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Executives

Lorne Gorber - Senior Vice-President of Global Communications & Investor Relations

David R. Anderson - Chief Financial Officer and Executive Vice President

Michael E. Roach - Chief Executive Officer, President and Director

Analysts

Tom Liston - Cantor Fitzgerald Canada Corporation, Research Division

Scott Penner - TD Securities Equity Research

Richard Tse - Cormark Securities Inc., Research Division

Thanos Moschopoulos - BMO Capital Markets Canada

Stephanie Price - CIBC World Markets Inc., Research Division

Steven Li - Raymond James Ltd., Research Division

Paul Treiber - RBC Capital Markets, LLC, Research Division

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Kris Thompson - National Bank Financial, Inc., Research Division

Ralph Garcea - NCP Northland Capital Partners Inc., Research Division

Maher Yaghi - Desjardins Securities Inc., Research Division

Michael Urlocker - GMP Securities L.P., Research Division

CGI Group (GIB) F4Q 2012 Earnings Call November 28, 2012 9:00 AM ET

Operator

Good morning, ladies and gentlemen. Welcome to the CGI Fourth Quarter 2012 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.

Lorne Gorber

Thank you, Valerie, and good morning. With me to discuss CGI's fourth quarter and fiscal 2012 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 a.m. on Wednesday, November 28, 2012. The press release we issued earlier this morning is available for download along with our fiscal 2012 MD&A, audited 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 statement, 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 financial results in accordance with International Financial Reporting Standards or IFRS. As usual, 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 on this call are Canadian, unless otherwise noted.

I'll turn the call over to David first to review the results both with and without the impact of Logica. Then he'll pass it over to Mike, who will discuss the strategic and operational highlights of both the quarter and the full year. Our scripted portion will be a little longer than usual in order to provide maximum visibility on our operational performance, as well as the various moving pieces related to the Q4 acquisition of Logica. We'll still leave ample time for Q&A. So with that, David?

David R. Anderson

Thank you, Lorne, and good morning. Before we get in the specific results, I'd like to review 2 quick but important items. First, a reminder that this is our first fiscal year reporting under IFRS. CGI transitioned from Canadian GAAP to IFRS at the beginning of fiscal 2012, adjusting the financial results of the previous year to reflect this adoption.

Although the change resulted in several adjustments or reclassification to our consolidated financial statements, such as the way we accounted for joint ventures or the way we disclosed amortization on the P&L, it did not materially impact the underlying cash flows or profitability trends, our revenue recognition practices, our debt covenants or compensation arrangements. Note 33 to the financial statement contains a detailed description and a reconciliation of the key accounts involved in the migration from Canadian GAAP to IFRS. As a note, our financials prior to 2011 are reported under Canadian GAAP.

I also want to take a minute on the BAR or Business Acquisition Report filed on November 5. Our preference would have been to release this report at the same time as our financial results in order to provide a little more content. However, we needed to comply with a 75-day reporting deadline, which resulted in the November 5 filing required by Canadian securities regulators. This filing consisted of 3 parts. The first was the audited financial statements of Logica dated December 2011, as reported by them last spring, with no changes. The second were Logica's interim financial statements for the 6 months ended June 30, 2012 before our transaction was finalized, and the third were CGI's performance statement, giving effect to the transaction for the period ending June 30, 2012. The intended purpose is to describe the acquired business and to provide insight into the financial impact of the acquisition.

The information was compiled according to a set of prescribed rules that simply took the historical information, adjusted it for the harmonization of accounting policies and practices between the 2 firms and adjusting, as appropriate, the values of the opening balance sheet to reflect fair value. It did not take into account any savings of bringing the 2 companies together or any synergies of applying CGI's management approach to the operations of Logica.

In the interest of time, I will address 2 points that generated most of the questions coming from this filing. The first was the reduction in the revenue run rate for the 6 months ending June 30. Clearly, the general market conditions within Europe resulted in some softness, as evidenced by peer results for the same period, and of course, there's the sideways drift that always occurs or almost always occurs in a targeted company between the announcement date and the closing date. As we did not own the company during this period, we were not in a position to communicate with the employees or with the clients, so we focused on a rapid closing in an effort to address this uncertainty.

The second area of interest was the accruals and provisions that were recognized during the 6 months ending June 30. Let's run through them. An amount of GBP 92 million was recorded for the settlement of a VAT claim, as well as one for social security taxes. The court returned its verdict on the VAT claim last spring, while the tax authorities delivered its assessment on the social security taxes. These were onetime items and are now behind us. There was also provision taken for other claims in the amount of GBP 34 million. Most were project delivery issues having surfaced during this period for which we are actively engaged to rectify. Then there was a GBP 139 million provision taken for expected future losses and write-offs on in-flight contracts. Simply put, we reviewed the cost to complete Logica's fixed-price contract using the same screen that we use for CGI. We then decided it was necessary to recognize forecasted cost overruns and penalties across a number of projects.

Now on to the results. First, for Q4, excluding the 6-week impact of Logica. We generated revenue of $1.04 billion, representing year-over-year growth of 3.6% or 3% on constant currency. Adjusted EBIT in Q4 2012 was $133 million or 12.8% of revenue compared with $88.6 million or 8.8% of revenue in the same period last year. The improvement was largely driven by actions taken throughout the year to improve profitability. Excluding the restructuring charges taken in both periods, the net earnings were $100 million, and diluted earnings per share were $0.37 for a net earnings margin of 9.6% compared with $0.39 per share in the year-ago period. The tax rate for the latest quarter was 29.1% compared with 25.9% for the year-ago period, reflecting the higher level of adjusted EBIT coming from a U.S. operation with its higher tax rate. Bookings totaled $1.1 billion on a stand-alone basis or 106% of revenue composed primarily of new bookings in the government and financial services sector. While we cannot segregate the cash flow generated from operations just for this part of the business, DSO was 47 days compared to 53 days in the year-ago period.

Now quickly recapping the results of the acquired Logica operations from August 20 to September 30. Revenue was $567.9 million with an adjusted loss before income taxes of $18.8 million for the 6-week period, which included $10.6 million in amortization of their intangibles. In Europe, this happened to be in the peak vacation period, where significant number of employees and clients were on leave. The resulting revenue and margin is not indicative of their performance capability on either a quarterly or annual basis. The DSO for this part of the business for the end of the quarter was 112 days. This reflects all of the trade accounts receivable, the work in progress, as well as the prepayments received from clients. However, the revenue is only for 6 weeks, thus causing a onetime aberration in this metric. Next quarter, this measure will reflect a full quarter of revenue and will be a useful comparison of performance. While we are still working through some unfavorable payment term, we believe over time that we should be able to achieve a result in line with the 45-day DSO target.

Including the 6-week impact when layering Logica into the results, we generated revenue of $1.6 billion, which was up from $1.0 billion last year, representing year-over-year growth of 60.1% or 59.6% on a constant currency basis. Adjusted EBIT was $114.1 million, represents a margin of 7.1% and is up from $88.6 million or 8.8% last year. In addition, acquisition-related and integration charges totaled $248.3 million when recorded in the -- were recorded in the quarter. This comprised of $29.7 million of acquisition-related cost, $108.9 million of cost related to putting the financing in place, as well as the hedging cost, $98 million for severances and $11.7 million for integration cost. Including finance-related charges, the net loss on a GAAP basis was $168 million or $0.68 per diluted share.

Operating cash flow generated for 3 months was $109.3 million or $0.38 per share. The effective tax rate for the fourth quarter and for the upcoming periods will not be indicative of our future tax rate. This past quarter and for the next couple, we will see some aberrations caused by the quantum and the tax treatment of the components of the acquisition-related and integration cost. Once we have worked -- once they have worked their way through the quarterly financial statement, we will then see the benefits of the tax planning kick in. Accordingly, it may be best to look at the tax rate excluding the impact of the acquisition-related and integration cost. Based on enacted rates and our current business mix, we expect our effective tax rate before integration cost and any significant adjustment to be in the range of 24% to 27%.

Now turning to the annual results for fiscal 2012. First, excluding Logica, revenue was $4.2 billion, essentially unchanged year-over-year. Adjusted EBIT was $565.6 million for a margin of 13.5%. This compares with adjusted EBIT of $536.4 million in fiscal 2011 or 12.7% of revenue. Net earnings were $401.3 million compared with $396.7 million before favorable tax adjustments in fiscal 2011. The margin was 9.5% in fiscal 2012 compared with 9.4% in the previous year. Diluted earnings per share were $1.50 compared with $1.44 in fiscal 2011. Bookings for the full year totaled $4.8 billion or 113% of revenue.

Now including Logica, for the full year and as reported, we generated revenue of $4.8 billion compared with $4.2 billion in fiscal 2011, representing an increase of 13% or 12.1% at constant currency. Adjusted EBIT was $546.7 million for a margin of 11.5%. For the full year, we incurred acquisition-related and integration charges totaling $255 million. Including the finance-related charges, the net earnings were $131.5 million or $0.48 per diluted share. Cash generated from operations in fiscal 2012 amounted to $613.3 million or 12.9% of revenue, representing $2.24 per diluted share.

Bookings reached $5.2 billion or 109% of revenue, bringing the total backlog at year end to $17.6 billion. Our DSO at the end of the year was 70 days. The year-over-year increase was attributable to the mid-quarter closing of our Logica transaction as we already mentioned. Excluding this transaction-related anomaly, we continue to work towards our target level of 45 days.

Net debt at the end of Q4 stood at $3.1 billion, down from a peak of $3.3 billion following the close of the transaction. We repaid $180 million in debt in Q4 for a net debt-to-capitalization ratio of -- at September 30 of 46.6%.

Now I'll turn the call over to Mike.

Michael E. Roach

Thank you, David, and good morning, everyone. As David has done a thorough job of walking through the financials both with and without the impact of Logica, I will focus my comments this morning on 3 areas: highlights of our fiscal 2012 results, our U.S. operations and finally, an update on our integration activities with respect to Logica. I'm very pleased with our team's solid and balanced performance in fiscal 2012 financially and operationally. Excluding Logica, annual revenue was $4.2 billion with momentum accelerating in the back half of the year, including organic growth of 3.6% recorded in quarter 4. Adjusted EBIT was $565.6 million, representing a margin of 13.5%. Net earnings were $401.3 million for a 9.5% net margin. We earned $1.50 per share in EPS, and we booked $4.8 billion in new business, contract extensions and renewals. This represents 113% of revenue.

From an operations perspective, we continue generating industry-leading profitability in our Canadian operations with EBIT margins reaching 21% in 2012. Following restructuring and investments made in our GIS segment to improve productivity and stand up our cloud offering, we expect this business to continue improving throughout fiscal 2013. And finally, we delivered significant bottom line recovery in our legacy European operations with adjusted EBIT up 43% in fiscal 2012. Given the size and dynamics of the U.S. market, I want to add a little more color to our profitable growth strategy in this key market, where both organic revenue growth and margin expansion are significant contributors to the company's overall performance. We are now in full execution mode on U.S. deals booked in previous quarters, particularly in the state and local space. The pipeline of opportunities and activities across our commercial business continues to gain momentum, especially with respect to our IP offerings. Overall, our U.S. operations reached a new revenue milestone in fiscal 2012, generating $2.1 billion, up 10% compared with fiscal 2011.

In quarter 4 alone, organic revenue growth was 15% year-over-year, while margins in the U.S. hit 12%, double from the same period last year. Total U.S. bookings in fiscal 2012 were $3 billion or 138% of revenue, and in quarter 4, reached 160% of revenue with bookings of $900 million. The health sector continues to be a strong growth area for the U.S. and is expected to accelerate throughout 2013. We are also seeing more commercial opportunity, as the entire industry prepares for new -- the new phase of the Affordable Care Act implementation. The U.S. health business posted growth of nearly 50% in fiscal 2012, well ahead of our other industry verticals.

On the CGI Federal side, our strategy has always been to focus on mission-critical IT and business process services functions required for the day-to-day operations of the government, as well as to support the implementation of mandatory programs such as the shift to the cloud and benefit funding projects such as the Medicare recovery audit program. We believe that our approach has, and will continue to better position us to weather any political or economic uncertainty. For example, our federal business continues to buck the trend, realizing a book-to-bill of 140% in fiscal 2012, while increasing recurring revenue and backlog in this area. We are very well positioned on our existing contract vehicles, with a significant portion of our new business coming through associated task orders, and we continue to focus on new strategic procurement vehicles, winning a spot on 6 new wins during the last year, with a combined ceiling value of $69 billion in new opportunities.

In summary, we entered fiscal 2013 in a position of strength operationally and financially, enabling us to focus on the year's #1 operational priority, which is the successful integration of Logica. With respect to Logica, let me begin by reinforcing our commitment to realize significant shareholder value arising from our merger, which was effective 20 of August, 2012. After 100 days of operations, we can confirm that the strategic, operational and financial fit anticipated in the transaction. We can also confirm that we're aggressively adjusting the cost base to reduce overheads and increase our competitiveness, while transforming the business into the CGI performance-based operation model. Against this standard, we have made significant progress and are on track to realize our commitment to deliver an EPS accretion rate in the range of 25% to 30% in fiscal 2013 before acquisition-related and integration cost. We've also adjusted our cost synergy target up from $200 million to $300 million in annual savings. The cost to achieve these synergies is also revised from $265 million to approximately $400 million over the 3-year integration period.

During the quarter, we provisioned $98 million in severances, the benefits of which will be gradually visible throughout the year. Our integration plan envisions approximately 75% of these cost synergies being people-related, with the remaining 25% associated with real estate and other cost management initiatives. This adjustment reflects not only our current view of synergy operations, our opportunities, but also market conditions and planned run-offs of low- or no-margin contracts as we continue to focus on generating high-quality recurring revenue. We continue to have the financial flexibility to go deeper, as we uncover additional synergy opportunities or if market conditions require us to do so. From an operational perspective and in line with our business model, we have organized into 7 strategic business units, led by 7 strong experienced leaders, who have the full accountability for the success of their operations. This includes business development, service delivery, client and member satisfaction, and of course, bottom line financial results.

Together, we have built a fiscal 2013 business plan, which incorporates our integration milestones and our EPS accretion goals. In fiscal 2013, we'll begin reporting our financial results against these 7 strategic business units. We've also taken our case for the need of change directly to the leaders and the employees, having trained over 1,000 former Logica leaders on the CGI model, while interacting with some 29,000 employees through our European and Asia-Pac annual tour, which was held in November. In addition, I've had direct, open and productive communication with the work council leaders. Employee feedback is positive, and engagement towards our operation model is high. Everyone wants to win. As with every acquisition, the overarching principle guiding the integration is that our client needs comes first. We're moving quickly and decisively to reassure existing clients and potential clients by rapidly scheduling VIP meetings to ensure they are fully exposed to the expanded breadth and depth of our new global capabilities. The response from clients continues to be very positive.

Looking ahead to fiscal 2013, including our line of credit, we continue to have ample liquidity: more than $929 million available to continue prioritizing the most accretive investments for shareholders. These include prioritizing investments in profitable organic growth initiatives and a debt repayment for this fiscal year.

Finally, we've been operating under the same basic fundamental beliefs and quality-focused model since 1976. I want to reiterate that we continue to believe that our consistent ability to execute to this model delivers superior returns to shareholders over time, including through the most challenging market conditions. Our stock price increased by approximately 30%, adding almost $3 billion to our market capitalization during the last 12 months. We remain committed to the full realization of our strategic goals and are confident in our team's ability to execute against our business plan in fiscal 2013 and beyond.

Thank you for your continued interest and confidence in CGI. Now Lorne, back to you for the questions.

Lorne Gorber

Thanks, Mike. 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 pass code 9121092 until December 12. 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 could poll for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Tom Liston of Cantor Fitzgerald.

Tom Liston - Cantor Fitzgerald Canada Corporation, Research Division

Mike, I think we all get the -- CGI core is obviously on track and doing well especially in the U.S. but can you key in on Logica and where those elements that take you to more $300 million on the synergies side? What type of, I guess, maybe potentially a few positive surprises? But can you roughly break it down in between whether it's more of the duplication of service savings, whether it's more on the contract discipline, which certainly probably lowers revenue and hopefully increases EBITDA? And then some revenue synergies, perhaps, if you've sort of built in that? What we notionally will need to see is that negative 3.3-ish percent EBITDA in the stub quarter grow to sort of 6% and beyond to make this acquisition look good. So can you give us those pieces and then the confidence in each of those pieces that you're going to deliver on towards the $300 million?

Michael E. Roach

Sure. First, maybe I'll take the comment on revenue synergies. Just to remind the Street that we do not build revenue synergies into our accretion rate. From experience, we found that the revenue synergies normally come in the end of the year or in the following year after an acquisition. In the first year, what we're focusing on beyond, of course, gaining additional share of existing clients and getting our story out to new clients, we're also very focused on the quality, improving the quality of the existing revenue, which in this case, as in other cases, we found number of contracts that are underperforming below our standards or not generating margin, and our plan is to actually run those off or renegotiate them over the next 12 months. I think on the additional synergies, they're really coming from our ability now to overlay our management ratios onto the 7 strategic business units, the 5, of course, that are focused on Asia-Pac. We've been able to reconfigure for the most part their financial performance in our -- into our operating model. When we overlay our management ratios, we find that there's additional opportunities in the SG&A line, which we need to capture not only to increase margins but, frankly, to increase the competitiveness of our position in Europe to generate that profitable growth that we talked about so -- and the cost side is up as well. Of course, this type of transformation and restructuring in Europe costs more. It takes longer than what we're normally used to here in North America. So the costs are actually reflecting that fact.

Tom Liston - Cantor Fitzgerald Canada Corporation, Research Division

Okay. And just real quick on the U.S., obviously, the government spending is going well, given some applications you're doing there, and -- but the fiscal cliff is also, in some cases, affecting corporate plans. What are you seeing on the corporate side in the U.S., especially with the uncertainty around it?

Michael E. Roach

Well, again, we're not really seeing much, and again, I know we sound very contrary in there, but again, I'm just operating on the facts on the ground in terms of what we're seeing in the operations. On the government side, as you saw, our bookings were extremely strong. We're still signing multi-year deals, which, of course, transcend the next year. We're still signing 3-, 5-, 7-year deals. On the government side, we continue to focus heavily on those areas where it's essential to operate the government and on new programs going forward, and we can get into those perhaps during the call. But we haven't seen any pull back of commercial customers yet in response to the political or economic uncertainty in the U.S.

Operator

Our next question is from Scott Penner of TD Securities.

Scott Penner - TD Securities Equity Research

Mike, I think, you actually -- you started to allude to this in the last question. But just when do you feel like the runoff of lower-margin contracts is complete and the book of business is really on the CGI model? Is that a year or 2?

Michael E. Roach

I would think that we'll -- we've identified, what I would say, at the corporate level now, Scott, the ones that we can see. I think there'll be another round as the business units now start to execute to their budgets, but it's underway, and it will probably continue very much into the year. There could be a couple that were multi-year contracts that will spill into next year, but my sense is we'll get most of it addressed within the first 12 months here.

Scott Penner - TD Securities Equity Research

And then just on the Canadian unit overall, looks like a slight decline on a normalized basis, but the book-to-bill actually looks positive for the year. So just curious as to your commentary overall of the dynamics in Canada and whether we should expect next year to be -- back to a growth year.

Michael E. Roach

I think if you look at 2012, Tom, we really focused on actually extending a lot of our foundation contracts that we had in Canada National Bank, Laurentian Bank. There were a number of deals that are really are anchor accounts. We've extended those deals now out for 5 years or so. So we've solidified our recurring revenue base. We've targeted new logos. We're seeing good growth opportunities in the West. Québec has been strong so -- and we've been able to hold our margins. In fact, we did a little more restructuring in Canada in the fourth quarter both there and the GIS unit to even position ourselves better for fiscal 2013. So we're expecting a solid year in Canada and in the GIS unit in 2013.

Scott Penner - TD Securities Equity Research

And just quickly, David, just to make sure I've got this clear on the tax rate. You said 24% to 27% on a normalized basis, but what should it be for the next couple of quarters?

David R. Anderson

Well, your guess is almost as good as mine, and I don't mean to be sly on this one. It depends on how quickly we're able to effect some of the reductions of the staff, get the work council plans in place here. Again, those are all done country-by-country. So once those roll through, then we can get the notifications out, then we can actually book the provisions. And depending on which quarter those provisions get booked, it will then have an impact on the tax rate. So I think the best I can give to you right now is an average rate over the full year. And then as we -- as you work through your assumption as to how much integration we're going to have in the first quarter versus the second, it's just really going to shift those dollars from one bucket to the other.

Scott Penner - TD Securities Equity Research

So is that 24% to 27%, is that the average rate for the year?

David R. Anderson

Before the impact of the integration, that's correct.

Operator

Our next question is from Richard Tse of Cormark Securities.

Richard Tse - Cormark Securities Inc., Research Division

In regards to provisions you guys took related to some of these contracts you inherited, it sounds like you guys are quite comfortable in that provision number. Can you give us a sense of the process you went through to invent this just so we get some comfort that all that's kind of already been provided for here?

David R. Anderson

Yes, well, it was a fairly, very detailed process we went through. Very simply, like every older accounts receivable account, all of the large WIP accounts, we dissected all of those accounts. We went through to investigate, understand why the WIP was there, why the aged receivables were there. We also took a look at the revenue recognition, and again, you have to remember that -- like we had a couple of things that were combined here. One was we had to take the Logica unit, migrate them, harmonize them on our accounting policies, and our accounting policies also were being harmonized onto IFRS during the period of time. So there was a lot of time that we went through to really make sure that we had identified what could be problematic accounts. We brought in an outside accounting firm to help us go through the process to make sure that we had good objective assessments that were being done, and then all of that was then reviewed again with our auditors when it was all said and done. So I think we have pretty much turned over every stone that we could. That's not to say that we're not going to find a few smaller items as we proceed here, but again, just to remind everybody that when we issued the BAR report, we still have a year up until August 20 of next year if there are any changes in the facts that were existing as at the closing date. We still can make changes to the goodwill or to some of those provision numbers.

Michael E. Roach

And just to add to that, Richard, so these projects are now under our EAS system. They're all coded red, yellow and green. Of course, the ones we took the provisions on are red. I review them personally with the SBU leaders and the business unit leaders involved every month. And as we've done in CGI over the years, we're already starting to problem solve those and address them and try and bring them back up to our standards.

Richard Tse - Cormark Securities Inc., Research Division

And then, I guess, another question here related to the BAR report. As you kind of go through that filing, I noticed on the purchase price allocation that there was effectively, and correct me if I'm wrong, no write-up in terms of goodwill here, that you sort of took it on at book. Does that mean that you kind of pretty much bought this business at net asset value here?

David R. Anderson

I'm not quite sure what you mean by net asset value. When we...

Richard Tse - Cormark Securities Inc., Research Division

You obviously had the fair market value in your balance sheet when you buy this thing, but I didn't kind of notice there was a big write-up in terms of goodwill here.

David R. Anderson

No, but in fact, what ended up happening was that we zero-out their goodwill. We go through all of the assets. We go through the client relationships. We go through trademark -- trade names. We go through all of the IP that they have. It all gets fair valued, all the receivables, the work in process. Everything is all translated again. We even go through the liabilities, like pension fund liabilities, et cetera. And at the end of the day, it's the goodwill that gets kind of plugged to the difference of what is between the total of all of those other assets and the purchase price. It's more coincidental it came out to a number that was closer to what you had seen before.

Richard Tse - Cormark Securities Inc., Research Division

Right, okay. That was my question. And finally, for Mike, you guys obviously had a template for acquisitions that you guys executed on in the past. Obviously, with Europe being a bit different here like what are the differences to applying that template? And I guess, related to that, have there been any sort of surprises here post transaction that would have you sort of changing that approach?

Michael E. Roach

No, I think the template worked. We tend to strengthen it and reinforce it after every acquisition that we do. Again, I think one of the big deviations amongst many relative to operating model, they were very focused in sending their people on top line revenue growth, without, in my view, sufficient consideration for the need to focus on profitability at the same rate. Hence, I think you see some of the areas that we're addressing here. We expected that, and we priced it into our deal, but we're correcting that through implementing our model. That's why I referred in the note that this is more than a restructuring. It's a transformation on how to do business the CGI way in that market, Europe and Asia-Pac.

Operator

Our next question is from Thanos Moschopoulos of BMO Capital Markets.

Thanos Moschopoulos - BMO Capital Markets Canada

Mike, when you first announced the Logica acquisition, I believe your commentary was that it would be immediately accretive by 25% to 30%, and the language now seems to be over the next year. And so has there been a shift in time frame? Or am I reading too much into that language?

Michael E. Roach

I think you're reading a little too much into it. What I thought would be more apples-to-apples for the Street to, following as you build your forecast for the company on a fiscal year, so I'd just line that statement up with the fiscal year but the accretion rate still stands 25% to 30%.

Thanos Moschopoulos - BMO Capital Markets Canada

Okay, so no change relative to your initial expectations then?

Michael E. Roach

No.

Thanos Moschopoulos - BMO Capital Markets Canada

Okay. And can you provide some color in terms of how the Logica pipeline is shaping up as you'd talked to customers and, I guess, conveyed to them some of your new capabilities and CGI's areas of strength and focus? Or are you much more focused at this point in terms of restructuring the current business as it stands?

Michael E. Roach

That's a good question, and again, it gives me a chance to reinforce that while we're doing the restructuring, we're obviously really firing up the marketing business development side of our business. We've began to train and rolled out our visibility system, where we tracking by sales person and business development person, the number of sales calls they make per week. We've also targeted the top 10 existing clients by business unit and the top 5 targeted customers, which -- for VIP meetings. So that's over 500-and-some meetings where we actually go out and sit with the client, walk through our exiting capability, our new capability, how we can help them address their goals. So those are underway. The reaction from clients has been very positive. I think there's a number of different categories. There's clients where there are operational issues. What they wanted to hear from us is that we're going to work through those with them, and we are, and hence the provisions that you've seen. That's important to us because it protects our reputation in the marketplace as a company that keeps its promises. It also allows us to be around for the next project. So we're not burning any bridges there. The customers seem to be very positive to the approach that we're taking. We also and continue to bid, of course, on new opportunities. So just the other day, a large international financial institution consolidated their global vendors down from 10 to 5, and we made the cut as 1 of the 5. We've also been reinstated on a number of customers where Logica was not in a position to bid. They reinstated the operation now that it's CGI. And customers have been very helpful. Had a very large customer actually sit down and preview his 2013 plans because he wants us to hit the ground running in terms of being able to help him meet his goals. So I would say the response has been very, very positive. The Logica people are very well thought of at the working level with the customer. They're very talented, very committed people, and we're getting some very positive feedback from the customers on that side. We've also started our customer satisfaction appraisal program. We've done over 60 of these already in the first 100 days, where we sit down with the customer face to face. We ask them to rate us on 10 items, including would they recommend or use CGI again. And of course, we're getting some very good feedback on areas where we could do better, but we're also getting a pat in the back on areas where we're doing things right. So this is all part of our CGI model that's being implemented as rapidly as we can. I think we've made a significant amount of progress in 100 days.

Thanos Moschopoulos - BMO Capital Markets Canada

Okay. And just a quick one for David. How should we think about cash taxes? Would that be consistent with the 24% to 27% rate or would that be lower?

David R. Anderson

No, that should be relatively consistent.

Operator

Our next question is from Stephanie Price of CIBC.

Stephanie Price - CIBC World Markets Inc., Research Division

Mike, you mentioned that healthcare is obviously a big area of growth in the U.S. Can you talk a bit more about the opportunities there with the Affordable Care Act coming on in 2014?

Michael E. Roach

Well, I think, generally, what I was wanting to reinforce there, Stephanie, was that, as you know, we pulled health care out as a separate vertical last year because we could really see the building momentum driven by demographics and also legislation, especially in the U.S. market, to invest more money to try and bring health costs under control. So we've really staffed up for that. We got some of the best people in the industry in that area. And the healthcare reform act will require states to continue to set up these health exchanges. I think the clock has restarted on those after the election. We're very actively bidding those. We also have our RAC contracts that are very much part of that, and so we see opportunities both at the federal level and also at the state level here to really continue to gain share in what is a growing market.

Stephanie Price - CIBC World Markets Inc., Research Division

Okay. And on Logica, in terms of the planned contract runoff, can you give us a bit more of an idea of sort of the percentage that we're talking about here, and how we should kind of think about revenue, going forward, while these contracts are run off?

Michael E. Roach

Well, it's a little difficult at this point because, as I say, we know when we identify these low-margin businesses, we do attempt to sit down and renegotiate the contract. So we haven't worked through all of them to see what the outcome will be, but we've already began to run off low-margin businesses or in most cases, we started with no-margin business or businesses with losses, and those impacts will start to be seen throughout the fiscal year. We should have a better update of that at the next quarter, as we see how those one-to-one discussions go on with the clients in terms of whether we're able to reconfigure the contract, make it longer or change where the work is being done in order to improve the profitability of those clients. It's a little early yet, other than to say that we're laser-focused on identifying them and addressing them.

Stephanie Price - CIBC World Markets Inc., Research Division

Okay, great. And just one for David. In terms of the DSOs at Logica, can you talk a bit about how long you think it's going to take to get to sort of that 45 days and what sort of DSOs we should expect in the short term?

David R. Anderson

I would certainly like to get there a lot more quickly than what the reality will be. I would expect it's going to be about 2 years before we can actually get down to about that 45-day amount. We have to work through new contracts or as we go through contract extensions or expansions, then to be able to bring some of the various techniques and different ideas to the table. But I am -- I'm feeling good about the fact that in some of the contract reviews that I've had even earlier this week, where in some of the conversations the teams have had with the clients that we're starting to see that become much more a focus point. They're having some good conversations with the clients, and the clients are actually amenable to making the modifications to the cash plan payments, so that we can move align or become more aligned with that target. So there's going to be a few bumps along that road. But right now we've actually goaled everybody to try to get to the 45-day target in the next year. We know we're not going to get there, but if you don't set the target high, you'll never get there.

Operator

Our next question is from Steven Li of Raymond James.

Steven Li - Raymond James Ltd., Research Division

Just 2 quick questions for me. The first one is on the EBIT margin in Canada. So there were a couple of factors that hurt the margin this quarter. Have they started to improve for December? Or should we expect similar to September?

Michael E. Roach

On the EBIT in Canada?

Steven Li - Raymond James Ltd., Research Division

Yes.

Michael E. Roach

As I say, we did some restructuring in Canada in the quarter 4, and that would be behind us. So we would expect to see the EBITs improving from that level.

Steven Li - Raymond James Ltd., Research Division

Can you quantify the restructuring, like how much was it?

David R. Anderson

About $13 million or $12 million?

Michael E. Roach

Yes, about $13 million for the -- across all of the units. Across all the units, yes.

Steven Li - Raymond James Ltd., Research Division

Okay, sounds good. And then my next question is on the accretion. Is it going to be 25% to 30% accretive to what my core CGI 2013 numbers would be? So that number already assumes some growth for core CGI? Or is this -- or are we just talking about 25% to 30% of the just reported 2012 numbers of $1.50?

Michael E. Roach

That's a good question, Steven, and I think it could be either or in the sense that one way of calculating the accretion is to take our actual EPS for 2012 and build an accretion rate on that. In our modeling, which I think many of you have done the same, we made an assumption at the time of where we would finish fiscal '12, and we made an assumption of where fiscal 2013 would be in the CGI legacy business, and then overlaid the impact of Logica. So I gave a range of 25% to 30%, which gives some flexibility, depending on which calculation you're using here. We've used in our model an assumption where we had finished 2012 and what the core business would look like in 2013 if CGI stand alone.

Steven Li - Raymond James Ltd., Research Division

And then at 25% to 30% of that?

Michael E. Roach

EPS accretion after the accounting for the acquisition and integration cost.

Operator

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

Paul Treiber - RBC Capital Markets, LLC, Research Division

You're 2 months into Q1. Could you comment on the linearity of the Logica business in Europe? Are you seeing any pickup from the seasonal softness this quarter and any pickup in utilization?

Michael E. Roach

Well, I don't normally comment. I've got 1 month's results, really, which is 4 weeks, but I can -- I did use it, Paul, to your point to validate our feeling about the 6-week stub period, and our sense would be that the October numbers brings the Logica run rate back to the kind of level that we were expecting when we looked at their operations over the trailing 12 months.

Paul Treiber - RBC Capital Markets, LLC, Research Division

Okay. Now that you have controlled Logica for the last 100 days, you have firsthand visibility of the environment in Europe. From what you're seeing in Europe, how do you see the CGI model adapting to that situation? And more specifically, is the environment in Europe structurally softer and it may be tougher to imply the CGI model?

Michael E. Roach

Well, we don't think so. I think, again, frankly, we've spoken to clients. We've spoken to employees. We've spoken to leadership over there, and again, as I started off, everybody wants to win. Everybody wants to be a success. They want to work for a company that's financially strong. The clients want to do business with a company that's financially strong. So I think the model itself will work there. I think we will seize more and more of that now that we've actually segmented the business into 7 clear P&Ls and then P&Ls within that. So I firmly believe in talking to the people, in talking to the clients. Essentially, we're doing the same business in Europe that we're doing in North America. I think how we do the business, that's why I use the word transform, starting from the acquisition of revenue, how we look at deals, price deals, the hurdle rates, we're looking in terms of deals and returns on investments. The additional fundamental control we would have in the business in terms of expense management and operational excellence in terms of delivering projects on time and on budget. And I think when those things happen, good things also happen to the business both top line and bottom line and with customer and member satisfaction. That's the essence of the model. And as I say, we have trained 1,000 managers in a 2.5-day session. Both Dave, Serge and I and the other senior people have spent these 2.5 days with the 1,000 members walking through exactly how the model works. We've now got a budget in place for fiscal 2013 that has built those management ratios in that we operate in, put the sales visibility system in. We're getting customer satisfaction. So we got a pulse of customers. So I think when it's all said and done that as we get that model fully executed and fully implemented, we're going to see a very different operating performance in Europe.

Paul Treiber - RBC Capital Markets, LLC, Research Division

And then lastly, one more question. On Logica and the transformation, it's your largest acquisition yet. It more than doubles your employee base. And so while you're working to transform these employees, it does seem like it's a big cultural change for them. How quickly -- at least from your initial feedback, how quickly does it seem like they're able to adapt to that model? And then related to that, how do you ensure that you don't lose some of Logica's best employees during the transition?

Michael E. Roach

Well, I think, again, in terms of not losing the best employees, I think the biggest thing that we've done is actually spend a lot of time directly with these people. We've also, as you know, retained a number of senior Logica people in the key leadership positions to help with the transition here in terms of the magnitude of the change and ensuring we had the institutional knowledge. But again, as I said in my opening remarks that everybody wants to win. When you fundamentally talk to the people, they want to work for a company that's strong, and they see the operating results that we've posted in this company for the last 35 years. And they see the customer satisfaction, the employee satisfaction level, and the employees have been very supportive. They've been helpful. The worker council themselves are trying to be helpful in terms of making suggestions on how to prove the operations. So I think everybody's motivated here towards the right direction. I think, again, there is a bit of leap of faith required here that will -- that the model will generate those kind of benefits for the people and the customers and the shareholders in Europe. But again, as time passes on and we start to post results and we start to address these issues and they see how we're stepping up, making investments in new areas, bringing new tools to the table, addressing roadblocks, removing duplication and multiplication of backroom systems, automating manual processes, all these things are a very positive sign that there's real value-added change underway here with the merger of CGI and Logica.

David R. Anderson

If I could maybe just add to that, when Mike had described that the senior management team had spent time training all the senior managers around the CGI way, that was actually done 6 times at 6 different sessions. So we were dealing with about 200 people each. We had the opportunity to have a lot of personal exchanges with a lot of those individual leaders. And the messages that we had heard back, because none of them had been with Logica and had been acquired by Logica from other acquisitions, so whether it will be coming from WM-data, coming from CMG, coming from Unilog, after we had rolled through the details of the model, I know a lot of them had even come up to myself and just said it was -- it felt like coming back home. It came back. They saw a lot of the principles, a lot of the way that we were looking to try to change the organization was in ways that they were already trained in, and felt very comfortable with, going forward, themselves. So we've walked away with the impression that with a lot of that leadership team, with a lot of the older -- or the employees with some tenure that we didn't really have a lot to change there. It was now we're just giving them tools that would allow them to now be able to embrace and to go forward and leverage the business for the future.

Michael E. Roach

I think just to add that, to David's point, there were multiple companies acquired by Logica. I think for many of them, this is the first time though that they've been fully integrated, that they were not integrated in the backroom and in some of their operating practices across the company. And with our model, of course, we integrate rapidly, and we integrate thoroughly across all the operations into a single operating unit called CGI. And that alone is bringing value, and is one of the factors that we're seeing the increased synergies of actually combining some of those backrooms that were left there from previous legacy Logica acquisitions.

Operator

Our next question is from Julio Quinteros of Goldman Sachs.

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Can you guys reconcile, just wanted to make sure I understood the EPS accretion rate of 25% to 30% is still on track for fiscal '13. However, it sounded like you said that the cost synergy target was actually bumped up from $200 million to $300 million, but there was no change in the EPS accretion. I just want to make sure I understand the puts and takes there.

Michael E. Roach

Yes, that's the 3-year cost synergies. So you have to look at that as a 3-year and not a first-year number. So a good portion of that will come in the back end of the 3-year period. These are things like combining the back room of finance where we have multiple financial systems. It's going to take us time to combine those systems back into a single system, and that will trigger additional restructuring opportunities at that time.

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Understood. Okay, great. And then just looking at the capital allocation efforts in the past and thinking about when you guys would be back in the marketplace in terms of buyback efforts, what should we maybe thinking about there in terms of buyback efforts?

David R. Anderson

Well, again, I think, first, to reinforce that the Normal Course Issuer Bid is still in effect 'til February. Obviously, in the first quarter here, we've -- or the last quarter, we've been very busy on the integration, really focusing on that and paying down debt, but we still have that as an option, and we're still prepared to pull that trigger at the right time. I think for the first couple of quarters here, we'll probably focus on debt repayment and actually financing or expensing the integration cost.

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Okay. And then just one last just mechanical question. On the quarterly amortization level, can you break out the DNA, if you will, for the quarter so that we can see the amortization separate from the depreciation component for the quarter?

David R. Anderson

I think -- yes, I don't have the actual note number. But in the financial statements, we normally -- we do have a note that will identify how much of the amortization goes against the revenue, how much goes against the cost of services, et cetera. So maybe what we can do is just off-line, give that information to Lorne and he can get it back to you.

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Okay. And just lastly, on the balance sheet side, it sounded like you had said that the goodwill -- that there was a bump up in goodwill associated with the acquisition, but I thought I heard you say that you guys had kind of zeroed out their previous goodwill. I just want to make sure I understand what that comment referred to.

David R. Anderson

Well, it just means that when we do the evaluation, you don't take into account what they had acquired in way of goodwill. You basically take all of the tangible assets that you have or identifiable assets, and then you do the fair value equation against that, and then whatever the difference is now becomes the new goodwill. It could be the same. It could be more. It could be less than what they had on their books.

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

So the zeroing out comment was related to the old goodwill on the Logica balance sheet?

David R. Anderson

Yes, it was, yes.

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Got it, okay.

David R. Anderson

Yes, it does not carry forward.

Operator

Our next question is from Kris Thompson of National Bank Financial.

Kris Thompson - National Bank Financial, Inc., Research Division

Mike, I'd just like to circle back to your accretion comments. You said you expected 25% to 30% on top of where you expected CGI to end up for the year, plus from organic growth for next year. Where -- the $1.50 diluted EPS that you reported in the adjustment, is that kind of the baseline that we should be thinking about to add that accretion rate on top of?

Michael E. Roach

Yes, I think that's -- as I say, I think that's one measure that you can use, and you'll be able to have a apple-to-apple comparison. Again, what I was saying in our modeling though, what we did was we -- because we had to build a model, obviously, before the trigger on the acquisition, we made some assumptions of where we finished 2012. We put in some adjustment for 2013 of the CGI legacy business, and then we added on the accretion we expected from Logica.

Kris Thompson - National Bank Financial, Inc., Research Division

Okay. And just if I can get a better understanding on the restructuring puts and takes, so this quarter, maybe for David, you reported about $250 million of one-time cost of which $110 million were related to severance and integration. You've increased your expected cost to $400 million from $265 million. So I'm trying to figure out, is that $400 million total cost? Or is that just severance and integration? And then what -- maybe the better way to answer the question is how many millions of dollars is remaining after the $250 million this quarter in restructurings and one-time cost related to Logica?

David R. Anderson

Yes, there's about $300 million that's left, yes.

Kris Thompson - National Bank Financial, Inc., Research Division

Okay. So that $265 million is really more like $550 million?

David R. Anderson

Well, you've got to separate it out into 2 different components. One is the acquisition-related, and that is where we have to pay off the bankers that's -- there were make-whole payments around the Logica debt that had to get reimbursed, et cetera, when we went through all of the refinancing. There was some hedging that had to take -- be included. That's all part of the $255 million that we reported, but that's not part of the integration cost that we're talking about. So as you looked at the severances and the integration cost themselves, that $110 million that you talked about, that is part of the $400 million.

Kris Thompson - National Bank Financial, Inc., Research Division

So initially, when you reported $265 million of one-time cost to achieve $200 million in cost synergies over 3 years, did you have all the one-time financial cost?

David R. Anderson

No, we did not, no. No, no, because those are assumed to be charges that go directly to the P&L, and those get flushed out basically on day 1. As soon we close the transaction, those amounts are due.

Kris Thompson - National Bank Financial, Inc., Research Division

That's very helpful. And maybe do you have an idea -- I know it's tough overseas, but do you have an idea of the timing of the remaining $300 million?

Michael E. Roach

No, we're still working through that. The issue that we have on there is that we're actively identifying the people that will exit the business, but we have to go through the consultations country-by-country. And so we're not firm yet on the timing of those exits. That's why we said even on the money that was booked here for severances of about $98 million in the quarter, the timing, the value of that will be seen in the P&L throughout the year as the people exit the business.

Kris Thompson - National Bank Financial, Inc., Research Division

Just on the Logica run rate, I know it was a seasonally slow period when you closed that deal due to summer holidays. Can you give us an idea of what kind of annual run rate we should be expecting for Logica?

Michael E. Roach

I really can't. I think I'd be really getting into an area where I'm not comfortable in the sense that I only have a month, really, of what I would call valid revenue there, that being October. I think the 6-month -- the 6-week stub period, as I say, was -- as David quite said, was an anomaly. And of course, now, Kris, we're reorganized by 7 different SBUs. So we've configured and integrated our operations in Europe and Asia-Pac into Logica. So we have a different starting point than they had, but suffice to say that October, as another reference point, really helped us validate that the 6-week period was an anomaly.

Kris Thompson - National Bank Financial, Inc., Research Division

I understand that. And just last for me, you have a very large 7-year contract coming up for renewal at the end of December. Can you give us an idea of when we should expect to hear some news flow on that deal being renewed or not?

Michael E. Roach

Well, I guess you'll know when we get it over the line, and again, it's not our tradition to get into specific contracts, especially those under renewal.

Operator

Our next question is from Ralph Garcea of Northland Capital Partners.

Ralph Garcea - NCP Northland Capital Partners Inc., Research Division

Just one quick question. On the procurement side, can you leverage some of your hardware and software licensing agreements that you have with your bigger partners into Europe, into that Logica customer base and get any cost synergies or leverage through that? And then some of the expertise that you've developed in IP on the procurement side, can you use that in Europe to further the synergies?

Michael E. Roach

I'll just make a general comment, and then maybe Dave would want to get into it. When I said that about 75% of the synergies were people-related, the other 25% were real estate and other expense controlled items, that's exactly where that procurement opportunity resides, Ralph. So we've already compared our master agreements with vendors in North America with the equivalents in Europe, and we found opportunities where, if we move to the single lowest price, we will and have begun to realize some of those savings as we procure more goods. So that's an early one that Dave and his team have jumped on, and we see some real benefit there. We're also obviously looking at some of the services that we're buying from other providers that we could end up with better prices if we integrate the full scale of CGI into a more competitive position with those vendors for those services.

Operator

Our next question is from Maher Yaghi of Desjardins.

Maher Yaghi - Desjardins Securities Inc., Research Division

I just wanted to ask you first question on intangible amortization. At Logica, you had $10.6 million in the 6 weeks. Can you give us maybe what would be a good run rate to use going forward on a quarterly basis? And the second question is on the Logica revenue run rate. I know, Mike, you just said you're not comfortable with talking about what to expect for 2013, but we did see a significant revenue shrinkage in the first half based on your acquisition report. Can you talk a little bit about how the current revenue run rate compares to the minus 7% we saw in the first half of 2012?

Michael E. Roach

Well, again, just briefly again to reinforce, we weren't operating the company in the first 6 months of the year, and I can't really comment on the operating results for that period. We have not managed the company for a full year, so we're still gone to school on what kind of seasonal patterns one should expect there. And then the third comment I would make, as I say, we intend to focus on growing new profitable business there, but there will be an offset with running off revenue that has little or no margins. So I think the run rate, while it's interesting, is not necessary typical of what the balance of the year is going to be. And again, as we start to post quarterly results, you'll get a better sense of what that looks like. Dave, on the...

David R. Anderson

Yes, in regards to the intangible amortization, if we were to use a number about $20 million to $21 million, that would get you in the right ballpark. The only thing I would just caution you about is that as we continue to work through the next few months here, if there are some differences that we come across as part of the valuation of the fair value of those opening assets, we could see that number move up and down just a little bit, but it should be pretty close to the $21 million.

Maher Yaghi - Desjardins Securities Inc., Research Division

Okay. And just on the backlog of Logica, as it stands right now, if you were to look at it and compare it to CGI's base business in terms of backlog, what would be the big differences because it seems like they have a smaller backlog compared to what CGI has. And the bookings also, when you look at bookings in the quarter that you booked in the September quarter at Logica, can you talk a little bit about the profitability of those bookings compared to the current business that is running off?

Michael E. Roach

Well, again, CGI's backlog is -- backlog to revenue ratio is one of the best in the industry. So again, when you compare virtually anybody's, they're going to be lower. We have more long-term recurring contracts in comparison to Logica. They have a good significant of outsourcing primarily in the application maintenance side. These are shorter-duration contracts, where we will attempt to intervene here, going forward, to make those more long-term, recurring backlog-generating contracts. So they're quite different. I would remind you again when we acquired AMS, that they had less than 5% recurring revenue and the backlog was very, very short. And 6 years later, the backlog is very significant now in the U.S., and the recurring revenue is well north of 50%. So it does take some time to transform that, but we've done it before, and we're certainly focused on that going forward. And your second question?

Maher Yaghi - Desjardins Securities Inc., Research Division

It was on the margins, in terms of the new bookings that you're seeing going into the Logica business fold right now?

Michael E. Roach

Well, yes, a lot of those bookings would have also been in flight before we actually put all the CGI procedures in place. So I haven't analyzed those bookings for margin. Our expectation will be, over time, new bookings coming on will draw higher more accretive margins to our business than what has been done in the past.

Operator

Our last question is from Michael Urlocker of GMP Securities.

Michael Urlocker - GMP Securities L.P., Research Division

So I have 2 questions. One is, Michael, you seem to be highlighting the experience of the U.S. business being especially strong here. We're all aware a large part of that, especially the federal business comes from the Stanley acquisition. In my opinion, it was a little bit slow off the start, and it seems to have improved quite a bit. Are there any lessons there? And is there any commonality of the integration team that will be applying that knowledge or those people to the integration of Logica?

Michael E. Roach

I think it's a good question, Michael. And I think the only takeaway you should take from that is the point I made earlier that our experience would tell us on an acquisition that the top line integration benefits of a merger are normally seen 12 to 24 months out, and that's what you're seeing in Stanley. We saw the same thing in AMS, and I suspect the same will be true at Logica.

Michael Urlocker - GMP Securities L.P., Research Division

Okay. And how about the people involved in integrating? Is it the same? Is there some commonality of the people or no?

Michael E. Roach

What we've done is actually put in each of the major SBUs in Europe and Asia integration leaders that are very experienced in the CGI model. A number of them have run and assisted in integrations in the past, and they're dedicated to help the SBUs and business unit leaders through this integration. So we kind of pull that from our best practices and put it into this one. It seems to work well. It gives them a reference, a context point, and they also provide training on the model right in country, so that cuts down on the travel and the lost -- unproductive time.

Michael Urlocker - GMP Securities L.P., Research Division

And if I can interpret, a lot of investors, I think, at times are a little bit nervous about European labor laws. It's a little bit of a scary voodoo thing that we're not so familiar with. You're the CEO here, how do you put that into a context of the various operational issues you're dealing with at Logica?

Michael E. Roach

Well, again, I think, if I look at North America state-by-state in the U.S. and I look at Canada, we have different regulations and different working regulations. So I think, Europe, if you look at it, is a series of countries. We have competitors operating in each of those countries following those rules. I think the big differentiator here is really the working relationship you have with your people, and I think we have got off on the right foot. We've been very open and transparent with our people over there. They've, in turn, been very open and transparent with us. And as I mentioned in our comments, in the final analysis, they want to win, we want to win. They want to be part of a global champion, and they've seen that our operating model does deliver superior results over time. I think that we can work within the regulatory frameworks, and achieve the goals that we've set out for our customers, our employees and our investors.

Lorne Gorber

Thank you, Michael, and thank you, everyone, for joining us today. We'll see you on February 1, tentatively, for Q1 results and our AGM.

Michael E. Roach

Thank you.

Operator

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

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