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 November 2002
Commission File Number 1-14858
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 if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): ____
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a
Form 6-K if submitted solely to provide an attached annual report to security
holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): ____
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a
Form 6-K if submitted to furnish a report or other document that the registrant
foreign private issuer must furnish and make public under the laws of the
jurisdiction in which the registrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
material event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
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: Press release dated November 5, 2002 and Financial statements .
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.
FOR IMMEDIATE RELEASE
CGI Reports Strong Growth in Fiscal 2002
Montreal, November 5, 2002 - CGI Group Inc. (NYSE: GIB; TSX: GIB.A), a leading
provider of end-to-end information technology and business processing services,
today reported audited results for the year ended September 30, 2002. All
figures are in Canadian dollars unless otherwise indicated.
Fiscal Year 2002 Highlights
o Revenue of $2,169.6 million was 39.0% higher than in fiscal 2001.
o Net earnings for the year increased 51.0% to $135.8 million, from
comparable cash net earnings of $89.9 million reported for fiscal 2001.
o Basic net earnings per share of $0.36 for fiscal 2002 were up over
comparable cash net earnings per share of $0.30 reported for fiscal 2001,
after giving effect to a 26.0% increase in the weighted average number of
shares outstanding.
o EBITDA, EBIT and net earnings margins all improved from last year,
reflecting improved synergies realized from acquisitions and new
outsourcing contracts.
o Cash flow from operating activities was $177.4 million.
o The current backlog of signed contracts stands at $10.4 billion with a
weighted average remaining contract term of 7.7 years.
o The current pipeline of bids for large outsourcing contracts being reviewed
by potential clients remains robust at $5 billion.
12 months ended
In millions of CDN$ except per share amounts September 30
2002 2001
----------------------------------------------- -------------- ----------------
Revenue $2,169.6 $1,560.4
----------------------------------------------- -------------- ----------------
Earnings before amortization of goodwill
(cash net earnings) $135.8 $89.9
----------------------------------------------- -------------- ----------------
Net earnings $135.8 $62.8
----------------------------------------------- -------------- ----------------
Cash net earnings per share $0.36 $0.30
----------------------------------------------- -------------- ----------------
Net earnings per share $0.36 $0.21
----------------------------------------------- -------------- ----------------
Order backlog $10,400 $9,300
----------------------------------------------- -------------- ----------------
Note: In accordance with CICA recommendations, CGI stopped recording
amortization of goodwill on October 1, 2001, rendering earnings before
amortization of goodwill (cash net earnings) and net earnings
equivalent starting FY02. Numbers reflect modified presentation based
on EITF 01-9 of the Financial Accounting Standards Board. CDN$/ 1.57 =1
US$
CGI Reports 4Q & FY02 Results
November 5, 2002
Page 2
"CGI delivered a very strong year of growth, despite a challenging operating
environment," said Serge Godin, chairman and CEO. "In Canada, where market
conditions remain stable, our position as the leading provider of end-to-end IT
services and our deep client partnerships helped us win new contracts, add-on
projects, renewals and extensions for outsourcing, systems integration and
consulting services."
Mr. Godin added, "The systems integration and consulting business in the US and
in France is still difficult and a return to solid spending levels is not
expected before 2004. In the meantime, we are leveraging our existing client
relationships in these geographies and becoming even more aggressive in the US
IT and business process outsourcing markets, where demand is strong and expected
to remain strong."
In fiscal 2002, CGI made five acquisitions, invested in one joint venture
company and booked over $3.5 billion in contract wins, renewals and extensions.
As at September 30, 2002, CGI and its affiliated companies employed 14,600
people in 60 offices around the world.
Fourth Quarter Results (See also: Q4 MD&A filed with Sedar & Edgar and available
at www.cgi.com) Revenue for the fourth quarter ended September 30, 2002
increased 23.8% to $571.9 million, from $461.9 million in the same quarter last
year, and was up 3.3% sequentially over third quarter revenue of $553.4 million.
The year-over-year organic growth of 20.6% was driven by a combination of new
client wins, renewals, and add-on projects from existing clients.
In the fourth quarter, revenue from long-term outsourcing contracts represented
75% of the Company's total revenue, including 16% from business processing
services, while project oriented consulting and systems integration work
represented 25%. Geographically, clients in Canada represented 76% of revenue;
clients in the US represented 18%; and all other regions, 6%. Revenue from
clients in the financial services sector remained strong, representing 40% of
revenue; while telecom represented 25%; manufacturing, retail and distribution
clients, 14%; government clients, 13%; utilities and services, 6%; and
healthcare, 2%. The changes in revenue mix, when compared to the third quarter,
were primarily a result of revenue recognized by Innovapost, a joint-venture
with Canada Post, for IT outsourcing contracts.
Earnings before depreciation and amortization of fixed assets, amortization of
contract costs and other long-term assets, interest and income taxes ("EBITDA")1
for the fourth quarter increased 21.2% to $82.4 million, compared with $68.0
million in the same quarter a year ago, and increased 1.5% on a sequential basis
compared with $81.2 million reported in the third quarter. The EBITDA margin was
14.4% in the fourth quarter, compared with 14.7% in last year's fourth quarter
and 14.7% at the end of the third quarter.
Earnings before interest and income taxes ("EBIT"), was $60.1 million in the
fourth quarter, up 19.1% over last year's fourth quarter EBIT of $50.5 million,
but down 3.7% over third quarter EBIT of $62.4 million. The EBIT margin was
10.5% for the quarter, compared with 10.9% in last year's fourth quarter and
11.3% in the third quarter. The decrease in EBIT compared to last quarter is
related to higher amortization of contract costs and other long-term assets,
specifically the ramp-up of Innovapost, as well as certain enterprise license
agreements purchased in the third and fourth quarters.
--------
1 EBITDA is equal to earnings before depreciation and amortization, interest and
income taxes. EBITDA is presented because it is a widely accepted financial
indicator of a company's ability to service and incur debt. EBITDA should not be
considered by an investor as an alternative to operating income or net earnings,
as an indicator of operating performance or of cash flows or as a measure of
liquidity. Because EBITDA is not a measurement determined in accordance with
Canadian GAAP, EBITDA as presented may not be comparable to similarly titled
measures of other companies.
CGI Reports 4Q & FY02 Results
November 5, 2002
Page 3
Net earnings in the fourth quarter were $35.5 million, up 30.3% against
comparable earnings before amortization of goodwill (cash net earnings)2 of
$27.3 million in the same quarter a year ago, but down slightly from $36.5
million reported in the third quarter. Net earnings per share were $0.09 for the
quarter, compared with cash net earnings per share of $0.08 reported in last
year's fourth quarter, and $0.10 reported in the third quarter of fiscal 2002.
The net margin was 6.2%, compared with 6.6% in the third quarter and cash net
margin of 5.9% in the fourth quarter of fiscal 2001. The sequential decrease is
reflective of the EBIT decrease explained above. Earnings per share were
calculated on 380.3 million weighted average shares outstanding, an increase of
10.7% more shares outstanding year-over-year.
CGI continues to maintain a strong balance sheet and cash position, which
together with bank lines are sufficient to support the Company's growth strategy
and represent a competitive strength when proposing on outsourcing contracts. At
September 30, 2002, the total credit facility available amounted to $249.1
million. Additionally, as of September 30, 2002, CGI had cash and cash
equivalents of $104.2 million, compared with $122.9 million as of June 30, 2002.
The decrease in cash is primarily a result of the reimbursement of the Libor
advance debt for US$20 million and the purchase of an enterprise license
agreement.
Fourth Quarter Operating Highlights
CGI's growth prospects and solid backlog were improved during the quarter as a
result of investments and operational initiatives. In the quarter, CGI:
o Announced $521.1 million in new contract bookings, renewals and extensions.
o Closed the acquisition of privately-held IMPLETECH International Inc. with
revenue valued at $5 million. Twenty professionals, located mostly in
Toronto, joined CGI with a focus on enterprise resource planning (ERP)
implementation to clients within the automotive, food and beverage,
pharmaceutical and industrial/electronic sectors.
o Signed its first finance and accounting business process services
outsourcing contract with GrafTech International Ltd (formerly UCAR
International Inc.) (NYSE: GTI), a 10-year contract valued at US$36
million. CGI will deploy best practices to optimize transactional
activities, including accounts payable and accounts receivable as well as
perform certain analytical functions such general accounting, cost
accounting and analysis activities.
Initiatives and Outlook
As stated in September, CGI expects base revenue for its 2003 fiscal year to be
between $2.4 and $2.6 billion and net earnings per share to be in the range of
$0.43 to $0.47. This guidance is based on information known today about market
conditions and demand for its services and excludes the impact of any
acquisition or large outsourcing contract contributing more than $100 million
per year in revenue.
Margin improvement is a critical financial objective and will be realized in
future quarters through further synergies from large outsourcing contracts,
ongoing integration of acquisitions and a gradual reduction in SG&A expenses.
Mr. Godin added, "Our 2003-2005 strategic plan focuses on realizing CGI's vision
-- to become a world-class leader in information technology and business process
outsourcing, recognized as a partner of choice by our clients. We will provide
our clients with quality services and value, our members with challenging
opportunities to grow and we will generate solid returns for our shareholders.
Our objective is to achieve double-digit growth over each of the next three
years
--------
2 In accordance with recommendations of the Canadian Institute of Chartered
Accountants (CICA), effective October 1, 2001 CGI stopped recording the
amortization of goodwill. As such, net earnings and earnings before amortization
of goodwill (cash net earnings) 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.
CGI Reports 4Q & FY02 Results
November 5, 2002
Page 4
in order to reach $3.5 billion in revenues by fiscal 2005, with continued
improvement in our key financial ratios."
"To realize our vision, our priority is on execution. CGI's growth has been and
will continue to be driven by our disciplined financial approach to growth -
winning smaller contracts, renewals and add-on projects; securing large IT & BPO
outsourcing contracts, and making niche as well as large strategic acquisitions.
Our pipeline of $5 billion in outstanding proposals is made up of large and
mid-sized contracts, including a growing number of opportunities from US-based
clients. Our financial position which is as strong as ever, our unique global
delivery model, and our deep client relationships give us confidence in the
ability to turn our pipeline into backlog and deliver even better results going
forward."
Quarterly Conference Call
A conference call for the investment community will be held today, November 5,
at 9:00 am (Eastern Time). Participants may access the call by dialing
888-740-9683 or through the Internet at www.cgi.com. Supporting slides for the
call will also be available at www.cgi.com. For those unable to participate on
the live call, a webcast and copy of the slides will be archived at www.cgi.com.
Forward-Looking Statements
All statements in this press release that do not directly and exclusively relate
to historical facts constitute "forward-looking statements" within the meaning
of that term in Section 27A of the United States Securities Act of 1933, as
amended, and Section 21E of the United States Securities Exchange Act of 1934,
as amended. 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 Management's Discussion and
Analysis (MD&A) in CGI Group Inc.'s Annual Report or Form 40-F filed with the
SEC, the Company's Annual Information Form filed with the Canadian securities
authorities, as well as assumptions regarding the foregoing. The words
"believe", "estimate", "expect", "intend", "anticipate", "foresee", "plan", and
similar expressions and variations thereof, identify certain of such
forward-looking statements, which speak only as of the date on which they are
made. In particular, statements relating to future growth are forward-looking
statements. CGI disclaims any intention or obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. Readers are cautioned not to place undue reliance on
these forward-looking statements.
For more information:
CGI Investor Relations
Julie Creed
Vice-president, investor relations
(312) 201-4803 or (514) 841-3200
Ronald White
Director, investor relations
(514) 841-3230
CGI Media Relations
Eileen Murphy 10 pages of financial statements and
Director, Media Relations notes are attached
(514) 841-3430
Consolidated Financial Statements of
CGI Group Inc.
For the twelve months ended September 30, 2002
Consolidated Financial Statements of CGI Group Inc.
For the twelve months ended September 30, 2002
Consolidated Statements of Earnings
(in thousands of Canadian dollars, except per share amounts) (unaudited)
Three months ended September 30 Twelve months ended September 30
-----------------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
-----------------------------------------------------------------------------------------------------------------------------------
$ $ $ $
Revenue 571,860 461,907 2,169,613 1,560,391
-----------------------------------------------------------------------------------------------------------------------------------
Operating expenses
Costs of services, selling and administrative expenses 484,829 390,184 1,842,854 1,328,460
Research 4,614 3,704 17,609 12,585
-----------------------------------------------------------------------------------------------------------------------------------
489,443 393,888 1,860,463 1,341,045
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Earnings before the under-noted: 82,417 68,019 309,150 219,346
-----------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization of fixed assets 8,687 9,523 37,781 32,536
Amortization of contract costs and other long-term
assets (Note 5) 13,624 8,026 39,224 23,186
-----------------------------------------------------------------------------------------------------------------------------------
22,311 17,549 77,005 55,722
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Earnings before the following items: 60,106 50,470 232,145 163,624
-----------------------------------------------------------------------------------------------------------------------------------
Interest
Long-term debt 398 1,258 2,411 4,206
Other (1,121) (567) (2,833) (2,664)
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(723) 691 (422) 1,542
-----------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes, entity subject to significant
influence and amortization of goodwill 60,829 49,779 232,567 162,082
Income taxes 25,305 22,507 96,768 72,165
-----------------------------------------------------------------------------------------------------------------------------------
Earnings before entity subject to significant influence
and amortization of goodwill 35,524 27,272 135,799 89,917
Entity subject to significant influence - - - 7
-----------------------------------------------------------------------------------------------------------------------------------
Earnings before amortization of goodwill 35,524 27,272 135,799 89,924
Amortization of goodwill, net of income taxes - 7,451 - 27,135
-----------------------------------------------------------------------------------------------------------------------------------
Net earnings 35,524 19,821 135,799 62,789
-----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of outstanding Class A subordinate
shares and Class B shares 380,349,866 343,593,521 377,349,472 299,500,350
-----------------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share before amortization
of goodwill (Note 3) 0.09 0.08 0.36 0.30
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Basic and diluted earnings per share (Note 3) 0.09 0.06 0.36 0.21
-----------------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Retained Earnings
(in thousands of Canadian dollars) (unaudited)
Three months ended September 30 Twelve months ended September 30
-----------------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
-----------------------------------------------------------------------------------------------------------------------------------
$ $ $ $
Retained earnings, beginning of period 342,420 226,124 245,945 183,156
Share issue costs, net of income taxes (Note 3) - - (3,800) -
Net earnings 35,524 19,821 135,799 62,789
-----------------------------------------------------------------------------------------------------------------------------------
Retained earnings, end of period 377,944 245,945 377,944 245,945
-----------------------------------------------------------------------------------------------------------------------------------
Page 1
Consolidated Financial Statements of CGI Group Inc.
As at September 30,
Consolidated Balance Sheets
(in thousands of Canadian dollars) (unaudited) Restated (Note 2)
2002 2001
-------------------------------------------------------------------------------------------------------------------------------
$ $
Assets
Current assets
Cash and cash equivalents 104,221 46,008
Accounts receivable 295,191 286,156
Income taxes - 979
Work in progress 98,904 84,838
Prepaid expenses and other current assets 48,373 48,931
Future income taxes 12,567 17,998
-------------------------------------------------------------------------------------------------------------------------------
559,256 484,910
Fixed assets 145,381 123,391
Contract costs and other long-term assets 433,742 272,403
Future income taxes 28,661 29,002
Goodwill 1,133,852 1,118,963
-------------------------------------------------------------------------------------------------------------------------------
2,300,892 2,028,669
-------------------------------------------------------------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 261,509 295,092
Deferred revenue 61,027 50,652
Income taxes 5,128 -
Future income taxes 26,301 21,013
Current portion of long-term debt 4,172 7,528
-------------------------------------------------------------------------------------------------------------------------------
358,137 374,285
Future income taxes 93,696 43,705
Long-term debt 4,328 32,752
Deferred credits and other long-term liabilities 65,116 74,813
-------------------------------------------------------------------------------------------------------------------------------
521,277 525,555
-------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Capital stock (Note 3) 1,332,621 1,198,096
Contributed surplus 3,652 211
Warrants and stock options (Note 3) 31,132 35,101
Retained earnings 377,944 245,945
Foreign currency translation adjustment 34,266 23,761
-------------------------------------------------------------------------------------------------------------------------------
1,779,615 1,503,114
-------------------------------------------------------------------------------------------------------------------------------
2,300,892 2,028,669
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Page 2
Consolidated Financial Statements of CGI Group Inc.
For the twelve months ended September 30, 2002
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars) (unaudited)
Three months ended September 30 Twelve months ended September 30
-----------------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
-----------------------------------------------------------------------------------------------------------------------------------
$ $ $ $
Operating activities
Net earnings 35,524 19,821 135,799 62,789
Adjustments for:
Depreciation and amortization of fixed assets 8,687 9,523 37,781 32,536
Amortization of contract costs and other
long-term assets (Note 5) 19,835 12,637 62,783 33,460
Amortization of goodwill - 7,807 - 28,586
Deferred credits and other long-term liabilities (12,209) (9,223) (50,021) (14,442)
Future income taxes 17,139 26,166 35,602 32,589
Foreign exchange loss (gain) 763 (396) 1,240 4,213
Entity subject to significant influence - - - (7)
Net change in working capital items (18,240) (50,701) (45,737) (5,722)
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Cash provided by operating activities 51,499 15,634 177,447 174,002
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Financing activities
Net variation of credit facility (30,434) (30,000) (25,000) (5,000)
Decrease of other long-term debt (4,596) (51,093) (8,342) (65,027)
Issuance of shares 2,113 53,716 131,736 54,206
Share issue costs - - (5,500) -
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Cash (used for) provided by financing activities (32,917) (27,377) 92,894 (15,821)
------------------------------------------------------------------------------------------------------------------------------------
Investing activities
Business acquisitions (net of cash) (Note 4) (3,202) 22,399 (19,866) (86,393)
Investment in a joint venture (Note 4) - - (26,000) -
Purchase of fixed assets (16,311) (2,966) (57,199) (23,993)
Proceeds from sale of fixed assets - 1,270 - 1,270
Proceeds from sale of subsidiaries (Note 4) - - 10,365 -
Contract costs and other long-term assets (18,824) (12,375) (122,903) (48,635)
------------------------------------------------------------------------------------------------------------------------------------
Cash (used for) provided by investing activities (38,337) 8,328 (215,603) (157,751)
------------------------------------------------------------------------------------------------------------------------------------
Foreign exchange gain (loss) on cash held in foreign
currencies of self-sustaining subsidiaries 1,049 (3,891) 3,475 (3,763)
------------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (18,706) (7,306) 58,213 (3,333)
Cash and cash equivalents at beginning of period 122,927 53,314 46,008 49,341
-----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period 104,221 46,008 104,221 46,008
-----------------------------------------------------------------------------------------------------------------------------------
Interest paid 663 552 2,172 4,592
Income taxes paid 18,353 10,100 51,923 41,615
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Page 3
Notes to the Consolidated Financial Statements
For the twelve months ended September 30, 2002
(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 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 is 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. During
the second quarter ended March 31, 2002, the Company completed the transitional
impairment test and concluded that no goodwill impairment charge needed to be
recorded. The Company intends to perform its annual review of goodwill as of
September 30 of each year. Based on the impairment test performed as of
September 30, 2002, the Company concluded that no goodwill impairment charge was
required.
On April 1, 2002, the Company early adopted the recommendations of Handbook
Section 3870, Stock-Based Compensation and Other Stock-Based Payments . This
Section establishes standards for the recognition, measurement and disclosure of
stock-based compensation made in exchange for goods and services and 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 Section also requires pro forma disclosure
relating to net earnings and earnings per share figures as if the fair value
method of accounting had been used. The Company has chosen not to use the fair
value method to account for stock-based compensation costs arising from awards
to employees. The pro forma disclosure is presented in Note 3.
Note 2 - Preparation of Consolidated Financial Statements
Amortization of incentives related to outsourcing contracts
During the year ended September 30, 2002, the Company modified the presentation
of the amortization related to incentives granted on outsourcing contracts based
on recently issued EITF 01-9, Accounting for consideration given by a vendor to
a customer , by the Financial Accounting Standards Board's Emerging Issues Task
Force ("EITF"). The amortization of incentives is now presented as a reduction
of revenue as opposed to being shown as amortization of contract costs and other
long-term assets. Furthermore, the Company also reclassified discounts granted
on an existing outsourcing contract which were previously presented in the costs
of services, selling and administrative expenses. For comparative purposes,
revenue for the quarter and year ended September 30, 2001 has been reduced by
$7,111,000 and $20,924,000 respectively, amortization of contract costs and
other long-term assets has been reduced by $4,611,000 and $10,274,000
respectively and costs of services, selling and administrative expenses has been
reduced by $2,500,000 and $10,650,000 respectively.
Foreign currency translation adjustment
During the quarter ended December 31, 2001, the Company revised the calculation
of the foreign currency translation adjustment in order to use the current rate
as opposed to the historical rate upon translation of the goodwill related to
its self-sustaining foreign subsidiaries. This adjustment resulted in an
increase of $21,197,000 of the foreign currency translation adjustment and
goodwill as at September 30, 2001.
Page 4
Accounts receivable and deferred revenue
During the year ended September 30, 2002, the Company's management changed the
presentation related to accounts receivable and deferred revenue for the
month-end advance billing on outsourcing contracts. Accordingly, accounts
receivable and deferred revenue were both reduced by $34,511,000 as at September
30, 2001.
Goodwill and integration liability
During the quarter ended June 30, 2002, the Company reviewed its interpretation
of the accounting treatment for integration costs accrued for in connection with
business acquisitions; accordingly, the integration liability originally accrued
for in 2001 in connection with the acquisition of IMRglobal Corp. ("IMRglobal"
or "IMR") was reduced by $20,810,000. As a result, goodwill and future income
tax assets recorde in connection with the acquisition also decreased by
$17,027,000 and $3,783,000 respectively.
Note 3 - Capital stock, stock options 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.
Stock 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 preceding the date of the
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.
Had compensation cost been determined using the fair value method at the day of
grant for awards granted since October 1, 2001 under this stock option plan, the
Company's pro forma net earnings, basic and diluted earnings per share would
have been $34,354,000, $0.09 and $0.09, respectively, for the quarter ended
September 30, 2002 and would have been $131,669,000, $0.35 and $0.35
respectively for the year ended ended September 30, 2002. These pro forma
amounts include a compensation cost based on a weighted-average grant date fair
value of $4.27 per stock option for 1,096,101 stock options (net of
cancellation) granted during the year ended September 30, 2002, as calculated
using the Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 4.60%, dividend yield of 0.0%, expected volatility of
48.7% and expected life of five years. As permitted by the Handbook Section
3870, the pro forma disclosure omits the effect of awards granted before October
1, 2001.
In connection with a business acquisition completed in fiscal 2001, where
outstanding stock options of the acquiree became options to acquire CGI Class A
subordinate shares, the Company recorded 3,357,962 vested options out of a total
of 8,424,502 options outstanding as a purchase consideration of $16,519,000
representing the estimated fair value of the outstanding vested stock options of
the acquiree at the date of acquisition.
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 contract, or date of business
acquisition, and have an exercise period of five years. As at September 30, 2002
and 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 $8.78 per share
expiring June 13, 2006. The fair values of the warrants, totaling $19,655,000,
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.
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
Page 5
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.
Furthermore, subject to regulatory approval, the Company has undertaken in favor
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 Toronto Stock Exchange ("TSX") on
the date preceding the issuance of the Extended Warrants.
The following table presents the number of all shares, stock options and
warrants outstanding as at September 30:
2002 2001
----------------------------------------------------------------------------------------------------------------------------------
Class A subordinate shares 339,900,257 327,032,717
Class B shares 40,799,774 40,799,774
----------------------------------------------------------------------------------------------------------------------------------
Total capital stock 380,700,031 367,832,491
Number of stock options (Class A subordinate shares) - Accounted for 2,333,231 3,139,943
Number of stock options (Class A subordinate shares) - Not accounted for 18,481,589 21,083,909
Number of warrants (Class A subordinate shares) - Accounted for 5,118,210 5,118,210
Number of warrants (Class A subordinate shares and Class B shares) - Not accounted for 4,562,058 4,562,058
----------------------------------------------------------------------------------------------------------------------------------
Number of shares reflecting the potential exercise of stock options and warrants 411,195,119 401,736,611
----------------------------------------------------------------------------------------------------------------------------------
For 2002 and 2001, the Class A subordinate shares and the Class B shares changed
as follows:
September 30, 2002 September 30, 2001
------------------------------------------------------------------------------------------------------------------------------------
Class A subordinate shares Class B shares Class A subordinate shares Class B shares
------------------------------------------------------------------------------------------------------------------------------------
Number Amount Number Amount Number Amount Number Amount
------------------------------------------------------------------------------------------------------------------------------------
$ $ $ $
Balance, beginning of period 327,032,717 1,143,891 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 (Note 4) 210,739 2,261 - - 85,835,178 651,010 - -
Options exercised 1,546,801 7,276 - - 441,872 2,236 - -
------------------------------------------------------------------------------------------------------------------------------------
Balance, end of period 339,900,257 1,278,416 40,799,774 54,205 327,032,717 1,143,891 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 $124,988,000
before share issue costs of $3,800,000 (net of income taxes of $1,700,000).
The following table presents information concerning stock options and warrants
accounted for the years ended September 30:
2002 2001
------------------------------------------------------------------------------------------------------------------------------------
Stock options Warrants Stock options Warrants
------------------------------------------------------------------------------------------------------------------------------------
Number Amount Number Amount Number Amount Number Amount
------------------------------------------------------------------------------------------------------------------------------------
$ $ $ $
Balance, beginning of period 3,139,943 15,446 5,118,210 19,655 - - - -
Granted as consideration for
business acquisitions - - - - 3,357,962 16,519 5,118,210 19,655
Exercised (107,318) (528) - - (218,019) (1,073) - -
Forfeited and expired (2) (699,394) (3,441) - - - - - -
------------------------------------------------------------------------------------------------------------------------------------
Balance, end of period 2,333,231 11,477 5,118,210 19,655 3,139,943 15,446 5,118,210 19,655
------------------------------------------------------------------------------------------------------------------------------------
(2) During the year ended September 30, 2002, the Company cancelled options for an amount of $3,441,000 which has been reclassified
to Contributed surplus.
The following table presents information concerning all stock options granted to
certain employees and directors by the Company for the years ended September 30:
Page 6
Number of options 2002 2001
--------------------------------------------------------------------------------------------------------------------------
Outstanding, beginning of period 24,223,852 6,413,181
Granted 1,206,925 10,643,930
Granted as consideration for business acquisitions - 8,424,502
Exercised (1,546,801) (441,872)
Forfeited and expired (3,069,156) (815,889)
--------------------------------------------------------------------------------------------------------------------------
Outstanding, end of period 20,814,820 24,223,852
--------------------------------------------------------------------------------------------------------------------------
Earnings per share
The following table sets forth the computation of basic and diluted earnings per
share for the three and twelve months ended September 30, 2002 and 2001:
Three months ended September 30
-----------------------------------------------------------------------------------------------------------------------------------
2002 2001
-----------------------------------------------------------------------------------------------------------------------------------
Net earnings Number of shares Per share Net earnings Number of shares Per share
(numerator) (denominator) amount (numerator) (denominator) amount
-----------------------------------------------------------------------------------------------------------------------------------
$ $ $ $
Net earnings 35,524 380,349,866 0.09 19,821 343,593,521 0.06
-----------------------------------------------------------------------------------------------------------------------------------
Dilutive options 816,617 2,202,589
Dilutive warrants - 981,267
-----------------------------------------------------------------------------------------------------------------------------------
Net earnings after assumed
conversions 35,524 381,166,483 0.09 19,821 346,777,377 0.06
-----------------------------------------------------------------------------------------------------------------------------------
Twelve months ended September 30
-----------------------------------------------------------------------------------------------------------------------------------
2002 2001
-----------------------------------------------------------------------------------------------------------------------------------
Net earnings Number of shares Per share Net earnings Number of shares Per share
(numerator) (denominator) amount (numerator) (denominator) amount
-----------------------------------------------------------------------------------------------------------------------------------
$ $ $ $
Net earnings 135,799 377,349,472 0.36 62,789 299,500,350 0.21
-----------------------------------------------------------------------------------------------------------------------------------
Dilutive options 2,083,498 1,287,291
Dilutive warrants 2,137,885 319,545
-----------------------------------------------------------------------------------------------------------------------------------
Net earnings after assumed
conversions 135,799 381,570,855 0.36 62,789 301,107,186 0.21
-----------------------------------------------------------------------------------------------------------------------------------
Note 4 - Investments in subsidairies and joint ventures
For all business acquisitions, the Company began recording the results of
operations of the acquired entities as of their respective effective acquisition
dates.
During fiscal 2002, the Company completed five acquisitions of IT consulting
firms for considerations ranging between $2,100,000 and $7,000,000, for an
aggregate consideration of $24,988,000 including acquisition costs of
approximately $503,000 and the issuance of 210,739 Class A subordinate shares at
a price of $10.73 per share. The Company acquired 100% of the outstanding shares
of the businesses except in two cases, where assets were acquired.
The acquisitions were accounted for using the purchase method and the total
initial purchase price allocation is as follows:
$
Non cash working capital items (2,686)
Future income taxes 933
Fixed assets 1,271
Contract costs and other long-term assets 2,166
Page 7
Goodwill (1) 23,049
-----------------------------------------------------------------------
24,733
Cash position at acquisition 255
-----------------------------------------------------------------------
Net assets acquired 24,988
-----------------------------------------------------------------------
Consideration
Cash (including acquisition cost) 20,121
Balance of purchase price 2,606
Issuance of 210,739 Class A subordinate shares (2) 2,261
-----------------------------------------------------------------------
24,988
-----------------------------------------------------------------------
(1) Goodwill includes an amount of $9,292,000 for tax purposes. Of the total
goodwill amount, $10,986,000 is included in the US and Asia Pacific segment and
the remaining $12,063,000 is included in the Canada and Europe segment.
(2) The per share value of the shares issued as consideration for one of the
business acquisitions was determined using the average closing share price on
the TSX over a reasonable period before and after the date the terms of the
business combinaison were agreed to and announced.
In May 2002, the Company acquired, for a cash consideration of $26,000,000, a
49% interest in a newly created joint venture, Innovapost. The Company also
paid, through Innovapost, an incentive payment of $26,000,000 to Canada Post
Corporation, its partner in the joint venture, for the signing of a 10 year
outsourcing contract. The aggregate consideration paid of $52,000,000 was
accounted for as contract costs and other long-term assets in accordance with
its substance and will be amortized over the term of the contract.
During the year, the Company sold its Australian and Japanese operations for an
aggregate cash consideration of $10,365,000 with no resulting gain.
During the quarter ended June 30, 2002, the Company finalized the purchase price
allocation to the assets and liabilities acquired from Confederation des caisses
populaires et d'economie Desjardins du Quebec on May 1, 2001. From the initial
purchase price allocation as per Note 9 to the Consolidated Financial Statements
of the Company for the year ended September 30, 2001, this assessment resulted
in a decrease of the integration costs accrual of $2,864,000, a decrease of
goodwill of $1,805,000 and a decrease of future income tax assets of $1,059,000.
Furthermore, during the twelve months ended September 30, 2002, the Company
reviewed the purchase price allocation of IMRglobal acquired on July 27, 2001.
From the initial purchase price allocation as per Note 9 to the Consolidated
Financial Statements of the Company for the year ended September 30, 2001, the
reclassification resulted in a decrease of non cash working capital items of
$3,947,000, an increase of contract costs and other long-term assets of
$7,577,000, a decrease of goodwill of $978,000 and a decrease of future income
tax assets of $2,652,000.
The schedule below reflects the payments made and the remaining balance of
accrued acquisition and integration costs related to IMR.
Restated
Balance as at Paid during the twelve months Balance as at
September 30, 2001 ended September 30, 2002 September 30, 2002
------------------------------------------------------------------------------------------------------------------------------------
$ $ $
Professional fees 2,834 2,796 38
Consolidation and closure of facilities 12,446 4,745 7,701
Severance 11,700 10,468 1,232
Other 1,655 325 1,330
------------------------------------------------------------------------------------------------------------------------------------
28,635 18,334 10,301
------------------------------------------------------------------------------------------------------------------------------------
Page 8
Note 5 - Supplementary contract costs and other long-term assets information
The following table presents information concerning the amortization of contract
costs and other long-term assets including the amortization presented as a
reduction of revenue as described in Note 2:
Three months ended September 30 Twelve months ended September 30
-------------------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
-------------------------------------------------------------------------------------------------------------------------------
$ $ $ $
Amortization presented as a reduction of revenue 6,211 4,611 23,559 10,274
Amortization presented as an expense 13,624 8,026 39,224 23,186
-------------------------------------------------------------------------------------------------------------------------------
Total amortization of contract costs and other
long-term assets 19,835 12,637 62,783 33,460
-------------------------------------------------------------------------------------------------------------------------------
Note 6 - 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
US and expenses
Canada and Asia and Intersegment
As at and for the three months ended September 30, 2002 Europe Pacific BPS programs elimination Total
------------------------------------------------------------------------------------------------------------------------------------
$ $ $ $ $ $
Revenue 494,427 63,989 27,517 - (14,073) 571,860
Operating expenses 400,033 63,581 20,766 19,136 (14,073) 489,443
------------------------------------------------------------------------------------------------------------------------------------
Earnings before the under-noted: 94,394 408 6,751 (19,136) - 82,417
Depreciation and amortization 15,320 5,411 1,097 483 - 22,311
------------------------------------------------------------------------------------------------------------------------------------
Earnings before interest, income taxes and amortization
of goodwill 79,074 (5,003) 5,654 (19,619) - 60,106
------------------------------------------------------------------------------------------------------------------------------------
Total assets 1,265,594 743,519 118,142 173,637 - 2,300,892
------------------------------------------------------------------------------------------------------------------------------------
As at and for the three months ended September 30, 2001
------------------------------------------------------------------------------------------------------------------------------------
Revenue 387,752 66,978 18,624 - (11,447) 461,907
Operating expenses 314,270 68,429 14,472 8,164 (11,447) 393,888
------------------------------------------------------------------------------------------------------------------------------------
Earnings before the under-noted: 73,482 (1,451) 4,152 (8,164) - 68,019
Depreciation and amortization 15,696 1,092 669 92 - 17,549
------------------------------------------------------------------------------------------------------------------------------------
Earnings before interest, income taxes and amortization
of goodwill 57,786 (2,543) 3,483 (8,256) - 50,470
------------------------------------------------------------------------------------------------------------------------------------
Total assets 1,163,645 741,585 78,683 44,756 - 2,028,669
------------------------------------------------------------------------------------------------------------------------------------
As at and for the twelve months ended September 30, 2002
------------------------------------------------------------------------------------------------------------------------------------
Revenue 1,823,995 309,683 93,461 - (57,526) 2,169,613
Operating expenses 1,481,129 303,530 71,927 61,403 (57,526) 1,860,463
------------------------------------------------------------------------------------------------------------------------------------
Earnings before the under-noted: 342,866 6,153 21,534 (61,403) - 309,150
Depreciation and amortization 59,457 10,937 4,239 2,372 - 77,005
------------------------------------------------------------------------------------------------------------------------------------
Earnings before interest, income taxes and amortization
of goodwill 283,409 (4,784) 17,295 (63,775) - 232,145
------------------------------------------------------------------------------------------------------------------------------------
Total assets 1,265,594 743,519 118,142 173,637 - 2,300,892
------------------------------------------------------------------------------------------------------------------------------------
Page 9
As at and for the twelve months ended September 30, 2001
------------------------------------------------------------------------------------------------------------------------------------
Revenue 1,345,538 178,566 74,735 - (38,448) 1,560,391
Operating expenses 1,092,343 195,076 57,669 34,405 (38,448) 1,341,045
------------------------------------------------------------------------------------------------------------------------------------
Earnings before the under-noted: 253,195 (16,510) 17,066 (34,405) - 219,346
Depreciation and amortization 49,517 2,126 2,873 1,206 - 55,722
------------------------------------------------------------------------------------------------------------------------------------
Earnings before interest, income taxes, entity subject to
significant influence and amortization of goodwill 203,678 (18,636) 14,193 (35,611) - 163,624
------------------------------------------------------------------------------------------------------------------------------------
Total assets 1,163,645 741,585 78,683 44,756 - 2,028,669
------------------------------------------------------------------------------------------------------------------------------------
Page 10
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: November 5, 2002
By /s/ Paule Dore
Name: Paule Dore
Title: Executive Vice-President
and Chief Corporate Officer
and Secretary