-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PcrWLY2N5VwE7tSceH6wB3UY2GxsaVsQIbJwhOdxAODZhbOR/082pX+VUkD7y0W0 Maq4H+Z01FRQBX8KbRT59A== 0000908737-01-500292.txt : 20020412 0000908737-01-500292.hdr.sgml : 20020412 ACCESSION NUMBER: 0000908737-01-500292 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011205 FILED AS OF DATE: 20011206 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CGI GROUP INC CENTRAL INDEX KEY: 0001061574 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-29716 FILM NUMBER: 1807985 BUSINESS ADDRESS: STREET 1: 1130 SHERBROOKE ST WEST STREET 2: 5TH FL CITY: MONTREAL QUEBEC CANA STATE: E6 BUSINESS PHONE: 5148413200 MAIL ADDRESS: STREET 1: 1130 SHERBROOKE ST WEST STREET 2: 5TH FLOOR CITY: MONTREAL QUEBEC STATE: E6 6-K 1 cgi6k-1206.txt 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 -----END PRIVACY-ENHANCED MESSAGE-----