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 December 2001.
CGI Group Inc.
(Translation of Registrant's Name Into English)
1130 Sherbrooke Street West
5th Floor
Montreal, Quebec
Canada H3A 2M8
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F Form 40-F |X|
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No |X|
(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-___.
Enclosure: Management's Discussion and Analysis of Financial Position and
Results of Operations
This Form 6-K shall be deemed incorporated by reference in the Registrant's
Registration Statement on Form S-8, Reg. No. 333-13350 and 333-66044.
[GRAPHIC OMITTED]
CGI Group Inc.
2001 Annual Report
Management's Discussion and Analysis
of Financial Position and Results of Operations
Management's Discussion and Analysis of Financial Position and Results of
Operations
The following discussion and analysis should be read in conjunction with the
Company's fiscal 2001, 2000 and 1999 Consolidated Financial Statements and the
notes thereto. All dollar amounts are in Canadian dollars unless otherwise
indicated.
Corporate Overview
Headquartered in Montreal, CGI was organized along geographic lines with three
strategic business units: Canada, US and International. Effective October 1,
2001, CGI reorganized its business units according to the following breakdown:
Canada and Europe, US and Asia Pacific, and Business Process Services (see the
section entitled "Organizational Change" on page 5). CGI provides end-to-end
information technology (IT) services in six economic sectors: financial
services, telecommunications, manufacturing/retail/distribution, governments,
utilities and energy, as well as healthcare. Some 69% of the Company's business
is in the management of business and IT functions (outsourcing), and 31% in
consulting and systems integration.
CGI has more than 13,000 employees (members) and provides end-to-end IT services
and business solutions to some 3,000 clients in North America, Europe and Asia
Pacific from more than 60 offices in over 20 countries. The Company provides IT
facilities management to its clients using a network of state-of-the-art data
centers in Montreal, Toronto and Regina, as well as in Phoenix (US) and
Basingstoke (UK). CGI also has applications maintenance and development centers
in Mumbai and Bangalore (India).
Business Acquisitions
In fiscal 2001, CGI completed the acquisition of eight niche companies, one
large acquisition and one strategic outsourcing alliance that was accounted for
as a business acquisition, as well as four joint venture investments.
On October 4, 2000, CGI completed the acquisition of Detroit-based C.U.
Processing Inc. ("CUP"), a provider of information management systems primarily
to US credit unions. At the time of the acquisition, CUP had a staff of
approximately 160 and for its latest fiscal year, it recorded revenue of more
than $35.0 million. CUP was acquired for a cash consideration of $38.5 million
and goodwill of $41.6 million was recorded as part of the transaction.
Effective November 27, 2000, CGI completed a 49.0% equity investment in AGTI
Consulting Services Inc. ("AGTI"), a Montreal-based IT consulting firm with more
than 225 senior consultants and generating annual revenue of approximately $27
million. This transaction was paid for through the issuance of $24.9 million in
cash. Goodwill resulting from the transaction amounted to $14.6 million.
On December 12, 2000, CGI completed the acquisition of Toronto-based RSI
Realtime Consulting Inc. ("RSI"), an SAP implementation specialist. At the time
of the acquisition,
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the consulting and software development firm employed a staff of 45 and had
annual revenue of $6.0 million. CGI completed this acquisition for a
consideration of $2.6 million in cash and shares. Goodwill resulting from the
transaction amounted to $3.1 million.
On January 4, 2001, CGI closed the acquisition of Groupe-conseil CDL Inc.
("CDL"), a Montreal-based IT consulting firm specializing in the implementation
of J.D. Edwards enterprise resource planning solutions. At the time of the
acquisition, CDL had 45 employees and annual revenue of $6.4 million. CGI
acquired CDL for a consideration of $4.9 million in cash and shares. As part of
the transaction, CGI recorded goodwill of $4.0 million.
On January 9, 2001, CGI acquired all of the outstanding shares of Star Data
Systems Inc. ("Star Data"), a Canadian-based provider of financial services with
annual revenue, at the time of closing, of nearly $80 million. Star Data
employed over 400 professionals and operated two primary business
lines-information systems and wealth management solutions-and its clients
included major Canadian financial institutions. The transaction was completed on
the basis of 0.737 Class A subordinate share of CGI for each Star Data common
share. As a result of the transaction, CGI issued 13.5 million Class A
subordinate shares and recorded goodwill amounting to $73.1 million.
On January 12, 2001, CGI increased its equity ownership in Quebec-based IT
consulting firm Conseillers en informatique d'affaires from 35.0% to 49.0%. In
the course of this transaction, CGI issued 153,895 Class A subordinate shares
and recorded goodwill totalling $2.8 million.
On February 1, 2001, CGI entered into a partnership with Loto-Quebec, which
involved the creation of Nter Technologies, Limited Partnership ("Nter"). Nter
offers products and services to the worldwide gaming industry, including the
development and sale of IT solutions, consulting and management services. CGI
acquired a 49.9% interest in Nter. At the time of the announcement, the two
partners estimated that the venture would generate revenues of approximately
$100 million over five years. CGI acquired its ownership position for a cash
consideration of $5.0 million. As part of this transaction, CGI accounted for
goodwill totalling $2.5 million.
On May 1, 2001, CGI signed a strategic, 10-year alliance worth an estimated
value of $1.2 billion with leading Canadian financial services group
Confederation des caisses populaires et d'economie Desjardins du Quebec. In the
context of this agreement, CGI acquired the related assets, certain intellectual
property rights and assumed liabilities of Confederation des caisses populaires
et d'economie Desjardins du Quebec, used in data and micro-computing of
Mouvement des caisses Desjardins ("Desjardins") operations. CGI also took over
450 Desjardins employees and two Montreal data centers and will manage
Desjardins' data processing operations. CGI also agreed to join with Desjardins
to market the client's banking solutions to financial institutions.
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On May 31, 2001, CGI acquired California-based CyberBranch Corporation, an
Internet and intranet provider of leading edge technology to credit unions
across North America. The acquisition was paid for with a cash consideration of
$1.5 million, plus future royalties. Goodwill from this transaction totalled
$2.1 million.
On July 1, 2001, CGI completed the acquisition of Larochelle Gratton, a
Quebec-based IT consulting firm, for a consideration of $4.7 million in cash and
516,352 Class A subordinate shares of CGI. At the time of the acquisition,
Larochelle Gratton had annual revenue of $18.0 million and employed a staff of
200 employees. CGI recorded goodwill of $7.8 million as part of this
transaction.
On July 27, 2001, CGI completed its merger with IMRglobal Corp. ("IMRglobal"),
following the approval of the merger agreement by a majority of IMRglobal
shareholders. As part of this transaction, CGI acquired all outstanding shares
of common stock of IMRglobal, on the basis of 1.5974 Class A subordinate share
of CGI for each share of IMRglobal common stock. As a result of the merger, CGI
issued 70.8 million Class A subordinate shares and 8.4 million options to
acquire Class A subordinate shares, for a total value of $552.8 million.
Non-cash working capital items acquired included costs totalling $68.0 million
of acquisition and integration liabilities incurred for professional fees and
costs to exit and consolidate certain IMRglobal activities. CGI, as part of the
preliminary price allocation, recorded goodwill of $578.5 million on this
transaction which, under the new accounting standards effective July 1, 2001, is
not amortized.
On August 7, 2001, CGI acquired Portugal-based LoyalTech, a consulting and
systems integration firm specializing in customer relationship management
solutions and e-business strategies, for a total consideration of $4.2 million.
At the time of the acquisition, LoyalTech's sales run-rate totalled over $4
million. Goodwill resulting from this transaction totalled $4.2 million.
On August 27, 2001, CGI signed a joint venture agreement with the former
management team of Toronto-based strategy and research firm Digital 4Sight,
which involved the creation of a new management strategy and research firm to
accelerate Digital 4Sight's expansion. CGI paid a consideration of $200,000 for
its 51.0% interest, and recorded goodwill totalling that same amount.
On September 10, 2001, CGI acquired EPC Services Conseils Inc. ("EPC"), a
Quebec-based IT consulting firm, for a consideration of $155,000.
Large Contracts
On January 4, 2001, CGI signed an outsourcing contract worth more than $119
million with UK-based financial services company Sun Life Financial ("Sun
Life"). Under the terms of the contract, extending over a seven-year period, CGI
has taken over Sun Life's Basingstoke, UK, data center and will run and support
the client's IT infrastructure and desktops.
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On January 22, 2001, CGI announced the 10-year extension and broadening of an IT
outsourcing agreement with Interac Association, for an undisclosed amount.
On February 7, 2001, CGI signed a major multi-million pounds sterling contract
with insurance industry leader Allianz, for the implementation of GIOS, CGI's
insurance solution, in more than 20 countries around the world.
On April 5, 2001, CGI and UCAR International Inc. ("UCAR") signed a 10-year
outsourcing contract valued at approximately US$75 million. Under the agreement,
CGI will manage UCAR's data center services, networks, desktops,
telecommunications and legacy systems by leveraging its cost efficient
near-shore delivery model.
On June 14, 2001, CGI began operating the IT systems of Laurentian Bank of
Canada ("Laurentian Bank"), as part of a $300.0 million, 10-year outsourcing
contract with this client. The agreement covers areas such as project
development, applications maintenance and evolution, operations support and
automated banking machine support. The contract with Laurentian Bank was signed
on June 4, 2001.
On October 1, 2001, CGI signed a US$380.0 million, strategic 10-year alliance
with California-based Fireman's Fund Insurance Company ("Fireman"). As part of
the agreement, CGI took over the client's Phoenix-based, state-of-the art data
center and will provide Fireman with IT support services to some 80 locations
across the US.
Organizational Change
On July 27, 2001, CGI announced the launch of a new business unit, responsible
for providing business process services to CGI's worldwide client base. On the
same date, CGI also announced organizational adjustments to better reflect the
nature of the Company's operations. Based on these changes, the Company's
operations are managed by three senior executives, namely Michael Roach,
President, Canada and Europe, Satish Sanan, President, US and Asia Pacific, and
Joseph Saliba, President, Business Process Services. All CGI global and
corporate functions remain the same. This change in operations management will
be reflected in the Company's accounting effective October 1, 2001.
Each unit is evaluated primarily on its revenue, operating earnings and net
contribution (the latter being defined as earnings before interest, income
taxes, entity subject to significant influence and amortization of goodwill) by
its respective President, who reports directly to the Chief Executive Officer.
Growth Strategy of the Company
The Company's growth strategy is comprised of four pillars, namely organic
growth, large outsourcing contracts, acquisition of niche companies and large
business acquisitions.
During the year, CGI signed several outsourcing contracts, with an aggregate
value of $2.1 billion (excluding backlog from acquired companies), plus a
US$380.0 million
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contract signed with Fireman effective October 1, 2001. Some of these
negotiations had been ongoing since the latter part of fiscal 2000, but their
signing had been delayed by the turn of the millennium.
Throughout fiscal 2001, the Company continued to acquire niche players in the IT
services sector, which allowed it to enrich its vertical industry offering or
complete its geographic coverage. The acquisition of these companies and the
joint ventures represented the addition of approximately $160 million and $35
million in annual revenue, respectively (based on annualized revenue as at
acquisition date).
In addition to the acquisition of these niche companies, CGI also pursued its
large acquisition strategy. On July 27, 2001, CGI closed its merger agreement
with IMRglobal, which provided it with significantly greater critical mass in
the US and other international markets. For the six-month period ended June 30,
2001, representing its last two quarters as a publicly traded company, IMRglobal
achieved revenue totalling approximately US$235 million on an annualized basis.
CGI continues to seek large business acquisitions and continues to focus on
growing its presence in the US market. One main component of this growth is the
Company's highly cost effective IT services delivery model, which allowed it to
sign several IT outsourcing contracts during the year. CGI's flexible model
allows it to serve its US clients using a combination of local (US), near-shore
(Canadian) and offshore (Indian) operations. CGI is in a position to leverage
its newly acquired Phoenix-based US data center, its network of Canadian
infrastructure facilities, as well as its Bangalore and Mumbai applications
development centers.
Performance Overview
Fiscal 2001 marked the twenty-fifth consecutive year of growth for CGI, as
revenue totalled $1.58 billion, up from $1.44 billion in fiscal 2000 and $1.41
billion in fiscal 1999. Operating earnings before depreciation and amortization
of fixed assets and amortization of contract costs and other long-term assets
totalled $229.6 million, compared with $171.7 million in fiscal 2000 and $214.3
million in 1999. Earnings before amortization of goodwill were $89.9 million
($0.30 per share basic and diluted), compared with $73.5 million ($0.27 per
share basic and diluted) in fiscal 2000 and $99.9 million ($0.37 per share basic
and diluted) in fiscal 1999. The year-over-year improvement in earnings before
amortization of goodwill was 22.3%. Net earnings amounted to $62.8 million
($0.21 per share basic and diluted), compared with $55.7 million ($0.21 per
share basic and $0.20 per share diluted) in fiscal 2000 and $83.8 million ($0.31
per share basic and diluted) in fiscal 1999. The net margin was 4.0%, compared
with 3.9% one year ago and 5.9% in 1999.
In the fourth quarter, revenue was $469.0 million, compared with $320.1 million
in the fourth quarter a year ago. Operating earnings before depreciation and
amortization of fixed assets and amortization of contract costs and other
long-term assets totalled $72.6 million, compared with $24.8 million in the
fourth quarter of fiscal 2000. Earnings before amortization of goodwill were
$27.2 million ($0.08 per share basic and diluted),
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compared with $7.1 million ($0.03 per share basic and diluted) in fiscal 2000.
Net earnings were $19.8 million ($0.06 per share basic and diluted), compared
with $2.4 million ($0.01 per share basic and diluted) in the same quarter of
fiscal 2000. The year-over-year improvement in earnings before amortization of
goodwill was 283.1% while the improvement over the same period for net earnings
was 725.0%.
The balance sheet remained strong at September 30, 2001, with $46.0 million in
cash and cash equivalents, $1.48 billion in shareholders' equity and $40.3
million in long-term debt, related to bankers' acceptances and capital leases.
Seasonality
CGI's quarterly results reflect some seasonality, which in many years has been
offset to some extent by the Company's growing outsourcing revenue, which is
earned consistently on a monthly basis throughout the year. Seasonality in the
fourth quarter of fiscal 2001 has increased marginally following the July 2001
acquisition of IMRglobal, whose business is mainly comprised of consulting and
systems integration services.
Comparison of Operating Results for the Years Ended September 30, 2001, 2000 and
1999
Revenue
Revenue increased by 10.1% in fiscal 2001 to $1,581.3 million, following a
marginal increase to $1,436.0 million in fiscal 2000, and a 90.2% increase to
$1,409.5 million in fiscal 1999. In fiscal 2001, revenue growth was driven by
business acquisitions.
Throughout the year, revenue growth from the US and international markets
remained challenged. Completion in fiscal 2000 of a large international systems
integration contract in Brazil also hindered internal growth.
These factors were more than compensated by CGI's dynamic two-fold acquisition
strategy, aimed at acquiring niche IT companies as well as large players. In
fiscal 2001, CGI acquired nine IT companies and took an equity position in four
such entities, which together made a revenue contribution of $216.5 million in
the year. CGI also acquired one large US-based company (IMRglobal), which added
another $48.7 million to revenue in the two last months of fiscal 2001.
Throughout the year, CGI signed several large IT outsourcing contracts, which
contributed significantly to its revenue growth. CGI benefited from a five-month
contribution from its contract with Desjardins, three and a half month
contribution from its agreement with Laurentian Bank, in addition to contracts
with Allianz (effective February 7, 2001) and Sun Life (effective January 4,
2001), among others.
In fiscal 2000, the Company benefited from a 12-month contribution of its
contract with Bell Mobility, as well as from its DRT Systems International and
DRT Systems International L.P. (jointly, "DRT") acquisition, effective July 1,
1999. These revenue gains were partially offset by Bell Canada's reduction in IT
budgets, compounded by an industry-wide slowdown in IT spending related to the
Year 2000 phenomenon. The
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90.2% increase in revenue in fiscal 1999 reflected the $4.5 billion, 10-year IT
outsourcing contract with Bell Canada (through CGI's acquisition of Bell Sygma
Telecom Solutions) and the acquisition of Bell Sygma International for the full
year. The 1999 revenue increase also reflected the acquisition of Technologie
Desjardins Laurentienne effective January 1, 1999.
In fiscal 2001, the revenue mix by geographic region was: Canada 77%, compared
with 73% in fiscal 2000 and 81% in fiscal 1999; US 17%, compared with 15% in
2000 and 10% in 1999; and International 6%, compared with 12% in 2000 and 9% in
1999.
In fiscal 2001, the mix by type of service was 69% management of IT and business
functions-or outsourcing, and 31% from consulting and systems integration. In
fiscal 2000, the mix was 62% outsourcing and 38% systems integration and
consulting. In fiscal 1999, these two sectors represented 72% and 28%,
respectively.
Operating expenses
Costs of services, selling and administrative expenses amounted to $1,339.1
million in fiscal 2001 or 84.7% of revenue, compared with $1,254.4 million or
87.3% the previous year and $1,185.6 million or 84.1% of revenue in fiscal 1999.
This reduction in the operating expense to revenue ratio in fiscal 2001 was
achieved by lower overhead costs in the US and international units resulting
from the improvements in the utilization of CGI's IT members, synergies from the
integration of the business acquisitions and outsourcing contracts, the revenue
contribution of IMRglobal and other acquired companies and, finally, the
Company's participation in the Quebec government's refundable tax credits on
salaries program which the Company benefits from as a result of its future
relocation to E-Commerce Place.
Research expenses amounted to $12.6 million in fiscal 2001, up from $10.0
million in the previous fiscal year and $9.6 million in fiscal 1999. During
2001, CGI continued to invest in the $50.0 million Strategic Investment Program
announced in fiscal 2000. The purpose of the program is to support client
oriented initiatives, development of CGI's proprietary solutions and
implementation of new technologies. CGI's efforts are aimed at assisting its
clients in meeting their growing and diversified needs. In fiscal 2000, research
expenses were related to the Web-enabling of CGI's capabilities and intellectual
property. In 1999, research spending revolved around the development of
solutions for the property and casualty insurance markets in Canada and the US.
Earnings before depreciation and amortization of fixed assets and amortization
of contract costs and other long-term assets
Earnings before depreciation and amortization of fixed assets and amortization
of contract costs and other long-term assets totalled $229.6 million, compared
with $171.7 million in fiscal 2000 and $214.3 million in fiscal 1999. In fiscal
2001, CGI reported depreciation and amortization of fixed assets totalling $32.5
million, compared with $26.4 million in fiscal 2000 and $27.4 million in fiscal
1999. In fiscal 2001, amortization of fixed assets increased as a result of the
acquisition of fixed assets related to the Desjardins contract, as well as other
asset purchases acquired through the nine companies
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acquired, and the four joint ventures in which CGI acquired interests. In fiscal
2000, amortization of fixed assets was slightly lower than in fiscal 1999, due
to the fact that some assets were fully amortized and given that only two
companies were acquired. In fiscal 1999, amortization of fixed assets reflected
the purchase of new assets resulting from business acquisitions.
Amortization of contract costs and other long-term assets totalled $33.5 million
in fiscal 2001, up from $22.0 million in the previous year and $20.9 million in
fiscal 1999. Amortization of contract costs and other long-term assets increased
as a result of costs incurred for the delivery of large outsourcing contracts
with Desjardins, Laurentian Bank, UCAR and Sun Life, among others. In fiscal
2000, the increase in amortization of contract costs and other long-term assets
reflected the addition of licensing fees and other expenses incurred in the
course of IT management contracts.
Interest
Interest on long-term debt increased to $4.2 million from $3.6 million in the
previous year and $1.4 million in 1999. In fiscal 2001, interest expense was
related mainly to a loan contracted in the course of a large outsourcing
contract and an acquisition. In fiscal 2000, such expense stemmed from a full
year of outstanding long-term debt relating to the acquisition of DRT. Fiscal
1999 interest expense was primarily related to the financing of the DRT
acquisition over a period of three months.
Interest income amounted to $3.0 million, compared with $3.9 million in fiscal
2000 and $5.3 million in 1999. Interest income was related to investment of
excess cash balances in short-term fixed income instruments.
Income taxes
The effective income tax rate before goodwill amortization was 44.5% in fiscal
2001, compared with 40.5% in 2000 and 41.2% in 1999. In fiscal 2001, the Company
recorded additional valuation allowances relating to the tax benefit on losses
incurred in the US and certain international operations.
Earnings before amortization of goodwill
Earnings before amortization of goodwill totalled $89.9 million ($0.30 per share
basic and diluted) in fiscal 2001, compared with $73.5 million ($0.27 per share
basic and diluted) in 2000 and $99.9 million ($0.37 per share basic and diluted)
in 1999. CGI's increase in earnings before amortization of goodwill was driven
by the Company's higher revenue stream resulting from new large IT outsourcing
contracts and business acquisitions. However, earnings were negatively impacted
by the Company's higher tax expense.
Amortization of goodwill
Amortization of goodwill, net of income taxes, increased to $27.1 million, from
$17.9 million in fiscal 2000 and $16.1 million in 1999. The increase was mainly
due to amortization of the goodwill from the companies acquired in fiscal 2001,
and the goodwill resulting from the acquisition of APG Solutions & Technologies
Inc. ("APG"),
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over a full 12-month period, compared with one month in fiscal 2000. Effective
July 1, 2001, CGI has been applying Canadian Institute of Chartered Accountants
("CICA") Handbook Sections 1581, Business Combinations, and 3062, Goodwill and
Other Intangible Assets. Please refer to Note 2 to the Consolidated Financial
Statements. Accordingly, CGI has not amortized goodwill related to the business
acquisitions of IMRglobal, LoyalTech, Larochelle Gratton, EPC and Digital4Sight.
Effective October 1, 2001, CGI will no longer record amortization of goodwill.
Net earnings
Net earnings increased 12.8% to $62.8 million ($0.21 per share basic and
diluted), from $55.7 million ($0.21 per share basic and $0.20 per share diluted)
in fiscal 2000 and $83.8 million ($0.31 per share basic and diluted) in fiscal
1999. The net margin was 4.0%, compared with 3.9% in fiscal 2000 and 5.9% in
fiscal 1999.
The weighted average number of shares outstanding increased by 10.7% to
299,500,350, compared with a 0.9% increase to 270,442,354 in fiscal 2000 and
14.2% increase to 267,969,082 in fiscal 1999, adjusted for two-for-one share
splits in January 2000. In fiscal 2001, the increase in the weighted number of
shares outstanding resulted from the issue of 70,753,841 shares for the
acquisition of IMRglobal on July 27, 2001, the issue of 5,953,248 shares on
August 14, 2001 for the exercise of preemptive rights of Serge Godin and Andre
Imbeau in the course of the IMRglobal transaction, and the issue of 15,081,337
shares in consideration for the business acquisitions outlined in Note 9 to the
Consolidated Financial Statements.
On October 1, 2000, the Company adopted the new recommendations of the CICA
Handbook Section 3500, Earnings per share. Under the revised Section 3500, the
treasury stock method is used instead of the imputed earnings approach for
determining the dilutive effect of options and warrants issued. In addition, the
section requires that a reconciliation of the numerator and denominator be
disclosed (see Notes 2 and 7 to the Consolidated Financial Statements).
In accordance with US generally accepted accounting principles ("GAAP"), net
earnings were $46.2 million ($0.15 per share basic and diluted) in fiscal 2001,
$53.9 million ($0.20 per share basic and diluted) in fiscal 2000 and $86.1
million ($0.32 per share basic and diluted) in fiscal 1999. Differences between
Canadian GAAP and US GAAP arise mainly from the difference in the accounting
treatment of warrants issued, as well as the method used for integration costs
recognition.
Liquidity and financial resources
CGI concluded fiscal 2001 with a strong balance sheet and cash position which,
together with its available credit facility, is sufficient to support the
Company's organic growth strategy. If these resources need to be augmented due
to the financing requirements related to new large outsourcing contracts or
large acquisitions, significant additional cash requirements would likely be
financed by the issuance of debt and/or equity securities.
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In fiscal 2001, the Company renewed the $250.0 million revolving credit facility
arranged in 1999 with four Canadian chartered banks. The credit facility is
available for business acquisitions, for general working capital purposes and
can be locked into a three-year term at the Company's initiative. At the close
of fiscal 2001, the total credit facilities available amounted to $225.2
million.
Operating cash flow before changes in non-cash operating working capital items
was $194.2 million ($0.65 per share basic) in fiscal 2001, compared with $126.3
million in fiscal 2000 ($0.47 per share basic) and $162.0 million ($0.60 per
share basic) in fiscal 1999. When adjusted for changes in non-cash operating
working capital items, the operating cash flow was $174.0 million, compared with
$67.6 million in fiscal 2000 and $76.5 million in 1999. The change in the
operating cash flow reflected the $7.1 million increase (12.8%) in net earnings,
as well as higher depreciation and amortization expenses and future income
taxes.
Changes in non-cash operating working capital items, which excludes business
acquisitions described in Note 9 to the Consolidated Financial Statements,
reflected an increase in accounts receivable and work in progress, which
resulted from the increased business volumes, business acquisitions and major
outsourcing contracts signed during the year. Accounts payable and accrued
liabilities increased in the normal course of business. Deferred revenue
increased due to the billing in advance on new outsourcing contracts as well as
a general increase related to other outsourcing contracts. In fiscal 2000, the
change in non-cash working capital items reflected mainly a decrease in accounts
payable and accrued liabilities related to the decrease in the operating
expenses on a quarter-over-quarter basis.
Net cash used for financing activities amounted to $15.8 million, from $11.2
million in fiscal 2000 while $41.5 million was provided by financing activities
in fiscal 1999. The $65.0 million of debt repayment during fiscal 2001 was
related to the reimbursement of outstanding long-term debt of acquired companies
(mostly Star Data and IMRglobal). Also, during fiscal 2001 the Company repaid,
on its credit facility, an amount of $5.0 million over and above the sums drawn
during the year.
In fiscal 2001, the issuance of shares provided $54.2 million to the cash
balance, compared with $10.9 million in the previous year. This resulted
primarily from the exercise of preemptive rights by two majority shareholders of
the Company pursuant to the IMRglobal merger, as well as from the exercise of
options.
Net cash used for investing activities totalled $157.8 million, up from $50.3
million in fiscal 2000. Business acquisitions increased to $86.4 million, up
from $18.4 million in fiscal 2000, reflecting the Company's 10 business
acquisitions and four joint venture investments completed in fiscal 2001,
compared with two business acquisitions in fiscal 2000 (for a complete
description of business acquisitions, please refer to the section entitled
"Business Acquisitions" on page 2). The purchase of fixed assets totalled $24.0
million, compared with $18.1 million in fiscal 2000. The increase reflected
improvements
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that were carried out on Star Data's infrastructure and other assets which were
also acquired in the normal course of business.
Contract costs and other long-term assets include costs incurred as part of
outsourcing contracts signed during the year, including those with Desjardins,
Laurentian Bank, Sun Life and UCAR.
The net decrease in cash position amounted to $3.3 million, compared with a net
increase of $7.1 million in fiscal 2000, and a net decrease of $79.2 million in
fiscal 1999.
Accounting changes
Effective July 1, 2001, CGI has been applying CICA Handbook Sections 1581,
Business Combinations, and 3062, Goodwill and Other Intangible Assets. The
standards require that all business combinations be accounted for using the
purchase method. Additionally, effective January 1, 2002, goodwill and other
intangible assets with an indefinite life will no longer be amortized to
earnings and will be assessed for impairment on an annual basis in accordance
with the new standards. Please refer to Note 2 to the Consolidated Financial
Statements.
Balance Sheet-Fiscal Year-Ends 2001 and 2000
Assets totalled $2,062.8 million at the end of fiscal 2001, compared with $928.6
million at September 30, 2000, representing an increase of 122.2%. All asset
items increased over the previous fiscal year, the major item being goodwill,
which increased by $718.9 million (181.6%) to $1,114.8 million, from $395.9
million in fiscal 2000 due to goodwill resulting from the 10 business
acquisitions and four joint venture investments completed during the year. This
$718.9 million increase also includes $578.5 million of goodwill from the
acquisition of IMRglobal.
Fiscal 2001 accounts receivable include the Quebec government's E-Commerce Place
tax credits on salaries which the Company has been accounting for since the
third quarter of fiscal 2000. Such credits were excluded from the calculation of
the Company's collection period for accounts receivable and work in progress
(days-sales outstanding or DSOs), which amounted to 72 days, compared with 75
days in fiscal 2000. Excluding the impact on DSOs of the IMRglobal acquisition,
DSOs for CGI would have totalled 65 days as at September 30, 2001. This
difference is due to the fact that IMRglobal's revenue stream was accounted for
over a period of only two months. In fiscal 2000, the DSOs reflected the closing
of the APG shortly before the end of the fiscal year.
Fixed assets increased to $123.4 million, up from $58.9 million in fiscal 2000.
The increase was primarily a result of assets acquired through business
acquisitions and large outsourcing contracts. Four buildings, located in
Clearwater (two), Mumbai and New Delhi and worth $23.4 million were acquired
through the merger agreement with IMRglobal.
Contract costs and other long-term assets are related to large outsourcing
contracts and include certain integration costs as well as incentives and
warrants granted to clients
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to encourage the use of IT services from CGI. These contracts include conditions
for early termination such that any unamortized amount would be refundable to
CGI upon termination.
Accounts payable and accrued liabilities totalled $315.9 million, up 121.3% from
the amount of $142.8 million recorded in fiscal 2000, primarly due to 10
business acquisitions and four joint venture investments. The transaction with
IMRglobal also resulted in an addition of $53.1 million in accounts payable, as
at September 30, 2001.
Deferred revenue totalled $85.2 million, up from $33.2 million in fiscal 2000.
The current liability is comprised mostly of billing revenue, related to certain
outsourcing contracts, which has been paid prior to the delivery of services.
This increase is consistent with the greater number and larger value of
outsourcing contracts signed during fiscal 2001.
CGI's long-term debt decreased by 7.1% to $40.3 million as at September 30,
2001, compared with $43.4 million one year prior. This is the result of a net
repayment of $5.0 million on its credit facility line, partially offset by
additional capital leases.
Deferred credits are primarily comprised of unused portion of discounts granted
under the terms of the contracts entered into with Desjardins and Laurentian
Bank.
Risks and Uncertainties
While management is optimistic about the Company's long-term prospects, the
following risks and uncertainties should be considered in evaluating CGI's
potential.
The competition for contracts-CGI has a highly disciplined approach to
management of all aspects of its business, with an increasing proportion of its
operations codified under ISO 9001 certified processes and in corporate manuals.
These processes were developed to help CGI ensure that its employees deliver
services consistently according to the Company's high standards and they are
based on strong values underlying its client-focused culture. These processes
contribute to CGI's high contract win rate and renewal rate. Additionally, the
Company has developed a deep strategic understanding of the six economic sectors
it targets, and this helps enhance its competitive position. CGI's critical mass
and end-to-end IT services have qualified it to make proposals on large IT
services contracts across North America and in Europe.
The long sales cycle for major outsourcing contracts-The average sales cycle for
large outsourcing contracts typically ranges from six to 18 months. In the
second half of fiscal 2001, however, CGI witnessed a shortening of the sales
cycle and, in some cases, signing of outsourcing contracts only a few months
after issuance of requests for proposals.
Foreign currency risk-The increased international business volume could expose
CGI to greater foreign currency exchange risks, which could adversely impact its
operating results. CGI has in place a hedging strategy to protect it, to the
extent possible, against foreign currency exposure.
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Business mix variations-Following the merger with IMRglobal, the greater
proportion of consulting and systems integration services in CGI's business mix,
versus outsourcing, may result in greater quarterly revenue variations. However,
CGI's efforts are aimed at developing IMRglobal's capability to deliver an
end-to-end IT outsourcing offering. As a result of this transition, CGI expects
to increase the proportion of its outsourcing business, thus ensuring greater
revenue visibility and predictability.
The availability and cost of qualified IT professionals-The high growth of the
IT industry results in strong demand for qualified individuals. Over the years,
CGI has been able to successfully staff for its needs thanks to its solid
culture, strong values and emphasis on career development, as well as
performance-driven remuneration. In addition, CGI has implemented a
comprehensive program aimed at attracting and retaining qualified and dedicated
professionals and today, CGI is a preferred employer in the IT services
industry. CGI also secures access to additional qualified professionals through
outsourcing contracts and business acquisitions.
The ability to successfully integrate business acquisitions and the operations
of IT outsourcing clients-The integration of acquired operations has become a
core competency for CGI, which has acquired a significant number of companies
over the past 15 years. The Company's disciplined approach to management,
largely based on its ISO 9001 certified management frameworks, has been an
important factor in the successful integration of human resources of acquired
companies and the IT operations of outsourcing clients. As at the end of fiscal
2001, the vast majority of CGI's operations had received ISO 9001 certification.
The ability to continue developing and expanding service offerings to address
emerging business demand and technology trends-CGI remains at the forefront of
developments in the IT services industry, thus ensuring that it can meet the
evolving needs of its clients. The Company achieves the aforementioned through:
its specialization in six targeted economic sectors, its non-exclusive
commercial alliances with hardware and software vendors and strategic alliances
with major partners, its development of proprietary IT solutions to meet the
needs of clients, regular training and sharing of professional expertise across
its network of offices, and business acquisitions that provide specific
knowledge or added geographic coverage.
Material developments regarding major commercial clients resulting from such
causes as changes in financial condition, mergers or business acquisitions-With
the exception of BCE Inc., its subsidiaries and affiliates, no one company or
group of related companies represents more than 10% of CGI's total revenue.
Potential liability if contracts are not successfully carried out-CGI has a
strong record of successfully meeting or exceeding client needs. The Company
takes a professional approach to business, and its contracts are written to
clearly identify the scope of its responsibilities and to minimize risks.
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Outlook
CGI expects to post solid growth in fiscal 2002. The Company's strategy will
continue to be based on its four pillars of growth, namely organic, growth
through large outsourcing contracts, and growth through the acquisition of niche
players and large companies.
CGI will continue to leverage its unique and highly flexible outsourcing
delivery model in order to secure a growing number of large outsourcing
contracts in the US market. As CGI successfuly completes the integration of
IMRglobal, it expects to gradually migrate IMRglobal's business model away from
consulting and systems integration, to focus more on providing end-to-end IT
outsourcing services.
There is growing demand for IT services outsourcing in CGI's markets in general,
and particularly in North America. In a slowing economic environment, more and
more companies recognize the value of outsourcing their IT services in order to
reduce their cost base while using IT to further enhance their competitive
position.
Also, CGI's solid balance sheet with a strong liquidity position enables it to
capitalize on acquisition opportunities and is an important strength when
bidding on large contracts. CGI maintains a conservative approach to financial
management.
Forward-looking statements
All statements contained in the Annual Report of CGI Group Inc., or in any
document filed by the Company with the U.S. Securities and Exchange Commission
("SEC"), or in any other written or oral communication by or on behalf of the
Company, that do not directly and exclusively relate to historical facts,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements represent the
intentions, plans, expectations and beliefs of CGI Group Inc. and no assurance
can be given that the results described in such statements will be achieved.
The Annual Report may contain forward-looking statements that involve a number
of risks and uncertainties including statements regarding the outlook for the
Company's business and results of operations. There are a number of factors that
could cause such actual results to differ materially from those indicated. Such
factors include, without limitation, the various factors set forth in the
Management's Discussion and Analysis of Financial Position and Results of
Operations of this report under "Risks and Uncertainties", or Form 40F filed
with the SEC, which important factors are included here by reference.
CGI disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
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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: December 5, 2001 By /s/ Paule Dore
Name: Paule Dore
Title: Executive Vice President
and Chief Corporate Officer
and Secretary