COGECO Inc.
TSX : CGO

COGECO Inc.

April 09, 2005 08:45 ET

COGECO Inc. improves its results in the cable sector and reduces the value of television assets

MONTREAL, April 11 - Today COGECO Inc. (TSX: CGO.SV)
announced its financial results for the second quarter of fiscal 2005, ended
February 28, 2005.

"COGECO Inc.'s cable sector continues to grow according to our
projections and the media sector has shown improved results compared to the
same period last year. In the media sector, the difficult competitive
environment as observed in previous quarters, which should continue for the
foreseeable future, has compelled us to write off the value of television
assets which reduced COGECO's net income by $29.6 million," confirmed Louis
Audet, President and CEO of COGECO Inc.

Growth in the cable sector
--------------------------
"Net income from the cable sector increased tenfold in the second quarter
compared to last year. In fact, our high-speed Internet service continues to
grow sharply due to an offering which includes high performance F-Secure
security products and the fastest high-speed Internet on the market. Our
digital service offering is also expanding. Our clients benefit from services
that better meet their expectations for value-added entertainment products,"
stated Mr. Audet.

Adjustment in the media sector
------------------------------
"The media sector showed improved results compared to the corresponding
quarter last year, with 6.2% growth in sales. Our radio stations are
experiencing an increase in revenues and those that are newly established are
progressing in line with our expectations. Regarding TQS, it is evolving in a
difficult environment as a result of competition from speciality services for
advertising budgets and because of the improved content on competing
conventional stations. Consequently, we have adjusted our estimates downward.
As a result, operating income before amortization should stand at
approximately $5 million. In order to remedy this situation, we are currently
developing a recovery plan," concluded Mr. Audet.




FINANCIAL HIGHLIGHTS


Three months ended Six months ended
(unaudited) (unaudited)
($000s, except
percentages and
per share data)

February February February February
28, 29, 28, 29,
2005 2004 % 2005 2004 %
(restated(1)) Change (restated(1)) Change
________ ________ ________ ________ ________ ________

Revenue $ 166,566 $ 158,144 5.3 $ 337,977 $ 325,057 4.0
Operating
income
before
amortization 54,616 49,021 11.4 113,544 99,235 14.4

Net loss (28,524) (1,142) - (25,407) (16,533) -

Cash flow
from
operations $ 40,962 $ 33,853 21.0 $ 85,465 $ 68,274 25.2
Less:
Capital
expenditures
and
increase
in
deferred
charges 31,193 23,391 33.4 56,231 44,861 25.3

________ ________ ________ ________
Free
Cash Flow(2) 9,769 10,462 (6.6) 29,234 23,413 24.9

Per share data
Basic
net loss $ (1.74) $ (0.07) - $ (1.55) $ (1.01) -
Cash flow
from
operations 2.50 2.07 20.8 5.21 4.18 24.6


(1) During the third quarter of fiscal 2004, Cogeco Cable, a
subsidiary of the Company, adopted new accounting standards regarding
the timing of revenue recognition and certain related costs and the
classification of certain items such as revenue, expense or
capitalized costs. These changes were made on a retroactive basis in
accordance with Abstracts 141 and 142 issued by the Canadian
Institute of Chartered Accountants' (CICA) Emerging Issues Committee
(EIC). See "Accounting Policies and Estimates" of the accompanying
Management's Discussion and Analysis (MD&A) for a detailed
description of these new accounting standards implemented on a
retroactive basis.

(2) Free Cash Flow is defined as cash flow from operations less capital
expenditures (including assets acquired under capital leases - as per
Note 9 b) in the accompanying Financial Statements - not reflected in
the statements of cash flow) and increase in deferred charges. Free
Cash Flow is not a defined term under Generally Accepted Accounting
Principles (GAAP) and should be treated accordingly.

>>


MANAGEMENT'S DISCUSSION AND ANALYSIS

Certain statements in this analysis may constitute forward-looking
statements that involve risks and uncertainties. Future results will be
affected by a number of factors with respect to technology, markets,
competition and regulations including factors described in the section
"Uncertainties and main risk factors" of this MD&A and the Company's 2004
annual MD&A. Therefore, actual results may be materially different from those
expressed or implied by such forward-looking statements.

This analysis should be read in conjunction with the Company's financial
statements and the notes thereto prepared in accordance with Canadian GAAP and
the MD&A included in the Company's Annual Report. Throughout this discussion,
all amounts are in Canadian dollars unless otherwise indicated.

ACCOUNTING POLICIES AND ESTIMATES

Revenue Recognition

During the third quarter of fiscal 2004, the Company adopted the CICA's
EIC Abstracts 141 and 142 issued in December 2003, regarding the timing of
revenue recognition and certain related costs and the classification of
certain items such as revenue, expense or capitalized costs. Consequently,
COGECO adopted the following changes on a retroactive basis in the cable
sector:

- Installation revenues are now deferred and amortized over the average
life of a customer subscription, which is four years. Previously, these
revenues were recognized immediately as they were considered a partial
recovery of direct selling costs incurred. Upon billing, the portion of
unearned revenue is now recorded as deferred and prepaid income.

- The costs to reconnect customers are now recorded as deferred charges
up to a maximum amount not exceeding the revenue generated by the
reconnect activity, which are included in installation revenues, and
amortized over the average life of a customer subscription, which is
four years. Previously, these costs, which include materials, direct
labour and certain overhead charges, were capitalized to fixed assets
and generally amortized over a period of five years.

- Revenue from the sale of home terminal devices at a subsidized price,
which were recorded as a partial recovery of costs, are now recorded as
equipment revenue with an equal amount included in operating costs.

- The portion of advertising expense incurred to expand the digital and
high-speed Internet customer base that used to be recorded as a
deferred charge is now recorded as an operating cost.


The above changes had the following impact on our financial results for
the second quarter and first six months of fiscal 2004:

<<

Periods ended
February 29, 2004 Three months Six months
_______________________ ________________________
($000s, except
percentages
and per share data)
Before After Before After
restatement restatement restatement restatement
___________ ___________ ___________ ____________

Revenue $ 155,609 $ 58,144 $ 321,105 $ 325,057
Operating income
before amortization 50,505 49,021 103,737 99,235
Operating margin 32.5% 31.0% 32.3% 30.5%
Amortization 32,565 33,606 76,049 78,123
Income taxes 2,607 1,815 36,462 32,455
Non-controlling interest 492 (561) (23,800) (25,360)
Net loss (462) (1,142) (15,524) (16,533)
Net loss per share (0.03) (0.07) (0.95) (1.01)

>>


Amortization of Long-term Assets

In the first quarter of fiscal 2004, the cable sector reviewed the useful
life of its digital terminals, cable modems and certain other long-term
assets. The useful life of digital terminals was reduced from seven to five
years while the useful life of cable modems was reduced from seven to three
years. These changes in accounting estimates, applied prospectively, increased
amortization expense by $14 million for the first quarter of fiscal 2004.

Asset Retirement Obligations

In March 2003, the CICA issued Handbook section 3110, Asset Retirement
Obligations, which provides guidance for the recognition, measurement and
disclosure of liabilities for asset retirement obligations and the associated
asset retirement costs. Some of the Company's subsidiaries' lease agreements
contain provisions requiring the subsidiaries to restore facilities or remove
equipment in the event that the lease agreement is not renewed. However,
COGECO's subsidiaries expect to renew most of their lease agreements related
to their business and, consequently, the liabilities related to the removal
provisions on non-renewed leases, if any, are considered not material to the
consolidated financial statements. In addition, in the unlikely event that
some of these lease agreements are not renewed, the liability would be
difficult to estimate since there is a wide range of potential expiration
dates for these lease agreements.

Variable Interest Entities

In June 2003, the CICA issued Accounting Guideline 15 ("AcG-15"),
Consolidation of Variable Interest Entities, which defines Variable Interest
Entities ("VIE") as entities that have insufficient equity or their equity
investors lack one or more specified essential characteristics of a
controlling financial interest. The standard provides guidance for determining
when an entity is a VIE and who, if anyone, should consolidate the VIE. During
the second quarter, the Company completed its evaluation and concluded that it
had no VIE.
No other significant changes in critical accounting policies and
estimates occurred since August 31, 2004 and such policies and estimates are
described in the Company's 2004 annual MD&A.

OPERATING RESULTS

Revenue for the second quarter rose by $8.4 million, or 5.3% compared to
the same period last year. Cable revenues, driven by improved high-speed
Internet access penetration as well as rate hikes, went up by $6.8 million or
5.2%. The television and radio operations both contributed to the $1.7
million, or 6.2% media revenue increase in the second quarter.
Operating income before amortization climbed by 11.4% for the second
quarter compared to the same period last year. The cable and media sectors
contributed to an increase of $4.9 million and $0.9 million, respectively.

IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS

Subsequent to a viewership market share loss in conventional television
combined with a shift in conventional television advertising towards specialty
channels, impairment tests of goodwill and other intangible assets related to
the television operation of the media business unit have been performed. The
Company concluded that an impairment existed and consequently wrote-off the
$27.9 million of goodwill and reduced the value of its television broadcasting
licenses by $24.6 million. The impact of the impairment of goodwill and other
intangible assets on net income is as follows:

<<

($ 000s)
Impairment of goodwill and other intangible assets 52,531
Income taxes 3,270
_________
Impairment losses net of income taxes 49,261
Non-controlling interest 19,651
_________
Impairment losses net of income
taxes and non-controlling interest 29,610
_________
_________

FIXED CHARGES


Three months ended Six months ended

($000s, except
percentages)

February February February February
28, 29, 28, 29,
2005 2004 % 2005 2004 %
(restated) Change (restated) Change
________ ________ ________ ________ ________ ________
Amortization $ 33,383 $ 33,606 (0.7) $ 66,999 $ 78,123 (14.2)

Financial
expense $ 14,237 $ 15,213 (6.4) $ 28,477 $ 30,460 (6.5)


>>

Amortization in the first six months amounted to $67 million compared to
$64.1 million for the same period last year, excluding the effect of an
increase in amortization related to a revision in the estimated useful lives
of home terminal devices and certain other long-term cable assets. Increased
amortization stemmed mainly from capital expenditures linked to digital
services.
The decline in financial expense was mainly related to lower levels of
Indebtedness (defined as bank indebtedness and long-term debt) during the
first six months compared to the same period last year. The decline in
Indebtedness results from generated Free Cash Flow.

INCOME TAXES

Income taxes in the second quarter amounted to $3.1 million, excluding a
non-cash income tax adjustment of $3.3 million for the impairment of goodwill
and other intangible assets of the television operations, compared to
$1.8 million for the same period last year. Income taxes in the first six
months amounted to $7.7 million, excluding the non-cash income tax adjustment
related to the impairment, compared to $4.9 million for the same period last
year, excluding the effect of non-cash income tax adjustments described below.
The income tax increases were mainly attributable to growth in operating
income before amortization in the cable sector, excluding the effect of non-
cash income tax adjustments described below.
During the first quarter of fiscal 2004, the Ontario government announced
that corporate income tax rates would increase to 14% effective January 1,
2004. Prior to this announcement the tax rate was to decline from 11% in 2004
to 8% in 2007. As a result, a $32.5 million non-cash adjustment was recorded
by the cable sector in the first quarter of fiscal 2004 for future income tax
liabilities. This amount was partly offset by a non-cash reduction of future
income taxes of $4.9 million for the first quarter of fiscal 2004. This
reduction of future income taxes was related to the decline in carrying value
of home terminal devices and certain other long-term cable assets.

NON-CONTROLLING INTEREST

The non-controlling interest represents a 61% interest in Cogeco Cable's
net income or loss and a 40% interest in TQS Inc. In the second quarter of
fiscal 2005, the non-controlling interest included an adjustment of
$19.7 million for the television's impairment of goodwill and other intangible
assets.


NET INCOME (NET LOSS)

The variances in net income (net loss) are essentially explained in the
table below.

<<

Three months ended Six months ended
($ million)

February February February February
28, 29, 28, 29,
2005 2004 2005 2004
(restated) (restated)
________ ________ ________ ________
Net loss per
financial statements $ (28.5) $ (1.1) $ (25.4) $ (16.5)
Adjustments for
the following items:
Change in the Ontario
corporate income
tax rates(1) -- -- -- 12.8
Amortization adjustment
related to a change
in useful lives of
some cable assets(2) -- -- -- 3.6
Impairment of goodwill
and other intangible
assets(3) 29.6 -- 29.6 --
________ ________ ________ ________

Net income (net loss)
excluding above adjustments $ 1.1 $ (1.1) $ 4.2 $ (0.1)
________ ________ ________ ________
________ ________ ________ ________


(1) Reflects the $32.5 million non-cash adjustment recorded by the
cable sector multiplied by COGECO's 39.3% ownership in Cogeco Cable.
See section on "Income Taxes", on page 5, for a detailed description
of this adjustment.

(2) Reflects the $14 million amortization adjustment partly offset by a
$4.9 million tax impact recorded by the cable sector multiplied by
COGECO's 39.3% ownership in Cogeco Cable. See section on
"Amortization of Long Term Assets", on page 3, for a detailed
description of this adjustment.

(3) See section on "Impairment of Goodwill and Other Intangible Assets",
on page 4, for a detailed description of this adjustment.



CASH FLOW AND LIQUIDITY



Three months ended Six months ended
($000s)


February February February February
28, 29, 28, 29,
2005 2004 2005 2004
(restated) (restated)
________ ________ ________ ________
Operating Activities
Cash flow from
operations $ 40,962 $ 33,853 $ 85,465 $ 68,274
Net changes in non-cash
working capital items
and long-term deferred
and prepaid income 16,981 9,906 (27,531) (30,155)
________ ________ ________ ________
________ ________ ________ ________
$ 57,943 $ 43,759 $ 57,934 $ 38,119
________ ________ ________ ________
________ ________ ________ ________

Investing Activities(1) $(31,168) $(23,362) $(56,184) $(44,230)
________ ________ ________ ________
________ ________ ________ ________

Financing Activities $(26,775) $(20,397) $(1,750) $ 6,111
________ ________ ________ ________
________ ________ ________ ________


(1) Excludes assets acquired under capital leases.
>>


For the second quarter, cash flow from operations was greater than last
year by $7.1 million or 21% mainly due to growth in operating income before
amortization in the cable sector. Cash inflows from changes in non-cash
working capital items and long-term deferred and prepaid income were greater
than the same period last year, mainly because accounts payable and accrued
liabilities increased in the second quarter while it had declined during the
same period last year.
Investing activities related to capital expenditures and the increase in
deferred charges, including assets acquired under capital leases, rose by
$7.8 million and $11.4 million during the second quarter and first six months,
respectively. The $1.7 million and $4.5 million decline in deferred charges
during the second quarter and first six months, respectively, is mainly
attributable to lower equipment subsidies given that most of the new digital
customers have decided to rent their terminals. During the second quarter and
first six months, capital expenditures rose by $9.5 million and $15.9 million,
respectively, mainly as a result of an increase in expenditures related to
digital terminals. The number of digital terminals rented by Cogeco Cable's
customers increased as a result of an attractive rental plan launched during
the fourth quarter of fiscal 2004.
Free Cash Flow of $9.8 million and $29.2 million was generated during the
second quarter and first six months, respectively, as a result of increasing
cash flow from operations mostly related to the cable sector partly offset by
increased capital expenditures in the cable sector.
During the second quarter, long-term debt and bank indebtedness declined
by $26.3 million mainly due to generated Free Cash Flow of $9.8 million and an
increase in non-cash working capital items and long-term deferred and prepaid
income of $17 million. For the same period last year, long-term debt and bank
indebtedness declined by $19.8 million essentially due to generated Free Cash
Flow of $10.5 million and an increase in non-cash working capital items and
long-term deferred and prepaid income of $9.9 million. A dividend of $0.0525
per share for subordinate and multiple voting shares, totaling $0.9 million,
was paid to COGECO's shareholders during the second quarter of fiscal 2005 and
fiscal 2004.
During the first six months, long-term debt and bank indebtedness
remained relatively stable since Free Cash Flow was essentially offset by
changes in non-cash working capital items and long-term deferred and prepaid
income. For the same period last year, long-term debt and bank indebtedness
increased by $7.3 million essentially due to a decline in non-cash working
capital items and long-term deferred and prepaid income of $30.2 million
partly offset by generated Free Cash Flow of $23.4 million. During the first
six months of fiscal 2005 and 2004, dividends paid to COGECO's shareholders
totaled $1.7 million.
As at February 28, 2005, the cable subsidiary had utilized $45 million of
its $270 million Term Facility and COGECO had drawn $23 million of its
$40 million Term Facility. Based on existing bank covenants, COGECO could have
used about $35 million under its Term Facility and Cogeco Cable had access to
the entire committed amount. Going forward, COGECO and Cogeco Cable have
sufficient capacity to finance foreseeable growth and expect to continue to
generate Free Cash Flow to further reduce their leverage ratios.
Transfer of funds from non wholly-owned subsidiaries to COGECO are
subject to the subsidiaries' Board of Directors approval and may also be
restricted under the terms and conditions of certain debt instruments. In
accordance with applicable corporate and securities law, significant transfers
of funds from Cogeco Cable may be subject to minority shareholders approval.

DIVIDEND DECLARATION

At its April 8, 2005 meeting, the Board of Directors of COGECO declared a
quarterly dividend of $0.0525 per share for subordinate and multiple voting
shares, payable on May 6, 2005, to shareholders on record on April 22, 2005.

FINANCIAL POSITION

Since August 31, 2004, significant changes in the balance sheet include
broadcasting licenses, goodwill, accounts payable and accrued liabilities, non-
controlling interest and shareholders' equity. Accounts payable and accrued
liabilities declined by $21.2 million as use of working capital was managed
tightly at fiscal year-end. As a result of the television's impairment of
goodwill and other intangible assets recorded in the second quarter, the
following balance sheet items were all adjusted downward:

<<

($ 000s) Adjustment
___________

Broadcasting licenses $ 24,606
Goodwill 27,925
___________

$ 52,531
___________
___________

Future income taxes $ 3,270
Non-controlling interest 19,651
Shareholders' equity 29,610
___________
$ 52,531
___________
___________

A description of COGECO's share data as of February 28, 2005 is presented
in the table below:




Number of shares/ Amount
options ($000s)
___________ __________

Common Shares
Multiple voting shares 1,849,900 12
Subordinate voting shares 14,600,104 116,155

Options to Purchase Subordinate
Voting Shares
Outstanding options 429,276
Exercisable options 413,755



In the normal course of business, COGECO has incurred financial
obligations, primarily in the form of long-term debt, operating and capital
leases and guarantees. COGECO's obligations have not materially changed since
August 31, 2004 and are described in the 2004 annual MD&A.


CABLE SECTOR
------------

Customer Statistics

Net additions (losses)

Second quarter First six months % of
ended ended Penetration(1)
____________ ____________ _______________


February February February
28, 28, 29,
2005 2005 2004 2005 2004 2005 2004
_________ _______ _______ _______ _______ _______ _______
Revenue-
generating
units(2) 1,343,673 24,419 26,008 66,356 63,568
Basic-service
customers 830,847 (751) 1,552 6,992 8,791
High-speed
Internet
customers(3) 274,606 12,781 12,610 29,580 30,049 37.9 32.3
Digital
terminals(4) 279,223 17,310 14,781 39,152 30,398 34.3 26.3




(1) As a percentage of basic-service customers in areas served.
(2) Including basic-service, Internet-service and digital-service
customers.
(3) Including pending orders, the number would amount to 276,682 as at
February 28, 2005 compared to 264,064 as at November 30, 2004.
Customers subscribing only to Internet services amounted to 56,824 as
at February 28, 2005 compared to 54,584 customers as at November 30,
2004.
(4) 74% of terminals as at February 28, 2005 were purchased compared to
84% a year earlier.

>>


During the second quarter, revenue-generating units grew as a result of
strong demand for digital and high-speed Internet services. The stronger-than-
expected growth in digital-service customers is mainly attributable to the
success of an attractive digital terminal rental plan launched in the fourth
quarter of fiscal 2004 and the launch of subscription video-on-demand, free of
charge, to most digital pay television customers last November and December.
Management has revised upward its digital terminal additions, as further
discussed in the "Fiscal 2005 Financial Guidance" section, in light of the
strong demand in the first six months and the following enhancements to the
digital offering:

- In January, Fox News was added to the digital channel line-up in
Ontario.
- In February, High Definition (HD) programming was launched in Québec
and is now offered to 88% of Cogeco Cable's customer base.
- In February, Cogeco Cable announced a multi-year agreement with Sony
Pictures Television International which, along with other video-on-
demand programming providers, gives access to nearly 50% of domestic
box-office receipts.

The addition of High-speed Internet customers in the second quarter was
slightly higher than last year due to the following initiatives:

- The Lite service was launched in Ontario last July and in Québec last
January to new and more cost-conscious customers.
- Internet security services are now offered free of charge to all
standard and pro Internet customers in Ontario and will be offered to
Québec customers during the third quarter.

In the second quarter, basic service customers decreased slightly.
However, Cogeco Cable is maintaining its fiscal 2005 guideline of adding up to
2,500 basic service customers given that it gained 6,992 customers for the
first six months.

<<

Operating Results


Three months ended Six months ended

($000s, except
percentages)

February February February February
28, 29, 28, 29,
2005 2004 % 2005 2004 %
(restated) Change (restated) Change
________ ________ ________ ________ ________ ________

Revenue $ 138,389 $ 131,574 5.2 $ 274,155 $ 261,063 5.0

Operating
costs 80,328 78,576 2.2 160,185 158,289 1.2
Management fees
- COGECO Inc. 2,764 2,585 6.9 5,479 5,147 6.5

Operating income
before
amortization 55,297 50,413 9.7 108,491 97,627 11.1

Operating
margin 40.0% 38.3% 39.6% 37.4%


>>

Revenue

Revenue for the second quarter rose by $6.8 million or 5.2% compared to
the same period last year. Revenue growth for the second quarter and first six
months is mainly attributable to rate increases implemented effective last
June 15 in Ontario and August 1st 2004 in Québec and the improved high-speed
Internet access penetration rate, as mentioned in the "Customer Statistics"
section. An average monthly rate increase of approximately $0.74 per basic-
analog-service customer was implemented in both Ontario and Québec. A monthly
digital basic rate hike of $4 was implemented in Québec. In addition, the
monthly rate for the pay television package rose by $3, and other limited
selective tier service rate increases have been implemented in Ontario.

Operating Costs

For the second quarter and first six months, network fees declined
compared to the same periods in fiscal 2004. This decline is partly
attributable to lower IP (Internet Protocol) transport costs despite double-
digit growth in high-speed Internet customers.
Other operating costs have increased in the second quarter and first six
months compared to the same periods last year. Higher customer care expenses
were incurred in the first and second quarters to service a 7.6% and 7.3% year-
over-year expansion of revenue-generating units. In the second quarter,
additional sales and marketing expenditures were incurred to further promote
Cogeco Cable's services.

Operating Income before Amortization

Operating income before amortization improved by 9.7% in the second
quarter compared to the same period in fiscal 2004, as a result of revenue
growth and lower network fees. Cogeco Cable's operating margin increased from
38.3% to 40%.

Foreign Exchange Management

Cogeco Cable has entered into cross-currency swap agreements to fix the
liability for interest and principal payments on its US$150 million Senior
Secured Notes. These agreements have the effect of converting the US interest
coupon rate of 6.83% per annum to an average Canadian dollar fixed interest
rate of 7.254% per annum. The exchange rate applicable to the principal
portion of the debt has been fixed at CDN$1.5910. Amounts due under the US$150
million Senior Secured Notes Series A increased by CDN$7.1 million during the
second quarter due to the Canadian dollar's depreciation. Since the Senior
Secured Notes Series A are fully hedged, the increase is fully offset by a
decline in deferred credit described in Note 6 in the second quarter interim
financial statements. The $53.6 million deferred credit represents the
difference between the quarter-end exchange rate and the exchange rate on the
cross-currency swap agreements, which determines the liability for interest
and principal payments on the Senior Secured Notes Series A.


MEDIA SECTOR
------------

Operating Results

Three months ended Six months ended

($000s, except
percentages)

February February February February
28, 29, % 28, 29, %
2005 2004 Change 2005 2004 Change
_________ _______ _______ _______ _______ _______ _______

Revenue $ 28,222 $ 26,570 6.2 $ 63,912 $ 63,994 (0.1)

Operating
costs 29,334 28,600 2.6 60,190 63,611 (5.4)

Operating
income (loss)
before
amortization (1,112) (2,030) 45.2 3,722 383 --

Operating
margin (3.9%) (7.6%) 5.8% 0.6%


>>

Revenue

Radio revenue increased by 24.1% and 21.1% in the second quarter and
first six months, respectively, mainly due to improved fall ratings for the
Montréal RYTHME FM station. Furthermore, revenue and operating expenses for
the Québec City RYTHME FM station were capitalized in fiscal 2004 but not in
fiscal 2005.
Television revenue increased by 4% in the second quarter but declined by
2.4% in the first six months. The improved growth profile in the second
quarter is attributable to better inventory management.

Operating Income before Amortization

Operating income before amortization has improved in the second quarter
and first six months, respectively, as a result of tighter cost control.

FISCAL 2005 FINANCIAL GUIDELINES

Cable Sector

Given the strong growth in digital terminals during the first six months
and various service enhancements offered recently, Cogeco Cable has revised
upward its guideline for digital terminal additions from a range of 40,000 to
45,000 to a new range of 55,000 to 60,000. As a result, Cogeco Cable will have
to purchase more digital terminals and is raising its capital expenditures
guideline from $114 million to $119 million. About a third of the expected
increase in demand should come from HD/DVR (Digital Video Recorder) terminals.
During the fourth quarter, Cogeco Cable will implement monthly rate
increases of up to $2.50 per customer that will result in an average of
$0.50 per basic-service customer in Ontario and Québec. Rate increases are not
expected to have a significant impact in fiscal 2005. Furthermore, since
economic and industry factors described in the 2004 annual MD&A remain
substantially unchanged, management is maintaining its fiscal 2005 financial
results guidance as well as its basic-service and high-speed Internet customer
forecast. Cogeco Cable is also maintaining its guideline for generated Free
Cash Flow of $45 million to $50 million.
Cogeco Cable plans to launch digital telephony by the fourth quarter of
fiscal 2005 in selected markets. Since the business plan has not been
finalized, this service's revenue and operating expense are not included in
the financial guidelines. However, initial capital expenditures of $5 million
have been included in the guidelines.

Media Sector

Revenue growth and operating margin in the first six months as well as
current advertising bookings are lower than anticipated in television
operations. As a result, fiscal 2005 financial guidelines have been reviewed
downwards. Management expects revenue of $118 million to $120 million compared
to last quarter's guidance of $125 million to $126 million. The forecasted
operating income before amortization has been revised downward from a range of
$11.5 million to $13 million to a new range of $4.5 million to $5.5 million,
mainly due lower revenue forecast as well as higher programming costs.

Consolidated Financial Outlook

Given the revised media sector financial guidelines and the impairment of
goodwill and other intangible assets related to the television's operations, a
net loss of $20 million to $22 million should be incurred in fiscal 2005
compared to an estimated net income of $12 million initially announced. The
media sector is not expected to generate Free Cash Flow and as a result
consolidated Free Cash Flow of $45 million to $50 million should be generated
compared to the initial guidance of $51 million to $56 million.

RISK FACTORS AND UNCERTAINTIES

In 2004, the Canadian Radio-television and Telecommunications Commission
modified the carriage status of TSN (The Sports Network) and RDS (Réseau des
sports). Following this decision, Cogeco Cable signed in March 2005 a new
multi-year affiliation agreement to continue carriage of these specialty
television services as part of the basic cable tier on its systems
respectively for TSN in Ontario and for RDS in Québec. New affiliation terms
for these services will not cause any channel disruption or materially affect
the overall level of network fees paid by Cogeco Cable.
After years of negotiations and litigation with electric distribution
utilities in Ontario, the Canadian Cable Television Association had applied on
behalf of its members to the Ontario Energy Board (OEB) to have pole rates set
for electric distribution utilities that the OEB regulates in Ontario. In
March 2005, the OEB ruled that the rental fee for each attachment would be
$22.35 per year. This decision will not materially affect the overall level of
operating expenses at Cogeco Cable.
There has been no other significant change in the risk factors and
uncertainties facing COGECO as described in the Company's 2004 annual MD&A.

ADDITIONAL INFORMATION

This MD&A was prepared on April 8, 2005. Additional information relating
to the Company, including its Annual Information Form, is available on the
SEDAR Web site at www.sedar.com .

ABOUT COGECO

COGECO is a diversified communications company. Through its Cogeco Cable
subsidiary, COGECO provides about 1,344,000 revenue-generating units to
approximately 1,435,000 households in its service territory. Through its two-
way broadband cable infrastructure, Cogeco Cable provides its residential and
commercial customers with analog and digital video and audio services, as well
as high-speed Internet access. Through its Cogeco Radio-Television subsidiary,
COGECO holds a 60% interest and operates the TQS network, six TQS television
stations, and three French CBC affiliated television stations in partnership
with CTV Television. Cogeco Radio-Television also wholly owns and operates
RYTHME FM radio stations in Montréal, Québec City, Trois-Rivières and
Sherbrooke as well as 93 3 in Québec City. COGECO's subordinate voting shares
are listed on the Toronto Stock Exchange (CGO.SV). The subordinate voting
shares of Cogeco Cable are also listed on the Toronto Stock Exchange (CCA.SV).



Analyst Conference Call: Monday April 11, 2005, at 11:00 a.m. ET
By the Internet at www.cogeco.ca/investors
By telephone: 1-800-289-0496, confirmation
(pound key)2502413
Media are invited to participate on a listen
mode only.
Re-broadcast of the call available until April
18th: 1-888-203-1112, confirmation
(pound key)2502413

<<


Supplementary Quarterly Financial Information


Quarters ended February February November 30,
28, 29,
_____________________ ____________________
2005 2004 2004 2003
($000, except percentages
and per share data) (restated) (restated)


Revenue $ 166,566 $ 158,144 $ 171,411 $ 166,913
Operating income
before amortization 54,616 49,021 58,928 50,214
Operating margin 32.8% 31.0% 34.4% 30.1%
Amortization 33,383 33,606 33,616 44,517
Financial expense 14,237 15,213 14,240 15,247
Impairment losses 52,531 -- -- --
Income taxes (130) 1,815 4,582 30,640
Non-controlling interest (16,940) (561) 3,256 (24,800)
Net income (net loss) (28,524) (1,142) 3,117 (15,391)

Cash flow from operations 40,962 33,853 44,503 34,421

Net income
(net loss) per share
Basic $(1.74) $(0.07) $0.19 $(0.94)
Diluted (1.74) (0.07) 0.19 (0.94)





Quarters ended August 31, May 31,
_____________________ ____________________
2004 2003 2004 2003
($000, except percentages (restated) (restated)
and per share data)

Revenue $ 154,652 $ 150,398 $ 168,392 $ 157,681
Operating income before
amortization 55,862 50,924 59,407 51,862
Operating margin 36.1% 33.9% 35.3% 32.9%
Amortization 33,758 29,815 33,323 28,834
Financial expense 14,305 15,124 14,813 15,841
Impairment losses -- -- -- --
Income taxes 1,472 2,247 5,046 3,482
Non-controlling interest 4,077 1,933 2,409 1,003
Net income (net loss) 2,117 1,509 3,816 2,702

Cash flow from operations 43,010 35,597 44,127 35,068

Net income
(net loss) per share
Basic $ 0.13 $ 0.09 $ 0.23 $ 0.17
Diluted 0.13 0.09 0.23 0.16

>>
Cogeco Cable's operating results are not generally subject to material
seasonal fluctuations. However, the loss in basic-service customers is usually
greater, and the addition of high-speed Internet customers is generally lower
in the third quarter, mainly because students leave their campus at the end of
the school year. However, the media sector's operating results may be subject
to significant seasonal variations. The revenue depends on audience ratings
and the market for conventional radio and television advertising expenditures
in the Province of Québec. Advertising sales, mainly national advertising, are
normally weaker in the second and fourth quarters and, as a result, the
operating margin before amortization is generally lower.
The large net loss of COGECO in the first quarter of fiscal 2004 was
attributable to COGECO's 39.3% share of the cable sector's non-cash
adjustments for amortization and income taxes totaling $16.4 million. Those
non-cash adjustments are discussed in the "Fixed Charges" and "Income Taxes"
sections. The large net loss of COGECO in the second quarter of fiscal 2005
was attributable to COGECO's 60% share of the television's impairment of
goodwill and other intangible assets amounting to $29.6 million. This loss is
discussed in the "Impairment of goodwill and other intangible assets" section.

<<
COGECO INC.
Cable Statistics


February 28, August 31,
2005 2004
_________________________________________________________________________
_________________________________________________________________________

Homes Passed
Ontario 979,964 972,964
Québec 454,945 450,292
_________________________________________________________________________

1,434,909 1,423,256
_________________________________________________________________________
_________________________________________________________________________

Revenue-Generating Units
Ontario 974,646 923,046
Québec 369,027 354,271
_________________________________________________________________________

1,343,673 1,277,317
_________________________________________________________________________
_________________________________________________________________________

Basic-Service Customers
Ontario 589,881 584,686
Québec 240,966 239,169
_________________________________________________________________________

830,847 823,855
_________________________________________________________________________
_________________________________________________________________________

Discretionnary-Service Customers
Ontario 469,049 463,217
Québec 181,753 178,022
_________________________________________________________________________

650,802 641,239
_________________________________________________________________________
_________________________________________________________________________

Pay-TV Service Customers
Ontario 80,661 80,567
Québec 35,381 32,246
_________________________________________________________________________

116,042 112,813
_________________________________________________________________________
_________________________________________________________________________

High-Speed Internet Service Customers
Ontario 227,492 203,692
Québec 47,114 41,334
_________________________________________________________________________

274,606 245,026
_________________________________________________________________________
_________________________________________________________________________

Digital Customers
Ontario 157,273 134,668
Québec 80,947 73,768
_________________________________________________________________________

238,220 208,436
_________________________________________________________________________
_________________________________________________________________________

Digital Terminals
Ontario 192,361 161,731
Québec 86,862 78,340
_________________________________________________________________________

279,223 240,071
_________________________________________________________________________
_________________________________________________________________________


COGECO INC.
CONSOLIDATED STATEMENTS OF INCOME

Three months ended Six months ended
_________________________________________________________________________
(In thousands of dollars,
except per share data) February February February February
28, 29, 28, 29,
2005 2004 2005 2004
(restated) (restated)
_________________________________________________________________________
(unaudited) (unaudited) (unaudited) (unaudited)

Revenue $ 166,566 $ 158,144 $ 337,977 $ 325,057

Operating costs 111,950 109,123 224,433 225,822
_________________________________________________________________________

Operating
income before
amortization 54,616 49,021 113,544 99,235
Amortization 33,383 33,606 66,999 78,123
_________________________________________________________________________

Operating income 21,233 15,415 46,545 21,112
Financial
expense 14,237 15,213 28,477 30,460
_________________________________________________________________________

Income (loss) before
income taxes and the
following items 6,996 202 18,068 (9,348)

Impairment of goodwill
and other intangible
assets (note 5) 52,531 - 52,531 -

Income taxes (note 3) (130) 1,815 4,452 32,455

Non-controlling interest (16,940) (561) (13,684) (25,360)

Loss on dilution resulting
from shares issued by a
subsidiary 17 - 92 -

Share in the loss of a
company subject to
significant influence 42 90 84 90
_________________________________________________________________________

Net loss $(28,524) $ (1,142) $ (25,407) $ (16,533)
_________________________________________________________________________

Loss per share (note 8)
Basic and diluted $ (1.74) $ (0.07) $ (1.55) $ (1.01)
_________________________________________________________________________
_________________________________________________________________________



COGECO INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

Six months ended
_________________________________________________________________________
(In thousands of dollars) February February
28, 29,
2005 2004
(restated)
_________________________________________________________________________
(unaudited) (unaudited)

Balance at beginning
As previously reported $ 209,188 $ 234,903
Changes in accounting policies (note 2d)) - (11,650)
_________________________________________________________________________

As restated 209,188 223,253

Net loss (25,407) (16,533)

Excess of price paid over the attributed
value of subordinate voting shares redeemed - (3)
Dividends on multiple voting shares (194) (194)
Dividends on subordinate voting shares (1,527) (1,520)
_________________________________________________________________________

Balance at end $ 182,060 $ 205,003
_________________________________________________________________________
_________________________________________________________________________



COGECO INC.
CONSOLIDATED BALANCE SHEETS
_________________________________________________________________________
(In thousands of dollars) February August
28 31,
2005 2004
_________________________________________________________________________
(unaudited) (audited)

Assets

Current
Accounts receivable $ 64,035 $ 57,210
Income tax receivable 773 304
Prepaid expenses 6,091 5,529
Broadcasting rights 30,467 28,428
_________________________________________________________________________
101,366 91,471
_________________________________________________________________________

Investments 275 359
Fixed assets 710,988 716,444
Deferred charges 44,822 50,768
Broadcasting licenses and
customer base (note 5) 1,017,892 1,042,498
Goodwill (note 5) - 27,925
_________________________________________________________________________

$1,875,343 $1,929,465
_________________________________________________________________________
_________________________________________________________________________


Liabilities and Shareholders' equity

Liabilities

Current
Bank indebtedness $ 16,902 $ 4,551
Accounts payable and accrued liabilities 122,839 143,996
Deferred and prepaid income 25,345 22,778
Current portion of long-term debt (note 6) 2,386 2,603
_________________________________________________________________________
167,472 173,928
_________________________________________________________________________

Long-term debt (note 6) 759,953 772,332
Deferred and prepaid income 10,855 9,829
Pension plan liabilities and accrued
employee benefits 9,533 8,132
Future income tax
liabilities 198,950 196,379
Non-controlling interest 429,929 443,818
_________________________________________________________________________
1,576,692 1,604,418
_________________________________________________________________________

Shareholders' equity

Capital stock (note 7) 116,167 115,621
Retained earnings 182,060 209,188
Contributed surplus - stock-based compensation 424 238
_________________________________________________________________________
298,651 325,047
_________________________________________________________________________

$1,875,343 $1,929,465
_________________________________________________________________________
_________________________________________________________________________



COGECO INC.
CONSOLIDATED STATEMENTS OF CASH FLOW

Three months ended Six months ended
_________________________________________________________________________
(In thousands of dollars) February February February February
28, 29, 28, 29,
2005 2004 2005 2004
(restated) (restated)
_________________________________________________________________________
(unaudited) (unaudited) (unaudited) (unaudited)

Cash flow from operating
activities
Net loss $ (28,524) $ (1,142) $ (25,407) $ (16,533)
Items not affecting cash
and cash equivalents
Amortization 33,383 33,606 66,999 78,123
Amortization
of deferred
financing costs 306 406 619 811
Impairment of goodwill and
other intangible
assets (note 5) 52,531 - 52,531 -
Future income
taxes (note 3) (841) 659 2,571 29,958
Non-controlling
interest (16,940) (561) (13,684) (25,360)
Other 1,047 885 1,836 1,275
_________________________________________________________________________
Cash flow from operations 40,962 33,853 85,465 68,274
Changes in non-cash working
capital items and long-term
deferred and prepaid
income (note 9a)) 16,981 9,906 (27,531) (30,155)
_________________________________________________________________________
57,943 43,759 57,934 38,119
_________________________________________________________________________

Cash flow from investing
activities
Acquisition of fixed assets
(note 9b)) (27,483) (17,982) (49,775) (33,778)
Increase in deferred
charges (3,710) (5,382) (6,456) (10,957)
Other 25 2 47 505
_________________________________________________________________________
(31,168) (23,362) (56,184) (44,230)

Cash flow from financing activities
Increase (decrease)
in bank indebtedness (16,931) (11,534) 12,351 10,783
Increase in long-term debt 1,000 2,000 1,058 2,000
Repayment of
long-term debt (10,320) (10,232) (13,654) (5,485)
Issue of subordinate
voting shares 512 61 546 351
Purchase of subordinate
voting shares for
cancellation - - - (6)
Dividends on multiple
voting shares (97) (97) (194) (194)
Dividends on subordinate
voting shares (765) (761) (1,527) (1,520)
Issue of subordinate voting
shares by a subsidiary
to non-controlling interest,
net of issue costs 311 166 640 182
Dividends paid by a subsidiary
to non-controlling interest (485) - (970) -
_________________________________________________________________________
(26,775) (20,397) (1,750) (6,111)
_________________________________________________________________________
Net change in cash and cash
equivalents and cash and
cash equivalents at end $ - $ - $ - $ -
_________________________________________________________________________
_________________________________________________________________________
See supplemental cash flow information in note 9


COGECO INC.
Notes to Consolidated Financial Statements
February 28, 2005
(amounts in tables are in thousands of dollars, except per share data)


1. Basis of Presentation

In the opinion of management, the accompanying unaudited interim
consolidated financial statements, prepared in accordance with Canadian
generally accepted accounting principles, contain all adjustments
necessary to present fairly the financial position of COGECO Inc. as at
February 28, 2005 and August 31, 2004 as well as its results of
operations and its cash flow for the three and six month periods ended
February 28, 2005 and February 29, 2004.

While management believes that the disclosures presented are adequate,
these unaudited interim consolidated financial statements and notes
should be read in conjunction with COGECO Inc.'s annual consolidated
financial statements. These unaudited interim consolidated financial
statements follow the same accounting policies as the most recent annual
consolidated financial statements.

These interim consolidated financial statements have not been subject to
a review by the Company's external auditors.

2. Recent accounting pronouncements and changes in accounting policies

a) Asset retirement obligations

In March 2003, the Canadian Institute of Chartered Accountants ("CICA")
issued Handbook section 3110, Asset Retirement Obligations, which
provides guidance for the recognition, measurement and disclosure of
liabilities for asset retirement obligations and the associated asset
retirement costs. The standard applies to legal or contractual
obligations associated with the retirement of a tangible long-lived asset
that result from acquisition, construction, development or normal
operations. The standard requires the Company to record the fair value of
a liability for an asset retirement obligation in the year in which it is
incurred and when a reasonable estimate of fair value can be made. The
standard describes the fair value of a liability for an asset retirement
obligation as the amount at which that liability could be settled in a
current transaction between willing parties, that is, other than in a
forced or liquidation transaction. The Company is subsequently required
to allocate that asset retirement cost to the expense using a systematic
and rational method over the asset's useful life. The standard applies to
fiscal years beginning on or after January 1, 2004. Certain of the
Company's subsidiaries' lease agreements contain provision requiring them
to restore facilities or remove equipment in the event that the lease
agreement is not renewed. However, the Company's subsidiaries expect to
renew most of their lease agreements related to the continued operation
of their business and consequently, the liabilities related to the
removal provisions on non-renewed lease, if any, are considered not
material to these consolidated financial statements. In addition, in the
unlikely event that some of these lease agreements are not renewed, the
liability would be difficult to estimate since there is a wide range of
potential expiration dates for these lease agreements.

b) Variable Interest Entities

In June 2003, the CICA issued Accounting Guideline 15 ("AcG-15"),
Consolidation of Variable Interest Entities, which defines Variable
Interest Entities as entities that have insufficient equity or their
equity investors lack one or more specified essential characteristics of
a controlling financial interest. The standard provides guidance for
determining when an entity is a Variable Interest Entity and who, if
anyone, should consolidate the Variable Interest Entity. The Guideline
applies to all annual and interim periods beginning on or after
November 1, 2004. During the second quarter, the Company completed its
evaluation and concluded that it has no Variable Interest Entities.

c) Amortization of long-term assets

In 2003, the Company's subsidiary, Cogeco Cable Inc., reviewed the useful
life of its decoders and modems, commonly referred to as home terminal
devices, and of certain other long-term assets. The useful life of
decoders was changed from seven to five years while the useful life of
modems was changed from seven to three years. These changes in accounting
estimates, applied prospectively, increased amortization expense by
$14.0 million for the six month period ended February 29, 2004.

d) Revenue recognition

On December 17, 2003, the Emerging Issues Committee issued EIC-141,
Revenue recognition, which provides general interpretative guidance on
the application of CICA 3400, Revenue, and summarizes the principles set
forth in "Staff Accounting Bulletin" No. 101 ("SAB 101") published in the
United States. In addition, EIC-141 also provides additional guidance on
the capitalization of direct incremental costs in connection with up-
front revenues. At the same time, the committee also issued EIC-142,
Revenue arrangements with multiple deliverables, which addresses how to
determine when an arrangement involving multiple deliverables contains
more than one unit of accounting and if so, how the arrangement
consideration should be measured and allocated among each separate unit
of accounting.

During the third quarter of last fiscal year, the Company's subsidiary,
Cogeco Cable Inc., applied these new recommendations and determined that
it has multiple revenue arrangements comprised of installation services,
sales of home terminal devices and related subscription services. Based
on the criteria of EIC-142, the Company's subsidiary determined that the
sale of home terminal devices is considered a single unit of accounting
of a multiple element arrangement, while installation and related
subscription services must be assessed as an integrated package. In
addition, certain direct incremental costs in connection with
installation revenues may be deferred over the same term as the related
revenue. Accordingly, the following changes were adopted retroactively:


- Installation revenues are now deferred and amortized over the average
life of a customer subscription, which is four years. Previously, these
revenues were recognized immediately as they were considered as a
partial recovery of direct selling costs incurred. Upon billing, the
portion of unearned revenue is now recorded as deferred and prepaid
income;

- The costs to reconnect customers are now recorded as deferred charges
up to a maximum amount not exceeding the revenues generated by the
reconnect activity, which are included in installation revenues, and
amortized over the average life of a customer subscription, which is
four years. Previously, these costs, which include materials, direct
labor and certain overhead charges were capitalized to fixed assets and
generally amortized over a period of five years;

- Revenue from the sale of home terminal devices at a subsidized price,
which were recorded as a partial recovery of costs, are now recorded as
equipment revenue with an equal amount included in operating costs;

- The portion of advertising expense incurred to expand the digital and
high-speed Internet customer base that used to be recorded as deferred
charges is now recorded as operating costs.


These changes have been applied retroactively and had the following
impact on the Company's consolidated statements of income for the three
and six month periods ended February 29, 2004:
_________________________________________________________________________
Three months ended Six months ended
_________________________________________________________________________
February 29, 2004 February 29, 2004
_________________________________________________________________________
Before After Before After
restatement restatement restatement restatement
_________________________________________________________________________
(unaudited) (unaudited) (unaudited) (unaudited)

Revenue $ 155,609 $ 158,144 $ 321,105 $ 325,057
Operating costs 105,104 109,123 217,368 225,822
Amortization 32,565 33,606 76,049 78,123
Income taxes 2,607 1,815 36,462 32,455
Non-controlling
interest 492 (561) (23,800) (25,360)
Net loss (462) (1,142) (15,524) (16,533)
_________________________________________________________________________
Loss per share
Basic and diluted $ (0.03) $ (0.07) $ (0.95) $ (1.01)
_________________________________________________________________________
_________________________________________________________________________

Also, retained earnings have been reduced by $11.7 million as at
September 1, 2003 following these changes.


3. Income taxes

Three months ended Six months ended
_________________________________________________________________________
February February February February
28, 29, 28, 29,
2005 2004 2005 2004
(restated) (restated)
_________________________________________________________________________
_________________________________________________________________________
(unaudited) (unaudited) (unaudited) (unaudited)

Current $ 711 $ 1,156 $ 1,881 $ 2,497
Future (841) 659 2,571 29,958
_________________________________________________________________________
$ (130) $ 1,815 $ 4,452 $ 32,455
_________________________________________________________________________
_________________________________________________________________________

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

Three months ended Six months ended
_________________________________________________________________________
February February February February
28, 29, 28, 29,
2005 2004 2005 2004
(restated) (restated)
_________________________________________________________________________
(unaudited) (unaudited) (unaudited) (unaudited)

Income tax at combined
income tax rate of 34.15%
(34.56% in 2004) $ (15,482) $ 229 $ (11,769) $ (3,231)
Loss or income subject
to lower or higher
tax rates 1,636 415 1,730 477
Increase in income taxes as
a result of change in
substantially enacted
tax rates - - - 32,483
Large corporation tax 385 1,027 1,010 1,952
Income taxes arising from the
non-deductible impairment
of goodwill and
broadcasting licenses 10,570 - 10,570 -
Impact of non-recognition
of future income tax asset
on impairment of
broadcasting licenses 2,454 - 2,454 -
Other 307 144 457 774
_________________________________________________________________________

Income tax at effective
income tax rate $ (130) $ 1,815 $ 4,452 $ 32,455
_________________________________________________________________________
_________________________________________________________________________


4. Segmented Information

The Company's activities are divided into two business segments: Cable
and Media. The Cable segment is comprised of all cable and high-speed
Internet access operations, and the Media segment is comprised of radio
and television operations.

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

Head Office and
Cable Media eliminations
_________________________________________________________________________
Three months
ended February February February February February February
28, 29, 28, 29, 28, 29,
(unaudited) 2005 2004 2005 2004 2005 2004
(restated)
_________________________________________________________________________
_________________________________________________________________________

Revenue $ 138,389 $131,574 $ 28,222 $ 26,570 $ (45) $ -
Operating
costs 83,092 81,161 29,334 28,600 (476) (638)
Operating income
(loss) before
amortization 55,297 50,413 (1,112) (2,030) 431 638
Amortization 31,988 32,355 1,337 1,198 58 53
Operating income
(loss) 23,309 18,058 (2,449) (3,228) 373 585
Financial
expense 13,840 14,767 154 139 243 307
Impairment of
goodwill and
other intangible
assets - - 52,531 - - -
Income taxes 3,856 2,703 (4,227) (1,180) 241 292
_________________________________________________________________________
Net assets
employed(1) $1,630,222 $1,659,590 $ 78,920 $123,406 $ 7,162 $ 7,139
Total assets 1,750,832 1,767,990 116,333 167,045 8,178 8,851
Goodwill - - - 27,925 - -
Acquisition of
fixed assets 26,809 17,008 674 507 - 467
_________________________________________________________________________
_________________________________________________________________________




Consolidated
_________________________________________________________________________
Three months ended
(unaudited) February February
28, 29,
2005 2004
(restated)
_________________________________________________________________________
Revenue $ 166,566 $ 158,144
Operating costs 111,950 109,123
Operating income (loss) before
amortization 54,616 49,021

Amortization 33,383 33,606
Operating income (loss) 21,233 15,415
Financial expense 14,237 15,213
Impairment of goodwill and other
intangible assets 52,531 -

Income taxes (130) 1,815
_________________________________________________________________________
Net assets employed (1) $1,716,304 $1,790,135
Total assets 1,875,343 1,943,886
Goodwill - 27,925
Acquisition of fixed assets
27,483 17,982
_________________________________________________________________________
_________________________________________________________________________

(1) Total assets less cash and cash equivalents, accounts payable and
accrued liabilities and deferred and prepaid income.



Head Office
Cable Media and eliminations
_________________________________________________________________________
Six months
ended February February February February February February
28, 29, 28, 29, 28, 29,
(unaudited) 2005 2004 2005 2004 2005 2004
(restated)
_________________________________________________________________________
_________________________________________________________________________

Revenue $ 274,155 $261,063 $ 63,912 $ 63,994 $ (90) $ -
Operating
costs 165,664 163,436 60,190 63,611 (1,421) (1,225)
Operating income
before
amortization 108,491 97,627 3,722 383 1,331 1,225
Amortization 64,232 75,668 2,649 2,397 118 58
Operating
income(loss) 44,259 21,959 1,073 (2,014) 1,213 1,167
Financial
expense 27,734 29,672 255 195 488 593
Impairment of
goodwill and
other intangible
assets - - 52,531 - - -
Income taxes 7,085 32,802 (3,331) (963) 698 616
_________________________________________________________________________
Net assets
emplo-
yed (1) $ 1,630,222 $1,659,590 $ 78,920 $ 123,406 $ 7,162 $ 7,139
Total
assets 1,750,832 1,767,990 116,333 167,045 8,178 8,851
Goodwill - - - 27,925 - -
Acquisition of
fixed assets 48,383 31,657 1,342 1,325 50 796
_________________________________________________________________________
_________________________________________________________________________



Consolidated
_________________________________________________________________________
Six months ended February February
(unaudited) 28, 29,
2005 2004
(restated)
_________________________________________________________________________

Revenue $ 337,977 $ 325,057
Operating costs 224,433 225,822
Operating income before amortization
113,544 99,235
Amortization 66,999 78,123
Operating income (loss) 46,545 21,112
Financial expense 28,477 30,460
Impairment of goodwill and other intangible assets 52,531 -
Income taxes 4,452 32,455
_________________________________________________________________________
Net assets employed (1) $ 1,716,304 $ 1,790,135
Total assets 1,875,343 1,943,886
Goodwill - 27,925
Acquisition of fixed assets 49,775 33,778
_________________________________________________________________________
_________________________________________________________________________

(1) Total assets less cash and cash equivalents, accounts payable and
accrued liabilities and deferred and prepaid income.



5. Goodwill and other intangible assets
_________________________________________________________________________
Goodwill Broadcasting Customer
licenses base Total
_________________________________________________________________________
(unaudited) (unaudited) (unaudited) (unaudited)

Balance as at
August 31, 2004 $ 27,925 $ 52,726 $ 989,772 $ 1,070,423
Impairment (27,925) (24,606) - (52,531)
_________________________________________________________________________
Balance as at
February 28, 2005 $ - $ 28,120 $ 989,772 $ 1,017,892
_________________________________________________________________________
_________________________________________________________________________

In accordance with the recommendations of CICA 3062, Goodwill and Other
Intangible Assets, impairment tests of the goodwill and the broadcasting
licenses related to television operation of the media business unit have
been performed using a valuation approach based on discounted cash flow
techniques. The impairment test was necessary following market share
losses, emerging business trends and the competitive environment that
impact expected future operating results of television. As a result, the
Company has recorded a reduction of $24,606,000 in the carrying value of
its broadcasting licenses and written-off its goodwill of $27,925,000
during the second quarter, based on revised future estimates of its cash
flows.



6. Long-term debt

_________________________________________________________________________
Maturity Interest February 28, August 31,
rate 2005 2004
_________________________________________________________________________
(unaudited) (audited)
Parent company
Term Facility 2008(1) 4.92%(2) $ 23,000 $ 22,000

Subsidiaries
Term
Facility 2007 3.69 (2) 45,000 58,000
Senior Secured
Debentures Series 1 2009 6.75 150,000 150,000
Senior - Secured Notes
Series A -
US $150 million 2008 6.83 (3) 185,025 196,950
Series B 2011 7.73 175,000 175,000
Second Secured
Debentures
Series A 2007 8.44 125,000 125,000
Deferred
credit (4) 2008 - 53,625 41,700
Obligations under
capital leases 2008 5.87-9.11 2,626 3,225
Preferred shares (5) 2006 - 2,920 2,920
Other - - 143 140
_________________________________________________________________________
762,339 774,935
Less current portion 2,386 2,603
_________________________________________________________________________
$ 759,953 $772,332
_________________________________________________________________________
_________________________________________________________________________

(1) COGECO Inc.'s $40,000,000 Term Facility has been extended for an
additional year in December 2004.
(2) Average interest rate on debt as of February 28, 2005, including
stamping fees.
(3) Cross-currency swap agreements have resulted in an effective interest
rate of 7.254% on the Canadian dollar equivalent of the U.S.
denominated debt.
(4) The deferred credit represents the amount which would have been
payable as at February 28, 2005 and August 31, 2004 under cross-
currency swaps entered into by the Company's subsidiary,
Cogeco Cable Inc., to hedge Senior Secured Notes Series A denominated
in US dollars.
(5) 2,920,000 preferred shares, 5.5% cumulative dividend, redeemable and
retractable to a maximum of $1,400,000 annually.


7. Capital Stock

Authorized, an unlimited number

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

Multiple voting shares, 20 votes per share.

Subordinate voting shares, 1 vote per share.

_________________________________________________________________________
February 28, August 31,
2005 2004
_________________________________________________________________________
(unaudited) (audited)
Issued

1,849,900 multiple voting shares $ 12 $ 12
14,600,104 subordinate voting shares
(14,522,456 as at August 31, 2004) 116,155 115,609
_________________________________________________________________________
$ 116,167 $ 115,621
_________________________________________________________________________
_________________________________________________________________________


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


Twelve
Six months months
ended ended
February 28, August 31,
2005 2004
_________________________________________________________________________
(unaudited) (audited)
Number of Number of
shares Amount shares Amount
_________________________________________________________________________


Balance at beginning 14,522,456 $ 115,609 14,465,777 $ 115,101
Shares issued for cash
under the Employee Stock
Purchase Plan and the
Stock Option Plan 77,648 546 60,079 535
Purchase of
shares for
cancellation - - (3,400) (27)
_________________________________________________________________________
Balance at end 14,600,104 $ 116,155 14,522,456 $ 115,609
_________________________________________________________________________
_________________________________________________________________________



Stock-based plans

The Company established for the benefit of its employees and those of its
subsidiaries, an Employee Stock Purchase Plan and a Stock Option Plan for
certain executives which are described in the financial statements for
the year ended August 31, 2004. During the first two quarters, no stock
options were granted to employees by COGECO Inc. However, the Company's
subsidiary, Cogeco Cable Inc., granted 140,766 stock options (159,580 in
2004) with an exercise price of $21.50 ($15.70 to $18.12 in 2004) of
which 38,397 stock options (48,037 in 2004) were granted to COGECO Inc.
employees. The Company records compensation expense for options granted
on or after September 1, 2003. As a result, a compensation expense of
$121,000 and $219,000 ($63,000 and $112,000 in 2004) was recorded for the
three and six month periods ended February 28, 2005. If compensation
cost had been recognized using the fair value-based method at the grant
date for options granted between September 1, 2001 and August 31, 2003,
the Company's net loss and loss per share for the three and six month
periods ended February 28, 2005 and February 29, 2004 would have been
increased to the following pro forma amounts:



Three months ended Six months ended
_________________________________________________________________________
February February February February
28, 29, 28, 29,
2005 2004 2005 2004
(restated) (restated)
_________________________________________________________________________
_________________________________________________________________________
(unaudited) (unaudited) (unaudited) (unaudited)
Net loss
As reported $ (28,524) $ (1,142) $ (25,407) $ (16,533)
Pro forma (28,604) (1,222) (25,567) (16,693)

Basic and diluted loss per share
As reported $ (1.74) $ (0.07) $ (1.55) $ (1.01)
Pro forma (1.74) (0.07) (1.56) (1.02)
_________________________________________________________________________
_________________________________________________________________________



The fair value of stock options granted by the Company's subsidiary,
Cogeco Cable Inc., for the six month period ended February 28, 2005 was
$7.46 per option ($6.53 in 2004). The fair value was estimated on the
grant date for purposes of determining stock-based compensation expense
and pro forma disclosures using the Binomial option pricing model based
on the following assumptions:

_________________________________________________________________________
2005 2004
_________________________________________________________________________
Expected dividend yield 1.27% 1.27%
Expected volatility 43% 49%
Risk-free interest rate 3.70% 4.04%
Expected life in years 4.0 3.9
_________________________________________________________________________

As at February 28, 2005, the Company had outstanding stock options
providing for the subscription of 429,276 subordinate voting shares.
These stock options can be exercised at various prices ranging from $6.50
to $37.50 and at various dates up to October 19, 2011.

TQS Inc., an indirect subsidiary of the Company, also adopted a stock
option plan for certain executives and key employees which is described
in the financial statements for the year ended August 31, 2004. During
the first two quarters, TQS Inc. granted 77,000 stock options (47,889 in
2004). A compensation expense of $40,000 and $81,000 was recorded for the
three and six month periods ended February 28, 2005 related to this plan.



8. Loss per share

The following table provides a reconciliation between basic and diluted
loss per share:

Three months ended Six months ended
_________________________________________________________________________
February February February February
28, 29, 28, 29,
2005 2004 2005 2004
(restated) (restated)
_________________________________________________________________________
_________________________________________________________________________
(unaudited) (unaudited) (unaudited) (unaudited)

Net loss $ (28,524) $ (1,142) $ (25,407) $ (16,533)

Weighted average number
of multiple voting and
subordinate voting
shares outstanding 16,404,732 16,347,055 16,388,660 16,332,938

Effect of
dilutive stock
options (1) - - - -
_________________________________________________________________________
Weighted average number
of diluted multiple
voting and subordinate
voting shares
outstanding 16,404,732 16,347,055 16,388,660 16,332,938
_________________________________________________________________________
Loss per share
Basic and
diluted $ (1.74) $ (0.07) $ (1.55) $ (1.01)
_________________________________________________________________________
_________________________________________________________________________

(1) The weighted average dilutive potential number of subordinate voting
shares, which were antidilutive for the six month period ended February
28, 2005, amounted to 141,014 shares (132,117 in 2004). Stock options to
purchase 43,843 shares (194,876 in 2004) in the six month period ended
February 28, 2005 were outstanding, but were not included in the
computation of diluted earnings per share because the exercise price of
the stock options was greater than the average share price of the
subordinate voting shares and, therefore, the effect would have been
antidilutive.

9. Statements of cash flow

a) Changes in non-cash working capital items and long-term deferred
and prepaid income


Three months ended Six months ended
_________________________________________________________________________
February February February February
28, 29, 28, 29,
2005 2004 2005 2004
(restated) (restated)
_________________________________________________________________________
_________________________________________________________________________
(unaudited) (unaudited) (unaudited) (unaudited)

Accounts
receivable $ 4,673 $ 12,494 $ (6,825) $ (913)
Income tax
receivable (647) - (469) 40
Prepaid expenses (316) (169) (562) (728)
Broadcasting
rights (195) 2,897 (2,039) (2,868)
Accounts
payable and
accrued
liabilities 13,399 (5,749) (21,157) (27,193)
Income tax
liabilities - (163) - 18
Deferred and
prepaid income 67 612 3,593 1,585
Other - (16) (72) (96)
_________________________________________________________________________
$ 16,981 $ 9,906 $ (27,531) $ (30,155)
_________________________________________________________________________
_________________________________________________________________________


b) Other information

Three months ended Six months ended
_________________________________________________________________________
February February February February
28, 29, 28, 29,
2005 2004 2005 2004
_________________________________________________________________________
_________________________________________________________________________
(unaudited) (unaudited) (unaudited) (unaudited)

Fixed assets acquisitions
through capital leases $ - $ 27 $ - $ 126
Interest paid 11,717 12,386 27,965 29,841
Income taxes paid 1,358 1,319 2,350 2,439
_________________________________________________________________________
_________________________________________________________________________


10. Employees future benefits

The Company and its subsidiaries offer their employees contributory
defined benefit pension plans, a defined contribution pension plan or a
collective registered retirement savings plans which are described in the
financial statements for the year ended August 31, 2004. The total expenses
related to these plans are as follows:

Three months ended Six months ended
_________________________________________________________________________
February February February February
28, 29, 28, 29,
2005 2004 2005 2004
_________________________________________________________________________
_________________________________________________________________________
(unaudited) (unaudited) (unaudited) (unaudited)

Defined benefit pension
plans $ 576 $ 471 $ 1,015 $ 862
Defined contribution
pension plan and
collective registered
retirement savings
plan 390 471 793 900
_________________________________________________________________________
$ 966 $ 942 $ 1,808 $ 1,762
_________________________________________________________________________
_________________________________________________________________________



11. Comparative figures

Certain comparative figures have been reclassified in order to conform
with the presentation adopted in the current period.



Contact Information

  • Media, Marie Carrier,
    Director, Corporate Communications,
    (514) 874-2600;

    Source: COGECO Inc.,
    Pierre Gagné
    Vice President, Finance and
    Chief Financial Officer,
    (514) 874-2600