Consolidated Financial Statements of
CGI GROUP INC.
For the three and six months ended March 31, 2007 and 2006
CGI GROUP INC.
Consolidated Statements of Earnings
For the three and six months ended March 31
(in thousands of Canadian dollars, except share data) (unaudited)
Three months ended March 31 | Six months ended March 31 | ||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
$ | $ | $ | $ | ||||||||||
Revenue | 951,342 | 866,836 | 1,855,402 | 1,765,299 | |||||||||
Operating expenses | |||||||||||||
Costs of services, selling and administrative | 805,519 | 759,706 | 1,569,557 | 1,536,553 | |||||||||
Amortization (Note 7) | 43,783 | 44,303 | 84,116 | 87,173 | |||||||||
Restructuring costs related to specific items (Note 8) | - | 31,315 | 23,010 | 31,315 | |||||||||
Interest on long-term debt | 11,626 | 12,117 | 24,113 | 16,706 | |||||||||
Other income, net | (1,970 | ) | (1,696 | ) | (3,899 | ) | (3,611 | ) | |||||
Loss (gain) on sale of assets | - | 558 | - | (10,475 | ) | ||||||||
858,958 | 846,303 | 1,696,897 | 1,657,661 | ||||||||||
Earnings before income taxes | 92,384 | 20,533 | 158,505 | 107,638 | |||||||||
Income taxes | 29,673 | 6,384 | 52,113 | 36,581 | |||||||||
Net earnings | 62,711 | 14,149 | 106,392 | 71,057 | |||||||||
Basic and diluted earnings per share (Note 4c)) | 0.19 | 0.04 | 0.32 | 0.18 |
Consolidated Statements of Comprehensive Income
For the three and six months ended March 31
(in thousands of Canadian dollars) (unaudited)
Three months ended March 31 | Six months ended March 31 | ||||||||||||
2007 | 2006 | 2007 | 2006 | ||||||||||
$ | $ | $ | $ | ||||||||||
Net earnings | 62,711 | 14,149 | 106,392 | 71,057 | |||||||||
Other comprehensive income, net of income taxes: | |||||||||||||
Net change in unrealized (gains) losses on translating financial statements of self-sustaining foreign operations | (11,710 | ) | 3,818 | 57,665 | 5,666 | ||||||||
Net change in gains (losses) on translation of long-term debt designated as a hedge of net investment in self-sustaining foreign operations | 2,003 | (194 | ) | (6,074 | ) | (970 | ) | ||||||
(9,707 | ) | 3,624 | 51,591 | 4,696 | |||||||||
Comprehensive income | 53,004 | 17,773 | 157,983 | 75,753 |
Page 2 of 18
Consolidated Statements of Retained Earnings
For the three and six months ended March 31
(in thousands of Canadian dollars) (unaudited)
Three months ended March 31 | Six months ended March 31 | |||
2007 | 2006 | 2007 | 2006 | |
$ | $ | $ | $ | |
Retained earnings, beginning of period | 624,292 | 952,175 | 587,201 | 895,267 |
Net earnings | 62,711 | 14,149 | 106,392 | 71,057 |
Share repurchase costs (Note 4a)) | - | (6,760) | - | (6,760) |
Excess of purchase price over carrying value of Class A subordinate shares acquired (Note 4a)) | (18,614) | (425,475) | (25,204) | (425,475) |
Retained earnings, end of period | 668,389 | 534,089 | 668,389 | 534,089 |
Page 3 of 18
CGI GROUP INC.
Consolidated Balance Sheets
(in thousands of Canadian dollars)
As at March 31, 2007 | As at September 30, 2006 | ||
(unaudited) | (audited) | ||
$ | $ | ||
Assets | |||
Current assets | |||
Cash and cash equivalents | 93,824 | 115,729 | |
Accounts receivable | 482,072 | 479,767 | |
Work in progress | 201,991 | 197,381 | |
Prepaid expenses and other current assets | 82,245 | 89,639 | |
Future income taxes | 34,486 | 33,728 | |
894,618 | 916,244 | ||
Capital assets | 123,750 | 120,032 | |
Contract costs | 202,356 | 214,688 | |
Finite-life intangibles and other long-term assets (Note 2) | 522,753 | 523,332 | |
Future income taxes | 11,462 | 25,127 | |
Goodwill | 1,773,598 | 1,737,886 | |
Total assets before funds held for clients | 3,528,537 | 3,537,309 | |
Funds held for clients | 203,960 | 154,723 | |
3,732,497 | 3,692,032 | ||
Liabilities | |||
Current liabilities | |||
Accounts payable and accrued liabilities | 367,374 | 367,127 | |
Accrued compensation | 115,048 | 108,331 | |
Deferred revenue | 176,625 | 111,759 | |
Income taxes | 67,808 | 41,707 | |
Future income taxes | 22,358 | 30,384 | |
Current portion of long-term debt | 6,878 | 8,242 | |
756,091 | 667,550 | ||
Future income taxes | 209,605 | 213,512 | |
Long-term debt | 587,156 | 805,017 | |
Accrued integration charges and other long-term liabilities | 89,533 | 103,210 | |
Total liabilities before clients’ funds obligations | 1,642,385 | 1,789,289 | |
Clients’ funds obligations | 203,960 | 154,723 | |
1,846,345 | 1,944,012 | ||
Shareholders’ equity | |||
Capital stock (Note 4a)) | 1,373,360 | 1,367,606 | |
Contributed surplus (Notes 4a) and 4b)) | 82,035 | 82,436 | |
Retained earnings | 668,389 | 587,201 | |
Accumulated other comprehensive loss (Note 5) | (237,632) | (289,223) | |
430,757 | 297,978 | ||
1,886,152 | 1,748,020 | ||
3,732,497 | 3,692,032 |
Page 4 of 18
CGI GROUP INC.
Consolidated Statements of Cash Flows
For the three and six months ended March 31
(in thousands of Canadian dollars) (unaudited)
Three months ended March 31 | Six months ended March 31 | |||
2007 | 2006 | 2007 | 2006 | |
$ | $ | $ | $ | |
Operating activities | ||||
Net earnings | 62,711 | 14,149 | 106,392 | 71,057 |
Adjustments for: | ||||
Amortization (Note 7) | 50,095 | 50,808 | 96,722 | 99,821 |
Deferred credits | - | - | - | (781) |
Future income taxes | (6,053) | (17,031) | (1,122) | (13,724) |
Foreign exchange loss (gain) | 463 | (352) | 1,711 | (642) |
Stock-based compensation (Note 4b)) | 4,334 | 2,104 | 7,337 | 6,294 |
Loss (gain) on sale of assets | - | 558 | - | (10,475) |
Net change in non-cash working capital items | 17,412 | 32,314 | 84,096 | (5,372) |
Cash provided by operating activities | 128,962 | 82,550 | 295,136 | 146,178 |
Investing activities | ||||
Business acquisitions (net of cash acquired) (Note 6 a)) | (130) | (4,953) | (130) | (5,377) |
Proceeds from sale of assets and business | - | 27,559 | - | 27,559 |
Additions to capital assets | (7,941) | (10,078) | (16,108) | (21,954) |
Proceeds from disposal of capital assets | 277 | 76 | 277 | 448 |
Additions to contract costs | (6,366) | (11,243) | (9,577) | (17,278) |
Reimbursement of contract costs | - | - | 2,143 | - |
Additions to finite-life intangibles and other long-term assets | (20,169) | (19,036) | (39,481) | (35,294) |
Decrease in other long-term assets | 165 | 150 | 338 | 2,080 |
Cash used in investing activities | (34,164) | (17,525) | (62,538) | (49,816) |
Financing activities | ||||
Increase in credit facilities | 29,533 | 738,605 | 29,533 | 738,605 |
Repayment of credit facilities | (161,829) | (29,495) | (253,982) | (29,495) |
Repayment of long-term debt | (1,815) | (4,229) | (4,156) | (7,210) |
Repurchase of Class A subordinate shares (net of share repurchase costs) | (34,181) | (865,990) | (55,240) | (873,175) |
Issuance of shares (net of share issue costs) | 21,225 | 31,094 | 22,097 | 32,734 |
Cash used in continuing financing activities | (147,067) | (130,015) | (261,748) | (138,541) |
Effect of foreign exchange rate changes on cash and cash equivalents | (468) | 32 | 7,245 | (290) |
Net decrease in cash and cash equivalents | (52,737) | (64,958) | (21,905) | (42,469) |
Cash and cash equivalents, beginning of period | 146,561 | 262,948 | 115,729 | 240,459 |
Cash and cash equivalents, end of period | 93,824 | 197,990 | 93,824 | 197,990 |
Interest paid | 13,661 | 17,942 | 22,839 | 18,697 |
Income taxes paid | 12,135 | 20,181 | 23,926 | 41,742 |
Page 5 of 18
CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)
1. Summary of significant accounting policies
The interim consolidated financial statements for the three and six months ended March 31, 2007 and 2006, are unaudited and include all adjustments that management of CGI Group Inc. (the “Company”) considers necessary for a fair presentation of the financial position, results of operations and cash flows.
The disclosures provided for these interim periods do not conform in all respects to the requirements of generally accepted accounting principles (“GAAP”) for the annual consolidated financial statements; therefore, the interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements of the Company for the year ended September 30, 2006. These interim consolidated financial statements have been prepared using the same accounting policies and methods of their application as the annual consolidated financial statements for the year ended September 30, 2006, except for new accounting policies that have been adopted effective October 1, 2006.
Certain comparative figures have been reclassified in order to conform to the current period presentation.
Change in accounting policies
The Canadian Institute of Chartered Accountants (“CICA”) has issued the following new Handbook Sections which were effective for interim periods beginning on or after October 1, 2006:
a) Section 3855, “Financial Instruments - Recognition and Measurement”, describes the standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. All financial assets, except for those classified as held-to-maturity, loans and receivables, and derivative financial instruments are measured at their fair values. All financial liabilities are measured at their fair values when they are classified as held for trading purposes. Otherwise, they are measured at their carrying value. The impact of the adoption of this new section did not have a significant effect on the consolidated financial statements.
b) Section 1530, “Comprehensive Income”, and Section 3251, “Equity”. Comprehensive income is the change in equity of an enterprise during a period arising from transactions and other events and circumstances from non-owner sources. It includes items that would normally not be included in net income such as changes in the foreign currency translation adjustment relating to self-sustaining foreign operations and unrealized gains or losses on available-for-sale financial instruments. This section describes how to report and disclose comprehensive income and its components. Section 3251, “Equity”, replaces Section 3250, “Surplus”, and establishes standards for the presentation of equity and changes in equity as a result of the new requirements of Section 1530, “Comprehensive Income”. Upon adoption of this section, the consolidated financial statements now include a statement of comprehensive income. The comparative financial statements are restated to reflect application of this section for changes in the balances of the foreign currency translation related to self-sustaining foreign operations.
Page 6 of 18
CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)
1. Summary of significant accounting policies (continued)
Change in accounting policies (continued)
c) Section 3865, “Hedges”, describes when hedge accounting is appropriate. Hedge accounting ensures that all gains, losses, revenues and expenses from the derivative and the item it hedges are recorded in the statement of earnings in the same period. The impact of the adoption of this new section did not have a significant effect on the consolidated financial statements.
Future accounting changes
The CICA has issued the following new Handbook Sections which are effective for interim periods beginning on or after October 1, 2007:
a) Section 3862, “Financial Instruments — Disclosures”, describes the required disclosure for the assessment of the significance of financial instruments for an entity’s financial position and performance and of the nature and extent of risks arising from financial instruments to which the entity is exposed and how the entity manages those risks. The Company is currently evaluating the impact of the adoption of this new section on the consolidated financial statements.
b) Section 3863, “Financial Instruments — Presentation”, establishes standards for presentation of the financial instruments and non-financial derivatives. It carries forward the presentation-related requirements of Section 3861 “Financial Instruments — Disclosure and Presentation”. The Company does not expect the adoption of this new section to have a significant effect on the consolidated financial statements.
Page 7 of 18
CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)
2. Finite-life intangibles and other long-term assets
As at March 31, 2007 | As at September 30, 2006 | ||||||
Cost | Accumulated amortization | Net book value | Cost | Accumulated amortization | Net book value | ||
$ | $ | $ | $ | $ | $ | ||
Internal software | 78,118 | 35,034 | 43,084 | 77,874 | 34,724 | 43,150 | |
Business solutions | 287,916 | 101,319 | 186,597 | 258,566 | 80,103 | 178,463 | |
Software licenses | 128,698 | 90,298 | 38,400 | 120,557 | 78,373 | 42,184 | |
Customer relationships and other | 374,633 | 154,639 | 219,994 | 367,404 | 131,596 | 235,808 | |
Finite-life intangibles | 869,365 | 381,290 | 488,075 | 824,401 | 324,796 | 499,605 | |
Deferred financing fees | 4,117 | 6,475 | |||||
Deferred compensation plan | 12,308 | 9,943 | |||||
Long-term maintenance agreements | 14,431 | 3,294 | |||||
Other | 3,822 | 4,015 | |||||
Other long-term assets | 34,678 | 23,727 | |||||
Total finite-life intangibles and other long-term assets | 522,753 | 523,332 |
3. Credit facilities
The Company has available an unsecured revolving credit facility for an amount of $1,000,000,000 maturing in December 2009. This agreement is comprised of a Canadian tranche with a limit of $850,000,000 and a U.S. tranche equivalent to $150,000,000. The interest rate charged is determined by the denomination of the amount drawn. As at March 31, 2007, an amount of $365,000,000 has been drawn upon this facility. Also, an amount of $17,290,000 has been committed against this facility to cover various letters of credit issued for clients and other parties. In addition to the revolving credit facility, the Company has demand lines of credit in the amounts of $25,000,000 and £2,000,000 available. As at March 31, 2007, no amount has been drawn upon these facilities.
The long-term debt agreements contain covenants that require the Company to maintain certain financial ratios. At March 31, 2007, the Company is in compliance with the covenants of its credit facilities and other long-term debt.
Page 8 of 18
CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)
4. Capital stock, stock options and earnings per share
a) Capital stock
Six months ended March 31, 2007 | ||||||
Class A subordinate shares | Class B shares | Total | ||||
Number | Carrying value | Number | Carrying value | Number | Carrying value | |
$ | $ | $ | ||||
Balance, as at October 1, 2006 | 297,484,885 | 1,319,882 | 34,208,159 | 47,724 | 331,693,044 | 1,367,606 |
Repurchased and cancelled(1) | (6,237,400) | (23,812) | - | - | (6,237,400) | (23,812) |
Repurchased and not cancelled(1) | - | (387) | - | - | - | (387) |
Issued upon exercise of options(2) | 2,933,610 | 29,953 | - | - | 2,933,610 | 29,953 |
Balance, as at March 31, 2007 | 294,181,095 | 1,325,636 | 34,208,159 | 47,724 | 328,389,254 | 1,373,360 |
(1) | On January 30, 2007 and January 31, 2006, the Company’s Board of Directors authorized the renewal of a Normal Course Issuer Bid and the purchase of up to 29,091,303 and 29,288,443 Class A subordinate shares respectively. During the six months ended March 31, 2007, the Company repurchased 5,418,300 Class A subordinate shares for $49,403,000, including a redemption fee of $95,000. The excess of the purchase price over the carrying value of Class A subordinate shares repurchased, in the amount of $25,204,000, was charged to retained earnings. As of March 31, 2007, 86,000 of the repurchased Class A subordinate shares (905,100 for the year ended September 30, 2006) with a carrying value of $387,000 ($4,028,000 for the year ended September 30, 2006), and a repurchase value of $860,000 ($6,661,000 for the year ended September 30, 2006) were held by the Company and had not been cancelled. Of the $860,000, $823,000 was unpaid. |
(2) | The carrying value of Class A subordinate shares includes $7,739,000 ($3,421,000 for the year ended September 30, 2006) which corresponds to a reduction in contributed surplus representing the value of compensation cost associated with the options exercised since inception and the value of exercised options assumed in connection with acquisitions. |
Page 9 of 18
CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)
4. Capital stock, stock options and earnings per share (continued)
b) Stock options
Under the Company’s stock option plan, the Board of Directors may grant, at its discretion, options to purchase Class A subordinate shares to certain employees, officers, directors and consultants of the Company and its subsidiaries. The exercise price is established by the Board of Directors and is equal to the closing price of the Class A subordinate shares on the Toronto Stock Exchange on the day preceding the date of the grant. Options generally vest one year from the date of grant conditionally upon achievement of objectives and must be exercised within a ten-year period, except in the event of retirement, termination of employment or death.
The following table presents the weighted average assumptions used to determine the stock-based compensation expense recorded in cost of services, selling and administrative expenses using the Black-Scholes option pricing model:
Three months ended March 31 | Six months ended March 31 | |||
2007 | 2006 | 2007 | 2006 | |
Compensation expense ($) | 4,334 | 2,104 | 7,337 | 6,294 |
Dividend yield | 0.0% | 0.0% | 0.0% | 0.0% |
Expected volatility | 29.2% | 33.1% | 29.5% | 38.2% |
Risk-free interest rate | 4.04% | 4.06% | 3.90% | 3.89% |
Expected life (years) | 5 | 5 | 5 | 5 |
Weighted average grant date fair values ($) | 2.78 | 3.44 | 2.60 | 3.43 |
The following table presents information concerning all outstanding stock options granted by the Company:
Number of options | Six months ended March 31, 2007 | Twelve months ended September 30, 2006 |
Outstanding, beginning of period | 29,956,711 | 26,538,654 |
Granted | 3,936,090 | 8,738,601 |
Exercised | (2,933,610) | (1,220,820) |
Forfeited and expired | (3,446,177) | (4,099,724) |
Outstanding, end of period | 27,513,014 | 29,956,711 |
Page 10 of 18
CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)
4. Capital stock, stock options and earnings per share (continued)
c) Earnings per share
The following table sets forth the computation of basic and diluted earnings per share:
Three months ended March 31, 2007 | Three months ended March 31, 2006 | |||||
Net earnings (numerator) | Weighted average number of shares outstanding (denominator)(1) | Earnings per share | Net earnings (numerator) | Weighted average number of shares outstanding (denominator)(1) | Earnings per share | |
$ | $ | $ | $ | |||
Basic | 62,711 | 329,056,989 | 0.19 | 14,149 | 344,825,024 | 0.04 |
Dilutive options (2) | 3,840,932 | 2,596,418 | ||||
Dilutive warrants (2) | - | 1,923,365 | ||||
Diluted | 62,711 | 332,897,921 | 0.19 | 14,149 | 349,344,807 | 0.04 |
Six months ended March 31, 2007 | Six months ended March 31, 2006 | |||||
Net earnings (numerator) | Weighted average number of shares outstanding (denominator)(1) | Earnings per share | Net earnings (numerator) | Weighted average number of shares outstanding (denominator)(1) | Earnings per share | |
$ | $ | $ | $ | |||
Basic | 106,392 | 329,761,789 | 0.32 | 71,057 | 388,126,856 | 0.18 |
Dilutive options (2) | 2,185,107 | 2,242,834 | ||||
Dilutive warrants (2) | - | 1,851,671 | ||||
Diluted | 106,392 | 331,946,896 | 0.32 | 71,057 | 392,221,361 | 0.18 |
(1) | The 5,418,300 Class A subordinate shares repurchased during the six months ended March 31, 2007 (100,000,000 during the six months ended March 31, 2006), were excluded from the calculation of earnings per share as of the date of repurchase. |
(2) | The calculation of the dilutive effects excludes all anti-dilutive options and warrants that would not be exercised because their exercise price is higher than the average market value of a Class A subordinate share of the Company for each of the periods shown in the table. The number of excluded options was 3,576,087 and 10,663,282 for the three and six months ended March 31, 2007, respectively and 4,446,526 and 9,283,100 for the three and six months ended March 31, 2006, respectively. The number of excluded warrants was nil for the three and six months ended March 31, 2007, and nil and 2,113,041 for the three and six months ended March 31, 2006, respectively. |
Page 11 of 18
CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)
5. Accumulated other comprehensive loss
Three months ended March 31, 2007 | Six months ended March 31, 2007 | |||||
Balance, as at January 1, 2007 | Net changes incurred during the three months | Balance, as at March 31, 2007 | Balance, as at October 1, 2006 | Net changes incurred during the six months | Balance, as at March 31, 2007 | |
$ | $ | $ | $ | |||
Net change in unrealized (gains) losses on translating financial statements of self-sustaining foreign operations | (254,922) | (11,710) | (266,632) | (324,297) | 57,665 | (266,632) |
Net change in gains (losses) on translation of long-term debt designated as a hedge of net investment in self-sustaining foreign operations | 26,997 | 2,003 | 29,000 | 35,074 | (6,074) | 29,000 |
(227,925) | (9,707) | (237,632) | (289,223) | 51,591 | (237,632) |
6. Investments in subsidiaries and joint ventures
a) Modifications to purchase price allocations
During the six months ended March 31, 2007, the Company modified the purchase price allocation and made adjustments relating to certain business acquisitions, resulting in a net decrease of integration charges, future income tax assets and cash of $6,046,000, $2,282,000 and $130,000, respectively, whereas goodwill decreased by $3,634,000.
b) Balance of integration charges
For American Management Systems, Incorporated and Cognicase Inc., the components of the integration charges related to business acquisitions included in accounts payable and accrued liabilities as well as in accrued integration charges and other long-term liabilities are as follows:
Consolidation and closure of facilities | Severance | Total | |
$ | $ | $ | |
Balance, as at October 1, 2006 | 35,010 | 2,287 | 37,297 |
Adjustments to initial provision(1) | (2,859) | (411) | (3,270) |
Foreign currency translation adjustment | 1,308 | 154 | 1,462 |
Paid during the six-month period | (5,000) | (6) | (5,006) |
Balance, as at March 31, 2007(2) | 28,459 | 2,024 | 30,483 |
(1) | This has been recorded as a decrease of goodwill. This amount includes the amount of goodwill decrease presented in Note 6 a). |
(2) | Of the total balance remaining, $7,006,000 is included in accounts payable and accrued liabilities and $23,477,000 is included in accrued integration charges and other long-term liabilities. |
Page 12 of 18
CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)
7. Amortization
Three months ended March 31 | Six months ended March 31 | |||
2007 | 2006 | 2007 | 2006 | |
$ | $ | $ | $ | |
Amortization of capital assets | 9,591 | 9,485 | 16,689 | 17,939 |
Amortization of contract costs related to transition | 5,503 | 3,986 | 9,407 | 7,989 |
Amortization of finite-life intangibles | 28,689 | 29,835 | 58,020 | 60,248 |
Impairment of finite-life intangibles | - | 997 | - | 997 |
43,783 | 44,303 | 84,116 | 87,173 | |
Amortization of contract costs related to incentives (presented as reduction of revenue) | 5,938 | 6,121 | 11,858 | 12,058 |
Amortization of other long-term assets (presented in interest on long-term debt) | 374 | 384 | 748 | 590 |
50,095 | 50,808 | 96,722 | 99,821 |
Page 13 of 18
CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)
8. | Restructuring costs related to specific items |
On March 29, 2006, the Company announced a restructuring plan impacting members located primarily in Montreal and Toronto, of which a significant portion was related to lower than expected BCE Inc. (“BCE”) work volumes. The program ended December 31, 2006.
The following table shows the details of the restructuring costs related to specific items recorded in the statement of earnings during the six months ended March 31, 2007:
Severance | Consolidation and closure of facilities | Total | |
$ | $ | $ | |
IT services | 9,172 | 6,700 | 15,872 |
BPS | 166 | 5,328 | 5,494 |
Corporate | 1,677 | 446 | 2,123 |
Restructuring costs related to specific items | 11,015 | 12,474 | 23,489 |
BCE contribution(1) | (479) | - | (479) |
Total restructuring costs related to specific items(2) | 10,536 | 12,474 | 23,010 |
(1) | The BCE contribution has been received as at March 31, 2007. |
(2) | Since the program ended December 31, 2006, the restructuring costs were entirely incurred during the three-month period ended December 31, 2006. |
The following table shows the components of the restructuring provision, included in accrued compensation, in accounts payable and accrued liabilities as well as in accrued integration charges and other long-term liabilities:
Severance | Consolidation and closure of facilities | Total | |
$ | $ | $ | |
Balance, as at October 1, 2006 | 8,602 | 5,445 | 14,047 |
New restructuring costs related to specific items | 11,015 | 12,474 | 23,489 |
Foreign currency translation adjustment | 137 | 187 | 324 |
Paid during the six-month period | (15,005) | (6,636) | (21,641) |
Balance, as at March 31, 2007(1) | 4,749 | 11,470 | 16,219 |
(1) | Of the total balance remaining, $4,749,000 is included in accrued compensation, $5,743,000 is included in accounts payable and accrued liabilities and $5,727,000 is included in accrued integration charges and other long-term liabilities. |
Page 14 of 18
CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)
9. | Segmented information |
The Company has two lines of business (“LOB”): IT services (“IT”) and business process services (“BPS”), in addition to Corporate services. The focus of these LOBs is as follows:
- The IT services LOB provides a full-range of IT services, including systems integration, consulting and outsourcing to clients located in North America, Europe and Asia Pacific. The Company professionals and centers of excellence facilities in North America, Europe and India also provide IT and BPS services to clients as an integral part of our homeshore, nearshore and offshore delivery model.
- Services provided by the BPS LOB include business processing for the financial services sector, as well as other services such as payroll and document management services.
The following presents information on the Company’s operations based on its management structure:
As at and for the three months ended March 31, 2007 | IT services | BPS | Corporate | Total | |
$ | $ | $ | $ | ||
Revenue | 832,284 | 119,058 | - | 951,342 | |
Earnings (loss) before interest on long-term debt, other income and income taxes (1) | 106,238 | 14,781 | (18,979) | 102,040 | |
Total assets | 2,879,782 | 647,655 | 205,060 | 3,732,497 |
(1) Amortization included in IT services, BPS and Corporate is $41,360,000, $5,566,000 and $2,795,000, respectively.
As at and for the three months ended March 31, 2006 | IT services | BPS | Corporate | Total |
$ | $ | $ | $ | |
Revenue | 746,972 | 119,864 | - | 866,836 |
Earnings (loss) before restructuring costs related to specific items, interest on long-term debt, other income, loss on sale of assets and income taxes (1) | 68,902 | 12,365 | (18,440) | 62,827 |
Total assets | 2,934,552 | 681,558 | 321,360 | 3,937,470 |
(1) Amortization included in IT services, BPS and Corporate is $41,737,000, $6,463,000 and $2,224,000, respectively.
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CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)
9. | Segmented information (continued) |
As at and for the six months ended March 31, 2007 | IT services | BPS | Corporate | Total |
$ | $ | $ | $ | |
Revenue | 1,621,726 | 233,676 | - | 1,855,402 |
Earnings (loss) before restructuring costs related to specific items, interest on long-term debt, other income and income taxes (1) | 206,889 | 28,173 | (33,333) | 201,729 |
Total assets | 2,879,782 | 647,655 | 205,060 | 3,732,497 |
(1) Amortization included in IT services, BPS and Corporate is $79,674,000, $10,901,000 and $5,399,000, respectively.
As at and for the six months ended March 31, 2006 | IT services | BPS | Corporate | Total |
$ | $ | $ | $ | |
Revenue | 1,525,045 | 240,254 | - | 1,765,299 |
Earnings (loss) before restructuring costs related to specific items, interest on long-term debt, other income, gain on sale of assets and income taxes (1) | 155,360 | 25,528 | (39,315) | 141,573 |
Total assets | 2,934,552 | 681,558 | 321,360 | 3,937,470 |
(1) Amortization included in IT services, BPS and Corporate is $84,308,000, $10,284,000 and $4,639,000, respectively.
The accounting policies of each segment are the same as those described in the summary of significant accounting policies. See Note 2 of the annual consolidated financial statements of the Company for the year ended September 30, 2006. The figures are presented net of intersegment sales and transfers, which are priced as if the sales or transfers were made to third parties.
Page 16 of 18
CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)
10. | Guarantees |
In the normal course of business, the Company may provide certain clients, principally governmental entities, with bid and performance bonds. In general, the Company would only be liable for the amount of the bid bonds if the Company refuses to perform the project once the bid is awarded. The Company would also be liable for the performance bonds in the event of default in the performance of its obligations. As at March 31, 2007, the Company provided a total of $87,697,000 of these bonds. The Company believes it is in compliance with its performance obligations under all service contracts for which there is a performance or bid bond, and the ultimate liability, if any, incurred in connection with these guarantees would not have a materially adverse effect on the Company’s consolidated results of operations or financial condition.
Page 17 of 18
CGI GROUP INC.
Notes to the Consolidated Financial Statements
For the three and six months ended March 31, 2007 and 2006
(tabular amounts only are in thousands of Canadian dollars, except share data) (unaudited)
11. Reconciliation of results reported in accordance with Canadian GAAP to U.S. GAAP
The material differences between Canadian and U.S. GAAP affecting the Company’s consolidated financial statements are detailed in the table below. The Company’s most recent annual financial statements describe the circumstances which gave rise to the material differences between Canadian and U.S. GAAP applicable as at September 30, 2006.
Three months ended March 31 | Six months ended March 31 | |||
2007 | 2006 | 2007 | 2006 | |
Reconciliation of net earnings: | $ | $ | $ | $ |
Net earnings - Canadian GAAP | 62,711 | 14,149 | 106,392 | 71,057 |
Adjustments for: | ||||
Warrants | 351 | 351 | 702 | 702 |
Other | 346 | 349 | 683 | 410 |
Net earnings - U.S. GAAP | 63,408 | 14,849 | 107,777 | 72,169 |
Basic earnings per share - U.S. GAAP | 0.19 | 0.04 | 0.33 | 0.19 |
Diluted earnings per share - U.S. GAAP | 0.19 | 0.04 | 0.32 | 0.18 |
Net earnings - U.S. GAAP | 63,408 | 14,849 | 107,777 | 72,169 |
Other comprehensive income Foreign currency translation adjustment | (9,707) | 3,624 | 51,591 | 4,696 |
Comprehensive income - U.S. GAAP | 53,701 | 18,473 | 159,368 | 76,865 |
As at March 31, 2007 | As at September 30, 2006 | |
$ | $ | |
Reconciliation of shareholders’ equity: | ||
Shareholders’ equity - Canadian GAAP | 1,886,152 | 1,748,020 |
Adjustments for: | ||
Stock-based compensation | 58,411 | 58,411 |
Warrants | (4,373) | (5,075) |
Unearned compensation | (3,694) | (3,694) |
Integration costs | (6,606) | (6,606) |
Goodwill | 28,078 | 28,078 |
Income taxes and adjustment for change in accounting policy | 9,715 | 9,715 |
Other | (7,542) | (8,225) |
Shareholders’ equity - U.S. GAAP | 1,960,141 | 1,820,624 |
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