2006 Annual Report

Some of our clients Bell Canada Enterprises Manulife Cott National Bank of Canada Innovapost Pfizer	Targeted verticals A Financial services B Government and healthcare C Telecommunications and utilities D Manufacturing E Retail and distribution
10 provinces and territories 60+ municipalities

2006 Annual Report CGI Group Inc.

- We are…

seeing eye to eye

Albany, NY

Andover, MA

Annapolis, MD

Atlanta, GA

Austin, TX

Baltimore, MD

Birmingham, AL

Boston, MA

Buffalo, NY

Canton, MA

Charlotte, NC

Chicago, IL

Cleveland, OH

Columbia, SC

Columbus, OH

Dallas, TX

Denver, CO

Fairfax, VA

Fort Worth, TX

Frankfort, KY

Hartford, CN

Honolulu, HI

Houston, TX

Los Angeles, CA

Madison, WI

New Orleans, LA

New York, NY

Oakland, CA

Oklahoma City, OK

Philadelphia, PA

Phoenix, AZ

Princeton, NJ

Rancho Cordova, CA

Redwood City, CA

Richmond, VA

Roseland, NJ

Russell County, VA

Sacramento, CA

San Diego, CA

Sarasota, FL

Seattle, WA

St. Louis, MO

Tampa, FL

Washington, DC

2006 Annual Report CGI Group Inc.

United States — Poised for unprecedented growth

With a goal to double the size of its U.S. operations within the next 3-5 years, CGI marked 2006 as a year of strengthening and positioning within the U.S. market. CGI’s solid performance was evidenced by almost 10% growth following a substantial increase in U.S. business and a high contract renewal rate. With the acquisition of AMS two years ago, this growth demonstrates that the market has responded well to the combination of these companies’ capabilities. During the year, CGI consistently received positive client feedback, averaging a 9 out of 10 satisfaction ranking from approximately 700 client interviews through CGI’s ISO 9001-certified client management process. With 50+ offices across the country, including CGI Federal (a business unit dedicated to serving the needs of U.S. federal government clients), CGI has a local presence within every major U.S. region, which is complemented by its homeshore, nearshore and offshore options. CGI’s offshore India centers of expertise service many U.S. clients and its growth is prompting the move to a new facility that houses up to 5,000 professionals. CGI’s responsiveness and delivery flexibility will continue to fuel U.S. growth, particularly within the outsourcing market. Moving into 2007 — and transitioning from the CGI-AMS to CGI brand — CGI will continue this forward momentum while maintaining a steadfast focus on achieving client results.

CHICAGO STOCK EXCHANGE

“The Chicago Stock Exchange is in the midst of a major business transformation. Soon, we will no longer operate a physical trading Ӿoor, but instead will offer a fully automated trading system. Our partnership with CGI has proved invaluable during this transition. With team members in Chicago, Halifax and Bangalore, CGI has leveraged its global delivery model to consistently deliver high quality, cost effective solutions. In CGI, we have a unique partner that values us, just as we value our customers.”

JOHN KERIN

Executive Vice-President, Chief Operating Officer and Chief Technology Officer

Chicago Stock Exchange, Inc.

NEW YORK STATE HOUSING TRUST FUND

“The New York State Housing Trust Fund Corporation (HTFC) provides contract administration services for properties assigned to HTFC by the U.S. Department of Housing and Urban Development (HUD). To excel in this task, we partnered with CGI because of its industry expertise, seasoned housing professionals and robust Contract Administration Tracking System (CATS), which allows us to efficiently manage, view and track the operations and performance of each property we oversee. The CGI team has consistently responded to our specific needs with flexibility, dedication, transparency and effective communication.”

ALAN SMITH

Assistant Commissioner

Housing Trust Fund Corporation

U.S. GENERAL SERVICES ADMINISTRATION

“The U.S. General Services Administration (GSA) first implemented CGI’s Momentum financial management software in 1998. Today, the application, called Pegasys, integrates more than 4,000 geographically dispersed users in 11 regions and processes more than 40 million transactions annually. This year, GSA upgraded to the latest web-based version of Pegasys. The success of this effort was the direct result of the great teamwork between GSA and CGI.”

KATHLEEN M. TURCO

Chief Financial Officer

U.S. General Services Administration

Some of our clients Aetna Microsoft Blue Cross Blue Shield PNC Bank John Hancock Russell Investment	Targeted verticals A Financial services B Government and healthcare C Telecommunications and utilities D Manufacturing E Retail and distribution
190+ state and local organizations 100+ U.S. federal agencies

2006 Annual Report CGI Group Inc.

- We are…

meeting face to face

EUROPE				ASIA PACIFIC

BELGIUM Brussels ENGLAND Basingstoke Bristol London Stevenage	FRANCE Paris GERMANY Dusseldorf HUNGARY Budapest ITALY Milan	NETHERLANDS The Hague POLAND Warsaw PORTUGAL Lisbon	SPAIN Madrid Malaga SWEDEN Stockholm SWITZERLAND Zug	AUSTRALIA Canberra Melbourne Sydney INDIA Bangalore Mumbai

2006 Annual Report CGI Group Inc.

Europe / Asia Pacific — Building a strong presence

With 14 offices across Northern, Central and Southern Europe, three in Australia and two in India, CGI’s presence in Europe and Asia Pacific demonstrates our commitment to not only serving clients throughout these regions but to developing the scale that meets our North American clients’ needs as they expand globally. With an average of 8.8 out of 10 satisfaction ranking from more than 150 client interviews through CGI’s ISO 9001-certified client management process, CGI is experiencing significant client growth in each of these regions as we work to double the size of our European presence within the next 3-5 years. 2006 marked the acquisition of Paris-based Plaut Consulting, a recognized leader in SAP solutions, and the development of a nearshore delivery center in Spain, which complements CGI’s global delivery capabilities in other regions of the world. As a preferred provider to the telecommunications industry, CGI is focused on expanding its strong telecom presence and growing its solid base in financial services and government. Looking to 2007, CGI is committed to providing clients with ongoing service excellence while offering them new transformation opportunities through the full breadth of CGI’s state-of-the-art technologies, solutions and practices.

HBOS (HALIFAX BANK OF SCOTLAND)

“As the UK’s largest mortgage and savings provider, HBOS plc serves up to 22 million customers through a variety of contact channels. Our partnership with CGI over the past 10 years has helped us to be more consistent and cost efficient in our customer service approach. With CGI, we have a flexible partner that adapts to our changing business environment and shares our commitment to delivering services with the highest levels of quality, availability and reliability.”

CATHERINE RUTTER

Head of People and Change,

Retail Collections and Recoveries

HBOS plc

USINE D’ELECTRICITE DE METZ (UEM)

France’s first independent electric operator, UEM serves more than 150,000 customers. In 2002, UEM and CGI began working as partners to develop the efluid customer relationship management and billing system exclusively for the utilities market. This one-of-a-kind application allows operators to efficiently manage their range of activities while integrating regulatory rules associated with the opening of energy markets. The efluid solution has since been marketed to numerous clients in France. “We chose CGI for its industry and technological expertise and its capacity to work with us in our initiative. The most recent efluid contracts signed and our current commercial opportunities confirm the success of our partnership.”

GERARD VINCENT

Chief Executive Officer UEM

Some of our clients

Allianz O₂ Germany

Australian and New Zealand Bank (ANZ) Polkomtel

BNP Paribas Telstra

Cofinoga Vodafone

France Telecom

Targeted verticals

A Financial services

B Government and healthcare

C Telecommunications and utilities

D Manufacturing

E Retail and distribution

2006 Annual Report CGI Group Inc.

SERGE GODIN

Founder and Executive Chairman of the Board

MICHAEL E. ROACH

President and Chief Executive Officer

- We are…

talking one on one

Serge Godin, Founder and Executive Chairman, and Michael E. Roach, President and CEO, candidly discuss the successes and challenges of 2006 as well as CGI’s future, its business model and its profitable growth strategy.

2006 was a year of preparation for the Company to enter into its next stage of evolution. Thirty years after first dreaming of “creating an environment in which members enjoy working together and, as owners, contribute to building a company they can be proud of,” CGI has grown from Founders Serge Godin and Andre Imbeau in a basement to a global enterprise. That journey took the growing company across Canada, then to the United States, Europe, Australia and India. Today, Serge and Andre’s dream lives on in all 25,000 CGI members.

SERGE GODIN, FOUNDER AND EXECUTIVE CHAIRMAN We’re very proud of our people’s accomplishments over the past 30 years, and what really gets us excited is what’s in store for the next 30 years. We are always building toward a better future, while continuing to ensure the highest quality. It’s a journey for everyone involved. And when you’re growing, it’s stimulating!

Throughout the history of CGI, within every decade, there have been periods where we needed to catch our breath following

2006 Annual Report CGI Group Inc.

times of rapid growth. Fiscal 2006 was the third such period of repositioning CGI for the next wave of profitable growth.

MICHAEL E. ROACH, PRESIDENT AND CEO When you look at our performance over time, you quickly realize that during the past decade, our Company has profitably grown more than 30 times in size, from revenue of about $100 million in fiscal 1996 to $3.5 billion in 2006.

In 2006, while strengthening our strategy for the next decade of growth, we faced two headwinds which required swift action. One was the continued strengthening of the Canadian dollar, which impacted our revenue by more than $100 million. The other was the reduction in BCE spending, which was more than $115 million below fiscal 2005 levels. In response, we immediately announced a competitive position strengthening program in the second quarter, intended on improving our utilization rates associated with the BCE account, accelerating the rollout of our global delivery model and gradually returning our margins to their historical industry-leading averages. As part of this plan, we also introduced our full offering strategy which is focused on generating profitable growth. In each of these areas, we’ve achieved significant improvements.

Leadership

S.G. Consistent, strong leadership is a major factor to success in the services business. This year’s organizational adjustments were about just that. In addition, over the 30-year history of the Company, as CGI grew, I found that I had less time to develop client relationships. I believe my time is best spent with clients, helping them to transform their business. Today, three-quarters of my time is once again spent doing that—working directly with clients and with our internal teams.

Mike and I have been working together since 1998, so rebalancing our responsibilities was simple to plan and the new structure is working extremely well.

M.E.R. As with any company, the consistency of leadership is vital to CGI’s strength and stability. Andre’s move into the Executive Vice-Chairman position is in line with this consistency. He assumed our Corporate Secretary responsibilities as well as the relationships with some very large clients. David Anderson was then appointed Executive Vice-President and CFO. David’s experience and respect inside CGI made him a natural addition to our leadership. Together, as the Executive Committee, Serge, Andre, David and I are working closely together to continue to build CGI.

S.G. When you engage in a business transaction, people want to know that the person they’re shaking hands with is going to be there throughout the life of the contract. I’ve been here since day one, and I can tell you it’s been very consistent—we’ve had one of the lowest turnover rates in the industry and our members are extremely loyal to clients, to CGI and to our dream. That is a huge differentiator. Decision makers look for substance and for high-quality delivery from a partner they trust and that can help them win and grow. In my experience, it is this combination of substance and trust which leads to success in the services business.

Financials

M.E.R. Our financial position remains strong. In fiscal 2006, we generated $3.5 billion in revenue and more than $300 million in cash. Our earnings per share from continuing operations before $67 million in restructuring costs were 53 cents.

In addition, our operating margins were continuing to expand throughout fiscal 2006, reaching 10.8% in the last quarter of 2006. Even after higher year-over-year interest expense, our net earnings margin before restructuring costs for this period approached historical highs and we continue to pursue other initiatives to further improve our bottom line.

It is this consistent financial strength that facilitated the purchase of 100 million shares in fiscal 2006, as the result of our pursuing the removal of the overhang caused by the BCE ownership position. Today, Bell no longer has an ownership position in CGI but they remain an important client and we are very pleased that our contract with them was extended out to 2016. In addition, as part of our normal course issuer bid, we bought 8.4 million shares during fiscal 2006. In total, we bought and cancelled nearly 25% of our outstanding shares.

S.G. On balance, we’ve retained the Ӿexibility to continue pursuing our buy and build strategy. Buying back our own stock is just one of the tools in our financial toolbox. For example, our long-term debt was reduced by $174 million from its peak during the course

2006 Annual Report CGI Group Inc.

of the year. Our main objective is financial Ӿexibility, so as not to miss any strategic outsourcing or acquisition opportunity. More importantly, we’re generating solid cash Ӿow, which will continue to serve as the preferred currency for growth.

Globalization and CGI’s competitive edge

M.E.R. I firmly believe we have many unique and competitive advantages that matter to clients. First, we stay very close to our clients because, as Serge said, relationships are key. That’s why our model is based on client proximity. Two, we’ve built a reputation for delivering the highest quality services—and quality equals more work. Three, our people are a huge differentiator. The loyalty of our people ensures continuity of knowledge and this Company has been built on people sharing the wealth and value that’s been created. Well over 85% of our people are shareholders and we believe that this type of commitment differentiates CGI in the services business.

S.G. Globalization brings tremendous growth opportunities. Our opportunity is to bring efficiencies and increased services to our clients, helping them win and grow in this new environment, while continuing to profitably grow this fantastic company. How do we do that? By using technology and business process services to help our clients transform their companies into world-class leaders and, at the same time, by realizing significant synergies. At CGI, we have developed a very broad pool of talented people, including subject matter experts (SME) specialized in business transformation.

M.E.R. I agree that globalization presents CGI with new markets and services our clients can leverage. What true global contenders need to compete is a strong local presence combined with a blended shore delivery offering. Globalization isn’t only about labor arbitrage. It is very important to remember that more value is being lost due to poor project management than will ever be gained by labor arbitrage. Globalization is about managing the best technology and brightest talent from around the world and delivering it to anywhere in the client’s world. That’s true global delivery.

In addition to expanding our strong local presence in more than 100 communities throughout 16 countries, we continued to build out our global delivery centers. For example, we populated new delivery centers in Prince Edward Island, Canada, and southwest Virginia, U.S., to complement the addition of new members in India, where we plan to move into a new facility during fiscal 2007 that will have capacity for up to 5,000 members.

S.G. Globalization drives business and government to transform themselves and to reduce cost while investing in IT to increase productivity and competitiveness. More and more, they will opt for a shared services concept to realize important synergies. The form of commercial shared services with the most value creation is outsourcing or managed services. For CGI, outsourcing is simply a form of shared services for the benefit of our clients. Regardless of market Ӿuctuations, the fundamental demand for IT services remains strong, and we are well positioned to continue to profitably grow our business, community by community. You just can’t run a government or a company without investing heavily in information technology. This bodes well for our members, our clients and our shareholders.

M.E.R. Our number one focus is on stimulating profitable revenue growth and that’s why, in 2006, we began implementing our full offering strategy.

Across the Company, we’ve identified new and existing clients where the strategy is to ensure that they’re aware of our full offering. Our goal is to see them take advantage of our business transformation capabilities and benefit from our rich portfolio of state-of-the-art technologies, practices and solutions.

We are managing this program with the same discipline and dedication we’ve demonstrated in managing our other successful initiatives. Over time, we expect tangible results, which drive profitable growth. We’re already seeing early successes, as witnessed by the number of recent renewals, many of which were signed ahead of schedule.

2006 Annual Report CGI Group Inc.

Growth: profitably doubling the size of CGI over 3-5 years

S.G. Demand and spending continues to increase for all types of IT and BPS services across all of our geographic markets. In this context, our leaders from all around the world have together embraced the goal of profitably doubling our size within 3 to 5 years.

Systems integration and consulting work is expected to continue growing at mid-to-high single digit rates over the next few years. And according to a 2006 study we commissioned the research firm IDC to conduct, 13% of all Fortune 2000 companies plan to outsource their IT functions within 3 years. That is a huge opportunity for CGI when we look at our potential market as being defined in trillions of dollars.

Since critical mass is a key success factor in qualifying for large systems integration or outsourcing contracts, we actively review potential acquisition targets in all of our selected metro markets in a way that will match our clients’ expansion plans, both locally and around the world.

M.E.R. CGI will continue to successfully pursue its growth using all four of our pillars—two pillars focused on driving organic growth, and two that drive growth through acquisition. This very consistent strategy has served us well. Over the course of the last decade, our growth has been a balanced 50-50 blend of organic growth and acquisition.

The main organic growth driver remains large outsourcing contracts, both in IT and business process services. Our full offering strategy is meant primarily to continue increasing revenues from outsourcing contracts already in place, and from new systems integration and consulting contracts.

We want to continue earning new clients and new business with existing clients. That’s why we go to work every day. In 2006, we scored an average of 8.8 out of 10 client satisfaction rating based on 2,000 client interviews. Our highest scoring area was customer loyalty—in other words, clients say they will continue to use and recommend CGI’s services to others—an essential ingredient in the services business.

Our members

M.E.R. Over the long haul, success won’t be solely defined by the demand for services, but also by our ability to deliver the required talent. So we focus on that side of the equation as we continue to profitably grow.

Although we come from all over the world, we’re united by one corporate culture. From a practical standpoint, CGI is really a consulting company that covers everything from A to Z. Which means we’ve not only mastered the technologies, but we also have expertise in business transformation strategies. By the time we sit down with a decision maker, we’ve already crafted a white paper that addresses that company’s challenges in its industry.

There really are very few global players offering the full end-to-end spectrum of services—maybe six in total. From a quality standpoint, we’re the only company with an offering this wide that’s fully ISO 9001 certified. I’m talking about every process, every operation and every relationship. We’re certified for the management of our relationships with clients, with our people and with our shareholders. We’re certified on every aspect of delivery and execution. This is clearly a differentiator in the global marketplace.

S.G. CGI was founded on the principle of seeking fair balance among the interests of our clients, our members and our shareholders. The way we do business is as vital as achieving our business objectives. They’re of equal importance. At CGI, we have always understood—and valued—the link between sound, ethical business practices and the creation of shareholder value for the long-term. In the information technology business, one needs to be very aware of the short-term pressures but never lose sight of the long-term growth opportunities.

[signed]	[signed]
SERGE GODIN	MICHAEL E. ROACH
Founder and	President and
Executive Chairman of the Board	Chief Executive Officer

2006 Annual Report CGI Group Inc.

The CGI Constitution

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

Our mission To help our clients with professional services of outstanding quality, competence and objectivity, delivering the best solutions to fully satisfy client objectives in information technology, business processes and management. In all we do, we foster a culture of partnership, intrapreneurship, teamwork and integrity, building a world-class IT and business process services company.

Our vision To be a world-class IT and business process services leader helping our clients win and grow.

Our values

PARTNERSHIP AND QUALITY		For us, partnership and quality are both a philosophy and a way of life. We develop and follow the best management practices and we entrench these approaches into client relationships and service delivery frameworks in order to foster long-term and strong partnerships with our clients. We listen to our clients and we are committed to their total satisfaction in everything we do.

OBJECTIVITY AND INTEGRITY		We exercise the highest degree of independent thinking in selecting the products, services and solutions we recommend to clients. In doing so, we adhere to the highest values of quality, objectivity and integrity. Consequently, strict rules of business and professional conduct are applied. We do not accept any remuneration from suppliers.

INTRAPRENEURSHIP AND SHARING		Our success is based on the competence, commitment and enthusiasm of our members. Therefore, we promote a climate of innovation and initiative where we are empowered with a sense of ownership in supporting clients, thus ensuring the firm’s profitable growth. Through teamwork, sharing our know-how and expertise, we bring the best of CGI to our clients. As members, we share in the value we create through equity ownership and profit participation.

RESPECT		As a global company, we recognize the richness that diversity brings to the company and welcome this diversity while embracing the overall CGI culture. In all we do, we are respectful of our fellow members, clients, business partners and competitors.

FINANCIAL STRENGHT		We strive to deliver strong, consistent financial performance, which sustains long-term growth and rewards our members and shareholders. Financial strength enables us to continuously invest and improve services and business solutions to the benefit of our clients. To this end, we manage our business to generate industry superior returns.

CORPORATE SOCIAL RESPONSIBILITY		Our business model is designed to ensure that we are close to our clients and communities. We embrace our social responsibilities and contribute to the continuous development of the communities in which we live and work.

2006 Annual Report CGI Group Inc.

Leadership Team

SERGE GODIN* Founder and Executive Chairman of the Board

ANDRE IMBEAU* Founder, Executive Vice-Chairman of the Board and Corporate Secretary

PAULE DORE Advisor to the Founder and Executive Chairman of the Board
	CANADA	U.S. AND INDIA	EUROPE AND AUSTRALIA
MICHAEL E. ROACH* President and Chief Executive Officer	HICHAM ADRA* Senior Vice-President and General Manager Ottawa and Western Canada	DONNA MOREA* President U.S. Operations and India	JOSEPH SALIBA* President Europe and Australia

DAVID ANDERSON* Executive Vice-President and Chief Financial Officer	PAUL BIRON* Senior Vice-President and General Manager Technologies and Infrastructure	S. (CHANDRA) CHANDRAMOULI Vice-President India Operations	GLORIA CANSADO GRACIA Vice-President Southern Europe
ANDRE BOURQUE* Executive Vice-President and Chief Legal Officer	JOHN G. CAMPBELL* Senior Vice-President and General Manager Services to BCE	MICHAEL KEATING Senior Vice-President U.S. West	GAVIN CHAPMAN Senior Vice-President and Managing Director Northern Europe

LUC PINARD* Executive Vice-President, Chief Technology and Quality Officer	WILLIAM CLARK Senior Vice-President Western Canada	JOHN KELLY Senior Vice-President New York / New Jersey	KLAUS ELIX Senior Vice-President Central Europe

DANIEL ROCHELEAU* Executive Vice-President and Chief Business Engineering Officer	CLAUDE MARCOUX Senior Vice-President Systems Integration and Consulting Services Quebec	PAUL RAYMOND Senior Vice-President Boston	JACQUES LERAY Vice-President and General Manager France

	DOUG McCUAIG* Senior Vice-President and General Manager Greater Toronto and Atlantic Canada	GEORGE SCHINDLER President CGI Federal	JONATHAN LIGHT Vice-President Australia

	MALCOLM SCOTT Senior Vice-President Insurance Business Services	RICHARD SCHMITZ Senior Vice-President U.S. Midwest

	CECIL SMITH Senior Vice-President Atlantic Canada	NAZZIC TURNER Senior Vice-President U.S. South

	PIERRE TURCOTTE* Senior Vice-President and General Manager Quebec

* Member of the Management Committee

2006 Annual Report CGI Group Inc.

Board of Directors

CLAUDE BOIVIN^{b, c} Director since 1993 Lead Director and Chair of the Corporate Governance Committee, CGI Director of Companies	THOMAS D’AQUINO^c Director since 2006 Chief Executive and President, Canadian Council of Chief Executives	DAVID L. JOHNSTON^b Director since 1995 Chair of the Human Resources Committee, CGI President and Vice-Chancellor University of Waterloo	GERALD T. SQUIRE^{a, c} Director since 2003 Director of Companies

JEAN BRASSARD Director since 1978 Vice-Chairman of the Board, CGI Director of Companies	PAULE DORE Director since 1995 Advisor to the Founder and Executive Chairman of the Board, CGI	EILEEN A. MERCIER^a Director since 1996 Chair of the Audit and Risk Management Committee, CGI Director of Companies	ROBERT TESSIER^c Director since 2003 President and Chief Executive Officer Gaz Metro inc.

CLAUDE CHAMBERLAND^b Director since 1998 Director of Companies	SERGE GODIN Director since 1976 Founder and Executive Chairman of the Board, CGI	MICHAEL E. ROACH Director since 2006 President and Chief Executive Officer, CGI

ROBERT CHEVRIER^{a, b} Director since 2003 President Roche Management Co. Inc.	ANDRE IMBEAU Director since 1976 Founder, Executive Vice-Chairman of the Board and Corporate Secretary, CGI	C. WESLEY M. SCOTT^a Director since 2001 Director of Companies

a Member of the Audit and Risk Management Committee

b Member of the Human Resources Committee

c Member of the Corporate Governance Committee

International Advisory Council

The International Advisory Council’s role is to provide CGI’s management team with strategic counsel toward the Company’s vision of becoming a world-class IT and business process services leader. Council members are chosen for their track record as leaders of global corporations as well as their knowledge of CGI’s selected economic sectors and geographic markets, namely the United States, Europe, Canada and the Asia Pacific region.

The Council acts as an advisor for CGI’s development around the world, helping it better understand business needs, different cultures and business practices, as well as developing trends.

JACQUES BOUGIE

Chairman of the

International Advisory Council

Former President and

Chief Executive Officer of

Alcan Aluminum Limited

Director of Companies

HARVEY GOLUB

Former Chairman and

Chief Executive Officer of

American Express

Director of Companies

MICHAEL HEPHER

Former Chairman and

Chief Executive Officer of

Lloyds Abbey Life and former

Group Managing Director of

British Telecommunications

Director of Companies

ARNOLD LANGBO

Former Chairman and

Chief Executive Officer of

Kellogg Company

Director of Companies

2006 Annual Report CGI Group Inc.

Shareholder Information

LISTING

Toronto Stock Exchange, April 1992:

GIB.A

New York Stock Exchange, October 1998:

GIB

Number of registered shareholders as at

September 30, 2006: 2,849

Number of shares outstanding as at September 30, 2006:

297,484,885 Class A subordinate shares

34,208,159 Class B shares

High / low of share price from October 1, 2005, to

September 30, 2006:

TSX (CDN$): 9.94 / 6.50

NYSE (US$): 8.53 / 5.70

The certifications by CGI’s Chief Executive Officer and Chief Financial Officer concerning the quality of the Company’s public disclosure pursuant to Canadian regulatory requirements are filed in Canada on SEDAR (www.sedar.com). Similar certifications pursuant to Rule 13a-14 of the U.S. Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 are exhibits to our Form 40-F filed on EDGAR (www.sev.gov). The Company has also filed with the New York Stock Exchange the certification required by Section 303A.12 of the exchange’s Listed Company Manual.

CGI’s corporate governance practices do not differ in any significant way from those required of domestic companies under New York Stock Exchange listing standards and they are set out in the CGI Management Proxy Circular, which is filed with Canadian and U.S. securities authorities and is therefore available on SEDAR (www.sedar.com) and EDGAR (www.sec.gov), respectively, as well as on CGI’s Web site (www.cgi.com).

AUDITORS

Deloitte & Touche LLP

TRANSFER AGENT

Computershare Trust Company of Canada

100 University Avenue, 9th Floor

Toronto, Ontario M5J 2Y1

Telephone: 1 800 564-6253

INVESTOR RELATIONS

For further information about the Company, additional copies of this report or other financial information, please contact:

Lorne Gorber

Vice-President, Global Communications and Investor Relations

CGI Group Inc.

1130 Sherbrooke Street West

Montreal, Quebec H3A 2M8

Canada

Telephone: 514 841-3200

You may also contact us by sending an e-mail to ir@cgi.com or by visiting the Investors section on the Company’s Web site at www.cgi.com.

ANNUAL GENERAL MEETING OF SHAREHOLDERS

Tuesday, January 30, 2007

at 11:00 a.m.

Omni Mont-Royal Hotel

Salon Les saisons

1050 Sherbrooke Street West

Montreal, Quebec

CGI presents a live webcast of its Annual General Meeting at www.cgi.com. To vote by phone or by using the Internet, please refer to the instructions provided in the CGI Management Proxy Circular.

This annual report is also on the Internet at www.cgi.com.

Le rapport annuel 2006 de CGI est aussi publie en français.

2006 Annual Report CGI Group Inc.

CGI’s Representative Solutions

BANKING AND INVESTMENT• CORE™ • EBS • e-settlement^®• Horizon™ • MSuite^®• PrimeSuite^®

• Proponix^®• Swix Mortgage™ • T Suite™ CREDIT SERVICES• ACAPS^®• ACLS^®• Bureaulink^®

• CACS^®• Enterprise Originations^®• Identicate^®• NetCredit^®• Strata^® ENVIRONMENT• EAS

• ProSteward^®• RSP • TEMPO^® GOVERNMENT AND HEALTHCARE• ACE • AMS Advantage™

• CACS-G™ • CATS • eCAM • eProcurement and Strategic Sourcing • eRIMS • gBiz^®

• Momentum^® Entreprise Solution • SACWIS • Secure Channel • Single Window Government™

• Sovera^®• TAAMS^® HUMAN RESOURCES AND PAYROLL• Nethris™ • Njoyn™ • PC Payroll

• Telephone Payroll INSURANCE• ARTS • GIOS^®• ICAPS • INSideOUT^®• MassAuto

• Ratabase^®• RTM • Smart Insurance Technology™ OIL & GAS• CNS • envision •

GFR • Horizon • JIFI • Landman • MAP • PetroComp • PM Suite • PVR • RMS • TEAM

• Triangle • Wolfpac • WorkPay TELECOMMUNICATION• CACS eVantage^®• eINcent^®

• Quintessent^®• SDS • Tapestry^® UTILITIES• efluid • Pragma^® CAD • Pragma^® Line • ROMS™

Main Locations

GLOBAL HEADQUARTERS

1130 Sherbrooke Street West Tel.: 514 841-3200

Montreal, Quebec H3A 2M8 Fax: 514 841-3299

Canada

For a complete list of CGI's worldwide offices and contacts, please visit www.cgi.com.

_experience the commitment www.cgi.com

Management’s and Auditors’ reports

MANAGEMENT’S STATEMENT OF RESPONSIBILITY FOR FINANCIAL REPORTING

The management of CGI Group Inc. (“the Company”) is responsible for the preparation and integrity of the consolidated financial statements and the Management’s Discussion and Analysis (“MD&A”). The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada and necessarily include some amounts that are based on management’s best estimates and judgment. Financial and operating data elsewhere in the MD&A are consistent with that contained in the accompanying consolidated financial statements.

To fulfill its responsibility, management has developed, and continues to maintain, systems of internal controls reinforced by the Company’s standards of conduct and ethics set out in written policies to ensure the reliability of the financial information and to safeguard its assets. The internal control systems and financial records are subject to audit by the independent auditors, Deloitte & Touche LLP, whose report follows. They were appointed as independent auditors, by a vote of the Company’s shareholders, to audit the consolidated financial statements. In addition, the Management Committee of the Company reviews the disclosure of corporate information and oversees the functioning of the Company’s disclosure controls and procedures.

Members of the Audit and Risk Management Committee of the Board of Directors, all of whom are independent of the Company, meet regularly with the independent auditors and with management to discuss internal controls in the financial reporting process, auditing matters and financial reporting issues and formulates the appropriate recommendations to the Board of Directors. The independent auditors have unrestricted access to the Audit and Risk Management Committee. The financial statements and MD&A have been reviewed and approved by the Board of Directors.

	(signed)	(signed)	(signed)
NOVEMBER 13, 2006	MICHAEL E. ROACH PRESIDENT AND CHIEF EXECUTIVE OFFICER	R. DAVID ANDERSON EXECUTIVE VICE-PRESIDENT AND CHIEF FINANCIAL OFFICER	ANDRÉ IMBEAU FOUNDER, EXECUTIVE VICE-CHAIRMAN AND CORPORATE SECRETARY

MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external reporting purposes in accordance with accounting principles generally accepted in the Canada.

The Company’s internal control over financial reporting includes policies and procedures that:

-	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets;
-	provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in Canada, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and,
-	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s consolidated financial statements.

All internal controls have inherent limitations; therefore, even where internal control over financial reporting is determined to be effective, it can provide only reasonable assurance. Projections of any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

There was one exclusion from our assessment. Our interest in the joint ventures were excluded from our assessment as we do not have the ability to dictate or modify the entities’ internal control over financial reporting, and we do not have the practical ability to assess those controls. Our interests in the joint ventures represent 1.6% of our consolidated total assets and 2.6% of our consolidated revenue as at and for the year ended September 30, 2006. Despite this exclusion, we have assessed our internal control over financial reporting with respect to the inclusion of our share of the joint ventures and its results for the year in our consolidated financial statements. Further financial information with respect to the joint ventures is presented in Note 19 to the consolidated financial statements.

As of the end of the Company’s 2006 fiscal year, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined the Company’s internal control over financial reporting as of September 30, 2006 was effective.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2006 has been audited by the Company’s independent registered chartered accountants, as stated in their report appearing on page 3.

	(signed)	(signed)	(signed)
NOVEMBER 13, 2006	MICHAEL E. ROACH PRESIDENT AND CHIEF EXECUTIVE OFFICER	R. DAVID ANDERSON EXECUTIVE VICE-PRESIDENT AND CHIEF FINANCIAL OFFICER	ANDRÉ IMBEAU FOUNDER, EXECUTIVE VICE-CHAIRMAN AND CORPORATE SECRETARY

2006 Annual Report CGI Group Inc.

REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

To the Board of Directors and Shareholders of CGI Group Inc.

We have audited management’s assessment, included in the accompanying Management Report on Internal Control over Financial Reporting, that CGI Group Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of September 30, 2006, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Report on Internal Control over Financial Reporting, management excluded from their assessment the internal control over financial reporting on its joint ventures because the Company does not have the ability to dictate or modify controls at these entities and does not have the ability to assess, in practice, the controls at these entities. The interest in the joint ventures constitutes total assets and revenues of 1.6% and 2.6%, respectively, of the related consolidated financial statement amounts as at and for the year ended September 30, 2006. Accordingly, our audit did not include the internal control over financial reporting of the joint ventures. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of September 30, 2006, is fairly stated, in all material respects, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2006, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended September 30, 2006, and our report dated November 13, 2006 expressed an unqualified opinion on those financial statements.

(signed)

Deloitte & Touche LLP

INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

MONTRÉAL, QUÉBEC

NOVEMBER 13, 2006

2006 Annual Report CGI Group Inc.

REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

To the Board of Directors and Shareholders of CGI Group Inc.

We have audited the consolidated balance sheets of CGI Group Inc. and subsidiaries (the “Company”) as at September 30, 2006 and 2005 and the related consolidated statements of earnings, retained earnings and cash flows for each of the years in the three-year period ended September 30, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

With respect to the consolidated financial statements for the year ended September 30, 2006, we conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). With respect to the consolidated financial statements for the year ended September 30, 2005 and September 30, 2004, we conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as at September 30, 2006 and 2005 and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 2006, in accordance with Canadian generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of September 30, 2006, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report, dated November 13, 2006, expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

(signed)

Deloitte & Touche LLP

INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

MONTRÉAL, QUÉBEC

NOVEMBER 13, 2006

COMMENTS BY INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCES

In the United States of America, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there are changes in accounting principles that have a material effect on the comparability of the Company’s financial statements, such as the changes described in Note 2 to the financial statements. Our report to the shareholders, dated November 13, 2006, is expressed in accordance with Canadian reporting standards, which do not require a reference to such changes in accounting principles in the auditors’ report when the change is properly accounted for and adequately disclosed in the financial statements.

(signed)

Deloitte & Touche LLP

INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

MONTRÉAL, QUÉBEC

NOVEMBER 13, 2006

2006 Annual Report CGI Group Inc.

Consolidated Financial Statements

Consolidated statements of earnings

YEARS ENDED SEPTEMBER 30	2006			2005			2004
(in thousands of Canadian dollars, except share data)	$			$			$
REVENUE		3,477,623			3,685,986			3,150,070
Operating expenses
Costs of services, selling and administrative (note 16)		2,996,521			3,151,558			2,677,396
Amortization (note 12)		170,766			199,283			162,591
Restructuring costs related to specific items (note 13)		67,266			-			-
Interest on long-term debt		43,291			24,014			20,672
Other income, net		(7,252	)		(7,156	)		(8,728	)
Gain on sale of assets (note 17)		(10,475	)		-			-
Gain on sale and earnings from an investment in an entity subject to signiӿcant inӾuence (note 17)		-			(4,537	)		(488	)
Sale of right (note 14)		-			(11,000	)		-
		3,260,117			3,352,162			2,851,443
Earnings from continuing operations before income taxes Income taxes (note 15)		217,506 70,973			333,824 114,126			298,627 113,241

Net earnings from continuing operations		146,533			219,698			185,386
Net (loss) gain from discontinued operations (note 18)		-			(3,210	)		8,655
NET EARNINGS		146,533			216,488			194,041
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE (note 11)
Continuing operations		0.40			0.50			0.44
Discontinued operations		-			(0.01	)		0.02
		0.40			0.49			0.46
See Notes to the consolidated financial statements.

Consolidated statements of retained earnings

YEARS ENDED SEPTEMBER 30	2006			2005			2004
(in thousands of Canadian dollars)	$			$			$
BALANCE, BEGINNING OF YEAR		895,267			730,757			542,205
Net earnings		146,533			216,488			194,041
Share repurchase costs (note 9)		(6,760	)		-			-
Share issue costs, net of income taxes (note 9)		-			-			(5,489	)
Excess of purchase price over carrying value of Class A subordinate shares acquired (note 9)		(447,839	)		(51,978	)		-
BALANCE, END OF YEAR		587,201			895,267			730,757

See Notes to the consolidated financial statements.

2006 Annual Report CGI Group Inc.

Consolidated balance sheets

AS AT SEPTEMBER 30	2006			2005
(in thousands of Canadian dollars)	$			$
ASSETS
Current assets
Cash and cash equivalents		115,729			240,459
Accounts receivable (note 3)		479,767			487,731
Work in progress		197,381			214,470
Prepaid expenses and other current assets		89,639			75,281
Future income taxes (note 15)		33,728			22,118
		916,244			1,040,059
Capital assets (note 4)		120,032			116,388
Contract costs (note 5)		212,115			223,122
Finite-life intangibles and other long-term assets (note 6)		525,905			586,416
Future income taxes (note 15)		25,127			46,601
Goodwill (note 7)		1,737,886			1,773,370
Total assets before funds held for clients		3,537,309			3,785,956
Funds held for clients (note 2)		154,723			200,703
		3,692,032			3,986,659

LIABILITIES
Current liabilities
Accounts payable and accrued liabilities		367,127			378,691
Accrued compensation		108,331			107,014
Deferred revenue		111,759			127,950
Income taxes		41,707			31,955
Future income taxes (note 15)		30,384			47,163
Current portion of long-term debt (note 8)		8,242			14,899
		667,550			707,672
Future income taxes (note 15)		213,512			238,983
Long-term debt (note 8)		805,017			234,801
Accrued integration charges (note 17) and other long-term liabilities		103,210			109,810
Total liabilities before clients’ funds obligations		1,789,289			1,291,266
Clients’ funds obligations (note 2)		154,723			200,703
		1,944,012			1,491,969
Commitments, contingencies and guarantees (note 24)
SHAREHOLDERS’ EQUITY
Capital stock (note 9)		1,367,606			1,762,973
Contributed surplus (note 10)		82,436			67,578
Warrants (note 10)		-			19,655
Retained earnings		587,201			895,267
Foreign currency translation adjustment		(289,223	)		(250,783	)
		1,748,020			2,494,690
		3,692,032			3,986,659
See Notes to the consolidated financial statements.
Approved by the Board		(signed	)		(signed	)
		DIRECTOR MICHAEL E. ROACH			DIRECTOR ANDRÉ IMBEAU

2006 Annual Report CGI Group Inc.

Consolidated statements of cash flows

YEARS ENDED SEPTEMBER 30	2006			2005			2004
(in thousands of Canadian dollars)	$			$			$
OPERATING ACTIVITIES
Net earnings from continuing operations		146,533			219,698			185,386
Adjustments for:
Amortization (note 12)		199,760			231,965			192,718
Non-cash portion of restructuring costs related to specific items (note 13)		1,311			-			-
Deferred credits		(781	)		(3,038	)		(16,439	)
Future income taxes (note 15)		(34,225	)		35,650			55,626
Foreign exchange loss (gain)		1,914			1,993			(789	)
Stock-based compensation (note 10)		12,895			20,554			25,559
Sale of right (note 14)		-			(11,000	)		-
Gain on sale of assets (note 17)		(10,475	)		-			-
Gain on sale and earnings from an investment in an entity subject to significant influence (note 17)		-			(4,537	)		(488	)
Net change in non-cash working capital items (note 20)		(7,371	)		(10,576	)		(211,376	)
Cash provided by continuing operating activities		309,561			480,709			230,197

INVESTING ACTIVITIES
Business acquisitions (net of cash acquired) (note 17)		(25,620	)		(66,229	)		(589,678	)
Proceeds from sale of assets and businesses (net of cash disposed) (note 17)		30,114			29,521			87,503
Proceeds from sale of investment in an entity subject to significant influence (note 17)		-			20,849			-
Proceeds from sale of right (note 14)		-			11,000			-
Purchase of capital assets		(41,105	)		(25,314	)		(59,829	)
Proceeds from disposal of capital assets		562			6,663			4,738
Payment of contract costs		(31,417	)		(25,057	)		(75,142	)
Reimbursement of contract costs upon termination of a contract		-			15,300			-
Additions to ӿnite-life intangibles and other long-term assets		(74,568	)		(90,674	)		(85,814	)
Proceeds from disposal of ӿnite-life intangibles		-			5,251			-
Decrease in other long-term assets		2,677			12,413			17,202
Cash used in continuing investing activities		(139,357	)		(106,277	)		(701,020	)
FINANCING ACTIVITIES
Increase in credit facilities (note 8)		746,170			190,000			240,534
Repayment of credit facilities		(158,944	)		(397,578	)		(219,000	)
Increase in long-term debt		-			-			257,604
Repayment of long-term debt		(13,124	)		(16,705	)		(26,451	)
Repurchase of Class A subordinate shares (net of share repurchase costs) (note 9)		(926,145	)		(109,456	)		-
Issuance of shares (net of share issue costs) (note 9)		57,963			4,551			330,996
Cash (used in) provided by continuing financing activities		(294,080	)		(329,188	)		583,683
Effect of foreign exchange rate changes on cash and cash equivalents of continuing operations		(854	)		(6,167	)		186
Net (decrease) increase in cash and cash equivalents of continuing operations		(124,730	)		39,077			113,046
Net cash and cash equivalents provided by discontinued operations (note 18)		-			759			4,068
Cash and cash equivalents, beginning of year		240,459			200,623			83,509
CASH AND CASH EQUIVALENTS, END OF YEAR		115,729			240,459			200,623

Supplementary cash flow information (note 20)

See Notes to the consolidated financial statements.

2006 Annual Report CGI Group Inc.

Notes to the Consolidated Financial Statements

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data)

1. Description of business

CGI Group Inc. (the “Company”), directly or through its subsidiaries, manages information technology (“IT services”), including outsourcing, systems integration and consulting, software licenses and maintenance, as well as business process services (“BPS”) to help clients cost effectively realize their strategies and create added value.

2. Summary of significant accounting policies

The consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles (“GAAP”), which differ in certain material respects from U.S. GAAP. A reconciliation between Canadian and U.S. GAAP can be found in Note 26.

Certain comparative figures have been reclassified in order to conform to the presentation adopted in 2006.

CHANGES IN ACCOUNTING POLICIES

i)	The Canadian Institute of Chartered Accountants (“CICA”) amended Handbook Section 3831, “Non-Monetary Transactions”, effective for fiscal years beginning on or after January 1, 2006. The amendment of the section requires that non-monetary transactions be recorded at fair value unless the transaction has no commercial substance, it is an exchange of inventory, it is a non-monetary, non-reciprocal transfer to owners or it’s not reliably measurable. The adoption of this section did not have any impact on the consolidated financial statements.
ii)	The CICA issued Emerging Issue Committee (“EIC”) Abstract 156, “Accounting by a Vendor for Consideration Given to a Customer (Including a Reseller of the Vendor’s Products)”, which provides guidance to companies that give incentives to customers or resellers in the form of cash, equity, free gifts, coupons and others. The adoption of EIC 156 did not have any impact on the consolidated financial statements since the Company already adopted the U.S. equivalent, Emerging Issues Task Force 01-9, “Accounting for Consideration Given by a Vendor to a Customer”, issued in 2001.
iii)	The CICA issued EIC 157, “Implicit variable interests under AcG 15’’, which requires consideration of whether the reporting enterprise holds an implicit variable interest in a variable interest entity or potential variable interest entity when applying Accounting Guideline 15 “Consolidation of Variable Interest Entities’’. The adoption of this abstract did not have any impact on the consolidated financial statements.
iv)	The CICA issued EIC 159, “Conditional Asset Retirement Obligations’’, which provides guidance when a conditional asset retirement obligation should be recognized. The adoption of this abstract did not have any impact on the consolidated financial statements.

USE OF ESTIMATES

The preparation of the consolidated financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates. Significant estimates include, but are not limited to, the measurement of allowance for doubtful accounts, tax credits, long-term asset valuations and impairment assessments, income taxes, provisions and contingencies, as well as revenue recognition.

BASIS OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated. The Company accounts for its jointly-controlled investments using the proportionate consolidation method. The Company accounts for investments where it has the ability to exercise significant influence under the equity method. In situations where the Company does not exercise significant influence, the investments are recorded at cost. The carrying amount of the investments is reviewed for decline, other than temporary fluctuations, whenever events or changes in circumstances indicate that the carrying amount of the investments may not be recoverable.

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data)

2. Summary of significant accounting policies (continued)

REVENUE RECOGNITION, WORK IN PROGRESS AND DEFERRED REVENUE

The Company generates revenue principally through the provision of IT services and BPS.

The IT services include a full range of information technology services, namely: i) outsourcing ii) systems integration and consulting

iii) software licenses and iv) maintenance. The BPS unit provides business processing for the financial services segments, as well as other services, such as payroll and document management services.

The Company provides services under contracts that contain various pricing mechanisms. The Company recognizes revenue when persuasive evidence of an arrangement exists, services or products have been provided to the client, the fee is fixed or determinable, and collectibility is reasonably assured. If an arrangement involves the provision of multiple elements, the total arrangement value is allocated to each element as a separate unit of accounting if: 1) the delivered item has value to the client on a stand-alone basis; 2) there is objective and reliable evidence of the fair value of the undelivered item; and 3) the arrangement includes a general right of return relative to the delivered item and delivery or performance of the undelivered item is considered probable and substantially in the control of the vendor. If these criteria are met, then the total consideration of the arrangement is allocated among the separate units of accounting based on their fair values.

Provisions for estimated contract losses, if any, are recognized in the period in which the loss is determined. Contract losses are measured at the amount by which the estimated total costs exceed the estimated total revenue from the contract.

OUTSOURCING AND BPS ARRANGEMENTS

Revenue from outsourcing and BPS arrangements under time and materials and unit-priced arrangements are recognized as the services are provided at the contractual stated price. If the contractual per-unit prices within a unit-priced contract change during the term of the arrangement, the Company evaluates whether it is more appropriate to record revenue based on the average per-unit price during the term of the contract or based on the actual amounts billed.

Revenue from outsourcing and BPS arrangements under fixed-fee arrangements is recognized on a straight-line basis over the term of the arrangement, regardless of the amounts billed, unless there is a better measure of performance or delivery.

SYSTEMS INTEGRATION AND CONSULTING SERVICES

Revenue from systems integration and consulting services under time and material arrangements is recognized as the services are rendered, and revenue under cost-based arrangements is recognized as reimbursable costs are incurred.

Revenue from systems integration and consulting services under fixed-fee arrangements is recognized using the percentage-of-completion method over the implementation period. The Company uses the labour costs or labour hours incurred to date to measure the progress towards completion. This method relies on estimates of total expected labour costs or total expected labour hours to complete the service, which are compared to labour costs or labour hours incurred to date, to arrive at an estimate of the percentage of revenue earned to date. Management regularly reviews underlying estimates of total expected labour costs or hours. Revisions to estimates are reflected in the statement of earnings in the period in which the facts that gave rise to the revision became known.

Revenue from systems integration and consulting services under benefits-funded arrangements is recognized only to the extent it can be predicted, with reasonable certainty, that the benefit stream will generate amounts sufficient to fund the value on which revenue recognition is based.

SOFTWARE LICENSES AND MAINTENANCE ARRANGEMENTS

Revenue from software license arrangements is recognized upon delivery of software if persuasive evidence of an arrangement exists, collection is probable, the fee is fixed or determinable and vendor-specific evidence of an arrangement exists to allocate the total fee to the different elements of an arrangement. Vendor-specific objective evidence is typically based on the price charged when an element is sold separately.

In circumstances where the implementation services are essential to the functionality of the software or where the software requires significant customization, the Company recognizes software license revenue using the percentage-of-completion method over the implementation period as previously described.

Revenue from maintenance services for licenses sold and implemented is recognized ratably over the term of the contract.

WORK IN PROGRESS AND DEFERRED REVENUE

Amounts recognized as revenue in excess of billings are classified as work in progress. Amounts received in advance of the delivery of products or performances of services are classified as deferred revenue.

REIMBURSEMENTS

Reimbursements, including those relating to travel and other out-of-pocket expenses, and other similar third party costs, such as the cost of hardware and software resales, are included in revenue, and the corresponding expense is included in costs of services.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist primarily of unrestricted cash and short-term investments having an initial maturity of three months or less.

CAPITAL ASSETS

Capital assets are recorded at cost and are amortized over the following estimated useful lives of the assets, using the straight-line method:

Buildings	10 to 40 years
Leasehold improvements	Lesser of the useful life or lease term plus ӿrst renewal option
Furniture and fixtures	3 to 10 years
Computer equipment	3 to 5 years

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data)

FUNDS HELD FOR CLIENTS AND CLIENTS’ FUNDS OBLIGATIONS

In connection with the Company’s payroll and tax filing services, the Company collects funds for payment of payroll and taxes, temporarily holds such funds until payment is due, remits the funds to the clients’ employees and appropriate tax authorities, files federal and local tax returns, and handles related regulatory correspondence and amendments. The Company presents the funds held for clients and related obligations separately.

CONTRACT COSTS

Contract costs are mainly incurred when acquiring or implementing long-term IT services and BPS contracts. These assets are recorded at cost and amortized using the straight-line method over the term of the respective contracts. Contract costs are comprised primarily of incentives and transition costs.

Occasionally, incentives are granted to clients upon signing of outsourcing contracts. These incentives can be granted either in the form of cash payments, issuance of equity instruments, or discounts awarded principally over a transition period, as negotiated in the contract. In the case of equity instruments, cost is measured at the estimated fair value at the time they are issued. For discounts, cost is measured at the value of the granted financial commitment and a corresponding amount is recorded in other long-term liabilities. As services are provided to the client, the amount is amortized and recorded as a reduction of revenue.

Capital assets acquired from a client in connection with outsourcing contracts are capitalized as such and amortized consistent with the amortization policies described previously. The excess of the amount paid over the fair value of capital assets acquired in connection with outsourcing contracts is considered as an incentive granted to the client, and is recorded as described in the preceding paragraph.

Transition costs consist of expenses associated with the installation of systems and processes incurred after the award of outsourcing contracts, relocation of transitioned employees and exit from client facilities. Under BPS contracts, the costs consist primarily of expenses related to activities such as the conversion of the customer’s applications to the Company’s platforms. These incremental costs are comprised essentially of labour costs, including compensation and related fringe benefits, as well as subcontractor costs.

FINITE-LIFE INTANGIBLE ASSETS

Finite-life intangible assets consist mainly of internal software, business solutions, software licenses and customer relationships.

Internal software, business solutions and software licenses are recorded at cost. Business solutions developed internally and marketed for distribution are capitalized when they meet specific capitalization criteria related to technical, market and financial feasibility. Business solutions and software licenses acquired through a business combination are initially recorded at fair value based on the estimated net future income-producing capabilities of the software products. Customer relationships are acquired through business combinations and are initially recorded at their fair value based on the present value of expected future cash flows.

The Company amortizes its finite-life intangible assets using the straight-line method over the following estimated useful lives:

Internal software	2 to 7 years
Business solutions	2 to 10 years
Software licenses	3 to 8 years
Customer relationships and other	2 to 15 years

IMPAIRMENT OF LONG-LIVED ASSETS

When events or changes in circumstances indicate that the carrying amount of long-lived assets may not be recoverable, undiscounted estimated cash flows are projected over their remaining term and compared to the carrying amount. To the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amounts of related assets, a charge is recorded to reduce the carrying amount to equal projected future discounted cash flows.

BUSINESS COMBINATIONS AND GOODWILL

The Company accounts for its business combinations using the purchase method of accounting. Under this method, the Company allocates the purchase price to tangible and intangible assets acquired and liabilities assumed based on estimated fair values at the date of acquisition, with the excess of the purchase price amount being allocated to goodwill. Goodwill for each reporting unit is assessed for impairment at least annually, or when an event or circumstance occurs that more likely than not reduces the fair value of a reporting unit below its carrying amount. An impairment charge is recorded when the goodwill carrying amount of the reporting unit exceeds its fair value.

ACCRUED INTEGRATION CHARGES

Accrued integration charges are comprised of liabilities for costs incurred on business combinations, such as severance payments related to the termination of certain employees of the acquired business performing functions already available through the Company’s existing structure and provisions related to leases for premises occupied by the acquired businesses that the Company plans to vacate.

EARNINGS PER SHARE

Basic earnings per share are based on the weighted average number of shares outstanding during the period. The dilutive effect of stock options is determined using the treasury stock method.

RESEARCH AND SOFTWARE DEVELOPMENT COSTS

Research costs are charged to earnings in the period in which they are incurred, net of related tax credits. Included in costs of services, selling and administrative expenses are research expenses in the amount of $25,728,000 ($21,869,000 in 2005 and $26,710,000 in 2004). During the year, the Company incurred direct research and software development costs of $68,905,000 ($78,200,000 in 2005 and $64,500,000 in 2004).

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data)

2. Summary of significant accounting policies (continued)

Software development costs are charged to earnings in the year they are incurred, net of related tax credits unless they meet specific capitalization criteria related to technical, market and financial feasibility. Deferred development costs are included as part of finite-life intangibles. Tax credits amounting to $925,000 were recorded against these assets for the year ended September 30, 2006 (nil in 2005 and $1,408,000 in 2004).

INCOME TAXES

Income taxes are accounted for using the asset and liability method of accounting for income taxes. Future income tax assets and liabilities are determined based on deductible or taxable temporary differences between the amounts reported for financial statement purposes and tax values of assets and liabilities using enacted or substantively enacted income tax rates expected to be in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded for the portion of the future income tax assets when its realization is not considered more likely than not.

TRANSLATION OF FOREIGN CURRENCIES

Revenue and expenses denominated in foreign currencies are recorded at the rate of exchange prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated at exchange rates prevailing at the balance sheet date. Unrealized translation gains and losses are reflected in net earnings.

Self-sustaining subsidiaries, with economic activities largely independent of the parent company, are accounted for using the current rate method. Under this method, assets and liabilities of subsidiaries denominated in a foreign currency are translated into Canadian dollars at exchange rates in effect at the balance sheet date. Revenue and expenses are translated at average exchange rates prevailing during the period. Resulting unrealized gains or losses are accumulated and reported as foreign currency translation adjustment in shareholders’ equity. As a result of differences in the translation of the financial statements of foreign subsidiaries, the foreign currency translation adjustment varied by $38,440,000 and $92,124,000 in 2006 and 2005, respectively. These variations resulted principally from translating U.S. dollar denominated goodwill.

The accounts of foreign subsidiaries, which are financially or operationally dependent on the parent company, are accounted for using the temporal method. Under this method, monetary assets and liabilities are translated at the exchange rates in effect at the balance sheet date, and non-monetary assets and liabilities are translated at historical exchange rates. Revenue and expenses are translated at average rates for the period. Translation exchange gains or losses of such subsidiaries are reflected in net earnings.

STOCK-BASED COMPENSATION

Stock-based compensation cost is recorded using the fair value based method. This method consists of recording compensation cost to earnings over the vesting period of options granted. When stock options are exercised, any consideration paid by employees is credited to capital stock and the recorded fair value of the option is removed from contributed surplus and credited to capital stock.

FINANCIAL INSTRUMENTS

The Company uses various financial instruments to manage its exposure to fluctuations in foreign currency exchange rates. The Company does not hold or use any derivative instruments for trading purposes.

The Company enters into financial instrument contracts to hedge its net investment in foreign subsidiaries. Foreign exchange translation gains or losses on the net investment are recorded under the foreign currency translation adjustment. Any realized or unrealized gains or losses on instruments covering the net investment are also recognized in the foreign currency translation adjustment.

The Company also enters, from time to time, into forward contracts to hedge forecasted cash flows denominated in currencies other than the functional currency of its subsidiaries. Gains and losses on foreign exchange contracts designated as hedges for firm commitments or forecasted transactions are recorded in costs of services, selling and administrative expenses when the related transaction is realized.

Periodic assessments of each hedge’s effectiveness are performed during the year.

FUTURE ACCOUNTING CHANGES

The CICA has issued the following new Handbook Sections:

Section 3855, “Financial Instruments - Recognition and Measurement”, effective for interim periods beginning on or after October 1, 2006. This section describes the standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. All financial assets, except for those classified as held-to-maturity, and derivative financial instruments must be measured at their fair value. All financial liabilities must be measured at their fair value if they are classified as held for trading purposes, and if not, they are measured at their carrying value. The impact of the adoption of this new section on the consolidated financial statements is not expected to be material.

Section 1530, “Comprehensive Income”, and Section 3251, “Equity”, effective for interim periods beginning on or after October 1, 2006. Comprehensive income is the change in equity of an enterprise during a period arising from transactions and other events and circumstances from non-owner sources. It includes items that would normally not be included in net income, such as changes in the foreign currency translation adjustment relating to self-sustaining foreign operations and unrealized gains or losses on available-for-sale financial

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data)

instruments. These sections describe how to report and disclose comprehensive income and its components. Section 3251, “Equity”, replaces Section 3250, “Surplus”, and describes the changes in how to report and disclose equity and changes in equity as a result of the new requirements of Section 1530, “Comprehensive Income”. Upon adoption of this section, the consolidated financial statements will include a statement of comprehensive income.

Section 3865, “Hedges”, effective for interim periods beginning on or after October 1, 2006. This section describes when hedge accounting is appropriate. Hedge accounting ensures that all gains, losses, revenue and expenses from the derivative, and the item it hedges, are recorded in the statement of earnings in the same period. The impact of the adoption of this new section on the consolidated financial statements is not expected to be material.

3. Accounts receivable

	2006		2005
	$		$
Trade		376,383		357,679
Other⁽¹⁾		103,384		130,052
		479,767		487,731

⁽¹⁾	Other accounts receivable include refundable tax credits on salaries related to the E-Commerce Place, Cité du multimEdia, New Economy Centre, SR&ED and other tax credit programs, of approximately $80,943,000 and $93,287,000, in 2006 and 2005, respectively.
	The Company is defined as an eligible company and operates “eligible activities” under the terms of various Québec government tax credit programs on salaries for eligible employees located mainly in designated locations in the province of Québec, Canada. The Company must obtain an eligibility certificate from the Québec government annually. These programs are designed to support job creation and revitalization efforts in certain urban areas.
	In order to be eligible for a majority of the tax credits, the Company relocated some of its employees to designated locations. Real estate costs for these designated locations are significantly higher than they were at the previous facilities. Initially, the Company’s ӿnancial commitments for these real estate locations represented $618,800,000. As at September 30, 2006, the balance outstanding for these commitments was $487,819,000, ranging between two and 17 years.
	The refundable tax credits, under the various programs, are calculated at rates varying from 35% to 40% on salaries paid in Québec, to a maximum range of $12,500 to $15,000 per year per eligible employee. For the E-Commerce Place, the rate can vary depending on the creation of a sufficient number of jobs in the province of Québec. The rate is established using a predetermined formula and may not exceed 35% or $12,500. As at September 30, 2006, the Company is eligible to be refunded using the rate of 35%.

4. Capital assets

					2006						2005
			ACCUMULATED		NET BOOK				ACCUMULATED		NET BOOK
	COST		AMORTIZATION		VALUE		COST		AMORTIZATION		VALUE
	$		$		$		$		$		$
Land and building		5,766		1,372		4,394		5,113		907		4,206
Leasehold improvements		124,031		40,811		83,220		105,779		26,858		78,921
Furniture and fixtures		28,596		16,315		12,281		24,979		13,286		11,693
Computer equipment		69,253		49,116		20,137		60,330		38,762		21,568
		227,646		107,614		120,032		196,201		79,813		116,388

Capital assets include assets acquired under capital leases totaling $2,589,000 ($3,461,000 in 2005), net of accumulated amortization of $3,520,000 ($2,975,000 in 2005).

The asset retirement obligations pertain to operating leases of office buildings in different locations where certain clauses require premises to be returned to their original state at the end of the lease term. The cost of the asset retirement obligations of $2,364,000 ($2,469,000 in 2005), which is recorded in accrued integration charges and other long-term liabilities, was based on the undiscounted expected cash flows of $3,400,000 ($3,600,000 in 2005) using a discount rate of 5.50% (5.78% in 2005). The timing of the settlement of these obligations varies between one and 17 years.

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

5. Contract costs

					2006						2005
			ACCUMULATED		NET BOOK				ACCUMULATED		NET BOOK
	COST		AMORTIZATION		VALUE		COST		AMORTIZATION		VALUE
	$		$		$		$		$		$
Incentives		250,691		130,167		120,524		247,449		103,846		143,603
Transition costs		124,784		33,193		91,591		107,218		27,699		79,519
		375,475		163,360		212,115		354,667		131,545		223,122

6. Finite-life intangibles and other long-term assets

					2006
			ACCUMULATED		NET BOOK
	COST		AMORTIZATION		VALUE
	$		$		$
Internal software		77,874		34,724		43,150
Business solutions		258,566		80,103		178,463
Software licenses		120,557		78,373		42,184
Customer relationships and other		367,404		131,596		235,808
Finite-life intangibles		824,401		324,796		499,605
Deferred financing fees Deferred compensation plan (note 23) Other						6,475 9,943 9,882
Other long-term assets						26,300
Total finite-life intangibles and other long-term assets						525,905

						2005
		COST		ACCUMULATED AMORTIZATION		NET BOOK VALUE
		$		$		$
Internal software		75,088		31,056		44,032
Business solutions		230,854		51,160		179,694
Software licenses		135,991		69,644		66,347
Customer relationships and other		382,111		103,819		278,292
Finite-life intangibles		824,044		255,679		568,365
Financing lease (note 19) Deferred financing fees Deferred compensation plan (note 23) Other						1,788 3,633 7,861 4,769
Other long-term assets						18,051
Total finite-life intangibles and other long-term assets						586,416

Amortization expense of finite-life intangibles included in the consolidated statements of earnings is as follows:
		2006		2005		2004
		$		$		$
Internal software		10,839		16,731		15,003
Business solutions		35,298		29,175		23,054
Software licenses		29,983		31,653		33,905
Customer relationships and other		43,597		47,536		30,158
		119,717		125,095		102,120

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

7. Goodwill

The Company has designated September 30 as the date for the annual impairment test. The Company completed its annual goodwill impairment test as of September 30, 2006. Based on the results of this test, no impairment loss was identified.

The variations in goodwill are as follows:

							2006									2005
	IT SERVICES			BPS			TOTAL			IT SERVICES			BPS			TOTAL
	$			$			$			$			$			$
Balance, beginning of year		1,494,133			279,237			1,773,370			1,532,413			295,191			1,827,604
Acquisitions (note 17)		18,070			-			18,070			51,557			619			52,176
Purchase price adjustments (note 17)		(6,611	)		119			(6,492	)		(13,775	)		12,269			(1,506	)
Disposal of assets (subsidiaries in 2005) (note 17)		-			(13,172	)		(13,172	)		-			(16,152	)		(16,152	)
Foreign currency translation adjustment		(28,533	)		(5,357	)		(33,890	)		(76,062	)		(12,690	)		(88,752	)
Balance, end of year		1,477,059			260,827			1,737,886			1,494,133			279,237			1,773,370

8. Long-term debt

	2006		2005
	$		$
Senior U.S. unsecured notes, bearing a weighted average interest rate of 5.14% and repayable
by payments of $94,863,000 in 2009, of $97,004,300 in 2011 and $22,270,300 in 2014⁽¹⁾		214,138		222,931
Unsecured committed revolving term facility bearing interest at LIBOR rate plus 1.375% or bankers’ acceptance rate plus 1.375%, maturing in 2009⁽²⁾		587,226		-
Obligation bearing interest at 1.60% and repayable in blended monthly
instalments maturing in 2008		5,777		9,214
Balances of purchase price related to business acquisitions, non-interest bearing,
repayable in various instalments through 2008. These balances were recorded at
their discounted value using a 7% interest rate		4,399		7,241
Obligations under capital leases, bearing a weighted average interest rate of 8.28%
and repayable in blended monthly instalments maturing at various dates until 2008		781		2,005
Share of joint venture’s long-term debt
Secured term loan repayable in blended monthly payments of $540,249,
bearing interest of 5.71%, maturing in 2007		539		6,965
Other loans bearing interest at a rate of prime plus 1.75%, repaid during the year		-		684
Other		399		660
Current portion		813,259 8,242		249,700 14,899
		805,017		234,801

⁽¹⁾

The US$192,000,000 private placement financings with U.S. institutional investors is comprised of three tranches of senior unsecured notes maturing in January 2009, 2011 and 2014, and was issued on January 29, 2004 with a weighted average maturity of 6.4 years. The Senior U.S. unsecured notes contain covenants that require the Company to maintain certain financial ratios. On June 9, 2006, the Company obtained certain amendments to the definition and calculations of the ratios of the Senior U.S. unsecured notes. The initial weighted average fixed coupon rate was 4.97%. As a result of the amendments, the rate increased to 5.14%. At September 30, 2006, the Company is in compliance with these covenants.

⁽²⁾

The Company has a five-year unsecured revolving credit facility available for an amount of $1,000,000,000 maturing in December 2009. This agreement is comprised of a Canadian tranche with a limit of $850,000,000 and a U.S. tranche equivalent to $150,000,000. The interest rate charged is determined by the denomination of the amount drawn. As at September 30, 2006, an amount of $590,000,000 has been drawn upon this facility. Also, an amount of $27,975,400 has been committed against this facility to cover various letters of credit issued for clients and other parties. Financing fees of $3,572,000 were incurred during the year and were recorded in finite-life intangibles and other long-term assets. In addition to the revolving credit facility, the Company has demand lines of credit in the amounts of $25,000,000 and £2,000,000 available. At September 30, 2006, no amount had been drawn upon these facilities. The revolving credit facility contains covenants that require the Company to maintain certain financial ratios. On April 21, 2006, the Company obtained certain amendments to the definition and calculations of the ratios that take into account the impact of the restructuring activities on the unsecured revolving credit facility. At September 30, 2006, the Company is in compliance with these covenants.

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

8. Long-term debt (continued)

Principal repayments on long-term debt over the forthcoming years are as follows:	$
2007 2008 2009 2010 2011 Thereafter		7,626 3,488 94,863 587,226 97,005 22,270
Total principal payments on long-term debt		812,478

Minimum capital lease payments are as follows:	PRINCIPAL		INTEREST		PAYMENT
2007 2008	$	616 165	$	29 5	$	645 170
Total minimum capital lease payments		781		34		815

9. Capital stock

Authorized, an unlimited number without par value:

First preferred shares, carrying one vote per share, ranking prior to second preferred shares, Class A subordinate shares and Class B shares with respect to the payment of dividends;

Second preferred shares, non-voting, ranking prior to Class A subordinate shares and Class B shares with respect to the payment of dividends;

Class A subordinate shares, carrying one vote per share, participating equally with Class B shares with respect to the payment of dividends and convertible into Class B shares under certain conditions in the event of certain takeover bids on Class B shares;

Class B shares, carrying ten votes per share, participating equally with Class A subordinate shares with respect to the payment of dividends, convertible at any time at the option of the holder into Class A subordinate shares.

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

For 2006, 2005 and 2004, the Class A subordinate and the Class B shares changed as follows:

	CLASS A SUBORDINATE SHARES						CLASS B SHARES						TOTAL
	NUMBER			CARRYING VALUE			NUMBER			CARRYING VALUE			NUMBER			CARRYING VALUE
				$						$						$
Balance, September 30, 2003		368,236,503			1,435,763			33,772,168			44,868			402,008,671			1,480,631
Issued for cash⁽¹⁾		41,340,625			330,725			-			-			41,340,625			330,725
Issued as consideration for business acquisitions (note 17)		136,112			1,020			-			-			136,112			1,020
Issued upon exercise of options		1,007,651			7,854			-			-			1,007,651			7,854
Balance, September 30, 2004		410,720,891			1,775,362			33,772,168			44,868			444,493,059			1,820,230
Repurchased and cancelled⁽²⁾		(14,078,360	)		(60,998	)		-			-			(14,078,360	)		(60,998	)
Repurchased and not cancelled⁽²⁾		-			(3,665	)		-			-			-			(3,665	)
Issued upon exercise of options⁽³⁾		805,798			7,406			-			-			805,798			7,406
Balance, September 30, 2005		397,448,329			1,718,105			33,772,168			44,868			431,220,497			1,762,973
Repurchased and cancelled⁽²⁾		(108,315,500	)		(466,994	)		-			-			(108,315,500	)		(466,994	)
Repurchased and not cancelled⁽²⁾		-			(4,028	)		-			-			-			(4,028	)
Issued upon exercise of options⁽³⁾		1,220,820			11,818			-			-			1,220,820			11,818
Issued upon exercise of warrants⁽⁴⁾		7,021,096			60,260			546,131			3,577			7,567,227			63,837
Converted upon exercise of warrants⁽⁴⁾		110,140			721			(110,140	)		(721	)		-			-
Balance, September 30, 2006		297,484,885			1,319,882			34,208,159			47,724			331,693,044			1,367,606

⁽¹⁾	On May 3, 2004, the Company issued 41,340,625 Class A subordinate shares to the public and to BCE Inc. (“BCE”) for cash proceeds of $330,725,000 before share issue costs of $5,489,000 (net of income tax recoveries of $2,466,000).
⁽²⁾	On January 31, 2006, the Company’s Board of Directors authorized the renewal of a Normal Course Issuer Bid and the purchase of up to 10% of the public float of the Company’s Class A subordinate shares during the next year. The Toronto Stock Exchange subsequently approved the Company request for approval. The Issuer Bid enables the Company to purchase up to 29,288,443 Class A subordinate shares for cancellation on the open market through the Toronto Stock Exchange. The Class A subordinate shares may be purchased under the Issuer Bid commencing February 3, 2006 and ending no later than February 2, 2007, or on such earlier date when the Company completes its purchases or elects to terminate the bid. Under a similar program in 2005, 27,834,417 Class A subordinate shares could have been repurchased between February 3, 2005 and February 2, 2006. During 2006, the Company repurchased 8,374,400 Class A subordinate shares (14,896,200 in 2005) for cash consideration of $59,631,000 ($116,439,000 in 2005). The excess of the purchase price over the carrying value of Class A subordinate shares repurchased, in the amount of $22,364,000 ($51,978,000 in 2005), was charged to retained earnings. As of September 30, 2006, 905,100 of the repurchased Class A subordinate shares (846,200 in 2005) with a carrying value of $4,028,000 ($3,665,000 in 2005) and a purchase value of $6,661,000 ($7,185,000 in 2005) were held by the Company and had been paid and cancelled subsequent to the year-end.
	On January 12, 2006, the Company concluded a transaction whereby the Company repurchased from BCE for cancellation 100,000,000 of its Class A subordinate shares at a price of $8.5923 per share for consideration of $859,230,000. The excess of the purchase price over the carrying value of Class A subordinate shares repurchased, in the amount of $425,475,000, as well as share repurchase costs in the amount of $6,760,000, were charged to retained earnings.
	During 2005, the Company received and cancelled 28,360 Class A subordinate shares for consideration of $202,000 as a settlement of an account receivable accounted for as part of a 2003 business acquisition.
⁽³⁾	The carrying value of Class A subordinate shares includes $3,421,000 ($2,855,000 in 2005), which corresponds to a reduction in contributed surplus representing the value of compensation cost associated with the options exercised since inception and the value of exercised options assumed in connection with acquisitions.
⁽⁴⁾	On March 22, 2006, a warrant was exercised by one holder to purchase 4,000,000 Class A subordinate shares of the Company at a price of $6.55 each for an aggregate amount of $26,200,000. The carrying value of these Class A subordinate shares includes $14,271,000, which was previously recorded under the Warrants caption. On April 6, 2006, warrants were exercised by another holder resulting in the issuance of 3,021,096 Class A subordinate shares and 110,140 Class B shares of the Company at a price of $6.55 each for an aggregate amount of $20,510,000. At the same time, this holder converted the 110,140 Class B shares to 110,140 Class A subordinate shares at a price of $6.55 each for an aggregate amount of $721,000. In addition, on April 28, 2006, the Company’s Class B shareholders exercised their warrants totalling 435,991 Class B shares at a price of $6.55 each for an aggregate amount of $2,856,000.

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

10. Stock options, contributed surplus and warrants

A) STOCK OPTIONS

Under the Company’s stock option plan, the Board of Directors may grant, at its discretion, options to purchase Class A subordinate shares to certain employees, officers, directors and consultants of the Company and its subsidiaries. The exercise price is established by the Board of Directors and is equal to the closing price of the Class A subordinate shares on the Toronto Stock Exchange (“TSX”) on the day preceding the date of the grant. Options generally vest one year from the date of grant conditionally upon the achievement of objectives and must be exercised within a ten-year period, except in the event of retirement, termination of employment or death. As at September 30, 2006, 39,923,069 Class A subordinate shares have been reserved for issuance under the Stock option plan.

The following table presents information concerning all outstanding stock options granted by the Company for the years ended September 30:

				2006					2005					2004
	NUMBER OF OPTIONS			WEIGHTED AVERAGE EXERCISE PRICE PER SHARE		NUMBER OF OPTIONS			WEIGHTED AVERAGE EXERCISE PRICE PER SHARE		NUMBER OF OPTIONS			WEIGHTED AVERAGE EXERCISE PRICE PER SHARE
				$					$					$
Outstanding, beginning of year Granted		26,538,654 8,738,601			8.79 8.06		25,537,300 5,079,636			9.20 8.48		20,459,515 7,577,166			9.69 7.90
Exercised Forfeited and expired		(1,220,820) (4,099,724	)		6.87 9.27		(805,798) (3,272,484	)		5.61 11.60		(1,007,651) (1,491,730	)		5.61 9.71
Outstanding, end of year		29,956,711			8.57		26,538,654			8.79		25,537,300			9.20
Exercisable, end of year		21,588,443			8.80		21,308,252			8.89		16,492,063			9.93

The following table summarizes information about outstanding stock options granted by the Company as at September 30, 2006:

OPTIONS OUTSTANDING

OPTIONS EXERCISABLE

WEIGHTED

AVERAGE

REMAINING

WEIGHTED AVERAGE

RANGE OF EXERCISE PRICE

NUMBER OF OPTIONS

CONTRACTUAL LIFE (YEARS)

EXERCISE

PRICE

NUMBER OF OPTIONS

EXERCISE PRICE

1.64 to 2.32

151,487

2.23

151,487

2.23

4.19 to 6.98

5,537,899

6.40

3,003,220

6.20

7.00 to 7.87

5,756,590

7.74

5,719,755

7.74

8.00 to 8.99

14,537,769

8.62

8,831,015

8.67

9.05 to 10.53

1,752,228

9.85

1,662,228

9.87

11.34 to 14.85

910,163

13.45

910,163

13.45

15.01 to 20.60

1,287,435

16.24

1,287,435

16.24

24.51 to 26.03

23,140

25.99

23,140

25.99

29,956,711

8.57

21,588,443

8.80

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

The following table presents the weighted average assumptions used to determine the stock-based compensation expense recorded in cost of services, selling and administrative expenses using the Black-Scholes option pricing model for the years ended September 30:

	2006		2005		2004
Compensation expense ($)		12,895		20,554		25,559
Dividend yield (%)		0.00		0.00		0.00
Expected volatility (%)		36.13		45.80		47.40
Risk-free interest rate (%)		3.97		3.92		3.93
Expected life (years)		5		5		5
Weighted average grant date fair value ($)		3.13		3.85		3.68

B) CONTRIBUTED SURPLUS

The following table summarizes the contributed surplus activity since September 30, 2003:

	$
Balance, September 30, 2003	26,414
Compensation cost of exercised options assumed in connection with acquisitions	(2,094	)
Fair value of options granted	25,559
Balance, September 30, 2004	49,879
Compensation cost of exercised options assumed in connection with acquisitions	(1,136	)
Compensation cost associated with exercised options	(1,719	)
Fair value of options granted	20,554
Balance, September 30, 2005	67,578
Compensation cost of exercised options assumed in connection with acquisitions	(152	)
Compensation cost associated with exercised options	(3,269	)
Fair value of options granted	12,895
Carrying value of warrants expired⁽¹⁾	5,384
Balance, September 30, 2006	82,436

⁽¹⁾On June 13, 2006, 1,118,210 warrants of one of the holders expired, resulting in a transfer of their carrying value of $5,384,000 from the Warrants to the Contributed surplus caption.

C) WARRANTS

In connection with the signing of a strategic outsourcing contract and of a business acquisition in 2001, the Company granted warrants entitling the holders to subscribe to up to 5,118,210 Class A subordinate shares. The exercise prices were determined using the average closing price for Class A subordinate shares at a date and for a number of days around the respective transaction dates.

In addition to the warrants to purchase up to 5,118,210 Class A subordinate shares referred to above (the “Initial Warrants”), the Company issued to the majority shareholders and BCE, warrants to subscribe in the aggregate up to 3,865,014 Class A subordinate shares and 697,044 Class B shares pursuant to their pre-emptive rights contained in the articles of incorporation of the Company, with substantially similar terms and conditions as those of the Initial Warrants.

As at September 30, 2006, all of these warrants expired or have been exercised.

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

11. Earnings per share

The following table sets forth the computation of basic and diluted earnings per share for the years ended September 30:

					2006						2005						2004
	NET EARNINGS (NUMERATOR)		WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING⁽¹⁾ (DENOMINATOR)		EARNINGS PER SHARE		NET EARNINGS (NUMERATOR)		WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (DENOMINATOR)		EARNINGS PER SHARE		NET EARNINGS (NUMERATOR)		WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (DENOMINATOR)		EARNINGS PER SHARE
	$				$		$				$		$				$
		146,533		362,783,618		0.40		216,488		439,349,210		0.49		194,041		419,510,503		0.46
Dilutive options²		-		1,224,463		-		-		1,077,743		-		-		1,994,835		-
Dilutive warrants²		-		698,575		-		-		1,146,559		-		-		1,595,014		-
		146,533		364,706,656		0.40		216,488		441,573,512		0.49		194,041		423,100,352		0.46

⁽¹⁾

The 108,374,400 Class A subordinate shares repurchased during the year (14,924,560 in 2005 and nil in 2004) were excluded from the calculation of earnings per share as of the date of repurchase.

⁽²⁾

The calculation of the dilutive effects excludes all anti-dilutive options and warrants that would not be exercised because their exercise price is higher than the average market value of a Class A subordinate share of the Company for each of the periods shown in the table. The number of excluded options was 18,255,009, 22,140,883 and 13,194,520 for the years ended September 30, 2006, 2005 and 2004, respectively. The number of excluded warrants was nil for the year ended September 30, 2006 and was 2,113,041 for both years ended September 30, 2005 and 2004.

12. Amortization

	2006		2005		2004
	$		$		$
Amortization of capital assets		35,138		41,420		46,804
Amortization of contract costs related to transition costs		14,914		14,502		9,633
Amortization of ӿnite-life intangibles (note 6)		119,717		125,095		102,120
Impairment of contract costs and finite-life intangibles⁽¹⁾		997		18,266		4,034
		170,766		199,283		162,591
Amortization of contract costs related to incentives (presented as reduction of revenue)		24,294		28,314		29,734
Impairment of contract costs related to incentives (presented as reduction of revenue)¹		2,308		3,336		-
		197,368		230,933		192,325
Amortization of other long-term assets (presented in costs of services, selling and administrative and interest on long-term debt)		2,392		1,032393		393
		199,760		231,965		192,718

⁽¹⁾ The impairment of contract costs and finite-life intangibles relate to certain non-performing assets that are no longer expected to provide future value.

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

13. Restructuring costs related to specific items

On March 29, 2006, the Company announced a restructuring plan impacting members located primarily in MontrÉal and Toronto, of which a significant portion was related to lower than expected BCE work volumes. Approximately 1,000 positions were eliminated as of September 30, 2006. Under the terms of the contract agreement signed on January 12, 2006 between BCE and the Company, BCE agreed to share in severance costs applicable to head count reductions in excess of 100 positions, up to a maximum of $10,000,000.

Total restructuring costs related to specific items to be incurred will approximate $90,000,000, of which $57,000,000 (net of the BCE contribution) will be for severance and $33,000,000 for the consolidation and closure of facilities. The amount of $90,000,000 will be split by segments as follows: $70,300,000 for IT services, $8,000,000 for BPS and $11,700,000 for Corporate.

The following table shows the details of the restructuring costs related to specific items recorded in the statement of earnings during the year ended September 30, 2006:

	SEVERANCE			CONSOLIDATION AND CLOSURE OF FACILITIES		TOTAL
	$			$		$
IT services		50,734			12,747		63,481
BPS		2,343			315		2,658
Corporate		7,894			2,754		10,648
Restructuring costs related to specific items		60,971			15,816		76,787
BCE contribution⁽¹⁾		(9,521	)		-		(9,521	)
Total restructuring costs related to specific items		51,450			15,816		67,266

⁽¹⁾ The amount receivable from BCE at September 30, 2006 amounts to $2,177,000.

The following table shows the components of the restructuring provision, included in accrued compensation, in accounts payable and accrued liabilities as well as in accrued integration charges and other long-term liabilities:

	SEVERANCE			CONSOLIDATION AND CLOSURE OF FACILITIES			TOTAL
	$			$			$
Balance, October 1, 2005		-			-			-
New restructuring costs related to specific items		60,971			15,816			76,787
Foreign currency translation adjustment		60			(33	)		27
Payments during 2006		(52,429	)		(9,027	)		(61,456	)
Non-cash portion of restructuring costs related to specific items		-			(1,311	)		(1,311	)
Balance, September 30, 2006⁽¹⁾		8,602			5,445			14,047

⁽¹⁾	Of the total balance remaining, $8,602,000 is included in accrued compensation, $3,855,000 is included in accounts payable and accrued liabilities and $1,590,000 is included in accrued integration charges and other long-term liabilities.

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

14. Sale of right

On June 15, 2005, the Company entered into an arrangement with a financial institution. Under this arrangement, in exchange for cash consideration of $13,500,000, the Company sold a right to access the Company’s Canadian Credit Union (“Credit Union”) clients allowing the financial institution to offer them its business solutions. A portion of this consideration in the amount of $2,500,000 has been recorded as long-term deferred revenue, included in accrued integration charges and other long-term liabilities, and will be reversed to earnings upon certain conditions being met. Additional consideration, up to a maximum of $10,000,000, may be received by the Company based on the number of Credit Union clients transitioning to the financial institution’s business solutions. The Company will continue to support or provide services to the Credit Unions with its current solutions and methodologies until this transition is completed. As a result of the above transaction, contract costs and business solutions relating to the Credit Unions in the amount of $5,106,000 and $4,495,000, respectively, were impaired and included in amortization expense.

15. Income taxes

The income tax provision is as follows:
	2006			2005		2004
	$			$		$
Current		105,198			78,476		57,615
Future		(34,225	)		35,650		55,626
		70,973			114,126		113,241

The Company’s effective income tax rate differs from the combined Federal and Provincial Canadian statutory tax rate as follows:

	2006			2005			2004
	%			%			%
Canadian statutory tax rate		31.7			31.0			31.5
Effect of provincial and foreign tax rate differences		2.5			3.7			2.1
Benefit arising from investment in subsidiaries		(4.0	)		(3.1	)		(1.9	)
Non-deductible stock options		1.9			1.9			2.9
Other non-deductible items		1.0			0.3			0.8
Impact on future tax assets and liabilities resulting from tax rate changes		(0.9	)		-			-
Valuation allowance relating to tax benefits on losses		-			0.1			0.9
Other		0.4			0.3			1.6
Effective income tax rate		32.6			34.2			37.9

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

Future income tax assets and liabilities are as follows at September 30:
	2006			2005
	$			$
Future income tax assets:
Accrued integration charges and accounts payable and accrued liabilities		29,676			37,373
Tax benefits on losses carried forward		78,901			82,132
Capital assets, contract costs and finite-life intangibles and other long-term assets		2,194			946
Accrued compensation		21,516			19,263
Allowance for doubtful accounts		1,359			2,241
Share issue costs		1,394			2,865
Other		5,766			4,628
		140,806			149,448
Future income tax liabilities:
Capital assets, contract costs and finite-life intangibles and other long-term assets		240,552			253,134
Work in progress		14,536			28,092
Goodwill		15,577			10,699
Refundable tax credits on salaries		26,545			32,400
Other		3,996			15,043
		301,206			339,368
Valuation allowance		24,641			27,507
Future income taxes, net		(185,041	)		(217,427	)
Future income taxes are classfied as follows:
		$			$
Current future income tax assets		33,728			22,118
Long-term future income tax assets		25,127			46,601
Current future income tax liabilities		(30,384	)		(47,163	)
Long-term future income tax liabilities		(213,512	)		(238,983	)
Future income tax liabilities, net		(185,041	)		(217,427	)

At September 30, 2006, the Company had $213,614,000 in non-capital losses carried forward, which expire at various dates to 2022. The Company recognized a future tax asset of $78,901,000 on the non-capital losses carried forward and recognized a valuation allowance of $24,641,000 in relation to these losses where their realization is unlikely. Should this valuation allowance be reversed, goodwill would be reduced by approximately $23,356,000 and income tax expense would be reduced by approximately $1,285,000.

Foreign earnings of certain of the Company’s subsidiaries would be taxed only upon their repatriation to Canada. The Company has not recognized a future income tax liability for these retained earnings as management does not expect them to be repatriated. A future income tax liability will be recognized when the Company expects that it will recover those undistributed earnings in a taxable matter, such as the sale of the investment or through the receipt of dividends. On remittance, certain countries impose withholding taxes that, subject to certain limitations, are then available for use as tax credits against a federal or provincial income tax liability, if any.

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

16. Costs of services, selling and administrative

Tax credits netted against costs of services, selling and administrative are as follows:

	2006			2005			2004
	$			$			$
Costs of services, selling and administrative		3,059,424			3,218,668			2,739,927
Tax credits (note 3)		(62,903	)		(67,110	)		(62,531	)
		2,996,521			3,151,558			2,677,396

17. Investments in subsidiaries and joint ventures

For all business acquisitions, the Company began recording the results of operations of the acquired entities as of their respective effective acquisition dates.

2006 TRANSACTIONS

A) ACQUISITIONS

The Company made the following acquisitions:

-	Plaut Consulting SAS (“Plaut”) - On June 1, 2006, the Company acquired all of the outstanding shares of a French management and technology consulting firm. Recognized for its expertise in implementing SAP solutions, Plaut guides its worldwide clients through organizational and information systems transformation projects.
-	Pangaea Systems Inc. (“Pangaea”) - On March 1, 2006, the Company acquired all of the outstanding shares of an information technology services company based in Alberta, Canada. Pangaea specializes in development of internet-based solutions and related services mostly in the public sector, as well as in the energy and financial services sectors.
-	ERS Informatique Inc. (“ERS”) - On April 7, 2006, one of the Company’s joint ventures acquired all outstanding shares of an information technology services company based in Québec, Canada. ERS specializes in software development of applications mostly in the public sector.

The acquisitions were accounted for using the purchase method. The purchase price allocations shown below are preliminary and based on the Company’s management’s best estimates. The final purchase price allocations are expected to be completed as soon as the Company’s management has gathered all the significant information believed to be available and considered necessary in order to finalize these allocations.

	PLAUT			OTHER			TOTAL
	$			$			$
Non-cash working capital items		(580	)		(2,298	)		(2,878	)
Capital assets		28			656			684
Customer relationships and other		5,565			358			5,923
Goodwill⁽¹⁾		11,328			6,742			18,070
Assumption of long-term debt		-			(80	)		(80	)
Future income taxes		1,698			738			2,436
d		18,039			6,116			24,155
Assumption of bank indebtedness		(300	)		(49	)		(349	)
Net assets acquired		17,739			6,067			23,806
Consideration
Cash		16,052			5,161			21,213
Holdback payable		1,242			516			1,758
Acquisition costs		445			390			835
		17,739			6,067			23,806

⁽¹⁾ Goodwill is not deductible for tax purposes.

In connection with the acquisitions completed in 2006, the Company has adopted certain plans to restructure and integrate the acquired businesses. Consequently, the Company established provisions related to leases for premises occupied by the acquired businesses, which the Company plans to vacate, in the amount of $936,000, as well as costs related to the planned termination of certain employees of the acquired businesses performing functions already available through its existing structure, in the amount of $1,518,000.

B) DISPOSALS

On December 31, 2005, the Company disposed of its electronic switching assets to Everlink Payment Services Inc. for cash consideration of $27,559,000. The net assets disposed of included goodwill of $13,172,000 and the transaction resulted in a gain of $10,475,000.

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

C) BALANCE OF INTEGRATION CHARGES

For American Management Systems, Incorporated (“AMS”) and COGNICASE Inc. (“Cognicase”), the components of the integration charges related to business acquisitions included in accounts payable and accrued liabilities and accrued integration charges and other long-term liabilities are as follows:

	CONSOLIDATION AND CLOSURE OF FACILITIES			SEVERANCE			TOTAL
	$			$			$
Balance, October 1, 2005		57,118			5,194			62,312
Adjustments to initial provision⁽¹⁾		(10,188	)		(1,688	)		(11,876	)
Foreign currency translation adjustment		(998	)		152			(846	)
Paid during 2006		(10,922	)		(1,371	)		(12,293	)
Balance, September 30, 2006⁽²⁾		35,010			2,287			37,297

⁽¹⁾ Have been recorded as a decrease of goodwill.

⁽²⁾ Of the total balance remaining, $8,212,000 is included in accounts payable and accrued liabilities and $29,085,000 is included in accrued integration charges and other long-term liabilities.

D) MODIFICATIONS TO PURCHASE PRICE ALLOCATIONS

The Company modified the purchase price allocations and made adjustments relating to certain business acquisitions resulting in a net decrease of future income tax assets, integration charges and cash of $4,477,000, $8,661,000 and $1,087,000, respectively, and a net increase of customer relationships, long-term debt and non-cash working capital items of $325,000, $463,000 and $3,533,000, respectively, whereas goodwill decreased by $6,492,000.

E) CONSIDERATION OF PURCHASE PRICE

During the year 2006, the Company paid balances of purchase price relating to certain business acquisitions resulting in a net decrease of long-term debt by $2,136,000.

2005 TRANSACTIONS

A) ACQUISITIONS

The Company increased its interest in one of its joint ventures and made five acquisitions of which the most significant were the following:

-	AGTI Services Conseils Inc. (“AGTI”) - On December 1, 2004, the Company purchased the remaining outstanding shares of a Montréal-based information technology consulting enterprise specializing in business and IT consulting, project and change management and productivity improvement. The acquisition was accounted for as a step-by-step purchase. The Company previously held 49% of the outstanding shares of AGTI and accounted for its investment using proportionate consolidation.
-	MPI Professionals (“MPI”) - On August 10, 2005, the Company acquired substantially all of the assets of MPI. MPI provides management solutions for the financial services sector.
-	Silver Oak Partners Inc. (“Silver Oak”) - On September 2, 2005, the Company acquired all outstanding shares of Silver Oak. Silver Oak is a leading provider of spend management solutions to both the government and commercial sectors.

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

17. Investments in subsidiaries and joint ventures (continued)

The acquisitions were accounted for using the purchase method. The purchase price allocations shown below are preliminary and based on the Company’s management’s best estimates. The Company has subsequently completed its purchase price allocations and these modifications are presented in Note d of the year subsequent to the acquisition.

	AGTI			OTHER			TOTAL
	$			$			$
Non-cash working capital items		(1,302	)		(397	)		(1,699	)
Capital assets		368			521			889
Internal software		9			17			26
Business solutions		-			7,315			7,315
Customer relationships and other		17,493			7,918			25,411
Goodwill⁽¹⁾		32,471			19,705			52,176
Future income taxes		(4,561	)		(2,272	)		(6,833	)
		44,478			32,807			77,285
Cash acquired		2,702			2,569			5,271
Net assets acquired		47,180			35,376			82,556
Consideration
Cash		47,067			26,707			73,774
Holdback payable		-			8,450			8,450
Acquisition costs		113			219			332
		47,180			35,376			82,556

⁽¹⁾ Includes $5,649,000 of goodwill deductible for tax purposes.

In connection with the acquisitions completed in 2005, the Company has adopted certain plans to restructure and integrate the acquired businesses. Consequently, the Company established provisions related to leases for premises occupied by the acquired businesses, which the Company plans to vacate, in the amount of $2,736,000, as well as costs related to the planned termination of certain employees of the acquired businesses performing functions already available through its existing structure, in the amount of $1,637,000.

B) DISPOSALS

On January 25, 2005, the Company disposed of its investment in Nexxlink Technologies Inc. at a price of $6.05 per share for total proceeds of $20,849,000, resulting in a pre-tax gain of $4,216,000. This investment had previously been accounted for using the equity method resulting in an investment income of $321,000 and $488,000 in 2005 and 2004, respectively.

On March 8, 2005, the Company disposed of the principal assets of Keyfacts Entreprises Canada Inc. (“Keyfacts”), a wholly-owned subsidiary of the Company, for proceeds of $3,524,000 of which an outstanding balance of sale of $1,000,000 was received in 2006. The net assets disposed of included goodwill of $2,082,000. The transaction resulted in a net loss of $1,580,000.

On March 10, 2005, the Company disposed of its U.S. Services to Credit Unions business and its CyberSuite product line for proceeds of $29,186,000 (US$24,000,000) for which there is a balance of sale of $2,189,000 (US$1,800,000). The net assets disposed of, including goodwill of $14,070,000, resulted in a net loss of $1,419,000. During the year ended September 30, 2005, a sale price adjustment was made that increased the net loss by $296,000 (US$239,000) after $174,000 (US$140,000) of tax effect, and reduced the balance of sale by $470,000 (US$379,000). The balance of sale was received in 2006.

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

C) BALANCE OF INTEGRATION CHARGES

For AMS and Cognicase, the components of the integration charges related to business acquisitions included in accounts payable and accrued liabilities and accrued integration charges and other long-term liabilities are as follows:

	CONSOLIDATION AND CLOSURE OF FACILITIES			SEVERANCE			TOTAL
	$			$			$
Balance, October 1, 2004		68,977			20,250			89,227
Adjustments to initial provision⁽¹⁾		7,091			3,230			10,321
Foreign currency translation adjustment		(4,458	)		(1,096	)		(5,554	)
Paid during 2005		(14,492	)		(17,190	)		(31,682	)
Balance, September 30, 2005⁽²⁾		57,118			5,194			62,312

⁽¹⁾	Have been recorded as an increase of goodwill.
⁽²⁾	Of the total balance remaining, $21,596,000 is included in accounts payable and accrued liabilities and $40,716,000 is included in accrued integration charges and other long-term liabilities.

D) MODIFICATIONS TO PURCHASE PRICE ALLOCATIONS

The Company modified the purchase price allocations and made adjustments relating to certain business acquisitions resulting in a net decrease of non-cash working capital items and capital assets of $23,080,000 and $1,895,000, respectively, and a net increase of future income tax assets, finite-life intangibles and other long-term assets and cash of $6,227,000, $17,648,000 and $2,606,000, respectively, whereas goodwill decreased by $1,506,000. Also, $12,500,000 of goodwill, arising from the acquisition of AMS, was reallocated from the IT services line of business to the BPS line of business.

2004 TRANSACTIONS

A) ACQUISITIONS

The Company made the following acquisitions:

AMS - On May 3, 2004, the Company acquired all outstanding shares of AMS, a business services and IT consulting firm to the government, healthcare, financial services and communications industries.

Other - On October 28, 2003, the Company acquired all outstanding shares of Apex Consulting Group Inc, a business service, that provides systems integration and consulting with a focus on business process improvement and new technologies. On January 14, 2004, it also acquired certain assets of GDS & Associates Systems Ltd., which provides systems integration and consulting services to clients primarily within the government sector.

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

17. Investments in subsidiaries and joint ventures (continued)

The acquisitions were accounted for using the purchase method. The purchase price allocations shown below are preliminary and based on the Company’s management’s best estimates. The Company has subsequently completed its purchase price allocations and these modifications are presented in Note d of the year subsequent to the acquisition.

	AMS			OTHER			TOTAL
	$			$			$
Non-cash working capital items		(200,439	)		(936	)		(201,375	)
Capital assets		13,475			459			13,934
Internal software		7,129			-			7,129
Business solutions		83,814			-			83,814
Software licenses		7,916			-			7,916
Customer relationships and other		177,800			3,452			181,252
Other long-term assets		3,881			-			3,881
Future income taxes		13,659			12			13,671
Goodwill⁽¹⁾		549,519			6,940			556,459
Assumption of long-term debt		-			(70	)		(70	)
Accrued integration charges and other long-term liabilities		(72,760	)		-			(72,760	)
		583,994			9,857			593,851
Cash acquired		616,237			224			616,461
Net assets acquired		1,200,231			10,081			1,210,312
Consideration
Cash		1,179,156			8,449			1,187,605
Acquisition costs		21,075			612			21,687
Issuance of 136,112 Class A subordinate shares⁽²⁾		-			1,020			1,020
		1,200,231			10,081			1,210,312

⁽¹⁾	Includes $35,749,000 of goodwill deductible for tax purposes.
⁽²⁾	The value of the shares issued as consideration for the business acquisition was determined using the average closing share price on the TSX over a reasonable period before and after the date the terms of the business combination were agreed to and announced.

In connection with the acquisitions completed in 2004, the Company has adopted certain plans to restructure and integrate the acquired businesses. Consequently, the Company established provisions related to leases for premises occupied by the acquired businesses, which the Company plans to vacate, in the amount of $43,290,000, as well as costs related to the planned termination of certain employees of the acquired businesses performing functions already available through its existing structure, in the amount of $96,981,000.

B) DISPOSALS

The Company sold the assets related to the information services of the banking and investment group, one of the divisions presented in the discontinued operations, for cash consideration of $47,000,000, which resulted in a gain on sale of $11,217,000 after tax and a goodwill reduction of $20,355,000.

The Company sold three other divisions that were classified as discontinued operations for a total consideration of $40,350,000, which is comprised of cash consideration of $17,560,000, a balance of sale of $6,000,000, an interest-bearing note of $2,750,000, an assumption of liabilities of $540,000 and $13,500,000 of shares of Nexxlink Technologies Inc. These transactions resulted in a loss of approximately $1,400,000.

The Company sold its interest in a joint venture and non-significant assets for cash consideration of $4,260,000, net of $4,235,000 of cash disposed. These transactions resulted in a nominal gain.

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

C) BALANCE OF INTEGRATION CHARGES

	CONSOLIDATION AND CLOSURE OF FACILITIES			SEVERANCE			TOTAL
	$			$			$
Balance, October 1, 2003		41,029			9,580			50,609
New integration charges		43,102			96,360			139,462
Adjustments to initial provision⁽¹⁾		678			(5,963	)		(5,285	)
Foreign currency translation adjustment		(3,028	)		(6,817	)		(9,845	)
Paid during 2004		(12,804	)		(72,910	)		(85,714	)
Balance, September 30, 2004⁽²⁾		68,977			20,250			89,227

⁽¹⁾ Have been recorded as a reduction of goodwill.

⁽²⁾ Of the total balance remaining, $37,631,000 is included in accounts payable and accrued liabilities and $51,596,000 is included in accrued integration charges and other long-term liabilities.

D) MODIFICATIONS TO PURCHASE PRICE ALLOCATIONS

The Company modified the purchase price allocations and made adjustments relating to certain business acquisitions resulting in a net decrease of goodwill of $11,326,000 and a net increase of non-cash working capital items, future income taxes and cash of $8,058,000, $115,000 and $3,153,000, respectively.

18. Discontinued operations

There were no operations discontinued in 2006.

On March 8, 2005, the Company disposed of the principal assets of Keyfacts, a wholly-owned subsidiary of the Company. Keyfacts is a provider of information search and retrieval services for investigative purposes.

Also, on March 10, 2005, the Company disposed of its U.S. Services to Credit Unions business and its CyberSuite product line. U.S. Services to Credit Unions was a provider of back-office banking processing services for credit unions in the United States.

The following table presents summarized financial information related to discontinued operations:

	2006		2005			2004
	$		$			$
Revenue		-		17,495			77,930
Operating expenses		-		12,585			56,955
Amortization		-		610			3,708
Earnings before income taxes		-		4,300			17,267
Income taxes		-		7,510			8,612
Net (loss) gain from discontinued operations		-		(3,210	)		8,655

Net cash provided by operating activities		-		759			2,924
Net cash provided by investing activities		-		-			1,174
Net cash used in financing activities		-		-			(30	)
Net cash and cash equivalents provided by discontinued operations		-		759			4,068

Discontinued operations were included in the BPS segment in 2005 and in both BPS and IT segments in 2004. As at September 30, 2005, operating expenses from discontinued operations were reduced by pre-tax gains from disposal of $5,012,000 ($17,267,000 in 2004). Also, the income tax expense does not bear a normal relation to earnings before income taxes since the sale included goodwill of $16,152,000, which had no tax basis ($23,658,000 in 2004).

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

19. Joint ventures: supplementary information

The Company’s proportionate share of its joint venture investees’ operations included in the consolidated financial statements is as follows:

			2006			2005
			$			$
BALANCE SHEETS Current assets Non-current assets Current liabilities Non-current liabilities				41,646 16,407 18,285 2,029			53,559 19,429 29,069 7,226

	2006			2005			2004
	$			$			$
STATEMENTS OF EARNINGS
Revenue	90,122			86,916			138,570
Expenses	82,191			78,011			129,923
Net earnings	7,931			8,905			8,647
STATEMENTS OF CASH FLOWS
Cash provided by (used in):
Operating activities	1,578			28,634			5,247
Investing activities	(13,955	)		(23,205	)		(17,008	)
Financing activities	1,430			8,147			599

FINANCING LEASE

On November 1, 2002, one of the Company’s joint ventures, acting as the lessor, entered into a 50-month lease agreement for information, system and technology assets, as part of an existing outsourcing contract with one of its major clients. This agreement was accounted for as a direct financing lease. As at September 30, 2006, the remaining balance of $1,796,000 is included in prepaid expenses and other current assets. As at September 30, 2005, $12,434,000 was included in prepaid expenses and other current assets and $1,788,000 was included in finite-life intangibles and other long-term assets. The effective interest rate of the lease agreement is 5.02%.

20. Supplementary cash flow information

a) Net change in non-cash working capital items is as follows for the years ended September 30:

	2006			2005			2004
	$			$			$
Accounts receivable		6,771			62,687			41,151
Work in progress		14,659			(1,150	)		(25,211	)
Prepaid expenses and other current assets		(12,010	)		13,921			1,238
Accounts payable and accrued liabilities		(16,956	)		(89,503	)		(96,537	)
Accrued compensation		3,699			(3,601	)		(39,143	)
Deferred revenue		(14,848	)		13,519			16,892
Income taxes		11,314			(6,449	)		(109,766	)
		(7,371	)		(10,576	)		(211,376	)

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

b) Non-cash operating, investing and financing activities related to continuing operations are as follows for the years ended September 30:

	2006			2005			2004
	$			$			$
Operating activities
Prepaid expenses and other current assets		(3,006	)		-			-
Accounts payable and accrued liabilities		(524	)		7,185			-
Accrued integration charges and other long-term liabilities		-			-			7,583
		(3,530	)		7,185			7,583
Investing activities
Business acquisitions		-			-			(1,020	)
Proceeds from sale of assets and businesses		-			-			13,500
Purchase of capital assets		-			-			(1,393	)
Payment of contract costs		-			-			(7,583	)
Proceeds from disposal of finite-life intangibles		3,006			(11,050	)		(13,500	)
		3,006			(11,050	)		(9,996	)
Financing activities
Increase in obligations under capital leases		-			11,050			1,393
Issuance of shares		-			-			1,020
Repurchase of Class A subordinate shares		524			(7,185	)		-
		524			3,865			2,413

c) Interest paid and income taxes paid are as follows for the years ended September 30:

	2006		2005		2004
	$		$		$
Interest paid		40,255		17,965		21,477
Income taxes paid		61,365		66,534		143,405

21. Segmented information

The Company has two lines of business (“LOB”), IT services and BPS’, in addition to Corporate services. The focus of these LOBs is as follows:

-	The IT services LOB provides a full-range of IT services, including systems integration, consulting and outsourcing to clients located in North America, Europe and Asia Pacific. The Company professionals and centers of excellence facilities in North America, Europe and India also provide IT and BPS services to clients as an integral part of our homeshore, nearshore and offshore delivery model..
-	Services provided by the BPS LOB include business processing for the financial services sector, as well as other services such as payroll and document management services.

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

21. Segmented information (continued)

The following presents information on the Company’s operations based on its management structure:

2006

IT SERVICES

BPS

CORPORATE

TOTAL

Revenue

3,061,513

416,110

3,477,623

Earnings (loss) before interest on long-term debt, other income, gain on sale of assets, restructuring costs related to specific items and income taxes⁽¹⁾

334,044

55,207

(78,915

)

310,336

Total assets

2,861,325

599,021

231,686

3,692,032

⁽¹⁾ Amortization included in IT services, BPS and Corporate is $165,522,000, $22,556,000 and $11,682,000, respectively, as at September 30, 2006.

								2005
	IT SERVICES		BPS		CORPORATE			TOTAL
Revenue	$	3,239,656	$	446,330	$	-		$	3,685,986
Earnings (loss) before interest on long-term debt, other income, gain on sale and earnings from an investment in an entity subject to significant influence, income taxes and discontinued operations⁽¹⁾		360,379		70,401		(84,635	)		346,145
Total assets		2,938,386		676,626		371,647			3,986,659

⁽¹⁾ Amortization included in IT services, BPS and Corporate is $191,002,000, $30,921,000 and $10,042,000, respectively, as at September 30, 2005.

								2004
	IT SERVICES		BPS		CORPORATE			TOTAL
			$$					$$
Revenue		2,721,306		428,764		-			3,150,070
Earnings (loss) before interest on long-term debt, other income, gain on sale and earnings from an investment in an entity subject to significant influence, income taxes and discontinued operations⁽¹⁾		326,043		72,394		(88,354	)		310,083
Total assets		3,283,949		708,649		323,917			4,316,515

⁽¹⁾ Amortization included in IT services, BPS and Corporate is $168,931,000, $15,904,000 and $7,883,000, respectively, as at September 30, 2004.

The following table provides information for capital assets based on the LOBs:

	2006		2005
	$		$
Capital assets
IT services		77,155		70,693
BPS		12,584		15,595
Corporate		30,293		30,100
		120,032		116,388

The accounting policies of each segment are the same as those described in the summary of significant accounting policies (see Note 2). The figures are presented net of intersegment sales and transfers, which are priced as if the sales or transfers were to third parties.

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

GEOGRAPHIC INFORMATION

The following table sets out certain geographic market information based on the client’s location:

	2006		2005		2004
	$		$		$
Revenue
Canada		2,092,026		2,211,191		2,161,818
United States		1,151,260		1,195,346		797,411
Europe and Asia Pacific		234,337		279,449		190,841
		3,477,623		3,685,986		3,150,070

Capital assets and goodwill are not disclosed by geographic areas as this financial information is not used to produce the general purpose financial statements. All the Company’s business units share the capital asset infrastructure; therefore, providing geographic information for capital assets and goodwill is impracticable.

22. Related party transactions

At September 30, 2005, BCE exercised significant influence over the Company’s operating, financing and investing activities through its 29.75% ownership interest and through the business volume originating from BCE, together with its subsidiaries and affiliates. On December 16, 2005, the Company reached an agreement with BCE, which was finalized on January 12, 2006, to purchase 100,000,000 of Class A subordinate shares of the Company. As a consequence, BCE lost its significant influence over the Company’s operating, financing and investing activities. During the period from October 1, 2005 to January 12, 2006, the Company generated revenue of $126,108,000 and purchased BCE’s services for $26,471,000. During 2006, the volume of business with that party, its subsidiaries and affiliates represented 11.9% of total Company revenue.

Transactions and resulting balances for the previous years, which were measured at commercial rate (exchange amount), are presented below:

	2005		2004
	$		$
Revenue		526,935		516,968
Purchase of services		121,184		99,881
Accounts receivable		21,632		16,730
Work in progress		14,209		5,894
Contract costs		14,103		17,916
Accounts payable and accrued liabilities		1,018		8,343
Deferred revenue		1,978		1,249

In the normal course of business, the Company is party to contracts with Innovapost, a joint venture, pursuant to which the Company is its preferred IT supplier. The Company exercises significant influence over Innovapost’s operating, financing and investing activities through its 49% ownership interest.

Transactions and resulting balances, which were measured at commercial rate (exchange amount), are presented below:

	2006		2005		2004
	$		$		$
Revenue		100,994		102,699		94,607
Accounts receivable		9,490		4,112		3,622
Work in progress		1,528		1,290		1,988
Prepaid expenses and other current assets		-		2,019		1,815
Contract costs		16,239		17,301		19,696
Accounts payable and accrued liabilities		147		1,254		1,113
Deferred revenue		509		-		946

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

22. Related party transactions (continued)

On December 5, 2005, the Company leased a private aircraft for business purposes from a leasing company that had acquired it from a limited partnership of which a director of the Company is the sole limited partner. The transaction was measured at the exchange amount, which was supported by independent evidence at the date of the transaction.

23. Employee future benefits

Generally, the Company does not offer pension plan or post-retirement benefits to its employees with the exception of the following:

Underwriters Adjustment Bureau Ltd. (“UAB”) maintained a post-employment benefits plan to cover the former UAB retired employees. The post-employment benefits liability totaled $6,117,000 and $6,584,000, as at September 30, 2006 and 2005. There was no related expense for the years ended September 30, 2006, 2005 and 2004.

With the acquisition of AMS, the Company assumed defined contribution pension plans. For the years ended September 30, 2006, 2005 and 2004, the plan expense was $4,076,000, $5,373,000 and $2,059,000, respectively.

The Company maintains a 401(k) defined contribution plan covering substantially all U.S. employees. The Company matches employees’ contributions to a maximum of $1,000 per year. For the years ended September 30, 2006, 2005 and 2004, the amounts of the Company’s contributions were $4,697,000, $5,634,000 and $2,784,000, respectively.

The Company maintains a non-qualified deferred compensation plan covering some of its U.S. management. A trust was established so that the plan assets could be segregated; however, the assets are subject to the Company's general creditors in the case of bankruptcy. The assets, composed of investments, vary with employees’ contributions and changes in the value of the investments. The change in liability associated with the plan is equal to the change of the assets.

24. Commitments, contingencies and guarantees

A) COMMITMENTS

At September 30, 2006, the Company is committed under the terms of operating leases with various expiration dates, primarily for the rental of premises and computer equipment used in outsourcing contracts, in the aggregate amount of approximately $1,134,709,000. Minimum lease payments due in the next five years are as follows:

	$
2007		205,174
2008		155,286
2009		117,886
2010		94,953
2011		73,025

The Company entered into long-term service agreements representing a total commitment of $202,939,000. Minimum payments under these agreements due in each of the next five years are as follows:

	$
2007		66,714
2008		35,749
2009		44,519
2010		31,716
2011		14,795

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

B) CONTINGENCIES

From time to time, the Company is involved in various litigation matters arising in the ordinary course of its business. The Company has no reason to believe that the disposition of any such current matter could reasonably be expected to have a materially adverse impact on the Company’s financial position, results of operations or the ability to carry on any of its business activities.

C) GUARANTEES

SALE OF ASSETS AND BUSINESS DIVESTITURES

In connection with the sale of assets and business divestitures, the Company may be required to pay counterparties for costs and losses incurred as the result of breaches in representations and warranties, intellectual property right infringement and litigation against counterparties. While some of the agreements specify a maximum potential exposure of approximately $108,500,000 in total, others do not specify a maximum amount or limited period. It is impossible to reasonably estimate the maximum amount that may have to be paid under such guarantees. The amounts are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. No amount has been accrued in the consolidated balance sheets relating to this type of indemnification as at September 30, 2006. The Company does not expect to incur any potential payment in connection with these guarantees that could have a materially adverse effect on its consolidated financial statements.

U.S. GOVERNMENT CONTRACTS

The Company is engaged to provide services under contracts with the U.S. Government. The contracts are subject to extensive legal and regulatory requirements and, from time to time, agencies of the U.S. Government investigate whether the Company’s operations are being conducted in accordance with these requirements. Generally, the Government has the right to change the scope of, or terminate, these projects at its convenience. The termination, or reduction in the scope, of a major government project could have a materially adverse effect on the results of operations and financial condition of the Company.

OTHER TRANSACTIONS

In the normal course of business, the Company may provide certain clients, principally governmental entities, with bid and performance bonds. In general, the Company would only be liable for the amount of the bid bonds if the Company refuses to perform the project once the bid is awarded. The Company would also be liable for the performance bonds in the event of default in the performance of its obligations. As at September 30, 2006, the Company provided for a total of $72,923,000 of these bonds. The Company believes it is in compliance with its performance obligations under all service contracts for which there is a performance or bid bond, and the ultimate liability, if any, incurred in connection with these guarantees would not have a materially adverse effect on the Company’s consolidated results of operations or financial condition.

In addition, the Company provides a guarantee of $5,900,000 of the residual value of a leased property, accounted for as an operating lease, at the expiration of the lease term.

25. Financial instruments

The Company periodically uses various financial instruments to manage its exposure to foreign currency risk, but does not hold or issue such financial instruments for trading purposes.

FAIR VALUE

At September 30, 2006 and 2005, the estimated fair values of cash and cash equivalents, accounts receivable, work in progress and accounts payable and accrued liabilities approximate their respective carrying values.

The estimated fair value of long-term debt, with the exception of Senior U.S. unsecured notes, is not significantly different from its respective carrying value at September 30, 2006 and 2005.

The fair value of Senior U.S. unsecured notes, estimated by discounting expected cash flows at rates currently offered to the Company for debts of the same remaining maturities and conditions, is $204,593,000.

INTEREST RATE RISK

The Company is exposed to interest rate risk on a portion of its long-term debt and does not currently hold any financial instruments that mitigate this risk. Management does not believe that the impact of interest rate fluctuations will be significant.

CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash equivalents and accounts receivable. The cash equivalents consist mainly of short-term investments, such as money market deposits. The Company has deposited the cash equivalents with reputable financial institutions, from which management believes the risk of loss to be remote. The Company has accounts receivable from clients engaged in various industries including governmental agencies, finance, telecommunications, manufacturing and utilities, that are not concentrated in any specific geographic area. These specific industries may be affected by economic factors that may impact accounts receivable. Management does not believe that any single industry or geographic region represents significant credit risk. Credit risk concentration with respect to trade receivables is limited due to the Company’s large client base.

CURRENCY RISK

The Company operates internationally and is exposed to risk from changes in foreign currency rates. The Company mitigates this risk principally through foreign debt and forward contracts. During 2004, the Company designated its US$192,000,000 Senior U.S. unsecured notes as the hedging instrument for a part of the Company’s net investment in self-sustaining foreign subsidiaries, for which foreign currency translation gains or losses have been recorded under the foreign currency

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

25. Financial instruments (continued)

translation adjustment. Realized or unrealized gains or losses on financial instruments have also been recorded under the same caption, as they qualify for hedge accounting.

There were no outstanding forward contracts as at September 30, 2006, 2005 and 2004. Realized and unrealized foreign exchange gains and losses in relation to forward contracts for each of the years in the three-year period ended September 30, 2006, were not significant.

The consolidated balance sheets include significant foreign financial assets, such as cash and cash equivalents and accounts receivable, as well as significant foreign financial liabilities, such as accounts payable and accrued liabilities of $114,449,000, $180,646,000 and $174,138,000, respectively, as of September 30, 2006 ($116,238,000, $173,686,000 and $162,167,000, respectively, as of September 30, 2005). As at

September 30, 2006, the cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities denominated in U.S. dollars amount to US$27,179,000, US$122,566,000 and US$114,812,500, respectively. For the same date, the cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities denominated in euros amount to €25,990,000, €19,330,000 and €19,685,500, respectively.

26. Reconciliation of results reported in accordance with Canadian GAAP to U.S. GAAP

The material differences between Canadian and U.S. GAAP affecting the Company’s consolidated financial statements are detailed as follows:

	2006			2005			2004
	$			$			$
Reconciliation of net earnings:
Net earnings - Canadian GAAP		146,533			216,488			194,041
Adjustments for:
Stock-based compensation (i)		-			20,554			25,559
Warrants (ii)		1,405			1,405			1,405
Unearned compensation (iii)		-			-			(794	)
Other		1,238			(665	)		(1,999	)
Net earnings - U.S. GAAP		149,176			237,782			218,212
Basic and diluted EPS - U.S. GAAP		0.41			0.54			0.52

Reconciliation of shareholders’ equity:
Shareholders’ equity - Canadian GAAP		1,748,020			2,494,690			2,461,862
Adjustments for:
Stock-based compensation (i)		58,411			58,411			37,857
Warrants (ii )		(5,075	)		(6,480	)		(7,885	)
Unearned compensation (iii)		(3,694	)		(3,694	)		(3,694	)
Integration costs (iv)		(6,606	)		(6,606	)		(6,606	)
Goodwill (v)		28,078			28,078			28,078
Income taxes and adjustment for change in accounting policy (vi)		9,715			9,715			9,715
Other		(8,225	)		(9,463	)		(8,798	)
Shareholders’ equity - U.S. GAAP		1,820,624			2,564,651			2,510,529

(i) Stock-based compensation

Under Canadian GAAP, stock-based compensation cost was accounted for using the fair value based method beginning October 1, 2004. Under U.S. GAAP, the Statement of Financial Accounting Standard (“SFAS”) No. 123 (revised 2004), “Share-Based Payment”, did not require adoption of this standard until fiscal years beginning on or after June 15, 2005. The 2005 and 2004 adjustments represent the charge to consolidated net earnings recorded for Canadian GAAP purposes as no such expense was recorded or required under U.S. GAAP. Beginning October 1, 2005, there is no difference between Canadian and U.S. GAAP in connection to stock-based compensation cost.

(ii) Warrants

Under Canadian GAAP, the fair value of warrants issued in connection with long-term outsourcing contracts is recorded as contract costs and amortized on a straight-line basis over the initial contract term. Under U.S. GAAP, the fair value of equity instruments issued was subtracted from the initial proceeds received in determining revenue. The 2006, 2005 and 2004 adjustments reflect the reversal of contract cost amortization, net of income taxes, which is included as a reduction to Canadian GAAP consolidated net earnings.

2006 Annual Report CGI Group Inc.

YEARS ENDED SEPTEMBER 30, 2006, 2005 AND 2004

(tabular amounts only are in thousands of Canadian dollars, except share data

(iii) Unearned compensation

Under Canadian GAAP, prior to July 1, 2001, unvested stock options granted as a result of a business combination were not recorded. The adjustment reflects the intrinsic value of unvested stock options (see (v) below) that would have been recorded as a separate component of shareholders’ equity for U.S. GAAP purposes. This unearned compensation was amortized over approximately three years, being the estimated remaining future vesting service period.

(iv) Integration costs

Under Canadian GAAP, prior to January 1, 2001, certain restructuring costs relating to the purchaser may be recognized in the purchase price allocation when accounting for business combinations, subject to certain conditions. Under U.S. GAAP, only costs relating directly to the acquired business may be considered in the purchase price allocation. This adjustment represents the charge to consolidated net earnings, net of goodwill amortization in 2001, recorded for Canadian GAAP purposes and net of income taxes.

(v) Goodwill

The goodwill adjustment to shareholders’ equity results principally from the difference in the value assigned to stock options issued to IMRglobal Corp. employees. Under Canadian GAAP, the fair value of the outstanding vested stock options is recorded as part of the purchase price allocation whereas under U.S. GAAP, the fair value of both vested and unvested outstanding stock options granted as a result of the business acquisition is recorded. See (iii) above for a further discussion relating to this item.

(vi) Income taxes and adjustment for change in accounting policy

On October 1, 1999, the Company adopted the recommendations of CICA Handbook Section 3465, “Income taxes”. The recommendations of Section 3465 are similar to the provisions of SFAS No. 109, “Accounting for Income Taxes”, issued by the Financial Accounting Standards Board (“FASB”). Upon the implementation of Section 3465, the Company recorded an adjustment to reflect the difference between the assigned value and the tax basis of assets acquired in a business combination, which resulted in future income tax liabilities. The Company recorded this amount through a reduction of retained earnings as part of the cumulative adjustment. Under U.S. GAAP, this amount would have been reflected as additional goodwill.

(vii) Comprehensive income

Cumulative other comprehensive income is comprised solely of foreign currency translation adjustments resulting from translating the financial statements of foreign subsidiaries.

The following table represents comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive Income”:

	2006			2005			2004
	$			$			$
Net earnings - U.S. GAAP		149,176			237,782			218,212
Other comprehensive income
Foreign currency translation adjustment		(38,440	)		(92,124	)		(69,157	)
Comprehensive income		110,736			145,658			149,055

(viii) Proportionate consolidation

The proportionate consolidation method is used to account for interests in joint ventures. Under U.S. GAAP, entities in which the Company owns a majority of the share capital would be fully consolidated, and those which are less than majority-owned, but over which the Company exercises significant influence, would be accounted for using the equity method. This would result in reclassifications in the consolidated balance sheets and statements of earnings as at September 30, 2006 and 2005, and for each of the years in the three-year period ended September 30, 2006. However, the differences in the case of majority-owned joint ventures were not considered material and have consequently not been presented (see Note 19). In accordance with practices prescribed by the U.S. Securities and Exchange Commission (“SEC”), the Company has elected, for the purpose of this reconciliation, to account for interests in joint ventures using the proportionate consolidation method.

(ix) Share issue costs

As permitted under Canadian GAAP, the Company’s share issue costs are charged to retained earnings. For U.S. GAAP purposes, share issue costs are recorded as a reduction of the proceeds raised from the issuance of capital stock.

(x) Recent and future accounting changes

In March 2005, the FASB issued FASB Interpretation No. 47, (“FIN 47”), “Accounting for Conditional Asset Retirement Obligations, an Interpretation of SFAS No. 143”. FIN 47 requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation in the period in which it is incurred if the liability’s fair value can be reasonably estimated. The adoption of FIN 47 did not have any impact on the consolidated financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48, (“FIN 48”), “Accounting for Uncertainty in Income Taxes”, effective for fiscal years beginning after December 15, 2006. FIN 48 describes the accounting for income taxes by prescribing the minimum recognition threshold a tax position must meet before being recognized in the financial statements. The Interpretation also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company is currently evaluating the impact of the adoption of this new section on the consolidated financial statements, but does not expect the impact to be material.

2006 Annual Report CGI Group Inc.

		Win new contracts and renewals
	SMALL CONTRACTS AND PROJECTS	Develop new client relationships
		Extend service offering to existing clients
ORGANIC GROWTH

	LARGE OUTSOURCING CONTRACTS	Pursue large outsourcing contracts with new and existing clients
		Grow pipeline of outsourcing proposals

		Enhance vertical offering
	NICHE MARKET ACQUISITIONS	Increase geographic presence
		Increase the richness of offering
ACQUISITIONS
		Increase geographic presence
	LARGE ACQUISITIONS	Increase critical mass to qualify for large outsourcing proposals
		Ensure cultural fit and accretiveness to net earnings


04 05 06 CONTRACT BACKLOG In billions of dollars	04 05 06 REVENUE In billions of dollars	04 05 06 NET EARNINGS FROM CONTINUING OPERATIONS In millions of dollars	04 05 06 EPS FROM CONTINUING OPERATIONS In dollars


04 05 06 NET EARNINGS FROM CONTINUING OPERATIONS MARGIN In percentage	04 05 06 CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES In millions of dollars	04 05 06 NET DEBT TO CAPITALIZATION⁽¹⁾ In percentage	04 05 06 NUMBER OF SHARES OUTSTANDING AT YEAR END In millions of shares

				FISCAL 2006				FISCAL 2005
	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1


QUARTERLY FINANCIAL RESULTS
Revenue	845,820	866,504	866,836	898,463	904,840	936,394	915,662	929,090
Adjusted EBIT⁽¹⁾	91,121	77,642	62,827	78,746	89,427	90,173	80,366	86,179
Adjusted EBIT margin⁽¹⁾	10.8%	9.0%	7.2%	8.8%	9.9%	9.6%	8.8%	9.3%
Net earnings	39,532	35,944	14,149	56,908	55,792	57,759	49,594	53,343
Basic and diluted earnings per share	0.12	0.11	0.04	0.13	0.13	0.13	0.11	0.12
Cash flow from (used in) continuing operating activities	54,436	108,947	82,550	63,629	121,967	188,800	67,164	102,778

(1)	Adjusted EBIT represents earnings before restructuring costs related to specific items, interest on long-term debt, other income, gain on sale of investment in an entity subject to significant influence, entity subject to significant influence, income taxes and discontinued operations. Adjusted EBIT margin is adjusted EBIT over revenue.
(2)	Reconciliation between US and Canadian generally accepted accounting principles is provided in Note 26 to the consolidated financial statements.
(3)	The long-term debt to capitalization ratio represents the proportion of long-term debt over the shareholders’ equity and long-term debt.

2	FINANCIAL HIGHLIGHTS
4	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
25	MANAGEMENT’S AND AUDITORS’ REPORTS
28	CONSOLIDATED FINANCIAL STATEMENTS
31	NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
60	SHAREHOLDER INFORMATION

1.	Earnings before restructuring costs related to specific items, interest on long-term debt, other income-net, gain on sale and earnings from an investment in an entity subject to significant influence, gain on sale of assets, income taxes and net gain or (loss) from discontinued operations (“adjusted EBIT”) and
2.	Net earnings from continuing operations prior to restructuring costs related to specific items.

-	Consulting - CGI provides a full range of IT and management consulting services, including business transformation, IT strategic planning, business process engineering and systems architecture.
-	Systems integration - CGI integrates and customizes leading technologies and software applications to create IT systems that respond to clients’ strategic needs.
-	Management of IT and business functions (outsourcing) - Clients delegate entire or partial responsibility for their IT or business functions to CGI to achieve significant savings and access the best information technology, while retaining control over strategic IT and business functions. As part of such agreements, we implement our quality processes and best-of-breed practices to improve the efficiency of the clients’ operations. We also integrate clients’ operations into our technology network. Finally, we may hire clients’ IT and specialized professionals, enabling them to focus on mission critical operations. Services provided as part of an outsourcing contract may include development and integration of new projects and applications; applications maintenance and support; technology management (enterprise and end-user computing and network services); transaction and business processing for the financial services sector, as well as other services such as payroll and document management services. Outsourcing contracts typically have terms from five to ten years and are renewable.

-	The IT services LOB provides a full range of services, including systems integration, consulting and outsourcing, to clients located in North America, Europe and Asia Pacific. Our professionals and centers of excellence facilities in North America, Europe and India also provide IT and BPS services to clients as an integral part of our homeshore, nearshore and offshore delivery model.
-	Services provided by the BPS LOB include business processing for the financial services sector, as well as other services such as payroll and document management services.

-	October 26, 2005: Two-year project valued at $20 million with the ministère du Revenu du Québec (Québec Revenue Ministry) to adapt and integrate information technology and accounting systems related to the Québec Goods and Services Tax.
-	October 27, 2005: Four-year contract renewal valued at $60 million with Alberta Health and Wellness Ministry. This contract extended and expanded upon an agreement announced on January 11, 2001.
-	November 22, 2005: Up to five-year business process services contract valued at US$44 million with the Housing Trust Fund Corporation of New York, a division of Housing and Community Renewal, to serve the United States Department of Housing and Urban Development (“HUD”). CGI is the largest HUD processor of its kind in the U.S.
-	December 30, 2005: Seven-year contract expected to be up to US$300 million, with two optional three-year renewal periods, with the Commonwealth of Virginia as its private sector partner for a sweeping initiative to transform the state’s business and information technology program.
-	January 5, 2006: Multi-year business process services contract valued at US$30 million to $40 million with Medco Health Solutions, Inc. to provide payment, reconciliation and enrollment form processing services.
-	January 12, 2006: Extended outsourcing agreement with BCE through June 2016. Adding $1.1 billion to the backlog, this extension provides CGI with an important source of recurring revenues.
-	January 31, 2006: Seven-year contract valued at $90 million with Royal & Sun Alliance Insurance Company of Canada for infrastructure management services including mainframe and mid-range equipment, as well as data storage and recovery.
-	February 1, 2006: Six-year outsourcing agreement with Boston-based OneBeacon Insurance Group. This multi-million dollar business process services insurance contract will include policy administration and CollaborativeEdge¨, a front-end solution for Massachusetts personal lines agents to streamline data-capture activities.
-	April 5, 2006: Seven-year contract signings totaling US$100 million by leading local governments for its AMS Advantage¨ ERP Suite. The City of New York has committed to implement the latest version of AMS Advantage to serve as the foundation for its enterprise-wide financial management and budgetary control systems. In addition, Wake County, North Carolina, has chosen the AMS Advantage ERP Suite to support the county’s human resources, finance and budget systems.
-	April 6, 2006: Ten-year IT outsourcing contract valued at $130 million with Cirque du Soleil to operate and support the evolution of Cirque du Soleil’s global technology infrastructure and applications.
-	April 11, 2006: Seven-year agreement valued at between US$45 million to US$75 million to provide Universal Insurance of North America with policy and accounting business process services.
-	April 24, 2006: Two-year IT contract renewal valued at $50 million with the Caisse de dépôt et placement du Québec. The services covered by this agreement include infrastructure management, production services, a “one-stop service” call center, office technology support, maintenance of a large number of business applications, and the development and integration of solutions.
-	June 7, 2006: Two and a half year contract worth US$10 million with the City and County of Honolulu to integrate its web-based AMS Advantage¨ ERP Suite to centralize and support core financial and human resources processes and systems such as general ledger, accounts payable, purchasing, fixed assets, payroll and other related services.

										CHANGE			CHANGE
YEARS ENDED SEPTEMBER 30	2006			2005			2004			2006/2005			2005/2004

Backlog⁽¹⁾ (in millions of dollars)		12,722			12,863			12,965			-1.1	%		-0.8	%
Bookings (in millions of dollars)		3,997			3,573			3,041			11.9	%		17.5	%
Revenue
Revenue (in ’000 of dollars)		3,477,623			3,685,986			3,150,070			-5.7	%		17.0	%
Year-over-year revenue growth prior to foreign currency impact		-2.8	%		20.5	%		23.7	%
Profitability
Adjusted EBIT⁽²⁾ margin		8.9	%		9.4	%		9.8	%
Net earnings margin prior to restructuring costs related to specific items		5.5	%		5.9	%		6.2	%
Net earnings margin		4.2	%		5.9	%		6.2	%
Basic and diluted EPS from continuing operations (in dollars)		0.40			0.50			0.44			(0.10	)		0.06
Basic and diluted EPS from continuing operations prior to restructuring costs related to specific items (in dollars)		0.53			0.50			0.44			0.03			0.06
Balance sheet (in ’000 of dollars)
Total assets		3,692,032			3,986,659			4,316,515			-7.4	%		-7.6	%
Total long-term liabilities		1,276,462			784,297			1,078,604			62.8	%		-27.3	%
Cash generation / Financial structure
Cash provided by continuing operating activities (in ’000 of dollars)		309,561			480,709			230,197			-35.6	%		108.8	%
Days sales outstanding⁽³⁾		52			48			54			4			(6	)
Net debt to capitalization ratio⁽⁴⁾		27.2	%		0.3	%		9.8	%

(1)	Backlog includes new contract wins, extensions and renewals, partially offset by the backlog consumed during the year as a result of client work performed and adjustments related to the volume, cancellation and/or the impact of foreign currencies to our existing contracts. Backlog incorporates estimates from management that are subject to change from time to time.
(2)	Adjusted EBIT is a non-GAAP measure for which we provide a reconciliation to its closest GAAP measure on page 8.
(3)	Days sales outstanding (“DSO”) is obtained by subtracting deferred revenue and tax credits receivable from accounts receivable and work in progress; the result is divided by the fourth quarter revenue over 90 days.
(4)	The net debt to capitalization ratio represents the proportion of long-term debt net of cash and cash equivalents over the sum of shareholders’ equity and long-term debt.

								AS A PERCENTAGE OF TOTAL REVENUE			AS A PERCENTAGE OF TOTAL REVENUE			AS A PERCENTAGE OF TOTAL REVENUE
YEARS ENDED SEPTEMBER 30	2006		2005			2004		2006			2005			2004
(in ’000 of dollars except for percentage)
Costs of services, selling and administrative expenses		2,996,521		3,151,558			2,677,396		86.2	%		85.5	%		85.0	%
Sale of right		-		(11,000	)		-		0.0	%		-0.3	%		0.0	%
Amortization expenses
Capital assets		35,138		41,420			46,804		1.0	%		1.1	%		1.5	%
Contract costs related to transition costs		14,914		14,502			9,633		0.4	%		0.4	%		0.3	%
Finite-life intangibles		119,717		125,095			102,120		3.4	%		3.4	%		3.2	%
Impairment of contract costs and finite-life intangibles		997		18,266			4,034		0.0	%		0.5	%		0.1	%
Total amortization		170,766		199,283			162,591		4.9	%		5.4	%		5.2	%

	SEVERANCE			CONSOLIDATION AND CLOSURE OF FACILITIES		TOTAL
(in ’000 of dollars)	$			$		$
IT Services		50,734			12,747		63,481
BPS		2,343			315		2,658
Corporate		7,894			2,754		10,648
BCE contribution		(9,521	)		-		(9,521	)
Restructuring costs related to specific items		51,450			15,816		67,266

										VARIANCE			VARIANCE
YEARS ENDED SEPTEMBER 30	2006			2005			2004			2006/2005			2005/2004
(in ’000 of dollars)
Cash provided by continuing operating activities		309,561			480,709			230,197			(171,148	)		250,513
Cash used in continuing investing activities		(139,357	)		(106,277	)		(701,020	)		(33,080	)		594,743
Cash used in/provided by continuing financing activities		(294,080	)		(329,188	)		583,683			35,108			(912,871	)
Effect of foreign exchange rate changes on cash and cash equivalents of continuing operations		(854	)		(6,167	)		186			5,313			(6,353	)
Net (decrease) increase in cash and cash equivalents of continuing operations		(124,730	)		39,077			113,046			(163,807	)		(73,969	)
Net cash and cash equivalents from discontinued operations		-			759			4,068			(759	)		(3,309	)
Net (decrease) increase in cash and cash equivalents		(124,730	)		39,836			117,114			(164,566	)		(77,278	)

	PAYMENTS DUE BY PERIOD
COMMITMENT TYPE	TOTAL		LESS THAN 1 YEAR		2ND AND 3RD YEARS		4TH AND 5TH YEARS		YEARS 6 TO 10		AFTER 10 YEARS
(in ’000 of dollars)
Long-term debt		812,478		7,626		98,351		684,231		22,270		-
Capital lease obligations		781		616		165		-		-		-
Operating leases
Rental of office space⁽¹⁾		1,017,528		130,790		219,356		178,746		284,905		203,731
Computer equipment and other		172,305		84,516		77,488		7,996		2,305		-
Automobiles		4,969		2,338		2,402		229		-		-
Long-term service agreements⁽¹⁾		209,652		72,213		81,482		46,511		9,446		-
Total contractual obligations		2,217,713		298,099		479,244		917,713		318,926		203,731

	TOTAL COMMITMENT		AVAILABLE AT SEPTEMBER 30, 2006		OUTSTANDING AT SEPTEMBER 30, 2006
(in ’000 of dollars)	$		$		$
Cash and cash equivalents		-		115,729		-
Unsecured committed revolving facilities⁽¹⁾		1,000,000		382,025		617,975⁽²	⁾
Lines of credit and other facilities⁽¹⁾		29,175		29,175		-
Total		1,029,175		526,929		617,975⁽²	⁾

	AS AT SEPTEMBER 30, 2006			AS AT SEPTEMBER 30, 2005			AS AT SEPTEMBER 30, 2004
Net debt to capitalization ratio		27.2	%		0.3	%		9.8	%
Days sales outstanding (in days)		52			48			54
Return on invested capital⁽¹⁾		8.5	%		8.7	%		7.8	%

FOR THE 3 MONTHS ENDED SEPTEMBER 30	2006			2005		CHANGE
(in ’000 of dollars except for percentage)	$			$		%
IT services prior to foreign currency impact		766,839			792,149		-3.2	%
Foreign currency impact		(20,134	)		-		-2.5	%
IT services		746,705			792,149		-5.7	%
BPS prior to foreign currency impact		101,835			112,691		-9.6	%
Foreign currency impact		(2,720	)		-		-2.4	%
BPS		99,115			112,691		-12.0	%
Revenue		845,820			904,840		-6.5	%

										2006												2005
QUARTERLY RESULTS	Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Backlog (in millions of dollars)		12,722			13,303			13,686			12,901			12,863			12,934			12,929			13,071
Bookings (in millions of dollars)		462			787			1,746			1,002			666			1,025			844			1,038
Revenue
Revenue (in ’000 of dollars)		845,820			866,504			866,836			898,463			904,840			936,394			915,662			929,090
Year-over-year revenue growth prior to foreign currency impact		-4.0	%		-3.4	%		-2.4	%		-1.3	%		0.0	%		14.8	%		33.9	%		42.3	%
Cost of services, selling and administrative expenses		713,573			746,395			759,706			776,847			761,919			802,312			789,330			797,997
Margin		84.4	%		86.1	%		87.6	%		86.5	%		84.2	%		85.7	%		86.2	%		85.9	%
Profitability
Net earnings from continuing operations (in ’000 of dollars)		39,532			35,944			14,149			56,908			56,415			56,621			53,591			53,072
Margin		4.7	%		4.1	%		1.6	%		6.3	%		6.2	%		6.0	%		5.9	%		5.7	%
Basic and diluted earnings per share from continuing operations (in dollars)		0.12			0.11			0.04			0.13			0.13			0.13			0.12			0.12
Net earnings from continuing operations prior to restructuring costs related to specific items (in ’000 of dollars)		53,145			46,392			34,822			56,908			56,415			56,621			53,591			53,072
Margin		6.3	%		5.4	%		4.0	%		6.3	%		6.2	%		6.0	%		5.9	%		5.7	%
Basic and diluted earnings per share from continuing operations prior to restructuring costs related to specific items (in dollars)		0.16			0.14			0.10			0.13			0.13			0.13			0.12			0.12
Net earnings		39,532			35,944			14,149			56,908			55,792			57,759			49,594			53,343
Net earnings margin		4.7	%		4.1	%		1.6	%		6.3	%		6.2	%		6.2	%		5.4	%		5.7	%
Basic and diluted earnings per share (in dollars)		0.12			0.11			0.04			0.13			0.13			0.13			0.11			0.12
Weighted average number of Class A subordinate shares and Class B shares - basic (in ’000)		336,941			338,714			344,825			430,487			433,788			436,592			442,493			444,562

a)	Handbook Section 3831, “Non-Monetary Transactions”, requires that non-monetary transactions be recorded at fair value unless the transaction has no commercial substance, it is an exchange of inventory, it is non-monetary, non-reciprocal transfer to owners or it is not reliably measurable. The adoption of this section did not have any impact on the consolidated financials statements.
b)	EIC 156, “Accounting by a Vendor for Consideration Given to a Customer (Including a Reseller of the Vendor’s Products)”, provides guidance to companies that give incentives to customers or resellers in the form of cash, equity, free gifts, coupons and other. The adoption of EIC 156 did not have any impact on the consolidated financial statements since the Company already adopted the U.S. equivalent, Emerging Issues Task Force (“EITF”) 01-9 “Accounting for Consideration Given by a Vendor to a Customer” issued in 2001.
c)	EIC 157, “Implicit variable interests under AcG 15”, requires to consider whether the reporting enterprise holds an implicit variable interest in a variable interest entity or potential variable interest entity in applying Accounting Guideline 15, “Consolidation of Variable Interest Entities”. The adoption of this abstract did not have any impact on the consolidated financials statements.
d)	EIC 159, “Conditional Asset Retirement Obligations”, provides guidance when a conditional asset retirement obligation should be recognized. The adoption of this abstract did not have any impact on the consolidated financials statements.

a)	Handbook Section 3855, “Financial Instruments - Recognition and Measurement”, effective for interim periods beginning on or after October 1, 2006. The section describes the standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. All financial assets, except for those classified as held-to-maturity, and derivative financial instruments must be measured at their fair value. All financial liabilities must be measured at their fair value if they are classified as held for trading purposes, if not, they are measured at their carrying value. The impact of the adoption of this new section on the consolidated financial statements is not expected to be material.
b)	Handbook Section 1530, “Comprehensive Income”, and Section 3251, “Equity”, effective for interim periods beginning on or after October 1, 2006. Comprehensive income is the change in equity of an enterprise during a period arising from transactions and other events and circumstances from non-owner sources. It includes items that would normally not be included in net income such as changes in the foreign currency translation adjustment relating to self-sustaining foreign operations and unrealized gains or losses on available for sale financial instruments. This section describes how to report and disclose comprehensive income and its components. Section 3251, “Equity”, replaces Section 3250, “Surplus”, and describes the changes in how to report and disclose equity and changes in equity as a result of the new requirements of Section 1530, “Comprehensive Income”. Upon adoption of this section, the consolidated financial statements will include a statement of comprehensive income.
c)	Handbook Section 3865, “Hedges”, effective for interim periods beginning on or after October 1, 2006. This section describes when hedge accounting is appropriate. Hedge accounting ensures that all gains, losses, revenues and expenses from the derivative and the item it hedges are recorded in the statement of earnings in the same period. The impact of the adoption of this new section on the consolidated financial statements is not expected to be material.