EX-99.2 3 fsq1-2017.htm EXHIBIT 99.2 Exhibit
















Interim Condensed Consolidated Financial Statements of

CGI GROUP INC.

For the three months ended December 31, 2016 and 2015
(unaudited)


























Interim Consolidated Statements of Earnings
For the three months ended December 31
(in thousands of Canadian dollars, except per share data) (unaudited)

 
2016

 
2015

 
$

 
$

Revenue
2,675,719

 
2,683,677

Operating expenses
 
 
 
Costs of services, selling and administrative
2,276,704

 
2,298,027

Integration-related costs (Note 6)
3,105

 
—

Restructuring costs
—

 
29,100

Net finance costs
18,520

 
20,113

Foreign exchange loss
2,354

 
1,526

 
2,300,683

 
2,348,766

Earnings before income taxes
375,036

 
334,911

Income tax expense
99,385

 
97,198

Net earnings
275,651

 
237,713

Earnings per share (Note 5C)
 
 
 
Basic earnings per share
0.91

 
0.77

Diluted earnings per share
0.89

 
0.75




CGI Group Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2016 and 2015    1

Interim Consolidated Statements of Comprehensive Income
For the three months ended December 31
(in thousands of Canadian dollars) (unaudited)


 
2016

2015

 
$

$

Net earnings
275,651

237,713

Items that will be reclassified subsequently to net earnings (net of income taxes):
 
 
Net unrealized (losses) gains on translating financial statements of foreign operations
(107,262
)
116,979

Net gains (losses) on derivative financial instruments and on translating long-term debt designated as hedges of net investments in foreign operations
11,703

(48,188
)
Net unrealized (losses) gains on cash flow hedges
(4,285
)
1,325

Net unrealized losses on available-for-sale investments
(1,833
)
(424
)
Items that will not be reclassified subsequently to net earnings (net of income taxes):
 
 
Net remeasurement (losses) gains on defined benefit plans
(3,289
)
15,473

Other comprehensive (loss) income
(104,966
)
85,165

Comprehensive income
170,685

322,878









CGI Group Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2016 and 2015    2

Interim Consolidated Balance Sheets
(in thousands of Canadian dollars) (unaudited)

 
As at
December 31, 2016
As at
September 30, 2016
 
$
$
Assets
 
 
Current assets
 
 
Cash and cash equivalents
313,909
596,529
Accounts receivable
1,224,525
1,101,606
Work in progress
900,438
935,496
Current derivative financial instruments (Note 9)
20,829
22,226
Prepaid expenses and other current assets
152,217
170,393
Income taxes
11,870
7,876
Total current assets before funds held for clients
2,623,788
2,834,126
Funds held for clients
397,919
369,530
Total current assets
3,021,707
3,203,656
Property, plant and equipment
436,749
439,293
Contract costs
220,247
211,018
Intangible assets
518,794
509,781
Other long-term assets
82,023
86,970
Long-term financial assets
154,473
129,383
Deferred tax assets
151,153
179,898
Goodwill
6,950,734
6,933,333
 
11,535,880
11,693,332
 
 
 
Liabilities
 
 
Current liabilities
 
 
Accounts payable and accrued liabilities
1,141,285
1,107,863
Accrued compensation
524,602
523,553
Current derivative financial instruments (Note 9)
2,508
4,517
Deferred revenue
419,219
390,367
Income taxes
186,112
159,410
Provisions
32,752
34,924
Current portion of long-term debt
78,452
192,036
Total current liabilities before clients’ funds obligations
2,384,930
2,412,670
Clients’ funds obligations
396,047
365,994
Total current liabilities
2,780,977
2,778,664
Long-term provisions
35,340
40,454
Long-term debt
1,722,162
1,718,939
Other long-term liabilities
191,320
244,307
Long-term derivative financial instruments (Note 9)
38,751
46,473
Deferred tax liabilities
201,789
183,579
Retirement benefits obligations
207,341
216,308
 
5,177,680
5,228,724
 
 
 
Equity
 
 
Retained earnings
3,781,156
3,778,848
Accumulated other comprehensive income (Note 4)
199,162
304,128
Capital stock (Note 5A)
2,211,299
2,194,731
Contributed surplus
166,583
186,901
 
6,358,200
6,464,608
 
11,535,880
11,693,332


CGI Group Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2016 and 2015    3

Interim Consolidated Statements of Changes in Equity
For the three months ended December 31
(in thousands of Canadian dollars) (unaudited)


 
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
275,651

—

—

—

275,651

Other comprehensive loss
—

(104,966
)
—

—

(104,966
)
Comprehensive income (loss)
275,651

(104,966
)
—

—

170,685

Share-based payment costs
—

—

—

9,632

9,632

Income tax impact associated with stock options
—

—

—

(2,198
)
(2,198
)
Exercise of stock options (Note 5A)
—

—

31,801

(5,687
)
26,114

Exercise of performance share units (“PSUs”) (Note 5A)
—

—

23,666

(23,666
)
—

Repurchase of Class A subordinate shares (Note 5A)
(273,343
)
—

(41,344
)
—

(314,687
)
Resale of Class A subordinate shares held in trust (Note 5A)
—

—

2,445

1,601

4,046

Balance as at December 31, 2016
3,781,156

199,162

2,211,299

166,583

6,358,200

 
 
 
 
 
 





Retained earnings

Accumulated other comprehensive
income

Capital
stock

Contributed surplus

Total
 equity

 
$

$

$

$

$

Balance as at September 30, 2015
3,057,578

598,226

2,254,245

172,120

6,082,169

 
 
 
 
 
 
Net earnings
237,713

—

—

—

237,713

Other comprehensive income
—

85,165

—

—

85,165

Comprehensive income
237,713

85,165

—

—

322,878

Share-based payment costs
—

—

—

13,387

13,387

Income tax impact associated with stock options
—

—

—

9,141

9,141

Exercise of stock options (Note 5A)
—

—

52,065

(10,087
)
41,978

Exercise of “PSUs” (Note 5A)
—

—

21,250

(21,250
)
—

Repurchase of Class A subordinate shares (Note 5A)
(7,558
)
—

(1,574
)
—

(9,132
)
Purchase of Class A subordinate shares held in trust (Note 5A)
—

—

(21,795
)
—

(21,795
)
Balance as at December 31, 2015
3,287,733

683,391

2,304,191

163,311

6,438,626







CGI Group Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2016 and 2015    4

Interim Consolidated Statements of Cash Flows
For the three months ended December 31
(in thousands of Canadian dollars) (unaudited)


 
2016

2015

 
$

$

Operating activities
 
 
Net earnings
275,651

237,713

Adjustments for:
 
 
Amortization and depreciation
89,319

101,859

Deferred income taxes
32,476

35,396

Foreign exchange loss
1,372

1,144

Share-based payment costs
9,632

13,387

Net change in non-cash working capital items (Note 7)
(58,796
)
(61,290
)
Cash provided by operating activities
349,654

328,209

 
 
 
Investing activities
 
 
Business acquisitions (Note 6)
(150,897
)
(4,000
)
Purchase of property, plant and equipment
(30,395
)
(31,037
)
Additions to contract costs
(26,166
)
(18,403
)
Additions to intangible assets
(23,790
)
(22,514
)
Purchase of long-term investments
(3,974
)
(9,940
)
Proceeds from sale of long-term investments
—

1,999

Payments received from long-term receivables
—

164

Cash used in investing activities
(235,222
)
(83,731
)
 
 
 
Financing activities
 
 
Increase of long-term debt
6,251

18,002

Repayment of long-term debt
(120,373
)
(21,014
)
Repayment of debt assumed in business acquisition
(6,290
)
—

Purchase of Class A subordinate shares held in trust (Note 5A)
—

(21,795
)
Resale of Class A subordinate shares held in trust (Note 5A)
4,046

—

Repurchase of Class A subordinate shares (Note 5A)
(302,610
)
(18,598
)
Issuance of Class A subordinate shares
25,196

41,865

Cash used in financing activities
(393,780
)
(1,540
)
Effect of foreign exchange rate changes on cash and cash equivalents
(3,272
)
4,154

Net (decrease) increase in cash and cash equivalents
(282,620
)
247,092

Cash and cash equivalents, beginning of period
596,529

305,262

Cash and cash equivalents, end of period
313,909

552,354


Supplementary cash flow information (Note 7).




CGI Group Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2016 and 2015    5

Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2016 and 2015
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

1.Description of business
CGI Group Inc. (the “Company”), directly or through its subsidiaries, manages information technology (“IT”) services as well as 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 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 registered office of the Company is situated at 1350 René-Lévesque Blvd. West, Montréal, Québec, Canada, H3G 1T4.
2.Basis of preparation
These interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting” as issued by the International Accounting Standards Board (“IASB”). In addition, the interim condensed consolidated financial statements have been prepared in accordance with the accounting policies set out in Note 3, “Summary of significant accounting policies”, of the Company’s consolidated financial statements for the year ended September 30, 2016. The accounting policies were consistently applied to all periods presented.
These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended September 30, 2016.
The Company’s interim condensed consolidated financial statements for the three months ended December 31, 2016 and 2015 were authorized for issue by the Board of Directors on February 1st, 2017.
3.Changes in accounting policies
FUTURE ACCOUNTING STANDARD CHANGES
The following standards have been issued but are not yet effective:
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, with earlier application permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
IFRS 9 - Financial Instruments
In July 2014, the IASB amended IFRS 9, “Financial Instruments”, to bring together the classification and measurement, impairment and hedge accounting phases of the IASB's project to replace IAS 39, “Financial Instruments: Recognition and Measurement”. The standard supersedes all previous versions of IFRS 9 and will be effective on October 1, 2018 for the Company, with earlier application permitted. The Company is currently evaluating the impact of this standard on its 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 contract. The standard supersedes IAS 17, "Leases", and other lease related Interpretations. The standard will be effective on October 1, 2019 for the Company with earlier application permitted only if IFRS 15 “Revenue from Contracts with Customers” is also applied. The Company is currently evaluating the impact of this standard on its consolidated financial statements.


CGI Group Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2016 and 2015    6

Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2016 and 2015
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

4.Accumulated other comprehensive income
 
      
As at
December 31, 2016

      
As at
September 30, 2016

 
$

$

Items that will be reclassified subsequently to net earnings:
 
 
Net unrealized gains on translating financial statements of foreign operations, net of accumulated income tax expense of $67,072 as at December 31, 2016 ($69,777 as at September 30, 2016)
729,794

837,056

Net losses on derivative financial instruments and on translating long-term debt designated as hedges of net investments in foreign operations, net of accumulated income tax recovery of $69,458 as at December 31, 2016 ($72,490 as at September 30, 2016)
(455,096
)
(466,799
)
Net unrealized gains on cash flow hedges, net of accumulated income tax expense of $7,083 as at December 31, 2016 ($8,876 as at September 30, 2016)
9,646

13,931

Net unrealized gains on available-for-sale investments, net of accumulated income tax expense of $493 as at December 31, 2016 ($965 as at September 30, 2016)
1,114

2,947

Items that will not be reclassified subsequently to net earnings:




Net remeasurement losses on defined benefit plans, net of accumulated income tax recovery of $23,323 as at December 31, 2016 ($25,160 as at September 30, 2016)
(86,296
)
(83,007
)
 
199,162

304,128

For the three months ended December 31, 2016, $3,523,000 of the net unrealized gains previously recognized in other comprehensive income, net of income tax expense of $2,062,000, were reclassified to net earnings for derivative financial instruments designated as cash flow hedges.

CGI Group Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2016 and 2015    7

Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2016 and 2015
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

5.Capital stock, share-based payments and earnings per share
A)
CAPITAL STOCK
 
Class A subordinate shares
 
Class B shares
 
Total
 
 
Number

Carrying
 value

Number

Carrying value

Number

Carrying
value

 
 
$

 
$

 
$

As at September 30, 2016
271,956,913

2,148,898

32,852,748

45,833

304,809,661

2,194,731

Issued upon exercise of stock options1
977,597

31,801

—

—

977,597

31,801

PSUs exercised2
—

23,666

—

—

—

23,666

Repurchased and cancelled3
(4,897,700
)
(39,745
)
—

—

(4,897,700
)
(39,745
)
Repurchased and not cancelled3
—

(1,599
)
—

—

—

(1,599
)
Resale of shares held in trust4
—

2,445

—

—

—

2,445

As at December 31, 2016
268,036,810

2,165,466

32,852,748

45,833

300,889,558

2,211,299

1 
The carrying value of Class A subordinate shares includes $5,687,000 ($10,087,000 as at December 31, 2015), which corresponds to a reduction in contributed surplus representing the value of accumulated compensation costs associated with the stock options exercised during the period.
2 
During the three months ended December 31, 2016, 659,640 PSUs (969,241 during the three months ended December 31, 2015) were exercised with a recorded value of $23,666,000 ($21,250,000 during the three months ended December 31, 2015) that was removed from contributed surplus. As at December 31, 2016, 468,668 Class A subordinate shares were held in trust under the PSU plan (1,192,308 as at December 31, 2015) (Note 5B).
3 
On January 27, 2016, the Company’s Board of Directors authorized the renewal of the Normal Course Issuer Bid (“NCIB”) for the purchase of up to 21,425,992 Class A subordinate shares for cancellation on the open market through the Toronto Stock Exchange (“TSX”). The Class A subordinate shares are available for purchase commencing February 11, 2016 until no later than February 3, 2017, or on such earlier date when the Company completes its purchases or elects to terminate the bid. On February 1, 2017, the Company’s Board of Directors authorized the renewal of the NCIB for the purchase of up to 21,190,564 Class A subordinate shares over the next twelve months, subject to regulatory approval.
During the three months ended December 31, 2016, the Company repurchased 5,094,500 Class A subordinate shares under the current NCIB for cash consideration of $314,687,000 and the excess of the purchase price over the carrying value in the amount of $273,343,000 was charged to retained earnings. Of the repurchased Class A subordinate shares, 196,800 shares with a carrying value of $1,599,000 and a purchase value of $12,077,000 were held by the Company and were paid and cancelled subsequent to December 31, 2016.
During the three months ended December 31, 2015, the Company repurchased 192,500 Class A subordinate shares under the previous NCIB for cash consideration of $9,132,000 and the excess of the purchase price over the carrying value in the amount of $7,558,000 was charged to retained earnings. In addition, 200,000 of repurchased Class A subordinate shares with a carrying value of $1,631,000 and a purchase value of $9,466,000 were held by the Company, from previous period, and were paid and cancelled during the three months ended December 31, 2015.
4 
The trustee, in accordance with the terms of the PSU plan and a Trust Agreement, did not purchase Class A subordinate shares of the Company on the open market during the three months ended December 31, 2016 (441,722 Class A subordinate shares for $21,795,000 during the three months ended December 31, 2015). In addition, during the three months ended December 31, 2016, the trustee resold 64,000 Class A subordinate shares that were held in trust on the open market in accordance with the terms of the PSU plan (nil during the three months ended December 31, 2015). The excess of proceeds over the carrying value of the Class A subordinate shares, in the amount of $1,601,000, resulted in an increase of contributed surplus.





    



CGI Group Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2016 and 2015    8

Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2016 and 2015
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

5.Capital stock, share-based payments and earnings per share (continued)
B) SHARE-BASED PAYMENTS
i)
Stock options
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 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 preceding the date of the grant. Stock options vest over four years from the date of grant conditionally upon achievement of objectives and must be exercised within a ten-year period, except in the event of retirement, termination of employment or death.
The following table presents information concerning the number of outstanding stock options granted by the Company:
 
 
 
Outstanding as at September 30, 2016
 
16,623,619

Granted
 
151,000

Exercised
 
(977,597
)
Forfeited
 
(2,034,619
)
Expired
 
(500
)
Outstanding as at December 31, 2016
 
13,761,903

The weighted average fair value of stock options granted during the three months ended December 31 and the weighted average assumptions used in the calculation of their fair value on the date of grant using the Black-Scholes option pricing model were as follows:
 
 
 
 
2016

2015
Grant date fair value ($)
 
 
 
13.44

11.11
Dividend yield (%)
 
 
 
0.00

0.00
Expected volatility (%)1
 
 
 
25.44

24.94
Risk-free interest rate (%)
 
 
 
0.74

0.85
Expected life (years)
 
 
 
4.00

4.00
Exercise price ($)
 
 
 
63.15

52.71
Share price ($)
 
 
 
63.15

52.71
1 
Expected volatility was determined using statistical formulas and based on the weekly historical average of closing daily share prices over the period of the expected life of stock options.

CGI Group Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2016 and 2015    9

Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2016 and 2015
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

5.Capital stock, share-based payments and earnings per share (continued)
B) SHARE-BASED PAYMENTS (CONTINUED)
ii)
Performance share units
Under the PSU plan, the Board of Directors may grant PSUs to senior executives and other key employees (“participants”) which entitle them to receive one Class A subordinate share for each PSU. The vesting performance conditions are determined by the Board of Directors at the time of each grant. PSUs expire on the business day preceding December 31 of the third calendar year 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. Granted PSUs vest annually over a period of four years from the date of grant conditionally upon achievement of objectives.
Class A subordinate shares purchased in connection with the PSU plan are held in trust for the benefit of the participants. The 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 5A).
The following table presents information concerning the number of outstanding PSUs granted by the Company:
Outstanding as at September 30, 2016
1,192,308

Granted1
221,000

Exercised
(659,640
)
Forfeited
(285,000
)
Outstanding as at December 31, 2016
468,668

1 The PSUs granted in the period had a grant date fair value of $62.49 per unit.
C) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the three months ended December 31:
 
2016
 
2015
 
 
Net earnings

Weighted average number of shares outstanding1

Earnings per share

Net earnings

Weighted average number of shares outstanding1
 
Earnings
per share

 
$

 
$

$

 
$

Basic
275,651

303,179,061

0.91

237,713

 
307,714,593

0.77

Net effect of dilutive stock
   options and PSUs2

6,104,420


 
 
8,530,264


 
275,651

309,283,481

0.89

237,713


316,244,857

0.75

1 
During the three months ended December 31, 2016, 5,094,500 Class A subordinate shares repurchased and 468,668 Class A subordinate shares held in trust were excluded from the calculation of weighted average number of shares outstanding as of the date of transaction (192,500 and 1,192,308, respectively, during the three months ended December 31, 2015).
2 
The calculation of the diluted earnings per share excluded 3,753,000 stock options for the three months ended December 31, 2016 (3,997,594 for the three months ended December 31, 2015), as they were anti-dilutive.


CGI Group Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2016 and 2015    10

Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2016 and 2015
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

6.Investments in subsidiaries
On November 3, 2016, the Company acquired all the units of Collaborative Consulting, LLC ("Collaborative Consulting"), a system integration and consulting company headquartered in Boston, Massachusetts, for a total cash consideration of $150,897,000 paid from cash on hand. The purchase price is mainly allocated to the goodwill, which is deductible for tax purposes. Collaborative Consulting is expected to enhance and accelerate CGI’s position as a provider of digital transformation services.
In connection with the acquisition of Collaborative Consulting, the Company expensed $3,105,000 related to integration costs during the three months ended December 31, 2016. The integration costs mainly include provisions related to the termination of certain employees, as well as leases for premises which the Company vacated.
7.Supplementary cash flow information
a)Net change in non-cash working capital items is as follows for the three months ended December 31:
 
2016

2015

 
$

$

Accounts receivable
(132,126
)
(55,030
)
Work in progress
32,419

(23,388
)
Prepaid expenses and other assets
19,383

(5,609
)
Long-term financial assets
(1,545
)
(2,976
)
Accounts payable and accrued liabilities
17,375

46,307

Accrued compensation
7,273

(49,231
)
Deferred revenue
(16,092
)
20,226

Provisions
(5,656
)
(13,319
)
Long-term liabilities
(3,145
)
1,834

Retirement benefits obligations
(5,245
)
(1,316
)
Derivative financial instruments
922

(1,733
)
Income taxes
27,641

22,945

 
(58,796
)
(61,290
)
b)Net interest paid and income taxes paid are classified within operating activities and are as follows for the three months ended December 31:
 
2016
2015
 
$
$
Net interest paid
16,239
17,690
Income taxes paid
38,727
36,091
c)    Cash and cash equivalents consisted entirely of unrestricted cash as at December 31, 2016 and September 30, 2016.


CGI Group Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2016 and 2015    11

Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2016 and 2015
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

8.Segmented information
The following tables present information on the Company’s operations which 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”).
The operating segments reflect the current management structure and the way that the chief operating decision-maker, who is the President and Chief Executive Officer of the Company, evaluates the business.
 
 
 
For the three months ended December 31, 2016
 


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

 
$
$
$
$
$
$
$
$

 
 
 
 
 
 
 
 
 
Segment revenue
709,253
413,642
393,515
376,568
347,552
292,537
142,652
2,675,719

Earnings before integration-related costs, net finance costs and income tax expense1
114,707
45,373
87,405
46,941
50,381
21,936
29,918
396,661

Integration-related costs
 
 
 
 
 
 
 
(3,105
)
Net finance costs
 
 
 
 
 
 
 
(18,520
)
Earnings before income taxes
 
 
 
 
 
 
 
375,036

1 
Total amortization and depreciation of $88,989,000 included in the U.S., Nordics, Canada, France, U.K., ECS and Asia Pacific operating segments is $24,603,000, $11,933,000, $14,440,000, $7,995,000, $14,911,000, $9,662,000 and $5,445,000, respectively, for the three months ended December 31, 2016.
 
 
 
For the three months ended December 31, 2015
 


U.S.

Nordics

Canada

France

U.K.

ECS

Asia Pacific

Total

 
$

$

$

$

$

$

$

$

 
 
 
 
 
 
 
 
 
Segment revenue
716,008

436,813

382,899

344,820

365,328

308,762

129,047

2,683,677

Earnings before restructuring costs, net finance costs and income tax expense1
109,728

48,975

80,132

45,629

44,791

34,016

20,853

384,124

Restructuring costs
 
 
 
 
 
 
 
(29,100
)
Net finance costs
 
 
 
 
 
 
 
(20,113
)
Earnings before income taxes
 
 
 
 
 
 
 
334,911

1 
Total amortization and depreciation of $101,664,000 included in the U.S., Nordics, Canada, France, U.K., ECS and Asia Pacific operating segments is $23,212,000, $17,733,000, $15,485,000, $8,324,000, $20,212,000, $11,499,000 and $5,199,000, respectively, for the three months ended December 31, 2015.
The accounting policies of each operating segment are the same as those described in the summary of significant accounting policies (Note 3) of the Company’s consolidated financial statements for the year ended September 30, 2016. Intersegment revenue is priced as if the revenue was from third parties.


CGI Group Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2016 and 2015    12

Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2016 and 2015
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

9.Financial instruments
FAIR VALUE
All financial instruments are initially measured at their fair values. Subsequently, financial assets classified as loans and receivables and financial liabilities classified as other liabilities are measured at their amortized cost using the effective interest rate method. Financial assets and liabilities classified as fair value through earnings (“FVTE”) and classified as available-for-sale are measured subsequently at their fair values.
The Company has made the following classifications:
FVTE
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 as this reflected management's investment strategy.
Loans and receivables
Trade accounts receivable, cash included in funds held for clients and long-term receivables within long-term financial assets.
Available-for-sale
Long-term bonds included in funds held for clients and in long-term investments within long-term financial assets.
Other liabilities
Accounts payable and accrued liabilities, accrued compensation, long-term debt and clients’ funds obligations.
FAIR VALUE HIERARCHY
Fair value measurements recognized in the balance sheet are categorized in accordance with the following levels:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1, but that are observable for the asset or liability, either directly or indirectly; and
Level 3: inputs for the asset or liability that are not based on observable market data.
FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Valuation techniques used to value financial instruments are as follows:
-
The fair value of Senior U.S. and euro unsecured notes and the other long-term debt is estimated by discounting expected cash flows at rates currently offered to the Company for debts of the same remaining maturities and conditions;
-
The fair value of long-term bonds included in funds held for clients and in long-term investments is determined by discounting the future cash flows using observable inputs, such as interest rate yield curves or credit spreads, or according to similar transactions on an arm's-length basis;
-
The fair value of foreign currency forward contracts is determined using forward exchange rates at the end of the reporting period;
-
The fair value of cross-currency swaps and interest rate swaps is determined based on market data (primarily yield curves, exchange rates and interest rates) to calculate the present value of all estimated flows;
-
The fair value of cash and cash equivalents is determined using observable quotes.
There were no changes in valuation techniques during the three months ended December 31, 2016.

CGI Group Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2016 and 2015    13

Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2016 and 2015
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

9.Financial instruments (continued)
FAIR VALUE MEASUREMENTS (CONTINUED)
The following table presents financial liabilities measured at amortized cost categorized using the fair value hierarchy:
 
 
As at December 31, 2016
 
As at September 30, 2016
 
Level
Carrying amount

Fair value

Carrying amount
Fair value
 
 
$

$

$
$
 Financial liabilities for which fair value is disclosed
 
 
 
 
 
 Other liabilities
 
 
 
 
 
Senior U.S. and euro unsecured notes
Level 2
1,639,164

1,722,245

1,733,036
1,855,143
Other long-term debt
Level 2
28,906

27,935

24,562
22,843
 
 
1,668,070

1,750,180

1,757,598
1,877,986

The following table presents financial assets and liabilities measured at fair value categorized using the fair value hierarchy:
 
Level
As at December 31, 2016
 
As at September 30, 2016
 
 
$
 
$
 Financial assets
 
 
 
 
 
 Financial assets at fair value through earnings
 
 
 
 
 
Cash and cash equivalents
Level 2
 
313,909

 
596,529
Deferred compensation plan assets
Level 1
 
44,813

 
42,139
 
 
 
358,722

 
638,668
Derivative financial instruments designated as
     hedging instruments
 
 
 
 
 
 
Current derivative financial instruments
Level 2
 
20,829

 
22,226
Long-term derivative financial instruments
Level 2
 
68,624

 
49,759
 
 
 
89,453

 
71,985
 Available-for-sale
 
 
 
 
 
Long-term bonds included in funds held for clients
Level 2
 
198,961

 
195,976
Long-term investments
Level 2
 
31,230

 
27,246
 
 
 
230,191

 
223,222
 Financial liabilities
 
 
 
 
 
 Derivative financial instruments designated as
      hedging instruments
 
 
 
 
 
 
Current derivative financial instruments
Level 2
 
2,508

 
4,517
Long-term derivative financial instruments
Level 2
 
38,751

 
46,473
 
 
 
41,259

 
50,990
There were no transfers between Level 1 and Level 2 during the three months ended December 31, 2016.

CGI Group Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2016 and 2015    14

Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2016 and 2015
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

9.Financial instruments (continued)
FAIR VALUE MEASUREMENTS (CONTINUED)
The following table summarizes the fair value of outstanding derivative financial instruments:
 
Recorded in

As at
December 31, 2016

As at
September 30, 2016

 
 
$

$

Hedges on net investments in foreign operations
 
 
 
$831,400 cross-currency swap in euro designated as a hedging instrument of the Company’s net investment in European operations ($831,400 as at September 30, 2016)

Long-term assets
59,740

31,603

 
 




Cash flow hedges on future revenue
 




 
 




U.S.$22,875 foreign currency forward contracts to hedge the variability in the expected foreign currency exchange rate between the U.S. dollar and the Indian rupee (U.S.$31,033 as at September 30, 2016)
Current assets
2,537

3,358

Current liabilities
—

58

 
 




$105,200 foreign currency forward contracts to hedge the variability in the expected foreign currency exchange rate between the Canadian dollar and the Indian rupee ($116,700 as at September 30, 2016)
Current assets
10,939

11,935

Long-term assets
8,884

7,429

 
 




 kr41,625 foreign currency forward contracts to hedge the variability
     in the expected foreign currency exchange rate between the
     Swedish krona and the Indian rupee (kr55,500 as at September 30, 2016)

Current assets
1,501

1,463

 
 




€6,675 foreign currency forward contracts to hedge the variability in the expected foreign currency exchange rate between the euro and the Indian rupee (€8,900 as at September 30, 2016)
Current assets
929

376

 
 




£11,400 foreign currency forward contracts to hedge the variability in the expected foreign currency exchange rate between the British pound and the Indian rupee (£15,200 as at September 30, 2016)
Current assets
4,923

5,094

 
 




€43,525 foreign currency forward contracts to hedge the variability in the expected foreign currency exchange rate between the euro and the British pound (€52,700 as at September 30, 2016)
Current liabilities
2,198

3,626

Long-term liabilities
77

350

 
 




 
 
 
 
 €6,225 foreign currency forward contracts to hedge the variability in the
     expected foreign currency exchange rate between the euro
     and the Moroccan dirham (€8,300 as at September 30, 2016)
    
Current liabilities
221

710

 
 




 €6,225 foreign currency forward contracts to hedge the variability in the
     expected foreign currency exchange rate between the euro
     and the Czech koruna (€8,300 as at September 30, 2016)
Current liabilities
89

123

 
 




 
 
 
 

CGI Group Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2016 and 2015    15

Notes to the Interim Condensed Consolidated Financial Statements
For the three months ended December 31, 2016 and 2015
(tabular amounts only are in thousands of Canadian dollars, except per share data) (unaudited)

9.Financial instruments (continued)
FAIR VALUE MEASUREMENTS (CONTINUED)
 
Recorded in
As at
December 31, 2016

As at
September 30, 2016

 
 
$

$

Cash flow hedges on Senior U.S. unsecured notes
 
 
 
U.S.$600,000 cross-currency swaps to Canadian dollar (U.S.$600,000
     as at September 30, 2016)
Long-term liabilities
36,177

46,123

 
 



Fair value hedges on Senior U.S. unsecured notes
 



U.S.$250,000 interest rate swaps fixed-to-floating (U.S.$250,000
     as at September 30, 2016)
Long-term assets
—

10,727

Long-term liabilities
2,497

—

 
 
 
 



CGI Group Inc. – Interim Condensed Consolidated Financial Statements for the three months ended December 31, 2016 and 2015    16