter of fiscal 2011. For further details on Cogeco Cable’s revenue, please refer to the “Cable segment” section on page 30. Revenue from the radio and advertising representation house activities improved by $46.1 million, or 55.8%, when compared to last year, mainly as a result of the recent acquisition of Métromédia and the Québec Radio Stations Acquisition.


OPERATING EXPENSES Fiscal 2012 consolidated operating expenses increased by $91.8 million, to reach $799.5 million, an increase of 13% compared to prior year. The increase in operating expenses is mainly attributable to the Cable segment, the recent acquisition of Métromédia as well as the full year impact of the Québec Radio Stations Acquisition. Cable segment operating expenses increased by $49 million, or 7.8%, when compared to last year. The increase in operating expenses is mainly attributable to servicing additional PSU, the launch of new HD channels, additional programming costs, deployment and support costs related to the migration of Television service customers from analogue to digital and the acquisitions of QTI and MTO. For further details on the Cogeco Cable’s operating expenses, please refer to the “Cable segment” section on pages 30. Operating expenses from the radio, advertising representation house and head office activities grew by $42.8 million, or 55.2%, when compared to prior year. The increase in operating expenses is mainly attributable to the recent acquisition of Métromédia and the Québec Radio Stations Acquisition.

OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION Fiscal 2012 consolidated operating income before depreciation and amortization increased by $47.2 million, or 8.4% to reach $606.8 million. The Cable segment contributed $43.7 million to the consolidated increase. For further details on the Cogeco Cable’s operating income before depreciation and amortization, please refer to the “Cable segment” section on pages 30.

FIXED CHARGES


Depreciation and amortization 279,770 203,792 37.3

Financial expense 69,128 73,613 (6.1)

Fiscal 2012 depreciation and amortization expense increased by $76 million, or 37.3%, at $279.8 million, when compared to $203.8 million in the prior year. The increase is mainly from the Cable segment and attributable to the reduction of the depreciation period for certain home terminal devices to reflect technological changes occurring in the distribution of high definition services, additional acquisitions of property, plant and equipment to support PSU growth and expansions and improvements to the network infrastructure as well as the acquisitions of QTI and MTO. Fiscal 2012 financial expense decreased by $4.5 million, or 6.1%, at $69.1 million, when compared to $73.6 million in the prior year. Financial expense decrease in the year is primarily due to the payment in 2011, in the Cable segment, of a make-whole premium amounting to $8.8 million on the early repayment, on December 22, 2010, of the $175 million Senior Secured Notes Series B due on October 31, 2011, partly offset by the increase in long-term debt related to the acquisition of Métromédia and by the impact of the lower interest rate on the $200 million Senior Secured Debentures Series 2 issued on November 16, 2010. For further details, please refer to the “Capital structure” section on page 26.

INCOME TAXES Fiscal 2012 income tax expense amounted to $81.6 million, compared to $72 million in the prior year. The increase is due to the improvement of operating income before depreciation and amortization, partly offset by the increase in depreciation and amortization expense and the implementation of certain tax measures of the 2011 federal budget limiting the tax deferrals for corporations with a significant interest in a partnership. Under the transitional relief measures, some income will be taxed over a period of five years rather than being taxed all in fiscal 2012 and, with the effect of the decrease in income tax rates over the next five years, tax expense was reduced by $3.5 million in the first quarter of fiscal 2012 in the Cable segment. The changes limiting the tax deferrals described above will have an additional cash outflow impact of approximately $25 million for Cogeco Cable in 2013, none of which have been disbursed during the year ended August 31, 2012. On March 27, 2012 in its 2012 budget, the Ontario government announced a corporate income tax rate freeze at 11.5% until the province’s budget is balanced. The previously announced corporate income tax rate reductions to 11% effective July 1, 2012 and 10% effective July 1, 2013 would resume at a later date. On June 20, 2012, this corporate income tax rate freeze received royal assent. The impact of this change in the corporate income tax rate increased deferred income tax expense in the Cable segment by approximately $11.7 million in the fourth quarter of 2012.


PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS Fiscal 2012 profit for the year from continuing operations amounted to $174.2 million of which $59.2 million, or $3.54 per share, is attributable to owners of the Corporation. For fiscal 2011 profit for the year from continuing operations amounted to $197.9 million of which $62.8 million is attributable to owners of the Corporation, or $3.75 per share. This variance for the year is mostly attributable to the increase of depreciation and amortization expense due to the reduction of depreciation period of certain property, plant and equipment and the increase in income taxes, partly offset by the increase in operating income before depreciation and amortization and the decrease in financial expense in the Cable segment.

PROFIT (LOSS) FOR THE YEAR Fiscal 2012 profit for the year amounted to $229.7 million compared to a loss of $46.9 million in fiscal 2011. Fiscal 2012 profit for the year attributable to owners of the Corporation amounted to $77.1 million, or $4.61 per share compared to a loss of $16 million, or $0.95 per share in fiscal 2011. Profit progression is mostly attributable to the write-off of the Corporation’s net investment in the Portuguese subsidiary recorded through a non-cash impairment loss in the amount of $225.9 million during the third quarter of fiscal 2011, the improvement of operating income before depreciation and amortization and the gain on sale of the Portuguese subsidiary in fiscal 2012, partly offset by the increase of depreciation and amortization described in the “Fixed charges” section. The non-controlling interest represents a participation of approximately 67.9% in Cogeco Cable’s results. For fiscal 2012, the profit for the year attributable to non-controlling interest amounted to $152.6 million compared to a loss of $30.9 million in fiscal 2011. The Corporation obtained return on equity(1) of 20.8% for the year ended August 31, 2012 compared to a negative return on equity of 4.5% in the prior year as a result of the impairment loss recorded in fiscal 2011.

CASH FLOW ANALYSIS

Years ended August 31, 2012 2011

(in thousands of dollars) $ $

Operating activities

Cash flow from operations 447,110 418,983

Changes in non-cash operating activities (3,479) 17,041

Amortization of deferred transaction costs and discounts on long-term debt (3,363) (3,759)

Income taxes received (paid) (83,411) 1,457

Current income tax expense (recovery) 88,104 65,907

Financial expense paid (65,325) (71,075)

Financial expense 69,128 73,613

448,764 502,167

Investing activities (408,938) (512,659)

Financing activities 70,884 41,203

Net change in cash and cash equivalents from continuing operations 110,710 30,711

Net change in cash and cash equivalents from discontinued operations (1) 49,597 (11,337)

Cash and cash equivalents from continuing and discontinued operations, beginning of year 55,216 35,842

Cash and cash equivalents from continuing and discontinued operations, end of year 215,523 55,216

(1) For further details on the Corporation’s cash flows attributable to discontinued operations, please refer to the “Disposal of subsidiary and discontinued operations” section on page 31.

OPERATING ACTIVITIES Fiscal 2012 cash flow from operations reached $447.1 million compared to $419 million for prior year. This $28.1 million increase is primarily due to improvement of the operating income before depreciation and amortization, partly offset by the increase in current income tax expense. Changes in non-cash operating activities generated cash ouflows of $3.5 million compared to cash inflows of $17 million for the same period in fiscal 2011, mainly as a result of a lower increase in trade and other payables and a decrease in provisions compared to an increase in prior year, partly offset by an increase in trade and other receivables in the prior year.

(1) Return on equity is defined as profit (loss) for the year attributable to owners of the Corporation divided by average equity attributable to owners of the

Corporation (computed on the basis of the beginning and ending balance for a given fiscal year).


INVESTING ACTIVITIES

BUSINESS ACQUISITION IN FISCAL 2012 On December 6, 2011, COGECO Inc. concluded an agreement to acquire Métromédia, subject to customary closing adjustments and conditions. The transaction was completed on December 26, 2011. The acquisition was accounted for using the purchase method. The results have been consolidated as of the acquisition date. The preliminary allocation of the purchase price of the acquisition, pending the completion of the valuation of the net assets acquired and other closing adjustments, is as follows:

(in thousands of dollars) $ Consideration

Paid

Purchase of shares 36,860

Repayment of secured debt 2,140

39,000

Balance due on a business acquisition, bank prime rate plus 1% and payable in June 2013 2,000

41,000

Net assets acquired

Cash and cash equivalents 3,265

Trade and other receivables 7,242

Prepaid expenses 57

Income taxes receivable 234

Property, plant and equipment 4,764

Intangible assets 14,747

Goodwill 20,171

Trade and other payables (4,615)

Income tax liabilities (142)

Deferred and prepaid revenue and other liabilities (374)

Deferred tax liabilities (3,887)

Non-controlling interest (462)

41,000

FISCAL 2012 ADJUSTMENTS RELATED TO FISCAL 2011 BUSINESS ACQUISITIONS On April 30, 2010, the Corporation concluded an agreement with Corus Entertainment Inc. (“Corus”) to acquire its Québec radio stations for $80 million. The transaction with Corus was completed on February 1, 2011. Pursuant to this acquisition and the decision by the CRTC regarding the Corporation’s transfer application, the Corporation put up for sale two radio stations acquired in the transaction, CFEL-FM in the Québec City market and CJTS-FM in the Sherbrooke market. In addition to the two acquired radio stations above, and also as part of the CRTC’s decision, the Corporation put up for sale the radio station CJEC-FM, which it owned prior to the acquisition, in the Québec City market. Radio stations for which divestiture has been required by the CRTC, and the sale process, were managed by a trustee approved by the CRTC pursuant to a voting trust agreement. On November 30, 2011, Cogeco Diffusion concluded an agreement for the sale of two of its four Québec City FM radio stations, CJEC-FM and CFEL-FM. On December 6, 2011, Cogeco Diffusion closed its Sherbrooke radio station, CJTS-FM. On January 19, 2012, the CRTC approved the sale of CJEC-FM and CFEL-FM, which was completed on January 30, 2012 and marked the end of the process established with the CRTC for the divestiture of these three radio stations. On June 27, 2011, Cogeco Cable concluded an agreement to acquire all of the shares of QTI. The transaction was completed on August 2, 2011. On August 31, 2011, the Corporation concluded and completed an agreement to acquire all of the shares of MTO.


Pursuant to the completion of the sale of CJEC-FM and CFEL-FM and the closure of CJTS-FM, the Corporation has completed its allocation of the purchase price for the Québec radio stations in the second quarter of 2012. Furthermore, Cogeco Cable Inc. also completed its allocation of the purchase price of the acquisitions of QTI and MTO in the fourth quarter of 2012. The allocation of the purchase price of these acquisitions is as follows:

Québec radio stations Other Total 2012 2011 2012 2011 2012 2011(In thousands of dollars) $ $ $ $ $ $Consideration

Paid

Purchase of shares 75,000 75,000 133,600 133,600 208,600 208,600

Working capital adjustments – – (492) (1,034) (492) (1,034)

75,000 75,000 133,108 132,566 208,108 207,566

Promissory note payable(1) 5,000 5,000 – – 5,000 5,000

Balance due on a business acquisition( 2) – – 11,400 11,400 11,400 11,400

Investment previously accounted for as other assets 200 200 – – 200 200

Working capital adjustments payable 3,585 3,844 1,429 1,429 5,014 5,273

83,785 84,044 145,937 145,395 229,722 229,439

Net assets acquired

Cash and cash equivalents 647 647 1,409 1,409 2,056 2,056

Trade and other receivables 14,103 14,103 4,720 4,619 18,823 18,722

Income taxes receivable 189 189 – – 189 189

Prepaid expenses and other 760 760 452 1,036 1,212 1,796

Property, plant and equipment 11,497 11,497 27,232 27,195 38,729 38,692

Other assets – – 600 615 600 615

Intangible assets 48,906 48,906 34,305 34,305 83,211 83,211

Goodwill 18,585 17,006 94,199 92,553 112,784 109,559

Deferred tax assets 619 544 – – 619 544

Long-term assets held for sale 3,797 5,506 – – 3,797 5,506

Trade and other payables assumed (7,256) (7,197) (3,136) (3,126) (10,392) (10,323)

Income tax liabilities assumed – – (84) – (84) –

Current deferred and prepaid revenue (379) (379) – – (379) (379)

Current liabilities related to assets held for sale (371) (17) – – (371) (17)

Long-term deferred and prepaid revenue – – (1,538) (1,538) (1,538) (1,538)

Deferred tax liabilities (7,269) (7,031) (12,222) (11,673) (19,491) (18,704)

Long-term liabilities related to assets held for sale (43) (490) – – (43) (490)

83,785

84,044

145,937 145,395 229,722 229,439

(1) Non-interest bearing and repaid on February 1, 2012 (2) Bearing interest at bank prime rate plus 1% and payable in February 2013.

ACQUISITIONS OF PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE AND OTHER ASSETS Fiscal 2012 acquisition of property, plant and equipment amounted to $362.6 million, an increase of 22.2% when compared to $296.6 million in the prior year mainly as a result of the following factors in the Cable segment:

An increase in customer premise equipment to support PSU and Digital Television growth including the conversion of customer service from analogue to digital;

An increase in scalable infrastructure to extend and improve network capacity and to deploy advanced technologies such as DOCSIS 3.0 and SDV in existing areas served;

An increase in line extensions to extend territories and reach new customers; A decrease in network upgrades and rebuilds reflecting the timing of initiatives; Support capital remained essentially at the same level of spending stemming from the construction and acquisition of new facilities;

and An increase in capital expenditures from the recent acquisitions of QTI and MTO as well as capital expenditures in data centre

facilities and expansion of territories in order to serve potential new customers. Acquisition of intangible and other assets are mainly attributable to reconnect and additional service activation costs as well as other customer acquisition costs. For fiscal 2012, the acquisition of intangible and other assets amounted to $15.8 million compared to $10.9 million for 2011 fiscal year.


FREE CASH FLOW AND FINANCING ACTIVITIES For fiscal 2012, free cash flow amounted to $68.7 million, $42.8 million or 38.3% lower than in fiscal 2011. The decline in free cash flow when compared to fiscal 2011 is mostly due to an increase of $70.9 million in acquisitions of property, plant and equipment, intangible and other assets and the increase of $22.2 million in current income tax expense stemming primarily from the fiscal 2011 modifications to the corporate structure, partly offset by the increase of $47.2 million in operating income before depreciation and amortization in the current fiscal year. During fiscal 2012, higher Indebtedness level provided for a cash increase of $120.2 million mainly due to the issuance by Cogeco Cable, on February 14, 2012, of $200 million Senior Secured Debentures Series 3 (“Fiscal 2012 debentures”) for net proceeds of $198.1 million and on November 7, 2011, of Unsecured Notes for net proceeds of $34.6 million. These debt issuances were used to repay the $105.9 million Term Revolving Facilities and the $5 million promissory note payable. During fiscal 2011, higher Indebtedness level provided a cash increase of $71.7 million, through the repayment by Cogeco Cable of the $175 million Senior Secured Notes Series B and the related make-whole premium on early repayment, combined with net increases of $53.5 million on the Corporation’s Term Revolving Facilities. The Senior Secured Notes Series B were repaid from the net proceeds of $198.3 million as a result of the issuance, on November 16, 2010, of Senior Secured Debentures Series 2 in the Cable segment. During fiscal 2012, quarterly dividends of $0.18 per share, for a total of $0.72 per share, were paid to the holders of subordinate and multiple voting shares, totalling $12 million. In fiscal 2011, total dividends of $0.50 per share comprised of quarterly dividends of $0.12 per share in the first three quarters of the year and a dividend of $0.14 per share in the last quarter were paid to the holders of subordinate and multiple voting shares for a total of $8.4 million. In addition, dividends paid by a subsidiary to non-controlling interest in fiscal 2012 amounted to $33 million compared to $23.4 million in fiscal 2011.

FINANCIAL POSITION During the year ended August 31, 2012, there have been significant changes to the balances of “cash and cash equivalents”, “income taxes receivable”, “property, plant and equipment”, “goodwill”, “trade and other payables”, “income tax liabilities”, “long-term debt” and “non-controlling interest”. The increase in cash and cash equivalents by an amount of $160.3 million and of long-term debt by $128.2 million are due to factors previously discussed in the “Cash flow analysis” section. Income taxes receivable decreased by $24.9 million and income tax liabilities by $18 million primarily due to the timing of the recognition of income tax liabilities as a result of modifications made to the corporate structure combined with the increase in operating income before depreciation and amortization. The $71.7 million increase in property, plant and equipment reflects acquisitions discussed in the “Cash flow analysis” section net of the depreciation expense, partly offset by the sale of the Portuguese subsidiary. The increase of $23.4 million in goodwill is due to the acquisition of Métromédia. The $21.4 million decrease in trade and other payables is related to the timing of payments made to suppliers combined with the sale of the Portuguese subsidiary in the second quarter of fiscal 2012. The $105.5 million increase in non-controlling interest is due to improvements in the cable subsidiary’s operating results in the current fiscal year, partly offset by dividends paid to non-controlling interest.

CAPITAL RESOURCES AND LIQUIDITY

CAPITAL STRUCTURE The table below summarizes debt-related financial ratios over the last two fiscal years and the fiscal 2013 guidelines.

Years ended August 31, 2013

Guidelines(1)2012 2011

Average cost of indebtedness(2) 5.8% 5.8% 5.7%

Fixed rate indebtedness(3) 100% 94% 82%

Average term: long-term debt (in years) 4.3 5.3 4.8

Net secured indebtedness(4) / operating income before depreciation and amortization 1.3 1.3 1.6

Net indebtedness(5) / operating income before depreciation and amortization 1.5 1.6 1.8

Operating income before depreciation and amortization / financial expense 9.1 8.8 7.6

(1) Fiscal 2013 guidelines do not include the recently announced acquisition of Atlantic. See the “Fiscal 2013 financial guidelines” section on page 36 for further details.

(2) Excludes amortization of financing fees and commitments fees. (3) Taking into consideration the interest rate swap in effect at August 31, 2012. (4) Net secured indebtedness is defined as the total of bank indebtedness, principal on long-term debt and obligations under derivative financial instruments,

less cash and cash equivalents and principal on Senior Unsecured Debenture. (5) Net indebtedness is defined as the total of bank indebtedness, principal on long-term debt, promissory note payable, balance due on business acquisitions

and obligations under derivative financial instruments, less cash and cash equivalents.


For fiscal 2012, the average tenure of the long-term debt increased as a result of the issuance of the Senior Secured Debentures Series 3 described above. In fiscal 2013, the financial leverage ratios relating to net indebtedness and net secured indebtedness over operating income before depreciation and amortization should decline slightly due to the projected increase in operating income before depreciation and amortization, combined with a reduction in Indebtedness from the free cash flow. The financial expense coverage ratio should increase as a result of the projected increase in operating income before depreciation and amortization. See “Fiscal 2013 financial guidelines” section on page 36 for further details.

OUTSTANDING SHARE DATA A description of COGECO’s share data at September 30, 2012 is presented in the table below. Additional details are provided in note 16 of the consolidated financial statements.

Number of

shares

Amount(in thousands

of dollars)

Common shares

Multiple voting shares 1,842,860 12

Subordinate voting shares 14,989,338 121,976

FINANCING The Corporation benefits from a $100 million credit facility, including a swingline limit of $7.5 million, in the form of a four-year Term Revolving Facility. The Term Revolving Facility is composed of two tranches of $50 million each, one of which was subject to the completion of the acquisition of Québec radios stations and which became available on February 1, 2011 with the conclusion of the transaction. The Term Revolving Facility will mature on February 1, 2016, but may be extended by additional one-year periods on an annual basis, subject to lenders’ approval. The Term Revolving Facility can be repaid at any time without penalty and is indirectly secured by a first priority fixed and floating charge on substantially all present and future real and personal property and undertaking of every nature and kind of the Corporation and certain of its subsidiaries, excluding the capital stock and assets of the Corporation’s subsidiary, Cogeco Cable Inc., and guaranteed by its subsidiaries, excluding Cogeco Cable Inc. Under the terms and conditions of the credit agreement, the Corporation must comply with certain restrictive covenants. 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 the operating income before depreciation and amortization, financial expense, and total indebtedness. The Term Revolving Facility bears interest, at the Corporation’s option, on bankers’ acceptance, LIBOR in Euros or in US dollars, bank prime rate or US base rate plus the applicable margin, and commitment fees are payable on the unused portion. At August 31, 2012 and 2011, the Corporation was in compliance with all of its covenants and had used, at August 31, 2012, $74 million of its $100 million Term Revolving Facility for a remaining availability of $26 million.

The Corporation’s subsidiary, Cogeco Cable, benefits from a $750 million Term Revolving facility, which maturity was amended and extended by an additional year on October 26, 2012, with an option to increase to a total amount of up to $1 billion, subject to lenders’ participation. The Term Revolving Facility is available in Canadian, US or Euro currencies and includes a swingline of $25 million available in Canadian or US currencies. The Term Revolving Facility will mature on November 22, 2017, but may be extended by additional one-year periods on an annual basis, subject to lenders’ approval. The Term Revolving Facility requires commitment fees, and interest rates are based on bankers’ acceptance, LIBOR in Euros or in US dollars, bank prime rate loan or US base rate loan plus the applicable margin. The Term Revolving Facility is indirectly secured by a first priority fixed and floating charge on substantially all present and future real and personal property and undertaking of every nature and kind of the Cogeco Cable 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 this facility provides 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 operating income before depreciation and amortization, financial expense and total indebtedness. At August 31, 2012 and 2011, Cogeco Cable was in compliance with all of its covenants and had used, at August 31, 2012, $0.1 million of its $750 million Term Revolving Facility for a remaining availability of $749.9 million. On February 14, 2012, Cogeco Cable completed pursuant to a public debt offering, the issue of $200 million Senior Secured Debentures Series 3. These Debentures mature on February 14, 2022 and bear interest at 4.925% per annum payable semi-annually. These debentures are indirectly secured by a first priority fixed and floating charge and a security interest on substantially all present and future real and personal property and undertaking of every nature and kind of Cogeco Cable. On November 7, 2011, the Corporation completed, pursuant to a private placement, the issue of 6.50 % Unsecured Notes for a total of $35 million maturing November 7, 2021. Interest on these Notes is payable semi-annually in arrears on November 7 and May 7 of each year commencing May 7, 2012. As at August 31, 2012, the Corporation had a working capital deficiency of $18.5 million compared to $188.7 million at August 31, 2011. The decrease in the deficiency is mainly due to the issuance by Cogeco Cable, on February 14, 2012, of $200 million Fiscal 2012 debentures and


on November 7, 2011, of Unsecured Notes for net proceeds of $198.1 million and $34.6 million, respectively, which were partly used to repay the $110 million Term Revolving Facility in the cable segment, the net proceeds from the sale of the Portuguese subsidiary and free cash flow of $68.7 million, partly offset by dividends of $45 million paid. As part of the usual conduct of its business, COGECO maintains a working capital deficiency due to a low level of accounts receivable as a large portion of Cogeco Cable’s customers pay before their services are rendered, unlike trade and other payables, which are paid after products are delivered or services are rendered, thus enabling the cable subsidiary to use cash and cash equivalents to reduce Indebtedness. During the next five years, the required principal repayments on COGECO’s long-term debt and the related cross-currency swaps, excluding those under finance leases, will amount to $561.3 million. Cogeco Cable’s Senior Secured Debentures Series 1 for $300 million will mature in 2014 and the US$190 million Senior Secured Notes Series A will mature in fiscal 2016. Based on the availability of $775.9 million at August 31, 2012 under its committed Term Revolving Facilities, and the anticipated free cash flow of $115 million for fiscal 2013, the Corporation has the ability to manage its long-term debt maturities until the expiry of its Term Revolving Facilities. In the years to come, management expects to use most of its annual free cash flows after dividend payments to reduce Indebtedness. Management believes that the committed Term Revolving Facilities will provide sufficient liquidity to manage the maturities of its long-term debt and satisfy working capital requirements. Refer to page 19 for a detailed description of financial risks. On August 21, 2012, Dominion Bond Rating Service (“DBRS”) confirmed their rating on Cogeco Cable’s Senior Secured Debentures and Notes to “BBB (low)” and assigned an Issuer Rating of BB (high). The “BBB (low)” rating is one notch above the Issuer ratings of “BB (high)” and reflects very high recovery prospects of first lien secured issues. Obligations rated in the “BBB” category are in the fourth highest category and are regarded as of adequate credit quality, where the degree of protection afforded interest and principal is considered acceptable, but the entity is fairly susceptible to adverse changes in financial and economic conditions, or there may be other adverse conditions present which reduce the strength of the entity and its rated securities. DBRS has assigned a recovery rating of “RR1” to Cogeco Cable’s Senior Secured Debentures and Notes reflecting the likelihood that holders would recover 100% of principal in the event of payment default. On July 19, 2012, Standard & Poor’s Ratings Services (“S&P”) confirmed their rating on Cogeco Cable’s Senior Secured Debentures and Notes of the Corporation to “BBB”. The “BBB” rating is two notches above the corporate credit ratings of “BB+” and reflects very high recovery prospects of first lien secured issues. Obligations rated in the “BBB” category are in the fourth highest category and are regarded as investment-grade. Such obligations show adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. The ratings may be modified by the addition of a plus “(+)” or minus “(–)” sign to show relative standing within the major rating categories. S&P has assigned a recovery rating of “1” to Cogeco Cable’s credit facility and other senior secured first-priority debt. The “1” recovery rating indicates expectations of very high recovery (90%-100%) of principal in the event of payment default. On July 18, 2012, following the announcement of the Atlantic acquisition, Fitch Ratings (“Fitch”) has placed under Rating Watch Negative the Issuer Default Rating (IDR) of Cogeco Cable at “BBB-” and their rating on the Senior Secured Debentures and Notes at “BBB-”. The rating action reflects Fitch’s need to assess the effect of the acquisition transaction on Cogeco Cable’s credit profile. Fitch believes, pending final review of the transaction once it closes, that a downgrade, if necessary would be limited to one notch. Obligations rated in the “BBB” category are regarded as of good credit quality, where the capacity for payment of financial commitments is considered adequate but adverse changes in circumstances and economic conditions are more likely to impair this capacity. The table below shows Cogeco Cable’s credit ratings:

At August 31, 2012 DBRS Fitch S&P

Senior secured notes and debentures BBB (low) BBB– BBB

A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the rating organization.

FINANCIAL MANAGEMENT The Corporation’s subsidiary, Cogeco Cable, has entered into cross-currency swap agreements to set the liability for interest and principal payments on its US$190 million Senior Secured Notes Series A maturing on October 1, 2015. These agreements have the effect of converting the U.S. interest coupon rate of 7.00% per annum to an average Canadian dollar interest rate of 7.24% per annum. The exchange rate applicable to the principal portion of the debt has been fixed at $1.0625 per US dollar. During fiscal 2012, amounts due under the US$190 million Senior Secured Notes Series A increased by $1.2 million due to the US dollar’s appreciation relative to the Canadian dollar. The fair value of cross-currency swaps liability decreased by a net amount of $2.7 million, of which a decrease of $1.2 million offsets the foreign exchange loss on the debt denominated in US dollars. The difference of $1.5 million was recorded as an increase of other comprehensive income. During fiscal 2011, amounts due under the US$190 million Senior Secured Notes Series A decreased by $16.5 million due to the US dollar’s depreciation over the Canadian dollar. The fair value of cross-currency swaps and interest rate swap liabilities increased by a net amount of $18.3 million, of which $16.5 million offsets the foreign exchange gain on the debt denominated in US dollars. The difference of $1.8 million was recorded as a decrease of other comprehensive income. The Corporation is also impacted by foreign currency exchange rates, primarily changes in the values of the US dollar relative to the Canadian dollar with regards to purchases of certain equipment, as the majority of customer premise equipment is purchased and subsequently paid in US dollars. Please consult the “Foreign Exchange Risk” section in Note 20 of the consolidated financial statements for further details.


COMMITMENTS AND GUARANTEES COGECO and its subsidiaries’ contractual obligations at August 31, 2012 are shown in the table below:

Years ended August 31, 2013 2014 2015 2016 2017 Thereafter Total

(in thousands of dollars) $ $ $ $ $ $ $

Long-term debt(1) 300,000 261,283 590,000 1,151,283

Balance due on business acquisitions 13,400 13,400

Derivatives financial instruments 14,592 14,592

Finance leases(2) 891 35 29 28 10 993Operating lease agreements and

other long-term contracts(3) 49,363

39,802 36,092 34,333 30,360 108,028 297,978Pension plan liabilities and accrued

employees benefits (4) 32,975

Total contractual obligations(5) 63,654 339,837 36,121 310,236 30,370 698,028 1,511,221

(1) Includes principal and excludes finance leases. (2) Includes interest. (3) The Corporation’s significant operating lease agreements are for rent premises and support structures. The Corporation also entered into long-term

commitments with public transit corporation, on-air hosts and suppliers to provide services that include minimum spend commitments. (4) The nature of those obligations prevents the Corporation from estimating an annual breakdown. (5) Annual breakdown excludes pension plan liabilities and accrued employees benefits. In the normal course of business, the Corporation 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 Corporation’s subsidiaries, Cogeco Cable and CDI, 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 Corporation 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 Corporation has purchased directors and officers’ liability insurance with a deductible per loss. As at August 31, 2012 and 2011, no liability associated with these indemnifications has been recorded. Under the terms of the Senior Secured Notes, the Coproration’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, 2012 and 2011, no liability associated with these indemnifications has been recorded. During fiscal 2008, 2010, and 2011, Cogeco Cable issued letters of credit amounting to €1.7 million, €2.2 million, and €6.8 million to guarantee the payment by Cabovisão of stamp taxes for the 2000 through 2002 years and stamp taxes and withholding taxes for the years 2005 and 2006 assessed by the Portuguese tax authorities, which were being challenged by Cabovisão. As a result of the sale of its Portuguese subsidiary, on February 29, 2012, the letters of credits were released. The Corporation’s subsidiary, CDI, 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 indemnification are subject to statutory or other legal limitation periods. The nature of the indemnification agreements prevents the Corporation from making a reasonable estimate of the maximum potential amount it could be required to pay to beneficiaries of such indemnification agreements. The Corporation has purchased employees’ and contractual’s liability insurance with a deductible per loss. As at August 31, 2012 and 2011, no liability associated with these indemnifications has been recorded.


CABLE SEGMENT

CUSTOMER STATISTICS

Net additions (losses) % of penetration(1)

August 31, Years ended August 31, August 31, 2012 2012 2011 2012 2011

PSU 1,969,133 71,664 106,310

Television service customers(2) 863,115 (14,870) 3,480 52.4 54.1

HSI service customers 634,534 33,320 42,157 38.5 37.1

Telephony service customers 471,484 53,214 60,673 28.6 25.8

(1) As a percentage of homes passed. (2) The number of Television service customers includes 771,503 Digital Television service customers. During fiscal 2012, PSU net additions were lower than in the comparable period of the prior year mainly as a result of category maturity, competitive offers and tightening of our credit controls and processes. For the year ended August 31, 2012, net customer losses for Television service customers stood at 14,870 compared to 3,480 net additions for the prior year. Television service customer net losses are mainly due to the competitive promotional offers for the video service combined with the tightening of our credit controls. For the year ended August 31, 2012, Telephony service customers grew by 53,214 compared to 60,673 last year, and the number of net additions to the HSI service stood at 33,320 customers compared to 42,157 customers for the prior year. HSI and Telephony net additions continue to stem from the enhancement of the product offering, the impact of the bundled offer (Cogeco Complete Connection) of Television, HSI and Telephony services, and promotional activities. For the year ended August 31, 2012, additions to the Digital Television service which are included in the Television service customers, stood at 93,177 compared to 118,908 for the comparable period of the prior year. Digital Television service net additions are due to the deployment of Digital Terminal Adapters technology to migrate customers from analogue to digital services, the targeted marketing initiatives to improve penetration, the launch of new HD channels and the continuing interest for HD television service.

OPERATING RESULTS


Revenue 1,277,698 1,184,683 7.9


Management fees – COGECO Inc. 9,485 9,172 3.4


Operating margin 46.1% 46.0%

REVENUE For the 2012 fiscal year, consolidated revenue increased by $93 million, or 7.9%, to reach $1.278 billion, when compared to the same period last year, primarily by PSU growth, rate increases implemented in April and October 2011 and June and July 2012 combined with the acquisitions of QTI and MTO during the fourth quarter of fiscal 2011.

OPERATING EXPENSES AND MANAGEMENT FEES Fiscal 2012 consolidated operating expenses increased by $49 million, to reach $679.2 million, an increase of 7.8% compared to prior year. The increase in operating expenses is mainly attributable to servicing additional PSU, the launch of new HD channels, additional programming costs, deployment and support costs related to the migration of Television service customers from analogue to digital and the acquisitions of QTI and MTO. Management fees paid to COGECO Inc. amounted to $9.5 million, 3.4% higher when compared to $9.2 million in fiscal 2011.

OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION AND OPERATING MARGIN Fiscal 2012 consolidated operating income before depreciation and amortization increased by $43.7 million, or 8% to reach $589.1 million as a result of the higher growth from revenue than operating expenses. Fiscal 2012 consolidated operating margin increased to 46.1% from 46% in the comparable period of the prior year.


DISPOSAL OF SUBSIDIARY AND DISCONTINUED OPERATIONS On February 29, 2012, Cogeco Cable completed the sale of its Portuguese subsidiary, Cabovisão, for a cash consideration of €45 million ($59.3 million). The selling price has been reduced by selling fees of approximately €8.5 million ($11.2 million) and contingent claims assumed up to a maximum amount of €5 million ($6.6 million). The carrying value of the net liabilities disposed of on February 29, 2012 was $6.7 million resulting in a gain of $48.2 million recorded in the consolidated statements of profit or loss. The carrying value of assets and liabilities disposed were as follows:

(In thousands of dollars) $




Prepaid expenses and other 2,777



Provisions (6,665)

Deferred and prepaid revenue (411)

Foreign currency translation adjustment (19,817)

(6,688)

As a result of the sale and in accordance with IFRS 5 – Non-Current Assets Held for Sale and Discontinued Operations, Cogeco Cable reclassified the current and prior year results and cash flows of the European operations, up to the date of disposal, as discontinued operations. The assets and liabilities of the discontinued operations have not been reclassified in the statements of financial position at August 31, 2011 and September 1, 2010. The profit or loss of the discontinued operations were as follows:

2012 2011

(In thousands of dollars) $ $

Revenue 80,546 172,277

Operating expenses 70,247 151,262

Depreciation and amortization 2,814 40,415

Operating income (loss) 7,485 (19,400)

Financial income 155 74

Impairment of goodwill 29,344

Impairment of property, plant and equipment 196,529

Gain on disposal 48,215

Profit (loss) before income taxes 55,855 (245,199)

Income taxes 409 (463)

Profit (loss) for the year 55,446 (244,736)

The cash flows of the discontinued operations were as follows:

2012 2011

(In thousands of dollars) $ $

Net cash flows from operating activities 13,637 22,667

Net cash flows from investing activities 36,826 (34,592) Effect of exchange rate changes on cash and cash equivalents denominated in a

foreign currency (866) 588

Net increase (decrease) in cash and cash equivalents 49,597 (11,337)


THREE-YEAR ANNUAL FINANCIAL HIGHLIGHTS AND QUARTERLY FINANCIAL HIGHLIGHTS

THREE-YEAR ANNUAL FINANCIAL HIGHLIGHTS

Years ended August 31, 2012 2011 2010(1)

(in thousands of dollars, except Per Share Data) $ $ $

Revenue 1,406,353 1,267,286 1,133,938

Operating income before depreciation and amortization 606,842 559,595 486,772

Operating income 324,989 343,471 298,913

Income taxes 81,615 71,994 33,220

Profit for the year from continuing operations 174,246 197,864 199,579

Profit (loss) for the year from discontinued operations 55,446 (244,736) (36,860)

Profit (loss) for the year 229,692 (46,872) 162,719

Profit (loss) for the year attributable to owners of the Corporation 77,051 (15,961) 56,264

Cash flow from operating activities 448,764 502,167 407,247

Cash flow from operations 447,110 418,983 466,381

Acquisitions of property, plant and equipment, intangible and other assets 378,369 307,490 269,234

Free cash flow 68,741 111,493 197,147

Total assets 3,103,919 2,871,648 2,744,656

Long-term financial liabilities(2) 1,189,457 1,076,189 963,309

Per Share Data(3)

Earnings (loss) per share attributable to owners of the Corporation


Basic 4.61 (0.95) 3.36

Diluted 4.58 (0.95) 3.35


Basic 3.54 3.75 4.08

Diluted 3.52 3.75 4.06


Basic 1.07 (4.71) (0.71)

Diluted 1.06 (4.71) (0.71)

Dividends 0.72 0.50 0.40

(1) The numbers relating to fiscal year 2010 have not been restated to comply with the adoption of IFRS since the transition date for the Corporation is September 1, 2010.

(2) Long-term financial liabilities include long-term debt, balance due on business acquisitions, derivative financial instrument liabilities and pension plan liabilities and accrued employee benefits.

(3) Per multiple and subordinate voting share.


QUARTERLY FINANCIAL HIGHLIGHTS

Fiscal 2012 Fiscal 2011

Quarters ended(1) Nov. 30 Feb. 29 May 31 Aug. 31 Nov. 30 Feb. 28 May 31 Aug. 31

(in thousands of dollars, except per share data) $ $ $ $ $ $ $ $

Revenue 346,023 345,613 358,032 356,685 298,451 307,532 330,258 331,045

Operating income before depreciation and amortization 140,261 144,518 158,446 163,617 132,996 132,140 142,025 152,434

Operating income 74,642 58,931 95,473 95,943 83,328 68,597 90,242 101,304

Income taxes 12,340 13,372 22,278 33,625 18,473 12,465 19,252 21,804

Profit for the period from continuing operations 44,524 29,449 55,373 44,900 47,967 31,656 54,371 63,870

Profit (loss) for the period from discontinued operations 3,399 52,047 – – (8,159) (9,223) (233,573) 6,219

Profit (loss) for the period 47,923 81,496 55,373 44,900 39,808 22,433 (179,202) 70,089Profit (loss) for the period attributable to owners of the

Corporation 18,770 25,089 19,303 13,889 16,391 634 (56,303) 23,317

Cash flow from operating activities 9,570 126,455 109,546 203,193 52,378 90,891 141,106 217,792

Cash flow from operations 104,739 105,153 117,606 119,612 38,119 103,309 129,327 148,228Acquisitions of property, plant and equipment, intangible

and other assets 78,404 87,186 88,141 124,638 58,369 62,873 63,807 122,441

Free cash flow 26,335 17,967 29,465 (5,026) (20,250) 40,436 65,520 25,787Earnings (loss) per share(2) attributable to owners of the

Corporation


Basic 1.12 1.50 1.15 0.83 0.98 0.04 (3.36) 1.39

Diluted 1.11 1.49 1.15 0.83 0.97 0.04 (3.36) 1.39


Basic 1.06 0.50 1.15 0.83 1.14 0.22 1.13 1.27

Diluted 1.05 0.50 1.15 0.83 1.13 0.21 1.13 1.27


Basic 0.07 1.00 – – (0.16) (0.18) (4.49) 0.12

Diluted 0.06 0.99 – – (0.16) (0.18) (4.49) 0.12

(1) The addition of quarterly information may not correspond to the annual total due to rounding. (2) Per multiple and subordinate voting share.

SEASONAL VARIATIONS Cogeco Cable’s operating results are not generally subject to material seasonal fluctuations except as follows. The customer growth in the Television service customers and HSI service are generally lower in the second half of the fiscal year as a result of a decrease in economic activity due to the beginning of the vacation period, the end of the television seasons, and students leaving their campuses at the end of the school year. Cogeco Cable offers its services in several university and college towns such as Kingston, Windsor, St.Catharines, Hamilton, Peterborough, Trois-Rivières and Rimouski in Canada.


FOURTH-QUARTER OPERATING RESULTS

CABLE SEGMENT CUSTOMER STATISTICS

Net additions (losses) Quarters ended August 31, 2012 2011

PSU 6,959 19,740

Television service customers(1) (5,758) (1,369)

HSI service customers 5,682 7,746

Telephony service customers 7,035 13,363

(1) The net losses of Television service customers includes net additions of 5,918 Digital Television service customers. Fiscal 2012 fourth-quarter PSU net additions were lower than in the comparable period of the prior year mainly as a result of category maturity, competitive offers and tightening of our credit controls and processes. Fourth quarter net customer losses for Television service customers stood at 5,758 when compared to 1,369 for the same period of the prior year due to the end of the school year for college and university students as well as the intense competition driving the telecommunications industry. Telephony service customers grew by 7,035 compared to 13,363 for the same period last year, and the number of net additions to the HSI service stood at 5,682 compared to 7,746 customers for the same period of the prior year. HSI and Telephony net additions continue to stem from the enhancement of the product offering, the impact of the bundled offer (Cogeco Complete Connection) of Television, HSI and Telephony services, and promotional activities. Additions to the Digital Television service which are included in the Television service customers, stood at 5,918 compared to 29,464 for the comparable period of the prior year. Digital Television service net additions are due to the deployment of Digital Terminal Adapters technology to migrate customers from analogue to digital services, targeted marketing initiatives to improve penetration, the launch of new HD channels and the continuing interest for HD television service.

CONSOLIDATED OPERATING RESULTS

Quarters ended August 31, 2012 2011 Change(in thousands of dollars, except percentages) $ $ %

Revenue 356,685 331,045 7.7



Fiscal 2012 fourth-quarter consolidated revenue improved by $25.6 million, or 7.7%, to reach $356.7 million, when compared to the prior year. In the Cable segment, fourth-quarter revenue improved by $19 million, or 6.2%, as a result of PSU growth, rate increases in June and July 2012 as well as the acquisitions of QTI and MTO during the fourth quarter of fiscal 2011. In the fourth quarter of fiscal 2012, revenue from the radio and advertising representation house activities improved by $6.7 million, or 26.5%, mainly as a result of the recent acquisition of Métromédia. For the fourth-quarter ended August 31, 2012, consolidated operating expenses increased by $14.5 million, or 8.1%, at $193.1 million. In the Cable segment, fourth-quarter operating expenses increased by $9.7 million, or 6.3%, mainly attributable to the PSU growth, the launch of new HD channels, additional programming costs and deployment and support costs related to the migration of Television service customers from analogue to digital. The increase is also due to the acquisition of QTI and MTO and to servicing new customers, partly offset by additional expenses in fiscal 2011 related to a one-time project development. Operating expenses from the radio, advertising representation house and head office activities grew by $4.7 million, or 19.5%, in the fourth quarter mainly as a result of the recent acquisition of Métromédia. Fiscal 2012 fourth-quarter consolidated operating income before depreciation and amortization increased by $11.2 million, or 7.3%, to reach $163.6 million as a result of the Cable segment’s operating results and the recent acquisition of Métromédia.


CASH FLOW ANALYSIS

Quarters ended August 31, 2012 2011

(in thousands of dollars) $ $

Operating activities

Cash flow from operations 119,612 148,228

Changes in non-cash operating activities 81,809 73,089

Amortization of deferred transaction costs and discounts on long-term debt (6) (857)

Income taxes paid (15,700) (238)

Current income tax expense (recovery) 15,798 (7,290)

Financial expense paid (15,738) (10,770)

Financial expense 17,418 15,630

203,193 217,792

Investing activities (124,726) (253,473)

Financing activities (16,041) 1,714

Net change in cash and cash equivalents from continuing operations 62,426 (33,967)

Net change in cash and cash equivalents from discontinued operations (1) – (1,551)

Cash and cash equivalents from continuing and discontinued operations, beginning of period 153,097 90,734

Cash and cash equivalents from continuing and discontinued operations, end of period 215,523 55,216

(1) For further details on the Corporation’s cash flows attributable to discontinued operations, please refer to the “Disposal of subsidiary and discontinued operations” section on page 31.

During the fourth quarter of 2012, cash flow from operations reached $119.6 million, 19.3% lower than the comparable period last year, primarily due to the increase in current income tax expense and defined benefit pension plans contributions. Changes in non-cash operating items generated cash inflows of $81.8 million compared to $73.1 million for the same period in fiscal 2011, mainly as a result of a higher increase in trade and other payables, partly offset by a decrease in provision compared to an increase in prior year. Fiscal 2012 fourth-quarter investing activities amounted to $124.7 million, a decrease of 50.8% when compared to $253.5 million in the fourth quarter of the prior year. Fiscal 2011 fourth-quarter investing activities included the acquisitions, by Cogeco Cable, of QTI and MTO for a total of $131.2 million. The remaining increase in investing activities is mainly composed of acquisitions of property, plant and equipment, intangible and other assets in the Cable segment. Acquisition of intangible and other assets are mainly attributable to reconnect and additional service activation costs as well as other customer acquisition costs. For fiscal 2012 fourth-quarter, the acquisition of property, plant and equipment amounted to $119.4 million and acquisitions of intangible and other assets amounted to $5.2 million compared to $120.1 million and $2.3 million, respectively, for the same period of prior year. In the fourth quarter of 2012, the Corporation generated negative free cash flows of $5 million compared to positive free cash flow of $25.8 million in the prior year. The decrease in free cash flow over the prior year is due to the difference in the recognition of current income tax expense compared to income tax recovery in prior year and the defined benefit pension plans contributions, partly offset by the increase of operating income before depreciation and amortization. During the fourth quarter of fiscal 2012, the Corporation paid a dividend of $0.18 per share to the holders of subordinate and multiple voting shares totalling $3 million, compared to a quarterly dividend of $0.14 per share totalling $2.3 million in fiscal 2011. In addition, dividends paid by a subsidiary to non-controlling interest in the fourth quarter of fiscal 2012 amounted to $8.2 million compared to $6.6 million in the fourth quarter of the prior year.


FISCAL 2013 FINANCIAL GUIDELINES

CONSOLIDATED FINANCIAL GUIDELINES COGECO confirms its fiscal 2013 financial guidelines, as issued on July 11, 2012. For fiscal 2013, COGECO expects revenue of approximately $1.490 billion and operating income before depreciation and amortization should amount to approximately $630 million, as a result of Cogeco Cable’s 2013 guidelines, the full year impact of the Métromédia acquisition and the improved results of the radio activities. Free cash flow should generate approximately $115 million and profit for the year attributable to the owners of the Corporation of $65 million should be earned.

ProjectionsFiscal 2013

ActualsFiscal 2012

(in millions of dollars) $ $


Revenue 1,490 1,407

Operating income before depreciation and amortization 630 607

Financial expense 69 69

Current income taxes expense 96 88

Profit for the year 195 230

Profit for the year attributable to owners of the Corporation 65 77

Acquisitions of property, plant and equipment, intangible and other assets 350 378

Free cash flow(1) 115 69

(1) Free cash flow is calculated as operating income before depreciation and amortization less financial expense, current income taxes expense andacquisitions of property, plant and equipment, intangible and other assets.

CABLE SEGMENT Cogeco Cable maintains its fiscal 2013 financial guidelines, as issued on July 11, 2012. Fiscal 2013 financial guidelines will be revised once the recently announced acquisition of Atlantic is concluded. For fiscal 2013, Cogeco Cable expects to achieve revenue of $1.350 billion, representing growth of $72 million, or 5.6% when compared to the fiscal 2012. The guidelines take into consideration the current uncertain global economic environment. In Canada, household debt remains a concern as credit market debt as a % of personal disposal income continues to rise and average resale price to household income continue to increase, which should coincide with a contraction in consumer spending. In addition, the high value of the Canadian dollar may generate further restructuring in the manufacturing sector and additional headwinds from government spending restraints might result in slower 2013 growth. In previous recessionary periods, demand for cable telecommunications services has generally proven to be resilient; however there is no assurance that demand would remain resilient in a prolonged difficult economic environment. These guidelines also take into consideration the competitive environment that prevails in Canada, the deployment of new technologies such as FTTH, Fibre to the Node (“FTTN”) and Internet Protocol Television (“IPTV”) by the incumbent telecommunications providers. Revenue should increase as a result of PSU growth stemming from targeted marketing initiatives to improve penetration rates of the Digital Television, HSI and Telephony services. Furthermore, the Digital Television service should continue to benefit from the customers’ ongoing strong interest in the Corporation’s growing HD service offerings. Revenue will also benefit from the impact of rate increases implemented in June 2012 in Quebec and July 2012 in Ontario, ranging on average between $2 to $3 per HSI and Telephony service customers. Cogeco Cable’s strategies include consistently effective marketing to residential and business customers, competitive product offerings and superior customer service, which combined, lead to the expansion and loyalty of the Basic Cable Service clientele. As the penetration of residential HSI, Telephony and Digital Television services increase, the new demand for these products should slow, reflecting signs of maturity. However, growth in the commercial and business sector is expected to continue at a consistent pace. As a result of increased costs to service additional PSU, inflation and manpower increases, as well as the continuation of the marketing initiatives and retention strategies, operating expenses are expected to expand by approximately $47 million, or 6.8% in the 2013 fiscal year when compared to fiscal 2012. For fiscal 2013, the Corporation expects operating income before depreciation and amortization of $614 million, an increase of $25 million, or 4.2% when compared to fiscal 2012. The operating margin is expected to reach approximately 45.5% in fiscal 2013, compared to 46.1% for the 2012 fiscal year, reflecting operating expenses growth slightly higher than the revenue growth. Cogeco Cable expects the depreciation and amortization of property, plant and equipment and intangible assets to increase by $15 million for fiscal 2013, mainly from acquisition of capital expenditures and the increase in intangible assets related to PSU growth and other initiatives and by the full year impact of those of fiscal 2012. In addition, the depreciation and amortization expense for fiscal 2012 included the impact from the reduction of the depreciation period for certain home terminal devices. Cash flows from operations should finance capital expenditures and the increase in intangible assets amounting to $350 million, a decrease of $25 million when compared to fiscal 2012. Capital expenditures projected for the 2013 fiscal year are mainly due to customer premise equipment required to support PSU growth, scalable infrastructure for


product enhancements and the deployment of new technologies, line extensions to expand existing territories, support capital to improve business information systems and support facility requirements and expansion for the Enterprise services segment. Fiscal 2013 free cash flow is expected to amount to $105 million, an increase of $39 million, or 59.1% when compared to the free cash flow of $66 million for fiscal 2012, resulting from the growth in operating income before depreciation and amortization and by a reduction in capital expenditures. Generated free cash flow will result in reduced Indebtedness net of cash and cash equivalent, thus improving the Corporation’s net leverage ratios. Financial expense should amount to $64 million, essentially the same when compared to the 2012 fiscal year, as a result of a slight increase in the Corporation’s cost of debt reflecting current market conditions, partly offset by the reduction in Indebtedness level. As a result, profit for the year of approximately $190 million should be achieved compared to $225 million for the fiscal 2012. The 2012 profit for the year include $55 million profit from discontinued operations resulting from the disposal of the Portuguese subsidiary. Excluding this item, the fiscal 2013 projected profit for the year represents an increase of $20 million, or 11.8%, when compared to the fiscal 2012 profit for the year. The fiscal 2013 financial guidelines are as follows:

ProjectionsFiscal 2013

ActualsFiscal 2012

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


Revenue 1,350 1,278

Operating income before depreciation and amortization 614 589

Operating margin 45.5% 46.1%

Depreciation and amortization 290 275

Financial expense 64 64

Current income taxes expense 95 85

Profit for the year from continuing operations 190 170

Profit for the year 190 225

Acquisitions of property, plant and equipment, intangible and other assets 350 375

Free cash flow(1) 105 66

Net customer addition guidelines

PSU growth 50,000 71,664

(2) Free cash flow is calculated as operating income before depreciation and amortization less financial expense, current income taxes expense and acquisitions of property, plant and equipment, intangible and other assets.

NON-IFRS FINANCIAL MEASURES This section describes non-IFRS financial measures used by COGECO throughout this MD&A. It also provides reconciliations between these non-IFRS measures and the most comparable IFRS financial measures. These financial measures do not have standard definitions prescribed by IFRS and therefore, may not be comparable to similar measures presented by other companies. These measures include “cash flow from operations”, “free cash flow” and “operating income before depreciation and amortization”.

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 activities, amortization of deferred transaction costs and discounts on long-term debt, income taxes paid or received, current income tax expense or recovery, financial expense paid and financial expense. This allows the Corporation to isolate the cash flows from operating activities from the impact of cash management decisions. Cash flow from operations is subsequently used in calculating the non-IFRS measure, “free cash flow”. Free cash flow is used, by COGECO’s management and investors, to measure its ability to repay debt, distribute capital to its shareholders and finance its growth.


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

Free cash flow is calculated as follows:

Quarters ended August 31, Years ended August 31, 2012 2011 2012 2011

(in thousands of dollars) $ $ $ $

Cash flow from operations 119,612 148,228 447,110 418,983

Acquisition of property, plant and equipment (119,421) (120,104) (362,582) (296,618)

Acquisition of intangible and other assets (5,217) (2,337) (15,787) (10,872)

Free cash flow (5,026) 25,787 68,741 111,493

OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION Operating income before depreciation and amortization is used by COGECO’s management and investors to assess the Corporation’s ability to seize growth opportunities in a cost effective manner, to finance its ongoing operations and to service its debt. Operating income before depreciation and amortization is a proxy for cash flows from operations excluding the impact of the capital structure chosen, and is one of the key metrics used by the financial community to value the business and its financial strength. The most comparable IFRS financial measure is operating income. Operating income before depreciation and amortization is calculated as follows:



Operating income 95,943 101,304 324,989 343,471

Depreciation and amortization 65,699 52,020 279,770 203,792

Integration, restructuring and acquisitions costs 1,975 (890) 2,083 12,332

Operating income before depreciation and amortization 163,617 152,434 606,842 559,595

ADDITIONAL INFORMATION This MD&A was prepared on November 1, 2012. Additional information relating to the Corporation, including its Annual Information Form, is available on SEDAR at www.sedar.com.



Cash flow from operating activities 203,193 217,792 448,764 502,167

Changes in non-cash operating activities (81,809) (73,089) 3,479 (17,041)

Amortization of deferred transaction costs and discounts on long-term debt 6 857 3,363 3,759

Income taxes paid (received) 15,700 238 83,411 (1,457)

Current income tax recovery (expense) (15,798) 7,290 (88,104) (65,907)

Financial expense paid 15,738 10,770 65,325 71,075

Financial expense (17,418) (15,630) (69,128) (73,613)

Cash flow from operations 119,612 148,228 447,110 418,983

Consolidated financial statements COGECO INC. 2012 39

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated financial statements Management’s responsibility ...................................................... 40 Independent auditor’s report ....................................................... 41 Consolidated statements of profit or loss .................................... 42 Consolidated statements of comprehensive income .................. 43

Consolidated statements of changes in shareholders’ equity ..... 44 Consolidated statements of financial position ............................. 45 Consolidated statements of cash flows ....................................... 46 Notes to the consolidated financial statements ........................... 47

40 COGECO INC. 2012 Consolidated financial statements

MANAGEMENT’S RESPONSIBILITY

RELATED TO THE CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements of COGECO Inc. (the “Corporation”) 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 International Financial Reporting Standards (“IFRS”) 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 Corporation 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, Deloitte & Touche LLP, Chartered Accountants, are responsible for making an independent examination of the consolidated financial statements in accordance with Canadian 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 President and Chief Executive Officer

Pierre Gagné Senior Vice-President and Chief Financial Officer

Montreal, November 1, 2012


INDEPENDENT AUDITOR’S REPORT To the Shareholders of COGECO Inc. We have audited the accompanying consolidated financial statements of COGECO Inc., which comprise the consolidated statements of financial position as at August 31, 2012, August 31, 2011 and September 1, 2010, and the consolidated statements of profit or loss, consolidated statements of comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for the years ended August 31, 2012 and August 31, 2011, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of COGECO Inc. as at August 31, 2012, August 31, 2011 and September 1, 2010, and its financial performance and its cash flows for the years ended August 31, 2012 and August 31, 2011 in accordance with International Financial Reporting Standards.

Montreal, November 1, 2012 ______________________________ 1 CPA auditor, CA, public accountancy permit No. A109522

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS



(In thousands of Canadian dollars, except per share data) $ $

Revenue 1,406,353 1,267,286

Operating expenses (note 6) 799,511 707,691

Integration, restructuring and acquisition costs 2,083 12,332

Depreciation and amortization (note 7) 279,770 203,792

Operating income 324,989 343,471

Financial expense (note 8) 69,128 73,613

Profit before income taxes 255,861 269,858

Income taxes (note 9) 81,615 71,994

Profit for the year from continuing operations 174,246 197,864

Profit (loss) for the year from discontinued operations (note 22) 55,446 (244,736)


Profit (loss) for the year attributable to:

Owners of the Corporation 77,051 (15,961)

Non-controlling interest 152,641 (30,911)

229,692 (46,872)

Earnings (loss) per share (note 10)

Basic

Profit for the year from continuing operations 3.54 3.75

Profit (loss) for the year from discontinued operations 1.07 (4.71)

Profit (loss) for the year 4.61 (0.95)

Diluted




CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



(In thousands of Canadian dollars) $ $


Other comprehensive income (loss)

Cash flow hedging adjustments

Net change in fair value of hedging derivative financial instruments 2,740 (18,306)

Net change in fair value of hedging derivative financial instruments reclassified to financial expense (1,197) 16,549

Income tax recovery (expense) on cash flow hedging adjustments (430) 829

1,113 (928)

Foreign currency translation adjustments

Net foreign currency translation differences on a net investment in foreign operations (745) 7,248 Net change in unrealized adjustments on translation of long-term debts designated as hedges of a

net investment in foreign operations (3,903)Reclassification to profit or loss of accumulated realized foreign currency translation gain of a net

investment in foreign operations (note 22) (19,817)

(20,562) 3,345

Defined benefit plans actuarial adjustments

Net change in defined benefit plans actuarial adjustments (8,063) (7,684)

Income tax recovery on defined benefit plans actuarial adjustments 2,169 2,067

(5,894) (5,617)

Other comprehensive income (loss) for the year (25,343) (3,200)

Comprehensive income (loss) for the year 204,349 (50,072)

Comprehensive income (loss) for the year attributable to:

Owners of the Corporation 66,977 (19,461)

Non-controlling interest 137,372 (30,611) 204,349 (50,072)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


Equity attributable to owners

(In thousands of Canadian dollars) Share capital

Share-based compensation

reserve

Accumulated other

comprehensive income (loss)

Retained earnings

Equity attributable to

non-controlling interest

Total shareholders’

equity

(note 16) (note 16) (note 17) Balance at September 1, 2010 (note 28) 119,527 3,452 6,508 240,499 750,878 1,120,864

Loss for the year (15,961 ) (30,911 ) (46,872)

Other comprehensive loss for the year 782 (4,282 ) 300 (3,200)

Comprehensive loss for the year 782 (20,243 ) (30,611) (50,072)Issuance of subordinate voting shares under the employee

stock option plan 629 629

Share-based compensation 1,520 1,385 2,905Issuance of subordinate voting shares by a subsidiary to

non-controlling interest (404) 5,144 4,740

Dividends on multiple voting shares (921 ) (921)

Dividends on subordinate voting shares (7,446 ) (23,355) (30,801)Effect of changes in ownership of a subsidiary on non-

controlling interest 60 (60) Acquisition of subordinate voting shares held in trust under

the Incentive Share Unit Plan (1,296) (1,296)Acquisition by a subsidiary from non-controlling interest of

subordinate voting shares held in trust under theIncentive Share Unit Plan (2,368) (2,368)

Distribution to employees of subordinate voting sharesheld in trust under the Incentive Share Unit Plan 458 (503) 45

Distribution to employees by a subsidiary of subordinate voting shares held in trust under the Incentive ShareUnit Plan (153) 11 142

Contributions by and distributions to shareholders (209) 460 (8,251 ) (19,112) (27,112)

Balance at August 31, 2011 119,318 3,912 7,290 212,005 701,155 1,043,680

Profit for the year 77,051 152,641 229,692

Other comprehensive loss for the year (6,254) (3,820 ) (15,269) (25,343)

Comprehensive income for the year (6,254) 73,231 137,372 204,349

Share-based compensation 2,020 1,654 3,674Issuance of subordinate voting shares by a subsidiary to

non-controlling interest (121) 1,416 1,295

Dividends on multiple voting shares (1,327 ) (1,327)

Dividends on subordinate voting shares (10,717 ) (32,965) (43,682)Effect of changes in ownership of a subsidiary on non-

controlling interest 109 (109) Acquisition of subordinate voting shares held in trust under

the Incentive Share Unit Plan (1,740) (1,740)Disposal of subordinate voting shares held in trust under

the Incentive Share Unit Plan 33 17 50Distribution to employees of subordinate voting shares

held in trust under the Incentive Share Unit Plan 325 (442) 117 Acquisition by a subsidiary from non-controlling interest of

subordinate voting shares held in trust under theIncentive Share Unit Plan (3,049) (3,049)

Distribution by a subsidiary to employees of subordinatevoting shares held in trust under the Incentive ShareUnit Plan (31) (1 ) 32

Disposal by a subsidiary to non-controlling interest ofsubordinate voting shares held in trust under theIncentive Share Unit Plan 55 638 693

Business acquisition (note 5) 462 462

Contributions by and distributions to shareholders (1,382) 1,426 (11,747 ) (31,921) (43,624)

Balance at August 31, 2012 117,936 5,338 1,036 273,489 806,606 1,204,405

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION


August 31,

2012August 31,

2011 September 1,

2010

(In thousands of Canadian dollars) $ $ $

Assets

Current

Cash and cash equivalents (note 18 b)) 215,523 55,216 35,842

Trade and other receivables (note 20 a)) 98,627 100,297 74,560

Income taxes receivable 13,614 38,480 45,400

Prepaid expenses and other 12,920 14,020 14,189

Assets held for sale (note 21) 1,365

340,684 209,378 169,991

Non-current

Other assets (note 11) 7,133 6,422 7,886

Property, plant and equipment (note 12) 1,343,904 1,272,251 1,323,161

Intangible assets (note 13) 1,133,816 1,125,519 1,046,944

Goodwill (note 13) 249,198 225,802 144,695

Derivative financial instruments 5,085

Deferred tax assets (note 9) 29,184 26,390 27,992

Assets held for sale (note 21) 5,886

3,103,919 2,871,648 2,725,754

Liabilities and Shareholders’ equity

Liabilities

Current

Bank indebtedness (note 15 a)) 741 2,328

Trade and other payables 248,822 270,246 235,830

Provisions (note 14) 10,567 15,558 12,945

Income tax liabilities 41,908 59,935 558

Deferred and prepaid revenue 42,920 43,520 45,602

Promissory note payable, non-interest bearing and repaid on February 1, 2012 5,000

Derivative financial instrument 1,189 Balance due on business acquisitions, bank prime rate plus 1% and payable in February and June

2013 13,400

Current portion of long-term debt (note 15) 855 2,119 2,329

Liabilities related to assets held for sale (note 21) 1,747

359,213 398,125 300,781

Non-current

Long-term debt (note 15) 1,144,814 1,016,663 952,741

Balance due on a business acquisition, bank prime rate plus 1% and payable in February 2013 11,400

Derivative financial instruments 11,668 14,408

Deferred and prepaid revenue and other liabilities 17,891 19,390 12,234

Pension plan liabilities and accrued employee benefits 32,975 33,718 24,335

Deferred tax liabilities (note 9) 332,953 333,746 314,799

Liabilities related to assets held for sale (note 21) 518

1,899,514 1,827,968 1,604,890

Shareholders’ equity


Share capital (note 16) 117,936 119,318 119,527

Share-based compensation reserve 5,338 3,912 3,452

Accumulated other comprehensive income (note 17) 1,036 7,290 6,508

Retained earnings 273,489 212,005 240,499

397,799 342,525 369,986

Non-controlling interest 806,606 701,155 750,878

1,204,405 1,043,680 1,120,864

3,103,919 2,871,648 2,725,754

Commitments, contingencies and guarantees (note 24)

Subsequent event (note 27)

On behalf of the Board of Directors,

Jan Peeters Director

Pierre L. Comtois Director

CONSOLIDATED STATEMENTS OF CASH FLOWS




Cash flow from operating activities

Profit for the year from continuing operations 174,246 197,864

Adjustments for:

Depreciation and amortization (note 7) 279,770 203,792

Income taxes (note 9) 81,615 71,994

Financial expense (note 8) 69,128 73,613

Share-based compensation (note 16) 3,513 3,765

Loss on disposals and write-offs of property, plant and equipment 1,352 2,003

Defined benefit penson plans contributions, net of expense (8,645 ) 1,713

600,979 554,744

Changes in non-cash operating activities (note 18 a)) (3,479 ) 17,041

Income taxes paid (83,411 ) 1,457

Financial expense paid (65,325 ) (71,075)

448,764 502,167

Cash flow from investing activities

Acquisition of property, plant and equipment (362,582 ) (296,618)

Acquisition of intangible and other assets (15,787 ) (10,872)

Business acquisition and related adjustments, net of cash and cash equivalents acquired (note 5) (36,277 ) (205,510)

Disposal of subsidiaries, net of cash and cash equivalents disposed (note 5) 4,509

Other 1,199 341

(408,938 ) (512,659)

Cash flow from financing activities

Increase (decrease) in bank indebtedness 741 (2,328)

Net increase (repayments) under the Term Revolving Facilities (105,898 ) 53,519

Issuance of long-term debt, net of discounts and transaction costs 232,480 198,295

Repayment of long-term debt (2,128 ) (177,822)

Repayment of promissory note payable (5,000 )

Increase in deferred transaction costs (1,551 ) (444)

Issuance of subordinate voting shares (note 16) 629

Acquisition of subordinate voting shares held in trust under the Incentive Share Unit Plan (note 16) (1,740 ) (1,296)

Disposal of subordinate voting shares held in trust under the Incentive Share Unit Plan 50

Dividends paid on multiple voting shares (1,327 ) (921)

Dividends paid on subordinate voting shares (10,717 ) (7,446)

Issuance of subordinate voting shares by a subsidiary to non-controlling interest 1,295 4,740Acquisition by a subsidiary from non-controlling interest of subordinate voting shares held in trust under the

Incentive Share Unit Plan (3,049 ) (2,368)Disposal by a subsidiary to non-controlling interest of subordinate voting shares held in trust under the Incentive

Share Unit Plan 693

Dividends paid on subordinate voting shares by a subsidiary to non-controlling interest (32,965 ) (23,355)

70,884 41,203

Net change in cash and cash equivalents from continuing operations 110,710 30,711

Net change in cash and cash equivalents from discontinued operations (note 22) 49,597 (11,337)

Cash and cash equivalents, beginning of the year 55,216 35,842

Cash and cash equivalents, end of the year 215,523 55,216


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Years ended August 31, 2012 and 2011

NATURE OF OPERATIONS COGECO Inc. (the “Corporation” or the “Parent Corporation”) is a Canadian public corporation whose shares are listed on the Toronto Stock Exchange (“TSX”). The Corporation is engaged in Cable Television, High Speed Internet (“HSI”), Telephony, managed information technology and infrastructure, and other telecommunications services to its residential and commercial customers in Canada through Cogeco Cable Inc., in Radio broadcasting through Cogeco Diffusion Acquisitions Inc. (“Cogeco Diffusion”) and operates an advertising representation house in the public transit sector through Métromédia CMR Plus Inc. (“Métromédia”). The Corporation's registered office is located at 5 Place Ville Marie, Suite 1700, Montréal, Québec, H3B 0B3.

1. BASIS OF PREPARATION

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and in particular, they were prepared in accordance with IFRS 1 First -time Adoption of IFRS. These consolidated financial statements reflect the first-time adoption of IFRS, which replaced Canadian Generally Accepted Accounting Principles (“GAAP”) as of September 1, 2010 (the “Transition date”). All disclosures and explanations related to the first-time adoption of IFRS are presented in note 27. This note provides information that is considered material to the understanding of the Corporation’s first IFRS consolidated financial statements. Note 27 also presents a reconciliation of the 2011 financial figures prepared under Canadian GAAP to the 2011 financial figures prepared under IFRS, including a reconciliation of the consolidated statements of profit or loss and comprehensive income for the year ended August 31, 2011, as well as a reconciliation of the consolidated statements of financial position at September 1, 2010 and at August 31, 2011. The consolidated financial statements have been prepared on a going concern basis using historical cost except for derivative financial instruments, assets held for sale (see note 21) and cash-settled share-based payment arrangements, which are measured at fair value. Financial information is presented in Canadian dollars, which is the functional currency of COGECO Inc. The consolidated financial statements for the years ended August 31, 2012 and 2011 and at September 1, 2010 were approved by the Board of Directors of COGECO Inc. at its meeting held on November 1, 2012.

2. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial statements and in preparing the opening consolidated statement of financial position at September 1, 2010 for the purposes of the transition to IFRS, unless otherwise indicated.

A. BASIS OF CONSOLIDATION These consolidated financial statements include the accounts of the Corporation and its subsidiaries. Subsidiaries are entities controlled by the Corporation. Control is achieved where the Corporation has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries are aligned with the policies adopted by the Corporation. Operating segments and percentage of interest in the principal subsidiaries at August 31, 2012 are as follows:

Operating segment Principal subsidiaries Percentage of equity interest

%

Voting rights

%

Cable Cogeco Cable Inc. 32.1 82.6

Other Cogeco Diffusion Acquisitions Inc. 100.0 100.0

Other Métromedia CMR Plus Inc. 100.0 100.0

The Corporation and its cable subsidiary, Cogeco Cable Inc., have established special purpose entities (“SPEs”) with the objective of mitigating the impact of stock price fluctuations in connection with its Incentive Share Unit Plans. A SPE is consolidated if, based on an evaluation of the substance of its relationship with the Corporation and the SPEs’ risks and rewards, the Corporation concludes that it controls the SPEs. SPEs controlled by the Corporation and Cogeco Cable Inc. were established under terms that impose strict


limitations on the decision-making powers of the SPEs’ management, resulting in the Corporation receiving the majority of the benefits related to the SPEs’ operations and net assets, being exposed to the majority of risks incident to the SPEs’ activities, and retaining the majority of the residual or ownership risks related to the SPEs or their assets. All inter-company transactions and balances and any unrealized revenue and expenses are eliminated in preparing the consolidated financial statements.

B. BUSINESS COMBINATIONS Business acquisitions are accounted for using the acquisition method. Goodwill is measured as the excess of the fair value of the consideration transferred including the recognized amount of any non-controlling interest in the acquiree over the net recognized amount of the identifiable assets acquired and liabilities assumed, all measured at the acquisition date. The consideration transferred is measured as the sum of the fair values of assets transferred, liabilities incurred, and equity instruments issued by the Corporation at the acquisition date, including any asset or liability resulting from a contingent consideration arrangement, in exchange for control of the acquiree. An obligation to pay contingent consideration is classified as an asset or a liability or as equity. Contingent consideration classified as equity is not re-measured. Contingent consideration classified as an asset or a liability is measured either as a financial instrument or as a provision. Changes in fair values that qualify as measurement period adjustments of preliminary purchase price allocations are adjusted in the current period and such changes are applied on a retroactive basis. Acquisition costs, other than those associated with the issue of debt or equity securities, and integration and restructuring costs that the Corporation incurs in connection with a business acquisition are recognized in profit or loss as incurred.

C. REVENUE RECOGNITION Revenue is measured at the fair value of the consideration received or receivable, net of returns and discounts. The Corporation recognizes revenue from the sale of products or the rendering of services when the following conditions are met:

The amount of revenue and related costs can be measured reliably; The significant risks and rewards of ownership have been transferred to customers and there is no continuing management

involvement with the goods; and The recovery of the consideration is probable.

More specifically, the Corporation’s principal sources of revenue are recognized as follows:

Monthly subscription revenue received for Cable Television, HSI and Telephony services and rental of equipment are recognized as the services are provided;

Revenue from data services, long-distance and other pay-per-use services are recorded as the services are provided; Revenue from managed services, Internet connectivity, dark fibre services and other advance communication solutions are

recorded as the services are provided; Revenue generated from the sale of home terminal devices or other equipment are recorded when the equipment is

delivered and accepted by the customers; and Revenue generated from the sale of advertising airtime and advertising display are recognized when the advertisement has

been aired or displayed.

Multiple-element arrangements The Corporation offers certain products and services as part of multiple deliverable arrangements. The Corporation evaluates each deliverable in an arrangement to determine whether such deliverable would represent a separate component. Components are accounted separately when:

The delivered elements have stand-alone value to the customers; and There is objective and reliable evidence of fair value of any undelivered elements.

Consideration is measured and allocated amongst the components based upon their relative fair values and the relevant revenue recognition policy is applied to them.

The Corporation considers that installation and activation fees are not separate components because they have no stand-alone value. Accordingly, they are deferred and amortized as revenue at the same pace as the related telecommunications services are earned, which is the average life of a customer’s subscription for residential customers or the term of the agreement for commercial customers. Unearned revenue, such as payments for goods and services received in advance of delivery, are recorded as deferred and prepaid revenue until the service is provided or the product is delivered to the customer.


D. BARTER TRANSACTIONS In the normal course of its business, the Corporation enters into barter transactions under which goods, advertising and other services are acquired in exchange for advertising services. Such revenues and expenses are recorded at the estimated fair value of goods and services received when goods and other services are received and at the estimated fair value of advertising provided when advertising services are received.

E. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost, less accumulated depreciation and accumulated impairment losses. During construction of new assets, direct costs plus overhead costs directly attributable to the asset are capitalized. Borrowing costs directly attributable to the acquisition or construction of qualifying assets, which require a substantial amount of time to get ready for their intended use or sale, are capitalized until such time the assets are substantially ready for their intended use or sale. All other borrowing costs are recorded as financial expense in the period in which they are incurred. Depreciation is recognized from the date the asset is ready for its intended use so as to write-off the cost of assets, other than freehold land and properties under construction, less their residual values over their useful lives, using the straight-line method. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The depreciation periods, which are reviewed on annual basis, are as follows:

BUILDINGS AND LEASEHOLD IMPROVEMENTS(1) 10 TO 40 YEARS

CABLE SYSTEMS(2) 5 TO 20 YEARS

HOME TERMINAL DEVICES 3 TO 5 YEARS

ROLLING STOCK AND EQUIPMENTS(3) 2 TO 10 YEARS

(1) Leasehold improvements are amortized over the shorter of the term of the lease and economic life.

(2) Cable systems include towers, headends, transmitters, fibre and coaxial networks, and customer drops.

(3) Rolling stock and equipments include rolling stock, programming equipment, broadcasting and production equipment, furniture and fixtures,

computer and software, and other equipments.

When significant parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The estimated useful lives, residual values and depreciation method are reviewed annually, with the effect of any changes in estimate accounted for on a prospective basis. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognized in profit or loss. The Corporation does not record decommissioning obligations in connection with its cable distribution network. The Corporation expects to renew all of its agreements with utility companies to access their support structures in the future, thus the resulting present value of the obligation is not significant.

F. INTANGIBLE ASSETS Intangible assets acquired separately are measured on initial recognition at cost. Intangible assets acquired in a business combination and recognized separately from goodwill are initially recognized at their fair value at the acquisition date. Subsequent to initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite useful lives are amortized over their useful life. The estimated useful lives are reviewed annually, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with finite useful lives are amortized as follows:

Customer relationships are amortized on a straight-line basis over the estimated useful life, defined as the average life of a customer’s subscription, not exceeding eight years;

Reconnect and additional service activation costs are capitalized up to a maximum amount not exceeding the revenue generated by the reconnect activity and are amortized over the average life of a customer’s subscription, not exceeding four years; and

Direct and incremental costs associated with the acquisition of commercial customers are capitalized and amortized over the term of the agreement.

Intangible assets with indefinite useful lives are those for which there is no foreseeable limit to their useful economic life as they arise from contractual or other legal rights that can be renewed without significant cost. They comprised Cable Distribution Undertaking


Broadcasting Licences (“Cable Distribution Licences”) and Broadcasting Licenses. Cable Distribution Licences are comprised of broadcast authorities licenses and exemptions from licensing that allow access to homes and customers in a specific area. Broadcasting Licenses are broadcast authorities licenses that allow access to a radio frequency in a specific market. The Corporation has concluded that the Cable Distribution Licences and Broadcasting Licenses have indefinite useful lives since there are no legal, regulatory, contractual, economic or other factors that would prevent their renewals or limit the period over which they will contribute to the Corporation’s cash flows. The Corporation reviews at the end of each reporting period whether event and circumstances continue to support indefinite useful life assessment for these licences. Intangible assets with indefinite useful lives are not amortized, but tested for impairment at least annually or more frequently if there is any indication of impairment. Goodwill represents the future economic benefits arising from a business combination that are not individually identified and separately recognized. It is not amortized but tested for impairment at least annually, or whenever there is an indication of possible impairment.

G. IMPAIRMENT OF NON FINANCIAL ASSETS At the end of each reporting period, the Corporation reviews the carrying value of its property, plant and equipment and intangible assets with finite useful lives to determine whether there is any indication that those assets may be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. Goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually, or whenever there is an indication that the asset may be impaired. The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. For the purpose of impairment testing, assets that cannot be tested on an individual basis are grouped together into the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets (“cash-generating unit” or “CGU”). When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGU, otherwise they are allocated to the smallest group of CGU for which a reasonable and consistent allocation basis can be identified. An impairment loss is recognized when the carrying amount of an asset or a CGU exceeds its recoverable amount for the amount of this excess. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amount of the other assets in the CGU on a pro rata basis. The impairment loss is recognized immediately in profit or loss in the period in which the loss is incurred. Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. A reversal of an impairment loss is recognized immediately in profit or loss. For the purpose of impairment testing, goodwill is allocated to each of the Corporation’s CGUs that are expected to benefit from the synergies of the related business combination. An impairment loss recognized for goodwill cannot be reversed.

H. LEASES

Lessee Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards incidental to ownership of the asset to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognized as assets of the Corporation at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments as determined at the inception of the lease. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. The corresponding liability is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between financial expense and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Financial expense and depreciation of the assets are recognized in profit or loss in the period they occur. Rentals payable under operating leases are charged to the profit or loss statement on a straight line basis over the term of the relevant lease. Lessor The Corporation leases certain telecommunication equipment, primarily home terminal devices, to its customers. These leases are classified as operating leases and rental revenue is recognized on a straight-line basis over the term of the relevant lease.


I. INCOME TAXES Income tax expense represents the sum of the tax currently payable and deferred. Current and deferred taxes are recognized in profit or loss, except when they relate to a business combination or to items that are recognized in other comprehensive income or directly in equity.

Current tax The tax currently payable is based on taxable profit for the year. The Corporation’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the end of the reporting period.

Deferred tax Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets and liabilities are not recognized if the temporary difference arises from the initial recognition of goodwill or assets or liabilities in a transaction that is not a business combination and that affects neither the taxable profit nor the accounting profit or is related to investments in subsidiaries to the extent that the Corporation is able to control the reversal and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are generally recognized for unused tax losses and deductible temporary differences to the extent that it is probable that taxable profits will be available against which, those deductible temporary differences can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates that have been enacted or substantively enacted at the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Corporation expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority on the same taxable entity, or on different tax entities, but the Corporation intends to settle its current tax assets and liabilities on a net basis.

J. PROVISIONS Provisions represent liabilities of the Corporation for which the amount or timing is uncertain. A provision is recorded when the Corporation has a legal or constructive present obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized represents management’s best estimate of the amount required to settle the obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When the effect of the time value of money is material, the amount of a provision is determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as financial expense. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

K. SHARE-BASED PAYMENTS Equity settled awards The Corporation measures stock options granted to employees that vest rateably over the service period based on the fair value of each tranche on grant date by using the Black-Scholes pricing model and a compensation expense is recognized on a straight-line basis over the vesting period applicable to the tranche, with a corresponding increase in share-based compensation reserve. Granted options vest equally over a period of five years beginning one year after the day such options are granted. At the end of each reporting period, the Corporation revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment in share-based compensation reserve. When the stock options are exercised, share capital is credited by the sum of the consideration paid and the related portion previously recorded in share-based compensation reserve. The Corporation measures incentive share units (“ISUs”) granted to employees based on the fair value of the Corporation’s subordinate voting shares at the date of grant and a compensation expense is recognized over the vesting period, with a corresponding increase in share-based compensation reserve. The total vesting period of each grant is three years less one day.


Cash settled awards The fair value of the amount payable to Board’s directors in respect of share appreciation rights under the Deferred Share Unit Plans of the Corporation, which are settled in cash, is recognized as a compensation expense with a corresponding increase in pension plan liabilities and accrued employee benefits as of the date units are issued to Board directors. The accrued liability is re-measured at the end of each reporting period, until settlement, using the average closing price of the subordinate voting shares on the Toronto Stock Exchange for the twenty consecutive trading days immediately preceding by one day the closing date of the reporting period. Any changes in the fair value of the liability are recognized in profit or loss.

L. EMPLOYEE BENEFITS

Short-term employee benefits Short-term employee benefits include wages, salaries, compensated absences, profit-sharing and bonuses. They are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit sharing plans if the Corporation has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Defined contribution pension plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an expense in the periods during which services are rendered by employees. Defined benefit pension plans Pension costs for defined benefit pension plans are determined using the projected unit credit method (sometimes known as the accrued benefit method pro-rated on service), with estimated valuation being carried out at the end of each reporting period, when necessary, and are funded through contributions determined in accordance with this method. The Corporation’s net obligation in respect of defined benefit pension plans is calculated separately for each plan. Pension expense is charged to salaries, employee benefits and outsourced services and includes:

The cost of pension benefits provided in exchange for employees’ services rendered during the period; Vested past service costs which are recognized immediately; Unvested past service costs which are amortized on a straight-line basis over the vesting period; and The interest cost of pension obligations less the expected return on pension fund assets. The Corporation uses the fair

value of plan assets to evaluate plan assets for the purpose of calculating the expected return on plan assets.

The retirement benefit obligation recognized in the statement of financial position represents the present value of the defined benefit obligation as adjusted for unrecognized past service costs and as reduced by the fair value of plan assets. The Corporation recognizes actuarial gains or losses in other comprehensive income in the period in which they arise. Actuarial gains or losses arise from the difference between the actual rate of return on plan assets for a given period and the expected rate of return on plan assets for that period, experience adjustments on liabilities, or changes in actuarial assumptions used to determine the defined benefit obligation.

M. FOREIGN CURRENCY TRANSLATION Foreign currency transactions For the purpose of the consolidated financial statements, the profit or loss and financial position of each group entity are expressed in Canadian dollars, which is the functional and presentation currency of the Corporation for the consolidated financial statements. Transactions in foreign currencies are translated to the respective functional currency of the Corporation’s entities at the exchange rate in effect at the transaction date. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. Foreign currency differences arising on translation are recognized as financial expense in profit or loss, except for those arising on the translation of financial instruments designated as a hedge of a net investment in foreign operations, and financial instruments designated and effective as hedging items in a cash-flow hedge, which are recognized in other comprehensive income until the instruments are settled.

Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustment arising on acquisition, are translated to Canadian dollars using exchange rates prevailing at the end of the reporting period.


Revenue and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly or significant transactions occurred during that period, in which case the exchange rates at the date of the transactions are used. Exchange differences arising from the translation process of foreign operations are recognized as foreign currency translation adjustment in other comprehensive income and accumulated in equity. The Corporation applies hedge accounting to foreign currency differences arising between the functional currency of the foreign operation and the parent entity’s functional currency (Canadian dollars). Foreign currency differences arising on the translation of the long-term debt designated as a hedge of a net investment in foreign operations are recognized in other comprehensive income to the extent that the hedge is effective, and are presented within equity in the foreign currency translation adjustment balance. To the extent that the hedge is ineffective, such differences are recognized in profit or loss. When the hedged part of a net investment is disposed of, the relevant amount in the cumulative amount of foreign currency translation adjustment is transferred to profit or loss as part of the profit or loss on disposal.

N. FINANCIAL INSTRUMENTS Classification and measurement All financial instruments, including derivatives, are included in the statement of financial position initially at fair value when the Corporation becomes a party to the contractual obligations of the instrument. Subsequent to initial recognition, non-derivative financial instruments are measured in accordance with their classification as described below:

Loans and receivables are financial assets with fixed or determinable payments that are not quoted on an open market. Cash and cash equivalents and trade and other receivables are classified as loans and receivables. They are measured at amortized cost using the effective interest method, less any impairment loss;

Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss; and

Trade and other payables and loans and borrowings are classified as other liabilities. They are measured at amortized cost using the effective interest method. Directly attributable transaction costs are added to the initial fair value of financial instruments except for those incurred in respect of the Term Revolving Facility, which are amortized over the term of the related financing on a straight-line basis.

Financial assets are derecognized only when the Corporation no longer holds the contractual rights to the cash flows of the asset or when the Corporation transfers substantially all the risks and rewards of ownership of the financial asset to another entity. Financial liabilities are derecognized only when the Corporation’s obligations are discharged, cancelled or expire. Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

Derivative financial instruments, including hedge accounting The Corporation uses cross-currency swaps as derivative financial instruments to manage foreign exchange risk related to its foreign denominated long-term debt. The Corporation does not hold or use any derivative financial instruments for speculative trading purposes. Derivatives are recognized initially at fair value and related transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. Net receipts or payments arising from derivative agreements are recognized as financial expense. On initial designation of the hedge, the Corporation formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Corporation makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the cash flows of the respective hedged items during the period for which the hedge is designated and whether the actual results of each hedge are within a range of 80-125 percent. For a cash flow hedge of a forecasted transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported profit or loss.


Cash flow hedge accounting When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in accumulated other comprehensive income and presented in unrealized gains or losses on cash flow hedges in equity. The amount recognized in other accumulated comprehensive income is removed and included in profit or loss in the same period as the hedged cash flows affect profit or loss and in the same line item as the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires, is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in accumulated other comprehensive income and presented in unrealized gains or losses on cash flow hedges in equity, remains there until the forecasted hedged item affects profit or loss. If the forecasted hedged item is no longer expected to occur, then the balance in accumulated other comprehensive income is recognized immediately in profit or loss. In other cases the amount recognized in accumulated other comprehensive income is transferred to profit or loss in the same period in which, the hedged item affects profit or loss. Embedded derivatives Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related. A separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. At August 31, 2012 and 2011 and September 1, 2010, there were no significant embedded derivatives or non-financial derivatives that require separate fair value recognition on the consolidated statements of financial position. Impairment of financial assets Trade and other receivables (“receivables”) are assessed at each reporting date to determine whether there is objective evidence that they are impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that receivables are impaired can include default or delinquency by a debtor or indications that a debtor will enter bankruptcy. The Corporation considers evidence of impairment for receivables at both a specific asset and aggregate basis. All individually significant receivables are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are assessed on an aggregate basis for impairment by grouping together receivables with similar risk characteristics. An impairment loss in respect of receivables is calculated as the difference between its carrying amount and the present value of the estimated future cash flows. Losses are recognized in profit or loss and reflected in an allowance account presented in reduction of receivables. Interest on the impaired asset continues to be recognized through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

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

P. EARNINGS PER SHARE The Corporation presents basic and diluted earnings per share data for its multiple and subordinate voting shares. Basic earnings per share is calculated by dividing the profit or loss attributable to owners of the Corporation by the weighted average number of multiple and subordinate voting shares outstanding during the period, adjusted for subordinate voting shares held in trust under the ISU Plan. Diluted earnings per share is determined by adjusting the weighted average number of multiple and subordinate voting shares outstanding for the effects of all dilutive potential subordinate voting shares, which comprise stock options and ISUs granted to employees.

Q. SEGMENT REPORTING

An operating segment is a component of the Corporation that engages in business activities from which it may earn revenue and incur expenses, including revenue and expenses that relate to transaction with any of the Corporation’s other components. All operating segments’ operating results are reviewed regularly by the Corporation’s Chief Operating Decision Maker (“CODM”) to decide about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available. Segment results that are directly reported to the CODM include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.


R. ACCOUNTING JUDGEMENT AND USE OF ESTIMATES The preparation of consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, revenue and expenses.

Significant areas requiring the use of management judgements and estimates relate to the following items:

Allowance for doubtful accounts

Allowance for doubtful accounts is established based on specific credit risk of the Corporation’s customers by examining such factors as the number of overdue days of the customer’s balance outstanding as well as the customer’s collection history. As a result, conditions causing fluctuations in the aging of customer accounts will directly impact the reported amount of bad debt expenses;

Business combinations

Fair value of assets acquired and liabilities assumed in a business combination is estimated based on information available at date of acquisition and involves considerable judgement in determining the fair values assigned to the property, plant and equipment and intangible assets acquired and liabilities assumed on acquisition. Among other things, the determination of these fair values involves the use of discounted cash flow analyses, estimated future margins and estimated future customer counts;

Useful lives of property, plant and equipment and intangible assets

Measurement of property, plant and equipment and intangible assets with finite useful lives requires estimates for determining the asset’s expected useful lives and residual values. Management judgement is required to determine the components and the depreciation method used;

Provisions

Management judgement is used to determine the timing, likelihood and to quantify expected cash outflows;

Fair value measurement of derivative financial instruments

The fair value of derivative financial instruments is estimated using valuation techniques based on several inputs such as interest rates and volatilities and foreign exchange rates;

Measurement of defined benefit assets and liabilities

The defined benefit pension plan liabilities are determined using actuarial calculations that are based on several assumptions. The actuarial valuation uses the Corporation’s assumptions for the discount rate, expected long-term rate of return on plan assets, rate of compensation increase and expected average remaining years of service of employees. If the actuarial assumptions are found to be significantly different from the actual data subsequently observed, it could impact the reported amount of pension cost recognized in profit or loss, the actuarial gains and losses recognized directly in other comprehensive income, and the net assets or net liabilities related to these obligations presented in the consolidated statement of financial position;

Measurement of assets

The impairment of non-financial assets requires the use of management judgement to identify the existence of indicators of impairment and the determination of CGUs. Furthermore, when determining the recoverable amount of a CGU, the Corporation uses significant estimates such as the estimation of future cash flows and discount rates applicable. Any significant modification of market conditions could translate into an inability to recover the carrying amounts of non-financial assets; and

Deferred taxes

Deferred tax assets and liabilities require estimates about the nature and timing of future permanent and temporary differences, the expected timing of reversals of those temporary differences and the future tax rates that will apply to those differences. Judgment is also required in determining the tax basis of indefinite life intangible assets and the resulting tax rate used to measure deferred taxes.

Such judgments and estimates are based on the facts and information available to the management of the Corporation. Changes in facts and circumstances may require the revision of previous estimates, and actual results could differ from these estimates.


3. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET

EFFECTIVE A number of new standards, interpretations and amendments to existing standards were issued by the International Accounting Standard Board (“IASB”) that are mandatory but not yet effective for the year ended August 31, 2012, and have not been applied in preparing these consolidated financial statements. The following standards may have a material impact on future consolidated financial statements of the Corporation:

Effective for annual periods starting on or after IFRS 9 Financial Instruments January 1, 2015 Early adoption permittedIFRS 10 Consolidated Financial Statements January 1, 2013 Early adoption permittedIFRS 12 Disclosure of Interests in Other Entities January 1, 2013 Early adoption permittedIFRS 13 Fair Value Measurement January 1, 2013 Early adoption permittedAmendments to IAS 1 Presentation of Financial Statements July 1, 2012 Early adoption permittedAmendments to IAS 19 Employee Benefits January 1, 2013 Early adoption permitted

IFRS 9 replaces the guidance in IAS 39 Financial Instruments: Recognition and Measurement on the classification and measurement of financial assets and financial liabilities. The replacement of IAS 39 is a three-phase project with the objective of improving and simplifying the reporting for financial instruments. This is the first phase of that project. IFRS 10 replaces the consolidation requirements in IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation – Special Purpose Entities. It provides a single model to be applied in the control analysis for all investees. IFRS 12 establishes disclosure requirements for entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structures entities. IFRS 13 replaces the fair value measurement guidance contained in individual IFRS with a single source of fair value measurement guidance. The standard clarifies the definition of fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. The amendments to IAS 1 require that an entity present separately the items of other comprehensive income (“OCI”) that may be reclassified to profit or loss in the future from those that would never be reclassified to profit or loss. The amendments to IAS 19 requires the recognition of actuarial gains and losses immediately in OCI, full recognition of past service costs immediately in profit or loss, recognition of expected return on plan assets in profit or loss to be calculated based on the rate used to discount the defined benefit obligation and additional disclosures explaining the characteristics of the Corporation’s defined benefit pension plans. The Corporation is in the process of determining the extent of the impact of these standards on its consolidated financial statements.

4. OPERATING SEGMENTS

The Corporation’s profits for the year are reported in two operating segments: Cable and other. The Cable segment provides a wide range of Analogue and Digital Television, HSI and Telephony services primarily to residential customers. It also provides business solutions, including data networking, Ethernet, hosting, HSI access and Voice over Internet Protocol (“VoIP”) services, to small and medium sized businesses. The segment also provides data centre, managed IT and connectivity services for medium and large enterprises and public sector customers, and high-performance Ethernet broadband connectivity services to carriers. This segment’s offerings includes the provision of physical space and power within its high security data centres and a new suite of managed IT and infrastructure services as well as a full suite of connectivity services provisioned over its wholly-owned optical networks. The Other segment is comprised of radio, advertising representation house in the public transit sector, head office activities as well as inter-segment eliminations. The activities of the Cable and Other segments are carried out in Canada, mostly in the provinces of Ontario and Quebec. The Corporation assesses the performance of each segment based on segment profit or loss. Transactions between segments are measured at exchange amounts between the parties. The accounting policies used in the Corporation’s segment reporting are the same as those describe in Note 2.


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

2012 Cable Other Consolidated


Revenue 1,277,698 128,655 1,406,353

Operating expenses 679,161 120,350 799,511

Management fees – COGECO Inc. 9,485 (9,485)

Integration, restructuring and acquisition costs 1,869 214 2,083

Depreciation and amortization 275,003 4,767 279,770


Financial expense 64,007 5,121 69,128

Income taxes 78,656 2,959 81,615

Profit for the year from continuing operations 169,517 4,729 174,246

Profit for the year from discontinued operations 55,446 55,446

Profit for the year 224,963 4,729 229,692

Total assets 2,908,079 195,840 3,103,919

Property, plant and equipment 1,322,093 21,811 1,343,904

Intangible assets 1,039,982 93,834 1,133,816

Goodwill 210,442 38,756 249,198

Acquisition of property, plant and equipment 359,581 3,001 362,582

Acquisition of intangible and other assets 15,787 15,787

2011 Cable Other Consolidated


Revenue 1,184,683 82,603 1,267,286

Operating expenses 630,150 77,541 707,691

Management fees – COGECO Inc. 9,172 (9,172)

Integration, restructuring and acquisition costs 2,324 10,008 12,332

Depreciation and amortization 201,958 1,834 203,792


Financial expense 71,162 2,451 73,613

Income taxes 70,752 1,242 71,994

Profit (loss) for the year from continuing operations 199,165 (1,301) 197,864

Loss for the year from discontinued operations (244,736) (244,736)

Loss for the year (45,571) (1,301) (46,872)

Total assets 2,712,679 158,969 2,871,648

Property, plant and equipment 1,254,217 18,034 1,272,251

Intangible assets 1,045,601 79,918 1,125,519

Goodwill 208,796 17,006 225,802

Acquisition of property, plant and equipment 291,669 4,949 296,618

Acquisition of intangible assets 10,872 10,872


5. BUSINESS COMBINATIONS

BUSINESS ACQUISITION IN FISCAL 2012

On December 6, 2011, COGECO Inc. concluded an agreement to acquire Métromédia, subject to customary closing adjustments and conditions. Métromédia is a Québec corporation that operates an advertising representation house in the public transit sector. Métromédia represents over 100 public transit markets notably in Montréal, in other Québec regions as well as in major cities and numerous markets in the rest of Canada. The transaction was completed on December 26, 2011. The acquisition was accounted for using the purchase method. The results have been consolidated as of the acquisition date. The preliminary allocation of the purchase price of the acquisition, pending the completion of the valuation of the net assets acquired and other closing adjustments, is as follows:

(in thousands of Canadian dollars) $

Consideration

Paid

Purchase of shares 36,860

Repayment of secured debt 2,140

39,000

Balance due on a business acquisition, bank prime rate plus 1% and payable in June 2013 2,000

41,000

Net assets acquired



Prepaid expenses 57



Intangible assets 14,747

Goodwill 20,171


Income tax liabilities (142)

Deferred and prepaid revenue and other liabilities (374)

Deferred tax liabilities (3,887)

Non-controlling interest (462)

41,000

The amount of goodwill, none of which is deductible for tax purposes, is mainly attributable to expected synergies to be achieved from integrating Métromedia with the Corporation’s activities. The acquisition is an opportunity to diversify the Corporation’s media activities and create a compelling new media offering for advertisers by combining radio and transit advertising.

In connection with this acquisition, the Corporation incurred acquisition-related costs of $0.4 million which have been recognized in the current year as “Integration, restructuring and acquisition costs” in the Corporation’s consolidated statements of profit or loss.

BUSINESS ACQUISITION IN FISCAL 2011 On April 30, 2010, the Company concluded an agreement with Corus Entertainment Inc. (“Corus”) to acquire its Québec radio stations for $80 million, subject to customary closing adjustments and conditions, including approval by the Canadian Radio-television and Telecommunications Commission (“CRTC”). The transaction with Corus was completed on February 1, 2011. Pursuant to this acquisition and the decision by the CRTC regarding the Corporation’s transfer application, the Corporation put up for sale two radio stations acquired in the transaction, CFEL-FM in the Québec City market and CJTS-FM in the Sherbrooke market. In addition to the two acquired radio stations above, and also as part of the CRTC’s decision, the Corporation put up for sale the radio station CJEC-FM, which it owned prior to the acquisition, in the Québec City market. Radio stations for which divestiture has been required by the CRTC, and the sale process, were managed by a trustee approved by the CRTC pursuant to a voting trust agreement.

On November 30, 2011, Cogeco Diffusion concluded an agreement for the sale of two of its four Québec City FM radio stations, CJEC-FM and CFEL-FM for a consideration of $4.6 million, subject to CRTC approval and customary closing adjustments and conditions. On December 6, 2011, Cogeco Diffusion closed its Sherbrooke radio station, CJTS-FM. On January 19, 2012, the CRTC approved the sale of CJEC-FM and CFEL-FM which have been completed on January 30, 2012 and marked the end of the process established with the CRTC for the divestiture of these three radio stations.


On June 27, 2011, the Corporation’s subsidiary, Cogeco Cable Inc., concluded an agreement to acquire all of the shares of Quiettouch Inc. (“Quiettouch”), a leading independent provider of outsourced managed information technology and infrastructure services to mid-market and larger enterprises in Canada. Quiettouch offers a full suite of differentiated services, including managed infrastructure and hosting, virtualization, firewall services, data backup with end-to-end monitoring and reporting, and enhanced and traditional collocation services. Quiettouch operates three data centers in Toronto and Vancouver, as well as a fiber network within key business areas of downtown Toronto. The transaction was completed on August 2, 2011. On August 31, 2011, the Corporation’s subsidiary, Cogeco Cable Inc., concluded and completed an agreement to acquire all of the shares of MTO Telecom Inc. (“MTO”), the largest private telecommunications provider in the Greater Montreal Area and the Province of Quebec. MTO offers high-performance Ethernet broadband connectivity services to carrier, enterprise and public sector customers. Pursuant to the completion of the sale of CJEC-FM and CFEL-FM and the closure of CJTS-FM, the Corporation has completed its allocation of the purchase price for the Québec radio stations in the second quarter of 2012. Furthermore, Cogeco Cable Inc. also completed its allocation of the purchase price of the acquisitions of Quiettouch and MTO in the fourth quarter of 2012. The allocation of the purchase price of these acquisitions is as follows:

Québec radio stations Other Total 2012 2011 2012 2011 2012 2011

(In thousands of Canadian dollars) $ $ $ $ $ $

Consideration

Paid

Purchase of shares 75,000 75,000 133,600 133,600 208,600 208,600

Working capital adjustments – – (492) (1,034) (492) (1,034)

75,000 75,000 133,108 132,566 208,108 207,566

Promissory note payable(1) 5,000 5,000 – – 5,000 5,000

Balance due on a business acquisition(2) – – 11,400 11,400 11,400 11,400

Investment previously accounted for as other assets 200 200 – – 200 200

Working capital adjustments payable 3,585 3,844 1,429 1,429 5,014 5,273

83,785 84,044 145,937 145,395 229,722 229,439

Net assets acquired

Cash and cash equivalents 647 647 1,409 1,409 2,056 2,056

Trade and other receivables 14,103 14,103 4,720 4,619 18,823 18,722

Income taxes receivable 189 189 – – 189 189

Prepaid expenses and other 760 760 452 1,036 1,212 1,796

Property, plant and equipment 11,497 11,497 27,232 27,195 38,729 38,692

Other assets – – 600 615 600 615

Intangible assets 48,906 48,906 34,305 34,305 83,211 83,211

Goodwill(3) 18,585 17,006 94,199 92,553 112,784 109,559

Deferred tax assets 619 544 – – 619 544

Long-term assets held for sale 3,797 5,506 – – 3,797 5,506

Trade and other payables assumed (7,256) (7,197) (3,136) (3,126) (10,392) (10,323)

Income tax liabilities assumed – – (84) – (84) –

Current deferred and prepaid revenue (379) (379) – – (379) (379)

Current liabilities related to assets held for sale (371) (17) – – (371) (17)

Long-term deferred and prepaid revenue – – (1,538) (1,538) (1,538) (1,538)

Deferred tax liabilities (7,269) (7,031) (12,222) (11,673) (19,491) (18,704)

Long-term liabilities related to assets held for sale (43) (490) – – (43) (490)

83,785

84,044

145,937 145,395 229,722 229,439

(1) Non-interest bearing and repaid on February 1, 2012. (2) Bearing interest at bank prime rate plus 1% and payable in February 2013. (3) There was no amount of goodwill deductible for tax purposes in 2012 and in 2011.

In connection with these acquisitions, the Corporation incurred acquisition-related costs of $12.3 million which have been recognized as “Integration, restructuring and acquisition costs” in the Corporation’s 2011 consolidated statements of profit or loss.


6. OPERATING EXPENSES

, 2012 2011


Salaries, employee benefits and outsourced services 274,902 240,568

Service delivery costs(1) 387,039 339,110

Customers related costs(2) 56,232 50,362

Other external purchases(3) 81,338 77,651

799,511 707,691

(1) Includes cost of equipment sold, content and programming costs, payment to other carriers and network costs.(2) Includes advertising and marketing expenses, selling costs, billing expense, bad debts and collection expense. (3) Includes building expense, professional service fees, Canadian Radio-television and Telecommunications Commission (“CRTC”) fees and other

administrative expense.

7. DEPRECIATION AND AMORTIZATION

2012 2011


Property, plant and equipment 258,533 188,284

Intangible assets 21,237 15,508

279,770 203,792

8. FINANCIAL EXPENSE

2012 2011


Interest on long-term debt 64,959 70,249

Net foreign exchange losses (gains) 121 (2,075)

Amortization of deferred transaction costs 1,825 1,887

Capitalized borrowing costs(1) (1,873) (541)

Other 4,096 4,093

69,128 73,613

(1) For the years ended August 31, 2012 and 2011, the weighted average interest rate used in the capitalization of borrowing costs was 6%.

9. INCOME TAXES

2012 2011


Current 88,104 65,907

Deferred (6,489) 6,087

81,615 71,994


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

2012 2011


Profit before income taxes 255,861 269,858

Combined income tax rate 27.45% 28.91%

Income tax expense at combined income tax rate 70,234 78,016

Adjustment for losses or profit subject to lower or higher tax rates 1,027 (6,254)Increase in net deferred tax liabilities as a result of an increase in substantively enacted

tax rates 11,716 –

Decrease in income taxes from changes in tax legislation on partnership income (3,450) –

Income taxes arising from non-deductible expenses 1,262 1,990

Other 826 (1,758)

Income tax expense at effective income tax rate 81,615 71,994

The following table shows deferred 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:

August 31,

2012 August 31,

2011 September 1,

2010


Property, plant and equipment (88,707 ) (88,515) (86,218)

Intangible assets (163,878 ) (154,519) (138,824)

Deferred and prepaid revenue 6,025 5,682 5,659

Share issuance costs – – 858

Partnerships income (71,121 ) (86,801) (78,258)

Non-capital loss and other tax credit carryforwards, net of valuation allowance 9,677 4,848 2,833

Other 4,235 11,949 7,143

Net deferred tax liabilities (303,769 ) (307,356) (286,807)

Financial statement presentation

Deferred tax assets 29,184 26.390 27,992

Deferred tax liabilities (332,953 ) (333,746) (314,799)

Net deferred tax liabilities (303,769 ) (307,356) (286,807)


The movements in deferred tax asset and liability balances during 2012 and 2011 fiscal years were as follows:

2012

Balance

beginning of

the year

Recognized

in profit or

loss

Recognized in

other

comprehensive

income

Acquired in

business

combinations

Other

Balance endof the year


Property, plant and equipment (88,515) (201) – 9 – (88,707)

Intangible assets (154,519) (5,059) – (4,300) – (163,878)

Deferred and prepaid revenue 5,682 612 – (269) – 6,025

Share issuance costs – – – – – –

Partnerships income (86,801) 15,680 – – – (71,121) Non-capital losses and other tax credit

carryforwards, net of valuation allowance 4,848 4,868 – (39) – 9,677

Other 11,949 (9,411) 1,739 – (42) 4,235 (307,356) 6,489 1,739 (4,599) (42) (303,769)

2011

Balance

beginning of

the year

Recognized

in profit or

loss

Recognized in

other

comprehensive

income

Acquired in

business

combinations

Other

Balance end ofthe year


Property, plant and equipment (86,218) (2,795) – (271) 769 (88,515)

Intangible assets (138,824) 628 – (16,323) – (154,519)

Deferred and prepaid revenue 5,659 3,693 – (3,670) – 5,682

Share issuance costs 858 (858) – – – –

Partnerships income (78,258) (8,543) – – – (86,801) Non-capital losses and other tax credit

carryforwards, net of valuation allowance 2,833 1,127 – 888 – 4,848

Other 7,143 661 2,896 1,216 33 11,949 (286,807) (6,087) 2,896 (18,160) 802 (307,356)

At August 31, 2012, the Corporation and its Canadian subsidiaries had accumulated federal income tax losses amounting to approximately $35.6 million, the benefits of which have been recognized in these financial statements. These losses expire as follows:

2029 2030 2031 2032

(In thousands of Canadian dollars) $ $ $ $

218 3,265 10,371 21,791


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

2012 2011

(In thousands of Canadian dollars, except number of shares and per share data) $ $

Profit for the year from continuing operations attributable to owners 59,226 62,788

Profit (loss) for the year from discontinued operations attributable to owners 17,825 (78,749)

Profit (loss) for the year attributable to owners 77,051 (15,961)

Weighted average number of multiple and subordinate voting shares outstanding 16,724,063 16,728,863

Effect of dilutive stock options(1) – –

Effect of dilutive incentive share units(1) 109,945 –

Weighted average number of diluted multiple and subordinate voting shares outstanding 16,834,008 16,728,863

Earnings (loss) per share

Basic




Diluted




(1) The weighted average dilutive potential number of subordinate voting shares which were anti-dilutive for the year ended August 31, 2011 amounted to

129,165.

11. OTHER ASSETS

August 31, 2012 August 31, 2011 September 1, 2010


Transaction costs 4,984 5,258 6,701

Other 2,149 1,164 1,185

7,133 6,422 7,886


12. PROPERTY, PLANT AND EQUIPMENT

Land, buildings and

leasehold

improvements Cable systems(1) Home terminal

devices Rolling stock and

equipments(2) Total (In thousand of Canadian dollars) $ $ $ $ $

Cost

Balance at September 1, 2010 83,267 1,798,209 348,104 130,711 2,360,291

Acquisitions through business combination (note 5) 4,362 24,552 – 9,778 38,692 Other additions 18,129 176,311 67,484 34,694 296,618 Disposals (83) (34,081) (27,903) (8,110) (70,177) Other (217) – – (361) (578) Discontinued operations 601 31,558 12,283 2,950 47,392

Balance at August 31, 2011 106,059 1,996,549 399,968 169,662 2,672,238

Acquisitions through business combination (note 5) – 37 – 4,764 4,801 Other additions 10,161 248,883 71,261 32,277 362,582 Disposals – (4,461) (6,621) (277) (11,359) Other 305 – – (357) (52) Discontinued operations (8,555) (380,626) (106,588) (13,590) (509,359)

Balance at August 31, 2012 107,970 1,860,382 358,020 192,479 2,518,851

Accumulated depreciation and impairment losses

Balance at September 1, 2010 21,706 753,203 201,466 60,755 1,307,130 Depreciation expense 5,107 116,628 46,529 20,020 188,284 Disposals (83) (34,078) (25,747) (7,925) (67,833) Other (158) – – (340) (498) Discontinued operations 3,287 189,446 46,421 3,750 242,904

Balance August 31, 2011 29,859 1,025,199 268,669 76,260 1,399,987 Depreciation expense 6,609 137,777 88,369 25,778 258,533 Disposals – (3,687) (4,881) (240) (8,808) Discontinued operations (5,118) (354,980) (102,776) (11,891) (474,765)

Balance August 31, 2012 31,350 804,309 249,381 89,907 1,174,947

Carrying amounts

At September 1, 2010 61,561 1,045,006 146,638 69,956 1,323,161

At August 31, 2011 76,200 971,350 131,299 93,402 1,272,251

At August 31, 2012 76,620 1,056,073 108,639 102,572 1,343,904

(1) Cable systems include towers, headends, transmitters, fibre and coaxial networks and customer drops. (2) Rolling stock and equipments include rolling stock, programming equipment, broadcasting and production equipment, furniture and fixtures, computer

and software, and other equipments.

CHANGE IN USEFUL LIFE OF HOME TERMINAL DEVICES During the year, the Corporation’s subsidiary, Cogeco Cable Inc., revised the useful life of certain of its home terminal devices to reflect technological changes occurring in the distribution of high definition services. As a result, high definition digital terminals and embedded multimedia terminal adapters’ useful lives have been reduced from 5 years to 3 years. The effect of these changes on depreciation expense in current and future years related to the unamortized balance of high definition digital terminals and embedded multimedia terminal adapters at the date of the change is as follows:

2012 2013 2014 2015 20162017 and thereafter


Increase (decrease) in depreciation expense 29,710 4,519 (3,556) (16,255) (11,847) (2,571)


13. GOODWILL AND OTHER INTANGIBLE ASSETS

A. INTANGIBLE ASSETS During fiscal 2012 and 2011, intangible assets variations were as follows:

Finite useful life Indefinite useful life

Reconnect and customer

acquisition costs(1)Customer

Relationships(2)Cable Distribution

Licenses Broadcasting

Licenses Total (In thousands of Canadian dollars) $ $ $ $ $

Cost

Balance at September 1, 2010 42,183 38,203 967,000 31,025 1,078,411 Acquisitions through business combinations (note 5) 13 34,305 – 48,893 83,211 Other additions 10,872 – – – 10,872 Disposals (11,239) – – – (11,239)

Balance at August 31, 2011 41,829 72,508 967,000 79,918 1,161,255 Acquisitions through a business combination (note 5) – 14,747 – – 14,747 Other additions 14,787 – – – 14,787 Disposals (10,627) – – – (10,627)

Balance at August 31, 2012 45,989 87,255 967,000 79,918 1,180,162

Accumulated amortization and impairment losses

Balance at September 1, 2010 21,370 10,097 – – 31,467 Amortization expense 10,734 4,774 – – 15,508 Disposals (11,239) – – – (11,239)

Balance at August 31, 2011 20,865 14,871 – – 35,736 Amortization expense 11,341 9,896 – – 21,237 Disposals (10,627) – – – (10,627)

Balance at August 31, 2012 21,579 24,767 – – 46,346

Carrying amounts

At September 1, 2010 20,813 28,106 967,000 31,025 1,046,944

At August 31, 2011 20,964 57,637 967,000 79,918 1,125,519

At August 31, 2012 24,410 62,488 967,000 79,918 1,133,816

(1) Reconnect and customer acquisition costs include reconnect and additional service activation costs and direct and incremental costs associated with the acquisition of commercial customers.

(2) Customer relationships include long-term contractual agreements with customers and public transit corporation.


B. GOODWILL

During fiscal 2012 and 2011, goodwill variations were as follows:

(In thousands of Canadian dollars) $

Cost

Balance at September 1, 2010 428,926Acquisitions through business combinations (note 5) 109,559Discontinued operations 12,864

Balance at August 31, 2011 551,349

Acquisitions through business combinations (note 5) 23,396Discontinued operations (325,547)

Balance at August 31, 2012 249,198

Accumulated impairment losses

Balance at September 1, 2010 284,231Discontinued operations 41,316

Balance at August 31, 2011 325,547Discontinued operations (325,547)

Balance at August 31, 2012

Carrying amounts

At September 1, 2010 144,695

At August 31, 2011 225,802

At August 31, 2012 249,198

C. IMPAIRMENT TESTING OF GOODWILL AND INTANGIBLE ASSETS WITH INDEFINITE USEFUL LIVES

The Corporation performs impairment tests annually, or more frequently when there is an indication that assets may be impaired, based on CGUs. For the purpose of impairment testing, goodwill and intangible assets with indefinite useful lives are allocated to each of the Corporation’s CGUs as follows:


Industry segment Group of CGUs Goodwill

Cable Distribution


Licenses Goodwill

Cable Distribution


Licenses Goodwill

Cable Distribution


Licenses

(In thousands of Canadian dollars) $ $ $ $ $ $ $ $ $

Cable Cable services Ontario 4,662 857,696 4,662 857,696 4,662 857,696 Cable Cable services Quebec 109,304 109,304 109,304 Cable Enterprise services 205,780 204,134 111,581 Other Radio broadcasting 18,585 79,918 17,006 79,918 31,025

Other Advertising display 20,171 Discontinued

operations Portugal 28,452

Total 249,198 967,000 79,918 225,802 967,000 79,918 144,695 967,000 31,025


At August 31, 2012 and 2011 and September 1, 2010, the Corporation tested the carrying value of goodwill and intangible assets with indefinite useful lives for impairment. The recoverable amount of each CGU is calculated based on value in use. The value in use was determined using cash flow projections derived from financial projections covering a five year period. They reflect management’s expectation of revenue growth, expenses and margin for each CGU based on past experience. Cash flows beyond the five year period have been extrapolated using an estimated terminal growth rate determined with regard to projected growth rates for the specific markets in which the CGUs participate and are not considered to exceed the long-term average growth rates for those markets. Discount rates applied to the cash flow forecasts are derived from the Corporation’s pre-tax weighted average cost of capital, adjusted for the different risk profile of the individual CGUs. The recoverable amount of each CGU was determined to be higher than its carrying amount and no impairment loss has been recognized at August 31, 2012 and 2011 and September 1, 2010. The following key assumptions were used to determine the recoverable amounts in the most recent impairment tests performed at August 31, 2012 and 2011 and September 1, 2010.


Pre-tax

discount rate

Perpetual growth

ratesPre-tax

discount rate

Perpetual growth

ratesPre-tax

discount rate

Perpetual growth

rates

Group of CGUs % % % % % %

Cable services Ontario 10.6 2.0 11.8 2.6 11.3 1.7

Cable services Quebec 10.4 2.0 11.4 4.3 10.8 3.0

Enterprise services 11.0 6.0 10.6 2.5 10.4 3.4

The following table presents, first each group of CGUs, the change in the discount rate and in the perpetual growth rate used for the tests performed that would have been required in order for the recovered amount to equal the carrying value of the CGU at August 31, 2012:

Increase in

pre-tax discount rate Decrease in

perpetual growth ratesGroup of CGUs % %

Cable services Ontario 8.8 10.2

Cable services Quebec 4.7 4.7

Enterprise services 0.4 0.3

14. PROVISIONS

Withholding and

stamp taxesProgramming

costs Other Total(In thousands of Canadian dollars) $ $ $ $

Balance at September 1, 2011 7,380 7,428 750 15,558

Provisions made during the year 13,860 758 14,618

Provisions used during the year (15,754) (194) (15,948)

Provisions reversed during the year (393) (2,366) (114) (2,873)

Discontinued operations (788) (788)

Balance at August 31, 2012 6,199 3,168 1,200 10,567

The provisions for withholding and stamp taxes relate to contingent liabilities for withholding and stamp taxes relating to fiscal years prior to the acquisition of the Portuguese subsidiary by the Corporation’s subsidiary, Cogeco Cable Inc. Pursuant to the completion of the sale of the Portuguese subsidiary (note 22), the Corporation’s subsidiary remains responsible for these contingent liabilities up to a maximum amount of €5 million under the terms of the sale agreement. The provisions for programming costs include provision for rate increases as well as additional royalties or content costs as a result of periodical audits from service providers. The other provisions include provisions for contractual obligations and other legal obligations.


15. LONG-TERM DEBT

Maturity Interest rate August 31,

2012August 31,

2011 September 1,

2010

(In thousands of Canadian dollars) % $ $ $

Parent Corporation

Term Revolving Facility a)

Revolving loans February 2016 3.09(1) 73,848 69,850

Unsecured Notes b) November 2021 6.50 34,671

Finance lease January 2017 3.23 118 52 72

Subsidiaries

Term Revolving Facility c)

Revolving loans November 2016 4.00(2) 110,000

Revolving loans - €90 million at September 1, 2010 November 2016 2.63(3) 121,635

Senior Secured Notes d)

Series A – US$190 million October 2015 7.00 (4) 186,244 185,049 201,387

Series B October 2018 7.60 54,619 54,646 54,609

Senior Secured Debentures Series 1 e) June 2014 5.95 298,694 298,016 297,379

Senior Secured Debentures Series 2 f) November 2020 5.15 198,539 198,400

Senior Secured Debentures Series 3 g) February 2022 4.93 198,249

Senior Secured Notes Series B h) October 2011 7.73 174,738

Senior Unsecured Debenture i) March 2018 5.94 99,850 99,827 99,806

Finance leases October 2013 6.73 – 9.93 837 2,939 5,429

Other October 2011 3 15

1,145,669 1,018,782 955,070

Less current portion 855 2,119 2,329

1,144,814 1,016,663 952,741

(1) Interest rate on debt at August 31, 2012, including applicable margin.(2) Interest rate on debt at August 31, 2011, including applicable margin. (3) Interest rate on debt at September 1, 2010, including applicable margin. (4) Cross-currency swap agreements have resulted in an effective interest rate of 7.24% on the Canadian dollar equivalent of the US denominated debt.

a) On November 30, 2011, the Corporation renewed its credit agreement for a $100 million credit facility, including a swingline limit of

$7.5 million, in the form of a four-year Term Revolving Facility. The Term Revolving Facility is composed of two tranches of $50 million each, one of which was subject to the completion of the acquisition of Québec radios stations and which became available on February 1, 2011 with the conclusion of the transaction. The Term Revolving Facility will mature on February 1, 2016, but may be extended by additional one-year periods on an annual basis, subject to lenders’ approval. The Term Revolving Facility can be repaid at any time without penalty and is indirectly secured by a first priority fixed and floating charge on substantially all present and future real and personal property and undertaking of every nature and kind of the Corporation and certain of its subsidiaries, excluding the capital stock and assets of the Corporation’s subsidiary, Cogeco Cable Inc., and guaranteed by its subsidiaries, excluding Cogeco Cable Inc. Under the terms and conditions of the credit agreement, the Corporation must comply with certain restrictive covenants. 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 the operating income before amortization, financial expense, and total indebtedness. The Term Revolving Facility bears interest, at the Corporation’s option, on bankers’ acceptance, LIBOR in Euros or in US dollars, bank prime rate or US base rate plus the applicable margin, and commitment fees are payable on the unused portion. At August 31, 2012 and 2011 and September 1, 2010, the Corporation was in compliance with all of its covenants.

b) On November 7, 2011, the Corporation completed, pursuant to a private placement, the issue of 6.50 % Unsecured Notes for a total of $35 million maturing November 7, 2021. Interest on these Notes is payable semi-annually in arrears on November 7 and May 7 of each year commencing May 7, 2012.


c) On November 22, 2011, the Corporation’s subsidiary, Cogeco Cable Inc., renewed its credit agreement for a $750 million credit facility, with an option to increase to a total amount of up to $1 billion, subject to lenders’ participation, in the form of a five-year Term Revolving Facility, which may be extended by additional one-year periods on an annual basis, subject to lenders’ approval. The Term Revolving Facility is available in Canadian, US or Euro currencies and includes a swingline of $25 million available in Canadian or US currencies.The Term Revolving Facility will mature on November 22, 2016. The Term Revolving Facility requires commitment fees, and interest rates are based on bankers’ acceptance, LIBOR in Euros or in US dollars, bank prime rate loan or US base rate loan plus the applicable margin.The Term Revolving Facility is indirectly secured by a first priority fixed and floating charge on substantially all present and future real and personal property and undertaking of every nature and kind of Cogeco Cable Inc. 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 this facility provides for restrictions on the operations and activities of the Corporation’s subsidiary, Cogeco Cable Inc. 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 operating income before amortization, financial expense and total indebtedness. At August 31, 2012 and 2011 and September 1, 2010, the Corporation’s subsidiary, Cogeco Cable Inc., was in compliance with all of its covenants.

d) On October 1, 2008, the Corporation’s subsidiary, Cogeco Cable Inc., issued US$190 million Senior Secured Notes Series A maturing October 1, 2015, and $55 million Senior Secured Notes Series B maturing October 1, 2018, net of transaction costs of $2.1 million, for net proceeds of $255 million. The Senior Secured Notes Series B bear interest at the coupon rate of 7.60% per annum, payable semi-annually. Cogeco Cable Inc. has entered into cross-currency swap agreements to fix the liability for interest and principal payments on the Senior Secured Notes Series A in the amount of US$190 million, which bear interest at the coupon rate of 7.00% per annum, payable semi-annually. Taking into account these agreements, the effective interest rate on the Senior Secured Notes Series A is 7.24% and the exchange rate applicable to the principal portion of the US dollar-denominated debt has been fixed at $1.0625. 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 priority fixed and floating charge and a security interest on substantially all present and future real and personal property and undertaking of every nature and kind of Cogeco Cable Inc. and certain of its subsidiaries. The notes are redeemable at the Corporation’s subsidiary, option at any time, in whole or in part, prior to maturity, at 100% of the principal amount plus a make-whole premium.

e) On June 9, 2009, the Corporation’s subsidiary, Cogeco Cable Inc., completed, pursuant to a public debt offering, the issue of $300 million Senior Secured Debentures Series 1, net of discounts and transactions costs of $3.3 million, for net proceeds of $296.7 million. The Senior Secured Debentures Series 1 are redeemable at the Corporation’s subsidiary option, in whole or in part, at the greater of par value or the Canada bond yield plus 0.875%. These debentures mature on June 9, 2014 and bear interest at 5.95% per annum, payable semi-annually. These debentures are indirectly secured by a first priority fixed and floating charge and a security interest on substantially all present and future real and personal property and undertaking of every nature and kind of Cogeco Cable Inc. and certain of its subsidiaries.

f) On November 16, 2010 the Corporation’s subsidiary, Cogeco Cable Inc., completed pursuant to a public debt offering, the issue of $200 million Senior Secured Debentures Series 2 for net proceeds of $198.3 million net of discounts and transaction costs. These debentures mature on November 16, 2020 and bear interest at 5.15% per annum payable semi-annually. These debentures are indirectly secured by a first priority fixed and floating charge and a security interest on substantially all present and future real and personal property and undertaking of every nature and kind of Cogeco Cable Inc. and certain of its subsidiaries.

g) On February 14, 2012, the Corporation’s subsidiary, Cogeco Cable Inc., completed pursuant to a public debt offering, the issue of $200 million Senior Secured Debentures Series 3. These Debentures mature on February 14, 2022 and bear interest at 4.925% per annum payable semi-annually. These debentures are indirectly secured by a first priority fixed and floating charge and a security interest on substantially all present and future real and personal property and undertaking of every nature and kind of the Corporation.

h) The Senior Secured Notes Series B were senior secured obligations and rank equally and rateably with all existing and future senior indebtedness. These notes were indirectly secured by a first priority fixed and floating charge and a security interest on substantially all present and future real and personal property and undertaking of every nature and kind of the Corporation’s subsidiary, Cogeco Cable Inc., and certain of its subsidiaries. The notes were redeemable at the Corporation’s subsidiary option at any time, in whole or in part, prior to maturity, at 100% of the principal amount plus a make-whole premium. The Senior Secured Notes Series B were to mature on October 31, 2011 and had an interest coupon rate of 7.73% per annum, payable semi-annually. On December 22, 2010, the Corporation’s subsidiary, Cogeco Cable Inc., redeemed the 7.73% Senior Secured Notes Series B in the aggregate principal amount of $175 million. As a result, the aggregate redemption cash consideration that the Corporation’s subsidiary paid totalled $183.8 million excluding accrued interest. The excess of the redemption price over the aggregate principal amount was recorded as financial expense during the second quarter of fiscal year 2011.

i) On March 5, 2008, the Corporation’s subsidiary, Cogeco Cable Inc., issued a $100 million Senior Unsecured Debenture by way of a private placement. 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 the Corporation’s subsidiary option at any time, in whole or in part, prior to maturity, at 100% of the principal amount plus a make-whole premium.


16. SHARE CAPITAL

AUTHORIZED Unlimited number of: Preferred shares of first and second rank, issuable in series and non-voting, except when specified in the Articles of Incorporation of the Corporation or in the Law. Multiple voting shares, 20 votes per share. Subordinate voting shares, 1 vote per share.

ISSUED AND PAID


(In thousands of Canadian dollars, except number of shares) $ $ $

1,842,860 multiple voting shares 12 12 12

14,989,338 subordinate voting shares (14,959,338 at September 1, 2010) 121,976 121,976 121,347

121,988 121,988 121,359 112,471 subordinate voting shares held in trust under the Incentive Share Unit Plan (95,733 at

August 31, 2011 and 71,862 at September 1, 2010) (4,052) (2,670) (1,832)

117,936 119,318 119,527

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

August 31, 2012 August 31, 2011

Number of

shares Amount Number of

shares Amount

(In thousands of Canadian dollars, except number of shares) $ $

Balance, beginning of the year 14,989,338 121,976 14,959,338 121,347

Shares issued for cash under the Employee Stock Option Plan – – 30,000 629

Balance, end of the year 14,989,338 121,976 14,989,338 121,976

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

August 31, 2012 August 31, 2011

Number of

shares Amount Number of

shares Amount

(In thousands of Canadian dollars, except number of shares) $ $

Balance, beginning of the year 95,733 2,670 71,862 1,832

Subordinate voting shares acquired 35,542 1,740 36,460 1,296

Subordinate voting shares distributed to employees (17,702) (325) (12,589 ) (458)

Subordinate voting shares sold (1,102) (33) – –

Balance, end of the year 112,471 4,052 95,733 2,670

DIVIDENDS For the year ended August 31, 2012, a dividend of $0.72 per share was paid to the holders of multiple and subordinate voting shares, totalling $12 million, compared to a dividend of $0.50 per share, or $8.4 million the year before.


SHARE-BASED PAYMENT PLANS The Corporation and its subsidiary, Cogeco Cable Inc., offer for the benefit of their employees and those of their subsidiaries, Employee Stock Purchase Plans and Stock Option Plans for certain executives. Under these plans, no more than 10% of the outstanding subordinate voting shares are available. Furthermore, the Corporation and its subsidiary, Cogeco Cable Inc., offer Incentive Share Unit Plans (“ISU Plans”) for senior executives and designated employees and Deferred Share Unit Plans (“DSU Plans”) for members of the Board of Directors of the Corporation and its subsidiary. Stock purchase plans The Corporation and its subsidiary, Cogeco Cable Inc., offer for the benefit of their employees and those of their subsidiaries, Employee Stock Purchase Plans, which are accessible to all employees up to a maximum of 7% of their base annual salary and the Corporation and its subsidiary contributes 25% of the employee contributions. The subscriptions are made monthly and employee subordinate voting shares are purchased on the stock market.

Stock option plans

The Corporation and its subsidiary, Cogeco Cable Inc., offer for the benefit of certain executives Stock Option Plans. Under the plans’ conditions, the minimum exercice price at which options are granted is equal to the market value of such shares at the time the option is granted. Options granted after September 1, 2009, vest equally over a period of five years beginning one year after the day such options are granted and are exercisable over ten years. Prior to September 1, 2009, options granted vest at the rate of 20% per year beginning the day such options were granted and were exercisable over ten years. A total of 1,545,700 subordinate voting shares are reserved, for the purpose of COGECO Inc. Stock Option Plan. During fiscal years 2012 and 2011, no stock options were granted to employees by COGECO Inc. Under the Stock Option Plan of the Corporation, the following options were granted and were outstanding at August 31:

2012 2011

Number of

options

Weighted

average exercise price

Number of options

Weighted


$ $

Outstanding, beginning of the year 62,382 29.54

Exercised(1) (30,000) 20.95

Expired (32,382) 37.50

Outstanding, end of the year

Exercisable, end of the year

(1) The weighted average share price for options exercised during 2011 was $38.88.

A total of 2,400,000 subordinate voting shares are reserved, for the purpose of Cogeco Cable Inc. Stock Option Plan. For the year ended August 31, 2012, Cogeco Cable Inc. granted 91,961 stock options (71,090 in 2011) with an exercise price ranging from $48.02 to $48.15 ($39.00 to $44.00 in 2011). As a result, a compensation expense of $657,000 ($522,000 in 2011) was recorded for the year ended August 31, 2012. Under the Stock Option Plan of Cogeco Cable Inc., the following options were granted and are outstanding at August 31:

2012 2011

Number of

options

Weighted


Number of options

Weighted


$ $

Outstanding, beginning of the year 564,377 32.30 716,760 30.16

Granted 91,961 48.03 71,090 39.26

Exercised(1) (43,852) 29.52 (188,319) 25.17

Forfeited (2,800) 48.02 (34,706) 41.12

Expired (448) 36.10

Outstanding, end of the year 609,686 34.80 564,377 32.30

Exercisable, end of the year 410,443 31.64 393,802 30.39

(1) The weighted average share price for options exercised during the period was $49.48 ($42.55 in 2011).


At August 31, 2012, 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

Range of exercise prices

Number outstanding

Weightedaverage

remainingcontractual life

(years)

Weighted average

exercise price Number

exercisable

Weightedaverage

exercise price

$ $ $

15.70 to 16.80 20,222 1.18 16.38 20,222 16.38

21.50 to 26.63 183,624 3.76 25.70 183,624 25.70

28.95 to 34.46 180,620 5.85 32.22 124,130 32.04

36.10 to 45.59 69,333 8.06 39.50 15,741 40.27

48.02 to 49.82 155,887 7.45 48.80 66,726 49.82

609,686 5.73 34.80 410,443 31.64

The weighted average fair value of Cogeco Cable Inc.’s stock options granted for the year ended August 31, 2012 was $11.30 ($10.68 in 2011) per option. The weighted average fair value of each option granted was estimated at the grant date for purposes of determining share-based compensation expense using the Black-Scholes option pricing model based on the following assumptions:

2012 2011

% %

Expected dividend yield 1.66 1.44

Expected volatility(1) 26.85 28.71

Risk-free interest rate 1.74 2.29

Expected life (in years) 6.1 6.2

(1) The expected volatility is based on the historical volatility of Cogeco Cable Inc.’s subordinate voting shares for a period equivalent to the expected life of the options.

ISU plans Effective October 13, 2006 and October 29, 2009, the Corporation and its subsidiary, Cogeco Cable Inc., offer senior executive and designated employee ISU Plans. According to the plans, senior executives and designated employees periodically receive a given number of Incentive Share Units (“ISUs”) which entitle the participants to receive subordinate voting shares of the Corporation or its subsidiary after three years less one day from the date of grant. For the year ended August 31, 2012, the Corporation and its subsidiary granted 35,542 (36,460 in 2011) and 60,479 (61,724 in 2011) ISUs. The Corporation and its subsidiary establish the value of the compensation related to the ISUs granted based on the fair value of the subordinate voting shares at the date of grant and a compensation expense is recognized over the vesting period, which is three years less one day. Two trusts were created for the purpose of purchasing these shares on the stock market in order to protect against stock price fluctuation. The Corporation and its subsidiary instructed the trustees to purchase 35,542 and 61,815 (36,460 and 59,503 in 2011) subordinate voting shares of the Corporation and its subsidiary, respectively, on the stock market. These shares were purchased for cash consideration aggregating $1,740,000 and $3,049,000 ($1,296,000 and $2,368,000 in 2011) and are held in trusts for the participants until they are fully vested. The trusts, considered as special purpose entities, are consolidated in the Corporation’s financial statements with the value of the acquired shares presented as subordinate voting shares held in trust under the ISU Plan in reduction of share capital or non-controlling interest. A compensation expense of $3,017,000 ($2,383,000 in 2011) was recorded for the year ended August 31, 2012 related to these plans.


Under the ISU Plan of the Corporation, the following ISUs were granted and are outstanding at August 31:

2012 2011

Outstanding, beginning of the year 95,733 71,862

Granted 35,542 36,460

Distributed (17,702) (12,589)

Forfeited (1,102)

Outstanding, end of the year 112,471 95,733

Under the ISU Plan of Cogeco Cable Inc., the following ISUs were granted and are outstanding at August 31:

2012 2011

Outstanding, beginning of the year 105,064 57,409

Granted 60,479 61,724

Distributed (2,000) (13,184)

Forfeited (13,741) (885)


DSU plans The Corporation ans its subsidiary, Cogeco Cable Inc., also offer DSU Plans for members of the Board of Directors to assist in the attraction and retention of qualified individuals to serve on the Board of Directors (“Board”) of the Corporation and its subsidiary. 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 preceding by one day 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 the member. For the year ended August 31, 2012, the Corporation and its subsidiary issued 6,435 and 4,446 (6,302 and 4,521 in 2011) DSUs to the participants in connection with the DSU Plans. A reduction of expense of $161,000 (compensation expense of $860,000 in 2011) was recorded for the year ended August 31, 2012 for the liability related to these plans. Under the DSU Plan of the Corporation, the following DSUs were issued and are outstanding at August 31:

2012 2011

Outstanding, beginning of the year 22,415 21,630Issued 6,435 6,302Dividend equivalents 462 311

Redeemed (5,828)



Under the DSU Plan of Cogeco Cable Inc., the following DSUs were issued and are outstanding at August 31:

2012 2011

Outstanding, beginning of the year 15,608 10,855Issued 4,446 4,521

Dividend equivalents 437 232


17. ACCUMULATED OTHER COMPREHENSIVE INCOME

Cash flow

hedges

Foreign currency

translation Total


Balance at September 1, 2010 941 5,567 6,508

Other comprehensive income (loss) (293 ) 1,075 782

Balance at August 31, 2011 648 6,642 7,290

Other comprehensive income (loss) 357 (6,611) (6,254)

Balance at August 31, 2012 1,005 31 1,036

18. STATEMENTS OF CASH FLOWS

A. CHANGES IN NON-CASH OPERATING ACTIVITIES

2012 2011


Trade and other receivables 607 (9,763)

Prepaid expenses and other (1,319 ) 1,076

Trade and other payables 5,503 24,669

Provisions (4,203 ) 2,727

Deferred and prepaid revenue and other liabilities (4,067 ) (1,668)

(3,479 ) 17,041

B. CASH AND CASH EQUIVALENTS



Cash 65,574 50,995 35,842

Cash equivalents(1) 149,949 4,221 –

215,523 55,216 35,842

(1) At August 31, 2012, Banker’s acceptances for a total of $149.9 million, bearing interest of 1.10% with maturity dates ranging from September 4, 2012 to September 17, 2012. At August 31, 2011, term deposit of €3 million, bearng interest at 0.65%, maturing on September 19, 2011.


19. EMPLOYEE BENEFITS The Corporation and its Canadian subsidiaries offer to their employees contributory defined benefit pension plans, defined contribution pension plans or collective registered retirement savings plans. With respect to the defined contribution pension plans and collective registered retirement savings plans, the Corporation and its subsidiaries’ obligations are limited to the payment of the monthly employer’s portion. Expenses related to the defined contribution plans and collective registered retirement savings plans amounted to $6,663,000 in fiscal 2012 ($5,446,000 in 2011). The Corporation and its subsidiaries sponsor defined benefit pension plans for the benefit of its employees and separate defined benefit pension plans for the benefit of its senior executives, which provide pensions based on the number of years of service and the average salary during the employment of each participant. In addition, the Corporation and its subsidiaries offer to its senior executives supplementary pension plans. The Corporation measures plan assets at fair value and the accrued benefit obligation at August 31 of each year for all plans. The most recent actuarial valuation for the pension plan for the benefit of the employees was at August 31, 2011 and the next required valuation was at August 31, 2012. For the senior executives’ plans, the most recent actuarial valuation was at August 31, 2011 and the next required valuation will be at August 31, 2014. The total cash amount paid or payable for employee future benefits for all plans, consisting of cash contributed by the Corporation and its subsidiaries to its funded pension plans, cash payments directly to beneficiaries for its unfunded other benefit plans, and cash contributed to its defined contribution plans, totalled $10,798,000 for the year ended August 31, 2012 ($8,977,000 in 2011). The following table provides a reconciliation of the change in the plan benefit obligations and plan assets at fair value and a statement of the funded status at August 31:

2012 2011


Accrued benefit obligation

Accrued benefit obligation, beginning of the year 54,463 44,276

Current service cost 2,431 2,019

Past service cost 668 99

Interest cost 2,693 2,533

Contributions by plan participants 415 394

Benefits paid (1,382) (1,616)

Actuarial loss on obligation recognized in equity 7,545 6,758

Accrued benefit obligation, end of the year 66,833 54,463

Plan assets at fair value

Plan assets at fair value, beginning of the year 22,951 21,729

Expected return on plan assets 1,347 1,292

Difference between expected and actual return on plan assets recognized in equity (519) (925)

Contributions by plan participants 415 394

Employer contributions 12,308 2,077

Benefits paid (1,382) (1,616)

Plan assets at fair value, end of the year 35,120 22,951

Funded status

Plan assets at fair value 35,120 22,951

Accrued benefit obligation 66,833 54,463

Plan deficit 31,713 31,512

Unamortized past service cost (346) (36)

Net accrued benefit liability 31,367 31,476

The net accrued benefit liability is included in the Corporation’s statement of financial position under “Pension plan liabilities and accrued employee benefits”.


2012 2011


Defined benefit pension costs

Current service cost 2,431 2,019

Past service cost 358 271

Interest cost 2,693 2,533

Expected return on plan assets (1,347) (1,292)

Net benefit cost 4,135 3,531

The expected employer contributions to the Corporation’s defined benefit pension plans will be $11.4 million in 2013. Plan assets consist of:

August 31,

2012 August 31,

2011 September 1,

2010

% % %

Equity securities 61 61 54

Debt securities 29 38 45

Other 10 1 1

Total 100 100 100

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

August 31,

2012 August 31,

2011 September 1,

2010

$ $ $

Accrued benefit obligation

Discount rate 3.90 4.70 5.50

Rate of compensation increase 3.00 3.00 3.25

Defined benefit pension costs

Discount rate 4.70 5.50 6.25

Expected long-term rate of return on plan assets 6.00 6.25 6.75

Rate of compensation increase 3.00 3.25 4.50


20. FINANCIAL INSTRUMENTS

A. FINANCIAL RISK MANAGEMENT Management’s objectives are to protect COGECO Inc. and its subsidiaries against material economic exposures and variability of results, and against certain financial risks including credit, liquidity, interest rate and foreign exchange risk. Credit risk Credit risk represents the risk of financial loss for the Corporation if a customer or counterparty to a financial asset fails to meet its contractual obligations. The Corporation is exposed to credit risk arising from the derivative financial instruments, cash and cash equivalents and trade accounts receivable, the maximum exposure of which is represented by the carrying amounts reported on the statement of financial position. Credit risk from derivative financial instruments arises from the possibility that counterparties to the cross-currency swaps may default on their obligations in instances where these agreements have positive fair values for the Corporation. The Corporation reduces this risk by completing transactions with financial institutions that carry a credit rating equal to or superior to its own credit rating. The Corporation assesses the creditworthiness of the counterparties in order to minimize the risk of counterparties default under the agreements. At August 31, 2012, management believes that the credit risk relating to its derivative financial instruments is minimal, since the lowest credit rating of the counterparties to the agreements is “A-” by Standard & Poor’s rating services (“S&P”) and “A (high)” by Dominion Bond Rating Services (“DBRS”). Cash and cash equivalents consist mainly of highly liquid investments, such as Bankers’ acceptances. The Corporation has deposited the cash and cash equivalents with reputable financial institutions, for which management believes the risk of loss to be remote. At August 31, 2012, management believes that the credit risk relating to its short-term investments is minimal, since the lowest credit rating of the counterparties to such investments is “A-” by S&P and “R1 (high)” by DBRS. The Corporation is also exposed to credit risk in relation to its trade accounts receivable. To mitigate such risk, the Corporation continuously monitors the financial condition of its customers and reviews the credit history or worthiness of each new large customer. At August 31, 2012 and August 31, 2011, no customer balance represented a significant portion of the Corporation’s consolidated trade accounts receivable. The Corporation establishes an allowance for doubtful accounts based on specific credit risk of its customers by examining such factors as the number of overdue days of the customer’s balance outstanding as well as the customer’s collection history. The Corporation believes that its allowance for doubtful accounts is sufficient to cover the related credit risk. The Corporation has credit policies in place and has established various credit controls, including credit checks, deposits on accounts and advance billing, and has also established procedures to suspend the availability of services when customers have fully utilized approved credit limits or have violated existing payment terms. Since the Corporation has a large and diversified clientele dispersed throughout its market areas in Canada, there is no significant concentration of credit risk.

The following table provides further details on the Corporation’s accounts receivable balances, net of allowance for doubtful accounts:



Trade accounts receivable 95,170 98,950 76,243

Allowance for doubtful accounts (4,156) (8,725) (8,531)

91,014 90,225 67,712

Other accounts receivable 7,613 10,072 6,848

98,627 100,297 74,560


Trade accounts receivable past due is defined as amount outstanding beyond normal credit terms and conditions for the respective customers. A large portion of the Corporation’s customers are billed in advance and are required to pay before their services are rendered. The Corporation considers amount outstanding at the due date as trade accounts receivable past due. The following table provides further details on trade accounts receivable past due net of allowance for doubtful accounts at August 31, 2012 and 2011 and September 1, 2010:



Less than 60 days overdue 23,906 25,386 16,642

60 to 90 days overdue 2,828 3,400 1,956

More than 90 days overdue 1,745 3,649 2,823

28,479 32,435 21,421

The following table shows changes in the allowance for doubtful accounts for the year ended August 31, 2012 and 2011:

August 31, 2012 August 31, 2011


Balance, beginning of the year 8,725 8,531

Provision for impaired receivables 25,440 27,651

Reversal of provision for amounts collected (4,778) (5,247)

Amounts written off as uncollectible (21,330) (22,468)

Discontinued operations (3,901) 258

Balance, end of the year 4,156 8,725

Liquidity risk Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they become due. The Corporation manages liquidity risk through the management of its capital structure and access to different capital markets. It also manages liquidity risk by continuously monitoring actual and projected cash flows to ensure sufficient liquidity to meet its obligations when due. At August 31, 2012, the available amount of the Corporation’s Term Revolving Facilities was $775.9 million. Management believes that the committed Term Revolving Facilities will, until their maturities in February 2016 and November 2016, provide sufficient liquidity to manage its long-term debt maturities and support working capital requirements. The following table summarizes the contractual maturities of the financial liabilities and related capital amounts:

Contractual cash flows

Carrying amount 2013 2014 2015 2016 2017 Thereafter Total

(In thousands of Canadian dollars) $ $ $ $ $ $ $ $

Bank indebtedness 741

741 741

Trade and other payables(1) 229,919

229,919 229,919

Long-term debt(2) 1,144,714

300,000 261,283 590,000 1,151,283

Balance due on business acquisitions 13,400

13,400 13,400

Other liabilities 4,050

1,293 1,263 1,253 1,253 1,253 114 6,429

Derivative financial instruments 11,668

14,592 14,592

Finance leases(3) 955

891 35 29 28 10 993

1,405,447 246,244 301,298 1,282 277,156 1,263 590,114 1,417,357

(1) Excluding accrued interest. (2) Principal excluding finance leases. (3) Including interest.


The following table is a summary of interest payable on long-term debt (excluding interest on finance leases) that is due for each of the next five years and thereafter, based on the principal amount and interest rate prevailing on the outstanding debt at August 31, 2012 and their respective maturities:

2013 2014 2015 2016 2017 Thereafter Total

(In thousands of Canadian dollars) $ $ $ $ $ $ $

Interest payments on long-term debt 65,786 65,786 47,936 40,048 32,541 102,819 354,916

Interest payments on derivative financial instruments 14,614 14,614 14,614 7,307 51,149

Interest receipts on derivative financial instruments (13,110) (13,110) (13,110) (6,555 ) (45,885)

67,290 67,290 49,440 40,800 32,541 102,819 360,180

Interest rate risk The Corporation is exposed to interest rate risks for both fixed interest rate and floating interest rate instruments. Fluctuations in interest rates will have an effect on the valuation and collection or repayment of these instruments. At August 31, 2012, all of the Corporation’s long-term debt was at fixed rate, except for the Corporation’s Term Revolving Facilities. The sensitivity of the Corporation’s annual financial expense to a variation of 1% in the interest rate applicable to the Term Revolving Facilities is approximately $0.7 million based on the current debt outstanding at August 31, 2012.

Foreign exchange risk The Corporation is exposed to foreign exchange risk related to its long-term debt denominated in US dollars. In order to mitigate this risk, the Corporation has established guidelines whereby currency swap agreements can be used to fix the exchange rates applicable to its US dollar denominated long-term debt. All such agreements are exclusively used for hedging purposes. Accordingly, on October 2, 2008, the Corporation’s subsidiary, Cogeco Cable Inc., entered into cross-currency swap agreements to set the liability for interest and principal payments on its US$190 million Senior Secured Notes Series A issued on October 1, 2008. These agreements have the effect of converting the US interest coupon rate of 7.00% per annum to an average Canadian dollar interest rate of 7.24% per annum. The exchange rate applicable to the principal portion of the debt has been fixed at $1.0625. The Corporation elected to apply cash flow hedge accounting on these derivative financial instruments.

The Corporation is also exposed to foreign exchange risk on cash and cash equivalents, bank indebtedness and trade and other payables and provisions denominated in US dollars or Euros. The Corporation’s exposure to foreign currency risk is as follows:


(In thousands of Canadian dollars) US $ Euro $ US $ Euro $ US $ Euro $

Financial assets (liabilities)

Cash and cash equivalents 3,630 1,243 8,649 497 14,518 253

Trade and other payables and provisions (21,569) (7,068) (30,309) (16,904)

(17,939) (5,825) (21,660) 497 (2,386) 253

Due to their short-term nature, the risk arising from fluctuations in foreign exchange rates is usually not significant. The impact of a 10% fluctuation in the foreign exchange rates (US dollar and Euro) would change financial expense by approximately $2.4 million. Furthermore, the Cogeco Cable Inc.’s net investment in foreign subsidiaries was exposed to market risk attributable to fluctuations in foreign currency exchange rates, primarily changes in the values of the Canadian dollar versus the Euro. This risk was mitigated since the major part of the purchase price for Cabovisão was borrowed directly in Euros. At August 31, 2011, the net investment amounted to €6.1 million (€182.1 million at September 1, 2010) while no long-term debt was denominated in Euros (€90 million at September 1, 2010). As Cogeco Cable Inc. completed the sale of its Portuguese subsidiary on February 29, 2012, the Corporation is not exposed anymore to this market risk at August 31, 2012.


Fair value of financial instruments Fair value is the amount at which willing parties would accept to exchange a financial instrument based on the current market for instruments with the same risk, principal and remaining maturity. Fair values are estimated at a specific point in time, by discounting expected cash flows at rates for debts of the same remaining maturities and conditions. These estimates are subjective in nature and involve uncertainties and matters of significant judgement, and therefore, cannot be determined with precision. In addition, income taxes and other expenses that would be incurred on disposition of these financial instruments are not reflected in the fair values. As a result, the fair values are not necessarily the net amounts that would be realized if these instruments were settled. The Corporation has determined the fair value of its financial instruments as follows: a) The carrying amount of cash and cash equivalents, trade and other receivables, trade and other payables and balance due on a

business acquisition approximates fair value because of the short-term nature of these instruments.

b) Interest rates under the terms of the Corporation’s Term Revolving Facility are based on Bankers’ acceptance, LIBOR, EURIBOR, bank prime rate loan or US base rate loan plus applicable margin. Therefore, the carrying value approximates fair value for the Term Revolving Facility, since the Term Revolving Facility has conditions similar to those currently available to the Corporation.

c) The fair value of the Senior Secured Debentures Series 1, 2 and 3, Senior Secured Notes Series A and B and Senior Unsecured

Debenture are based upon current trading values for similar financial instruments. d) The fair values of finance leases are not significantly different from their carrying amounts. The carrying value of all the Corporation’s financial instruments approximates fair value, except as otherwise noted in the following table:


Carrying value Fair value Carrying value Fair value Carrying value Fair value


Long-term debt 1,145,669 1,228,324 1,018,782 1,096,987 955,070 1,050,783

All financial instruments recognized at fair value on the consolidated statement of financial position must be measured based on the three fair value hierarchy levels, which are as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as

prices) or indirectly (i.e., derived from prices); and Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). The Corporation considers that its derivative financial instruments are classified as Level 2 under the fair value hierarchy. The fair value of derivative financial instruments are estimated using valuation models that reflect projected future cash flows over contractual terms of the derivative financial instruments and observable market data, such as interest and currency exchange rate curves.


B. CAPITAL MANAGEMENT The Corporation’s objectives in managing capital are to ensure sufficient liquidity to support the capital requirements of its various businesses, including growth opportunities. The Corporation manages its capital structure and makes adjustments in light of general economic conditions, the risk characteristics of the underlying assets and the Corporation’s working capital requirements. Management of the capital structure involves the issuance of new debt, the repayment of existing debts using cash generated by operations and the level of distribution to shareholders. The capital structure of the Corporation is composed of shareholders’ equity, cash and cash equivalents, bank indebtedness, long-term debt, balance due on a business acquisition and assets or liabilities related to derivative financial instruments. The provisions of the Term Revolving Facilities provide for restrictions on the operations and activities of the Corporation. Generally, the most significant restrictions relate to permitted investments and dividends on multiple and subordinate voting shares, as well as the maintenance of certain financial ratios primarily linked to the operating income before depreciation and amortization, financial expense and total indebtedness. At August 31, 2012 and 2011 and September 1, 2010, the Corporation was in compliance with all of its debt covenants and was not subject to any other externally imposed capital requirements.

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

August 31, 2012 August 31, 2011

Net secured indebtedness(1) / operating income before depreciation and amortization 1.3 1.6

Net indebtedness(2) / operating income before depreciation and amortization 1.6 1.8

Operating income before depreciation and amortization / financial expense 8.8 7.6

(1) Net secured indebtedness is defined as the total of bank indebtedness, principal on long-term debt and obligations under derivative financial instruments, less cash and cash equivalents and principal on Senior Unsecured Debenture and Unsecured Notes.

(2) Net indebtedness is defined as the total of bank indebtedness, principal on long-term debt, balance due on business acquisitions and obligations under derivative financial instruments, less cash and cash equivalents.

C. CATEGORIES OF FINANCIAL INSTRUMENTS



Financial assets

Derivative instruments in designated hedge accounting relationships 5,085

Loans and receivable 314,150 155,513 110,402

314,150 155,513 115,487

Financial liabilities

Derivative instruments in designated hedge accounting relationships 11,668 14,408 1,189

Other liabilities 1,408,632 1,305,428 1,193,228

1,420,300 1,319,836 1,194,417


21. ASSETS HELD FOR SALE Pursuant to the acquisition of 11 radio stations in the province of Québec by Cogeco Diffusion, and the decision by the Canadian Radio-Television and Telecommunications Commission (“CRTC”) regarding the Corporation’s transfer application, the Corporation put for sale two radio stations acquired in the transaction, CFEL-FM in the Québec City market and CJTS-FM in the Sherbrooke market. In addition to the two acquired radio stations above, and also as part of the CRTC’s decision, the Corporation put for sale radio station CJEC-FM, which it owned prior to the acquisition, in the Québec City market. Radio stations for which divestiture has been required by the CRTC, and the sale process, are managed by a trustee approved by the CRTC pursuant to a voting trust agreement. Accordingly, the assets and liabilities of the three radio stations put for sale have been classified as assets held for sale as of February 1, 2011 in the Corporation’s consolidated statement of financial position. On November 30, 2011, Cogeco Diffusion concluded an agreement for the sale of two of its four Québec City FM radio stations, CJEC-FM and CFEL-FM, subject to CRTC approval and customary closing adjustments and conditions. On December 6, 2011, Cogeco Diffusion closed its Sherbrooke radio station, CJTS-FM. On January 19, 2012, the CRTC approved the sale of CJEC-FM and CFEL-FM which was completed on January 30, 2012 and marked the end of the process established with the CRTC for the divestiture of the three radio stations. The estimated fair value of assets and liabilities related to the three radio stations held for sale at August 31, 2011, was as follows:



Prepaid expenses 5


Broadcasting licences 3,267

Goodwill 448

Assets held for sale 7,251

Trade and other payables 1,456

Income tax liabilities 247

Deferred and prepaid revenue 44

Other liabilities 38

Deferred tax liabilities 480

Liabilities related to assets held for sale 2,265

Net assets held for sale 4,986

Financial statements presentation:

Current assets held for sale 1,365

Non-current assets held for sale 5,886

Current liabilities related to assets held for sale (1,747)

Non-current liabilities related to assets held for sale (518)

Net assets held for sale 4,986


22. DISPOSAL OF SUBSIDIARY AND DISCONTINUED OPERATIONS On February 29, 2012, the Corporation’s subsidiary, Cogeco Cable Inc., completed the sale of its Portuguese subsidiary, Cabovisão – Televisão por Cabo, S.A. (“Cabovisão) for a cash consideration of €45 million ($59.3 million). The selling price has been reduced by selling fees of approximately €8.5 million ($11.2 million) and contingent claims assumed up to a maximum amount of €5 million ($6.6 million). The carrying value of the net liabilities disposed of on February 29, 2012 was $6.7 million resulting in a gain of $48.2 million recorded in the consolidated statements of profit or loss. Letters of credits which were previously issued to guarantee the payment by Cabovisão of stamp taxes and withholding taxes have been also released. The carrying value of assets and liabilities disposed were as follows:





Prepaid expenses and other 2,777



Provisions (6,665)

Deferred and prepaid revenue (411)

Foreign currency translation adjustment (19,817)

(6,688)

As a result of the sale and in accordance with IFRS 5 – Non-Current Assets Held for Sale and Discontinued Operations, the Corporation reclassified the current and prior year results and cash flows of Cogeco Cables Inc.’s European operations, up to the date of disposal, as discontinued operations. The assets and liabilities of the discontinued operations have not been reclassified in the statements of financial position at August 31, 2011 and September 1, 2010.

The profit or loss of the discontinued operations were as follows:

2012 2011


Revenue 80,546 172,277

Operating expenses 70,247 151,262

Depreciation and amortization 2,814 40,415

Operating income (loss) 7,485 (19,400)

Financial income 155 74

Impairment of goodwill 29,344

Impairment of property, plant and equipment 196,529

Gain on disposal 48,215

Profit (loss) before income taxes 55,855 (245,199)

Income taxes 409 (463)

Profit (loss) for the period 55,446 (244,736)

The cash flows of the discontinued operations were as follows:

2012 2011


Net cash flows from operating activities 13,637 22,667

Net cash flows from investing activities 36,826 (34,592) Effect of exchange rate changes on cash and cash equivalents denominated

in a foreign currency (866) 588

Net increase (decrease) in cash and cash equivalents 49,597 (11,337)


23. RELATED PARTY TRANSACTIONS

COMPENSATION OF KEY MANAGEMENT PERSONNEL

Key management personnel are comprised of the members of the Board of Directors and of the Management Committee of the Corporation. The compensation paid or payable to key management personnel for employee services is as follows:

2012 2011


Salaries and other short-term employee benefits 4,162 5,039

Post-employment benefits 1,127 1,756

Share-based payments 2,565 2,006

7,854 8,801

24. COMMITMENTS, CONTENGENCIES AND GUARANTEES

A. COMMITMENTS

At August 31, 2012, the Corporation and its subsidiaries are committed under operating lease agreements and other long-term contracts to make annual payments as follows:

2013 2014 2015 2016 20172018 and thereafter

(In thousands of Canadian dollars) $ $ $ $ $

Operating lease agreements(1) 23,353 22,814 22,731 22,632 20,773 56,148

Other long-term contracts(2) 26,010 16,988 13,361 11,701 9,587 51,880

49,363 39,802 36,092 34,333 30,360 108,028

(1) Include operating lease agreements for rent premises and support structures. (2) Include long-term commitments with public transit corporation, on-air hosts and suppliers to provide services including minimum spend commitments.

Acquisition of Atlantic Broadband On July 18, 2012, the Corporation’s subsidiary, Cogeco Cable Inc., announced the signing of a definitive agreement to acquire all of the shares of Atlantic Broadband ("Atlantic") an independent cable system operator formed in 2003 which, at August 31, 2012, was serving about 251,000 television service customers providing Analogue and Digital Television, as well as HSI and Telephony services. The transaction is valued at US$1.36 billion and expected to be financed through a combination of cash on hand, a draw-down on its existing Term Revolving Facility of approximately US$550 million and US$660 million of borrowings under a new committed non-recourse debt financing at Atlantic Broadband. At August 31, 2012, Atlantic is ranked as the 13th largest cable carrier in the United States and provides services in Pennsylvania, Florida, Maryland, Delaware and South Carolina. The transaction is subject to usual closing conditions, including Hart-Scott-Rodino approval (antitrust), Federal Communications Commission (“FCC”), state and local regulatory approvals and other customary conditions. Cogeco Cable Inc. expects the transaction to be completed by the end of Calendar 2012.

B. CONTINGENCIES The Corporation 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 Corporation’s exposure to litigation to be significant to these financial statements.

C. GUARANTEES In the normal course of business, the Corporation enters into agreements containing features that meet the criteria of a guarantee including the following:


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 Corporation and its subsidiaries 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 Corporation 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 Corporation has purchased directors’ and officers’ liability insurance with a deductible per loss. At August 31, 2012 and 2011, no liability has been recorded associated with these indemnifications. Long-term debt Under the terms of Cogeco Cable’s Senior Secured Notes, the Corporation 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 Corporation from estimating the maximum potential liability it could be required to pay. At August 31, 2012 and 2011, no liability has been recorded associated with these indemnifications. Employees and contractuals indemnification agreements The Corporation’s subsidiary, Cogeco Diffusion, 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 indemnification are subject to statutory or other legal limitation periods. The nature of the indemnification agreements prevents the Corporation from making a reasonable estimate of the maximum potential amount it could be required to pay to beneficiaries of such indemnification agreements. The Corporation has purchased employees’ and contractual’s liability insurance with a deductible per loss. At August 31, 2012 and 2011, no liability has been recorded associated with these indemnifications.

25. NON-MONETARY TRANSACTIONS During fiscal year 2012, the Corporation’s subsidiary, Cogeco Diffusion., has entered into non-monetary transactions. An amount of $5,716,000 ($3,558,000 in 2011) of revenue and $6,384,000 ($3,210,000 in 2011) of operating expenses were recorded.

26. GOVERNMENT ASSISTANCE In 2012, the Corporation’s subsidiary Cogeco Cable Inc., recorded tax credits related to research and development costs in the amount of $1,144,000 ($790,000 in 2011). These credits were accounted for as a reduction of the property, plant and equipment for an amount of $382,000 ($246,000 in 2011) and as a reduction of operating expenses for an amount of $762,000 ($544,000 in 2011).

27. SUBSEQUENT EVENT On October 26, 2012, the Corporation’s subsidiary, Cogeco Cable Inc. amended its Term Revolving Facility. Under the term of the amendment, the maturity will be extended by an additional year and consequently, the Term Revolving Facility will mature on November 22, 2017.

28. TRANSITION TO IFRS As mentioned in note 1, these are the first consolidated financial statements prepared in accordance with IFRS. The significant accounting policies set out in note 2 have been applied in preparing the consolidated financial statements for the year ended August 31, 2012, the comparative information presented in the year ended August 31, 2011 and in the preparation of the opening IFRS statement of financial position at September 1, 2010 (the Corporation’s transition date).


IFRS 1 ELECTIVE EXEMPTIONS AND MANDATORY EXCEPTIONS IFRS 1 permits certain elective exemptions from full retrospective application of IFRS at the transition date. The Corporation elected the following exemptions in preparing its opening IFRS Statement of financial position:

Business combinations A first-time adopter may elect not to apply IFRS 3, Business combinations, retrospectively to business acquisitions completed before the transition date. The retrospective basis would require restatement of all business combinations that occurred prior to the transition date. The Corporation has elected not to retrospectively apply IFRS 3 to business combinations completed prior to its transition date and such business combinations have not been restated. Any assets or liabilities arising on business combinations completed before the transition date have not been adjusted from the carrying value previously determined under Canadian GAAP as a result of applying this exemption.

Employee benefits

The Corporation has elected to recognize all cumulative actuarial gains and losses that existed at its transition date in opening retained earnings for all of its employee defined benefit pension plans. The Corporation also elected to prospectively disclose required defined benefit pension plans amounts under IAS 19 Employee Benefits as the amounts are determined for each accounting period from the date of transition instead of the current annual period and previous four annual periods.

Share-based payments

The Corporation has elected to apply the requirements of IFRS 2, Share-based payments, only to equity instruments granted after November 7, 2002 and which vested after the date of transition to IFRS.

Borrowing costs

The Corporation has elected to apply the requirements of IAS 23 Borrowing Costs only to borrowing costs relating to assets for which the commencement date for capitalization was on or after the date of transition. Borrowing costs incurred before the date of transition were expensed.

Financial assets and financial liabilities

At the date of transition, the Corporation has elected to reclassify cash and cash equivalents from held-for-trading to loans and receivables.

Leases At the date of transition, the Corporation has elected to apply the transitional provisions in IFRIC 4, Determining Whether an Arrangement Contains a Lease, thereby determining whether the Corporation has any arrangements that exist at the date of transition to IFRS that contain a lease on the basis of facts and circumstances existing at that date. Also, the Corporation has elected to apply an additional exemption by which an entity which has assessed arrangements which may contain leases under previous GAAP is permitted to maintain this assessment and not re-assess these arrangements under IFRIC 4.

The Corporation applied the following mandatory exceptions in preparing its opening IFRS financial statements: Hedge accounting

Hedge accounting can only be applied prospectively from the transition date to transactions that satisfy the hedge accounting criteria in IAS 39 at that date. Hedging relationships cannot be designated retrospectively and the supporting documentation cannot be created retrospectively. As a result, only hedging relationships that satisfied the hedge accounting criteria as of its transition date are reflected as hedges in the Corporation’s results under IFRS.

Estimates Hindsight is not used to create or revise estimates. The estimates previously made by the Corporation under Canadian GAAP were not revised for application of IFRS except where necessary to reflect any difference in accounting policies.

The Corporation has adjusted amounts reported previously in financial statements prepared in accordance with previous Canadian GAAP. An explanation of how transition from previous Canadian GAAP to IFRS has affected the Corporation’s financial position and financial performance is set out in the following tables and the notes that accompany the tables.


RECONCILIATION OF STATEMENT OF FINANCIAL POSITION AT SEPTEMBER 1, 2010:

Notes Canadian GAAP IFRS adjustments IFRS reclassifications IFRS


Assets

Current

Cash and cash equivalents 35,842 35,842

Trade and other receivables 74,560 74,560

Income taxes receivable 45,400 45,400

Prepaid expenses and other 14,189 14,189

Deferred tax assets 6,133 (6,133)

176,124 (6,133) 169,991

Non-current

Investments 739 (739)

Property, plant and equipment 3 1,328,866 (5,705) 1,323,161

Deferred charges 27,960 (27,960)

Other assets 7,886 7,886

Intangible assets 1,4 1,042,998 (16,867) 20,813 1,046,944

Goodwill 144,695 144,695


Deferred tax assets 5 18,189 3,670 6,133 27,992

2,744,656 (18,902) 2,725,754


Liabilities

Current

Bank indebtedness 2,328 2,328

Trade and other payables 248,775 (12,945) 235,830

Provisions 12,945 12,945

Income tax liabilities 558 558

Deferred and prepaid revenue 45,602 45,602

Derivative financial instrument 1,189 1,189

Current portion of long-term debt 2,329 2,329

Deferred tax liabilities 78,267 (78,267)

379,048 (78,267) 300,781

Non-current

Long-term debt 952,741 952,741

Deferred and prepaid revenue and other liabilities 12,234 12,234

Pension plan liabilities and accrued employee benefits 5 10,568 13,767 24,335

Deferred tax liabilities 1,3,4,7 238,699 (2,167) 78,267 314,799

1,593,290 11,600 1,604,890



Share capital 119,527 119,527

Share-based compensation reserve 2 3,005 447 3,452

Accumulated other comprehensive income 8 5,934 574 6,508

Retained earnings 1,2,3,4,5,7,8 253,169 (12,670) 240,499

381,635 (11,649) 369,986

Non-controlling interest 1,2,3,4,5,7,8 769,731 (18,853) 750,878

1,151,366 (30,502) 1,120,864

2,744,656 (18,902) 2,725,754


RECONCILIATION OF STATEMENT OF FINANCIAL POSITION AT AUGUST 31, 2011:

Notes Canadian GAAP IFRS adjustments IFRS reclassifications IFRS(In thousands of Canadian dollars) $ $ $ $

Assets

Current

Cash and cash equivalents 55,216 55,216

Trade and other receivables 100,297 100,297

Income taxes receivable 38,480 38,480

Prepaid expenses and other 14,020 14,020

Deferred tax assets 5,350 (5,350)

Assets held for sale 1,365 1,365

214,728 (5,350) 209,378 Non-current

Investments 539 (539)

Property, plant and equipment 3,6 1,272,610 (359) 1,272,251

Deferred charges 26,847 (26,847)

Other assets 6,422 6,422

Intangible assets 1,4 1,121,422 (16,867) 20,964 1,125,519

Goodwill 1,7 239,664 (13,862) 225,802

Deferred tax assets 5 15,558 5,482 5,350 26,390

Assets held for sale 5,886 5,886

2,897,254 (25,606) 2,871,648


Liabilities Current

Trade and other payables 285,804 (15,558) 270,246

Provisions 15,558 15,558

Income tax liabilities 59,935 59,935

Deferred and prepaid revenue 43,520 43,520

Promissory note payable 5,000 5,000

Current portion of long-term debt 2,119 2,119

Deferred tax liabilities 85,201 (85,201)

Liabilities related to assets held for sale 1,747 1,747

483,326 (85,201) 398,125 Non-current

Long-term debt 1,016,663 1,016,663

Balance due on a business acquisition 11,400 11,400


Deferred and prepaid revenue and other liabilities 19,390 19,390

Pension plan liabilities and accrued employee benefits 5 13,215 20,503 33,718

Deferred tax liabilities 1,3,4,6,7 252,958 (4,413) 85,201 333,746

Liabilities related to assets held for sale 518 518

1,811,878 16,090 1,827,968



Share capital 119,318 119,318

Share-based compensation reserve 2 3,488 424 3,912

Accumulated other comprehensive income 5,8 6,716 574 7,290

Retained earnings 1,2,3,4,5,6,7,8 235,879 (23,874) 212,005

365,401 (22,876) 342,525

Non-controlling interest 1,2,3,4,5,6,7,8 719,975 (18,820) 701,155

1,085,376 (41,696) 1,043,680

2,897,254 (25,606) 2,871,648


RECONCILIATION OF PROFIT OR LOSS FOR THE YEAR ENDED AUGUST 31, 2011:

Notes Canadian

GAAP IFRS

adjustments IFRS

(In thousands of Canadian dollars, except per share data) $ $ $

Revenue 1,271,492 (4,206) 1,267,286

Operating expenses 2,5 712,917 (5,226) 707,691

Integration, restructuring and acquisition costs 1 12,332 12,332

Depreciation and amortization 3 208,597 (4,805) 203,792

Operating income 349,978 (6,507) 343,471

Financial expense 6 74,154 (541) 73,613Profit before income taxes 275,824 (5,966) 269,858

Income taxes 1,5,6 72,455 (461) 71,994

Profit for the year from continuing operations 203,369 (5,505) 197,864

Loss for the year from discontinued operations (244,736) (244,736)

Gains on dilution resulting from issuance of shares by subsidiary (60) 60

Non-controlling interest (32,328) 32,328

Loss for the year (8,979) (37,893) (46,872)

Loss for the year attributable to:

Owners of the Corporation (8,979) (6,982) (15,961)

Non-controlling interest (30,911) (30,911)

(8,979) (37,893) (46,872)

Earnings (loss) per share

Basic

Profit for the year from continuing operations 4.18 (0.42) 3.75

Loss for the year from discontinued operations (4.72) (4.71)

Loss for the year (0.54) (0.42) (0.95)

Diluted

Profit for the year from continuing operations 4.18 (0.42) 3.75

Loss for the year from discontinued operations (4.72) (4.71)

Loss for the year (0.54) (0.42) (0.95)


RECONCILIATION OF COMPREHENSIVE LOSS FOR THE YEAR ENDED AUGUST 31, 2011:

Notes Canadian GAAP IFRS

adjustments IFRS

reclassifications

IFRS


Loss for the year (8,979) (37,893) (46,872)

Other comprehensive income (loss)

Cash flow hedging adjustments

Net change in fair value of hedging derivative financial instruments (4,943) (10,410) (2,953) (18,306)Net change in fair value of hedging derivative financial instruments

reclassified to financial expense 4,650 9,775 2,124 16,549

Income tax recovery on cash flow hedging adjustments 829 829

(293) (635) (928)

Foreign currency translation adjustments Net foreign currency translation differences on a net investment in foreign

operations 2,330 4,918 7,248Net change in unrealized losses on translation of long-term debts

designated as hedges of a net investment in foreign operations (1,255) (2,648) (3,903)

1,075 2,270 3,345

Defined benefit plans actuarial adjustments

Net change in defined benefit plans actuarial adjustments 5 (7,684) (7,684)

Income tax recovery on defined benefit plans actuarial adjustments 5 2,067 2,067

(5,617) (5,617)

Other comprehensive income (loss) for the year 782 (3,982) (3,200)

Comprehensive loss for the year (8,197) (41,875) (50,072)

Comprehensive loss for the year attributable to:

Owners of the Corporation (8,197) (11,264) (19,461)

Non-controlling interest (30,611) (30,611) (8,197) (41,875) (50,072)

RECONCILIATION OF RETAINED EARNINGS AT AUGUST 31, 2011 AND SEPTEMBER 1, 2010:

(In thousands of Canadian dollars) NotesAugust 31,

2011September 1,

2010

Retained earnings under Canadian GAAP 235,879 253,169

Preliminary IFRS adjustments:

Business combinations 1 (12,674) (3,922)

Share-based compensation 2 (742) (736)

Property, plant and equipment 3 (217) (1,368)

Intangible assets 4 19,846 19,846

Employee benefits 5 (11,606) (7,879)

Borrowing costs 6 130

Income taxes 7 (18,037) (18,037)

Effects of changes in foreign exchange rates 8 (574) (574)

Retained earnings under IFRS 212,005 240,499

RECONCILIATION OF THE STATEMENTS OF CASH FLOWS

In addition to the adjustments described above resulting from the accounting policy differences on adoption of IFRS, financial expense paid and income taxes paid have been moved into the body of the consolidated statements of cash flows while they were disclosed as supplementary information under Canadian GAAP. There were no other material changes to the statements of cash flows on adoption of IFRS.


NOTES TO THE RECONCILIATIONS 1. Business combinations

As described above, the Corporation has elected not to restate business combinations completed prior to the date of transition. The requirements of IFRS 3 were applied prospectively to business combinations completed after the date of transition. As part of the application of those requirements to business combinations completed in 2011, integration, restructuring and acquisition costs were expensed when incurred in accordance with IFRS, while they were capitalized under Canadian GAAP.

Consolidated statements of financial position Increase (decrease) August 31, 2011 September 1, 2010(In thousands of Canadian dollars) $ $

Goodwill (10,237)

Retained earnings (8,752)

Non-controlling interest (1,485)

Consolidated statements of profit or loss Increase (decrease) August 31, 2011(In thousands of Canadian dollars) $

Integration, restructuring and acquisition costs 12,332

Deferred tax expense (2,095)

Profit or loss for the period (10,237)

Also as a result of the IFRS 1 election on business combinations described above, any assets or liabilities arising on business combinations completed before the transition date have not been adjusted from the carrying value previously determined at the dates of the business acquisitions under previous Canadian GAAP. As a result, the amount of intangible assets stemming from the recognition of deferred income taxes upon application of CICA Handbook section 3465, Income taxes, which occurred after the date of the business combinations, has been reversed.

Consolidated statements of financial position Increase (decrease) August 31, 2011

September 1, 2010(In thousands of Canadian dollars) $ $

Intangible assets (74,823) (74,823)

Deferred tax liabilities (63,096) (63,096)

Retained earnings (3,922) (3,922)



2. Share-based compensation The Corporation’s share options granted vest in tranches over a specified vesting period. Under IFRS, when the only vesting condition is service from the grant date to the vesting date of each tranche granted, then each tranche should be accounted for as a separate share-based payment arrangement (i.e. graded vesting method). Canadian GAAP permitted an accounting policy choice with respect to graded vesting awards. As such, the Corporation treated the arrangement as a single award and the share-based payment was amortized on a straight-line basis over the vesting period. This difference resulted in an accelerated recognition of the expense for the Corporation.


September 1, 2010


Share-based compensation reserve 424 447

Retained earnings (742) (736)

Non-controlling interest 318 289

Consolidated statements of profit or loss Increase (decrease) August 31, 2011


Operating expenses (72)

Profit or loss for the period 72

3. Property, plant and equipment

IAS 16 Property, Plant and Equipment requires that each significant component of an asset be depreciated separately over their respective useful lives which resulted in a more detailed approach to determining the useful lives for certain asset components under IFRS than those that were used under previous Canadian GAAP. The impact of the retroactive application of IAS 16 is as follows:


September 1, 2010


Property, plant and equipment (900) (5,705)

Deferred tax liabilities (229) (1,470)

Retained earnings (217) (1,368)

Non-controlling interest (454) (2,867)


Depreciation and amortization (4,805)

Deferred tax expense 1,241

Profit or loss for the period 3,564


4. Intangible assets Under IFRS, intangible assets with indefinite useful lives are not amortized but tested at least annually for impairment. IAS 38, Intangible assets, requires retrospective application of those requirements. Under Canadian GAAP, those assets were amortized until September 1, 2001 and transitional provisions did not require the reversal of amortization previously recorded. Therefore, on the date of transition, the Corporation reversed all amortization recorded in respect of intangible assets with indefinite lives. The impact of the change is as follows:

Consolidated statements of financial position Increase (decrease) August 31, 2011 September 1, 2010(In thousands of Canadian dollars) $ $

Intangible assets 57,956 57,956

Deferred tax liabilities 8,844 8,844

Retained earnings 19,846 19,846

Non-controlling interest 29,266 29,266

5. Employee benefits

IAS 19 Employee Benefits permits an accounting policy choice with respect to the recognition of actuarial gains and losses. The Corporation has elected to recognize all actuarial gains and losses immediately in other comprehensive income while under Canadian GAAP they were accounted for using the corridor method. At the date of transition, all previously unrecognized actuarial gains and losses, including the unamortized transitional obligation, were recognized in retained earnings. Also, the unrecognized actuarial gains and losses exceeding the corridor that were recognized for the year ended August 31, 2011 under Canadian GAAP were reversed. In addition, under IFRS, all unrecognized past service costs that were vested were recognized in retained earnings at the date of transition whereas under Canadian GAAP past service costs were deferred and amortized on a straight-line basis over the remaining service period of active employees at the date of employee benefit plan amendments. At the date of transition, all previously unrecognized past service costs were fully vested and therefore were recognized in retained earnings.

The impact from those changes is summarised as follows:


September 1, 2010


Deferred tax assets 5,482 3,670

Pension plan liabilities and accrued employee benefits 20,503 13,767



Consolidated statements of profit or loss Increase (decrease) August 31, 2011


Operating expenses (948)

Deferred tax expense 255



6. Borrowing costs IFRS requires that borrowing costs be capitalized on qualifying assets whereas Canadian GAAP permitted an accounting policy choice to capitalize or expense these costs, which the Corporation elected to expense. As described above, the Corporation has elected to apply those requirements only to borrowing costs relating to assets for which the commencement date for capitalisation is on or after the date of transition. Therefore, there is no impact at the date of transition since those costs were already expensed. The impact of that change in respect of assets which commencement date for capitalization is after the date of transition is as follows:

Consolidated statements of financial position Increase (decrease) August 31, 2011 September 1, 2010


Property, plant and equipment 541

Deferred tax liabilities 138

Retained earnings 130

Non-controlling interest 273


Financial expense (541)

Deferred tax expense 138


7. Income taxes The expected manner of recovery of intangible assets with indefinite useful lives for purposes of calculating deferred taxes is different under IFRS than under Canadian GAAP. The impact of applying IAS 12 on a retroactive basis is as follows:


September 1, 2010


Goodwill (3,625)

Deferred tax liabilities 49,930 53,555



In addition, IFRS also requires that temporary differences relating to current assets and current liabilities be presented as non-current liabilities and non-current assets.

8. Effects of changes in foreign exchange rates Under Canadian GAAP, a reduction in net investment occurred if dividends have been paid out of pre-acquisition profits, and the cumulative exchange differences are proportionally reduced and transferred to profit or loss. Under IFRS, a disposal occurs when an entity’s entire interest in a foreign operation is disposed of or, in the case of a partial disposal, the partial disposal results in the loss of control of a subsidiary loss of significant influence or loss of joint control. The impact of applying IAS 21 on a retroactive basis is as follows:

Consolidated statements of financial position

Increase (decrease) August 31, 2011 September 1, 2010(In thousands of Canadian dollars) $ $

Accumulated other comprehensive income 574 574

Retained earnings (574) (574)

Investor information COGECO INC. 2012 95

INVESTOR INFORMATION

CONSOLIDATED CAPITALIZATION

At August 31, 2012 2011 2010(1)

(in thousands of dollars) $ $ $

Indebtedness(2) 1,180,971 1,056,214 961,354

Shareholders’ equity 397,799 343,525 381,635

Total 1,578,770 1,399,739 1,342,989

(1) The numbers relating to fiscal year 2010 have not been restated to comply with the adoption of IFRS since the transition date for the Corporation is September 1, 2010.

(2) Indebtedness is defined as the total of bank indebtedness, promissory note payable, principal on long-term debt, balance due on business acquisitions and obligations under derivative financial instruments.

CREDIT RATINGS OF COGECO CABLE On August 21, 2012, Dominion Bond Rating Service (“DBRS”) confirmed their rating on Cogeco Cable’s Senior Secured Debentures and Notes to “BBB (low)” and assigned an Issuer Rating of BB (high). The “BBB (low)” rating is one notch above the Issuer ratings of “BB (high)” and reflects very high recovery prospects of first lien secured issues. Obligations rated in the “BBB” category are in the fourth highest category and are regarded as of adequate credit quality, where the degree of protection afforded interest and principal is considered acceptable, but the entity is fairly susceptible to adverse changes in financial and economic conditions, or there may be other adverse conditions present which reduce the strength of the entity and its rated securities. DBRS has assigned a recovery rating of “RR1” to Cogeco Cable’s Senior Secured Debentures and Notes reflecting the likelihood that holders would recover 100% of principal in the event of payment default. On July 19, 2012, Standard & Poor’s Ratings Services (“S&P”) confirmed their rating on Cogeco Cable’s Senior Secured Debentures and Notes of the Corporation to “BBB”. The “BBB” rating is two notches above the corporate credit ratings of “BB+” and reflects very high recovery prospects of first lien secured issues. Obligations rated in the “BBB” category are in the fourth highest category and are regarded as investment-grade. Such obligations show adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. The ratings may be modified by the addition of a plus “(+)” or minus “(–)” sign to show relative standing within the major rating categories. S&P has assigned a recovery rating of “1” to Cogeco Cable’s credit facility and other senior secured first-priority debt. The “1” recovery rating indicates expectations of very high recovery (90%-100%) of principal in the event of payment default. On July 18, 2012, following the announcement of the Atlantic Broadband acquisition, Fitch Ratings (“Fitch”) has placed under Rating Watch Negative the Issuer Default Rating (IDR) of Cogeco Cable at “BBB-” and their rating on the Senior Secured Debentures and Notes at “BBB-”. The rating action reflects Fitch’s need to assess the effect of the acquisition transaction on Cogeco Cable’s credit profile. Fitch believes, pending final review of the transaction once it closes, that a downgrade, if necessary would be limited to one notch. Obligations rated in the “BBB” category are regarded as of good credit quality, where the capacity for payment of financial commitments is considered adequate but adverse changes in circumstances and economic conditions are more likely to impair this capacity. The table below shows Cogeco Cable’s credit ratings:

At August 31, 2012 DBRS Fitch S&P

Senior secured notes and debentures BBB (low) BBB– BBB

A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the rating organization.

96 COGECO INC. 2012 Investor information

SHARE INFORMATION

At August 31, 2012 Registrar / Transfer agent

Number of multiple voting shares (20 votes per share) outstanding 1,842,860 Computershare Trust Company of Canada 100 University Avenue, 9th Floor Toronto, ON M5J 2Y1 Tel.: 514-982-7555 Tel.: 1 800-564-6253 Fax: 416-263-9394

Number of subordinate voting shares (1 vote per share) outstanding 14,989,338

Stock exchange listing The Toronto Stock Exchange

Trading symbol CGO

DIVIDENDS The Corporation declared an annual eligible dividend of $0.72 per share during fiscal 2012 composed of quarterly eligible dividends of $0.18 per share (quarterly dividends of $0.12 per share for the first three quarters and a dividend of $0.14 per share for the last quarter for an eligible dividend of $0.50 per share was paid in fiscal 2011) 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 Corporation based upon the Corporation’s financial condition, results of operations, capital requirements and such other factors as the Board of Directors, at its sole discretion, deems relevant. There is therefore no assurance that dividends will be declared, and if declared, their amount and frequency may vary.

TRADING STATISTICS

2012Quarters ended Nov. 30 Feb. 29 May 31 Aug. 31 Total

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

The Toronto Stock Exchange

High 50.15 50.64 54.49 46.90

Low 39.00 45.75 41.02 30.64

Close 49.99 48.90 42.09 34.70

Volume (shares) 987,484 333,314 388,210 384,369 2,093,377

2011Quarters ended Nov. 30 Feb. 28 May 31 Aug. 31 Total

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

The Toronto Stock Exchange

High 37.50 40.00 43.97 44.50

Low 29.50 34.12 37.76 38.70

Close 34.51 40.00 42.20 42.60

Volume (shares) 453,052 667,262 461,653 253,280 1,835,247

Cable segment customer statistics COGECO CABLE INC. 2012 97

CABLE SEGMENT CUSTOMER STATISTICS

2012 2011 2010

Primary service units(1) 1,969,133 1,897,469 1,791,159

Television service customers 863,115 877,985 874,505

Penetration as a percentage of homes passed 52.4% 54.1% 54.9% Digital Television service customers 771,503 678,326 559,418

Penetration as a percentage of homes passed 46.8% 41.8% 35.1% Analogue Television service customers 91,612 199,659 315,087

Penetration as a percentage of homes passed 5.6% 12.3% 19.8%

High Speed Internet service customers 634,534 601,214 559,057


Telephony service customers 471,484 418,270 357,597


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

98 COGECO INC. 2012 Board of Directors and corporate management

BOARD OF DIRECTORS AND CORPORATE MANAGEMENT

BOARD OF DIRECTORS JAN PEETERS(1) PAULE DORÉ Montréal (Québec) Montréal (Québec) President and Chief Executive Officer Corporate Director Board Chair Director Olameter Inc. Board Chair LOUIS AUDET, Eng., MBA CLAUDE A. GARCIA, B.A., B. COM.

Westmount (Québec) Montréal (Québec) President and Chief Executive Officer Corporate Director Cogeco Cable Inc. and COGECO Inc. Director Director

ELISABETTA BIGSBY, M. Econ. DAVID MCAUSLAND, B.C.L., LL.B. Toronto (Ontario) Beaconsfield (Québec) Corporate Director Partner Director McCarthy Tétrault Director

ANDRÉ BROUSSEAU, B.A., B.PED., L.PÉD.L. Trois-Rivières (Québec) Corporate Director Director

PIERRE L. COMTOIS, B. SC., COM., ADM. A. Montréal (Québec) Legend : Vice-Chairman of the Board and Chief Investment Member of the Audit Committee Officer Member of the Human Resources Committee Optimum Asset Management Inc. Member of the Corporate Governance Committee Director Member of the Strategic Opportunities Committee

(1) MR. JAN PEETERS, BOARD CHAIR, IS ENTITLED TO ATTEND AS AN OBSERVER AND TO PARTICIPATE IN MEETINGS OF THE AUDIT, HUMAN

RESOURCES CORPORATE GOVERNANCE AND STRATEGIC OPPORTUNITIES COMMITTEES.

Board of Directors and corporate management COGECO INC. 2012 99

CORPORATE MANAGEMENT LOUIS AUDET President and Chief Executive Officer ELIZABETH ALVES RICHARD LACHANCE Vice President, Internal Audit Senior Vice President, Radio and out-of-home advertising PIERRE GAGNÉ YVES MAYRAND Senior Vice President and Chief Financial Officer Vice President, Corporate Affairs RENÉ GUIMOND ANDRÉE PINARD Vice President, Public Affairs and Communications Vice President and Treasurer CHRISTIAN JOLIVET ALEX TESSIER Vice President, Chief Legal Officer and Secretary Vice President, Coporate Development

100 COGECO INC. 2012 Corporate information

CORPORATE INFORMATION HEAD OFFICE 5 Place Ville Marie Suite 1700 Montréal (Québec) H3B 0B3 Tel.: 514-764-4700 Fax: 514-874-2625 www.cogeco.ca

ANNUAL MEETING The Annual Shareholders Meeting will be held at 11:45 a.m. on Tuesday, January 15, 2013, at the Centre Mont-Royal, Mont-Royal room 1, 4th Floor, Montréal (Québec). AUDITORS Samson Bélair/Deloitte & Touche, s.e.n.c.r.l. 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

Corporate information COGECO INC. 2012 101

INQUIRIES The Annual Report, Annual Information Form and Quarterly Reports are available in the Investor Relations section of the Corporation’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 société (www.cogeco.ca) ou sur demande au 514-764-4700.

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

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 Corporation.

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.

WHISTLEBLOWING PROCEDURES REGARDING ACCOUNTING, INTERNAL ACCOUNTING CONTROLS OR AUDITING MATTERS

ETHICS LINE In July 2010, COGECO Inc. made available an anonymous and confidential Ethics Line for its employees and the employees of any of its subsidiaries, and other individuals to report any perceived or actual instances of violations of the Code of Ethics (including complaints regarding accounting, internal accounting controls and audit matters). The Ethics Line is comprised of a toll-free telephone line as well as a secure web site (see details below). The COGECO Inc. Ethics Line is operated by a specialized external provider that is independent of COGECO Inc. All reports submitted through the Ethics Line will be examined by the Vice President, Internal Audit or the Vice President, Chief Legal Officer and Secretary. Individuals will be protected from dismissal or retaliation of any kind for reporting in good faith. By telephone: In Canada (toll-free): 1-877-706-2640 Web site of ClearView Connects: www.clearviewconnects.com

102 COGECO INC. 2012 Corporate information

SUBSIDIARIES AND OPERATING SEGMENTS

CABLE SEGMENT OTHER COGECO CABLE COGECO DIFFUSION 5 Place Ville Marie 800, rue de la Gauchetière Ouest Suite 1700 Montréal (Québec) H5A 1K6 Montréal (Québec) H3B 0B3 Tel.: 514-787-7799 Tel.: 514-764-4700 Fax: 514-787-7980 Fax: 514-874-2625 www.cogecodiffusion.com www.cogeco.ca J. FRANÇOIS AUDET DANIEL DUBOIS Vice President, Special Projects Vice President, Sales DENIS BÉLANGER RICHARD LACHANCE Vice President, Special Advisor, Technology Development Senior Vice President, Radio ANDRÉ BERGEVIN MONIQUE LACHARITÉ Vice President, Control Vice President, Control, Administration and Human Resources TONY P. CICIRETTO Senior Vice President, Enterprise Services and CLAUDE LAMOUREUX President, Cogeco Data Services Vice President and General Manager, Métromédia CAROL-ANN FORREST JEAN-LUC MEILLEUR Vice President, Human Resources Vice President, Regional Stations JACQUES GRAVEL ANDRÉ ST-AMAND Vice President, Network Services Vice President, Programming Radio PHILIPPE JETTÉ Vice President and Chief Technology Officer CLAUDETTE PAQUIN Vice President, Programming and Community Relations RON A. PERROTTA Vice President, Marketing and Strategic Planning LOUISE ST-PIERRE Senior Vice President, Residential Services CHARLES VAILLANCOURT Vice President and Chief Information Officer

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