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 May 2002.
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: Quarterly Report for the period ending March 31, 2002.
This Form 6-K shall be deemed incorporated by reference in the Registrant's
Registration Statement on Form S-8, Reg. Nos. 333-13350, 333-66044 and
333-74932.
CGI Group Inc. Quarterly Report 2
For the six months ended March 31, 2002
About CGI
Founded in 1976, CGI is the fourth largest independent information technology
(IT) services firm in North America, based on its headcount of 13,700
professionals. CGI's annualized revenue run-rate totals CDN$2.1 billion (US$1.3
billion). CGI's order backlog currently totals CDN$9.1 billion (US$5.7
billion).CGI provides end-to-end IT services and business solutions to more than
3,000 clients in countries such as the United States, Canada, the United Kingdom
and France from more than 60 offices. CGI's shares are included in the TSE 100
Composite Index as well as the S&P/TSE Canadian Information Technology and
Canadian MidCap Indices.
Stock Exchanges
Toronto Stock Exchange: GIB.A
New York Stock Exchange: GIB
Shares Outstanding (as at March 31, 2002)
338,993,373 Class A subordinate shares
40,799,774 Class B shares
Second Quarter Fiscal 2002 Trading History
TSE NYSE
(CDN$) (US$)
High: $12.89 High: $8.12
Low: $9.55 Low: $5.90
Close: $9.97 Close: $6.10
Ave. Volume: 802,000 Ave. Volume: 54,805
Transfer Agent
Computershare Trust Company of Canada
1-800-564-6253
Investor Relations
Julie Creed
Vice-President, Investor Relations
Telephone: (312) 201-4803
julie.creed@cgiusa.com
Ronald White
Director, Investor Relations
Telephone: (514) 841-3230
ronald.white@cgi.ca
www.cgi.ca
CGI Reports Strong Growth in Second Quarter of Fiscal 2002
CGI reported strong unaudited results for its second quarter ended March 31,
2002. All figures are in Canadian dollars unless otherwise indicated.
Second Quarter Highlights
o Revenue of $539.2 million was 44.2% higher than the comparable period one
year ago and 3.5% higher sequentially. Year-over-year organic growth was
14.9% in the second quarter
o Net earnings in the second quarter increased 49.5% to $33.2 million, from
comparable cash net earnings of $22.2 million in the same quarter a year ago.
Net earnings per share of $0.09 for the quarter were up 12.5% over comparable
cash net earnings per share of $0.08 reported for the second quarter of
fiscal 2001, despite a 31.7% increase in weighted average number of shares
outstanding
o Operating cash flow was up 63.9% year-over-year to $57.4 million
o Backlog of signed contracts stands at $9.1 billion with a weighted average
remaining contract term of 6.8 years
o Current pipeline of bids for large outsourcing contracts being reviewed by
potential clients remains robust at $5 billion
o In accordance with new Canadian Institute of Chartered Accountants
recommendations, we concluded our assessment of the goodwill and will not
record any impairment loss.
We are pleased with the financial results achieved in the quarter. The strong
year-over-year and sequential growth was a function of solid demand for our IT
services from new and existing clients, in all verticals and across all
geographic areas, especially in Canada. While achieving strong financial
results, we also continued to strengthen our operations and position ourselves
for future growth, particularly in the US market.
Operating Highlights
In order for CGI to focus more intently on geographical areas with the highest
growth potential, namely North America and Europe, CGI's Australian and Japanese
operations were recently divested in separate transactions. The combined revenue
for these two units had been approximately $9 million on an annualized basis,
and there was no impact on the consolidated statement of earnings for the sale
of these units.
On April 2, 2002, we acquired Albany, New York based Rapid Application
Developers, Inc. ("RAD") as part of our ongoing, niche acquisition strategy. RAD
was acquired to enhance CGI's presence in the state government sector in
Northeast United States. RAD had revenue last year of US$4.2 million in the
government sector.
Finally, in a continuing effort to maximize the opportunities for CGI's future
growth, we made adjustments to our organizational structure. Effective
immediately, Satish Sanan becomes Vice-Chairman of CGI, reporting directly to
me, and is responsible for pursuing large IT and business process services
outsourcing opportunities in the US. Daniel Rocheleau, Executive Vice-President
and Chief Engineering Officer, will continue his responsibility for the
development of large strategic outsourcing and partnership initiatives for CGI
in Canada and Europe. Michael Roach, who already managed more than 70% of CGI's
operations as President, Canada & Europe, becomes President and Chief Operating
Officer, with responsibility for the continuity of all CGI operations. Joseph
Saliba becomes President, US, assuming operational responsibilities for the US
in addition to leading the Business Process Services unit. Joseph now reports to
Michael Roach.
CGI's opportunity for growth as a leading North American provider of IT services
is tremendous and we are fully intent on leveraging our potential. Especially in
the US, where we see increasing demand for our service offering, we believe that
these adjustments to our organizational structure will strengthen our ability to
pursue new business initiatives and improve operational efficiencies.
Our strong growth will continue to be driven by a combination of strategic
acquisitions and organic growth initiatives. Additionally, we have established a
diversified client base of more than 3,000 companies and enjoy strong recurring
revenue from long-term outsourcing contracts. As such, CGI's continued growth is
not solely dependent on winning large IT and business process outsourcing
contracts. However, our position as the leading IT services provider in Canada
and our growing recognition in the US, partly a result of a number of successful
marketing initiatives, has fueled a robust pipeline of $5 billion in outstanding
proposals. Our strong financial position, flexible client partnerships, and
unique global delivery model give us confidence in the ability to turn this
pipeline into backlog and deliver even stronger results going forward.
Serge Godin
Chairman and Chief Executive Officer
April 23, 2002
Management's Discussion and Analysis of Financial Position and Results of
Operations Second quarter ended March 31, 2002
The following discussion and analysis should be read in conjunction with
financial statements for the six months ended March 31, 2002, with the
Management's Discussion and Analysis of Financial Position and Results of
Operations ("MD&A") in the fiscal 2001 annual report, including the section on
risks and uncertainties; and with the notes to the financial statements for the
second quarter of fiscal year 2002 and in the fiscal 2001 annual report. All
dollar amounts are in Canadian dollars unless otherwise indicated.
Revenue
Revenue for the second quarter ended March 31, 2002 increased 44.2% to $539.2
million, from $374.0 million in the same quarter last year, and was up 3.5%
sequentially over first quarter revenue of $520.8 million. Organic growth
represented 14.9% during the quarter. In addition to good organic growth in the
quarter, the increase in revenue also reflects the contribution of acquisitions
completed in the past year.
In the second quarter, revenue from long-term outsourcing contracts represented
72% of the Company's total revenue, including 15% from business processing
services, while project oriented consulting and systems integration work
represented 28%. Geographically, contribution to revenue was similar to last
quarter, with clients in Canada representing 72%; clients in the US representing
21%; and all other regions, 7%. CGI improved its position as a leading IT
services provider in the financial services sector, which represented 41% of
revenue; while telecom represented 25%; government, 16%; manufacturing, retail
and distribution, 15%; utilities and services, 2%; and healthcare, 1%.
For the first six months of fiscal 2002, revenue increased 49.7% to $1,060.0
million, up from $708.2 million in the corresponding period of 2001.
Operating Expenses
The costs of services, selling and administrative expenses were $454.7 million,
or 43.5% higher than the prior year. Total operating expenses, which also
include research and development, represented 85.1% of revenue, an improvement
from 85.6% in the second quarter of fiscal 2001 and a slight improvement from an
expense ratio of 85.2% in the first quarter of fiscal 2002.
Depreciation and Amortization
Depreciation and amortization of fixed assets increased to $11.3 million, from
$7.9 million in the previous year. The year-over-year increase reflected the
fact that additional business and assets were acquired in the course of
acquisitions and through the signing of large outsourcing contracts.
Amortization of contract costs and other long-term assets increased
year-over-year to $11.9 million, from $6.3 million in fiscal 2001, mainly as a
result of the capitalization of contract costs following the signing of large
outsourcing contracts.
Sequentially, the increase in depreciation and amortization of fixed assets was
negligible. The decrease in amortization of contract costs and other long-term
assets, quarter over quarter, stems from the fact that no new major outsourcing
contract was initiated in the quarter, thus resulting in no incremental
amortization. The decrease also reflects the fact that certain contract costs
had been fully amortized in the previous quarter.
Income Taxes
The effective income tax rate was 41.6% in the second quarter of fiscal 2002
compared with 43.6% for the second quarter of fiscal 2001 and 41.3% for the
first quarter of fiscal 2002. The decrease in the effective income tax rate
compared with last year is a result of the combined effect of two developments.
First, there was a reduction in the tax loss incurred by foreign subsidiaries
(namely in the US and Europe) in the second quarter of 2002 over the same period
in 2001, for which a valuation allowance had been provided against the future
tax benefit. Second, there was a general Canadian statutory tax rate reduction
in fiscal 2002 compared with fiscal 2001.
Amortization of Goodwill, Net of Income Taxes
Effective October 1, 2001, CGI stopped amortizing goodwill. Accordingly, net
earnings reported for quarters since October 1, 2001 and earnings before
amortization of goodwill (cash net earnings) reported for quarters prior to that
date, are equivalent. For purposes of clarity and ease of comparison, CGI
compares net earnings results to cash net earnings figures provided in
year-over-year comparisons.
Net Earnings
Net earnings in the second quarter of fiscal 2002 increased 49.5% to $33.2
million, against comparable cash net earnings of $22.2 million in the same
quarter a year ago, and were 8.4% higher sequentially, compared with $30.6
million reported in the first quarter. Net earnings per share of $0.09 for the
quarter were up 12.5% over $0.08 reported for the second quarter of fiscal 2001,
and comparable to $0.08 reported in the first quarter. Net earnings per share
increased, despite a 31.7% year-over-year and 2.8% sequential increase in
weighted average number of shares outstanding. The net margin improved to 6.2%,
compared with 5.9% in the first quarter and 4.1% in the second quarter of fiscal
2001.
Net earnings for the first six months of fiscal 2002 totalled $63.8 million, an
increase of 66.4% from $38.3 million reported for the same period one year ago.
Net earnings per share of $0.17 in the period were up 21.4% over comparable cash
net earnings of $0.14 reported in the first six months of 2001.
Liquidity and Financial Resources
CGI maintains a strong balance sheet and cash position, which together with bank
credit lines are sufficient to support the Company's growth strategy and
represent a competitive strength when proposing on outsourcing contracts. At
March 31, 2002, the total credit facilities available amounted to $218.1
million. At March 31, 2002, CGI had cash and cash equivalents of $152.5 million,
compared with $155.8 million at December 31, 2001.
Operating cash flow (operating cash flow represents cash provided by operating
activities before changes in working capital items) in the second quarter
improved to $57.4 million, compared with $35.0 million in the second quarter a
year ago and $43.3 million in the first quarter of fiscal 2002. The yearover-
year and sequential improvements in operating cash flow
Management's Discussion and Analysis of Financial Position and Results of
Operations Second quarter ended March 31, 2002
largely reflect the improvement in net earnings along with an increase in the
depreciation of fixed assets, the amortization of contract costs and other
long-term assets and deferred credits and other long-term liabilities related to
the acquisitions and large outsourcing contracts closed in the year and changes
in future income taxes.
As at March 31, 2002, CGI's long-term debt totalled $38.6 million, compared with
$54.7 million at December 31, 2001.
Accounting Changes
On October 1, 2001, the Company adopted the new recommendations of the Canadian
Institute of Chartered Accountants ("CICA") Handbook Sections 1581, Business
Combinations, and 3062, Goodwill and Other Intangible Assets. Under the revised
Section 1581, all business combinations are accounted for using the purchase
method. Additionally, under Section 3062, goodwill and intangible assets with an
indefinite life are no longer amortized to earnings and are assessed for
impairment on an annual basis, including a transitional impairment test whereby
any resulting impairment will be charged to opening retained earnings. In fiscal
2002, the effect of the non-amortization of goodwill will result in an increase
in the consolidated net earnings of approximately $28,800,000. The Company has
completed the transitional impairment test and concluded that no goodwill
impairment charge needs to be recorded.
The CICA also issued Handbook Section 3870, Stock-based Compensation and Other
Stock-based Payments. This new section, which is effective for fiscal years
commencing on or after January 1, 2002, establishes standards for the
recognition, measurement and disclosure of stock-based compensation made in
exchange for goods and services. The section requires the use of the fair value
method to account for awards to non-employees and direct awards of stock to
employees and encourages, but does not require, the use of the fair value method
to account for stock-based compensation costs arising from awards to employees.
The new standard requires pro forma disclosures relating to net earnings and
earnings per share figures as if the fair value method of accounting had been
used. The Company is currently evaluating the effect that implementation will
have on its Consolidated Financial Statements.
Forward-Looking Statements
All statements in this MD&A that do not directly and exclusively relate to
historical facts constitute "forwardlooking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements represent
CGI Group Inc.'s intentions, plans, expectations and beliefs, and are subject to
risks, uncertainties and other factors, of which many are beyond the control of
the Company. These factors could cause actual results to differ materially from
such forward-looking statements.
These factors include, and are not restricted to, the timing and size of
contracts, acquisitions and other corporate developments; the ability to attract
and retain qualified employees; market competition in the rapidly evolving
information technology industry; general economic and business conditions;
foreign exchange and other risks identified in the MD&A in CGI Group Inc.'s
Annual Report or Form 40-F filed with the U.S. Securities and Exchange
Commission ("SEC"); the Company's Annual Information Form filed with the
Canadian securities commissions; on the Registration Statement on Form F-4 filed
with the SEC in connection with the acquisition of IMRglobal; and with the Forms
10-K and 10-Q of IMRglobal filed with the SEC for the periods ended December 31,
2000 and March 31, 2001 respectively. All of the risk factors included in these
filed documents are included here by reference. CGI disclaims any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
Consolidated Financial Statements of CGI Group Inc.
For the six months ended March 31, 2002
Consolidated Statements of Earnings
(in thousands of Canadian dollars, except per share amounts) (unaudited)
Three months Six months
ended March 31, ended March 31,
-----------------------------------------------------------------------------------------------------------------------------------
2002 2001 | 2002 2001
---------------------------------------------------------------------------------------------------------|-------------------------
$ $ | $ $
Revenue 539,199 373,982 | 1,059,982 708,161
---------------------------------------------------------------------------------------------------------|-------------------------
Operating expenses |
Costs of services, selling and administrative expenses 454,717 316,949 | 894,252 606,770
Research 4,277 3,029 | 8,582 5,519
---------------------------------------------------------------------------------------------------------|-------------------------
458,994 319,978 | 902,834 612,289
---------------------------------------------------------------------------------------------------------|-------------------------
Earnings before the under-noted: 80,205 54,004 | 157,148 95,872
---------------------------------------------------------------------------------------------------------|-------------------------
Depreciation and amortization of fixed assets 11,267 7,937 | 22,411 14,774
Amortization of contract costs and other long-term assets 11,853 6,347 | 25,093 11,814
---------------------------------------------------------------------------------------------------------|-------------------------
23,120 14,284 | 47,504 26,588
---------------------------------------------------------------------------------------------------------|-------------------------
Earnings before the following items: 57,085 39,720 | 109,644 69,284
---------------------------------------------------------------------------------------------------------|-------------------------
Interest |
Long-term debt (491) (972) | (1,317) (1,834)
Other 270 615 | 682 1,122
---------------------------------------------------------------------------------------------------------|-------------------------
(221) (357) | (635) (712)
---------------------------------------------------------------------------------------------------------|-------------------------
Earnings before income taxes, entity subject to significant influence |
and amortization of goodwill 56,864 39,363 | 109,009 68,572
Income taxes 23,677 17,165 | 45,210 30,239
---------------------------------------------------------------------------------------------------------|-------------------------
Earnings before entity subject to significant influence |
and amortization of goodwill 33,187 22,198 | 63,799 38,333
Entity subject to significant influence - - | - 7
---------------------------------------------------------------------------------------------------------|-------------------------
Earnings before amortization of goodwill 33,187 22,198 | 63,799 38,340
Amortization of goodwill, net of income taxes - 6,992 | - 12,712
---------------------------------------------------------------------------------------------------------|-------------------------
Net earnings 33,187 15,206 | 63,799 25,628
---------------------------------------------------------------------------------------------------------|-------------------------
Weighted average number of outstanding Class A subordinate shares |
and Class B shares 379,617,757 288,261,784 | 374,455,980 281,893,441
---------------------------------------------------------------------------------------------------------|-------------------------
Basic and diluted earnings per share before amortization of |
goodwill (Note 2) 0.09 0.08 | 0.17 0.14
---------------------------------------------------------------------------------------------------------|-------------------------
Basic and diluted earnings per share (Note 2) 0.09 0.05 | 0.17 0.09
-----------------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Retained Earnings
(in thousands of Canadian dollars) (unaudited)
Three months Six months
ended March 31, ended March 31,
-----------------------------------------------------------------------------------------------------------------------------------
2002 2001 | 2002 2001
---------------------------------------------------------------------------------------------------------|-------------------------
$ $ | $ $
Retained earnings, beginning of period 272,757 193,578 | 245,945 183,156
Share issue costs (Note 2) - - | (3,800) -
Net earnings 33,187 15,206 | 63,799 25,628
---------------------------------------------------------------------------------------------------------|-------------------------
Retained earnings, end of period 305,944 208,784 | 305,944 208,784
-----------------------------------------------------------------------------------------------------------------------------------
Consolidated Financial Statements of CGI Group Inc.
For the six months ended March 31, 2002
Consolidated Balance Sheets
(in thousands of Canadian dollars) (unaudited)
As at March 31, 2002 As at September 30, 2001
-----------------------------------------------------------------------------------------------------------------------------------
$ | $
Assets |
|
Current assets |
Cash and cash equivalents 152,549 | 46,008
Accounts receivable 337,514 | 320,667
Income taxes - | 979
Work in progress 91,796 | 84,838
Prepaid expenses and other current assets 57,272 | 48,931
Future income taxes 12,649 | 17,998
---------------------------------------------------------------------------------------------------------|-------------------------
651,780 | 519,421
|
Fixed assets 129,360 | 123,391
Contract costs and other long-term assets 328,272 | 272,403
Future income taxes 35,020 | 32,785
Goodwill 1,137,066 | 1,114,793
---------------------------------------------------------------------------------------------------------|-------------------------
2,281,498 | 2,062,793
---------------------------------------------------------------------------------------------------------|-------------------------
|
Liabilities |
|
Current liabilities |
Accounts payable and accrued liabilities 281,865 | 315,902
Deferred revenue 99,959 | 85,163
Income taxes 3,044 | -
Future income taxes 24,492 | 21,013
Current portion of long-term debt 6,116 | 7,528
---------------------------------------------------------------------------------------------------------|-------------------------
415,476 | 429,606
Future income taxes 52,473 | 43,705
Long-term debt 38,605 | 32,752
Deferred credits and other long-term liabilities 76,185 | 74,813
---------------------------------------------------------------------------------------------------------|-------------------------
582,739 | 580,876
---------------------------------------------------------------------------------------------------------|-------------------------
|
Shareholders' equity |
Capital stock (Note 2) 1,342,825 | 1,213,542
Contributed surplus 211 | 211
Warrants (Note 2) 19,655 | 19,655
Retained earnings 305,944 | 245,945
Foreign currency translation adjustment 30,124 | 2,564
---------------------------------------------------------------------------------------------------------|-------------------------
1,698,759 | 1,481,917
---------------------------------------------------------------------------------------------------------|-------------------------
2,281,498 | 2,062,793
-----------------------------------------------------------------------------------------------------------------------------------
Consolidated Financial Statements of CGI Group Inc.
For the six months ended March 31, 2002
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars) (unaudited)
Three months ended March 31, Six months ended March 31,
-----------------------------------------------------------------------------------------------------------------------------------
2002 2001 | 2002 2001
---------------------------------------------------------------------------------------------------------|-------------------------
$ $ | $ $
Operating activities |
Net earnings 33,187 15,206 | 63,799 25,628
Adjustments for |
Depreciation and amortization of fixed assets 11,267 7,937 | 22,411 14,774
Amortization of contract costs and other |
long-term assets 11,853 6,347 | 25,093 11,814
Amortization of goodwill - 7,358 | - 13,444
Deferred credits and other long-term liabilities (8,633) - | (22,312) -
Future income taxes 12,594 (2,814) | 14,409 (1,872)
Foreign exchange (gain) loss (2,904) 969 | (2,717) 2,098
Entity subject to significant influence - - | - (7)
---------------------------------------------------------------------------------------------------------|-------------------------
57,364 35,003 | 100,683 65,879
---------------------------------------------------------------------------------------------------------|-------------------------
Changes in working capital items: |
Accounts receivable (21,223) (7,660) | (13,939) 1,696
Work in progress (8,549) (21,612) | (7,431) (4,861)
Prepaid expenses and other current assets 9,099 (8,634) | (8,342) (12,014)
Accounts payable and accrued liabilities (30,903) (7,320) | (34,211) (11,261)
Income taxes 11,036 509 | 4,984 (10,797)
Deferred revenue 11,761 25,846 | 14,395 27,863
---------------------------------------------------------------------------------------------------------|-------------------------
(28,779) (18,871) | (44,544) (9,374)
---------------------------------------------------------------------------------------------------------|-------------------------
Cash provided by operating activities 28,585 16,132 | 56,139 56,505
---------------------------------------------------------------------------------------------------------|-------------------------
|
Financing activities |
Net variation of credit facility (15,003) - | 6,360 20,000
Decrease of other long-term debts (885) (30,521) | (1,931) (31,694)
Issuance of shares 1,690 311 | 129,283 485
Share issue costs - - | (5,500) -
---------------------------------------------------------------------------------------------------------|-------------------------
Cash (used for) provided by financing activities (14,198) (30,210) | 128,212 (11,209)
---------------------------------------------------------------------------------------------------------|-------------------------
|
Investing activities |
Business acquisitions (net of cash) (Note 3) (1,301) 7,348 | (1,301) (47,123)
Purchase of fixed assets (7,902) (7,590) | (28,189) (10,577)
Contract costs and other long-term assets (9,693) (10,241) | (49,499) (10,375)
---------------------------------------------------------------------------------------------------------|-------------------------
Cash used for investing activities (18,896) (10,483) | (78,989) (68,075)
---------------------------------------------------------------------------------------------------------|-------------------------
Foreign exchange gain on cash held in foreign currencies 1,228 1,298 | 1,179 1,628
---------------------------------------------------------------------------------------------------------|-------------------------
Net (decrease) increase in cash and cash equivalents (3,281) (23,263) | 106,541 (21,151)
Cash and cash equivalents at beginning of period 155,830 51,453 | 46,008 49,341
---------------------------------------------------------------------------------------------------------|-------------------------
Cash and cash equivalents at end of period 152,549 28,190 | 152,549 28,190
---------------------------------------------------------------------------------------------------------|-------------------------
|
Interest paid 407 1,849 | 857 2,749
Income taxes paid 12,099 12,022 | 18,603 30,618
-----------------------------------------------------------------------------------------------------------------------------------
Notes to the Consolidated Financial Statements
(tabular amounts only are in thousands of Canadian dollars, except share data)
(unaudited)
Note 1 - Summary of significant accounting policies
These interim Consolidated Financial Statements should be read in conjunction
with the Consolidated Financial Statements of the Company and notes thereto for
the year ended September 30, 2001.
These interim Consolidated Financial Statements have been prepared in accordance
with Canadian generally accepted accounting principles, using the same
accounting policies as outlined in Note 2 to the Consolidated Financial
Statements for the year ended September 30, 2001, except as noted below. Certain
comparative figures in the Consolidated Financial Statements have been
reclassified to conform to the current period presentation.
On October 1, 2001, the Company adopted the new recommendations of the Canadian
Institute of Chartered Accountants ("CICA") Handbook Sections 1581, Business
Combinations, and 3062, Goodwill and Other Intangible Assets. Under the revised
Section 1581, all business combinations are accounted for using the purchase
method. Additionally, under Section 3062, goodwill and intangible assets with an
indefinite life are no longer amortized to earnings and are assessed for
impairment on an annual basis, including a transitional impairment test whereby
any resulting impairment will be charged to opening retained earnings. In fiscal
2002, the effect of the non-amortization of goodwill will result in an increase
in the consolidated net earnings of approximately $28,800,000. The Company has
completed the transitional impairment test and concluded that no goodwill
impairment charge needs to be recorded.
The CICA also issued Handbook Section 3870, Stock-based Compensation and Other
Stock-based Payments. This new section which is effective for fiscal years
commencing on or after January 1, 2002, establishes standards for the
recognition, measurement and disclosure of stock-based compensation made in
exchange for goods and services. The section requires the use of the fair value
method to account for awards to non-employees and direct awards of stock to
employees and encourages, but does not require, the use of the fair value method
to account for stock-based compensation costs arising from awards to employees.
The new standard requires pro forma disclosures relating to net earnings and
earnings per share figures as if the fair value method of accounting had been
used. The Company is currently evaluating the effect that implementation will
have on its Consolidated Financial Statements.
Note 2 - Capital stock and warrants
Capital stock - 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 and convertible at
any time at the option of the holder into Class A subordinate shares.
Options - 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 of 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 subordinate shares over the five business days preceeding the date of grant.
Options generally vest one to three years from the date of the grant and must be
exercised within a 10-year period, except in the event of retirement,
termination of employment or death.
Warrants - In connection with the signing of a strategic outsourcing contract
and of a business acquisition, 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 March 31, 2002,
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
remaining 1,118,210 are exercisable at a price of $8.88 per share expiring June
13, 2006. The fair values of the warrants were estimated at their respective
grant dates at $19,655,000 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.
In addition to the warrants to purchase up to 5,118,210 Class A subordinate
shares referred to above and issued in connection with the signing of a
strategic outsourcing contract and of a business acquisition the "Initial
Warrants", CGI issued to the Majority Shareholders and BCE warrants (the
"Pre-emptive Rights Warrants") to subscribe in the aggregate up to 3,865,014
Class A subordinate shares and 697,044 Class B shares pursuant to the exercise
of their pre-emptive rights contained in the articles of incorporation of CGI,
with substantially similar terms and conditions as those of the Initial
Warrants. The Pre-emptive Rights Warrants may be exercised by BCE and the
Majority Shareholders only to the extent that the holders of the Initial
Warrants exercise such Initial Warrants.
Notes to the Consolidated Financial Statements
(tabular amounts only are in thousands of Canadian dollars, except share data)
(unaudited)
Note 2 - Capital stock and warrants (cont'd)
Furthermore, subject to regulatory approval, the Company has undertaken in
favour of a holder of Initial Warrants to purchase up to 4,000,000 Class A
subordinate shares to issue promptly after April 30, 2006 (the "Expiration
Date") replacing warrants (the "Extended Warrants") to purchase Class A
subordinate shares equal to the number of Class A subordinate shares not
purchased by such holder under terms of the Initial Warrants on the Expiration
Date. The Extended Warrants will have substantially similar terms and conditions
as those of the Initial Warrants, except for the exercise price which will be
based upon the closing price of the Class A subordinate shares on the TSE on the
date preceding the issuance of the Extended Warrants.
The following table presents information concerning capital stock issued and
paid and all stock options and warrants as at March 31, 2002:
Number of shares issued and paid Number
-----------------------------------------------------------------------------------------------------------------------------------
Class A subordinate shares 338,993,373
Class B shares 40,799,774
-----------------------------------------------------------------------------------------------------------------------------------
Total capital stock 379,793,147
Number of stock options (Class A subordinate shares) 23,518,592
Number of warrants (Class A subordinate shares) 9,680,268
-----------------------------------------------------------------------------------------------------------------------------------
Number of shares reflecting the potential exercise of stock options and warrants 412,992,007
-----------------------------------------------------------------------------------------------------------------------------------
As at March 31, 2002 and September 30, 2001, (after giving retroactive effect of
the subdivision of the Company's shares that occured on August 12, 1997,
December 15, 1997, May 21, 1998 and January 7, 2000), the Class A subordinate
shares and the Class B shares changed as follows :
March 31, 2002 September 30, 2001
-----------------------------------------------------------------------------------------------------------------------------------
Class A | | Class A |
subordinate shares | Class B shares | subordinate shares | Class B shares
-----------------------------------------------------------------------|------------------|----------------------|-----------------
Number Amount | Number Amount | Number Amount | Number Amount
-----------------------------------------------------------------------|------------------|----------------------|-----------------
$ | $ | $ | $
Balance, beginning of period 327,032,717 1,159,337 |40,799,774 54,205 |240,755,667 490,645 |34,846,526 1,162
Issued for cash(1) 11,110,000 124,988 | - - | - - | 5,953,248 53,043
Issued as consideration for business | | |
acquisitions - - | - - | 85,835,178 651,010 | - -
Fair value of options issued as consideration | | |
for business acquisitions - - | - - | - 16,519 | - -
Options exercised 850,656 4,295 | - - | 441,872 1,163 | - -
-----------------------------------------------------------------------|------------------|----------------------|-----------------
Balance, end of period 338,993,373 1,288,620 |40,799,774 54,205 |327,032,717 1,159,337 |40,799,774 54,205
-----------------------------------------------------------------------------------------------------------------------------------
(1) On December 20, 2001, the Company issued 11,110,000 Class A subordinate shares to the public for cash proceeds of
$124,987,500 before share issue costs of $3,800,000 (net of income taxes of $1,700,000)
The following table presents information concerning all stock options granted to
certain employees and directors by the Company as at March 31, 2002 and
September 30, 2001.
March 31, 2002 September 30, 2001
-----------------------------------------------------------------------------------------------------------------------------------
Number of options |
Outstanding, beginning of period 24,223,852 | 6,413,181
Granted 845,159 | 10,643,930
Granted as consideration for business acquisitions - | 8,424,502
Exercised (850,656)| (441,872)
Forfeited and expired (699,763)| (815,889)
------------------------------------------------------------------------------------------|----------------------------------------
Outstanding, end of period 23,518,592 | 24,223,852
-----------------------------------------------------------------------------------------------------------------------------------
Notes to the Consolidated Financial Statements
(tabular amounts only are in thousands of Canadian dollars, except share data)
(unaudited)
Note 2 - Capital stock and warrants (cont'd)
Earnings per share
The following table sets forth the computation of basic and diluted earnings per
share for the three and six months ended March 31, 2002 and 2001.
Three months ended March 31,
-----------------------------------------------------------------------------------------------------------------------------------
2002 | 2001
------------------------------------------------------------------------------------------|----------------------------------------
Net earnings Number of shares Per share | Net earnings Number of shares Per share
(numerator) (denominator) amount | (numerator) (denominator) amount
------------------------------------------------------------------------------------------|----------------------------------------
$ $ | $ $
Net earnings available to common shareholders 33,187 379,617,757 0.09 | 15,206 288,261,784 0.05
------------------------------------------------------------------------------------------|----------------------------------------
Dilutive options 4,389,683 | 765,726
Dilutive warrants 3,480,452 | -
------------------------------------------------------------------------------------------|----------------------------------------
Net earnings available to common shareholders |
and assumed conversions 33,187 387,487,892 0.09 | 15,206 289,027,510 0.05
-----------------------------------------------------------------------------------------------------------------------------------
Six months ended March 31,
-----------------------------------------------------------------------------------------------------------------------------------
2002 | 2001
------------------------------------------------------------------------------------------|----------------------------------------
Net earnings Number of shares Per share | Net earnings Number of shares Per share
(numerator) (denominator) amount | (numerator) (denominator) amount
------------------------------------------------------------------------------------------|----------------------------------------
$ $ | $ $
Net earnings available to common shareholders 63,799 374,455,980 0.17 | 25,628 281,893,441 0.09
------------------------------------------------------------------------------------------|----------------------------------------
Dilutive options 4,353,465 | 845,704
Dilutive warrants 3,387,383 | -
------------------------------------------------------------------------------------------|----------------------------------------
Net earnings available to common shareholders |
and assumed conversions 63,799 382,196,828 0.17 | 25,628 282,739,145 0.09
-----------------------------------------------------------------------------------------------------------------------------------
Note 3 - Business acquisition
During the three months ended March 31, 2002, the Company finalized the purchase
price allocation of IMRglobal Corp. ("IMR") acquired by the Company on July 27,
2001. From the initial price allocation as per Note 9 to the Consolidated
Financial Statements of the Company for the year ended September 30, 2001, this
final assessment resulted in an increase of Contract costs and other long-term
assets of $7,577,000, a decrease of Goodwill of $4,925,000 and a decrease of
Future income taxes of $2,652,000.
During the three months ended March 31, 2002, the Company also finalized the
initial purchase price allocation for other acquisitions completed during 2001.
In addition, AGTI Consulting Services Inc., in which the Company holds a 49%
interest, increased its interest in one of its own subsidiary. The net effect of
these transactions totalled $1,301,000 as follows:
Total
------------------------------------------------------------------------
$
Working capital items 103
Fixed assets 26
Goodwill 1,172
------------------------------------------------------------------------
1,301
------------------------------------------------------------------------
Notes to the Consolidated Financial Statements
(tabular amounts only are in thousands of Canadian dollars, except share data)
(unaudited)
Note 4 - Segmented information
Effective October 1, 2001, the Company changed its organizational structure. The
Company has three strategic business units ("SBU"), organized according to the
following breakdown: Canada and Europe, US and Asia Pacific, and Business
Process Services ("BPS"). The Company evaluates each SBU's performance under
this structure and reports segmented information on that basis.
The following presents information on the Company's operations based on its new
organizational structure.
Corporate
Canada and US and expenses and Intersegment
As at and for the three months ended March 31, 2002 Europe Pacific BPS programs elimination Total
-----------------------------------------------------------------------------------------------------------------------------------
$ $ $ $ $ $
Revenue 445,540 82,107 22,387 - (10,835) 539,199
Operating expenses 360,062 75,552 17,652 16,563 (10,835) 458,994
-----------------------------------------------------------------------------------------------------------------------------------
Earnings before the under-noted: 85,478 6,555 4,735 (16,563) - 80,205
Depreciation and amortization 18,588 2,648 1,075 809 - 23,120
-----------------------------------------------------------------------------------------------------------------------------------
Earnings before interest, income taxes and amortization
of goodwill 66,890 3,907 3,660 (17,372) - 57,085
-----------------------------------------------------------------------------------------------------------------------------------
Total assets 1,195,031 774,629 87,567 224,271 - 2,281,498
-----------------------------------------------------------------------------------------------------------------------------------
As at and for the three months ended March 31, 2001
-----------------------------------------------------------------------------------------------------------------------------------
Revenue 324,482 36,830 18,497 - (5,827) 373,982
Operating expenses 258,072 43,864 13,873 9,996 (5,827) 319,978
-----------------------------------------------------------------------------------------------------------------------------------
Earnings before the under-noted: 66,410 (7,034) 4,624 (9,996) - 54,004
Depreciation and amortization 12,773 498 731 282 - 14,284
-----------------------------------------------------------------------------------------------------------------------------------
Earnings before interest, income taxes and amortization
of goodwill 53,637 (7,532) 3,893 (10,278) - 39,720
-----------------------------------------------------------------------------------------------------------------------------------
Total assets 849,645 132,305 77,892 47,409 - 1,107,251
-----------------------------------------------------------------------------------------------------------------------------------
As at and for the six months ended March 31, 2002
-----------------------------------------------------------------------------------------------------------------------------------
Revenue 876,238 176,603 42,491 - (35,350) 1,059,982
Operating expenses 715,428 165,145 32,403 25,208 (35,350) 902,834
-----------------------------------------------------------------------------------------------------------------------------------
Earnings before the under-noted: 160,810 11,458 10,088 (25,208) - 157,148
Depreciation and amortization 37,720 6,807 1,845 1,132 - 47,504
-----------------------------------------------------------------------------------------------------------------------------------
Earnings before interest, income taxes and amortization
of goodwill 123,090 4,651 8,243 (26,340) - 109,644
-----------------------------------------------------------------------------------------------------------------------------------
Total assets 1,195,031 774,629 87,567 224,271 - 2,281,498
-----------------------------------------------------------------------------------------------------------------------------------
As at and for the six months ended March 31, 2001
-----------------------------------------------------------------------------------------------------------------------------------
Revenue 618,509 74,807 36,657 - (21,812) 708,161
Operating expenses 504,219 84,339 28,400 17,143 (21,812) 612,289
-----------------------------------------------------------------------------------------------------------------------------------
Earnings before the under-noted: 114,290 (9,532) 8,257 (17,143) - 95,872
Depreciation and amortization 23,455 1,086 1,490 557 - 26,588
-----------------------------------------------------------------------------------------------------------------------------------
Earnings before interest, income taxes, entity subject to
significant influence and amortization of goodwill 90,835 (10,618) 6,767 (17,700) - 69,284
-----------------------------------------------------------------------------------------------------------------------------------
Total assets 849,645 132,305 77,892 47,409 - 1,107,251
-----------------------------------------------------------------------------------------------------------------------------------
Notes to the Consolidated Financial Statements
(tabular amounts only are in thousands of Canadian dollars, except share data)
(unaudited)
Note 5 - Subsequent events
On April 2, 2002, the Company acquired all of the outstanding shares of Rapid
Application Developers Inc., for a total consideration of $6,371,000. This
amount was paid through a cash payment of $4,110,000 and an issuance of 210,739
shares of the Company for a value of $2,261,000.
On April 17, 2002, the Company sold its Japanese operations for a total cash
consideration of $9,449,000.
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: May 8, 2002 By /s/ Paule Dore
Name: Paule Dore
Title: Executive Vice President
and Chief Corporate Officer
and Secretary