SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 40-F/A

Amendment No. 1

(Check one)

o		Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934

þ		Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended September 30, 2010

GROUPE CGI INC./CGI GROUP INC.

CGI Group Inc.

Québec, Canada
(Province or Other Jurisdiction of Incorporation or Organization)

7374
(Primary Standard Industrial Classification Code Number)

[Not Applicable]
(I.R.S. Employer Identification Number)

1130 Sherbrooke Street West
7^th Floor
Montréal, Québec
Canada H3A 2M8
(514) 841-3200
(Address and Telephone Number of Registrant’s Principal Executive Offices)

CGI Technologies and Solutions Inc.
11325 Random Hills
Fairfax, VA 22030
(703) 267-8679
(Name, Address and Telephone Number of Agent For Service in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title Of Each Class		Name Of Each Exchange On Which Registered
Class A Subordinate Voting Shares		New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

For annual reports, indicate by check mark the information filed with this form:

þ Annual Information Form                     þ Audited Annual Financial Statements

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 237,684,791 Class A Subordinate Shares, 33,608,159 Class B Shares

Indicate by check mark whether the registrant by filing 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 (the “Exchange Act”). If “Yes” is marked, indicate the file number assigned to the registrant in connection with such rule. Yes o     82- ___     No þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes þ     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the Registrant was required to submit and post such files). Yes o     No o

 

 

EXPLANATORY NOTE

This Form 40-F/A amends our Annual Report on Form 40-F for the year ended September 30, 2010 filed on December 23, 2010 (the “Original Filing”), solely for the purpose of filing the Reports of Independent Registered Chartered Accountants relating to the consolidated balance sheets of CGI Group Inc. and subsidiaries as at September 30, 2010, 2009 and 2008 and the related consolidated statements of earnings, comprehensive income, retained earnings and cash flows for each of the years then ended included in the Audited Annual Financial Statements for the fiscal year ended September 30, 2010 and the corresponding consents of Ernst & Young LLP and Deloitte & Touche LLP. Other than the changes described in the preceding sentence, this amendment does not amend or modify any disclosures in the Original Filing. This Form 40-F/A does not reflect events occurring after the date of the Original Filing or amend, modify or update disclosures affected by subsequent events.

Information to be Filed on This Form

     The following materials are filed as a part of this Amendment No. 1 to Annual Report:

Management’s and Auditors’ reports

MANAGEMENT’S STATEMENT OF RESPONSIBILITY FOR FINANCIAL REPORTING

The management of CGI Group Inc. (“the Company”) is responsible for the preparation and integrity of the consolidated financial statements and the Management’s Discussion and Analysis (“MD&A”). The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada and necessarily include some amounts that are based on management’s best estimates and judgment. Financial and operating data elsewhere in the MD&A are consistent with that contained in the accompanying consolidated financial statements.

To fulfill its responsibility, management has developed, and continues to maintain, systems of internal controls reinforced by the Company’s standards of conduct and ethics, as set out in written policies to ensure the reliability of the financial information and to safeguard its assets. The Company’s internal control over financial reporting and consolidated financial statements are subject to audit by the independent auditors, Ernst & Young LLP, whose report follows. They were appointed as independent auditors, by a vote of the Company’s shareholders, to conduct an integrated audit of the Company’s consolidated financial statements and of the Company’s internal control over financial reporting. In addition, the Management Committee of the Company reviews the disclosure of corporate information and oversees the functioning of the Company’s disclosure controls and procedures.

Members of the Audit and Risk Management Committee of the Board of Directors, all of whom are independent of the Company, meet regularly with the independent auditors and with management to discuss internal controls in the financial reporting process, auditing matters and financial reporting issues and formulates the appropriate recommendations to the Board of Directors. The independent auditors have unrestricted access to the Audit and Risk Management Committee. The consolidated financial statements and MD&A have been reviewed and approved by the Board of Directors.

(signed)		(signed)
Michael E. Roach		R. David Anderson
President and Chief Executive Officer		Executive Vice-President and Chief Financial Officer
November 8, 2010

MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external reporting purposes in accordance with accounting principles generally accepted in Canada.

The Company’s internal control over financial reporting includes policies and procedures that:

•		Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of the assets of the Company;
•		Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in Canada, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and,
•		Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s consolidated financial statements.

All internal control systems have inherent limitations; therefore, even where internal control over financial reporting is determined to be effective, it can provide only reasonable assurance. Projections of any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

There were two exclusions from our assessment. Our interest in a joint venture was excluded from our assessment as we do not have the ability to dictate or modify the joint venture’s internal control over financial reporting, and we do not have the practical ability to assess those controls. Our interest in the joint venture represents approximately 1% of our consolidated total assets and approximately 2% of our consolidated revenue as at and for the year ended September 30, 2010. We have assessed the Company’s internal controls over the inclusion of our share of the joint venture and its results for the year in our consolidated financial statements. In addition, management’s assessment and conclusion on the effectiveness of internal controls over financial reporting excludes the controls, policies and procedures of Stanley, Inc. (“Stanley”) which was acquired six weeks prior to the Company’s fiscal year-end. Our assessment is limited to the internal controls over the inclusion of its financial position and results in our consolidated financial statements. Stanley’s operations represent approximately 28% of our consolidated total assets (including intangible assets and goodwill) and approximately 3% of our consolidated revenue for the year ended September 30, 2010. The exclusion is due to the short time frame between the consummation date of the acquisition and the date of management’s assessment.

As of the end of the Company’s 2010 fiscal year, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined the Company’s internal control over financial reporting as at September 30, 2010, was effective.

The effectiveness of the Company’s internal control over financial reporting as at September 30, 2010, has been audited by the Company’s independent auditors, as stated in their report appearing on page 42.

(signed)		(signed)
Michael E. Roach		R. David Anderson
President and Chief Executive Officer		Executive Vice-President and Chief Financial Officer
November 8, 2010

CGI group Inc.          2010 Annual report				41

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Board of Directors and Shareholders of CGI Group Inc.

We have audited CGI Group Inc.’s (the “Company”) internal control over financial reporting as at September 30, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“the COSO criteria”). The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of its interest in a joint venture, which is included in the 2010 consolidated financial statements of the Company, and constituted approximately 1% of total assets as of September 30, 2010 and approximately 2% of revenues for the year then ended. In addition, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Stanley, Inc., acquired six weeks prior to the Company’s fiscal year-end, which is included in the 2010 consolidated financial statements of the Company and constituted approximately 28% of total assets (including intangible assets and goodwill) as of September 30, 2010 and approximately 3% of revenues for the year then ended. Our audit of internal control over financial reporting of CGI Group Inc. also did not include an evaluation of the internal control over financial reporting of its interest in a joint venture and of Stanley, Inc.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2010 based on the COSO criteria.

We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as at and for the year ended September 30, 2010, and our report dated November 8, 2010 expressed an unqualified opinion thereon.

(signed)¹
Ernst & Young LLP
Chartered Accountants
Montréal, Canada
November 8, 2010

1   Chartered accountant auditor permit No. 15859

CGI group Inc.          2010 Annual report				42

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENTS

To the Board of Directors and Shareholders of CGI Group Inc.

We have audited the consolidated balance sheet of CGI Group Inc. (the “Company”) as at September 30, 2010 and the consolidated statements of earnings, comprehensive income, retained earnings and cash flows for the year then ended. 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 audit. The financial statements of the Company for the years ended September 30, 2009 and 2008, were audited by other auditors whose report dated November 8, 2009, expressed an unqualified opinion on those statements, prior to the adjustments described in note 2 and note 28 to these financial statements that were applied to restate the 2009 and 2008 financial statements.

We conducted our audit in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). 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. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2010 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as at September 30, 2010 and the consolidated results of its operations and its cash flows for the year then ended in conformity with Canadian generally accepted accounting principles.

As explained in note 2 to the consolidated financial statements, in 2010, the Company adopted the requirements of the Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 1582, Business Combinations, Section 1601, Consolidated Financial Statements, Section 1602, Non-Controlling Interests, and amendments to Section 3862, Financial Instruments—Disclosures. As explained in note 28, in 2010 the Company adopted the requirements of the Financial Accounting Standards Board’s (“FASB”) ASC Topic 805, Business Combinations. We also audited the adjustments that were applied to restate the 2009 and 2008 financial statements for these changes. In our opinion, such adjustments are appropriate and have been properly applied.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of September 30, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 8, 2010 expressed an unqualified opinion thereon.

(signed)¹

Ernst & Young LLP
Chartered Accountants
Montréal, Canada
November 8, 2010

 

¹   Chartered accountant auditor permit No. 15859

CGI group Inc.          2010 Annual report		43

REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

To the Board of Directors and Shareholders of CGI Group Inc.

We have audited, before the effects of the adjustments to retrospectively apply the change in accounting policies discussed in note 2 and note 28 to the consolidated financial statements, the consolidated balance sheet of CGI Group Inc. and subsidiaries (the “Company”) as at September 30, 2009 and the related consolidated statements of earnings, comprehensive income, retained earnings and cash flows for each of the two years in the period ended September 30, 2009 (the 2009 and 2008 consolidated financial statements before the effects of the adjustments discussed in note 2 and note 28 to the consolidated financial statements are not presented herein). 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 and the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform the audit to obtain reasonable assurance about 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. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, these consolidated financial statements, before the effects of the adjustments to retrospectively apply the change in accounting policies discussed in note 2 and note 28 to the consolidated financial statements, present fairly, in all material respects, the financial position of CGI Group Inc. and subsidiaries as at September 30, 2009 and the results of their operations and their cash flows for each of the years in the two-year period ended September 30, 2009, in accordance with Canadian generally accepted accounting principles.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting policy discussed in note 2 and note 28 to the consolidated financial statements and, accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors.

(signed)¹
Deloitte & Touche LLP
Independent Registered Chartered Accountants
Montréal, Canada
November 8, 2009

 

1 Chartered accountant auditor permit No. 17046

Consolidated Financial Statements

Consolidated Statements of Earnings

						2009				2008
						(Restated				(Restated
Years ended September 30 (in thousands of Canadian dollars, except share data)		2010				Note 2a)				Note 2a)
			$				$				$
Revenues			3,732,117				3,825,161				3,705,863
Operating expenses
Costs of services, selling and administrative (Note 17)			3,025,823				3,170,406				3,110,760
Amortization (Note 14)			195,308				195,761				163,172
Acquisition-related and integration costs (Note 18a)			20,883				—				—
Interest on long-term debt			17,123				18,960				27,284
Interest income			(2,419	)			(2,908	)			(5,570	)
Other (income) expenses			(952	)			3,569				3,341
Foreign exchange (gain) loss			(916	)			(1,747	)			1,445
Gain on sale of capital assets			(469	)			—				—
			3,254,381				3,384,041				3,300,432
Earnings from continuing operations before income taxes			477,736				441,120				405,431
Income tax expense (Note 16)			114,970				125,223				106,297
Earnings from continuing operations			362,766				315,897				299,134
Earnings (loss) from discontinued operations, net of income taxes (Note 19)			—				1,308				(5,134	)
Net earnings			362,766				317,205				294,000
Attributable to:
Shareholders of CGI Group Inc.
Earnings from continuing operations			362,386				315,158				298,266
Earnings (loss) from discontinued operations			—				1,308				(5,134	)
Net earnings attributable to shareholders of CGI Group Inc.			362,386				316,466				293,132
Non-controlling interest
Net earnings attributable to non-controlling interest			380				739				868
Net earnings			362,766				317,205				294,000
Basic earnings (loss) per share attributable to shareholders of CGI Group Inc.
Continuing operations (Note 13)			1.27				1.03				0.94
Discontinued operations			—				—				(0.02	)
			1.27				1.03				0.92
Diluted earnings (loss) per share attributable to shareholders of CGI Group Inc.
Continuing operations (Note 13)			1.24				1.02				0.92
Discontinued operations			—				—				(0.02	)
			1.24				1.02				0.90

See Notes to the consolidated financial statements.

CGI group Inc.          2010 Annual report				44

Consolidated Statements of Comprehensive Income

						2009				2008
						(Restated				(Restated
Years ended September 30 (in thousands of Canadian dollars)		2010				Note 2a)				Note 2a)
			$				$				$
Net earnings			362,766				317,205				294,000
Net unrealized (losses) gains on translating financial statements of self-sustaining foreign operations (net of income taxes)			(53,598	)			6,249				66,200
Net unrealized gains (losses) on translating long-term debt designated as hedges of net investments in self-sustaining foreign operations (net of income taxes)			15,806				15,739				(538	)
Net unrealized gains (losses) on cash flow hedges (net of income taxes)			2,036				13,446				(1,013	)
Other comprehensive (loss) income (Note 15)			(35,756	)			35,434				64,649
Comprehensive income			327,010				352,639				358,649
Attributable to:
Shareholders of CGI Group Inc.			326,630				351,900				357,781
Non-controlling interest			380				739				868

See Notes to the consolidated financial statements.

Consolidated Statements of Retained Earnings

						2009				2008
						(Restated				(Restated
Years ended September 30 (in thousands of Canadian dollars)		2010				Note 2a)				Note 2a)
			$				$				$
Retained earnings, beginning of year			1,182,237				921,380				750,138
Net earnings attributable to shareholders of CGI Group Inc.			362,386				316,466				293,132
Excess of purchase price over carrying value of Class A subordinate shares acquired (Note 11)			(347,940	)			(55,609	)			(121,890	)
Change in subsidiary investment			(297	)			—				—
Retained earnings, end of year			1,196,386				1,182,237				921,380

See Notes to the consolidated financial statements.

CGI group Inc.          2010 Annual report				45

Consolidated Balance Sheets

						2009
						(Restated
As at September 30 (in thousands of Canadian dollars)		2010				Note 2a)
			$				$
Assets
Current assets
Cash and cash equivalents (Note 3)			127,824				343,427
Short-term investments			13,196				—
Accounts receivable (Note 4)			423,926				461,291
Work in progress			358,984				249,022
Prepaid expenses and other current assets			76,844				82,237
Income taxes			7,169				2,759
Future income taxes (Note 16)			16,509				15,110
Total current assets before funds held for clients			1,024,452				1,153,846
Funds held for clients			248,695				332,359
Total current assets			1,273,147				1,486,205
Capital assets (Note 5)			238,024				212,418
Intangible assets (Note 6)			516,754				455,775
Other long-term assets (Note 7)			42,261				60,558
Future income taxes (Note 16)			11,592				10,173
Goodwill (Note 8)			2,525,413				1,674,781
			4,607,191				3,899,910
Liabilities
Current liabilities
Accounts payable and accrued liabilities			304,376				306,826
Accrued compensation			191,486				165,981
Deferred revenue			145,793				136,135
Income taxes			86,877				88,002
Future income taxes (Note 16)			26,423				50,250
Current portion of long-term debt (Note 10)			114,577				17,702
Total current liabilities before clients’ funds obligations			869,532				764,896
Clients’ funds obligations			248,695				332,359
Total current liabilities			1,118,227				1,097,255
Future income taxes (Note 16)			170,683				171,697
Long-term debt (Note 10)			1,039,299				265,428
Other long-term liabilities (Note 9)			119,899				83,934
			2,448,108				1,618,314
Commitments, contingencies and guarantees (Note 25)
Shareholders’ equity
Retained earnings			1,196,386				1,182,237
Accumulated other comprehensive loss (Note 15)			(321,746	)			(285,990	)
			874,640				896,247
Capital stock (Note 11)			1,195,069				1,298,270
Contributed surplus (Note 12c)			82,922				80,737
Equity attributable to shareholders of CGI Group Inc.			2,152,631				2,275,254
Equity attributable to non-controlling interest			6,452				6,342
			2,159,083				2,281,596
			4,607,191				3,899,910

See Notes to the consolidated financial statements.

Approved by the Board		(signed) Director Michael E. Roach		(signed) Director Serge Godin

CGI group Inc.          2010 Annual report				46

Consolidated Statements of Cash Flows

						2009				2008
						(Restated				(Restated
Years ended September 30 (in thousands of Canadian dollars)		2010				Note 2a)				Note 2a)
			$				$				$
Operating activities
Earnings from continuing operations			362,766				315,897				299,134
Adjustments for:
Amortization (Note 14)			219,740				218,087				186,120
Future income taxes (Note 16)			(21,417	)			29,300				(22,675	)
Foreign exchange (gain) loss			(828	)			723				1,846
Stock-based compensation (Note 12a)			15,517				8,617				5,131
Gain on sale of capital assets			(469	)			—				—
Net change in non-cash working capital items (Note 21a)			(22,942	)			57,620				(113,886	)
Cash provided by continuing operating activities			552,367				630,244				355,670
Investing activities
Purchase of short-term investments			(12,940	)			—				—
Business acquisitions (net of cash acquired) (Note 18)			(899,564	)			(997	)			(3,911	)
Proceeds from sale of assets and businesses (net of cash disposed)			4,100				4,991				29,238
Purchase of capital assets			(47,684	)			(69,212	)			(60,983	)
Proceeds from disposal of capital assets			896				—				—
Additions to intangible assets			(69,722	)			(62,367	)			(60,942	)
Decrease in other long-term assets			—				—				3,019
Cash used in continuing investing activities			(1,024,914	)			(127,585	)			(93,579	)
Financing activities
Use of credit facilities			939,394				144,694				90,305
Repayment of credit facilities			(82,684	)			(157,505	)			(196,533	)
Repayment of long-term debt			(125,168	)			(117,752	)			(10,153	)
Proceeds on settlement of forward contracts (Note 10)			—				18,318				—
Repurchase of Class A subordinate shares (including share repurchase costs)			(516,699	)			(101,698	)			(216,208	)
Issuance of shares			53,039				16,141				32,423
Change in subsidiary investment			(571	)			(425	)			—
Cash provided by (used in) continuing financing activities			267,311				(198,227	)			(300,166	)
Effect of foreign exchange rate changes on cash and cash equivalents from continuing operations			(10,367	)			(11,300	)			398
Net (decrease) increase in cash and cash equivalents from continuing operations			(215,603	)			293,132				(37,677	)
Net cash and cash equivalents provided by (used in) discontinued operations (Note 19)			—				161				(1,068	)
Cash and cash equivalents, beginning of year			343,427				50,134				88,879
Cash and cash equivalents, end of year (Note 3)			127,824				343,427				50,134

Supplementary cash flow information (Note 21)

See Notes to the consolidated financial statements.

CGI group Inc.          2010 Annual report				47

Notes to the Consolidated Financial Statements
Years ended September 30, 2010, 2009 and 2008
(tabular amounts only are in thousands of Canadian dollars, except share data)

Note 1
Description of business

CGI Group Inc. (the “Company”), directly or through its subsidiaries, manages information technology services (“IT services”), including outsourcing, systems integration and consulting, software licenses and maintenance, as well as business process services (“BPS”) to help clients cost effectively realize their strategies and create added value.

Note 2
Summary of significant accounting policies

The consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles (“GAAP”), which differ in certain material respects from U.S. GAAP. A reconciliation between Canadian and U.S. GAAP can be found in Note 28. Certain comparative figures have been reclassified in order to conform to the presentation adopted in 2010.

CHANGES IN ACCOUNTING POLICIES

On October 1, 2009, the Company elected to adopt the following Handbook Sections issued by the Canadian Institute of Chartered Accountants (“CICA”) during the year as they primarily converge with the International Financial Reporting Standards (“IFRS”) and U.S. GAAP:

a)

Section 1582, “Business Combinations”, which replaces Section 1581, “Business Combinations”. The Section establishes standards for the accounting for a business combination. It is similar to the corresponding provisions of IFRS 3 (Revised), “Business Combinations” and of U.S. GAAP standard, Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations”. The new Section requires the acquiring entity in a business combination to recognize most of the assets acquired and liabilities assumed in the transaction at their acquisition-date fair values including non-controlling interest and contingent consideration. Subsequent changes in fair value of contingent consideration classified as a liability are recognized in earnings. Acquisition-related and integration costs are also to be expensed as incurred rather than considered as part of the purchase price allocation. In addition, changes in estimates associated with future income tax assets after the measurement period are recognized as income tax expense rather than as a reduction of goodwill, with prospective application to all business combinations regardless of the date of acquisition.

Section 1601, “Consolidated Financial Statements” and Section 1602, “Non-Controlling Interests”, together replace Section 1600, “Consolidated Financial Statements”. Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. These sections are similar to the corresponding provisions of IFRS standard, International Accounting Standards 27 (Revised), “Consolidated and Separate Financial Statements” and of U.S. GAAP standard, ASC Topic 810, “Consolidation”. Section 1602 requires the Company to report non-controlling interests as a separate component of shareholders equity rather than as a liability on the consolidated balance sheets. Transactions between an entity and non-controlling interests are considered as equity transactions. In addition, the attribution of net earnings and comprehensive income between the Company’s shareholders and non-controlling interests is presented separately in the consolidated statements of earnings and comprehensive income rather than reflecting non-controlling interests as a deduction of net earnings and total comprehensive income.

In accordance with the transitional provisions, these sections have been applied prospectively, with the exception of the presentation requirements for non-controlling interest, which must be applied retrospectively. The adoption of these sections change the accounting of the business combination realized in fiscal year 2010 for which acquisition-related and integration costs of $20,883,000 with associated income tax expense of $3,688,000 were recorded directly in the consolidated statement of earnings (refer to Note 18a). The previously unrecognized future tax assets related to losses carried forward of past acquisitions of $7,378,000 were also recognized as a reduction of income tax expense (refer to Note 18b). In addition, the above-mentioned reclassifications of non-controlling interest have been reflected in the consolidated financial statements and had no significant impact. The effects on future periods will depend on the nature and significance of the business combinations subject to these standards.

b)

In June 2009, the CICA amended Section 3862 “Financial Instruments — Disclosures” to adopt the amendments proposed by the International Accounting Standards Board (“IASB”) to IFRS 7 “Financial Instruments: Disclosures”. The amendments were made to enhance disclosure requirements about the liquidity risk and fair value measurement of financial instruments. The amendments are effective for annual financial statements relating to fiscal years ending after September 30, 2009, and comparative information is not required in the first year of adoption. The Company adopted these amendments in fiscal 2010. The adoption of these amendments had no impact on the consolidated financial statements. The new disclosures are included in Note 26.

CGI group Inc.          2010 Annual report		48

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, liabilities and shareholders’ equity and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue 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. Significant estimates include, but are not limited to, purchase accounting and goodwill, income taxes, contingencies and other liabilities, revenue recognition, stock based compensation, investment tax credits and government programs and the impairment of long-lived assets and goodwill.

BASIS OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated. The Company accounts for its jointly-controlled investment using the proportionate consolidation method.

REVENUE RECOGNITION, WORK IN PROGRESS AND DEFERRED REVENUE

The Company generates revenue principally through the provision of IT services and BPS.

The IT services include a full range of information technology services, namely: i) outsourcing ii) systems integration and consulting iii) software licenses and iv) provision of maintenance. BPS provides business processing for the financial services sector, as well as other services such as payroll, insurance processing and document management services.

The Company provides services and products under arrangements that contain various pricing mechanisms. The Company recognizes revenue when persuasive evidence of an arrangement exists, services or products have been provided to the client, the fee is fixed or determinable, and collectability is reasonably assured.

The Company’s arrangements often include a mix of the services listed below. If an arrangement involves the provision of multiple elements, the total arrangement value is allocated to each element as a separate unit of accounting if: 1) the delivered item has value to the client on a stand-alone basis; 2) there is objective and reliable evidence of the fair value of the undelivered item; and 3) in an arrangement that includes a general right of return relative to the delivered item, the delivery or performance of the undelivered item is considered probable and substantially in the control of the Company. If these criteria are met, then the total consideration of the arrangement is allocated among the separate units of accounting based on their relative fair values. Fair value is established based on the internal or external evidence of the amount charged for each revenue element. However, some software license arrangements are subject to specific policies as described below in “Software license arrangements”.

In situations where there is fair value for all undelivered elements, but not for the delivered elements, the residual method is used to allocate the arrangement consideration. Under the residual method, the amount of revenue allocated to the delivered elements equals the total arrangement consideration less the aggregate fair value of any undelivered elements.

For all types of arrangements, the appropriate revenue recognition method is applied for each unit of accounting, as described below, based on the nature of the arrangement and the services included in each unit of accounting. All deliverables that do not meet the separation criteria are combined into one unit of accounting and the most appropriate revenue recognition method is applied.

Some of the Company’s arrangements may include client acceptance clauses. Each clause is analyzed to determine whether the earnings process is complete when the service is performed. If uncertainty exists about client acceptance, revenue is not recognized until acceptance occurs. Formal client sign-off is not always necessary to recognize revenue, provided that the Company objectively demonstrates that the criteria specified in the acceptance provisions are satisfied. Some of the criteria reviewed include the historical experience with similar types of arrangements, whether the acceptance provisions are specific to the client or are included in all arrangements, the length of the acceptance term and the historical experience with the specific client.

Provisions for estimated contract losses, if any, are recognized in the period in which the loss is determined. Contract losses are measured at the amount by which the estimated total costs exceed the estimated total revenue from the contract.

Outsourcing and BPS arrangements

Revenue from outsourcing and BPS arrangements under time and materials and unit-priced arrangements are recognized as the services are provided at the contractually stated price. If the contractual per-unit prices within a unit-priced contract change during the term of the arrangement, the Company evaluates whether it is more appropriate to record revenue based on the average per-unit price during the term of the contract or based on the actual amounts billed.

Revenue from outsourcing and BPS arrangements under fixed-fee arrangements is recognized on a straight-line basis over the term of the arrangement, regardless of the amounts billed, unless there is a better measure of performance or delivery.

Systems integration and consulting services

Revenue from systems integration and consulting services under time and material arrangements is recognized as the services are rendered, and revenue under cost-based arrangements is recognized as reimbursable costs are incurred.

Revenue from systems integration and consulting services under fixed-fee arrangements and software licenses arrangements where the implementation services are essential to the functionality of the software or where the software requires significant customization are recognized using the percentage-of-completion method over the implementation period. The Company uses the labour costs or labour hours incurred to date to measure the progress towards completion. This method relies on estimates of total expected labour costs or total expected labour hours to complete the service, which are compared to labour costs or labour hours incurred to date, to arrive at an estimate of the percentage of revenue earned to date. Management regularly reviews underlying estimates

CGI group Inc.          2010 Annual report		49

of total expected labour costs or hours. Revisions to estimates are reflected in the statement of earnings in the period in which the facts that gave rise to the revision become known.

Revenue from systems integration and consulting services under benefits-funded arrangements is recognized only to the extent it can be predicted, with reasonable certainty, that the benefit stream will generate amounts sufficient to fund the value on which revenue recognition is based.

Software license arrangements

Most of the Company’s software license arrangements are accounted for as described above in “Systems integration and consulting services”. In addition, the Company has software license arrangements that do not include implementation services that are essential to the functionality of the software or software that requires significant customization, but that may involve the provision of multiple elements such as integration and post-contract customer support. For these types of arrangements, revenue from software licenses is recognized upon delivery of software if persuasive evidence of an arrangement exists, collection is probable, the fee is fixed or determinable and vendor-specific objective evidence (“VSOE”) of fair value of an arrangement exists to allocate the total fee to the different elements of an arrangement based on their relative VSOE of fair value. The residual method, as defined above, using VSOE of fair value can be used to allocate the arrangement consideration. VSOE of fair value is established through internal evidence of prices charged for each revenue element when that element is sold separately. Revenue from maintenance services for licenses sold and implemented is recognized ratably over the term of the contract.

Work in progress and deferred revenue

Amounts recognized as revenue in excess of billings are classified as work in progress. Amounts received in advance of the delivery of products or performances of services are classified as deferred revenue.

REIMBURSEMENTS

Reimbursements, including those relating to travel and other out-of-pocket expenses, and other similar third party costs, such as the cost of hardware and software re-sales, are included in revenue, and the corresponding expense is included in costs of services when the Company has assessed that the costs meet the criteria for gross revenue recognition.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of unrestricted cash and short-term investments having an initial maturity of three months or less.

SHORT-TERM INVESTMENTS

Short-term investments, comprised of term deposits, have remaining maturities over three months, but not more than one year, at the date of purchase. Short-term investments are designated as held-for-trading and are carried at fair value.

FUNDS HELD FOR CLIENTS AND CLIENTS’ FUNDS OBLIGATIONS

In connection with the Company’s payroll, tax filing and claims services, the Company collects funds for payment of payroll, taxes and claims, temporarily holds such funds until payment is due, remits the funds to the clients’ employees, appropriate tax authorities or claim holders, files federal and local tax returns, and handles related regulatory correspondence and amendments. The Company presents the funds held for clients and related obligations separately.

CAPITAL ASSETS

Capital assets, including those under capital leases, are recorded at cost and are amortized over their estimated useful lives using the straight-line method.

Buildings			10 to 40 years
Leasehold improvements		Lesser of the useful life or lease term
Furniture, fixtures and equipment			3 to 20 years
Computer equipment			3 to 5 years

INTANGIBLE ASSETS

Contract costs

Contract costs are mainly incurred when acquiring or implementing long-term IT services and BPS contracts. Contract costs are classified as intangible assets. These assets are recorded at cost and amortized using the straight-line method over the term of the respective contracts. Contract costs are comprised primarily of incentives and transition costs.

Occasionally, incentives are granted to clients upon signing of outsourcing contracts. These incentives can be granted either in the form of cash payments, issuance of equity instruments or discounts awarded principally over a transition period, as negotiated in the contract. In the case of equity instruments, cost is measured at the estimated fair value at the time they are issued. For discounts, cost is measured at the value of the granted financial commitment and a corresponding amount is recorded as deferred revenue. As services are provided to the client, the amount is amortized and recorded as a reduction of revenue.

Capital assets acquired from a client in connection with outsourcing contracts are capitalized as such and amortized consistent with the amortization policies described previously. The excess of the amount paid over the fair value of capital assets acquired in connection with outsourcing contracts is considered as an incentive granted to the client, and is recorded as described in the preceding paragraph.

CGI group Inc.          2010 Annual report		50

Transition costs consist of expenses associated with the installation of systems and processes incurred after the award of outsourcing contracts, relocation of transitioned employees and exit from client facilities. Under BPS contracts, the costs consist primarily of expenses related to activities such as the conversion of the client’s applications to the Company’s platforms. These incremental costs are comprised essentially of labour costs, including compensation and related fringe benefits, as well as subcontractor costs.

Pre-contract costs associated with acquiring or implementing long-term IT services and BPS contracts are expensed as incurred except where it is virtually certain that the contracts will be awarded and the costs are incremental and directly related to the acquisition of the contract. Eligible pre-contract costs are recorded at cost and amortized using the straight-line method over the expected term of the respective contracts.

Other intangible assets

Other intangible assets consist mainly of internal-use software, business solutions, software licenses and client relationships.

Internal-use software, business solutions and software licenses are recorded at cost. Business solutions developed internally and marketed for distribution are capitalized when they meet specific capitalization criteria related to technical, market and financial feasibility. Business solutions and software licenses acquired through a business combination are initially recorded at fair value based on the estimated net future income—producing capabilities of the software products. Client relationships are acquired through business combinations and are initially recorded at their fair value based on the present value of expected future cash flows.

The Company amortizes its other intangible assets using the straight-line method over the following estimated useful lives:

Internal-use software			2 to 7 years
Business solutions			2 to 10 years
Software licenses			3 to 8 years
Client relationships and other			2 to 10 years

IMPAIRMENT OF LONG-LIVED ASSETS

When events or changes in circumstances indicate that the carrying amount of long-lived assets, such as capital assets and intangible assets, may not be recoverable, undiscounted estimated cash flows are projected over their remaining term and compared to the carrying amount. To the extent that such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amounts of related assets, a charge is recorded to reduce the carrying amount to the projected future discounted cash flows.

OTHER LONG-TERM ASSETS

Other long-term assets consist mainly of deferred financing fees, deferred compensation plan assets, long-term maintenance agreements and forward contracts.

BUSINESS COMBINATIONS AND GOODWILL

On October 1, 2009, the Company elected to early adopt prospectively Section 1582 which revised the accounting guidance that the Company was required to apply for past acquisitions done in prior fiscal years. The underlying principles are similar to the previous guidance but introduce certain accounting changes which were described earlier in changes in accounting policies in this note.

The Company accounts for its business combinations using the purchase method of accounting. Under this method, the Company allocates the purchase price to tangible and intangible assets acquired and liabilities assumed based on estimated fair values at the date of acquisition, with the excess of the purchase price amount being allocated to goodwill.

Acquisition-related and integration costs associated to the business combination are expensed as incurred. Changes in estimates associated with future income tax assets after measurement period are recognized as income tax expense with prospective application to all business combinations regardless of the date of acquisition.

Goodwill for each reporting unit is assessed for impairment at least annually, or when an event or circumstance occurs that more likely than not reduces the fair value of a reporting unit below its carrying amount. The Company has designated September 30 as the date for the annual impairment test. An impairment charge is recorded when the carrying amount of the reporting unit exceeds its fair value and is determined as the difference between the goodwill’s carrying amount and its implied fair value.

EARNINGS PER SHARE

Basic earnings per share are based on the weighted average number of shares outstanding during the period. Diluted earnings per share is determined using the treasury stock method to evaluate the dilutive effect of stock options.

RESEARCH AND SOFTWARE DEVELOPMENT COSTS

Research costs are charged to earnings in the period in which they are incurred, net of related tax credits. Software development costs are charged to earnings in the year they are incurred, net of related tax credits, unless they meet specific capitalization criteria related to technical, market and financial feasibility.

CGI group Inc.          2010 Annual report		51

TAX CREDITS

The Company follows the cost reduction method to account for tax credits. Under this method, tax credits related to operating expenditures are recognized in the period in which the related expenditures are charged to operations, provided there is reasonable assurance of realization. Tax credits related to capital expenditures are recorded as a reduction of the cost of the related asset, provided there is reasonable assurance of realization. The tax credits recorded are based on management’s best estimates of amounts expected to be recovered and are subject to audit by the taxation authorities.

INCOME TAXES

Income taxes are accounted for using the asset and liability method of accounting for income taxes. Future income tax assets and liabilities are determined based on deductible or taxable temporary differences between the amounts reported for financial statement purposes and tax values of assets and liabilities using substantively enacted income tax rates expected to be in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded for the portion of the future income tax assets when its realization is not considered more likely than not.

TRANSLATION OF FOREIGN CURRENCIES

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 date. Realized and unrealized translation gains and losses are reflected in net earnings.

Self-sustaining subsidiaries, with economic activities largely independent of the Company, are accounted for using the current rate method. Under this method, assets and liabilities of subsidiaries 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 period. Resulting unrealized gains or losses are reported as net unrealized gains (losses) on translating financial statements of self-sustaining foreign operations in the consolidated statements of comprehensive income.

The accounts of foreign subsidiaries, which are financially or operationally dependent on the 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 date, 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.

STOCK-BASED COMPENSATION

The Company uses the fair value based method to account for stock options awarded under its stock option plan. The fair value of stock options is recognized as compensation costs in earnings with a corresponding credit to contributed surplus on a straight line basis over the vesting period of the entire award. The number of stock options expected to vest are estimated on the grant date and subsequently revised on a periodic basis. When stock options are exercised, any consideration paid by employees is credited to capital stock and the recorded fair value of the option is removed from contributed surplus and credited to capital stock.

HEDGING TRANSACTIONS

The Company uses various financial instruments to manage its exposure to fluctuations in foreign currency exchange rates. The Company does not hold or use any derivative instruments for trading purposes.

Cash flow hedges on Senior U.S. unsecured notes

Effective December 21, 2007, the Company entered into forward contracts to hedge the contractual principal repayments of the Senior U.S. unsecured notes. The purpose of the hedging transactions is to hedge the risk of variability in functional currency equivalent cash flows associated with the foreign currency debt principal repayments.

The hedges were documented as cash flow hedges and no component of the derivative’s fair value are excluded from the assessment and measurement of hedge effectiveness. The hedge is considered to be highly effective as the terms of the forward contracts coincide with the intended repayment of the two remaining tranches of the debt. The first tranche was repaid in fiscal 2009.

The forward contracts are derivative instruments and, therefore, are recorded at fair value on the balance sheet under other current assets and other long-term assets and the effective portion of the change in fair value of the derivatives is recognized in other comprehensive income (loss). An amount that will offset the related translation gain or loss arising from the remeasurement of the portion of the debt that is designated is reclassified each period from other comprehensive income (loss) to earnings. The forward premiums or discounts on the forward contracts used to hedge foreign currency long-term debt are amortized as an adjustment of interest expense over the term of the forward contracts. Valuation models, such as discounted cash flow analysis using observable market inputs, are utilized to determine the fair values of the forward contracts. Realized and unrealized foreign exchange gains and losses in relation to forward contracts for the year ended September 30, 2010, were not significant. The cash flows of the hedging transaction are classified in the same manner as the cash flows of the position being hedged.

Hedge on net investments in self-sustaining foreign subsidiaries

The Company has designated certain long-term debt as a hedging instrument for a portion of the Company’s net investment in self-sustaining U.S. and European subsidiaries. Foreign exchange translation gains or losses on the net investments and the effective portions of gains or losses on instruments hedging the net investments are recorded in other comprehensive income (loss).

CGI group Inc.          2010 Annual report		52

Cash flow hedges on future revenue

During the year ended September 30, 2010, the Company entered into various foreign currency forward contracts to hedge the variability in the foreign currency exchange rate between the U.S. dollar and the Indian rupee on future U.S. revenue. During the year ended September 30, 2009, the Company entered into various foreign currency forward contracts to hedge the variability in the foreign currency exchange rate between the U.S. dollar and the Indian rupee on future U.S. revenue, and to hedge the variability in the foreign currency exchange rate between the U.S. dollar and the Canadian dollar on future U.S. revenue. The cash flow hedges mature at various dates until 2014.

These hedges were documented as cash flow hedges and no component of the derivative instruments’ fair value is excluded from the assessment and measurement of hedge effectiveness. The forward contracts are derivative instruments, and, therefore, are recorded at fair value on the balance sheet under other current assets, other long-term assets, accrued liabilities or other long-term liabilities. Valuation models, such as discounted cash flow analysis using observable market inputs, are utilized to determine the fair values of the forward contracts.

The effective portion of the change in fair value of the derivative instruments is recognized in other comprehensive income (loss) and the ineffective portion, if any, in the consolidated statement of earnings. The effective portion of the change in fair value of the derivatives is reclassified out of other comprehensive income (loss) into earnings as an adjustment to revenue when the hedged revenue is recognized. The assessment of effectiveness is based on forward rates utilizing the hypothetical derivative method. During fiscal 2010, the Company’s hedging relationships were effective. The cash flows of the hedging transactions are classified in the same manner as the cash flows of the position being hedged.

FUTURE ACCOUNTING CHANGES

In December 2009, the CICA issued Emerging Issue Committee Abstract (“EIC”) 175, “Revenue Arrangements with Multiple Deliverables”, an amendment to EIC 142, “Revenue Arrangements with Multiple Deliverables”. EIC 175 provides guidance on certain aspects of the accounting for arrangements under which the Company will perform multiple revenue-generating activities. Under the new guidance, when VSOE or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. EIC 175 also includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. EIC 175 is effective prospectively, with retrospective adoption permitted, for revenue arrangements entered into or materially modified in fiscal years beginning on or after January 1, 2011. Early adoption is also permitted. Effective October 1, 2010, the Company will early adopt this new EIC, on a prospective basis. The effects on future periods will depend on the nature and significance of the future customer contracts subject to this EIC.

Note 3
Cash and cash equivalents

		2010				2009
			$				$
Cash			27,162				203,160
Cash equivalents			100,662				140,267
			127,824				343,427

Note 4
Accounts receivable

		2010				2009
			$				$
Trade			349,349				317,647
Other1			74,577				143,644
			423,926				461,291

1

Other accounts receivable include refundable tax credits on salaries related to the Québec Development of E-Business program, Research and Development tax credits in North America and Europe, and other Job and Economic Growth Creation programs available. The tax credits represent approximately $55,758,000 and $124,803,000 of other accounts receivable in 2010 and 2009, respectively.

Effective April 1, 2008, the Company became eligible for the new Development of E-Business refundable tax credit, which replaces prior existing Québec tax credit programs. The fiscal measure enables corporations with an establishment in the province of Québec that carry out eligible activities in the technology sector to obtain a refundable tax credit equal to 30% of eligible salaries, up to a maximum of $20,000 per year per eligible employee until December 31, 2015.

Prior to April 1, 2008, in order to be eligible for the E-Commerce Place, Cité du Multimédia de Montréal, New Economy Centres tax credits, the Company relocated some of its eligible employees to designated locations. Real estate costs for these designated locations are significantly higher than they were at the previous facilities. As at September 30, 2010, the balance outstanding for financial commitments for these real estate locations was $352,362,000 ranging between three months and 13 years. The refundable tax credits for these programs were calculated at rates varying between 35% to 40% on salaries paid in Québec to a maximum range of $12,500 to $15,000 per year per eligible employee.

CGI group Inc.          2010 Annual report		53

Note 5

Capital assets

2010														2009
						Accumulated				Net book								Accumulated				Net book
		Cost				amortization				value				Cost				amortization				value
		$				$				$				$				$				$
Land and buildings			17,309				4,461				12,848				17,757				3,427				14,330
Leasehold improvements			142,297				76,381				65,916				139,542				68,879				70,663
Furniture, fixtures and equipment			75,990				30,605				45,385				55,953				24,569				31,384
Computer equipment			256,985				143,110				113,875				190,850				94,809				96,041
			492,581				254,557				238,024				404,102				191,684				212,418

Capital assets include assets acquired under capital leases totalling $57,101,000 ($37,680,000 in 2009), net of accumulated amortization of $35,533,000 ($17,880,000 in 2009). Amortization expense of capital assets acquired under capital leases was $18,467,000 and $13,213,000 in 2010 and 2009, respectively.

Note 6

Intangible assets

2010
						Accumulated				Net book
		Cost				amortization				value
		$				$				$
Intangible assets
Contract costs
Incentives			236,750				190,294				46,456
Transition costs			200,154				102,734				97,420
			436,904				293,028				143,876
Other intangible assets
Internal-use software			90,704				66,841				23,863
Business solutions			283,799				178,491				105,308
Software licenses			174,412				123,977				50,435
Client relationships and other			426,546				233,274				193,272
			975,461				602,583				372,878
			1,412,365				895,611				516,754

CGI group Inc.          2010 Annual report				54

2009
						Accumulated				Net book
		Cost				amortization				value
		$				$				$
Intangible assets
Contract costs
Incentives			247,146				185,296				61,850
Transition costs			169,087				77,138				91,949
			416,233				262,434				153,799
Other intangible assets
Internal-use software			88,128				59,033				29,095
Business solutions			284,341				160,423				123,918
Software licenses			144,861				108,127				36,734
Client relationships and other			341,188				228,959				112,229
			858,518				556,542				301,976
			1,274,751				818,976				455,775

All intangible assets are subject to amortization. The following table presents the aggregate amount of intangible assets that were acquired or internally developed during the period:

		2010				2009				2008
		$				$				$
Acquired			166,468				22,965				30,665
Internally developed			49,193				44,181				40,257
			215,661				67,146				70,922

Amortization expense of other intangible assets included in the consolidated statements of earnings is as follows:

		2010				2009				2008
		$				$				$
Internal-use software			11,121				12,963				12,307
Business solutions			26,322				33,444				34,367
Software licenses			18,726				16,674				17,997
Client relationships and other			36,676				37,748				37,121
Amortization of other intangible assets (Note 14)			92,845				100,829				101,792

Amortization expense of contract costs is presented in Note 14.

Note 7

Other long-term assets

		2010				2009
		$				$
Deferred financing fees			2,360				3,643
Deferred compensation plan assets			16,318				13,108
Long-term maintenance agreements			5,542				13,735
Forward contracts (Note 26)			13,317				22,372
Other			4,724				7,700
Other long-term assets			42,261				60,558

CGI group Inc.          2010 Annual report				55

Note 8

Goodwill

The variations in goodwill are as follows:

2010
										Europe &
		Canada				U.S. & India				Asia Pacific				Total
		$				$				$				$
Balance, beginning of year			1,141,381				432,320				101,080				1,674,781
Acquisition (Note 18a)			—				886,403				—				886,403
Foreign currency translation adjustment			—				(25,961	)			(9,810	)			(35,771	)
Balance, end of year			1,141,381				1,292,762				91,270				2,525,413

2009
										Europe &
		Canada				U.S. & India				Asia Pacific				Total
		$				$				$				$
Balance, beginning of year			1,158,730				431,129				99,503				1,689,362
Acquisition			209				—				—				209
Purchase price adjustments (Note 18c)			(16,059	)			(3,865	)			(415	)			(20,339	)
Disposal of assets (Note 18b)			(1,499	)			—				—				(1,499	)
Foreign currency translation adjustment			—				5,056				1,992				7,048
Balance, end of year			1,141,381				432,320				101,080				1,674,781

Note 9

Other long-term liabilities

		2010				2009
		$				$
Deferred compensation			25,173				22,727
Deferred revenue			40,702				27,774
Deferred rent			44,737				16,940
Forward contracts (Note 26)			3,396				7,648
Other			5,891				8,845
Other long-term liabilities			119,899				83,934

Asset retirement obligations included in “other” pertain to operating leases of office buildings where certain arrangements require premises to be returned to their original state at the end of the lease term. The asset retirement obligation liability of $3,060,000 ($2,522,000 in 2009) was based on the expected cash flows of $4,370,000 ($3,579,000 in 2009) and was discounted at an interest rate of 6.42% (6.83% in 2009). The timing of the settlement of these obligations varies between one and 13 years.

CGI group Inc.          2010 Annual report				56

Note 10

Long-term debt

		2010				2009
		$				$
Senior U.S. unsecured notes, bearing a weighted average interest rate of 5.27% and repayable by payments of $89,593 (US$87,000) in 2011 and $20,596 (US$20,000) in 2014, less imputed interest of $2901			109,899				114,061
Unsecured committed revolving term facility bearing interest at LIBOR rate plus 0.63% or bankers’ acceptance rate plus 0.63%, maturing in 20122			964,223				126,043
Obligations bearing a weighted average interest rate of 4.00% and repayable in blended monthly instalments maturing at various dates until 2018			22,049				5,879
Obligations under capital leases, bearing a weighted average interest rate of 4.89% and repayable in blended monthly instalments maturing at various dates until 2018			57,705				37,147
			1,153,876				283,130
Current portion			114,577				17,702
			1,039,299				265,428

1		As at September 30, 2010, the private placement financing with U.S. institutional investors is comprised of two remaining tranches of Senior U.S. unsecured notes maturing in January 2011 and 2014 for a total amount of US$107,000,000. On January 29, 2009, the Company repaid the first tranche in the amount of US$85,000,000 and settled the related forward contracts taken to manage the Company’s exposure to fluctuations in the foreign exchange rate resulting in a cash inflow of $18,318,000. The Senior U.S. unsecured notes contain covenants that require the Company to maintain certain financial ratios (Note 27). At September 30, 2010, the Company is in compliance with these covenants.
2		The Company has a five-year unsecured revolving credit facility available for an amount of $1,500,000,000 that expires in August 2012 bearing interest at LIBOR plus a variable margin that is determined based on leverage ratios. As at September 30, 2010, an amount of $964,223,000 has been drawn upon this facility (Note 26). Also an amount of $15,846,000 has been committed against this facility to cover various letters of credit issued for clients and other parties. In addition to the revolving credit facility, the Company has available demand lines of credit in the amount of $25,000,000. At September 30, 2010, no amount had been drawn upon these facilities. The revolving credit facility contains covenants that require the Company to maintain certain financial ratios (Note 27). At September 30, 2010, the Company is in compliance with these covenants. The Company also has a proportionate share of a revolving demand credit facility related to the joint venture for an amount of $2,500,000 bearing interest at the Canadian prime rate. As at September 30, 2010, no amount has been drawn upon this facility.

Principal repayments on long-term debt over the forthcoming years are as follows:

		$
2011			95,169
2012			968,636
2013			4,750
2014			24,308
2015			1,917
Thereafter			1,391
Total principal payments on long-term debt			1,096,171

Minimum capital lease payments are as follows:

		Principal				Interest				Payment
		$				$				$
2011			19,408				2,441				21,849
2012			17,308				1,440				18,748
2013			10,456				578				11,034
2014			5,850				276				6,126
2015			3,188				68				3,256
Thereafter			1,495				—				1,495
Total minimum capital lease payments			57,705				4,803				62,508

CGI group Inc.          2010 Annual report				57

Note 11
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 ten 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.

For 2010, 2009 and 2008, the Class A subordinate and the Class B shares varied as follows:

		Class A subordinate shares												Class B shares								Total
						Carrying								Carrying								Carrying
		Number				value				Number				value				Number				value
						$								$								$
Balance, September 30, 2007			290,545,715				1,321,305				34,208,159				47,724				324,753,874				1,369,029
Repurchased and cancelled1			(20,488,168	)			(90,748	)			—				—				(20,488,168	)			(90,748	)
Repurchased and not cancelled1			—				(847	)			—				—				—				(847	)
Issued upon exercise of options2			4,107,823				42,238				—				—				4,107,823				42,238
Balance, September 30, 2008			274,165,370				1,271,948				34,208,159				47,724				308,373,529				1,319,672
Repurchased and cancelled1			(9,708,292	)			(44,272	)			—				—				(9,708,292	)			(44,272	)
Issued upon exercise of options2			2,221,032				22,870				—				—				2,221,032				22,870
Conversion of shares3			600,000				837				(600,000	)			(837	)			—				—
Balance, September 30, 2009			267,278,110				1,251,383				33,608,159				46,887				300,886,269				1,298,270
Repurchased and cancelled1			(35,602,085	)			(168,759	)			—				—				(35,602,085	)			(168,759	)
Issued upon exercise of options2			6,008,766				65,558				—				—				6,008,766				65,558
Balance, September 30, 2010			237,684,791				1,148,182				33,608,159				46,887				271,292,950				1,195,069

1		On January 27, 2010, the Company’s Board of Directors authorized the renewal of a Normal Course Issuer Bid (“NCIB”) to purchase up to 10% of the public float of the Company’s Class A subordinate shares during the next year. The Toronto Stock Exchange (“TSX”) subsequently approved the Company’s request for approval. The Issuer Bid enables the Company to purchase up to 25,151,058 Class A subordinate shares (26,970,437 in 2009 and 28,502,941 in 2008) for cancellation on the open market through the TSX. The Class A subordinate shares were available for purchase under the Issuer Bid commencing February 9, 2010, until no later than February 8, 2011, or on such earlier date when the Company completes its purchases or elects to terminate the bid. During 2010, the Company repurchased, under the previous and current NCIB, 35,602,085 Class A subordinate shares (9,525,892 in 2009 and 19,910,068 in 2008) for cash consideration of $516,699,000 ($99,881,000 in 2009 and $213,485,000 in 2008). The excess of the purchase price over the carrying value of Class A subordinate shares repurchased, in the amount of $347,940,000 ($55,609,000 in 2009 and $121,890,000 in 2008), was charged to retained earnings.
		As at September 30, 2008, 182,400 of the repurchased Class A subordinate shares with a carrying value of $847,000 and a purchase value of $1,817,000 were held by the Company and had been cancelled and paid subsequent to year-end.
2		The carrying value of Class A subordinate shares includes $13,332,000 ($5,253,000 in 2009 and $10,223,000 in 2008) which corresponds to a reduction in contributed surplus representing the value of accumulated compensation cost associated with the options exercised during the year.
3		During the twelve months ended September 30, 2009, a shareholder converted 600,000 Class B shares into 600,000 Class A subordinate shares.

CGI group Inc.            2010 Annual report		58

Note 12
Stock-based compensation plans and contributed surplus

A) STOCK OPTIONS

Under the Company’s stock option plan, the Board of Directors may grant, at its discretion, options to purchase Class A subordinate shares to certain employees, officers, directors and consultants of the Company and its subsidiaries. The exercise price is established by the Board of Directors and is equal to the closing price of the Class A subordinate shares on the TSX on the day preceding the date of the grant. Options generally vest one to three years from the date of grant conditionally upon the achievement of objectives and must be exercised within a ten-year period, except in the event of retirement, termination of employment or death. As at September 30, 2010, 52,002,178 Class A subordinate shares have been reserved for issuance under the stock option plan.

The following table presents information concerning all outstanding stock options granted by the Company for the years ended September 30:

						2010								2009								2008
						Weighted average								Weighted average								Weighted average
		Number of				exercise price				Number of				exercise price				Number of				exercise price
		options				per share				options				per share				options				per share
						$								$								$
Outstanding, beginning of year			28,883,835				9.16				26,757,738				9.34				24,499,886				8.52
Granted			8,413,586				12.58				8,448,453				9.32				7,798,388				11.39
Exercised			(6,008,766	)			8.69				(2,221,032	)			7.93				(4,107,823	)			7.79
Forfeited			(3,734,542	)			9.65				(3,863,746	)			11.16				(1,094,052	)			10.65
Expired			(998,630	)			15.91				(237,578	)			14.11				(338,661	)			12.20
Outstanding, end of year			26,555,483				10.03				28,883,835				9.16				26,757,738				9.34
Exercisable, end of year			14,116,392				8.60				18,087,166				8.75				19,398,753				8.56

The following table summarizes information about outstanding stock options granted by the Company as at September 30, 2010:

										Options outstanding								Options exercisable
										Weighted
										average				Weighted								Weighted
										remaining				average								average
		Range of				Number of				contractual				exercise				Number of				exercise
		exercise price				options				life (years)				price				options				price
		$												$								$
		2.06 to 5.20					10,729				0.51				2.57				10,729				2.57
		6.05 to 6.98					2,255,941				4.48				6.48				2,255,941				6.48
		7.00 to 7.87					3,408,828				4.57				7.74				3,408,828				7.74
		8.00 to 8.99					4,417,145				3.43				8.62				4,417,145				8.62
		9.05 to 9.90					4,832,132				7.50				9.34				1,692,713				9.40
		10.05 to 11.80					3,566,872				6.99				11.37				2,284,340				11.35
		12.54 to 13.26					7,964,939				9.01				12.55				10,799				13.26
		14.48 to 15.58					98,897				9.54				14.98				35,897				9.55
							26,555,483				6.58				10.03				14,116,392				8.60

CGI group Inc.            2010 Annual report		59

The following table presents the weighted average assumptions used to determine the stock-based compensation cost recorded in cost of services, selling and administrative expenses using the Black-Scholes option pricing model for the years ended September 30:

		2010				2009				2008
Stock-based compensation costs ($)			15,517				8,617				5,131
Dividend yield (%)			0.00				0.00				0.00
Expected volatility (%)			27.32				24.42				23.70
Risk-free interest rate (%)			2.48				3.05				4.09
Expected life (years)			5.00				5.00				5.00
Weighted average grant date fair value ($)			3.63				2.59				3.37

B) PERFORMANCE SHARE UNITS (PSUs)

On September 28, 2010, the Company adopted a PSU plan for senior executives and other key employees (“participants”). Under that plan, the Board of Directors may grant PSUs to participants which entitles them to receive one Class A subordinate share for each PSU. The vesting and performance conditions are determined by the Board of Directors at the time of each grant. PSUs must be exercised within three years following the end of the Company’s fiscal year during which the award is made, except in the event of retirement, termination of employment or death.

There was no grant under this plan in fiscal year 2010.

C) CONTRIBUTED SURPLUS

The following table summarizes the contributed surplus activity since September 30, 2007:

		$
Balance, September 30, 2007			82,465
Compensation cost associated with exercised options (Note 11)			(10,223	)
Stock-based compensation costs			5,131
Balance, September 30, 2008			77,373
Compensation cost associated with exercised options (Note 11)			(5,253	)
Stock-based compensation costs			8,617
Balance, September 30, 2009			80,737
Compensation cost associated with exercised options (Note 11)			(13,332	)
Stock-based compensation costs			15,517
Balance, September 30, 2010			82,922

Note 13
Earnings per share

The following table sets forth the computation of basic and diluted earnings per share from continuing operations attributable to shareholders of the Company for the years ended September 30:

										2010												2009												2008
						Weighted				Earnings								Weighted				Earnings								Weighted				Earnings
		Earnings				average				per share				Earnings				average				per share				Earnings				average				per share
		from				number of				from				from				number of				from				from				number of				from
		continuing				shares				continuing				continuing				shares				continuing				continuing				shares				continuing
		operations				outstanding1				operations				operations				outstanding1				operations				operations				outstanding1				operations
		$								$				$								$				$								$
			362,386				284,826,257				1.27				315,158				306,853,077				1.03				298,266				317,604,899				0.94
Dilutive options2							8,093,693												3,492,164												5,199,388
			362,386				292,919,950				1.24				315,158				310,345,241				1.02				298,266				322,804,287				0.92

1		The 35,602,085 Class A subordinate shares repurchased during the year (9,525,892 in 2009 and 19,910,068 in 2008), were excluded from the calculation of weighted average number of shares outstanding as of the date of repurchase.
2		The calculation of the diluted earnings per share excluded 8,029,590, 13,384,651 and 8,764,136 options for the years ended September 30, 2010, 2009 and 2008, respectively, as they were anti-dilutive.

CGI group Inc.          2010 Annual report		60

Note 14
Amortization

		2010				2009				2008
		$				$				$
Amortization of capital assets			72,067				61,412				43,455
Amortization of intangible assets
Contract costs related to transition costs			30,396				22,377				17,925
Other intangible assets (Note 6)			92,845				100,829				101,792
Impairment of other intangible assets1			—				11,143				—
			195,308				195,761				163,172
Amortization of contract costs related to incentives (presented as reduction of revenue)			23,149				21,043				21,682
Amortization of deferred financing fees (presented in interest on long-term debt)			1,283				1,283				1,266
			219,740				218,087				186,120

1

The impairment of other intangible assets relates to certain assets that were no longer expected to provide future value.

Note 15
Accumulated other comprehensive loss

		Balance, as at				Net changes				Balance, as at
		October 1,				during				September 30,
		2009				the year				2010
		$				$				$
Net unrealized losses on translating financial statements of self-sustaining foreign operations (net of accumulated income tax recovery of $12,686)			(359,423	)			(53,598	)			(413,021	)
Net unrealized gains on translating long-term debt designated as a hedge of net investments in self-sustaining foreign operations (net of accumulated income tax expense of $14,347)			61,000				15,806				76,806
Net unrealized gains on cash flow hedges (net of accumulated income tax expense of $5,336)			12,433				2,036				14,469
			(285,990	)			(35,756	)			(321,746	)