2017 Annual Report - CGI

CGI Group Inc.

2017 Annual Report CGI’s 2017 Annual Report is comprised of two separate volumes: Volume 1: 2017 Annual Review & Volume 2: Fiscal 2017 Results

Volume 1 of the Annual Report follows this page. (this page does not part of the Annual Report)

2017 ANNUAL REVIEW

Local experts. Global insights.

Welcome to the 2017 Annual Review Since our founding in 1976, CGI professionals have worked side-by-side with clients to help maximize the technologies that transform their business. No matter the market dynamics and economic conditions, we have applied innovation, high‑quality delivery and sound management practices to help build industry leaders. Driven to help clients succeed, this commitment has led to CGI being one of the largest IT and business consulting services firms in the world. We are pleased to present our partnerships with clients, the commitment of our members, our performance for shareholders, and our engagement with communities in this 2017 edition of our Annual Review.

CGI by the numbers Building on more than four decades of sustained growth CGI is one of the few firms with the scale, reach and capabilities to meet clients’ digital transformation needs. We provide innovative, end‑to‑end IT and business consulting services from a mix of client‑proximity locations and domestic and global delivery centers across hundreds of locations around the world.

Global footprint

71,000 professionals

Industry segments covering a majority of IT spend worldwide

representing 81% of IT spend worldwide

150+ IP-based solutions

Fiscal 2017 highlights Financial strength is one of our core values. It enables us to deliver on our promises to our stakeholders: to continue serving as a partner and expert of choice for our clients; to provide a place in which our professionals can build a career; and to be an investment of choice for our shareholders.

Revenue

Bookings

Net earnings

EPS (diluted)

Cash flow from operations

$10.8B

$11.3B

$1.0B

$3.41

$1.4B

Since our initial public offering (IPO) in 1986, CGI stock has returned an average of 18% per year.

720 $40M $0.27*

4,000 $232M $4.78*

26,000 $3.7B $11.39*

2017

2007 1987

1997

71,000 $10.8B $64.70*

*Adjusted for stock splits

5,000 clients globally using our end-to-end services

Global delivery capabilities onshore, nearshore and offshore

One of the largest IT and business consulting services firms in the world

Investments to benefit all stakeholders CGI focuses on targeted investments to strengthen our market position as a global, end-to-end IT and business consulting services leader, and to fuel the growth required to meet the expectations of each of our three stakeholders. $315M invested in operations • Evolution of CGI’s IP portfolio into a SaaS model • Consolidation and retirement of assets and leveraging cloud‑based technologies • Innovation fund for new contract investments $307M invested in metro market-focused acquisitions • Collaborative Consulting, Boston • CTS, Birmingham • ECS Team, Denver • Summa Technologies, Pittsburgh Share repurchase Investing capital back into the business to maximize shareholder return • Total Class A shares repurchased: 19,929,268 • Average share price: $62.55 • Total investment: $1.2B

All figures in Canadian dollars

2017 ANNUAL REVIEW

CONTENTS 2

Inspired by a Dream. Built to grow and last. Serge Godin, Founder and Executive Chairman of the Board George D. Schindler, President and Chief Executive Officer Julie Godin, Vice-Chair of the Board and Executive Vice‑President, Chief Planning and Administration Officer

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CGI Constitution and Management Foundation

Our commitment 10

We listen.

16

We innovate and lead.

34

We deliver.

About CGI 40

Leadership team

42

Global footprint

44

Our communities

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Serge Godin Founder and Executive Chairman of the Board

George D. Schindler President and Chief Executive Officer

Julie Godin Vice-Chair of the Board and Executive Vice-President, Chief Planning and Administration Officer

Inspired by a Dream. Built to grow and last. Every day around the world, we partner with our clients to turn rapid change into measurable opportunity. Through our client-proximity business model, we work side-by-side with them, drawing upon our global capabilities to help identify, develop, implement and operate the innovative strategies and solutions needed to meet their customer and citizen expectations.

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2017 ANNUAL REVIEW

Focused on the fundamentals of being a partner, expert, employer and investment of choice What inspires each of our 71,000 professionals is the CGI Dream:

To create an environment in which we enjoy working together and, as owners, contribute to building a company we can be proud of. The Dream, together with our Vision, Mission and Values, make up the CGI Constitution, which provides a strong and aligned culture that fuels our collective vision of being a global world class end-to-end IT and business consulting services leader helping our clients succeed. The CGI Constitution guides how we create value for our three stakeholders — for our clients, for our shareholders, and for our professionals, whom we call members as a majority of them are also CGI shareholders.

The Constitution is the backbone of our company, while our strategic plan defines the goals, priorities and measures to continuously exceed the expectations of our clients, empower our members to build rewarding careers, and generate profitable growth for our shareholders. Every year, we go through a strategic planning process where we gain invaluable insight by listening to and refining our plan based on the expectations of our three stakeholders. As part of this process, we set our goals and priorities for the year ahead. This year we formalized an additional goal: to be recognized by our communities as a caring and responsible corporate citizen. Consistent with our client-proximity model, we acknowledge our responsibility towards the hundreds of communities in which we live and work, and our commitment to building our collective future.

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Sustained profitable growth creates enduring value CGI delivers growth through a Build and Buy Strategy. On the Build side, fiscal 2017 was a year shaped by several strategic initiatives that successfully led to profitable organic growth of 2.8%. On the Buy side, we made acquisitions in high-demand metro markets in line with our proximity model, welcoming 1,000 new consultants to CGI while adding more than $200 million in annualized revenue.

Clients in each of the industries we serve plan to increase or maintain their IT spend, and are rebalancing their budgets to spend more on new applications and reduce legacy costs. We also see an increased demand for enterprise solutions from global, end-to-end firms. This year, as part of our planning process, CGI leaders met face-to-face with more than 1,300 business and IT executives across 10 commercial industries and governments in 17 countries. As observed over the past few years, there is a clear and accelerating need for organizations to evolve to meet the digital expectations of consumers and citizens. In line with this multi-year trend is a more pronounced focus on enterprise-wide digital strategies. The number of client executives who said they are implementing enterprise-wide initiatives rose from 12% in 2016 to 40% in 2017. Again, this year, we made numerous investments to position CGI to meet this increasing demand, delivering strong performance across our global operations. As a result: • Our operations in North America posted broad-based growth across industries. In Canada, our team delivered organic growth of 5%. In the United States, revenue grew 6% in constant currency and we added numerous professionals to our team through focused metro market mergers and acquisitions. Through these integrations, we benefit from additional leadership capacity and local relationships, and our new and existing clients benefit from additional depth and CGI’s end-to-end capabilities. • In Europe, we grew nearly 3% in constant currency, led by France with growth of 10%. • In Asia-Pacific, our differentiated combination of industry domain and technology expertise within our global delivery centers of excellence continued to deliver value, and we experienced 16% growth in our India operations.

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2017 ANNUAL REVIEW

We continued to focus on our proven client-proximity model, providing clients with applied innovation and measurable results. We invested in the development and expansion of industry‑focused centers of excellence and emerging technology practices to spur faster knowledge sharing, strengthen talent development and deepen our end-to-end capabilities.

Helping our clients on the journey ahead Our commitment to exceed the expectations of our clients is demonstrated by year-over-year improvements across all satisfaction measures. For example, among the 7,544 in-person, signed client assessments completed in fiscal 2017, we earned an overall 9 out of 10 satisfaction score. This strong satisfaction score is especially important given the increased urgency of our clients to evolve to meet the digital expectations of their customers and citizens. This urgency can only continue given the rapid evolution of technology today, and in the years ahead.

Built to grow and last With the overall objective of building a company to grow and last, this year, at our annual Leadership Conference, we discussed a vision of CGI for 2050 — a vision that imagines our clients in the future. Across the industries we serve, we examined the current state, the drivers for change, the future state, and the winners’ attributes. In all scenarios, technology is no longer just an enabler; it is the driver. There will be massive investment in technology over the coming decades, including an acceleration of outsourcing to free up required capital for these investments. As we help our clients accelerate their transformation, we will continue to make the investments needed to help clients innovate and create enduring value.

The growth we have achieved over the past decades is a credit to our strong culture, operational discipline, innovation and end-to-end capabilities. All of these attributes provide the foundation for serving as our clients’ partner and expert of choice amidst the technology‑driven transformation that is underway. CGI is one of the few firms with the scale, reach and capabilities required to help clients succeed. To our shareholders, thank you for your ongoing trust. We are committed to continuing to create value. To our 71,000 professionals, thank you for building upon the CGI culture and making CGI a great place to work. To our clients, thank you for your confidence. We are honored to serve you each day. The future has never looked so exciting.

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CGI Constitution While most companies have a vision and mission, CGI goes a step beyond. We have a company dream, which emphasizes the enjoyment and ownership principles essential to our success. The CGI Dream, together with our Vision, Mission and Values, make up the CGI Constitution. With frameworks and programs founded upon this Constitution, CGI provides for the consistent growth that benefits our clients, members and shareholders.

Our Dream

Our Values

To create an environment in which we enjoy working together and, as owners, contribute to building a company we can be proud of.

Partnership and quality

Our Vision To be a global world class end-to-end IT and business consulting services leader helping our clients succeed.

Our Mission To help our clients succeed through outstanding quality, competence and objectivity, providing thought leadership and delivering the best services and solutions to fully satisfy client objectives in information technology, business processes and management. In all we do, we are guided by our Dream, living by our Values to foster trusted relationships and meet our commitments now and in the future.

For us, partnership and quality are both a philosophy and a way of life. We constantly deepen our understanding of our clients’ business and we develop and follow the best management practices. We entrench these approaches into client relationship and service delivery frameworks in order to foster long term and strong partnerships with our clients. We listen to our clients and we are committed to their total satisfaction in everything we do. Objectivity and integrity We exercise the highest degree of independent thinking in selecting the products, services and solutions we recommend to clients. In doing so, we adhere to the highest degree of quality, objectivity and integrity. We do not accept any remuneration from suppliers. We always act honestly and ethically. We never seek to gain undue advantages and we avoid conflicts of interest, whether real or perceived. Intrapreneurship and sharing Our collective success is based on our competence, commitment and enthusiasm. We promote a culture of innovation and initiative where we are empowered with a sense of ownership in supporting clients, thus ensuring our profitable growth. Through teamwork, sharing our know-how and expertise across our global operations, we bring the best of CGI to our clients. As members, we share in the value we create through equity ownership and profit participation. Respect In all we do, we are respectful of our fellow members, clients, business partners and competitors. As a global company, we recognize the richness that diversity brings to the company and welcome this diversity while embracing the overall CGI business culture. Financial strength We strive to deliver strong, consistent financial performance which sustains long term growth and benefits both members and shareholders. Financial strength enables us to continuously invest in our members’ professional development, our services and our business solutions to the benefit of our clients. To this end, we manage our business to generate industry superior returns. Corporate social responsibility Our business model is designed to ensure that we are close to our clients and communities. As members, we embrace our responsibilities to contribute to the continuous improvement of the economic, social, and environmental well‑being of the communities in which we live and work.

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CGI Management Foundation At CGI, we are committed to being the best in our industry. To be the best, we need to operate as the best, and the CGI Management Foundation includes the key elements that define and guide the management of our company, including the CGI Constitution and our common policies, frameworks, processes, operational principles and measures. The Management Foundation encompasses the best practices that enable us to deliver in a consistent and successful manner no matter where CGI operates around the world.

I S O 9 0 0 1 C E R T I F I E D O P E R A T I O N S

CGI Constitution Dream

Vision

Strategic Directions and Operational Planning

Mission

Enterprise Policies and Processes

Values

Code of Ethics

Organization, Governance and Adjustments

Managing for Excellence

Range of Services

Human Resources

Marketing, Client Engagement Relationship Risk and Business Management Development

Contract

IT Management Best Practices Engagement Governance

Leadership Institute Delivery

Closing

Methods and Tools Consulting, System Integration and Development

Application Management

Technology Operations Management

Client Satisfaction Assessment Program

Innovation and Intellectual Property

Member Partnership Management Framework

Client Partnership Management Framework

Proposal

Finance and Investment

IP-based Business Process Management

Assignment Performance Management and Career Planning Recruitment Orientation and Integration Team Meetings

Member Satisfaction Assessment Program

Security and Data Privacy

Quality System

Mergers Management and Frameworks Acquisitions Shareholder Partnership Management Framework Investor Relationship Management Disclosure Guidelines Investor Communications

Shareholder Satisfaction Assessment Program © 2017 CGI Group Inc.

© 2017 CGI Group Inc.

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LOCAL experts. GLOBAL insights. We are at a historic moment in terms of how consumers and citizens want to engage with our clients. We’ve seen the world around us become more connected, transcending cultures, languages and borders. Today, we partner with clients to support their most strategic and visible initiatives, helping to innovate, develop, improve and secure the technology that is at the heart of this transformation. For our stakeholders and communities, we are at the center of helping to deliver on the promises of digital.

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Digital transformation is all about PEOPLE.

Partnering with clients to become digital organizations and exceed the expectations of their customers and citizens

Empowering our professionals to serve as trusted and innovative partners for clients on their digital journey

Providing shareholders with a strong return on investment as we pursue endless opportunities to grow

Building prosperous communities through our digital talent and local presence around the world

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We listen.

Understanding our stakeholders to continuously refine CGI’s strategy As a partner, expert, employer and investment of choice, we listen carefully to understand stakeholders’ needs first. That knowledge, combined with our global perspective, helps our clients exceed customer and citizen expectations, supports our members in growing their careers, and provides our shareholders with a return on investment.

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Clients Informing strategy through client insights Proactive listening serves as the first step in developing flexible and customized solutions to innovate and lead our clients in delivering results. Through the Client Satisfaction Assessment Program (CSAP), we regularly meet face-to-face with clients to evaluate our performance and assess together what more can be done. The CSAPs provide a “report card” on CGI’s performance. Globally, in 2017, CGI scores reflect a high level of client confidence. Through the Voice of Our Clients program, our leaders meet annually with clients to understand their challenges and opportunities, business and IT priorities, and budgets and investment plans. In 2017, more than 1,300 in-person interviews were conducted — 20% of which were with prospective clients — across 10 commercial industries and governments in 17 countries. Among those interviewed, 40% were business leaders and 60% were IT leaders. The resulting insights are described in CGI Client Global Insights presentations and reports, which support CGI and clients’ strategic planning initiatives and create a dialogue on how we can work together to address key business and technology imperatives. The top three trends in 2017 are consistent with 2016, but with each becoming more pronounced. No matter the industry, executives interviewed are aligned that the digital needs of consumers and citizens are bringing about the transformation of organizations around the world. Regarding the fourth and fifth top trends, there is a notable difference between commercial and government organizations. While commercial clients we interviewed experiment with digital technologies and harness opportunities for collaboration and interoperability, government clients continue to focus on managing cost pressures and increasing their use of the cloud.

Top 2017 global trends with 2016 comparison

2017 CSAP highlights

1

2

3

85%

74%

60%

Becoming digital to meet customer expectations

71% Next top commercial trends

Growing cyber risk

Increasing regulatory demands

62%

51%

Number of evaluations – 7,544 Overall satisfaction – 9.0/10 Client loyalty – 9.2/10 Industry knowledge – 8.9/10 Technology expertise – 8.9/10 Innovation – 8.5/10

Next top government trends

4

Growing use of digital technologies

4

Cost pressures slowing the pace of change

5

Growing collaboration and interoperability

5

Increasing use of public and private cloud

While there are a number of similarities across industries, we recognize that executives experience transformation in the context of their industry, geography and organizational culture. We provide reports by industry (visit cgi.com/globalinsights) and our teams share customized insights and perspectives with clients across the geographic markets we serve.

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We listen

Members Empowering a team of digital leaders through learning and development Through the CGI Client Global Insights, clients report that progress toward digital transformation has its share of challenges, with culture and talent ranking at the top. Our professionals provide the needed digital expertise to support clients’ most pressing needs, and address those needs through the deep understanding of their business that comes from CGI’s client-proximity model. CGI’s professionals are called members to recognize that the vast majority are CGI shareholders . Members feel a powerful sense of ownership in providing innovative solutions and making decisions in the best interest of their clients. In this spirit, each year, our professionals participate in the strategic direction of their company. In 2017, more than 51,000 members provided input into the progress of CGI’s strategic goals and priorities through the Member Consultation. Taking the form of a questionnaire, the Member Consultation empowers members to assess the path we are on and identify what else can be done to achieve the goals that benefit our stakeholders. This included providing more than 53,000 suggestions and observations. The resulting findings, along with feedback from our clients and shareholders, help inform the update of CGI’s strategic plan and focus in on key action items within each 2018 business unit business plan. In addition to the Member Consultation, each member participates in the Member Satisfaction Assessment Program (MSAP), which includes a one-on-one discussion between a member and his or her manager to foster dialogue, support timely action plans, and reinforce collective ownership of member satisfaction. Following the discussion, members complete a satisfaction survey. In 2017, MSAP scores showed year-over-year improvements across all categories.

2017 MSAP highlights Number of MSAP evaluations – 47,674 Living up to the company’s values – 8.4/10 Commitment to the company – 8.5/10 Client satisfaction provides work satisfaction – 8.6/10 Pride in being part of the company – 8.0/10

Engaging our team Each year, CGI informs its strategy through the insights that come from listening to our clients, members and shareholders. Our leaders gather every year in June at our Leadership Conference to discuss strategic directions and priorities. The conference addresses stakeholder insights and includes presentations and working group discussions on our strategic priorities. In addition, the event kicks off our annual operational planning process.

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Québec City, Canada

2017 ANNUAL REVIEW Members also help build the future talent pipeline of the company. Through the Recruitment Referral Program, members identify quality candidates. In addition, through CGI’s recruitment model, leaders overseeing client relationships and service delivery are responsible for recruiting the best talent aligned with clients’ needs. We also offer learning and development programs to support members in their careers and in bringing forward innovative ideas and solutions to clients. In 2017, programs focused on deepening members’ skills in areas such as agile methodologies, emerging technologies, and consulting and leadership competencies. In addition, to further the development of client and CGI teams, we have centers of excellence and emerging technology practices across our global operations (see page 36), and are helping to build the future IT workforce through various training programs (see page 46).

After the Leadership Conference, business units prepare their business plans for the coming year using the strategic priorities as a guide to ensure global alignment. The process also includes assessing stakeholder insights and identifying resulting action plans for areas to improve. Directions, priorities and operational plans are shared with all members during the Annual Tour, which takes place in October. The Annual Tour includes live and in-person global broadcasts with senior executives at the corporate and operational levels. In 2017, 186 events were held over four days to support strong alignment and participation in executing global priorities and local business plans. Bangalore, India

Rotterdam, Netherlands

Montréal, Canada

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We listen

Shareholders Providing return on investment through CGI’s Build and Buy Strategy

Management performance SSAP results Global average

Yearly, more than 200 face-to-face meetings take place with investors to share the CGI story and F2017 8.7/10 strengthen long-term relationships. In addition, we conduct the Shareholder Satisfaction F2016 8.6/10 Assessment Program (SSAP), which includes F2015 8.3/10 strategic discussions with the largest and most knowledgeable institutional investors. In 2017, participants — including 72% on the buy-side and 28% on the sell-side — provided structured insights on CGI’s comparative strategy, culture and expectations to drive superior valuation. This year’s insights demonstrate high satisfaction regarding CGI’s Build and Buy Strategy and credibility of top management.

Over the years, CGI has experienced significant growth through the disciplined execution of our Build and Buy Strategy — growth that has been key to support our clients in exceeding the expectation of their customers and citizens, to benefit the careers of our members, and to provide our shareholders with return on investment. On the Build side, we invest in our end-toend capabilities, including high-end IT and business consulting, systems integration, outsourcing and intellectual property (IP), with IP representing 22% of CGI’s revenue. In fiscal 2017, we booked $11.3 billion in contract awards, bringing the book-to-bill ratio for the fiscal year to 104.1% of revenue; 58% of bookings included extensions and renewals, and 42% represented new business.

On the Buy side, we focus on large, transformational acquisitions to further expand our geographic footprint and critical mass, and smaller, niche acquisitions that provide deep relationships within our metro markets and further enhance CGI’s strong digital capabilities. In fiscal 2017, we completed four niche acquisitions with companies identified through the Voice of Our Clients program.

The Build and Buy activities this year furthered CGI’s strategic objective to double the size of our company through a balanced blend of organic and acquisition growth.

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Presenting CGI’s performance and priorities through the Annual General Meeting of Shareholders Each year, we host a meeting in Montréal to receive reports, elect directors, appoint auditors, consider shareholder proposals and transact other business. In addition, the meeting includes remarks on CGI’s performance, strategy and priorities, as well as an open Q&A forum to receive feedback. In 2017, the meeting was broadcast via live video feed to enable shareholders around the world to take part in their company’s annual meeting. To watch a replay, go to cgi.com/investors.

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We innovate and lead. Helping clients turn change into opportunity

The digital needs of customers and citizens are driving the transformation of organizations around the world. CGI serves as our clients’ guide in this time of rapid change, providing practical innovation to create powerful results.

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Leading the industries we serve With more than four decades of sustained growth, we are a trusted partner that provides substantive and actionable counsel to help clients accelerate their transformation. Here are examples of CGI’s commitment in bringing forward services and solutions that address clients’ top priorities.

Banking We partner with 15 of the top 20 banks globally, and our top 10 banking clients have worked with us for an average of 26 years. We serve clients in the retail banking, corporate and transaction banking, and capital market sectors to drive new digital capabilities and customer-centric, revenue‑generating programs.

Client focus areas

Examples of our services and solutions

Accelerate customer-centric programs

• CGI provided business consulting and systems integration services to help Crédit Agricole transition to an omni-channel platform with a 360 degree customer view, cross-sell capabilities, campaign automation, real-time event management, as well as strong data management for GDPR, OFAC and data lakes set-ups. • ANZ is driving customer satisfaction through payments automation via CGI’s All Payments solution, which is enabling the bank to support more payment types, improve straight through processing and process higher payment volumes. • CGI helps banks develop transformation strategies and roadmaps for becoming digital banks of the future to keep pace with evolving bank consumer demands. • CGI Collections360, with 370+ implementations worldwide, enables banks to seamlessly transition to customer-centric default management.

Protect the bank and customers from increasing risks

• Our secure, real-time payments offering provides a holistic framework for fighting financial crime and leveraging digital solutions for real-time transaction monitoring, detection and mitigation. • CGI helps banks develop and implement an advanced threat detection strategy and architecture, including for long-time partner National Bank of Canada. • CGI was awarded a five-year contract extension in 2017 to manage and expand the Cifas Fraud Investigation Database until 2027. Built by CGI in 2002, the database is used by Cifas members to monitor and share confirmed fraud cases, helping to combat penetration of fraud against businesses and individuals.

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We innovate and lead

Client focus areas


Modernize business models, operations and services

• SEB, a leading Nordic financial services group, is implementing CGI Trade360 to improve the trade finance value chain for SEB and its customers. • With a 40+ year history of leading the evolution of payment infrastructures, CGI is at the forefront of payments modernization, helping banks embrace the move toward real-time payments and open banking. • CGI offers in-depth expertise on bank regulatory schemes, such as the Single Euro Payments Area (SEPA), and offers a solution to help banks implement SEPA instant credit transfers.

CGI partners with banks to achieve groundbreaking interoperability between trade finance platforms and blockchain technologies CGI partnered with the Bank of Montreal (BMO), Royal Bank of Canada and Mitsubishi UFJ Financial Group, Inc. (MUFG) to successfully complete in 2017 a first-ever proof-of-concept (POC) that enables banks engaged in trade finance to integrate powerful blockchain capabilities with existing trade finance platforms. The POC demonstrated seamless interoperability between CGI’s global finance trade platform, CGI Trade360, used in 90+ countries, and Skuchain’s Brackets — a blockchain-based B2B smart contract platform.

Blockchain and smart contracts have the potential to reinvent global trade, improving speed, reducing costs, enhancing productivity and taking the paper out of trade. CGI has been an important trade finance technology partner to BMO for many years, and this Skuchain Brackets proof-of-concept collaboration is another example of BMO’s commitment to stay at the forefront of the trade and supply chain finance industry. Jeff Shell, Head of Global Trade and Banking, BMO Capital Markets, Toronto, Canada

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Manufacturing Our 7,000+ manufacturing professionals help clients accelerate their Industry 4.0 transformation and streamline and optimize their processes and systems to drive agility and transform business models across engineering, procurement, manufacturing, logistics, marketing, sales and service, and more. We serve 700+ manufacturing clients across a range of sectors, including automotive, aerospace, high tech, mining, metals, pulp and paper, and chemicals.

Client focus areas


Become digital to meet customer expectations

• Our Supply Chain Center of Excellence helps manufacturers optimize their end-to-end supply chain and accelerate their journey toward a digitally integrated value chain. • CGI’s digital transformation vision for manufacturing centers on transforming to Industry 4.0, working with clients such as Rio Tinto to leverage emerging technologies and create a digital continuum across the value chain. • We’re partnering with industrial technology company Valmet to provide hybrid cloud-based IT infrastructure services, automation-based digital end‑user services for IT, and user support. • CGI delivers end-to-end modernization consulting services for manufacturers, including modernization assessments, portfolio rationalization and enterprise architecture roadmap development.

Optimize operations, focusing on collaboration and customer experience

• CGI’s extensive Manufacturing Execution Systems (MES) expertise help manufacturers optimize every aspect of production, enabling them to achieve operational excellence. • Our Manufacturing Atlas approach has helped hundreds of clients optimize and transform their manufacturing operations, driving operational excellence and enabling greater personalization. • Produced annually, our MES Product Survey tracks the latest trends and provides product reviews and insights, serving as an invaluable benchmark for companies choosing the perfect-fit MES solution.

Protect the enterprise

• Comprehensive cybersecurity services provide advanced levels of protection on a scalable platform, allowing clients to adapt quickly as the business and risk environment demand. • CGI’s Secure ICS approach for industrial control systems helps protect industrial automation, control system environments and critical infrastructures.

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Utilities Our expertise helps utilities meet the increasing demands of a digitally enabled energy ecosystem. We partner with 450+ electric, water and gas clients worldwide, as well as 8 of the 10 largest utilities in Europe and North America. We deliver innovative services and technologies to address distributed energy resources and diversify revenue streams to improve both customer loyalty and bottom lines.

Client focus areas


Become digital for commercial • CGI’s Digital Optimized Network Utility vision helps clients leverage differentiation, customer engagement innovative business models and emerging technologies to transition to and operational excellence a new energy system. • As the data services provider for the UK market, we are supporting the rollout of 53 million smart gas and electricity meters. • Our customer information systems — including Kolibri (Finland), BFUS (Sweden), IS Suite (Norway) and U@cloud SaaS (Iberia) — drive clients’ digitalization strategies, enabling them to offer new services and opportunities. Assure regulatory compliance

• CGI delivers and operates the core IT systems and business processes that support centralized energy markets across the globe, helping utilities comply with industry regulations, align to different market processes and achieve effective security. • We helped deliver the UK central market operating system that underpins the world’s largest competitive water market.

Optimize investments and business operations

• Our comprehensive asset, resource and workforce management services and systems support 60 of the top 100 utilities in North America, improving operational performance and profitability, while minimizing downtime and extending the life of assets. • CGI’s Renewables Management System (RMS) delivers an operational platform to manage and control the complete renewables portfolio, including remote start and stop of turbines, as well as key performance indicators on availability, faults and efficiency.

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Insurance We help hundreds of insurers, brokers and agents around the world, including 7 of the top 10 global insurers, and have partnered with each of our top 30 insurance clients for an average of 17 years. We help property and casualty and life insurers implement innovative digital business solutions across the value chain to differentiate themselves while driving operational efficiencies and cost savings.

Client focus areas


Drive a differentiated, seamless customer experience

• As part of our partnership with LocalTapiola Mutual Life Insurance Company, CGI delivered digital services enabling the company to improve customer engagement by offering new investment services and solutions across its customer base. • Our outsourcing work with OP, a leading Finnish financial group, includes high-end consulting to drive an enhanced customer experience through, for example, robotic process automation across digital channels.

Derive value from data to improve underwriting and customer evaluation

• Implemented by more than 100 insurers worldwide, CGI’s Ratabase solution is the industry’s leading rating and pricing engine, managing complex logic to drive the speed, accuracy and cost-effectiveness of rating, pricing and underwriting. • CGI’s insurance information solutions connect insurers to rich business and customer data for more effective decision-making and support the delivery of more than 16 million risk information reports annually to insurers, brokers and agents. • CGI Evolut1on Hub is a robust cloud-hosted platform that delivers highly configurable risk management functions, providing better control over pricing, data validation and fraud identification through machine learning and other advanced data technologies.

Safeguard against cyber and regulatory risks

• CGI offers comprehensive cyber services to insurers, including consulting and risk assessment, managed security services, and incident response and investigation, and also supports insurers offering cyber insurance coverage. • Our regulatory compliance expertise and solutions help insurers effectively comply with new and upcoming regulatory standards such as the General Data Protection Regulation (GDPR).

CGI is very familiar with our needs and challenges, which means it can be proactive in day-to-day work. We were looking for a partner that can drive and support the transformation of our IT environment, and with CGI’s modernized infrastructure services and knowledge of our needs, we feel secure in choosing them as a partner for our future development. Ulf Larsson, CIO, Alecta, Stockholm, Sweden

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Government We have helped 2,000+ government clients in 15 countries improve citizen service and operational efficiency through IT modernization and greater access to digital information and services. Our solutions help clients increase revenue, efficiency and the quality of citizen services, as well as secure complex and large-scale programs from the back office to frontline operations.

Client focus areas


Become digital to meet citizen and stakeholder needs

• We apply cloud, digital, mobile and automation technology to advance financial and human resources management for government agencies at all levels across Canada, Europe and the United States. • Communities are developing smarter, more sustainable services with CGI’s digital roadmap and solutions for Future Cities in areas ranging from public asset management to transportation efficiency to citizen participation.

Increase collaboration

• Shared services financial management programs improve efficiency and service delivery. For example, the U.S. Department of Agriculture uses CGI’s Momentum solution to provide shared services to 40 federal agencies. • CGI is an active participant in public-private partnerships such as the Forum Virium Helsinki, which develops new digital services for cities and residents, and the Lafayette Engagement and Research Network (LEaRN), which focuses on understanding how to leverage smart community efforts successfully. • Managed services help government agencies streamline processes, enhance key business applications and improve the employee and citizen experience. For example, CGI was named the “Public Sector Outsourcing Project of the Year” at the Global Sourcing Association Awards for the support it provides to the UK Ministry of Justice and its executive agencies.

Harness data and analytics for better decisions and services

• Groundbreaking use of spatial data, mapping technology and advanced analytics enable more efficient regulatory compliance for the Estonian Agricultural Registers and Information Board. • CGI’s mixed reality platform — including Microsoft HoloLens, GIS and GPS technology — is helping to envision and plan the relocation of the town of Kiruna, Sweden, from its current position near one of the world’s largest iron mines. This “Hidden City” concept digitally maps and interacts with the underground infrastructure, and can extend to other planning needs.

Protect data and infrastructure from cyber threats

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• Credential management solutions provided on behalf of the U.S. Department of Homeland Security will help federal agencies strengthen their cybersecurity posture.

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Client focus areas


Modernize IT to reduce costs and increase agility

• IT modernization enables new citizen-centric services and digital transformation for the City of San Diego and other municipalities like Sundsvalls in Sweden. • Transitioning data centers to hybrid cloud solutions reduces maintenance costs for agencies such as the U.S. Agency for International Development. • IT quality assurance and control oversight helps reduce risks and ensure operational excellence for the European Commission’s Directorate General for Taxation and Customs Union.

Improve agility and insight to achieve the defense, intelligence and space mission

• Knowledge-based program support services for C4ISR organizations help meet the U.S. Army Communications-Electronics Command responsive strategic sourcing requirements, while a new contract writing system will help get capabilities to troops faster, enabled by CGI’s Momentum solution. • CGI supports complex, mission-critical space systems for military satellite communications ground systems, civilian space agencies and aerospace companies.

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CGI partners with City of Los Angeles to provide cloud migration and digital application services Building on its three-decade relationship with CGI, the City of Los Angeles is moving to CGI’s cloud-hosting and managed services to support the City’s accounting, budgeting and financial reporting systems. Managed services for CGI Advantage ERP — the leading purpose-built solution for state and local governments — improve scalability, reduce operational costs and ensure access to future upgrades and highly specialized IT talent.

We need a partner that can learn our business and provide opportunities for efficiency or innovation. CGI has proven to be a trusted partner for us as we continue to use technology to improve the lives of residents, businesses and visitors across the City of Los Angeles. Ted Ross, CIO, City of Los Angeles, United States

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Retail and consumer services In the retail and consumer services (RCS) industry, our 4,300 experts and broad portfolio of services and solutions help companies drive digital transformation to enable personalized customer experiences, create new revenue streams, empower employees, and protect against cyber threats. We serve 800+ clients globally across the retail, wholesale, consumer packaged goods and consumer services sectors.

Client focus areas


Become digital to meet customer expectations

• CGI’s Global Retail and Consumer Services Center of Excellence helps clients reinvent every stage of the customer experience journey, enabling RCS companies to understand and plan for the differentiated experience they can provide their customers. • For clients such as Clarins, we help transform their supply chains and processes to improve operational efficiency and better meet their customers’ expectations. • CGI partnered with Liseberg, an amusement park located in Gothenburg, Sweden, to develop digital strategies and solutions that provide customers with real-time information to enhance their experience and drive differentiation.

Leverage big data and predictive analytics

• Our powerful analytics capabilities create personalized offerings and services, improve understanding of customer behavior, and enhance customer interactions. • CGI has partnered with 5 of the world’s top luxury goods brands to improve customer personalization through better use of data and analytics.

Deliver omni-channel environments for an any time, any device experience

• We have helped 6 of the top grocery chains in Europe build omni-channel environments to improve and enhance the customer experience. • CGI consults with RCS companies worldwide to develop strategies to build a digitally connected value chain that meets rising consumer expectations for anytime, anywhere, any device shopping. • Omni-channel services and solutions — including the new CGI Retail Xp360 platform — provide seamless, experience-led, personalized customer experiences, while minimizing costs.

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Health and life sciences We assist health and life sciences clients in meeting the growing expectations of a digital population in a safe, secure, cost-effective and compliant manner. Globally, our solutions support 1,000+ health facilities, 195 million health plan members, 3 million providers, 500+ pharmacies, and 50+ pharmaceutical and other life sciences organizations, including biobanks.

Client focus areas


Improve the citizen and customer experience

• Digital services enhance the user experience for 55 million Medicare beneficiaries in the United States. • Open source prescription medication management helps improve patient safety and deliver more personalized care for Plymouth Hospitals NHS Trust. • Digital transformation efforts help the UK’s Defence Medical Information Capability Programme better support service personnel, dependents and Veterans. • Patient-centric care management using CGI CommunityCare360 increases time dedicated to in-home patients.

Use data and analytics for better insights

• Prescriptive analytics identify delivery and cost improvements for organizations like FD CARES, a partnership of fire department services, providers and payers in the State of Washington. • Business Intelligence as a Service improves analysis and decision support for Swedish Health and Social Care Inspectorate (IVO). • Analytics, cloud computing and machine learning combine to more accurately identify improper healthcare payments for clients like the Veterans Health Administration’s Office of Community Care, recouping funds to meet the needs of Veterans.

Modernize IT to reduce costs and support new delivery models

• Full IT outsourcing provides long-term cost efficiencies while modernizing and transforming the IT environment for organizations such as Handicare, a leading provider of lifting aids and other medical devices in 30 countries. • One-stop IT modernization enables more efficient homecare, with a cloud platform for care and tablets that put the right information in the hands of staff for firms like TSN Home Care in the Netherlands.

Improve product launch success

• Built from years of experience working with commercial launch initiatives for life sciences clients, CGI’s BioIgnition solution provides a proven approach and toolset for planning and executing successful launch programs. • Integrated Clinical Portfolio Framework will enable Incyte Corporation to bring products to market faster and more effectively.

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2017 ANNUAL REVIEW

Finnish Red Cross Blood Service: Digitalizing logistics to transform the blood delivery chain Finnish Red Cross Blood Service’s “vein-to-vein” project in cooperation with CGI uses new enterprise resource planning and customer relationship management systems to drive digitalization. The system aims to make the blood delivery chain more efficient by improving the monitoring of blood and blood products, the transparency of operations and the ability to predict the need for blood. The online-based donation process provides real-time information from the moment the donor sits down in the chair. Digital tools bring new surety to operations and open the doors to data system integration between the Blood Service and hospitals.

To build the entire system, we need contributions from hospitals as well as IT expertise. That’s why Blood Service chose CGI as its strategic digital transformation partner. Martti Syrjälä, Chief Executive, Blood Service, Helsinki, Finland

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Transportation and logistics We help leaders across the aviation, rail, maritime, road and regional transit, and logistics sectors worldwide. In-demand capabilities include digital expertise and solutions that optimize operations, enhance the overall passenger experience and ensure tight security. Through our experience, we help clients drive innovation, collaborate beyond business boundaries and generate new growth opportunities. For example, CGI is supporting a nationwide program — Beter Benutten (Better Utilization) — to make the Netherlands more accessible and sustainable. CGI is working with several regions to implement our SmartTravel solution, which combines digital technologies such as mobility, gamification, big data analytics and travel mode detection to influence and reward driver behavior. CGI also partnered with Finnish railway VR Group to build and integrate a new traffic information system that improves incident communication and response, significantly enhancing the railway’s passenger, employee and partner experience.

The agile operating model has been important to us because we have built a new infrastructure simultaneously with the project. It’s been great to see how incredibly committed CGI’s experts and our own people here at VR have been to working together from the very beginning. And, the project has stayed well on schedule. Ari Vanhanen, Vice President Operations Center at VR Group Ltd., Helsinki, Finland

Oil and gas We help all major oil and gas companies address market challenges by becoming digital enterprises. We offer innovative ways to realize improvements in reserves productivity, asset utilization, partnerships, compliance and profit generation across the entire supply chain — from exploration and production to retail. For clients such as Shell, CGI offers key services for remote online asset monitoring platforms that turn data into actionable insights, providing for more reliable and safer operations. In addition, CGI manages $100 billion in fuel card payments per year, and our cloud services support 30 upstream operators, managing data for 700 joint ventures.

Communications We work closely with communications service providers (CSPs) to define and implement digital strategies and roadmaps to help them win customers in a highly competitive and regulated market. This includes partnering with 6 of the world’s top CSPs, where our solutions help clients meet increasing customer demands for new products and services, as well as omni-channel, real-time and personalized service delivery. For example, we helped mobilcom-debitel transform into a “digital lifestyle provider” through omni-channel retailing.

CGI offered not only omni-channel experience but also experience within our business area. The timing and launch of the project was impeccable. Our wishes, which are essentially our customers’ wishes, were listened to and taken into account. Particularly useful was CGI’s skill in bringing together IT and business staff, convincing them of the project’s importance and getting them on board. Florian Wolf, Head of IT Customer & Commerce Systems, mobilcom-debitel, Berlin, Germany

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Driving pace and scale in a dynamic market Becoming digital is about more than technology. It involves a fundamental change to the DNA of an organization, including how it listens to customers, innovates, collaborates with partners, delivers new products and services, and more. It’s about driving change across the entire enterprise — from front-end customer channels to back-end processes and supply chains. This kind of broad, fundamental change doesn’t have a clear start and end. It takes place continuously in response to changing market drivers and customer expectations. CGI works with digital leaders across industries to evolve, at the right pace and scale, into agile organizations that meet customer and citizen needs. Incubate new innovations — We help clients adopt advanced analytics and artificial intelligence to drive new business models, services, products and customer experiences to compete beyond traditional boundaries, re-envision customer touchpoints, innovate to differentiate and engage in the wider ecosystem.

Transition to a business of the future — We build infrastructures that enable the transition from legacy operations, technology, services and products to a business of the future. We also help clients adopt cloud/hybrid IT environments to simplify their operations, reduce costs, increase agility, speed up time to market, and achieve results more quickly.

Maintain and secure the existing business — We help clients drive operational efficiencies and cost savings through technologies such as intelligent automation. We also deliver advanced cybersecurity and regulatory compliance capabilities that effectively address increasing threats and regulatory demands.

CGI delivers modern API platform for Finnair to drive ancillary product sales A long-term partner of Finnair, CGI was chosen by the airlines in 2016 to help drive its digital transformation program. One aspect of that program involved helping Finnair take advantage of one of today’s top trends in the airlines business — the sale of ancillary products, such as business class upgrades, additional luggage and better meals. CGI’s experts built a modern API platform for Finnair that simplifies the sale of ancillary products by, for example, managing all of the logic resulting when a passenger enters loyalty card, credit card and flight numbers. The API supports multiple sales channels and was built using a DevOps model that includes a cloud-based toolset for managing the platform’s ongoing operation. With the API platform in place, Finnair’s ancillary revenue per passenger has significantly grown and more than 500,000 people have downloaded Finnair’s mobile app, making it one of the most downloaded apps in Finland, with 20,000 daily unique users.

CGI’s skilled and committed team has been essential for achieving our goals in DevOps and cloud adoption for Finnair’s digital transformation program. Petteri Skaffari, Head of Information Technology, Finnair, Vantaa, Finland

Helping digital leaders continuously transform Clients are embracing digital strategies, technologies and operating models to become customer-centric organizations. Learn more about CGI’s client collaborations at cgi.com/digital-transformation.

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Turning ideas into outcomes Innovation happens on the “shop floor.” For CGI, our shop floor is our client projects. Our Innovation, Creativity and Experimentation (ICE) program turns our experts’ ideas into new business solutions.

73 calls

to action

2017 innovation highlights

Project Leap: Single platform for storing and analyzing all of the data required to detect security threats and provide visibility for investigations and remediation Digital Partner Platform: Cloudbased SAP robotic process automation platform with cognitive and predictive capabilities Infrastructure Discovery & Analysis: Solution for providing insight reports and analysis on IT infrastructures to improve problem solving, drive enhancements and better conduct due diligence Interactive Design Pattern Library: Interactive design pattern library that helps drive forward customercentered design in alignment with clients’ standards Data Marshall Framework: Automated, metadata-driven framework to extract, transform and load encrypted data for data migration or data warehouse building

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3,494 ideas

submitted

Earth Observation Monitoring: Platform that uses remote sensor technologies to collect and manage data to meet a wide range of client needs, such as assessing weather and disaster risks to infrastructure Req2TC: Solution for automating the test design phase of the testing life cycle, reducing time and effort Mobile Truck Tickets: Oil and gas solution that facilitates transitioning paper documents from the field to the back office for completing transactions Quality Care Measure Service: Automated solution for measuring the quality of health care, replacing manual processes DocGenBot: Automated tool for producing requirements documentation for legacy modernization and outsourcing projects Salesforce Flashdeploy: Solution that bolsters basic integration tools to reduce the time and cost of deployments

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CGI Intellectual Property Portfolio of 150+ business solutions and digital enablers that accelerate clients’ digital transformation Our full suite of more than 150 IP solutions helps clients transform into digital businesses that keep pace with the changing demands of customers and citizens. From automating processes, to driving digital insights, to improving the customer experience, our solutions deliver sustained competitive advantage and profitable growth. Examples include: Built-for-Government ERP: Implementation of hundreds of government systems across the U.S., including 400+ implementations of CGI Advantage for states, cities, counties and school systems, and 150+ implementations of Momentum across the executive, judicial and legislative branches of the federal government CGI Collections360: A comprehensive managed services approach to collections and recovery that combines software, business processes and IT services to manage and improve the collections life cycle for commercial and government organizations CGI ProperPay: Drives identification, prevention and recovery of fraud, waste and abuse, helping government and commercial health payers recover more than $2.8 billion CGI Trade360: Supports global trade services for more than 33,000 portal users in 90 countries through advanced technologies, including blockchain

CGI Wealth360: End-to-end wealth management solution suite drives efficiencies across front and back offices and features a digital advisor combining robo and human advice to enable a digital customer experience CGI Unify360: Integrated suite of software, services and tools unifies the management of clients’ hybrid IT environments and enables improved service quality and operational efficiency Secure, real-time payments: Combines CGI solutions, such as SEPA Real Time, HotScan Risk Screening and an all-in-one risk management platform, with services to help financial institutions adopt real-time payments quickly at less cost and risk Utilities solutions: Includes Sm@rtering, which enables meter data management, data collection, network supervision and other smart grid functionalities; and RMS (Renewables Management System) for the digital supervision, control and analysis of renewable power plants

View more CGI business solutions at cgi.com/solutions.

CGI shares digital transformation accelerators during European Utility Week 2017 (see next page).

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We innovate and lead Sibos 2017

Sharing best practices CGI professionals stay at the forefront of industry trends and innovation, and share their knowledge and perspectives through events and thought leadership. Here is a sampling of our 2017 initiatives.

Ratkaisu17

Conferences CGI Credit Management Conference: This annual event, drawing more than 100 attendees in 2017, educates clients and prospects on the latest developments of CGI’s innovative credit management suite. CGI Forum: Held for the 39th year, the CGI Forum brought together in 2017 more than 350 CGI Advantage clients to share knowledge and ideas for maximizing the benefits of this leading, built-for-government solution. Digital Roundtable: CGI’s Digital Roundtable in Sydney, Australia, gathered executives to discuss digital transformation trends and challenges. Envision 2017: More than 500 people, including industry experts, CGI business leaders and CGI partners attended CGI’s first-ever Envision conference in Bangalore, India, to explore hyper-convergence, cloud, automation and emerging technologies.

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European Utility Week: This event connects the smart utility community, including electric, gas, water and waste leaders from across the globe. During EUW2017, CGI shared our enterprise-wide approach to digital transformation. HIMSS: CGI participates each year in HIMSS, the health industry’s largest annual conference and exhibition showcasing the latest innovations in health IT. In 2017, CGI offered expertise on a wide range of digital healthcare solutions, including next-generation analytics, cybersecurity and privacy, care management and more. Ratkaisu: Ratkaisu (English meaning Solution) is held each year by CGI’s operations in Finland for clients and prospects interested in the latest trends and innovations in key areas such as digitalization, the customer experience and cybersecurity. Ratkaisu17 drew more than 1,000 clients, prospects, partners and CGI subject matter experts. Sibos: Every year, CGI finance experts host a wide range of educational and networking sessions at Sibos, one of the world’s leading industry conferences for finance professionals. In 2017, our experts covered a wide range of topics, including agile and DevOps, real-time payments, blockchain and intelligent automation.

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Insights and studies

GLOBAL REPORT

Client insights and CGI perspectives on digital transformation

A FIELD GUIDE TO

CGI Global Payments Research 2017 Key highlights and observations

Smarter

Communities A strategic, incremental approach to digital, connected and people-centric government

2017 CGI Client Global Insights An outlook on trends and priorities based on in-person conversations with business and technology executives around the world

A Field Guide to Smarter Communities: Field guide that includes practical tips, checklists and testimonials from government leaders who are turning to smart strategies and technologies to digitally transform their communities.

CGI Client Global Insights reports: Industry-specific overviews of client insights and CGI perspectives from in-person interviews conducted by CGI leaders in 2017 with 1,300 business and IT executives across 10 industries and 17 countries.

CGI Global Payments Research 2017: Key findings of research conducted in 2017 by CGI with the Financial Services Club, a leading European network for senior financial services executives, on payment trends and issues from the perspective of customers — whether consumer or corporate — banks and practitioners.

Experience the Commitment®

The Cyber-Value Connection Revealing the link between cyber vulnerability and company value

The Cyber-Value Connection: Findings and recommendations based on an Oxford Economics study commissioned by CGI’s UK cybersecurity team that involved use of a rigorous econometric model to capture the damage caused by a cyber breach to a company’s share price.

Today’s Financial Consumer:

Open for Business

Today’s Financial Consumer: Open for Business: Summary of the key results and takeaways from CGI’s 2017 Global Financial Consumer Survey, which surveyed 2,250 bank consumers across 9 countries to assess their banking preferences.

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We deliver.

Growing alongside our clients to deliver local services at global scale CGI has a 40-plus year tradition of investing where our clients live and work and making a positive and enduring impact wherever we have a presence. Our 71,000 professionals deliver high-quality, best-fit IT and business consulting services from hundreds of metro markets and global delivery centers around the world.

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2017 ANNUAL REVIEW

Client proximity Deeply rooted in clients’ businesses and communities CGI organizes operations within urban metro markets where clients have concentrated footprints. Our unique client proximity model empowers local teams to build strong, trusted, in-person relationships and ensure accountability for delivering client success. Through this proximity, CGI gains deep knowledge of our clients’ businesses and industries and stays attuned to market and cultural needs. It also enables us to deliver relevant, agile and innovative solutions quickly and proactively, and to grow alongside our clients. Through the CGI Voice of Our Clients program, we speak with clients about their preferred service providers and suggestions for how to augment our metro market footprint and industry and digital capabilities. Over the past several months, we announced the following acquisitions to generate additional value for clients and greater career opportunities for our professionals. • Affecto, a leading data analytics firm in Northern Europe with strong capabilities in areas such as advanced analytics, machine learning and artificial intelligence, helping to strengthen CGI’s position as the provider of data-driven business services at scale (closed October 2017) • Collaborative Consulting based in Boston with skills, experience and deep relationships in high-growth, in-demand digital technologies (closed November 2016)

• CTS (Computer Technology Solutions) headquartered in Birmingham, Alabama, with locations across key southern U.S. metropolitan areas and expertise in such areas as data analytics, application services and quality assurance (closed April 2017)

• Summa Technologies based in Pittsburgh with expertise in digital experience and agile software development, and a seven‑time Inc. 5000 “FastestGrowing Private Companies in America” recipient (closed August 2017)

• ECS (eCommerce Systems) Team based in Denver with expertise in areas such as cloud development, collaboration and enterprise mobility (closed May 2017)

These firms share our culture of strong client commitment and add hundreds of talented professionals to our intellectual strength around the world. CGI benefits from additional leadership capacity and local relationships, and our new and existing clients benefit from the additional depth of CGI’s end-to-end capabilities and global reach.

Recognized as a best place to work CGI’s client proximity model is not only the engine behind our ability to deliver innovative results for clients, but also provides a foundation by which to create a best place to work for our team of talented professionals. In 2017, we received the 2017 Top Employer certification in nine countries, including Belgium, Canada, Finland, France, Germany, India, the Netherlands, Sweden and the UK. The certification is based on a rigorous survey and analysis conducted by the Top Employers Institute that evaluates employee conditions in numerous categories. CGI’s highest scores came in the areas of talent strategy and culture, with CGI’s UK operations ranking first among all recipients of the Top Employer UK designation. In the United States, we received recognition across our metro markets, including the coveted Washington Post Top Workplaces. Also, in April, Glassdoor — one of the largest and fastest growing job sites — listed CGI as one of 10 “cool companies” hiring new employees. Also read examples of how we are training the future digital workforce in the communities section on page 46.

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We deliver

Global delivery and expertise Building the best network of global capabilities At CGI, our best-fit global delivery model includes onshore, nearshore and offshore delivery centers that support client-proximity teams in accelerating clients’ transformation. With skilled resources operating under a common governance model, centers are strategically located throughout Canada, the United States, Europe and Asia Pacific to provide the best mix of services configured to clients’ needs and preferences. Delivery centers support our full range of end-to-end services in any combination, including high-end IT and business consulting, systems integration, infrastructure, application development and management, and business process services. In addition, we operate industry-focused centers of excellence and emerging technology practices to spur faster knowledge sharing, strengthen talent development, and deepen our end-to-end capabilities. Our centers focus on industry areas that are on a faster pace with digital transformation, such as consumer banking and insurance, payments, utilities, retail and consumer services, and manufacturing. Our practices focus on high-demand areas, such as cybersecurity, artificial intelligence, robotics, DevOps, analytics and the digital customer experience.

The Security Operations Center in Helsinki, Finland

The opening of the Supply Chain Center of Excellence in Lyon, France

All of our industry centers and technology practices leverage our clientproximity model, providing clients with applied innovation, clarity of accountability, and measurable results. In 2017, examples of centers and emerging technology practices that expanded our global network included: The opening of Security Operations Centers (SOCs) in France and Germany, joining a network of eight global SOCs worldwide, including those in Canada, Finland, the Netherlands, the United Kingdom and two in the United States. We also are one of only a handful of companies with three accredited security evaluation labs, and were named to the Advisory Board for the City of Los Angeles Cybersecurity Lab.

The launch of the Supply Chain Center of Excellence in Lyon, France, which develops new digital supply chain solutions. The showroom offers experience-based journeys, including building a collaborative platform, creating a digital customer experience, ensuring end-to-end control tower decision support, improving logistics visibility and planning, and optimizing chainof-production performance.

Recognition For the fifth consecutive year, CGI’s UK-based Service Desk was awarded the 5-Star SDI accreditation. CGI is the only organization in the world to have achieved this standard for five consecutive years. In addition, CGI received the Agile Project of the Year 2017 from the India Agile Awards in recognition of our partnership on the Shell SmartConnect program.

The Spark Lab in Lafayette, Louisiana

Emerging technology practices, including… • The Next Unit in Finland advances knowledge in such areas as augmented and virtual reality; Internet of Things; artificial intelligence, robotics and machine learning; mobile applications; and service design for multi-channel customer interaction • The Spark Lab in Lafayette, Louisiana, co-located at the University of Louisiana at Lafayette’s Research Park, includes the University’s National Science Foundation Center for Visual Decision and Informatics research institution • The Digital Lab in Stuttgart, Germany — with additional labs rolling out in Hamburg and Munich — helps clients digitally transform their software development processes, enabling them to bring innovative and highquality applications to market faster

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End-to-end services Helping clients transform into digital enterprises end to end We deliver high-end IT and business consulting, systems integration and outsourcing services, complemented by intellectual property solutions, to support clients in transforming into digital enterprises end to end. • High-end IT and business consulting and systems integration: Through our industry expertise, strong client relationships and digital know-how, we partner with clients to provide expert advice in defining their digital strategy and roadmap, and for adopting an agile, iterative approach that enables them to innovate, connect and rationalize legacy systems to deliver enterprise-wide change. • Outsourcing: By assuming full or partial responsibility for our clients’ IT and business functions, we deliver innovation, significant efficiency improvements and cost savings that allow them to improve how they operate and transform their business. • Intellectual property (IP): CGI’s 150+ digital business solutions support our clients’ mission-critical business functions and accelerate their digital transformation. These industry and cross-industry solutions include digital-enabling software applications, reusable frameworks and innovative delivery methodologies such as Software as a Service.

Recognition CGI ranked as a “Leader” on IAOP®’s 2017 The Global Outsourcing 100® list, giving CGI “Sustained Excellence” status for having made the list for more than five consecutive years. In addition, CGI is listed as a top company for… • Programs for innovation • Customer references • Programs for corporate social responsibility • Awards and certifications

Representative 2017 announcements Long-term and full-service partner

Intellectual property/ emerging technologies

CGI partners with City of Los Angeles to provide cloud migration and digital application services, building on three-decade relationship (see spotlight on page 24)

CGI announces new SEPA instant credit transfer solution CGI chosen by the Netherlands’ National Police to evolve successful digital community policing solution

CGI and Valmet sign an agreement on global IT outsourcing CGI awarded Passport Production contract renewal with U.S. Department of State CGI selected by European data services provider Bisnode as “one-stop” provider of technology management services in Sweden Handicare partners with CGI through transformational outsourcing agreement to drive its digital transformation

CGI delivers central market operating system at the heart of competitive water market

Driver of IT modernization CGI awarded enterprise IT modernization contract by Aerojet Rocketdyne (see spotlight on page 38) Alectra Utilities chooses CGI to transform merged IT platform

CGI and its Bank partners achieve groundbreaking interoperability between CGI Trade360 and Skuchain’s blockchain platform CGI and Rio Tinto expand outsourcing partnership to include Industry 4.0 digital transformation initiatives

CGI selected to lead modernization of Colorado’s child welfare system European Commission selects CGI to oversee quality assurance and control for pan-European taxation and customs systems Los Angeles County Office of Education selects CGI for $68.7 million IT modernization

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We deliver

Aerojet Rocketdyne chooses CGI as strategic supplier for enterprise IT modernization Aeroject Rocketdyne, a world-leading provider of propulsion and energetic solutions for the aerospace and defense sectors, chose CGI in 2017 to lead the overall transition of its traditional IT systems into a modern hybrid IT environment with required security features. As part of the transition, CGI is unifying disparate technologies, simplifying mobile platforms and developing strategies for aligning IT to business objectives. In support of the transformation, CGI is providing technology, consulting services, frameworks and practices needed to secure and manage the company’s entire IT portfolio. A key solution involved is CGI Unify360, which is digitally enabling the transition and will drive cost savings, as well as enhanced security and compliance. Through CGI Unify360, the company also will benefit from increased flexibility and agility in responding to fastchanging business demands.

Aerojet Rocketdyne’s commitment to the success of its clients’ groundbreaking missions for the past 70 years has required a level of innovation unique to the IT and aerospace industry’s spirit of exploration. CGI is becoming a strategic supplier as we look toward the coming decades of exploration, innovation and technological development in support of our space and national security clients. Mark Angelo, Vice-President of Information Technology, Aerojet Rocketdyne, El Segundo, California, United States

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Operational excellence CGI clients expect consistency of service wherever and whenever they engage us. We have an outstanding track record of on-time, within budget delivery as a result of our commitment to excellence and adherence to the CGI Management Foundation (see page 7). Made up of the CGI Constitution and our common policies, frameworks, processes, principles and measures, the Management Foundation governs our relationships with all stakeholders, fosters alignment across our global organization, and drives operational excellence and a focus on continuous improvement in all that we do. Through the Management Foundation, CGI has a long track record of delivering the business outcomes and value our clients expect, helping to accelerate their digital success and achieve sustainable profitable growth.

CGI has been our business partner for 20 years due to its quality of service and client proximity business model. CGI is a first-class partner that is fully committed to iA Financial Group’s success. The extension and expansion of our long-term partnership will allow us to allocate more resources to our projects and spur our digital transformation, which remains a top priority for our company’s growth. CGI has in-depth knowledge of the insurance industry and extensive professional expertise that will help us enhance our competitive advantage and achieve our strategic objectives. Guy Daneau, Senior Vice-President, Information Systems, iA Financial Group, Québec City, Canada

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Leadership team George D. Schindler President and Chief Executive Officer

Serge Godin Founder and Executive Chairman of the Board

Corporate Services Julie Godin Vice-Chair of the Board and Executive VP, Chief Planning and Administration Officer Bernard Labelle Senior VP, Global Human Resources

Stanley L. Sims VP, Chief Security Officer

Guy Vigeant Senior VP, Mergers and Acquisitions

Global Operations

CANADA

CGI FEDERAL

U.S. COMMERCIAL AND STATE GOVERNMENT

UNITED KINGDOM

Mark Boyajian President

Tim Hurlebaus President

David L. Henderson President

Steve Thorn President

Chantal Buteau Québec City

Candice Ling Regulatory Agency Programs

Richard Bissonette Industry Solutions

David Fitzpatrick Global Technology Operations

Lisa Carroll National Capital Region

Stephanie Mango Security, Administrative, Judicial and Enforcement

Lynne Bushey Mid-Atlantic

Michael Herron South

Dave Delgado West

Tara McGeehan North and Energy, Utilities and Telecommunications

Rick Davidson Greater Toronto Banking and Global Wealth Shawn R. Derby West Michael Godin Greater Montréal Commercial and Public Services Benoit Godmaire Greater Montréal Financial Services Marie T. MacDonald Global Technology Operations Jay MacIssac Greater Toronto Commercial and Public Services Paul Mackley Atlantic Ramana Rayavarapu Services to Bell

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Keith Quigley Defense Programs Dave Ralston Government Secure Solutions, CGI Inc. George Strader Health and Compliance Programs Kenyon Wells International Diplomacy, Assistance and Commerce

Audrey Dunning Great Lakes Christopher James Southwest Bill Robichaud New England Vijay Srinivasan South Steven Starace East

Neil Sadler Greater London Area and Financial Services Steve Thorn Central Government Neil Timms Space, Defence and Intelligence

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François Boulanger Executive VP, Chief Financial Officer Stuart A. Forman Senior VP, Global Chief Information Officer

Kevin Linder Senior VP, Corporate Controller

Steve Perron Senior VP, Finance and Treasury

Jacques Roy Senior VP, Internal Audit

Claude Marcoux Senior VP, Engagement Assessment Services

Benoit Dubé Executive VP, Chief Legal Officer and Corporate Secretary Arnaud David VP, Chief Data Protection Officer

Lorne Gorber Executive VP, Global Communications and Investor Relations

Mike Keating Senior VP, Global Marketing and IP Strategy

Daniel Rocheleau Executive VP, Chief Business Engineering Officer

NORTHERN EUROPE

FRANCE, LUXEMBOURG AND MOROCCO

EASTERN, CENTRAL AND SOUTHERN EUROPE

ASIA PACIFIC GLOBAL DELIVERY CENTERS OF EXCELLENCE

Heikki Nikku President

Jean-Michel Baticle President

Doug McCuaig President

George Mattackal President

Pär Fors Sweden

Clément Bernard Innovation Center of Excellence

Dirk de Groot Netherlands

Tom Hauge Norway

Philippe Bouron Business Consulting

Michael Hermansen Denmark

Fabien Debû East

Pavel Malinek Czech Republic, Slovakia and Eastern Europe

Rakesh Aerath Financial Services Delivery Center

Leena-Mari Lähteenmaa Global Technology Operations

Laurent Gerin South

Bartlomiej Nieścierowicz Poland, Lithuania and Latvia Martti Reilander Advanced Analytics Solutions Tapio Volanen Finland and Estonia

Stéphane Jaubert Consumer Packaged Goods, Retail and Manufacturing David Kirchhoffer Financial Services and Luxembourg Daniel Lecerf North Gilles Le Franc West Michel Malhomme France and Morocco Global Delivery Centers Pierre-Dominique Martin Transportation, Public Sector and Human Resources

Olivier Spreafico Southern Europe and Brazil Torsten Straß Germany Frank van Nistelrooij Services to Shell Ben Vicca Belgium

Mark Aston South East Asia Gopal Chhetri Multi-Industry and Government Delivery Center Jennifer Mecherippady Solutions Delivery Center Suprio Sengupta Global Technology Operations Sudhir Subbaraman Communications, Media and Utilities Delivery Center

AUSTRALIA Robert Dewar Brisbane Hobart Melbourne Sydney

Sassan Mohseni Energy, Utilities and Telecommunications

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Global footprint

1 1

2

NORTH AMERICA CANADA Alberta Calgary Edmonton British Columbia Burnaby Victoria New Brunswick Fredericton Moncton Nova Scotia Halifax Ontario Markham Mississauga Ottawa Toronto Prince Edward Island Stratford Quebec Gatineau Montréal Québec City Saguenay Shawinigan Sherbrooke Saskatchewan Regina Saskatoon UNITED STATES Alabama Birmingham Huntsville Mobile Troy

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Alaska Juneau

Maine Waterville

Arizona Phoenix Sierra Vista Tempe Tucson

Maryland Annapolis Junction Baltimore Lexington Park

California Los Angeles Oakland Sacramento San Diego San Francisco West Sacramento Colorado Denver Connecticut Gales Ferry Hartford District of Columbia Florida Jacksonville Tampa Georgia Albany Atlanta Illinois Fairview Heights Kentucky Frankfort Louisiana Lafayette

Massachusetts Burlington Michigan Lansing Minnesota Minneapolis New Jersey Cranford Hamilton Township New York Albany Buffalo New York City Nevada Las Vegas North Carolina Charlotte Fayetteville Ohio Athens Cleveland Columbus Oklahoma Edmond Lawton

Pennsylvania Philadelphia Pittsburgh Plymouth Meeting South Carolina Columbia North Charleston Tennessee Chattanooga Nashville Texas Austin Belton Dallas Fort Worth Houston San Angelo San Antonio Virginia Arlington Fairfax Lebanon Manassas Norfolk Richmond Sterling Washington Seattle Wisconsin Wausau

2

SOUTH AMERICA BRAZIL Mogi das Cruzes São Paulo

3

EUROPE BELGIUM Brussels CZECH REPUBLIC Brno Ostrava Prague DENMARK Aalborg Aarhus Ballerup Kolding

2017 ANNUAL REVIEW

3 4

A strong local presence with 400 proximity business units and project offices

5 ENGLAND Birmingham Bristol Chelmsford Gloucester Leatherhead London Manchester Milton Keynes Reading ESTONIA Tallinn Tartu FINLAND Espoo Hämeenlinna Helsinki Joensuu Jyväskylä Kouvola Kuopio Lahti Lappeenranta Mikkeli Oulu Pori Riihimäki Tampere Tornio Turku Vaasa FRANCE Aix-en-Provence Amiens Bordeaux Brest Clermont-Ferrand

Grenoble Le Mans Lille Limoges Lyon Montpellier Nantes Nice Niort Orléans Paris Pau Rennes Saint-Denis Strasbourg Toulouse GERMANY Berlin Bremen Cologne Darmstadt Düsseldorf Erfurt Hamburg Karlsruhe Leinfelden-Echterdingen Mannheim München Sulzbach (Taunus) Wolfsburg ITALY Frascati

6

LUXEMBOURG Bertrange NETHERLANDS Arnhem Eindhoven Groningen Hoofddorp Maastricht Rotterdam NORWAY Bergen Grålum Haugesund Oslo Stavanger Tønsberg POLAND Krakow Poznan Warsaw Wroclaw PORTUGAL Lisbon Odivelas Porto Sacavém Sintra

LATVIA Riga

SCOTLAND Aberdeen Edinburgh Glasgow Newtown St Boswells

LITHUANIA Vilnius

SLOVAKIA Bratislava

SPAIN Madrid Málaga SWEDEN Borlänge Bromölla Eskilstuna Gällivare Gävle Göteborg Härnösand Jönköping Kalmar Karlskrona Karlstad Kiruna Linköping Luleå Malmö Norrköping Örebro Örnsköldsvik Oskarshamn Östersund Skara Skellefteå Stockholm Sundsvall Umeå Västerås WALES Bridgend St Asaph

4

AFRICA MOROCCO Casablanca Fez Rabat

5

ASIA INDIA Bangalore Chennai Hyderabad Mumbai MALAYSIA Kuala Lumpur PHILIPPINES Manila

6

AUSTRALIA Brisbane Hobart Melbourne Sydney

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Our communities

CGI members volunteering with Habitat for Humanity Toronto

Working together to build strong communities CGI strives to be recognized by our communities as a caring and responsible corporate citizen. This is one of the top strategic goals for the company, and corporate social responsibility is one of our six values. From delivering sustainable services and solutions, to donating our time and talent, CGI professionals work tirelessly to strengthen the communities that we — and our clients — call home.

Creating services and solutions that benefit clients and those in their care Across industries, we partner with clients to deliver services and solutions that drive environmental and social sustainability, make cities smarter and improve the lives of citizens. Here are 2017 examples that illustrate how CGI combines innovative digital solutions with our community commitment to benefit organizations and those in their care.

Eversight connects stakeholders during the time-critical donation and transplant process Eversight is a not-for-profit organization with a mission to restore sight and prevent blindness through the healing power of donation, transplants and research. Eversight relies on CGI Notify, a digital tool that sends and tracks notifications, as a communication channel to ensure that staff and stakeholders are informed of all facets of tissue recovery, transport and transplant processes — when time is the critical factor. Eversight chose CGI Notify to interact with its nationwide network of professionals who coordinate donated eye tissue recovery, transport and storage. It also transmits and confirms receipt of important information, and automatically escalates non-responsive teams to alternatives.

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2017 ANNUAL REVIEW

Chabla mobile service enables the deaf community to converse by phone with anyone at anytime In partnership with Chabla, CGI designed a mobile service to connect deaf individuals with interpreters around the world, allowing them to pick up the phone and converse with anyone quickly and easily. For a deaf person, connecting with friends and family over the phone was not possible prior to the Chabla app. This first-of-its-kind application provides users with 24/7 global access to online interpretation services in multiple languages. Deaf individuals also have access to their own in-app phone number so others can call them.

Without the Chabla app, it is literally impossible for a person who does not know sign language to call a deaf person. I’ve personally experienced this many times. Through our partnership with CGI, we developed a digital solution with an application that doesn’t merely enable communication, but significantly empowers the deaf community. Signmark (Marko Vuoriheimo), Founder, Chabla, Helsinki, Finland

Transforming food management and distribution Food service providers are challenged with meeting the demands for fresh, delicious, versatile, healthy and cost-efficient meals while also providing information about their products to customers and regulatory agencies. CGI’s Aromi solution offers powerful planning tools to food service providers so they can concentrate on food and not logistics. Aromi helps clients maintain their own menus, product data, vendors and recipes, while receiving valuable information, including real-time cost, sustainability and nutrition details. It also has features that reduce food waste in the production process.

Burgernet: New digital technologies get citizens more involved in police work The Dutch Police asked CGI to build and maintain the next generation of a digital community policing solution: Burgernet 2.0. The solution provides citizens, municipalities and the police with a digital collaboration platform to work together to combat crime and enhance the safety of local communities. Burgernet is a virtual citizens’ network that allows a police control room operator to send mobile alerts to participating citizens related to suspicious or criminal activity, such as a missing person, reported burglary or stolen vehicle. Through these alerts, Burgernet participants receive the details of an incident so that they can be vigilant and report any information they might have. With this digitally enhanced system, the police can expand their network and improve communications, including adding social media capabilities to support the real-time exchange of photos and videos, and integrating digital messaging boards along major transportation routes.

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Our Communities

Putting CGI’s innovative spirit into action to benefit our communities We take the skills required to be a leading IT services company — problem solving, creativity and commitment — and put them to work to make a positive difference. Here are some representative examples of how CGI professionals contributed to the well-being of our communities in 2017.

Creating quality jobs and building the future digital workforce Developer Schools: In France and the Czech Republic, CGI offers intensive development programs to help new university graduates, as well as individuals with a firm grasp on IT, hone and develop the skills needed to succeed. In France, CGI seeks to recruit this year 180 members through U’DEV (developer university), which launched in September 2017. In the Czech Republic, CGI hosts IT training “boot camps” for an intensive five-month program, with graduates offered full-time jobs with CGI upon completion. Future Talent Program: In Finland, the Future Talent Program offers hundreds of “traineeships” each year for a duration of 4-5 months. Each trainee is assigned an experienced sponsor to support and guide them during the program. In addition to versatile work assignments, the program provides expert training, familiarization with CGI activities, career opportunities and client visits. Sponsored degree apprenticeship: In the UK, CGI offers a number of apprenticeships that enable talented students to gain a degree debt-free while embarking on their professional careers. The program offers students a mix of university time and work days where they work on projects across CGI’s UK business, making significant contributions within their roles. The 2017 graduates of the CGI Degree Apprenticeship initiative in the UK, which is a three-year program combining work at CGI with studies at the University of Winchester.

Collaborative programs: In the U.S., CGI’s seven onshore delivery centers foster strong partnerships between industry, government and education. These centers have become expert in building partnerships with local universities, technical institutes and workforce development agencies to help develop a highly trained IT workforce. Women of CGI: CGI’s grassroots network of women professionals across our global operations help women at CGI connect with one another and build their careers. Organized into self-led local chapters, the groups host social events, panel discussions, community service events and career building seminars. Through these groups, CGI members serve as ambassadors to serving women within CGI and their communities.

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2017 ANNUAL REVIEW

Walking together toward better health The Walk Around the World is an annual event that encourages CGI members to walk together on the same day as a sign of our shared commitment to health and well-being. After more than 300 million steps together, this year marked the event’s 10th anniversary. To commemorate the milestone, CGI invited clients and representatives from community organizations to walk with us. Together, we were a symbol of the CGI spirit and our commitment to health within our local communities around the world.

Montréal, Canada

Québec City, Canada

CGI was selected within top indices that cover the world’s most sustainable companies, including: • RobecoSAM and S&P Dow Jones Sustainability Indices Bordeaux, France

• MSCI • FTSE4Good Index Series

Hyderabad, India

In addition, CGI continued to improve its position with respect to the Carbon Disclosure Project in recognition for taking further steps to effectively reduce emissions, indicating more advanced environmental stewardship.

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Our Communities

Dream Connectors Making a difference in our communities around the world The CGI Dream Connectors program deepens our commitment to serving our communities. In this inaugural year, after a company-wide vote, seven projects were selected to receive CGI support, which included access to IT, facilities and funding, as well as the strength of member volunteers. Here is an overview of the projects that were completed during 2017 — which included 500 members volunteering more than 5,200 hours of their time. Canada Supporting Habitat for Humanity by building an end-to-end customer relationship management solution, and helping to build homes The work being done will impact all of our stakeholders in a positive way and will directly impact our ability to help more families who need our support in our community. We are greatly appreciative of the commitment and professionalism CGI has shown us during this process. We are truly thankful. Rob Lee, Vice-President of ReStores, Habitat for Humanity Toronto

Finland Developing the Helping Hand app to help the Finnish Association for Mental Health match volunteers to people in need France Training CGI members to become coaches for young job seekers in partnership with the organization Rézo City Rézo City helped me discover my career goals and visualize how to accomplish them. The coaches really listened to us and were very approachable. Tanrhori Smael, a trainee benefitting from the program (more than half of the candidates have found employment)

India Supporting better access to education through donations, volunteer hours and facility improvements at Gowdihalli village primary school Portugal Building a database and supporting facility improvements for the Mimar Association’s Mimar House in Portugal, which shelters young children from at risk environments CGI’s support by providing a new car for driving the children and by upgrading the home and play garden to a safer environment has been of the utmost importance to help the children discover that the world is much bigger than us and to feel safe and secure. From all of them, thank you CGI and all members inside CGI for taking us outside. Sofia Pombo e Costa, Mimar Association President

United Kingdom Teaching children about Internet safety United States Holding nine STEM (science, technology, engineering and math) camps in six communities reaching 450 students

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Learn more at cgi.com/dreamconnectors.

2017 ANNUAL REVIEW

CAPITAL MARKETS


STATE AND LOCAL GOVERNMENT




RETAIL AND CONSUMER SERVICES

Client insights and CGI perspectives on digital transformation 2017 CGI Client Global Insights An outlook on trends and priorities based on in-person conversations with business and technology executives around the world

CGI Client Global Insights Turning insights into investments that drive client innovation The 2017 CGI Client Global Insights demonstrate an increased urgency among business and IT leaders to transform to meet the digital expectations of their customers and citizens. The insights also reveal that organizations are at a pivot point in their digital transformation, with executives moving from planning to execution of their digital strategies. The insights are based on findings from in-person discussions with 1,300 business and IT leaders across 10 industries and 17 countries to identify the trends affecting their organizations and the implications for their business. They are shared through a series of industry reports to provide valuable perspectives and actionable counsel to drive forward clients’ future strategies and investments. Request your copy at cgi.com/globalinsights.

Founded in 1976, CGI is one of the largest IT and business consulting services firms in the world. Operating in hundreds of locations across the globe, CGI professionals help clients to achieve their goals, including becoming customer-centric digital organizations. We deliver an end-to-end portfolio of capabilities, from high-end IT and business consulting to systems integration, outsourcing services and intellectual property solutions that help accelerate clients’ results. CGI works with clients around the world through a unique client proximity model complemented by a global delivery center of excellence network to help clients accelerate results, transform their organizations and drive competitive advantage. cgi.com

© 2017 CGI Group Inc. Aromi, BioIgnition, CGI, CGI Advantage, CGI Collections360, CGI CommunityCare360, CGI Notify, CGI ProperPay, CGI Retail Xp360, CGI Trade360, CGI Unify360, CGI Wealth360, Experience the commitment, HotScan, Momentum, Ratabase and Sm@rtering are trademarks or registered trademarks of CGI Group Inc. or its related companies. IAOP and The Global Outsourcing 100 are registered trademarks of IAOP. Microsoft and HoloLens are either registered trademarks or trademarks of Microsoft Corporation in the United States and/or other countries.

CGI Group Inc.

2017 Annual Report CGI’s 2017 Annual Report is comprised of two separate volumes: Volume 1: 2017 Annual Review & Volume 2: Fiscal 2017 Results

Volume 2 of the Annual Report follows this page. (this page does not part of the Annual Report)

FISCAL 2017 RESULTS

Local experts. Global insights.

CONTENTS 1

Management’s Discussion and Analysis

59

Management’s and Auditors’ Reports

63

Consolidated Financial Statements

121

Shareholder Information

FISCAL 2017 RESULTS

Management’s Discussion and Analysis

November 8, 2017

Basis of Presentation This Management’s Discussion and Analysis of the Financial Position and Results of Operations (MD&A) is the responsibility of management and has been reviewed and approved by the Board of Directors. This MD&A has been prepared in accordance with the requirements of the Canadian Securities Administrators. The Board of Directors is ultimately responsible for reviewing and approving the MD&A. The Board of Directors carries out this responsibility mainly through its Audit and Risk Management Committee, which is appointed by the Board of Directors and is comprised entirely of independent and financially literate directors. Throughout this document, CGI Group Inc. is referred to as “CGI”, “we”, “our” or “Company”. This MD&A provides information management believes is relevant to an assessment and understanding of the consolidated results of operations and financial condition of the Company. This document should be read in conjunction with the audited consolidated financial statements and the notes thereto for the years ended September 30, 2017 and 2016. CGI’s accounting policies are in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). All dollar amounts are in Canadian dollars unless otherwise noted.

Materiality of Disclosures This MD&A includes information we believe is material to investors. We consider something to be material if it results in, or would reasonably be expected to result in, a significant change in the market price or value of our shares, or if it is likely that a reasonable investor would consider the information to be important in making an investment decision.

Forward-Looking Statements All statements in this MD&A that do not directly and exclusively relate to historical facts constitute “forward-looking statements” within the meaning of Section 27A of the United States Securities Act of 1933 and Section 21E of the United States Securities Exchange Act of 1934, as amended, and are “forward-looking information” within the meaning of Canadian securities laws. These statements and this information represent CGI’s intentions, plans, expectations and beliefs, and are subject to risks, uncertainties and other factors, of which many are beyond the control of the Company. These factors could cause actual results to differ materially from such forward-looking statements or forward-looking information. These factors include but are not restricted to: the timing and size of new contracts; acquisitions and other corporate developments; the ability to attract and retain qualified employees; market competition in the rapidly evolving information technology industry; general economic and business conditions; foreign exchange and other risks identified or incorporated by reference in this MD&A and in other public disclosure documents filed with the Canadian securities regulatory authorities (on SEDAR at www.sedar.com) and the U.S. Securities and Exchange Commission (on EDGAR at www.sec.gov), as well as assumptions regarding the foregoing. The words “believe”, “estimate”, “expect”, “intend”, “anticipate”, “foresee”, “plan”, and similar expressions and variations thereof, identify certain of such forward-looking statements or forward-looking information, which speak only as of the date on which they are made. In particular, statements relating to future performance are forward-looking statements and forward-looking information. CGI disclaims any intention or obligation to publicly update or revise any forward-looking statements or forwardlooking information, whether as a result of new information, future events or otherwise, except as required by applicable law. Readers are cautioned not to place undue reliance on these forward-looking statements or on this forward-looking information. You will find more information about the risks that could cause our actual results to differ significantly from our current expectations in section 10 – Risk Environment.

1

Management's Discussion and Analysis

Non-GAAP and Key Performance Measures The reader should note that the Company reports its financial results in accordance with IFRS. However, we use a combination of financial measures, ratios, and non-GAAP measures to assess our Company’s performance. The non-GAAP measures used in this MD&A do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. These measures should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with IFRS. The table below summarizes our non-GAAP measures and most relevant key performance measures: Profitability

• Adjusted EBIT (non-GAAP) – is a measure of earnings excluding acquisition-related and integration costs, restructuring costs, net finance costs and income tax expense as these items are not directly related to the cost of operations. Management believes this measure is useful to investors as it best reflects the Company's operating profitability and allows for better comparability from period to period as well as to trend analysis in our operations. A reconciliation of the adjusted EBIT to its closest IFRS measure can be found in section 3.7 of the present document. • Net earnings – is a measure of earnings generated for shareholders.

• Diluted earnings per share (diluted EPS) – is a measure of earnings generated for shareholders on a per share basis, assuming all dilutive elements are exercised.

• Net earnings excluding specific items (non-GAAP) – is a measure of net earnings excluding certain items not considered by management to be part of our day to day operations. By excluding these items, it provides a better evaluation of operating performance using the same measures as management. Management believes that, as a result, investors are afforded greater transparency in assessing the true operational performance of the Company, and that it also provides better comparability from period to period. A reconciliation of the net earnings excluding specific items to its closest IFRS measure can be found in section 3.8.3. of the present document.

• Basic and diluted earnings per share excluding specific items (non-GAAP) – is defined as the net earnings excluding specific items (non-GAAP) on a per share basis. Management believes that this measure is useful to investors as it best reflects the Company's operating profitability on a per share basis and allows for better comparability from period to period. The basic and diluted earnings per share reported in accordance with IFRS can be found in section 3.8 of the present document while the basic and diluted earnings per share excluding specific items can be found in section 3.8.3 of the present document. Liquidity

• Cash provided by operating activities – is a measure of cash generated from managing our day-to-day business operations. We believe strong operating cash flow is indicative of financial flexibility, allowing us to execute our Company's strategy.

• Days sales outstanding (DSO) (non-GAAP) – is the average number of days needed to convert our trade receivables and work in progress into cash. DSO is obtained by subtracting deferred revenue from trade accounts receivable and work in progress; the result is divided by the quarter’s revenue over 90 days. Deferred revenue is net of the fair value adjustments on revenue-generating contracts established upon a business combination. Management tracks this metric closely to ensure timely collection and healthy liquidity, and is committed to a DSO target of 45 days or less. We believe this measure is useful to investors as it demonstrates the Company's ability to timely convert its trade receivables and work in progress into cash.

CGI Group Inc. - Management's Discussion and Analysis for the year ended September 30, 2017

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FISCAL 2017 RESULTS

Growth

• Constant currency growth (non-GAAP) – is a measure of revenue growth before foreign currency impacts. This growth is calculated by translating current period results in local currency using the conversion rates in the equivalent period from the prior year. Management believes that it is helpful to adjust revenue to exclude the impact of currency fluctuations to facilitate period-to-period comparisons of business performance. We believe that this measure is useful to investors for the same reason. • Backlog (non-GAAP) – includes new contract wins, extensions and renewals (bookings (non-GAAP)), partially offset by the backlog consumed during the period as a result of client work performed and adjustments related to the volume, cancellation and the impact of foreign currencies to our existing contracts. Backlog incorporates estimates from management that are subject to change. Management tracks this measure as it is a key indicator of management's best estimate of revenue to be realized in the future and believes that this measure is useful to investors for the same reason. • Book-to-bill ratio (non-GAAP) – is a measure of the proportion of the value of our bookings to our revenue in the period. This metric allows management to monitor the Company’s business development efforts to ensure we grow our backlog and our business over time and management believes that this measure is useful to investors for the same reason. Management remains committed to maintaining a target ratio greater than 100% over a trailing twelve-month period. Management believes that a longer period is a more representative measure as the services and contract type, size and timing of bookings could cause this measurement to fluctuate significantly if taken for only a three-month period.

Capital Structure

• Net debt (non-GAAP) – is obtained by subtracting from our debt our cash and cash equivalents, shortterm investments, long-term investments and fair value of foreign currency derivative financial instruments related to debt. Management uses the net debt metric to monitor the Company's financial leverage. We believe that this metric is useful to investors as it provides insight into our financial strength. A reconciliation of net debt to its closest IFRS measure can be found in section 4.5 of the present document. • Net debt to capitalization ratio (non-GAAP) – is a measure of our level of financial leverage and is obtained by dividing the net debt by the sum of shareholder's equity and debt. Management uses the net debt to capitalization ratio to monitor the proportion of debt versus capital used to finance our operations and to assess the Company's financial strength. We believe that this metric is useful to investors for the same reasons. • Return on equity (ROE) (non-GAAP) – is a measure of the rate of return on the ownership interest of our shareholders and is calculated as the proportion of net earnings for the last 12 months over the last four quarters' average equity. Management looks at ROE to measure its efficiency at generating net earnings for the Company’s shareholders and how well the Company uses the invested funds to generate net earnings growth. We believe that this measure is useful to investors for the same reasons. • Return on invested capital (ROIC) (non-GAAP) – is a measure of the Company’s efficiency at allocating the capital under its control to profitable investments and is calculated as the proportion of the net earnings excluding net finance costs after-tax for the last 12 months, over the last four quarters' average invested capital, which is defined as the sum of equity and net debt. Management examines this ratio to assess how well it is using its funds to generate returns. We believe that this measure is useful to investors for the same reason.

Reporting segments The Company's operations are managed through the following seven operating segments, referred to as our Strategic Business Units, namely: United States of America (U.S.); Nordics; Canada; France (including Luxembourg and Morocco) (France); United Kingdom (U.K.); Eastern, Central and Southern Europe (primarily Netherlands and Germany) (ECS); and Asia Pacific (including Australia, India and the Philippines) (Asia Pacific). Please refer to sections 3.4, 3.6, 5.3 and 5.4 of the present document and to note 28 of our audited consolidated financial statements for additional information on our segments.


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MD&A Objectives and Contents In this document, we: • Provide a narrative explanation of the audited consolidated financial statements through the eyes of management; •

Provide the context within which the audited consolidated financial statements should be analyzed, by giving enhanced disclosure about the dynamics and trends of the Company’s business; and

•

Provide information to assist the reader in ascertaining the likelihood that past performance is indicative of future performance.

In order to achieve these objectives, this MD&A is presented in the following main sections: Section

Contents

1.

A description of our business and how we generate revenue as well as the markets in which we operate.

Corporate Overview

1.1. 1.2. 1.3. 2.

3.

About CGI Vision and Strategy Competitive Environment

Highlights and Key Performance Measures

A summary of key highlights during the year, the past three years' key performance measures, and CGI’s stock performance.

Financial Review

A discussion of year-over-year changes to financial results between the years ended September 30, 2017 and 2016, describing the factors affecting revenue and adjusted EBIT on a consolidated and reportable segment basis, and also by describing the factors affecting changes in the major expense categories. Also discussed are bookings broken down by contract type, service type, segment, and by vertical market.

2.1. 2.2. 2.3. 2.4. 2.5.

3.1. 3.2. 3.3. 3.4. 3.5. 3.6. 3.7. 3.8.

Fiscal 2017 Year-Over-Year Highlights Selected Yearly Information & Key Performance Measures Stock Performance Investments in Subsidiaries Subsequent Event

Bookings and Book-to-Bill Ratio Foreign Exchange Revenue Distribution Revenue by Segment Operating Expenses Adjusted EBIT by Segment Earnings Before Income Taxes Net Earnings and Earnings Per Share


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Pages

6 7 8

9 10 11 12 13

14 15 16 17 19 20 21 23

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FISCAL 2017 RESULTS

Section

Contents

4.

A discussion of changes in cash flows from operating, investing and financing activities. This section also describes the Company’s available capital resources, financial instruments, and off-balance sheet financing and guarantees. Measures of capital structure (net debt to capitalization ratio, ROE, and ROIC) and liquidity (DSO) are analyzed on a year-over-year basis.

Liquidity

4.1. 4.2. 4.3. 4.4. 4.5. 4.6. 4.7. 5.

Fourth Quarter Results

Consolidated Statements of Cash Flows Capital Resources Contractual Obligations Financial Instruments and Hedging Transactions Selected Measures of Capital Resources and Liquidity Off-Balance Sheet Financing and Guarantees Capability to Deliver Results

Pages

25 28 29 29 30 30 31

A discussion of year-over-year changes to the unaudited operating results between the three months ended September 30, 2017 and 2016, describing the factors affecting revenue, adjusted EBIT earnings on a consolidated and reportable segment basis as well as cash from operating, investing and financing activities. 5.1. 5.2. 5.3. 5.4. 5.5. 5.6.

Bookings and Book-to-Bill Ratio Foreign Exchange Revenue by Segment Adjusted EBIT by Segment Net Earnings and Earnings Per Share Consolidated Statements of Cash Flows

32 33 34 37 39 41

6.

Eight Quarter Summary

A summary of the past eight quarters’ key performance measures and a discussion of the factors that could impact our quarterly results.

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7.

Changes in Accounting Policies

A summary of the future accounting standard changes.

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8.

Critical Accounting Estimates

A discussion of the critical accounting estimates made in the preparation of the audited consolidated financial statements.

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9.

Integrity of Disclosure

A discussion of the existence of appropriate information systems, procedures and controls to ensure that information used internally and disclosed externally is complete and reliable.

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10.

Risk Environment

A discussion of the risks affecting our business activities and what may be the impact if these risks are realized. 10.1. 10.2.

Risks and Uncertainties Legal Proceedings


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1.

1. Corporate Overview Corporate Overview 1.1. ABOUT CGI Founded in 1976 and headquartered in Montréal, Canada, CGI is among the largest independent Information Technology (IT) and business consulting services firms in the world. CGI delivers an end-to-end portfolio of capabilities, including high-end IT and business consulting, systems integration, and outsourcing. CGI’s Intellectual Property (IP) solutions, combined with indepth industry expertise, a unique client proximity and best-fit global delivery network enable CGI to partner with clients around the world to accelerate results, transform their organizations, and drive competitive advantage. The Company employs approximately 71,000 professionals worldwide. End-to-end services and solutions CGI delivers end-to-end services that cover the full spectrum of technology delivery; from digital strategy and architecture to solution design, development, integration, implementation, and operations. Our portfolio encompasses:

•

High-end IT and business consulting and systems integration: CGI helps clients create their digital strategy and roadmap, adopting an agile, iterative approach that enables them to innovate, connect and rationalize legacy systems to deliver enterprise-wide change.

•

Outsourcing: Our clients entrust us with full or partial responsibility for their IT and business functions. In return, we deliver innovation, significant efficiency improvements, and cost savings. Typical services in an end-to-end engagement include: application development, integration and maintenance; technology infrastructure management; and business process services, such as collections and payroll management. Outsourcing contracts are long-term in nature, with a typical duration of five to ten or more years, allowing our clients to reinvest savings, further driving investments in their digital transformations.

Deep industry expertise CGI has long standing and focused practices in all of our core industries, providing clients with a partner that is not only an expert in IT, but expert in their industries. This combination of business knowledge and digital technology expertise allows us to help our clients adapt with shifts in consumer and citizen expectations and market dynamics and, in the process, allows us to evolve the services and solutions we deliver within those industries. Our targeted industries include: government, financial services, health, utilities, communications, oil & gas, manufacturing, retail & consumer services, transportation and post & logistics. While these represent our go-to-market industry targets, we group these industries into the following for reporting purposes: government; financial services; health; communications & utilities; and manufacturing, retail & distribution (MRD). As the move toward digitalization continues across industries, CGI partners with clients to help guide them in becoming customer-centric digital organizations. Digital IP solutions CGI’s comprehensive portfolio of IP solutions supports our clients’ mission-critical business functions and accelerates their digital transformation. We offer more than 150 IP-based solutions for the industries we serve, as well as cross-industry solutions. These solutions include digital-enabling software applications, reusable frameworks and innovative delivery methodologies such as Software as a Service. Applied innovation CGI is a trusted partner with more than 40 years of experience in delivering innovative, client-inspired business services and solutions. Through our day-to-day project engagements as well as global programs and investments, CGI partners with clients to deliver practical innovations that are replicable, scalable, and deliver measurable results. We help develop, innovate and protect the technology that enables clients to achieve their digital transformation goals faster with reduced risk and enduring results.


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FISCAL 2017 RESULTS

Quality processes CGI clients expect consistency of service wherever and whenever they engage us. We have an outstanding track record of on-time, within-budget delivery as a result of our commitment to excellence and our robust governance model - the CGI Management Foundation. The CGI Management Foundation provides a common business language, frameworks and practices for managing all operations consistently across the globe, driving a focus on continuous improvement. We also invest in rigorous quality and service delivery standards (including ISO and Capability Maturity Model Integration (CMMI) certification programs), as well as a comprehensive Client Satisfaction Assessment Program, with signed client assessments, to ensure high satisfaction on an ongoing basis. 1.2. VISION AND STRATEGY CGI is unique compared to most companies. We not only have a vision, but also a dream: “To create an environment in which we enjoy working together and, as owners, contribute to building a company we can be proud of.” This dream has motivated us since our founding in 1976 and drives our vision: “To be a global, world-class end-to-end IT and business consulting services leader helping our clients succeed.” In pursuing this dream and vision, CGI has been highly disciplined throughout its history in executing a Build and Buy profitable growth strategy comprised of four pillars that combine profitable organic growth (Build) and accretive acquisitions (Buy): Pillar 1: Smaller contract wins, renewals and extensions Pillar 2: Large, long-term outsourcing contracts Pillar 3: Small firm or niche player acquisitions Pillar 4: Large, transformational acquisitions The first two pillars relate to driving profitable organic growth through the pursuit of contracts - both large and small - with new and existing clients in our targeted industries. The last two pillars focus on growth through niche and large acquisitions. We identify niche acquisitions through a strategic qualification process that systematically searches for targets to strengthen our local proximity in metro markets, our industry expertise and enhance our services and solutions. We also pursue large acquisitions to further expand our geographic presence and critical mass, which enables us to compete for large outsourcing contracts and broaden our client relationships. CGI will continue to be a consolidator in the IT services industry. Executing our strategy CGI’s strategy is executed through a unique business model that combines client proximity with an extensive global delivery network to deliver the following benefits:

•

Local relationships and accountability: We live and work near our clients to provide a high level of responsiveness, partnership, and innovation. Our local CGI professionals speak our clients' language, understand their business environment, and collaborate to meet their goals and advance their business.

•

Global reach: Our local presence is complemented by an expansive global delivery network that ensures our clients have 24/7 access to best-fit digital capabilities and resources to meet their end-to-end needs. In addition, clients benefit from our unique combination of industry domain and technology expertise within our global delivery model.

•

Committed experts: One of our key strategic goals is to be our clients’ expert of choice. To achieve this, we invest in developing and recruiting professionals with extensive industry, business and technology expertise, particularly in high-demand areas, such as agile services, DevOps, artificial intelligence and robotics, cloud, cybersecurity, blockchain, data analytics and the Internet of Things. In addition, more than 80% of CGI professionals are also shareholders, providing an added level of commitment to the success of our clients.


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7


•

Comprehensive quality processes: CGI’s investment in quality frameworks and rigorous client satisfaction assessments has resulted in a consistent track record of on-time and within-budget project delivery.

1.3. COMPETITIVE ENVIRONMENT In today’s digital era, there is a competitive urgency for organizations across industries to become digital in a sustainable way. The pressure is on to modernize legacy assets and connect them to digital business and operating models. Central to this massive transformation is the evolving role of technology. Traditionally viewed as an enabler, technology is now recognized as a driver of business transformation. The promise of digital creates an enormous opportunity to transform organizations end-to-end, and CGI is well-positioned to serve as a digital partner and expert of choice. We’re working with clients across the globe to implement digital strategies, roadmaps and solutions that revolutionize the customer/citizen experience, drive the launch of new products and services, and deliver efficiencies and cost savings. As the demand for digitalization increases, competition within the global IT industry is intensifying. CGI’s competition comprises a variety of players; from niche companies providing specialized services and software, to global, end-to-end IT service providers, to large consulting firms. All of these players are competing to deliver some or all of the services we provide. Many factors distinguish the industry leaders, including the following:

•

Depth and breadth of industry and technology expertise;

•

Consistent, on-time, within-budget delivery everywhere the client operates;

•

Total cost of services and value delivered;

•

Breadth of digital IP solutions;

•

Ability to deliver practical innovation for measurable results;

•

Global, nearshore and onshore delivery network options; and

•

Local presence and strength of client relationships.

CGI compares very favourably with the competition with respect to all of these factors. We’re not only delivering all of the capabilities clients need to compete in a digital world, but the immediate results and long-term value they expect. As the market dynamics and industry trends continue to increase demand for enterprise solutions from global, end-to-end IT and business consulting services firms, CGI is one of few firms with the scale, reach, and capabilities to meet clients’ enterprise needs.


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FISCAL 2017 RESULTS

2. Highlights Performance Measures 2. Highlights andand KeyKey Performance Measures 2.1. FISCAL 2017 YEAR-OVER-YEAR HIGHLIGHTS •

Revenue of $10.8 billion, up 1.5%, or 4.3% in constant currency;

•

Adjusted EBIT of $1,586.6 million, up $26.3 million;

•

Adjusted EBIT margin of 14.6%, stable;

•

Net earnings of $1,035.2 million, down $33.5 million;

•

Net earnings excluding specific items1 of $1,107.0 million, up $25.5 million;

•

Net earnings margin of 9.5%, down 50 basis points;

•

Net earnings margin excluding specific items1 of 10.2%, up 10 basis points;

•

Diluted EPS of $3.41, down 0.3%;

•

Diluted EPS excluding specific items1 of $3.65, up 5.5%;

•

Bookings of $11.3 billion, or 104% of revenue;

•

Backlog of $20.8 billion, down $80.5 million; and,

•

Cash provided by operating activities of $1,358.6, or 12.5% of revenue.

1

Specific items include the acquisition-related and integration costs, restructuring costs, both net of tax, which are discussed in sections 3.7.1. and 3.7.2. of the present document.


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2.2. SELECTED YEARLY INFORMATION & KEY PERFORMANCE MEASURES As at and for the years ended September 30,

2017

2016

2015

Change 2017 / Change 2016 / 2016 2015

In millions of CAD unless otherwise noted

Growth Revenue

10,845.1

10,683.3

10,287.1

161.8

396.2

Year-over-year revenue growth

1.5%

3.9%

(2.0%)

(2.4%)

5.9%

Constant currency year-over-year revenue growth

4.3%

0.2%

(4.0%)

4.1%

4.2%

20,813

20,893

20,711

(80)

182

Backlog Bookings

11,284

11,731

11,640

(447)

91

Book-to-bill ratio

104.1%

109.8%

113.2%

(5.7%)

(3.4%)

1,586.6

1,560.3

1,457.3

26.3

103.0 0.4%

Profitability Adjusted EBIT Adjusted EBIT margin

14.6%

14.6%

14.2%

—%

1,035.2

1,068.7

977.6

(33.5)

91.1

Net earnings margin

9.5%

10.0%

9.5%

(0.5)%

0.5%

Diluted EPS (in dollars)

3.41

3.42

3.04

(0.01)

0.38

Net earnings

Net earnings excluding specific items

1,107.0

1,081.5

1,005.1

25.5

76.4

Net earnings margin excluding specific items

10.2%

10.1%

9.8%

0.1%

0.3%

Diluted EPS excluding specific items (in dollars)

3.65

3.46

3.13

0.19

0.33

1,358.6

1,333.1

1,289.3

25.5

43.8

12.5%

12.5%

12.5%

—%

—%

47

44

44

3

—

Liquidity Cash provided by operating activities As a % of revenue Days sales outstanding Capital structure Net debt

1,749.4

1,333.3

1,779.6

416.1

(446.3)

Net debt to capitalization ratio

21.5%

15.8%

21.7%

5.7%

(5.9)%

Return on equity

16.1%

17.2%

17.7%

(1.1)%

(0.5)%

Return on invested capital

13.7%

14.2%

14.1%

(0.5)%

0.1%

Balance sheet Cash and cash equivalents, and short-term investments

1

165.9

596.5

305.3

(430.6)

291.2

Total assets

11,396.2

11,693.3

11,787.3

(297.1)

(94.0)

Long-term financial liabilities1

1,821.9

1,765.4

1,896.4

56.5

(131.0)

Long-term financial liabilities include the long-term portion of the debt and the long-term derivative financial instruments.


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FISCAL 2017 RESULTS

2.3. STOCK PERFORMANCE CGI Stock Prices (TSX) for the Last Twelve Months 9

70.00

8

7

66.00

5 62.00 4

Stock Price (CAD)

Volume (in millions)

6

3 58.00

2

1

0

Q1 2017

Q2 2017

Q3 2017

Q4 2017

54.00

Daily Trade Volume Closing Price

2.3.1. Fiscal 2017 Trading Summary CGI’s shares are listed on the Toronto Stock Exchange (TSX) (stock quote – GIB.A) and the New York Stock Exchange (NYSE) (stock quote – GIB) and are included in key indices such as the S&P/TSX 60 Index. TSX Open:

(CAD)

High: Low: Close: 1

CDN average daily trading volumes : 1 1

(USD)

62.14

NYSE Open:

69.22

High:

53.65

60.61

Low:

45.73

64.70 928,613

Close: NYSE average daily trading volumes:

47.28

51.87 176,297

Includes the average daily volumes of both the TSX and alternative trading systems.


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2.3.2. Normal Course Issuer Bid (NCIB) On February 1, 2017, the Company’s Board of Directors authorized and subsequently received the approval from the TSX for the renewal of CGI's NCIB which allows for the purchase for cancellation of up to 21,190,564 Class A subordinate voting shares, representing 10% of the Company’s public float as of the close of business on January 25, 2017. Class A subordinate voting shares may be purchased for cancellation under the current NCIB commenced on February 6, 2017 until the earlier of February 5, 2018 or the date on which the Company has either acquired the maximum number of Class A subordinate voting shares allowable under the NCIB, or elects to terminate the NCIB. During fiscal 2017, the Company purchased for cancellation 19,929,268 Class A subordinate voting shares for approximately $1,246.7 million at an average price of $62.55 under the previous and current NCIB. The purchased shares included 4,854,368 Class A subordinate voting shares purchased for cancellation from Caisse de dépôt et de placement du Québec (CDPQ) for cash consideration of $300.0 million. In accordance with the Toronto stock exchange rules, this purchase is considered in the annual aggregate limit that the Company is entitled to purchase for cancellation under the current NCIB. As at September 30, 2017, all of these Class A subordinate voting shares were cancelled and paid. As at September 30, 2017, the Company could purchase up to 7,358,996 Class A subordinate voting shares for cancellation, under the current NCIB. 2.3.3. Capital Stock and Options Outstanding The following table provides a summary of the Capital Stock and Options Outstanding as at November 3, 2017: Capital Stock and Options Outstanding

As at November 3, 2017

Class A subordinate voting shares

254,370,913

Class B multiple voting shares

32,852,748

Options to purchase Class A subordinate voting shares

14,897,339

2.4 INVESTMENTS IN SUBSIDIARIES During the year ended September 30, 2017, the Company wholly acquired four consulting companies: • On November 3, 2016, the Company acquired all units of Collaborative Consulting, LLC, a high-end IT consulting company with specialized expertise in financial, life sciences and public sectors, headquartered in Boston, Massachusetts; • On April 19, 2017, the Company acquired all outstanding shares of Computer Technology Solutions, Inc., a high-end IT consulting company focused on commercial markets, specialized in cloud, analytics and digital transformation, headquartered in Birmingham, Alabama; • On May 12, 2017, the Company acquired all outstanding shares of eCommerce Systems, Inc., a high-end IT consulting company focused on commercial markets, specialized in cloud, analytics and digital transformation, headquartered in Denver, Colorado; and, • On August 22, 2017, the Company acquired all outstanding shares of Summa Technologies, Inc., a high-end IT consulting company with expertise in digital experience and agile software development, headquartered in Pittsburgh, Pennsylvania. These companies increase CGI's workforce by approximately 1,000 professionals and, together, generate annual revenues of approximately US$182 million. These companies were acquired for a total purchase price of $307.1 million (US$230.2 million). These acquisitions will complement CGI's proximity model and further strengthen the Company's global capabilities across several in-demand digital transformation areas. Please refer to note 26 of our audited consolidated financial statements for additional information on our investments in subsidiaries.


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FISCAL 2017 RESULTS

2.5 SUBSEQUENT EVENT On October 6, 2017, the Company acquired 94.8% of the outstanding shares of Affecto Plc (Affecto), a leading provider of business intelligence and enterprise information management solutions and services, headquartered in Helsinki, Finland for a total purchase price of $137.4 million (€93.4 million). This acquisition adds more than 1,000 professionals and annualized revenues of approximately €110 million to the Company. On October 10, 2017, the Company submitted an application to initiate statutory squeeze-out proceedings in order to complete the redemption of the shares held by the remaining shareholders of Affecto.


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3.

3. Financial Review Financial Review 3.1. BOOKINGS AND BOOK-TO-BILL RATIO Bookings for the year ended September 30, 2017 were $11.3 billion representing a book-to-bill ratio of 104.1%. The breakdown of the new bookings signed during the year is as follows: E

F

D

E B

B

A

A

A

D

C B

C

Contract Type A.

B.

Service Type

Extensions and renewals

58%

New business

42%

A.

B.

A

B

Segment

System integration and consulting

52%

Management of IT and business functions

48%

A. B. C. D. E. F. G.

U.S. Nordics France Canada ECS U.K. Asia Pacific

Vertical Market 34% 15% 15% 14% 11% 10% 1%

A. B. C. D.

Government MRD Financial Services Communications & utilities E. Health

36% 24% 21% 13% 6%

Information regarding our bookings is a key indicator of the volume of our business over time. However, due to the timing and transition period associated with outsourcing contracts, the realization of revenue related to these bookings may fluctuate from period to period. The values initially booked may change over time due to their variable attributes, including demanddriven usage, modifications in the scope of work to be performed caused by changes in client requirements as well as termination clauses at the option of the client. As such, information regarding our bookings is not comparable to, nor should it be substituted for an analysis of our revenue; it is instead a key indicator of our future revenue used by the Company’s management to measure growth. The following table provides a summary of the bookings and book-to-bill ratio by segment: In thousands of CAD except for percentages

Bookings for the year ended September 30, 2017

Book-to-bill ratio for the year ended September 30, 2017

11,284,444

104.1 %

U.S.

3,862,364

123.8 %

Nordics

1,723,831

103.4 %

Canada

1,627,079

92.9 %

France

1,668,325

104.6 %

U.K.

1,131,449

79.9 %

ECS

1,175,816

100.7 %

95,580

74.1 %

Total CGI

Asia Pacific


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FISCAL 2017 RESULTS

3.2. FOREIGN EXCHANGE The Company operates globally and is exposed to changes in foreign currency rates. Accordingly, as prescribed by IFRS, we value assets, liabilities and transactions that are measured in foreign currencies using various exchange rates. We report all dollar amounts in Canadian dollars. Closing foreign exchange rates As at September 30,

2017

2016

U.S. dollar

1.2509

1.3121

Change (4.7%)

Euro

1.4782

1.4747

0.2%

Indian rupee

0.0192

0.0197

(2.5%)

British pound

1.6770

1.7076

(1.8%)

Swedish krona

0.1534

0.1531

0.2%

Australian dollar

0.9809

1.0061

(2.5%)

2017

2016

U.S. dollar

1.3140

1.3255

(0.9%)

Euro

1.4511

1.4722

(1.4%)

Indian rupee

0.0200

0.0198

1.0%

British pound

1.6650

1.8876

(11.8%)

Swedish krona

0.1507

0.1574

(4.3%)

Australian dollar

1.0013

0.9760

2.6%

Average foreign exchange rates For the years ended September 30,


Change

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15

15


3.3. REVENUE DISTRIBUTION The following charts provide additional information regarding our revenue mix for the year:

E

G B

A

F

A1

D

A

E

A

D

A2

C

B

B

C

Service Type

Client Geography

A.

Management of IT and business functions 1. IT services 43% 2. Business process services 10%

53%

B.


47%

A. B. C. D. E. F. G.

U.S. Canada France U.K. Sweden Finland Rest of the world

Vertical Market 29% 16% 14% 13% 7% 6% 15%

A. B. C. D. E.

Government MRD Financial services Communications & utilities Health

33% 23% 22% 15% 7%

3.3.1. Client Concentration IFRS guidance on segment disclosures defines a single customer as a group of entities that are known to the reporting entity to be under common control. As a consequence, our work for the U.S. federal government including its various agencies represented 14.0% of our revenue for fiscal 2017 as compared to 13.2% in fiscal 2016.


16

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FISCAL 2017 RESULTS

3.4. REVENUE BY SEGMENT Our seven segments are reported based on where the client's work is delivered from - our geographic delivery model. The following table provides a summary of the year-over-year changes in our revenue, in total and by segment, separately showing the impacts of foreign currency exchange rate variations between fiscal 2017 and fiscal 2016. The fiscal 2016 revenue by segment was recorded reflecting the actual foreign exchange rates for that period. The foreign exchange impact is the difference between the current period’s actual results and the same period’s results converted with the prior year’s foreign exchange rates. Change For the years ended September 30,

2017

2016

$

%

10,845,066

10,683,264

161,802

1.5%

2,878,661

178,967

6.2%

3,028,355

2,878,661

149,694

5.2%

1,625,526

1,651,322

(25,796)

(1.6%)

1,577,883

1,651,322

(73,439)

(4.4%)

1,606,252

1,536,331

69,921

4.6%

1,605,500

1,536,331

69,169

4.5%

1,585,155

1,444,966

140,189

9.7%

1,559,869

1,444,966

114,903

8.0%

1,464,181

1,431,739

32,442

2.3%

1,286,700

1,431,739

(145,039)

(10.1%)

1,206,541

1,198,854

7,687

0.6%

1,194,409

1,198,854

(4,445)

(0.4%)

593,131

541,391

51,740

9.6%

541,391

50,959

9.4%

In thousands of CAD except for percentages

Total CGI revenue Variation prior to foreign currency impact Foreign currency impact Variation over previous period

4.3% (2.8%) 1.5%

U.S. Revenue prior to foreign currency impact Foreign currency impact U.S. revenue

3,057,628 (29,273)

Nordics Revenue prior to foreign currency impact Foreign currency impact Nordics revenue

(47,643)

Canada Revenue prior to foreign currency impact Foreign currency impact Canada revenue

(752)

France Revenue prior to foreign currency impact Foreign currency impact France revenue

(25,286)

U.K. Revenue prior to foreign currency impact Foreign currency impact U.K. revenue

(177,481)

ECS Revenue prior to foreign currency impact Foreign currency impact ECS revenue

(12,132)

Asia Pacific Revenue prior to foreign currency impact Foreign currency impact Asia Pacific revenue

(781) 592,350

For the year ended September 30, 2017, revenue was $10,845.1 million, an increase of $161.8 million, or 1.5% over the same period last year. On a constant currency basis, revenue increased by 4.3%. Foreign currency rate fluctuations unfavourably impacted our revenue by $293.3 million or 2.8%. The increase in revenue was primarily due to the improving market demand for our services and solutions translating to higher work volumes and new business across most segments, as well as recent business acquisitions. CGI Group Inc. - Management's Discussion and Analysis for the year ended September 30, 2017

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17

17


3.4.1. U.S. For the year ended September 30, 2017, revenue in our U.S. segment was $3,028.4 million, an increase of $149.7 million or 5.2% over the same period last year. On a constant currency basis, revenue increased by $179.0 million or 6.2%. The increase was driven by revenue associated with recent business acquisitions, growth in the US Federal market and an increase in IP services and solutions revenue. This was partly offset by lower work volumes in the state and local government market, in part due to the successful completion of a large program. On a client geographic basis, the top two U.S. vertical markets were government and financial services, generating revenues of approximately $2,357 million for the year ended September 30, 2017. 3.4.2. Nordics For the year ended September 30, 2017, revenue in our Nordics segment was $1,577.9 million, a decrease of $73.4 million or 4.4% over the same period last year. On a constant currency basis, revenue decreased by $25.8 million or 1.6%. The change in revenue was mainly due to the expiration of certain infrastructure outsourcing contracts and decreased work volume in Denmark. This was partly offset by growth primarily within the financial services vertical market in Finland. On a client geographic basis, the top two Nordics vertical markets were MRD and government, generating revenues of approximately $1,064 million for the year ended September 30, 2017. 3.4.3. Canada For the year ended September 30, 2017, revenue in our Canada segment was $1,605.5 million, an increase of $69.2 million or 4.5% compared to the same period last year. The increase in revenue was mainly the result of an increase in new and existing business primarily within the financial services and government vertical markets, as well as the ramping up of new outsourcing contracts in the MRD vertical market. This was partly offset by the expiration of certain infrastructure outsourcing contracts and the increased use of our offshore global delivery centers in Asia Pacific. On a client geographic basis, the top two Canada vertical markets were financial services and communication & utilities, generating revenues of approximately $1,073 million for the year ended September 30, 2017. 3.4.4. France For the year ended September 30, 2017, revenue in our France segment was $1,559.9 million, an increase of $114.9 million or 8.0% over the same period last year. On a constant currency basis, revenue increased by $140.2 million or 9.7%. The increase in revenue was mainly due to the increase in new and existing business within the MRD vertical market, the increased work volume within the government and financial services vertical markets and, to a lesser extent, a prior year's business acquisition. On a client geographic basis, the top two France vertical markets were MRD and financial services, generating revenues of approximately $1,038 million for the year ended September 30, 2017. 3.4.5. U.K. For the year ended September 30, 2017, revenue in our U.K. segment was $1,286.7 million, a decrease of $145.0 million or 10.1% over the same period last year. On a constant currency basis, revenue increased by $32.4 million or 2.3%. The increase in revenue was mainly due to growth in the government and communication & utilities vertical markets as well as the favourable renegotiation of a loss making contract in Q1 2017. This was partly offset by projects completed in fiscal 2017 and the favourable impact of the sale of additional equipment in Q4 2016. On a client geographic basis, the top two U.K. vertical markets were government and communication & utilities, generating revenues of approximately $986 million for the year ended September 30, 2017.


18

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FISCAL 2017 RESULTS

3.4.6. ECS For the year ended September 30, 2017, revenue in our ECS segment was $1,194.4 million, a decrease of $4.4 million or 0.4% over the same period last year. On a constant currency basis, revenue increased by $7.7 million or 0.6%. The increase in revenue was mainly due to increased work volume across all geographies, with the exception of the Netherlands, partly offset by the wind-down of the majority of our operations in South America. On a client geographic basis, the top two ECS vertical markets were MRD and communication & utilities, generating revenues of approximately $746 million for the year ended September 30, 2017. 3.4.7. Asia Pacific For the year ended September 30, 2017, revenue in our Asia Pacific segment was $592.4 million, an increase of $51.0 million or 9.4% over the same period last year. On a constant currency basis, revenue increased by $51.7 million or 9.6%. The increase in revenue was due to continued demand for our offshore delivery centers. On a client geographic basis, the top two Asia Pacific vertical markets were communication & utilities and MRD, generating revenues of approximately $83 million for the year ended September 30, 2017. 3.5. OPERATING EXPENSES % of For the years ended September 30,

2017

Revenue

% of 2016

Revenue

Change $

%


Costs of services, selling and administrative Foreign exchange loss

9,257,659

85.4%

9,120,929

85.4%

784

0.0%

2,024

0.0%

136,730 (1,240)

1.5% (61.3%)

3.5.1. Costs of Services, Selling and Administrative For the year ended September 30, 2017, costs of services, selling and administrative expenses amounted to $9,257.7 million, an increase of $136.7 million over the same period last year. As a percentage of revenue, cost of services, and our selling and administrative expenses were both stable when compared to the same period last year. During the year ended September 30, 2017 the translation of the results of our foreign operations from their local currencies to the Canadian dollar favourably impacted costs by $270.3 million substantially offsetting the unfavourable translation impact of $293.3 million on our revenue. 3.5.2. Foreign Exchange Loss During the year ended September 30, 2017, CGI incurred $0.8 million of foreign exchange losses, mainly driven by the timing of payments combined with the volatility and fluctuation of foreign exchange rates. The Company, in addition to its natural hedges, uses derivatives as a strategy to manage its exposure, to the extent possible, to exchange rate fluctuations.


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19

19


3.6. ADJUSTED EBIT BY SEGMENT Change For the years ended September 30,

2017

2016

495,774

486,295

16.4%

16.9%

179,989

186,742

11.4%

11.3%

343,856

345,483

21.4%

22.5%

193,075

174,685

12.4%

12.1%

152,185

154,262

11.8%

10.8%

98,981

114,256

8.3%

9.5%

122,763

98,588

20.7%

18.2%

1,586,623

1,560,311

14.6%

14.6%

$

%


U.S. As a percentage of U.S. revenue Nordics As a percentage of Nordics revenue Canada As a percentage of Canada revenue France As a percentage of France revenue U.K. As a percentage of U.K. revenue ECS As a percentage of ECS revenue Asia Pacific As a percentage of Asia Pacific revenue Adjusted EBIT Adjusted EBIT margin

9,479

1.9%

(6,753)

(3.6%)

(1,627)

(0.5%)

18,390

10.5%

(2,077)

(1.3%)

(15,275)

(13.4%)

24,175

24.5%

26,312

1.7%

For the year ended September 30, 2017, adjusted EBIT margin remained stable at 14.6% as compared to the same period last year. 3.6.1. U.S. For the year ended September 30, 2017, adjusted EBIT in the U.S. segment was $495.8 million, an increase of $9.5 million when compared to the same period last year. Adjusted EBIT margin decreased to 16.4% from 16.9%. The change in adjusted EBIT margin was mainly the result of a positive impact from additional research and development tax credits in fiscal 2016, partly compensated by an improved mix of IP services and solution revenue and higher utilization. 3.6.2. Nordics For the year ended September 30, 2017, adjusted EBIT in the Nordics segment was $180.0 million, a decrease of $6.8 million when compared to the same period last year. Adjusted EBIT margin increased to 11.4% from 11.3% as a decrease in amortization of client relationships and the improved cost structure in Norway were offset by certain project challenges in Denmark and the timing of the winding down of remaining fixed costs following the expiration of certain infrastructure outsourcing contracts. 3.6.3. Canada For the year ended September 30, 2017, adjusted EBIT in the Canada segment was $343.9 million, a decrease of $1.6 million when compared to the same period last year, while the adjusted EBIT margin decreased to 21.4% from 22.5% last year. The change in adjusted EBIT margin was mainly driven by the timing of the winding down of remaining fixed costs following the expiration of certain infrastructure outsourcing contracts, combined with the costs associated to ramping up of new outsourcing contracts.


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FISCAL 2017 RESULTS

3.6.4. France For the year ended September 30, 2017, adjusted EBIT in the France segment was $193.1 million, an increase of $18.4 million when compared to the same period last year. Adjusted EBIT margin increased to 12.4% from 12.1% mainly due to an overall increase in new and existing business and improved utilization rates. 3.6.5. U.K. For the year ended September 30, 2017, adjusted EBIT in the U.K. segment was $152.2 million, a decrease of $2.1 million when compared to the same period last year. Adjusted EBIT margin increased to 11.8% from 10.8%. The increase in adjusted EBIT margin was mainly the result of an improved cost structure and from a provision taken on a client contract in Q4 2016. 3.6.6. ECS For the year ended September 30, 2017, adjusted EBIT in the ECS segment was $99.0 million, a decrease of $15.3 million when compared to the same period last year. Adjusted EBIT margin decreased to 8.3% from 9.5% last year. The change in adjusted EBIT margin was mainly due to lower work volume and projects completed in the Netherlands, which impacted our utilization. 3.6.7. Asia Pacific For the year ended September 30, 2017, adjusted EBIT in the Asia Pacific segment was $122.8 million an increase of $24.2 million when compared to the same period last year. Adjusted EBIT margin increased to 20.7% from 18.2% mainly due to increased scale and productivity improvements in our Asian global delivery centers and improved utilization in Australia. 3.7. EARNINGS BEFORE INCOME TAXES The following table provides a reconciliation between our adjusted EBIT and earnings before income taxes, which is reported in accordance with IFRS. Change For the years ended September 30,

2017

% of Revenue

2016

% of Revenue

$

%


Adjusted EBIT

1,586,623

14.6%

1,560,311

14.6%

26,312

1.7%

Acquisition-related and integration costs

10,306

0.1%

—

—

10,306

Restructuring costs

88,628

0.8%

29,100

0.3%

59,528

204.6%

Net finance costs

69,792

0.6%

78,426

0.7%

(8,634)

(11.0%)

1,417,897

13.1%

1,452,785

13.6%

(34,888)

(2.4)%

Minus the following items:

Earnings before income taxes

—

3.7.1. Acquisition-Related and Integration Costs For the year ended September 30, 2017, the Company incurred $10.3 million of acquisition-related and integration costs, pertaining to the integration of our recent acquisitions' operations to the CGI operating model. These costs are mainly related to the termination of certain employees, as well as leases for premises which the Company vacated. 3.7.2. Restructuring Costs In fiscal 2016, we completed the previously announced restructuring program for productivity improvement initiatives and incurred $29.1 million of restructuring costs for a total expense of $65.0 million over the entire program. On August 2, 2017, the Company announced it will incur approximately $165.0 million of restructuring costs over the next year to compress the timeline of implementing certain elements of its profitable growth strategy. The initiative is expected to yield benefits throughout fiscal 2018. A total amount of $88.6 million was expensed during Q4 2017 and the remaining amount


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21


is expected to be expensed in fiscal 2018. Please refer to note 24 of our audited consolidated financial statements for additional information on our restructuring costs. 3.7.3. Net Finance Costs Net finance costs mainly include the interest on our long-term debt. The decrease in net finance costs for the year ended September 30, 2017 was mainly the result of the debt repayments.


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FISCAL 2017 RESULTS

3.8. NET EARNINGS AND EARNINGS PER SHARE The following table sets out the information supporting the earnings per share calculations: Change For the years ended September 30,

2017

2016

$

%

1,417,897

1,452,785

(34,888)

(2.4%)

382,702

384,069

(1,367)

(0.4%)

(33,521)

(3.1%)

In thousands of CAD except for percentage and shares data

Earnings before income taxes Income tax expense

27.0%

26.4%

1,035,195

1,068,716

9.5%

10.0%

Class A subordinate voting shares and Class B multiple voting shares (basic)

297,516,970

304,808,130

(2.4%)

Class A subordinate voting shares and Class B multiple voting shares (diluted)

303,293,485

312,773,156

(3.0%)

Basic

3.48

3.51

(0.03)

(0.9%)

Diluted

3.41

3.42

(0.01)

(0.3%)

Effective tax rate Net earnings Net earnings margin Weighted average number of shares outstanding

Earnings per share (in dollars)

3.8.1. Income Tax Expense For the year ended September 30, 2017, the income tax expense was $382.7 million compared to $384.1 million over the same period last year, while our effective tax rate increased to 27.0% from 26.4%. The increase in income tax rate was mainly due to tax adjustments for a net favourable amount of $8.5 million in fiscal 2016 from the U.K. When excluding these tax adjustments and the tax effects from restructuring costs incurred, the income tax rate would have been 27.0% for the year ended September 30, 2016 as presented in the table in section 3.8.3. Based on the enacted rates at the end of fiscal 2017 and our current business mix, we expect our effective tax rate before any significant adjustments to be in the range of 27.0% to 29.0% in subsequent periods. 3.8.2. Weighted Average Number of Shares For fiscal 2017, CGI’s basic and diluted weighted average number of shares decreased compared to fiscal 2016 due to the impact of the purchase for cancellation of Class A subordinate voting shares, partly offset by the grants and the exercise of stock options.


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23


3.8.3. Net Earnings and Earnings per Share Excluding Specific Items Below is a table showing the year-over-year comparison excluding specific items namely, acquisition-related and integration costs, restructuring costs, and tax adjustments: Change For the years ended September 30,

2017

2016

1,417,897

1,452,785

$

%

In thousands of CAD except for percentages and shares data


(34,888)

(2.4%)

Add back: Acquisition-related and integration costs

10,306

—

10,306

Restructuring costs

88,628

29,100

59,528

204.6%

1,516,831

1,481,885

34,946

2.4%

14.0%

13.9%

382,702

384,069

(1,367)

(0.4%)

Earnings before income taxes excluding specific items Margin Income tax expense

—

Add back: Tax deduction on acquisition-related and integration costs Tax deduction on restructuring costs

3,849

—

3,849

23,292

7,858

15,434

196.4%

(8,500)

(100.0%)

—

—

8,500

Income tax expense excluding specific items

409,843

400,427

Effective tax rate excluding specific items

27.0%

27.0%

1,106,988

1,081,458

10.2%

10.1%


297,516,970

304,808,130

(2.4%)


303,293,485

312,773,156

(3.0%)

Basic

3.72

3.55

0.17

4.8%

Diluted

3.65

3.46

0.19

5.5%

Tax adjustments

Net earnings excluding specific items Net earnings excluding specific items margin

9,416

2.4%

25,530

2.4%

Weighted average number of shares outstanding

Earnings per share excluding specific items (in dollars)


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FISCAL 2017 RESULTS

4. Liquidity 4. Liquidity 4.1. CONSOLIDATED STATEMENTS OF CASH FLOWS CGI’s growth is financed through a combination of our cash flow from operations, borrowing under our existing credit facilities, the issuance of long-term debt, and the issuance of equity. One of our financial priorities is to maintain an optimal level of liquidity through the active management of our assets and liabilities as well as our cash flows. As at September 30, 2017, cash and cash equivalents were $165.9 million. The following table provides a summary of the generation and use of cash for the years ended September 30, 2017 and 2016. For the years ended September 30,

2017

2016

1,358,552

1,333,074

Change

In thousands of CAD

Cash provided by operating activities

25,478

Cash used in investing activities

(592,256)

(382,731)

(209,525)

Cash used in financing activities

(1,182,986)

(666,304)

(516,682)

Effect of foreign exchange rate changes on cash and cash equivalents Net (decrease) increase in cash and cash equivalents

(13,967)

7,228

(21,195)

(430,657)

291,267

(721,924)

4.1.1. Cash Provided by Operating Activities For the year ended September 30, 2017, cash provided by operating activities was $1,358.6 million or 12.5% of revenue as compared to $1,333.1 million or 12.5% for the same period last year. The following table provides a summary of the generation and use of cash from operating activities: For the years ended September 30,

2017

2016

Change

1,035,195

1,068,716

(33,521)

377,204

400,060

(22,856)

92,238

132,171

(39,933)

1,504,637

1,600,947

(96,310)

In thousands of CAD

Net earnings Amortization and depreciation Other adjustments1 Cash flow from operating activities before net change in non-cash working capital items Net change in non-cash working capital items:

(185,501)

(134,632)

(50,869)

Accounts payable and accrued liabilities, accrued compensation, provisions and long-term liabilities

11,353

(115,853)

127,206

Other2

28,063

(17,388)

45,451

(146,085)

(267,873)

121,788

Accounts receivable, work in progress and deferred revenue

Net change in non-cash working capital items Cash provided by operating activities 1 2

1,358,552

1,333,074

25,478

Comprised of deferred income taxes, foreign exchange gain and share-based payment costs. Comprised of prepaid expenses and other assets, long-term financial assets, retirement benefits obligations, derivative financial instruments and income taxes.

For the year ended September 30, 2017, the net $146.1 million of cash used in non-cash working capital items is primarily explained by the increase in our DSO from 44 days in 2016 to 47 days in 2017, the impact of the Company's revenue growth on accounts receivable and the increase in other receivables mainly due to the net increase of U.S. research & development tax credits, partially offset by an increase of income tax liabilities. The Company maintains a target DSO of 45 days. The timing of our working capital inflows and outflows will always have an impact on the cash flow from operations.


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25


4.1.2. Cash Used in Investing Activities For the year ended September 30, 2017, $592.3 million was used in investing activities while $382.7 million was used in the prior year. The following table provides a summary of the generation and use of cash from investing activities: For the years ended September 30,

2017

2016

Change

In thousands of CAD

Business acquisitions Proceeds from sale of property, plant & equipment Purchase of property, plant and equipment Additions to contract costs Additions to intangible assets Net proceeds from sale of long-term investments Payments received from long-term receivables Cash used in investing activities

(283,061)

(38,442)

(244,619)

10,254

(6,937)

(112,667)

(165,516)

52,849

(95,676)

(103,156)

7,480

(106,267)

(100,963)

(5,304)

14,928

(12,830)

3,317

2,098 — (592,256)

164 (382,731)

(164) (209,525)

The increase of $209.5 million in cash used in investing activities during the year ended September 30, 2017 was mainly due to business acquisitions in the U.S. Furthermore, there was a decrease in purchase of property, plant and equipment due to less investments across our data center infrastructure operations, when compared to the same period last year.


26

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FISCAL 2017 RESULTS

4.1.3. Cash Used in Financing Activities For the year ended September 30, 2017, $1,183.0 million were used in financing activities while $666.3 million were used in the prior year. The following table provides a summary of the generation and use of cash from financing activities: For the years ended September 30,

2017

2016

Change

—

200,000

In thousands of CAD

Net change in unsecured committed revolving credit facility Net change in long-term debt Settlement of derivative financial instruments Repayment of debt assumed in business acquisitions Purchase of Class A subordinate voting shares held in trust Resale of Class A subordinate voting shares held in trust Purchase and cancellation of Class A subordinate voting shares Issuance of Class A subordinate voting shares Cash used in financing activities

200,000 (180,920)

(182,651)

1,731

19,080

(182,651)

201,731

—

(24,057)

24,057

(9,119) — 4,046 (1,246,664) 49,671 (1,182,986)

— (21,795) — (527,286)

(9,119) 21,795 4,046 (719,378)

89,485

(39,814)

(666,304)

(516,682)

For the year ended September 30, 2017, we used $180.9 million to reduce our outstanding long-term debt mainly driven by the scheduled repayment of a tranche of the Senior U.S. unsecured notes in the amount of $113.6 million (US$85.0 million). In addition, we drew $200.0 million on the Company's unsecured committed revolving credit facility to purchase shares for cancellation under our NCIB. We used $182.7 million to reduce our outstanding long-term debt during the same period last year, mainly driven by repayments on the term loan credit facility. In parallel with these 2016 repayments, the Company used $24.1 million to settle the associated cross currency swap contracts. For the year ended September 30, 2017, $1,246.7 million was used to purchase for cancellation 19,929,268 Class A subordinate voting shares under the previous and current NCIB. For the year ended September 30, 2016, $527.3 million was used to purchase for cancellation 9,519,875 Class A subordinate voting shares. Finally, for the year ended September 30, 2017, we received $49.7 million in proceeds from the exercise of stock options, compared to $89.5 million during the year ended September 30, 2016. 4.1.4. Effect of Foreign Exchange Rate Changes on Cash and Cash Equivalents For the year ended September 30, 2017, the effect of foreign exchange rate changes on cash and cash equivalents was an unfavourable impact of $14.0 million. This amount had no effect on net earnings as it was recorded in other comprehensive income.


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4.2. CAPITAL RESOURCES As at September 30, 2017

Available

In thousands of CAD

Cash and cash equivalents Long-term investments

165,872 23,047

$1.5 billion unsecured committed revolving facility1

1,290,369

Total

1,479,288

1

Includes an amount of $200.0 million outstanding under our unsecured committed revolving credit facility and letters of credit in the aggregate amount of $9.6 million as at September 30, 2017.

Our cash position and bank lines are sufficient to support our growth strategy. As at September 30, 2017, cash and cash equivalents and long-term investments represented $188.9 million. Cash equivalents typically include term deposits, all with maturities of 90 days or less. Long-term investments include corporate and government bonds with maturities ranging from one to five years, rated "A" or higher. The amount of capital available was $1,479.3 million. The long-term debt agreements contain covenants, which require us to maintain certain financial ratios. As at September 30, 2017, CGI was in compliance with these covenants. Total debt decreased by $49.0 million to $1,862.0 million as at September 30, 2017, compared to $1,911.0 million as at September 30, 2016. The variance was mainly due to an unrealized gain of $69.5 million on foreign exchange translation offset by additional long-term debt for a net amount of $19.1 million. As at September 30, 2017, CGI was showing a positive working capital2 of $161.5 million. The Company also had $1,290.4 million available under its unsecured committed revolving facility and is generating a significant level of cash that will allow it to fund its operations while maintaining adequate levels of liquidity. On November 7, 2017, the unsecured committed revolving facility was extended by one year to December 2022 and can be further extended. There were no material changes in the terms and conditions including interest rates and banking covenants. As at September 30, 2017, the cash and cash equivalents held by foreign subsidiaries were $126.4 million ($557.8 million as at September 30, 2016). The tax implications and impact related to its repatriation will not materially affect the Company's liquidity.

2

Working capital is defined as total current assets minus total current liabilities.


28

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FISCAL 2017 RESULTS

4.3. CONTRACTUAL OBLIGATIONS We are committed under the terms of contractual obligations which have various expiration dates, primarily for the rental of premises, computer equipment used in outsourcing contracts and long-term service agreements. For the year ended September 30, 2017, the Company decreased its commitments by $75.7 million mainly due to the reduction of long-term debt. Commitment type

Total

Less than 1 2nd and 3rd years year

4th and 5th years

After 5 years

In thousands of CAD

Long-term debt Estimated interest on long-term debt Finance lease obligations Estimated interest on finance lease obligations

1,835,200

109,006

383,022

840,128

503,044

307,203

69,431

117,026

83,258

37,488

29,794

13,408

12,701

3,685

—

1,315

678

556

81

—

569,402

128,929

189,082

138,249

113,142

8,955

6,373

1,589

993

—

78,418

39,533

35,394

3,491

—

238,931

109,495

104,296

25,140

—

3,069,218

476,853

843,666

1,095,025

653,674

Operating leases Rental of office space (excluding cost of services and taxes) Computer equipment Automobiles Long-term service agreements and other Total

Our required benefit plan contributions have not been included in this table as such contributions depend on periodic actuarial valuations for funding purposes. Our contributions to defined benefit plans are estimated at $23.8 million for fiscal 2018 as described in note 16 of the audited consolidated financial statements. 4.4. FINANCIAL INSTRUMENTS AND HEDGING TRANSACTIONS We use various financial instruments to manage our exposure to fluctuations of foreign currency exchange rates and interest rates. Please refer to note 3 and 31 of our audited consolidated financial statements for additional information on our financial instruments and hedging transactions.


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4.5. SELECTED MEASURES OF CAPITAL RESOURCES AND LIQUIDITY As at September 30,

2017

2016

1,749,374

1,333,323

165,872

596,529


Reconciliation between net debt and long-term debt including the current portion: Net debt Add back: Cash and cash equivalents Long-term investments Fair value of foreign currency derivative financial instruments related to debt

23,047

27,246

(76,290)

(46,123)

1,862,003

1,910,975

Net debt to capitalization ratio

21.5%

15.8%

Return on equity

16.1%

17.2%


13.7%

14.2%

47

44

Long-term debt including the current portion

Days sales outstanding

We use the net debt to capitalization ratio as an indication of our financial leverage in order to realize our Build and Buy strategy. The net debt to capitalization ratio increased to 21.5% in fiscal 2017 from 15.8% in fiscal 2016. The change in the net debt to capitalization ratio was mostly due to the decrease in cash and cash equivalents, following the investment in business acquisitions and the purchase for cancellation of Class A subordinate voting shares. ROE is a measure of the return we are generating for our shareholders. ROE decreased to 16.1% in fiscal 2017 from 17.2% in fiscal 2016. The decrease was mainly due to lower net earnings, mainly the result of restructuring costs in Q4 2017. ROIC is a measure of the Company’s efficiency in allocating the capital under our control to profitable investments. The return on invested capital ratio decreased to 13.7% in fiscal 2017 from 14.2% in fiscal 2016. The change in the ROIC was mainly the result of restructuring costs in Q4 2017. DSO increased to 47 days at the end of fiscal 2017 when compared to 44 days in fiscal 2016. In calculating the DSO, we subtract the deferred revenue balance from trade accounts receivable and work in progress; for that reason, the timing of payments received from outsourcing clients in advance of the work to be performed and the timing of payments related to project milestones can affect the DSO. The Company maintains a target DSO of 45 days. 4.6. OFF-BALANCE SHEET FINANCING AND GUARANTEES In the normal course of operations, CGI uses off-balance sheet financing for a variety of transactions such as operating leases for office space, computer equipment and vehicles as well as accounts receivable factoring. From time to time, we also enter into agreements to provide financial or performance assurances to third parties on the sale of assets, business divestitures and guarantees on government and commercial contracts. In connection with sales of assets and business divestitures, we may be required to pay counterparties for costs and losses incurred as the result of breaches in our contractual obligations, representations and warranties, intellectual property right infringement and litigation against counterparties, among others. While some of the agreements specify a maximum potential exposure of approximately $10.9 million, others do not specify a maximum amount or limited period. It is not possible to reasonably estimate the maximum amount that may have to be paid under such guarantees. The amounts are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. The Company does not expect to incur any potential payment in connection with these guarantees that could have a materially adverse effect on its audited consolidated financial statements. In the normal course of business, we may provide certain clients, principally governmental entities, with bid and performance bonds. In general, we would only be liable for the amount of the bid bonds if we refuse to perform the project once we are awarded the bid. We would also be liable for the performance bonds in the event of default in the performance of our obligations. As at September 30, 2017, we had committed a total of $30.3 million for these bonds. To the best of our knowledge, we complied with our performance obligations under all service contracts for which there was a performance or bid bond, and CGI Group Inc. - Management's Discussion and Analysis for the year ended September 30, 2017

30

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FISCAL 2017 RESULTS

the ultimate liability, if any, incurred in connection with these guarantees would not have a material adverse effect on our audited consolidated results of operations or financial condition. 4.7. CAPABILITY TO DELIVER RESULTS Sufficient capital resources and liquidity are required for supporting ongoing business operations and to execute our Build and Buy growth strategy. The Company has sufficient capital resources coming from the cash generated from operations, credit facilities, long-term debt agreements and invested capital from shareholders. Our principal uses of cash are for procuring new large outsourcing and managed services contracts; investing in our business solutions; pursuing accretive acquisitions; purchasing for cancellation Class A subordinate voting shares and paying down debt. In terms of financing, we are well positioned to continue executing our four-pillar growth strategy in fiscal 2018. Strong and experienced leadership is essential to successfully implement our Company's strategy. CGI has a strong leadership team with members who are highly knowledgeable and have gained a significant amount of experience in the IT industry via various career paths and leadership roles. CGI fosters leadership development to ensure a continuous flow of knowledge and strength is maintained throughout the organization. As part of our succession planning in key positions, we established the Leadership Institute, our own corporate university, to develop leadership, technical and managerial skills inspired by CGI’s roots and traditions. As a Company built on human capital, our professionals and their knowledge are critical to delivering quality service to our clients. Our human resources program provides competitive compensation and benefits, a favourable working environment, and our training and career development programs combine to allow us to attract and retain the best talent. Employee satisfaction is monitored regularly through a Company-wide survey. Furthermore, 82% of our members are also owners of CGI through our Share Purchase Plan. The Share Purchase Plan, along with the Profit Participation Program, allows members to share in the success of the Company and aligns member objectives with our strategic goals. In addition to our capital resources and the talent of our human capital, CGI has established a Management Foundation encompassing governance policies, sophisticated management frameworks and an organizational model for its business units and corporate processes. This foundation, along with our appropriate internal systems, helps in providing a disciplined high standard of quality service to our clients across all of our operations, and additional value to our stakeholders. CGI’s operations maintain appropriate certifications in accordance with service requirements such as the ISO and CMMI certification programs.


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5.

5. Fourth FourthQuarter QuarterResults Results(Unaudited) (Unaudited) 5.1. BOOKINGS AND BOOK-TO-BILL RATIO Bookings for the quarter ended September 30, 2017 were $2.9 billion representing a book-to-bill ratio of 111.7%. The breakdown of the new bookings signed during the quarter is as follows:

E

F

D

E

B B

A

A

D

A C

Contract Type A.

B.

Service Type

Extensions and renewals

62%

New business

38%

A.

B.

B

B

Segment

Management of IT and business functions

51%


49%

A. B. C. D. E. F. G.

U.S. France Nordics Canada ECS U.K. Asia Pacific

A

C

Vertical Market 43% 14% 12% 11% 11% 8% 1%

A. B. C. D.

Government MRD Financial Services Communications & utilities E. Health

46% 19% 16% 12% 7%

Information regarding our bookings is a key indicator of the volume of our business over time. However, due to the timing and transition period associated with outsourcing contracts, the realization of revenue related to these bookings may fluctuate from period to period. The values initially booked may change over time due to their variable attributes, including demanddriven usage, modifications in the scope of work to be performed caused by changes in client requirements as well as termination clauses at the option of the client. As such, information regarding our bookings is not comparable to, nor should it be substituted for an analysis of our revenue; it is instead a key indicator of our future revenue used by the Company’s management to measure growth. The following table provides a summary of the bookings and book-to-bill ratio by segment:


Bookings for the three months ended September 30, 2017

Bookings for the year ended September 30, 2017

Book-to-bill ratio for the year ended September 30, 2017

Total CGI

2,912,909

11,284,444

104.1 %

U.S.

1,260,623

3,862,364

123.8 %

Nordics

330,994

1,723,831

103.4 %

Canada

327,391

1,627,079

92.9 %

France

418,337

1,668,325

104.6 %

U.K.

228,882

1,131,449

79.9 %

ECS

325,562

1,175,816

100.7 %

21,120

95,580

74.1 %

Asia Pacific


32

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FISCAL 2017 RESULTS

5.2. FOREIGN EXCHANGE The Company operates globally and is exposed to changes in foreign currency rates. Accordingly, as prescribed by IFRS, we value assets, liabilities and transactions that are measured in foreign currencies using various exchange rates. We report all dollar amounts in Canadian dollars. Average foreign exchange rates For the three months ended September 30,

2017

2016

U.S. dollar

1.2531

1.3054

(4.0%)

Euro

1.4728

1.4570

1.1%

Indian rupee

0.0195

0.0195

—%

British pound

1.6399

1.7135

(4.3%)

Swedish krona

0.1541

0.1532

0.6%

Australian dollar

0.9896

0.9901

(0.1%)


Change

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33

33


5.3. REVENUE BY SEGMENT The following table provides a summary of the year-over-year changes in our revenue, in total and by segment, separately showing the impacts of foreign currency exchange rate variations between the Q4 2017 and Q4 2016 periods. The Q4 2016 revenue by segment was recorded reflecting the actual average foreign exchange rates for that period. The foreign exchange impact is the difference between the current period’s actual results and the current period’s results converted with the prior year’s average foreign exchange rates. Change 2017

2016

2,608,099

2,582,429

25,670

1.0%

721,492

66,455

9.2%

For the three months ended September 30,

$

%


Total CGI revenue Variation prior to foreign currency impact

2.5%

Foreign currency impact

(1.5%)

Variation over previous period

1.0%

U.S. Revenue prior to foreign currency impact

787,947


(32,521)

U.S. revenue

755,426

721,492

33,934

4.7%

346,405

358,580

(12,175)

(3.4%)

348,775

358,580

(9,805)

(2.7%)

397,540

387,044

10,496

2.7%

397,317

387,044

10,273

2.7%

366,494

341,672

24,822

7.3%

369,472

341,672

27,800

8.1%

343,087

(35,843)

(10.4%)

Nordics Revenue prior to foreign currency impact Foreign currency impact Nordics revenue

2,370

Canada Revenue prior to foreign currency impact Foreign currency impact Canada revenue

(223)

France Revenue prior to foreign currency impact Foreign currency impact France revenue

2,978

U.K. Revenue prior to foreign currency impact

307,244


(13,069)

U.K. revenue

294,175

343,087

(48,912)

(14.3%)

290,479

288,387

2,092

0.7%

293,718

288,387

5,331

1.8%

151,119

142,167

8,952

6.3%

142,167

7,049

5.0%

ECS Revenue prior to foreign currency impact Foreign currency impact ECS revenue

3,239

Asia Pacific Revenue prior to foreign currency impact Foreign currency impact Asia Pacific revenue

(1,903) 149,216

We ended the fourth quarter of fiscal 2017 with revenue of $2,608.1 million, an increase of $25.7 million when compared to the same period of fiscal 2016. On a constant currency basis, revenue increased by $64.8 million or 2.5%. Foreign currency rate fluctuations unfavourably impacted our revenue by $39.1 million or 1.5%. The increase in revenue was primarily due to recent business acquisitions in the U.S. and higher work volume in the U.S. and France.


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5.3.1. U.S. Revenue in our U.S. segment was $755.4 million in Q4 2017, an increase of $33.9 million or 4.7% compared to the same period of fiscal 2016. On a constant currency basis, revenue increased by $66.5 million or 9.2%. The increase was driven by revenue associated with recent business acquisitions as well as growth in the US Federal and commercial markets, partly offset by lower work volumes in the state and local government market. On a client geographic basis, the top two U.S. vertical markets were government and financial services, generating revenues of approximately $585 million for the current quarter. 5.3.2. Nordics Revenue from our Nordics segment was $348.8 million in Q4 2017, a decrease of $9.8 million or 2.7% compared to the same period of fiscal 2016. On a constant currency basis, revenue decreased by $12.2 million or 3.4%. The decrease was due to the expiration of certain infrastructure outsourcing contracts and the decrease in work volume in Denmark and Sweden, partly offset by new and existing business in Finland, mainly within the financial services vertical market. On a client geographic basis, the top two Nordics vertical markets were MRD and government, generating revenues of approximately $232 million for the current quarter. 5.3.3. Canada Revenue in our Canada segment for Q4 2017 was $397.3 million, an increase of $10.3 million or 2.7% compared to the same period of fiscal 2016. The increase in revenue was mainly the result of new and existing business primarily within the financial services and government vertical markets, partly offset by the expiration of certain infrastructure outsourcing contracts and the increased use of our offshore global delivery centers in Asia Pacific. On a client geographic basis, the top two Canada vertical markets were financial services and communication & utilities, generating revenues of approximately $273 million for the current quarter. 5.3.4. France Revenue from our France segment was $369.5 million in Q4 2017 an increase of $27.8 million or 8.1% compared to the same period of fiscal 2016. On a constant currency basis, revenue increased by $24.8 million or 7.3%. The increase in revenue was mostly due to new and existing business within the MRD vertical market as well as the increased work volume within the government and financial services vertical markets. On a client geographic basis, the top two France vertical markets were MRD and financial services, generating revenues of approximately $248 million for the current quarter. 5.3.5. U.K. Revenue from our U.K. segment was $294.2 million in Q4 2017, a decrease of $48.9 million or 14.3% compared to the same period of fiscal 2016. On a constant currency basis, revenue decreased by $35.8 million or 10.4%. The decrease in revenue was mainly due to projects completed in fiscal 2017 and the favourable impact of the sale of additional equipment in Q4 2016. This was partly offset by growth in the government and communication & utilities vertical markets. On a client geographic basis, the top two U.K. vertical markets were government and communication & utilities, generating revenues of approximately $227 million for the current quarter. 5.3.6. ECS Revenue from our ECS segment was $293.7 million in Q4 2017, an increase of $5.3 million or 1.8% when compared to the same period of fiscal 2016. On a constant currency basis, revenue increased by $2.1 million or 0.7%. The increase in revenue was mainly due to increased work volume across all geographies, with the exception of the Netherlands. On a client geographic basis, the top two ECS vertical markets were MRD and communication & utilities, generating revenues of approximately $182 million for the current quarter.


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5.3.7. Asia Pacific Revenue from our Asia Pacific segment was $149.2 million in Q4 2017, an increase of $7.0 million or 5.0% compared to the same period of fiscal 2016. On a constant currency basis, revenue increased by $9.0 million or 6.3%. The increase in revenue was due to increased usage of our offshore delivery centers. On a client geographic basis, the top two Asia Pacific vertical markets were communication & utilities and MRD, generating revenues of approximately $20 million for the current quarter.


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FISCAL 2017 RESULTS

5.4. ADJUSTED EBIT BY SEGMENT Change For the three months ended September 30,

2017

2016

111,010

128,494

14.7%

17.8%

40,795

43,784

11.7%

12.2%

99,243

94,136

25.0%

24.3%

42,465

43,067

11.5%

12.6%

38,572

28,698

13.1%

8.4%

27,386

30,302

9.3%

10.5%

36,362

26,598

24.4%

18.7%

395,833

395,079

15.2%

15.3%

$

%


U.S. As a percentage of U.S. revenue Nordics As a percentage of Nordics revenue Canada As a percentage of Canada revenue France As a percentage of France revenue U.K. As a percentage of U.K. revenue ECS As a percentage of ECS revenue Asia Pacific As a percentage of Asia Pacific revenue Adjusted EBIT Adjusted EBIT margin

(17,484)

(13.6%)

(2,989)

(6.8%)

5,107

5.4%

(602)

(1.4%)

9,874

34.4%

(2,916)

(9.6%)

9,764

36.7%

754

0.2%

Adjusted EBIT for the quarter was $395.8 million an increase of $0.8 million or 0.2% from Q4 2016, while the margin remained essentially stable at 15.2%. 5.4.1. U.S. Adjusted EBIT in the U.S. segment was $111.0 million for Q4 2017, a decrease of $17.5 million year-over-year. Adjusted EBIT margin decreased to 14.7% from 17.8% mainly the result of a positive impact from additional research and development tax credits in Q4 2016 and to an adjustment to performance based compensation accruals in Q4 2017. This was partly offset by improved utilization. 5.4.2. Nordics Adjusted EBIT in the Nordics segment was $40.8 million for Q4 2017, a decrease of $3.0 million year-over-year. Adjusted EBIT margin decreased to 11.7% from 12.2%. The decrease was mainly due to certain project challenges in Denmark and to the timing of the winding down of remaining fixed costs following the expiration of several infrastructure outsourcing contracts . This was partly offset by a decrease in amortization of client relationships. 5.4.3. Canada Adjusted EBIT in the Canada segment was $99.2 million for Q4 2017, an increase of $5.1 million year-over-year while adjusted EBIT margin increased to 25.0% from 24.3%. The increase in adjusted EBIT margin was mainly driven by improved utilization and a better mix of profitable revenue, partly offset by the timing of the winding down of remaining fixed costs following the expiration of certain infrastructure outsourcing contracts, combined with the costs associated to ramping up of new outsourcing contracts. 5.4.4. France Adjusted EBIT in the France segment was $42.5 million for Q4 2017, a decrease of $0.6 million while adjusted EBIT margin decreased to 11.5% from 12.6%. The decrease was mainly the result of one less billable day.


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5.4.5. U.K. Adjusted EBIT in the U.K. segment was $38.6 million for Q4 2017, an increase of $9.9 million year-over-year. Adjusted EBIT margin increased to 13.1% from 8.4%. The increase in adjusted EBIT margin was mainly the result of a provision taken on a client contract in Q4 2016 and of an improved cost structure. 5.4.6. ECS Adjusted EBIT in the ECS segment was $27.4 million for Q4 2017, a decrease of $2.9 million year-over-year, while the adjusted EBIT margin decreased to 9.3% from 10.5%. The change in margin was mainly due to lower work volume and projects completed in the Netherlands, which impacted our utilization. 5.4.7. Asia Pacific Adjusted EBIT in the Asia Pacific segment was $36.4 million for Q4 2017, an increase of $9.8 million year-over-year, while the margin increased to 24.4% from 18.7%. This change was mostly due to a reduction in performance based compensation accruals in Q4 2017 and, to a lesser extent, improved utilization and cost structure in Australia.


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FISCAL 2017 RESULTS

5.5. NET EARNINGS AND EARNINGS PER SHARE The following table sets out the information supporting the earnings per share calculations: Change For the three months ended September 30,

2017

2016

395,833

395,079

$

%

754

0.2% —%


Adjusted EBIT Minus the following items:

2,980

—

2,980

Restructuring costs

88,628

—

88,628

—%

Net finance costs

16,575

17,623

(1,048)

(5.9%)

287,650

377,456

(89,806)

(23.8%)

Income tax expense

79,188

103,021

(23,833)

(23.1%)

Effective tax rate

27.5%

27.3%

208,462

274,435

(65,973)

(24.0%)

8.0%

10.6%


292,708,617

303,203,548

(3.5%)


297,581,974

309,569,738

(3.9%)

Acquisition-related and integration costs


Net earnings Margin Weighted average number of shares

Earnings per share (in dollars) Basic EPS

0.71

0.91

(0.20)

(22.0%)

Diluted EPS

0.70

0.89

(0.19)

(21.3%)

For the current quarter, the decrease in earnings before income taxes was mainly due to the $88.6 million of restructuring costs incurred in Q4 2017. In Q4 2017, the income tax expense was $79.2 million, a decrease of $23.8 million compared to $103.0 million in Q4 2016, while our effective income tax rate increased from 27.3% to 27.5%. When excluding the tax effects from the acquisition-related and integration costs and restructuring costs incurred, the income tax rate would have been 27.3% in Q4 2017 as presented in the table in section 5.5.1. During the quarter, 8,965,568 Class A subordinate voting shares were purchased for cancellation while 216,383 stock options were exercised.


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39


5.5.1. Net Earnings and Earnings per Share Excluding Specific Items Below is a table showing the year-over-year comparison excluding specific items, namely acquisition-related and integration costs as well as restructuring costs : Change For the three months ended September 30,

2017

2016

287,650

377,456

$

%



(89,806)

(23.8%)

Add back: Acquisition-related and integration costs Restructuring costs Earnings before income taxes excluding specific items Income tax expense

2,980

—

2,980

88,628

—

88,628

—%

379,258

377,456

1,802

0.5%

79,188

103,021

(23,833)

(23.1%)

—%

Add back: 1,057

—

1,057

—%

23,292

—

23,292

—%

Income tax expense excluding specific items

103,537

103,021

516

0.5%

Effective tax rate excluding specific items

27.3%

27.3%

275,721

274,435

1,286

0.5%

10.6%

10.6%


292,708,617

303,203,548

(3.5%)


297,581,974

309,569,738

(3.9%)

Basic EPS

0.94

0.91

0.03

3.3%

Diluted EPS

0.93

0.89

0.04

4.5%

Tax deduction on acquisition-related and integration costs Tax deduction on restructuring

Net earnings excluding specific items Net earnings excluding specific items margin Weighted average number of shares outstanding

Earnings per share excluding specific items (in dollars)


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FISCAL 2017 RESULTS

5.6. CONSOLIDATED STATEMENTS OF CASH FLOWS As at September 30, 2017, cash and cash equivalents were $165.9 million. The following table provides a summary of the generation and use of cash and cash equivalents for the quarters ended September 30, 2017 and 2016. For the three months ended September 30,

2017

2016

Change

In thousands of CAD

Cash provided by operating activities

352,077

401,806

Cash used in investing activities

(98,121)

(101,300)

Cash used in financing activities

(373,896)

(1,473)

(372,423)

(17,125)

13,815

(30,940)

(137,065)

312,848

(449,913)

Effect of foreign exchange rate changes on cash and cash equivalents Net (decrease) increase in cash and cash equivalents

(49,729) 3,179

5.6.1. Cash Provided by Operating Activities For Q4 2017, cash provided by operating activities was $352.1 million compared to $401.8 million in Q4 2016, or 13.5% of revenue compared to 15.6% last year. The following table provides a summary of the generation and use of cash from operating activities. For the three months ended September 30,

2017

2016

Change

Net earnings

208,462

274,435

(65,973)

Amortization and depreciation

100,210

98,385

1,825

12,910

41,896

(28,986)

321,582

414,716

(93,134)

Accounts receivable, work in progress and deferred revenue

19,879

49,524

(29,645)

Accounts payable and accrued liabilities, accrued compensation, provisions and long-term liabilities

(9,282)

(118,621)

109,339

19,898

56,187

(36,289)

In thousands of CAD

Other adjustments 1 Cash flow from operating activities before net change in non-cash working capital items Net change in non-cash working capital items:

Other

2

Net change in non-cash working capital items Cash provided by operating activities 1 2

30,495

(12,910)

43,405

352,077

401,806

(49,729)

Other adjustments are comprised of deferred income taxes, foreign exchange gain and share-based payment costs. Comprised of prepaid expenses and other assets, long-term financial assets, retirement benefits obligations, derivative financial instruments and income taxes.

For the three months ended September 30, 2017, the $30.5 million of net change in non-cash working capital items was mostly due to the net decrease in prepaid expenses and other assets mostly due to the timing of payments for maintenance services. The timing of our working capital inflows and outflows will always have an impact on the cash flow from operations.


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41


5.6.2. Cash Used in Investing Activities For Q4 2017, $98.1 million was used in investing activities while $101.3 million was used in the prior year. The following table provides a summary of the generation and use of cash from investing activities: For the three months ended September 30,

2017

2016

Change

In thousands of CAD

Business acquisitions

(32,799)

Proceeds from sale of property, plant & equipment

—

— 980

(32,799) (980)

Purchase of property, plant and equipment

(29,219)

(41,578)

12,359

Additions to contract costs

(22,509)

(29,327)

6,818

Additions to intangible assets

(22,969)

(28,802)

5,833

9,375

(2,573)

11,948

(101,300)

3,179

Net proceeds (purchase) of long-term investments Cash used in investing activities

(98,121)

The decrease of $3.2 million in cash used in investing activities during Q4 2017 was mainly due to less investments in the purchase of property, plant and equipment, more specifically in server data storage, networking and computer equipment in our global delivery centers, as well as the net proceeds in long-term investments. In addition, there were less investments in contract costs and intangible assets, all of which was partly offset by business acquisitions in the U.S in Q4 2017. 5.6.3. Cash Used in Financing Activities For the three months ended September 30,

2017

2016

Change

—

200,000

In thousands of CAD

Net change in unsecured committed revolving credit facility

200,000

Net change in long-term debt

(14,171)

(16,718)

2,547

185,829

(16,718)

202,547

(222)

Repayment of debt assumed in business acquisition Purchase and cancellation of Class A subordinate voting shares

(563,574) 4,071

Issuance of Class A subordinate voting shares Cash used in financing activities

(373,896)

—

(222)

—

(563,574)

15,245

(11,174)

(1,473)

(372,423)

During Q4 2017, we drew $200.0 million on the Company's unsecured committed revolving credit facility to purchase shares for cancellation under our NCIB. In addition, an amount of $14.2 million was used to reduce our outstanding long-term debt while, for the same period last year, $16.7 million was used. During Q4 2017, we used $563.6 million to purchase Class A subordinate voting shares for cancellation under the NCIB. For the same period last year, we did not purchase Class A subordinate voting shares for cancellation under the NCIB. In Q4 2017, we received $4.1 million in proceeds from the exercise of stock options, compared to $15.2 million during the same period last year.


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6.

6. Eight EightQuarter QuarterSummary Summary(Unaudited) (Unaudited) As at and for the three months ended,

Sep. 30, 2017

Jun. 30, 2017

Mar. 31, 2017

Dec. 31, 2016

Sep. 30, 2016

Jun. 30, 2016

Mar. 31, 2016

Dec. 31, 2015

In millions of CAD unless otherwise noted Growth Revenue

2,836.8

2,724.4

2,675.7

2,582.4

2,667.1

2,750.0

2,683.7

Year-over-year revenue growth

1.0%

6.4%

(0.9%)

(0.3%)

(0.1%)

4.2%

5.7%

5.6%

Constant currency year-over-year revenue growth

2.5%

5.2%

5.6%

3.7%

2.8%

0.6%

(1.0%)

(1.8%)

Backlog

20,813

20,800

20,968

20,975

20,893

20,614

20,705

21,505

Bookings

2,913

2,675

2,735

2,962

2,858

2,940

2,734

3,199

Book-to-bill ratio

111.7%

94.3%

100.4%

110.7%

110.7%

110.2%

99.4%

119.2%

Book-to-bill ratio trailing twelve months

104.1%

103.8%

107.9%

107.7%

109.8%

109.8%

104.1%

101.0%

2,608.1

Profitability Adjusted EBIT

395.8

399.1

395.1

396.7

395.1

390.5

390.6

384.1

15.2%

14.1%

14.5%

14.8%

15.3%

14.6%

14.2%

14.3%

208.5

276.6

274.4

275.7

274.4

273.8

282.7

237.7

Net earnings margin

8.0%

9.8%

10.1%

10.3%

10.6%

10.3%

10.3%

8.9%

Diluted EPS (in dollars)

0.70

0.92

0.90

0.89

0.89

0.89

0.90

0.75

275.7

278.5

275.2

277.6

274.4

273.8

268.3

264.9

10.6%

9.8%

10.1%

10.4%

10.6%

10.3%

9.8%

9.9%

0.93

0.93

0.91

0.90

0.89

0.89

0.86

0.84

Adjusted EBIT margin Net earnings

Net earnings excluding specific items Net earnings margin excluding specific items Diluted EPS excluding specific items (in dollars) Liquidity Cash provided by operating activities As a % of revenue Days sales outstanding

352.1

290.6

366.2

349.7

401.8

351.7

251.4

328.2

13.5%

10.2%

13.4%

13.1%

15.6%

13.2%

9.1%

12.2%

47

45

42

44

44

45

41

44

1,749.4

1,449.8

1,493.7

1,491.7

1,333.3

1,648.7

1,926.7

1,573.7

Capital structure Net debt Net debt to capitalization ratio

21.5%

17.2%

18.2%

18.2%

15.8%

20.5%

23.8%

18.3%

Return on equity

16.1%

17.2%

17.5%

17.7%

17.2%

16.9%

16.9%

16.9%


13.7%

14.6%

14.7%

14.6%

14.2%

13.8%

13.8%

13.8%

Balance sheet Cash and cash equivalents, and short-term investments

165.9

302.9

282.0

313.9

596.5

283.7

168.9

552.4

Total assets

11,396.2

11,832.6

11,526.0

11,535.9

11,693.3

11,434.0

11,417.9

12,130.3

Long-term financial liabilities

1,821.9

1,725.3

1,747.0

1,760.9

1,765.4

1,764.5

1,928.5

1,822.1

There are factors causing quarterly variances which may not be reflective of the Company’s future performance. First, there is seasonality in system integration and consulting work, and the quarterly performance of these operations is impacted by occurrences such as vacations and the number of statutory holidays in any given quarter. Outsourcing contracts including business process services contracts are affected to a lesser extent by seasonality. Second, the workflow from some clients may fluctuate from quarter to quarter based on their business cycle and the seasonality of their own operations. Third, the savings that we generate for a client on a given outsourcing contract may temporarily reduce our revenue stream from this client, as these savings may not be immediately offset by additional work performed for this client. In general, cash flow from operating activities could vary significantly from quarter to quarter depending on the timing of monthly payments received from large clients, cash requirements associated with large acquisitions, outsourcing contracts and projects, the timing of the reimbursements for various tax credits as well as profit sharing payments to members and the timing of restructuring cost payments.


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Foreign exchange fluctuations can also contribute to quarterly variances as our percentage of operations in foreign countries evolves. The effect from these variances is primarily on our revenue and to a much lesser extent, on our margin as we benefit, as much as possible, from natural hedges.


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7. Changes in Accounting Policies 7. Changes in Accounting Policies The audited consolidated financial statements for the year ended September 30, 2017 include all adjustments that CGI’s management considers necessary for the fair presentation of its financial position, results of operations, and cash flows. FUTURE ACCOUNTING STANDARD CHANGES The following standards have been issued but are not yet effective. The Company’s preliminary assessments are subject to changes, as the Company is progressing in the assessment of the impact of these standards on its consolidated financial statements. IAS 7 - Statement of Cash Flows In January 2016, the IASB amended IAS 7, Statement of Cash Flows, to require enhanced disclosure about changes in liabilities arising from financing activities, including changes from financing cash flows, changes arising from obtaining or losing control of subsidiaries or other businesses, the effect of changes in foreign exchange rates and changes in fair value. The amendments to IAS 7 are effective on October 1, 2017 for the Company and the additional disclosures will be provided in the Company's 2018 annual audited consolidated financial statements. IFRS 15 - Revenue from Contracts with Customers In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers, to specify how and when to recognize revenue as well as requiring the provision of more informative and relevant disclosures. The standard supersedes IAS 18, Revenue, IAS 11, Construction Contracts, and other revenue related interpretations. The standard will be effective on October 1, 2018 for the Company. Accordingly, IFRS 15 will be applied in the Company's interim consolidated financial statements for the three months ended December 31, 2018. The standard permits two possible transition methods for its application: i) retrospectively to each prior reporting period presented, or ii) retrospectively with the cumulative effect of initially applying the standard recognized on the date of the initial application. The Company has not yet selected a transition method. In preparation for the conversion to IFRS 15, the Company has developed a detailed conversion plan consisting of four phases: 1) awareness, 2) detailed impact assessment, 3) design and 4) implementation. As part of the awareness phase, the Company has established a Steering Committee responsible for monitoring the progress and approving recommendations from the project team. The Steering Committee meets regularly and quarterly updates are provided to the Audit and Risk Management Committee. The Company has completed the awareness phase which also involved a high-level review of the differences between current requirements and IFRS 15. The Company is progressing through the second phase of the conversion plan which encompasses a detailed impact assessment of the differences identified. Generally, the Company expects that revenue from outsourcing, business process services and system integration and consulting services arrangements will continue to be recognized as the services are provided in a manner that is consistent with its current accounting policies. The Company is in the process of evaluating the impact of the standard on its revenue recognition from software licenses and the additional disclosure requirements. The remaining two phases, design and implementation are being conducted concurrently up until the effective date. The impacts on the other key elements such as IT changes, education and training requirements, internal control over financial reporting and impacts on business activities of the Company’s conversion plan will be assessed during those phases. IFRS 9 - Financial Instruments In July 2014, the IASB amended IFRS 9, Financial Instruments, to replace IAS 39, Financial Instruments: Recognition and Measurement.


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45


The standard will be effective on October 1, 2018 for the Company and is required to be applied retrospectively. Accordingly, IFRS 9 will be applied in the interim consolidated financial statements for the three months ended December 31, 2018. The standard simplifies the classification of financial assets, while carrying forward most of the requirements of IAS 39. The standard introduces a new impairment model, which allows the use of a simplified approach, and a new hedge accounting model that is more closely aligned with risk-management activities. The Company has performed a high-level review of the differences between IAS 39 and IFRS 9. Based on the preliminary assessment performed to date, the Company does not expect a significant impact on its audited consolidated financial statements. IFRIC Interpretation 22 - Foreign Currency Transactions and Advance Consideration In December 2016, the IASB issued International Financial Reporting Interpretations Committee (IFRIC) Interpretation 22, Foreign Currency Transactions and Advance Consideration, to clarify the transaction date for the purpose of determining the exchange rate to use on initial recognition of the related transactions when the Company has received or paid in advance consideration in a foreign currency. This interpretation will be effective on October 1, 2018 for the Company, with earlier application permitted. Based on the preliminary assessment performed to date, the Company does not expect a significant impact on its audited consolidated financial statements. IFRS 16 - Leases In January 2016, the IASB issued IFRS 16, Leases, to set out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a lease agreement. The standard supersedes IAS 17, Leases, and other lease related Interpretations, eliminates the classification of leases as either operating leases or finance leases and introduces a single lessee accounting model. The standard will be effective on October 1, 2019 for the Company with earlier application permitted. When the Company is the lessee, it is expected that the application of IFRS 16 will result in on-balance sheet recognition of most of its lease agreements that are currently considered operating leases, which are primarily for the rental of premises. The Company also expects a decrease of its property costs and an increase of its finance costs and amortization and depreciation resulting from the change in the recognition, measurement and presentation of rental expense.


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8.

8. Critical Accounting Estimates Critical Accounting Estimates

The Company’s significant accounting policies are described in note 3 of the audited consolidated financial statements for the year ended September 30, 2017. Certain of these accounting policies, listed below, require management to make accounting estimates and judgement that affect the reported amounts of assets, liabilities and equity and the accompanying disclosures at the date of the audited consolidated financial statements as well as the reported amounts of revenue and expenses during the reporting period. These accounting estimates are considered critical because they require management to make subjective and/or complex judgements that are inherently uncertain and because they could have a material impact on the presentation of our financial condition, changes in financial condition or results of operations. Areas impacted by estimates

1

Consolidated balance sheets

Consolidated statements of earnings Revenue

Cost of services, selling and administrative

✓

✓

Revenue recognition 1

✓

Estimated losses on revenue-generating contracts

✓

✓

Goodwill impairment

✓

✓

Business combinations

✓

Income taxes

✓

Litigation and claims

✓

✓

✓

Income taxes

✓ ✓

✓

✓

Affects the balance sheet through accounts receivable, work in progress and deferred revenue.

Revenue recognition Relative selling price If an arrangement involves the provision of multiple components, the total arrangement value is allocated to each separately identifiable component based on its relative selling price at the inception of the contract. At least on a yearly basis, the Company reviews its best estimate of the selling price which is established by using a reasonable range of prices for the various services and products offered by the Company based on local market information available. Information used in determining the range is mainly based on recent contracts signed and the economic environment. A change in the range could have a material impact on the allocation of total arrangement value, and therefore on the amount and timing of revenue recognition. System integration and consulting services under fixed-fee arrangements Revenue from system integration and consulting services under fixed-fee arrangements where the outcome of the arrangements can be estimated reliably is recognized using the percentage-of-completion method over the service periods. The Company primarily uses labour hours or labour costs to measure the progress towards completion. Project managers monitor and re-evaluate project forecasts on a monthly basis. Forecasts are reviewed to consider factors such as: changes to the scope of the contracts, delays in reaching milestones and new complexities in the project delivery. Forecasts can also be affected by market risks such as the availability and retention of qualified IT professionals and/or the ability of the subcontractors to perform their obligation within agreed upon budget and timeframes. To the extent that actual labour hours or labour costs could vary from estimates, adjustments to revenue following the review of the costs to complete on projects are reflected in the period in which the facts that give rise to the revision occur. Whenever the total costs are forecasted to be higher than the total revenue, estimated losses on revenue-generating contracts is accounted for as described below.


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Estimated losses on revenue-generating contracts Estimated losses on revenue-generating contracts may occur due to additional contract costs which were not foreseen at inception of the contract. Projects and services are monitored by the project managers on a monthly basis. Some of the indicators reviewed are: current financial results, delays in reaching milestones, new complexities in the project delivery and third party deliverables and estimated costs. In addition, CGI’s Engagement Assessment Services (EAS) team conducts a formal monthly health check assessment on CGI’s project portfolio for all contracts that have a value above an established threshold. The reviews are based on a defined set of risk dimensions and assessment categories that results in detailed reports containing actual delivery and current financial status which are reviewed with the executive management. Due to the variability of the indicators reviewed, and because the estimates are based on many variables, estimated losses on revenue-generating contracts are subject to change. Goodwill impairment The carrying value of goodwill is tested for impairment annually on September 30, or earlier if events or changes in circumstances indicate that the carrying value may be impaired. In order to determine if a goodwill impairment test is required, management reviews different factors on a quarterly basis such as changes in technological or market environment, changes in assumptions used to derive the weighted average cost of capital (WACC) and actual financial performance compared to planned performance. The recoverable amount of each segment has been determined based on its value in use (VIU) calculation which includes estimates about their future financial performance based on cash flows approved by management. However, factors such as our ability to continue developing and expanding service offered to address emerging business demands and technology trends, a lengthened sales cycle and our ability to hire and retain qualified IT professionals affect future cash flows, and actual results might differ from future cash flows used in the goodwill impairment test. Key assumptions used in goodwill impairment testing are presented in note 11 of the audited consolidated financial statements for the fiscal year ended September 30, 2017. Historically the Company has not recorded an impairment charge on goodwill. As at September 30, 2017, the fair value of each segment represents between 185% and 345% of its carrying value. Business combinations Management makes assumptions when determining the acquisition-date fair values of the identifiable tangible and intangible assets acquired and liabilities assumed which involve estimates, such as the forecasting of future cash flows, discount rates, and the useful lives of the assets acquired. Additionally, judgement is required in determining whether an intangible asset is identifiable, and should be recorded separately from goodwill. Changes in the above assumptions, estimates and judgements could affect our acquisition-date fair values and therefore could have material impacts on our audited consolidated financial statements. These changes are recorded as part of the purchase price allocation and therefore result in corresponding goodwill adjustments if they occurred during the measurement period, not exceeding one year. All other subsequent changes are recorded in our audited consolidated statement of earnings. Income taxes Deferred tax assets are recognized for unused tax losses and deductible temporary differences to the extent that it is probable that taxable profit will be available for their utilization. The Company considers the analysis of forecast and future tax planning strategies. Estimates of taxable profit are made based on the forecast by jurisdiction which are aligned with goodwill impairment testing assumptions, on an undiscounted basis. In addition, management considers factors such as substantively enacted tax rates, the history of the taxable profits and availability of tax strategies. Due to the uncertainty and the variability of the factors mentioned above, deferred tax assets are subject to change. Management reviews its assumptions on a quarterly basis and adjusts the deferred tax assets when appropriate. The Company is subject to taxation in numerous jurisdictions and there are transactions and calculations for which the ultimate tax determination is uncertain which occurs when there is uncertainty as to the meaning of the law, or to the applicability of


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the law to a particular transaction or both. In those circumstances, the Company might review administrative practice, consult tax authorities or advisors on the interpretation of tax legislation. When a tax position is uncertain, the Company recognizes an income tax benefit or reduces an income tax liability only when it is probable that the tax benefit will be realized in the future or that the income tax liability is no longer probable. The provision for uncertain tax position is made using the best estimate of the amount expected to be paid based on qualitative assessments of all relevant factors and is subject to change. The review of assumptions is done on a quarterly basis. Litigation and claims Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The accrued litigation and legal claim provisions are based on historical experience, current trends and other assumptions that are believed to be reasonable under the circumstances. Estimates include the period in which the underlying cause of the claim occurred and the degree of probability of an unfavourable outcome. Management reviews assumptions and facts surrounding outstanding litigation and claims on a quarterly basis, involves external counsel when necessary and adjusts the provision accordingly. The Company has to be compliant with applicable law in many jurisdictions which increases the complexity of determining the adequate provision following litigation review. Since the outcome of such litigation and claims is not predictable with assurance, those provisions are subject to change. Adjustments to litigation and claims provisions are reflected in the period when the facts that give rise to an adjustment occur.


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9.

9. Integrity of Disclosure Integrity of Disclosure

Our management assumes the responsibility for the existence of appropriate information systems, procedures and controls to ensure that information used internally and disclosed externally is complete and reliable. CGI has a formal corporate disclosure policy whose goal is to raise awareness of the Company’s approach to disclosure among the members of the Board of Directors, senior management and employees. The Board of Directors has the responsibility under its charter and under the securities laws that govern CGI’s continuous disclosure obligations to oversee CGI's compliance with its continuous and timely disclosure obligations, as well as the integrity of the Company's internal controls and management information systems. The Board of Directors carries out this responsibility mainly through its Audit and Risk Management Committee. The Audit and Risk Management Committee of CGI is composed entirely of independent directors who meet the independence and experience requirements of National Instrument 52-110 adopted by the Canadian Securities Administrators as well as those of the New York Stock Exchange ("NYSE") and the U.S. Securities and Exchange Commission. The role and responsibilities of the Committee include: (a) reviewing all public disclosure documents containing audited or unaudited financial information concerning CGI; (b) identifying and examining the financial and operating risks to which the Company is exposed, reviewing the various policies and practices of the Company that are intended to manage those risks, and reporting on a regular basis to the Board of Directors concerning risk management; (c) reviewing and assessing the effectiveness of CGI’s accounting policies and practices concerning financial reporting; (d) reviewing and monitoring CGI’s internal control procedures, programs and policies and assessing their adequacy and effectiveness; (e) reviewing the adequacy of CGI’s internal audit resources including the mandate and objectives of the internal auditor; (f) recommending to the Board of Directors the appointment of the external auditor, asserting the external auditor’s independence, reviewing the terms of their engagement, conducting an annual auditor's performance assessment, and pursuing ongoing discussions with them; (g) reviewing all related party transactions in accordance with the rules of the NYSE and other applicable laws and regulations; (h) reviewing the audit procedures including the proposed scope of the external auditor's examinations; and (i) performing such other functions as are usually attributed to audit committees or as directed by the Board of Directors. In making its recommendation to the Board of Directors in relation to the annual appointment of the external auditor, the Audit and Risk Management Committee conducts an annual assessment of the external auditor's performance following the recommendations of the Chartered Professional Accountants of Canada. The formal assessment is concluded in advance of the Annual General Meeting of Shareholders and is conducted with the assistance of key CGI personnel. The Company evaluated the effectiveness of its disclosure controls and procedures and internal controls over financial reporting based on the framework established in Internal Control - Integrated Framework issued by the Commitee of Sponsoring Organizations of the Treadway Commission (2013 COSO Framework), supervised by and with the participation of the Chief Executive Officer and the Chief Financial Officer as of September 30, 2017. The Chief Executive Officer and Chief Financial Officer concluded that, based on this evaluation, the Company’s disclosure controls and procedures and internal controls over financial reporting were adequate and effective, at a reasonable level of assurance, to ensure that material information related to the Company and its consolidated subsidiaries would be made known to them by others within those entities.


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10. Risk Environment 10. Risk Environment

10.1. RISKS AND UNCERTAINTIES While we are confident about our long-term prospects, the following risks and uncertainties could affect our ability to achieve our strategic vision and objectives for growth and should be considered when evaluating our potential as an investment. 10.1.1. Risks Related to the Market Economic risk The level of business activity of our clients, which is affected by economic conditions, has a bearing upon the results of our operations. We can neither predict the impact that current economic conditions will have on our future revenue, nor predict when economic conditions will show meaningful improvement. During an economic downturn, our clients and potential clients may cancel, reduce or defer existing contracts and delay entering into new engagements. Clients may decide to undertake fewer IT systems projects during difficult economic times, resulting in limited implementation of new technology and smaller engagements. Since there may be fewer engagements in a downturn, competition may increase and pricing for services may decline as competitors may decrease rates to maintain or increase their market share in our industry and this may trigger pricing adjustments related to the benchmarking obligations within our contracts. Our revenue and profitability could be negatively impacted as a result of these factors. 10.1.2. Risks Related to our Industry The competition for contracts CGI operates in a global marketplace in which competition among providers of IT services is vigorous. Some of our competitors possess greater financial, marketing and sales resources, and larger geographic scope in certain parts of the world than we do, which, in turn, provides them with additional leverage in the competition for contracts. In certain niche, regional or metropolitan markets, we face smaller competitors with specialized capabilities who may be able to provide competing services with greater economic efficiency. Some of our competitors have more significant operations than we do in lower cost countries that can serve as a platform from which to provide services worldwide on terms that may be more favourable. Increased competition among IT services firms often results in corresponding pressure on prices. There can be no assurance that we will succeed in providing competitively priced services at levels of service and quality that will enable us to maintain and grow our market share. We derive significant revenue from contracts awarded through competitive bidding processes, which limit the Company's ability to negotiate certain contractual terms and conditions. Risks related to competitive bidding processes also involve substantial cost and managerial time and effort spent by the Company to prepare bids and proposals for contracts that may or may not be awarded to the Company, as well as expenses and delays that may arise if the Company's competitors protest or challenge awards made to the Company pursuant to competitive bidding processes. The availability and retention of qualified IT professionals There is strong demand for qualified individuals in the IT industry. Hiring and retaining a sufficient amount of individuals with the desired knowledge and skill set may be difficult. Therefore, it is important that we remain able to successfully attract and retain highly qualified professionals and establish an effective succession plan. If our comprehensive programs aimed at attracting and retaining qualified and dedicated professionals do not ensure that we have staff in sufficient numbers and with the appropriate training, expertise and suitable government security clearances required to serve the needs of our clients, we may have to rely on subcontractors or transfers of staff to fill resulting gaps. If our succession plan fails to identify those with potential or to develop these key individuals, we may be unable to replace key members who retire or leave the company and may be required to recruit and/or train new employees. This might result in lost revenue or increased costs, thereby putting pressure on our net earnings.


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The ability to continue developing and expanding service offerings to address emerging business demands and technology trends The rapid pace of change in all aspects of IT and the continually declining costs of acquiring and maintaining IT infrastructure mean that we must anticipate changes in our clients’ needs. To do so, we must adapt our services and our solutions so that we maintain and improve our competitive advantage and remain able to provide cost effective services and solutions. The markets in which we operate are extremely competitive and there can be no assurance that we will succeed in developing and adapting our business in a timely manner. If we do not keep pace, our ability to retain existing clients and gain new business may be adversely affected. This may result in pressure on our revenue, net earnings and resulting cash flow from operations. Infringing on the intellectual property rights of others Despite our efforts, the steps we take to ensure that our services and offerings do not infringe on the intellectual property rights of third parties may not be adequate to prevent infringement and, as a result, claims may be asserted against us or our clients. We enter into licensing agreements for the right to use intellectual property and may otherwise offer indemnities against liability and damages arising from third-party claims of patent, copyright, trademark or trade secret infringement in respect of our own intellectual property or software or other solutions developed for our clients. In some instances, the amount of these indemnity claims could be greater than the revenue we receive from the client (see guarantees risk). Intellectual property claims or litigation could be time-consuming and costly, harm our reputation, require us to enter into additional royalty or licensing arrangements, or prevent us from providing some solutions or services. Any limitation on our ability to sell or use solutions or services that incorporate software or technologies that are the subject of a claim could cause us to lose revenuegenerating opportunities or require us to incur additional expenses to modify solutions for future projects. Protecting our intellectual property rights Our success depends, in part, on our ability to protect our proprietary methodologies, processes, know-how, tools, techniques and other intellectual property that we use to provide our services. Although CGI takes reasonable steps (e.g. available copyright protection and, in some cases, patent protection) to protect and enforce its intellectual property rights, there is no assurance that such measures will be enforceable or adequate. The cost of enforcing our rights can be substantial and, in certain cases, may prove to be uneconomic. In addition, the laws of some countries in which we conduct business may offer only limited intellectual property rights protection. Despite our efforts, the steps taken to protect our intellectual property may not be adequate to prevent or deter infringement or other misappropriation of intellectual property, and we may not be able to detect unauthorized use of our intellectual property, or take appropriate steps to enforce our intellectual property rights. Benchmarking provisions within certain contracts Some of our outsourcing contracts contain clauses allowing our clients to externally benchmark the pricing of agreed upon services against those offered by other providers in a peer comparison group. The uniqueness of the client environment should be factored in and, if results indicate a difference outside the agreed upon tolerance, we may be required to work with clients to reset the pricing for their services. There can be no assurance that benchmarks will produce accurate or reliable data, including pricing data. This may result in pressure on our revenue, net earnings and resulting cash flow from operations.


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10.1.3. Risks Related to our Business Risks associated with our growth strategy CGI’s Build and Buy strategy is founded on four pillars of growth: first, organic growth through contract wins, renewals and extensions in the areas of outsourcing and system integration; second, the pursuit of new large outsourcing contracts; third, acquisitions of smaller firms or niche players; and fourth, transformational acquisitions. Our ability to achieve organic growth is affected by a number of factors outside of our control, including a lengthening of our sales cycle for major outsourcing contracts. Our ability to grow through niche and transformational acquisitions requires that we identify suitable acquisition targets and that we correctly evaluate their potential as transactions that will meet our financial and operational objectives. There can be no assurance that we will be able to identify suitable acquisition candidates and consummate additional acquisitions that meet our economic thresholds, or that future acquisitions will be successfully integrated into our operations and yield the tangible accretive value that had been expected. If we are unable to implement our Build and Buy strategy, we will likely be unable to maintain our historic or expected growth rates. The variability of financial results Our ability to maintain and increase our revenue is affected not only by our success in implementing our Build and Buy strategy, but also by a number of other factors, which could cause the Company's financial results to fluctuate. These factors include: (i) our ability to introduce and deliver new services and business solutions; (ii) our potential exposure to a lengthened sales cycle; (iii) the cyclicality of the purchases of our technology services and products; (iv) the nature of our client’s business (for example, if a client encounters financial difficulty, it may be forced to cancel, reduce or defer existing contracts with us); and (v) the structure of our agreements with clients (for example, some of CGI's agreements with clients contain clauses allowing the clients to benchmark the pricing of services provided by CGI against the prices offered by other providers). These, and other factors, make it difficult to predict financial results for any given period. Business mix variations The proportion of revenue that we generate from shorter-term system integration and consulting projects (SI&C), versus revenue from long-term outsourcing contracts, will fluctuate at times, affected by acquisitions or other transactions. An increased exposure to revenue from SI&C projects may result in greater quarterly revenue variations, as the revenue from SI&C projects does not provide long-term consistency in revenue. The financial and operational risks inherent in worldwide operations We manage operations in numerous countries around the world including offshore delivery centers. The scope of our operations (including our offshore delivery centers) subjects us to issues that can negatively impact our operations, including: currency fluctuations (see foreign exchange risk); the burden of complying with a wide variety of national and local laws (see regulatory risk); the differences in and uncertainties arising from local business culture and practices; political, social and economic instability including the threats of terrorism, civil unrest, war, natural disasters and pandemic illnesses. Any or all of these risks could impact our global business operations and cause our profitability to decline. Organizational challenges associated with our size Our culture, standards, core values, internal controls and our policies need to be instilled across newly acquired businesses as well as maintained within our existing operations. To effectively communicate and manage these standards throughout a large global organization is both challenging and time consuming. Newly acquired businesses may be resistant to change and may remain attached to past methods, standards and practices which may compromise our business agility in pursuing opportunities. Cultural differences in various countries may also present barriers to introducing new ideas or aligning our vision and strategy with the rest of the organization. If we cannot overcome these obstacles in maintaining a strategic bond throughout the Company worldwide, we may not be able to achieve our growth and profitability objectives.


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Taxes and tax credit programs In estimating our income tax payable, management uses accounting principles to determine income tax positions that are likely to be sustained by applicable tax authorities. However, there is no assurance that our tax benefits or tax liability will not materially differ from our estimates or expectations. The tax legislation, regulation and interpretation that apply to our operations are continually changing. In addition, future tax benefits and liabilities are dependent on factors that are inherently uncertain and subject to change, including future earnings, future tax rates, and anticipated business mix in the various jurisdictions in which we operate. Moreover, our tax returns are continually subject to review by applicable tax authorities. These tax authorities determine the actual amounts of taxes payable or receivable, of any future tax benefits or liabilities and of income tax expense that we may ultimately recognize. Such determinations may become final and binding on the Company. Any of the above factors could have a material adverse effect on our net income or cash flow by affecting our operations and profitability, the availability of tax credits, the cost of the services we provide, and the availability of deductions for operating losses as we develop our international service delivery capabilities. Benefits obtained from government sponsored programs We benefit from government sponsored programs designed to support research and development, labour and economic growth in jurisdictions where we operate. Government programs reflect government policy and depend on various political and economic factors. There can be no assurance that such government programs will continue to be available to the Company in the future, or will not be reduced, amended or eliminated. Any future government program reductions or eliminations or other amendments to the tax credit programs could increase operating or capital expenditures incurred by the Company and have a material adverse effect on its net earnings or cash flow. Credit risk with respect to accounts receivable and work in progress In order to sustain our net earnings and cash flow from operations, we must invoice and collect the amounts owed to us in an efficient and timely manner. Although we maintain provisions to account for anticipated shortfalls in amounts collected from clients, the provisions we take are based on management estimates and on our assessment of our clients’ creditworthiness which may prove to be inadequate in the light of actual results. To the extent that we fail to perform our services in accordance with our contracts and our clients’ reasonable expectations, and to the extent that we fail to invoice clients and to collect the amounts owed to the Company for our services correctly in a timely manner, our collections could suffer, which could materially adversely affect our revenue, net earnings and cash flow. In addition, a prolonged economic downturn may cause clients to curtail or defer projects, impair their ability to pay for services already provided, and ultimately cause them to default on existing contracts, in each case, causing a shortfall in revenue and impairing our future prospects. Material developments regarding major commercial clients resulting from such causes as changes in financial condition, mergers or business acquisitions Consolidation among our clients resulting from mergers and acquisitions may result in loss or reduction of business when the successor business’ IT needs are served by another service provider or are provided by the successor company’s own personnel. Growth in a client’s IT needs resulting from acquisitions or operations may mean that we no longer have a sufficient geographic scope or the critical mass to serve the client’s needs efficiently, resulting in the loss of the client’s business and impairing our future prospects. There can be no assurance that we will be able to achieve the objectives of our growth strategy in order to maintain and increase our geographic scope and critical mass in our targeted markets. Early termination risk If we should fail to deliver our services according to contractual agreements, some of our clients could elect to terminate contracts before their agreed expiry date, which would result in a reduction of our earnings and cash flow and may impact the value of our backlog or orders. In addition, a number of our outsourcing contractual agreements have termination for convenience and change of control clauses according to which a change in the client’s intentions or a change in control of CGI could lead to a termination of these agreements. Early contract termination can also result from the exercise of a legal right or when circumstances that are beyond our control or beyond the control of our client prevent the contract from continuing. In cases of early termination, we may not be able to recover capitalized contract costs and we may not be able to eliminate ongoing costs incurred to support the contract.


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Cost estimation risks In order to generate acceptable margins, our pricing for services is dependent on our ability to accurately estimate the costs and timing for completing projects or long-term outsourcing contracts, which can be based on a client's bid specification, sometimes in advance of the final determination of the full scope and design of the contract. In addition, a significant portion of our project-oriented contracts are performed on a fixed-price basis. Billing for fixed-price engagements is carried out in accordance with the contract terms agreed upon with our client, and revenue is recognized based on the percentage of effort incurred to date in relation to the total estimated efforts to be incurred over the duration of the respective contract. These estimates reflect our best judgement regarding the efficiencies of our methodologies and professionals as we plan to apply them to the contracts in accordance with the CGI Client Partnership Management Framework (CPMF), a framework that contains high standards of contract management to be applied throughout the Company. If we fail to apply the CPMF correctly or if we are unsuccessful in accurately estimating the time or resources required to fulfill our obligations under a contract, or if unexpected factors, including those outside of our control, arise, there may be an impact on costs or the delivery schedule which could have a material adverse effect on our expected net earnings. Risks related to teaming agreements and subcontracts We derive revenue from contracts where we enter into teaming agreements with other providers. In some teaming agreements we are the prime contractor whereas in others we act as a subcontractor. In both cases, we rely on our relationships with other providers to generate business and we expect to do so in the foreseeable future. Where we act as prime contractor, if we fail to maintain our relationships with other providers, we may have difficulty attracting suitable participants in our teaming agreements. Similarly, where we act as subcontractor, if our relationships are impaired, other providers might reduce the work they award to us, award that work to our competitors, or choose to offer the services directly to the client in order to compete with our business. In either case, if we fail to maintain our relationship with these providers or if our relationship with these providers is otherwise impaired, our business, prospects, financial condition and operating results could be materially adversely affected. Our partners’ ability to deliver on their commitments Increasingly large and complex contracts may require that we rely on third party subcontractors including software and hardware vendors to help us fulfill our commitments. Under such circumstances, our success depends on the ability of the third parties to perform their obligations within agreed upon budgets and timeframes. If our partners fail to deliver, our ability to complete the contract may be adversely affected, which could have an unfavourable impact on our profitability. Guarantees risk In the normal course of business, we enter into agreements that may provide for indemnification and guarantees to counterparties in transactions such as consulting and outsourcing services, business divestitures, lease agreements and financial obligations. These indemnification undertakings and guarantees may require us to compensate counterparties for costs and losses incurred as a result of various events, including breaches of representations and warranties, intellectual property right infringement, claims that may arise while providing services or as a result of litigation that may be suffered by counterparties. Risk related to human resources utilization rates In order to maintain our net earnings, it is important that we maintain the appropriate availability of professional resources in each of our geographies by having a high utilization rate while still being able to assign additional resources to new work. Maintaining an efficient utilization rate requires us to forecast our need for professional resources accurately and to manage recruitment activities, professional training programs, attrition rates and restructuring programs appropriately. To the extent that we fail to do so, or to the extent that laws and regulations, restrict our ability to do so, our utilization rates may be reduced; thereby having an impact on our revenue and profitability. Conversely, we may find that we do not have sufficient resources to deploy against new business opportunities in which case our ability to grow our revenue would suffer. Client concentration risk We derive a significant portion of our revenue from the services we provide to various U.S. federal government departments and agencies. We expect that this will continue for the foreseeable future. There can be, however, no assurance that each CGI Group Inc. - Management's Discussion and Analysis for the year ended September 30, 2017

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such U.S. federal government and agency will continue to utilize our services to the same extent, or at all in the future. In the event that a major U.S. federal government department or agency were to limit, reduce, or eliminate the business it awards to us, we might be unable to recover the lost revenue with work from other U.S. federal government departments or agencies or other clients, and our business, prospects, financial condition and operating results could be materially and adversely affected. Although IFRS considers a national government and its agencies as a single client, our client base in the U.S. government economic sector is in fact diversified with contracts from many different departments and agencies. Government business risk Changes in government spending policies or budget priorities could directly affect our financial performance. Among the factors that could harm our government contracting business are: the curtailment of governments’ use of consulting and IT services firms; a significant decline in spending by governments in general, or by specific departments or agencies in particular; the adoption of new legislation and/or actions affecting companies that provide services to governments; delays in the payment of our invoices by government; and general economic and political conditions. These or other factors could cause government agencies and departments to reduce their purchases under contracts, to exercise their right to terminate contracts, to issue temporary stop work orders, or not to exercise options to renew contracts, any of which would cause us to lose future revenue. Government spending reductions or budget cutbacks at these departments or agencies could materially harm our continued performance under these contracts, or limit the awarding of additional contracts from these agencies. Regulatory risk Our global operations require us to be compliant with laws in many jurisdictions on matters such as: anti-corruption, trade restrictions, immigration, taxation, securities regulation, antitrust, data privacy and labour relations, amongst others. Complying with these diverse requirements worldwide is a challenge and consumes significant resources. Some of these laws may impose conflicting requirements; we may face the absence in some jurisdictions of effective laws to protect our intellectual property rights; there may be restrictions on the movement of cash and other assets; or restrictions on the import and export of certain technologies; or restrictions on the repatriation of earnings and reduce our earnings, all of which may expose us to penalties for non-compliance and harm our reputation. Our business with the U.S. federal government and its agencies requires that we comply with complex laws and regulations relating to government contracts. These laws relate to the integrity of the procurement process, impose disclosure requirements, and address national security concerns, among other matters. For instance, we are routinely subject to audits by U.S. government agencies with respect to compliance with these rules. If we fail to comply with these requirements we may incur penalties and sanctions, including contract termination, suspension of payments, suspension or debarment from doing business with the federal government, and fines. Legal claims made against our work We create, implement and maintain IT solutions that are often critical to the operations of our clients’ business. Our ability to complete large projects as expected could be adversely affected by unanticipated delays, renegotiations, and changing client requirements or project delays. Also, our solutions may suffer from defects that adversely affect their performance; they may not meet our clients’ requirements or may fail to perform in accordance with applicable service levels. Such problems could subject us to legal liability, which could materially adversely affect our business, operating results and financial condition, and may negatively affect our professional reputation. We typically use reasonable efforts to include provisions in our contracts which are designed to limit our exposure to legal claims relating to our services and the applications we develop. We may not always be able to include such provisions and, where we are successful, they may not protect us adequately or may not be enforceable under some circumstances or under the laws of some jurisdictions. Data protection and infrastructure risks Our business often requires that our clients’ applications and information, which may include their proprietary information and personal information they manage, be processed and stored on our networks and systems, and in data centers that we manage. We also process and store proprietary information relating to our business, and personal information relating to our members. The Company faces risk inherent in protecting the security of such personal data. Digital information and equipment are subject to loss, theft or destruction, and services that we provide may become temporarily unavailable as a result of those


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risks, or upon an equipment or system malfunction. The causes of such failures include human error in the course of normal operations (including from advertent or inadvertent actions or inactions by our members), maintenance and upgrading activities, as well as hacking, vandalism (including denial of service attacks and computer viruses), theft, and unauthorized access, as well as power outages or surges, floods, fires, natural disasters and many other causes. The measures that we take to protect against all information infrastructure risks, including both physical and logical controls on access to premises and information may prove in some circumstances to be inadequate to prevent the improper disclosure, loss, theft, misappropriation of, unauthorized access to, or destruction of client information, or service interruptions. Such events may expose the Company to financial loss arising from the costs of remediation and those arising from litigation (including under the laws that protect the privacy of personal information), claims and damages, as well as expose the Company to government sanctions and damage to our brand and reputation. Security and cybersecurity risks In the current environment, there are numerous and evolving security risks, especially from cybersecurity threats, including criminal hackers, hacktivists, state sponsored organizations, industrial espionage, employee misconduct, and human or technological error. Our business could be negatively impacted by these physical and cybersecurity threats, which could affect our future sales and financial position or increase our costs and expenses. These security risks to the Company, which are managed by the Company's Chief Security Officer, include potential attacks not only of our own products, services and systems, but also those of our clients, contractors, business partners, vendors and other third parties. We seek to detect and investigate all security incidents and to prevent their occurrence or recurrence, by investing in data privacy controls, threat protections, detection and mitigation policies, procedures and controls, and working with industry and government against cybersecurity threats. However, because of the evolving nature and sophistication of these security threats, there can be no assurance that we can detect or prevent all of these threats. As the cybersecurity landscape evolves, the Company may also find it necessary to make further significant investments to protect data and infrastructure. Occurrence of any of these aforementioned security threats could expose the Company, our clients or other third parties to potential liability, litigation, and regulatory action, as well as the loss of client confidence, loss of existing or potential clients, loss of sensitive government contracts, damage to brand and reputation, and other financial loss. Risk of harm to our reputation CGI’s reputation as a capable and trustworthy service provider and long-term business partner is key to our ability to compete effectively in the market for IT services. The nature of our operations exposes us to the potential loss, unauthorized access to, or destruction of our clients’ information, as well as temporary service interruptions. Depending on the nature of the information or services, such events may have a negative impact on how the Company is perceived in the marketplace. Under such circumstances, our ability to obtain new clients and retain existing clients could suffer with a resulting impact on our revenue and net earnings. Risks associated with the integration of new operations The successful integration of new operations arising from our acquisition strategy or from large outsourcing contracts requires that a substantial amount of management time and attention be focused on integration tasks. Management time that is devoted to integration activities may detract from management’s normal operations focus with resulting pressure on the revenues and earnings from our existing operations. In addition, we may face complex and potentially time-consuming challenges in implementing the uniform standards, controls, procedures and policies across new operations when harmonizing their activities with those of our existing business units. Integration activities can result in unanticipated operational problems, expenses and liabilities. If we are not successful in executing our integration strategies in a timely and cost-effective manner, we will have difficulty achieving our growth and profitability objectives. Internal controls risks Due to the inherent limitations of internal controls including the circumvention or overriding of controls, or fraud, there can only be reasonable assurance that the Company’s internal controls will detect and prevent a misstatement. If the Company is unable to design, implement, monitor and maintain effective internal controls throughout its different business environments, the efficiency of our operations might suffer, resulting in a decline in revenue and profitability, and the accuracy of our financial reporting could be impaired. CGI Group Inc. - Management's Discussion and Analysis for the year ended September 30, 2017

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Liquidity and funding risks The Company’s future growth is contingent on the execution of its business strategy, which, in turn, is dependent on its ability to grow the business organically as well as through business acquisitions. In the event we would need to raise additional funds through equity or debt financing to fund any currently unidentified or unplanned future acquisitions and other growth opportunities, there can be no assurance that such financing will be available in amounts and on terms acceptable to us. Our ability to raise the required funding depends on the capacity of the capital markets to meet our equity and/or debt financing needs in a timely fashion and on the basis of interest rates and/or share prices that are reasonable in the context of our commercial objectives. Increasing interest rates, volatility in our share price, and the capacity of our current lenders to meet our additional liquidity requirements are all factors that may have a material adverse effect on any acquisitions or growth activities that we may, in the future, identify or plan. If we are unable to obtain the necessary funding, we may be unable to achieve our growth objectives. Foreign exchange risk The majority of our revenue and costs are denominated in currencies other than the Canadian dollar. Foreign exchange fluctuations impact the results of our operations as they are reported in Canadian dollars. This risk is partially mitigated by a natural hedge in matching our costs with revenue denominated in the same currency and through the use of derivatives in our global hedging strategy. However, as we continue our global expansion, natural hedges may begin to diminish and the use of hedging contracts exposes us to the risk that financial institutions could fail to perform their obligations under our hedging instruments. Furthermore, there can be no assurance that our hedging strategy and arrangements will offset the impact of fluctuations in currency exchange rates, which could materially adversely affect our business revenues, results of operations, financial condition or prospects. Other than the use of financial products to deliver on our hedging strategy, we do not trade derivative financial instruments. Our functional and reporting currency is the Canadian dollar. As such, our U.S., European and Asian investments, operations and assets are exposed to net change in currency exchange rates. Volatility in exchange rates could have an adverse effect on our business, financial condition and results of our operations. 10.2. LEGAL PROCEEDINGS The Company is involved in legal proceedings, audits, claims and litigation arising in the ordinary course of its business. Certain of these matters seek damages in significant amounts. Although the outcome of such matters is not predictable with assurance, the Company has no reason to believe that the disposition of any such current matter could reasonably be expected to have a material adverse effect on the Company’s financial position, results of operations or the ability to carry on any of its business activities.

Transfer Agent Computershare Investor Services Inc. (800) 564-6253 Investor Relations Lorne Gorber Executive Vice-President, Global Communications & Investor Relations Telephone: (514) 841-3355 [email protected] 1350 René-Lévesque Boulevard West 25th Floor Montreal, Quebec H3G 1T4 Canada CGI Group Inc. - Management's Discussion and Analysis for the year ended September 30, 2017

58 Group Inc. - Management's Discussion and Analysis for the year ended September 30, 2017 CGI

Page

58

Page

59

FISCAL 2017 RESULTS

Management’s and Auditors’ Reports MANAGEMENT’S STATEMENT OF RESPONSIBILITY FOR FINANCIAL REPORTING The management of CGI Group Inc. (the Company) is responsible for the preparation and integrity of the consolidated financial statements and the Management’s Discussion and Analysis (MD&A). The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and necessarily include some amounts that are based on management’s best estimates and judgement. Financial and operating data elsewhere in the MD&A are consistent with that contained in the accompanying consolidated financial statements. To fulfill its responsibility, management has developed, and continues to maintain, systems of internal controls reinforced by the Company’s standards of conduct and ethics, as set out in written policies to ensure the reliability of the financial information and to safeguard its assets. The Company’s internal control over financial reporting and consolidated financial statements are subject to audit by the independent auditors, Ernst & Young LLP, whose reports follow. They were appointed as independent auditors, by a vote of the Company’s shareholders, to conduct an integrated audit of the Company’s consolidated financial statements and of the Company’s internal control over financial reporting. In addition, the Audit and Risk Management Committee of the Board of Directors reviews the disclosure of financial information and oversees the functioning of the Company’s financial disclosure controls and procedures. Members of the Audit and Risk Management Committee of the Board of Directors, all of whom are independent of the Company, meet regularly with the independent auditors and with management to discuss internal controls in the financial reporting process, auditing matters and financial reporting issues and formulate the appropriate recommendations to the Board of Directors. The independent auditors have unrestricted access to the Audit and Risk Management Committee. The consolidated financial statements and MD&A have been reviewed and approved by the Board of Directors.


François Boulanger Executive Vice-President and Chief Financial Officer

November 7, 2017

59 CGI Group Inc. – Consolidated Financial Statements for the years ended September 30, 2017 and 2016

1

Consolidated financial statements

Management’s and Auditors’ Reports MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external reporting purposes in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. The Company’s internal control over financial reporting includes policies and procedures that:

- Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of the assets of the Company; - Provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and, -

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s consolidated financial statements.

All internal control systems have inherent limitations; therefore, even where internal control over financial reporting is determined to be effective, it can provide only reasonable assurance. Projections of any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As of the end of the Company’s 2017 fiscal year, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO framework). Based on this assessment, management has determined the Company’s internal control over financial reporting as at September 30, 2017 was effective. The effectiveness of the Company’s internal control over financial reporting as at September 30, 2017 has been audited by the Company’s independent auditors, as stated in their report appearing on page 3. 61.


François Boulanger Executive Vice-President and Chief Financial Officer

November 7, 2017


2

FISCAL 2017 RESULTS

Management’s and Auditors’ Reports REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING To the Board of Directors and Shareholders of CGI Group Inc. We have audited CGI Group Inc.’s (the Company) internal control over financial reporting as of September 30, 2017, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO framework) (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2017 based on the COSO criteria. We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as at and for the year ended September 30, 2017, and our report dated November 7, 2017 expressed an unqualified opinion thereon.

Ernst & Young LLP

Montréal, Canada November 7, 2017 1. CPA auditor, CA, public accountancy permit No. A113209


3


Management’s and Auditors’ Reports REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENTS To the Board of Directors and Shareholders of CGI Group Inc. We have audited the accompanying consolidated financial statements of CGI Group Inc. (the Company), which comprise the consolidated balance sheets as of September 30, 2017 and 2016 and the consolidated statements of earnings, comprehensive income, changes in equity and cash flows for the years ended September 30, 2017 and 2016, and a summary of significant accounting policies and other explanatory information. Management's responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of CGI Group Inc. as at September 30, 2017 and 2016, and its financial performance and its cash flows for the years ended September 30, 2017 and 2016, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Other matter We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), CGI Group Inc.'s internal control over financial reporting as of September 30, 2017, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 COSO framework) and our report dated November 7, 2017 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Ernst & Young LLP

Montréal, Canada November 7, 2017 1. CPA auditor, CA, public accountancy permit No. A113209


4

FISCAL 2017 RESULTS

Consolidated ConsolidatedStatements StatementsofofEarnings Earnings ForFor the the years years ended ended September September 30 30 (in thousands (in thousands of Canadian of Canadian dollars, dollars, except except perper share share data) data)

20172017 $

Revenue Revenue Operating Operating expenses expenses Costs Costs of services, of services, selling selling andand administrative administrative (Note (Note 22) 22) Acquisition-related Acquisition-related andand integration integration costs costs (Note (Note 26b)26b) Restructuring Restructuring costs costs (Note (Note 24) 24) Net Net finance finance costs costs (Note (Note 25) 25) Foreign Foreign exchange exchange lossloss

$

20162016 $

$

10,845,066 10,845,066

10,683,264 10,683,264

9,257,659 9,257,659 10,306 10,306 88,628 88,628 69,792 69,792 784784 9,427,169 9,427,169 1,417,897 1,417,897 382,702 382,702 1,035,195 1,035,195

9,120,929 9,120,929 — — 29,100 29,100 78,426 78,426 2,024 2,024 9,230,479 9,230,479 1,452,785 1,452,785 384,069 384,069 1,068,716 1,068,716

Basic Basic earnings earnings per per share share

3.483.48

3.513.51

Diluted earnings share Diluted earnings per per share

3.413.41

3.423.42

Earnings Earnings before before income income taxes taxes Income Income tax expense tax expense (Note (Note 15) 15) NetNet earnings earnings Earnings Earnings per per share share (Note (Note 20) 20)

See See Notes Notes to the to Consolidated the Consolidated Financial Financial Statements. Statements.

63 CGI CGI Group Group Inc. Inc. – Consolidated – Consolidated Financial Financial Statements Statements for the for years the years ended ended September September 30, 2017 30, 2017 and and 20162016

5

5


Consolidated Statements of Comprehensive Income For the years ended September 30 (in thousands of Canadian dollars)

2017

Net earnings Items that will be reclassified subsequently to net earnings (net of income taxes): Net unrealized losses on translating financial statements of foreign operations Net gains on derivative financial instruments and on translating long-term debt designated as hedges of net investments in foreign operations Net unrealized losses on cash flow hedges Net unrealized (losses) gains on available-for-sale investments Items that will not be reclassified subsequently to net earnings (net of income taxes): Net remeasurement losses on defined benefit plans Other comprehensive loss Comprehensive income

2016

$

$

1,035,195

1,068,716

(141,465)

(274,283)

13,109

18,446

(12,261) (3,509)

(18,297) 229

(611) (144,737) 890,458

(20,193) (294,098) 774,618

See Notes to the Consolidated Financial Statements.


6

FISCAL 2017 RESULTS

Consolidated Balance Sheets As at September 30 (in thousands of Canadian dollars)

Assets Current assets Cash and cash equivalents (Notes 27d and 31) Accounts receivable (Note 4) Work in progress Current derivative financial instruments (Note 31) Prepaid expenses and other current assets Income taxes Total current assets before funds held for clients Funds held for clients (Note 5) Total current assets Property, plant and equipment (Note 6) Contract costs (Note 7) Intangible assets (Note 8) Other long-term assets (Note 9) Long-term financial assets (Note 10) Deferred tax assets (Note 15) Goodwill (Note 11)

Liabilities Current liabilities Accounts payable and accrued liabilities Accrued compensation Current derivative financial instruments (Note 31) Deferred revenue Income taxes Provisions (Note 12) Current portion of long-term debt (Note 13) Total current liabilities before clients’ funds obligations Clients’ funds obligations Total current liabilities Long-term provisions (Note 12) Long-term debt (Note 13) Other long-term liabilities (Note 14) Long-term derivative financial instruments (Note 31) Deferred tax liabilities (Note 15) Retirement benefits obligations (Note 16) Equity Retained earnings Accumulated other comprehensive income (Note 17) Capital stock (Note 18) Contributed surplus

2017

2016

$

$

165,872 1,285,880 922,620 8,152 160,402 6,541 2,549,467 313,552 2,863,019 396,613 243,056 490,426

596,529 1,101,606 935,496 22,226 170,393 7,876 2,834,126 369,530 3,203,656 439,293 211,018 509,781

85,159 111,307 146,602 7,060,030 11,396,212

86,970 129,383 179,898 6,933,333 11,693,332

1,004,307 578,886 12,069 409,332 174,102 86,154 122,467 2,387,317 314,233 2,701,550 40,892 1,739,536 213,436 82,365 213,515 202,292 5,193,586

1,107,863 523,553 4,517 390,367 159,410 34,924 192,036 2,412,670 365,994 2,778,664 40,454 1,718,939 244,307 46,473 183,579 216,308 5,228,724

3,794,439 159,391 2,054,725 194,071 6,202,626 11,396,212

3,778,848 304,128 2,194,731 186,901 6,464,608 11,693,332


Approved by the Board

George D. Schindler

Serge Godin

Director

Director


7


Consolidated Statements of Changes in Equity For the years ended September 30 (in thousands of Canadian dollars)

Retained earnings

Accumulated other comprehensive income

Capital stock

Contributed surplus

Total equity

$

$

$

$

$

Balance as at September 30, 2016

3,778,848

304,128

2,194,731

186,901

6,464,608

Net earnings

1,035,195

—

1,035,195

Other comprehensive loss Comprehensive income Share-based payment costs Income tax impact associated with stock options Exercise of stock options (Note 18) Exercise of performance share units (PSUs) (Note 18) Purchase of Class A subordinate shares for cancellation (Note 18) Resale of Class A subordinate shares held in trust (Note 18) Balance as at September 30, 2017

—

—

—

(144,737)

—

—

1,035,195 — —

(144,737) — —

— — —

— 34,443 5,961

— — (1,019,604) — 3,794,439

— — — — 159,391

Retained earnings

Accumulated other comprehensive income

60,943 23,666 (227,060) 2,445 2,054,725

Capital stock

(11,169) (23,666) — 1,601 194,071

Contributed surplus

(144,737) 890,458 34,443 5,961 49,774 — (1,246,664) 4,046 6,202,626

Total equity

$

$

$

$

$

Balance as at September 30, 2015

3,057,578

598,226

2,254,245

172,120

6,082,169

Net earnings Other comprehensive loss Comprehensive income Share-based payment costs Income tax impact associated with stock options Exercise of stock options (Note 18) Exercise of PSUs (Note 18) Purchase of Class A subordinate shares for cancellation (Note 18) Purchase of Class A subordinate shares held in trust (Note 18) Balance as at September 30, 2016

1,068,716 — 1,068,716 — — — — (347,446) — 3,778,848

— (294,098) (294,098) — — — — — — 304,128

— — — — — 111,405 21,250 (170,374) (21,795) 2,194,731

— — — 38,299 19,704 (21,972) (21,250) — — 186,901

1,068,716 (294,098) 774,618 38,299 19,704 89,433 — (517,820) (21,795) 6,464,608



8

FISCAL 2017 RESULTS

Consolidated Statements of Cash Flows For the years ended September 30 (in thousands of Canadian dollars)

Operating activities Net earnings Adjustments for: Amortization and depreciation (Note 23) Deferred income tax expense (Note 15) Foreign exchange gain Share-based payment costs Net change in non-cash working capital items (Note 27a) Cash provided by operating activities

2017

2016

$

$

1,035,195

1,068,716

377,204 60,897 (3,102) 34,443 (146,085) 1,358,552

400,060 96,490 (2,618) 38,299 (267,873) 1,333,074

Investing activities Business acquisitions (net of cash acquired) (Note 26a)

(283,061)

(38,442)

Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Additions to contract costs Additions to intangible assets Purchase of long-term investments Proceeds from sale of long-term investments Payments received from long-term receivables Cash used in investing activities

(112,667) 3,317 (95,676) (106,267) (5,150) 7,248 — (592,256)

(165,516) 10,254 (103,156) (100,963) (14,701) 29,629 164 (382,731)

200,000 18,921 (199,841) (9,119) — — 4,046 (1,246,664) 49,671 (1,182,986) (13,967) (430,657) 596,529 165,872

— 40,508 (223,159) — (24,057) (21,795) — (527,286) 89,485 (666,304) 7,228 291,267 305,262 596,529

Financing activities Net change in unsecured committed revolving credit facility (Note 13) Increase of long-term debt Repayment of long-term debt Repayment of debt assumed in business acquisitions Settlement of derivative financial instruments (Note 31) Purchase of Class A subordinate shares held in trust (Note 18) Resale of Class A subordinate shares held in trust (Note 18) Purchase and cancellation of Class A subordinate shares (Note 18) Issuance of Class A subordinate shares Cash used in financing activities Effect of foreign exchange rate changes on cash and cash equivalents Net (decrease) increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplementary cash flow information (Note 27). See Notes to the Consolidated Financial Statements.


9


Notes to the Consolidated Financial Statements For the years ended September 30, 2017 and 2016 (tabular amounts only are in thousands of Canadian dollars, except per share data)


1.

Description of business

CGI Inc. (the Company), directly or through its subsidiaries, manages information technology (IT) services as well as 1. Group Description of business business process services (BPS) to help clients effectively realize their strategies and create added value. The Company’s services include the management of IT and business functions (outsourcing), systems integration and consulting, as well as the sale of CGI Group Inc. (the Company), directly or through its subsidiaries, manages information technology (IT) services as well as software solutions. The Company was incorporated under Part IA of the Companies Act (Québec) predecessor to the Business business process services (BPS) to help clients effectively realize their strategies and create added value. The Company’s services Corporations Act (Québec) which came into force on February 14, 2011 and its shares are publicly traded. The executive and include the management of IT and business functions (outsourcing), systems integration and consulting, as well as the sale of registered office of the Company is situated at 1350 René-Lévesque Blvd. West, Montréal, Québec, Canada, H3G 1T4. software solutions. 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 shares are publicly traded. The executive and 2. Basis preparation registered officeof of the Company is situated at 1350 René-Lévesque Blvd. West, Montréal, Québec, Canada, H3G 1T4. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards 2. Basis of preparation (IFRS) as issued by the International Accounting Standards Board (IASB). The accounting policies were consistently applied to all periods presented. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards The Company’s financialAccounting statementsStandards for the years ended September 30, 2017policies and 2016 were authorizedapplied for issue (IFRS) as issuedconsolidated by the International Board (IASB). The accounting were consistently to by the Board of Directors on November 7, 2017. all periods presented. The Company’s consolidated financial statements for the years ended September 30, 2017 and 2016 were authorized for issue 3. Summary of significant policies by the Board of Directors on November 7,accounting 2017. BASIS OF CONSOLIDATION 3. Summary of significant

accounting policies

The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated on consolidation. BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed or has right to variable and balances been eliminated consolidation. returns from itshave involvement with the on entity and has the ability to affect those returns through its power over the relevant activities of the entity. Subsidiaries are fully consolidated from the date of acquisition and continue to be consolidated until the date control Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed or has right to variable over the subsidiaries ceases. returns from its involvement with the entity and has the ability to affect those returns through its power over the relevant activities of the entity. Subsidiaries are fully consolidated from the date of acquisition and continue to be consolidated until the date control BASIS MEASUREMENT over theOF subsidiaries ceases. The consolidated financial statements have been prepared on a historical cost basis, except for certain financial assets and liabilities, have been measured at fair value as described below. BASIS OFwhich MEASUREMENT The consolidated financial statements have been prepared on a historical cost basis, except for certain financial assets and USE OF JUDGEMENTS AND ESTIMATES liabilities, which have been measured at fair value as described below. The preparation of the consolidated financial statements requires management to make judgements and estimates that affect the amounts of AND assets, liabilities, equity and the accompanying disclosures at the date of the consolidated financial USEreported OF JUDGEMENTS ESTIMATES statements and the reported amounts of revenue and expenses during the reporting period. Because the use of judgements and The preparation of the consolidated financial statements requires management to make judgements and estimates that affect estimates is inherent in the financial reporting process, actual results could differ. the reported amounts of assets, liabilities, equity and the accompanying disclosures at the date of the consolidated financial statements and the reported amountsabout of revenue and and expenses duringsources the reporting period.uncertainty Because the of judgements and Significant judgements and estimates the future other major of estimation at use the end of the reporting estimates is inherent in the financial reporting process, actual results could differ. period could have a significant risk of causing a material adjustment to the carrying amounts of the following within the next financial year: deferred tax assets, revenue recognition, estimated losses on revenue-generating contracts, goodwill impairment, Significant judgements and estimates about the future and other major sources of estimation uncertainty at the end of the reporting business combinations, provisions for income tax uncertainties and litigation and claims. period could have a significant risk of causing a material adjustment to the carrying amounts of the following within the next financial year: deferred on revenue-generating goodwill impairment, The judgements, apart tax fromassets, those revenue involvingrecognition, estimations,estimated that havelosses the most significant effect on contracts, the amounts recognized in the business combinations, provisionsare: for income tax uncertainties and litigation and claims. consolidated financial statements The judgements, apart of from those involving estimations, that have the most significant effect on the amounts recognized in the Revenue recognition multiple component arrangements consolidated financial statements are: Assessing whether the deliverables within an arrangement are separately identifiable components requires judgement by Revenue recognition of multiple component arrangements management. A component is considered as separately identifiable if it has value to the client on a stand-alone basis. The Company first reviews the contract clauses to evaluate if the deliverable is accepted separately by the client. Then, the Company Assessing whether the deliverables within an arrangement are separately identifiable components requires judgement by assesses if the deliverable could have been provided by another vendor and if it would have been possible for the client to decide management. A component is considered as separately identifiable if it has value to the client on a stand-alone basis. The to not purchase the deliverable. Company first reviews the contract clauses to evaluate if the deliverable is accepted separately by the client. Then, the Company assesses if the deliverable could have been provided by another vendor and if it would have been possible for the client to decide to not purchase the deliverable.

68

CGI Group Inc. – Consolidated Financial Statements for the years ended September 30, 2017 and 2016

10

FISCAL 2017 RESULTS



3.

Summary of significant accounting policies (continued)

USE JUDGEMENTS ESTIMATES (CONTINUED)policies 3. OFSummary of AND significant accounting

(continued)

Deferred tax assets USE OF JUDGEMENTS AND ESTIMATES (CONTINUED) Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against Deferred tax assets which the losses can be utilized. Management judgement is required concerning uncertainties that exist with respect to the timing of future taxable income required to recognize a deferred tax asset. The Company recognizes an income tax benefit only when Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against it is probable that the tax benefit will be realized in the future. In making this judgement, the Company assesses forecasts and which the losses can be utilized. Management judgement is required concerning uncertainties that exist with respect to the timing the availability of future tax planning strategies. of future taxable income required to recognize a deferred tax asset. The Company recognizes an income tax benefit only when itA is probable of that the tax benefit will beinrealized in the future. In making thisNotes judgement, the Company Financial assessesStatements. forecasts and description estimations is included the respective sections within the to the Consolidated the availability of future tax planning strategies. REVENUE RECOGNITION, IN PROGRESS AND DEFERRED A description of estimations isWORK included in the respective sections within REVENUE the Notes to the Consolidated Financial Statements.

The Company generates revenue principally through the provision of IT services and BPS as described in Note 1. REVENUE RECOGNITION, WORK IN PROGRESS AND DEFERRED REVENUE The Company provides services and products under arrangements that contain various pricing mechanisms. The Company The Company generates principally provision IT services BPS as described Note 1. of revenue recognizes revenue when revenue the following criteriathrough are met:the there is clearofevidence thatand an arrangement exists,inthe amount and related costs can be measured reliably, it is probable that future economic benefits will flow to the Company, the stage of The Company provides services and products under arrangements that contain various pricing mechanisms. The Company completion can be measured reliably where services are delivered and the significant risks and rewards of ownership, including recognizes revenue when the following criteria are met: there is clear evidence that an arrangement exists, the amount of revenue effective control, are transferred to clients where products are sold. Revenue is measured at the fair value of the consideration and related costs can be measured reliably, it is probable that future economic benefits will flow to the Company, the stage of received or receivable net of discounts, volume rebates and sales related taxes. completion can be measured reliably where services are delivered and the significant risks and rewards of ownership, including effective are transferred to clients where products sold. Revenue is measured at is theanalyzed fair valuetoofdetermine the consideration Some of control, the Company’s arrangements may include client are acceptance clauses. Each clause whether received or receivable of discounts, rebates and sales related the earnings process isnet complete whenvolume the service is performed. Formaltaxes. client sign-off is not always necessary to recognize revenue provided that the Company objectively demonstrates that the criteria specified in the acceptance provisions are satisfied. Some of the Company’s arrangements may include client acceptance clauses. Each clause is analyzed to determine whether Some of the criteria reviewed include historical experience with similar types of arrangements, whether the acceptance provisions the earnings process is complete when the service is performed. Formal client sign-off is not always necessary to recognize are specific to the client or are included in all arrangements, the length of the acceptance term and historical experience with the revenue provided that the Company objectively demonstrates that the criteria specified in the acceptance provisions are satisfied. specific client. Some of the criteria reviewed include historical experience with similar types of arrangements, whether the acceptance provisions are specific to the client or areparty included in allproducts, arrangements, thesoftware length oflicenses, the acceptance term historical experience with the Revenue from sales of third vendor's such as hardware or and services is recorded gross when specific client.is a principal to the transaction and is recorded net of costs when the Company is acting as an agent between the the Company client and vendor. Factors generally considered to determine whether the Company is a principal or an agent are if the Company Revenue from sales of third party vendor's products, such as software licenses, hardware or services is recorded gross when has the primary responsibility for providing the product or service, adds meaningful value to the vendor’s product or service, has the Company is a principal to the transaction and is recorded net of costs when the Company is acting as an agent between the discretion in supplier selection and assumes credit risks. client and vendor. Factors generally considered to determine whether the Company is a principal or an agent are if the Company has the primary for providing the product or service, adds meaningful value to the vendor’s product or service, has Relative sellingresponsibility price discretion in supplier selection and assumes credit risks. The Company’s arrangements often include a mix of the services and products as described below. If an arrangement involves Relative selling price components, the total arrangement value is allocated to each separately identifiable component based the provision of multiple on its relative selling price. When estimating selling price of each component, the Company maximizes the use of observable The Company’s arrangements often include a mix of the services and products as described below. If an arrangement involves prices which are established using the Company’s prices for same or similar components. When observable prices are not the provision of multiple components, the total arrangement value is allocated to each separately identifiable component based available, the Company estimates selling prices based on its best estimate. The best estimate of selling price is the price at which on its relative selling price. When estimating selling price of each component, the Company maximizes the use of observable the Company would normally expect to offer the services or products and is established by considering a number of internal and prices which are established using the Company’s prices for same or similar components. When observable prices are not external factors including, but not limited to, geographies, the Company’s pricing policies, internal costs and margins. The available, the Company estimates selling prices based on its best estimate. The best estimate of selling price is the price at which appropriate revenue recognition method is applied for each separately identifiable component as described below. the Company would normally expect to offer the services or products and is established by considering a number of internal and external factors including, but not limited to, geographies, the Company’s pricing policies, internal costs and margins. The Outsourcing appropriate revenue recognition method is applied for each separately identifiable component as described below. Revenue from outsourcing and BPS arrangements is generally recognized as the services are provided at the contractually stated Outsourcing price, unless there is a better measure of performance or delivery. Revenue from outsourcing and BPS arrangements is generally recognized as the services are provided at the contractually stated price, unless there is a better measure of performance or delivery.


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REVENUE RECOGNITION, WORK IN PROGRESS AND policies DEFERRED(continued) REVENUE (CONTINUED) 3. Summary of significant accounting

Systems integration and consulting services REVENUE RECOGNITION, WORK IN PROGRESS AND DEFERRED REVENUE (CONTINUED) Revenue from systems integration and consulting services under time and material arrangements is recognized as the services Systems integration and consulting services are rendered, and revenue under cost-based arrangements is recognized as reimbursable costs are incurred. Revenue from systems systems integration integrationand andconsulting consultingservices servicesunder underfixed-fee time andarrangements material arrangements is recognized the services where the outcome of theas arrangements are andreliably revenue under cost-based arrangements is recognizedmethod as reimbursable costs period. are incurred. can rendered, be estimated is recognized using the percentage-of-completion over the service The Company primarily uses labour costs or labour hours to measure the progress towards completion. This method relies on estimates of total expected Revenue from systems integration and consulting services under fixed-fee arrangements where the outcome of the arrangements labour costs or total expected labour hours to complete the service, which are compared to labour costs or labour hours incurred can be estimated reliably is recognized using the percentage-of-completion method over the service period. The Company primarily to date, to arrive at an estimate of the percentage of revenue earned to date. Management regularly reviews underlying estimates uses labour costs or labour hours to measure the progress towards completion. This method relies on estimates of total expected of total expected labour costs or hours. If the outcome of an arrangement cannot be estimated reliably, revenue is recognized to labour costs or total expected labour hours to complete the service, which are compared to labour costs or labour hours incurred the extent of arrangement costs incurred if it is probable that such costs will be recoverable. to date, to arrive at an estimate of the percentage of revenue earned to date. Management regularly reviews underlying estimates of total expected labour costs or hours. If the outcome of anonly arrangement cannot reliably, revenue is recognized to Revenue from benefits-funded arrangements is recognized to the extent that itbeisestimated probable that the benefit stream associated the of arrangement costs incurred it is probable thatthe such costs be recoverable. withextent the transaction will generate sufficientif amounts to fund value onwill which revenue recognition is based. Revenue benefits-funded arrangements is recognized only to the extent that it is probable that the benefit stream associated Softwarefrom licenses with the transaction will generate sufficient amounts to fund the value on which revenue recognition is based. Most of the Company’s software license arrangements include other services such as implementation, customization and Software licenses maintenance. For these types of arrangements, revenue from a software license is recognized upon delivery if it has been identified as a separately identifiable component. Otherwise, it is combined with the implementation and customization services and is Most of the Company’s software license arrangements include other services such as implementation, customization and accounted for as described in Systems integration and consulting services section above. Revenue from maintenance services maintenance. For these types of arrangements, revenue from a software license is recognized upon delivery if it has been identified for software licenses sold and implemented is recognized ratably over the term of the maintenance period. as a separately identifiable component. Otherwise, it is combined with the implementation and customization services and is accounted for as described in Systems integration and consulting services section above. Revenue from maintenance services Work in progress and deferred revenue for software licenses sold and implemented is recognized ratably over the term of the maintenance period. Amounts recognized as revenue in excess of billings are classified as work in progress. Amounts received in advance of the Work in progress and deferred revenue performance of services or delivery of products are classified as deferred revenue. Amounts revenue in excess of billings are classified as work in progress. Amounts received in advance of the Estimatedrecognized losses onas revenue-generating contracts performance of services or delivery of products are classified as deferred revenue. Estimated losses on revenue-generating contracts may occur due to additional costs which were not foreseen at inception of the Estimated losses losses on revenue-generating contracts contract. Contract are measured at the amount by which the estimated total costs exceed the estimated total revenue from the contract. The estimated losses on revenue-generating contracts are recognized in the period when it is determined that Estimated losses on revenue-generating contracts may occur due to additional costs which were not foreseen at inception of the a loss is probable. The expected loss is first applied to impair the related capitalized contract costs with the excess recorded in contract. Contract losses are measured at the amount by which the estimated total costs exceed the estimated total revenue accounts payable and accrued liabilities and in other long-term liabilities. Management regularly reviews arrangement profitability from the contract. The estimated losses on revenue-generating contracts are recognized in the period when it is determined that and the underlying estimates. a loss is probable. The expected loss is first applied to impair the related capitalized contract costs with the excess recorded in accounts payable and accrued liabilities and in other long-term liabilities. Management regularly reviews arrangement profitability CASH CASH estimates. EQUIVALENTS and theAND underlying Cash and cash equivalents consist of unrestricted cash and short-term investments having an initial maturity of three months or less. AND CASH EQUIVALENTS CASH Cash and cash equivalents consist of unrestricted cash and short-term investments having an initial maturity of three months or FUNDS HELD FOR CLIENTS AND CLIENTS’ FUNDS OBLIGATIONS less. In connection with the Company’s payroll, tax filing and claims services, the Company collects funds for payment of payroll, taxes and claims, temporarily holds such funds until payment is due, remits the funds to the clients’ employees, appropriate tax authorities FUNDS HELD FOR CLIENTS AND CLIENTS’ FUNDS OBLIGATIONS or claims holders, files federal and local tax returns and handles related regulatory correspondence and amendments. The funds In connection with the Company’s payroll, tax filing and claims services, the Company collects funds for payment of payroll, taxes held for clients include cash and long-term bonds. The Company presents the funds held for clients and related obligations and claims, temporarily holds such funds until payment is due, remits the funds to the clients’ employees, appropriate tax authorities separately. Funds held for clients are classified as current assets since, based upon management’s intentions, these funds are or claims holders, files federal and local tax returns and handles related regulatory correspondence and amendments. The funds held solely for the purpose of satisfying the clients’ funds obligations, which will be repaid within one year of the consolidated held for clients include cash and long-term bonds. The Company presents the funds held for clients and related obligations balance sheet date. The market fluctuations affect the fair value of the long-term bonds. Due to those fluctuations, funds held for separately. Funds held for clients are classified as current assets since, based upon management’s intentions, these funds are clients might not equal to the clients' funds obligations. held solely for the purpose of satisfying the clients’ funds obligations, which will be repaid within one year of the consolidated balance sheet date. Theand market fluctuations affect the fair of the long-term Due to in those fluctuations, funds that heldthe for Interest income earned realized gains and losses on value the disposal of bondsbonds. are recorded revenue in the period clients not equal thecollecting, clients' funds obligations. incomemight is earned, sincetothe holding and remitting of these funds are critical components of providing these services. Interest income earned and realized gains and losses on the disposal of bonds are recorded in revenue in the period that the income is earned, since the collecting, holding and remitting of these funds are critical components of providing these services.

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PROPERTY, PLANT AND EQUIPMENT 3. Summary of significant

accounting policies (continued)

Property, plant and equipment (PP&E), including those under finance leases, are recorded at cost and are depreciated over their estimated useful livesAND usingEQUIPMENT the straight-line method. PROPERTY, PLANT Property, plant and equipment (PP&E), including those under finance leases, are recorded at cost and are depreciated over their Buildings useful lives using the straight-line method. 10 to 40 years estimated Leasehold improvements Furniture, Buildings fixtures and equipment Computer Leasehold equipment improvements

Lesser of the useful life or lease term 3 to 10 to 20 40 years years 3 to 5 years Lesser of the useful life or lease term

Furniture, fixtures and equipment

3 to 20 years 3 to 5 years

LEASES Computer equipment

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. LEASES Leases are classified as finance leases whenever the termsinofPP&E the lease transfer substantially thevalue risks and rewards ownership Assets held under finance leases are initially recognized at an amount equal to theallfair of the leasedofassets or, if to the lessee. All other are classified as operating lower, the present valueleases of minimum lease payments at theleases. inception of the lease, and then depreciated over the economic useful life of the asset or lease term, whichever is shorter. The capital element of future lease payments is included in the consolidated Assets held under finance leases are initially recognized in PP&E at an amount equal to the fair value of the leased assets or, if balance sheets within long-term debt. Interest is charged to the consolidated statements of earnings so as to achieve a constant lower, the present value of minimum lease payments at the inception of the lease, and then depreciated over the economic useful rate of interest on the remaining balance of the liability. life of the asset or lease term, whichever is shorter. The capital element of future lease payments is included in the consolidated balance sheets within Interest is charged to consolidated the consolidated statements of earnings as to achieve a constant Lease payments underlong-term operatingdebt. leases are charged to the statements of earnings on aso straight-line basis over the rate interest on the remaining balance of the liability. leaseofterm. Operating lease incentives, typically for premises, are recognized as a reduction in the rental expense over the lease term. Lease payments under operating leases are charged to the consolidated statements of earnings on a straight-line basis over the lease term. Operating lease incentives, typically for premises, are recognized as a reduction in the rental expense over the lease CONTRACT COSTS term. Contract costs are mainly incurred when acquiring or implementing long-term outsourcing contracts. Contract costs are comprised primarily of transition CONTRACT COSTS costs and incentives. Contract costs are mainly incurred when acquiring or implementing long-term outsourcing contracts. Contract costs are comprised Transition primarily of costs transition costs and incentives. Transition costs consist mostly of costs associated with the installation of systems and processes, as well as conversion of the client’s applications Transition costs to the Company’s platforms incurred after the award of outsourcing and BPS contracts. Transition costs are comprised essentially of labour costs, including compensation and related fringe benefits, as well as subcontractor costs. Transition costs consist mostly of costs associated with the installation of systems and processes, as well as conversion of the client’s applications to the Company’s platforms incurred after the award of outsourcing and BPS contracts. Transition costs are Incentives comprised essentially of labour costs, including compensation and related fringe benefits, as well as subcontractor costs. Occasionally, incentives are granted to clients upon the signing of outsourcing contracts. These incentives are granted in the form of cash payments. Incentives Occasionally, incentives are granted to clients upon the signing of outsourcing contracts. These incentives are granted in the form Pre-contract costs of cash payments. Pre-contract costs associated with acquiring or implementing long-term outsourcing contracts are expensed as incurred except where it is virtually Pre-contract costscertain that the contracts will be awarded and the costs are directly related to the acquisition of the contract. For outsourcing contracts, the Company is virtually certain that a contract will be awarded when the Company is selected by the Pre-contract costs associated with acquiring or implementing long-term outsourcing contracts are expensed as incurred except client but the contract has not yet been signed. where it is virtually certain that the contracts will be awarded and the costs are directly related to the acquisition of the contract. For outsourcing contracts, the Company is virtually certain that a contract will be awarded when the Company is selected by the Amortization of contract costs client but the contract has not yet been signed. Contract costs are amortized using the straight-line method over the period services are provided. Amortization of transition costs and pre-contract if any, is included in costs of services, selling and administrative and amortization of incentives is recorded Amortization of costs, contract costs as a reduction of revenue. Contract costs are amortized using the straight-line method over the period services are provided. Amortization of transition costs and pre-contract costs, if any, is included in costs of services, selling and administrative and amortization of incentives is recorded as a reduction of revenue.


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CONTRACT COSTS of (CONTINUED) 3. Summary significant


Impairment of contract costs CONTRACT COSTS (CONTINUED) When a contract is not expected to be profitable, the expected loss is first applied to impair the related capitalized contract costs. Impairment of the contract costs The excess of expected loss over the capitalized contract costs is recorded as estimated losses on revenue-generating contracts in accounts payable and accrued liabilities and in other long-term liabilities. If at a future date the contract returns to When a contract is not expected to be profitable, the expected loss is first applied to impair the related capitalized contract costs. profitability, the previously recognized impairment loss must be reversed. First the estimated losses on revenue-generating The excess of the expected loss over the capitalized contract costs is recorded as estimated losses on revenue-generating contracts must be reversed, and if there is still additional projected profitability then any capitalized contract costs that were contracts in accounts payable and accrued liabilities and in other long-term liabilities. If at a future date the contract returns to impaired must be reversed. The reversal of the impairment loss is limited so that the carrying amount does not exceed its profitability, the previously recognized impairment loss must be reversed. First the estimated losses on revenue-generating recoverable amount, nor exceed the carrying amount that would have been determined, net of amortization, had no impairment contracts must be reversed, and if there is still additional projected profitability then any capitalized contract costs that were loss been recognized for the contract costs in prior years. impaired must be reversed. The reversal of the impairment loss is limited so that the carrying amount does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of amortization, had no impairment INTANGIBLE ASSETS loss been recognized for the contract costs in prior years. Intangible assets consist mainly of internal-use software, business solutions, software licenses and client relationships. Internaluse software, ASSETS business solutions and software licenses are recorded at cost. Internal-use software developed internally is INTANGIBLE capitalized when it meets specific capitalization criteria related to technical and financial feasibility and when the Company Intangible assets consist mainly of internal-use software, business solutions, software licenses and client relationships. Internaldemonstrates its ability and intention to use it. Business solutions developed internally and marketed are capitalized when they use software, business solutions and software licenses are recorded at cost. Internal-use software developed internally is meet specific capitalization criteria related to technical, market and financial feasibility. Internal-use software, business solutions, capitalized when it meets specific capitalization criteria related to technical and financial feasibility and when the Company software licenses and client relationships acquired through business combinations are initially recorded at their fair value based demonstrates its ability and intention to use it. Business solutions developed internally and marketed are capitalized when they on the present value of expected future cash flows, which involve making estimates about the future cash flows and discount meet specific capitalization criteria related to technical, market and financial feasibility. Internal-use software, business solutions, rates. software licenses and client relationships acquired through business combinations are initially recorded at their fair value based on the presentof value of expected future cash flows, which involve making estimates about the future cash flows and discount Amortization intangible assets rates. The Company amortizes its intangible assets using the straight-line method over their estimated useful lives. Amortization of intangible assets Internal-use software The Company amortizes its intangible assets using the straight-line method over their estimated useful lives. Business solutions Software licenses Internal-use software Client relationships Business solutions and other Software licenses

IMPAIRMENT OF and PP&E, Client relationships otherINTANGIBLE ASSETS AND GOODWILL

2 to 7 years 2 to 10 years 3 2 to to 8 7 years years 2 to 10 2 to 10 years years 3 to 8 years 2 to 10 years

Timing of impairment testing IMPAIRMENT OF PP&E, INTANGIBLE ASSETS AND GOODWILL The carrying values of PP&E, intangible assets and goodwill are reviewed for impairment when events or changes in circumstances indicate of that the carrying value may be impaired. The Company assesses at each reporting date whether any such events or Timing impairment testing changes in circumstances exist. The carrying value of PP&E and intangible assets not available for use and goodwill is tested The carrying values of PP&E, intangible assets and goodwill are reviewed for impairment when events or changes in circumstances for impairment annually as at September 30. indicate that the carrying value may be impaired. The Company assesses at each reporting date whether any such events or changes in circumstances exist. The carrying value of PP&E and intangible assets not available for use and goodwill is tested Impairment testing for impairment annually as at September 30. If any indication of impairment exists or when annual impairment testing for an asset is required, the Company estimates the Impairment testingof the asset or cash-generating unit (CGU) to which the asset relates to determine the extent of any impairment recoverable amount loss. The recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use (VIU) to If any indication of impairment exists or when annual impairment testing for an asset is required, the Company estimates the the Company. The Company mainly uses the VIU. In assessing the VIU, estimated future cash flows are discounted to their recoverable amount of the asset or cash-generating unit (CGU) to which the asset relates to determine the extent of any impairment present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to loss. The recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use (VIU) to the asset or CGU. In determining fair value less costs of disposal, recent market transactions are taken into account, if available. the Company. The Company mainly uses the VIU. In assessing the VIU, estimated future cash flows are discounted to their If the recoverable amount of an asset or a CGU is estimated to be less than its carrying amount, the carrying amount is reduced present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to to its recoverable amount. An impairment loss is recognized immediately in the consolidated statements of earnings. the asset or CGU. In determining fair value less costs of disposal, recent market transactions are taken into account, if available. If the recoverable an assetcombinations or a CGU is estimated to be lessCGU than or itsgroup carrying amount, theare carrying amount is reduced Goodwill acquiredamount throughofbusiness is allocated to the of CGUs that expected to benefit from to its recoverable amount. An impairment loss is recognized immediately in thefrom consolidated statements of earnings. synergies of the related business combination. The group of CGUs that benefit the synergies correspond to the Company’s operating segments. For goodwill impairment testing purposes, the group of CGUs that represents the lowest level within the Goodwill acquired through business combinations is allocated to the CGU or group of CGUs that are expected to benefit from Company at which management monitors goodwill is the operating segment level. synergies of the related business combination. The group of CGUs that benefit from the synergies correspond to the Company’s operating segments. For goodwill impairment testing purposes, the group of CGUs that represents the lowest level within the Company at which management monitors goodwill is the operating segment level.

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IMPAIRMENT OF PP&E, INTANGIBLE ASSETS AND GOODWILL 3. Summary of significant accounting policies(CONTINUED) (continued)

Impairment testing (continued) IMPAIRMENT OF PP&E, INTANGIBLE ASSETS AND GOODWILL (CONTINUED) The recoverable amount of each operating segment has been determined based on the VIU calculation which includes estimates Impairment testing (continued) about their future financial performance based on cash flows approved by management covering a period of five years as the Company generates revenue mainly through long-term contracts. Key assumptions used in the VIU calculations are the discount The recoverable amount of each operating segment has been determined based on the VIU calculation which includes estimates rate applied and the long-term growth rate of net operating cash flows. In determining these assumptions, management has taken about their future financial performance based on cash flows approved by management covering a period of five years as the into consideration the current economic environment and its resulting impact on expected growth and discount rates. The cash Company generates revenue mainly through long-term contracts. Key assumptions used in the VIU calculations are the discount flow projections reflect management’s expectations of the operating segment's operating performance and growth prospects in rate applied and the long-term growth rate of net operating cash flows. In determining these assumptions, management has taken the operating segment’s market. The discount rate applied to an operating segment is the weighted average cost of capital into consideration the current economic environment and its resulting impact on expected growth and discount rates. The cash (WACC). Management considers factors such as country risk premium, risk-free rate, size premium and cost of debt to derive flow projections reflect management’s expectations of the operating segment's operating performance and growth prospects in the WACC. Impairment losses relating to goodwill cannot be reversed in future periods. the operating segment’s market. The discount rate applied to an operating segment is the weighted average cost of capital (WACC). Management considers factorsan such as countryis risk premium, and cost of debt to derive For impaired assets, other than goodwill, assessment made at each risk-free reportingrate, date size as topremium whether there is any indication that the WACC.recognized Impairmentimpairment losses relating to goodwill cannot exist be reversed future periods. If such indication exists, the Company previously losses may no longer or may in have decreased. estimates the recoverable amount of the asset. A previously recognized impairment loss is reversed only if there has been a For impaired assets, other than goodwill, an assessment is made at each reporting date as to whether there is any indication that change in the assumptions used to determine the recoverable amount of the asset since the last impairment loss was recognized. previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying estimates the recoverable amount of the asset. A previously recognized impairment loss is reversed only if there has been a amount that would have been determined, net of amortization, had no impairment loss been recognized for the asset in prior change in the assumptions used to determine the recoverable amount of the asset since the last impairment loss was recognized. years. Such reversal is recognized in the consolidated statements of earnings. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of amortization, had no impairment loss been recognized for the asset in prior LONG-TERM FINANCIAL ASSETSin the consolidated statements of earnings. years. Such reversal is recognized Long-term investments presented in long-term financial assets are comprised of bonds which are classified as long-term based on management’s intentions. LONG-TERM FINANCIAL ASSETS Long-term investments presented in long-term financial assets are comprised of bonds which are classified as long-term based BUSINESS COMBINATIONS on management’s intentions. The Company accounts for its business combinations using the acquisition method. Under this method, the consideration transferred is measured at fair value. Acquisition-related and integration costs associated with the business combination are BUSINESS COMBINATIONS expensed as incurred. The Company recognizes goodwill as the excess of the cost of the acquisition over the net identifiable The Company accounts for its business combinations using the acquisition method. Under this method, the consideration tangible and intangible assets acquired and liabilities assumed at their acquisition-date fair values. The goodwill recognized is transferred is measured at fair value. Acquisition-related and integration costs associated with the business combination are composed of the future economic value associated to acquired work force and synergies with the Company’s operations which expensed as incurred. The Company recognizes goodwill as the excess of the cost of the acquisition over the net identifiable are primarily due to reduction of costs and new business opportunities. Management makes assumptions when determining the tangible and intangible assets acquired and liabilities assumed at their acquisition-date fair values. The goodwill recognized is acquisition-date fair values of the identifiable tangible and intangible assets acquired and liabilities assumed which involve composed of the future economic value associated to acquired work force and synergies with the Company’s operations which estimates, such as the forecasting of future cash flows, discount rates, and the useful lives of the assets acquired. Subsequent are primarily due to reduction of costs and new business opportunities. Management makes assumptions when determining the changes in fair values are adjusted against the cost of acquisition if they qualify as measurement period adjustments. The acquisition-date fair values of the identifiable tangible and intangible assets acquired and liabilities assumed which involve measurement period is the period between the date of acquisition and the date where all significant information necessary to estimates, such as the forecasting of future cash flows, discount rates, and the useful lives of the assets acquired. Subsequent determine the fair values is available, not to exceed 12 months. All other subsequent changes are recognized in the consolidated changes in fair values are adjusted against the cost of acquisition if they qualify as measurement period adjustments. The statements of earnings. measurement period is the period between the date of acquisition and the date where all significant information necessary to determine the fair values is available, not to exceed 12 months. All other subsequent changes are recognized in the consolidated EARNINGS SHARE statements ofPER earnings. Basic earnings per share is based on the weighted average number of shares outstanding during the period. Diluted earnings per share is determined using the treasury stock method to evaluate the dilutive effect of stock options and PSUs. EARNINGS PER SHARE Basic earnings per share is based on the weighted average number of shares outstanding during the period. Diluted earnings RESEARCH AND SOFTWARE DEVELOPMENT COSTSto evaluate the dilutive effect of stock options and PSUs. per share is determined using the treasury stock method Research costs are charged to earnings in the period in which they are incurred, net of related tax credits. Software development costs related AND to internal-use software and businessCOSTS solutions are charged to earnings in the year they are incurred, net of related RESEARCH SOFTWARE DEVELOPMENT tax credits, unless they meet specific capitalization criteria related to technical, market and financial feasibility as described in Research costs are charged to earnings in the period in which they are incurred, net of related tax credits. Software development the Intangible assets section above. costs related to internal-use software and business solutions are charged to earnings in the year they are incurred, net of related tax credits, unless they meet specific capitalization criteria related to technical, market and financial feasibility as described in the Intangible assets section above.


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TAX 3. CREDITS Summary

of significant accounting policies (continued)

The Company follows the income approach to account for research and development (R&D) and other tax credits, whereby investment tax credits are recorded when there is a reasonable assurance that the assistance will be received and that the TAX CREDITS Company will comply with all relevant conditions. Under this method, tax credits related to operating expenditures are recorded The Company follows the income approach to account for research and development (R&D) and other tax credits, whereby as a reduction of the related expenses and recognized in the period in which the related expenditures are charged to earnings. investment tax credits are recorded when there is a reasonable assurance that the assistance will be received and that the Tax credits related to capital expenditures are recorded as a reduction of the cost of the related assets. The tax credits recorded Company will comply with all relevant conditions. Under this method, tax credits related to operating expenditures are recorded are based on management's best estimates of amounts expected to be received and are subject to audit by the taxation authorities. as a reduction of the related expenses and recognized in the period in which the related expenditures are charged to earnings. Tax credits related to capital expenditures are recorded as a reduction of the cost of the related assets. The tax credits recorded INCOME are basedTAXES on management's best estimates of amounts expected to be received and are subject to audit by the taxation authorities. Income taxes are accounted for using the liability method of accounting. INCOME TAXES Current income taxes are recognized with respect to the amounts expected to be paid or recovered under the tax rates and laws Income taxes accounted for using theenacted liability at method of accounting. that have beenare enacted or substantively the balance sheets date. Current taxesand areliabilities recognized respect to the amounts expected to be paid or recovered under between the tax rates laws Deferredincome tax assets arewith determined based on deductible or taxable temporary differences the and amounts that havefor been enacted orfinancial substantively enacted at theand balance sheetsofdate. reported consolidated statement purposes tax values the assets and liabilities using enacted or substantively enacted tax rates that will be in effect for the year in which the differences are expected to be recovered or settled. Deferred tax Deferred tax assets and liabilities are determined based on deductible or taxable temporary differences between the amounts assets and liabilities are recognized in earnings, in other comprehensive income or in equity based on the classification of the reported for consolidated financial statement purposes and tax values of the assets and liabilities using enacted or substantively item to which they relate. enacted tax rates that will be in effect for the year in which the differences are expected to be recovered or settled. Deferred tax assets and arerecognized recognizedforinunused earnings, othertocomprehensive or inthat equity based on will the be classification of the Deferred taxliabilities assets are tax in losses the extent that itincome is probable taxable profit available against item to which they relate. which the losses can be utilized. Once this assessment is made, the Company considers the analysis of forecasts and future tax planning strategies. Estimates of taxable profit are made based on the forecast by jurisdiction on an undiscounted basis. In Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against addition, management considers factors such as substantively enacted tax rates, the history of the taxable profits and availability which the losses can be utilized. Once this assessment is made, the Company considers the analysis of forecasts and future tax of tax strategies. planning strategies. Estimates of taxable profit are made based on the forecast by jurisdiction on an undiscounted basis. In addition, management considers factors such as substantively enacted the history the taxable profits andthe availability The Company is subject to taxation in numerous jurisdictions and theretax arerates, transactions andofcalculations for which ultimate of tax strategies. tax determination is uncertain. When a tax position is uncertain, the Company recognizes an income tax asset or reduces an income tax liability only when it is probable that the tax asset will be realized in the future or that the income tax liability is no The Company is subject to taxation in numerous jurisdictions and there are transactions and calculations for which the ultimate longer probable. The provision for uncertain tax positions is made using the best estimate of the amount expected to be paid tax determination is uncertain. When a tax position is uncertain, the Company recognizes an income tax asset or reduces an based on qualitative assessment of all relevant factors such as experience of previous tax audits or interpretations of tax regulations. income tax liability only when it is probable that the tax asset will be realized in the future or that the income tax liability is no longer probable. The provision for uncertain tax positions is made using the best estimate of the amount expected to be paid PROVISIONS based on qualitative assessment of all relevant factors such as experience of previous tax audits or interpretations of tax regulations. Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate PROVISIONS can be made of the amount of the obligation. The Company’s provisions consist of liabilities for leases of vacated premises, Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is litigation and claims provisions arising in the ordinary course of business and decommissioning liabilities for operating leases of probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate office buildings. The Company also records restructuring provisions for termination of employment costs related to its productivity can be made of the amount of the obligation. The Company’s provisions consist of liabilities for leases of vacated premises, improvement initiatives and to the integration of its business acquisitions. litigation and claims provisions arising in the ordinary course of business and decommissioning liabilities for operating leases of office buildings. The Company also records restructuring provisions for terminationrequired of employment related to its productivity The amount recognized as a provision is the best estimate of the consideration to settlecosts the present obligation at the improvement initiatives and taking to the into integration its risks business acquisitions. surrounding the obligation. Provisions are discounted end of the reporting period, accountofthe and uncertainties using a current pre-tax rate when the impact of the time value of money is material. The increase in the provisions due to the The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the passage of time is recognized as finance costs. end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Provisions are discounted using a currentaccrues pre-tax provisions rate when the impact ofleases the time value of money is material. The increase with in thevacated provisions due toThe the The Company for onerous which consist of estimated costs associated premises. passage of time is recognized as finance costs. provisions reflect the present value of lease payments in excess of the expected sublease proceeds on the remaining term of the lease. The Company accrues provisions for onerous leases which consist of estimated costs associated with vacated premises. The provisions reflect the present value of lease payments in excess of the expected sublease onother the remaining term of The accrued litigation and legal claims provisions are based on historical experience, currentproceeds trends and assumptions that the are lease. believed to be reasonable under the circumstances. Estimates include the period in which the underlying cause of the claim occurred and the degree of probability of an unfavourable outcome. The accrued litigation and legal claims provisions are based on historical experience, current trends and other assumptions that are believed to be reasonable under the circumstances. Estimates include the period in which the underlying cause of the claim occurred and the degree of probability of an unfavourable outcome.

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PROVISIONS (CONTINUED) 3. Summary of significant


Decommissioning liabilities pertain to operating leases of buildings where certain arrangements require premises to be returned to their original(CONTINUED) state at the end of the lease term. The provision is determined using the present value of the estimated future PROVISIONS cash outflows. Decommissioning liabilities pertain to operating leases of buildings where certain arrangements require premises to be returned to their originalprovisions state at the of the lease term. The provision is determined using the present of business the estimated future Restructuring areend recognized when a detailed formal plan identifies the business or partvalue of the concerned, cash outflows. the location and number of employees affected, a detailed estimate of the associated costs, appropriate timelines and has been communicated to those affected by it. Restructuring provisions are recognized when a detailed formal plan identifies the business or part of the business concerned, the location and number of employees affected, a detailed estimate of the associated costs, appropriate timelines and has been TRANSLATION FOREIGN communicated toOF those affectedCURRENCIES by it. The Company’s consolidated financial statements are presented in Canadian dollars, which is also the parent company’s functional currency. Each entity in the Company determines its own functional currency and items included in the financial statements of TRANSLATION OF FOREIGN CURRENCIES each entity are measured using that functional currency. Functional currency is the currency of the primary economic environment The Company’s consolidated financial statements are presented in Canadian dollars, which is also the parent company’s functional in which the entity operates. currency. Each entity in the Company determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Functional currency is the currency of the primary economic environment Foreign currency transactions and balances in which the entity operates. Revenue, expenses and non-monetary assets and liabilities denominated in foreign currencies are recorded at the rate of exchange Foreign transactions balances prevailingcurrency at the transaction date.and Monetary assets and liabilities denominated in foreign currencies are translated at exchange rates prevailing at the balance sheets date. Unrealized and realized translation gains and losses are reflected in the consolidated Revenue, expenses and non-monetary assets and liabilities denominated in foreign currencies are recorded at the rate of exchange statements of earnings. prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated at exchange rates prevailing at the balance sheets date. Unrealized and realized translation gains and losses are reflected in the consolidated Foreign operations statements of earnings. For foreign operations that have functional currencies different from the Company, assets and liabilities denominated in a foreign Foreign currency operations are translated at exchange rates in effect at the balance sheets date. Revenue and expenses are translated at average exchange rates prevailing during the period. Resulting unrealized gains or losses on translating financial statements of foreign For foreign operations that have functional currencies different from the Company, assets and liabilities denominated in a foreign operations are reported in other comprehensive income. currency are translated at exchange rates in effect at the balance sheets date. Revenue and expenses are translated at average exchange prevailing the period. Resulting unrealized gains or losses on translating of foreign For foreignrates operations withduring the same functional currency as the Company, monetary assets andfinancial liabilitiesstatements are translated at the operations are reported in other comprehensive income. exchange rates in effect at the balance sheets date and non-monetary assets and liabilities are translated at historical exchange rates. Revenue and expenses are translated at average exchange rates during the period. Translation exchange gains or losses For foreign operations with the same functional currency as the Company, monetary assets and liabilities are translated at the of such operations are reflected in the consolidated statements of earnings. exchange rates in effect at the balance sheets date and non-monetary assets and liabilities are translated at historical exchange rates. Revenue and expenses are translated at average exchange rates during the period. Translation exchange gains or losses SHARE-BASED PAYMENTS of such operations are reflected in the consolidated statements of earnings. Equity-settled plans SHARE-BASED PAYMENTS The Company operates equity-settled stock option and PSU plans under which the Company receives services from employees, Equity-settled plans as consideration for equity instruments. officers and directors The Company operates equity-settled stock option and PSU plans under Company receives services from employees, fair value of those share-based payments is established on the grantwhich date the using the Black-Scholes option pricing model for officers and directors equityAinstruments. the stock options and as theconsideration closing price for of Class subordinate shares of the Company on the Toronto Stock Exchange (TSX) for the PSUs. The number of stock options and PSUs expected to vest are estimated on the grant date and subsequently revised The fair value of those share-based payments is established on the grant date using the Black-Scholes option pricing model for on each reporting date. For stock options, the estimation of fair value requires making assumptions for the most appropriate the stock options and the closing price of Class A subordinate shares of the Company on the Toronto Stock Exchange (TSX) for inputs to the valuation model including the expected life of the option and expected stock price volatility. The fair values, adjusted the PSUs. The number of stock options and PSUs expected to vest are estimated on the grant date and subsequently revised for expectations related to performance conditions and for expected forfeitures, are recognized as share-based payment costs on each reporting date. For stock options, the estimation of fair value requires making assumptions for the most appropriate in earnings with a corresponding credit to contributed surplus on a graded-vesting basis over the vesting period. inputs to the valuation model including the expected life of the option and expected stock price volatility. The fair values, adjusted for expectations related performance andpaid for expected forfeitures, recognized as share-based payment When stock options are to exercised, any conditions consideration is credited to capital are stock and the recorded fair value of the costs stock in earnings with a corresponding credit to contributed surplus on a graded-vesting basisare over the vesting options is removed from contributed surplus and credited to capital stock. When PSUs exercised, theperiod. recorded fair value of PSUs is removed from contributed surplus and credited to capital stock. When stock options are exercised, any consideration paid is credited to capital stock and the recorded fair value of the stock options is removed from contributed surplus and credited to capital stock. When PSUs are exercised, the recorded fair value of Share purchase plan PSUs is removed from contributed surplus and credited to capital stock. The Company operates a share purchase plan for eligible employees. Under this plan, the Company matches the contributions Share purchase plan made by employees up to a maximum percentage of the employee's salary. The Company contributions to the plan are recognized in salaries and other member costs within costs of services, selling and administrative. The Company operates a share purchase plan for eligible employees. Under this plan, the Company matches the contributions made by employees up to a maximum percentage of the employee's salary. The Company contributions to the plan are recognized in salaries and other member costs within costs of services, selling and administrative. CGI Group Inc. – Consolidated Financial Statements for the years ended September 30, 2017 and 2016

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SHARE-BASED PAYMENTS (CONTINUED) 3. Summary of significant accounting

policies (continued)

Cash-settled deferred share units SHARE-BASED PAYMENTS (CONTINUED) The Company operates a deferred share unit (DSU) plan to compensate the members of the Board of Directors. The expense Cash-settled share units is recognized deferred within costs of services, selling and administrative for each DSU granted equal to the closing price of Class A subordinate shares of the Company on the TSX at the date on which DSUs are awarded and a corresponding liability is recorded The Company operates a deferred share unit (DSU) plan to compensate the members of the Board of Directors. The expense in accrued compensation. After the grant date, the DSU liability is remeasured for subsequent changes in the fair value of the is recognized within costs of services, selling and administrative for each DSU granted equal to the closing price of Class A Company's shares. subordinate shares of the Company on the TSX at the date on which DSUs are awarded and a corresponding liability is recorded in accrued compensation. After the grant date, the DSU liability is remeasured for subsequent changes in the fair value of the FINANCIAL INSTRUMENTS Company's shares. All financial instruments are initially measured at their fair value. Subsequently, financial assets classified as loans and receivables and financial INSTRUMENTS liabilities classified as other liabilities are measured at their amortized cost using the effective interest rate method. FINANCIAL Financial assets and liabilities classified as fair value through earnings (FVTE) and classified as available-for-sale are measured All financial instruments are initially measured at their fair value. Subsequently, financial assets classified as loans and receivables subsequently at their fair value. and financial liabilities classified as other liabilities are measured at their amortized cost using the effective interest rate method. Financial assets and liabilities as on fairinitial valuerecognition through earnings (FVTE) classified as available-for-sale instruments may be classified designated as FVTE if anyand of the following criteria are met: i)are themeasured financial subsequently at their fairorvalue. instrument contains one more embedded derivatives that otherwise would have to be accounted for separately; ii) the designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring the Financial instruments may be designated on initial recognition as FVTE if any of the following criteria are met: i) the financial financial asset or liability or recognizing the gains and losses on them on a different basis; or iii) the financial asset and financial instrument contains one or more embedded derivatives that otherwise would have to be accounted for separately; ii) the designation liability are part of a group of financial assets or liabilities that is managed and its performance evaluated on a fair value basis, eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring the in accordance with a documented risk management or investment strategy. Gains and losses related to periodic revaluations of financial asset or liability or recognizing the gains and losses on them on a different basis; or iii) the financial asset and financial financial assets and liabilities designated as FVTE are recorded in the consolidated statements of earnings. liability are part of a group of financial assets or liabilities that is managed and its performance evaluated on a fair value basis, in accordance a and documented risk or investment Gains and losses to periodic revaluations of The unrealizedwith gains losses, net of management applicable income taxes, on strategy. available-for-sale assets arerelated reported in other comprehensive financial assets and liabilities designated as FVTE areand recorded thethe consolidated statements of earnings. income. Interest income earned and realized gains lossesinon sale of available-for-sale assets are recorded in the consolidated statements of earnings. The unrealized gains and losses, net of applicable income taxes, on available-for-sale assets are reported in other comprehensive income. Interest earnedprimarily and realized gains and losses on the saledirectly of available-for-sale assets are of recorded in the Transaction costsincome are comprised of legal, accounting and other costs attributable to the issuance the respective consolidated statements of earnings. financial assets and liabilities. Transaction costs are capitalized to the cost of financial assets and liabilities classified as other than FVTE. Transaction costs are comprised primarily of legal, accounting and other costs directly attributable to the issuance of the respective financial liabilities. Transaction costs are capitalized to the cost ofthe financial assets liabilities classified as other Financialassets assets and are derecognized if the contractual rights to the cash flows from financial assetand expire or the asset is transferred than FVTE. and the transfer qualifies for derecognition. The transfer qualifies for derecognition if substantially all the risks and rewards of ownership of the financial asset are transferred. Financial assets are derecognized if the contractual rights to the cash flows from the financial asset expire or the asset is transferred and the transfer qualifies for following derecognition. The transfer qualifies for derecognition if substantially all the risks and rewards of The Company has made the classifications: ownership of the financial asset are transferred. FVTE The Company has made the following classifications: Cash and cash equivalents and derivative financial instruments unless they qualify for hedge accounting. In addition, deferred FVTE compensation plan assets within long-term financial assets were designated by management as FVTE upon initial recognition as this reflected management’s investment strategy. Cash and cash equivalents and derivative financial instruments unless they qualify for hedge accounting. In addition, deferred compensation plan assets within long-term financial assets were designated by management as FVTE upon initial recognition Loans and receivables as this reflected management’s investment strategy. Trade accounts receivable, cash included in funds held for clients and long-term receivables within long-term financial assets. Loans and receivables Available-for-sale Trade accounts receivable, cash included in funds held for clients and long-term receivables within long-term financial assets. Long-term bonds included in funds held for clients and in long-term investments within long-term financial assets. Available-for-sale Other liabilities Long-term bonds included in funds held for clients and in long-term investments within long-term financial assets. Accounts payable and accrued liabilities, accrued compensation, long-term debt and clients’ funds obligations. Other liabilities Accounts payable and accrued liabilities, accrued compensation, long-term debt and clients’ funds obligations.

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FINANCIAL INSTRUMENTS (CONTINUED) 3. Summary of significant accounting

policies (continued)

Fair value hierarchy FINANCIAL INSTRUMENTS (CONTINUED) Fair value measurements recognized in the balance sheets are categorized in accordance with the following levels: Fair value hierarchy Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities; Fair value measurements recognized in the balance sheets are categorized in accordance with the following levels: Level 2: inputs other than quoted prices included in Level 1, but that are observable for the asset or liability, either directly Level 1: quoted or indirectly; andprices (unadjusted) in active markets for identical assets or liabilities; Level 3: 2: inputs for other quoted prices included Levelon 1, observable but that aremarket observable thethan asset or liability that are notinbased data. for the asset or liability, either directly or indirectly; and DERIVATIVE FINANCIAL AND HEDGING Level 3: inputs for the INSTRUMENTS asset or liability that are not basedTRANSACTIONS on observable market data. The Company enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign currency exchange risks. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING TRANSACTIONS

The Company enters into a variety derivative financialatinstruments tothe manage its exposure interest rate foreign Derivative financial instruments areofinitially recognized fair value at date the derivativetocontracts are and entered intocurrency and are exchange risks. subsequently remeasured to their fair value at the end of each reporting date. The resulting gain or loss is recognized in the consolidated statements of earnings unless the derivative is designated and is effective as a hedging instrument, in which event Derivative financial instruments are initially recognized at fair value at the date the derivative contracts are entered into and are the timing of the recognition in the consolidated statements of earnings depends on the nature of the hedge relationship. subsequently remeasured to their fair value at the end of each reporting date. The resulting gain or loss is recognized in the consolidated statements of earnings unless derivative is designated andand is effective as athe hedging in to which event At the inception of a hedge relationship, thethe Company formally designates documents hedgeinstrument, relationship which the the timing wishes of the recognition in theaccounting consolidated of earnings depends thestrategy nature offorthe hedge relationship. Company to apply hedge andstatements the risk management's objectiveonand undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the hedged and how the Company will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the Company wishes to apply hedge accounting and the risk management's objective and strategy for undertaking the hedge. The exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine hedged and how the Company will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the that they actually have been highly effective throughout the financial reporting periods for which they were designated. exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be in achieving offsetting changes in fair value orsame cash flows and onof anthe ongoing basis to determine Thehighly cash effective flows of the hedging transactions are classified in the manner asare theassessed cash flows position being hedged. that they actually have been highly effective throughout the financial reporting periods for which they were designated. Derivative financial instruments used as hedging items are recorded at fair value in the consolidated balance sheets under current The cash flows of the hedging transactions are classified same manner as the cash flows of the position being hedged. derivative financial instruments, long-term financial assetsinorthe long-term derivative financial instruments. Valuation models, such as discounted cash flow analysis using observable market inputs, are utilized to determine the fair values of the derivative financial Derivative financial instruments used as hedging items are recorded at fair value in the consolidated balance sheets under current instruments. derivative financial instruments, long-term financial assets or long-term derivative financial instruments. Valuation models, such as discounted flow analysis using observable market inputs, are utilized to determine the fair values of the derivative financial Hedges of netcash investments in foreign operations instruments. The Company uses cross-currency swaps and foreign currency denominated long-term debt to hedge portions of the Company’s Hedges of net investments inEuropean foreign operations net investments in its U.S. and operations. Foreign exchange translation gains or losses on the net investments and the effective portions of gains or losses on instruments hedging the net investments are recorded in other comprehensive income. The Company uses cross-currency swaps and foreign currency denominated long-term debt to hedge portions of the Company’s To the extent that the hedge is ineffective, such differences are recognized in consolidated statements of earnings. When the net investments in its U.S. and European operations. Foreign exchange translation gains or losses on the net investments and hedged net investment is disposed of, the relevant amount in other comprehensive income is transferred to earnings as part of the effective portions of gains or losses on instruments hedging the net investments are recorded in other comprehensive income. the gain or loss on disposal. To the extent that the hedge is ineffective, such differences are recognized in consolidated statements of earnings. When the hedged nethedges investment is disposed of, the amount Cash flow of future revenue andrelevant long-term debtin other comprehensive income is transferred to earnings as part of the gain or loss on disposal. The majority of the Company’s costs are denominated in currency other than the Canadian dollar. The risk of foreign exchange Cash flow impacting hedges ofthe future revenue and long-term debtby matching the Company’s costs with revenue denominated in the fluctuation results is substantially mitigated same currency. In certain cases where there is a substantial imbalance for a specific currency, the Company enters into foreign The majority of the Company’s costs are denominated in currency other than the Canadian dollar. The risk of foreign exchange currency forward contracts to hedge the variability in the foreign currency exchange rates. fluctuation impacting the results is substantially mitigated by matching the Company’s costs with revenue denominated in the same currency.also In certain cases where there is a substantial imbalance foreither a specific currency, the Company foreign The Company uses interest rate and cross-currency swaps to hedge the cash flow exposure or theenters foreigninto exchange currency contractsdebt. to hedge the variability in the foreign currency exchange rates. exposureforward of the long-term The Company also uses interest rate and cross-currency swaps to hedge either the cash flow exposure or the foreign exchange exposure of the long-term debt.


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DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING TRANSACTIONS (CONTINUED) 3. Summary of significant accounting policies (continued) Cash flow hedges of future revenue and long-term debt (continued) DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING TRANSACTIONS (CONTINUED) Those derivatives are documented as cash flow hedges and no component of the derivative contracts’ fair value are excluded Cash flow hedges ofand future revenue and long-term debt (continued) from the assessment measurement of hedge effectiveness. The effective portion of the change in fair value of the derivative financial instruments is recognized in other comprehensive income and the ineffective portion, if any, in the consolidated statements Those derivatives are documented as cash flow hedges and no component of the derivative contracts’ fair value are excluded of earnings. The effective portion of the change in fair value of the derivatives is reclassified out of other comprehensive income from the assessment and measurement of hedge effectiveness. The effective portion of the change in fair value of the derivative into the consolidated statements of earnings when the hedged element is recognized in the consolidated statements of earnings. financial instruments is recognized in other comprehensive income and the ineffective portion, if any, in the consolidated statements of earnings. The effective portion ofunsecured the change notes in fair value of the derivatives is reclassified out of other comprehensive income Fair value hedges of Senior U.S. into the consolidated statements of earnings when the hedged element is recognized in the consolidated statements of earnings. The Company entered into interest rate swaps to hedge the fair value exposure of the issued fixed rate Senior U.S. unsecured Fair value hedges of Senior unsecured notesreceives a fixed rate of interest and pays interest at a variable rate on the notes. Under the interest rate U.S. swaps, the Company notional amount. The Company entered into interest rate swaps to hedge the fair value exposure of the issued fixed rate Senior U.S. unsecured notes. Under the interest rate of swaps, the Company receives a fixed rateinofthe interest and pays interest atofa earnings variable rate on the The changes in the fair value the interest rate swaps are recognized consolidated statements as finance notional amount. costs. The changes in the fair value of the hedged items attributable to the risk hedged is recorded as part of the carrying value of the Senior U.S. unsecured notes and are also recognized in the consolidated statements of earnings as finance costs. If the The changes in the fair value of the interest rate swaps are recognized in the consolidated statements of earnings as finance hedged items are derecognized, the unamortized fair value is recognized immediately in the consolidated statements of earnings. costs. The changes in the fair value of the hedged items attributable to the risk hedged is recorded as part of the carrying value of the Senior U.S. unsecured notes and are also recognized in the consolidated statements of earnings as finance costs. If the EMPLOYEE hedged itemsBENEFITS are derecognized, the unamortized fair value is recognized immediately in the consolidated statements of earnings. The Company operates both defined benefit and defined contribution post-employment benefit plans. EMPLOYEE BENEFITS The cost of defined contribution plans is charged to the consolidated statements of earnings on the basis of contributions payable The Company operates bothyear. defined benefit and defined contribution post-employment benefit plans. by the Company during the The cost of defined plans is charged to the consolidated statements of earnings on the using basis of payable For defined benefit contribution plans, the defined benefit obligations are calculated by independent actuaries thecontributions projected unit credit by the Company during benefits the year.obligations in the consolidated balance sheets represent the present value of the defined benefit method. The retirement obligations as reduced by the fair value of plan assets. The retirement benefits assets are recognized to the extent that the For defined benefit plans, the defined benefit obligations are calculated by independent actuaries using the projected unit credit Company can benefit from refunds or a reduction in future contributions. Retirement benefits plans that are funded by the payment method. The retirement benefits obligations in the consolidated balance sheets represent the present value of the defined benefit of insurance premiums are treated as defined contribution plans unless the Company has an obligation either to pay the benefits obligations as reduced by the fair value of plan assets. The retirement benefits assets are recognized to the extent that the directly when they fall due or to pay further amounts if assets accumulated with the insurer do not cover all future employee Company can benefit from refunds or a reduction in future contributions. Retirement benefits plans that are funded by the payment benefits. In such circumstances, the plan is treated as a defined benefit plan. of insurance premiums are treated as defined contribution plans unless the Company has an obligation either to pay the benefits directly when they are fall treated due or as to pay if assets with the of insurer do not cover all future employee Insurance policies planfurther assetsamounts of a defined benefitaccumulated plan if the proceeds the policy: benefits. In such circumstances, the plan is treated as a defined benefit plan. Can only be used to fund employee benefits; Insurance policies are treated as plan assets of a defined benefit plan if the proceeds of the policy: Are not available to the Company’s creditors; and Can only be used to fund employee benefits; Either cannot be paid to the Company unless the proceeds represent surplus assets not needed to meet all the benefit Are not available the Company’s for creditors; and obligations or are to a reimbursement benefits already paid by the Company. Either cannot to thethe Company unlessare thetreated proceeds surplus assets and not needed all theas benefit Insurance policies that be do paid not meet above criteria as represent non-current investments are heldtoatmeet fair value longobligations reimbursement for benefits term financial assetsor in are the aconsolidated balance sheets.already paid by the Company. Insurance policies that doused not meet the above criteria aredefined treatedbenefit as non-current andpresent are heldvalue at fairinvolve value as longThe actuarial valuations to determine the cost of pension investments plans and their making term financial about assetsdiscount in the consolidated balance assumptions rates, future salary sheets. and pension increases, inflation rates and mortality. Any changes in these assumptions will impact the carrying amount of pension obligations. In determining the appropriate discount rate, management The actuarial valuations used to determine the cost of defined benefit pension plans and their present value involve making considers the interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be assumptions about discount rates, future salary and pension increases, inflation rates and mortality. Any changes in these paid, and that have terms to maturity approximating the terms of the related pension liability. assumptions will impact the carrying amount of pension obligations. In determining the appropriate discount rate, management considers the interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.

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EMPLOYEE BENEFITS 3. Summary of (CONTINUED) significant


The current service cost is recognized in the consolidated statements of earnings under costs of services, selling and administrative. The net interest cost calculated by applying the discount rate to the net defined benefit liabilities or assets is recognized as net EMPLOYEE BENEFITS (CONTINUED) finance cost or income. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefits that The current service cost is recognized in the consolidated statements of earnings under costs of services, selling and administrative. relates to past services or the gains or losses on curtailment is recognized immediately in the consolidated statements of earnings. The net interest cost calculated by applying the discount rate to the net defined benefit liabilities or assets is recognized as net The gains or losses on the settlement of a defined benefit plan are recognized when the settlement occurs. finance cost or income. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefits that relates to past services or the gains or plans lossesinclude on curtailment recognized immediately in the consolidated statements of earnings. Remeasurements on defined benefit actuarialisgains and losses, changes in the effect of the asset ceiling and the The gains or losses onexcluding the settlement of a defined benefit are recognized when the settlement occurs. return on plan assets, the amount included in netplan interest on the net defined liabilities or assets. Remeasurements are charged or credited to other comprehensive income in the period in which they arise. Remeasurements on defined benefit plans include actuarial gains and losses, changes in the effect of the asset ceiling and the return on plan assets, excluding the amount included in net interest on the net defined liabilities or assets. Remeasurements are FUTURE STANDARD CHANGES charged orACCOUNTING credited to other comprehensive income in the period in which they arise. The following standards have been issued but are not yet effective. The Company’s preliminary assessments are subject to change, asACCOUNTING the Company isSTANDARD progressing in the assessment of the impact of these standards on its consolidated financial statements. FUTURE CHANGES The standards have been issued but are not yet effective. The Company’s preliminary assessments are subject to IAS 7following - Statement of Cash Flows change, as the Company is progressing in the assessment of the impact of these standards on its consolidated financial statements. In January 2016, the IASB amended IAS 7, Statement of Cash Flows, to require enhanced disclosure about changes in liabilities IAS 7 - from Statement of Cash Flows arising financing activities, including changes from financing cash flows, changes arising from obtaining or losing control of subsidiaries or other businesses, the effect of changes in foreign exchange rates and changes in fair value. The amendments to In January 2016, the IASB amended IAS 7, Statement of Cash Flows, to require enhanced disclosure about changes in liabilities IAS 7 are effective on October 1, 2017 for the Company and the additional disclosures will be provided in its consolidated financial arising from financing activities, including changes from financing cash flows, changes arising from obtaining or losing control of statements for the year ended September 30, 2018. subsidiaries or other businesses, the effect of changes in foreign exchange rates and changes in fair value. The amendments to IAS are-effective onfrom October 1, 2017with for the Company and the additional disclosures will be provided in its consolidated financial IFRS7 15 Revenue Contracts Customers statements for the year ended September 30, 2018. In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers, to specify how and when to recognize revenue IFRS from Contracts withinformative Customersand relevant disclosures. The standard supersedes IAS 18, Revenue, IAS as well15as- Revenue requiring the provision of more 11, Construction Contracts, and other revenue related interpretations. In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers, to specify how and when to recognize revenue as as requiring provision of more 1, informative and relevant disclosures. supersedes IASCompany's 18, Revenue, IAS Thewell standard will bethe effective on October 2018 for the Company. Accordingly, The IFRSstandard 15 will be applied in the interim 11, Construction Contracts, and other revenue related interpretations. consolidated financial statements for the three months ended December 31, 2018. The standard permits two possible transition methods for its application: i) retrospectively to each prior reporting period presented or ii) retrospectively with the cumulative The standard will be effective on October 1, 2018 for the Company. Accordingly, IFRS 15 will be applied in the Company's interim effect of initially applying the standard recognized on the date of the initial application. The Company has not yet selected a consolidated financial statements for the three months ended December 31, 2018. The standard permits two possible transition transition method. methods for its application: i) retrospectively to each prior reporting period presented or ii) retrospectively with the cumulative effect of initially the standard recognized on the date of the initial application. The Company has not of yetfour selected a In preparation forapplying the conversion to IFRS 15, the Company has developed a detailed conversion plan consisting phases: transition method. 1) awareness, 2) detailed impact assessment, 3) design and 4) implementation. As part of the awareness phase, the Company has established a Steering Committee responsible for monitoring the progress and approving recommendations from the project In preparation for the conversion to IFRS 15, the Company has developed a detailed conversion plan consisting of four phases: team. The Steering Committee meets regularly and quarterly updates are provided to the Audit and Risk Management Committee. 1) awareness, 2) detailed impact assessment, 3) design and 4) implementation. As part of the awareness phase, the Company has a Steering Committee responsible forwhich monitoring the progress and approving recommendations from the current project The established Company has completed the awareness phase also involved a high-level review of the differences between team. The Steering Committee regularly and quarterly updates provided to the Audit and Risk plan Management Committee. requirements and IFRS 15. Themeets Company is progressing through theare second phase of the conversion which encompasses a detailed impact assessment of the differences identified. Generally, the Company expects that revenue from outsourcing, BPS The Company has completed the awareness phase which also involved a high-level review of the differences between current and systems integration and consulting services arrangements will continue to be recognized as the services are provided in a requirements and IFRS 15. The Company is progressing through the second phase of the conversion plan which encompasses manner that is consistent with its current accounting policies. The Company is in the process of evaluating the impact of the a detailed impact assessment of the differences identified. Generally, the Company expects that revenue from outsourcing, BPS standard on the revenue recognition from software licenses and the additional disclosure requirements. and systems integration and consulting services arrangements will continue to be recognized as the services are provided in a manner that is two consistent its current accounting policies. The Company is in the process the impact of the The remaining phases,with design and implementation are being conducted concurrently up untilof theevaluating effective date. The impacts standard on key the revenue software licenses and the additional disclosure requirements. on the other elementsrecognition such as IT from changes, education and training requirements, internal control over financial reporting and impacts on business activities of the Company’s conversion plan will be assessed during those phases. The remaining two phases, design and implementation are being conducted concurrently up until the effective date. The impacts on the other key elements such as IT changes, education and training requirements, internal control over financial reporting and impacts on business activities of the Company’s conversion plan will be assessed during those phases.


79

21




3.


FUTURE ACCOUNTING STANDARD CHANGES (CONTINUED) 3. Summary of significant accounting policies

(continued)

IFRS 9 - Financial Instruments FUTURE ACCOUNTING STANDARD CHANGES (CONTINUED) In July 2014, the IASB amended IFRS 9, Financial Instruments, to replace IAS 39, Financial Instruments: Recognition and IFRS 9 - Financial Measurement. The Instruments standard will be effective on October 1, 2018 for the Company and is required to be applied retrospectively. Accordingly, IFRS 9 will be applied in the interim consolidated financial statements for the three months ended December 31, In July 2014, the IASB amended IFRS 9, Financial Instruments, to replace IAS 39, Financial Instruments: Recognition and 2018. Measurement. The standard will be effective on October 1, 2018 for the Company and is required to be applied retrospectively. Accordingly, 9 will the be applied in the of interim consolidated financial statements the of three ended of December 31, The standardIFRS simplifies classification financial assets, while carrying forwardfor most the months requirements IAS 39. The 2018. standard introduces a new impairment model, which allows the use of a simplified approach, and a new hedge accounting model that is more closely aligned with risk-management activities. The Company has performed a high-level review of the differences The standard simplifies the classification of financial assets, while carrying forward most of the requirements of IAS 39. The between IAS 39 and IFRS 9. Based on the preliminary assessment performed to date, the Company does not expect a significant standard introduces a new impairment model, which allows the use of a simplified approach, and a new hedge accounting model impact on its consolidated financial statements. that is more closely aligned with risk-management activities. The Company has performed a high-level review of the differences between IAS 39 and IFRS Based Currency on the preliminary assessment performed to date, the Company does not expect a significant IFRIC Interpretation 22 - 9. Foreign Transactions and Advance Consideration impact on its consolidated financial statements. In December 2016, the IASB issued International Financial Reporting Interpretations Committee (IFRIC) Interpretation 22, Foreign IFRIC Interpretation - Foreign Currency Transactions Consideration Currency Transactions22and Advance Consideration, to clarifyand the Advance transaction date for the purpose of determining the exchange rate to use on initial recognition of the related transactions when the Company has received or paid in advance consideration in In December 2016, the IASB issued International Financial Reporting Interpretations Committee (IFRIC) Interpretation 22, Foreign a foreign currency. This interpretation will be effective on October 1, 2018 for the Company, with earlier application permitted. Currency Transactions and Advance Consideration, to clarify the transaction date for the purpose of determining the exchange Based on the preliminary assessment performed to date, the Company does not expect a significant impact on its consolidated rate to use on initial recognition of the related transactions when the Company has received or paid in advance consideration in financial statements. a foreign currency. This interpretation will be effective on October 1, 2018 for the Company, with earlier application permitted. Based on- the preliminary assessment performed to date, the Company does not expect a significant impact on its consolidated IFRS 16 Leases financial statements. In January 2016, the IASB issued IFRS 16, Leases, to set out the principles for the recognition, measurement, presentation and IFRS 16 - Leases disclosure of leases for both parties to a lease agreement. The standard supersedes IAS 17, Leases, and other lease related interpretations, eliminates the classification of leases as either operating leases or finance leases and introduces a single lessee In January 2016, the IASB issued IFRS 16, Leases, to set out the principles for the recognition, measurement, presentation and accounting model. The standard will be effective on October 1, 2019 for the Company with earlier application permitted. When disclosure of leases for both parties to a lease agreement. The standard supersedes IAS 17, Leases, and other lease related the Company is the lessee, it is expected that the application of IFRS 16 will result in on-balance sheet recognition of most of its interpretations, eliminates the classification of leases as either operating leases or finance leases and introduces a single lessee lease agreements that are currently considered operating leases, which are primarily for the rental of premises. The Company accounting model. The standard will be effective on October 1, 2019 for the Company with earlier application permitted. When also expects a decrease of its property costs and an increase of its finance costs and amortization and depreciation resulting the Company is the lessee, it is expected that the application of IFRS 16 will result in on-balance sheet recognition of most of its from the change in the recognition, measurement and presentation of rental expenses. lease agreements that are currently considered operating leases, which are primarily for the rental of premises. The Company also expects a decrease of its property costs and an increase of its finance costs and amortization and depreciation resulting from the change in the recognition, measurement and presentation of rental expenses.

4.

Accounts receivable

4.

Accounts receivable

Trade (Note 31) R&D and other tax credits1 Other (Note 31) Trade 1

As at September 30, 2017


$

$

As at 931,530 September 30, 2017 246,616 $ 107,734 931,530 1,285,880 246,616

As at 816,885 September 30, 2016 187,047 $ 97,674 816,885 1,101,606 187,047

R&D and other tax credits Other 107,734 97,674 R&D and other tax credits were related to government programs in Canada, United States of America (U.S.), France, United Kingdom (U.K.) and other countries. 1,285,880 1,101,606

80


22

FISCAL 2017 RESULTS



5.

Funds held for clients

5.

Funds held for clients

As at September 30, 2017 $


Cash Long-term bonds (Note 31)

As at 118,043 September 30, 2017 195,509

As at 173,554 September 30, 2016 195,976

Cash Long-term bonds (Note 31)

313,552 118,043 195,509

369,530 173,554 195,976

313,552

369,530

6.

Property, plant and equipment

6.

Property, plant and equipment

Cost As at September 30, 2016 Additions Cost Additions - business (Note 26a) As at September 30, acquisitions 2016 Disposals/retirements Additions Foreign currency translation adjustment Additions - business acquisitions (Note 26a) AsDisposals/retirements at September 30, 2017 Accumulated depreciation Foreign currency translation adjustment As at September 30,2017 2016 As at September 30, Depreciation expense (Note 23) Accumulated depreciation Impairment (Notes 23 and 24) As at September 30, 2016 Disposals/retirements Depreciation expense (Note 23) Foreign currency translation adjustment Impairment (Notes 23 and 24) AsDisposals/retirements at September 30, 2017 Net carrying amount as at September Foreign currency translation adjustment30, 2017 As at September 30, 2017 Net carrying amount as at September 30, 2017

Cost As at September 30, 2015 Additions Cost Disposals/retirements As at September 30, 2015 Foreign currency translation adjustment Additions AsDisposals/retirements at September 30, 2016 Accumulated depreciation Foreign currency translation adjustment As at September 30, 2015 As at September 30, 2016 Depreciation expense (Note 23) Accumulated depreciation Disposals/retirements As at September 30, 2015 Foreign currency translation adjustment Depreciation expense (Note 23) AsDisposals/retirements at September 30, 2016 Net carrying amounttranslation as at September 30, 2016 Foreign currency adjustment As at September 30, 2016 Net carrying amount as at September 30, 2016

$

$

Land and buildings

Leasehold improvements


Computer equipment

$ Land and buildings

$ Leasehold improvements

Furniture,$ fixtures and equipment

$ Computer equipment

651,742 $ 89,402 3,609 651,742 (87,158) 89,402 (12,232) 3,609 645,363 (87,158)

1,092,318 $ 120,957 5,488 1,092,318 (116,071) 120,957 (17,347) 5,488 1,085,345 (116,071)

(1,335) 15,001 65,640 2,324 4,985 15,001 (1,350) 2,324 (269) 4,985 20,691 (1,350) 44,949 (269)

(1,837) 146,836 210,326 20,687 — 146,836 (10,932) 20,687 (1,790) — 154,801 (10,932) 55,525 (1,790)

(1,943) 97,574 164,016 15,796 364 97,574 (13,558) 15,796 (1,045) 364 99,131 (13,558) 64,885 (1,045)

(12,232) 393,614 645,363 114,047 558 393,614 (87,126) 114,047 (6,984) 558 414,109 (87,126) 231,254 (6,984)

(17,347) 653,025 1,085,345 152,854 5,907 653,025 (112,966) 152,854 (10,088) 5,907 688,732 (112,966) 396,613 (10,088)

20,691 44,949

154,801 55,525

99,131 64,885

Land and buildings

68,576 $ 2,475 — 68,576 (4,076) 2,475 (1,335) — 65,640 (4,076)

206,193 $ 16,438 673 206,193 (11,141) 16,438 (1,837) 673 210,326 (11,141)

165,807 $ 12,642 1,206 165,807 (13,696) 12,642 (1,943) 1,206 164,016 (13,696)

Total $ Total

414,109 231,254

688,732 396,613

Leasehold improvements


Computer equipment

Total

$ Land and buildings

$ Leasehold improvements

Furniture,$ fixtures and equipment

$ Computer equipment

665,633 $ 134,322 (114,575) 665,633 (33,638) 134,322 651,742 (114,575)

1,119,606 $ 173,044 (152,923) 1,119,606 (47,409) 173,044 1,092,318 (152,923)

(3,559) 14,589 68,576 5,590 (3,673) 14,589 (1,505) 5,590 15,001 (3,673) 53,575 (1,505)

(6,265) 147,219 206,193 19,860 (16,123) 147,219 (4,120) 19,860 146,836 (16,123) 59,357 (4,120)

(3,947) 89,121 165,807 17,187 (6,522) 89,121 (2,212) 17,187 97,574 (6,522) 68,233 (2,212)

(33,638) 395,568 651,742 120,468 (102,245) 395,568 (20,177) 120,468 393,614 (102,245) 258,128 (20,177)

(47,409) 646,497 1,092,318 163,105 (128,563) 646,497 (28,014) 163,105 653,025 (128,563) 439,293 (28,014)

15,001 53,575

146,836 59,357

97,574 68,233

393,614 258,128

653,025 439,293

84,432 $ 650 (12,947) 84,432 (3,559) 650 68,576 (12,947)

209,594 $ 18,987 (16,123) 209,594 (6,265) 18,987 206,193 (16,123)


159,947 $ 19,085 (9,278) 159,947 (3,947) 19,085 165,807 (9,278)

$ Total

81

23




6.

Property, plant and equipment (continued)

PP&E the following under finance leases: 6. include Property, plantassets and acquired equipment (continued) PP&E include the following assets acquired under finance leases: Cost $


15,201 Cost

As at September 30, 2017 Net Accumulated carrying depreciation amount As at September 30, 2017 $ $ Net Accumulated carrying 6,381 8,820 depreciation amount

As at September 30, 2016 Cost $

18,030 Cost

Net Accumulated carrying depreciation amount As at September 30, 2016 $ $ Net Accumulated carrying 9,082 8,948 depreciation amount

Computer equipment

46,514 $

29,992 $

16,522 $

64,484 $

40,668 $

23,816 $


61,715 15,201

36,373 6,381

25,342 8,820

82,514 18,030

49,750 9,082

32,764 8,948

Computer equipment

46,514

29,992

16,522

64,484

40,668

23,816

61,715

36,373

25,342

82,514

49,750

32,764

7.

Contract costs

7.

Contract costs


Transition costs Incentives Transition costs Incentives

82

420,475

Cost

58,978$

479,453 420,475

Net Accumulated carrying amortization amount As at September 30, 2017 $ $ Net Accumulated carrying 185,461 235,014 amortization amount

50,936$

236,397 185,461

8,042$

243,056 235,014


392,908 Cost

97,140$

490,048 392,908

Net Accumulated carrying amortization amount As at September 30, 2016 $ $ Net Accumulated carrying 189,381 203,527 amortization amount

89,649$

279,030 189,381

7,491$

211,018 203,527

58,978

50,936

8,042

97,140

89,649

7,491

479,453

236,397

243,056

490,048

279,030

211,018


24

FISCAL 2017 RESULTS



8.

Intangible assets

8.

Intangible assets

Cost As at September 30, 2016 Additions Cost Additions - business (Note 26a) As at September 30, acquisitions 2016 Disposals/retirements Additions Foreign currency translation adjustment Additions - business acquisitions (Note 26a) As at September 30, 2017 Disposals/retirements Accumulated amortization Foreign currency translation adjustment As at September 30, 2017 2016 As at September 30, Amortization expense (Note 23) Accumulated amortization Disposals/retirements As at September 30, 2016 Foreign currency translation adjustment Amortization expense (Note 23) As at September 30, 2017 Disposals/retirements Net carrying amount as at September 30, Foreign 2017 currency translation adjustment As at September 30, 2017 Net carrying amount as at September 30, 2017

Internal-use software acquired $ Internal-use software acquired

92,824 $ 11,815 78 92,824 (4,750) 11,815 (920) 78 99,047 (4,750)

72,332 $ 23,201 — 72,332 (805) 23,201 60 — 94,788 (805)

Business solutions acquired $ Business solutions acquired

94,209 $ — — 94,209 (7,330) — (2,835) — 84,044 (7,330)

Business solutions internally developed Business $ solutions internally developed

382,380 $ 43,934 — 382,380 (24,271) 43,934 (14,419) — 387,624 (24,271)

Client Software relationships licenses and other $ $ Client Software relationships licenses and other

Total $ Total

213,777 $ 19,563 255 213,777 (12,804) 19,563 (2,916) 255 217,875 (12,804)

935,100 $ — 50,141 935,100 — — (19,554) 50,141 965,687 —

1,790,622 $ 98,513 50,474 1,790,622 (49,960) 98,513 (40,584) 50,474 1,849,065 (49,960)

(920) 72,368 99,047 7,232 (4,750) 72,368 (564) 7,232 74,286 (4,750)

60 46,513 94,788 5,102 (805) 46,513 32 5,102 50,842 (805)

(2,835) 81,611 84,044 6,120 (7,330) 81,611 (2,250) 6,120 78,151 (7,330)

(14,419) 237,953 387,624 32,758 (24,271) 237,953 (9,089) 32,758 237,351 (24,271)

(2,916) 111,593 217,875 34,640 (12,804) 111,593 (1,757) 34,640 131,672 (12,804)

(19,554) 730,803 965,687 71,181 — 730,803 (15,647) 71,181 786,337 —

(40,584) 1,280,841 1,849,065 157,033 (49,960) 1,280,841 (29,275) 157,033 1,358,639 (49,960)

(564) 24,761 74,286

32 43,946 50,842

(2,250) 5,893 78,151

(9,089) 150,273 237,351

(1,757) 86,203 131,672

(15,647) 179,350 786,337

(29,275) 490,426 1,358,639

43,946

5,893

150,273

86,203

179,350

490,426

Software licenses

Client relationships and other

Total

$ Software licenses

$ Client relationships and other

24,761 Internal-use software acquired

Cost As at September 30, 2015 Additions Cost Additions - business As at September 30, acquisitions 2015 Disposals/retirements Additions Foreign translation adjustment Additionscurrency - business acquisitions As at September 30, 2016 Disposals/retirements Accumulated amortization Foreign currency translation adjustment As at September 30,2016 2015 As at September 30, Amortization expense (Note 23) Accumulated amortization Disposals/retirements As at September 30, 2015 Foreign currency translation adjustment Amortization expense (Note 23) As at September 30, 2016 Disposals/retirements Net carrying amount as at September 30, Foreign 2016 currency translation adjustment As at September 30, 2016 Net carrying amount as at September 30, 2016

Internal-use software internally developed Internal-use $ software internally developed

$ Internal-use software acquired

92,959 $ 5,669 — 92,959 (629) 5,669 (5,175) — 92,824 (629)

Internal-use software internally developed Internal-use $ software internally developed

Business solutions acquired $ Business solutions acquired

55,340 $ 17,112 — 55,340 — 17,112 (120) — 72,332 —

128,370 $ 1,943 — 128,370 (34,190) 1,943 (1,914) — 94,209 (34,190)

(5,175) 66,481 92,824 9,880 (629) 66,481 (3,364) 9,880 72,368 (629)

(120) 42,464 72,332 4,066 — 42,464 (17) 4,066 46,513 —

(3,364) 20,456 72,368 20,456

Business solutions internally developed Business $ solutions internally developed

388,040 $ 37,501 — 388,040 (36,062) 37,501 (7,099) — 382,380 (36,062)

174,095 $ 68,683 — 174,095 (22,795) 68,683 (6,206) — 213,777 (22,795)

(1,914) 110,818 94,209 6,467 (34,190) 110,818 (1,484) 6,467 81,611 (34,190)

(7,099) 247,518 382,380 30,341 (36,062) 247,518 (3,844) 30,341 237,953 (36,062)

(17) 25,819 46,513

(1,484) 12,598 81,611

25,819

12,598


$ Total

954,667 $ — 8,984 954,667 — — (28,551) 8,984 935,100 —

1,793,471 $ 130,908 8,984 1,793,471 (93,676) 130,908 (49,065) 8,984 1,790,622 (93,676)

(6,206) 100,616 213,777 35,583 (22,196) 100,616 (2,410) 35,583 111,593 (22,196)

(28,551) 656,763 935,100 90,558 — 656,763 (16,518) 90,558 730,803 —

(49,065) 1,224,660 1,790,622 176,895 (93,077) 1,224,660 (27,637) 176,895 1,280,841 (93,077)

(3,844) 144,427 237,953

(2,410) 102,184 111,593

(16,518) 204,297 730,803

(27,637) 509,781 1,280,841

144,427

102,184

204,297

509,781

83

25




9.

Other long-term assets

9.

Other long-term assets


Long-term maintenance agreements Insurance contracts held to fund defined benefit pension and life assurance arrangements - reimbursement rights (Note 16) Long-term maintenance agreements Retirement benefits assets (Note 16) Insurance contracts held to fund defined benefit pension and life assurance Deposits arrangements - reimbursement rights (Note 16) Deferred financing Retirement benefitsfees assets (Note 16) Other Deposits Deferred financing fees Other

As at 25,561

As at September 30, 2016 $ As at 20,942

September 30, 2017

September 30, 2016

$

23,945 25,561 11,623 10,843 23,945 3,292 11,623 9,895 10,843 85,159 3,292

24,435 20,942 8,797 9,893 24,435 2,882 8,797 20,021 9,893 86,970 2,882

9,895 85,159

20,021 86,970



$

10. Long-term financial assets 10. Long-term financial assets Deferred compensation plan assets (Notes 16 and 31) Long-term investments (Note 31) Long-termcompensation receivables plan assets (Notes 16 and 31) Deferred Long-term financial instruments (Note 31) Long-term derivative investments (Note 31) Long-term receivables Long-term derivative financial instruments (Note 31)

84


$ As at

$ As at

46,906 September 30, 2017

42,139 September 30, 2016

23,047 $

27,246 $

16,415 46,906 24,939 23,047

10,239 42,139 49,759 27,246

111,307 16,415

129,383 10,239

24,939

49,759

111,307

129,383

26

FISCAL 2017 RESULTS

Notes to the Consolidated Financial Statements For the yearsto ended September 30, 2017 and 2016 Financial Statements Notes the Consolidated (tabular amounts only are in thousands of Canadian dollars, except per share data) For the years ended September 30, 2017 and 2016 (tabular amounts only are in thousands of Canadian dollars, except per share data)


11. Goodwill 11. Goodwill

The Company’s operations are managed through the following seven operating segments referred to as the Company's Strategic Business Units, namely: United States of America (U.S.); Nordics; Canada; France (including Luxembourg and Morocco) (France); The Company’s managed through the following sevenseven operating segments referredreferred to as thetoCompany's Strategic Company’soperations operationsare are managed through the following operating segments as the Company’s 11. United Goodwill Kingdom (U.K.); Eastern, Central and Southern Europe (primarily Netherlands and Germany) (ECS); and Asia Pacific Business namely: United StatesU.S.; of America (U.S.); Nordics; Canada; France (including Luxembourg and Morocco) (France); Strategic Units, Business Units, namely: Nordics; Canada; France (including Luxembourg and Morocco) (France); U.K.; (including Australia, India and the Philippines) (Asia Pacific). The operating segments reflect the current management structure United Kingdom Eastern, Central and Southern Europe (primarily Netherlands and Germany) (ECS); and Asia Pacific Eastern, Central (U.K.); and Southern Europe (primarily Netherlands and Germany) (ECS); and Asia Pacific (including Australia, India and the way thatoperations the chief operating decision-maker, who is theseven President and Chief Executive Officer of the the Company's Company, evaluates The are managed thesegments following operating segments referred to as (including Australia, India the Philippines) (Asia Pacific). The operating segments reflect thestructure current management structure and Company’s the Philippines) (Asiaand Pacific). The through operating reflect the current management and the wayStrategic that the the business. Business Units, United States of the America (U.S.); Nordics; Canada; France (including Luxembourg andCompany, Morocco) (France); and way thatnamely: the chief operating who isChief the President and Chief Executive Officer evaluates of the evaluates chiefthe operating decision-maker, whodecision-maker, is President and Executive Officer of the Company, the business. United Kingdom (U.K.); Eastern, Central and Southern Europe (primarily Netherlands and Germany) (ECS); and Asia Pacific the business. (including Australia, India and the Philippines) (Asia The operating segments reflect the current management structure The Company completed the annual impairment testPacific). as at September 30, 2017 and did not identify any impairment. and the way that the chief operating decision-maker, who is the President and Chief Executive Officer of the Company, evaluates The Company annual impairment test as at September 30, 2017 and did not identify any impairment. variations completed in goodwill the were as follows: the business. The variations in goodwill were as follows: The Company completed the annualU.S. impairment test as atCanada September France 30, 2017 and did anyAsia impairment. Nordics U.K.not identify ECS Pacific Total $ The variations in goodwill were as follows: U.S.


Business acquisitions As at September 30, 2016 Foreign currency translation Business acquisitions adjustment Foreign currency translation As at Asadjustment at September September30, 30,2016 2017 Business acquisitions As at September 30, 2017 Foreign currency translation adjustment

$ Nordics

$ Canada

$ France

$ U.K.

$ ECS

1,743,020 $

1,190,615 $

1,112,146 $

881,627 $

839,016 $

853,311 $

U.S.

Nordics

Canada

France

U.K.

ECS

238,322 1,743,020

— 1,190,615

— 1,112,146 — $ — 1,112,146 1,112,146 — — 1,112,146

— 881,627

238,322 $ (95,279) 1,743,020 1,886,063 (95,279) 238,322 1,886,063

— $ (709) 1,190,615 1,189,906 (709) — 1,189,906

(95,279)

(709)

—

2,092

As at September 30,in2017 1,886,063 1,189,906 Key assumptions goodwill impairment testing

1,112,146

883,719

— 839,016

— $ 2,092 881,627 883,719 2,092 — 883,719

— $ (14,751) 839,016 824,265 (14,751) — 824,265

— 853,311 — $ 4,057 853,311 857,368 4,057 — 857,368

(14,751) 824,265

$ Asia Pacific

313,598 $

— 313,598

Asia Pacific

— $ (7,035) 313,598 306,563 (7,035) — 306,563

4,057

(7,035)

857,368

306,563

$ Total

6,933,333 $ 238,322 6,933,333 Total

238,322 $ (111,625) 6,933,333 7,060,030 (111,625) 238,322 7,060,030 (111,625) 7,060,030

Key assumptions in goodwill impairment testing The key assumptions for the CGUs are disclosed in the following tables: The key assumptions for the CGUs are disclosed in the following tables: Key in goodwill impairment testing As atassumptions September 30, 2017 U.S. Nordics

Canada

France

U.K.

ECS Asia Pacific

% % The assumptions tables: As atkey September 30, 2017for the CGUs are disclosed in the following U.S. Nordics

% Canada

% France

% U.K.

% % ECS Asia Pacific

2.0 8.9

2.0 9.3

1.9 8.1

Pre-tax WACC

Long-term growth rate of net operating cash flows1 Pre-tax WACC


1

Long-term growth rate of net operating cash flows

WACC AsPre-tax at September 30, 2016

Long-term growth rate of net operating cash flows1


Pre-tax WACC

Long-term growth rate of net operating cash flows1 Pre-tax WACC


1

1

Long-term ofbased net operating cash flowsresearch. The long-termgrowth growth rate rate is on published industry

1

Pre-tax WACC The long-term growth rate is based on published industry research. Long-term growth rate of net operating cash flows1

1

11.7 %

9.2 %

U.S.

Nordics

Canada

France

U.K.

ECS Asia Pacific

1.9 %

2.0 %

11.7 U.S.

9.2 Nordics

8.9 Canada

9.3 France

8.1 U.K.

9.0 ECS

17.2 Asia Pacific

2.0 %

1.9 %

2.0 %

2.0 %

1.9 %

1.9 %

2.0 % Asia Pacific

2.0 11.7 2.0 %

1.9 9.2 1.9 %

8.9 %

2.0 %

9.3 %

2.0 %

8.1 %

1.9 %

9.0 %

1.9 9.0

U.S.

Nordics

Canada

France

U.K.

ECS

2.0 11.8

1.9 10.0

2.0 9.0

2.0 9.2

1.9 8.1

1.9 9.1

11.8 %

10.0 %

9.0 %

9.2 %

8.1 %

9.1 %

17.2 %

2.0 17.2

19.2 %

2.0 19.2

U.S.

Nordics

Canada

France

U.K.

ECS

Asia Pacific

11.8

10.0

9.0

9.2

8.1

9.1

19.2

2.0

1.9

2.0

2.0

1.9

1.9

2.0

2.0 %

1.9 %

2.0 %

2.0 %

1.9 %

1.9 %

2.0 %

The long-term growth rate is based on published industry research.

CGI Group Inc. – Consolidated Financial Statements for the years ended September 30, 2017 and 2016 CGI Group Inc. – Consolidated Financial Statements for the years ended September 30, 2017 and 2016

27

85

27




12. Provisions 12. Provisions As at September 30, 2016 Additional provisions

17,326 $

4,207 $

1,933 $

Total

$

$

13,426 Restructuring

75,378 Total

4

72,633 $

96,099 $ (35,449) 75,378 (8,756) 96,099

Discount rate adjustment and imputed interest Utilized amounts Foreign currency translation adjustment Reversals of unused amounts

139 (7,055) (278) (1,417) 24,961 139

— (3,649) (127) (2,859) 6,572 —

291 (1,698) (367) (4,480) 32,385 291

— (23,047) 116 —

430 (35,449) (656) (8,756)

9,845 (278) 15,116 24,961

6,572 (127) — 6,572

7,867 (367) 24,518 32,385

63,128 — 61,870 116

127,046 430 86,154 (656)

1,258 63,128

40,892 127,046

9,845

6,572

7,867

61,870

86,154

15,116 Onerous leases1, 4

— Litigation and claims2

24,518 Decommissioning liabilities3

1,258

40,892

Restructuring4

Total

$ Onerous 39,483 1, 4 leases

$ Litigation 24,1592 and claims

$ Decommissioning 38,7533 liabilities

As at September 30, 2016and imputed interest Discount rate adjustment Current portion Foreign currency translation adjustment Non-current portion As at September 30, 2016

4

$ Decommissioning 36,7063 liabilities

(23,047) 13,426 — 72,633

As at September 30, 2015 Additional provisions Utilized amounts 30, 2015 As at September Reversals of unused amounts Additional provisions Discount rate adjustment and imputed interest Utilized amounts Foreign currency translation adjustment Reversals of unused amounts

4

$ Litigation 9,0002 and claims

(1,698) 36,706 (4,480) 1,933

Non-current portion

3

$ Onerous 1, 16,2464 leases

Restructuring4

(3,649) 9,000 (2,859) 4,207

Current portion

2 3

Decommissioning liabilities3

(7,055) 16,246 (1,417) 17,326

Non-current portion As at September 30, 2017

1 2

Litigation and claims2

Utilized amounts 30, 2016 As at September Reversals of unused amounts Additional provisions

As at September 30, 2017 Discount rate adjustment and imputed interest Current portion Foreign currency translation adjustment

1

Onerous leases1, 4

2,639 $ (13,492) 39,483 (10,480) 2,639 184 (13,492) (2,088) (10,480) 16,246 184 6,362 (2,088) 9,884 16,246

2,168 $ (10,553) 24,159 (6,160) 2,168 — (10,553) (614) (6,160) 9,000 — 9,000 (614) — 9,000

4,891 $ (2,278) 38,753 (1,593) 4,891 433 (2,278) (3,500) (1,593)

36,706 433 8,582 (3,500) 28,124 36,706

$

54,640 Restructuring4 29,100 $ (69,724) 54,640 — 29,100 — (69,724) (590) — 13,426 — 10,980 (590) 2,446 13,426

$

157,035 Total 38,798 $ (96,047) 157,035 (18,233) 38,798 617 (96,047) (6,792) (18,233) 75,378 617 34,924 (6,792) 40,454 75,378

Current portion 30, 2017, the timing of cash outflows relating to these provisions 6,362 ranges between 9,000 one and nine years 8,582 34,924 As at September (one and seven10,980 years as at September 30, 2016) and they were discounted at a weighted average rate of 0.71% (0.77% due to Non-current portion 9,884 as at September — 30, 2016). The reversals 28,124 of unused amounts 2,446 are mostly 40,454 favourable settlements.

As at September September 30, 30, 2017, 2017, litigation the timingand of cash outflows to these provisions ranges (other between one and related nine years (one and seven years as at September 30, As at claims includerelating provisions related to tax exposure than those to income tax), contractual disputes, employee 2016) discounted$5,254,000 at a weighted rate of 0.71% (0.77% as at September 30, nil, 2016). The reversals of unused respectively). amounts are The mostly due to claims and and they otherwere of $1,163,000, andaverage $155,000, respectively (as at September 30, 2016, $5,289,000 and $3,711,000, reversals favourable settlements. of unused amounts are mostly due to favourable settlements of tax exposures and employee claims and other. As and claims include provisions related taxexpected exposurecash (other thanofthose related to($37,472,000 income tax), as contractual disputes, employee As at at September September 30, 30, 2017, 2017, litigation the decommissioning liabilities were based ontothe flows $33,034,000 at September 30, 2016) and claimsdiscounted and other at of a$1,163,000, $5,254,000 $155,000, respectively (as at September 30, 2016, $5,289,000 and of $3,711,000, respectively). reversals were weighted average rate and of 0.90% (0.98% as at September 30, 2016). The timingnil, of the settlements these obligations rangesThe between one of unused amounts mostly due favourable settlements of taxas exposures and employee claims other. of unused amounts are mostly due to favourable and ten years as atare September 30,to2017 (one and eleven years at September 30, 2016). The and reversals settlements. As at September 30, 2017, the decommissioning liabilities were based on the expected cash flows of $33,034,000 ($37,472,000 as at September 30, 2016) and were discounted at a weighted average rate26, of 0.90% (0.98% at September 30, 2016). The timing of the settlements of these obligations ranges between one . See Note 24, Restructuring costs and Note Investments inas subsidiaries and ten years as at September 30, 2017 (one and eleven years as at September 30, 2016). The reversals of unused amounts are mostly due to favourable settlements. See Note 24, Restructuring costs and Note 26, Investments in subsidiaries

86


28

FISCAL 2017 RESULTS



13. Long-term debt 13. Long-term debt Senior U.S. unsecured notes repayable in December by tranches of $175,126 (U.S. $140,000) in 2018 and $312,725 (U.S.$250,000) in 20211 Senior unsecured notes repayable in September by tranches of $50,036 (U.S.$ 40,000) Senior U.S. unsecured notes repayable December by tranches of $175,126 (U.S. in 2019, $68,800 (U.S.$55,000) in 2021,in $375,270 (U.S.$ 300,000) in 2024, $437,815 1 $140,000) in 2018 $312,725 (U.S.$250,000) infrom 20212018 (U.S.$350,000) in 7and yearly payments of U.S.$50,000 to 2024 and $125,647 2 (€85,000) in 2021 Senior unsecured notes repayable in September by tranches of $50,036 (U.S.$ 40,000) 3 in 2019, $68,800 (U.S.$55,000) in 2021, $375,270 (U.S.$ 300,000) in 2024, $437,815 Unsecured committed revolving credit facility (U.S.$350,000) in 7 yearly payments of U.S.$50,000 from 2018 to 2024 and $125,647 2 in blended monthly installments maturing at various dates until Obligations repayable (€85,000) in 2021 2021, bearing a weighted average interest rate of 2.49% (2.57% in 2016) Unsecured committed revolving credit facility3 Obligations under finance leases repayable in blended monthly installments maturing Obligations in blended monthly installments maturing various dates until at various repayable dates until 2022, bearing a weighted average interest at rate of 2.89% (3.40% 2021, bearing a weighted average interest rate of 2.49% (2.57% in 2016) in 2016) Obligations underdebt finance leases repayable in blended monthly installments maturing Other long-term at various dates until 2022, bearing a weighted average interest rate of 2.89% (3.40% in 2016) Current portion debt Other long-term 1

1

2

2 3

3

Current portion



$ As at September 30, 2017


485,401 $

630,881 $

485,401 1,057,027

630,881 1,102,155

200,000

—

1,057,027 61,703 200,000

1,102,155 111,205 —

61,703 29,794

111,205 42,172

28,078

24,562

1,862,003 29,794 122,467 28,078

1,910,975 42,172 192,036 24,562

1,739,536 1,862,003

1,718,939 1,910,975

122,467

192,036

As at September 30, 2017, an amount of $487,851,000 was drawn, less fair value adjustments relating to interest rate swaps designated as fair value hedges of $2,208,000 and financing fees of $242,000. In December 2016, the Company repaid the matured tranche of the Senior U.S. unsecured notes for a 1,718,939 total amount 1,739,536 of $113,584,000. Following that repayment, the private placement financing with U.S. institutional investors is comprised of two tranches of Senior U.S. unsecured notes with a weighted average maturityofof$487,851,000 3.1 years andwas a weighted average interest rate of 4.76% (4.57% in 2016). Senior U.S. unsecured notes contain As at September 30, 2017, an amount drawn, less fair value adjustments relating to interest rate The swaps designated as fair value hedges of covenants that the Company to maintain certain financial (Note 32).repaid As at September 2017, of thethe Company was in compliance withfor these covenants. $2,208,000 andrequire financing fees of $242,000. In December 2016,ratios the Company the matured30, tranche Senior U.S. unsecured notes a total amount

of $113,584,000. Following that repayment, the private placement financing with U.S. institutional investors is comprised of two tranches of Senior U.S. unsecured As at September 30, 2017, an amount of $1,057,568,000 was drawn, less financing fees of $541,000. The private placement is comprised of four tranches of notes with a weighted average maturity of 3.1 years and a weighted average interest rate of 4.76% (4.57% in 2016). The Senior U.S. unsecured notes contain Senior U.S. unsecured notes and one tranche of Senior euro unsecured note, with a weighted average maturity of 4.9 years and a weighted average interest rate covenants that require the Company to maintain certain financial ratios (Note 32). As at September 30, 2017, the Company was in compliance with these covenants. of 3.62% (3.62% in 2016). The Senior unsecured notes contain covenants that require the Company to maintain certain financial ratios (Note 32). As at September 30, 2017, the Company wasan in compliance with these covenants. As at September 30, 2017, amount of $1,057,568,000 was drawn, less financing fees of $541,000. The private placement is comprised of four tranches of

Senior U.S. unsecured notes and one tranche of Senior euro unsecured note, with a weighted average maturity of 4.9 years and a weighted average interest rate The Company has an unsecured committed revolving credit facility available for an amount of $1,500,000,000 that expires in December 2021. This facility bears of 3.62% (3.62% in 2016). The Senior unsecured notes contain covenants that require the Company to maintain certain financial ratios (Note 32). As at September interest at Bankers' acceptance, LIBOR or Canadian prime, plus a variable margin that is determined based on the Company's leverage ratio. As at September 30, 2017, the Company was in compliance with these covenants. 30, 2017, an amount of $200,000,000 was drawn upon this facility at Canadian prime with no margin at a weighted average interest rate of 3.20%. Also, an amount of $9,631,000 committed against this facility credit to cover various lettersfor of an credit issued clients and other November 2021. 7, 2017, thefacility facilitybears was The Company has has been an unsecured committed revolving facility available amount offor $1,500,000,000 thatparties. expiresOn in December This extended one year to December 2022orand can be prime, further plus extended. There were that no material changes in the and conditions including rates and interest atby Bankers' acceptance, LIBOR Canadian a variable margin is determined based onterms the Company's leverage ratio.interest As at September banking unsecured committed revolving credit facility containsprime covenants that require the Company to maintain certain (Note 32). 30, 2017,covenants. an amountThe of $200,000,000 was drawn upon this facility at Canadian with no margin at a weighted average interest rate offinancial 3.20%. ratios Also, an amount As at September 2017, the Company compliance with theseletters covenants. of $9,631,000 has30, been committed againstwas thisinfacility to cover various of credit issued for clients and other parties. On November 7, 2017, the facility was extended by one year to December 2022 and can be further extended. There were no material changes in the terms and conditions including interest rates and

banking covenants. The unsecured committed revolving credit facility contains covenants that require the Company to maintain certain financial ratios (Note 32). Principal repayments on long-term debt, excluding fair value hedges, obligations under finance leases and financing fees, over As at September 30, 2017, the Company was in compliance with these covenants. the forthcoming years are as follows:

Principal repayments on long-term debt, excluding fair value hedges, obligations under finance leases and financing fees, over $ the forthcoming years are as follows: Less than one year 109,006 Between one and two years Between five years Less thantwo oneand year Beyond five years Between one and two years

308,678 $ 914,472 109,006 503,044 308,678

Total principal repayments Between two and five yearson long-term debt Beyond five years

1,835,200 914,472 503,044

Minimum finance lease payments aredebt as follows: Total principal repayments on long-term Minimum finance lease payments are as follows: Less than one year Between one and two years Between five years Less thantwo oneand year

Total minimum finance lease payments Between one and two years Between two and five years Total minimum finance lease payments


1,835,200 Principal

Interest

$

$

$

13,408 Principal 7,965 $ 8,421 13,408

678 Interest 376 $ 261 678

14,086 Payment 8,341 $ 8,682 14,086

29,794

1,315

31,109

29,794 7,965 8,421

1,315 376 261

Payment

31,109 8,341 8,682

87

29


Notes to Notes to the the Consolidated Consolidated Financial Financial Statements Statements For the years ended September 30, 2017 and 2016 For For the the years years ended ended September September 30, 30, 2017 2017 and and 2016 2016 (tabular amounts only are in thousands of Canadian dollars, except per share data) (tabular amounts only are in thousands of Canadian dollars, except per share data)


14. 14. Other Other long-term long-term liabilities liabilities 14. Other long-term liabilities Deferred revenue Deferred revenue Deferred compensation plan liabilities (Note 16) Deferred compensation plan liabilities (Note (Note 16) 16) Deferred rent Deferred rent Deferred revenue Other Other Deferred compensation plan liabilities (Note 16) Deferred rent Other

15. 15.

Income Income taxes taxes

15.

Income taxes

Current income tax expense Current income tax expense Current income tax expense in respect of the current year Current income tax expense in respect of the current year Adjustments recognized in the current year in relation to the income tax expense of prior years Adjustments recognized in the current year in relation to the income tax expense of prior years Current income tax expense Total current income tax expense Total current income tax expense Current income taxexpense expense in respect of the current year Deferred income tax Deferred income tax expense Adjustments recognized in therelating currentto year relation toand thereversal income tax expense of prior years Deferred income tax expense thein origination of temporary differences Deferred income tax expense relating to the origination and reversal of temporary differences Total current income tax expense Deferred income tax expense relating to changes in tax rates Deferred income expense relating to changes in tax rates Deferred income taxtax expense Adjustments recognized in the current year in relation to the deferred income tax expense of prior Adjustments recognized in therelating currentto year relation toand thereversal deferredofincome tax expense of prior years income Deferred tax expense thein origination temporary differences years Recognition of previously unrecognized temporary differences Deferred income tax expense relating totemporary changes indifferences tax rates Recognition of previously unrecognized Total deferred income tax expense Adjustments recognized in the current year in relation to the deferred income tax expense of prior Total deferred income tax expense Totalyears income tax expense Total income tax expense Recognition of previously unrecognized temporary differences Total deferred income tax expense Total income tax expense

As As at at at September 30, As 2017 September September 30, 30, 2017 2017 $ $ $

As As at at at September 30, As 2016 September September 30, 30, 2016 2016 $ $ $

48,379 $ 39,554 39,554 112,244 13,259 13,259 48,379 213,436 213,436 39,554

43,844 $ 43,118 43,118 151,292 6,053 6,053 43,844 244,307 244,307 43,118

112,244 As at 112,244 September 30, 2017 48,379

151,292 As at 151,292 September 30, 2016 43,844

13,259

6,053

213,436

244,307

Year ended September 30 Year Year ended ended September September 30 30 2017 2016 2017 2016 2017 2016 $ $ $ $ $ $ Year ended September 30 2017 337,331 337,331 $ (15,526) (15,526) 321,805 321,805 337,331 (15,526) 70,641 70,641 321,805 2,575 2,575

2016 294,992 294,992 $ (7,413) (7,413) 287,579 287,579 294,992 (7,413) 106,939 106,939 287,579 7,776 7,776

2,115 70,641 2,115 (14,434) 2,575 (14,434) 60,897 60,897 2,115 382,702 382,702 (14,434) 60,897 382,702

928 106,939 928 (19,153) 7,776 (19,153) 96,490 96,490 928 384,069 384,069 (19,153) 96,490 384,069

The Company’s effective income tax rate differs from the combined Federal and Provincial Canadian statutory tax rate as follows: The Company’s effective income tax rate differs from the combined Federal and Provincial Canadian statutory tax rate as follows: Year Year ended ended September September 30 30 2017 2016 2017 2016 % % % % % % Year ended September 30 26.8 26.9 26.8 26.9 2017 2016

Year tax ended September 30 The Company’s effective income tax rate differs from the combined Federal and Provincial Canadian statutory rate as follows: 2017 2016

Company's statutory tax rate Company's statutory tax rate tax rate differences Effect Effect of of foreign foreign tax rate differences with tax authorities and expirations of statutes of limitations Final determination Final determination from from agreements agreements with tax authorities and expirations of statutes of limitations Company's statutory tax rate Non-deductible and tax exempt items Non-deductible and tax exempt items Effect of foreign tax rate differences Recognition Recognition of of previously previously unrecognized unrecognized temporary temporary differences differences Final determination from agreements with tax authorities and expirations of statutes of limitations Minimum income tax charge Minimum income tax charge Non-deductible and tax exempt items Impact on tax and resulting from Impact on deferred deferred tax assets assets and liabilities liabilities resulting from tax tax rate rate changes changes Recognition of previously unrecognized temporary differences Effective income tax rate Effective income tax rate Minimum income tax charge Impact on deferred tax assets and liabilities resulting from tax rate changes Effective income tax rate

88 Group Inc. CGI – Consolidated Financial Statements for the years ended September 30, 2017 and 2016 CGI CGI Group Group Inc. Inc. – – Consolidated Consolidated Financial Financial Statements Statements for for the the years years ended ended September September 30, 30, 2017 2017 and and 2016 2016

1.3 1.3 % (0.9) (0.9) 26.8 (0.3) (0.3) 1.3 (1.0) (1.0) (0.9) 0.9 0.9 (0.3) 0.2 0.2 (1.0) 27.0 27.0 0.9 0.2 27.0

0.9 0.9 % (0.4) (0.4) 26.9 (1.0) (1.0) 0.9 (1.3) (1.3) (0.4) 0.8 0.8 (1.0) 0.5 0.5 (1.3) 26.4 26.4 0.8 0.5 26.4

30 30 30

FISCAL 2017 RESULTS



15. Income taxes (continued) The of deferred balances is as follows: 15. continuity Income taxes tax (continued) The continuity of deferred tax balances is Asas at follows: Additions from September 30, 2016

Accounts payable, accrued liabilities and other long-term liabilities Tax benefits on losses carried forward

$ Additions from $ As at September business — 30,81,092 2016 acquisitions 134,725 $

Accrued Accountscompensation payable, accrued liabilities and other long-term liabilities Retirement benefits obligations Tax benefits on losses carried forward Allowance for doubtful accounts Accrued compensation PP&E, contract costs, intangible assets Retirement obligations and other benefits long-term assets Work in progress Allowance for doubtful accounts

41,780 81,092 41,265 134,725 598 41,780 (136,663) 41,265

Goodwill PP&E, contract costs, intangible assets and other long-term assets Refundable tax credits on salaries Work in progress Cash flow hedges Goodwill Other Refundable tax credits on salaries Deferred taxes, net Cash flow hedges

(56,050) (136,663) (22,216) (79,550) (9,035) (56,050) 373 (22,216) (3,681) (9,035)

Other Deferred taxes, net

Accounts payable, accrued liabilities and other long-term liabilities Tax benefits on losses carried forward

(79,550) 598

373 (3,681)

990 $ — — — 990 — — (4,116) — — — (4,116) — — — — — — (3,126) — — (3,126)

Recognized Foreign currency in other translation comprehensive Recognized adjustment and in equity income other Recognized Foreign currency $ $ $ $ in other translation Recognized comprehensive Recognized adjustment and 4,339 — — (2,734) in earnings in equity income other Recognized in earnings

(54,545) $ 5,274 4,339 (2,876) (54,545) (275) 5,274 4,217 (2,876)

— — — — — 6,277 — 1,629 — 4,084 6,277

2,351

1,629

(60,897) Recognized in earnings

$ As at September 30,73,483 2015

$ Additions from business acquisitions —

$ Recognized in earnings 10,259

57,439 73,483 32,491 224,397 4,400 57,439 (145,720) 32,491

Goodwill PP&E, contract costs, intangible assets and other long-term Refundable tax creditsassets on salaries Work in progress Cash flow hedges Goodwill Other Refundable tax credits on salaries Deferred taxes, net Cash flow hedges

(54,807) (145,720) (21,131) (68,167) (14,061) (54,807) 2,120 (21,131) 90,444 (14,061)

4,400 (68,167)

2,120

$ — 93 — — — — 93 (2,576) — — — (2,576) — — — — 154 — (2,329) — 154

— — (3,822) — — — — (3,822)

(4,836) (275)

Additions from business acquisitions

$ 224,397

— $

(7,117) 4,217 (7,569) (4,836) 140 (7,117) 2,351 (7,569) (60,897) 140


Accrued Accountscompensation payable, accrued liabilities and other long-term liabilities Retirement benefits obligations Tax benefits on losses carried forward Allowance for doubtful accounts Accrued compensation PP&E, contract costs, intangible assets Retirement obligations and other benefits long-term assets Allowance for doubtful accounts Work in progress

Other

business acquisitions

— $ (4,876) — — — — (4,876) — — — — — — — — — — (4,876) — —

4,084 (4,876) Recognized in other comprehensive Recognized income in equity Recognized $ $ in other comprehensive Recognized income in equity — —

As at September 30, 2017 $ As at September 30,82,697 2017

(2,277) $

78,893 $

(1,348) (2,734) (405) (2,277) — (1,348) 2,479 (405)

40,830 82,697 34,162 78,893 323 40,830 (134,083) 34,162

3,488 —

(80,898) 323

2,499 2,479 — 3,488 263 2,499 (382) — 1,583 263

(60,668) (134,083) (29,785) (80,898) (2,355) (60,668) 3,971 (29,785) (66,913) (2,355)

(382)

3,971

1,583 Foreign currency translation adjustment and other Foreign currency $ translation adjustment and other (2,650)

(66,913)

$ As at September 30,81,092 2016


$ (76,391)

$ —

$ —

$ (13,281)

$ 134,725

(23,819) 10,259 3,041 (76,391) (3,698) (23,819) 13,632 3,041

— — 6,565 — — — — 6,565

8,468 — — — — 8,468 —

(401) (2,650) (832) (13,281) (104) (401) (1,999) (832)

41,780 81,092 41,265 134,725 598 41,780 (136,663) 41,265

(3,698) (12,921)

—

—

(104) 1,538

598 (79,550)

(2,309) 13,632 (1,085) (12,921) 265 (2,309) (3,464) (1,085) (96,490) 265

— — — — 3,959 — 1,196 — 11,720 3,959

— — — — — — — — 8,468 —

1,066 (1,999) — 1,538 802 1,066 367 — (15,494) 802

(56,050) (136,663) (22,216) (79,550) (9,035) (56,050) 373 (22,216) (3,681) (9,035)

(3,464)

1,196

—

Deferred taxes, net 90,444 (2,329) (96,490) balance 11,720 The deferred tax balances are presented as follows in the consolidated sheets:

367

8,468

(15,494)

As at The deferred tax balances are presented as follows in the consolidated balance sheets: September 30, 2017 $

Deferred tax assets Deferred tax liabilities Deferred tax assets Deferred tax liabilities


373 (3,681)


As at 146,602 September 30, 2017 (213,515) $ (66,913) 146,602

As at 179,898 September 30, 2016 (183,579) $ (3,681) 179,898

(213,515) (66,913)

(183,579) (3,681)

89

31




15. Income taxes (continued) As 2017,(continued) the Company had $454,027,000 ($744,092,000 as at September 30, 2016) in operating tax losses 15.at September Income 30, taxes carried forward, of which $41,205,000 ($105,505,000 as at September 30, 2016) expire at various dates up to 2037 and $412,822,000 ($638,587,000 as at September 30, 2016) have no expiry dates. The Company recognized a deferred tax asset As at September 30, 2017, the Company had $454,027,000 ($744,092,000 as at September 30, 2016) in operating tax losses of $95,491,000 ($170,075,000 as at September 30, 2016) on the losses carried forward and recognized a valuation allowance carried forward, of which $41,205,000 ($105,505,000 as at September 30, 2016) expire at various dates up to 2037 and of $21,218,000 ($39,430,000 as at September 30, 2016). The resulting net deferred tax asset of $74,273,000 ($130,645,000 as $412,822,000 ($638,587,000 as at September 30, 2016) have no expiry dates. The Company recognized a deferred tax asset at September 30, 2016) is the amount that is more likely than not to be realized, based on deferred tax liabilities reversal and of $95,491,000 ($170,075,000 as at September 30, 2016) on the losses carried forward and recognized a valuation allowance future taxable profits. The unrecognized losses amounted to $89,954,000 ($143,700,000 as at September 30, 2016). of $21,218,000 ($39,430,000 as at September 30, 2016). The resulting net deferred tax asset of $74,273,000 ($130,645,000 as at September 30, 2016) is the amount that is more likely than not to be realized, based on deferred tax liabilities reversal and As at September 30, 2017, the Company had $658,734,000 ($662,334,000 as at Septemberas30, in non-operating future taxable profits. The unrecognized losses amounted to $89,954,000 ($143,700,000 at2016) September 30, 2016). tax losses carried forward that have no expiry dates. The Company recognized a deferred tax asset of $110,862,000 ($113,125,000 as at September 30, 2016) on the losses carried forward and recognized a valuation allowance of $106,242,000 ($109,045,000 as at As at September 30, 2017, the Company had $658,734,000 ($662,334,000 as at September 30, 2016) in non-operating tax losses September 30, 2016). The resulting net deferred tax asset of $4,620,000 ($4,080,000 as at September 30, 2016) is the amount carried forward that have no expiry dates. The Company recognized a deferred tax asset of $110,862,000 ($113,125,000 as at that is more likely than not to be realized, based on deferred tax liabilities reversal and future taxable profits. The unrecognized September 30, 2016) on the losses carried forward and recognized a valuation allowance of $106,242,000 ($109,045,000 as at losses amounted to $640,246,000 ($638,300,000 as at September 30, 2016). September 30, 2016). The resulting net deferred tax asset of $4,620,000 ($4,080,000 as at September 30, 2016) is the amount that is more likely than not to be realized, based on deferred tax liabilities reversal and future taxable profits. The unrecognized As at September the Company had $126,389,000 ($557,800,000 as at September 30, 2016) of cash and cash equivalents losses amounted30, to 2017, $640,246,000 ($638,300,000 as at September 30, 2016). held by foreign subsidiaries. The tax implications of the repatriation of cash and cash equivalent not considered indefinitely reinvested have been accounted for and will not materially affect the Company’s liquidity. In addition, the Company has not As at September 30, 2017, the Company had $126,389,000 ($557,800,000 as at September 30, 2016) of cash and cash equivalents recorded deferred tax liabilities on undistributed earnings of $2,779,924,000 ($2,339,815,000 as at September 30, 2016) coming held by foreign subsidiaries. The tax implications of the repatriation of cash and cash equivalent not considered indefinitely from its foreign subsidiaries as they are considered indefinitely reinvested. Upon distribution of these earnings in the form of reinvested have been accounted for and will not materially affect the Company’s liquidity. In addition, the Company has not dividends or otherwise, the Company may be subject to taxes. recorded deferred tax liabilities on undistributed earnings of $2,779,924,000 ($2,339,815,000 as at September 30, 2016) coming from its foreign subsidiaries as they are considered indefinitely reinvested. Upon distribution of these earnings in the form of dividends or otherwise, the Company may be subject to taxes.

16. Employee benefits The operates various post-employment plans, including defined benefit and defined contribution pension plans as well 16. Company Employee benefits as other benefit plans for its employees. The Company operates various post-employment plans, including defined benefit and defined contribution pension plans as well DEFINED BENEFIT as other benefit plansPLANS for its employees. The Company operates defined benefit pension plans primarily for the benefit of employees in U.K., Germany and France, with smaller plans in otherPLANS countries. The benefits are based on pensionable salary and years of service. U.K. and Germany plans DEFINED BENEFIT are funded with assets held in separate funds. France plan is unfunded. The Company operates defined benefit pension plans primarily for the benefit of employees in U.K., Germany and France, with smaller plansbenefit in other countries. pensionable salary and years of service. U.K. Germany plans The defined plans exposeThe the benefits Companyare to based intereston risk, inflation risk, longevity risk, currency risk andand market investment are funded with assets held in separate funds. France plan is unfunded. risk. The defined benefit plans expose the Company to interest risk, inflation risk, longevity risk, currency risk and market investment risk.

90


32

FISCAL 2017 RESULTS



16. Employee benefits (continued) DEFINED BENEFIT PLANS (CONTINUED) 16. Employee benefits (continued)

The following description focuses mainly on plans registered in U.K., Germany and France: DEFINED BENEFIT PLANS (CONTINUED) U.K. The following description focuses mainly on plans registered in U.K., Germany and France: In U.K., the Company has three defined benefit pension plans, CMG U.K. Pension Scheme, Logica U.K. Pension & Life Assurance U.K. Scheme and Logica Defined Benefit Pension Plan. In U.K., theU.K. Company hasScheme three defined benefit pension plans,and CMG Pension Scheme, Logica U.K.for Pension & Life Assurance The CMG Pension is closed to new members is U.K. closed to further accrual of rights existing members. The Scheme andPension Logica Defined Benefit Pension Logica U.K. & Life Assurance SchemePlan. is still open but only for employees who come from the civil service with protected pensions. Logica Defined Benefit Pension Plan was created to mirror the Electricity Supply Pension Scheme and was created The CMG U.K. Pension Scheme is closed to new members and is closed to further accrual of rights for existing members. The for employees that worked for National Grid and Welsh Water with protected benefits. Logica U.K. Pension & Life Assurance Scheme is still open but only for employees who come from the civil service with protected pensions. LogicaU.K. Defined Benefit Pension Plan Scheme was created mirrorDefined the Electricity and was created Both the Logica Pension & Life Assurance and to Logica Benefit Supply PensionPension Plan areScheme employer and employee for employees that worked for National Grid and Welsh Water with protected benefits. based contribution plans. Both the Logica Pension & Life Assurance Scheme and Logica Pension are administration, employer and employee The trustees areU.K. the custodians of the defined benefit pension plansDefined and areBenefit responsible for Plan the plan including based contribution plans. investment strategies. The trustees review periodically the investment and the asset allocation policies. As such, CMG U.K. Pension Scheme policy is to target an allocation of 35% to return-seeking assets such as equities and 65% towards a mixture of The trustees are the custodians of the defined benefit pension plans and are responsible for the plan administration, including assets such as bonds and liability-driven investments such as investment funds; Logica U.K. Pension & Life Assurance Scheme investment strategies. The trustees review periodically the investment and the asset allocation policies. As such, CMG U.K. policy is to invest 20% of the scheme assets in equities and 80% in bonds; and Logica Defined Benefit Pension Plan policy is to Pension Scheme policy is to target an allocation of 35% to return-seeking assets such as equities and 65% towards a mixture of invest 30% of the plan assets in equities and 70% in bonds. assets such as bonds and liability-driven investments such as investment funds; Logica U.K. Pension & Life Assurance Scheme policy is to invest ofrequires the scheme in equities and 80% in bonds; and Logica Benefit policy isthe to U.K. Pensions Act20% 2004 that assets full formal actuarial valuations are carried out at Defined least every threePension years toPlan determine invest 30% ofthat the plan assets in equities andin70% in bonds. contributions the Company should pay order for the plan to meet its statutory objective, taking into account the assets already held. In the interim years, the trustees need to obtain estimated funding updates unless the scheme has less than 100 U.K. Pensions Act 2004 requires that full formal actuarial valuations are carried out at least every three years to determine the members in total. contributions that the Company should pay in order for the plan to meet its statutory objective, taking into account the assets already held. In the interim years, the trustees obtain benefit estimated funding updates unless above the scheme less thanas100 The latest funding actuarial valuations of the need three todefined pension plans described were has undertaken at members total. Septemberin30, 2015, of which the following reported a deficit: The –latest funding actuarial valuations of the three defined benefit pension plans of described aboveAwere undertaken at The actuarial valuation of the CMG U.K. Pension Scheme reported a deficit $111,390,000. new recovery planaswas September 30, 2015, of which the following reported a deficit: proposed starting January 1, 2017 and reflecting quarterly payments of $3,731,000 to cover the deficit and $293,000 to cover administration expenses; and – The actuarial valuation of the CMG U.K. Pension Scheme reported a deficit of $111,390,000. A new recovery plan was starting January 1, 2017 reflecting quarterly payments of $3,731,000 the deficit andrecovery $293,000 to – proposed The actuarial valuation of the Logicaand Defined Benefit Pension Plan reported a deficit to of cover $7,882,000. A new plan cover administration expenses; and was proposed starting January 1, 2017 and reflecting monthly payments of $154,000 to cover the deficit and $10,000 to cover administration expenses. – The actuarial valuation of the Logica Defined Benefit Pension Plan reported a deficit of $7,882,000. A new recovery plan was proposed starting January 1, 2017 and reflecting monthly payments of $154,000 to cover the deficit and $10,000 Germany to cover administration expenses. In Germany, the Company has numerous defined benefit pension plans which are all closed to new members. In the majority of Germany the plans, upon retirement of employees, the benefits are in the form of a monthly pension and in a few plans, the employees will receive an indemnity in the form of a lump-sum payment. About one third of the plans are bound by the former Works Council In Germany, the Company has numerous defined benefit pension plans which are all closed to new members. In the majority of agreements. There are no mandatory funding requirements. The plans are funded by the contributions made by the Company. the plans, upon retirement of employees, the benefits are in the form of a monthly pension and in a few plans, the employees In some plans, insurance policies are taken out to fund retirement benefit plans. These do not qualify as plan assets and are will receive an indemnity in the form of a lump-sum payment. About one third of the plans are bound by the former Works Council presented as reimbursement rights. agreements. There are no mandatory funding requirements. The plans are funded by the contributions made by the Company. In some plans, insurance policies are taken out to fund retirement benefit plans. These do not qualify as plan assets and are France presented as reimbursement rights. In France, the retirement indemnities are provided in accordance with the Labour Code. Upon retirement, employees will receive France an indemnity, depending on the salary and seniority in the Company, in the form of a lump-sum payment. In France, the retirement indemnities are provided in accordance with the Labour Code. Upon retirement, employees will receive an indemnity, depending on the salary and seniority in the Company, in the form of a lump-sum payment.


91

33





The following tables present amounts for post-employment benefits plans included in the consolidated balance sheets: DEFINED BENEFIT PLANS (CONTINUED) The following tables present amounts for post-employment benefits plans included in the consolidated balance sheets: As at September 30, 2017

Defined benefit obligations As at September 30, 2017 Fair value of plan assets Defined benefit obligations Fair value value of of plan reimbursement rights Fair assets Net liability recognized in the balance sheet Fair value of reimbursement rights Presented as: Net liability recognized in the balance sheet Other long-term assets (Note 9) Presented Insuranceas: contracts held to fund defined benefit pension and (Note life assurance Other long-term 9) arrangementsassets - reimbursement rights Insurance contracts held to fund defined Retirement benefits assets benefit pension and life assurance arrangements - reimbursement rights Retirement benefits obligations Retirement benefits assets Retirement benefits obligations


U.K.

Germany

France

Other

$

$

$

$

(792,216) U.K.

(87,995) Germany

763,859 $

12,088 $

(28,357) (792,216) — 763,859

(75,907) (87,995) 22,863 12,088

(28,357) (28,357) — (28,357)

—

(53,044) (75,907) 22,863 (53,044)

22,863

(52,546) France — $ (52,546) (52,546) — —

(52,546) (52,546) — (52,546)

—

Total $

(58,933) Other

(991,690) Total

25,074 $

801,021 $

(33,859) (58,933) 1,082 25,074

(190,669) (991,690) 23,945 801,021

(32,777) (33,859)

(166,724) (190,669)

1,082

23,945

(32,777)

(166,724)

1,082

23,945

11,316 — (39,673)

— 22,863 (75,907)

— — (52,546)

307 1,082 (34,166)

11,623 23,945 (202,292)

(28,357) 11,316

(53,044) —

(52,546) —

(32,777) 307

(166,724) 11,623

(39,673)

(75,907)

(52,546)

(34,166)

(202,292)

(28,357)

(53,044)

(52,546)

(32,777)

(166,724)

U.K.

Germany

France

Other

$

$

$

$

Total $

Defined benefit30, obligations As at September 2016

(814,156) U.K.

(97,392) Germany

(58,565) France

(60,041) Other

(1,030,154) Total

Defined benefit obligations Fair value value of of plan reimbursement rights Fair assets Net liability recognized in the balance sheet

(21,491) (814,156) — 792,665

(84,989) (97,392) 23,269 12,403

(58,565) (58,565) — —

(42,466) (60,041) 1,166 17,575

(207,511) (1,030,154) 24,435 822,643

(21,491) (21,491)

(61,720) (84,989)

(58,565) (58,565)

(41,300) (42,466)

(183,076) (207,511)

Fair value of plan assets

Fair value of reimbursement rights Presented as: Net liability recognized in the balance sheet Other long-term assets (Note 9) Insuranceas: contracts held to fund defined Presented benefit pension and life assurance Other long-term assets (Note 9) arrangements - reimbursement rights Insurance held to fund defined Retirementcontracts benefits assets benefit pension and life assurance Retirement benefits obligations arrangements - reimbursement rights

792,665 $

— (21,491)

12,403 $

23,269 (61,720)

— $

— (58,565)

17,575 $

822,643 $

1,166

24,435

(41,300)

(183,076)

24,435

—

23,269

—

1,166

8,797

—

—

—

8,797

Retirement benefits assets

(30,288) — (21,491) 8,797

(84,989) 23,269 (61,720) —

(58,565) — (58,565) —

(42,466) 1,166 (41,300) —

(216,308) 24,435 (183,076) 8,797

Retirement benefits obligations

(30,288)

(84,989)

(58,565)

(42,466)

(216,308)

(21,491)

(61,720)

(58,565)

(41,300)

(183,076)

92


34

FISCAL 2017 RESULTS



16. Employee benefits (continued) DEFINED BENEFIT PLANS (CONTINUED) 16. Employee benefits (continued) Defined benefit obligations DEFINED BENEFIT PLANS (CONTINUED)

As at September 30, 2016 Defined benefit obligations

France

Other

Total

$

$

$

$

60,041 Other

1,030,154 Total

814,156 U.K.

97,392 Germany

58,565 France

— $

— $

— $

(1,029) $

(1,029) $

Current service cost As at September 30, 2016 Interest costextinguished on settlements Obligations

1,552 814,156 18,147 —

878 97,392 982 —

4,906 58,565 599 —

4,735 60,041 2,778 (1,029)

12,071 1,030,154 22,506 (1,029)

Actuarial gains due Current service costto change in financial assumptions1 Interest cost Actuarial gains due to change in demographic Actuarial gains1 due to change in financial assumptions assumptions1 Actuarial losses (gains) due to experience1 Actuarial gains due to change in demographic 1 contributions Plan participant assumptions Benefits paid from the plan Actuarial losses (gains) due to experience1

1,552 (22,195) 18,147

878 (9,055) 982

4,906 (8,625) 599

4,735 (1,884) 2,778

12,071 (41,759) 22,506

(12,043) (22,195) 25,041

— (9,055) 422

(2,395) (8,625) (209)

(626) (1,884) 339

(15,064) (41,759) 25,593

113 (12,043) (18,065) 25,041

— — (1,033) 422

— (2,395) — (209)

— (626) (3,377) 339

113 (15,064) (22,475) 25,593

Benefits paid directly by employer Plan participant contributions 1 Foreign currency translation Benefits paid from the plan adjustment As at September 30,by 2017 Benefits paid directly employer

— 113 (14,490) (18,065) 792,216 —

(1,634) — 43 (1,033)

(305) — 10 —

87,995 (1,634) — 43

52,546 (305) 52,546 10

(708) — (1,336) (3,377) 58,933 (708)

(2,647) 113 (15,773) (22,475) 991,690 (2,647)

— 52,546 52,546 52,546

33,353 (1,336) 25,580 58,933 58,933 33,353

85,899 (15,773) 905,791 991,690 991,690 85,899

Defined benefit obligations unfunded Foreign currency translationofadjustment Defined benefit obligations As at September 30, 2017 of funded plans As at September 30, 2017 of unfunded plans Defined benefit obligations

— (14,490) 792,216 792,216 792,216 —

87,995 87,995 87,995 —

Defined benefit obligations of funded plans

792,216

87,995

—

25,580

905,791


792,216

87,995

52,546

58,933

991,690

U.K.

Germany

France

Other

Total

$

$

$

$

$

753,583 U.K.

82,380 Germany

49,603 France

48,727 Other

934,293 Total

Defined benefit obligations

As at September 30, 2015 Defined benefit obligations Liabilities assumed in business acquisitions

— $

— $

381 $

— $

381 $

Current service cost As at September 30, 2015 Interest cost Liabilities assumed in business acquisitions

1,133 753,583 26,177 —

808 82,380 1,911 —

4,314 49,603 1,172 381

5,720 48,727 2,529 —

11,975 934,293 31,789 381

Actuarial losses cost due to change in financial Current service assumptions1 Interest cost Actuarial (gains) losses due to change in 1 Actuarial lossesassumptions due to change in financial demographic assumptions1 Actuarial losses due to experience1 Actuarial (gains) losses due to change in Past service cost demographic assumptions1 Plan participant Actuarial losses contributions due to experience1

1,133 199,229 26,177

808 15,576 1,911

4,314 8,178 1,172

5,720 4,849 2,529

11,975 227,832 31,789

(8,853) 199,229 64

— 15,576 257

(3,870) 8,178 43

121 4,849 209

(12,602) 227,832 573

— (8,853) 181 64

— — — 257

— (3,870) — 43

3,552 121 22 209

3,552 (12,602) 203 573

Benefits paidcost from the plan Past service Benefits paid directly by employer Plan participant contributions

(21,781) — — 181

(24,091) 3,552 (4,385) 203

1 Foreign Benefits currency paid fromtranslation the plan adjustment As at September 30, 2016 Benefits paid directly by employer

Defined benefit obligations unfunded 1plans Foreign currency translationofadjustment Defined benefit obligations As at September 30, 2016 of funded plans

1

Germany

$

Obligations extinguished on settlements

1plans

1

U.K.

(135,577) (21,781) 814,156 — — (135,577) 814,156 814,156

(225) — (1,926) — (1,389) (225)

— — (577) — (679) —

(2,085) 3,552 (1,882) 22 (1,721) (2,085)

97,392 (1,926) — (1,389)

58,565 (577) 58,565 (679)

60,041 (1,882) 34,436 (1,721)

(139,366) (24,091) 1,030,154 (4,385) 93,001 (139,366)

— 58,565 58,565 58,565

25,605 60,041 60,041 34,436

937,153 1,030,154 1,030,154 93,001

As at September 30, 2016 of unfunded plans Defined benefit obligations

814,156 —

97,392 97,392 97,392 —

Defined obligations of funded plans Amountsbenefit recognized in other comprehensive income.

814,156

97,392

—

25,605

937,153


814,156

97,392

58,565

60,041

1,030,154

Amounts recognized in other comprehensive income.


93

35


Notes Notestotothe theConsolidated ConsolidatedFinancial FinancialStatements Statements ForFor thethe years years ended ended September September 30,30, 2017 2017 andand 2016 2016 (tabular (tabular amounts amounts only only areare in thousands in thousands of Canadian of Canadian dollars, dollars, except except perper share share data) data)


16.16.Employee Employee benefits benefits (continued) (continued) DEFINED BENEFIT BENEFIT PLANS PLANS (CONTINUED) (CONTINUED) 16.DEFINED Employee benefits (continued) Plan Plan assets assets andand reimbursement reimbursement rights rights

U.K.U.K.

Germany Germany

France France

$ $

$ $

$ $

$ $

$ $

As As atassets September at September 30,30, 2016 2016 rights Plan and reimbursement

792,665 792,665 U.K.

35,672 35,672 Germany

—— France

18,741 18,741 Other

847,078 847,078 Total

Assets Assets distributed distributed on on settlements settlements

— $ —

— $ —

— $ —

17,628 17,628 792,665 17,651 17,651 —

364364 35,672 1,411 1,411 —

— —— 305 —305

1,157 1,157 18,741 11,482 11,482 (449)

19,149 19,149 847,078 30,849 30,849 (449)

(29,635) (29,635) 17,628 113113 17,651

380380 364 —— 1,411 (1,033) (1,033) 380

—— — —— 305 —— —

532532 1,157 —— 11,482 (3,377) (3,377) 532

(28,723) (28,723) 19,149 113113 30,849

(1,634) (1,634) — —— (1,033)

(305) (305) — — ——

(708) (708) — (113) (113) (3,377)

—— (305) —— —

(1,109) (1,109) (708) 26,156 26,156 (113)

(2,221) (2,221) (22,475) (15,708) (15,708) (2,647) 824,966 824,966 (2,221)

25,074 25,074 (1,109) 1,082 1,082 26,156

801,021 801,021 (15,708) 23,945 23,945 824,966

DEFINED BENEFIT PLANS (CONTINUED)

Interest Interest income income on on plan plan assets assets As at September 30, 2016 Employer Employer contributions contributions Assets distributed on settlements

1 1 Return Return on on assets assets excluding interest interest income income Interest income onexcluding plan assets Plan Plan participants participants contributions contributions Employer contributions

(449) (449) $

(18,065) (18,065) (29,635) —— 113

Administration Administration expenses expenses paid paid from from thethe plan plan Benefits paid from the plan 1 1 Foreign Foreign currency currency translation translation adjustment adjustment Benefits paid directly by employer

(2,108) (2,108) (18,065) (14,390) (14,390) — 763,859 763,859 (2,108)

(209) (209) (1,634) 34,951 34,951 —

763,859 763,859 (14,390) —— 763,859

12,088 12,088 (209) 22,863 22,863 34,951

— —— — ——

—

22,863

—

1,082

23,945

763,859

34,951

—

26,156

824,966

Reimbursement Reimbursement rights rights As at September 30, 2017 As As atassets September at September 30,30, 2017 2017 Plan Reimbursement rights As at September 30, 2017 PlanPlan assets assets andand reimbursement reimbursement rights rights

763,859 763,859 763,859

34,951 34,951 12,088

—— —

26,156 26,156 25,074

(22,475) (22,475) (28,723) (2,647) (2,647) 113

824,966 824,966 801,021

U.K.U.K.

Germany Germany

France France

Other Other

Total Total

$ $

$ $

$ $

$ $

$ $

As atassets September at September 30,30, 2015 2015rights PlanAs and reimbursement

726,224 726,224 U.K.

35,120 35,120 Germany

—— France

16,207 16,207 Other

777,551 777,551 Total

Interest Interest income income on on plan plan assets assets

25,494 25,494 $

813 $813

— $ —

1,087 1,087 $

27,394 27,394 $

17,896 17,896 726,224 178,033 178,033 25,494

2,024 2,024 35,120 437 813437

577 —577 — ——

5,302 5,302 16,207 597 1,087597

—— 2,024 (225) (225) 437

—— 577 —— —

(1,926) (1,926) — —— (225)

(577) (577) — — ——

22 22 5,302 (2,085) (2,085) 597 (1,882) (1,882) 22

25,799 25,799 777,551 179,067 179,067 27,394 203203 25,799

792,665 792,665 (1,839) 792,665 792,665 (131,543)

(571) (571) (1,926) 35,672 35,672 — 12,403 12,403 (571)

—— (577) —— —

—— 792,665 792,665 792,665 792,665

23,269 23,269 35,672 35,672 35,672 12,403

Employer Employer contributions contributions As at September 30, 2015 1 1 Return Return on on assets assets excluding interest interest income income Interest income onexcluding plan assets Plan Plan participants participants contributions contributions Employer contributions Benefits Benefits paid paid from from thethe plan plan Return on assets excluding interest income1 Benefits Benefits paid paid directly directly by employer by employer Plan participants contributions Administration Administration expenses expenses paid paid from from thethe plan plan Benefits paid from the plan 1 1 Foreign Foreign currency currency translation translation adjustment adjustment Benefits paid directly by employer As As at September at September 30,30, 2016 2016 Administration expenses paid from the plan

Plan Plan assets assets Foreign currency translation adjustment1 Reimbursement Reimbursement As at Septemberrights 30,rights 2016 As As at assets September at September 30,30, 2016 2016 Plan 1 Reimbursement rights Amounts Amounts recognized recognized in other in other comprehensive comprehensive income. income.

As at September 30, 2016 1

(449) (449) $

Total Total

Benefits Benefits paid from from thethe plan plan Return onpaid assets excluding interest income1 Benefits Benefits paid paid directly directly by employer by employer Plan participants contributions

As As at September at September 30,30, 2017 2017from the plan Administration expenses paid Plan Plan assets assets Foreign currency translation adjustment1

1

Other Other

181181 17,896 (21,781) (21,781) 178,033 —— 181 (1,839) (1,839) (21,781) (131,543) (131,543) —

— —— — —— —— —

(24,091) (24,091) 179,067 (4,385) (4,385) 203

(3) (3) (2,085) (504) (504) (1,882)

(1,842) (1,842) (24,091) (132,618) (132,618) (4,385)

18,741 18,741 (3) 17,575 17,575 (504)

847,078 847,078 (1,842) 822,643 822,643 (132,618)

1,166 1,166 18,741 18,741 18,741 17,575

24,435 24,435 847,078 847,078 847,078 822,643

—

23,269

—

1,166

24,435

792,665

35,672

—

18,741

847,078

Amounts recognized in other comprehensive income.

94

CGICGI Group Group Inc.Inc. – Consolidated – Consolidated Financial Financial Statements Statements for the for the years years ended ended September September 30, 30, 2017 2017 andand 2016 2016

36 36

FISCAL 2017 RESULTS



16. Employee benefits (continued) DEFINED BENEFIT PLANS (CONTINUED) 16. Employee benefits (continued) The plan assets at the end of the years consist of: DEFINED BENEFIT PLANS (CONTINUED) As atplan September The assets30, at2017 the end of the years consist of:

Quoted equities As at September 30, 2017 Quoted bonds Propertyequities Quoted Cash Quoted bonds Other1 Property Cash Other1 As at September 30, 2016

Quoted equities As at September 30, 2016 Quoted bonds Propertyequities Quoted Cash Quoted bonds Other1 Property 1

U.K.

Germany

France

Other

$

$

$

$

Total $

233,871 U.K. 183,729 $ 32,353 233,871 75,044 183,729 238,862 32,353 763,859 75,044

— Germany — $ — — — — 12,088 — 12,088 —

— France — $ — — — — — — — —

— Other 123 $ — — 51 123 24,900 — 25,074 51

233,871 Total 183,852 $ 32,353 233,871 75,095 183,852 275,850 32,353 801,021 75,095

238,862 U.K. 763,859

12,088

—

Germany 12,088

France —

24,900 Other 25,074

275,850 Total 801,021

$

$

$

$

$

200,163 U.K. 188,674 $ 30,004 200,163 62,708 188,674 311,116 30,004 792,665 62,708

— Germany — $ — — — — 12,403 — 12,403 —

— France — $ — — — — — — — —

— Other 162 $ — — 55 162 17,358 — 17,575 55

200,163 Total 188,836 $ 30,004 200,163 62,763 188,836 340,877 30,004 822,643 62,763

Cash 1 Other 311,116 17,358 Other is mainly composed of various insurance policies and quoted investment funds to12,403 cover some of the defined—benefit obligations. 792,665 12,403 — 17,575

340,877 822,643

Plan assets do not include any shares of the Company, property occupied by the Company or any other assets used by the Other is mainly composed of various insurance policies and quoted investment funds to cover some of the defined benefit obligations. Company. 1

Plan assets do not summarizes include any the shares of the1 recognized Company, property occupied by the Company or any other assets used by the in the consolidated statements of earnings: The following table expense Company. The following table summarizes the expense1 recognized in the consolidated statements of earnings: Current service cost Settlement gain Past service costcost Current service

Net interestgain on net defined benefit obligations or assets Settlement Administration expenses Past service cost

Year ended September 30 2017

2016

$ $ Year ended September 30

12,071 2017 (580) $ — 12,071 3,357 (580) 2,221 — 17,069 3,357

11,975 2016 — $ 3,552 11,975 4,395 — 1,842 3,552

21,764 4,395 Net interest on net defined benefit obligations or assets 1 1,842 Administration expenses The expense was presented as costs of services, selling and administrative for an amount of $11,491,000 and as net finance costs2,221 for an amount of $5,578,000 (Note 25) ($15,527,000 and $6,237,000, respectively for the year ended September 30, 2016). 17,069 21,764 1

The expense was presented as costs of services, selling and administrative for an amount of $11,491,000 and as net finance costs for an amount of $5,578,000 (Note 25) ($15,527,000 and $6,237,000, respectively for the year ended September 30, 2016).


95

37





Actuarial assumptions DEFINED BENEFIT PLANS (CONTINUED) The following are the principal actuarial assumptions (expressed as weighted averages). The assumed discount rates, future Actuarial salary andassumptions pension increases, inflation rates and mortality all have a significant effect on the accounting valuation. The following are the principal actuarial assumptions (expressed as weighted averages). The assumed discount rates, future As at September 30, 2017 U.K. Germany Other salary and pension increases, inflation rates and mortality all have a significant effect on the accountingFrance valuation. %

%

%

%

Future salary increases Future pension Discount rate increases Inflation rate Future salary increases

2.69 U.K.

3.48 % 3.38 2.69 3.48 3.48

1.75 Germany

1.75 France

4.50 Other


Future pension increases Inflation rate

3.38 U.K. 3.48

Germany

1.50 2.00

France

— 2.00

Other

Discount rate As at September 30, 2016 Future salary increases Future pension Discount rate increases Inflation rate Future salary increases

2.31 U.K. 3.15 % 3.11 2.31 3.15 3.15

1.04 Germany 2.50 % 1.50 1.04 2.00 2.50

1.04 France 2.17 % — 1.04 2.00 2.17

3.86 Other 2.07 % — 3.86 3.10 2.07

Future pension increases Inflation rate

3.11 3.15

1.50 2.00

— 2.00

— 3.10

Discount rate 30, 2017 As at September

2.50 % 1.50 1.75 2.00 2.50

%

%

The average longevity over 65 of a member presently at age 45 and 65 are as follows: As ataverage September 30, 2017 over 65 of a member presently at age 45 and 65 are as follows: The longevity

2.86 % — 1.75 2.00 2.86

1.96 % — 4.50 2.85 1.96 — 2.85

%

%

U.K.

Germany (in years)

Longevity at age30, 652017 for current members As at September Males Femalesat age 65 for current members Longevity Longevity Males at age 45 for current members Males Females Femalesat age 45 for current members Longevity Males Females As at September 30, 2016

U.K.

Germany

22.1 (in years) 23.9

20.0

22.1 23.5 23.9

20.0 22.0 24.0

25.4

24.0

26.0

23.5

22.0

25.4 U.K.

26.0 Germany (in years)

Longevity at age for current members As at September 30,65 2016 Males Femalesat age 65 for current members Longevity Longevity Males at age 45 for current members

Germany (in years)

20.0

24.2

24.0

22.2 23.9 24.2

20.0 22.0 24.0

26.1

26.0

Males

23.9

22.0

Females

26.1

26.0

Males Females Femalesat age 45 for current members Longevity

96

U.K.

22.2


38

FISCAL 2017 RESULTS




Actuarial assumptions (continued) DEFINED BENEFIT PLANS (CONTINUED) Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience Actuarial assumptions (continued) for the most significant countries are based on the following post-retirement mortality tables in each country. Mortality assumptions for the year ended September 30, 2017: (1) U.K.: 100% S2PxA (year of birth) plus CMI_2016 projections with 1.25% p.a. minimum Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience long term improvement rate, (2) Germany: Heubeck RT2005G and (3) France: INSEE TVTD 2010-2012. in each country. Mortality assumptions for the most significant countries are based on the following post-retirement mortality tables for year ended September 2017: (1) 100% S2PxA of birth)toplus CMI_2016 with 1.25% p.a. minimum Thethe following tables show the 30, sensitivity ofU.K.: the defined benefit(year obligations changes in theprojections principal actuarial assumptions: long term improvement rate, (2) Germany: Heubeck RT2005G and (3) France: INSEE TVTD 2010-2012. As at September 30, 2017 U.K. France The following tables show the sensitivity of the defined benefit obligations to changes in the principal Germany actuarial assumptions: $

$

Salary decrease of 0.25% Decrease of 0.25% in the discount rate Pension increase 0.25% Salary increase ofof0.25% Pension decrease of 0.25% Salary decrease of 0.25% Increase of 0.25% in inflation rate Pension increase of 0.25% Decrease of 0.25% in inflation rate Pension decrease of 0.25% Increase of of 0.25% one year in life expectancy Increase in inflation rate Decrease of one year in life expectancy Decrease of 0.25% in inflation rate

(34,430) U.K. 36,668 $ 582 (34,430)

(575) 36,668 17,169 582 (16,347) (575) 27,484 17,169 (26,022) (16,347) 22,051 27,484 (21,965) (26,022)

(2,922) Germany 3,081 $ 56 (2,922)

Increase of one year in life expectancy As at September 30,year 2016in life expectancy Decrease of one

22,051 U.K. (21,965)

Germany (2,186)

Increase of 0.25% in the discount rate As at September 30, 2016 Decrease of 0.25% in the discount rate Salary increase of 0.25% Increase of 0.25% in the discount rate Salary decrease of 0.25% Decrease of 0.25% in the discount rate Pension increase 0.25% Salary increase ofof 0.25% Pension decrease of 0.25% Salary decrease of 0.25% Increase of 0.25% in inflation rate Pension increase of 0.25% Decrease of 0.25% in inflation rate Pension decrease of 0.25% Increase of one year in life expectancy Increase of 0.25% in inflation rate Decrease of one year in life expectancy Decrease of 0.25% in inflation rate

(36,935) U.K. 39,406 $ 724 (36,935) (714) 39,406 17,860 724 (16,963) (714) 28,843 17,860 (27,303) (16,963) 24,093 28,843 (23,900) (27,303)

Increase of one year in life expectancy

24,093

Increase of 0.25% in the discount rate As at September 30, 2017 Decrease of 0.25% in the discount rate Salary increase of 0.25% Increase of 0.25% in the discount rate

$

$

(2,065) France 2,174 $ 2,208 (2,065)

(55) 3,081 1,338 56 (1,282) (55) 1,338 1,338 (1,282) (1,282) 2,442 1,338 (2,186) (1,282)

(2,105) 2,174 — 2,208 — (2,105) 2,208 — (2,105) — 378 2,208 (407) (2,105)

2,442

378 France (407)

$

$

(3,556) Germany 3,762 $ 80 (3,556) (78) 3,762 1,802 80 (1,721) (78) 1,802 1,802 (1,721) (1,721) 2,918 1,802 (2,601) (1,721)

(2,476) France 2,612 $ 2,588 (2,476) (2,466) 2,612 — 2,588 — (2,466) 2,588 — (2,466) — 444 2,588 (485) (2,466)

2,918

444

The sensitivity analysis above have been based on a method that extrapolates the impact on the defined benefit obligations as Decrease of one year in life expectancy (23,900) (2,601) (485) a result of reasonable changes in key assumptions occurring at the end of the year. The weighted sensitivityaverage analysisdurations above have been basedbenefit on a method that are extrapolates the impact on the defined benefit obligations as of the defined obligations as follows: a result of reasonable changes in key assumptions occurring at the end of the year. The weighted average durations of the defined benefit obligations are as follows: U.K. Germany France U.K. Other Germany France Other



2016

(in years) Year ended September 30

19 14 16 19 11 14

2017

16 11

20 15 18 20 13 15

2016 (in years)

18 13

97

39




16. Employee benefits (continued) DEFINED BENEFIT PLANS (CONTINUED)

16. Employee benefits (continued)

The Company expects to contribute $23,798,000 to defined benefit plans during the next year, of which $19,753,000 relates to DEFINED BENEFIT PLANS (CONTINUED) the U.K. plans, and $4,045,000 relates to the other plans. The contributions will include new benefit accruals and deficit recovery payments. The Company expects to contribute $23,798,000 to defined benefit plans during the next year, of which $19,753,000 relates to the U.K. plans, and $4,045,000 relates to the other plans. The contributions will include new benefit accruals and deficit recovery DEFINED CONTRIBUTION PLANS payments. The Company also operates defined contribution pension plans. In some countries, contributions are made into state pension DEFINED PLANScontribution plans amounted to $234,122,000 in 2017 ($236,678,000 in 2016). plans. TheCONTRIBUTION pension cost for defined The Company also operates defined contribution pension plans. In some are made into state In addition, in Sweden, the Company contributes to a multi-employer plan,countries, Alecta SEcontributions (Alecta) pension plan, which is a pension defined plans. pension definedplan contribution plans to $234,122,000 in sufficient 2017 ($236,678,000 2016). benefitThe pension plan.cost Thisforpension is classified as amounted a defined contribution plan as information in is not available to use defined benefit accounting. Alecta lacks the possibility of establishing an exact distribution of assets and provisions to the respective In addition, in Sweden, the Company contributes to a multi-employer plan, Alecta SE (Alecta) pension plan, which is a defined employers. The Company’s proportion of the total contributions to the plan is 0.81% and the Company’s proportion of the total benefit pension plan. This pension plan is classified as a defined contribution plan as sufficient information is not available to use number of active members in the plan is 0.55%. defined benefit accounting. Alecta lacks the possibility of establishing an exact distribution of assets and provisions to the respective employers. Company’s proportion the total the contributions the plan 0.81% and the Company’s of the Alecta usesThe a collective funding ratio to of determine surplus or to deficit in theispension plan. Any surplus orproportion deficit in the plantotal will number of amount active members the plan is 0.55%. affect the of futureincontributions payable. The collective funding is the difference between Alecta’s assets and the commitments to the policy holders and insured individuals. The collective solvency is normally allowed to vary between 125% Alecta uses a collective funding ratio to determine the surplus or deficit in the pension plan. Any surplus or deficit in the plan will and 155%, with the target being 140%. As at September 30, 2017, Alecta collective funding ratio was 158% (142% in 2016). The affect the amount of future contributions payable. The collective funding is the difference between Alecta’s assets and the plan expense was $34,208,000 in 2017 ($34,528,000 in 2016). The Company expects to contribute $27,590,000 to the plan commitments to the policy holders and insured individuals. The collective solvency is normally allowed to vary between 125% during the next year. and 155%, with the target being 140%. As at September 30, 2017, Alecta collective funding ratio was 158% (142% in 2016). The plan expense was $34,208,000 in 2017 ($34,528,000 in 2016). The Company expects to contribute $27,590,000 to the plan OTHER BENEFIT PLANS during the next year. The Company maintains deferred compensation plans covering some of its U.S. and Germany management. Some of the plans OTHER BENEFIT include assets thatPLANS will be used to fund the liabilities. As at September 30, 2017, the deferred compensation liability totaled $48,379,000 ($43,844,000 as at September 30, 2016) (Note 14) and the deferred compensation assets totaled $46,906,000 The Company maintains deferred compensation plans covering some of its U.S. and Germany management. Some of the plans ($42,139,000 as at September 30, 2016) (Note 10). include assets that will be used to fund the liabilities. As at September 30, 2017, the deferred compensation liability totaled $48,379,000 ($43,844,000 as atplan September 2016) 14) and assets totaled however, $46,906,000 For the deferred compensation in U.S., a30, trust was (Note established so the thatdeferred the plan compensation assets could be segregated; the ($42,139,000 as attoSeptember 30, 2016) (Note 10). in the case of bankruptcy. The assets composed of investments vary with assets are subject the Company’s general creditors employees’ contributions and changes in the value of the investments. The change in liabilities associated with the plan is equal For the deferred compensation plan in U.S., a trust was established so that the plan assets could be segregated; however, the to the change of the assets. The assets in the trust and the associated liabilities totaled $46,480,000 as at September 30, 2017 assets are subject to the Company’s general creditors in the case of bankruptcy. The assets composed of investments vary with ($41,423,000 as at September 30, 2016). employees’ contributions and changes in the value of the investments. The change in liabilities associated with the plan is equal to the change of the assets. The assets in the trust and the associated liabilities totaled $46,480,000 as at September 30, 2017 ($41,423,000 as at September 30, 2016).

98


40

FISCAL 2017 RESULTS



17. Accumulated other comprehensive income 17. Accumulated other comprehensive income Items that will be reclassified subsequently to net earnings: operations, netnet of of Net unrealized gains gains on ontranslating translatingfinancial financialstatements statementsofofforeign foreign operations, accumulated income tax expense of $65,850 as at September 30, 2017 ($69,777 as at Items that will be September 30,reclassified 2016) at September 30, 2016) subsequently to net earnings: Net unrealized losses gains on translating financial instruments financial statements and and on translating of foreign long-term operations, debtnet debt of lossesononderivative derivative financial instruments on translating long-term accumulated hedges of net of $65,850 ininforeign as at September operations, 30, net 2017 ofofaccumulated ($69,777 as at designated asincome hedgestax ofexpense net investments investments foreign operations, net accumulated September 30, 2016)of $69,296 $69,296 as as at at September September 30, 30,2017 2017($72,490 ($72,490as asatatSeptember September income tax recovery 30,losses 2016)on derivative financial instruments and on translating long-term debt Net designated hedges of netflow investments in foreign operations, net oftax accumulated unrealizedasgains on cash hedges, of income expense Net flow hedges, net net of accumulated accumulated income tax expense of of income taxatrecovery of $69,296 as($8,876 at September 30, 2017 ($72,490 $2,332 as September 30, 2017 as at September 30, 2016)as at September 30, 2016) netnet of accumulated Net unrealized unrealized (losses) (losses)gains gainson onavailable-for-sale available-for-saleinvestments, investments, of accumulated Net unrealized gains onofcash hedges, net of30, accumulated income tax expense of tax recovery $178flow as September 2017 accumulated income income as at at September 30, 2017 (net (net of of accumulated income $2,332 as at of September 30, 2017 ($8,876 as at September 30, 2016) tax expense $965 as at September 30, 2016) Net unrealized (losses) gains on available-for-sale investments, net of accumulated Items income that will taxnot recovery be reclassified of $178 as subsequently at September to net 30, earnings: 2017 (net of accumulated income tax expense of $965 as at September 30, 2016) Net remeasurement accumulated income taxtax remeasurement losses losses on ondefined definedbenefit benefitplans, plans,net netofof accumulated income recovery of $20,933 as at September 30, 30, 2017 2017 ($25,160 ($25,160 as as at at September September 30, 30, 2016) 2016) Items that will not be reclassified subsequently to net earnings:





$

$

695,591

837,056

695,591 (453,690)

837,056 (466,799)

1,670 (453,690)

13,931 (466,799)

1,670 (562) (562) (83,618)

13,931 2,947 2,947 (83,007)

159,391 304,128 Net remeasurement losses on defined benefit plans, net of accumulated income tax (83,618) (83,007) $20,933 as at September 30, 2017 ($25,160 of asthe at September 30, 2016) For recovery the year of ended September 30, 2017, $15,425,000 net unrealized gains previously recognized in other comprehensive 159,391instruments designated 304,128 income, net of income tax expense of $9,534,000, were reclassified to net earnings for derivative financial as cash flow hedges ($11,834,000 of the net unrealized gains net of income tax expense of $6,725,000 for the year ended For the year ended September 30, 2017, $15,425,000 of the net unrealized gains previously recognized in other comprehensive September 30, 2016). income, net of income tax expense of $9,534,000, were reclassified to net earnings for derivative financial instruments designated as cash flow hedges ($11,834,000 of the net unrealized gains net of income tax expense of $6,725,000 for the year ended September 30, 2016).


99

41




18. Capital stock Authorized, an unlimited 18. Capital stocknumber without par value:

First preferred shares, carrying one vote per share, ranking prior to second preferred shares, Class A subordinate shares and Class B shares with respect to thewithout payment dividends; Authorized, an unlimited number parofvalue: First preferred shares, carrying one vote per prior share, prior to second preferred shares, Classwith A subordinate shares and Second preferred shares, non-voting, ranking to ranking Class A subordinate shares and Class B shares respect to the payment Class B shares with respect to the payment of dividends; of dividends; Second shares, non-voting, Classparticipating A subordinate shares andClass ClassBBshares shareswith withrespect respect to to the payment Class A preferred subordinate shares, carrying ranking one voteprior per to share, equally with of dividends dividends;and convertible into Class B shares under certain conditions in the event of certain takeover bids on Class B shares; Class A shares, voteparticipating per share, participating Class B shares with respect to the payment B subordinate shares, carrying ten carrying votes perone share, equally with equally Class Awith subordinate of dividends and convertible Class shares underofcertain conditions in theAevent of certain takeover bids on Class B shares; convertible into at any timeB at the option the holder into Class subordinate shares. Class shares, carrying equally with Class A subordinate shares with respect to the payment For theBfiscal years 2017 ten andvotes 2016,per theshare, Class participating A subordinate and the Class B shares varied as follows: of dividends and convertible at any time at the option of the holder into Class A subordinate shares. For the fiscal years 2017 and 2016, the Class A subordinate and the Class B shares varied as follows: Class A subordinate shares Number

As at September 30, 2015 Issued upon exercise of stock options1 PSUs exercised2 30, 2015 As at September 3 Purchased cancelled Issued uponand exercise of stock options1 Purchased and held in trust4 2 PSUs exercised 5 Conversion of shares Purchased and cancelled3 As at September 30, in 2016 Purchased and held trust4 1 Issued upon exercise 5of stock options Conversion of shares 2 PSUs exercised 30, 2016 As at September 3 Purchased cancelled Issued uponand exercise of stock options1 Shares held in trust resold4 2 PSUs exercised As at September 30, 2017 3 Purchased and cancelled

Carrying value

Class B shares

Number

$ Class A subordinate shares

2 3

3

4

4 5

5

2,207,826 Carrying value 111,405 $ 21,250 2,207,826 (170,374) 111,405 (21,795) 21,250 586 (170,374) 2,148,898 (21,795) 60,943 586 23,666 2,148,898 (227,060) 60,943 2,445 23,666 2,008,892 (227,060)

Total Number

$ Class B shares

Carrying value $ Total

33,272,767 46,419 309,046,051 2,254,245 Number Carrying value Number Carrying value — — 5,283,485 111,405 $ $ — — — 21,250 33,272,767 46,419 309,046,051 2,254,245 — — (9,519,875) (170,374) — — 5,283,485 111,405 — — — (21,795) — — — 21,250 (420,019) (586) — — — — (9,519,875) (170,374) 32,852,748 45,833 304,809,661 2,194,731 — — — (21,795) — — 2,079,150 60,943 (420,019) (586) — — — — — 23,666 32,852,748 45,833 304,809,661 2,194,731 — — (19,929,268) (227,060) — — 2,079,150 60,943 — — — 2,445 — — — 23,666 32,852,748 45,833 286,959,543 2,054,725 — — (19,929,268) (227,060) 4 1 Shares held value in trust resold — 2,445 during the year— — 2,445 The carrying of Class A subordinate shares includes $11,169,000 ($21,972,000 ended September — 30, 2016), which corresponds to a reduction in contributed surplus representing the value of accumulated compensation costs associated with the stock options exercised during the year. As at September 30, 2017 254,106,795 2,008,892 32,852,748 45,833 286,959,543 2,054,725 2 1

275,773,284 Number 5,283,485 — 275,773,284 (9,519,875) 5,283,485 — — 420,019 (9,519,875) 271,956,913 — 2,079,150 420,019 — 271,956,913 (19,929,268) 2,079,150 — — 254,106,795 (19,929,268)

Carrying value

During the year ended September 30, 2017, 659,640 PSUs were exercised (969,241 during the year ended September 30, 2016) with a recorded value of The carrying value of Class A subordinate shares $11,169,000 ($21,972,000 during the year ended September 30, which30, corresponds to a reduction $23,666,000 ($21,250,000 during the year endedincludes September 30, 2016) that was removed from contributed surplus. As at2016), September 2017, 468,668 Class A in contributedshares surplus representing theunder valuethe of accumulated compensation costs associated with(Note the stock subordinate were held in trust PSU plan (1,192,308 as at September 30, 2016) 19b).options exercised during the year. During the year ended 2017, 659,640 PSUs werethe exercised during the Issuer year ended September 2016) of with value of On February 1, 2017, theSeptember Company's30, Board of Directors authorized renewal(969,241 of a Normal Course Bid (NCIB) for the 30, purchase up ato recorded 21,190,564 Class $23,666,000 during the on year 30, 2016) thatThe wasClass removed from contributed As at for September 2017, 468,668 Class6, A A subordinate($21,250,000 shares for cancellation theended open September market through the TSX. A subordinate sharessurplus. are available purchase30, commencing February subordinate shares wereFebruary held in trust underorthe (1,192,308 asthe at September 30, 2016) its (Note 19b). or elects to terminate the bid. 2017, until no later than 5, 2018, onPSU suchplan earlier date when Company completes purchases On February 1, 2017, Company's Directors authorized the15,074,900 renewal of aClass Normal Course Issuer Bid (NCIB) for the purchase of up to 21,190,564 Class During the year endedthe September 30,Board 2017,ofthe Company purchased A subordinate shares for cancellation (2,207,500 during the year ended A subordinate for cancellation on the market the consideration TSX. The Class subordinate shares are available purchase commencing February 6, September 30,shares 2016) under the previous andopen current NCIBthrough for a cash of A $946,664,000 ($117,820,000 duringfor the year ended September 30, 2016) 2017, no later than February 5, 2018, or carrying on such value earlierindate when the completes its purchases or elects to terminate the bid. and theuntil excess of the purchase price over the the amount of Company $823,450,000 ($99,553,000 during the year ended September 30, 2016) was charged to retained earnings. During the year 30,purchased 2016, the Company paid andAcancelled 200,000 Class A subordinate shares with a carrying of During the year ended September 30,ended 2017,September the Company 15,074,900 Class subordinate shares for cancellation (2,207,500 during the yearvalue ended $1,631,000 and2016) a purchase of $9,466,000 that were period.of $946,664,000 ($117,820,000 during the year ended September 30, 2016) September 30, under value the previous and current NCIBheld for afrom cashprevious consideration

and the excess of the price over the carrying in the amount of $823,450,000 during the yearfor ended September 30, 2016) was charged In addition, during thepurchase year ended September 30, 2017,value the Company purchased 4,854,368($99,553,000 Class A subordinate shares cancellation (7,112,375 during the year to retained earnings. 2016, thedu Company 200,000 Class A subordinate shares with a carrying of ended September 30,During 2016) the fromyear the ended CaisseSeptember de dépôt et30, placement Québec paid for aand cashcancelled consideration of $300,000,000 ($400,000,000 during the yearvalue ended $1,631,000 and2016). a purchase value of that were held previous period. September 30, The excess of $9,466,000 the purchase price over thefrom carrying value in the amount of $196,154,000 ($247,893,000 during the year ended September 30,addition, 2016) was charged to retained earnings. 30, In accordance with the requirements of the TSX, the purchase is shares considered in the annual aggregate limit the thatyear the In during the year ended September 2017, the Company purchased 4,854,368 Class A subordinate for cancellation (7,112,375 during Company is entitled to 2016) purchase its current NCIB.et placement du Québec for a cash consideration of $300,000,000 ($400,000,000 during the year ended ended September 30, fromunder the Caisse de dépôt

September 30, 2016). excess of purchase price resold over the carrying value in the amount of $196,154,000 ($247,893,000 yearinended September During the year endedThe September 30,the 2017, the trustee 64,000 Class A subordinate shares that were held in trust on theduring open the market accordance with 30, terms 2016) of was to (nil retained accordance with30, the2016). requirements of the the purchase is considered limit that the the thecharged PSU plan duringearnings. the year In ended September The excess ofTSX, proceeds over the carrying value in of the the annual Class Aaggregate subordinate shares, in Company entitled to purchase under itsincrease current NCIB. the amountis of $1,601,000, resulted in an of contributed surplus. During the year ended September 30, 2016, the trustee, in accordance with the terms of the PSU a Trust Agreement, purchased 441,722 Class64,000 A subordinate of the shares Company the open cash consideration of $21,795,000. During the plan year and ended September 30, 2017, the trustee resold Class A shares subordinate thatonwere held market in trust for on athe open market in accordance with the terms the ended PSU plan (nil during yearaended September 30, 2016). TheClass excess of proceeds over theClass carrying value of theshares. Class A subordinate shares, in During theofyear September 30,the 2016, shareholder converted 420,019 B shares into 420,019 A subordinate the amount of $1,601,000, resulted in an increase of contributed surplus. During the year ended September 30, 2016, the trustee, in accordance with the terms of the PSU plan and a Trust Agreement, purchased 441,722 Class A subordinate shares of the Company on the open market for a cash consideration of $21,795,000. During the year ended September 30, 2016, a shareholder converted 420,019 Class B shares into 420,019 Class A subordinate shares.

100


42

FISCAL 2017 RESULTS



19. Share-based payments a) options 19. Stock Share-based

payments

Under the Company’s stock option plan, the Board of Directors may grant, at its discretion, stock options to purchase Class A subordinate shares to certain employees, officers and directors of the Company and its subsidiaries. The exercise price is a) Stock options established by the Board of Directors and is equal to the closing price of the Class A subordinate shares on the TSX on the day Under the Company’s stock option plan, the Board of Directors may grant, at its discretion, stock options to purchase Class A preceding the date of the grant. Stock options generally vest over four years from the date of grant conditionally upon achievement subordinate shares to certain employees, officers and directors of the Company and its subsidiaries. The exercise price is of objectives and must be exercised within a ten-year period, except in the event of retirement, termination of employment or established by the Board of Directors and is equal to the closing price of the Class A subordinate shares on the TSX on the day death. As at September 30, 2017, 30,561,122 Class A subordinate shares have been reserved for issuance under the stock option preceding the date of the grant. Stock options generally vest over four years from the date of grant conditionally upon achievement plan. of objectives and must be exercised within a ten-year period, except in the event of retirement, termination of employment or death. As at September 30, 2017, 30,561,122 Class Aall subordinate shares been reserved under the stock option The following table presents information concerning outstanding stockhave options granted by for theissuance Company: plan. 2017 The following table presents information concerning all outstanding stock options granted by the Company:

Number of options

Weighted average exercise price per share 2017 Weighted$ average exercise 39.40 price per share

15,237,883 7,527,054

44.70 28.77

Number of options

16,623,619 2,961,866 (2,079,150) 16,623,619 (2,267,952) 2,961,866 (500) (2,079,150) 15,237,883 (2,267,952) 7,527,054 (500)

Outstanding, beginning of year Granted Exercised Outstanding, beginning of year Forfeited Granted Expired Exercised Outstanding, end of year Forfeited Exercisable, end of year Expired Outstanding, end of year Exercisable, end of year

63.22 $ 23.94 39.40 49.12 63.22 7.72 23.94 44.70 49.12 28.77 7.72

2016

Number of options

Weighted average exercise price per share 2016 Weighted$ average exercise 29.23 price per share

16,623,619 7,798,604

39.40 24.10

Number of options

20,629,392 3,882,977 (5,283,485) 20,629,392 (2,558,272) 3,882,977 (46,993) (5,283,485) 16,623,619 (2,558,272) 7,798,604 (46,993)

62.53 $ 16.93 29.23 39.39 62.53 14.22 16.93 39.40 39.39 24.10 14.22

The weighted average share price at the date of exercise for stock options exercised in 2017 was $64.49 ($58.65 in 2016).

The summarizes information about outstanding stockoptions optionsexercised granted byinthe Company as at ($58.65 September 30, 2017: The following weighted table average share price at the date of exercise for stock 2017 was $64.49 in 2016). Options outstanding

Options exercisable

The following table summarizes information about outstanding stock options granted by the Company as at September 30, 2017: Range of exercise price $

of 9.31Range to 9.41

Number of options

Weighted average Weighted remaining Options outstanding average contractual life exercise price Weighted (years) average $ Weighted remaining average contractual1.00 life 9.31 exercise price (years)

exercise price

Number of 235,229 options

14.48 9.31toto15.96 9.41 19.28 to 13.26 21.31 11.39 to

1,136,174 235,229 283,523 524,425

3.00 1.00 4.00 2.00

57.21 to to 47.36 63.72 39.47 47.81 to 56.69

6,438,325 1,042,738 15,237,883 1,725,490

9.43 7.13 7.22 7.99

11.39 to 13.26$

23.65 to to 15.96 30.79 14.48 34.68 to to 21.31 38.79 19.28 39.47 to 47.36 23.65 to 30.79 47.81 to 56.69 34.68 to 38.79

57.21 to 63.72

524,425

1,965,317 1,136,174 1,886,662 283,523 1,042,738 1,965,317 1,725,490 1,886,662

2.00

5.21 3.00 6.35 4.00 7.13 5.21 7.99 6.35

12.59 $

Weighted Options exercisable Number of average options exercise price $ Weighted Number of average 9.31 235,229 options exercise price

524,425

15.48 9.31 19.75 12.59

1,136,174 235,229 283,523 524,425

63.21 39.67 44.70 48.46

5,880 757,139 7,527,054 866,563

23.89 15.48 37.22 19.75 39.67 23.89 48.46 37.22

1,965,317 1,136,174 1,752,804 283,523 757,139 1,965,317 866,563 1,752,804

12.59 $

15.48 9.31 19.75 12.59

23.89 15.48 37.17 19.75 39.70 23.89 48.50 37.17

57.21 39.70 28.77 48.50

6,438,325

9.43

63.21

5,880

57.21

15,237,883

7.22

44.70

7,527,054

28.77


101 43




19. Share-based payments (continued) a) options (continued) 19. Stock Share-based payments

(continued)

The fair value of stock options granted in the year and the weighted average assumptions used in the calculation of their fair value on theoptions date of (continued) grant using the Black-Scholes option pricing model were as follows: a) Stock The fair value of stock options granted in the year and the weighted average assumptions used in the calculation of their fair Year ended September 30 value on the date of grant using the Black-Scholes option pricing model were as follows: 2017

Grant date fair value ($) Dividend yield (%) 1 Expected (%)($) Grant datevolatility fair value Risk-free yield interest Dividend (%)rate (%) Expected life (years) Expected volatility (%)1 Exercise ($) rate (%) Risk-free price interest Share price ($) Expected life (years) 1

2016

13.03 13.11 Year ended September 30 0.00 0.00 2017 2016 22.52 25.41 13.03 13.11 1.66 0.56 0.00 0.00 4.00 4.00 22.52 25.41 63.22 62.53 1.66 0.56 63.22 62.53 4.00 4.00

Exercise ($)was determined using statistical formulas and based on the weekly historical average of closing daily share prices over 63.22 62.53 Expectedprice volatility the period of the expected life of stock Share price option. ($) 63.22 62.53

1

volatility wasshare determined using statistical formulas and based on the weekly historical average of closing daily share prices over the period of the expected b) Expected Performance units life of stock option.

Under the PSU plan, the Board of Directors may grant PSUs to senior executives and other key employees (participants) which entitle them to receive oneunits Class A subordinate share for each PSU. The vesting performance conditions are determined by the b) Performance share Board of Directors at the time of each grant. PSUs expire on the business day preceding December 31 of the third calendar year Under the PSU plan, the Board of Directors may grant PSUs to senior executives and other key employees (participants) which following the end of the fiscal year during which the PSU award was made, except in the event of retirement, termination of entitle them to receive one Class A subordinate share for each PSU. The vesting performance conditions are determined by the employment or death. Granted PSUs vest annually over a period of four years from the date of grant conditionally upon achievement Board of Directors at the time of each grant. PSUs expire on the business day preceding December 31 of the third calendar year of objectives. following the end of the fiscal year during which the PSU award was made, except in the event of retirement, termination of employment or death.shares Granted PSUs vestinannually overwith a period of four years grant achievement Class A subordinate purchased connection the PSU plan arefrom heldthe in date trustoffor the conditionally benefit of theupon participants. The of objectives. trust, considered as a structured entity, is consolidated in the Company’s consolidated financial statements with the cost of the purchased shares recorded as a reduction of capital stock (Note 18). Class A subordinate shares purchased in connection with the PSU plan are held in trust for the benefit of the participants. The trust,following considered aspresents a structured entity, isconcerning consolidated the Company’s consolidated financial with the cost of the The table information theinnumber of outstanding PSUs granted bystatements the Company: purchased shares recorded as a reduction of capital stock (Note 18). Outstanding at September 2015 The followingastable presents30, information concerning the number of outstanding PSUs granted by the Company: Granted1 Exercised Outstanding as at September 30, 2015 Forfeited Granted1 Outstanding Exercised as at September 30, 2016 1 Granted Forfeited Exercised as at September 30, 2016 Outstanding Forfeited Granted1 Outstanding as at September 30, 2017 Exercised

1

Forfeited The PSUs granted in 2017 had a grant date fair value of $62.49 per unit ($48.35 in 2016). Outstanding as at September 30, 2017

1,719,827 570,000 (969,241) 1,719,827 (128,278) 570,000 1,192,308 (969,241) 221,000 (128,278) (659,640) 1,192,308 (285,000) 221,000 468,668 (659,640) (285,000) 468,668

On September 26, 2017, the Company adopted a new PSU plan with similar terms and conditions to the existing PSU plan. There Theno PSUs granted in 2017 fair value of $62.49 per unit ($48.35 in 2016). was grant under the had newa grant plandate during the year ended September 30, 2017.

1

On September 26, 2017, the Company adopted a new PSU plan with similar terms and conditions to the existing PSU plan. There was no grant under the new plan during the year ended September 30, 2017.

102


44

FISCAL 2017 RESULTS

Notes Notes Notes Notes Notes to toto to the Notes to the the the the Consolidated Consolidated Consolidated Consolidated to Consolidated the Consolidated Notes Financial Financial Notes Financial Financial Financial to Notes to Notes the Financial Statements Statements the Statements Statements Statements Consolidated to Consolidated tothe the Statements Consolidated Consolidated Financial Financial Financia Financ State Stat

For For For For the For the For the years the the years the years years years years ended ended ended ended ended For ended September September the September September September years September ended 30, 30,30, 2017 30, 30, 2017 30, 2017 September 2017 2017 and 2017 and and and and 2016 2016 and 2016 2016 2016 30, 2016 For 2017 For thethe and years years 2016 ended Forended For theSeptember the years September years ended ended 30,September 30, 2017 September 2017 andand 2016 30,2016 30, 2017 2017 andand 2016 2016 (tabular (tabular (tabular (tabular (tabular (tabular amounts amounts amounts amounts amounts amounts only (tabular only only only only are are only are in are amounts are inare thousands in thousands in inthousands inthousands thousands thousands onlyof of are Canadian of Canadian of of in Canadian ofCanadian Canadian thousands Canadian dollars, (tabular dollars, dollars, (tabular dollars, dollars, of dollars, except Canadian except amounts except amounts except except except (tabular per per (tabular only per dollars, share per per share only per share are amounts share share share data) are amounts data) except indata) thousands data) in data) data) thousands only per only are share are of inCanadian of thousands data) inCanadian thousands dollars, ofdollars, Canadian of Canadian except except dollars, per dollars, per share share except excep data) da p


19. 19. 19. 19. 19. Share-based Share-based Share-based Share-based Share-based 19. Share-based payments payments payments payments payments (continued) (continued) (continued) payments (continued) (continued) 19.19.(continued) Share-based Share-based 19.19.Share-based Share-based payments payments payments (continued) payments (continued) (continued) (continued) c) c) c)c) c) Share Share c)Share-based Share Share Share Share purchase purchase purchase purchase purchase purchase c) plan Share plan plan plan plan plan purchase plan c) c)Share Share purchase c) purchase c)Share Share plan plan purchase purchase plan plan 19. payments (continued)

Under Under Under Under Under Under the thethe share the the share the share share share share purchase purchase Under purchase purchase purchase purchase the plan, plan, share plan, plan, plan, the plan, thethe purchase Company the the Company the Company Company Company Company plan, contributes contributes contributes contributes contributes the contributes Under Company Under an anthe an amount amount an an the an amount share contributes amount amount amount share Under equal equal purchase Under equal purchase equal equal the equal to to an the ato share ato percentage amount to plan, percentage ato share aapercentage plan, a percentage percentage purchase percentage the purchase equal the Company of of Company to the of plan, the of of athe of plan, employee's the percentage the employee's contributes the employee's employee's employee's contributes the employee's Company Company basic of basic an the basic basic basic contributes an amount basic contribution, employee's contribution, contributes amount contribution, contribution, contribution, contribution, equal equal anbasic an to amount ato amou perc con a pe c) Share purchase plan up upup to up to up up ato ato to maximum maximum atoaamaximum amaximum maximum maximum up of of3.50%. of to 3.50%. of of3.50%. a of3.50%. 3.50%. maximum 3.50%. An AnAn employee An An employee An employee employee employee ofemployee 3.50%. may may may may An may make may make employee make make make up make additional additional up toadditional additional additional atoadditional maximum may a maximum contributions contributions make up contributions contributions contributions up to contributions ofadditional ato3.50%. of maximum a3.50%. maximum ininexcess in excess An in in contributions excess inAn excess excess employee ofexcess employee 3.50%. ofof3.50%. the of the of ofthe ofbasic the the may basic An in the basic may An excess basic basic employee make basic contribution, contribution, employee make contribution, contribution, contribution, of contribution, additional the may additional may basic however however make however contributions make however however contribution, however contributions additional the additional thethe the the the in cont how ex in c Company Company Company Company Company Company does does does does does not does not Company not match not not match not match match match match contributions contributions does contributions contributions contributions contributions not match ininthe in the in incontributions the in case the the case the case case case of case ofCompany such of such of of Company such of such such inadditional such additional the additional additional additional does case additional does Company not contributions. of contributions. Company not such contributions. match contributions. contributions. contributions. match additional does contributions does contributions not The The The not match The The contributions. employee employee The match employee employee employee inemployee contributions the incontributions and the and case and The case and and Company's Company's and ofCompany's employee Company's such Company's in ofCompany's the such in additional the case contributions additional contributions case and contributions contributions of contributions contributions Company's such ofcontributions. such contribution additional addition con Under the share purchase plan, the Company contributes an amount equal to a percentage of the employee's basic contribution, are are are remitted are are remitted are remitted remitted remitted remitted to toan to an to toan are independent to independent an anan independent remitted independent independent independent to plan plan an plan plan plan administrator independent administrator plan administrator administrator administrator administrator plan who who are who who who administrator purchases are purchases who remitted purchases purchases purchases remitted purchases to Class Class are an to who Class are Class Class remitted an independent Class AA purchases remitted independent subordinate subordinate AA Asubordinate A subordinate subordinate to subordinate an toplan Class an independent shares plan shares independent administrator shares A shares shares administrator shares subordinate on onon the the on on plan on the open the plan the open who the administrator open shares open open who administrator market open market purchases market purchases market market on market on on the who on behalf behalf on on Class open who on behalf behalf Class behalf purchases behalf of purchases A market ofsubordin of Aof ofsubor of on Cla up to a maximum of 3.50%. An employee may make additional contributions in excess of the basic contribution, however the the thethe employee the the employee the employee employee employee employee through through through through the through through employee either either either either either either the thethe TSX through the the TSX the TSX TSX TSX or TSX orNew or either New or orNew orNew New York New York the York York York Stock TSX York Stock the Stock Stock Stock the or Stock Exchange. employee Exchange. New Exchange. employee Exchange. Exchange. Exchange. Yorkthe through Stock the through employee employee Exchange. either either through thethrough the TSX TSX either oreither New or the New York the TSX York TSX Stock orStock New orExchange. New York Exchange. York Stock Stock Exchange. Exchange Company does not match contributions in the case of such additional contributions. The employee and Company's contributions are remitted to an independent plan administrator who purchases Class A subordinate shares on the open market on behalf of d) d)d) d) d) Deferred Deferred d)Deferred Deferred Deferred Deferred share share share d) share share share unit unit Deferred unit unit unit plan plan unit plan plan plan plan share d) d) Deferred Deferred d) share d) share Deferred unit Deferred unit plan share plan share unit unit plan plan the employee through either the TSX orunit Newplan York Stock Exchange. External External External External External External members members members members members members External of ofthe of the of ofthe of Board the the Board members the Board Board Board Board of ofDirectors of Directors of ofof Directors ofDirectors Directors the Directors Board (participants) (participants) (participants) (participants) (participants) (participants) of External Directors External are are are members entitled are are (participants) entitled are entitled members entitled entitled External entitled to External toof receive to receive to to the of receive to members are receive receive the receive Board members entitled part part Board part part part or of or of part Directors their or of to their the or of orDirectors their or receive the their their Board entire their entire Board entire entire entire (participants) entire part retainer of retainer (participants) Directors retainer ofretainer retainer orDirectors retainer their fee feefee are entire in fee (participants) fee infee DSUs. are in DSUs. (participants) entitled in inDSUs. in retainer DSUs. DSUs. entitled DSUs. DSUs DSUs to DSUs DSUs DSUs are receive fee to DSUs are receive entitled in DSU entit pa d) Deferred share unit plan are are are granted are are granted are granted granted granted granted with with with with with immediate immediate with are immediate immediate immediate granted immediate vesting vesting with vesting vesting vesting vesting immediate and and and and and must must and must must must be must be vesting be exercised exercised be bebe exercised exercised exercised are and exercised are granted must no no granted no later later no no be no later with later later than exercised than later are with than immediate are than than granted December December than immediate granted December December December no December with later vesting 15 with 15 vesting immediate than 15 of of 15 15 immediate the 15 of and the of of December the of and calendar the the calendar must the calendar vesting calendar must calendar calendar vesting beyear 15 be exercised year and year of exercised year year and immediately the immediately year must immediately immediately calendar must immediately immediately no beno later be exercised later following exercised following year than following following than following immediately following December noDecembe no later later tha 1 the thethe calendar the the calendar the calendar calendar calendar calendar year year year year year during the during year during during during calendar during which which which which which which the year thethe participant the the participant during the participant participant participant participant which ceases ceases ceases the ceases ceases ceases participant to the toact to act the calendar to toact to as act as act calendar act as aaas as Director. ceases Director. a as ayear aDirector. the Director. aDirector. year Director. the during calendar toEach Each act during calendar Each Each Each as which DSU Each DSU a year which DSU Director. DSU DSU year entitles DSU the entitles during entitles the entitles participant entitles during entitles participant Each the the which the holder which the the holder DSU the holder the ceases holder holder holder the to ceases entitles participant toreceive to receive participant to to to receive to receive receive act to the receive act aas aceases holder cash cash aa as a ceases acash Director. cash acash apayment cash payment Director. to topayment receive payment act payment topayment Each act asEach a as aDirect DSU cash a Dir DS External members of the Board of Directors (participants) are entitled to receive part or their entire retainer fee in DSUs. DSUs equal equal equal equal equal equal to tothe to the to tothe to closing the the closing the closing closing closing closing equal price price price price price toof price ofthe Class of Class of ofClass closing of Class Class Class AAsubordinate subordinate AA A price subordinate A subordinate subordinate subordinate of Class shares shares shares shares A shares equal shares subordinate on equal onon the to the on onon the the TSX to the the TSX the the TSX closing TSX TSX shares on equal on TSX closing on the equal the on onon price the to on payment the the payment the price to payment the payment payment of the closing payment TSX Class ofclosing date. Class date. on date. A date. price date. As the subordinate date. As A price As at subordinate payment at As of As September As at September Class of at atSeptember at Class September September September A shares date. subordinate A shares 30, subordinate 30, Ason 30, 2017, 30, 30, at 2017, on 30, the 2017, September 2017, 2017, the TSX 2017, shares the the TSX shares the number the the number on the number on on the number number 30, number on the the payment 2017, the TSX payme TSX the on are granted with immediate vesting and must be exercised no later than December 15 of the calendar year immediately following of ofoutstanding of outstanding of ofoutstanding ofoutstanding outstanding outstanding DSUs DSUs DSUs of DSUs DSUs DSUs outstanding was was was was was 136,246 136,246 was 136,246 136,246 136,246 136,246 DSUs (107,856 (107,856 (107,856 (107,856 (107,856 was (107,856 136,246 DSUs DSUs DSUs DSUs DSUs DSUs as asof (107,856 as at at as as outstanding of September as at September at at outstanding September atSeptember September September DSUs of DSUs 30, 30, as outstanding of DSUs 30, 2016). 30, at 30, outstanding 2016). 30, was 2016). September 2016). 2016). was 2016). 136,246 136,246 DSUs DSUs 30, (107,856 was 2016). (107,856 was 136,246 136,246 DSUs DSUs (107,856 as (107,856 as at September atDSUs September DSUs as as at 30,September at 30, 2016). Septembe 2016). 3 the calendar year during which the participant ceases to act as a Director. Each DSU entitles the holder to receive a cash payment equal to the closing price of Class A subordinate shares on the TSX on the payment date. As at September 30, 2017, the number e) e)outstanding e)e) e) Share-based Share-based e)Share-based Share-based Share-based Share-based e) payment payment payment payment Share-based payment payment costs costs costs costs costs costs payment costs Share-based Share-based e)30, e)Share-based payment Share-based payment costs costs payment payment costs costs of DSUs was 136,246 (107,856 DSUs ase)ate) September 2016). The The The The The share-based share-based The share-based share-based share-based share-based payment The payment payment payment payment share-based payment expense expense expense expense expense expense payment recorded recorded recorded recorded recorded recorded expense inincosts in costs in incosts incosts costs The costs of recorded ofThe services, of services, share-based of ofservices, of share-based services, services, services, in selling costs selling The selling The selling selling payment share-based selling ofand payment and share-based services, and and and administrative administrative and expense administrative administrative administrative expense administrative selling payment payment recorded and recorded isisexpense as is as administrative is isexpense as follows: is follows: as as inas follows: costs follows: in follows: follows: recorded costs recorded of services, of is services, as in costs follows: in costs selling ofselling services, of and services, and admin sel ad e) Share-based payment costs

Year Year Year ended Year ended Year ended ended ended September ended September September September September September Year 30 30 30 ended 30 3030 Sep The share-based payment expense recorded in costs of services, selling and administrative is as follows:Year 2017 2017 2017 2017 2017 2017

Stock Stock Stock Stock Stock options Stock options options options options options Stock options PSUs PSUs PSUs PSUs PSUs PSUs PSUs Share Share Share Share Share Share purchase purchase purchase purchase purchase purchase plan plan plan Share plan plan planpurchase plan Stock options DSUs DSUs DSUs DSUs DSUs DSUs DSUs PSUs

2016 2016 2017 2016 2016 2016 2016

$$ $ $$ $ $$$ $ $$ $ Year ended September 30

Stock Stock options optionsStock Stock options options PSUs PSUs PSUs PSUs Share Share purchase purchase Share plan Share plan purchase purchase planplan DSUs DSUs DSUs DSUs

Share purchase plan DSUs

25,133 25,133 25,133 25,133 25,133 25,133 2017 9,310 9,310 9,310 9,310 9,310 9,310 $ 97,729 97,729 97,729 97,729 97,729 97,729 25,133 2,075 2,075 2,075 2,075 2,075 2,075 9,310 134,247 134,247 134,247 134,247 134,247 134,247 97,729

17,720 17,720 25,133 17,720 17,720 17,720 17,720 2016 20,579 20,579 9,310 20,579 20,579 20,579 20,579 $ 87,683 87,683 97,729 87,683 87,683 87,683 17,72087,683 2,916 2,916 2,075 2,916 2,916 2,916 2,916 20,579 128,898 128,898 134,247 128,898 128,898 128,898 128,898 87,683

2,075 134,247

2,916 128,898

20. 20. 20. 20. 20. Earnings Earnings Earnings Earnings Earnings 20. per per per per Earnings share per share share share shareper share 20.20.Earnings Earnings 20.20.per Earnings per Earnings share share per per share share

The The The The The following following The following following following following table table table table table The sets table sets sets following sets sets forth forth sets forth forth forth the forth thethe table computation the the computation the computation computation computation sets computation forthof ofthe basic of basic of ofbasic computation ofbasic basic The basic and and The and following and and diluted diluted and following diluted diluted diluted of diluted earnings table basic earnings The earnings table The earnings earnings following earnings sets and following sets per per forth diluted per share per per forth share table per share the share share table earnings share the for computation for sets for the computation sets for the for forth for the years the the years per forth the years the years years share years ended of the ended computation basic ended ofended ended computation for basic ended September September the and September September September and years September diluted ofdiluted basic ofended 30: 30: basic earnings 30: 30: and 30: earnings 30: September and diluted per diluted per sha eas 20. Earnings per share 2017 2017 2017 2017 2017 2017

2017

The following table sets forth the computation of basic and diluted earnings per share for the years ended September 30: Net earnings Net NetNet earnings Net earnings Net earnings earnings earnings $$ $ $$ $

Basic Basic Basic Basic Basic Basic

Basic

2016 2016 2016 2017 2016 2016 2016 2017

Weighted Weighted average average Weighted Weighted Weighted Weighted Weighted Weighted average average average average average average Weighted average Weighted Weighted Weighted Weighted average average average average Weighted average Weighted Weighted average average Weighted Weighted average average Earnings Earnings Earnings Earnings Earnings Earnings per perper per per per Earnings per number Earnings Earnings Earnings Earnings Earnings Earnings Earnings Earnings per per per per per per per per Earn Ea E number number ofshares shares of shares number number number number number ofofshares shares ofof of shares of shares shares shares number of shares number number number number of of of shares of shares shares number of shares number number of shares of shares number number of shares of shares 1 1 1 11 1 1 1 1 11 11 11 11 1 share share share share share share Net Net Net earnings earnings Net Net Net earnings earnings earnings earnings shareNet Net earnings share share share share share share share share Net Ne ea Net earnings Net Net earnings earnings Net earnings earnings outstanding outstanding outstanding outstanding outstanding outstanding outstanding outstanding outstanding outstanding outstanding outstanding outstanding outstanding outstanding outstanding outstanding outstanding 2017 2016 $ Weighted average

$$ $ $$ $

$$ $$$$ $$$ Weighted average $$ $

$$ $$$$ $$

Earnings per Earnings per number of shares of shares 1,035,195 1,035,195 1,035,195 1,035,195 1,035,195 1,035,195 number 1,035,195 297,516,970 297,516,970 297,516,970 297,516,970 297,516,970 Basic 297,516,970 Basic 297,516,970 Basic Basic 3.48 3.48 3.48 3.48 3.48 3.48 1,068,716 1,068,716 1,068,716 1,035,195 1,068,716 1,068,716 1,068,716 1,035,195 3.48 1,035,195 1,068,716 1,035,195 304,808,130 304,808,130 304,808,130 297,516,970 304,808,130 304,808,130 304,808,130 297,516,970 297,516,970 304,808,130 297,516,970 3.51 3.51 3.51 3.48 3.51 3.51 3.51 3.481,068 1 1 1

Net earnings

share Net earnings

outstanding

outstanding

share

Net Net Net Net effect Net effect effect effect effect ofdilutive of dilutive of ofdilutive of dilutive dilutive dilutive Net stock stock effect stock stock stock of dilutive$stock NetNet effect effect of dilutive of Net dilutive Net effect stock effect stock of dilutive of dilutive stock stock Net effect of stock $ 22 2 22 2 2 2$ 2$ 2 5,776,515 5,776,515 5,776,515 5,776,515 5,776,515 5,776,515 5,776,515 7,965,026 7,965,026 7,965,026 5,776,515 7,965,026 7,965,026 7,965,026 5,776,515 5,776,515 7,965,026 5,776,515 options options options options options and and and and PSUs and PSUs PSUs PSUs PSUs options and PSUs2 options options andand PSUs PSUs options options andand PSUs PSUs options and PSUs Basic 1,035,195 297,516,970 3.48 1,068,716 304,808,130 3.51 1,035,195 1,035,195 1,035,195 1,035,195 1,035,195 1,035,195 1,035,195 303,293,485 303,293,485 303,293,485 303,293,485 303,293,485 303,293,485 303,293,485 3.41 3.41 3.41 3.41 3.41 3.41 1,068,716 1,068,716 1,068,716 1,035,195 1,068,716 1,068,716 1,068,716 1,035,195 3.41 1,035,195 1,068,716 1,035,195 312,773,156 312,773,156 312,773,156 303,293,485 312,773,156 312,773,156 312,773,156 303,293,485303,293,485 312,773,156 303,293,485 3.42 3.42 3.42 3.41 3.42 3.42 3.42 3.411,068 1, Net effect of dilutive stock 2 11 1 11 1 1 1 1 1 1 5,776,515 7,965,026 options and PSUs During During During During During the During the year the year the the year the ended year year ended year ended ended ended September ended September During September September September September the30, year 30,2017, 30, 2017, 30, ended 30, 2017, 30, 2017, 2017, 19,929,268 19,929,268 2017, September 19,929,268 19,929,268 19,929,268 19,929,268 Class Class 30, Class Class Class 2017, AAClass subordinate subordinate AA A subordinate 19,929,268 During subordinate subordinate A subordinate During the shares shares year Class the shares shares shares year purchased shares purchased ended Apurchased During subordinate ended purchased purchased purchased During September the and September and year the and 468,668 and 468,668 shares and year and 468,668 ended 30, 468,668 468,668 468,668 2017, ended 30, purchased Class Class September 2017, Class 19,929,268 Class Class September AAClass subordinate subordinate 19,929,268 Aand A A subordinate subordinate subordinate A 30, 468,668 subordinate Class 2017, 30,shares Class 2017, shares A19,929,268 Class shares subordinate shares shares A19,929,268 held shares held subordinate Aheld subordinate in held held intrust held Class trust inshares in in trust Class were trust in trust were shares Atrust were subordinate shares purchased were excluded were Aexcluded were subordinate purchased excluded excluded excluded held excluded shares and in trust shares and 468,66 pur we 46

from from from the from from the from the calculation calculation the the calculation the calculation calculation calculation ofofweighted weighted from ofof of weighted of weighted weighted the weighted average calculation average average average average average number number ofnumber number weighted number number ofofshares shares ofof of shares average of shares shares outstanding shares outstanding outstanding outstanding outstanding number outstanding from as as from of the of as of shares as the as calculation the the ofas of of the date calculation date of the the outstanding date the of date date of from transaction date of transaction of3.41 of from of weighted transaction the of of transaction transaction weighted as transaction calculation theof1,068,716 calculation (9,519,875 the (9,519,875 average (9,519,875 date average (9,519,875 (9,519,875 of (9,519,875 of weighted number of and transaction and weighted number and 1,192,308, and 1,192,308, and of and 1,192,308, average shares 1,192,308, 1,192,308, of1,192,308, average (9,519,875 shares respectively outstanding respectively number respectively outstanding number respectively respectively respectively and of shares 1,192,308, during of as during shares of during as during during the outstanding the of during the date the outstanding the year respectively year the the date year the of ended year year ended transaction year of as ended ended transaction ended ofas ended during the of date the (9,51 the da (9 o 1,035,195 303,293,485 312,773,156 3.42 September September September September September September 30, 30,30, 2016). 2016). 30, 30, 30, 2016). 2016). 2016). 2016). September 30, 2016). September September 30, 30, 2016). September 2016). September 30, 30, 2016). 2016).

2 12

The The The calculation The calculation The The calculation calculation calculation calculation of ofthe the ofof of diluted the diluted of the the The diluted the diluted diluted calculation earnings diluted earnings earnings earnings earnings earnings per per of per share the share per per share diluted per share share excluded excluded share excluded earnings excluded excluded excluded 6,419,566 6,419,566 6,419,566 per 6,419,566 6,419,566 share stock The stock excluded stock The calculation stock stock options options stock calculation options options options 6,419,566 options for for of the for the the for for The of year the for year the the diluted the The calculation stock year the ended year year ended diluted calculation year ended earnings options ended ended September ended September earnings ofSeptember the September for September of per September the diluted the share per 30, year diluted 30, 2017 30, earnings 2017 excluded 30, ended 30, 2017 30, earnings 2017 excluded (3,842,800 2017 (3,842,800 2017 September (3,842,800 per (3,842,800 6,419,566 (3,842,800 (3,842,800 share per 6,419,566 for share forexcluded the 30, for the stock for for year excluded the 2017 for year the stock the year options the ended year year (3,842,800 6,419,566 ended year options ended 6,419,566 ended ended for September ended September the September for stock September for September year the September stock the year options ended year options ended ended Sept for th S fo During the year ended September 30, 2017, 19,929,268 Class A6,419,566 subordinate shares purchased and 468,668 Class Ashare subordinate shares held in trust were excluded 30, 30,30, 2016), 2016), 30, 30, 30, 2016), 2016), 2016), as 2016), asthey as they as as they as were they they were were 30, were were anti-dilutive. anti-dilutive. were 2016), anti-dilutive. anti-dilutive. anti-dilutive. anti-dilutive. as theynumber were anti-dilutive. 30,as 30, 2016), they asofthey 30, were 30, 2016), were anti-dilutive. 2016), anti-dilutive. as(9,519,875 they as they were were anti-dilutive. anti-dilutive. from the calculation ofthey weighted average of shares outstanding of2016), theas date transaction and 1,192,308, respectively during the year ended September 30, 2016).

2 22 2

2

2

2

2

2

2

The calculation of the diluted earnings per share excluded 6,419,566 stock options for the year ended September 30, 2017 (3,842,800 for the year ended September 30, 2016), as they were anti-dilutive.

103

CGI CGI CGI Group CGI CGI Group CGI Group Group Group Inc. Group Inc.Inc. –Inc. –Inc. Consolidated Consolidated Inc. – –– Consolidated Consolidated Consolidated –CGI Consolidated Group Financial Financial Inc. Financial Financial Financial Financial – Statements Consolidated Statements Statements Statements Statements Statements for for Financial the for the for for the years for years the the the years Statements years years ended ended years CGI ended ended CGI ended Group September ended September Group for September September September Inc. the September Inc. – years 30, Consolidated 30, CGI –30, 2017 Consolidated 2017 CGI ended 30, 30, Group 30, 2017 2017 2017 and Group and 2017 September Inc. and 2016 Financial and 2016 and Inc. and –2016 Financial Consolidated 2016 2016 –2016 Consolidated 30, Statements 2017 Statements Financial andfor Financial 2016 the forStatements the years Statements years ended ended forSeptember the forSeptember the years years ended 30, ended 30, 2017 September 45 2017 45and September 4545 45 and 2016 45 201 30,


Notes to the Consolidated Financial Statements For the years ended September 30, 2017 and 2016 (tabular amounts in thousands of Canadian dollars, except per share data) Notes to only theareConsolidated Financial Statements For the years ended September 30, 2017 and 2016 (tabular amounts only are in thousands of Canadian dollars, except per share data)

21. Construction contracts in progress Revenue from systems integration and consulting services under fixed-fee arrangements where the outcome of the arrangements 21. Construction contracts in progress can be estimated reliably is recognized using the percentage-of-completion method over the service period. The Company primarily uses labour costs or labour hoursand to measure the progress towards completion. If the where outcome an arrangement cannot be Revenue from systems integration consulting services under fixed-fee arrangements theof outcome of the arrangements estimated reliably, revenue is recognized to the extent of arrangement costs incurred that are likely to be recoverable. can be estimated reliably is recognized using the percentage-of-completion method over the service period. The Company primarily

uses labour costs or labour hoursintoexcess measure the progress towardsas completion. If the outcome of received an arrangement cannot be Amounts recognized as revenue of billings are classified work in progress. Amounts in advance of the estimated reliably, revenue is recognized to the are extent of arrangement costs incurred that are likely to be recoverable. performance of services or delivery of products classified as deferred revenue. Amounts as revenue in excesscontracts of billings classifiedatasthe work Amounts in advance of the The statusrecognized of the Company’s construction stillare in progress endinofprogress. the reporting periodreceived was as follows: performance of services or delivery of products are classified as deferred revenue. at As As at as follows: As at at The status of the Company’s construction contracts still in progress at the end of the reporting periodAs was September 30, 2017 September 30, 2016

Recognized as: Revenue in the respective year Recognized Recognized as: as: 1 Amounts from customers under construction contracts1 Revenue due in the respective year Amounts dueas: to customers under construction contracts Recognized

September 30, 2017 $ As at September 30, 2017

1,527,904 $ 278,792 1,527,904 (56,068)

September 30, 2016 $ As at September 30, 2016

1,443,169 $ 414,427 1,443,169 (105,187)

due from customers under construction contracts 278,792 414,427 As As at at September September 30, 30, 2017, 2017, retentions retentions held held by by customers customers for for contract contract work work in in progress progress amounted amounted to to $11,971,000 $11,971,000 ($72,277,000 ($72,277,000 as as at at September September 30, 30, 2016). 2016).

1 1 Amounts

1

Amounts due to customers under construction contracts 1

(56,068)

(105,187)

As at September 30, 2017, retentions held by customers for contract work in progress amounted to $11,971,000 ($72,277,000 as at September 30, 2016).

22. Costs of services, selling and administrative 22. Costs of services, selling and administrative 1 Salaries and other member costs1 Professional fees and other contracted labour Hardware, software and data center related costs Salaries and other member costs1 Property costs Professional fees and other contracted labour (Note 23) 23) Amortization and depreciation (Note Hardware, software and data center related costs Other operating expenses Property costs Amortization and depreciation (Note 23) 1 1 Other operating expenses Net of R&D and other tax credits of $182,951,000 in 2017 ($174,199,000 in 2016).

Net of R&D and other tax credits of $182,951,000 in 2017 ($174,199,000 in 2016).

Year ended ended September September 30 30 Year 2017 2016 2017 2016 $ $ $ $ Year ended September 30

6,412,607 2017 1,273,944 $ 814,274 6,412,607 349,881 1,273,944 366,377 814,274 40,576 349,881 9,257,659 366,377 40,576 9,257,659

6,254,917 2016 1,243,143 $ 795,347 6,254,917 399,682 1,243,143 394,054 795,347 33,786 399,682 9,120,929 394,054 33,786 9,120,929

Net of R&D and other tax credits of $182,951,000 in 2017 ($174,199,000 in 2016). 23. Amortization and depreciation 1

23. Amortization and depreciation

Year ended ended September September 30 30 Year 2017 2016 $ $ $ $ Year ended September 30

1 (Note 6) 6) Depreciation of PP&E1 (Note (Note 8) 8) Amortization of intangible assets (Note 1 costs related to transition costs Amortization of contract Depreciation of PP&E (Note 6) (Note 22) Included in costs of services, selling and Amortization of intangible assets (Note 8) administrative (Note 22)

152,854 2017 157,033$ 56,490 152,854 366,377 157,033

163,105 2016 176,895$ 54,054 163,105 394,054 176,895

Amortization of contract costs related to transition costs Amortization of contract costs related to incentives (presented as a reduction of revenue) Included in costs of services, selling and administrative (Note 22) Amortization of deferred financing fees (presented in finance costs) Amortization and related discounts on investments relatedastoafunds held of forrevenue) clients Amortization of of premiums contract costs to incentives (presented reduction (presented net as a reduction of revenue) Amortization of deferred financing fees (presented in finance costs) (Notes 6 6 and and 24) 24) Impairment of PP&E (presented in restructuring costs) (Notes Amortization of premiums and discounts on investments related to funds held for clients (presented net as a reduction of revenue)

56,490 2,336 366,377 1,090

54,054 3,221 394,054 1,154

2,336 1,494 1,090 5,907 377,204 1,494

3,221 1,631 1,154 — 400,060 1,631

5,907 377,204

— 400,060

1

(Notes 6 and 24) ($14,471,000 in 2016). Impairment (presented in finance restructuring costs) DepreciationofofPP&E PP&E acquired under leases was $11,623,000 in 2017

1

Depreciation of PP&E acquired under finance leases was $11,623,000 in 2017 ($14,471,000 in 2016).

104


46

FISCAL 2017 RESULTS



24. Restructuring costs During the year ended September 24. Restructuring costs30, 2017, the Company announced it will incur approximately $165,000,000 of restructuring costs over the next year to compress the timeline of implementing certain elements of its profitable growth strategy and incurred $88,628,000 of costs related to the announced program. This amount includes restructuring costs for termination of employments During the year ended September 30, 2017, the Company announced it will incur approximately $165,000,000 of restructuring of $67,426,000 accounted for in restructuring provisions, leases of vacated premises of $14,550,000 accounted for in onerous costs over the next year to compress the timeline of implementing certain elements of its profitable growth strategy and incurred lease provisions, impairment of PP&E of $5,907,000 (Notes 6 and 23), as well as other restructuring costs of $745,000. The $88,628,000 of costs related to the announced program. This amount includes restructuring costs for termination of employments initiative is expected to yield benefits throughout fiscal year 2018. of $67,426,000 accounted for in restructuring provisions, leases of vacated premises of $14,550,000 accounted for in onerous lease provisions, impairment of PP&E of $5,907,000 (Notes 6 and 23), as well as other restructuring costs of $745,000. The During year ended September 2016, the Company completed the previously announced restructuring program for initiativethe is expected to yield benefits30, throughout fiscal year 2018. productivity improvement initiatives and incurred $29,100,000 of restructuring costs for termination of employments for a total expense of $65,000,000 over the entire program. During the year ended September 30, 2016, the Company completed the previously announced restructuring program for productivity improvement initiatives and incurred $29,100,000 of restructuring costs for termination of employments for a total expense of $65,000,000 over the entire program.

25. Net finance costs 25. Net finance costs


Interest on long-term debt Net interest costs on net defined benefit obligations or assets (Note 16) Other finance costs debt Interest on long-term Finance costs Net interest costs on net defined benefit obligations or assets (Note 16) Finance income Other finance costs Finance costs Finance income


2016

$ $ Year ended September 30

62,022 2017 5,578 $ 5,911 62,022 73,511 5,578 (3,719) 5,911 69,792 73,511

70,257 2016 6,237 $ 3,542 70,257 80,036 6,237 (1,610) 3,542 78,426 80,036

(3,719) 69,792

(1,610) 78,426

105 47


Notes to the Consolidated Financial Notes Notes to to the the Consolidated Consolidated Financial Financial Statements Statements Statements Notes the Consolidated For the yearsto ended September 30, 2017 and 2016 Financial Statements For Forthe theyears yearsended endedSeptember September30, 30,2017 2017and and2016 2016 (tabular amounts onlySeptember are in thousands of and Canadian except per share data) For the years ended 30, 2017 2016 dollars, (tabular (tabular amounts amounts only onlyare arein inthousands thousands of ofCanadian Canadian dollars, dollars,except exceptper pershare sharedata) data) (tabular amounts only are in thousands of Canadian dollars, except per share data)


26. 26. 26. Investments Investments Investments in in in subsidiaries subsidiaries subsidiaries 26. Investments in subsidiaries

a) Acquisitions a) a) Acquisitions Acquisitions a) The Acquisitions Company made the following acquisitions during the year ended September 30, 2017: 26. Investments in subsidiaries The TheCompany Company made madethe thefollowing following acquisitions acquisitionsduring the during theyear yearended endedSeptember September30, 30,2017: 2017: The Company made the following acquisitions during the year ended September 30, 2017: – On November 3, 2016, the Company acquired all units of Collaborative Consulting, LLC, a high-end IT consulting – On On November November 3, 3, 2016, 2016, the the Company Company acquired acquired all all units units of of Collaborative Collaborative Consulting, Consulting, LLC, LLC, aa high-end high-end IT IT consulting consulting a) – Acquisitions with 3,specialized expertise acquired in financial, life of sciences and public sectors, headquartered Boston, – company On November 2016, the Company all units Collaborative Consulting, LLC, a high-end IT in consulting company company with with specialized specialized expertise expertise in in financial, financial, life life sciences sciences and and public public sectors, sectors, headquartered headquartered in in Boston, Boston, The Company made the following acquisitions during the year ended September 30, 2017: Massachusetts; company with specialized expertise in financial, life sciences and public sectors, headquartered in Boston, Massachusetts; Massachusetts; – Massachusetts; On April 19, 2017, the Company acquired all outstanding of Computer Technology Solutions, Inc., a high-end IT November 3, 2016, the Company acquired all unitsshares of Collaborative Consulting, LLC, a high-end IT consulting –– On OnApril April19, 19,2017, 2017, the theCompany Company acquired acquired all alloutstanding outstanding shares shares of ofComputer Computer Technology Technology Solutions, Solutions, Inc., Inc.,a ahigh-end high-end IT IT consulting company focused on commercial markets, specialized in cloud, analytics and digital transformation, – On April 19, 2017, the Company acquired all outstanding shares of Computer Technology Solutions, Inc., a high-end IT company specialized expertise in financial, life specialized sciences and public sectors, and headquartered in Boston, consulting consultingwith company company focused focused on on commercial commercial markets, markets, specialized in in cloud, cloud, analytics analytics and digital digital transformation, transformation, headquartered in Birmingham, consulting company focused Alabama; on commercial markets, specialized in cloud, analytics and digital transformation, Massachusetts; headquartered headquartered in inBirmingham, Birmingham, Alabama; Alabama; headquartered in Birmingham, Alabama; – On May 12, 2017, the Company acquired alloutstanding outstandingshares sharesofofComputer eCommerce Systems, Inc., a high-end consulting –– On Technology Solutions, Inc., a high-end IT OnApril May May19, 12, 12,2017, 2017, 2017,the the theCompany Company Companyacquired acquired acquiredall all all outstanding outstanding shares shares of of eCommerce eCommerce Systems, Systems, Inc., Inc., aa high-end high-end consulting consulting IT company focused on commercial markets, specialized in cloud, analytics and digital transformation, headquartered – On May 12, 2017, the Company acquired all outstanding shares of eCommerce Systems, Inc., a high-end consulting consulting company focused on commercial markets, specialized in cloud, analytics and digital transformation, IT ITcompany focused company focusedon oncommercial commercialmarkets, markets,specialized specializedin incloud, cloud,analytics analyticsand anddigital digitaltransformation, transformation,headquartered headquartered in Denver, Colorado; andcommercial IT company focused on markets, specialized in cloud, analytics and digital transformation, headquartered headquartered in Birmingham, Alabama; in inDenver, Denver,Colorado; Colorado; and and Colorado; and Company acquired all outstanding shares of Summa Technologies, Inc. (Summa), a high-end – in OnDenver, August 2017, May 12,22, 2017, thethe Company acquired allall outstanding shares ofof eCommerce Systems, Inc., high-end aconsulting –– On OnAugust August 22, 22, 2017, 2017, the the Company Company acquired acquired all outstanding outstanding shares shares of Summa SummaTechnologies, Technologies, Inc. Inc.a(Summa), (Summa), ahigh-end high-end IT consulting company with expertiseacquired in digitalall experience and agile software development, headquartered in Pittsburgh, – On August 22, 2017,on the Company outstanding of Summa Technologies, Inc. (Summa), aPittsburgh, high-end company focused commercial specialized in shares cloud, analytics and digital transformation, headquartered IT ITconsulting consulting company company with with expertise expertisemarkets, in indigital digitalexperience experience and and agile agilesoftware software development, development, headquartered headquartered in inPittsburgh, Pennsylvania. IT consulting companyand with expertise in digital experience and agile software development, headquartered in Pittsburgh, in Denver, Colorado; Pennsylvania. Pennsylvania. Pennsylvania. – On August 22, 2017, Company acquired all outstanding sharesacquisitions of Summa based Technologies, Inc. (Summa), afair high-end The following table presents thethe purchase price allocations for all the above on the acquisition-date values The Thefollowing followingtable tablepresents presentsthe thepurchase purchaseprice priceallocations allocationsfor forall allthe theabove aboveacquisitions acquisitionsbased basedon onthe theacquisition-date acquisition-datefair fairvalues values IT consulting company with expertise inallocations digital experience and agile software development, headquartered in Pittsburgh, of the identifiable tangible and intangible assets acquired and liabilities assumed. The purchase price allocation for Summa is The following table presents the purchase price for all the above acquisitions based on the acquisition-date fair values of of the the identifiable identifiable tangible tangible and and intangible intangible assets assets acquired acquired and and liabilities liabilities assumed. assumed. The The purchase purchase price price allocation allocation for for Summa Summa isis Pennsylvania. preliminary. of the identifiable tangible and intangible assets acquired and liabilities assumed. The purchase price allocation for Summa is preliminary. preliminary. preliminary. The following table presents the purchase price allocations for all the above acquisitions based on the acquisition-date fair values 2017 2017 2017 of the identifiable tangible and intangible assets acquired and liabilities assumed. The purchase price allocation for Summa is 2017 $ $$ preliminary. Current assets Current Currentassets assets PP&E assets Current PP&E PP&E Intangible assets PP&E Intangible Intangibleassets assets Goodwill1111 assets Intangible Goodwill Goodwill Current assets 1 Current liabilities Goodwill Current Currentliabilities liabilities PP&E Deferredliabilities tax liabilities Current Deferred Deferredtax tax liabilities liabilities Intangible assets Debt Deferred 1tax liabilities Debt Debt Goodwill Debt Current liabilities Cash acquired Cash Cashacquired acquired Deferred tax liabilities Net assets acquired Cash acquired Net Netassets assets acquired acquired Debt Net assets acquired Consideration paid Consideration Consideration paid Cash acquiredpaid payable2222 Consideration paid Consideration Consideration payable payable Net assets acquired 2 1Consideration payable 111 1

40,705 $ 40,705 40,705 5,488 40,705 2017 5,488 5,488 50,474 5,488 50,474 50,474 $ 238,322 50,474 238,322 238,322 40,705 (29,953) 238,322 (29,953) (29,953) 5,488 (3,126) (29,953) (3,126) (3,126) 50,474 (9,648) (3,126) (9,648) (9,648) 238,322 292,262 (9,648) 292,262 292,262 (29,953) 14,814 292,262 14,814 14,814 (3,126) 307,076 14,814 307,076 307,076 (9,648) 307,076 292,262 297,875 297,875 297,875 14,814 9,201 297,875 9,201 9,201 307,076 9,201

The goodwill arising from the acquisitions mainly represents the future economic value associated to acquired work force and synergies with the Company’s The The goodwill goodwill arising from the theis acquisitions acquisitions mainly represents represents the future futureand economic economic value value associated associated toto acquired acquired work work force force and and synergies synergies with with the the Company’s Company’s operations. Allarising of the from goodwill included inmainly the U.S. operatingthe segment $191,231,000 is deductible for tax purposes.

operations. operations. All ofofthe thefrom goodwill goodwill isincluded includedininmainly the theU.S. U.S. operating operatingthe segment segment and$191,231,000 $191,231,000 isisdeductible deductible for fortax taxpurposes. purposes. Consideration paid 297,875 The goodwillAll arising the is acquisitions represents future and economic value associated to acquired work force and synergies with the Company’s 2 operations.inAllannually of the goodwill is included in2021 the U.S. segment $191,231,000 2 through andoperating bearing interest at and a rate of 2.04%. is deductible for tax purposes. 22Consideration 2 Repayable payableinstallments 9,201 Repayable Repayableininannually annually installments installmentsthrough through2021 2021and andbearing bearinginterest interestatataarate rateofof2.04%. 2.04%. 2 1

Repayable in annually installments through 2021 and bearing interest at a rate of 2.04%.

goodwill on arising from the6,acquisitions represents the future94.79% economicof value to acquired work and synergies with theaCompany’s In The addition, October 2017, themainly Company acquired theassociated outstanding shares offorce Affecto Plc (Affecto), leading Inoperations. addition, addition,All on October 6, 2017, the the Company Company acquired acquired 94.79% of of the the outstanding shares of of Affecto Affecto Plc Plc (Affecto), (Affecto), aa leading leading In on of October the goodwill6, is 2017, included in the U.S. operating segment94.79% and $191,231,000 isoutstanding deductible for shares tax purposes. provider of business intelligence andCompany enterpriseacquired information management solutions shares and services, headquartered inaHelsinki, In addition, on October 6, 2017, the 94.79% of the outstanding of Affecto Plc (Affecto), leading 2 provider provider of ofinbusiness business intelligence intelligence and and enterprise enterprise information management management solutions solutions and and services, services, headquartered headquartered in in Helsinki, Helsinki, Repayable annually installments through 2021 and bearinginformation interest at a rate of 2.04%. Finland, for for cash consideration $137,436,000. On October 10, 2017, the Company an application to initiate provider of a intelligenceof enterprise On information management solutionssubmitted and services, headquartered in statutory Helsinki, Finland, abusiness of $137,436,000. submitted an to statutory Finland, Finland, for acash cashconsideration consideration ofand $137,436,000. $137,436,000. OnOctober October10, 10,2017, 2017,the theCompany Company submitted anapplication application toinitiate initiate statutory squeeze-out proceedings in order order to complete the the On redemption of the the shares held by by the remaining shareholders of Affecto. At the Finland, for a cash consideration of $137,436,000. October 10, 2017, the Company submitted an application to initiate statutory squeeze-out proceedings in to complete redemption of shares held the remaining shareholders of Affecto. At the squeeze-out squeeze-out proceedings proceedings in order orderthe to tocomplete complete the redemption redemption of ofthe the shares held heldby bythe the remaining remaining shareholders shareholders of ofAffecto. Affecto. At Atthe the In addition, on October 6,in 2017, Companythe acquired 94.79% ofshares the outstanding shares of Affecto Plc (Affecto), a leading time of the approval of the Company's consolidated financial statements, the initial accounting for the acquisition of Affecto was squeeze-out proceedings in order to complete the redemption of the shares held by the remaining shareholders of Affecto. At the Company's time timeof ofthe the approval of the theCompany's Company's consolidated consolidated financial financialstatements, statements, the the initial initialaccounting accounting for forthe the acquisition acquisitionof ofAffecto Affecto was was provider of approval businessof intelligence and enterprise information management solutions and services, headquartered in Helsinki, incomplete. time of the approval of the Company's consolidated financial statements, the initial accounting for the acquisition of Affecto was incomplete. incomplete. Finland, for a cash consideration of $137,436,000. On October 10, 2017, the Company submitted an application to initiate statutory incomplete. acquisitions complement Company's proximity model and further its global capabilitiesofacross These will squeeze-out proceedings in order to the complete the redemption of the shares held strengthen by the remaining shareholders Affecto.several At the These Theseacquisitions acquisitions will willcomplement complement the theCompany's Company's proximity proximitymodel model and andfurther further strengthen strengthen its itsglobal global capabilities capabilitiesacross across several several digital transformation transformation areas. in-demand areas. time of acquisitions the digital approval of the Company's financial statements, the initial accounting for thecapabilities acquisition across of Affecto was These will complement theconsolidated Company's proximity model and further strengthen its global several in-demand in-demand digital digitaltransformation transformation areas. areas. in-demand incomplete.digital transformation areas. b) Acquisition-related and integration costs b) b) Acquisition-related Acquisition-related and andintegration integration costs costs proximity model and further strengthen its global capabilities across several These acquisitions will complement the Company's b) Acquisition-related and integration costs In connection withtransformation these acquisitions, the Company expensed $10,306,000 related to acquisition-related and integration costs in-demand digital areas. In In connection connection with with these these acquisitions, acquisitions, the the Company Company expensed expensed $10,306,000 $10,306,000 related related to to acquisition-related acquisition-related and and integration integration costs costs during the yearwith ended September 30, 2017. This amount includes acquisition-related of $1,661,000 and integration costs In connection these acquisitions, the Company expensed $10,306,000 related tocosts acquisition-related during duringthe theyear yearended endedSeptember September30, 30,2017. 2017.This Thisamount amount includes includes acquisition-related acquisition-related costs costs of of$1,661,000 $1,661,000and andintegration integrationcosts costs of $8,645,000. acquisition-related consist mainlyincludes of professional fees incurredcosts for the The integration costs during the yearThe ended September 30, costs 2017. This amount acquisition-related ofacquisitions. $1,661,000 and of of$8,645,000. $8,645,000. The The acquisition-related acquisition-related costs costs consist consist mainly mainlyof ofprofessional professional fees feesincurred incurredfor forthe the acquisitions. acquisitions. The Theintegration integrationcosts costs b) Acquisition-related and integration costs mainly include The termination of employments $5,207,000 for infees restructuring provisions, leases The of vacated premises of $8,645,000. acquisition-related costs of consist mainly accounted of professional incurred for the acquisitions. integration costs mainly mainly include include termination termination of of employments employments of of $5,207,000 $5,207,000 accounted accounted for for in in restructuring restructuring provisions, provisions, leases leases of of vacated vacated premises premises In connection these acquisitions, Company expensed $10,306,000 related tocosts acquisition-related integration costs of $1,382,000 accounted for onerousthe lease provisions, as well as other of $ 2,056,000. mainly includewith termination of in employments of $5,207,000 accounted for inintegration restructuring provisions, leasesand of vacated premises of of$1,382,000 $1,382,000 accounted accounted for for in inonerous onerous lease lease provisions, provisions, as aswell wellas as other other integration integration costs costs of of$$1,661,000 $2,056,000. 2,056,000. during the year ended September 30, 2017. This amount includes acquisition-related costs of and integration costs of $1,382,000 accounted for in onerous lease provisions, as well as other integration costs of $ 2,056,000. of The acquisition-related costs of professional incurred for the acquisitions. The integration costs CGI$8,645,000. Group Inc. – Consolidated Financial Statements for consist the yearsmainly ended September 30, 2017fees and 2016 48 CGI CGIGroup GroupInc. Inc.––Consolidated ConsolidatedFinancial FinancialStatements Statementsfor forthe theyears yearsended endedSeptember September30, 30,2017 2017and and2016 2016 48 48 106 mainly include termination of employments accounted restructuring provisions, leases of vacated premises CGI Group Inc. – Consolidated Financial Statements forof the$5,207,000 years ended September 30, for 2017inand 2016 48 of $1,382,000 accounted for in onerous lease provisions, as well as other integration costs of $ 2,056,000.

FISCAL 2017 RESULTS



27. Supplementary cash flow information a) Net change in non-cash working capital items is as follows for the years ended September 30:

27. Supplementary cash flow information

2017

a) Net change in non-cash working capital items is as follows for the years ended September 30: Accounts receivable

$

$

(164,452)

(35,829)

(8,056) $

(102,354) $

(92,873) 16,403 44,837 (13,338)

16,764 (18,573) (43,528) (4,802)

2017

Work in progress Prepaid expenses and other assets Accounts receivable Long-term financial Work in progress assets

16,403 (164,452) (13,338) (8,056)

Deferred revenue Accounts payable and accrued liabilities Provisions Accrued compensation Long-term liabilities Deferred revenue Retirement benefits obligations Provisions Derivative financial instruments Long-term liabilities Income taxes Retirement benefits obligations Derivative financial instruments Income taxes

(12,993) (92,873) 50,777 44,837 8,612 (12,993) (12,395) 50,777 3,229 8,612 34,164 (12,395) (146,085) 3,229 34,164

Accounts payable and liabilities Prepaid expenses and accrued other assets Accrued compensation Long-term financial assets

2016

2016

(18,573) (35,829) (4,802) (102,354)

3,551 16,764 (77,192) (43,528) (11,897) 3,551 (1,150) (77,192) (2,256) (11,897) 9,393 (1,150) (267,873) (2,256) 9,393

b) Non-cash operating, investing and financing activities related to operations are as follows for the years ended September 30: (146,085) (267,873) 2017

2016

$

$

2017

2016

b) Non-cash operating, investing and financing activities related to operations are as follows for the years ended September 30: Operating activities Accounts receivable Accounts payable and accrued liabilities Operating activities Provisions Accounts receivable Accounts payable and accrued liabilities Investing activities Provisions Purchase of PP&E Additions of intangible assets Investing activities Purchase of PP&E Financing activities Additions of intangible assets Increase in obligations under finance leases Increase in obligations other than finance leases Financing activities Issuance of shares Increase in obligations under finance leases Increase in obligations other than finance leases Issuance of shares

(118) (15) $ $ 34,522 36,139 1,571 1,074 (118) (15) 35,975 37,198 34,522 36,139 1,571 1,074 (16,365) (15,427) 35,975 37,198 (23,236) (32,608) (39,601) (48,035) (16,365) (15,427) (23,236) (32,608) 3,508 9,238 (39,601) (48,035) — 1,584 118 15 3,508 9,238 3,626 10,837 — 1,584 118 15 c) Interest paid and received and income taxes paid are classified within operating activities and are as3,626 follows for the10,837 years

ended September 30:

c) Interest paid and received and income taxes paid are classified within operating activities and are as follows for the years 2017 2016 ended September 30: $

$

78,227

82,369

3,680

1,455

244,227 78,227

246,134 82,369

Interest paid

2017

Interest received Income Interest taxes paid paid Interest received

$

3,680

d)Income Cashtaxes and cash paid equivalents consisted fully of unrestricted cash as at September 30, 2017 and 2016.244,227

2016

$

1,455 246,134

d) Cash and cash equivalents consisted fully of unrestricted cash as at September 30, 2017 and 2016.


107 49




28. Segmented information The tables present information on the Company's operations based on its current management structure managed 28. following Segmented information through seven operating segments. Segment results are based on the location from which the services are delivered - the geographic delivery model (Note 11). The following tables present information on the Company's operations based on its current management structure managed through seven operating segments. Segment results are based on the location from which the services are delivered - the Year ended September 30, 2017 geographic delivery model (Note 11).

Segment revenue Earnings before acquisitionEarnings before acquisitionandintegration integrationcosts, costs, related and restructuring costs, net net finance finance Segment restructuring revenue costs, costs and income tax expense1 Earnings before acquisitionAcquisition-related and costs, related and integration integration costs restructuring costs, (Note net26b) finance 1 costs and income expense Restructuring costs tax (Note 24) Acquisition-related and 25) Net finance costs (Note integration costs (Note 26b) Earnings before income taxes Restructuring costs (Note 24)

U.S.

Nordics

Canada

France

U.K.

$

$

$

$

$

U.S. 3,028,355

Nordics 1,577,883

Canada 1,605,500

France 1,559,869

U.K. 1,286,700

ECS 1,194,409

Asia Pacific 592,350

Total 10,845,066

3,028,355 495,774

1,577,883 179,989

1,605,500 343,856

1,559,869 193,075

1,286,700 152,185

1,194,409 98,981

592,350 122,763

10,845,066 1,586,623

495,774

179,989

343,856

193,075

152,185

98,981

122,763

$

$

$

$

$

ECS

Asia Pacific

Total

$ ended September $ $ Year 30, 2017 $

$

$

(10,306) 1,586,623 (88,628) (69,792) (10,306) 1,417,897 (88,628)

1

Net finance costs and (Notedepreciation 25) (69,792) Total amortization of $370,207,000 included in the U.S., Nordics, Canada, France, U.K., ECS and Asia Pacific operating segments was $98,163,000, $47,907,000, $62,050,000, $32,377,000, $69,506,000, $37,480,000 and $22,724,000, respectively for the year ended September 30, 2017. Earnings before income taxes 1,417,897

1

Total amortization and depreciation of $370,207,000 included in the U.S., Nordics, Canada, France, U.K., ECS and Asia Pacific operating segments was $98,163,000, $47,907,000, $62,050,000, $32,377,000, $69,506,000, $37,480,000 and $22,724,000, respectively for the year ended September 30, 2017. Year ended September 30, 2016

Segment revenue Earnings before restructuring costs, net finance costs and Segment revenue income tax expense1 Earnings before restructuring Restructuring costs (Note 24) costs, net finance costs and Net finance costs (Note income tax expense1 25) Earnings before income Restructuring costs (Notetaxes 24) 1

U.S.

Nordics

Canada

France

U.K.

$

$

$

$

$

U.S. 2,878,661

Nordics 1,651,322

Canada 1,536,331

France 1,444,966

U.K. 1,431,739

ECS 1,198,854

Asia Pacific 541,391

Total 10,683,264

2,878,661 486,295

1,651,322 186,742

1,536,331 345,483

1,444,966 174,685

1,431,739 154,262

1,198,854 114,256

541,391 98,588

10,683,264 1,560,311

$

$

$

$

$

ECS

Asia Pacific

Total

$Year ended September $ $ 30, 2016 $

$

$

(29,100) 486,295

186,742

345,483

174,685

154,262

114,256

98,588

(78,426) 1,560,311 1,452,785 (29,100)

Net finance costs and (Notedepreciation 25) (78,426) Total amortization of $398,906,000 included in the U.S., Nordics, Canada, France, U.K., ECS and Asia Pacific operating segments was $94,744,000, $69,385,000, $58,695,000, $34,542,000, $79,342,000, $40,427,000 and $21,771,000, respectively for the year ended September 30, 2016. Earnings before income taxes 1,452,785

1

Total amortizationpolicies and depreciation $398,906,000 included are in thethe U.S., Nordics, Canada,described France, U.K., and Asia Pacific operating segments was The accounting of eachofoperating segment same as those in ECS the Summary of significant accounting $94,744,000, $69,385,000, $58,695,000, $34,542,000, $79,342,000, $40,427,000 and $21,771,000, respectively for the year ended September 30, 2016. policies (Note 3). Intersegment revenue is priced as if the revenue was from third parties.

The accounting policies of each operating segment are the same as those described in the Summary of significant accounting policies (Note 3). Intersegment revenue is priced as if the revenue was from third parties.

108


50

FISCAL 2017 RESULTS



28. Segmented information (continued) GEOGRAPHIC INFORMATION 28. Segmented information

(continued)

The following table provides external revenue information based on the client’s location which is different from the revenue GEOGRAPHIC INFORMATION presented under operating segments, due to the intersegment revenue: The following table provides external revenue information based on the client’s location which is different from the revenue 2017 2016 presented under operating segments, due to the intersegment revenue: $ $ U.S.

3,118,044 2017

Nordics U.S. Sweden Finland Nordics Others Sweden

$

$

3,118,044 775,093 654,155 239,658 775,093 1,668,906 654,155

2,969,506 829,080 648,981 248,826 829,080 1,726,887 648,981

239,658 1,746,438 1,668,906

248,826 1,643,680 1,726,887

1,746,438 1,555,721 38,445 1,594,166 1,555,721

1,643,680 1,433,354 38,690 1,472,044 1,433,354

38,445 1,419,419 1,594,166

38,690 1,568,323 1,472,044

1,419,419 415,104 421,673 332,401 415,104 1,169,178 421,673

1,568,323 397,059 449,031 318,991 397,059 1,165,081 449,031

332,401 1,169,178 128,915 128,915

318,991 1,165,081 137,743 137,743

10,845,066 128,915 128,915

10,683,264 137,743 137,743

Finland Others Canada France Canada France Others France France Others U.K. ECS U.K. Germany Netherlands ECS Others Germany Netherlands Others Asia Pacific Others Asia Pacific Others

2,969,506 2016

The following table provides information for PP&E, contract costs and intangible assets based on10,845,066 their location:

10,683,264

As at at The following table provides information for PP&E, contract costs and intangible assets based on their location:September 30, As September 30, 2017 2016

U.S. Canada U.K. U.S. France Canada Sweden U.K. Finland France Germany Sweden Netherlands Finland Rest of the world Germany Netherlands Rest of the world


$ As at 312,909 September 30, 2017

$ As at 290,303 September 30, 2016

1,130,095 25,300 89,964

1,160,092 30,487 90,419

1,130,095

1,160,092

311,667 $ 183,213 312,909 66,416 311,667 66,953 183,213 35,363 66,416 38,310 66,953 25,300 35,363 89,964 38,310

283,121 $ 234,743 290,303 76,654 283,121 72,795 234,743 34,745 76,654 46,825 72,795 30,487 34,745 90,419 46,825

109 51




28. Segmented information (continued) INFORMATION ABOUTinformation SERVICES 28. Segmented

(continued)

The following table provides revenue information based on services provided by the Company: INFORMATION ABOUT SERVICES The following table provides revenue information based on services provided by the Company: Outsourcing IT services BPS Outsourcing Systems integration and consulting services IT services BPS Systems integration and consulting services

MAJOR CLIENT INFORMATION

2017

2016

$

$

2017

4,640,892$ 1,128,258 5,075,916 4,640,892

2016

4,680,329$ 1,099,342 4,903,593 4,680,329

10,845,066 1,128,258 5,075,916

10,683,264 1,099,342 4,903,593

10,845,066

10,683,264

Contracts with the U.S. federal government and its various agencies, included within the U.S. operating segment, accounted for MAJOR CLIENTand INFORMATION $1,521,821,000 14.00% of revenues for the year ended September 30, 2017 ($1,405,955,000 and 13.20% for the year ended September 30, 2016). Contracts with the U.S. federal government and its various agencies, included within the U.S. operating segment, accounted for $1,521,821,000 and 14.00% of revenues for the year ended September 30, 2017 ($1,405,955,000 and 13.20% for the year ended 29. Related party transactions September 30, 2016). a) with subsidiaries 29. Transactions Related party transactions

Balances and transactions between the Company and its subsidiaries have been eliminated on consolidation. The Company ownsTransactions 100% of the equity interests of its principal subsidiaries. a) with subsidiaries Balances and transactions between the Company and based its subsidiaries have been eliminated onrepresent consolidation. The Company’s principal subsidiaries whose revenues, on the geographic delivery model, more The than Company 3% of the owns 100% ofrevenues the equity interests of its principal subsidiaries. consolidated are as follows: The Company’s principal subsidiaries whose revenues, based on the geographic delivery model, represent more than 3% of the Name of subsidiary Country of incorporation consolidated revenues are as follows: CGI Technologies and Solutions Inc. CGI Federal Inc. Name of subsidiary CGI Suomi Oy CGI Technologies and Solutions Inc. CGI CGI Sverige Federal AB Inc. Conseillers en gestion et informatique CGI Inc. CGI Suomi Oy CGI CGI Information Sverige AB Systems and Management Consultants Inc. CGI France en SAS Conseillers gestion et informatique CGI Inc. CGI IT UK Limited CGI Information Systems and Management Consultants Inc. CGI CGI Nederland France SASBV CGI CGI Deutschland IT UK LimitedLtd & Co KG CGI Systems and Management Consultants Private Limited CGI Information Nederland BV

United States States Country ofUnited incorporation Finland United States Sweden United States Canada Finland Canada Sweden France Canada United Kingdom Canada Netherlands France United Germany Kingdom India Netherlands

CGI Deutschland Ltd & Co KG CGI Compensation Information Systems and Management Consultants Private Limited b) of key management personnel

Germany India

Compensation of key management personnel, defined as the President and Chief Executive Officer, the Executive Vice President b) Compensation of keyand management personnel and Chief Financial Officer the Board of Directors was as follows: Compensation of key management personnel, defined as the President and Chief Executive Officer, the Executive Vice President 1 2017 2016 and Chief Financial Officer and the Board of Directors was as follows: $

$

Short-term employee benefits Share-based payments

8,990 2017 15,537$

1 6,224 2016 23,803$

1

Short-term benefits Includes theemployee Chief Operating Officer. Share-based payments

8,990 15,537

6,224 23,803

1

Includes the Chief Operating Officer

110


52

FISCAL 2017 RESULTS



30. Commitments, contingencies and guarantees a) 30. Commitments Commitments,

contingencies and guarantees

As at September 30, 2017, the Company is committed under the terms of operating leases with various expiration dates up 2028, primarily for the rental of premises and computer equipment used in outsourcing contracts, in the aggregate amount a) Commitments approximately $656,775,000, excluding costs for services and taxes. As at September 30, 2017, the Company is committed under the terms of operating leases with various expiration dates up 2028, primarily for the rental of premises computer equipment used in outsourcing The future minimum lease payments underand non-cancellable operating leases are due as contracts, follows: in the aggregate amount approximately $656,775,000, excluding costs for services and taxes.

to of

The future minimum lease payments under non-cancellable operating leases are due as follows:

$

to of

Less than one year Between one and two years Between five years Less thantwo oneand year Beyond five years Between one and two years

174,835 127,411 $ 241,387 174,835 113,142 127,411

Between two and five years

241,387

The majority of the lease agreements are renewable at the end of the lease period at market rates. The lease expenditure charged Beyond five years 113,142 to earnings during the year was $200,424,000 ($223,289,000 in 2016), net of subleases income of $14,653,000 ($19,220,000 in 2016). As at September 30, 2017, the total future minimum subleases payments expected to be received under non-cancellable The majority of the lease agreements are renewable at the end of the lease period at market rates. The lease expenditure charged subleases were $12,868,000 ($25,801,000 as at September 30, 2016). to earnings during the year was $200,424,000 ($223,289,000 in 2016), net of subleases income of $14,653,000 ($19,220,000 in 2016). As at September 2017, the total future minimum subleases payments a expected to be received under non-cancellable The Company entered into30, long-term service and other agreements representing total commitment of $238,931,000. Minimum subleases were $12,868,000 ($25,801,000 September 30, 2016). payments under these agreements are due as as at follows: The Company entered into long-term service and other agreements representing a total commitment of $238,931,000. Minimum $ payments under these agreements are due as follows: Less than one year Between one and two years Between five years Less thantwo oneand year

109,495 70,073 $ 59,363 109,495

Between one and two years Between two and five years

70,073 59,363

b)

Contingencies

From time to time, the Company is involved in legal proceedings, audits, litigation and claims which primarily relate to tax exposure, b) Contingencies contractual disputes and employee claims arising in the ordinary course of its business. Certain of these matters seek damages in significant amounts and will ultimately be resolved when one or more future events occur or fail to occur. Although the outcome From time to time, the Company is involved in legal proceedings, audits, litigation and claims which primarily relate to tax exposure, of such matters is not predictable with assurance, the Company has no reason to believe that the disposition of any such current contractual disputes and employee claims arising in the ordinary course of its business. Certain of these matters seek damages matter could reasonably be expected to have a materially adverse impact on the Company’s financial position, results of operations in significant amounts and will ultimately be resolved when one or more future events occur or fail to occur. Although the outcome or the ability to carry on any of its business activities. Claims for which there is a probable unfavourable outcome are recorded of such matters is not predictable with assurance, the Company has no reason to believe that the disposition of any such current in provisions (Note 12). matter could reasonably be expected to have a materially adverse impact on the Company’s financial position, results of operations or the abilitythe to carry on any of its business activities. Claims forcontracts which there a probable unfavourable In addition, Company is engaged to provide services under withisthe U.S. Government. Theoutcome contractsare arerecorded subject in (Noteand 12).regulatory requirements and, from time to time, agencies of the U.S. Government investigate whether the to provisions extensive legal Company’s operations are being conducted in accordance with these requirements. Generally, the Government has the right to In addition, the Company is engaged to provide services under contracts with the U.S. Government. The contracts are subject change the scope of, or terminate, these projects at its convenience. The termination or reduction in the scope of a major to extensive legal and regulatory requirements and, from time to time, agencies of the U.S. Government investigate whether the government project could have a materially adverse effect on the results of operations and financial condition of the Company. Company’s operations are being conducted in accordance with these requirements. Generally, the Government has the right to change the scope of, or terminate, these projects at its convenience. The termination or reduction in the scope of a major government project could have a materially adverse effect on the results of operations and financial condition of the Company.


111 53




30. Commitments, contingencies and guarantees (continued) c) 30. Guarantees Commitments,

contingencies and guarantees (continued)

Sale of assets and business divestitures c) Guarantees In connection with the sale of assets and business divestitures, the Company may be required to pay counterparties for costs Sale of assets andas business and losses incurred the resultdivestitures of breaches in contractual obligations, representations and warranties, intellectual property right infringement and litigation against counterparties, among others. While some of the agreements specify a maximum potential In connection with the sale of assets and business divestitures, the Company may be required to pay counterparties for costs exposure of approximately $10,865,000 in total, others do not specify a maximum amount or limited period. It is not possible to and losses incurred as the result of breaches in contractual obligations, representations and warranties, intellectual property right reasonably estimate the maximum amount that may have to be paid under such guarantees. The amounts are dependent upon infringement and litigation against counterparties, among others. While some of the agreements specify a maximum potential the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. No amount has exposure of approximately $10,865,000 in total, others do not specify a maximum amount or limited period. It is not possible to been accrued in the consolidated balance sheets relating to this type of indemnification as at September 30, 2017. The Company reasonably estimate the maximum amount that may have to be paid under such guarantees. The amounts are dependent upon does not expect to incur any potential payment in connection with these guarantees that could have a materially adverse effect the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. No amount has on its consolidated financial statements. been accrued in the consolidated balance sheets relating to this type of indemnification as at September 30, 2017. The Company does expect to incur any potential payment in connection with these guarantees that could have a materially adverse effect Othernot transactions on its consolidated financial statements. In the normal course of business, the Company may provide certain clients, principally governmental entities, with bid and Other transactions 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 normal course of business, the Company may provide certain clients, principally governmental entities, with bid and in the performance of its obligations. As at September 30, 2017, the Company had committed a total of $30,297,000 of these performance bonds. In general, the Company would only be liable for the amount of the bid bonds if the Company refuses to bonds. To the best of its knowledge, the Company is in compliance with its performance obligations under all service contracts perform the project once the bid is awarded. The Company would also be liable for the performance bonds in the event of default for which there is a bid or performance bond, and the ultimate liability, if any, incurred in connection with these guarantees, would in the performance of its obligations. As at September 30, 2017, the Company had committed a total of $30,297,000 of these not have a materially adverse effect on the Company’s consolidated results of operations or financial condition. bonds. To the best of its knowledge, the Company is in compliance with its performance obligations under all service contracts for which there is a bid orhas performance bond,for and the ultimate liability, ifinany, incurred in letters connection withcovered these guarantees, would Moreover, the Company letters of credit a total of $86,813,000 addition to the of credit by the unsecured not have a revolving materiallycredit adverse effect on 13). the Company’s consolidated resultsinofsome operations or financial condition. committed facility (Note These guarantees are required of the Company’s contracts with customers. Moreover, the Company has letters of credit for a total of $86,813,000 in addition to the letters of credit covered by the unsecured committed revolving credit facility (Note 13). These guarantees are required in some of the Company’s contracts with customers.

112


54

FISCAL 2017 RESULTS



31. Financial instruments FAIR MEASUREMENTS 31. VALUE Financial instruments

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 the measurement date. FAIR VALUEatMEASUREMENTS Fair is the price that would received to sell an asset orinpaid transfer debt a liability in an between market The value following table presents thebe financial liabilities included the to long-term (Note 13)orderly which transaction are measured at amortized participants at the measurement date. cost. The financial liabilities are categorized using the fair value hierarchy. The following table presents the financial liabilities included in the long-term debt (Note 13) which are measured at amortized As at September 30, 2017 As at September 30, 2016 cost. The financial liabilities are categorized using the fair value hierarchy. Level

Financial liabilities for which fair value is disclosed Level Other liabilities

Carrying amount

Obligations thanunsecured finance leases Senior U.S. other and euro notes Obligations committed under finance leasescredit facility Unsecured revolving Other long-term Obligations otherdebt than finance leases Obligations under finance leases Other long-term debt

Level 2

Carrying amount

Fair value

Carrying amount

$

$

$

Level 2

Fair value

$ $ As at September 30, 2016

Carrying amount

Seniorliabilities U.S. and for euro unsecured notesis disclosed Level 2 Financial which fair value Unsecured committed revolving credit facility Level 2 Other liabilities Level Level 2 2 Level 2 Level 2 Level 2 Level 2

Fair value

$ $ As at September 30, 2017

Fair value $

1,542,428

1,638,980

1,733,036

1,855,143

200,000

200,000

—

—

61,703 1,542,428 29,794 200,000 28,078 61,703 1,862,003 29,794

60,847 1,638,980 29,667 200,000 27,348 60,847 1,956,842 29,667

111,205 1,733,036 42,172 — 24,562 111,205 1,910,975 42,172

109,966 1,855,143 41,753 — 22,843 109,966 2,029,705 41,753

28,078 1,862,003

27,348 1,956,842

24,562 1,910,975

22,843 2,029,705

The following table presents financial assets and liabilities measured at fair value categorized using the fair value hierarchy: The following table presents financial assets and liabilities measured at fair value categorized using the fair value hierarchy: Level

Financial assets Financial assets at fair value through earnings Cash and cash equivalents Financial assets Deferred compensation plan assets (Note 10) Financial assets at fair value through earnings Cash and cash equivalents Derivative financial instruments designated as Deferred instruments compensation plan assets (Note 10) hedging Current derivative financial instruments Derivative financial instruments designated(Note as 10) Long-term derivative financial instruments hedging instruments Current derivative financial instruments Available-for-sale Long-term derivative financial instruments (Note 10) Long-term bonds included in funds held for clients (Note 5) Long-term investments (Note 10) Available-for-sale Long-term bonds included in funds held for clients (Note 5) Financial liabilities Long-term investments (Note 10) Derivative financial instruments designated as hedging instruments Financial liabilities Current derivative financial instruments Derivative financial instruments designated as Long-term derivative financial instruments hedging instruments

Level



$

$



Level 2 Level 1 Level 2 Level 1 Level 2 Level 2 Level 2 Level 2 Level 2 Level 2 Level 2 Level 2

$

165,872 46,906 212,778 165,872 46,906 212,778 8,152 24,939 33,091 8,152 24,939 195,509 33,091 23,047 218,556 195,509 23,047 218,556

12,069 82,365 94,434 Level 2 Current derivative financial instruments 12,069 Level 2 Long-term derivative financial instruments There have been no transfers between Level 1 and Level 2 for the years ended September82,365 30, 2017 and 2016. 94,434 Level 2 Level 2

$

596,529 42,139 638,668 596,529 42,139 638,668 22,226 49,759 71,985 22,226 49,759 195,976 71,985 27,246 223,222 195,976 27,246 223,222 4,517 46,473 50,990 4,517 46,473 50,990

There have been no transfers between Level 1 and Level 2 for the years ended September 30, 2017 and 2016.


113

55




31. Financial instruments (continued) FAIR MEASUREMENTS (CONTINUED) 31. VALUE Financial instruments (continued)

The following table summarizes the fair value of outstanding derivative financial instruments: FAIR VALUE MEASUREMENTS (CONTINUED) As at Recordedinstruments: in derivative The following table summarizes the fair value of outstanding derivative financial financial instruments September 30, 2017


$

$

As at As at Recorded in derivative Hedges of net investments in foreign operations financial instruments September 30, 2017 September 30, 2016 $831,400 cross-currency swaps in euro designated as a hedging instrument of Current assets 2,907 —$ $ the Company’s net investment in European operations ($831,400 as at Long-term assets 14,539 31,603 Hedges September of net 30, investments 2016) in foreign operations $831,400 cross-currency swaps in euro designated as a hedging instrument of Current assets 2,907 — Cash flow hedges future revenue the Company’s netofinvestment in European operations ($831,400 as at Long-term assets 14,539 31,603 U.S.$65,691 September foreign 30, 2016) currency forward contracts between the U.S. dollar and Current assets 37 3,358 the Indian rupee (U.S.$31,033 as at September 30, 2016) Long-term assets 162 — Cash flow hedges of future revenue U.S.$65,691 foreign currency forward contracts between the U.S. dollar and Current assets 37 3,358 Current liabilities 330 58 the Indian rupee (U.S.$31,033 as at September 30, 2016) Long-term assets 162 — Long-term liabilities 427 —

$146,881 foreign currency forward contracts between the Canadian dollar and the Indian rupee ($116,700 as at September 30, 2016)

Current liabilities Current assets Long-term liabilities Long-term assets

330 4,644 427 7,429

58 11,935 — 7,429

$146,881 foreign currency forward contracts between the Canadian dollar and the Indian rupee ($116,700 as at September 30, 2016)

Current assets Current liabilities

4,644 554

11,935 —

Long-term assets Long-term liabilities

7,429 969

7,429 —

€21,483 foreign currency forward contracts between the euro and the Indian rupee (€8,900 as at September 30, 2016)

Current liabilities Current assets Long-term liabilities Current liabilities

554 — 969 275

— 376 — —

€21,483 foreign currency forward contracts between the euro and the Indian rupee (€8,900 as at September 30, 2016)

Current assets Long-term liabilities

— 366

376 —

£29,034 foreign currency forward contracts between the British pound and the Indian rupee (£15,200 as at September 30, 2016)

Current liabilities Current assets Long-term liabilities Current liabilities

275 24 366 771

— 5,094 — —

£29,034 foreign currency forward contracts between the British pound and the Indian rupee (£15,200 as at September 30, 2016)

Current assets Long-term liabilities

24 895

5,094 —


771 33 895 70

— — — —

€75,374 foreign currency forward contracts between the euro and the British pound (€52,700 as at September 30, 2016)


33 1,477

— 3,626


70 1,987

— 350

€53,527 foreign currency forward contracts between the euro and the Moroccan dirham (€8,300 as at September 30, 3016)

Current liabilities Long-term assets Long-term liabilities Current liabilities

1,477 2,669 1,987 1,681

3,626 — 350 710

€53,527 foreign currency forward contracts between the euro and the Moroccan dirham (€8,300 as at September 30, 3016)


2,669 5,427

— —

Other foreign currency forward contracts


1,681 507 5,427 70

710 1,463 — —

Other foreign currency forward contracts


507 231

1,463 123


70 345

— —

Current liabilities

231

123

Long-term Current liabilities liabilities

345 6,750

— —

Long-term liabilities

69,540

46,123

€75,374 foreign currency forward contracts between the euro and the British pound (€52,700 as at September 30, 2016)

Cash flow hedges of Senior U.S. unsecured notes U.S.$600,000 cross-currency swaps to Canadian dollar (U.S.$600,000 as at September 30, 2016) Cash flow hedges of Senior U.S. unsecured notes U.S.$600,000 cross-currency swaps to Canadian dollar (U.S.$600,000 as at September 30, 2016)

114

Current liabilities

6,750

—


69,540

46,123


56

FISCAL 2017 RESULTS



31. Financial instruments (continued) FAIR MEASUREMENTS (CONTINUED) 31. VALUE Financial instruments (continued) FAIR VALUE MEASUREMENTS (CONTINUED) Fair value hedges of Senior U.S. unsecured notes U.S.$250,000 interest rate swaps fixed-to-floating (U.S.$250,000 as at September 30, 2016) Fair value hedges of Senior U.S. unsecured notes U.S.$250,000 interest rate swaps fixed-to-floating (U.S.$250,000 as at September 30, 2016)

As at Recorded in derivative financial instruments September 30, 2017


$ As at Recorded in derivative financial instruments September 30, 2017


Long-term assets

— $


2,409

—

Long-term assets

—

10,727


2,409

—

10,727 $

Valuation techniques used to value financial instruments are as follows: The fair value of Senior U.S. and euro unsecured notes, the unsecured committed revolving credit facility and the other Valuationlong-term techniques used to value financial instruments are ascash follows: debt is estimated by discounting expected flows at rates currently offered to the Company for debts of the same remaining maturities and conditions; The fair value of Senior U.S. and euro unsecured notes, the unsecured committed revolving credit facility and the other long-term debt is discounting at rates offered to the Company for debts by of The fair value of estimated long-term by bonds includedexpected in fundscash held flows for clients andcurrently in long-term investments is determined the same remaining maturities and conditions; 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 long-term bonds included in funds held for clients and in long-term investments is determined by discounting future currency cash flows usingcontracts observable inputs, such asforward interestexchange rate yieldrates curves orend credit spreads, or The fair valuethe of foreign forward is determined using at the of the reporting according to similar transactions on an arm's-length basis; period; -

The fair currency forward is determined forward exchange rates at thedata end (primarily of the reporting fairvalue valueofofforeign cross-currency swaps contracts and interest rate swapsusing is determined based on market yield period; curves, exchange rates and interest rates) to calculate the present value of all estimated cash flows;

-

The fair value value of of cash cross-currency swaps andisinterest rate swaps is determined based on market data (primarily yield and cash equivalents determined using observable quotes; and curves, exchange rates and interest rates) to calculate the present value of all estimated cash flows; The fair value of deferred compensation plan assets within long-term financial assets is based on observable price The fair value of cash and cash quotations at the reporting date. equivalents is determined using observable quotes; and

-

The fair 30, value of deferred compensation assets techniques. within long-term financial assets is based on observable price As at- September 2017, there were no changes plan in valuation quotations at the reporting date. The Company expects that approximately $7,286,000 of the accumulated net unrealized gain on derivative financial instruments As at September 30,flow 2017, there as were no changes30, in valuation techniques. designated as cash hedges at September 2017 will be reclassified in the consolidated statements of earnings in the next 12 months. The Company expects that approximately $7,286,000 of the accumulated net unrealized gain on derivative financial instruments designated as cash flowSeptember hedges as30, at September 30, 2017 will be reclassified in the consolidated During the year ended 2017, the Company’s hedging relationships were effective. statements of earnings in the next 12 months. During theRISK year ended September 30, 2017, the Company’s hedging relationships were effective. MARKET Market risk incorporates a range of risks. Movements in risk factors, such as interest rate risk and currency risk, affect the fair MARKET RISK assets and liabilities. values of financial Market a range of risks. Movements in risk factors, such as interest rate risk and currency risk, affect the fair Interestrisk rateincorporates risk values of financial assets and liabilities. The Company has interest rate swaps whereby the Company receives a fixed rate of interest and pays interest at a variable rate Interest rate risk on the notional amount of a portion of its Senior U.S. unsecured notes. These swaps are being used to hedge the exposure to changes in the fair value of the debt. The Company has interest rate swaps whereby the Company receives a fixed rate of interest and pays interest at a variable rate on notionalisamount of a portion of its Senior unsecured notes. These revolving swaps arecredit beingfacility. used to hedge the exposure to Thethe Company also exposed to interest rate riskU.S. on its unsecured committed changes in the fair value of the debt. The Company is also exposed to interest rate risk on its unsecured committed revolving credit facility.


115 57




31. Financial instruments (continued) MARKET RISK (CONTINUED) 31. Financial instruments

(continued)

Interest rate risk (continued) MARKET RISK (CONTINUED) The Company analyzes its interest rate risk exposure on an ongoing basis using various scenarios to simulate refinancing or the Interest rate risk (continued) renewal of existing positions. Based on these scenarios, a change in the interest rate of 1% would not have had a significant impact on net earnings and comprehensive income. The Company analyzes its interest rate risk exposure on an ongoing basis using various scenarios to simulate refinancing or the renewal ofrisk existing positions. Based on these scenarios, a change in the interest rate of 1% would not have had a significant Currency impact on net earnings and comprehensive income. The Company operates internationally and is exposed to risk from changes in foreign currency exchange rates. The Company Currency riskrisk principally through foreign currency denominated debt and derivative financial instruments, which includes mitigates this foreign currency forward contracts and cross-currency swaps. The Company operates internationally and is exposed to risk from changes in foreign currency exchange rates. The Company mitigates this risk principally through currency denominated and derivative financial instruments, which includes The Company hedges a portion of theforeign translation of the Company’s debt net investments in its U.S. and European operations into foreign currency forward contracts and cross-currency swaps. Canadian dollar, with Senior U.S. and euro unsecured notes. The Company also hedges a portion of the translation of the Company’s net investments in its European operations with cross-currency swaps. The Company hedges a portion of the translation of the Company’s net investments in its U.S. and European operations into Canadian with Senior U.S.30, and eurothe unsecured The hedges portion of the swap translation of the During the dollar, year ended September 2016, Companynotes. entered intoCompany Canadianalso dollar to euroacross-currency agreements Company’s netamount investments in its European operations cross-currency swaps. for a notional of $831,400,000 designated aswith hedging instruments of the Company’s net investment in European operations. During the year ended September 30, 2016, the Company entered into Canadian dollar to euro cross-currency swap agreements for a notional of $831,400,000 designated as hedging instruments of swaps the Company’s net investment in European During the yearamount ended September 30, 2016, the Company settled cross-currency with a notional amount of $109,730,000 operations. for a net amount of $24,057,000. The loss on settlements was recognized in other comprehensive income and will be transferred to earnings when the net investment is disposed of. During the year ended September 30, 2016, the Company settled cross-currency swaps with a notional amount of $109,730,000 for a netthe amount of $24,057,000. The30, loss on settlements washas recognized other comprehensive income and will be During year ended September 2016, the Company entered in into cross-currency swap agreements, fortransferred a notional to earnings when the net investment amount of U.S.$600,000,000, related is todisposed its Seniorof. U.S. unsecured notes. The cross-currency swaps are designated as cash flow hedges to offset the variability in the exchange rate between the U.S. and Canadian dollar. During the year ended September 30, 2016, the Company has entered into cross-currency swap agreements, for a notional amount of U.S.$600,000,000, related to its Senior unsecured notes. cross-currency swaps arecurrency designated as cashrates flow The Company enters into foreign currency forwardU.S. contracts to hedge theThe variability in various foreign exchange hedges to offset the variability in the exchange rate between the U.S. and Canadian dollar. on future revenues. Hedging relationships are designated and documented at inception and quarterly effectiveness assessments are performed during the year. The Company enters into foreign currency forward contracts to hedge the variability in various foreign currency exchange rates on revenues. Hedging relationships are designated and documented at dollar, inception effectiveness Thefuture Company is mainly exposed to fluctuations in the Swedish krona, the U.S. theand euroquarterly and the British pound. assessments The following are during the year. tableperformed details the Company’s sensitivity to a 10% strengthening of the Swedish krona, the U.S. dollar, the euro and the British pound foreign currency rates on net earnings and comprehensive income against the Canadian dollar. The sensitivity analysis The Company is mainly exposed to fluctuations in the Swedish krona, the U.S. dollar, the euro and the British pound. The following on net earnings presents the impact of foreign currency denominated financial instruments and adjusts their translation at period table details the Company’s sensitivity to a 10% strengthening of the Swedish krona, the U.S. dollar, the euro and the British end for a 10% strengthening in foreign currency rates. The sensitivity analysis on other comprehensive income presents the pound foreign currency rates on net earnings and comprehensive income against the Canadian dollar. The sensitivity analysis impact of a 10% strengthening in foreign currency rates on the fair value of foreign currency forward contracts designated as on net earnings presents the impact of foreign currency denominated financial instruments and adjusts their translation at period cash flow hedges and on net investment hedges. end for a 10% strengthening in foreign currency rates. The sensitivity analysis on other comprehensive income presents the impact of a 10% strengthening in foreign currency rates on the fair value of foreign currency forward contracts designated as 2017 2016 cash flow hedges and on net investment hedges.

(Decrease) increase in net earnings Decrease in other comprehensive income (Decrease) increase in net earnings Decrease in other comprehensive income

116

Swedish krona impact

U.S. dollar impact

euro impact

British pound impact 2017

Swedish krona impact

U.S. dollar impact

euro impact

British pound impact 2016

$ Swedish krona impact

$ U.S. dollar impact

$ euro impact

$ British pound impact

$ Swedish krona impact

$ U.S. dollar impact

$ euro impact

$ British pound impact

$

$

$

$

$

$

$

(860)

(1,174)

2,383

(539)

(913)

(1,581)

2,964

(450) $

(1,839) (860)

(74,974) (1,174)

(93,866) 2,383

(4,788) (539)

(847) (913)

(85,380) (1,581)

(92,264) 2,964

(2,581) (450)

(1,839)

(74,974)

(93,866)

(4,788)

(847)

(85,380)

(92,264)

(2,581)


58

FISCAL 2017 RESULTS



31. Financial instruments (continued) LIQUIDITY RISK 31. Financial

instruments (continued)

Liquidity risk is the risk that the Company is not able to meet its financial obligations as they fall due or can do so only at excessive cost. The Company’s activities are financed through a combination of the cash flows from operations, borrowing under existing LIQUIDITY RISK credit facility, the issuance of debt and the issuance of equity. One of management’s primary goals is to maintain an optimal level Liquidity risk is the risk that the Company is not able to meet its financial obligations as they fall due or can do so only at excessive of liquidity through the active management of the assets and liabilities as well as the cash flows. cost. The Company’s activities are financed through a combination of the cash flows from operations, borrowing under existing credit facility, the issuance of debtthe and the issuance of and equity. of management’s is to maintain an optimal level The following tables summarize carrying amount theOne contractual maturities primary of both goals the interest and principal portion of of liquidity throughAll the active management of the assets in and liabilities as well the cashinflows. financial liabilities. amounts contractually denominated foreign currency areas presented Canadian dollar equivalent amounts using the period-end spot rate. The following tables summarize the carrying amount and the contractual maturities of both the interest and principal portion of financial liabilities. All amounts contractually denominated in foreign currency are presented in Canadian dollar equivalent amounts Between one Between using the period-end spot rate. and two and five As at September 30, 2017

Non-derivative financial liabilities As at September 30, 2017 Accounts payable and accrued liabilities Accrued compensation Non-derivative financial liabilities Senior U.S. and euro notes Accounts payable andunsecured accrued liabilities Unsecured committed revolving credit facility Accrued compensation Obligations thanunsecured finance leases Senior U.S. other and euro notes Obligations under finance leasescredit facility Unsecured committed revolving Other long-term Obligations otherdebt than finance leases Clients’ funds obligations Obligations under finance leases Derivative financialdebt liabilities Other long-term Cash flow hedges of future revenue Clients’ funds obligations Outflow Derivative financial liabilities (Inflow) Cash flow hedges of future revenue Cross-currency swaps Outflow Outflow (Inflow) (Inflow) Cross-currency swaps Interest rate swaps Outflow Outflow (Inflow) (Inflow) Interest rate swaps Outflow (Inflow)

Carrying amount $

Contractual Less than one cash flows year $ $

Carrying amount 1,004,307$

Contractual Less than one cash flows year 1,004,307$ 1,004,307 $

61,703 1,542,428 29,794 200,000 28,078 61,703 314,233 29,794

63,454 1,823,352 31,109 226,810 28,787 63,454 314,233 31,109

578,886 1,542,428 1,004,307 200,000 578,886

578,886 1,823,352 1,004,307 226,810 578,886

28,078 90 314,233

28,787 314,233 17,036

90 58,844 58,844 2,409 2,409 3,820,772 3,820,772

578,886 124,201 1,004,307 6,400 578,886

33,850 124,201 14,086 6,400 13,986 33,850 314,233 14,086

two years

years

$ Between one and two years

Between$ two and five years

—$ — 343,207 — 6,400 — 18,623 343,207 8,341 6,400 2,988 18,623 — 8,341

—$ — 818,095 — 214,010 — 10,981 818,095 8,682 214,010 9,130 10,981 — 8,682

Beyond five years $ Beyond five years —$

— 537,849 — — —

— 537,849 — — 2,683 — — —

(16,989)

13,986 314,233 5,486 (5,417)

2,988 — 6,530 (5,083)

9,130 — 5,020 (6,489)

17,036 849,762 (16,989) (846,228)

5,486 83,877 (5,417) (91,446)

6,530 317,085 (5,083) (310,451)

5,020 291,798 (6,489) (291,936)

— 157,002 — (152,395)

849,762 63,248 (846,228) (70,222)

83,877 14,055 (91,446) (15,605)

317,085 14,055 (310,451) (15,605)

291,798 35,138 (291,936) (39,012)

157,002 — (152,395) —

4,067,545 63,248 (70,222)

2,080,899 14,055 (15,605)

386,090 14,055 (15,605)

1,055,417 35,138 (39,012)

545,139 — —

4,067,545

2,080,899

386,090

1,055,417

545,139


2,683 — — —

117 59




31.

Financial instruments (continued)

LIQUIDITY RISK (CONTINUED) 31. Financial instruments LIQUIDITY RISK (CONTINUED) As at September 30, 2016

Non-derivative financial liabilities As at September 30, 2016 Accounts payable and accrued liabilities Accrued compensation Non-derivative financial liabilities Senior U.S. and euro notes Accounts payable andunsecured accrued liabilities Obligations other than finance leases Accrued compensation Obligations finance leases notes Senior U.S. under and euro unsecured Other long-term debt Obligations other than finance leases Clients’ funds obligations Obligations under finance leases Derivative financial (assets) liabilities Other long-term debt Cash flow hedges of future revenue Clients’ funds obligations Outflow Derivative financial (assets) liabilities (Inflow) Cash flow hedges of future revenue Cross-currency swaps Outflow Outflow (Inflow) (Inflow) Cross-currency swaps Interest rate swaps Outflow Outflow (Inflow) (Inflow) Interest rate swaps Outflow (Inflow)

(continued) Carrying amount $ Carrying amount 1,107,863 $

523,553 1,733,036 1,107,863 111,205 523,553 42,172 1,733,036 24,562 111,205 365,994 42,172 24,562 (24,788) 365,994 (24,788) 14,520 14,520 (10,727) (10,727) 3,887,390

Contractual Less than one cash flows year $ $ Contractual Less than one cash flows year 1,107,863 1,107,863 $ $

523,553 2,083,673 1,107,863 115,362 523,553 44,205 2,083,673 24,687 115,362 365,994 44,205

523,553 178,105 1,107,863 48,860 523,553 19,716 178,105 15,404 48,860 365,994 19,716

Between one and two years

Between two and five years

$ Between one and two years

Between$ two and five years

— $ — 130,140 — 35,668 — 11,789 130,140 1,187 35,668 — 11,789

—$ — 786,108 — 30,834 — 11,932 786,108 3,797 30,834 — 11,932

Beyond five years $ Beyond five years — $

— 989,320 — — — 768 989,320 4,299 — — 768

24,687 365,994 4,813 (31,221)

15,404 365,994 4,454 (22,510)

1,187 — 359 (3,945)

3,797 — — (4,766)

4,299 — — —

4,813 865,655 (31,221) (917,944)

4,454 17,906 (22,510) (30,315)

359 83,678 (3,945) (95,920)

— 536,888 (4,766) (558,094)

— 227,183 — (233,615)

865,655 68,273 (917,944) (90,025) 4,164,888 68,273

17,906 12,413 (30,315) (16,368) 2,225,075 12,413

83,678 12,413 (95,920) (16,368) 159,001 12,413

536,888 37,240 (558,094) (49,105) 794,834 37,240

227,183 6,207 (233,615) (8,184) 985,978 6,207

(90,025)

(16,368)

(16,368)

(49,105)

(8,184)

As at September 30, 2017, the Company held cash and cash equivalents and long-term investments of $188,919,000 3,887,390 4,164,888 2,225,075 159,001 794,834 985,978 ($623,775,000 as at September 30, 2016). The Company also had available $1,290,369,000 in unsecured committed revolving credit facility ($1,466,086,000 as at September 30, 2016). As at September 30, 2017, trade accounts receivable amounted to As at September 30, 2017, the Company held cash and cash equivalents and long-term investments of $188,919,000 $931,530,000 ($816,885,000 as at September 30, 2016). Given the Company’s available liquid resources as compared to the ($623,775,000 as at September 30, 2016). The Company also had available $1,290,369,000 in unsecured committed revolving timing of the payments of liabilities, management assesses the Company’s liquidity risk to be low. credit facility ($1,466,086,000 as at September 30, 2016). As at September 30, 2017, trade accounts receivable amounted to $931,530,000 ($816,885,000 as at September 30, 2016). Given the Company’s available liquid resources as compared to the timing of the payments of liabilities, management assesses the Company’s liquidity risk to be low.

118


60

FISCAL 2017 RESULTS



31. Financial instruments (continued) CREDIT RISK 31. Financial

instruments (continued)

The Company takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. Financial CREDIT RISK instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, accounts receivable and long-term investments. The maximum exposure of credit risk is generally represented by The Company takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when the carrying amount of these items reported on the consolidated balance sheets. due. Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, accounts receivable and long-term investments. The maximum exposure of credit risk is generally represented The Company is exposed to credit risk in connection with long-term investments through the possible inability of borrowers by to the carrying amount of these items reported on the mitigates consolidated sheets. primarily in high credit quality corporate and meet the terms of their obligations. The Company this balance risk by investing government bonds with a credit rating of A or higher. The Company is exposed to credit risk in connection with long-term investments through the possible inability of borrowers to meet the termshas of their obligations. The Company mitigates risk byininvesting primarily inincluding high credit quality corporate and The Company accounts receivable derived from clientsthis engaged various industries governmental agencies, government bonds with a credit rating of A or higher. finance, telecommunications, manufacturing and utilities that are not concentrated in any specific geographic area. These specific industries may be affected by economic factors that may impact trade accounts receivable. However, management does not The Company has accounts receivable derived from clients engaged in various industries including governmental agencies, believe that the Company is subject to any significant credit risk in view of the Company’s large and diversified client base. Overall, finance, telecommunications, manufacturing and utilities that are not concentrated in any specific geographic area. These specific management does not believe that any single industry or geographic region represents a significant credit risk to the Company. industries may be affected by economic factors that may impact trade accounts receivable. However, management does not believe that thetable Company is subject credit risk in view of the Company’s large and diversified client base. Overall, The following sets forth detailstoofany thesignificant age of trade accounts receivable that are past due: management does not believe that any single industry or geographic region represents a significant credit risk to the Company. The following table sets forth details of the age of trade accounts receivable that are past due: Not past due Past due 1-30 days Past due due 31-60 days Not past Past due 61-90 days Past due 1-30 days Past due more than Past due 31-60 days90 days Past due 61-90 days Allowance for doubtful Past due more than 90accounts days Allowance for doubtful accounts

2017

2016

$

$

806,041 2017 79,016$ 25,262 806,041 8,999 79,016 16,969 25,262 936,287 8,999 (4,757) 16,969 931,530 936,287

684,454 2016 76,339$ 19,415 684,454 10,749 76,339 31,241 19,415 822,198 10,749 (5,313) 31,241 816,885 822,198

(4,757)

(5,313)

The carrying amount of trade accounts receivable is reduced by an allowance account and the amount of the loss is recognized 931,530 816,885 in the consolidated statements of earnings within costs of services, selling and administrative. When a receivable balance is considered uncollectible, it is written off against the allowance for doubtful accounts. Subsequent recoveries of amounts previously The carrying amount of trade accounts receivable is reduced by an allowance account and the amount of the loss is recognized written off are credited against costs of services, selling and administrative in the consolidated statements of earnings. in the consolidated statements of earnings within costs of services, selling and administrative. When a receivable balance is considered uncollectible, it is written off against the allowance for doubtful accounts. Subsequent recoveries of amounts previously written off are credited against costs of services, selling and administrative in the consolidated statements of earnings.


119

61




32. Capital risk management The is exposed to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives 32. Company Capital risk management for growth. The main objectives of the Company’s risk management process are to ensure that risks are properly identified and that the capital base is adequate in relation to these risks. The Company is exposed to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives Thegrowth. Company manages its capital tothe ensure that there adequate capital resources while maximizing theproperly return to identified shareholders for The main September objectives of Company’s riskare management process are to ensure that risks are and For the years ended 30, 2017 and 2016 through the optimization of the debt and equity balance. As at September 30, 2017, total managed capital1 was $8,253,548,000 that the capital base is adequate in relation to these risks. (tabular amounts only are in thousands of Canadian dollars, except per share data) ($8,999,358,000 as atSeptember September30, 30,2017 2016). Managed capital consists of long-term debt, including the current portion (Note 13), For the years ended and The Company manages its capital to ensure that2016 there are adequate capital resources while maximizing the return to shareholders cash and cash equivalents, long-term investments (Note 10) and shareholders’ The basis for the Company’s capital (tabular the amounts only areofinthe thousands Canadian dollars, per share data)equity. through optimization debt andof equity balance. As atexcept September 30, 2017, total managed capital1 was $8,253,548,000 structure is dependent on the Company’s expected business growth and changes in the business environment. When capital ($8,999,358,000 as at September 30, 2016). Managed capital consists of long-term debt, including the current portion (Note 13), needs have been specified, the Company’s management capital transactions for the approval of the Company’s Audit For the years ended September 30, 2017 and 2016 (Noteproposes cash and cash equivalents, long-term investments 10) and shareholders’ equity. The basis for the Company’s capital and Risk Management Committee and Board of Directors. The capital risk policy remains unchanged from prior periods. (tabular amounts only are in thousands of Canadian dollars, except share data) 32. Capital risk on management structure is dependent the Company’s expected business growthper and changes in the business environment. When capital needs have been specified, the Company’s management proposes capitalincluding transactions for the approval of the Company’s Audit The Company monitors its capital by reviewing various financial metrics, the following: 32. Capital risk Committee management The Company is exposed to risks ofand varying degrees of significance which affect its ability to achieve itsprior strategic objectives and Risk Management Board of Directors. The capital riskcould policy remains unchanged from periods. 1 1 for The main objectives of the Company’s risk management process are to ensure that risks are properly identified and - growth. Net Debt /Capitalization The Company monitors itstocapital reviewing varioussignificance financial metrics, theitsfollowing: The exposed risks in ofbyrelation varying degrees which including could affect ability to achieve its strategic objectives that Company the capitalisbase is adequate to these of risks. 1risk management 32. Capital for The main objectives of the Company’s risk management process are to ensure that risks are properly identified and -Thegrowth. Debt/EBITDA 1 Company manages its capital to ensure that there are adequate capital resources while maximizing the return to shareholders - Net Debt1/Capitalization that the capital base is adequate in relation to these risks. 1 through the optimization oftothe debt and equity balance. As at Net September 30, 2017, total managed capital $8,253,548,000 Net capitalization and EBITDA are additional measures. debt represents debt the current portion and the fair The debt, Company is exposed risks of varying degrees of significance which could affect its(including ability to achieve itswas strategic objectives 1 The Company manages its instruments) capital to ensure that there are adequate capital resources while maximizing the return toshareholders’ shareholders -for growth. Debt/EBITDA ($8,999,358,000 as at September 30, 2016). Managed capital consists of long-term debt, including the current portion (Note value of derivative financial less cash and cash equivalents and long-term investments. Capitalization is The main objectives of the Company’s risk management process are to ensure that risks are properly identified 13), and 1 through thecash optimization ofisthe debt and equity balance. As 10) at September 30, 2017, total managed capital was $8,253,548,000 cash and equivalents, long-term investments (Note and shareholders’ equity. The basis for the Company’s capital equity plus debt. EBITDA calculated as earnings from continuing operations before finance costs, income taxes, depreciation, that debt, the capital base is adequate in relation to these risks. Net capitalization and EBITDA are additional measures. Net debt represents debt (including the current portion and the fair ($8,999,358,000 as at September 30, 2016). Managed capital of long-term the current (Note structure is dependent on the Company’s expected business growth and changes inCompany theincluding business environment. When capital amortization, restructuring costs and acquisition-related and consists integration costs. Thedebt, believes that portion the results of 13), the value of derivative financial instruments) lessthat cashthere and cash equivalents andresources long-term while investments. Capitalization is The Company manages capital to ensure are adequate maximizing theof return toshareholders’ shareholders cash and cash equivalents, long-term investments (Note 10) andcapital shareholders’ equity. for the Company’s capital needs have been specified, the Company’s proposes capital transactions forThe the basis approval the Company’s Audit current internal ratios areitsconsistent with its management capital management's objectives. 1 taxes, depreciation, equity plus debt. EBITDAofisthe calculated asequity earnings from continuing operations beforetotal finance costs,capital income through optimization debtand and AsThe at September 2017, structure is dependent on the Company’s expected business growth changes in themanaged business environment. When capital and Riskthe Management Committee Board ofbalance. Directors. capitaland risk30, policy remains unchanged from was prior$8,253,548,000 periods. amortization, restructuring costs and acquisition-related and integration costs. The Company believes that the results of 13), the The Company is subject to external covenants on its Senior U.S. and euro unsecured notes and unsecured committed revolving ($8,999,358,000 at September 30, 2016).management Managed capital consists of long-term debt,for including the current portion (Note needs have beenas specified, the Company’s proposes capital transactions the approval of the Company’s Audit current internal ratios are consistent with its capital management's objectives. The Company monitors its capital by reviewing various financial metrics, including the following: credit facility. The ratios are as follows: cash andManagement cash equivalents, long-term investments (Note The 10) and shareholders’ equity. The basis for theprior Company’s and Risk Committee and Board of Directors. capital risk policy remains unchanged from periods. capital

Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements

structure is dependent on Company’s expected business growth and unsecured changes innotes the business environment. When capital The Company to the external covenants on its Senior U.S. and euro and2unsecured committed revolving 1 is subject 1 - Net Debtbeen /Capitalization The monitors its capital by reviewing various financial the following: ACompany leverage ratio1, which is the ratio of total debt to EBITDA formetrics, the fourincluding most recent quarters . needs have Company’s management proposes capital transactions for the approval of the Company’s Audit credit facility. The specified, ratios are the as follows: and Risk Management Committee and Board of Directors. The capital risk policy remains unchanged from prior periods. 1 1 Debt/EBITDA - Net Debt1/Capitalization An interest and rent coverage ratio1, which is the ratio of the EBITDAR1 for the four most recent quarters to the total finance -TheA leverage ratio1, which is the ratio of total debt to EBITDA for the four most recent quarters2. Company monitors its capital metrics, including following: costs and the operating rentalsby in reviewing the same various periods.financial EBITDAR is calculated as the EBITDA before rent expense2. Net debt, capitalization and EBITDA are additional measures. Net debt represents debt (including the current portion and the fair 1 - Debt/EBITDA -- An interest rent coverage ratio1,less which is and the ratio of the EBITDAR for the four most recent quarters to the total finance value derivative instruments) cash cash equivalents and 1long-term Capitalization is shareholders’ 1 and 1 Net Debt /Capitalization In of the case of financial the Senior U.S. and euro unsecured notes, a minimum net worth investments. is required, whereby shareholders’ equity, 2 Net debt, capitalization and EBITDA additional measures. Net debt represents (including the current portion and the fair costs and theEBITDA operating rentals inare the same periods. EBITDAR is calculated asdebt EBITDA before rent expense . depreciation, equity plus debt. is calculated as earnings from continuing operations before finance costs, income taxes, excluding foreign exchange translation adjustments included in accumulated other comprehensive income, cannot be less value of derivative less cash and cashand equivalents andcosts. long-term Capitalization is shareholders’ 1 financial instruments) amortization, restructuring costs and acquisition-related integration The investments. Company believes that the results of the - Debt/EBITDA a specified threshold. - than In the case the are Senior U.S. and euro unsecured notes, a minimum net before worth is required, whereby equity, equity plus debt.of EBITDA is calculated as earnings from continuing operations finance costs, incomeshareholders’ taxes, depreciation, current internal ratios consistent with its capital management's objectives. Net debt, capitalization and costs EBITDA additional measures. debt represents debtCompany (including the current and be the fair excluding foreign exchange adjustments included in accumulated other comprehensive income, amortization, restructuring andare acquisition-related and Net integration costs. The believes thatportion thecannot results of less the These ratios are calculated on atranslation consolidated basis. The Company is subject to external covenants on its Senior U.S. and euro unsecured notes and unsecured committed revolving value of derivative financial instruments) less cash and cash equivalents and long-term investments. Capitalization is shareholders’ than a specified threshold. current internal ratios are consistent with its capital management's objectives. The isEBITDA in compliance with these covenants monitors them on before an ongoing basis. The ratiostaxes, are also reviewed creditCompany facility. The ratios are as follows: equity plus debt. is calculated as earnings fromand continuing operations finance costs, income depreciation, These ratios are calculated on a consolidated basis. The Company is subject to external covenants on its Senior U.S. and euro unsecured notes and unsecured committed revolving quarterly by the Company’s Audit and Risk Management Committee. The Company is not subject to any other externally imposed amortization, restructuring costs and acquisition-related and integration costs. The Company 2believes that the results of the 1 -The A leverage ratio , which is the ratio of total debt to EBITDA for the four most recent quarters . credit facility. The ratios are as follows: capital requirements. current internal is ratios are consistent its covenants capital management's objectives. Company in compliance withwith these and monitors them on an ongoing basis. The ratios are also reviewed quarterly by the Company’s Audit and Risk Management Committee. The Company is not subject2 to any other externally imposed 1 1 1 An interest is and rent coverage , which is the ratio ofU.S. theforEBITDAR for the four mostand recent to the total finance - A leverage ratio , which is the ratio of total debt EBITDA theeuro four unsecured most recent quarters . quarters The Company subject to external covenants on itstoSenior and notes unsecured committed revolving 1 Non-GAAP measure. capital requirements. costs and The the operating in the same periods. EBITDAR is calculated as EBITDA before rent expense2. credit facility. ratios are rentals as follows: 2 1 1 the interest event of anand acquisition, the available historical financial information the EBITDAR acquired company will be used in the computation of theto ratios. - InAn rent coverage ratio , which is the ratio ofofthe for the four most recent quarters the total finance 1 2 2 1In the and case of operating the Senioris U.S. and euro unsecured notes, a minimum net worth is quarters required, shareholders’ equity, A costs leverage the ratio , which rentals the ratio in the of total same debt periods. to EBITDA EBITDAR for the is calculated four most recent as EBITDA before . whereby rent expense . Non-GAAP measure. 2 exchange translation adjustments included in accumulated other comprehensive income, cannot be less Inexcluding the event of foreign an acquisition, the available historical financial information of the acquired company will be used in the computation of the ratios. - An In the interest and of the rent Senior coverage U.S. ratio and1,euro which unsecured is the ratio notes, of thea EBITDAR minimum 1net for worth the four is most required, recent whereby quarters shareholders’ to the total finance equity, than a case specified threshold. excluding costs and foreign the operating exchange rentals translation in the same adjustments periods. EBITDAR included inisaccumulated calculated asother EBITDA comprehensive before rent expense income, 2cannot . be less These are calculated on a consolidated basis. thanratios a specified threshold. -TheInCompany the case is of in thecompliance Senior U.S. andthese euro covenants unsecured and notes, a minimum worth is required, shareholders’ equity, with monitors them net on an ongoing basis. whereby The ratios are also reviewed These ratios are calculated on atranslation consolidated basis. excluding foreign exchange adjustments included in accumulated other comprehensive income, cannot be less quarterly by the Company’s Audit and Risk Management Committee. The Company is not subject to any other externally imposed than a specified threshold. The Company is in compliance with these covenants and monitors them on an ongoing basis. The ratios are also reviewed capital requirements. quarterly by the and Risk Management Committee. The Company is not subject to any other externally imposed These ratios areCompany’s calculated Audit on a consolidated basis. capital requirements. 1 Non-GAAP measure. The Company is in compliance with these covenants and monitors them on an ongoing basis. The ratios are also reviewed 2 In the event anCompany’s acquisition, theAudit available financial information of the acquired will be usedsubject in the computation of theexternally ratios. quarterly by of the andhistorical Risk Management Committee. Thecompany Company is not to any other imposed 1 Non-GAAP measure. capital requirements. 2 In the event of an acquisition, the available historical financial information of the acquired company will be used in the computation of the ratios.

1

Non-GAAP measure. 120 CGI 2

Group Inc. – Consolidated Financial Statements for the years ended September 30, 2017 and 2016 In the event of an acquisition, the available historical financial information of the acquired company will be used in the computation of the ratios.

62

Shareholder Information Shareholder information listing

Transfer agent

IPO: 1986 Toronto Stock Exchange, April 1992: GIB.A New York Stock Exchange, October 1998: GIB

Computershare Trust Company of Canada 100 University Avenue, 8th Floor Toronto, Ontario M5J 2Y1 Telephone: 1 800 564-6253 www.investorcentre.com/service

Number of shares outstanding as of September 30, 2017: 254,106,795 Class A subordinate voting shares 32,852,748 Class B shares

Investor relations

High/low of share price from October 1, 2016 to September 30, 2017:

For further information about the Company, additional copies of this report or other financial information, please contact:

TSX (CDN$)

NYSE (U.S.$)

High:

69.22

53.65

Low:

60.61

45.73

The certifications required by National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings whereby CGI’s Chief Executive Officer and Chief Financial Officer certify the accuracy of the information contained in CGI’s Annual Information Form, Annual Audited Consolidated Financial Statements and Annual Management’s Discussion and Analysis are available on the Canadian Securities Administrators’ website at www.sedar.com. Similar certifications required by Rule 13a-14(a) of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 are attached as exhibits to our Form 40-F which is available on EDGAR at www.sec.gov. The certification required by Section 303A.12(c) of the NYSE Listed Company Manual is also filed annually with the New York Stock Exchange. CGI’s corporate governance practices conform to those followed by U.S. domestic companies under New York Stock Exchange listing standards. A summary of these practices is provided in the report of the Corporate Governance Committee contained in CGI’s Management Proxy Circular which is available on the Canadian Securities Administrators’ website at www.sedar.com, on EDGAR at www.edgar.com and on CGI’s website at www.cgi.com.

CGI Group Inc. Investor Relations Email: [email protected] Web: cgi.com/investors 1350 René-Lévesque Blvd West, 15th floor Montréal, Québec H3G 1T4 Canada Tel.: 514-841-3200

Annual general meeting of shareholders Wednesday, January 31, 2018 at 11:00 a.m. Ritz-Carlton Montréal Oval Room 1228 Sherbrooke Street West Montréal, Québec H3G 1H6 Canada A live webcast of the Annual General Meeting of Shareholders will be available via cgi.com/investors. Complete instructions for viewing the webcast will be available on CGI’s website. To vote by phone or by using the internet, please refer to the instructions provided in CGI’s 2017 Management Proxy Circular. The online version of CGI’s 2017 Annual Report is available at cgi.com/investors. Le rapport annuel 2017 de CGI est aussi publié en français et disponible sur cgi.com/investisseurs.

Auditors Ernst & Young LLP

121

Founded in 1976, CGI is one of the largest IT and business consulting services firms in the world. Operating in hundreds of locations across the globe, CGI professionals help clients to achieve their goals, including becoming customer-centric digital organizations. We deliver an end-to-end portfolio of capabilities, from high-end IT and business consulting to systems integration, outsourcing services and intellectual property solutions that help accelerate clients’ results. CGI works with clients around the world through a unique client proximity model complemented by a global delivery center of excellence network to help clients accelerate results, transform their organizations and drive competitive advantage. cgi.com

© 2017 CGI Group Inc.