SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of December 2001.
CGI Group Inc.
(Translation of Registrant's Name Into English)
1130 Sherbrooke Street West
5th Floor
Montreal, Quebec
Canada H3A 2M8
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F Form 40-F |X|
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No |X|
(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-___.
Enclosure: Management's and Auditor's Reports and Auditor's Consent
This Form 6-K shall be deemed incorporated by reference in the Registrant's
Registration Statement on Form S-8, Reg. No. 333-13350 and 333-66044.
Consolidated Financial Statements of
CGI GROUP INC.
September 30, 2001, 2000 and 1999
CGI GROUP INC.
Table of contents
================================================================================
Auditors' Report...............................................................1
Consolidated Statements of Earnings............................................2
Consolidated Statements of Retained Earnings...................................3
Consolidated Balance Sheets....................................................4
Consolidated Statements of Cash Flows..........................................5
Notes to the Consolidated Financial Statements..............................6-35
Samson Belair/Deloitte & Touche, S.E.N.C.
Assurance and Advisory Services
1 Place Ville-Marie
Suite 3000
Montreal QC H3B 4T9
Canada
Tel.: (514) 393-7115
Fax: (514) 390-4113
www.deloitte.ca
Auditors' Report
To the Shareholders of
CGI Group Inc.
We have audited the consolidated balance sheets of CGI Group Inc. as at
September 30, 2001 and 2000 and the consolidated statements of earnings,
retained earnings and cash flows for each of the years in the three-year period
ended September 30, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at September 30,
2001 and 2000 and the results of its operations and its cash flows for each of
the years in the three-year period ended September 30, 2001 in accordance with
Canadian generally accepted accounting principles.
"Signed"
Samson Belair Deloitte & Touche
Chartered Accountants
Montreal, Quebec
November 5, 2001
CGI GROUP INC.
Consolidated Statements of Earnings
years ended September 30
(in thousands of Canadian dollars, except per share amounts)
===================================================================================================================
2001 2000 1999
-------------------------------------------------------------------------------------------------------------------
$ $ $
Revenue 1,581,315 1,436,008 1,409,458
-------------------------------------------------------------------------------------------------------------------
Operating expenses
Costs of services, selling and administrative
expenses 1,339,110 1,254,351 1,185,563
Research 12,585 9,960 9,618
-------------------------------------------------------------------------------------------------------------------
1,351,695 1,264,311 1,195,181
-------------------------------------------------------------------------------------------------------------------
Operating earnings before: 229,620 171,697 214,277
-------------------------------------------------------------------------------------------------------------------
Depreciation and amortization of fixed assets 32,536 26,387 27,415
Amortization of contract costs and other
long-term assets 33,460 21,991 20,876
-------------------------------------------------------------------------------------------------------------------
65,996 48,378 48,291
-------------------------------------------------------------------------------------------------------------------
Earnings before the following items 163,624 123,319 165,986
-------------------------------------------------------------------------------------------------------------------
Interest
Long-term debt 4,206 3,624 1,389
Other 335 130 120
Income (2,999) (3,898) (5,310)
-------------------------------------------------------------------------------------------------------------------
1,542 (144) (3,801)
-------------------------------------------------------------------------------------------------------------------
Earnings before income taxes, entity subject to
significant influence and amortization of goodwill 162,082 123,463 169,787
Income taxes (Note 8) 72,165 49,985 69,943
-------------------------------------------------------------------------------------------------------------------
Earnings before entity subject to significant influence
and amortization of goodwill 89,917 73,478 99,844
Entity subject to significant influence 7 64 62
-------------------------------------------------------------------------------------------------------------------
Earnings before amortization of goodwill 89,924 73,542 99,906
Amortization of goodwill, net of income taxes 27,135 17,876 16,090
-------------------------------------------------------------------------------------------------------------------
Net earnings 62,789 55,666 83,816
===================================================================================================================
Weighted average number of outstanding Class A
subordinate shares and Class B shares 299,500,350 270,442,354 267,969,082
===================================================================================================================
Earnings before amortization of goodwill per share 0.30 0.27 0.37
===================================================================================================================
Basic earnings per share 0.21 0.21 0.31
===================================================================================================================
Diluted earnings per share 0.21 0.20 0.31
===================================================================================================================
See Notes to the Consolidated Financial Statements.
Page 2 of 35
CGI GROUP INC.
Consolidated Statements of Retained Earnings
years ended September 30
(in thousands of Canadian dollars)
===================================================================================================================
2001 2000 1999
-------------------------------------------------------------------------------------------------------------------
$ $ $
Retained earnings, beginning of year,
as previously reported 183,156 139,080 55,264
Adjustment for change in accounting policy (Note 2) - (11,590) -
-------------------------------------------------------------------------------------------------------------------
Retained earnings, beginning of year, as restated 183,156 127,490 55,264
Net earnings 62,789 55,666 83,816
-------------------------------------------------------------------------------------------------------------------
Retained earnings, end of year 245,945 183,156 139,080
===================================================================================================================
See Notes to the Consolidated Financial Statements.
Page 3 of 35
CGI GROUP INC.
Consolidated Balance Sheets
as at September 30
(in thousands of Canadian dollars)
===================================================================================================================
2001 2000
-------------------------------------------------------------------------------------------------------------------
$ $
Assets
Current assets
Cash and cash equivalents 46,008 49,341
Accounts receivable (Note 3) 320,667 218,938
Income taxes 979 2,733
Work in progress 84,838 56,799
Prepaid expenses and other current assets 48,931 19,442
Future income taxes (Note 8) 17,998 7,052
-------------------------------------------------------------------------------------------------------------------
519,421 354,305
Investment in an entity subject to significant influence - 1,261
Fixed assets (Note 4) 123,391 58,900
Contract costs and other long-term assets (Note 5) 272,403 93,716
Future income taxes (Note 8) 32,785 24,470
Goodwill 1,114,793 395,903
-------------------------------------------------------------------------------------------------------------------
2,062,793 928,555
===================================================================================================================
Liabilities
Current liabilities
Accounts payable and accrued liabilities 315,902 142,754
Deferred revenue 85,163 33,194
Future income taxes (Note 8) 21,013 7,963
Current portion of long-term debt (Note 6) 7,528 5,770
-------------------------------------------------------------------------------------------------------------------
429,606 189,681
Future income taxes (Note 8) 43,705 23,929
Long-term debt (Note 6) 32,752 37,644
Deferred credits 74,813 -
-------------------------------------------------------------------------------------------------------------------
580,876 251,254
-------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Capital stock (Note 7) 1,213,542 491,807
Contributed surplus 211 211
Warrants (Note 7) 19,655 -
Retained earnings 245,945 183,156
Foreign currency translation adjustment 2,564 2,127
-------------------------------------------------------------------------------------------------------------------
1,481,917 677,301
-------------------------------------------------------------------------------------------------------------------
2,062,793 928,555
===================================================================================================================
See Notes to the Consolidated Financial Statements.
Approved by the Board
"Signed" Serge Godin, ...............................Director
"Signed" Andre Imbeau,...............................Director
Page 4 of 35
CGI GROUP INC.
Consolidated Statements of Cash Flows
years ended September 30
(in thousands of Canadian dollars)
===================================================================================================================
2001 2000 1999
-------------------------------------------------------------------------------------------------------------------
$ $ $
Operating activities
Net earnings 62,789 55,666 83,816
Adjustments for:
Depreciation and amortization of fixed assets 32,536 26,387 27,415
Loss (gain) on disposal of fixed assets - 1,454 (135)
Amortization of contract costs and other
long-term assets 33,460 21,991 20,876
Amortization of goodwill 28,586 19,153 16,584
Future income taxes 32,589 2,214 12,364
Foreign exchange loss (gain) 4,213 (497) 988
Entity subject to significant influence (7) (64) (62)
Other - - 190
-------------------------------------------------------------------------------------------------------------------
194,166 126,304 162,036
-------------------------------------------------------------------------------------------------------------------
Changes in non-cash operating working capital items:
Accounts receivable (33,786) 17,206 (10,229)
Work in progress (12,277) 31,725 (56,552)
Prepaid expenses and other current assets (556) (5,486) (1,389)
Accounts payable and accrued liabilities 2,073 (92,027) (10,998)
Income taxes (559) (13,647) (16,218)
Deferred revenue 24,941 3,475 9,860
-------------------------------------------------------------------------------------------------------------------
(20,164) (58,754) (85,526)
-------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 174,002 67,550 76,510
-------------------------------------------------------------------------------------------------------------------
Financing activities
Net variation of credit facility (5,000) (16,200) 46,200
Reduction of other long-term debts (65,027) (5,907) (9,670)
Issuance of shares 54,206 10,931 4,992
-------------------------------------------------------------------------------------------------------------------
Cash (used for) provided by financing activities (15,821) (11,176) 41,522
-------------------------------------------------------------------------------------------------------------------
Investing activities
Business acquisitions (net of cash) (Note 9) (86,393) (18,395) (119,106)
Investment in an entity subject to significant influence - (514) -
Purchase of fixed assets (23,993) (18,090) (20,678)
Proceeds from sale of fixed assets 1,270 845 2,201
Contract costs and other long-term assets (48,635) (14,177) (58,884)
-------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (157,751) (50,331) (196,467)
-------------------------------------------------------------------------------------------------------------------
Foreign exchange (loss) gain on cash held
in foreign currencies (3,763) 1,069 (754)
-------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (3,333) 7,112 (79,189)
Cash and cash equivalents at beginning of year 49,341 42,229 121,418
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year 46,008 49,341 42,229
===================================================================================================================
Supplementary cash flow information (Note 11)
See Notes to the Consolidated Financial Statements.
Page 5 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
1. Description of business
CGI Group Inc. (the "Company" or "CGI"), directly or through its
subsidiaries, provides a full range of information technology ("IT")
services including management of IT and business functions, systems
integration and consulting. The Company's primary focus is large-scale
systems integration and outsourcing contracts for both private and
public sector organizations.
2. Summary of significant accounting policies
Preparation of Consolidated Financial Statements
The Consolidated Financial Statements are prepared in accordance with
Canadian generally accepted accounting principles ("GAAP"), which differ
in certain material respects with US GAAP. Significant differences
relevant to the Company are presented in Note 16.
Use of estimates
The preparation of the Consolidated Financial Statements in conformity
with Canadian GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
Consolidated Financial Statements and the reported amounts of revenues
and expenses during the reporting period. Because of the use of
estimates inherent in the financial reporting process, actual results
could differ from those estimates.
Principles of consolidation
The financial statements of entities controlled by the Company are
consolidated; entities jointly controlled by the Company, referred to as
joint ventures, are accounted for using the proportionate consolidation
method; the associated company, which the Company had the ability to
significantly influence, was accounted for using the equity method.
Revenue recognition and work in progress
The Company provides professional services under level-of-effort,
cost-based and fixed-price contracts. Under level-of-effort contracts,
revenue is recorded as services are provided. For cost-based contracts,
revenue is recorded as reimbursable costs are incurred. Revenue from
fixed-price contracts is recorded using the percentage-of-completion
method, whereby revenue and profit are based on a ratio of costs
incurred to total estimated costs of the project. Work in progress is
valued at estimated net realizable value. Deferred revenue principally
represents billings to customers in excess of work in progress. Losses,
if any, on long-term contracts are recognized during the period they are
determined.
Revenue from the sale of software licences is recognized when the
product is delivered to the client and when no significant vendor
obligations remain and the collection of the receivable is reasonably
assured. Where license agreements include multiple elements, revenue
from sale of licenses is recognized on the same basis provided the
services do not include significant customization or modification of the
base product and the payment terms for licenses are not subject to
acceptance criteria. If an acceptance period is stipulated, revenue is
recognized upon the earlier of client acceptance or expiration of the
acceptance period. Revenue from software maintenance and support
agreements is recognized on a straight-line basis over the term of the
related agreements.
Page 6 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
2. Summary of significant accounting policies (cont'd)
Cash and cash equivalents
Cash and cash equivalents consist primarily of unrestricted cash and
short-term investments having an initial maturity of three months or
less.
Depreciation and amortization
Fixed assets are recorded at cost and are depreciated and amortized over
their estimated useful lives, using principally the straight-line
method. The annual depreciation and amortization periods by fixed asset
category are as follows:
Buildings 10 to 40 years
Leasehold improvements Term of lease plus first renewal option
Furniture and fixtures 3 to10 years
Computer equipment 3 to 5 years
Software 1 to 5 years
Contract costs and other long-term assets
Contract costs and other long-term assets include contract costs, costs
of software acquired and developed as well as costs of software licences
and other.
Contract costs are incurred in the course of IT management contracts
obtained by the Company for periods varying from two to 10 years. These
expenses are recorded at cost and amortized using the straight-line
method over the term of the respective contracts. Contract costs
principally comprise the following:
a) Value assigned to a specific long-term outsourcing contract entered
into by an acquired company;
b) Integration costs incurred on large outsourcing contracts as well
as incentives granted to clients upon the signature of long-term
outsourcing contracts. The unamortized remaining balance would be
refundable upon early termination of contracts, if any.
Costs of software acquired and developed include software specifically
designed or acquired to provide long-term outsourcing contracts to
clients or groups of clients. Costs of software developed are
capitalized only after technological feasibility is established. Costs
of software acquired and developed are recorded at cost and amortized on
a straight-line basis over their respective estimated useful lives.
Goodwill
Goodwill represents the excess of the purchase price over the fair
values of the net assets of entities acquired at the respective dates of
acquisition. Goodwill is amortized on a straight-line basis over its
expected useful life of 20 years.
For business combinations recorded after June 30, 2001, the Company did
not amortize the resulting goodwill created, consistent with transition
recommendations of the Canadian Institute of Chartered Accountants
("CICA") contained in Handbook Sections 1581, Business Combinations, and
3062, Goodwill and Other Intangible Assets. In addition, see "Future
accounting changes", discussed below.
Page 7 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
2. Summary of significant accounting policies (cont'd)
Impairment of long-lived assets
The Company evaluates the carrying value of its long-lived assets,
including goodwill, on an ongoing basis. In order to determine whether
an impairment exists, management considers the undiscounted cash flows
estimated to be generated by those assets as well as other indicators.
Any permanent impairment in the carrying value of assets is charged
against earnings in the period an impairment is determined. See "Future
accounting changes", discussed below, relating to goodwill and other
intangible assets.
Deferred credits
Deferred credits principally comprise the unused portion of discounts
granted by the Company to customers under long-term outsourcing
contracts.
Stock option plan
The Company has a stock option compensation plan, which is described in
Note 7. No compensation expense is recognized for this plan when stock
options are granted to employees and directors. Any consideration paid
by employees and directors on exercise of stock options is credited to
share capital.
In connection with a business acquisition where outstanding stock
options of the acquiree became options to acquire CGI Class A
subordinate shares, the Company recorded $16,519,000 as capital stock
representing the fair value of outstanding vested stock options of the
acquiree at the acquisition date (see Notes 7 and 9).
Research
Research expenses are charged to earnings in the year they are incurred,
net of related investment tax credits.
Income taxes
On October 1, 1999, the Company adopted the recommendations of CICA
Handbook Section 3465, Income taxes, which replaced the deferral method
with the liability method of tax allocation. The Company applied the
recommendations retroactively without restating prior years.
Future income taxes relate to the expected future tax consequences of
differences between the carrying amount of balance sheet items and their
corresponding tax values. Future tax assets are recognized only to the
extent that, in the opinion of management, it is more likely than not
that the future income tax assets will be realized. Future income tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment or substantive enactment.
Page 8 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
2. Summary of significant accounting policies (cont'd)
Income taxes (cont'd)
The change had the following cumulative effect on the October 1, 1999
accounts:
Increase Decrease
------------------------------
$ $
Retained earnings 11,590
Goodwill 16,869
Current future income tax assets 9,060
Long-term future income tax assets 4,722
Current future income tax liabilities 15
Long-term future income tax liabilities 8,488
Translation of foreign currencies
Accordingly, self-sustaining subsidiaries are accounted for using the
current-rate method. Assets and liabilities denominated in a foreign
currency are translated into Canadian dollars at exchange rates in
effect at the balance sheet date. Revenue and expenses are translated at
average exchange rates prevailing during the year. Resulting unrealized
gains or losses are accumulated and reported as translation adjustments
in shareholders' equity.
The accounts of foreign subsidiaries, which are financially or
operationally dependent on the parent company, are accounted for using
the temporal method. Under this method, monetary assets and liabilities
are translated at the exchange rates in effect at the balance sheet
dates and non-monetary assets and liabilities are translated at
historical exchange rates. Revenue and expenses are translated at
average rates for the period. Translation exchange gains or losses of
such subsidiaries are reflected in net earnings.
Revenue and expenses denominated in foreign currencies are recorded at
the rate of exchange prevailing at the transaction date. Monetary assets
and liabilities denominated in foreign currencies are translated at
exchange rates prevailing at the balance sheet dates. Other unrealized
translation gains and losses are reflected in net earnings.
Earnings per share
The Company adopted the recommendations of CICA Handbook Section 3500,
Earnings per Share ("EPS"), effective October 1, 2000. The revised
section requires the use of the treasury stock method to compute the
dilutive effect of potential common shares. Basic and diluted EPS
figures for each of the years presented are computed using the treasury
stock method.
Page 9 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
2. Summary of significant accounting policies (cont'd)
Future accounting changes
The CICA recently issued Handbook Sections 1581, Business Combinations,
and 3062, Goodwill and Other Intangible Assets. Effective July 1, 2001,
the standards require that all business combinations be accounted for
using the purchase method. Additionally, effective January 1, 2002,
goodwill and intangible assets with an indefinite life will no longer be
amortized to earnings and will be assessed for impairment on an annual
basis in accordance with the new standards, including a transitional
impairment test whereby any resulting impairment will be charged to
opening retained earnings. The Company will adopt these sections
effective October 1, 2001. The Company is currently evaluating the
impact of the adoption of the new standards, including the transitional
impairment test, and therefore has not yet assessed their effect on the
Company's future consolidated net earnings and financial position.
3. Accounts receivable
2001 2000
------------------------------
$ $
Trade 257,669 202,108
Other (1) 62,998 16,830
----------------------------------------------------------------------
320,667 218,938
======================================================================
(1) Other accounts receivable include refundable tax credits on
salaries, calculated at the rate of 25% on salaries paid in Quebec,
for a maximum of $10,000 a year per eligible employee. The Company
became eligible to receive these tax credits starting May 11, 2000,
upon its commitment to relocate to the E-Commerce Place.
Accordingly, other accounts receivable, as at September 30, 2001
and 2000, include, respectively, approximately $32,513,000 and
$7,800,000 in refundable tax credits on salaries. Should the
Company fail to relocate or meet other significant obligations
required under the current tax credits on salaries program, any tax
credits received would have to be refunded to the Quebec
government. Any refund made by the Company would be charged to
earnings in the corresponding period.
Page 10 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
4. Fixed assets
2001
Accumulated
depreciation
and Net book
Cost amortization value
-------------- ------------ ----------
$ $ $
Land 4,191 - 4,191
Buildings 23,397 167 23,230
Leasehold improvements 30,572 6,033 24,539
Furniture and fixtures 30,411 12,884 17,527
Computer equipment 112,276 70,140 42,136
Software 24,496 12,728 11,768
-----------------------------------------------------------------------------------------------------------
225,343 101,952 123,391
===========================================================================================================
2000
Accumulated
depreciation
and Net book
Cost amortization value
-------------- ------------ ----------
$ $ $
Leasehold improvements 25,887 5,917 19,970
Furniture and fixtures 24,260 11,569 12,691
Computer equipment 72,886 52,002 20,884
Software 15,516 10,161 5,355
-----------------------------------------------------------------------------------------------------------
138,549 79,649 58,900
===========================================================================================================
Fixed assets include assets acquired under capital leases totalling
$11,368,000 ($10,549,000 in 2000), net of accumulated depreciation and
amortization of $27,301,000 ($7,981,000 in 2000).
Page 11 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
5. Contract costs and other long-term assets
2001
Accumulated Net book
Cost amortization value
-------------- ------------ ----------
$ $ $
Contract costs 205,195 23,152 182,043
Software acquired and developed 65,988 11,484 54,504
Software licences and other 74,094 38,238 35,856
-----------------------------------------------------------------------------------------------------------
345,277 72,874 272,403
===========================================================================================================
2000
Accumulated Net book
Cost amortization value
-------------- ------------ ----------
$ $ $
Contract costs 58,719 5,414 53,305
Software acquired and developed 42,540 7,855 34,685
Software licences and other 34,988 29,262 5,726
-----------------------------------------------------------------------------------------------------------
136,247 42,531 93,716
===========================================================================================================
Page 12 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
6. Long-term debt
2001 2000
------------------------------
$ $
Unsecured revolving credit facility, bearing interest at bankers'
acceptance rate plus 0.375% with no principal
payments before 2005 (1) 25,000 30,000
Obligations under capital leases, bearing interest at various interest
rates varying from 5.7% to 14.7% and repayable in blended monthly
instalments maturing at
various dates until 2006 14,901 12,777
Other secured and unsecured loans, without interest,
repayable in 2002 379 637
-----------------------------------------------------------------------------------------------------------
40,280 43,414
Current portion 7,528 5,770
-----------------------------------------------------------------------------------------------------------
32,752 37,644
===========================================================================================================
(1) An amount of $199,050,000 is available under the terms of this
unsecured revolving credit facility. In addition to this revolving
credit facility, the Company also has available lines of credit
totalling $28,750,000 under which approximately $2,550,000 have
been used to cover letters of credit issued for contracts with
major outsourcing and systems integration clients.
Principal repayments on long-term debt over the next five years are as
follows:
$
2002 379
2003 -
2004 -
2005 25,000
2006 -
Minimum capital lease payments are as follows:
Payment Interest Principal
$ $ $
2002 8,107 958 7,149
2003 4,280 503 3,777
2004 3,341 169 3,172
2005 795 53 742
2006 75 14 61
-----------------------------------------------------------------------------------------------------------
Total minimum capital lease payments 16,598 1,697 14,901
===========================================================================================================
Page 13 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
7. Capital stock
Authorized, an unlimited number without par value:
First preferred shares, carrying one vote per share, ranking prior to
second preferred shares, Class A subordinate shares and Class B
shares with respect to the payment of dividends;
Second preferred shares, non-voting, ranking prior to Class A
subordinate shares and Class B shares with respect to the payment of
dividends;
Class A subordinate shares, carrying one vote per share,
participating equally with Class B shares with respect to the payment
of dividends and convertible into Class B shares under certain
conditions in the event of certain takeover bids on Class B shares;
Class B shares, carrying 10 votes per share, participating equally
with Class A subordinate shares with respect to the payment of
dividends, convertible at any time at the option of the holder into
Class A subordinate shares.
2001 2000
------------------------------
$ $
Issued and paid
327,032,717 Class A subordinate shares
(240,755,667 in 2000) 1,159,337 490,645
40,799,774 Class B shares
(34,846,526 in 2000) 54,205 1,162
-----------------------------------------------------------------------------------------------------------
1,213,542 491,807
===========================================================================================================
Page 14 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
7. Capital stock (cont'd)
For 2001, 2000 and 1999 and after giving retroactive effect to the
subdivision of the Company's shares that occurred on January 7, 2000, the
Class A subordinate shares, Class B shares and first preferred shares
changed as follows:
Class A subordinate
shares Class B shares
Number Amount Number Amount
-----------------------------------------------------------------------------------------------------------
$ $
Balance at September 30,
1999 232,097,696 418,624 34,773,652 148
Options exercised 1,790,278 4,992 - -
-----------------------------------------------------------------------------------------------------------
Balance at September 30,
1999 233,887,974 423,616 34,773,652 148
Issued for cash 287,914 4,003 - -
Issued as consideration for
business acquisitions
(Note 9) 5,626,369 57,112 - -
Options exercised 953,410 5,914 72,874 1,014
-----------------------------------------------------------------------------------------------------------
Balance at September 30,
2000 240,755,667 490,645 34,846,526 1,162
Issued for cash - - 5,953,248 53,043
Issued as consideration for
business acquisitions
(Note 9) 85,835,178 651,010 - -
Fair value of outstanding
vested stock options
issued as consideration
for business acquisition
(Notes 2 and 9) - 16,519 - -
Options exercised 441,872 1,163 - -
-----------------------------------------------------------------------------------------------------------
Balance at September 30,
2001 327,032,717 1,159,337 40,799,774 54,205
===========================================================================================================
Stock option plan
Under a Stock option plan for certain employees and directors of the
Company and its subsidiaries, the Board of Directors may grant, at its
discretion, options to purchase company stock to certain employees and
directors of the Company and its subsidiaries. The exercise price is
established by the Board of Directors but may not be lower than the
average closing price for Class A shares over the five business days
preceding the date of the grant. Options generally vest one to three
years from the date of grant and must be exercised within a 10-year
period, except in the event of retirement, termination of employment or
death. Options for 36,709,965 Class A subordinate shares have been
reserved for issuance under the stock option plan.
Page 15 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
7. Capital stock (cont'd)
Stock option plan (cont'd)
The following table presents information concerning all stock options
granted to certain employees and directors by the Company for the years
ended September 30:
2001 2000 1999
-----------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
average average average
Number exercise price Number exercise price Number exercise price
of options per share of options per share of options per share
-----------------------------------------------------------------------------------------------------------
$ $ $
Outstanding, beginning
of year 6,413,181 11.46 4,996,414 8.23 5,497,696 4.85
Granted 11,705,381 8.89 2,565,594 15.93 1,415,980 14.65
Granted as consideration
for business
acquisition (Note 9) 8,424,502 12.27 - - - -
Exercised (441,872) 2.63 (1,026,284) 6.75 (1,790,278) 2.79
Forfeited and expired (815,889) 13.90 (122,543) 13.21 (126,984) 9.91
-----------------------------------------------------------------------------------------------------------
Outstanding, end
of year 25,285,303 10.61 6,413,181 11.46 4,996,414 8.23
===========================================================================================================
The following table summarizes information about outstanding stock
options granted to certain employees and directors of the Company at
September 30, 2001:
Options outstanding Options exercisable
-----------------------------------------------------------------------------------------------------------
Weighted
average
remaining Weighted Weighted
Range of Number contractual average Number average
exercise price outstanding life (years) exercise price exercisable exercise price
-----------------------------------------------------------------------------------------------------------
$ $ $
0.05 to 2.97 707,941 3 1.42 704,747 1.41
3.15 to 5.75 2,596,269 5 4.49 1,631,840 5.22
5.87 to 8.99 10,340,369 10 8.50 604,471 6.71
9.03 to 13.59 6,179,529 8 10.59 1,839,806 11.32
14.00 to 16.86 3,031,794 8 15.71 1,905,645 15.57
17.30 to 23.90 1,916,733 7 19.70 1,077,192 19.57
24.51 to 29.16 127,216 8 27.98 46,834 27.38
31.38 to 36.73 385,452 7 34.71 327,467 35.30
-----------------------------------------------------------------------------------------------------------
25,285,303 7 10.61 8,138,002 12.04
===========================================================================================================
Page 16 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
7. Capital stock (cont'd)
Warrants
In connection with the signing of a strategic outsourcing contract and
of a business acquisition (see Note 9), the Company granted warrants
entitling the holders to subscribe to up to 5,118,210 Class A
subordinate shares. The exercise prices were determined using the
average closing price for Class A subordinate shares at a date and for a
number of days around the respective transaction dates. The warrants
vest upon signature of the contracts or date of business acquisition and
have an exercise period of five years. As at September 30, 2001, there
were 5,118,210 warrants issued and outstanding, 4,000,000 of which are
exercisable at a price of $6.55 per share and expire April 30, 2006 and
the remaining 1,118,210 are exercisable at a price of $8.88 per share
expiring June 13, 2006. These warrants have a total fair value of
$19,655,000. The fair values of the warrants were estimated at their
respective grant dates using the Black-Scholes option pricing model with
the following assumptions: risk-free interest rate of 4.9%, dividend
yield of 0.0%, expected volatility of 57.7% and expected life of five
years.
Earnings per share
The following table sets forth the computation of basic and diluted
earnings per share for the years ended September 30:
2001 2000 1999
------------------------------------------------
$ $ $
Numerator:
Net earnings 62,789 55,666 83,816
-----------------------------------------------------------------------------------------------------------
Denominator:
Denominator for basic earnings per share -
weighted average shares 299,500,350 270,442,354 267,969,082
Dilutive effect of employee stock options 1,287,291 2,317,858 1,127,202
Dilutive effect of warrants 319,545 - -
-----------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share -
weighted average shares and assumed
conversions 301,107,186 272,760,212 269,096,284
===========================================================================================================
Basic earnings per share 0.21 0.21 0.31
===========================================================================================================
Diluted earnings per share 0.21 0.20 0.31
===========================================================================================================
Page 17 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
8. Income taxes
As described in Note 2, the Company adopted the recommendations of CICA
Handbook Section 3465, Income Taxes, effective October 1, 1999 and prior
year figures have not been restated. The terminology used to describe
comparative figures is consistent with the terminology used to describe
current year figures calculated using the liability method of tax
allocation. The income tax provision for the years ended September 30,
is as follows:
2001 2000 1999
------------------------------------------------
$ $ $
Current 38,244 46,494 57,085
Future (1) 33,921 3,491 12,858
-----------------------------------------------------------------------------------------------------------
72,165 49,985 69,943
===========================================================================================================
(1) Includes $1,451,000 ($1,277,000 in 2000 and $494,000 in 1999) of
future income taxes related to goodwill amortization.
The Company's effective income tax rate differs from the combined
Canadian statutory tax rate for the years ended September 30, for the
following reasons:
2001 2000 1999
------------------------------------------------
% % %
Combined federal and provincial statutory tax rates 38.6 40.6 41.9
Non-deductible items 8.6 7.3 5.1
Utilization of non-recognized tax benefits
of a subsidiary - - (1.1)
Valuation allowance relating to tax benefits on losses 7.8 - -
Other (2.0) (1.1) (0.6)
-----------------------------------------------------------------------------------------------------------
Effective income tax rate after goodwill amortization 53.0 46.8 45.3
Goodwill amortization (8.5) (6.3) (4.1)
-----------------------------------------------------------------------------------------------------------
Effective income tax rate before goodwill amortization 44.5 40.5 41.2
===========================================================================================================
Page 18 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
8. Income taxes (cont'd)
Future income taxes at September 30, are as follows:
2001 2000
------------------------------
$ $
Future income tax assets:
Provision for integration costs 26,093 10,415
Tax benefits on losses carried forward 97,415 23,654
Accrued compensation 7,107 -
Fixed assets 6,739 -
Unclaimed research and experimental development expenses - 2,041
Allowance for doubtful accounts 3,507 -
Other 3,742 1,201
-----------------------------------------------------------------------------------------------------------
144,603 37,311
-----------------------------------------------------------------------------------------------------------
Future income tax liabilities:
Fixed assets - 1,958
Contract costs and other long-term assets 35,336 21,550
Work in progress 6,716 7,190
Goodwill 5,467 1,049
Refundable tax credits on salaries 8,997 -
Other 8,202 145
-----------------------------------------------------------------------------------------------------------
64,718 31,892
-----------------------------------------------------------------------------------------------------------
Valuation allowance 93,820 5,789
-----------------------------------------------------------------------------------------------------------
Future income taxes, net (13,935) (370)
===========================================================================================================
Future income taxes are classified as follows:
Current future income tax assets 17,998 7,052
Long-term future income tax assets 32,785 24,470
Current future income tax liabilities (21,013) (7,963)
Long-term future income tax liabilities (43,705) (23,929)
-----------------------------------------------------------------------------------------------------------
Future income tax liabilities, net (13,935) (370)
===========================================================================================================
Certain of the Company's subsidiaries have losses carried forward
aggregating approximately $300,000,000, of which approximately
$262,000,000 (US$167,000,000) originates from the Company's US
subsidiaries, available to reduce future taxable income and expiring at
various dates to 2021. The benefit of these losses has been reflected in
the Consolidated Financial Statements to the extent that it was
considered to be more likely than not that the related future income tax
assets would be realized.
Page 19 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
9. Business acquisitions
For all business acquisitions, the Company began recording the results
of operations of the acquired entities as of their respective effective
acquisition dates.
During 2001, the Company made the following acquisitions:
- C.U. Processing Inc. ("CUP") - On October 4, 2000, the Company
acquired all the outstanding shares of CUP, a Detroit-based provider
of information management systems primarily to US credit unions;
- AGTI Consulting Services Inc. ("AGTI") - On November 27, 2000, the
Company acquired 49.0% of all outstanding shares of AGTI, a
Montreal-based IT consulting firm. The Company accounts for its
49.0% interest in AGTI using the proportionate consolidation method;
- RSI Realtime Consulting Inc. ("RSI") - On December 12, 2000, the
Company acquired all the outstanding shares of RSI, a Toronto-based
SAP implementation specialist;
- Groupe-conseil CDL Inc. ("CDL") - On January 4, 2001, the Company
acquired all outstanding shares of CDL, a Montreal-based IT
consulting firm in J.D. Edwards enterprise resource planning
solutions;
- Star Data Systems Inc. ("Star Data") - On January 9, 2001, the
Company acquired all the outstanding common shares of Star Data on
the basis of 0.737 Class A subordinate shares of the Company for
each Star Data common share. Star Data is a Canadian-based provider
of IT services and solutions to the financial services industry;
- Conseillers en informatique d'affaires ("CIA") - On January 12,
2001, the Company increased its interest in CIA from 35.0% to 49.0%
and began using the proportionate consolidation method to account
for its investment: prior to January 12, 2001, the Company used the
equity method to account for this investment. CIA is a provider of
IT services primarily in the government and financial sectors;
- Nter Technologies, Limited Partnership ("Nter") - On February 1,
2001, the Company entered into a partnership with Loto-Quebec, which
involved the creation of Nter, an IT consulting firm, and the
acquisition of a 49.9% interest in Nter. The Company accounts for
this interest using the proportionate consolidation method;
- Assets and liabilities of Confederation des caisses populaires et
d'economie Desjardins du Quebec used in data and micro-computing of
Mouvement des caisses Desjardins ("Desjardins") operations - On May
1, 2001, the Company signed a strategic alliance for the management
of data and micro-computing of Desjardins operations. In the context
of this agreement, the Company acquired the related assets, certain
intellectual property rights and assumed liabilities of
Confederation des caisses populaires et d'economie Desjardins du
Quebec used in data and micro-computing of Desjardins. In addition,
approximately 450 Desjardins employees were transferred to the
Company;
Page 20 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
9. Business acquisitions (cont'd)
- CyberBranch Corporation ("CyberBranch") - On May 31, 2001, the
Company acquired CyberBranch, a subsidiary of Stanford Federal
Credit Union of California. CyberBranch is an Internet and intranet
provider of leading-edge technology to credit unions across North
America;
- Larochelle Gratton - On July 1, 2001, the Company acquired all
outstanding shares of Larochelle Gratton, a Quebec-based provider of
a range of systems integration services to leading client
organizations, including areas such as e-commerce and the Internet.
As described in Note 2, goodwill resulting from this acquisition is
not amortized;
- IMRglobal Corp. ("IMRglobal" or "IMR") - On July 27, 2001, the
Company merged with IMRglobal, a US-based leading global provider of
end-to-end IT solutions, acquiring all the outstanding common stock
of IMRglobal on the basis of 1.5974 Class A subordinate share of the
Company for each share of IMRglobal common stock. In addition, each
outstanding IMRglobal stock option as of that date became a 1.5974
stock option to acquire a Class A subordinate share of the Company.
The purchase price allocation shown below is preliminary and is
based on the Company's estimates assisted by external advisors. The
final allocation is expected to be completed within twelve months
from the acquisition date and may result in the purchase price being
allocated to other identified intangible assets besides goodwill
which will be amortized over their respective estimated useful
lives. As described in Note 2, goodwill resulting from this
acquisition is not amortized.
Non-cash working capital items acquired, reflected below, include
costs totalling $68,000,000 of acquisition and integration
liabilities incurred by the Company for professional fees and costs
to exit and consolidate certain of IMRglobal activities. The
components of the acquisition and integration liabilities assumed
and included in the preliminary allocation of the purchase price to
the net assets acquired are as follows:
Balance
Acquisition and Paid as at remaining as at
integration September 30, September 30,
liabilities 2001 2001
------------------- ----------------- ------------------
$ $ $
Professional fees 17,347 14,513 2,834
Consolidation and closure
of facilities 14,000 1,554 12,446
Severance 12,000 300 11,700
Support structure 20,810 573 20,237
Other 3,843 2,188 1,655
-------------------------------------------------------------------------------------------------------
68,000 19,128 48,872
=======================================================================================================
Page 21 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
9. Business acquisitions (cont'd)
- LoyalTech - On August 7, 2001, the Company acquired all outstanding
shares of LoyalTech, a Portugal-based consultant and integrator
specialist in customer relationship management solutions and
e-business strategies. As described in Note 2, goodwill resulting
from this acquisition is not amortized;
- Digital 4Sight - On August 27, 2001, the Company signed a joint
venture agreement with former Digital 4Sight owners, which involved
the creation of a new management strategy and research firm. The
Company accounts for its 51.0% interest in Digital 4Sight using the
proportionate consolidation method. As described in Note 2, goodwill
resulting from this acquisition is not amortized;
- EPC Services Conseils Inc. ("EPC") - On September 10, 2001, the
Company acquired all outstanding shares of EPC, a Quebec-based
consulting firm. As described in Note 2, goodwill resulting from
this acquisition is not amortized.
These acquisitions were accounted for using the purchase method, as
follows:
Star
Net assets acquired IMR Data Desjardins AGTI CUP Other Total
------------------------------------------------------------------------------------------------------------
$ $ $ $ $ $ $
Non-cash working capital
items (62,558) (18,391) 21,381 2,216 (12,061) (471) (69,884)
Fixed assets 42,095 21,211 3,612 448 3,296 2,135 72,797
Contract costs and other
long-term assets 22,346 9,203 111,986 - 447 11 143,993
Future income taxes 7,537 15,716 (6,685) 10 4,228 1,139 21,945
Goodwill 578,525 73,060 9,549 14,602 41,601 27,588 744,925
Long-term debt (53,988) (10,799) - - (812) (1,759) (67,358)
Deferred credits (7,609) - (67,627) - - - (75,236)
-----------------------------------------------------------------------------------------------------------
526,348 90,000 72,216 17,276 36,699 28,643 771,182
Cash position at acquisition 26,485 12,820 - 7,639 1,837 4,062 52,843
-----------------------------------------------------------------------------------------------------------
552,833 102,820 72,216 24,915 38,536 32,705 824,025
===========================================================================================================
Consideration
Cash - - 57,945 24,915 38,536 19,561 140,957
Issuance of 85,835,178
Class A subordinate
Shares (Note 7) 536,314 102,820 - - - 11,876 651,010
Issuance of 8,424,502
stock options to acquire
Class A subordinate
shares (Notes 2 and 7) 16,519 - - - - - 16,519
4,000,000 warrants at
fair value (Note 7) - - 14,271 - - - 14,271
Equity value of CIA
investment at acquisition
date - - - - - 1,268 1,268
-----------------------------------------------------------------------------------------------------------
552,833 102,820 72,216 24,915 38,536 32,705 824,025
===========================================================================================================
Page 22 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
9. Business acquisitions (cont'd)
In addition, during 2001, the Company modified the initial purchase
price allocation of APG Solutions & Technologies Inc. ("APG"), acquired
in 2000, following the conclusion of pending arbitration at the
acquisition date, which resulted in a reduction of the consideration
paid and the corresponding value of net assets acquired of approximately
$1,721,000.
During 2000, the Company made the following acquisitions:
- MCM Technology Inc. ("MCM") - On October 26, 1999, the Company
acquired all the outstanding shares of MCM, an information
technology consulting firm serving clients mainly in the healthcare
and telecommunications industries;
- APG - On September 1, 2000, the Company acquired all the outstanding
shares of APG, an information technology consulting firm
specializing in the implementation of enterprise resource planning
solutions, system evolution, electronic commerce and knowledge
management.
These acquisitions, including the fiscal 2001 modification relating to
APG described above, were accounted for using the purchase method, as
follows:
Net assets acquired MCM APG Total
------------------------------------------------------------------------------------------------------------
$ $ $
Non-cash working capital items (1,208) (8,336) (9,544)
Fixed assets 872 2,089 2,961
Contract costs and other long-term assets - 64 64
Future income taxes 363 9,678 10,041
Goodwill 8,925 63,749 72,674
Long-term debt (635) (1,775) (2,410)
-----------------------------------------------------------------------------------------------------------
8,317 65,469 73,786
Cash position at acquisition 1,008 (7,162) (6,154)
-----------------------------------------------------------------------------------------------------------
9,325 58,307 67,632
===========================================================================================================
Consideration
Cash 2,900 7,620 10,520
Issuance of 5,626,369 Class A
subordinate shares (Note 7) 6,425 50,687 57,112
-----------------------------------------------------------------------------------------------------------
9,325 58,307 67,632
===========================================================================================================
Page 23 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
9. Business acquisitions (cont'd)
During 1999, the Company made the following acquisitions:
- 9061-9313 Quebec Inc. - On January 1, 1999, the Company acquired all
the outstanding shares of 9061-9313 Quebec Inc., a corporation
incorporated by Desjardins and into which the assets of Technologie
Desjardins Laurentienne ("TDL") were transferred;
- DRT Systems International and DRT Systems International L.P.
(jointly, "DRT") - On July 1, 1999, the Company acquired
substantially all of the assets related to the businesses of DRT.
These acquisitions were accounted for using the purchase method, as
follows:
Net assets acquired TDL DRT Total
---------------------------------------------------------------------------------------------------------
$ $ $
Non-cash working capital items 1,072 23,952 25,024
Fixed assets 2,516 3,207 5,723
Contract costs and other long-term assets 1,053 - 1,053
Goodwill 18,541 68,765 87,306
--------------------------------------------------------------------------------------------------------
23,182 95,924 119,106
========================================================================================================
Cash consideration 23,182 95,924 119,106
========================================================================================================
10. Investments in joint ventures
The Company's proportionate share of its joint venture investees'
operations included in the Consolidated Financial Statements is as
follows:
As at and for the years
ended September 30,
2001 2000
------------------------------
$ $
Balance Sheet
Current assets 18,370 1,347
Non-current assets 21,967 192
Current liabilities 4,275 1,335
Non-current liabilities 45 -
Statement of earnings
Revenue 35,057 10,814
Expenses 34,339 10,312
-----------------------------------------------------------------------------------------------------------
Net earnings 718 502
===========================================================================================================
Statement of cash flows Funds provided by:
Operating activities 1,572 502
Financing activities - 234
Investing activities (2,220) -
Page 24 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
11. Supplementary cash flow information
i) Non-cash operating, investing and financing activities:
2001 2000 1999
------------------------------------------------
$ $ $
Operating activities
Deferred credits 14,000 - -
Future income taxes 3,029 - -
-----------------------------------------------------------------------------------------------------------
17,029 - -
===========================================================================================================
Investing activities
Business acquisitions 681,800 57,112 -
Purchase of assets under capital leases - 2,882 11,943
Contract costs and other long-term assets 22,413 - -
-----------------------------------------------------------------------------------------------------------
704,213 59,994 11,943
===========================================================================================================
Financing activities
Issuance of capital stock and stock options 667,529 57,112 -
Issuance of warrants 19,655 - -
Increase in obligations under capital leases - 2,882 11,943
-----------------------------------------------------------------------------------------------------------
687,184 59,994 11,943
===========================================================================================================
ii)Interest paid and income taxes paid for the years ended September 30,
are as follows:
2001 2000 1999
------------------------------------------------
$ $ $
Interest paid 4,592 3,754 1,509
Income taxes paid 41,615 67,154 73,303
12. Segmented information
The Company has three strategic business units ("SBU"), organized on the
basis of geographic areas: Canada, US and International. The Company
evaluates each SBU's performance primarily based on its revenue,
operating earnings and net contribution (the latter being defined as
earnings before interest, income taxes, entity subject to significant
influence and amortization of goodwill) by its respective senior
executive, who reports directly to the Chief Executive Officer.
Each segment, with the exception of the corporate segment, offers
end-to-end IT services including management of IT and business
functions, systems integration and consulting services to clients in
industry sectors such as telecommunications, financial services and
manufacturing/retail/ distribution. The corporate segment comprises
management of cash and cash equivalents and general corporate activities
such as strategy and market development, coordination of large projects
and capital investment decisions. Costs which have not been allocated to
the other segments are included in this segment as they represent common
costs and general head office expenses; the allocation of these costs to
the other segments would not assist in the evaluation of the respective
segments' contributions.
Page 25 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
12. Segmented information (cont'd)
Effective October 1, 2001, the Company will change its organizational
structure. The Company will have three SBUs organized according to the
following breakdown: Canada and Europe, US and Asia Pacific, and
Business Process Services. As of that date, the Company will begin to
evaluate SBU performance under this structure and will report segmented
information on that basis. Segmented information presented below is on
the basis of the organizational structure in place at September 30,
2001.
2001
---------------------------------------------------------------------------------------
Intersegment
Canada US International Corporate elimination Total
---------------------------------------------------------------------------------------
$ $ $ $ $ $
Revenue 1,300,258 232,655 86,850 - (38,448) 1,581,315
Operating expenses 1,031,041 235,587 89,110 34,405 (38,448) 1,351,695
-----------------------------------------------------------------------------------------------------------
Operating earnings
before: 269,217 (2,932) (2,260) (34,405) - 229,620
Depreciation and
amortization 58,585 4,072 2,133 1,206 - 65,996
-----------------------------------------------------------------------------------------------------------
Earnings before
interest, income
taxes, entity
subject to significant
influence and
amortization of
goodwill 210,632 (7,004) (4,393) (35,611) - 163,624
===========================================================================================================
Total assets 971,154 806,173 240,710 44,756 - 2,062,793
===========================================================================================================
2000
---------------------------------------------------------------------------------------
Intersegment
Canada US International Corporate elimination Total
---------------------------------------------------------------------------------------
$ $ $ $ $ $
Revenue 1,127,715 215,442 179,531 - (86,680) 1,436,008
Operating expenses 943,612 207,104 165,543 34,732 (86,680) 1,264,311
-----------------------------------------------------------------------------------------------------------
Operating earnings
before: 184,103 8,338 13,988 (34,732) - 171,697
Depreciation and
amortization 41,023 4,009 2,046 1,300 - 48,378
-----------------------------------------------------------------------------------------------------------
Earnings before
interest, income
taxes, entity
subject to significant
influence and
amortization of
goodwill 143,080 4,329 11,942 (36,032) - 123,319
===========================================================================================================
Total assets 597,729 207,469 95,095 28,262 - 928,555
===========================================================================================================
Page 26 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
12. Segmented information (cont'd)
1999
---------------------------------------------------------------------------------------
Intersegment
Canada US International Corporate elimination Total
---------------------------------------------------------------------------------------
$ $ $ $ $ $
Revenue 1,204,719 140,617 121,179 - (57,057) 1,409,458
Operating expenses 995,938 123,077 108,002 25,221 (57,057) 1,195,181
-----------------------------------------------------------------------------------------------------------
Operating earnings
before: 208,781 17,540 13,177 (25,221) - 214,277
Depreciation and
amortization 41,991 3,992 905 1,403 - 48,291
-----------------------------------------------------------------------------------------------------------
Earnings before
interest, income
taxes, entity subject
to significant
influence and
amortization of
goodwill 166,790 13,548 12,272 (26,624) - 165,986
===========================================================================================================
Total assets 500,014 186,315 150,238 29,922 - 866,489
===========================================================================================================
Revenue by service line:
2001 2000 1999
------------------------------------------------
$ $ $
Management of IT and business functions
(outsourcing) 1,091,107 891,726 1,009,844
Systems integration and Consulting 490,208 544,282 399,614
-----------------------------------------------------------------------------------------------------------
Total 1,581,315 1,436,008 1,409,458
===========================================================================================================
The Canada and International segments comprise revenue from contracts
with a shareholder, its subsidiaries and its affiliated companies. Other
than that group, no single client represents more than 10% of the
Company's revenue (see Note 13).
Page 27 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
13. Related party transactions
In the normal course of business, the Company is party to contracts with
certain of BCE Inc.'s (a shareholder) subsidiaries and affiliated
companies, pursuant to which the Company is its preferred IT supplier.
Transactions and resulting balances, which were measured at exchange
amounts, are presented below:
2001 2000 1999
------------------------------------------------
$ $ $
Revenue 451,344 572,630 526,696
Purchase of services 78,495 114,062 110,009
Accounts receivable 37,549 53,235 11,961
Accounts payable 4,828 12,645 20,960
Work in progress 16,389 12,072 38,561
Deferred revenue 24,010 11,998 5,912
Contract costs and other long-term assets 22,750 25,711 31,200
14. Commitments and contingencies
At September 30, 2001, the Company is committed under the terms of
operating leases with various expiration dates, primarily for rental of
premises and computer equipment used in outsourcing contracts, in the
aggregate amount of approximately $668,586,000. Minimum lease payments
due in each of the next five years are as follows:
$
2002 86,225
2003 79,046
2004 69,288
2005 52,093
2006 44,002
The Company concluded four long-term service agreements representing a
total commitment of $49,317,000. Minimum payments under these agreements
due in each of the next five years are as follows:
$
2002 25,537
2003 20,755
2004 5,477
2005 622
2006 -
Page 28 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
15. Financial instruments
Fair value
At September 30, 2001 and 2000, the estimated fair values of cash and
cash equivalents, accounts receivable, work in progress and accounts
payable and accrued liabilities approximate their respective carrying
values.
The estimated fair values of long-term debt and obligations under
capital leases are not significantly different from their respective
carrying values at September 30, 2001 and 2000.
The Company does not hold or issue financial instruments for trading
purposes.
Credit risk
Credit risk concentration with respect to trade receivables is limited
due to the Company's large client base. Furthermore, as described in
Note 13, the Company generates a significant portion of its revenue from
a shareholder's subsidiaries and affiliates. Management does not believe
that the Company is subject to any significant credit risk.
Currency risk
The Company operates internationally and is exposed to market risks from
changes in foreign currency rates. The Company does not trade derivative
financial instruments.
16. Reconciliation of results reported in accordance with Canadian GAAP to
US GAAP
The material differences between Canadian and US GAAP affecting the
Company's Consolidated Financial Statements are detailed as follows:
Reconciliation of net earnings:
2001 2000 1999
------------------------------------------------
$ $ $
Net earnings - Canadian GAAP 62,789 55,666 83,816
Adjustments
Foreign currency translation (ii) 523 462 389
Goodwill (iii) (500) (500) (142)
Integration costs (iv) (4,842) (1,764) -
Income taxes (i) - - 550
Research (v) - - 2,178
Purchased in-process R&D (vi) - - (741)
Warrants (vii) (11,605) - -
Unearned compensation (viii) (150) - -
-----------------------------------------------------------------------------------------------------------
Net earnings - US GAAP 46,215 53,864 86,050
===========================================================================================================
Basic EPS - US GAAP 0.15 0.20 0.32
===========================================================================================================
Diluted EPS - US GAAP 0.15 0.20 0.32
===========================================================================================================
Page 29 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
16. Reconciliation of results reported in accordance with Canadian GAAP to
US GAAP (cont'd)
Reconciliation of shareholders' equity:
2001 2000 1999
------------------------------------------------
$ $ $
Shareholders' equity - Canadian GAAP 1,481,917 677,301 563,055
Adjustments
Adjustment for change in accounting policy (i) 9,134 9,134 -
Foreign currency translation (ii) 581 1,659 1,562
Goodwill (iii) 27,578 (642) (142)
Integration costs (iv) (6,606) (1,764) -
Income taxes (i) - - (2,456)
Warrants (vii) (11,605) - -
Unearned compensation (viii) (3,694) - -
-----------------------------------------------------------------------------------------------------------
Shareholders' equity - US GAAP 1,497,305 685,688 562,019
===========================================================================================================
(i) Income taxes and adjustment for change in accounting policy
On October 1, 1999, the Company adopted the recommendations of
CICA Handbook Section 3465, Income taxes (see Note 2). The
recommendations of Section 3465 are similar to the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes issued by the Financial Accounting
Standards Board ("FASB"). Upon the implementation of Section 3465,
the Company recorded an adjustment to reflect the difference
between the assigned value and the tax basis of assets acquired in
a purchase business combination, which resulted in a future income
tax liabilities; the Company recorded this amount through a
reduction of retained earnings as part of the cumulative
adjustment. US GAAP, this amount would have been reflected as
additional goodwill.
Prior to the issuance of Section 3465, under Canadian GAAP,
accounting for income taxes was similar to the provisions of the
US Accounting Principles Board No. 11. Under US GAAP, the Company
would have followed the provisions of SFAS No. 109.
Page 30 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
16. Reconciliation of results reported in accordance with Canadian GAAP to
US GAAP (cont'd)
(ii) Translation of foreign currencies
Under Canadian GAAP, the financial statements of the Company's
foreign subsidiaries, which are considered integrated operations,
have been translated using the temporal method. Under this method,
monetary assets and liabilities are translated at the exchange
rates in effect at the balance sheet dates and non-monetary assets
and liabilities are translated at historical exchange rates.
Revenues and expenses are translated at average rates for the
period. Translation exchange gains or losses of such subsidiaries
are reflected in net earnings.
Under US GAAP, SFAS No. 52, Foreign Currency Translation, requires
companies to translate functional-currency financial statements
into reporting currency using the current exchange rate method
whereby the rates in effect on the balance sheet dates for assets
and liabilities and the weighted average rate for statement of
earnings elements are used. Any translation adjustments, resulting
from the process of translating the financial statements of
foreign subsidiaries into Canadian dollars, are excluded from the
determination of net earnings and are reported as a separate
component in shareholders' equity.
(iii) Goodwill
As described in (i) above, goodwill recorded by the Company would
be greater for US GAAP purposes than for Canadian GAAP purposes.
The adjustment reflects the additional goodwill amortization
expense for US GAAP purposes.
The goodwill adjustment to shareholders' equity results from the
difference in the value assigned to stock options issued to
IMRglobal employees. Under Canadian GAAP, the fair value of
outstanding vested stock options is recorded as part of the
purchase allocation (see Notes 2 and 9), whereas under US GAAP,
the fair value of both vested and unvested outstanding stock
options granted as a result of the business acquisition is
recorded. See (viii) below for a further discussion relating to
this item.
(iv) Integration costs
Under Canadian GAAP, prior to January 1, 2001, certain
restructuring costs relating to the purchaser may be recognized in
the purchase price allocation when accounting for business
combinations, subject to certain conditions. Under US GAAP, only
costs relating directly to the acquired business may be considered
in the purchase price allocation. The adjustment represents the
charge to net earnings, net of goodwill amortization recorded for
Canadian GAAP purposes and of income taxes.
Page 31 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
16. Reconciliation of results reported in accordance with Canadian GAAP to
US GAAP (cont'd)
(v) Research
Under US GAAP, software and development costs capitalized by a
subsidiary company would have been expensed. The adjustment
represents the reversal of the amortization expense, net of income
taxes.
(vi) Purchased in-process research and development ("R&D")
As a result of the acquisition of a subsidiary company, an amount
was allocated to software and development costs incurred by a
subsidiary company prior to its acquisition. Under US GAAP, this
charge would be considered as purchased in-process R&D. Purchased
in-process R&D that represents products in the development stage
and not considered to have reached technological feasibility at
the time of the acquisition is required to be expensed. The
adjustment represents the reversal of the amortization expense,
net of income taxes.
(vii) Warrants
Under Canadian GAAP, the fair value of warrants issued in
connection with long-term outsourcing contracts is recorded as
contract costs and amortized on a straight-line basis over the
initial contract term. Under US GAAP, the fair value of equity
instruments issued is subtracted from the initial proceeds
received in determining revenue. The adjustment represents the
subtraction to revenue, net of contract costs amortization
recorded for Canadian GAAP purposes and net of income taxes.
(viii) Unearned compensation
Under Canadian GAAP, unvested stock options granted as a result of
a business combination are not recorded. The adjustment reflects
the intrinsic value of unvested stock options (see (iii) above),
net of income taxes, that would have been recorded as a separate
component of shareholders' equity for US GAAP purposes, relating
to the IMRglobal acquisition described in Note 9. This unearned
compensation is amortized over approximately three years, being
the estimated remaining future vesting (service) period.
Page 32 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
16. Reconciliation of results reported in accordance with Canadian GAAP to
US GAAP (cont'd)
(ix) Comprehensive income
Cumulative other comprehensive income is comprised solely of
foreign currency translation adjustments which result from the
process of translating the financial statements of foreign
subsidiaries (see (ii) above). As at September 30, 2001, 2000 and
1999, cumulative other comprehensive income amounts to $3,329,000,
$2,889,000 and $3,042,000, respectively.
The following table represents comprehensive income in accordance
with SFAS No. 130, Reporting Comprehensive Income:
2001 2000 1999
------------------------------------------------
$ $ $
Net earnings - US GAAP 46,215 53,864 86,050
Other comprehensive income:
Foreign currency translation adjustment,
net of tax 837 1,762 134
-----------------------------------------------------------------------------------------------------
Comprehensive income 47,052 55,626 86,184
=====================================================================================================
(x) Proportionate consolidation
The proportionate consolidation method is used to account for
interests in joint ventures. Under US GAAP, entities in which the
Company owns a majority of the share capital would be fully
consolidated and those which are less than majority-owned but over
which the Company exercises significant influence, would be
accounted for using the equity method. This would result in
reclassifications in the consolidated balance sheets and
statements of earnings as at and for the years ended September 30,
2001 and 2000. However, the differences in the case of
majority-owned joint ventures were not considered material and
have consequently not been presented (see Note 10). In accordance
with practices prescribed by the U.S. Securities and Exchange
Commission, the Company has elected, for the purpose of this
reconciliation, to account for interests in joint ventures using
the proportionate consolidation method.
(xi) Earnings before amortization of goodwill
In Canada, the Accounting Standards Board approved an addendum to
CICA Handbook Section 1580, Business Combinations, subsequently
superceded by Section 1581 Business Combinations, that permits
goodwill amortization expense to be presented net-of-tax on a
separate line in the Consolidated Statements of Earnings. This
presentation is not currently permitted under US GAAP. Under US
GAAP, $29,086,000 (as adjusted for US GAAP purposes) of
amortization of goodwill would have been included in operating
expenses.
Page 33 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
16. Reconciliation of results reported in accordance with Canadian GAAP to
US GAAP (cont'd)
(xii) Depreciation and amortization
Under US GAAP, depreciation and amortization amounts would be
included in operating expenses.
(xiii) Consolidated statements of cash flows
The Company's consolidated statements of cash flows for each of
the years in the three-year period ended September 30, 2001 were
prepared in accordance with CICA Handbook Section 1540, Cash Flow
Statements, the provisions of which are substantially similar to
those of SFAS No. 95, Statement of Cash Flows.
(xiv) Recent accounting pronouncements
a) In June 2001, the FASB issued SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 addresses the accounting and
reporting of acquired goodwill and other intangible assets.
SFAS No. 142 discontinues amortization of acquired goodwill and
instead requires annual impairment testing of acquired
goodwill. Intangible assets will be amortized over their useful
economic life and tested for impairment in accordance with SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of. Intangible assets with
an indefinite useful economic life should not be amortized
until the life of the asset is determined to be finite. The
Company has adopted SFAS No. 142, effective October 1, 2001.
The Company is currently evaluating the impact of SFAS No.121
on its future earnings and financial position.
Also in June 2001, the FASB issued SFAS No. 141, Business
Combinations. SFAS No. 141 requires that all business
combinations be accounted for under the purchase method and
defines the criteria for identifying intangible assets for
recognition apart from goodwill. SFAS No. 141 applies to all
business combinations initiated after June 30, 2001 and all
business combinations accounted for using the purchase method
for which the acquisition date is July 1, 2001 or later. The
Company adopted SFAS No. 141 effective July 1, 2001.
The provisions of SFAS No. 141 and No. 142 are substantially
similar to those of Sections 1581 and 3062 of the CICA Handbook
described in Note 2.
Page 34 of 35
CGI GROUP INC.
Notes to the Consolidated Financial Statements
years ended September 30, 2001, 2000 and 1999
(tabular amounts only are in thousands of Canadian dollars)
================================================================================
16. Reconciliation of results reported in accordance with Canadian GAAP to
US GAAP (cont'd)
(xv) Recent accounting pronouncements (cont'd)
b) In August 2001, the FASB issued SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, which retains,
in general, the requirements of SFAS No. 121 and addresses
significant implementation issues. The provisions of SFAS No.
144 are effective for financial statements issued for fiscal
years beginning after December 15, 2001 and, generally, are to
be applied prospectively. Early application is encouraged. The
Company does not intend to adopt the new standard early;
however, it is currently evaluating the effect that
implementation of the new standard will have on its results of
operations and financial position.
c) Furthermore, the Company determined that the adoption of Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements, had no material adverse effect on the business,
results of operations and financial condition.
17. Comparative figures
Certain comparative figures have been reclassified in order to conform
to the presentation adopted in 2001.
18. Subsequent event
On October 1, 2001, the Company signed a strategic outsourcing alliance
providing IT support services for Fireman's Fund Insurance Company
("Fireman") operations. In the context of this agreement, the Company
acquired the related assets and assumed liabilities of Fireman used in
their IT operations for a total cash consideration of approximately
$38,100,000. This transaction was accounted for using the purchase
method.
Page 35 of 35
Samson Belair/Deloitte & Touche, S.E.N.C.
Assurance and Advisory Services
1 Place Ville-Marie
Suite 3000
Montreal QC H3B 4T9
Canada
Tel.: (514) 393-7115
Fax: (514) 390-4113
www.deloitte.ca
Independent Auditors' Consent
We hereby consent to the incorporation by reference in CGI Group Inc.'s
Registration Statements on Form S-8 (Reg. Nos. 333-13350 and 333-66044) of our
audit report dated November 5, 2001 which is included in this Report of Foreign
Private Issuer on Form 6-K.
(signed)
Samson Belair/Deloitte & Touche
Chartered Accountants
Montreal, Quebec
December 5, 2001
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CGI GROUP INC.
(Registrant)
Date: December 5, 2001 By /s/ Paule Dore
Name: Paule Dore
Title: Executive Vice President
and Chief Corporate Officer
and Secretary