COGECO Inc.
TSX : CGO

COGECO Inc.

July 11, 2005 23:59 ET

COGECO maintains its cable sector growth and will invest more in television

MONTREAL, July 11 - Today COGECO Inc. (TSX: CGO) announces
financial results for the third quarter of fiscal 2005 ended May 31, 2005 and
its preliminary financial outlook for fiscal 2006.
"COGECO is reporting higher net income compared to the same period last
year, thanks to excellent results from its cable sector. Though radio
operations had tremendous audience ratings, the difficult environment in which
TQS operates obliges us to evaluate our forecasts for the media sector
downwards for the 2006 fiscal year," says Mr. Louis Audet, President and CEO
of COGECO.

Improving performance indicators in the cable sector
----------------------------------------------------

"Cogeco Cable continues to attract new customers, particularly with its
digital television and high-speed Internet services. This increased number of
customers has a very positive impact on the subsidiary's revenue and on its
operating margin. Cogeco Cable's contribution to COGECO's performance remains
strong year after year, and we are confident that this trend will continue for
fiscal 2005, as well as for 2006," adds Mr. Audet.

Readjustment in the media sector
--------------------------------

"As far as radio is concerned, results should improve significantly due
to the excellent audience ratings of our network stations, in progression in
their markets. In television, TQS revenues are suffering from declining
audience ratings, which continues to face a difficult advertising environment
for conventional television. However, the additional investments in
programming that are planned for the coming fiscal year should generate
ratings in line with our expectations and therefore, should increase our
profitability," concludes Mr. Audet.


FINANCIAL HIGHLIGHTS

Three months ended May 31, Nine months ended May 31,
(unaudited) (unaudited)
($000s except
percentages and % %
per share data) 2005 2004 Change 2005 2004(1) Change
--------- --------- ------ --------- ---------- ------

Revenue $ 173,418 $ 168,392 3.0 $ 511,395 $ 493,449 3.6
Operating
income
before
amortization 63,814 59,407 7.4 177,358 158,642 11.8

Net income
(loss) 4,964 3,816 30.1 (20,443) (12,717) --

Cash flow from
operations $ 48,699 $ 44,127 10.4 $ 134,164 $ 112,401 19.4
Less:
Capital
expenditures
and increase
in deferred
charges 27,057 26,536 2.0 83,288 71,396 16.7
--------- --------- --------- ----------
Free Cash
Flow (2) 21,642 17,591 23.0 50,876 41,005 24.1

Per share data
Basic net
income
(loss) $ 0.30 $ 0.23 30.4 $ (1.25) $ (0.78) --
Cash flow
from
operations 2.96 2.70 9.6 8.18 6.88 18.9
>>

(1) During the third quarter of fiscal 2004, Cogeco Cable, a subsidiary
of the Company, adopted new accounting standards regarding revenue
recognition and certain related costs and the classification of
certain items as revenue or expense. 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 the section "Changes in Accounting
Policies" of the Management's Discussion and Analysis in the
accompanying interim financial statements for a detailed description.

(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 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, the second quarter report
of 2005 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.

CHANGES IN ACCOUNTING POLICIES

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 as revenue or expense. Consequently, COGECO adopted the
following changes in the cable sector:

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

- Revenue on the sale of home terminal devices at a subsidized price,
which was recorded as a partial recovery of cost, is now recorded as
equipment revenue with an equal amount of operating cost.

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

These changes, which impact only the cable sector had the following
impact on our financial results for the third quarter and the first nine
months of fiscal 2004:

<<
Periods ended May 31, 2004
($000s except Quarter Nine months
per share data) Before After Before After
restatement restatement restatement restatement
----------- ----------- ----------- -----------

Revenue $ 166,322 $ 168,392 $ 487,427 $ 493,449
Operating income
before
amortization 60,617 59,407 164,354 158,642
Amortization 32,225 33,323 108,274 111,446
Income taxes 5,762 5,046 42,224 37,501
Non-controlling interest 3,375 2,409 (20,425) (22,951)
Net income (net loss) 4,442 3,816 (11,082) (12,717)
Basic net income
(net loss)
per share $ 0.27 $ 0.23 $ (0.68) $ (0.78)
>>

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 of fiscal 2005, 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 third quarter rose by $5 million, or 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 $7.7 million or 5.8%.
Media revenue decreased by $2.8 million, or 7.7% due to declining audience
ratings for TQS and an advertising market that remains difficult for
conventional television.
Operating income before amortization climbed by 7.4% for the third
quarter compared to the same period last year. The cable sector contributed to
an increase of $7 million while that of the media had a negative impact of
$2.6 million.

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 at the
end of the second quarter. The Company concluded therefore 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 of the
first nine months of fiscal 2005 is as follows:

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

Three months ended May 31, Nine months ended May 31,
($000s except % %
percentages) 2005 2004 Change 2005 2004(1) Change
--------- --------- ------ --------- ---------- ------

Amortization $ 32,783 $ 33,323 (1.6) $ 99,782 $ 111,446 (10.5)

Financial
expense $ 14,441 $ 14,813 (2.5) $ 42,918 $ 45,273 (5.2)
>>

Amortization in the first nine months amounted to $99.8 million compared
to $97.4 million for the same period last year, excluding the effect of the
$14 million increase in amortization related to a revision in the estimated
useful lives of home terminal devices and certain other long-term cable assets
during the first nine months. 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 nine months compared to the same period last year. The decline in
Indebtedness results from generated Free Cash Flow.

INCOME TAXES

Income taxes for the third quarter amounted to $5.9 million compared to
$5 million for the same period last year. Excluding a non-cash income tax
adjustment of $3.3 million for the impairment of goodwill and other intangible
assets of the television operations, income taxes for the first nine months
amounted to $13.6 million compared to $9.9 million for the same period last
year, excluding the effect of non-cash income tax adjustments described below.
The income tax increases was mainly attributable to the cable sector's growth
in operating income before amortization.
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 in that same quarter. This reduction of future
income taxes was related to the decline in carrying value of home terminal
devices and certain other long-term assets in the cable sector.

NON-CONTROLLING INTEREST

The non-controlling interest represents a 61% interest in Cogeco Cable's
results and a 40% interest in TQS Inc. During the first nine months 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 (LOSS)

Net income for the third quarter amounted to $5 million, or $0.30 per
share, compared to a net income of $3.8 million, or $0.23 per share for the
same period in 2004. The cable sector contributed to this improved
profitability. Net loss for the first nine months amounted to $20.4 million,
or $1.25 per share, compared to $12.7 million, or $0.78 per share for the same
period last year.

<<
The variances in net loss are essentially explained in the table below.

Nine months ended May 31,
($ million)
2005 2004
---------- ----------

Net loss per financial statements $ (20.4) $ (12.7)
Adjustments for the following items:
Change in the Ontario corporate income
tax rate (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 --
---------- ----------
Net income excluding above adjustments $ 9.2 $ 3.7
---------- ----------
---------- ----------
>>

(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 Nine months
ended May 31, ended May 31,
($000s)
2005 2004 2005 2004
----------- ----------- ----------- -----------
Operating Activities
Cash flow from
operations $ 48,699 $ 44,127 $ 134,164 $ 112,401
Changes in non-cash
working capital
items and long-term
portion of deferred
and prepaid income 1,260 (3,661) (26,271) (33,817)
----------- ----------- ----------- -----------
$ 49,959 $ 40,466 $ 107,893 $ 78,584
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Investing
Activities (1) $ (25,459) $ (25,002) $ (81,643) $ (69,231)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Financing
Activities (1) $ (24,500) $ (15,464) $ (26,250) $ (9,353)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
>>

(1) Excludes assets acquired under capital leases and related
indebtedness.

For the third quarter, cash flow from operations was greater than last
year by $4.6 million or 10.4% essentially as a result of 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 due to lower accounts
receivable in the third quarter, whereas those components were higher in 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 $0.5
million and $11.9 million during the third quarter and first nine months,
respectively. The $0.7 million and $5.2 million decline in deferred charges
during the third quarter and the first nine 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 third quarter and the first nine months, capital expenditures
increased by $1.2 million and $17.1 million, respectively mainly due to an
increase in purchases of digital terminals that are subsequently leased to
customers and to increased cable network upgrade and rebuild activities in the
third quarter. The higher percentage of customers renting their terminals is
mainly attributable to the attractive rental program that was launched in the
fourth quarter of the 2004 fiscal year.
Free Cash Flow of $21.6 million and $50.9 million was generated during
the third quarter and first nine months, respectively, as a result of
increased cash flow from operations mostly related to the cable sector partly
offset by increased capital expenditures in the same sector.
During the third quarter, Indebtedness declined by $23.2 million mainly
due to generated Free Cash Flow of $21.6 million and an increase in non-cash
working capital items and long-term deferred and prepaid income of $1.3
million. For the same period last year, Indebtedness declined by $14.8 million
essentially due to generated Free Cash Flow of $17.6 million partly offset by
a decrease of $3.7 million in non-cash working capital items and long-term
deferred and prepaid income. 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 third quarter of fiscal 2005 and fiscal 2004.
During the first nine months, Indebtedness declined by $23.5 million,
mainly due to generated Free Cash Flow of $50.9 million partly offset by a
$26.3 million decline in non-cash working capital items and long-term deferred
and prepaid income. For the same period last year, Indebtedness decreased by
$7.5 million essentially due to Free Cash Flow of $41 million partly offset by
a decline in non-cash working capital items and long-term deferred and prepaid
income of $33.8 million. During the first nine months of fiscal 2005 and 2004,
dividends paid to COGECO's shareholders totalled $2.6 million.
As at May 31, 2005, the cable subsidiary had utilized $25 million of its
$270 million Term Facility and COGECO had drawn $21.5 million of its $40
million Term Facility. Taking into account existing bank covenants, COGECO and
Cogeco Cable had access to the entire committed amounts. 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 July 8, 2005 meeting, the Board of Directors of COGECO declared a
quarterly dividend of $0.0625 per share for subordinate and multiple voting
shares, payable on August 5, 2005, to shareholders on record on July 22, 2005.
The substantial improvement in cable sector results contributed to the
increase in the quarterly dividend, pushing it up from $0.0525 to $0.0625 per
share.

FINANCIAL POSITION

Since August 31, 2004, significant changes in the balance sheet include
broadcasting licenses, goodwill, accounts payable and accrued liabilities,
Indebtedness, non-controlling interest and shareholders' equity. Accounts
payable and accrued liabilities declined by $26.7 million as use of working
capital was managed steadfastly at fiscal year-end. Indebtedness was reduced
by $21.9 million, mainly due to Free Cash Flow of $50.9 million, partly offset
by a drop of $26.3 million in non-cash working capital items and in the long-
term deferred and prepaid income. 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 May 31, 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) % Penetration (1)
Third Quarter Nine Months May 31,
-------------- -------------- -----------------
May 31,
2005 2005 2004 2005 2004 2005 2004
--------- ------ ------- ------- ------ ---------- ------
Revenue-
generating
units (2) 1,345,931 7,722 9,633 74,032 77,789
Basic-
service
customers 827,324 (3,523) (3,100) 3,469 5,691
High-
speed
Internet
customers (3) 274,873 5,731 4,593 35,265 39,230 37.6 33.3
Digital
terminals (4) 287,962 8,739 10,375 47,891 40,773 35.5 27.7
>>

(1) As a percentage of basic-service customers in areas served.
(2) Including basic service, Internet service and digital-service
customers.
(3) The number of Internet customers of previous quarters has been
restated to reflect the number of customers based on the billing
dates, which are spread throughout the month, instead of the number
of customers as at the end of the quarter. This change produces a
downward adjustment of approximately 5,500 customers. However,
additions for the year remain unchanged. Customers subscribing only
to Internet services amounted to 55,617 as at May 31, 2005 compared
to 56,824 as at February 28, 2005.
(4) 73% of terminals as at May 31, 2005 were purchased compared to 85%
one year earlier.

Expansion of revenue-generating units in the third quarter was lower
than in the same period last year due to strong competition. Digital-service
customer growth declined slightly and basic-service customer loss showed a
small increase. The basic-service customer loss is mainly attributable to
students leaving their campuses at the end of the school year. Cogeco Cable
offers its services in several cities with universities and colleges such as
Kingston, Windsor, Hamilton, St. Catharines, Peterborough, Trois-Rivières and
Rimouski. The addition of high-speed Internet customers in the third quarter
was higher than in the same period last year, due to superior promotions and
the addition of our Lite offering in Québec during the second quarter. Given
higher than anticipated high-speed Internet customer additions for the first
nine months, Cogeco Cable has raised its 2005 forecasts from 32,000 - 37,000
to 37,000 - 41,000.

During the third quarter, Cogeco Cable improved its video service offer
by:

- Introducing in Ontario the "Medley Pack" consisting of 5 new digital
channels.

- Adding 6 new digital channels of multi-cultural television, including
the Italian news channel RAI.

- Adding 6 new high definition (HD) channels for a total of up to 19 HD
channels.

At the beginning of the fourth quarter, Cogeco Cable launched its digital
telephony service in its Burlington and Oakville, Ontario, and Trois-Rivières,
Québec markets. The planned initial capital expenditures for this service are
still $5 million for fiscal 2005.

Operating Results

<<
Three months ended May 31, Nine months ended May 31,

($000s except
percentages) % %
2005 2004 Change 2005 2004 Change
--------- --------- ------ --------- ---------- ------

Revenue $ 140,071 $ 132,364 5.8 $ 414,226 $ 393,427 5.3

Operating costs 79,054 78,419 0.8 239,239 236,708 1.1
Management fees -
COGECO Inc. 2,707 2,616 3.5 8,186 7,763 5.4

Operating
income before
amortization 58,310 51,329 13.6 166,801 148,956 12.0

Operating margin 41.6% 38.8% 40.3% 37.9%
>>

Revenue

Revenue for the third quarter rose by $7.7 million or 5.8% compared to
the same period last year. This growth in the third quarter and for the first
nine months is mainly attributable to basic-service customer rate increases
and the improved high-speed Internet access penetration rate, as mentioned in
the "Customer Statistics" section. Cogeco Cable introduced average monthly
rate increases effective June 15, 2004 in Ontario and August 1st, 2004 in
Québec of approximately $0.74 per basic-analog-service customer. 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

During the third quarter and for the first nine months, operating costs,
excluding management fees payable to COGECO Inc., increased slightly due to
modest increases in IP (Internet Protocol) transport costs for Internet
service and affiliation charges for video service offset by a significant drop
in the sale of digital terminals.
Customer care expenses increased during the third quarter and during the
first nine months due to 6.9% growth in the number of revenue-generating units
since May 31, 2004. In addition, since the financial results of the third
quarter were higher than anticipated, an increase in the provision for bonuses
paid to employees has been accrued.

Operating Income before Amortization

Operating income before amortization improved by 13.6% in the third
quarter compared to the same period in fiscal 2004, as a result of revenue
growth partly offset by a modest increase in operating expenses. Cogeco
Cable's operating margin increased from 38.8% to 41.6%.

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$3.3 million during the
third quarter due to the Canadian dollar's depreciation. Since the Senior
Secured Notes Series A are fully hedged, the fluctuation is fully offset by a
variation in deferred credit described in Note 6 of the third quarter interim
financial statements. The $50.4 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 May 31, Nine months ended May 31,

($000s except
percentages) % %
2005 2004 Change 2005 2004 Change
--------- --------- ------ --------- ---------- ------

Revenue $ 33,392 $ 36,160 (7.7) $ 97,304 $ 100,154 (2.8)

Operating costs 28,627 28,762 (0.5) 88,817 92,373 (3.8)

Operating income
before
amortization 4,765 7,398 (35.6) 8,487 7,781 9.1

Operating margin 14.3% 20.5% 8.7% 7.8%
>>

Revenue

Radio revenue increased by 25.6% and 22.8% in the third quarter and first
nine months, respectively, mainly due to improved fall ratings for the
Montréal RYTHME FM station. In addition, the spring results of BBM audience
rating measurements, higher in the targeted groups, should lead to further
growth of future radio financial results. RYTHME FM ranks No. 1 in the
Montreal market. Furthermore, revenue and operating expenses for the Québec
City RYTHME FM station were capitalized in fiscal 2004 but not in fiscal 2005.
Television revenue decreased by 11.7% and 5.7% in the third quarter and
in the first nine months, respectively due to a decline in TQS's audience
ratings and to an advertising market that remains difficult for conventional
television.

Operating Income before Amortization

In the third quarter, the decline in operating income before amortization
is attributable to the decline in TQS's revenue, despite stable programming
and production expenses. On the other hand, operating income before
amortization has improved in the first nine months as a result of more
targeted television programming and strict cost control.

FINANCIAL GUIDELINES

<<
($ million except Preliminary Revised Revised
customer data) Projections Projections Projections
Fiscal in the in the
2006 third second
quarter quarter
Fiscal Fiscal
2005 2005
------------ ----------- -----------
Cable Sector
Financial Guidelines
Revenue 583 to 588 553 to 554 550 to 555
Operating income
before amortization 237 to 242 226 220 to 222
Operating margin 40 to 41% 40 to 41% About 40%
Financial expense 55 56 56
Amortization 115 122 122
Capital expenditures
and deferred charges 132 119 119
Free Cash Flow 49 to 55 45 to 50 45 to 50
Customer Addition Guidelines
Basic-service 0 to 3,000 0 to 2,500 0 to 2,500
High-speed Internet 32,000 to 37,000 to 32,000 to
37,000 41,000 37,000
Digital terminals 60,000 to 55,000 to 55,000 to
65,000 60,000 60,000
Digital video service 47,000 to 46,000 to 46,000 to
52,000 51,000 51,000
Digital telephony service 7,000 to 500 to
8,000 1,000 NA

Media Sector
Financial Guidelines
Revenue 124 to 118 to 118 to
126 120 120
Operating income (loss)
before amortization (2) to 4.5 to 4.5 to
(3) 5.5 5.5
Amortization 7 5 5
Capital expenditures and
deferred charges 5 to 6 5 to 6 5 to 6

Consolidated Financial Guidelines
Free Cash Flow 40 to 45 to 45 to
45 50 50
Net income (loss) 11 (20) to (20) to
(22) (22)

Cable Sector

Fiscal 2005 Financial Guidelines

The cable sector is revising its financial projections for the 2005
fiscal year in light of the very favourable third quarter results.
Accordingly, revenues have been projected between $553 million and $554
million. Furthermore, the operating income before amortization is expected to
be higher to reach $226 million. Moreover, high-speed Internet customer
additions have been revised upward.
The June and August 2005 rate increases will not have any significant
impact on the fourth quarter results, since billing is spread over a one-month
period. Monthly rate increases of at most $3 per customer and averaging $0.50
per basic-service customer were announced to take effect on June 15 in Ontario
and on August 1 in Québec. As a result of these increases, the basic monthly
rate is now $24.99 in the large majority of networks in Ontario, and the
number of different basic rates will drop from 22 to 7, ranging essentially
between $20 and $27.50 per month, in Québec. The monthly rate for certain
bundle services has increased by $1 in Ontario, and other limited rate
increases for selective tier services will be implemented in Québec. On an
annual basis, these rate increases should result in additional revenues of
approximately $5 million.

Fiscal 2006 Preliminary Financial Outlook

The increase of approximately 5% to 6% in revenues should result mainly
from expanded penetration of high-speed Internet service in 2005 and 2006,
with the balance, primarily from the rate increases implemented in June and
August, increased penetration of digital services and from the launch of
digital telephony. Cogeco Cable plans to expand its basic service clientele
through consistently effective marketing, competitive product offers and
superior customer service. As the penetration of high-speed Internet service
and digital service increases, the demand for these products will likely slow
down but should be compensated by increased demand for digital telephony
services.
Cogeco Cable expects to achieve an operating margin similar to that of
the 2005 fiscal year, i.e. approximately 40 to 41%, despite the launch of
digital telephony in most of its networks. Growth in revenues and sustained
cost control should help achieve an increase in operating income before
amortization of approximately 6% to 7%.
Cogeco Cable expects the amortization of capital assets and deferred
charges to fall by $7 million, mainly due to a reduction in the amortization
of subsidies for residential equipments, digital terminals and cable modems.
Management expects that the cash flows generated by operations will finance
the capital expenditures and the deferred charges, expected to amount to $132
million. The cable subsidiary expects to generate Free Cash Flow in the order
of $49 to $55 million, i.e. an increase of approximately $5 million compared
to the forecasts for 2005. An increase in Free Cash Flow is anticipated
despite the launch of digital telephony in most of its networks during the
2006 fiscal year. The Free Cash Flow that is generated should be used
primarily to reduce Indebtedness, thus improving the Corporation's leverage
ratios. Given the anticipated decrease in Indebtedness, the financial expense
will likely decline by 1%.
The increase in capital expenditures and in deferred charges compared to
the 2005 fiscal year will result primarily from an increase of approximately
$8.5 million associated with the upgrade program, mainly for the expansion of
the bandwidth to 750 MHz in Ontario and 550 MHz in Québec. The capital
expenditures budget also includes an amount of approximately $5 million for
telephony.

Media Sector

Fiscal 2005 Financial Guidelines

The media sector maintains its financial projections for the 2005 fiscal
year, which were restated in the second quarter.

Fiscal 2006 Preliminary Financial Outlook

The media sector expects to record revenue growth of approximately 5%,
attributable to radio operations, and a decline in operating income before
amortization of approximately $2.5 million, attributable to television
activities.
Given that advertisers are increasingly turning towards specialty
channels rather than conventional television, conventional television
broadcasters have increased significantly their television programming
budgets. Management anticipates that television revenues will stabilize. TQS
will invest more in its programming to strengthen its "black sheep" image,
particularly in dramatic and reality show productions, in an effort to boost
its audience ratings. This additional investment will result in lower
operating income before amortization, but is necessary to ensure the future
profitability of TQS.
Radio operations should benefit from the favourable BBM ratings recorded
in the spring and from the deployment of the RYTHME FM network. Consequently,
the operating income before amortization should improve significantly. The
financial results of the RYTHME FM radio stations in Sherbrooke and Trois-
Rivières, which were launched at the end of the 2004 fiscal year, will no
longer be capitalized as start-up activities in the 2006 fiscal year.

Consolidated Financial Outlook

For the 2005 fiscal year, a net loss of approximately $21 million should
be recorded, mainly due to the impairment of goodwill and of other intangible
assets associated with television operations, as described earlier. Excluding
this impairment, the net income should amount to approximately $9 million. The
net income of approximately $11 million forecasted for the 2006 fiscal year
will be attributable to the cable sector.
For the 2005 fiscal year, the media sector does not expect to generate
Free Cash Flows, and, consequently, consolidated Free Cash Flows of $45
million to $50 million should be generated. For the 2006 fiscal year, the
media sector should record negative Free Cash Flows of approximately $10
million; and as a result, consolidated Free Cash Flows of $40 million to $45
million should be generated.

RISK FACTORS AND UNCERTAINTIES

On June 29, 2005, Cogeco Cable signed two new collective agreements,
expired since December 31, 2002, with its technical and office personnel in
Québec, which represents 25% of the cable sector's total staff. These new
collective agreements will expire on December 31, 2008.
There have been no other significant changes in the risk factors and
uncertainties facing COGECO as described in the 2004 annual MD&A and in the
2005 second quarterly report of the Company.

ADDITIONAL INFORMATION

This MD&A was prepared on July 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 1,346,000 revenue-generating units to
approximately 1,440,000 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, high-
speed Internet access as well as digital telephony service. 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 933 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 July 11, 2005, at 11:00 a.m. EDST
Via the Internet at www.cogeco.ca/investors
Via telephone: 1 800 479-9001 (confirmation
code 9584968)
Members of the media are invited to participate
in listen mode only.
Re-broadcast of the call available until
July 18th: 1-888-203-1112
(confirmation code 9584968)

<<
Supplementary Quarterly Financial Information

Quarters ended
($000, except
percentages May 31, February 28, February 29,
and per --------------------- ------------------------
share data) 2005 2004 2005 2004

Revenue $ 173,418 $ 168,392 $ 166,566 $ 158,144
Operating income
before amortization 63,814 59,407 54,616 49,021
Operating margin 36.8% 35.3% 32.8% 31.0%
Amortization 32,783 33,323 33,383 33,606
Financial expense 14,441 14,813 14,237 15,213
Impairment losses -- -- 52,531 --
Income taxes 5,869 5,046 (130) 1,815
Non-controlling
interest 5,603 2,409 (16,940) (561)
Net income
(net loss) 4,964 3,816 (28,524) (1,142)

Cash flow from
operations 48,699 44,127 40,962 33,853

Net income
(net loss)
per share
Basic and diluted $ 0.30 $ 0.23 ($ 1.74) ($ 0.07)


Supplementary Quarterly Financial Information

Quarters ended
($000, except
percentages November 30, August 31,
and per --------------------- -----------------------
share data) 2005 2004 2005 2004

Revenue $ 171,411 $ 166,913 $ 154,652 $ 150,398
Operating income
before amortization 58,928 50,214 55,862 50,924
Operating margin 34.4% 30.1% 36.1% 33.9%
Amortization 33,616 44,517 33,758 29,815
Financial expense 14,240 15,247 14,305 15,124
Impairment losses -- -- -- --
Income taxes 4,582 30,640 1,472 2,247
Non-controlling
interest 3,256 (24,800) 4,077 1,933
Net income
(net loss) 3,117 (15,391) 2,117 1,509

Cash flow from
operations 44,503 34,421 43,010 35,597

Net income
(net loss)
per share
Basic and diluted $ 0.19 ($ 0.94) $ 0.13 $ 0.09
>>

Cable sector 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
May 31, August 31,
2005 2004
-------------------------------------------------------------------------

Homes Passed
Ontario 982,550 972,964
Québec 457,529 450,292
-------------------------------------------------------------------------
1,440,079 1,423,256
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Revenue-Generating Units
Ontario 974,704 917,551
Québec 371,227 354,348
-------------------------------------------------------------------------
1,345,931 1,271,899
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Basic-Service Customers
Ontario 587,687 584,686
Québec 239,637 239,169
-------------------------------------------------------------------------
827,324 823,855
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Discretionnary-Service Customers
Ontario 466,594 463,217
Québec 181,752 178,022
-------------------------------------------------------------------------
648,346 641,239
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Pay-TV Service Customers
Ontario 81,680 80,567
Québec 34,400 32,246
-------------------------------------------------------------------------
116,080 112,813
-------------------------------------------------------------------------
-------------------------------------------------------------------------

High-Speed Internet Service Customers
Ontario 225,553 198,197
Québec 49,320 41,411
-------------------------------------------------------------------------
274,873 239,608
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Digital Customers
Ontario 161,464 134,668
Québec 82,270 73,768
-------------------------------------------------------------------------
243,734 208,436
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Digital Terminals
Ontario 199,539 161,731
Québec 88,423 78,340
-------------------------------------------------------------------------
287,962 240,071
-------------------------------------------------------------------------
-------------------------------------------------------------------------

COGECO INC.
CONSOLIDATED STATEMENTS OF INCOME

Three months Nine months
ended May 31, ended May 31,
-------------------------------------------------------------------------
(In thousands of dollars,
except per share)
2005 2004 2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Revenue $ 173,418 $ 168,392 $ 511,395 $ 493,449

Operating costs 109,604 108,985 334,037 334,807
-------------------------------------------------------------------------
Operating income
before amortization 63,814 59,407 177,358 158,642
Amortization 32,783 33,323 99,782 111,446
-------------------------------------------------------------------------
Operating income 31,031 26,084 77,576 47,196
Financial expense 14,441 14,813 42,918 45,273
-------------------------------------------------------------------------
Income before
income taxes and
the following items 16,590 11,271 34,658 1,923

Impairment of
goodwill and
other intangible
(note 5) - - 52,531 -
Income taxes (note 3) 5,869 5,046 10,321 37,501

Non-controlling
interest 5,603 2,409 (8,081) (22,951)

Loss on dilution
resulting from
shares issued
by a subsidiary 16 - 108 -

Share in the loss
of a company
subject to
significant influence 138 - 222 90
-------------------------------------------------------------------------

Net income (loss) $ 4,964 $ 3,816 $ (20,443) $ (12,717)
-------------------------------------------------------------------------

Earnings (loss)
per share (note 8)
Basic and diluted $ 0.30 $ 0.23 $ (1.25) $ (0.78)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------


COGECO INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

Nine months
ended May 31,
-------------------------------------------------------------------------
(In thousands of dollars) 2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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 (20,443) (12,717)
Excess of price paid over the attributed
value of subordinate voting shares redeemed - (34)
Dividends on multiple voting shares (291) (291)
Dividends on subordinate voting shares (2,294) (2,282)
-------------------------------------------------------------------------

Balance at end $ 186,160 $ 207,929
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO INC.
CONSOLIDATED BALANCE SHEETS

-------------------------------------------------------------------------
May 31, August 31,
(In thousands of dollars) 2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Assets

Current
Accounts receivable $ 61,372 $ 57,210
Income tax receivable - 304
Prepaid expenses 5,595 5,529
Broadcasting rights 27,979 28,428
-------------------------------------------------------------------------
94,946 91,471
-------------------------------------------------------------------------

Investments 137 359
Fixed assets 707,238 716,444
Deferred charges 42,478 50,768
Broadcasting licenses and customer
base (note 5) 1,017,892 1,042,498
Goodwill (note 5) - 27,925
-------------------------------------------------------------------------
$ 1,862,691 $ 1,929,465
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Liabilities and Shareholders' equity

Liabilities

Current
Bank indebtedness $ 15,571 $ 4,551
Accounts payable and accrued
liabilities 117,278 143,996
Income tax payable 1,149 -
Deferred and prepaid income 25,035 22,778
Current portion of long-term debt
(note 6) 2,629 2,603
-------------------------------------------------------------------------
161,662 173,928
-------------------------------------------------------------------------

Long-term debt (note 6) 739,369 772,332
Deferred and prepaid income 10,763 9,829
Pension plan liabilities and accrued
employee benefits 9,854 8,132
Future income tax liabilities 203,015 196,379
Non-controlling interest 435,165 443,818
-------------------------------------------------------------------------
1,559,828 1,604,418
-------------------------------------------------------------------------

Shareholders' equity

Capital stock (note 7) 116,167 115,621
Retained earnings 186,160 209,188
Contributed surplus -
stock-based compensation 536 238
-------------------------------------------------------------------------
302,863 325,047
-------------------------------------------------------------------------
$ 1,862,691 $ 1,929,465
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO INC.
CONSOLIDATED STATEMENTS OF CASH FLOW

Three months Nine months
ended May 31, ended May 31,
-------------------------------------------------------------------------
(In thousands of dollars)
2005 2004 2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Cash flow from
operating activities
Net income (loss) $ 4,964 $ 3,816 $ (20,443) $ (12,717)
Items not affecting
cash and cash
equivalents
Amortization 32,783 33,323 99,782 111,446
Amortization of
deferred financing
costs 242 416 861 1,227
Impairment of
goodwill and
other intangible
assets (note 5)
- - 52,531 -
Future income
taxes (note 3) 4,065 3,393 6,636 33,351
Non-controlling
interest 5,603 2,409 (8,081) (22,951)
Other 1,042 770 2,878 2,045
-------------------------------------------------------------------------
Cash flow
from operations 48,699 44,127 134,164 112,401
Changes in non-cash
working capital items
and long-term
deferred and
prepaid income
(note 9a)) 1,260 (3,661) (26,271) (33,817)
-------------------------------------------------------------------------
49,959 40,466 107,893 78,584
-------------------------------------------------------------------------

Cash flow from
investing activities
Acquisition of
fixed assets (note 9b)) (21,854) (20,635) (71,629) (54,413)
Increase in
deferred charges (3,643) (4,367) (10,099) (15,323)
Other 38 - 85 505
-------------------------------------------------------------------------
(25,459) (25,002) (81,643) (69,231)
-------------------------------------------------------------------------

Cash flow from
financing activities
Increase (decrease)
in bank indebtedness (1,331) 556 11,020 11,339
Increase in
long-term debt - 2,000 58 4,000
Repayment of long-term
debt (21,901) (17,343) (34,555) (22,828)
Issue of subordinate
voting shares - 33 546 384
Purchase of subordinate
voting shares for
cancellation - (55) - (61)
Dividends on
multiple voting shares (97) (97) (291) (291)
Dividends on
subordinate voting shares (767) (762) (2,294) (2,282)
Issue of subordinate
voting shares by a
subsidiary to
non-controlling
interest, net of
issue costs 82 204 722 386
Dividends paid by a
subsidiary to
non-controlling interest (486) - (1,456) -
-------------------------------------------------------------------------
(24,500) (15,464) (26,250) (9,353)
-------------------------------------------------------------------------

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
May 31, 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 May 31, 2005 and
August 31, 2004 as well as its results of operations and its cash flow for the
three and nine month periods ended May 31, 2005 and 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 leases, 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
nine month period ended May 31, 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
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 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
nine month periods ended May 31, 2004:

-------------------------------------------------------------------------
Three months ended Nine months ended
-------------------------------------------------------------------------
May 31, 2004 May 31, 2004
-------------------------------------------------------------------------
Before After Before After
restatement restatement restatement restatement
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Revenue $ 166,322 $ 168,392 $ 487,427 $ 493,449
Operating costs 105,705 108,985 323,073 334,807
Amortization 32,225 33,323 108,274 111,446
Income taxes 5,762 5,046 42,224 37,501
Non-controlling interest 3,375 2,409 (20,425) (22,951)
Net income (loss) 4,442 3,816 (11,082) (12,717)
-------------------------------------------------------------------------
Earnings (loss) per share
Basic and diluted $ 0.27 $ 0.23 $ (0.68) $ (0.78)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

3. Income taxes

Three months ended Nine months ended
May 31, May 31,
-------------------------------------------------------------------------
2005 2004 2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Current $ 1,804 $ 1,653 $ 3,685 $ 4,150
Future 4,065 3,393 6,636 33,351
-------------------------------------------------------------------------
$ 5,869 $ 5,046 $ 10,321 $ 37,501
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

Three months ended Nine months ended
May 31, May 31,
-------------------------------------------------------------------------
2005 2004 2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Income tax at
combined income
tax rate of 34.15%
(32.9% in 2004) $ 5,665 $ 3,704 $ (6,104) $ 473
Loss or income subject
to lower or higher
tax rates (9) 213 1,721 690
Increase in income
taxes as a result
of change in
substantially
enacted tax rates - - - 32,483
Large corporation tax 397 1,027 1,407 2,979
Income taxes arising
from the non-deductible
impairment of goodwill
and broadcasting licenses - - 10,570 -
Impact of non-recognition
of future income tax
asset on impairment
of broadcasting licenses - - 2,454 -
Other (184) 102 273 876
-------------------------------------------------------------------------
Income tax at effective
income tax rate $ 5,869 $ 5,046 $ 10,321 $ 37,501
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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:

Cable Media
-------------------------------------------------------------------------
Three months ended May 31, 2005 2004 2005 2004
(unaudited)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Revenue $ 140,071 $ 132,364 $ 33,392 $ 36,160
Operating costs 81,761 81,035 28,627 28,762
Operating income
before amortization 58,310 51,329 4,765 7,398
Amortization 31,396 32,070 1,328 1,209
Operating income 26,914 19,259 3,437 6,189
Financial expense 13,954 14,414 140 114
Income taxes 4,715 2,993 799 1,729
-------------------------------------------------------------------------
Net assets employed (1) $ 1,625,255 $ 1,649,322 $ 78,640 $ 131,622
Total assets 1,739,159 1,756,487 116,381 170,262
Goodwill - - - 27,925
Acquisition of fixed assets 20,903 18,624 951 1,984
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Head Office
and eliminations Consolidated
-------------------------------------------------- ----------------------
Three months ended May 31, 2005 2004 2005 2004
(unaudited)
-------------------------------------------------- ----------------------
-------------------------------------------------- ----------------------
Revenue $ (45) $ (132) $ 173,418 $ 168,392
Operating costs (784) (812) 109,604 108,985
Operating income
before amortization 739 680 63,814 59,407
Amortization 59 44 32,783 33,323
Operating income 680 636 31,031 26,084
Financial expense 347 285 14,441 14,813
Income taxes 355 324 5,869 5,046
------------------------------------------------- -----------------------
Net assets employed (1) $ 5,720 $ 7,136 $ 1,709,615 $ 1,788,080
Total assets 7,151 8,506 1,862,691 1,935,255
Goodwill - - - 27,925
Acquisition of fixed assets - 27 21,854 20,635
-------------------------------------------------- ----------------------
-------------------------------------------------- ----------------------
(1) Total assets less cash and cash equivalents, accounts payable and
accrued liabilities and deferred and prepaid income.

Cable Media
-------------------------------------------------------------------------
Nine months ended May 31, 2005 2004 2005 2004
(unaudited)
-------------------------------------------------------------------------
Revenue $ 414,226 $ 393,427 $ 97,304 $ 100,154
Operating costs 247,425 244,471 88,817 92,373
Operating income
before amortization 166,801 148,956 8,487 7,781
Amortization 95,628 107,738 3,977 3,606
Operating income 71,173 41,218 4,510 4,175
Financial expense 41,688 44,086 395 309
Impairment of goodwill
and other intangible
assets - - 52,531 -
Income taxes 11,800 35,795 738 766
-------------------------------------------------------------------------
Net assets employed(1) $ 1,625,255 $ 1,649,322 $ 78,640 $ 131,622
Total assets 1,739,159 1,756,487 116,381 170,262
Goodwill - - - 27,925
Acquisition of fixed assets 69,286 50,281 2,293 3,309
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Head Office
and eliminations Consolidated
-------------------------------------------------- ----------------------
Nine months ended May 31, 2005 2004 2005 2004
(unaudited)
-------------------------------------------------- ----------------------
Revenue $ (135) $ (132) $ 511,395 $ 493,449
Operating costs (2,205) (2,037) 334,037 334,807
Operating income
before amortization 2,070 1,905 177,358 158,642
Amortization 177 102 99,782 111,446
Operating income 1,893 1,803 77,576 47,196
Financial expense 835 878 42,918 45,273
Impairment of goodwill
and other intangible
assets - - 52,531 -
Income taxes (2,217) 940 10,321 37,501
------------------------------------------------- -----------------------
Net assets employed(1) $ 5,720 $ 7,136 $1,709,615 $1,788,080
Total assets 7,151 8,506 1,862,691 1,935,255
Goodwill - - - 27,925
Acquisition of fixed assets 50 823 71,629 54,413
-------------------------------------------------- ----------------------
-------------------------------------------------- ----------------------
(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 Broadcas- Customer
ting base
licenses 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
May 31, 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 during the second quarter, 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 May 31, August 31,
rate 2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (audited)
Parent company
Term Facility 2008 (1) 4.95%(2) $ 21,500 $ 22,000

Subsidiaries
Term Facility 2007 3.54 (2) 25,000 58,000
Senior Secured
Debentures Serie 2009 6.75 150,000 150,000
Senior - Secured Notes
Series A -
US $150 million 2008 6.83 (3) 188,280 196,950
Series B 2011 7.73 175,000 175,000
Second Secured
Debentures Serie 2007 8.44 125,000 125,000
Deferred credit (4) 2008 - 50,370 41,700
Obligations under
capital lease 2009 5.87 - 9.11 3,805 3,225
Preferred shares (5) 2006 - 2,920 2,920
Other - - 123 140
-------------------------------------------------------------------------
741,998 774,935
Less current portion 2,629 2,603
-------------------------------------------------------------------------
$ 739,369 $ 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 May 31, 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 May 31, 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.
-------------------------------------------------------------------------
May 31, 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:

Nine months Twelve months
ended May 31, 2005 ended August 31, 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 three 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 $133,000 and $352,000 ($63,000
and $175,000 in 2004) was recorded for the three and nine month periods ended
May 31, 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 income (loss) and earnings (loss) per
share for the three and nine month periods ended May 31, 2005 and 2004 would
have been reduced (increased) to the following pro forma amounts:

Three months Nine months
ended May 31, ended May 31,
-------------------------------------------------------------------------
2005 2004 2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Net income (loss)
As reported $ 4,964 $ 3,816 $ (20,443) $ (12,717)
Pro forma 4,884 3,736 (20,683) (12,957)

Basic earnings (loss)
per share
As reported $ 0.30 $ 0.23 $ (1.25) $ (0.78)
Pro forma 0.30 0.23 (1.26) (0.79)

Diluted earnings (loss)
per share
As reported $ 0.30 $ 0.23 $ (1.25) $ (0.78)
Pro forma 0.29 0.23 (1.26) (0.79)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The fair value of stock options granted by the Company's subsidiary,
Cogeco Cable Inc., for the nine month period ended May 31, 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 May 31, 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
three quarters, TQS Inc. granted 77,000 stock options (68,426 in 2004). A
compensation expense of $40,000 and $121,000 was recorded for the three and
nine month periods ended May 31, 2005 related to this plan.

8. Earnings (loss) per share

The following table provides reconciliation between basic and diluted
earnings (loss) per share:

Three months Nine months
ended May 31, ended May 31,
-------------------------------------------------------------------------
2005 2004 2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Net income (loss) $ 4,964 $ 3,816 $ (20,443) $ (12,717)

Weighted average number
of multiple voting and
subordinate voting
shares outstanding 16,450,004 16,353,052 16,409,333 16,339,691
Effect of dilutive
stock options (1) 145,668 146,784 - -
-------------------------------------------------------------------------
Weighted average number
of diluted multiple
voting and subordinate
voting shares
outstanding 16,595,672 16,499,836 16,409,333 16,339,691
-------------------------------------------------------------------------
Earnings (loss)
per share
Basic and diluted $ 0.30 $ 0.23 $ (1.25) $ (0.78)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) The weighted average dilutive potential number of subordinate voting
shares, which were antidilutive for the nine month period ended
May 31, 2005, amounted to 142,565 shares (137,006 in 2004). Stock
options to purchase 43,843 shares (194,876 in 2004) in the three
month period ended May 31, 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 Nine months
ended May 31, ended May 31,
-------------------------------------------------------------------------
2005 2004 2005 2004
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)


Accounts receivable $ 2,663 $ (3,708) $ (4,162) $ (4,621)
Income tax receivable 773 - 304 40
Prepaid expenses 496 1,120 (66) 392
Broadcasting rights 2,488 4,016 449 1,148
Accounts payable and
accrued liabilities (5,561) (6,925) (26,718) (34,118)
Income tax liabilities 1,149 1,487 1,149 1,505
Deferred and prepaid income (402) 349 3,191 1,933
Other (346) - (418) (96)
-------------------------------------------------------------------------
$ 1,260 $ (3,661) $(26,271) $ (33,817)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

b) Other information

Three months Nine months
ended May 31, ended May 31,
-------------------------------------------------------------------------
2005 2004 2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Fixed assets
acquisitions through
capital leases $ 1,560 $ 1,534 $ 1,560 $ 1,660
Interest paid 16,151 17,444 44,116 47,284
Income taxes paid
(refunded) (118) 166 2,232 2,605
-------------------------------------------------------------------------
-------------------------------------------------------------------------

10. Employees future benefits

The Company and its subsidiaries offer their employees defined
contributory 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 Nine months
ended May 31, ended May 31,
-------------------------------------------------------------------------
2005 2004 2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)

Defined contributory
benefit pension plans $ 567 $ 435 $ 1,582 $ 1,297
Defined contribution
pension plan and
collective registered
retirement savings
plan 412 328 1,205 1,228
-------------------------------------------------------------------------
$ 979 $ 763 $ 2,787 $ 2,525
-------------------------------------------------------------------------
-------------------------------------------------------------------------

11. Comparative figures

Certain comparative figures have been reclassified in order to conform to
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