Good morning, ladies and gentlemen. Welcome to the CGI Second Quarter 2013 Results Conference Call. I would now like to turn the meeting over to Mr. Lorne Gorber, Senior Vice President, Global Communications and Investor Relations. Please go ahead, Mr. Gorber.

Thank you, Valerie, and good morning. With me to discuss CGI's second quarter fiscal 2013 results are Michael Roach, our President and CEO; and David Anderson, Executive Vice President and CFO. This call is being broadcast on cgi.com and recorded live at 9:00 a.m. on Tuesday, April 30, 2013. Supplemental slides as well as the press release we issued earlier this morning are available for download, along with our Q2 MD&A, financial statements and accompanying notes, all of which are being filed with both SEDAR and EDGAR. Please note that some statements made on the call may be forward looking. Actual events or results may differ materially from those expressed or implied, and CGI disclaims any intent or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. The complete Safe Harbor statement is available in both our MD&A and press release, as well as on cgi.com. We encourage our investors to read it in its entirety. We are reporting our results in accordance with International Financial Reporting Standards or IFRS. And as before, we will also discuss non-GAAP performance measures, which should be viewed as supplemental. The MD&A contains definitions of each one used in our reporting. All of the dollar figures expressed in this call are Canadian, unless otherwise noted. I'll turn it over to David first to review our Q2 financials, and then Mike will comment on our performance highlights and provide an update on the Logica integration. So with that, David?

Thank you, Lorne. And good morning. I'm pleased to share the financial details of another good quarter. Second quarter revenue was $2.53 billion, representing a year-over-year increase of $1.5 billion, which is stable on a sequential basis and up 137% compared with the year-ago period. Currency impact was negligible. Adjusted EBIT was $262 million in Q2, up 67% year-over-year, representing an operating margin of 10.4%. Sequentially, adjusted EBIT increased by $52 million while our margin increased by 210 basis points as the integration benefits began to materialize. Our net earnings before the impact of integration costs were $176 million, up 66% from Q2 last year. Diluted earnings per share in the quarter were $0.56, up 40% from the same period last year. We recorded $81 million of integration costs related to the ongoing transformation of our European and Asia Pacific operations in the second quarter. Total integration expenses at the end of March amounted to $345 million, of which $235 million has been incurred in the first 6 months of fiscal 2013. Net earnings in Q2, on a GAAP basis, including integration costs, were $114 million or $0.36 in diluted earnings per share. I would like to remind you that this quarter's earnings per share were based on the weighted average diluted share count of 316 million shares, whereas the Q2 2012 weighted share count was 267 million shares. Our DSO at 46 days in Q2 improved across all business segments compared to the 53 days we posted last year. We generated $147 million of cash from our operating activities compared with $104 million last year. Over the last 12 months, we have generated $732 million or $2.46 in cash per diluted share. The impact of integration expense on cash flow will vary due to the like from the period as recorded and when the cash is paid out. Primarily related to severances, disbursements will be made throughout the second half of the year, and real estate payments associated with multiyear lease arrangements will be paid out over the longer term. Net debt at the end of the second quarter stood at $2.9 billion, down from a peak of $3.3 billion following the close of the acquisition. We have reduced our net debt by $51 million during the quarter and by $380 million since August, leaving us with a net debt-to-capitalization ratio of 43%. At the end of the quarter, we had approximately $1.1 billion in cash and available credit facilities. Now I'll turn the call over to Mike.

Thank you, David. And good morning, everyone. I am very pleased with our overall performance in the quarter and the progress we've achieved with respect to integrating and transforming Logica's operations into our performance-based operating model. As David has done his usual thorough job of walking through the financial, I will focus my comments on 2 areas: the highlights of our quarterly performance and an update and next steps with respects to the implementation of our integration plan. Starting with our second quarter results. At $2.5 billion, our revenue was almost 2.5x greater than quarter 2 last year and remained stable sequentially at an annualized run rate above $10 billion. In North America, our revenue growth continues to be powered by the ongoing strength of our U.S. operations, up 18% year-over-year. In Europe and Asia Pacific, we continue to focus on improving the quality of our revenue base and on expanding our recurring revenue over time. We are beginning to see the benefits of this strategy on the bottom line as we continue to proactively run off, shut down or divest money-losing or low-margin engagements. Although we are moving rapidly, it will take a number of quarters to fully address and stabilize the revenue base. At the same time, our renewal rate remains strong as we continue to extend and expand profitable business with existing clients. Our funnel of new opportunities is expanding, and all are now being qualified against CGI's profitable growth targets. Our proposals are being enhanced as well to reflect the deeper capabilities of the merged business. And we have identified a number of new managed service opportunities where we are proactively shaping transformational propositions. Our interaction with clients continues to be very positive, and they remain open to the value propositions we are advancing. While our…

Just a reminder, that a replay of the call will be available either via our website or by dialing 1 (800) 408-3053 and using the passcode 7565039 until the 9th of May. As well, a podcast of this call will be available for download at either cgi.com or via iTunes within a few hours. Follow-up questions, as usual, can be directed to me at (514) 841-3355. Valerie, if we can pool for questions from the investment community, please?

[Operator Instructions] Our first question is from Thanos Moschopoulos with BMO Capital Markets.

Mike, you highlighted that it will be a multi-quarter process in terms of improving revenues and improving the revenue mix at Logica. But at this point, are there any specific regions that you'd highlight as being further along in that process than others? And also generally speaking, how is the opportunity-setting pipeline evolving in terms of driving a higher outsourcing and IP mix across Logica business?

So I think, in the first question, I don't really see anybody. It's more a case of a number of geographies being further ahead on the integration, others being more on schedule. So the Nordics, the U.K., the France is on schedule. So it's more of a balanced mix. Everybody is doing much better than originally planned, hence the reason why we're making the adjustment to the overall time frame. But as far as the outsourcing funnel goes, I'll say, we're already taking 2 approaches there where we've focused on really the organic identification by the business units of outsourcing opportunities and we've created a second funnel that we've built, together with the business units, where we'll focus on 8 or 10 global opportunities that we can proactively go in and transform, offer a transformational deal. So we're really hitting that -- the outsourcing hard at 2 levels to really help accelerate the mix change of some of those geographies. If you take France, for example, there's a very high systems integration-consulting mix there. And over time, we would like, as an example, to get a higher level of recurring revenue. And clearly, the outsourcing strategy will deliver that over time.

Great. And just to ask the macro question, how have you seen the spending environment evolve since last quarter? Has it been pretty consistent, or has there been any areas specifically that have picked up or slowed down in recent weeks?

Well, again, clearly, the U.S. commercial business continues to be strong and the state local appears to be picking up. In Europe, I would say I haven't really seen a big shift. The Nordics is very active. I spent some more time up there. They've got a very active funnel with some near-term opportunities there. So that's kind of how I see it, but not -- I have -- certainty, I haven't seen the markets deteriorate.

Great. And just one for David. You provided a revised tax guidance for the quarter. How should we be thinking about cash taxes going forward? Should that be pretty similar to the reported rates?

It should be. I would think so, yes.

Our next question is from Richard Tse of -- with Cormark.

So Mike, over time, it doesn't look like you're sort of talking about revenue synergies for Logica just yet, but given the progress you've made on the EBIT margin thus far, I mean, do you think, in the next 2 years, you will be able to get those EBIT margins back to sort of CGI-proper levels prior to the acquisition?

No, I don't think so. As I said before, in order to do that, I have to considerably change the mix to do that. What I have said, that we will move the EBIT margins in Europe up to the top level, which I think are running between 8.5 and 9, to get them up to North American levels, we're going to need to change the mix and have a lot more IP-based services and solutions and also increase the amount of recurring revenue driven by long-term outsourcing deals. This is very similar to what we saw in the U.S. with AMS, and it took a number of years to do that. But the outcome was certain and the benefits were real, but it does take time.

Okay. And then the impact of the sequestration right now in the U.S., to be clear, basically, it's causing a delay in terms of the bookings, as my guess, and actually, an impact, here in your revenue. Is that kind of the way to look at it here? You're not losing anything here at the margin, are you?

No. I think, if you look at it again, just to put in perspective, even the latest budget proposal by the president increased the IT budget proposed increase by $2 billion. It's an $80 billion market, we've got about $1.3 billion. Our team is extremely focused there. We got a book-to-bill well over 100 there. We've got a nice recurring revenue stream. Our focus is to continue to focus on leveraging our position as a trusted advisor with our current clients. We want to capitalize on the FedRAMP cloud and cyber market position. We want to continue to drive the funnels of GWACs and IDIQs. We announced the Homeland Security one. These are necessary for long-term growth. We'll continue to generate opportunities with smaller and larger business partners. I think, net-net for us, to be transparent, we're clearly outperforming our peer group in that federal market, and we've got an understanding team there that's really, really focused on customer satisfaction. And we're operating in those areas where we believe the projects will be protected or, in fact, increased, things like helping drive spending reductions, helping the government increase productivity, strengthening cyber security. And our current look -- outlook is that we will actually see year-over-year growth, top line and bottom line, in our federal government business, which I think makes us somewhat unique.

Okay. And one last question, on Canada. You've had, I guess, some challenges there within the past few years. And I noticed, obviously the business are down here a little bit. Are you doing anything different to sort of address that going forward here? It's a smaller relative percentage to the rest of the relative business, but still, I think, a pretty important part of it now.

I think, in Canada, first off, I'm not happy with the growth rate in Canada, obviously. We've made some changes, with having George focus both on Canada and U.S. We're trying to ensure that we've got full implementation of best practices there in business development. On the other hand, we have a very high recurring revenue base in Canada. We've been able to extend those long-term contracts. And when you do that, you're also very susceptible to the business pattern of your clients. If they happen to be in a cycle where they've just completed some investments, their volumes can run down in the short term. On the long term, of course, our experience has been those volumes returned and the growth comes with it. So we've got a good team here focused on Canada. They know what they've got to do. And as I say, with the bookings -- book-to-bill of 105%, that's a good first sign that we've started to turn the corner there. But it'll take some time to get where we need to get to. I will remind you again that this year is the first year we blended back in the infrastructure business. So you will see some fluctuations in the margins reflecting the seasonality of that business and also some of the investments required in that part of our operation.

Our next question is from Julio Quinteros with Goldman Sachs.

Mike, just to kind of go back to that question a second ago about organic revenue targets, as we think about the longer term. So we're getting ready, obviously, to anniversary the Logica acquisition, and clearly, the expense part of the story is playing out really nicely. But at what point can we certainly nail you down on some revenue growth expectations and some targets around the combined business, as we think about it going forward?

So again, I think the best time is probably when we have finished this fiscal year and we put together our 2014 budgets. We'll have a better baseline of the European operations. We'll have the seasonality impact that we're still haven't gone through yet. And hopefully, by then, we will have continued to address the exposure we've got on red projects. As I've mentioned, we reduced our financial exposure by 35% in the first half of the year, but we still have to work through the balance of those red projects. And they can have an impact depending how we resolve them on top line and the bottom line. So I would say, probably the -- that -- when we launch the fiscal 2014, we'll have a better view of the baseline and, therefore, what the opportunities are for profitable organic growth in 2014 and beyond.

Okay. And just to sort of kind of dig into the where it sort of shows up as a tangible example in terms of red projects reduction. So if we look at, for example, the U.K. where you had a slip in revenues but a pretty significant improvement in the margins, is that essentially where those types of efforts where you have red projects that are improving impacting revenues to the downside but improving margins pretty meaningfully? Is that how you're kind of thinking about some of those movements?

Yes, you'll see some of that too in some of the other geographies. Some of it is being shifted, but in -- there are areas that we're running down fairly aggressively. Some of it's being offset by other opportunities. What's key here to me is, beyond addressing those, that we're looking very carefully at the renewals to ensure that they're profitable. And the new propositions and proposals we're making are actually now being run through our gate process so that we have a good look at how those deals are structured and what kind of margins are built into them. So we're trying to do a number of things here, which is to address the current mix but also ensure that the future mix is much stronger. But the U.K. is a good example of that, but there are others in there...

And lastly, can you address immigration reforms especially as it relates to H1B visa usage for you guys? Anything, any thoughts around that and what that can maybe mean from a comparative perspective?

No, as I said in my remarks, because I'm not sure it's visible, but Canada is also having a somewhat similar discussion, although it seems to be a very volatile discussion here in terms of which direction they're going to go. I think the point I was trying to make is that, with our local proximity base model, we're very much in line with the direction of these policies, which is really to ensure that there is a good mix between local employees and folks that are coming in using these visas. We do not have a -- any kind of a material exposure in that regard. In fact, as I say, I think our model is always believed that you have to have proximity to your client and that this work needs to be done in a blended rate. I think a lot of this is -- and I think it will continue. It is driven by the economic situation but also heightened concern on things like cyber security and data protection, which is gaining more and more visibility in the type of the world that we live in. So we're well positioned for any changes there. I think virtually anything that's done in that direction is helpful to us given our operating model.

Our next question is from Scott Penner with TD Securities.

Just to David. First of all, the $345 million of integration charges so far, how much in cash has been paid out? And what can you say about the -- I guess, the cash payments just over the next couple of quarters?

Maybe, I'll go the -- to answer it the other way: There's about $186 million that is yet to be paid out in regards to the some of the integration costs that have already been booked. Those costs, some of those are going to be severance, or the majority is severance, so that's going to be paid out over the next couple of quarters. There are some real estate charges there and they will end up being amortized or paid out over the length of whatever those lease agreements were. Some of them hit multiyear up to 4 or 5 years.

Okay. The $375 million of synergy, a, will cause synergy targets. Should we think about that as being the exit rate exiting next year?

Yes, they're exiting 2014, fiscal 2014.

Okay. And lastly, Mike, just wanted to get your comments around the -- and sort of address this head on, being the negative spend at the higher cost-saving targets at Logica, being that there's something incrementally negative on the revenue picture given that you're still targeting the same EBIT margins of 8.5% to 9%, being the high end. Just hoping you can just add some color around that to make people a little bit more comfortable, maybe talk about the timeline of the remaining exposure to those red projects or what the revenue exposure could be.

Well, again, I'm trying to be always very transparent and realistic. We've only been operating the business for 6 months. So in terms of goalsetting, I think the first step that I've always said was to ensure that we have a steady operation of quality revenue. That's throwing off the levels of EBIT for Europe and Asia Pac that I spoke about. Clearly, our direction, as it is in North America, is, over time, to continue to find ways to improve our earnings per share and our EBIT numbers. But again, I'm taking it one step at a time. I'm trying to find the right balance between ensuring that we have that quality of revenue and that the restructuring and transformation that we're doing is permanent. And I think, as -- restructuring is one thing. Transfer -- the transformation on how we think about the business, how we acquire revenue, how we manage costs, how we drive productivity, how we take accountability for outcomes with client service, member satisfaction and financial performance, it takes some time and to take hold. So on the second leg of improving earnings per share and EBIT, that will probably extend beyond 2014 because, on the transformation side, we're shifting from training and education into operations. And our operating model is built on continuous improvement even in established geographies where we've been there for years. And we continue to have a restructuring mentality, actioning areas today that will help benefit our earnings per share and financial strength in the future. So that's kind of how I look at it.

Okay. Just to -- so the -- if you've addressed 35% of the financial exposure of the red projects, where do you think that percentage will be, say, by the end of this fiscal year?

It'll certainly be at 50% or higher. We're making really good progress there. And again, I'd point out that we're being able to resolve these red projects with our customers on a business front and not on a litigation basis. So we're -- we have actually reduced our provisions and exposures around litigation than we originally thought. And I think this bodes well, that customers are really engaged with us, trying to find a business outcome that benefits them and also improves our position as a long-term partner.

Our next question is from Edward Caso with Wells Fargo Securities.

I just wanted to revisit your global delivery approach, particularly the India component of it, which remains relatively small compared to some of the larger players like IBM and Accenture. Are you sort of dialing back that effort now and being more sort of nearshore? And thus if you're doing that, does that have implications for your ability to improve margins, particularly in Europe?

No. Again -- Ed, thank you for the question. Again, we're not dialing back anything. We're staying on our global delivery model which, as you may know, 4, 5 years ago, we were called contrarians because we weren't shipping every last body over to India. Our strategy has always been to give our clients a menu of choice, which drives the value-based outcome. And to us, value has 3 components: it's got the price or to cost, it's got the service levels and it's got the risk managed. And again, as a result, we have built out and continue to extend nearshore centers in United States, Canada, Europe. We've got offshore sites in Morocco, Philippines, India. So we have a blended balance, and we would continue to build that out based on the demand of our clients. And so we think that is the right strategy. And I think the example of AT&T awarding their contract, that's in Belton, Texas, is a good example of how customers are thinking about where they do the work.

Can you just make sure -- I want to make sure I get the federal business. U.S. federal business, you seem pretty optimistic on that front. Can you talk if there've been any reduction in run rates, any not sort of delay of taking option periods? I mean, what are you seeing on that front? I assume you're not booking any backlog for IDIQ-type work.

No, we don't. We don't book any contract until it's a signed book business. Essentially, on the option years, these option years are actually being taken up, so customers are extending existing contracts, which is good for us given our high level of recurring business. On the other side, it does reduce somewhat the opportunity to take market share. Clearly, what we're seeing in the back end of the year here is we've got well over $1 billion in bids waiting approval. Now we've seen this phenomena before. A couple of years ago, we had a very similar situation, and the point of view I took at the time was, at some point, the government's going to have to award this business particularly if it's in business -- in areas of business that are actually driving the outcomes that the government are looking for, for example, bring down the spend rate or increase productivity or diving a managed service BPO outcome, increasing cybersecurity. So we could well see. And I'm not predicting it, I'm just saying I've seen the pattern before where some of this backlog of bids have actually been cleared out as the governments move through their fiscal year. Having said that, if it doesn't happen: I walked through our strategy, it's to continue to focus hard on our existing clients, leverage the GWACs and IDIQs that I have, to go after more task orders, partner with more smaller and large business partners to share in future wins. So I would say that our growth rate is coming down within the year based on what we're seeing, but in the end, our outlook is that we will still grow year-over-year organically our U.S. federal government business, thanks to the leadership of the team that we've got.

Great. Last question. Share repurchase, you didn't do any in the quarter. What's the trigger that would get you to be a buyer of your stock?

Well, again, we think our stock has very good value. What we're managing right now from a cash perspective is the addressing the integration costs that we mentioned. And we're also gradually working down our debt, Ed. Having said that, that lever is still on the table. And we consider it here on an active basis of whether to go back into the market. But for this quarter and likely the next quarter, our focus is to get those integration cash charges behind us and continue to work down the debt.

Our next question is from Maher Yaghi with Desjardins.

Just wanted to dive a little bit into your increased potential cost savings from your integration adjustments in Logica. I was wondering, how much, if there's any, increased cost savings is coming from the lower adjustments you made on your intangible assets? And can you maybe discuss a bit more what drove those adjustments down in intangible assets from the Logica acquisition?

Sure. Maybe I'd ask David to talk about the small adjustment there in the intangibles.

Okay. In regards to the intangibles, as you know, unless we have not made it as -- or we've made sure everybody understands that, when it comes to the purchase price allocation that was down in August, that number can fluctuate within the next 12 months. So we have until August to have everything nailed down. What we have done is we've gone back through, we've looked at the customer relationships, and this is where the bulk of that adjustment was coming from. And it was really just nothing more than a tweaking, looking at what the estimated cash flows are coming from, there are clients within the various regions and updating the assumptions that we had made back in the August-September time frame for what we're starting to see coming through with a couple of quarters of actuals now behind us. And what that did was it actually shifted some of the cash flows from one geography a little bit to another geography, it does change in some of the valuations of the client intangibles in those regions. And at the end of the period, what we're seeing here is that there's been a net reduction on some of the amortization that we have on the intangible. And what we also did in the MD&A, if you were to look within the adjusted EBIT section, was to give you the sequential view as to what that impact was. So as the dollars move from one geography to another geography, there were some net winners and some losers when it came to that. We wanted to give you a view as to what the revised Q1 number would look like in a way of adjusted EBIT, as well as the revised Q2 number, so you could actually see what those…

That's very helpful. And just last question, on integration, cost-cutting initiatives you're doing. Of the $375 million of improved efficiencies, how much are those cash related? And if there's any accounting cost included in those $375 million?

Well, I think, we're talking about driving outcome on earnings per share, so...

So the benefits are on the $375 million, so those are the savings. The incremental 125, that will flow through the P&L when we have -- or not so much identified, but when we've actually actioned the steps, so things like real estates, if we're continuing to doing further optimization once we've cleared the floor of the individual so that property then becomes available for -- to be sublet with somebody else, that is the time that we can then take that charge through the P&L.

Right, right. I'm just wondering, the $375 million, are these all cash cost savings, or some of that is accounting things like?

Oh, no, no. That's all cash, that's all cash. Those are all costs out of the operations.

Our next question is from Bryan Keane with Deutsche Bank.

It's on your -- this is actually Matt Diamond, on for Bryan, by the way. The 25% to 30% EPS accretion from Logica this year, I just want to make sure we're all clear, what is the base EPS that you're referring to for the 25% to 30% accretion. There's still a little bit of vagueness on that. If you could just enlighten us to that number, that'd be helpful.

Yes. I said -- I think a lot depends on what you have in your own models, but if you take it off, last year's EPS of $1.50, if you use that number, I think, on a 6-month basis, we're running at about 25% accretion. In the second quarter, it accelerated in the quarter to 40%. So I think, if you use that measure, there's also a measure that you could look at the base business for 2013, excluding the Logica integration, put some EPS growth in the base and then compare. And I think, again, various folks are using various models, but I think, against both methods, we're certainly seeing the accretion rate drift to the high end of our range.

All right, that's helpful. And the 2Q revenues, it's a little counterintuitive that they would stay stable on year-over-year, at least from the December quarter to the March quarter, just given the absence of the holiday season in this calendar 1Q. What was the reason for revenue staying stable? I would think that they'd see a little bit of a seasonal uptick there.

Well, again, as I say, what we're doing, Matt, is we're purposely winding down a low-margin and no-margin business, which is taking the revenue run rate down in Asia Pac. On the other hand, we're improving the quality of the earnings and the earnings per share. So it's a strategy that we've always executed in this company. If we look at our business, earnings per share growth and cash drive the valuation. There's lots of revenue in the marketplace. We're after the revenue that actually has margin and we're after long-term recurring revenue. And every time we do an acquisition, of course, we see a situation where there's been a revenue pass-through that moves the top line but not the bottom line. We have projects that are red in the sense that we're losing money on those projects, which again need to be resolved. So this is what I mentioned earlier, it'll take a number of quarters for us to work through that. But the goal at the end is to have a solid base of high-quality revenue driving industry-leading margins and high cash generation.

Maybe I could, Matt, just to add to that. The way that we get at that operationally, we really look at trying to drive the segmentation of the revenue by each of the businesses. So driving down to understand what the profitability is like for various practices, looking at it by projects, looking at it by contracts or by accounts, looking at it by lines of business, looking at it by IP, so really to get down into a fairly low level of detail and make sure that the operating managers are able to describe their business in that fashion. And from that type of analysis, then you're able to identify where some of these opportunities are, then that bubbles up to the top and then we make some of the choices as to how do we wish to execute on those.

Yes. And just to build on that, that's one of the reasons why I said earlier this will take some time, because we've made great progress in starting to consolidate their financial systems into ours. But we still have a number of quarters to go there. We need that so we can drive the kind of metrics and analysis that Dave just mentioned so that our business unit leaders can better segment their businesses and understand those areas of higher margins where we should invest more time and more resources and the lower-margin or no-margin business where we have to develop a plan or exit it.

Our next question is from Kris Thompson with National Bank.

Just on the synergies. You've increased them a couple of times now. Do you think they've been stretched as much as possible? Or could we expect you can even find some more cost savings over the next 12 months?

No. I think we probably have got to what we'll get from the restructuring part here, as I mentioned, Kris, on the transformational piece, which is really, as the management team gets access to better tools and better information, they will continue on a business-as-usual basis to look at improving our overall performance, including our customer service and member satisfaction and financials. But that will be more embedded into the business as usual. I think the program here at an investment of $525 million for $375 million is what we'll conclude on as far as the restructuring part of the integration.

Okay. And as your headcount was at 69 at the end of March, where are you now? Are you done? Have you telegraphed all of that to your people hold the culture...

The headcount is -- continues to move here. There is -- I always speak in terms of net headcount because, as you know, we're growing our headcount in the U.S, obviously, with that organic growth rate. But I would think that, as the program nears its completion, we'll see a further drift-down of the headcount.

Do you have a targeted level in mind and maybe...

I don't give a targeted headcount numbers. I think, again, we've got a number of moving pieces here. And I want to leave that to the discussions between the business and their members on the individual basis. I think what you can see here is that we are -- there's alignment between the increased margins and the headcount reductions, and that process is closer to the end than the beginning. And so we should see a slight drop going forward, and then it'll start to stabilize.

Okay. And I'll just switch to revenue, when I look at your system integration consulting line, which I'm doing my own math here because you don't really break that anymore, it looks like it's around 300 million versus 380 million last year, can you just give us the overview on what's happening in that business? And I know some other vendors provide bench utilization, you don't, but can you just provide some statistics to get us comfortable that, that business is rebounding and reflects a good pipeline?

Well, I don't recognize your numbers. As you say, they're your numbers, they're not mine, so it's hard to comment on them, other than to say that the systems integration business is -- the mix of it has certainly increased with the acquisition of Logica. As I mentioned, a number of the geographies there have a high component of that. But we're not seeing any marked slow down there. We are obviously trying to find the right balance between the resource and the demand, but again, it's very hard to comment on some of the stuff because we really don't have a 12-month view. So to some extent, we're going to school on the actuals in the marketplace as we operate there. And there are a lot of factors that are moving the -- some of the underlying operations, including, as I say, how we look at new proposals and how we bid on new proposals. So there's a lot of dynamics there, but it's a little early to have enough of a track record to distinguish a pattern and a trend in some of those areas of the business. But we'll try to pick that up as we go on here, and I'll be able to give a little more color around that.

Fair enough. I was just trying to get a handle on your Canadian and U.S. SI&C business, if you have any data points there that it's a little bit slower than it was year-over-year.

Not in the U.S. I would tell you, the U.S. is flat out there. Utilization rates continue to run very hot. We're hiring in a number of areas to meet that load. And in Canada, it's a little more stable.

Okay. And just last for me, on U.S. federal IT spending. I know you have a lot of contract vehicles and you're doing really well, but just wanted to get a handle on your Department of Defense exposure. I think it's -- 45% of total U.S. IT spending, down there, federal IT. What's your percentage of Federal exposure in the DoD?

Well, again, we have a very balanced portfolio. I'm just trying to see if I've got my hands on that split, but I don't seem to have it in front of me.

No, we do. About 13% for the total federal government in the U.S., and that is Defense and as well as all of the other civilian agencies.

Yes. But I think he's looking for the defense split. It's about, it pretty close to 50-50, although the growth rate, I would tell you, is probably higher now on the civilian side than on the defense side.

Our next question is from Michael Urlocker with GMP Securities.

Michael, it certainly looks like Logica is delivering and working well. Congratulations, everyone, on the improvements here. And my questions are really on, let's say, smaller questions, just to help have a better understanding of the business. One of them is with regard to cash generation. So you had a good consistent track record of cash generation, cash from operations. There is some substantial amount of severances and accrued compensation that's going to start to be paid out, so I'm curious whether -- if we include those severances, whether we should expect the company to be cash-from-ops positive in Q3 or whether, in fact, the severances would make that a net negative?

But when you think about the normal level of profitability that we should be generating before the integration charges, you add back the amount of noncash items. And within a quarter, we're probably dealing with about $100 million just of those items. And so that gives you kind of the base of the cash that's coming out of the operations. Then you've got the investment in the working capital while we've continued to really press hard to ensure that we're on top of the billings so we can get invoice sent out to the clients as well as making sure that we can get the collections of those invoices on the due terms. So -- and I think, over the last 2 quarters, you've seen that we've been relatively successful in making sure that we're keeping on top of the receivables, so that's a really good news for this. I mentioned earlier there's about $186 million of provisions that are out there. I guess, last quarter, we have paid down some of that even though we added another $80 million to the pot. I think that, at this particular stage, I don't really want to go out on a limb here, but I would expect that we should be cash flow positive on the cash being generated from operating activities, trying to balance the -- these different items that you just mentioned. In regards to some of the compensation, we've already -- we paid out compensation in December, we paid out compensation in the March quarter. There's a little bit of accrued from one of the regions that we'll pay out this next quarter. But we don't have a big bow wave of compensation-related items.

Okay. Okay, that's helpful because, for whatever modeling reasons, I had expected a bigger payout in the current quarter and I don't -- it's just really a budgeting exercise in terms of my model, and that's a positive feedback. I appreciate it.

Just on that, Michael, it's a good opportunity. So I think, again, there's a scenario where our team in Europe have really focused on receivables and DSO. And I think that's one of the reasons why we haven't tilted over even on a quarterly basis here throughout the integration. We're disbursing a lot of cash related to the integration, but again, the teams have really focused on this item. And as a result, we remained cash flow positive quarter by quarter here. So I think that's another highlight of the strength of the integration here.

My second question is -- and this goes maybe a little bit into the nature of some of your customers in telecom and especially among the telcos in Europe. I have a theory that there's an opportunity for some upgrades of billing systems for major carriers or some rethinks on how they undertake their billing, and that may create some good opportunities for a company like CGI. I wonder what your observations would be in terms of, especially the European carriers, what they're thinking about in terms of next generation for their BSS or billing systems and whether you see opportunities there for your company.

Well, again, I think, on the telcoms, as you know, they've been very focused on driving down operating costs as they shift from land line to mobility and other content businesses. And again, we're certainly helpful in that area. As far as investing in new BSSes and OSSes that support that new part of business, we haven't seen a lot of that yet, but I do think, Michael, that your sense is right, that there will be a tick-up in investments in those companies as they look to apply more information technology to the emerging part of their business over time.

So you're probably sharping your tools to address exactly that.

Every day.

Excellent. And lastly, if I could encourage you. I know systems integration IT consulting is a sort of a non-tangible business, in some ways, for us outsiders. But if you ever wanted organized visits to meet the Logica executives or operation executives, I think investors and analysts would be very supportive of attending those sorts of visiting meetings in Europe and elsewhere.

Our next question is from Paul Treiber with RBC Capital Markets.

I just wanted to look at the margins in the U.K. business. They're quite standout this quarter at about 10%, and it's well above the rest of the European business. Can you just elaborate on why your U.K. profitability is so much ahead of other regions? And we -- should we look to that, to the U.K., as a leading indicator of perhaps what other regions in Europe could reach over time?

Well, again, the answer to your second question first, is that these are different countries with different operating models, different work regulations and rules, so they're not comparable on an apple-to-apple basis. Having said that, of course, our goal is to show continuous improvement within each in of our operating areas. I think, in the U.K., it's a combination of things, including running ahead of the restructuring part of our plan. Also, we had a lot of corporate people that were in the U.K. and that you have infrastructure and support costs that resided, in part, in that P&L, that have also been addressed. And we also signed, as you may know or recall, a managed -- a nice managed services deal there just at the time of the merger, which is also very helpful to the business there. So again, I think it's primarily a lot of focus on the fundamentals. A leader of that group, as you may recall, is a longtime CGI leader. He used to operate our European operation. So he's much more familiar with the operating model and, as a result, has been able to advance our position in the U.K. a little more rapidly. And we're obviously very pleased with that.

I think this quarter has kind of quite readily apparent the amount of profitability that you can drive out of Logica. What -- how important -- and you touched upon this, how important is having those right operating metrics from a modern ERP system both in your hands from managing the local management but then also local management better understanding your business?

I think they're absolutely essential, but they're only half the equation, because a lot of people have the information, which is essential, but the ability to act on the information, to take action, to seize opportunities, to go against your human nature, which is to sit and wait, that's the second piece. And that's why I explained in our integration model, we have 2 things: we've got the restructuring and we've got the transformation. Over time, my belief is the information will actually yield more balanced benefits for us as a company, as it has over our 37 years in business, but in the short term, you're seeing the impact of restructuring. But we do need that information, our people need it to continuously improve, to seize and create opportunities, so we're making good progress on that. Dave, I don't know if you want to just give a high level of where we are on the systems integration with respect to the financial system.

Well, it's a little tough to believe, but within the first 6 months, we have almost moved half of the population of Logica on to our own ERP system. We have made the migrations with Germany, Spain, Switzerland. We just -- recently, we've moved across the U.K., Netherlands and India. In the next 30 days, we've got 2 more countries that are scheduled to be migrating across, and 30 days after that, a couple of more. So our objective is to, by the end of our fiscal year, as much as possible, again respecting some of the regulations we have within various countries, et cetera, to try to be at the end of the consolidation program by October 1, so we're very close to having everybody converted over on that date.

So that's actually about 10 months or so sooner than our first look at the integration plan and another reason why we've reduced it from 3 years of 2 years.

Our last question is from Steven Li with Raymond James.

Just a clarification for me, Mike. On the Canadian business, on the Canadian margins, you talked a little bit about the GIS seasonality. Given that seasonality, would you expect the margins to snap back next quarter? Or does it take a couple of quarters to get back to 20%?

Well, again, I like 20%, obviously. And we will continue to manage the business, all our businesses, to realize the right balance between revenue and profitable growth. I'm confident that the Canadian team will continue to gradually improve those margins throughout 2013 and in 2014. I'm not sure about a snapback in a quarter. These things obviously take some time, but we're clearly committed, Steven, to maintain and grow our margins in Canada and the other geographies.

Thank you. There are no further questions registered at this time. I would like to turn the meeting back over to you, Mr. Gorber.

There is nothing else to add, Valerie. Thank you, all, for joining us today. Again, available for follow-ups, (514) 841-3355. Thank you, and see you in July for Q3.

Thank you. The conference has now ended. Please disconnect your lines at this time. And we thank you for your participation.