EX-99.2 3 ex99-2.htm EX99-2 ex99-2
 
 
 
 
 

Consolidated Financial Statements of
 
CGI GROUP INC.
 
For the three and six months ended March 31, 2007 and 2006




CGI GROUP INC.
Consolidated Statements of Earnings
For the three and six months ended March 31
(in thousands of Canadian dollars, except share data) (unaudited)
   
Three months
ended March 31
  
Six months ended
March 31
  
   
2007
  
2006
  
2007
  
2006
  
    $   
$
   $   
$
  
                   
Revenue
    
951,342
    
866,836
    
1,855,402
    
1,765,299
  
                           
Operating expenses
                          
Costs of services, selling and administrative
    
805,519
    
759,706
    
1,569,557
    
1,536,553
  
Amortization (Note 7)
    
43,783
    
44,303
    
84,116
    
87,173
  
Restructuring costs related to specific items
(Note 8)
   
-
    
31,315
    
23,010
    
31,315
  
Interest on long-term debt
    
11,626
    
12,117
    
24,113
    
16,706
  
Other income, net
    
(1,970
)
  
(1,696
)
  
(3,899
)
  
(3,611
)
Loss (gain) on sale of assets
   
-
    
558
    
-
    
(10,475
)
     
858,958
    
846,303
    
1,696,897
    
1,657,661
  
Earnings before income taxes
    
92,384
    
20,533
    
158,505
    
107,638
  
Income taxes
    
29,673
    
6,384
    
52,113
    
36,581
  
Net earnings
    
62,711
    
14,149
    
106,392
    
71,057
  
                           
Basic and diluted earnings per share (Note 4c))
    
0.19
    
0.04
    
0.32
    
0.18
  

 
Consolidated Statements of Comprehensive Income
For the three and six months ended March 31
(in thousands of Canadian dollars) (unaudited)

   
Three months ended March 31
  
Six months ended
March 31
  
   
2007
  
2006
  
2007
  
2006
  
    $   
$
   $   
$
  
Net earnings
    
62,711
    
14,149
    
106,392
    
71,057
  
Other comprehensive income, net of income taxes:
                          
     Net change in unrealized (gains) losses on translating
        financial statements  of self-sustaining foreign operations
    
(11,710
)
  
3,818
    
57,665
    
5,666
  
     Net change in gains (losses) on translation of long-term
        debt designated as a hedge of net investment in
        self-sustaining foreign operations
   
2,003
    
(194
)
  
(6,074
)
  
(970
)
     
(9,707
)
  
3,624
    
51,591
    
4,696
  
Comprehensive income
    
53,004
    
17,773
    
157,983
    
75,753
  


Page 2 of 18

Consolidated Statements of Retained Earnings
For the three and six months ended March 31
(in thousands of Canadian dollars) (unaudited)
 
Three months ended
March 31
Six months ended
March 31
 
2007
2006
2007
2006
 
$
$
$
$
Retained earnings, beginning of period
624,292
952,175
587,201
895,267
Net earnings
62,711
14,149
106,392
71,057
Share repurchase costs (Note 4a))
-
(6,760)
-
(6,760)
Excess of purchase price over carrying value of
     Class A subordinate shares acquired (Note 4a))
(18,614)
(425,475)
(25,204)
(425,475)
Retained earnings, end of period
668,389
534,089
668,389
534,089


Page 3 of 18

CGI GROUP INC.
Consolidated Balance Sheets
(in thousands of Canadian dollars)
 
As at March 31, 2007
As at September 30, 2006
 
(unaudited)
(audited)
 
$
$
Assets
 
    
Current assets
    
Cash and cash equivalents
93,824
115,729
Accounts receivable
482,072
479,767
Work in progress
201,991
197,381
Prepaid expenses and other current assets
82,245
89,639
Future income taxes
34,486
33,728
 
894,618
916,244
Capital assets
123,750
120,032
Contract costs
202,356
214,688
Finite-life intangibles and other long-term assets (Note 2)
522,753
523,332
Future income taxes
11,462
25,127
Goodwill
1,773,598
1,737,886
Total assets before funds held for clients
3,528,537
3,537,309
Funds held for clients
203,960
154,723
 
3,732,497
3,692,032
     
Liabilities
 
    
Current liabilities
    
Accounts payable and accrued liabilities
367,374
367,127
Accrued compensation
115,048
108,331
Deferred revenue
176,625
111,759
Income taxes
67,808
41,707
Future income taxes
22,358
30,384
Current portion of long-term debt
6,878
8,242
 
756,091
667,550
Future income taxes
209,605
213,512
Long-term debt
587,156
805,017
Accrued integration charges and other long-term liabilities
89,533
103,210
Total liabilities before clients’ funds obligations
1,642,385
1,789,289
Clients’ funds obligations
203,960
154,723
 
1,846,345
1,944,012
     
Shareholders’ equity
 
    
Capital stock (Note 4a))
1,373,360
1,367,606
Contributed surplus (Notes 4a) and 4b))
82,035
82,436
     
Retained earnings
668,389
587,201
Accumulated other comprehensive loss (Note 5)
(237,632)
(289,223)
 
430,757
297,978
 
1,886,152
1,748,020
 
3,732,497
3,692,032


Page 4 of 18

CGI GROUP INC.
Consolidated Statements of Cash Flows
For the three and six months ended March 31
(in thousands of Canadian dollars) (unaudited)
 
Three months
ended March 31
Six months ended
March 31
 
2007
2006
2007
2006
 
$
$
$
$
Operating activities
       
Net earnings
62,711
14,149
106,392
71,057
Adjustments for:
       
Amortization (Note 7)
50,095
50,808
96,722
99,821
Deferred credits
-
-
-
(781)
Future income taxes
(6,053)
(17,031)
(1,122)
(13,724)
Foreign exchange loss (gain)
463
(352)
1,711
(642)
Stock-based compensation (Note 4b))
4,334
2,104
7,337
6,294
Loss (gain) on sale of assets
-
558
-
(10,475)
Net change in non-cash working capital items
17,412
32,314
84,096
(5,372)
Cash provided by operating activities
128,962
82,550
295,136
146,178
         
Investing activities
        
Business acquisitions (net of cash acquired)
     (Note 6 a))
 
(130)
 
(4,953)
(130)
(5,377)
Proceeds from sale of assets and business
-
27,559
-
27,559
Additions to capital assets
(7,941)
(10,078)
(16,108)
(21,954)
Proceeds from disposal of capital assets
277
76
277
448
Additions to contract costs
(6,366)
(11,243)
(9,577)
(17,278)
Reimbursement of contract costs
-
-
2,143
-
Additions to finite-life intangibles and other
     long-term assets
 
(20,169)
 
(19,036)
(39,481)
(35,294)
Decrease in other long-term assets
165
150
338
2,080
Cash used in investing activities
(34,164)
(17,525)
(62,538)
(49,816)
         
Financing activities
        
Increase in credit facilities
29,533
738,605
29,533
738,605
Repayment of credit facilities
(161,829)
(29,495)
(253,982)
(29,495)
Repayment of long-term debt
(1,815)
(4,229)
(4,156)
(7,210)
Repurchase of Class A subordinate shares
     (net of share repurchase costs)
 
(34,181)
 
(865,990)
(55,240)
(873,175)
Issuance of shares (net of share issue costs)
21,225
31,094
22,097
32,734
Cash used in continuing financing activities
(147,067)
(130,015)
(261,748)
(138,541)
Effect of foreign exchange rate changes on cash and cash equivalents
 
(468)
 
32
7,245
(290)
Net decrease in cash and cash equivalents
(52,737)
(64,958)
(21,905)
(42,469)
Cash and cash equivalents, beginning of period
146,561
262,948
115,729
240,459
Cash and cash equivalents, end of period
93,824
197,990
93,824
197,990
Interest paid
13,661
17,942
22,839
18,697
Income taxes paid
12,135
20,181
23,926
41,742


Page 5 of 18

CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)
 
 
1.    Summary of significant accounting policies
 
The interim consolidated financial statements for the three and six months ended March 31, 2007 and 2006, are unaudited and include all adjustments that management of CGI Group Inc. (the “Company”) considers necessary for a fair presentation of the financial position, results of operations and cash flows.
 
The disclosures provided for these interim periods do not conform in all respects to the requirements of generally accepted accounting principles (“GAAP”) for the annual consolidated financial statements; therefore, the interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements of the Company for the year ended September 30, 2006. These interim consolidated financial statements have been prepared using the same accounting policies and methods of their application as the annual consolidated financial statements for the year ended September 30, 2006, except for new accounting policies that have been adopted effective October 1, 2006.
 
Certain comparative figures have been reclassified in order to conform to the current period presentation.
 
Change in accounting policies
 
The Canadian Institute of Chartered Accountants (“CICA”) has issued the following new Handbook Sections which were effective for interim periods beginning on or after October 1, 2006:
 
a)      Section 3855, “Financial Instruments - Recognition and Measurement”, describes the standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. All financial assets, except for those classified as held-to-maturity, loans and receivables, and derivative financial instruments are measured at their fair values. All financial liabilities are measured at their fair values when they are classified as held for trading purposes. Otherwise, they are measured at their carrying value. The impact of the adoption of this new section did not have a significant effect on the consolidated financial statements.
 
b)     Section 1530, “Comprehensive Income”, and Section 3251, “Equity”. Comprehensive income is the change in equity of an enterprise during a period arising from transactions and other events and circumstances from non-owner sources. It includes items that would normally not be included in net income such as changes in the foreign currency translation adjustment relating to self-sustaining foreign operations and unrealized gains or losses on available-for-sale financial instruments. This section describes how to report and disclose comprehensive income and its components. Section 3251, “Equity”, replaces Section 3250, “Surplus”, and establishes standards for the presentation of equity and changes in equity as a result of the new requirements of Section 1530, “Comprehensive Income”. Upon adoption of this section, the consolidated financial statements now include a statement of comprehensive income. The comparative financial statements are restated to reflect application of this section for changes in the balances of the foreign currency translation related to self-sustaining foreign operations.

Page 6 of 18

CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)

1.    Summary of significant accounting policies (continued)
 
Change in accounting policies (continued)
 
c)      Section 3865, “Hedges”, describes when hedge accounting is appropriate. Hedge accounting ensures that all gains, losses, revenues and expenses from the derivative and the item it hedges are recorded in the statement of earnings in the same period. The impact of the adoption of this new section did not have a significant effect on the consolidated financial statements. 
 
Future accounting changes
 
The CICA has issued the following new Handbook Sections which are effective for interim periods beginning on or after October 1, 2007:
 
a)     Section 3862, “Financial Instruments — Disclosures”, describes the required disclosure for the assessment of the significance of financial instruments for an entity’s financial position and performance and of the nature and extent of risks arising from financial instruments to which the entity is exposed and how the entity manages those risks. The Company is currently evaluating the impact of the adoption of this new section on the consolidated financial statements.
 
 

Page 7 of 18

CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)

2.    Finite-life intangibles and other long-term assets
 
 
As at March 31, 2007
As at September 30, 2006
 
Cost
Accumulated
amortization
Net book value
Cost
Accumulated
amortization
Net book value
 
$
$
$
$
$
$
Internal software
78,118
35,034
43,084
77,874
34,724
43,150
Business solutions
287,916
101,319
186,597
258,566
80,103
178,463
Software licenses
128,698
90,298
38,400
120,557
78,373
42,184
Customer relationships
     and other
374,633
154,639
219,994
367,404
131,596
235,808
Finite-life intangibles
869,365
381,290
488,075
824,401
324,796
499,605
           
Deferred financing fees
  
4,117
    
6,475
Deferred compensation plan
  
12,308
    
9,943
Long-term maintenance agreements
  
14,431
    
3,294
Other
  
3,822
    
4,015
Other long-term assets
  
34,678
    
23,727
Total finite-life intangibles
     and other long-term assets
  
522,753
    
 
523,332

3.    Credit facilities
 
The Company has available an unsecured revolving credit facility for an amount of $1,000,000,000 maturing in December 2009. This agreement is comprised of a Canadian tranche with a limit of $850,000,000 and a U.S. tranche equivalent to $150,000,000. The interest rate charged is determined by the denomination of the amount drawn. As at March 31, 2007, an amount of $365,000,000 has been drawn upon this facility. Also, an amount of $17,290,000 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 demand lines of credit in the amounts of $25,000,000 and £2,000,000 available. As at March 31, 2007, no amount has been drawn upon these facilities.
 
The long-term debt agreements contain covenants that require the Company to maintain certain financial ratios. At March 31, 2007, the Company is in compliance with the covenants of its credit facilities and other long-term debt.

 
Page 8 of 18
 
CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)

4.     Capital stock, stock options and earnings per share
 
a) Capital stock
 
Six months ended March 31, 2007
Class A subordinate shares
Class B shares
Total
 
Number
Carrying
value
Number
Carrying
value
Number
Carrying
value
   
$
  
$
  
$
Balance, as at
   October 1, 2006
297,484,885
1,319,882
34,208,159
47,724
331,693,044
1,367,606
Repurchased and
   cancelled(1)
(6,237,400)
(23,812)
-
-
(6,237,400)
(23,812)
Repurchased and not
   cancelled(1)
-
(387)
-
-
-
(387)
Issued upon exercise of
   options(2)
2,933,610
29,953
-
-
2,933,610
29,953
Balance, as at
   March 31, 2007
294,181,095
1,325,636
34,208,159
47,724
328,389,254
1,373,360
             
 
(1)
On January 30, 2007 and January 31, 2006, the Company’s Board of Directors authorized the renewal of a Normal Course Issuer Bid and the purchase of up to 29,091,303 and 29,288,443 Class A subordinate shares respectively. During the six months ended March 31, 2007, the Company repurchased 5,418,300 Class A subordinate shares for $49,403,000, including a redemption fee of $95,000. The excess of the purchase price over the carrying value of Class A subordinate shares repurchased, in the amount of $25,204,000, was charged to retained earnings. As of March 31, 2007, 86,000 of the repurchased Class A subordinate shares (905,100 for the year ended September 30, 2006) with a carrying value of $387,000 ($4,028,000 for the year ended September 30, 2006), and a repurchase value of $860,000 ($6,661,000 for the year ended September 30, 2006) were held by the Company and had not been cancelled. Of the $860,000, $823,000 was unpaid.
   
(2)
The carrying value of Class A subordinate shares includes $7,739,000 ($3,421,000 for the year ended September 30, 2006) which corresponds to a reduction in contributed surplus representing the value of compensation cost associated with the options exercised since inception and the value of exercised options assumed in connection with acquisitions. 
 
 
Page 9 of 18
CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)
 
4.    Capital stock, stock options and earnings per share (continued)
 
 b) 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 Toronto Stock Exchange on the day preceding the date of the grant. Options generally vest one year from the date of grant conditionally upon achievement of objectives and must be exercised within a ten-year period, except in the event of retirement, termination of employment or death.
 
The following table presents the weighted average assumptions used to determine the stock-based compensation expense recorded in cost of services, selling and administrative expenses using the Black-Scholes option pricing model:
 
 
Three months ended March 31
Six months ended March 31
 
2007
2006
2007
2006
Compensation expense ($)
4,334
2,104
7,337
6,294
Dividend yield
0.0%
0.0%
0.0%
0.0%
Expected volatility
29.2%
33.1%
29.5%
38.2%
Risk-free interest rate
4.04%
4.06%
3.90%
3.89%
Expected life (years)
5
5
5
5
Weighted average grant date fair values ($)
2.78
3.44
2.60
3.43

The following table presents information concerning all outstanding stock options granted by the Company:
 
 
Number of options
Six months ended
March 31, 2007
Twelve months ended
September 30, 2006
Outstanding, beginning of period
29,956,711
26,538,654
Granted
3,936,090
8,738,601
Exercised
(2,933,610)
(1,220,820)
Forfeited and expired
(3,446,177)
(4,099,724)
Outstanding, end of period
27,513,014
29,956,711


Page 10 of 18

CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)

4.    Capital stock, stock options and earnings per share (continued)
 
c) Earnings per share
 
The following table sets forth the computation of basic and diluted earnings per share:
 
 
Three months ended March 31, 2007
Three months ended March 31, 2006
 
Net earnings (numerator)
Weighted
average number
of shares
outstanding
(denominator)(1)
Earnings
per share
Net earnings (numerator)
Weighted
average number
of shares
outstanding
(denominator)(1)
Earnings per share
 
$
  
$
$
  
$
Basic
62,711
329,056,989
0.19
14,149
344,825,024
0.04
Dilutive options (2)
  
3,840,932
    
2,596,418
  
Dilutive warrants (2)
  
-
    
1,923,365
  
Diluted
62,711
332,897,921
0.19
14,149
349,344,807
0.04

 
Six months ended March 31, 2007
Six months ended March 31, 2006
 
Net earnings (numerator)
Weighted average
number of
shares outstanding (denominator)(1)
Earnings
per share
Net earnings (numerator)
Weighted average
number of
shares outstanding
(denominator)(1)
Earnings per share
 
$
  
$
$
  
$
Basic
106,392
329,761,789
0.32
71,057
388,126,856
0.18
Dilutive options (2)
  
2,185,107
    
2,242,834
  
Dilutive warrants (2)
  
-
    
1,851,671
  
Diluted
106,392
331,946,896
0.32
71,057
392,221,361
0.18

(1)
The 5,418,300 Class A subordinate shares repurchased during the six months ended March 31, 2007 (100,000,000 during the six months ended March 31, 2006), were excluded from the calculation of earnings per share as of the date of repurchase.
   
(2)
The calculation of the dilutive effects excludes all anti-dilutive options and warrants that would not be exercised because their exercise price is higher than the average market value of a Class A subordinate share of the Company for each of the periods shown in the table. The number of excluded options was 3,576,087 and 10,663,282 for the three and six months ended March 31, 2007, respectively and 4,446,526 and 9,283,100 for the three and six months ended March 31, 2006, respectively. The number of excluded warrants was nil for the three and six months ended March 31, 2007, and nil and 2,113,041 for the three and six months ended March 31, 2006, respectively.

 

Page 11 of 18

CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)

5.    Accumulated other comprehensive loss
 
 
Three months ended March 31, 2007
Six months ended March 31, 2007
 
Balance, as
at January
1, 2007
Net changes
incurred
during the
three months
Balance, as
at March
31, 2007
Balance,
as at October
1, 2006
Net changes
incurred
during the
six months
Balance,
as at March
31, 2007
 
$
  
$
$
  
$
Net change in unrealized (gains) losses on translating financial statements of self-sustaining foreign operations
(254,922)
(11,710)
(266,632)
(324,297)
57,665
(266,632)
             
Net change in gains (losses) on translation of long-term debt designated as a hedge of net investment in self-sustaining foreign operations
26,997
2,003
29,000
35,074
(6,074)
29,000
 
(227,925)
(9,707)
(237,632)
(289,223)
51,591
(237,632)

6.    Investments in subsidiaries and joint ventures 
 
a)     Modifications to purchase price allocations
During the six months ended March 31, 2007, the Company modified the purchase price allocation and made adjustments relating to certain business acquisitions, resulting in a net decrease of integration charges, future income tax assets and cash of $6,046,000, $2,282,000 and $130,000, respectively, whereas goodwill decreased by $3,634,000.
 
b)     Balance of integration charges
For American Management Systems, Incorporated and Cognicase Inc., the components of the integration charges related to business acquisitions included in accounts payable and accrued liabilities as well as in accrued integration charges and other long-term liabilities are as follows:
 
 
Consolidation and
closure of facilities
Severance
Total
 
$
$
$
Balance, as at October 1, 2006
35,010
2,287
37,297
Adjustments to initial provision(1)
(2,859)
(411)
(3,270)
     Foreign currency translation adjustment
1,308
154
1,462
     Paid during the six-month period
(5,000)
(6)
(5,006)
Balance, as at March 31, 2007(2)
28,459
2,024
30,483

(1)
This has been recorded as a decrease of goodwill. This amount includes the amount of goodwill decrease presented in Note 6 a).
(2)
Of the total balance remaining, $7,006,000 is included in accounts payable and accrued liabilities and $23,477,000 is included in accrued integration charges and other long-term liabilities.


Page 12 of 18

CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)

7.    Amortization 
 
 
Three months ended March 31
Six months ended March 31
 
2007
2006
2007
2006
 
$
$
$
$
Amortization of capital assets
9,591
9,485
16,689
17,939
Amortization of contract costs related to transition
5,503
3,986
9,407
7,989
Amortization of finite-life intangibles
28,689
29,835
58,020
60,248
Impairment of finite-life intangibles
-
997
-
997
 
43,783
44,303
84,116
87,173
         
Amortization of contract costs related to incentives (presented as
     reduction of revenue)
5,938
6,121
11,858
12,058
Amortization of other long-term assets (presented in interest on
     long-term debt)
374
384
748
590
 
50,095
50,808
96,722
99,821

Page 13 of 18
CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)


8.
Restructuring costs related to specific items
 
On March 29, 2006, the Company announced a restructuring plan impacting members located primarily in Montreal and Toronto, of which a significant portion was related to lower than expected BCE Inc. (“BCE”) work volumes. The program ended December 31, 2006.
 
The following table shows the details of the restructuring costs related to specific items recorded in the statement of earnings during the six months ended March 31, 2007:
 
 
Severance
Consolidation and
closure of facilities
Total
 
$
$
$
IT services
9,172
6,700
15,872
BPS
166
5,328
5,494
Corporate
1,677
446
2,123
Restructuring costs related to specific items
11,015
12,474
23,489
BCE contribution(1)
(479)
-
(479)
Total restructuring costs related to
     specific items(2) 
10,536
12,474
23,010

(1)
The BCE contribution has been received as at March 31, 2007.
(2)
Since the program ended December 31, 2006, the restructuring costs were entirely incurred during the three-month period ended December 31, 2006.

The following table shows the components of the restructuring provision, included in accrued compensation, in accounts payable and accrued liabilities as well as in accrued integration charges and other long-term liabilities:
 
 
Severance
Consolidation and
closure of facilities
Total
 
$
$
$
Balance, as at October 1, 2006
8,602
5,445
14,047
     New restructuring costs related to specific items
11,015
12,474
23,489
     Foreign currency translation adjustment
137
187
324
     Paid during the six-month period
(15,005)
(6,636)
(21,641)
Balance, as at March 31, 2007(1)
4,749
11,470
16,219

(1)
Of the total balance remaining, $4,749,000 is included in accrued compensation, $5,743,000 is included in accounts payable and accrued liabilities and $5,727,000 is included in accrued integration charges and other long-term liabilities.


Page 14 of 18

CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)

9.
Segmented information
 
The Company has two lines of business (“LOB”): IT services (“IT”) and business process services (“BPS”), in addition to Corporate services. The focus of these LOBs is as follows:
- The IT services LOB provides a full-range of IT services, including systems integration, consulting and outsourcing to clients located in North America, Europe and Asia Pacific. The Company professionals and centers of excellence facilities in North America, Europe and India also provide IT and BPS services to clients as an integral part of our homeshore, nearshore and offshore delivery model.
- Services provided by the BPS LOB include business processing for the financial services sector, as well as other services such as payroll and document management services.
 
The following presents information on the Company’s operations based on its management structure:
 
As at and for the three months ended 
  March 31, 2007
IT services
BPS
Corporate
Total
 
$
$
$
$
Revenue
832,284
119,058
-
951,342
Earnings (loss) before interest on long-term
  debt, other income and income taxes (1)
106,238
14,781
(18,979)
102,040
Total assets
2,879,782
647,655
205,060
3,732,497
(1) Amortization included in IT services, BPS and Corporate is $41,360,000, $5,566,000 and $2,795,000, respectively.

As at and for the three months ended  
   March 31, 2006
IT services
BPS
Corporate
Total
 
$
$
$
$
Revenue
746,972
119,864
-
866,836
Earnings (loss) before restructuring costs related to specific items,
interest on long-term debt, other income, loss on sale of assets and
income taxes (1)
68,902
12,365
(18,440)
62,827
Total assets
2,934,552
681,558
321,360
3,937,470
(1) Amortization included in IT services, BPS and Corporate is $41,737,000, $6,463,000 and $2,224,000, respectively.
 

Page 15 of 18

CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)

9.
Segmented information (continued)
 
As at and for the six months ended
March 31, 2007
IT services
BPS
Corporate
Total
 
$
$
$
$
Revenue
1,621,726
233,676
-
1,855,402
Earnings (loss) before restructuring costs related to specific
items, interest on long-term debt, other income and income
taxes (1)
206,889
28,173
(33,333)
201,729
Total assets
2,879,782
647,655
205,060
3,732,497
(1) Amortization included in IT services, BPS and Corporate is $79,674,000, $10,901,000 and $5,399,000, respectively.

As at and for the six months ended March 31, 2006
IT services
BPS
Corporate
Total
 
$
$
$
$
Revenue
1,525,045
240,254
-
1,765,299
Earnings (loss) before restructuring costs related to specific
items, interest on long-term debt, other income, gain on sale of
assets and income taxes (1)
155,360
25,528
(39,315)
141,573
Total assets
2,934,552
681,558
321,360
3,937,470
(1) Amortization included in IT services, BPS and Corporate is $84,308,000, $10,284,000 and $4,639,000, respectively.
 
The accounting policies of each segment are the same as those described in the summary of significant accounting policies. See Note 2 of the annual consolidated financial statements of the Company for the year ended September 30, 2006. The figures are presented net of intersegment sales and transfers, which are priced as if the sales or transfers were made to third parties.
 

Page 16 of 18

CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)

10.
Guarantees
 
In the normal course of business, the Company may provide certain clients, principally governmental entities, with bid and performance bonds. In general, the Company would only be liable for the amount of the bid bonds if the Company refuses to perform the project once the bid is awarded. The Company would also be liable for the performance bonds in the event of default in the performance of its obligations. As at March 31, 2007, the Company provided a total of $87,697,000 of these bonds. The Company believes it is in compliance with its performance obligations under all service contracts for which there is a performance or bid bond, and the ultimate liability, if any, incurred in connection with these guarantees would not have a materially adverse effect on the Company’s consolidated results of operations or financial condition.

Page 17 of 18

CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)

 
11.   Reconciliation of results reported in accordance with Canadian GAAP to U.S. GAAP
 
The material differences between Canadian and U.S. GAAP affecting the Company’s consolidated financial statements are detailed in the table below. The Company’s most recent annual financial statements describe the circumstances which gave rise to the material differences between Canadian and U.S. GAAP applicable as at September 30, 2006.
 
 
Three months ended
March 31
Six months ended
March 31
 
2007
2006
2007
2006
Reconciliation of net earnings:
$
$
$
$
Net earnings - Canadian GAAP
62,711
14,149
106,392
71,057
Adjustments for:
        
Warrants
351
351
702
702
Other
346
349
683
410
Net earnings - U.S. GAAP
63,408
14,849
107,777
72,169
Basic earnings per share - U.S. GAAP
0.19
0.04
0.33
0.19
Diluted earnings per share - U.S. GAAP
0.19
0.04
0.32
0.18
         
Net earnings - U.S. GAAP
63,408
14,849
107,777
72,169
Other comprehensive income
Foreign currency translation adjustment
(9,707)
3,624
51,591
4,696
Comprehensive income - U.S. GAAP
53,701
18,473
159,368
76,865

 
As at March 31, 2007
As at September 30, 2006
 
$
$
Reconciliation of shareholders’ equity:
    
Shareholders’ equity - Canadian GAAP
1,886,152
1,748,020
Adjustments for:
    
Stock-based compensation
58,411
58,411
Warrants
(4,373)
(5,075)
Unearned compensation
(3,694)
(3,694)
Integration costs
(6,606)
(6,606)
Goodwill
28,078
28,078
Income taxes and adjustment for change in
     accounting policy
9,715
9,715
Other
(7,542)
(8,225)
Shareholders’ equity - U.S. GAAP
1,960,141
1,820,624

 
 
Page 18 of 18