Exhibit 99.2
Interim Condensed Consolidated Financial Statements of
CGI INC.
For the three months ended December 31, 2023 and 2022
(unaudited)
Interim Consolidated Statements of Earnings
For the three months ended December 31
(in thousands of Canadian dollars, except per share data) (unaudited)
| Notes | 2023 | 2022 | ||||||||||
| $ | $ | |||||||||||
Revenue | 10 | 3,602,970 | 3,450,272 | |||||||||
Operating expenses | ||||||||||||
Costs of services, selling and administrative | 3,019,115 | 2,899,608 | ||||||||||
Acquisition-related and integration costs | 8c | 2,178 | 19,424 | |||||||||
Cost optimization program | 6 | 47,662 | — | |||||||||
Net finance costs | 7 | 7,258 | 18,141 | |||||||||
Foreign exchange gain | (378 | ) | (3,449 | ) | ||||||||
| 3,075,835 | 2,933,724 | |||||||||||
Earnings before income taxes | 527,135 | 516,548 | ||||||||||
Income tax expense | 137,339 | 134,169 | ||||||||||
Net earnings | 389,796 | 382,379 | ||||||||||
Earnings per share | ||||||||||||
Basic earnings per share | 5c | 1.69 | 1.62 | |||||||||
Diluted earnings per share | 5c | 1.67 | 1.60 | |||||||||
See Notes to the Interim Condensed Consolidated Financial Statements.
| CGI Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2023 and 2022 | 1 |
Interim Consolidated Statements of Comprehensive Income
For the three months ended December 31
(in thousands of Canadian dollars) (unaudited)
| 2023 | 2022 | |||||||
| $ | $ | |||||||
Net earnings | 389,796 | 382,379 | ||||||
Items that will be reclassified subsequently to net earnings (net of income taxes): | ||||||||
Net unrealized gains on translating financial statements of foreign operations | 46,891 | 346,881 | ||||||
Net gains (losses) on cross-currency swaps and on translating long-term debt designated as hedges of net investments in foreign operations | 7,634 | (63,414 | ) | |||||
Deferred gains of hedging on cross-currency swaps | 4,583 | 5,690 | ||||||
Net unrealized losses on cash flow hedges | (10,688 | ) | (15,614 | ) | ||||
Net unrealized gains on financial assets at fair value through other comprehensive income | 1,852 | 436 | ||||||
Items that will not be reclassified subsequently to net earnings (net of income taxes): | ||||||||
Net remeasurement losses on defined benefit plans | (1,985 | ) | (10,309 | ) | ||||
Other comprehensive income | 48,287 | 263,670 | ||||||
Comprehensive income | 438,083 | 646,049 | ||||||
See Notes to the Interim Condensed Consolidated Financial Statements.
| CGI Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2023 and 2022 | 2 |
Interim Consolidated Balance Sheets
(in thousands of Canadian dollars) (unaudited)
| Notes | As at December 31, 2023 | As at September 30, 2023 | ||||||||||
| $ | $ | |||||||||||
Assets | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | 9c and 11 | 1,132,661 | 1,568,291 | |||||||||
Accounts receivable | 1,544,544 | 1,425,117 | ||||||||||
Work in progress | 1,023,834 | 1,143,685 | ||||||||||
Current financial assets | 11 | 43,882 | 103,463 | |||||||||
Prepaid expenses and other current assets | 170,640 | 198,377 | ||||||||||
Income taxes | 9,396 | 6,067 | ||||||||||
Total current assets before funds held for clients | 3,924,957 | 4,445,000 | ||||||||||
Funds held for clients | 611,156 | 488,727 | ||||||||||
Total current assets | 4,536,113 | 4,933,727 | ||||||||||
Property, plant and equipment | 378,438 | 389,276 | ||||||||||
Right-of-use assets | 462,978 | 482,321 | ||||||||||
Contract costs | 314,178 | 308,446 | ||||||||||
Intangible assets | 610,880 | 623,103 | ||||||||||
Other long-term assets | 104,126 | 84,776 | ||||||||||
Long-term financial assets | 147,460 | 147,968 | ||||||||||
Deferred tax assets | 119,913 | 105,432 | ||||||||||
Goodwill | 8,839,367 | 8,724,450 | ||||||||||
| 15,513,453 | 15,799,499 | |||||||||||
Liabilities | ||||||||||||
Current liabilities | ||||||||||||
Accounts payable and accrued liabilities | 910,414 | 924,659 | ||||||||||
Accrued compensation and employee-related liabilities | 1,098,976 | 1,100,566 | ||||||||||
Deferred revenue | 477,424 | 488,761 | ||||||||||
Income taxes | 259,910 | 250,869 | ||||||||||
Current portion of long-term debt | 468,146 | 1,158,971 | ||||||||||
Current portion of lease liabilities | 219,588 | 198,857 | ||||||||||
Provisions | 37,676 | 24,965 | ||||||||||
Current derivative financial instruments | 11 | 7,847 | 4,513 | |||||||||
Total current liabilities before clients’ funds obligations | 3,479,981 | 4,152,161 | ||||||||||
Clients’ funds obligations | 614,077 | 493,638 | ||||||||||
Total current liabilities | 4,094,058 | 4,645,799 | ||||||||||
Long-term debt | 1,908,943 | 1,941,350 | ||||||||||
Long-term lease liabilities | 404,375 | 443,106 | ||||||||||
Long-term provisions | 18,994 | 19,198 | ||||||||||
Other long-term liabilities | 270,557 | 243,592 | ||||||||||
Long-term derivative financial instruments | 11 | 6,104 | 1,700 | |||||||||
Deferred tax liabilities | 26,191 | 31,081 | ||||||||||
Retirement benefits obligations | 180,211 | 163,379 | ||||||||||
| 6,909,433 | 7,489,205 | |||||||||||
Equity | ||||||||||||
Retained earnings | 6,610,176 | 6,329,107 | ||||||||||
Accumulated other comprehensive income | 4 | 207,262 | 158,975 | |||||||||
Capital stock | 5a | 1,447,069 | 1,477,180 | |||||||||
Contributed surplus | 339,513 | 345,032 | ||||||||||
| 8,604,020 | 8,310,294 | |||||||||||
| 15,513,453 | 15,799,499 | |||||||||||
See Notes to the Interim Condensed Consolidated Financial Statements.
| CGI Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2023 and 2022 | 3 |
Interim Consolidated Statements of Changes in Equity
For the three months ended December 31
(in thousands of Canadian dollars) (unaudited)
| Notes | Retained earnings | Accumulated other comprehensive income | Capital stock | Contributed surplus | Total equity | |||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||
Balance as at September 30, 2023 | 6,329,107 | 158,975 | 1,477,180 | 345,032 | 8,310,294 | |||||||||||||||||
Net earnings | 389,796 | — | — | — | 389,796 | |||||||||||||||||
Other comprehensive income | — | 48,287 | — | — | 48,287 | |||||||||||||||||
Comprehensive income | 389,796 | 48,287 | — | — | 438,083 | |||||||||||||||||
Share-based payment costs | — | — | — | 18,762 | 18,762 | |||||||||||||||||
Income tax impact associated with share-based payments | — | — | — | 6,066 | 6,066 | |||||||||||||||||
Exercise of stock options | 5a | — | — | 32,114 | (5,283 | ) | 26,831 | |||||||||||||||
Exercise of performance share units | 5a | 1,089 | — | 11,765 | (25,064 | ) | (12,210 | ) | ||||||||||||||
Purchase for cancellation of Class A subordinate voting shares | 5a | (109,816 | ) | — | (7,143 | ) | — | (116,959 | ) | |||||||||||||
Purchase of Class A subordinate voting shares held in trusts | 5a | — | — | (66,847 | ) | — | (66,847 | ) | ||||||||||||||
Balance as at December 31, 2023 | 6,610,176 | 207,262 | 1,447,069 | 339,513 | 8,604,020 | |||||||||||||||||
| Notes | Retained earnings | Accumulated other comprehensive income | Capital stock | Contributed surplus | Total equity | |||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||
Balance as at September 30, 2022 | 5,425,005 | 39,746 | 1,493,169 | 314,804 | 7,272,724 | |||||||||||||||||
Net earnings | 382,379 | — | — | — | 382,379 | |||||||||||||||||
Other comprehensive loss | — | 263,670 | — | — | 263,670 | |||||||||||||||||
Comprehensive income | 382,379 | 263,670 | — | — | 646,049 | |||||||||||||||||
Share-based payment costs | — | — | — | 16,259 | 16,259 | |||||||||||||||||
Income tax impact associated with share-based payments | — | — | — | 5,841 | 5,841 | |||||||||||||||||
Exercise of stock options | 5a | — | — | 37,416 | (6,310 | ) | 31,106 | |||||||||||||||
Exercise of performance share units | 5a | (3,030 | ) | — | 12,962 | (23,254 | ) | (13,322 | ) | |||||||||||||
Unrealized commitment to purchase Class A subordinate voting shares | 1,276 | — | 103 | — | 1,379 | |||||||||||||||||
Purchase of Class A subordinate voting shares held in trusts | 5a | — | — | (74,455 | ) | — | (74,455 | ) | ||||||||||||||
Balance as at December 31, 2022 | 5,805,630 | 303,416 | 1,469,195 | 307,340 | 7,885,581 | |||||||||||||||||
See Notes to the Interim Condensed Consolidated Financial Statements.
| CGI Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2023 and 2022 | 4 |
Interim Consolidated Statements of Cash Flows
For the three months ended December 31
(in thousands of Canadian dollars) (unaudited)
| Notes | 2023 | 2022 | ||||||||||
| $ | $ | |||||||||||
Operating activities | ||||||||||||
Net earnings | 389,796 | 382,379 | ||||||||||
Adjustments for: | ||||||||||||
Amortization, depreciation and impairment | 133,206 | 124,260 | ||||||||||
Deferred income tax recovery | (14,068 | ) | (22,204 | ) | ||||||||
Foreign exchange gain | (4,259 | ) | (1,481 | ) | ||||||||
Share-based payment costs | 18,762 | 16,259 | ||||||||||
Gain on lease terminations | — | (2,362 | ) | |||||||||
Net change in non-cash working capital items and others | 9a | 53,735 | 108,423 | |||||||||
Cash provided by operating activities | 577,172 | 605,274 | ||||||||||
Investing activities | ||||||||||||
Net change in short-term investments | (31,055 | ) | (96 | ) | ||||||||
Business acquisitions (net of cash acquired) | 8 | (49,391 | ) | (3,998 | ) | |||||||
Loan receivable | 1,782 | (21,469 | ) | |||||||||
Purchase of property, plant and equipment | (28,496 | ) | (41,271 | ) | ||||||||
Additions to contract costs | (21,921 | ) | (20,692 | ) | ||||||||
Additions to intangible assets | (34,956 | ) | (31,345 | ) | ||||||||
Purchase of long-term investments | — | (87,025 | ) | |||||||||
Proceeds from sale of long-term investments | 15,204 | 14,924 | ||||||||||
Cash used in investing activities | (148,833 | ) | (190,972 | ) | ||||||||
Financing activities | ||||||||||||
Increase of long-term debt | — | 948 | ||||||||||
Repayment of long-term debt | 11 | (673,263 | ) | (2,878 | ) | |||||||
Settlement of derivative financial instruments | 11 | 18,087 | — | |||||||||
Payment of lease liabilities | 11 | (32,950 | ) | (35,618 | ) | |||||||
Repayment of debt assumed from business acquisition | — | (56,994 | ) | |||||||||
Purchase for cancellation of Class A subordinate voting shares | 5a | (126,136 | ) | (10,291 | ) | |||||||
Issuance of Class A subordinate voting shares | 5a | 26,831 | 31,106 | |||||||||
Purchase of Class A subordinate voting shares held in trusts | 5a | (66,847 | ) | (74,455 | ) | |||||||
Withholding taxes remitted on the net settlement of performance share units | 5a | (12,210 | ) | (13,322 | ) | |||||||
Net change in clients’ funds obligations | 120,592 | 52,379 | ||||||||||
Cash used in financing activities | (745,896 | ) | (109,125 | ) | ||||||||
Effect of foreign exchange rate changes on cash, cash equivalents and cash included in funds held for clients | (12,732 | ) | 33,486 | |||||||||
Net (decrease) increase in cash, cash equivalents and cash included in funds held for clients | (330,289 | ) | 338,663 | |||||||||
Cash, cash equivalents and cash included in funds held for clients, beginning of period | 1,838,083 | 1,471,184 | ||||||||||
Cash, cash equivalents and cash included in funds held for clients, end of period | 1,507,794 | 1,809,847 | ||||||||||
Cash composition: | ||||||||||||
Cash and cash equivalents | 1,132,661 | 1,324,835 | ||||||||||
Cash included in funds held for clients | 375,133 | 485,012 | ||||||||||
See Notes to the Interim Condensed Consolidated Financial Statements.
| CGI Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2023 and 2022 | 5 |
Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2023 and 2022
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)
| 1. | Description of business |
CGI Inc. (the Company), directly or through its subsidiaries, provides managed information technology (IT) and business process services, business and strategic IT consulting and systems integration services, as well as software solutions to help clients effectively realize their strategies and create added value. The Company was incorporated under Part IA of the Companies Act (Québec), predecessor to the Business Corporations Act (Québec) which came into force on February 14, 2011 and its Class A subordinate voting shares are publicly traded. The executive and registered office of the Company is situated at 1350 René-Lévesque Blvd. West, Montréal, Québec, Canada, H3G 1T4.
| 2. | Basis of preparation |
These interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (IASB). In addition, the interim condensed consolidated financial statements have been prepared in accordance with the accounting policies set out in Note 3, Summary of material accounting policies, of the Company’s consolidated financial statements for the year ended September 30, 2023 which were consistently applied to all periods presented, except for the new accounting standard amendments adopted on October 1, 2023, as described below in Note 3, Accounting policies.
These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended September 30, 2023.
The Company’s interim condensed consolidated financial statements for the three months ended December 31, 2023 and 2022 were authorized for issue by the Board of Directors on January 30, 2024.
| 3. | Accounting policies |
ADOPTION OF ACCOUNTING STANDARD
The following standard amendments have been adopted by the Company on October 1, 2023:
Definition of Accounting Estimates – Amendments to IAS 8
In February 2021, the IASB amended IAS 8 Accounting Policies, Changes in Accounting estimates and Errors to introduce a definition of accounting estimates and to help entities distinguish changes in accounting policies from changes in accounting estimates. This distinction is important because changes in accounting policies must be applied retrospectively while changes in accounting estimates are accounted for prospectively.
Deferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendments to IAS 12
In May 2021, the IASB amended IAS 12 Income Taxes, to narrow the scope of the initial recognition exemption so that it does not apply to transactions that give rise to equal and offsetting temporary differences.
The implementation of these standard amendments resulted in no impact on the Company’s interim condensed consolidated financial statements.
| CGI Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2023 and 2022 | 6 |
Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2023 and 2022
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)
| 3. | Accounting policies (continued) |
FUTURE ACCOUNTING STANDARD CHANGES
The following standard amendments have been issued and will be effective as of October 1, 2024 for the Company, with earlier application permitted. The Company is currently evaluating the impact of these standard amendments on its consolidated financial statements.
Classification of Liabilities as Current or Non-current and Information about long-term debt with covenants – Amendments to IAS 1
In January 2020, the IASB amended IAS 1 Presentation of Financial Statements, clarifying that the classification of liabilities as current or non-current is based on existing rights at the end of the reporting period, independent of whether the Company will exercise its right to defer settlement of a liability. Subsequently, in October 2022, the IASB introduced additional amendments to IAS 1, emphasizing that covenants for long-term debt, regardless whether the covenants were compliant after the reporting date, should not affect debt classification; instead, companies are required to disclose information about these covenants in the notes accompanying their financial statements.
Supplier finance arrangements - Amendments to IAS 7 and IFRS 7
In May 2023, the IASB amended IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures to introduce new disclosure requirements to enhance the transparency on supplier finance arrangements and their impact on the Company’s liabilities, cash flows and liquidity exposure. The new disclosure requirements will include information such as terms and conditions, the carrying amount of liabilities, the range of payment due dates, non-cash changes and liquidity risk information around supplier finance arrangements.
| CGI Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2023 and 2022 | 7 |
Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2023 and 2022
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)
| 4. | Accumulated other comprehensive income |
As at December 31, 2023 | As at September 30, 2023 | |||||||
| $ | $ | |||||||
Items that will be reclassified subsequently to net earnings: | ||||||||
Net unrealized gains on translating financial statements of foreign operations, net of accumulated income tax expense of $43,495 ($44,867 as at September 30, 2023) | 581,212 | 534,321 | ||||||
Net losses on cross-currency swaps and on translating long-term debt designated as hedges of net investments in foreign operations, net of accumulated income tax recovery of $52,635 ($49,991 as at September 30, 2023) | (318,015 | ) | (325,649 | ) | ||||
Deferred gains of hedging on cross-currency swaps, net of accumulated income tax expense of $2,645 ($1,754 as at September 30, 2023) | 18,124 | 13,541 | ||||||
Net unrealized gains on cash flow hedges, net of accumulated income tax expense of $404 ($3,953 as at September 30, 2023) | 836 | 11,524 | ||||||
Net unrealized losses on financial assets at fair value through other comprehensive income, net of accumulated income tax recovery of $619 ($1,189 as at September 30, 2023) | (1,560 | ) | (3,412 | ) | ||||
Items that will not be reclassified subsequently to net earnings: | ||||||||
Net remeasurement losses on defined benefit plans, net of accumulated income tax recovery of $25,653 ($25,173 as at September 30, 2023) | (73,335 | ) | (71,350 | ) | ||||
| 207,262 | 158,975 | |||||||
For the three months ended December 31, 2023, $5,809,000 of the net unrealized gains on cash flow hedges, net of income tax expense of $2,064,000, previously recognized in other comprehensive income, were reclassified in the consolidated statements of earnings ($3,510,000 and $1,197,000, respectively, were reclassified for the three months ended December 31, 2022).
For the three months ended December 31, 2023, $2,978,000 of the deferred gains of hedging on cross-currency swaps, net of income tax expense of $455,000, were also reclassified in the consolidated statements of earnings ($3,196,000 and $488,000, respectively, were reclassified for the three months ended December 31, 2022).
| CGI Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2023 and 2022 | 8 |
Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2023 and 2022
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)
| 5. | Capital stock, share-based payments and earnings per share |
| a) | Capital stock |
| Class A subordinate voting shares | Class B multiple voting shares | Total | ||||||||||||||||||||||
| Number | Carrying value | Number | Carrying value | Number | Carrying value | |||||||||||||||||||
| $ | $ | $ | ||||||||||||||||||||||
As at September 30, 2023 | 206,714,497 | 1,440,286 | 26,445,706 | 36,894 | 233,160,203 | 1,477,180 | ||||||||||||||||||
Release of shares held in trusts1 | — | 11,765 | — | — | — | 11,765 | ||||||||||||||||||
Purchased and held in trusts1 | — | (66,847 | ) | — | — | — | (66,847 | ) | ||||||||||||||||
Issued upon exercise of stock options2 | 462,843 | 32,114 | — | — | 462,843 | 32,114 | ||||||||||||||||||
Purchased and cancelled3 | (943,250 | ) | (7,143 | ) | — | — | (943,250 | ) | (7,143 | ) | ||||||||||||||
As at December 31, 2023 | 206,234,090 | 1,410,175 | 26,445,706 | 36,894 | 232,679,796 | 1,447,069 | ||||||||||||||||||
| 1 | During the three months ended December 31, 2023,143,523 shares held in trust were released (163,266 during the three months ended December 31, 2022) with a recorded value of $11,765,000 ($12,962,000 during the three months ended December 31, 2022) that was removed from contributed surplus. |
During the three months ended December 31, 2023, the Company settled the withholding tax obligations of the employees under the performance share unit (PSU) plans for a cash payment of $12,210,000 ($13,322,000 during the three months ended December 31, 2022).
During the three months ended December 31, 2023, the trustees, in accordance with the terms of the PSU plans and Trust Agreements, purchased 463,364 Class A subordinate voting shares of the Company on the open market (640,052 during the three months ended December 31, 2022) for a cash consideration of $66,847,000 ($74,455,000 during the three months ended December 31, 2022).
As at December 31, 2023, 2,629,584 Class A subordinate voting shares were held in trusts under the PSU plans (2,318,495 as at December 31, 2022 and 2,309,743 as at September 30, 2023).
| 2 | The carrying value of Class A subordinate voting shares includes $5,283,000 which corresponds to a reduction in contributed surplus representing the value of accumulated compensation costs associated with the stock options exercised during the three months ended December 31, 2023 ($6,310,000 during the three months ended December 31, 2022). |
| 3 | On January 30, 2024, the Company’s Board of Directors authorized, subject to regulatory approval from the Toronto Stock Exchange (TSX), the renewal of CGI’s Normal Course Issuer Bid (NCIB) for the purchase for cancellation of up to 20,457,737 Class A subordinate voting shares on the open market through the TSX, the New York Stock Exchange (NYSE) and/or alternative trading systems or otherwise pursuant to exemption orders issued by securities regulators. The Class A subordinate voting shares may be available for purchase for cancellation commencing on February 6, 2024 until no later than February 5, 2025, or on such earlier date when the Company has either acquired the maximum number of Class A subordinate voting shares allowable under the NCIB or elects to terminate the bid. |
During the three months ended December 31, 2023, the Company purchased for cancellation 874,700 Class A subordinate voting shares (nil during the three months ended December 31, 2022) under its current NCIB for a cash consideration of $116,959,000 and the excess of the purchase price over the carrying value in the amount of $109,816,000 was charged to retained earnings.
During the three months ended December 31, 2023, the Company paid for and cancelled 68,550 Class A subordinate voting shares under its current NCIB, with a carrying value of $558,000 and for a total consideration of $9,177,000, which were purchased but not cancelled as at September 30, 2023 (100,100, $778,000 and $10,291,000, respectively, during the three months ended December 31, 2022, which were purchased, or committed to be purchased, but not cancelled as at September 30, 2022).
| CGI Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2023 and 2022 | 9 |
Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2023 and 2022
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)
5. Capital stock, share-based payments and earnings per share (continued)
| b) | Share-based payments |
| i) | Performance share units (PSUs) |
During the three months ended December 31, 2023, 796,242 PSUs were granted, 229,573 were exercised and 192,918 were forfeited. The PSUs granted in the period had a weighted average grant date fair value of $137.89 per unit.
| ii) | Stock options |
During the three months ended December 31, 2023, 462,843 stock options were exercised (Note 5a) and 3,528 were forfeited.
| c) | Earnings per share |
The following table sets forth the computation of basic and diluted earnings per share for the three months ended December 31:
| 2023 | 2022 | |||||||||||||||||||||||
| Net earnings | Weighted average number of shares outstanding1 | Earnings per share | Net earnings | Weighted average number of shares outstanding1 | Earnings per share | |||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||
Basic | 389,796 | 230,298,674 | 1.69 | 382,379 | 236,126,560 | 1.62 | ||||||||||||||||||
Net effect of dilutive stock | 3,598,608 | 3,310,204 | ||||||||||||||||||||||
Diluted | 389,796 | 233,897,282 | 1.67 | 382,379 | 239,436,764 | 1.60 | ||||||||||||||||||
| 1 | During the three months ended December 31, 2023, 943,250 Class A subordinate voting shares purchased for cancellation and 2,629,584 Class A subordinate voting shares held in trusts were excluded from the calculation of the weighted average number of shares outstanding as of the date of the transaction (100,100 Class A subordinate voting shares paid for and cancelled and 2,318,495 Class A subordinate voting shares held in trusts were excluded from the calculation during the three months ended December 31, 2022). |
| 2 | The calculation of the diluted earnings per share excluded nil stock options for the three months ended December 31, 2023 (13,260 during the three months ended December 31 2022, as they were anti-dilutive). |
6. Cost optimization program
During the year ended September 30, 2023, the Company initiated a cost optimization program to accelerate actions to rightsize its real estate portfolio globally and improve operational efficiencies, including the increased use of automation and global delivery, focused on administrative activities.
During the three months ended December 31, 2023, the Company recorded $47,662,000 of costs (nil during the three months ended December 31, 2022), which includes costs for terminations of employment of $31,153,000, accounted for in severance provisions, and costs of vacating leased premises of $16,509,000.
| CGI Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2023 and 2022 | 10 |
Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2023 and 2022
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)
| 7. | Net finance costs |
| Three months ended December 31 | ||||||||
| 2023 | 2022 | |||||||
| $ | $ | |||||||
Interest on long-term debt | 12,748 | 14,005 | ||||||
Interest on lease liabilities | 7,389 | 7,161 | ||||||
Net interest costs on net defined benefit obligations or assets | 1,983 | 1,091 | ||||||
Other finance costs | 2,151 | 1,049 | ||||||
Finance costs | 24,271 | 23,306 | ||||||
Finance income | (17,013 | ) | (5,165 | ) | ||||
| 7,258 | 18,141 | |||||||
| 8. | Investments in subsidiaries |
| a) | Acquisitions and disposals |
On October 10, 2023, the Company acquired all of the outstanding units of Momentum Industries Holdings, LLC. (Momentum), for a purchase price of $54,145,000. Momentum is an IT and business consulting firm specializing in digital transformation, data and analytics and managed services, based in the U.S. and headquartered in Miami, Florida. The acquisition is reported under the U.S. Commercial and State Government operating segment. The purchase price is mainly allocated to goodwill that is deductible for tax purposes, and represents the future economic value associated with the acquired workforce and synergies with the Company’s operations, as well as client relationships. The purchase price allocation is preliminary and is expected to be completed as soon as management gathers all the significant information available that is considered necessary in order to finalize this allocation.
This acquisition was made to further expand CGI’s footprint in the region and to complement CGI’s proximity model.
Cash acquired as part of the acquisition represented $5,072,000. As at December 31, 2023, an amount of $2,030,000 of the consideration remains payable.
| b) | Business acquisitions realized in the prior fiscal year |
During the three months ended December 31, 2023, the Company paid $2,348,000 related to an acquisition realized in a prior fiscal year.
| c) | Acquisition-related and integration costs |
During the three months ended December 31, 2023, the Company incurred $2,178,000 of acquisition-related and integration costs ($19,424,000 during the three months ended December, 2022). These costs were mainly related to vacating leased premises of $798,000 ($1,337,000 during the three months ended December, 2022), cost of rationalizing the redundancy of employment of $232,000 ($7,289,000 during the three months ended December, 2022) and other integration costs, such as professional fees and training activities for $1,148,000 ($10,798,000 during the three months ended December 31, 2022, including $3,825,000 of costs in relation to the mandatory repayment of long-term debt).
| CGI Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2023 and 2022 | 11 |
Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2023 and 2022
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)
| 9. | Supplementary cash flow information |
| a) | Net change in non-cash working capital items and others is as follows for three months ended December 31: |
| 2023 | 2022 | |||||||
| $ | $ | |||||||
Accounts receivable | (104,094 | ) | (151,462 | ) | ||||
Work in progress | 123,704 | 161,589 | ||||||
Prepaid expenses and other assets | 32,248 | 8,472 | ||||||
Long-term financial assets | (12,964 | ) | (2,012 | ) | ||||
Accounts payable and accrued liabilities | (626 | ) | 10,135 | |||||
Accrued compensation and employee-related liabilities | (24,869 | ) | (98,146 | ) | ||||
Deferred revenue | 5,191 | 94,481 | ||||||
Income taxes | 11,386 | 82,800 | ||||||
Provisions | 11,761 | (4,519 | ) | |||||
Long-term liabilities | 14,637 | 9,413 | ||||||
Derivative financial instruments | (92 | ) | (159 | ) | ||||
Retirement benefits obligations | (2,547 | ) | (2,169 | ) | ||||
| 53,735 | 108,423 | |||||||
| b) | Interest paid and received and income taxes paid are classified within operating activities and are as follows for the three months ended December 31: |
| 2023 | 2022 | |||||||
| $ | $ | |||||||
Interest paid | 18,662 | 16,225 | ||||||
Interest received | 22,809 | 9,072 | ||||||
Income taxes paid | 125,253 | 68,481 | ||||||
| c) | Cash and cash equivalents consisted of unrestricted cash as at December 31, 2023 and September 30, 2023. |
| CGI Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2023 and 2022 | 12 |
Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2023 and 2022
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)
| 10. | Segmented information |
The following tables present information on the Company’s operations which are managed through the following nine operating segments: Western and Southern Europe (primarily France, Spain and Portugal); United States (U.S.) Commercial and State Government; Canada; U.S. Federal; Scandinavia and Central Europe (Germany, Sweden and Norway); United Kingdom (U.K.) and Australia; Finland, Poland and Baltics; Northwest and Central-East Europe (primarily Netherlands, Denmark and Czech Republic); and Asia Pacific Global Delivery Centers of Excellence (mainly India and Philippines) (Asia Pacific).
The operating segments reflect the management structure and the way that the chief operating decision-maker, who is the President and Chief Executive Officer of the Company, evaluates the business. Effective October 1, 2023, as part of the cost optimization program, the Company centralized some internal administrative activities under a corporate function, which were previously presented in revenue under the Asia Pacific segment. The Company has restated the Asia Pacific segmented information for the comparative period to conform with this change.
| For the three months ended December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Western and Southern Europe | U.S. Commercial and State Government | Canada | U.S. Federal | Scandinavia and Central Europe | U.K. and Australia | Finland, Poland and Baltics | Northwest and Central- East Europe | Asia Pacific | Eliminations | Total | ||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Segment revenue | 653,055 | 558,992 | 499,204 | 483,238 | 421,994 | 371,317 | 218,888 | 204,480 | 233,310 | (41,508 | ) | 3,602,970 | ||||||||||||||||||||||||||||||||
Segment earnings before acquisition-related and integration costs, cost optimization program, net finance costs and income tax expense1 | 86,670 | 70,377 | 120,099 | 69,938 | 37,769 | 62,591 | 27,025 | 33,904 | 75,860 | — | 584,233 | |||||||||||||||||||||||||||||||||
Acquisition-related and integration costs (Note 8c) | (2,178 | ) | ||||||||||||||||||||||||||||||||||||||||||
Cost optimization program (Note 6) | (47,662 | ) | ||||||||||||||||||||||||||||||||||||||||||
Net finance costs (Note 7) | (7,258 | ) | ||||||||||||||||||||||||||||||||||||||||||
Earnings before income taxes | 527,135 | |||||||||||||||||||||||||||||||||||||||||||
| 1 | Total amortization and depreciation of $121,494,000 included in the Western and Southern Europe, U.S. Commercial and State Government, Canada, U.S. Federal, Scandinavia and Central Europe, U.K. and Australia, Finland, Poland and Baltics, Northwest and Central-East Europe and Asia Pacific segments is $18,272,000, $22,107,000, $14,207,000, $11,872,000, $17,884,000, $11,006,000, $9,655,000, $9,547,000 and $6,944,000, respectively, for the three months ended December 31, 2023. |
| For the three months ended December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Western and Southern Europe | U.S. Commercial and State Government | Canada | U.S. Federal | Scandinavia and Central Europe | U.K. and Australia | Finland, Poland and Baltics | Northwest and Central- East Europe | Asia Pacific | Eliminations | Total | ||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Segment revenue | 628,128 | 566,013 | 506,373 | 464,029 | 398,203 | 329,947 | 203,258 | 178,101 | 217,977 | (41,757 | ) | 3,450,272 | ||||||||||||||||||||||||||||||||
Segment earnings before acquisition-related and integration costs, net finance costs and income tax expense1 | 77,404 | 82,282 | 119,002 | 73,145 | 31,107 | 45,100 | 29,218 | 25,866 | 70,989 | — | 554,113 | |||||||||||||||||||||||||||||||||
Acquisition-related and integration costs (Note 8c) | (19,424 | ) | ||||||||||||||||||||||||||||||||||||||||||
Net finance costs (Note 7) | (18,141 | ) | ||||||||||||||||||||||||||||||||||||||||||
Earnings before income taxes | 516,548 | |||||||||||||||||||||||||||||||||||||||||||
| 1 | Total amortization and depreciation of $124,053,000 included in the Western and Southern Europe, U.S. Commercial and State Government, Canada, U.S. Federal, Scandinavia and Central Europe, U.K. and Australia, Finland, Poland and Baltics, Northwest and Central-East Europe and Asia Pacific segments is $20,561,000, $19,353,000, $13,815,000, $15,956,000, $21,542,000, $9,077,000, $8,973,000, $7,540,000 and $7,236,000, respectively, for the three months ended December 31, 2022. |
The accounting policies of each operating segment are the same as those described in Note 3, Summary of material accounting policies, of the Company’s consolidated financial statements for the year ended September 30, 2023. Intersegment revenue is priced as if the revenue was from third parties.
| CGI Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2023 and 2022 | 13 |
Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2023 and 2022
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)
| 10. | Segmented information (continued) |
GEOGRAPHIC INFORMATION
The following table provides external revenue information based on the client’s location which is different from the revenue presented under operating segments, due to the intersegment revenue, for the three months ended December 31:
| 2023 | 2022 | |||||||
| $ | $ | |||||||
Western and Southern Europe | ||||||||
France | 568,210 | 549,942 | ||||||
Spain | 30,380 | 28,047 | ||||||
Portugal | 28,217 | 27,179 | ||||||
Others | 15,289 | 12,241 | ||||||
| 642,096 | 617,409 | |||||||
U.S.1 | 1,097,288 | 1,068,308 | ||||||
Canada | 544,374 | 550,618 | ||||||
Scandinavia and Central Europe | ||||||||
Germany | 237,338 | 207,687 | ||||||
Sweden | 181,851 | 177,977 | ||||||
Norway | 27,384 | 35,179 | ||||||
| 446,573 | 420,843 | |||||||
U.K. and Australia | ||||||||
U.K. | 404,412 | 369,944 | ||||||
Australia | 18,067 | 21,396 | ||||||
| 422,479 | 391,340 | |||||||
Finland, Poland and Baltics | ||||||||
Finland | 213,476 | 201,810 | ||||||
Others | 17,368 | 9,174 | ||||||
| 230,844 | 210,984 | |||||||
Northwest and Central-East Europe | ||||||||
Netherlands | 156,907 | 133,272 | ||||||
Denmark | 21,888 | 24,755 | ||||||
Czech Republic | 21,742 | 15,976 | ||||||
Others | 14,725 | 15,874 | ||||||
| 215,262 | 189,877 | |||||||
Asia Pacific | ||||||||
Others | 4,054 | 893 | ||||||
| 4,054 | 893 | |||||||
| 3,602,970 | 3,450,272 | |||||||
| 1 | External revenue included in the U.S. Commercial and State Government and U.S. Federal operating segments was $611,890,000 and $485,398,000, respectively, for the three months ended December 31, 2023 ($602,072,000 and $466,236,000, respectively, for the three months ended December 31, 2022). |
| CGI Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2023 and 2022 | 14 |
Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2023 and 2022
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)
| 10. | Segmented information (continued) |
INFORMATION ABOUT SERVICES
The following table provides revenue information based on services provided by the Company for the three months ended December 31:
| 2023 | 2022 | |||||||
| $ | $ | |||||||
Managed IT and business process services | 1,971,844 | 1,842,203 | ||||||
Business and strategic IT consulting and systems integration services | 1,631,126 | 1,608,069 | ||||||
| 3,602,970 | 3,450,272 | |||||||
MAJOR CLIENT INFORMATION
Contracts with the U.S. federal government and its various agencies, included within the U.S. Federal operating segment, accounted for $480,897,000 and 13.3% of revenues for the three months ended December 31, 2023 ($460,495,000 and 13.3% for the three months ended December 31, 2022).
| 11. | Financial instruments |
FAIR VALUE
All financial instruments are initially measured at their fair value and are subsequently classified either at amortized cost, at fair value through earnings or at fair value through other comprehensive income.
The Company has made the following classifications:
Amortized cost
Trade accounts receivable, long-term receivables within long-term financial assets, short-term investments included in funds held for clients, accounts payable and accrued liabilities, accrued compensation and employee-related liabilities, long-term debt and clients’ funds obligations.
Fair value through earnings (FVTE)
Cash, cash equivalents, cash included in funds held for clients, derivative financial instruments and deferred compensation plan assets within long-term financial assets.
Fair value through other comprehensive income (FVOCI)
Short-term investments included in current financial assets, long-term bonds included in funds held for clients and long-term investments within long-term financial assets.
FAIR VALUE HIERARCHY
Fair value measurements recognized in the consolidated balance sheet are classified in accordance with the following levels:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1, but that are observable for the asset or liability, either directly or indirectly; and
Level 3: inputs for the asset or liability that are not based on observable market data.
| CGI Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2023 and 2022 | 15 |
Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2023 and 2022
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)
| 11. | Financial instruments (continued) |
FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Valuation techniques used to value financial instruments are as follows:
| - | The fair value of the 2014 U.S. Senior Notes, the 2021 U.S. Senior Notes, the 2021 CAD Senior Notes, the unsecured committed revolving credit facility, the unsecured committed term loan credit facility and the other long-term debt is estimated by discounting expected cash flows at rates currently offered to the Company for debts of the same remaining maturities and conditions; |
| - | The fair value of long-term bonds included in funds held for clients and in long-term investments is determined by discounting the future cash flows using observable inputs, such as interest rate yield curves or credit spreads, or according to similar transactions on an arm’s-length basis; |
| - | The fair value of foreign currency forward contracts is determined using forward exchange rates at the end of the reporting period; |
| - | The fair value of cross-currency swaps and interest rate swaps is determined based on market data (primarily yield curves, exchange rates and interest rates) to calculate the present value of all estimated cash flows; |
| - | The fair value of cash, cash equivalents, cash included in funds held for clients and short-term investments included in current financial assets is determined using observable quotes; and |
| - | The fair value of deferred compensation plan assets within long-term financial assets is based on observable price quotations and net assets values at the reporting date. |
There were no changes in valuation techniques during the three months ended December 31, 2023.
The following table presents the financial liabilities included in the long-term debt measured at amortized cost categorized using the fair value hierarchy:
| As at December 31, 2023 | As at September 30, 2023 | |||||||||||||||||
| Level | Carrying amount | Fair value | Carrying amount | Fair value | ||||||||||||||
| $ | $ | $ | $ | |||||||||||||||
2014 U.S. Senior Notes | Level 2 | 462,255 | 457,323 | 473,808 | 464,806 | |||||||||||||
2021 U.S. Senior Notes | Level 2 | 1,310,190 | 1,157,535 | 1,342,714 | 1,132,649 | |||||||||||||
2021 CAD Senior Notes | Level 2 | 596,728 | 537,374 | 596,550 | 503,984 | |||||||||||||
Other long-term debt | Level 2 | 7,916 | 7,496 | 10,363 | 9,839 | |||||||||||||
| 2,377,089 | 2,159,728 | 2,423,435 | 2,111,278 | |||||||||||||||
For the remaining financial assets and liabilities measured at amortized cost, the carrying values approximate the fair values of the financial instruments given their short term maturity.
In December 2023, the Company repaid in full the unsecured committed term loan credit facility of U.S. $500,000,000, for a total amount of $670,350,000. The Company also settled the related cross currency swaps with a notional amount of $670,039,000 for a net gain of $18,087,000, for which $311,000 related to the cash flow hedge was recorded in net finance costs and $17,776,000 related to the net investment hedge was recognized in other comprehensive income and will be transferred to earnings when the net investment is disposed of.
| CGI Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2023 and 2022 | 16 |
Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2023 and 2022
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)
| 11. | Financial instruments (continued) |
FAIR VALUE MEASUREMENTS (CONTINUED)
The following table presents financial assets and liabilities measured at fair value categorized using the fair value hierarchy:
| Level | As at December 31, 2023 | As at September 30, 2023 | ||||||||||
| $ | $ | |||||||||||
Financial assets | ||||||||||||
FVTE | ||||||||||||
Cash and cash equivalents | Level 2 | 1,132,661 | 1,568,291 | |||||||||
Cash included in funds held for clients | Level 2 | 375,133 | 269,792 | |||||||||
Deferred compensation plan assets | Level 1 | 98,542 | 88,076 | |||||||||
| 1,606,336 | 1,926,159 | |||||||||||
Derivative financial instruments designated as hedging instruments | ||||||||||||
Current derivative financial instruments included in current financial assets | Level 2 | |||||||||||
Cross-currency swaps | 28,038 | 83,626 | ||||||||||
Foreign currency forward contracts | 7,457 | 12,505 | ||||||||||
Long-term derivative financial instruments | Level 2 | |||||||||||
Cross-currency swaps | 11,976 | 16,130 | ||||||||||
Foreign currency forward contracts | 2,031 | 5,875 | ||||||||||
| 49,502 | 118,136 | |||||||||||
FVOCI | ||||||||||||
Short-term investments included in current financial assets | Level 2 | 8,387 | 7,332 | |||||||||
Long-term bonds included in funds held for clients | Level 2 | 126,023 | 138,935 | |||||||||
Long-term investments | Level 2 | 17,225 | 17,113 | |||||||||
| 151,635 | 163,380 | |||||||||||
Financial liabilities | ||||||||||||
Derivative financial instruments designated as hedging instruments | ||||||||||||
Current derivative financial instruments | Level 2 | |||||||||||
Cross-currency swaps | 4,309 | 2,183 | ||||||||||
Foreign currency forward contracts | 3,538 | 2,330 | ||||||||||
Long-term derivative financial instruments | Level 2 | |||||||||||
Foreign currency forward contracts | 6,104 | 1,700 | ||||||||||
| 13,951 | 6,213 | |||||||||||
There were no transfers between Level 1 and Level 2 during the three months ended December 31, 2023.
| CGI Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2023 and 2022 | 17 |
