COGECO Inc.
TSX : CGO

COGECO Inc.

January 17, 2005 08:27 ET

COGECO Reports Improved Profitability in the Media Sector and Continued Growth in the Cable Sector

MONTREAL, Jan. 17 - COGECO Inc. (TSX: CGO.SV) disclosed
today its financial results for the first quarter of fiscal 2005, ended
November 30, 2004.

"For the first quarter of fiscal 2005, COGECO's results have showed good
progress. COGECO's revenue rose by 2.7%. Furthermore, operating income before
amortization and Free Cash Flow increased by 17% and 29% respectively, and
this is attributable to the good performance of both the cable and media
sectors," said Louis Audet, President and Chief Executive Officer of COGECO
Inc.

"In the cable sector, growth of our basic-service and digital-service
customers was higher than the same period last year while the addition of high-
speed Internet connections was slightly lower. Thanks to new services such as
top-end security services, included free of charge with our Standard and Pro
packages, we have further strengthened the competitiveness of our high-speed
Internet service offer. Our enhanced video-on-demand offers as well as the
introduction of subscription video-on-demand, have reinforced Cogeco Cable's
position as a leader in its markets," said Mr. Audet.

"In the media sector, operating income before amortization doubled in
comparison to the same period last year thanks to better targeted investments
in television programming and rigorous cost control. Even if revenues
experienced a decrease, mainly due to a readjustment in TQS market shares, new
television programming expected for the second quarter should drive growth of
television revenue," concluded Mr. Audet.


FINANCIAL HIGHLIGHTS
Three months ended November 30,
(unaudited)

($000s, except percentages and
per share data) 2004 2003 %
(restated(1)) Change
___________ ___________ ________

Revenue $ 171,411 $ 166,913 2.7
Operating income before amortization 58,928 50,214 17.4

Net income (loss) 3,117 (15,391) --

Cash flow from operations 44,503 34,421 29.3
Less:
Capital expenditures and
increase in deferred charges 25,038 21,470 16.6
______ ______
Free Cash Flow(2) 19,465 12,951 50.3

Per share data
Basic net income (loss) $ 0.19 $ (0.94) --
Cash flow from operations 2.72 2.11 28.9
>>

(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 8b) 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 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 first quarter of fiscal 2004:

<<
($000s, except percentages and Before After
per share data) restatement restatement
___________ ___________

Revenue $ 165,496 $ 166,913
Operating income before amortization 53,232 50,214
Operating margin 32.2% 30.1%
Amortization 43,484 44,517
Income taxes 33,855 30,640
Net loss (15,062) (15,391)
Basic net loss per share (0.92) (0.94)

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 in 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. Certain 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.
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 first quarter rose by $4.5 million, or 2.7% 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 $6.3 million or
4.8%. Media revenues declined by $1.7 million or 4.6%, mainly due to a
readjustement in audience market share for TQS and a continued difficult
advertising market for conventional television broadcaster.
Operating income before amortization climbed 17.4% for the first quarter
compared to the same period last year. The cable and media sectors contributed
to an increase of $6 million and $2.4 million, respectively.

<<
FIXED CHARGES

Three months ended November 30,
2004 2003 %
($000s, except percentages) (restated) Change
___________ ___________ ________

Amortization $ 33,616 $ 44,517 (24.5)
Financial expense 14,240 15,247 (6.6)
>>

Amortization in the first quarter amounted to $33.6 million compared to
$30.5 million for the same period last year, excluding the effect of a
$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. Increased amortization stemmed mainly from capital expenditures linked
to digital services.
For the first quarter, financial expense decreased compared to the same
period last year. The reason for this decline is that the level of
Indebtedness (defined as bank indebtedness and long-term debt) during the
first quarter was lower compared to the same period last year due to Free Cash
Flow generated and short-term interest rates on the Term Facilities were also
lower.

INCOME TAXES

Income taxes in the first quarter amounted to $4.6 million compared to
$3 million for the same period last year excluding the effect of a non-cash
income tax adjustment of $27.6 million in the cable sector. This increase is
mainly attributable to 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 for future income tax liabilities. This
amount was partly offset by a non-cash reduction of future income taxes of
$4.9 million related to the decline in carrying value of home terminal devices
and certain other long-term cable assets.

NET INCOME (LOSS)

Net income for the first quarter amounted to $3.1 million, or $0.19 per
share, compared to a net loss of $15.4 million, or $0.94 per share, for the
same period last year. The net loss was attributable to the cable sector's non-
cash adjustments for amortization and income taxes totaling $41.6 million as
previously discussed.

<<
CASH FLOW AND LIQUIDITY
Three months ended November 30,

2004 2003
($000s) (restated)
____________ ____________
Operating Activities
Cash flow from operations $ 44,503 $ 34,421
Changes in non-cash working capital
items and long-term deferred and
prepaid income (44,512) (40,061)
____________ ____________
$ (9) $ (5,640)
____________ ____________
____________ ____________

Investing Activities(1) $ (25,016) $ (20,868)
____________ _____________
____________ _____________

Financing Activities $ 25,025 $ 26,508
____________ _____________
____________ _____________

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

For the first quarter, cash flow from operations was greater than last
year by $10.1 million or 29.3% mainly due to growth in operating income before
amortization. Cash outflows from changes in non-cash working capital items and
long-term deferred and prepaid income were greater than the same period last
year as accounts payable and accrued liabilities declined by a bigger amount.
Investing activities related to capital expenditures and the increase in
deferred charges, including assets acquired under capital leases, rose by
$3.6 million during the first quarter. The $2.8 million decline in deferred
charges is mainly attributable to lower equipment subsidies given that most of
the new digital customers have decided to rent their terminals during the
quarter. The $6.4 million increase in capital expenditures results mostly from
a rise 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 $19.5 million was generated during the first quarter as
a result of increasing cash flow from operations for the cable and media
sectors partly offset by increased capital expenditures in the cable sector.
Long-term debt and bank indebtedness increased by $26 million mainly due
to a $44.5 million decline in non-cash working capital items and long-term
deferred and prepaid income partly offset by generated Free Cash Flow of
$19.5 million. During the first quarter of last year, long-term debt and bank
indebtedness grew by $27.1 million because of a $40.1 million decline in non-
cash working capital items and long-term deferred and prepaid income partly
offset by generated Free Cash Flow of $13 million.
As at November 30, 2004, the cable subsidiary had utilized $55 million of
its $270 million Term Facility and COGECO had drawn $22 million of its $40
million Term Facility. 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 AND NORMAL COURSE ISSUER BID

At its January 14, 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 February 11, 2005, to shareholders on
record on January 28, 2005.
On December 21, 2004, COGECO renewed its normal course issuer bid under
which it can acquire up to 250,000 subordinate voting shares for cancellation
representing 1.72% of the outstanding shares of this class. During the first
quarter of fiscal 2005, COGECO did not acquire any of its shares.

FINANCIAL POSITION

Since August 31, 2004, significant changes in the balance sheet include
accounts receivable, accounts payable and accrued liabilities and
Indebtedness. The $11.5 million increase in accounts receivable was mainly
related to TQS as first quarter television revenue is significantly higher
than fourth quarter revenue due to seasonal factors. Accounts payable and
accrued liabilities declined by $34.6 million as use of working capital was
managed tightly at fiscal year-end. Indebtedness increased by $26 million due
to the factors discussed in the "Cash Flow and Liquidity" section discussed
previously.

A description of COGECO's share data as of December 31, 2004 is presented
in the table below:

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

Common Shares
Multiple voting shares 1,849,900 12
Subordinate voting shares 14,528,104 115,650

Options to Purchase
Subordinate Voting Shares
Outstanding options 501,276
Exercisable options 485,755
>>

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
% of
Net additions Penetration(1)
First Quarter November 30,
November 30, _____________ _____________
2004 2004 2003 2004 2003
___________ _____ _____ _____ _____

Revenue-generating units(2) 1,319,254 41,937 37,560 N/A N/A
Basic-service customers 831,598 7,743 7,239 N/A N/A
High-speed Internet
customers(3) 261,825 16,799 17,439 36.2 30.6
Digital terminals(4) 261,913 21,842 15,617 32.2 24.5
>>

(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 264,064 at
November 30, 2004 compared to 250,029 at August 31, 2004. Customers
subscribing only to Internet services amounted to 54,584 at
November 30, 2004 compared to 49,691 customers at August 31, 2004.
(4) 77% of terminals at November 30, 2004 were purchased, the same % as a
year earlier.

In the first quarter, revenue-generating units were higher than the same
period last year due to better digital-service customer growth and greater
basic-service customer gains. The strong growth in digital-service customers
is mainly attributable to the success of an attractive digital terminal rental
plan launched last June and August in Ontario and Québec, respectively and the
addition of MoviePix to the digital pay television service in Ontario. The
rollout of subscription video-on-demand and High Definition (HD) services to
86% and 67% of the customer base respectively this fall should contribute to
the future growth of digital services. The HD coverage will increase in the
coming months once the service is offered to most of Québec's customer base.
High-speed Internet customer additions were slightly lower than last year
due to a normal slowing-down of demand as the penetration rate increases. To
enhance the competitiveness of its Internet service, Cogeco Cable will offer
top-end security services free of charge to all Standard and Pro high-speed
Internet customers in the coming months. The Internet security services
include anti-virus, personal firewall, parental control and anti-spam and will
position Cogeco Cable's offering as the fastest and most secure Internet
service on the market.

<<
Operating Results

Three months ended November 30,

2004 2003 %
($000s, except percentages) (restated) Change
___________ ___________ ________

Revenue $ 135,766 $ 129,489 4.8

Operating costs 79,857 79,713 0.2
Management fees - COGECO Inc. 2,715 2,562 6.0

Operating income before amortization 53,194 47,214 12.7

Operating margin 39.2% 36.5%
>>

Revenue

Revenue for the first quarter rose by $6.3 million or 4.8% compared to
the same period last year. This growth is mainly attributable to increases in
basic-service customer rates 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 has been implemented effective June 15 in Ontario and August 1 in
Québec. A monthly digital basic rate hike of $4 was also 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

Network fees for the first quarter have increased slightly compared to
the same period in fiscal 2004. This rise is due to improved penetration of
bundled services partly offset by lower IP transport costs. IP transport costs
have declined despite a 17.6% increase in Internet customers since last year.
Network fees as a percentage of revenue have declined. Even though customer
care expenses have increased as a result of a 7.6% year-over-year expansion of
revenue-generating units, total other operating costs have declined because of
tighter cost control and a more targeted marketing strategy.

Operating Income before Amortization

Operating income before amortization improved by 12.7% in the first
quarter compared to the same period in fiscal 2004, as a result of revenue
growth, continued cost control and targeted marketing. Cogeco Cable's
operating margin jumped from 36.5% to 39.2%.

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 declined by CDN$19 million during
the first quarter due to the strengthening of the Canadian dollar. Since the
Senior Secured Notes Series A are fully hedged, the decline is fully offset by
an increase in deferred credit described in Note 5 in the first quarter
financial statements. The $60.8 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 November 30,

%
($000s, except percentages) 2004 2003 Change
___________ ___________ ________

Revenue $ 35,690 $ 37,424 (4.6)

Operating costs 30,856 35,011 (11.9)

Operating income before amortization 4,834 2,413 100.3

Operating margin 13.5% 6.5%
>>

Revenue

Radio revenue increased by 18.6% mainly due to improved ratings for the
Montréal RYTHME FM station and despite lower advertising revenue from the 933
Québec City radio station. Furthermore, it is the first quarter that revenue
and operating expenses for the Quebec City RYTHME FM station are not
capitalized.
On the other hand, television revenue decreased by 6.9% as TQS's overall
market share in the Franco 18-49 age group was readjusted and television-
advertising market is shifting towards speciality channels. In the first
quarter, TQS has focused on improving its profitability through targeted
investments in programming and therefore did not launch blockbusters such as
Loft Story, which enjoyed record viewership last year but did not generate the
expected returns. However, during the second quarter, TQS anticipates to grow
its revenue with the launch of new programs, produced with a more modest
programming budget than past blockbusters, such as Casting and SOS Beauté.

Operating Income before Amortization

Despite the revenue decline, operating income before amortization has
grown by $2.4 million in the first quarter as a result of more targeted
television programming and general cost control.

FISCAL 2005 FINANCIAL GUIDELINES

Cable Sector

During the year, Cogeco Cable will continue to focus on the following
objectives: 1) expand its customer base through targeted marketing, a
competitive product offering and superior customer service; 2) increase the
efficiency of its processes with a view to better serve its customers and
drive down its costs; and 3) generally prioritize investments providing
increased return on investment.
Since economic and industry factors described in the 2004 annual MD&A
remain substantially unchanged, management is maintaining its fiscal 2005
financial and customer guidance and as a result still expects that the cable
sector will generate Free Cash Flow of $45 to $50 million. In 2005, Cogeco
Cable plans to gradually launch digital telephony. 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

The media sector is maintaining its fiscal 2005 revenue ($125 million to
$126 million) and operating income before amortization ($11.5 million to
$13 million) guidelines, updated last quarter. However, management notes that
the general weakness in advertising markets for conventional television might
lead to revisions, in the next quarter, to the financial guidelines.

RISK FACTORS AND UNCERTAINTIES

There has been no 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 January 14, 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 1,319,000 revenue-generating units to
approximately 1,430,000 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 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 January 17, 2005, at 11:00 a.m. ET
By the Internet at www.cogeco.ca/investors
By telephone: 1-800-406-5356, confirmation
(pound key) 968223
Media are invited to participate on a listen
mode only.

<<
Supplementary Quarterly Financial Information

Quarters ended November 30, August 31,
____________________ _____________________
2004 2003 2004 2003
($000, except percentages and (restated) (restated)
per share data)

Revenue $171,411 $166,913 $154,652 $150,398
Operating income before
amortization
58,928 50,214 55,862 50,924
Operating margin 34.40% 30.10% 36.10% 33.90%
Amortization 33,616 44,517 33,758 29,815
Financial expense 14,240 15,247 14,305 15,124
Income taxes 4,582 30,640 1,472 2,247
Non-controlling interest 3,256 (24,800) 4,077 1,933
Net income (loss) 3,117 (15,391) 2,117 1,509

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

Net income (loss) per share
Basic $0.19 ($0.94) $0.13 $0.09
Diluted 0.19 (0.94) 0.13 0.09


Quarters ended May 31, February
____________________ _____________________
2004 2003 29, 2004 28, 2003
($000, except percentages and
per share data) (restated)(restated) (restated)

Revenue $168,392 $157,681 $158,145 $150,505
Operating income before
amortization
59,407 51,862 49,021 44,549
Operating margin 35.30% 32.90% 31.00% 29.60%
Amortization 33,323 28,834 33,606 28,447
Financial expense 14,813 15,841 15,213 15,903
Income taxes 5,046 3,482 1,815 1,065
Non-controlling interest 2,409 1,003 (557) (830)
Net income (loss) 3,816 2,702 (1,143) (36)

Cash flow from operations 44,127 35,068 33,855 28,019

Net income (loss) per share
Basic $0.23 $0.17 $(0.07) $(0.00)
Diluted 0.23 0.16 (0.07) (0.00)
>>

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 the cable sector's non-cash adjustments for
amortization and income taxes totaling $41.6 million. Those non-cash
adjustments are discussed in the "Fixed Charges" and "Income Taxes"
sections.

<<
COGECO INC.
Cable Statistics
November 30, August 31,
2004 2004
________________________________________________________________________

Homes Passed
Ontario 976,974 972,964
Quebec 453,520 450,292
________________________________________________________________________

1,430,494 1,423,256
________________________________________________________________________
________________________________________________________________________

Revenue-Generating Units
Ontario 956,492 923,046
Quebec 362,762 354,271
________________________________________________________________________

1,319,254 1,277,317
________________________________________________________________________
________________________________________________________________________

Basic-Service Customers
Ontario 590,632 584,686
Quebec 240,966 239,169
________________________________________________________________________

831,598 823,855
________________________________________________________________________
________________________________________________________________________

Discretionnary-Service Customers
Ontario 470,380 463,217
Quebec 180,731 178,022
________________________________________________________________________

651,111 641,239
________________________________________________________________________
________________________________________________________________________

Pay-TV Service Customers
Ontario 78,362 80,567
Quebec 33,797 32,246
________________________________________________________________________

112,159 112,813
________________________________________________________________________
________________________________________________________________________

High-Speed Internet Service Customers
Ontario 217,427 203,692
Quebec 44,398 41,334
________________________________________________________________________
261,825 245,026
________________________________________________________________________
________________________________________________________________________

Digital Customers
Ontario 148,433 134,668
Quebec 77,398 73,768
________________________________________________________________________
225,831 208,436
________________________________________________________________________
________________________________________________________________________

Digital Terminals
Ontario 179,450 161,731
Quebec 82,463 78,340
________________________________________________________________________
261,913 240,071
________________________________________________________________________
________________________________________________________________________


COGECO INC.
CONSOLIDATED STATEMENTS OF INCOME

Three months ended November 30,
________________________________________________________________________
2004 2003
(In thousands of dollars, (restated)
except per share data) ___________ _____________
(unaudited) (unaudited)

Revenue $ 171,411 $ 166,913

Operating costs 112,483 116,699
________________________________________________________________________

Operating income before amortization 58,928 50,214
Amortization 33,616 44,517
________________________________________________________________________

Operating income 25,312 5,697
Financial expense 14,240 15,247
________________________________________________________________________

Income (loss) before income taxes
and the following items 11,072 (9,550)

Income taxes (note 4) 4,582 30,640

Non-controlling interest 3,256 (24,799)

Loss on dilution resulting from shares
issued by a subsidiary 75 -

Share in the loss of a company subject
to significant influence 42 -
________________________________________________________________________

Net income (loss) $ 3,117 $ (15,391)
________________________________________________________________________

Earnings (loss) per share (note 7)
Basic and diluted $ 0.19 $ (0.94)
________________________________________________________________________
________________________________________________________________________


COGECO INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

Three months ended November 30,
________________________________________________________________________
2004 2003
(In thousands of dollars) (restated)
________________________________________________________________________
________________________________________________________________________

(unaudited) (unaudited)

Balance at beginning
As previously reported $ 209,188 $ 234,903
Changes in accounting policies (note 2c)) - (11,650)
________________________________________________________________________
As restated 209,188 223,253
Net income (loss) 3,117 (15,391)
Excess of price paid over the attributed
value of subordinate voting shares redeemed - (3)
Dividends on multiple voting shares (97) (97)
Dividends on subordinate voting shares (762) (759)
________________________________________________________________________
Balance at end $ 211,446 $ 207,003
________________________________________________________________________
________________________________________________________________________


COGECO INC.
CONSOLIDATED BALANCE SHEETS

________________________________________________________________________
(In thousands of dollars) November 30, August 31,
2004 2004
________________________________________________________________________
(unaudited) (audited)

Assets

Current
Accounts receivable $ 68,708 $ 57,210
Income tax receivable 126 304
Prepaid expenses 5,775 5,529
Broadcasting rights 30,272 28,428
________________________________________________________________________
104,881 91,471
________________________________________________________________________

Investments 317 359
Fixed assets 711,202 716,444
Deferred charges 47,104 50,768
Broadcasting licenses and customer base 1,042,498 1,042,498
Goodwill 27,925 27,925
________________________________________________________________________
$ 1,933,927 $ 1,929,465
________________________________________________________________________
________________________________________________________________________

Liabilities and Shareholders' equity

Liabilities

Current
Bank indebtedness $ 33,833 $ 4,551
Accounts payable and accrued liabilities 109,440 143,996
Deferred and prepaid income 25,396 22,778
Current portion of long-term debt (note 5) 2,457 2,603
________________________________________________________________________
171,126 173,928
________________________________________________________________________

Long-term debt (note 5) 769,202 772,332
Deferred and prepaid income 10,737 9,829
Pension plan liabilities and accrued employee
benefits 8,627 8,132
Future income tax liabilities 199,791 196,379
Non-controlling interest 446,993 443,818
________________________________________________________________________
1,606,476 1,604,418
________________________________________________________________________

Shareholders' equity

Capital stock (note 6) 115,655 115,621
Retained earnings 211,446 209,188
Contributed surplus - stock-based compensation 350 238
________________________________________________________________________
327,451 325,047
________________________________________________________________________
$ 1,933,927 $ 1,929,465
________________________________________________________________________
________________________________________________________________________


COGECO INC.
CONSOLIDATED STATEMENTS OF CASH FLOW

Three months ended November 30,
________________________________________________________________________
2004 2003
(In thousands of dollars) (restated)
________________________________________________________________________
________________________________________________________________________

(unaudited) (unaudited)

Cash flow from operating activities
Net income (loss) $ 3,117 $ (15,391)
Items not affecting cash and cash
equivalents
Amortization 33,616 44,517
Amortization of deferred
financing costs 313 405
Future income taxes (note 4) 3,412 29,299
Non-controlling interest 3,256 (24,799)
Other 789 390
________________________________________________________________________
Cash flow from operations 44,503 34,421
Change in non-cash working capital
items and long-term deferred and
prepaid income (note 8a)) (44,512) (40,061)
________________________________________________________________________
(9) (5,640)
________________________________________________________________________

Cash flow from investing activities
Acquisition of fixed assets (note 8b)) (22,292) (15,796)
Increase in deferred charges (2,746) (5,575)
Other 22 503
________________________________________________________________________
(25,016) (20,868)
________________________________________________________________________

Cash flow from financing activities
Increase in bank indebtedness 29,282 22,317
Increase in long-term debt 58 5,000
Repayment of long-term debt (3,334) (253)
Issue of subordinate voting shares 34 290
Purchase of subordinate voting shares for
cancellation - (6)
Dividends on multiple voting shares (97) (97)
Dividends on subordinate voting shares (762) (759)
Issue of subordinate voting shares by
a subsidiary to non-controlling
interest, net of issue costs 329 16

Dividends paid by a subsidiary to
non-controlling interest (485) -
________________________________________________________________________
25,025 26,508
________________________________________________________________________

Net change in cash and cash equivalents and
cash and cash equivalents at end $ - $ -
________________________________________________________________________
________________________________________________________________________

See supplemental cash flow information in note 8.


COGECO INC.
Notes to Consolidated Financial Statements
November 30, 2004
(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 November 30, 2004
and August 31, 2004 as well as its results of operations and its cash flow for
the three month periods ended November 30, 2004 and 2003. 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
Corporation 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 leases 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) 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 in the
first quarter of last fiscal year.

c) 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 month
period ended November 30, 2003:

________________________________________________________________________
Before After
restatement restatement
________________________________________________________________________
________________________________________________________________________
(unaudited) (unaudited)

Revenue $ 165,496 $ 166,913
Operating costs 112,264 116,699
Amortization 43,484 44,517
Income taxes 33,855 30,640
Non-controlling interest (24,292) (24,799)
Net loss (15,062) (15,391)
________________________________________________________________________
Loss per share
Basic and diluted $ (0.92) $ (0.94)
________________________________________________________________________
________________________________________________________________________

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

3. 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 2004 2003 2004 2003
November 30, (restated)
(unaudited)
________________________________________________________________________
________________________________________________________________________

Revenue $ 135,766 $ 129,489 $ 35,690 $ 37,424

Operating costs 82,572 82,275 30,856 35,011

Operating income before
amortization 53,194 47,214 4,834 2,413


Amortization 32,244 43,313 1,312 1,199

Operating income 20,950 3,901 3,522 1,214

Financial expense 13,894 14,905 101 56

Income taxes 3,229 30,099 896 217
________________________________________________________________________

Net assets employed (1) $1,643,783 $1,673,341 $ 138,379 $ 131,256

Total assets 1,752,748 1,777,864 173,790 184,038

Goodwill - - 27,925 27,925

Acquisition of fixed asset 21,574 14,649 668 818
________________________________________________________________________
________________________________________________________________________

Head Office
and eliminations Consolidated
___________________________________________________ ___________________
Three months ended 2004 2003 2004 2003
November 30, (restated)
(unaudited)
___________________________________________________ ___________________
___________________________________________________ ___________________

Revenue $ (45) $ - $ 171,411 $ 166,913

Operating costs (945) (587) 112,483 116,699

Operating income before
amortization 900 587 58,928 50,214


Amortization 60 5 33,616 44,517

Operating income 840 582 25,312 5,697

Financial expense 245 286 14,240 15,247

Income taxes 457 324 4,582 30,640
___________________________________________________ ___________________

Net assets employed (1) $ 6,192 $ 6,330 $1,788,354 $1,810,927

Total assets 7,389 7,913 1,933,927 1,969,815

Goodwill - - 27,925 27,925

Acquisition of fixed asset 50 329 22,292 15,796
___________________________________________________ ___________________
___________________________________________________ ___________________

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

4. Income taxes
Three months ended November 30,
_________________________________________________________________________
2004 2003
(restated)
_________________________________________________________________________
_________________________________________________________________________
(unaudited) (unaudited)

Current $ 1,170 $ 1,341
Future 3,412 29,299
_________________________________________________________________________
$ 4,582 $ 30,640
_________________________________________________________________________
_________________________________________________________________________


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

Three months ended November 30,
_________________________________________________________________________
2004 2003
(restated)
_________________________________________________________________________
_________________________________________________________________________
(unaudited) (unaudited)

Income tax at combined income tax rate of
33.54% (36.23% in 2003) $ 3,713 $ (3,460)
Loss or income subject to lower or higher
tax rates 94 62
Increase in income taxes as a result of change
in substantially enacted tax rates - 32,483
Large corporation tax 625 925
Other 150 630
________________________________________________________________________
Income tax at effective income tax rate $ 4,582 $ 30,640
________________________________________________________________________
________________________________________________________________________


5. Long-term debt
________________________________________________________________________
Maturity Interest November 30, August 31,
rate 2004 2004
________________________________________________________________________
(unaudited) (audited)
Parent company
Term Facility 2007(1) 4.27 %(2) $ 22,000 $ 22,000

Subsidiaries
Term Facility 2007 3.72 (2) 55,000 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) 177,900 196,950
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 - 60,750 41,700
Obligations under
capital leases 2008 5.87 - 9.11 2,979 3,225
Preferred shares (5) 2006 - 2,920 2,920
Other - - 110 140
________________________________________________________________________
771,659 774,935
Less current portion 2,457 2,603
________________________________________________________________________
$ 769,202 $ 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 November 30, 2004, 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 November 30, 2004 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.

6. 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.
________________________________________________________________________

November 30, August 31,
2004 2004
________________________________________________________________________
________________________________________________________________________

(unaudited) (audited)
Issued

1,849,900 multiple voting shares $ 12 $ 12
14,527,756 subordinate voting shares
(14,522,456 as at August 31, 2004) 115,643 115,609
________________________________________________________________________
$ 115,655 $ 115,621
________________________________________________________________________
________________________________________________________________________

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

Three months ended Twelve months ended
November 30, 2004 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 5,300 34 60,079 535
Purchase of shares for
cancellation - - (3,400) (27)
________________________________________________________________________
Balance at end 14,527,756 $ 115,643 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 quarter, no stock options were
granted to employees by COGECO Inc. However, the Company's subsidiary, Cogeco
Cable Inc., granted 140,766 stock options (118,480 in 2003) with an exercise
price of $21.50 ($16.80 in 2003) of which 38,397 stock options (34,237 in
2003) 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 $98,000 ($49,000 in 2003) was recorded for the three
month period ended November 30, 2004. 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 month periods ended November 30,
2004 and 2003 would have been reduced (increased) to the following pro forma
amounts:

Three months ended November 30,
________________________________________________________________________
2004 2003
(restated)
________________________________________________________________________
________________________________________________________________________
(unaudited) (unaudited)

Net income (loss)
As reported $ 3,117 $ (15,391)
Pro forma 3,037 (15,471)

Basic earnings (loss) per share
As reported $ 0.19 $ (0.94)
Pro forma 0.19 (0.95)

Diluted earnings (loss) per share
As reported $ 0.19 $ (0.94)
Pro forma 0.18 (0.95)
________________________________________________________________________
________________________________________________________________________

The fair value of stock options granted by the Company's subsidiary,
Cogeco Cable Inc., for the three month period ended November 30, 2004 was
$7.46 per option ($6.62 in 2003). 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:

________________________________________________________________________
2004 2003
________________________________________________________________________
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 November 30, 2004, the Company had outstanding stock options
providing for the subscription of 501,276 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 quarter, TQS Inc. granted 77,000 stock
options (47,889 in 2003). A compensation expense of $41,000 was recorded for
the three month period ended November 30, 2004 related to this plan.

7. Earnings (loss) per share

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

Three months ended November 30,
________________________________________________________________________
2004 2003
(restated)
________________________________________________________________________
________________________________________________________________________
(unaudited) (unaudited)

Net income (loss) $ 3,117 $ (15,391)

Weighted average number of multiple voting
and subordinate voting shares outstanding 16,372,764 16,318,820
Effect of dilutive stock options (1) 147,259 -
________________________________________________________________________
Weighted average number of diluted multiple
voting and subordinate voting shares
outstanding 16,520,023 16,318,820
________________________________________________________________________

Earnings (loss) per share
Basic and diluted $ 0.19 $ (0.94)
________________________________________________________________________
________________________________________________________________________
(1) The weighted average dilutive potential number of subordinate voting
shares, which were antidilutive for the three month period ended
November 30, 2003, amounted to 132,067 shares. Stock options to
purchase 191,976 shares (194,876 in 2003) in the three month period
ended November 30, 2004 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.

8. Statements of cash flow

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

Three months ended November 30,
________________________________________________________________________
2004 2003
(restated)
________________________________________________________________________
________________________________________________________________________
(unaudited) (unaudited)

Accounts receivable $ (11,498) $ (13,407)
Income tax receivable 178 40
Prepaid expenses (246) (559)
Broadcasting rights (1,844) (5,765)
Accounts payable and accrued liabilities (34,556) (21,444)
Income tax liabilities - 181
Deferred and prepaid income 3,526 973
Other (72) (80)
________________________________________________________________________
$ (44,512) $ (40,061)
________________________________________________________________________
________________________________________________________________________

b) Other information
Three months ended November 30,
________________________________________________________________________
2004 2003
________________________________________________________________________
________________________________________________________________________
(unaudited) (unaudited)

Fixed assets acquisitions through capital
leases $ - $ 99
Interest paid 16,248 17,455
Income taxes paid 992 1,120
________________________________________________________________________
________________________________________________________________________

9. 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 November 30,
________________________________________________________________________
2004 2003
________________________________________________________________________
________________________________________________________________________
(unaudited) (unaudited)

Defined benefit pension plans $ 439 $ 391
Defined contribution pension plan and
collective registered retirement savings
plan 403 429
________________________________________________________________________
$ 842 $ 820
________________________________________________________________________
________________________________________________________________________

10. 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