COGECO Inc.
TSX : CGO

COGECO Inc.

January 12, 2006 08:15 ET

Growth in cable and radio fuels COGECO results

MONTREAL, Jan. 12 - Today, COGECO Inc. (TSX: CGO.SV)
announced its financial results for the first quarter ended November 30, 2005.

In the first quarter, net income is up by 47.4% to $4.6 million compared
to the same period last year. This increase is mainly attributable to the
cable sector, which benefits from increased digital video services, high-speed
Internet (HSI) and digital telephony penetration as well as rate increases. On
the media side, the increase is due to higher radio advertising revenue.

Cogeco Cable demonstrates strong internal growth


For the first quarter of 2006, net additions of Cogeco Cable basic
customers were approximately 10,900 compared to about 7,700 for the same
period last year. The sustained appetite for digital video and HSI services
continues to prevail as shown by over 21,000 digital video customer additions
and close to 23,000 HSI customer additions during the quarter. As for digital
telephony, at the end of the first quarter, 6,900 clients subscribed to this
new service and 2,200 installations were pending.

Furthermore, with the addition of current and classic movie titles from
Warner Bros. International Television Distribution, Cogeco Cable's video-on-
demand subscribers now enjoy access to movies representing about 60% of
domestic box office receipts.

"In our cable subsidiary, the first quarter showed strong marks in
attracting customers and improving financial results. Demand for Cogeco
Cable's products and services continues to prevail in our markets as customers
show increasing interest for our triple-play bundled offer," explained
Mr. Audet, President and Chief Executive Officer of COGECO Inc.

Cogeco Radio-Television Inc.


The first quarter shows progress in the media sector. All COGECO radio
stations show notable improvement in advertising revenue, while the
advertising market remains difficult for conventional television in the
Francophone market. "Our RYTHME FM station in Montréal continues to lead the
market and we are very proud of that. Furthermore, the other Company's radio
stations performed according to our expectations. As for the television side,
TQS continues to be a challenge, but we foresee improvements as a result of an
increase in programming investments," concluded Mr. Audet.


FINANCIAL HIGHLIGHTS

Quarters ended November 30,
(unaudited)

($000s, except percentages %
and per share data) 2005 2004 Change
------------- ------------- -------------

Revenue $ 180,478 $ 171,411 5.3
Operating income before
amortization 60,593 58,928 2.8

Net income 4,593 3,117 47.4

Cash flow from operations 46,842 44,503 5.3
Less:
Capital expenditures and
increase in deferred charges 34,043 25,038 36.0
------ ------
Free Cash Flow (1) 12,799 19,465 (34.2)

Per share data
Basic net income $ 0.28 $ 0.19
Cash flow from operations 2.85 2.72

(1) Free Cash Flow is defined as cash flow from operations less capital
expenditures and increase in deferred charges. Free Cash Flow is not
a defined term under Canadian Generally Accepted Accounting
Principles (GAAP) and should be treated accordingly.


MANAGEMENT'S DISCUSSION AND ANALYSIS (MD&A)

Certain statements in this press release may constitute forward-looking
information within the meaning of securities laws. Forward-looking information
may relate to our future outlook and anticipated events, our business, our
operations, our financial performance, our financial condition or our results
and, in some cases, can be identified by terminology such as "may," "will,"
"should," "expect," "plan," "anticipate," "believe," "intend," "estimate,"
"predict," "potential," "continue," "foresee" or other similar expressions
concerning matters that are not historical facts. In particular, statements
regarding our future operating results and economic performance and our
objectives and strategies are forward-looking statements. These statements are
based on certain factors and assumptions including expected growth, results of
operations, performance and business prospects and opportunities, which we
believe are reasonable as of the current date. While we consider these
assumptions to be reasonable based on information currently available to us,
they may prove to be incorrect. Forward-looking information is also subject to
certain factors, including risks and uncertainties (described in the section
"Uncertainty and main risk factors" of the Company's 2005 annual MD&A) that
could cause actual results to differ materially from what we currently expect.
These factors include technological changes, changes in market and
competition, governmental or regulatory developments, general economic
conditions, the development of new products and services, the enhancement of
existing products and services, and the introduction of competing products
having technological or other advantages, many of which are beyond our
control. Therefore, future events and results may vary significantly from what
we currently foresee. You should not place undue importance on forward-looking
information and should not rely upon this information as of any other date.
While we may elect to, we are under no obligation (and expressly disclaim any
such obligation) and do not undertake to update or alter this information
before next quarter.
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

There has been no significant change in COGECO's accounting policies and
estimates since August 31, 2005. A description of these policies and estimates
can be found in the Company's 2005 annual MD&A.


OPERATING RESULTS

Revenue for the first quarter rose by $9.1 million, or 5.3%, compared to
the same period last year. Cable revenue, driven by higher penetration rates
in digital video, HSI and digital telephony services as well as rate
increases, went up by $7.7 million or 5.6%. Media revenue increased by
$1.4 million, or 4%, due to higher radio advertising revenue.
Operating income before amortization grew 2.8% for the first quarter
compared to the same period last year. The cable sector contributed to an
increase of $4.1 million, while the media sector had a negative impact of
$2.4 million.


FIXED CHARGES

Quarters ended November 30,

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

Amortization $ 29,883 $ 33,616 (11.1)

Financial expense $ 13,961 $ 14,240 (2.0)


Amortization expense amounted to $29.9 million during the first quarter
of fiscal 2006 compared to $33.6 million for the same period last year.
Amortization expense declined during the first quarter as many cable modems
and digital terminals in the cable sector were fully amortized.
During the first quarter of fiscal 2006, the decline in financial expense
was mainly related to lower levels of Indebtedness (defined as bank
indebtedness and long-term debt), partially offset by increases in short-term
interest rates on the Term Facilities.


INCOME TAXES

Income taxes for the first quarter amounted to $6.6 million compared to
$4.6 million for the same period last year. This increase was mainly
attributable to the cable sector's growth in operating income before
amortization and the decline in fixed charges as discussed above.


NON-CONTROLLING INTEREST

The non-controlling interest represents an interest of approximately 61%
in Cogeco Cable's results and a 40% interest in TQS Inc. During the first
quarter of fiscal 2006, the non-controlling interest increased by $2.2 million
as a result of the growth in the cable sector's net income.


NET INCOME

Net income for the first quarter amounted to $4.6 million, or $0.28 per
share, compared to $3.1 million, or $0.19 per share for the same period last
year. This increase was attributable to the cable sector's net income growth.


CASH FLOW AND LIQUIDITY

Quarters ended November 30,

($000s) 2005 2004
------------- -------------
Operating Activities
Cash flow from operations $ 46,842 $ 44,503
Changes in non-cash operating items (51,913) (44,512)
------------- -------------
$ (5,071) $ (9)
------------- -------------
------------- -------------

Investing Activities $ (34,043) $ (25,016)
------------- -------------
------------- -------------

Financing Activities $ 59,797 $ 25,025
------------- -------------
------------- -------------
Net change in cash and cash equivalents $ 20,683 $ -
------------- -------------
------------- -------------

For the first quarter, cash flow from operations was $46.8 million, or
5.3%, higher than last year, due primarily to operating income before
amortization growth in the cable sector, partly offset by a decline in
operating income before amortization recorded in the media sector. Changes in
non-cash operating items generated greater cash outflow than last year mainly
as a result of a larger decrease in accounts payable and accrued liabilities
caused by increased capital expenditures incurred late in fiscal 2005.
Investing activities related to capital expenditures and the increase in
deferred charges rose by $9 million during the first quarter. The $1 million
increase in deferred charges is mainly attributable to higher reconnect costs
given the significant level of revenue-generating units (RGU) including the
growth of digital telephony in the cable sector.

During the first quarter, capital expenditures increased by $8 million,
due mainly to the following factors:

- The increase in customer premise equipment results primarily from a
rise in the number of digital terminals rented to customers. This
increase is explained by higher customer growth in the first quarter,
by more customers renting their digital terminals fuelled by a
reduction in rental rates for digital terminals in August 2005 and by a
higher ratio of digital terminals per digital home.
- The growth in scalable infrastructure is mainly attributable to the
additional capital expenditures to support the rollout of digital
telephony.
- Expenditures associated with the network upgrade and rebuild program
rose by $2.5 million in the first quarter due to the acceleration of
the program to expand the bandwidth to 750 MHz and 550 MHz for the
Ontario and Québec networks, respectively, and to improve network
reliability. An increase in the number of households with access to
two-way service was also a factor. The percentage of customers with
access to two-way service rose from 87% as at November 30, 2004 to 90%
as at November 30, 2005.

Free Cash Flow of $12.8 million was generated during the first quarter of
fiscal 2006 as a result of increased cash flow from operations in the cable
sector, partly offset by the increased capital expenditures and deferred
charges in that sector. In the first quarter, Free Cash Flow declined compared
to the same period last year and is explained by increased capital
expenditures and deferred charges to support digital telephony and better-than-
expected RGU growth in the cable sector.
Net change in cash and cash equivalents generated cash inflow in the
first quarter. At quarter end, the cable subsidiary had cash and cash
equivalents in hand with a maturity that could not be synchronized with the
maturity of its Indebtedness under the Term Facility.
During the first quarter, the level of Indebtedness increased by
$61.8 million mainly due to a decline in non-cash operating items of
$51.9 million and a net change in cash and cash equivalents of $20.7 million,
partly offset by generated Free Cash Flow of $12.8 million. For the same
period last year, Indebtedness grew by $26 million, essentially due to a
decline of $44.5 million in non-cash operating items counterbalanced by
generated Free Cash Flow of $19.5 million. In addition, a dividend of
$0.0625 per share for subordinate and multiple voting shares, totalling
$1 million, was paid during the first quarter of fiscal 2006 compared to a
dividend of $0.0525 per share totalling $0.9 million for the first quarter of
fiscal 2005.
As at November 30, 2005, the cable subsidiary had utilized $40 million of
its Term Facility and the Company had drawn $23 million of its Term Facility.
Based on existing bank covenants, COGECO could have used about $40 million
under its bank facilities. Also, 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.
Transfers of funds from non-wholly owned subsidiaries to COGECO are
subject to approval by the subsidiaries' Board of Directors and may also be
restricted under the terms and conditions of certain debt instruments. In
accordance with applicable corporate and securities laws, significant
transfers of funds from Cogeco Cable may be subject to approval by minority
shareholders.

FINANCIAL POSITION

Since August 31, 2005, significant changes in the balance sheet include
"Cash and cash equivalents," "Accounts receivable," "Accounts payable and
accrued liabilities," and "Indebtedness." The $12.2 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 $42.6 million as
the use of working capital was tightly managed at fiscal 2005 year-end. Cash
and cash equivalents and Indebtedness increased by $20.7 million and
$61.8 million, respectively, due to the factors previously discussed in the
"Cash Flow and Liquidity" section.
A description of COGECO's share data as of December 30, 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 14,600,356 116,160

Options to Purchase Subordinate Voting Shares
Outstanding options 425,376
Exercisable options 425,376

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, 2005 and are described in the 2005 annual MD&A.


DIVIDEND DECLARATION AND NORMAL COURSE ISSUER BID

At its January 11, 2006 meeting, the Board of Directors of COGECO
declared a quarterly dividend of $0.0625 per share for subordinate and
multiple voting shares, payable on February 8, 2006, to shareholders on record
as at January 25, 2006.
On December 21, 2005, COGECO renewed its normal course issuer bid
pursuant to which it can acquire up to 250,000 subordinate voting shares for
cancellation, representing 1.71% of the outstanding shares of this class.
During the first quarter of fiscal 2006, COGECO did not acquire any of its
shares.


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

Customer Statistics

Net additions % Penetration(1)
Quarters ended
November 30, November 30,
----------------- -----------------
November 30,
2005 2005 2004 2005 2004
------------ -------- -------- -------- --------
Revenue-generating
units (2) 1,408,503 60,770 42,359
Basic service customers 832,336 10,903 7,743
HSI service customers (3) 300,641 22,993 17,397 39.9 35.5
Digital video service
customers (4) 268,619 21,415 17,219 32.9 27.0
Digital telephony
customers 6,907 5,459 - 2.7 -
Digital terminals (5) 334,869 30,985 21,842 41.0 32.2

(1) As a percentage of basic service customers in areas served.
(2) Including basic service, digital video service, Internet service and
digital telephony service customers.
(3) The number of Internet customers in fiscal 2005 has been restated to
reflect the number of customers based on the billing dates, which are
distributed throughout the month, instead of the number of customers
as at the end of the quarter. This change produces a downward
adjustment of approximately 4,800 customers as at November 30, 2004.
Customers subscribing only to Internet services amounted to 57,051 as
at November 30, 2005, compared to 55,057 as at August 31, 2005.
(4) In fiscal 2005, the number of digital video service customers has
been restated to reflect changes brought about by our billing
improvement program, which has allowed us to identify digital video
service customer accounts that were not cancelled when they became
inactive. This change resulted in a downward adjustment of
approximately 6,200 customers as at November 30, 2004 and did not
affect the number of digital terminals.
(5) 64% of terminals as at November 30, 2005 were purchased compared to
77% one year earlier.

All services generated higher growth in the first quarter compared to the
same period last year. The number of net additions in basic service and HSI
service customers was higher by 40.8% and 32.2%, respectively, in the first
quarter of 2006, compared to the same quarter last year. This result is mainly
attributable to winback over satellite competition due to anti-piracy measures
and to additional marketing initiatives such as outbound telemarketing and
promotional activities as well as digital telephony up-sell activities and the
triple-play bundled offer.
The increase in the number of digital video service customers stems from
Cogeco Cable's attractive promotional offer in Québec and from consumers'
growing interest in this technology.
By the end of the first quarter of fiscal 2006, 6,907 customers were
subscribing to digital telephony while pending orders reached 2,208. During
the quarter, Cogeco Cable launched its digital telephony service in Kingston
and Hamilton, Ontario and rolled it out to all residents of its service areas,
whether or not they were Cogeco Cable customers. The digital telephony service
is now available to 30% of Cogeco Cable basic customers.


Operating results

Quarters ended November 30,

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

Revenue $ 143,413 $ 135,766 5.6

Operating costs 83,243 79,857 4.2
Management fees - COGECO Inc. 2,868 2,715 5.6

Operating income before
amortization 57,302 53,194 7.7

Operating margin 40.0% 39.2%


Revenue

Revenue for the first quarter rose by $7.6 million or 5.6% compared to
the same period last year due to higher penetration rates in digital video,
HSI and digital telephony services as well as to rate increases implemented in
June and August of 2005. Monthly rate increases of at most $3 per customer and
averaging $0.50 per basic service customer took effect on June 15, 2005 in
Ontario and on August 1, 2005 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 in Québec has dropped from 22 to 7,
ranging essentially between $20 and $27.50 per month. The monthly rate for
certain bundled services has increased by $1 in Ontario, and other limited
rate increases for selective tier services were implemented in Québec.
Furthermore, the August 2005 reduction in digital terminal rental rates was
more than offset by a greater number of customers renting digital terminals.

Operating Costs

During the first quarter, operating costs, excluding management fees
payable to COGECO Inc., rose by $3.4 million, or 4.2%. This increase arises
mainly from higher operating costs to serve additional RGU including digital
telephony. In addition, network fees increased by 2.5% in the first quarter
compared to the same period last year as a result of the introduction of
digital telephony, the Canadian Radio-television and Telecommunication
Commission mandated APTN wholesale rate increase and RGU growth. This was
partly offset by IP transport costs that have declined despite HSI customer
growth.

Operating Income before Amortization

For the first quarter, operating income before amortization rose by 7.7%
compared to the same period last year due to the increase in revenue,
outpacing the rise in operating costs. Cogeco Cable had previously anticipated
a reduction in its operating margin due to the launch of digital telephony.
However, the cable subsidiary increased its operating margin to 40% in the
first quarter, compared to 39.2% last year, as a result of better-than-
expected net additions of HSI service customers.

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 decreased by CDN$3 million during
the first quarter due to the Canadian dollar's appreciation. 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 first quarter interim
financial statements. The $63.6 million deferred credit represents the
difference between the quarter-end exchange rate and the exchange rate on the
cross currency swap agreements, which determine the liability for interest and
principal payments on the Senior Secured Notes Series A.


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

Operating Results
Quarters ended November 30,

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

Revenue $ 37,116 $ 35,690 4.0

Operating costs 34,667 30,856 12.4

Operating income before
amortization 2,449 4,834 (49.3)

Operating margin 6.6% 13.5%


Revenue

During the first quarter of fiscal 2006, all radio stations contributed
to the increase in revenue. Furthermore, it is the first quarter for which
revenue and operating expenses for the Sherbrooke and Trois-Rivières RYTHME FM
stations are no longer capitalized. Television revenue decreased by 3.9% in
the first quarter due to a decline in TQS's audience ratings and to the
advertising market that remains difficult for conventional television in the
Francophone market.

Operating Income before Amortization

The operating income before amortization declined from $4.8 million to
$2.4 million in the first quarter. TQS's operating income before amortization
decreased as a result of lower revenue while investment in television
programming increased. Radio's operating income before amortization improved
due to revenue growth which was partially offset by additional royalty
expenses following the Copyright Board October 14th decision on SOCAN tariffs.


FISCAL 2006 FINANCIAL GUIDELINES

Cable Sector

In furtherance of its existing line of business and external growth
strategy, Cogeco Cable continues to investigate cable system acquisition
opportunities, including cable systems located outside Canada.
Since economic and industry factors described in the 2005 annual MD&A
remain unchanged, management is maintaining its fiscal 2006 financial and
customer guidance and, as a result, still expects to generate Free Cash Flow
of $35 to $40 million.

Media Sector

The media sector maintains its projections for fiscal 2006, which can be
found in the Company's 2005 annual MD&A.


RISK FACTORS AND UNCERTAINTIES

There has been no significant change in the risk factors and
uncertainties facing COGECO as described in the Company's 2005 annual MD&A.


ADDITIONAL INFORMATION

This MD&A was prepared on January 11, 2006. 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 1,409,000 revenue-generating units to
approximately 1,454,000 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 services. Through its
Cogeco Radio-Television subsidiary, COGECO holds a 60% interest and operates
the TQS network, six TQS television stations, and three French CBC-affiliated
television stations in partnership with CTV Television. Cogeco Radio-
Television also wholly owns and operates RYTHME FM radio stations in Montréal,
Québec City, Trois-Rivières and Sherbrooke as well as 93.3 in Québec City.
COGECO's subordinate voting shares are listed on the Toronto Stock Exchange
(CGO.SV). The subordinate voting shares of Cogeco Cable are also listed on the
Toronto Stock Exchange (CCA.SV).


Analyst Conference Call: Thursday January 12, 2006, at 11:00 a.m. EST
By Internet at www.cogeco.ca/investors
By telephone: 1 800 310-6649
(confirmation code 4786865)
Media are invited to participate in listen
mode only.
Re-broadcast of the call available until
January 19: 1 888 203-1112
(confirmation code 4786865)


Supplementary Quarterly Financial Information

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

Revenue $ 180,478 $ 171,411 $ 164,210 $ 154,652
Operating
income before
amortization 60,593 58,928 56,485 55,862
Operating margin 33.6% 34.4% 34.4% 36.1%
Amortization 29,883 33,616 30,769 33,758
Financial expense 13,961 14,240 14,366 14,305
Impairment losses - - - -
Income taxes 6,611 4,582 5,052 1,472
Non-controlling
interest 5,455 3,256 5,422 4,077
Net income (loss) 4,593 3,117 630 2,117

Cash flow from
operations 46,842 44,503 43,215 43,010

Net income (loss)
per share
Basic and
diluted $ 0.28 $ 0.19 $ 0.04 $ 0.13



Quarters ended May 31, February
--------------------------- ---------------------------
2005 2004 28, 2005 29, 2004
($000, except (restated) (1)
percentages and
per share data)

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 (loss) 4,964 3,816 (28,524) (1,142)

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

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

(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, as well as the classification
of certain items as revenue, expense or capitalized cost. These
changes were applied 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 2005 MD&A for a detailed description
of these new accounting standards implemented on a retroactive basis.

Cable sector operating results are generally not subject to material
seasonal fluctuations. However, the loss of basic service customers is usually
greater, and the addition of HSI customers is generally lower in the third
quarter, mainly due to students leaving campuses 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 second quarter of fiscal 2005 was
attributable to COGECO's 60% share of the television sector'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
of the Company's 2005 annual MD&A.


COGECO INC.
Cable Statistics
November 30, August 31,
2005 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Homes Passed
Ontario 990,777 986,401
Québec 463,516 462,332
-------------------------------------------------------------------------
1,454,293 1,448,733
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Revenue Generating Units
Ontario 1,011,926 968,749
Québec 396,577 378,984
-------------------------------------------------------------------------
1,408,503 1,347,733
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Basic Service Customers
Ontario 589,476 581,631
Québec 242,860 239,802
-------------------------------------------------------------------------
832,336 821,433
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Discretionnary Service Customers
Ontario 466,250 461,038
Québec 186,957 183,320
-------------------------------------------------------------------------
653,207 644,358
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Pay TV Service Customers
Ontario 82,923 80,817
Québec 38,019 35,407
-------------------------------------------------------------------------
120,942 116,224
-------------------------------------------------------------------------
-------------------------------------------------------------------------

High-Speed Internet Service Customers
Ontario 243,896 226,133
Québec 56,745 51,515
-------------------------------------------------------------------------
300,641 277,648
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Digital Video Customers
Ontario 173,811 159,734
Québec 94,808 87,470
-------------------------------------------------------------------------
268,619 247,204
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Digital Terminals
Ontario 232,265 209,662
Québec 102,604 94,222
-------------------------------------------------------------------------
334,869 303,884
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Digital Telephony
Ontario 4,743 1,251
Québec 2,164 197
-------------------------------------------------------------------------
6,907 1,448
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO INC.
CONSOLIDATED STATEMENTS OF INCOME

Three months ended November 30,
-------------------------------------------------------------------------
(In thousands of dollars,
except per share data) 2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Revenue $ 180,478 $ 171,411

Operating costs 119,885 112,483
-------------------------------------------------------------------------

Operating income before amortization 60,593 58,928

Amortization (note 3) 29,883 33,616
-------------------------------------------------------------------------

Operating income 30,710 25,312

Financial expense (note 6) 13,961 14,240
-------------------------------------------------------------------------

Income before income taxes and the
following items 16,749 11,072

Income taxes (note 4) 6,611 4,582

Non-controlling interest 5,455 3,256

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

Share in the loss of a general partnership 90 42
-------------------------------------------------------------------------

Net income $ 4,593 $ 3,117
-------------------------------------------------------------------------

Earnings per share (note 5)
Basic and diluted $ 0.28 $ 0.19
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

Three months ended November 30,
-------------------------------------------------------------------------
(In thousands of dollars) 2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Balance at beginning $ 185,762 $ 209,188

Net income 4,593 3,117

Dividends on multiple voting shares (116) (97)

Dividends on subordinate voting shares (913) (762)
-------------------------------------------------------------------------

Balance at end $ 189,326 $ 211,446
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO INC.
CONSOLIDATED BALANCE SHEETS

-------------------------------------------------------------------------
(In thousands of dollars)
November 30, August 31,
2005 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (audited)

Assets
Current
Cash and cash equivalents $ 20,683 $ -
Accounts receivable 67,745 55,529
Income tax receivable 493 -
Prepaid expenses 4,063 4,704
Broadcasting rights 18,358 14,168
-------------------------------------------------------------------------
111,342 74,401
-------------------------------------------------------------------------

Broadcasting rights 19,144 16,076
Investments 539 539
Fixed assets 732,422 726,270
Deferred charges 39,564 41,797
Broadcasting licenses and customer base 1,017,892 1,017,892
-------------------------------------------------------------------------

$ 1,920,903 $ 1,876,975
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Liabilities and Shareholders' equity
Liabilities
Current
Bank indebtedness $ 22,274 $ 605
Accounts payable and accrued liabilities 109,427 151,985
Broadcasting rights payable 13,904 7,337
Income tax payable - 299
Deferred and prepaid income 26,895 25,034
Current portion of long-term debt (note 6) 1,358 1,400
-------------------------------------------------------------------------
173,858 186,660
-------------------------------------------------------------------------

Long-term debt (note 6) 753,910 713,739
Share in the partner's deficiency of a
general partnership 738 648
Deferred and prepaid income 10,844 10,522
Broadcasting rights payable 5,632 4,112
Pension plans liabilities and accrued
employee benefits 11,718 10,628
Future income tax liabilities 213,761 208,434
Non-controlling interest 444,126 439,643
-------------------------------------------------------------------------
1,614,587 1,574,386
-------------------------------------------------------------------------

Shareholders' equity
Capital stock (note 7) 116,167 116,167
Retained earnings 189,326 185,762
Contributed surplus - stock-based compensation 823 660
-------------------------------------------------------------------------
306,316 302,589
-------------------------------------------------------------------------

$ 1,920,903 $ 1,876,975
-------------------------------------------------------------------------
-------------------------------------------------------------------------


COGECO INC.
CONSOLIDATED STATEMENTS OF CASH FLOW

Three months ended November 30,
-------------------------------------------------------------------------
(In thousands of dollars) 2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Cash flow from operating activities

Net income $ 4,593 $ 3,117
Items not affecting cash and cash equivalents
Amortization (note 3) 29,883 33,616
Amortization of deferred financing costs 241 313
Future income taxes (note 4) 5,327 3,412
Non-controlling interest 5,455 3,256
Other 1,343 789
-------------------------------------------------------------------------
Cash flow from operations 46,842 44,503
Changes in non-cash operating items (note 8a) (51,913) (44,512)
-------------------------------------------------------------------------
(5,071) (9)
-------------------------------------------------------------------------

Cash flow from investing activities

Acquisition of fixed assets (30,328) (22,292)
Increase in deferred charges (3,715) (2,746)
Other - 22
-------------------------------------------------------------------------
(34,043) (25,016)
-------------------------------------------------------------------------

Cash flow from financing activities

Increase in bank indebtedness 21,669 29,282
Increase in long-term debt 40,500 58
Repayment of long-term debt (371) (3,334)
Issue of subordinate voting shares - 34
Dividends on multiple voting shares (116) (97)
Dividends on subordinate voting shares (913) (762)
Issue of subordinate voting shares by a
subsidiary to non-controlling interest,
net of issue cost - 329
Dividends paid by a subsidiary to
non-controlling interest (972) (485)
-------------------------------------------------------------------------
59,797 25,025
-------------------------------------------------------------------------

Net change in cash and cash equivalents 20,683 -

Cash and cash equivalents at beginning - -
-------------------------------------------------------------------------
Cash and cash equivalents at end $ 20,683 $ -
-------------------------------------------------------------------------
-------------------------------------------------------------------------

See supplemental cash flow information in note 8.


COGECO INC.
Notes to Consolidated Financial Statements
November 30, 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 November 30, 2005
and August 31, 2005 as well as its results of operations and its cash flow for
the three month periods ended November 30, 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 for the year ended August 31, 2005. These unaudited interim
consolidated financial statements follow the same accounting policies as the
most recent annual consolidated financial statements.
The interim consolidated financial statements for the three month period
ended November 30, 2004 have not been subject to a review by the Company's
external auditors.

2. 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 and digital telephony services, 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
November 30,
(unaudited) 2005 2004 2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Revenue $ 143,413 $ 135,766 $ 37,116 $ 35,690
Operating costs 86,111 82,572 34,667 30,856
Operating income
before
amortization 57,302 53,194 2,449 4,834
Amortization 28,277 32,244 1,567 1,312
Operating income 29,025 20,950 882 3,522
Financial expense 13,582 13,894 114 101
Income taxes 6,445 3,229 (37) 896
-------------------------------------------------------------------------
Net assets
employed (1)(2) $ 1,642,485 $ 1,643,783 $ 85,282 $ 138,379
Total assets (2) 1,782,332 1,752,748 131,772 173,790
Goodwill (2) - - - 27,925
Acquisition of
fixed assets 30,013 21,574 315 668
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Head Office
and elimination Consolidated
--------------------------------------------- ---------------------------
Three months ended
November 30,
(unaudited) 2005 2004 2005 2004
--------------------------------------------- ---------------------------
--------------------------------------------- ---------------------------

Revenue $ (51) $ (45) $ 180,478 $ 171,411
Operating costs (893) (945) 119,885 112,483
Operating income
before
amortization 842 900 60,593 58,928
Amortization 39 60 29,883 33,616
Operating income 803 840 30,710 25,312
Financial expense 265 245 13,961 14,240
Income taxes 203 457 6,611 4,582
--------------------------------------------- ---------------------------
Net assets
employed (1)(2) $ 5,751 $ 6,192 $ 1,733,518 $ 1,788,354
Total assets (2) 6,799 7,389 1,920,903 1,933,927
Goodwill (2) - - - 27,925
Acquisition of
fixed assets - 50 30,328 22,292
--------------------------------------------- ---------------------------
--------------------------------------------- ---------------------------

(1) Total assets less cash and cash equivalents, accounts payable and
accrued liabilities, broadcasting rights payable and deferred and
prepaid income.
(2) As at November 30, 2005 and 2004.


3. Amortization

Three months ended November 30,
-------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Fixed assets $ 24,176 $ 27,519
Deferred charges 5,707 6,097
-------------------------------------------------------------------------
$ 29,883 $ 33,616
-------------------------------------------------------------------------
-------------------------------------------------------------------------


4. Income taxes

Three months ended November 30,
-------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Current $ 1,284 $ 1,170
Future 5,327 3,412
-------------------------------------------------------------------------
$ 6,611 $ 4,582
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

Three months ended November 30,
-------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Income tax at combined income tax rate
of 34.84 % (33.54 % in 2004) $ 5,804 $ 3,713

Loss or income subject to lower or
higher tax rates - 94

Decrease in income taxes as a result of
increases in substantially enacted tax rates (91) -

Large corporation tax 837 625

Other 61 150
-------------------------------------------------------------------------
Income tax at effective income tax rate $ 6,611 $ 4,582
-------------------------------------------------------------------------
-------------------------------------------------------------------------


5. Earnings per share

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

Three months ended November 30,
-------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Net income $ 4,593 $ 3,117

Weighted average number of multiple voting
and subordinate voting shares outstanding 16,450,004 16,372,764

Effect of dilutive stock options (1) 158,692 147,259
-------------------------------------------------------------------------

Weighted average number of diluted multiple
voting and subordinate voting shares
outstanding 16,608,696 16,520,023
-------------------------------------------------------------------------

Earnings per share

Basic and diluted $ 0.28 $ 0.19
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) For the three month period ended November 30, 2005, 43,843 stock
options (191,976 in 2004) were excluded from the calculation of
diluted earnings per share since the exercise price of the options
was greater than the average share price of the subordinate voting
shares.


6. Long-term debt

-------------------------------------------------------------------------
Maturity Interest November 30, August 31,
rate 2005 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (audited)

Parent company

Term Facility 2008 5.59%(1) $ 23,000 $ 22,500
Obligation under
capital lease 2010 6.61 51 55

Subsidiaries

Term Facility 2007 4.75 40,000 -
Senior Secured
Debentures Series 1 2009 6.75 150,000 150,000
Senior - Secured Notes
Series A -
US $150 million 2008 6.83 (2) 175,035 178,065
Series B 2011 7.73 175,000 175,000
Second Secured
Debentures Series A 2007 8.44 125,000 125,000
Deferred credit (3) 2008 - 63,615 60,585
Obligations under
capital leases 2010 5.87 - 8.36 3,483 3,831
Other - - 84 103
-------------------------------------------------------------------------
755,268 715,139
Less current portion 1,358 1,400
-------------------------------------------------------------------------
$ 753,910 $ 713,739
-------------------------------------------------------------------------
-------------------------------------------------------------------------

(1) Average interest rate on debt as of November 30, 2005, including
stamping fees.
(2) 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.
(3) The deferred credit represents the amount which would have been
payable as at November 30, 2005, and August 31, 2005 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.

Interest on long-term debt for the three month period ended November 30,
2005 amounted to $13,209,000 ($13,349,000 in 2004).


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.

-------------------------------------------------------------------------
November 30, August 31,
2005 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (audited)
Issued

1,849,900 multiple voting shares $ 12 $ 12
14,600,104 subordinate voting shares 116,155 116,155
-------------------------------------------------------------------------
$ 116,167 $ 116,167
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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

Three months ended Twelve months ended
November 30, 2005 August 31, 2005
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (audited)
-------------------------------------------------------------------------
Number of Number of
shares Amount shares Amount
-------------------------------------------------------------------------

Balance at
beginning 14,600,104 $ 116,155 14,522,456 $ 115,609
Shares issued for
cash under the
Employee Stock
Purchase Plan and
the Stock Option
Plan - - 77,648 546
-------------------------------------------------------------------------
Balance at end 14,600,104 $ 116,155 14,600,104 $ 116,155
-------------------------------------------------------------------------
-------------------------------------------------------------------------

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 Corporation's annual
consolidated financial statements. During the first quarter, no stock options
were granted to employees by COGECO Inc. However, the Company's subsidiary,
Cogeco Cable Inc., granted 123,342 stock options (140,766 in 2004) with an
exercise price of $29.05 ($21.50 in 2004), of which 31,743 stock options
(38,397 in 2004) were granted to COGECO Inc.'s employees. The Company records
compensation expense for options granted on or after September 1, 2003. As a
result, a compensation expense of $163,000 ($98,000 in 2004) was recorded for
the three month period ended November 30, 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 and earnings per share for the three month periods ended November 30,
2005 and 2004 would have been reduced to the following pro forma amounts:

Three months ended November 30,
-------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)
Net income
As reported $ 4,593 $ 3,117
Pro forma 4,585 3,037

Basic earnings per share
As reported $ 0.28 $ 0.19
Pro forma 0.28 0.19

Diluted earnings per share
As reported $ 0.28 $ 0.19
Pro forma 0.28 0.18
-------------------------------------------------------------------------
-------------------------------------------------------------------------

The fair value of stock options granted by the Company's subsidiary,
Cogeco Cable Inc., for the three month period ended November 30, 2005 was
$9.46 ($7.46 in 2004) per option. The fair value was estimated on the grant
date for purposes of determining stock-based compensation expense using the
Binomial option pricing model based on the following assumptions:

-------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------
Expected dividend yield 1.27% 1.27%
Expected volatility 39% 43%
Risk-free interest rate 3.70% 3.70%
Expected life in years 4.0 4.0
-------------------------------------------------------------------------

As at November 30, 2005, the Company had outstanding stock options
providing for the subscription of 425,376 subordinate voting shares. These
stock options can be exercised at various prices ranging from $6.60 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. During the first
quarter, no stock options (77,000 in 2004) were granted by TQS Inc. A
compensation expense of $30,000 ($41,000 in 2004) was recorded for the three
month period ended November 30, 2005 related to this plan.


8. Statements of cash flow

a) Changes in non-cash operating items

Three months ended November 30,
-------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Accounts receivable $ (12,216) $ (11,498)
Income tax receivable (493) 178
Prepaid expenses 641 (246)
Broadcasting rights (7,258) (1,844)
Accounts payable and accrued liabilities (42,558) (37,549)
Broadcasting rights payable 8,087 2,993
Income tax payable (299) -
Deferred and prepaid income 2,183 3,526
Other - (72)
-------------------------------------------------------------------------
$ (51,913) $ (44,512)
-------------------------------------------------------------------------
-------------------------------------------------------------------------


b) Other information

Three months ended November 30,
-------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Interest paid $ 16,374 $ 16,248
Income taxes paid 2,076 992
-------------------------------------------------------------------------
-------------------------------------------------------------------------


9. Employees future benefits

The Company and its subsidiaries offer their employees defined
contributory benefit pension plans, a defined contribution pension plan or
collective registered retirement savings plans which are described in the
Company's annual consolidated financial statements. The total expenses related
to these plans are as follows:

Three months ended November 30,
-------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(unaudited) (unaudited)

Defined contributory benefit pension plans $ 1,118 $ 439
Defined contribution pension plan and
collective registered retirement
savings plans 487 403
-------------------------------------------------------------------------
$ 1,605 $ 842
-------------------------------------------------------------------------
-------------------------------------------------------------------------


10. Comparative figures

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



Contact Information

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

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