Exhibit
99.3






Management
Report
  
 The
annual report, including the consolidated financial statements, and Management’s
Discussion and Analysis (MD&A) is the responsibility of the management of
the Company. The consolidated financial statements were prepared by management
in accordance with Canadian generally accepted accounting principles. Where
alternative accounting methods exist, management has chosen those it considers
most appropriate in the circumstances. The significant accounting policies used
are described in note 1 to the consolidated financial statements. Certain
amounts in the financial statements are based on estimates and judgments
relating to matters not concluded by year-end. The integrity of the information
presented in the financial statements is the responsibility of management.
Financial information presented elsewhere in this annual report has been
prepared by management and is consistent with the information in the
consolidated financial statements.
  The Board
of Directors is responsible for ensuring that management fulfills its
responsibilities and for providing final approval of the annual consolidated
financial statements. The board has appointed an Audit Committee comprising
three directors, none of whom is an officer or employee of the Company or its
subsidiaries. The Audit Committee meets at least four times each year to
discharge its responsibilities under a written mandate from the Board of
Directors. The Audit Committee meets with management and with the external
auditors to satisfy itself that they are properly discharging their
responsibilities; reviews the consolidated financial statements, MD&A, and
Independent Auditors’ Report on Financial Statements; and examines other
auditing and accounting matters. The Audit Committee has reviewed the audited
consolidated financial statements with management and discussed the quality of
the accounting principles as applied and significant judgments affecting the
consolidated financial statements. The Audit Committee has discussed with the
external auditors the external auditors’ judgments of the quality of those
principles as applied and the judgments noted above. The consolidated financial
statements and MD&A have been reviewed by the Audit Committee and approved
by the Board of Directors of Stantec Inc.
  The
consolidated financial statements have been examined by the shareholders’
auditors, Ernst & Young LLP, Chartered Accountants. The Independent
Auditors’ Report on Financial Statements outlines the nature of their
examination and their opinion on the consolidated financial statements of the
Company. The external auditors have full and unrestricted access to the Audit
Committee, with or without management being present.
 
 Management’s
Annual Report on Internal Control over Financial Reporting
 
 Management
is responsible for establishing and maintaining an adequate system of 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 financial statements
for external purposes in accordance with generally accepted accounting
principles. Management conducted an evaluation of the effectiveness of the
system of internal control over financial reporting based on the framework in
“Internal Control—Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, management
concluded that the Company’s system of internal control over financial reporting
was effective as at December 31, 2008.
  As
permitted by published guidance of the U.S. Securities and Exchange Commission
(SEC), management’s evaluation of and conclusions on the effectiveness of
internal control over financial reporting excluded the internal controls of SII
Holdings, Inc. (Secor) acquired on February 1, 2008. The assets and liabilities
and results of operations from Secor are included in the Company’s consolidated
financial statements. The total assets of Secor, on its acquisition date, were
$80.6 million. These assets as a percentage of the Company's total assets, as at
December 31, 2008, were 7.0%. The gross revenue earned by Secor from its date of
acquisition to December 31, 2008, constituted 9.4% of the Company's gross
revenue for the year ended December 31, 2008.
  Ernst
& Young LLP, which has audited the consolidated financial statements of the
Company for the year ended December 31, 2008, has also issued a report on the
effectiveness of the Company’s internal control over financial
reporting.
  
 graphic
              graphicTony
      Franceschini, P.Eng.
              Dan
      Lefaivre, CMAPresident
      & CEO
              Senior
      Vice President & CFOFebruary
      25, 2009
              February
      25, 2009
  
 December
31, 2008
 STANTEC
INC.
 F-1
 Independent
Auditors' Report on Financial Statements
 
 To
the Shareholders of Stantec Inc.
 
 We have
audited the consolidated balance sheets of Stantec Inc. as at December 31, 2008
and 2007 and the consolidated statements of income, shareholders’ equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2008. 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.
  We
conducted our audits in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform an audit to
obtain reasonable assurance 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 our audits provide a reasonable basis for our
opinion.
  In our
opinion, these consolidated financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2008 and 2007
and the results of its operations and its cash flows for each of the years in
the three-year period ended December 31, 2008 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 December 31, 2008 based on criteria
established in Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission and our report dated
February 25, 2009, expressed an unqualified opinion thereon.
 
 /s/ Ernst
& Young LLP
  Chartered
Accountants
 Edmonton,
Canada
 February
25, 2009
    
 December
31, 2008
 STANTEC
INC.
 F-2
 Independent
Auditors' Report on Internal Control Over Financial Reporting
 (Under
the standards of the Public Company Accounting Oversight Board (United
States))
 
 To
the Board of Directors and Shareholders of Stantec Inc.
 
 We have
audited Stantec Inc.’s internal control over financial reporting as at December
31, 2008, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Stantec Inc.’s management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of
the effectiveness of internal control over financial reporting included in the
accompanying Management’s Annual Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the company’s internal
control over financial reporting based on our audit.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
  A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
  As
indicated in the accompanying Management’s Annual Report on Internal Control
Over Financial Reporting, management’s assessment of and conclusion on the
effectiveness of internal control over financial reporting did not include the
internal controls of SII Holdings, Inc. (Secor), which are included in the 2008
consolidated financial statements of Stantec Inc. and constituted 7.0% of total
assets at December 31, 2008 and 9.4% of gross revenues for the year then ended.
Our audit of internal control over financial reporting of Stantec Inc. also did
not include an evaluation of the internal control over financial reporting of
Secor.
  In our
opinion, Stantec Inc. maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008, based on the COSO
criteria.
  We also
have audited, in accordance with Canadian generally accepted auditing standards
and the standards of the Public Company Accounting Oversight Board (United
States) the consolidated balance sheets of Stantec Inc. as at December 31, 2008
and 2007, and the related consolidated statements of income, shareholders’
equity and comprehensive income, and cash flows for each of the years in the
three-year period ended December 31, 2008 and our report dated February 25,
2009, expressed an unqualified opinion thereon.
 
 /s/ Ernst
& Young LLP
  Chartered
Accountants
 Edmonton,
Canada
 February
25, 2009
 
  December
31, 2008
 STANTEC
INC.
 F-3
 
 Consolidated
      Balance SheetsDecember
      31
              
              
              December
      312008
              
              
              2007(In
      thousands of Canadian dollars)
              
              $
              
              
              $ASSETS(note
      8)CurrentCash
      and cash equivalents
              
              
              103,979
              
              
              
              14,175Cash
      held in escrow (note
      2)
              
              
              7,392
              
              
              
              -Accounts
      receivable, net of allowance for doubtful accounts of$11,597
      ($10,508 – 2007)
              
              
              256,243
              
              
              
              205,692Costs
      and estimated earnings in excess of billings
              
              
              75,602
              
              
              
              65,064Income
      taxes recoverable
              
              
              7,647
              
              
              
              5,019Prepaid
      expenses
              
              
              8,094
              
              
              
              6,617Future
      income tax assets (note
      17)
              
              
              15,265
              
              
              
              13,308Other
      assets (note
      6)
              
              
              6,503
              
              
              
              13,373Total
      current assets
              
              
              480,725
              
              
              
              323,248Property
      and equipment (note
      3)
              
              
              114,410
              
              
              
              88,156Goodwill
      (note
      4)
              
              
              446,818
              
              
              
              332,922Intangible
      assets (note
      5)
              
              
              45,989
              
              
              
              32,288Future
      income tax assets (note
      17)
              
              
              20,786
              
              
              
              12,074Other
      assets (note
      6)
              
              
              36,158
              
              
              
              24,873Total
      assets
              
              
              1,144,886
              
              
              
              813,561LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrentAccounts
      payable and accrued liabilities (notes 7and 9)
              
              
              198,228
              
              
              
              155,020Billings
      in excess of costs and estimated earnings
              
              
              43,845
              
              
              
              34,423Income
      taxes payable
              
              
              9,920
              
              
              
              9,955Current
      portion of long-term debt (note
      8)
              
              
              34,096
              
              
              
              21,549Future
      income tax liabilities (note
      17)
              
              
              13,920
              
              
              
              11,750Total
      current liabilities
              
              
              300,009
              
              
              
              232,697Long-term
      debt (note
      8)
              
              
              215,113
              
              
              
              74,539Future
      income tax liabilities (note
      17)
              
              
              26,492
              
              
              
              20,718Other
      liabilities (note
      9)
              
              
              64,297
              
              
              
              42,909Total
      liabilities
              
              
              605,911
              
              
              
              370,863Commitments, contingencies, and
      guarantees(notes 2, 8,
      10, and 12)Shareholders'
      equityShare
      capital (note
      13)
              
              
              218,757
              
              
              
              218,790Contributed
      surplus (note
      13)
              
              
              10,458
              
              
              
              6,266Deferred
      stock compensation
              
              
              -
              
              
              
              (110
              )Retained
      earnings
              
              
              308,629
              
              
              
              286,780Accumulated
      other comprehensive income (loss) (note
      16)
              
              
              1,131
              
              
              
              (69,028
              )Total
      shareholders' equity
              
              
              538,975
              
              
              
              442,698Total
      liabilities and shareholders' equity
              
              
              1,144,886
              
              
              
              813,561See
      accompanying notesOn
      behalf of the Board of Directors:
                
                graphic
                Director
              
              
              graphic
                Director
  
 December
31, 2008
 STANTEC
INC.
 F-4
 Consolidated
      Statements of IncomeYears
      ended December 31
              
              2008
              
              
              2007
              
              
              2006(In
      thousands of Canadian dollars, except per share amounts)$
              
              
              $
              
              
              $INCOMEGross
      revenue
              
              
              1,351,951
              
              
              
              954,619
              
              
              
              816,133Less
      subconsultant and other direct expenses
              
              
              221,827
              
              
              
              123,731
              
              
              
              108,206Net
      revenue
              
              
              1,130,124
              
              
              
              830,888
              
              
              
              707,927Direct
      payroll costs
              
              
              500,789
              
              
              
              360,101
              
              
              
              304,677Gross
      margin
              
              
              629,335
              
              
              
              470,787
              
              
              
              403,250Administrative
      and marketing expenses (notes 13 and23)
              
              
              466,187
              
              
              
              351,346
              
              
              
              292,064Depreciation
      of property and equipment
              
              
              25,405
              
              
              
              19,038
              
              
              
              15,604Amortization
      of intangible assets
              
              
              10,679
              
              
              
              3,702
              
              
              
              6,132Impairment
      of goodwill and intangible assets (notes 4 and
      5)
              
              
              58,369
              
              
              
              -
              
              
              
              -Net
      interest expense (note
      8)
              
              
              7,477
              
              
              
              1,594
              
              
              
              1,892Share
      of income from associated companies
              
              
              (160
              )
              
              
              (292
              )
              
              
              (285
              )Foreign
      exchange gains
              
              
              (2,033
              )
              
              
              (2,480
              )
              
              
              (74
              )Other
      income
              
              
              (1,088
              )
              
              
              (1,235
              )
              
              
              (1,507
              )Income
      before income taxes
              
              
              64,499
              
              
              
              99,114
              
              
              
              89,424Income taxes(note
      17)Current
              
              
              41,213
              
              
              
              34,994
              
              
              
              31,484Future
              
              
              (5,731
              )
              
              
              (5,159
              )
              
              
              (2,242
              )Total
      income taxes
              
              
              35,482
              
              
              
              29,835
              
              
              
              29,242Net
      income for the year
              
              
              29,017
              
              
              
              69,279
              
              
              
              60,182Earnings per share(note
      18)Basic
              
              
              0.64
              
              
              
              1.52
              
              
              
              1.34Diluted
              
              
              0.63
              
              
              
              1.50
              
              
              
              1.31See
      accompanying notes
 
  December
31, 2008
 STANTEC
INC.
 F-5
 
 Consolidated
Statements of Shareholders' Equity and
Comprehensive Income
 
 AccumulatedOtherComprehensiveShares
              
              
              Share
              
              
              Contributed
              
              
              Deferred
              
              
              
              
              
              Income
      (Loss)Outstanding
              
              
              Capital
              
              
              Surplus
              
              
              Stock
              
              
              Retained
              
              
              (AOCI)(note
      13)
              
              
              (note
      13)
              
              
              (note
      13)
              
              
              Compensation
              
              
              Earnings
              
              
              (note
      16)
              
              
              Total(In
      thousands of Canadian dollars, except sharesoutstanding)
              
              #
              
              
              $
              
              
              $
              
              
              $
              
              
              $
              
              
              $
              
              
              $Balance,
      December 31, 2005
              
              
              44,626,262
              
              
              
              210,604
              
              
              
              5,522
              
              
              
              (833
              )
              
              
              158,335
              
              
              
              (25,575
              )
              
              
              348,053Comprehensive
                income:Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              60,182
              
              60,182Currency
                translation
                adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              731
              
              
              
              731Total
                comprehensive
                income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              60,182
              
              
              
              731
              
              
              
              60,913Share
      options
                exercised
      for cash
              
              
              607,080
              
              
              
              1,865
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,865Stock-based
                compensation
      expense
              
              
              
              
              
              
              
              
              
              
              1,078
              
              
              
              583
              
              
              
              
              
              
              
              
              
              
              
              1,661Shares
      repurchased
                under
      normalcourse
                issuer
      bid
              
              
              (51,600
              )
              
              
              (243
              )
              
              
              (6
              )
              
              
              
              
              
              
              (767
              )
              
              
              
              
              
              
              (1,016
              )Reclassification
      of fair
                  value
      of shareoptions
                  previouslyexpensed
              
              
              
              
              
              
              239
              
              
              
              (239
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Shares
      issued on
                vesting
      of
                restricted
      shares
              
              
              20,043
              
              
              
              316
              
              
              
              (897
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (581
              )Balance,
      December
                31,
      2006
              
              
              45,201,785
              
              
              
              212,781
              
              
              
              5,458
              
              
              
              (250
              )
              
              
              217,750
              
              
              
              (24,844
              )
              
              
              410,895Retained
      earnings
                and
      AOCI
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              192,906
  Balance,
      December
                31,
      2006
              
              
              45,201,785
              
              
              
              212,781
              
              
              
              5,458
              
              
              
              (250
              )
              
              
              217,750
              
              
              
              (24,844
              )
              
              
              410,895Change
      in
                accounting
      policy
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              481
              
              
              
              481Balance,
      January
                1,
      2007, as adjusted
              
              
              45,201,785
              
              
              
              212,781
              
              
              
              5,458
              
              
              
              (250
              )
              
              
              217,750
              
              
              
              (24,363
              )
              
              
              411,376Comprehensive
      income:Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              69,279
              
              
              
              
              
              
              
              69,279Currency
      translation
                adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (45,669
              )
              
              
              (45,669
              )Unrealized
      gains on
                financial
      assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,249
              
              
              
              1,249Realized
      gains on
                financial
      assets
                transferred
      to
      net income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (245
              )
              
              
              (245
              )Total
      comprehensive
                income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              69,279
              
              
              
              (44,665
              )
              
              
              24,614Share
      options
                exercised
      for cash
              
              
              386,598
              
              
              
              1,920
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,920Stock-based
                compensation
      expense
              
              
              
              
              
              
              
              
              
              
              1,919
              
              
              
              140
              
              
              
              
              
              
              
              
              
              
              
              2,059Shares
      repurchased
                under
      normal course
                issuer
      bid
              
              
              (9,200
              )
              
              
              (44
              )
              
              
              (1
              )
              
              
              
              
              
              
              (249
              )
              
              
              
              
              
              
              (294
              )Shares
      issued
                on
      acquisition
              
              
              96,925
              
              
              
              3,426
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,426Reclassification
      of fair
                value
      of share
                options
      previously
                expensed
              
              
              
              
              
              
              443
              
              
              
              (443
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Shares
      issued on
                vesting
      of restricted shares
              
              
              22,035
              
              
              
              264
              
              
              
              (667
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (403
              )Balance,
      December
                31,
      2007
              
              
              45,698,143
              
              
              
              218,790
              
              
              
              6,266
              
              
              
              (110
              )
              
              
              286,780
              
              
              
              (69,028
              )
              
              
              442,698Retained
      earnings
                and
      AOCI
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              217,752
  Balance,
      December
                31,
      2007
              
              
              45,698,143
              
              
              
              218,790
              
              
              
              6,266
              
              
              
              (110
              )
              
              
              286,780
              
              
              
              (69,028
              )
              
              
              442,698Comprehensive
      income:Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              29,017
              
              
              
              
              
              
              
              29,017Currency
      translation
                adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              76,923
              
              
              
              76,923Unrealized
      losses
                on
      cash flow hedge
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,974
              )
              
              
              (2,974
              )Unrealized
      losses
                on
      financial assets
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,641
              )
              
              
              (3,641
              )Realized
      gains on
                financial
      assets
                transferred
      to
      net income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (149
              )
              
              
              (149
              )Total
      comprehensive
                income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              29,017
              
              
              
              70,159
              
              
              
              99,176Share
      options
                exercised
      for cash
              
              
              97,860
              
              
              
              1,199
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,199Stock-based
                compensation
      expense
              
              
              
              
              
              
              
              
              
              
              4,887
              
              
              
              110
              
              
              
              
              
              
              
              
              
              
              
              4,997Shares
      repurchased
                under
      normal course issuer bid
              
              
              (351,400
              )
              
              
              (1,688
              )
              
              
              (58
              )
              
              
              
              
              
              
              (7,168
              )
              
              
              
              
              
              
              (8,914
              )Reclassification
      of fair
                  value
      of share options
                  previously
      expensed
              
              
              
              
              
              
              423
              
              
              
              (423
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Shares
      issued on
                vesting
      of restricted shares
              
              
              3,520
              
              
              
              33
              
              
              
              (214
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (181
              )Balance,
      December
                31,
      2008
              
              
              45,448,123
              
              
              
              218,757
              
              
              
              10,458
              
              
              
              -
              
              
              
              308,629
              
              
              
              1,131
              
              
              
              538,975Retained
      earnings
                and
      AOCI
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              309,760
  See
accompanying notes
  December
31, 2008
 STANTEC
INC.
 F-6
  Consolidated
Statements of Cash Flows
 
 Years
      ended December 31
              
              2008
              
              
              2007
              
              
              2006(In
      thousands of Canadian dollars)
              
              $
              
              
              $
              
              
              $CASH
      FLOWS FROM (USED IN) OPERATING ACTIVITIESCash
      receipts from clients
              
              
              1,222,566
              
              
              
              940,085
              
              
              
              816,846Cash
      paid to suppliers
              
              
              (276,862
              )
              
              
              (259,493
              )
              
              
              (221,056
              )Cash
      paid to employees
              
              
              (737,931
              )
              
              
              (565,803
              )
              
              
              (467,766
              )Dividends
      from equity investments
              
              
              150
              
              
              
              450
              
              
              
              450Interest
      received
              
              
              1,857
              
              
              
              6,496
              
              
              
              6,292Interest
      paid
              
              
              (6,597
              )
              
              
              (4,271
              )
              
              
              (7,665
              )Income
      taxes paid
              
              
              (50,037
              )
              
              
              (33,656
              )
              
              
              (37,588
              )Income
      taxes recovered
              
              
              6,884
              
              
              
              3,691
              
              
              
              3,876Cash flows from operating
      activities(note
      19)
              
              
              160,030
              
              
              
              87,499
              
              
              
              93,389CASH
      FLOWS FROM (USED IN) INVESTING ACTIVITIESBusiness
      acquisitions, net of cash acquired (note
      2)
              
              
              (92,087
              )
              
              
              (105,353
              )
              
              
              (12,181
              )Restricted
      cash used for acquisitions
              
              
              -
              
              
              
              1,073
              
              
              
              19,793Cash
      held in escrow (note
      2)
              
              
              (6,178
              )
              
              
              -
              
              
              
              -Decrease
      (increase) in investments held for self-insuredliabilities
              
              
              5,820
              
              
              
              (3,786
              )
              
              
              (4,355
              )Proceeds
      on disposition of investments
              
              
              9
              
              
              
              51
              
              
              
              9Purchase
      of property and equipment
              
              
              (35,637
              )
              
              
              (27,291
              )
              
              
              (18,920
              )Proceeds
      on disposition of property and equipment
              
              
              410
              
              
              
              134
              
              
              
              104Cash
      flows used in investing activities
              
              
              (127,663
              )
              
              
              (135,172
              )
              
              
              (15,550
              )CASH
      FLOWS FROM (USED IN) FINANCING ACTIVITIESRepayment
      of long-term debt
              
              
              (164,602
              )
              
              
              (78,514
              )
              
              
              (85,612
              )Proceeds
      from long-term borrowings
              
              
              228,337
              
              
              
              117,049
              
              
              
              9,142Repayment
      of acquired bank indebtedness (note
      2)
              
              
              (1,788
              )
              
              
              (6,282
              )
              
              
              (1,787
              )Repayment
      of capital lease obligations
              
              
              (438
              )
              
              
              -
              
              
              
              -Repurchase
      of shares for cancellation (note
      13)
              
              
              (8,914
              )
              
              
              (294
              )
              
              
              (1,016
              )Proceeds
      from issue of share capital (note
      13)
              
              
              1,199
              
              
              
              1,920
              
              
              
              1,865Cash
      flows from (used in) financing activities
              
              
              53,794
              
              
              
              33,879
              
              
              
              (77,408
              )Foreign
      exchange gain (loss) on cash held in foreigncurrency
              
              
              3,643
              
              
              
              (394
              )
              
              
              (211
              )Net
      increase (decrease) in cash and cash equivalents
              
              
              89,804
              
              
              
              (14,188
              )
              
              
              220Cash
      and cash equivalents, beginning of the year
              
              
              14,175
              
              
              
              28,363
              
              
              
              28,143Cash
      and cash equivalents, end of the year
              
              
              103,979
              
              
              
              14,175
              
              
              
              28,363See
      accompanying notes
  December
31, 2008
 STANTEC
INC.
 F-7
 Notes
to the Consolidated Financial Statements
 
 1.
              Summary
      of Significant Accounting Policies
  Stantec
      Inc. (the Company) is a provider of comprehensive professional services in
      the area of infrastructure and facilities for clients in the public and
      private sectors. The Company's services include planning, engineering,
      architecture, interior design, landscape architecture, surveying and
      geomatics, project management, environmental sciences, and project
      economics for infrastructure and facilities
  projects.
  Generally
      accepted accounting principles
  The
      Company prepares its consolidated financial statements in accordance with
      Canadian generally accepted accounting principles (GAAP). These financial
      statements have, in management’s opinion, been properly prepared within
      reasonable limits of materiality and within the framework of the
      significant accounting policies summarized below. The effects of
      differences between the application of Canadian GAAP and US GAAP on the
      financial statements of the Company are described in note
    24.
  Changes
      in accounting policies
   a) Financial
      Instruments—Disclosures and Presentation.Effective January 1,
      2008, the Company adopted thenew
      Canadian Institute of Chartered Accountants (CICA) Handbook Section 3862,
      “Financial Instruments— Disclosures,” and Section 3863, “Financial
      Instruments—Presentation.” These pronouncements further aligned Canadian
      GAAP with US GAAP and International Financial Reporting Standards (IFRS).
      Section 3862 requires companies to provide disclosures in their financial
      statements that enable users to evaluate a) the significance of financial
      instruments for their financial position and performance and b) the nature
      and extent of risks arising from financial instruments to which they are
      exposed during the period and at the balance sheet date and how they
      manage those risks. Section 3863 establishes standards for the
      presentation of financial instruments. It addresses the classification of
      financial instruments between liability and equity; the classification of
      related interest, dividends, and losses and gains; and the circumstances
      in which financial assets and financial liabilities are offset. The
      adoption of these new standards has not had an effect on the Company’s
      financial position or on the results of its operations. The Company has
      applied these new accounting standards prospectively in note 14, Financial
      Instruments.
   b)
      Capital Disclosures.Effective January 1, 2008, the Company adopted
      the new CICA Handbook Section 1535,“Capital Disclosures.” This
      section establishes standards for disclosing information about a company’s
      capital and how it is managed in order that a user of the company’s
      financial statements may evaluate its objectives, policies, and processes
      for managing capital. The adoption of this new standard has not had an
      effect on the Company’s financial position or on the results of its
      operations. The Company has applied this new accounting standard
      prospectively in note 15, Capital
  Management.
  Use
      of estimates
  The
      preparation of financial statements in conformity with Canadian GAAP
      requires management to make estimates and assumptions that affect the
      reported amounts of assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. Significant estimates used in the preparation of these
      consolidated financial statements include the percentage of completion of
      fixed-fee and variable- fee-with-ceiling contracts, provisions for losses
      on incomplete contracts, allowances for doubtful accounts receivable,
      provision for legal claims, provision for self-insured liabilities, the
      fair value of stock-based awards, the fair value of identifiable
      intangible assets acquired in business acquisitions, liabilities for lease
      exit activities, and future cash flows and assumptions used to estimate
      the fair value of reporting units for goodwill impairment purposes and to
      test for the impairment of long-lived assets. Actual results may differ
      from these estimates.
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-8
 
 Principles
of consolidation
 
 The
consolidated financial statements include the accounts of the Company, its
subsidiary companies, and all variable interest entities for which the Company
is the primary beneficiary. All significant intercompany accounts and
transactions have been eliminated. The results of the operations of subsidiaries
acquired during the year are included from their respective date of
acquisition.
  Joint
ventures and partnerships are accounted for on the proportionate consolidation
basis, which results in the Company recording its pro rata share of the assets,
liabilities, revenues, and expenses of each of these entities.
 
 Cash
and cash equivalents
 
 Cash and
cash equivalents include cash and unrestricted investments with initial
maturities of three months or less. Such investments are carried at fair
value.
 
 Investments
 
 Investments
in associated companies over which the Company is able to exercise significant
influence, but not control, are accounted for using the equity method, which
reflects the Company's investment at original cost plus its share of earnings
(losses) net of dividends received. These investments include Teshmont
Consultants Inc. (50%), SSBV Consultants Inc. (33.3%), and Planning &
Stantec Limited (50%).
  Other
investments, including investments held for self-insured liabilities, are
recorded at fair value. When a loss in the value of such investments occurs that
is other than temporary, the cumulative loss that had been recognized in other
comprehensive income is removed from other comprehensive income and recognized
in net income.
 
 Property
and equipment
 
 Property
and equipment are recorded at cost less accumulated depreciation. Depreciation
is calculated at annual rates designed to write off the costs of assets over
their estimated useful lives as follows:
 
 Engineering
      equipment
              20–30%
              declining
      balanceBusiness
      information systems
              
              straight-line
      over 3–5 yearsOffice
      equipment
              20–30%
              declining
      balanceAutomotive
      equipment
              30%
              declining
      balanceLeasehold
      improvements
              
              straight-line
      over term of lease to a maximum of 15years
      or the improvement's economic lifeBuildings
              4–5%
              declining
      balance
 
 Leases
 
 Leases
that transfer substantially all the risks and benefits of ownership of assets to
the Company are accounted for as capital leases. Assets under capital leases are
recorded at the inception of the lease together with the related long-term
obligation to reflect the purchase and financing thereof. Assets under capital
leases are for certain office and automotive equipment and are depreciated on a
20 to 30% declining balance basis. Rental payments under operating leases are
expensed evenly over the lease term.
  From time
to time, the Company enters into or renegotiates premises operating leases that
result in the receipt of lease inducement benefits. These benefits are accounted
for as a reduction of rental expense over the terms of the associated leases. As
well, from time to time, the Company enters into or renegotiates premises
operating leases that include escalation clauses. The scheduled rent increases
pursuant to lease escalation clauses are recognized on a straight-line basis
over the lease term.
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-9
 
 Goodwill
 
 Goodwill
is not amortized but is evaluated for impairment annually or when events or
circumstances occur that are more likely than not to reduce the fair value of a
reporting unit below its carrying value. Goodwill is evaluated by comparing the
fair value of the reporting unit, determined on a discounted after-tax cash flow
basis, to its carrying value. An impairment loss would be recognized in income
if the carrying value of the goodwill were to exceed its fair
value.
 
 Long-lived
assets
 
 The cost
of intangible assets with determinable lives is amortized over the period in
which the benefits of such assets are expected to be realized, principally on a
straight-line basis. The Company’s policy is to amortize client relationships
with determinable lives over periods ranging from 10 to 15 years. Contract
backlog is amortized over estimated contractual lives of generally less than one
and a half years. Other intangible assets include technology, non-compete
agreements, and advantageous leasehold commitments, which are amortized over
estimated lives of 3 to 11 years. The Company evaluates the recoverability of
long-lived assets, including property and equipment and intangible assets with
determinable lives, on an annual basis or when events or a change in
circumstances indicate that their carrying value may exceed their fair value.
The determination of recoverability is based on an estimate of undiscounted cash
flow expected to result from the use of the related asset and factors such as
expected future asset utilization and business climate. Based on this review, if
it is determined that the long-lived asset is not fully recoverable, an
impairment loss is recognized in income. The impairment loss is measured based
on the amount that the carrying value of the long-lived asset exceeds its fair
value.
  Provision
and investments held for self-insured liabilities
  The
Company self-insures certain risks related to professional liability and
automobile physical damages. The provision for self-insured liabilities includes
estimates of the costs of reported claims (including potential claims that are
probable of being asserted) and is based on estimates of loss using assumptions
made by management, including consideration of actuarial projections. The
provision for self-insured liabilities does not include unasserted claims where
assertion by a third party is not probable.
  The
Company invests funds to support the provision for self-insured liabilities.
These investments are recorded at fair value in other assets as investments held
for self-insured liabilities.
 
 Derivative
financial instruments and hedging
 
 From time
to time, the Company enters into foreign currency forward contracts to manage
risk associated with net operating assets denominated in US dollars. As well, it
enters into interest rate swap agreements to manage the risk associated with
interest rate cash flow to the extent that its credit facilities are based on
floating rates of interest. The Company’s policy is not to use these derivative
financial instruments for trading or speculative purposes. These derivative
financial instruments are recognized at fair value. The fair value of these
instruments is recorded in the balance sheet as either accounts receivable or
payable. Any changes in the fair value of the foreign currency forward contracts
are recorded in income when the changes occur. Since interest rate swap
agreements are recorded as cash flow hedges, any unrealized gains or losses are
recorded in other comprehensive income.
  Interest
rate swap agreements that are designated as cash flow hedges are reviewed on a
regular basis to ensure that the hedge continues to be effective. If the hedge
ceases to meet the criteria for effectiveness, the cumulative gain or loss in
accumulated other comprehensive income is immediately reclassified to
income.
 
 Non-interest-bearing
debt
 
 Non-interest-bearing
debt is carried at its amortized cost using the effective interest rate
method.
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-10
 
 Revenue
recognition
 
 In the
course of providing its services, the Company incurs certain direct costs for
subconsultants and other expenditures that are recoverable directly from
clients. These direct costs are included in the Company's gross revenue. Since
such direct costs can vary significantly from contract to contract, changes in
gross revenue may not be indicative of the Company's revenue trends.
Accordingly, the Company also reports net revenue, which is gross revenue less
subconsultant and other direct expenses.
  Revenue
from fixed-fee and variable-fee-with-ceiling contracts is recognized using the
percentage of completion method. Contract revenue is recognized on the ratio of
contract costs incurred to total estimated costs. Provisions for estimated
losses on incomplete contracts are made in the period in which the losses are
determined. Revenue from time-and-material contracts without stated ceilings and
from short-term projects is recognized as costs are incurred. Revenue is
calculated based on billing rates for the services performed. Costs and
estimated earnings in excess of billings represent work in progress that has
been recognized as revenue but not yet invoiced to clients. Billings in excess
of costs and estimated earnings represent amounts that have been invoiced to
clients but not yet recognized as revenue. Revenue does not include taxes
collected from clients that are reimbursable to government
authorities.
 
 Employee
benefit plans
 
 The
Company contributes to group retirement savings plans and an employee share
purchase plan based on the amount of employee contributions subject to maximum
limits per employee. The Company accounts for defined contributions as an
expense in the period in which the contributions are made. The Company does not
provide postemployment or postretirement benefits.
 
 Foreign
currency translation
 
 Transactions
denominated in a foreign currency and the financial statements of foreign
subsidiaries (excluding US-based subsidiaries) included in the consolidated
financial statements are translated as follows: monetary items at the rate of
exchange in effect at the balance sheet date; non-monetary items at historical
exchange rates; and revenue and expense items (except depreciation and
amortization, which are translated at historical exchange rates) at the average
exchange rate for the year. Any resulting realized and unrealized gains or
losses are included in income in the year incurred, except for unrealized
foreign exchange gains and losses on investments held for self-insured
liabilities, which are included in other comprehensive income since they are
classified as available for sale.
  The
Company's US-based subsidiaries are designated as self-sustaining operations.
The financial statements of these subsidiaries are translated using the current
rate method. Under this method, assets and liabilities are translated at the
rate of exchange in effect at the balance sheet date, and revenue and expense
items (including depreciation and amortization) are translated at the average
rate of exchange for the month. The resulting unrealized exchange gains and
losses on US-based subsidiaries are included as a separate component of
shareholders' equity in accumulated other comprehensive income.
  Stock-based
compensation and other stock-based payments
  The
Company has one share option plan (described in note 13) and accounts for grants
under this plan in accordance with the fair value-based method of accounting for
stock-based compensation. Compensation expense for stock options awarded under
the plan is measured at the fair value at the grant date using the Black-Scholes
valuation model and is recognized over the vesting period of the options
granted. The Company estimates its forfeiture rate in order to determine the
compensation expense arising from stock-based awards.
 
 Income
taxes
 
 The
Company uses the liability method to account for income taxes. Under this
method, future income tax assets and liabilities are determined based on
differences between financial reporting and the tax bases of assets and
liabilities and measured using the substantively enacted tax rates and laws that
will be in effect when these differences are expected to reverse.
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-11
 
 Earnings
per share
 
 Basic
earnings per share are computed based on the weighted average number of common
shares outstanding during the year. Diluted earnings per share are computed
using the treasury stock method, which assumes that the cash that would be
received on the exercise of options is applied to purchase shares at the average
price during the year and that the difference between the number of shares
issued on the exercise of options and the number of shares obtainable under this
computation, on a weighted average basis, is added to the number of shares
outstanding. The impact of outstanding restricted shares, on a weighted average
basis, is also added to the number of shares outstanding. Antidilutive options
are not considered in computing diluted earnings per share.
 
 Allowance
for doubtful accounts
 
 The
Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability to collect on its accounts receivable. The Company
uses estimates in arriving at its allowance for doubtful accounts that are based
on the age of the outstanding accounts receivable and on its historical
collection and loss experience.
 
 Recent
accounting pronouncements
 
 a) International Financial Reporting
Standards.In 2005, the CICA announced its plans to converge Canadian
GAAP for public entities with IFRS over a transition period that will end in
2011. In February 2008, the CICA confirmed that Canadian reporting issuers will
need to begin reporting under IFRS by the first quarter of 2011 with comparative
figures. IFRS uses a conceptual framework similar to that used by Canadian GAAP,
but there are differences in recognition, measurement, and
disclosure.
  The
Company started its IFRS conversion project in 2008. This project consists of
five phases: 1) preliminary planning and scoping, 2) detailed assessment, 3)
solution development, 4) implementation, and 5) postimplementation
review.
  In 2008,
the Company completed the preliminary planning and scoping phase and started the
detailed assessment and solution development phases. The first phase included
the establishment of a dedicated team to work on the IFRS transition and an IFRS
Advisory Committee consisting of a cross section of management. The IFRS team
provides updates to the IFRS Advisory Committee and the Audit Committee,
including reports on the progress made on the detailed work plan. As well,
during the planning and scoping phase, the Company completed a high-level
diagnostic that identified the major differences between Canadian GAAP and IFRS
and prioritized the IFRS requirements based on their financial reporting impact,
business impact, and complexity.
  In 2008,
the Company also started the detailed assessment and solutions development
phase, which it expects to complete by the end of 2009. These phases involve the
establishment of issue-specific workgroups to perform a detailed diagnostic, the
selection of accounting policies when alternatives are available, and the
formulation of solutions for the implementation of IFRS. As well, during this
phase, the Company will establish and implement a communication and training
plan. Before 2010, the Company expects to make changes to certain processes and
systems, in time to enable recording transactions under IFRS for comparative
reporting purposes in 2011. At this stage of the project, it is not practically
possible to quantify the financial reporting impact of the differences between
Canadian GAAP and IFRS.
  b) Business Combinations.In
January 2009, the CICA issued the new handbook Section 1582, “Business
Combinations,” effective for fiscal years beginning on or after January 1, 2011.
Earlier adoption of Section 1582 is permitted. This pronouncement further aligns
Canadian GAAP with US GAAP and IFRS and changes the accounting for business
combinations in a number of areas. It establishes principles and requirements
governing how an acquiring company recognizes and measures in its financial
statements identifiable assets acquired, liabilities assumed, any
non-controlling interest in the acquiree, and goodwill acquired. The section
also establishes disclosure requirements that will enable users of the acquiring
company's financial statements to evaluate the nature and financial effects of
its business combinations. Although the Company is considering the impact of the
adoption of this
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-12
  pronouncement
on its consolidated financial statements, the impact will be limited to any
future acquisitions beginning in fiscal 2011.
  In
January 2009, the CICA issued the new handbook Section 1601, “Consolidated
Financial Statements,” and Section 1602, “Non-Controlling Interests,” effective
for fiscal years beginning on or after January 1, 2011. Earlier adoption of
these recommendations is permitted. These pronouncements further align Canadian
GAAP with US GAAP and IFRS. Sections 1601 and 1602 change the accounting and
reporting of ownership interests in subsidiaries held by parties other than the
parent. Non-controlling interests are to be presented in the consolidated
statement of financial position within equity but separate from the parent’s
equity. The amount of consolidated net income attributable to the parent and to
the non-controlling interest is to be clearly identified and presented on the
face of the consolidated statement of income. In addition, these pronouncements
establish standards for a change in a parent’s ownership interest in a
subsidiary and the valuation of retained non-controlling equity investments when
a subsidiary is deconsolidated. They also establish reporting requirements for
providing sufficient disclosures that clearly identify and distinguish between
the interests of the parent and the interests of the non-controlling owners. The
Company is currently considering the impact of the adoption of these
pronouncements on its consolidated financial statements in fiscal 2011 in
connection with its conversion to IFRS.
  c) Fair Value of Financial Assets and
Financial Liabilities.In January 2009, the CICA issued the Emerging
Issues Committee (EIC) Abstract EIC-173, “Credit Risk and the Fair Value of
Financial Assets and Financial Liabilities,” effective for interim and annual
financial statements ending on or after January 20, 2009. Earlier adoption of
this abstract is permitted. EIC-173 provides further information on the
determination of the fair value of financial assets and financial liabilities
under Section 3855, “Financial Instruments—Recognition and Measurement.” It
states that an entity's own credit and the credit risk of the counterparty
should be taken into account in determining the fair value of financial assets
and financial liabilities, including derivative instruments. EIC-173 should be
applied retrospectively, without restatement of prior periods, to all financial
assets and liabilities measured at fair value. The Company will adopt this
abstract during the first quarter of the 2009 fiscal year. The Company is
currently considering the impact of adopting EIC-173 on its consolidated
financial statements and cannot reasonably estimate its effect at this
time.
 2.
                Business
      Acquisitions
 Acquisitions
are accounted for under the purchase method of accounting, and the results of
operations since the respective dates of acquisition are included in the
consolidated statements of income. From time to time, as a result of the timing
of acquisitions in relation to the Company's reporting schedule, certain of the
purchase price allocations may not be finalized at the initial time of
reporting. Purchase price allocations are completed after the vendors' final
financial statements and income tax returns have been prepared and accepted by
the Company. Such preliminary purchase price allocations are based on
management's best estimates of the fair values of the acquired assets and
liabilities. Upon finalization, adjustments to the initial estimates may be
required, and these adjustments may be material.
  The
purchase prices of acquisitions may be subject to price adjustment clauses
included in the purchase agreements. At each consolidated balance sheet date,
these purchase price adjustment clauses are reviewed, which may result in an
increase or reduction to the note payable consideration recorded at acquisition
to reflect either more or less non-cash working capital than was originally
recorded.
  As at
December 31, 2008, additional consideration, specified in certain purchase
agreements, may be payable based on future performance parameters. This
contingent consideration is not determinable and will be recognized as an
adjustment to goodwill in the period in which the contingency is resolved. In
some cases, the dollar amount of the contingent consideration is determinable
and written in the purchase agreement but is still not recorded until the
contingency is resolved. As at December 31, 2008, there was no (December 31,
2007 – $300,000) contingent consideration of this nature.
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-13
 
 In the
case of some acquisitions, additional payments may be made to the employees of
an acquired company that are based on their continued service over an agreed
period of time. These additional payments are not included in the purchase
price. They are expensed as compensation as services are provided by the
employees.
 
 Acquisitions
in 2008
 
 On
January 2, 2008, the Company acquired the shares and business of The Zande
Companies, Inc. for cash consideration and notes payable. In addition, at
acquisition US$1.56 million was placed in an escrow account, pending the outcome
of purchase price adjustment clauses included in the purchase agreement, and a
corresponding US$1.56 million obligation was recorded. Any increase or reduction
to this obligation is recorded as an adjustment to the net assets acquired.
During 2008, due to purchase price adjustments, US$491,000 was returned to the
Company, and the obligation was reduced accordingly. On January 2, 2009, the
funds remaining in escrow were paid to the representative of the former
shareholders of Zande Companies, Inc. The acquisition of this firm strengthened
the Company's operations in the midwestern United States and increased the depth
of its service offerings to public sector clients in the environment sector. The
Zande Companies, Inc. provides services mainly in water and wastewater treatment
facility design, environmental management, and transportation, as well as
complementary services in planning, landscape architecture, surveying, and land
development.
  On
January 2, 2008, the Company acquired the net assets and business of Rochester
Signal, Inc. for cash consideration and notes payable. The addition of this firm
supplemented the existing transit-related services offered by the Company.
Rochester Signal, Inc. provides signal design and related construction
management, installation, and testing services, along with engineering support
for the development of all types of rail systems, from main and commuter lines
to rapid transit and light rail.
  On
February 1, 2008, the Company acquired the shares and business of SII Holdings,
Inc. (Secor) for cash consideration. In addition, at acquisition US$5 million
was placed in an escrow account to be settled on February 1, 2009, pending the
outcome of purchase price adjustment clauses included in the purchase agreement.
A corresponding US$5 million obligation was recorded at acquisition. Any
increase or reduction to this obligation is recorded as an adjustment to
non-cash working capital. On February 1, 2009, US$4.5 million of the escrow
funds was paid to the former shareholders of Secor. The remaining US$0.5 million
remains in escrow, pending the resolution of purchase price adjustment clauses
included in the purchase agreement. The acquisition of this firm significantly
increased the Company’s service offerings in the environment sector. Secor
provides expertise in downstream marketing remedial services to the US energy
industry, as well as comprehensive environmental remediation services to the
manufacturing, chemical, pulp and paper, and transportation
industries.
  On March
14, 2008, the Company acquired the shares and business of RHL Design Group, Inc.
for cash consideration and promissory notes. The acquisition of this firm,
headquartered in Petaluma, California, with several offices in the western
United States, significantly increased the Company's commercial development
services. RHL Design Group, Inc. provides full program implementation and
comprehensive design services to commercial clients with facilities in multiple
locations.
  On July
2, 2008, the Company acquired the shares and business of McIntosh Engineering
Holdings Corporation for cash consideration and notes payable. The addition of
this firm provided the Company with a more visible presence in the mining sector
and expanded its operations in Tempe, Arizona, and Sudbury and North Bay,
Ontario. McIntosh Engineering Holdings Corporation provides expertise in
underground mining engineering.
  During
2008, the Company adjusted the purchase price on the Vollmer Associates LLP;
Trico Engineering Consultants,
Inc.; Chong Partners Architecture, Inc.; Woodlot Alternatives, Inc.; Neill and
Gunter companies; Murphy Hilgers Architects Inc.; Fuller, Mossbarger, Scott
& May Engineers, Inc.; Secor; RHL Design Group, Inc.; and McIntosh
Engineering Holdings Corporation acquisitions pursuant to purchase price
adjustment clauses included in the purchase agreements. These adjustments
impacted non-cash working capital and notes payable. Also during 2008, the
Company adjusted the purchase price on the CPV Group Architects &
Engineering Ltd. acquisition due to the payment of contingent consideration.
This adjustment impacted goodwill (note 4).
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-14
 
 During
2008, the purchase price allocations for the Vollmer Associates LLP; Geller
DeVellis, Inc.; Trico Engineering Consultants, Inc.; Chong Partners
Architecture, Inc.; Woodlot Alternatives, Inc.; Neill and Gunter companies;
Moore Paterson Architects Inc.; Murphy Hilgers Architects Inc.; Fuller,
Mossbarger, Scott & May Engineers, Inc.; The Zande Companies, Inc.;
Rochester Signal, Inc.; and Secor acquisitions were finalized. The Company
expects to finalize the purchase price allocations for the RHL Design Group,
Inc. acquisition during the first quarter of 2009 and for the McIntosh
Engineering Holdings Corporation acquisition during the second quarter of
2009.
 
 Acquisitions
in 2007
 
 On March
9, 2007, the Company acquired the net assets and business of Nicolson Tamaki
Architects Inc. for cash consideration and notes payable. This acquisition
supplemented the Company's architecture services in British Columbia,
Canada.
  On April
2, 2007, the Company acquired the partnership interest and business of Vollmer
Associates LLP for cash consideration and notes payable. The notes payable are
subject to purchase price adjustment clauses included in the purchase agreement
and may be adjusted to reflect either more or less non-cash working capital
realized than was originally expected. The acquisition of this firm,
headquartered in New York City, strengthened the Company’s engineering,
architecture, planning, landscape architecture, and survey services in the
transportation sector in the US East.
  On April
2, 2007, the Company acquired the net assets and business of Land Use
Consultants, Inc. for cash consideration. This acquisition supplemented the
Company’s operations in Portland, Maine, and expanded its planning and landscape
architecture services in the northern New England region.
  On May
18, 2007, the Company acquired the net assets and business of Geller DeVellis
Inc., a firm based in Boston, Massachusetts, for cash consideration. This
acquisition strengthened the Company’s planning, landscape architecture, and
civil engineering design capabilities and presence in the New England
region.
  On August
31, 2007, the Company acquired the shares and business of Trico Engineering
Consultants, Inc. for cash consideration and notes payable. This acquisition
strengthened the Company’s civil engineering, surveying, landscape architecture,
and planning capabilities in Charleston, South Carolina, and expanded the depth
of its services throughout the southeastern United States.
  On
September 14, 2007, the Company acquired the shares and business of Chong
Partners Architecture, Inc. for cash consideration and notes payable. The
acquisition of this firm, headquartered in San Francisco, California, with
additional offices in Sacramento and San Diego, enhanced the Company’s
architecture presence in the United States, particularly in California, and
provided a foundation for further expansion of its American architecture
practice.
 
 On
October 1, 2007, the Company acquired the shares and business of Woodlot
Alternatives, Inc. for cash consideration and notes payable. The addition of
this firm, which specializes in natural resource assessment, permitting, and
environmental engineering, strengthened the Company’s presence in Maine and New
England.
  On
October 19, 2007, the Company acquired the shares and business of Neill and
Gunter, Incorporated; Neill and Gunter Limited; and Neill and Gunter (Nova
Scotia) Limited for cash consideration, notes payable, and Stantec common
shares. The number of common shares issued as consideration (96,925) was based
on the average of the closing price of the Stantec common shares on the Toronto
Stock Exchange for five trading days around the acquisition date. These
acquisitions brought greater depth to the Company’s industrial practice,
enhanced its operations in New England, and provided access to a new market in
Atlantic Canada.
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-15
 
 On
November 16, 2007, the Company acquired the net assets and business of Moore
Paterson Architects Inc. for cash consideration and notes payable. This
acquisition strengthened the Company's architecture, planning, and project
management services on Vancouver Island and the Lower Mainland of British
Columbia.
  On
November 23, 2007, the Company acquired the shares and business of Murphy
Hilgers Architects Inc., Brentcliffe Financial Service Inc., and Dekko Studio
Inc. for cash consideration and notes payable. This acquisition expanded the
Company's operations in Toronto, Ontario, and added further depth to its
expertise in designing health care, judicial, and retail and commercial
facilities.
  On
December 31, 2007, the Company acquired the shares and business of Fuller,
Mossbarger, Scott & May Engineers, Inc. and Leestown Leasing, L.L.C. for
cash consideration and notes payable. This acquisition created a presence in
Kentucky, Ohio, Missouri, and Indiana and brought geotechnical engineering
capabilities to the Company. As well, it added expertise in several specialty
engineering areas, including dams, levees, and underwater structures, which
complemented the Company’s existing services and enhanced its water resources
capabilities.
  During
2007, the Company adjusted the purchase price on the Dunlop Architects Inc.
(2004), CPV Group Architects & Engineers Ltd. (2005), Keen Engineering Co.
Ltd. (2005), Carinci Burt Rogers Engineering, Inc. (2006), Dufresne-Henry, Inc.
(2006), ACEx Technologies, Inc. (2006), Vollmer Associates LLP (2007), Chong
Partners Architecture, Inc. (2007), and Trico Engineering Consultants, Inc.
(2007) acquisitions pursuant to price adjustment clauses included in the
purchase agreements. These adjustments impacted non-cash working
capital.
 
 Aggregate
consideration paid
 
 Details
of the aggregate consideration given and of the fair values of net assets
acquired or adjusted for are as follows:
 
 Total
              
              
              Total2008
              
              
              2007(In
      thousands of Canadian dollars)
              
              $
              
              
              $Cash
      consideration
              
              
              97,887
              
              
              
              109,955Share
      consideration
              
              
              -
              
              
              
              3,426Notes
      payable
              
              
              30,767
              
              
              
              41,199Purchase
      price
              
              
              128,654
              
              
              
              154,580Assets
      and liabilities acquired at fair valuesCash
      acquired
              
              
              5,800
              
              
              
              4,602Bank
      indebtedness assumed
              
              
              (1,788
              )
              
              
              (6,282
              )Non-cash
      working capital
              
              
              13,308
              
              
              
              20,151Property
      and equipment
              
              
              10,717
              
              
              
              17,025Investments
              
              
              -
              
              
              
              12Goodwill
              
              
              99,959
              
              
              
              114,017Intangible
      assetsClient
      relationships
              
              
              19,589
              
              
              
              8,933Contract
      backlog
              
              
              4,542
              
              
              
              4,298Other
              
              
              (1,805
              )
              
              
              2,914Other
      long-term liabilities
              
              
              (482
              )
              
              
              (1,933
              )Long-term
      debt
              
              
              (16,105
              )
              
              
              (6,486
              )Future
      income taxes
              
              
              (4,214
              )
              
              
              (2,671
              )Capital
      lease obligations
              
              
              (867
              )
              
              
              -Net
      assets acquired
              
              
              128,654
              
              
              
              154,580
 
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-16
 
 Of the
goodwill and intangible assets resulting from acquisitions completed in 2008,
$12,416,166 (2007 –$35,936,000) is deductible for income tax
purposes.
  
 At the
time of acquisition, management estimates the exit costs of consolidating or
closing offices occupied by the acquired entity. These costs are accrued in
other long-term liabilities or non-cash working capital as part of the purchase
price allocation (note 9). Adjustments to the exit liabilities may impact
goodwill. In 2008, the Company adjusted the exit liability for Keen Engineering
Co. Ltd.
  3.
                Property
      and Equipment
  2008
              
              
              
              2007Accumulated
              
              
              
              
              
              AccumulatedCost
              
              
              Depreciation
              
              
              Cost
              
              
              Depreciation(In
      thousands of Canadian dollars)
              
              $
              
              
              $
              
              
              $
              
              
              $Engineering
      equipment
              
              
              75,111
              
              
              
              41,338
              
              
              
              60,295
              
              
              
              31,689Business
      information systems
              
              
              20,289
              
              
              
              13,647
              
              
              
              18,055
              
              
              
              10,675Office
      equipment
              
              
              39,616
              
              
              
              20,098
              
              
              
              30,151
              
              
              
              15,288Automotive
      equipment
              
              
              9,697
              
              
              
              6,384
              
              
              
              7,952
              
              
              
              4,433Leasehold
      improvements
              
              
              52,074
              
              
              
              12,648
              
              
              
              35,774
              
              
              
              7,185Assets
      under capital leases
              
              
              1,361
              
              
              
              304
              
              
              
              -
              
              
              
              -Buildings
              
              
              10,050
              
              
              
              1,391
              
              
              
              5,446
              
              
              
              1,114Land
              
              
              2,022
              
              
              
              -
              
              
              
              867
              
              
              
              -210,220
              
              
              
              95,810
              
              
              
              158,540
              
              
              
              70,384Net
      book value
              
              
              
              
              114,410
              
              
              
              
              
              88,156
 
 Included
in leasehold improvements is construction work in progress in the amount of
$292,000 (2007 – $2,845,000), on which depreciation has not started. The Company
entered into capital leases for certain office and automotive equipment. The
depreciation on assets under capital leases was $304,000 for 2008 (2007 –
nil).
  4.
                  Goodwill
  2008
              
              
              2007(In
      thousands of Canadian dollars)
              
              $
              
              
              $Goodwill,
      beginning of the year
              
              
              332,922
              
              
              
              251,491Current
      year acquisitions
              
              
              99,606
              
              
              
              112,892Impairment
              
              
              (53,000
              )
              
              
              -Contingent
      consideration payments
              
              
              1,419
              
              
              
              199Purchase
      price adjustments
              
              
              (1,066
              )
              
              
              926Impact
      of foreign exchange
              
              
              66,937
              
              
              
              (32,586
              )Goodwill,
      end of the year
              
              
              446,818
              
              
              
              332,922
 
 In
accordance with its accounting policies, during the third quarter of each year,
or more frequently if circumstances indicate that an impairment may occur, the
Company conducts an annual goodwill impairment test. Goodwill impairment testing
is a two-step process. In the first step, the Company compares the fair value of
its reporting units, which is determined on a discounted after-tax cash flow
basis, to their carrying value. If the carrying value of a reporting unit
exceeds its fair value, goodwill is potentially impaired and step two of the
impairment test must be performed. In step two, the Company compares the
estimated fair value of the goodwill of its reporting units to their carrying
value. If it is concluded that an impairment to goodwill exists, a reduction in
the carrying value of the goodwill is recorded on the consolidated balance sheet
and recognized as a non-cash impairment charge in income.
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-17
 
 The
Company completed step one of the goodwill impairment test during the third
quarter of 2008. In performing the goodwill assessment, it used current market
capitalization, discounted cash flows, and other factors as the best evidence of
fair value. After completing step one, the Company determined that goodwill was
potentially impaired since the estimated fair value of its US-based reporting
units was less than their carrying value. As a result, in the third quarter, the
Company estimated the step two goodwill impairment by determining the implied
fair value of goodwill in the same manner as if it had acquired the reporting
units as of the date of the step one assessment.
  As at
September 30, 2008, the second step of the goodwill impairment test was not
complete, and management recorded its best estimate of the goodwill impairment
as $53.0 million. During the fourth quarter of 2008, the Company completed step
two of the goodwill impairment test and concluded that no further adjustment to
this estimate was required.
  The
goodwill impairment charge is non-cash in nature and does not affect the
Company’s liquidity, cash flows from operating activities, or debt covenants and
will not have an impact on future operations.
  5.
                  Intangible
      Assets
  2008
              
              2007Gross
                Carrying
                Amount
              
              
              
              Accumulated
                Amortization
              
              
              
              Impairment
      of Asset
              
              
              
              Gross
                Carrying
      Amount
              
              
              
              Accumulated
      Amortization(In
      thousands of Canadian dollars)
              
              
              $
              
              
              
              $
              
              
              
              $
              
              
              
              $
              
              
              
              $Client
      relationships
              
              
              58,683
              
              
              
              11,200
              
              
              
              5,369
              
              
              
              32,023
              
              
              
              6,525Contract
      backlog
              
              
              7,643
              
              
              
              4,989
              
              
              
              -
              
              
              
              4,583
              
              
              
              564Other
              
              
              2,163
              
              
              
              942
              
              
              
              -
              
              
              
              3,369
              
              
              
              59868,489
              
              
              
              17,131
              
              
              
              5,369
              
              
              
              39,975
              
              
              
              7,687Carrying
      amount
              
              
              
              45,989
              
              
              
              
              
              
              
              
              32,288
  
 Once an
intangible asset is fully amortized, the gross carrying amount and related
accumulated amortization are removed from the accounts. Other than goodwill, the
Company has not recorded any intangible assets with indefinite lives. For
intangible assets held as of December 31, 2008, the estimated aggregate
amortization expense for each of the next five years and thereafter is as
follows:
 
 (In
      thousands of Canadian dollars)
              
              
              
              $2009
              
              
              7,3242010
              
              
              4,5302011
              
              
              4,5192012
              
              
              4,4232013
              
              
              4,330Thereafter
              
              
              20,86345,989
 
 In
accordance with its accounting policies, during the third quarter of 2008, the
Company completed its annual impairment test of intangible assets to determine
if the carrying amount of the assets is fully recoverable. The determination of
recoverability is based on an estimate of undiscounted cash flow, and the
measurement of impairment loss is based on the amount that the carrying value of
an intangible asset exceeds its fair value. As part of the impairment test, the
Company updated its future cash flow assumptions and estimates, including
factors such as current and future contracts with clients, margins, market
conditions, and the useful lives of assets. Based on the
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-18
 
 results
of this review, the Company concluded that intangible assets relating to certain
client relationships were not fully recoverable and therefore recorded a
non-cash $5,369,000 impairment charge to income. The impairment primarily
reflected the financial distress experienced by specific clients in relation to
The Keith Companies, Inc. (Keith) acquisition.
 6.
                    Other
      Assets
  2008
              
              
              2007(In
      thousands of Canadian dollars)
              
              $
              
              
              $Investments
      held for self-insured liabilities
              
              
              26,540
              
              
              
              28,913Investments
      in associated companies
              
              
              1,226
              
              
              
              1,187Investments
      – other
              
              
              774
              
              
              
              701Holdbacks
      on long-term contracts
              
              
              3,933
              
              
              
              2,583Assets
      held for sale
              
              
              621
              
              
              
              -Other
              
              
              9,567
              
              
              
              4,86242,661
              
              
              
              38,246Less
      current portion
              
              
              6,503
              
              
              
              13,37336,158
              
              
              
              24,873
 
 Investments
held for self-insured liabilities consist of government and corporate bonds and
equity securities. These investments are classified as available for sale and
are stated at fair value.
  The fair
value of the bonds at December 31, 2008, was $18,657,000 (2007 – $20,024,000),
and the fair value of the equities was $7,883,000 (2007 – $8,889,000). The
amortized cost of the bonds at December 31, 2008, was $17,960,000 (2007 –
$19,949,000), and the cost of the equities was $10,924,000 (2007 – $7,449,000).
The bonds bear interest at rates ranging from 3.25 to 7.0% per annum (2007 – 2.9
to 7.0%). The term to maturity of the bond portfolio, stated at fair value, is
$3,144,000 (2007 – $3,694,000) due within one year, $13,533,000 (2007
–$15,445,000) due within two to five years, and $1,980,000 (2007 – $885,000) due
within five to seven years.
  The
Company is in the process of selling certain properties mainly due to a move to
a larger office premise during the year. These properties meet the criteria for
assets held for sale. Therefore, these assets are measured at the lower of their
carrying amount and fair value less costs to dispose and are no longer
depreciated.
  7.
                    Accounts
      Payable and Accrued
Liabilities
  2008
              
              
              2007(In
      thousands of Canadian dollars)
              
              $
              
              
              $Trade
      accounts payable
              
              
              49,774
              
              
              
              40,155Employee
      and payroll liabilities
              
              
              113,934
              
              
              
              83,621Accrued
      liabilities
              
              
              34,520
              
              
              
              31,244198,228
              
              
              
              155,020
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-19
 
 
 8.
                        Long-Term
      Debt
  2008
              
              
              2007(In
      thousands of Canadian dollars)
              
              $
              
              
              $Non-interest-bearing
      note payable
              
              
              162
              
              
              
              147Other
      notes payable
              
              
              55,940
              
              
              
              43,872Bank
      loan
              
              
              192,544
              
              
              
              52,069Capital
      lease obligations
              
              
              563
              
              
              
              -249,209
              
              
              
              96,088Less
      current portion
              
              
              34,096
              
              
              
              21,549215,113
              
              
              
              74,539
 
 The
non-interest-bearing note payable is due November 1, 2027, in the amount of
$933,000. The note's carrying value of $162,000 is determined using a discount
rate of 9.75%. If the non-interest-bearing note payable were discounted at
interest rates in effect at December 31, 2008, the fair value of the note would
be $277,000 (2007 –$233,000).
  The
carrying values of the other notes payable have been calculated using a weighted
average rate of interest of 5.14% and may be supported by promissory notes. The
notes are due at various times from 2009 to 2011. The aggregate maturity value
of the notes is $56,062,000 (2007 – $43,976,000). As at December 31, 2008,
$48,343,000 (2007 – $24,849,000) of the notes' carrying value was payable in US
funds (2008 – US$39,690,000; 2007 –US$24,633,000). The carrying value of the
other notes payable approximates their fair value based on interest rates in
effect at December 31, 2008.
  During
the year, as provided for in its revolving credit facility agreement, the
Company increased the credit facility limit to $300 million from $160 million
and extended the maturity date to August 31, 2011. The facility is available for
acquisitions, working capital needs, capital expenditures, and general corporate
purposes. Depending on the form under which the credit facility is accessed,
rates of interest will vary between Canadian prime, US base rate, or LIBOR or
bankers' acceptance rates plus 65, 85, or 125 basis points. As at December 31,
2008, $131,544,000 of the bank loan was payable in US funds (US$108,000,000),
and $61,000,000 was payable in Canadian funds. As at December 31, 2007,
$49,069,000 of the bank loan was payable in US funds (US$49,500,000), and
$3,000,000 was payable in Canadian funds. Loans may be repaid under the credit
facility from time to time at the option of the Company.
  During
2008, the Company entered into an interest rate swap agreement that has the
effect of converting the variable interest obligation associated with US$100
million of the credit facility, based on a LIBOR rate, into a fixed interest
rate of 3.43%, plus an applicable basis points spread, until September 3,
2010.
  Taking
the effect of the interest rate swap into consideration, the average interest
rate applicable at December 31, 2008, was 3.36% (2007 – 5.51%). The credit
facility contains restrictive covenants (note 15). All the assets of the Company
are held as collateral under a general security agreement for the bank
loan.
  The funds
available under the revolving credit facility are reduced by any outstanding
letters of credit. At December 31, 2008, the Company had issued and outstanding
letters of credit totaling $139,000 (2007 – $141,000) payable in Canadian funds
and $2,426,000 (US$1,992,000) (2007 – $1,321,000, US$1,332,000) payable in US
funds that expire at various dates before January 2010. These letters of credit
were issued in the normal course of operations, including the guarantee of
certain office rental obligations. At December 31, 2008, $104,891,000 (2007
–$106,469,000) was available in the revolving credit facility for future
activities.
  As at
December 31, 2008, there were no additional letters of credit outstanding that
were assumed from acquisitions (2007 – $475,000, US$479,000). During 2007, the
Company entered into a US$4 million surety facility to facilitate,
as
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-20
 
 part of
the normal course of operations, the issuance of bonds for certain types of
project work. As at December 31, 2008, $243,000 (US$199,000) (2007 – $50,000,
US$50,000) in bonds had been issued under this credit facility.
  As at
December 31, 2008, the Company's capital lease obligations included capital
leases bearing interest at rates ranging from 1.4 to 9.17%. These capital leases
expire at various dates before October 2011. The interest incurred on capital
lease obligations in 2008 was $27,000.
  The
principal repayments required on long-term debt in each of the next five years
and thereafter are as follows:
 
 (In
      thousands of Canadian dollars)
              
              
              $2009
              
              
              34,0962010
              
              
              14,3132011
              
              
              200,6382012
              
              
              -2013
              
              
              -Thereafter
              
              
              162249,209
 
 The
interest incurred on long-term debt in 2008 was $7,784,000 (2007 – $2,444,000;
2006 – $2,612,000). In 2008, total interest expense, net of interest income, was
$7,477,000 (2007 – $1,594,000; 2006 – $1,892,000).
  9.
                    Other
      Liabilities
  2008
              
              
              2007(In
      thousands of Canadian dollars)
              
              $
              
              
              $Provision
      for self-insured liabilities
              
              
              30,265
              
              
              
              17,659Deferred
      gain on sale leaseback
              
              
              5,314
              
              
              
              5,749Lease
      inducement benefits
              
              
              22,866
              
              
              
              16,191Liabilities
      on lease exit activities
              
              
              4,081
              
              
              
              4,112Liability
      for uncertain tax positions
              
              
              1,725
              
              
              
              1,412Derivative
      financial instruments (note
      11)
              
              
              4,218
              
              
              
              -Other
              
              
              3,475
              
              
              
              3,22071,944
              
              
              
              48,343Less
      current portion included in accrued liabilities
              
              
              7,647
              
              
              
              5,43464,297
              
              
              
              42,909Provision
      for self-insured liabilitiesThe
      Company self-insures a portion of its estimated liabilities that may arise
      in connection with reported legal claims(note
      12). This provision for self-insured liabilities is based on the results
      of an actuarial review performed in 2008and
      2007, with the current and long-term portion determined based on the
      actuarial estimate. At December 31, 2008,the
      long-term portion was $28,577,000 (2007 – $16,225,000).2008
              
              
              2007(In
      thousands of Canadian dollars)
              
              
              $
              
              
              
              $Provision,
      beginning of the year
              
              
              17,659
              
              
              
              16,041Current
      year provision
              
              
              12,470
              
              
              
              6,153Payment
      for claims settlement
              
              
              (3,034
              )
              
              
              (2,822
              )Impact
      of foreign exchange
              
              
              3,170
              
              
              
              (1,713
              )Provision,
      end of the year
              
              
              30,265
              
              
              
              17,659
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-21
 
 
  The
self-insured liability increased during 2008 primarily due to new claims
incurred and reported since the end of 2007. The timing of claim settlement
payments is dependent upon the resolution of case-specific matters and may
extend over several months or years.
 
 Deferred
gain on sale leaseback
 
 In 2004,
the Company completed the sale of its office building in Edmonton, Alberta, for
cash proceeds of $34,500,000. Concurrent with the sale, the Company leased the
property back for a period of 15 years. The lease is accounted for as an
operating lease. The resulting gain of $7,103,000 was deferred and is being
amortized over the lease term.
 
 Liabilities
on lease exit activities
 
 Charges
are accrued when management closes offices in existing operations or finalizes
plans to downsize offices in locations assumed from an acquiree upon a business
acquisition. Included in the liability is the present value of the remaining
lease payments, reduced by estimated sublease rentals that can reasonably be
obtained.
 
 2008
              
              
              2007(In
      thousands of Canadian dollars)
              
              $
              
              
              $Liability,
      beginning of the year
              
              
              4,112
              
              
              
              2,833Current
      year provision:Established
      for existing operations
              
              
              1,488
              
              
              
              989Resulting
      from acquisitions
              
              
              1,663
              
              
              
              740Costs
      paid or otherwise settled
              
              
              (2,475
              )
              
              
              (1,522
              )Adjustments
      to purchase price allocation
              
              
              (1,181
              )
              
              
              1,193Impact
      of foreign exchange
              
              
              474
              
              
              
              (121
              )Liability,
      end of the year
              
              
              4,081
              
              
              
              4,112
  10.
                      Commitments
 
 Commitments
for annual basic premises rent under long-term leases and for equipment and
vehicle operating leases for the next five years and thereafter are as
follows:
 
 (In
      thousands of Canadian dollars)
              
              
              $2009
              
              
              64,1432010
              
              
              55,7742011
              
              
              46,2152012
              
              
              39,6422013
              
              
              31,704Thereafter
              
              
              92,151329,629
 
 The
premises rental expense for the year ended December 31, 2008, was $48,602,000
(2007 – $41,113,000; 2006 –$35,724,000).
  11.
                        Derivative
      Financial
Instruments
  As at
December 31, 2008, the Company had entered into foreign currency forward
contract arrangements that provided for the purchase of US$74,000,000 at rates
ranging from 1.1932 to 1.2198 per US dollar maturing over the next month. As at
December 31, 2007, the Company had entered into foreign currency forward
contract arrangements that provided for the purchase of US$34,100,000 at the
rate of 0.9804 per US dollar maturing over one month. These derivative financial
instruments were entered into to mitigate the risk of foreign currency
fluctuations on
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-22
 
 net
      operating assets denominated in US dollars. The fair value of these
      contracts, estimated using market rates as at December 31, 2008, is an
      unrealized gain of $1,597,000 (2007 – unrealized gain of $371,000). The
      unrealized gains or losses relating to these derivative financial
      instruments were recorded in income as foreign exchange gains or losses
      and in the balance sheet as other assets or other
    liabilities.
  During
      the year, the Company entered into a US$100 million interest rate swap
      agreement maturing on September 3, 2010. This swap agreement has the
      effect of converting the variable interest rate on US$100 million of the
      Company's revolving credit facility, based on a LIBOR rate, into a fixed
      interest rate of 3.43%, plus an applicable basis points spread. The fair
      value of the interest rate swap, estimated using market rates at December
      31, 2008, is an unrealized loss, net of tax, of $2,974,000. The Company
      has designated the swap as a cash flow hedge against its revolving credit
      facility; therefore, the unrealized gains or losses relating to this
      derivative financial instrument are recorded in other comprehensive income
      and in the balance sheet as other assets or other liabilities. In the
      event that the hedging relationship is no longer effective or ceases to
      exist, the gains or losses will be recorded in income. The hedging
      relationship was effective from the date of entering into the swap to
      December 31, 2008.
  12.
              Contingencies
      and Guarantees
  In
      the normal conduct of operations, various legal claims are pending against
      the Company alleging, among other things, breaches of contract or
      negligence in connection with the performance of consulting services. The
      Company carries professional liability insurance, subject to certain
      deductibles and policy limits, and has a captive insurance company that
      provides insurance protection against such claims. In some cases, parties
      are seeking damages that substantially exceed the Company's insurance
      coverage. Based on advice and information provided by legal counsel, the
      Company's previous experience with the settlement of similar claims, and
      the results of the annual actuarial review, management believes that the
      Company has recognized adequate provision for probable and reasonably
      estimable liabilities associated with these claims and that their ultimate
      resolution will not materially exceed insurance coverages or have a
      material adverse effect on the Company's consolidated financial position
      or annual results of operations. Management cannot estimate the extent to
      which losses exceeding those already recorded in the financial statements
      may be incurred.
  In
      the normal course of business, the Company provides indemnifications and,
      in very limited circumstances, surety bonds. These are often standard
      contractual terms and are provided to counterparties in transactions such
      as purchase and sale contracts for assets or shares, service agreements,
      and leasing transactions. The Company also indemnifies its directors and
      officers against any and all claims or losses reasonably incurred in the
      performance of their service to the Company to the extent permitted by
      law. These indemnifications may require the Company to compensate the
      counterparty for costs incurred as a result of various events, including
      changes in or in the interpretation of laws and regulations, or as a
      result of litigation claims or statutory sanctions that may be suffered by
      the counterparty as a consequence of the transaction. The terms of these
      indemnifications will vary based upon the contract, the nature of which
      prevents the Company from making a reasonable estimate of the maximum
      potential amount that it could be required to pay to counterparties. The
      Company carries liability insurance, subject to certain deductibles and
      policy limits, that provides protection against certain insurable
      indemnifications. Historically, the Company has not made any significant
      payments under such indemnifications, and no amounts have been accrued in
      the accompanying consolidated financial statements with respect to these
      indemnifications.
  13.
              Share
      Capital
  Authorized
  Unlimited
              
              Common
      shares, with no par valueUnlimited
              
              Preferred
      shares issuable in series, with attributes designated by the Board of
      Directors
 
 Common
shares
 
 During
2008, 351,400 common shares (2007 – 9,200; 2006 – 51,600) were repurchased for
cancellation pursuant to an ongoing normal course issuer bid at a cost of
$8,914,000 (2007 – $294,000; 2006 – $1,016,000). Of this amount,
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-23
 
 $1,688,000
and $58,000 (2007 – $44,000 and $1,000; 2006 – $243,000 and $6,000) reduced the
share capital and contributed surplus accounts, respectively, with $7,168,000
(2007 – $249,000; 2006 – $767,000) being charged to retained
earnings.
  During
2008, the Company recognized a stock-based compensation expense of $5,118,000
(2007 – $3,452,000; 2006 – $2,224,000) in administrative and marketing expenses.
Of the amount expensed, $4,887,000 related to the fair value of options granted
(2007 – $1,919,000; 2006 – $1,078,000), $120,000 related to deferred share unit
compensation (2007 – $1,416,000; 2006 – $576,000), and $111,000 related to the
restricted shares issued on the Keith acquisition (2007 – $117,000; 2006 –
$570,000). The fair value of options granted was reflected through contributed
surplus; the deferred share unit compensation was reflected through accrued
liabilities; and the restricted shares were reflected through deferred stock
compensation. Upon the exercise of share options for which a stock-based
compensation expense has been recognized, the cash paid together with the
related portion of contributed surplus is credited to share capital. Upon the
vesting of restricted shares for which a stock-based compensation expense has
been recognized, the related portion of contributed surplus is credited to share
capital.
  On May 4,
2006, the shareholders of the Company approved the subdivision of its issued
common shares on a two-for-one basis, effective for registered common shares at
the close of business on May 19, 2006. All references to common shares, per
share amounts, and stock-based compensation plans in these consolidated
financial statements have been restated to reflect the stock split on a
retroactive basis.
 
 Share
options
 
 Under the
Company's share option plan, options to purchase common shares may be granted by
the Board of Directors to officers and employees. Options are granted at
exercise prices equal to or greater than fair market value at the issue date,
generally vest evenly over a three-year period, and have contractual lives that
range from 7 to 10 years. The aggregate number of common shares reserved for
issuance that may be purchased upon the exercise of options granted pursuant to
the plan shall not exceed 4,487,026 common shares. At December 31, 2008,
1,773,066 options were available for issue.
  The
Company has granted share options to officers and employees to purchase
2,061,828 shares at prices between $7.25 and $30.61 per share. These options
expire on dates between October 9, 2009, and August 18, 2015.
  2008
              
              
              
              2007
              
              
              
              2006Shares
              
              
              Weighted
                Average
                Exercise
      Price
              
              
              Shares
              
              
              Weighted
                Average
                Exercise
      Price
              
              
              Shares
              
              
              Weighted
                Average
                Exercise
                Price#
              
              
              $
              
              
              #
              
              
              $
              
              
              #
              
              
              $Share
      options,beginning
      of the year
              
              
              1,751,022
              
              
              
              18.32
              
              
              
              1,702,784
              
              
              
              11.92
              
              
              
              1,876,528
              
              
              
              6.94Granted
              
              
              480,000
              
              
              
              29.40
              
              
              
              467,500
              
              
              
              30.61
              
              
              
              471,000
              
              
              
              20.40Exercised
              
              
              (97,860
              )
              
              
              12.25
              
              
              
              (386,598
              )
              
              
              4.97
              
              
              
              (607,080
              )
              
              
              3.07Forfeited
              
              
              (58,502
              )
              
              
              24.86
              
              
              
              (31,664
              )
              
              
              18.69
              
              
              
              (35,664
              )
              
              
              12.59Cancelled
              
              
              (12,832
              )
              
              
              22.87
              
              
              
              (1,000
              )
              
              
              20.42
              
              
              
              (2,000
              )
              
              
              10.50Share
      options, end
                of
      the year
              
              
              2,061,828
              
              
              
              20.97
              
              
              
              1,751,022
              
              
              
              18.32
              
              
              
              1,702,784
              
              
              
              11.92
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-24
 The
options held by officers and employees at December 31, 2008, were as
follows:
 
 Options
      Outstanding
              
              
              Options
      ExercisableWeighted
              
              Weighted
              
              Weighted
              WeightedRange
      of
              
              Average
              
              Average
              
              Average
              AverageExercise
              
              Remaining
              
              Exercise
              Shares
              Remaining
              ExercisePrices
              Outstanding
              Contractual
              
              Price
              Exercisable
              Contractual
              Price$
              #
              Life
      in Years
              
              $
              #
              Life
      in Years
              $
 7.25
      –9.42
              244,000
              1.13
              
              7.98
              244,000
              1.13
              7.9810.50–13.55
              525,994
              2.91
              
              11.70
              525,994
              2.91
              11.7020.37–20.42
              374,334
              4.65
              
              20.39
              246,321
              4.65
              20.3929.40–30.61
              917,500
              6.15
              
              29.98
              146,659
              5.63
              30.617.25–30.61
              2,061,828
              4.46
              
              20.97
              1,162,974
              3.25
              15.14
 
 The fair
value of options granted subsequent to January 1, 2002, is determined at the
date of grant using the Black-Scholes option-pricing model. The Black-Scholes
option valuation model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions, including expected share price volatility.
  
 The
estimated fair value of options granted at the share market price on the grant
date was determined using the weighted average assumptions indicated
below.
 
 2008
              
              
              2007
              
              
              2006Risk-free
      interest rate (%)
              
              
              3.09
              
              
              
              4.31
              
              
              
              4.05Expected
      hold period to exercise (years)
              
              
              5.5
              
              
              
              5.5
              
              
              
              6.0Volatility
      in the price of the Company'sshares
      (%)
              
              
              29.6
              
              
              
              27.5
              
              
              
              29.4Weighted
      average fair value per option ($)
              
              
              9.82
              
              
              
              10.65
              
              
              
              7.59
 
 The
expected volatility was based on the historical volatility of the Company’s
shares over a period commensurate with the expected term of the share option.
The risk-free interest rate for the expected life of the options was based on
the yield available on government bonds, with an approximate equivalent
remaining term at the time of the grant. Historical data was used to estimate
the expected life of the option.
  A summary
of the status of the Company’s non-vested options as of December 31, 2008, and
of changes in the year are as follows:
 
 Number
      of Shares
              
              
              Weighted
      AverageSubject
      to Option
              
              
              Grant
      Date Fair Value#
              
              
              $Non-vested,
      beginning of the year
              
              
              819,826
              
              
              
              8.98Granted
              
              
              480,000
              
              
              
              9.82Vested
              
              
              (342,470
              )
              
              
              8.09Forfeited
              
              
              (58,502
              )
              
              
              8.91Non-vested
      share options, end of the year
              
              
              898,854
              
              
              
              9.77
 
 As of
December 31, 2008, 898,854 options remained unvested, and a total unrecognized
compensation cost of $4,514,000 related to the Company’s share option plans.
This cost is expected to be recognized over a weighted average period of 2.02
years.
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-25
 
 For
      all outstanding options at December 31, 2008, the aggregate intrinsic
      value was $18.9 million. For fully vested share options and share options
      outstanding at December 31, 2008, that are expected to vest in the future,
      the aggregate intrinsic value was $18.7 million. For options exercisable
      at December 31, 2008, the intrinsic value at December 31, 2008, was $17.5
      million. The total intrinsic value of options exercised during the years
      ended December 31, 2008, 2007, and 2006, was $1.9 million, $8.2 million,
      and $9.8 million, respectively.
  Deferred
      share units
  Under
      the Company’s deferred share unit plan, outside directors of the Company
      may receive deferred share units equal to one common share. These units
      are paid out to the directors upon their death or retirement in the form
      of cash and are valued at the market price of the Company’s common shares
      on the last trading day of the month of death or retirement. Deferred
      share units cannot be paid in the form of Company shares. In 2008,
      $464,000 deferred share units were paid (2007 – $450,000; 2006 –
      $159,000). These units are recorded at fair value based on the current
      market price of the Company’s common shares. As at December 31, 2008,
      60,800 units were outstanding (2007 – 56,000; 2006 –
    48,000).
  Restricted
      shares
  In
      2005, the former shareholders of Keith received restricted shares in
      connection with its acquisition. These restricted shares vested over a
      period ending April 1, 2008. Upon the vesting of the restricted shares,
      common shares were issued. As at December 31, 2008, no restricted shares
      were outstanding (2007 – 5,792; 2006 –
55,666).
  14.
              Financial
      Instruments
  The
      Company classifies its financial instruments as
  follows:
  •
              Cash
      and cash equivalents and cash held in escrow are classified as financial
      assets held for trading and are recorded at fair value, with realized and
      unrealized gains and losses reported in
income.
 •
              Accounts
      receivable are classified as receivables and are initially accounted for
      at fair value and subsequently adjusted for any allowance for doubtful
      accounts, with realized gains and losses reported in
    income.
 •
              Investments
      held for self-insured liabilities are classified as financial assets
      available for sale and are recorded at fair value, with accumulated
      unrealized gains and losses reported in other comprehensive income until
      disposed of, at which time the realized gains and losses are recognized in
      income.
 •
              Accounts
      payable and accrued liabilities and long-term debt are classified as other
      financial liabilities and are initially recorded at fair value and
      subsequently recorded at amortized cost using the effective interest rate
      method, with realized gains and losses reported in
  income.
 •
              Derivative
      other assets and liabilities are classified as held for trading and are
      accounted for at fair value, with realized and unrealized gains and losses
      reported in income unless the derivative qualifies and is designated as an
      effective cash flow hedge, in which case, unrealized gains and losses are
      recorded in other comprehensive
income.
  Fair
      Value
  The
      fair value of a financial instrument on initial recognition is normally
      the transaction price, which is the value of the consideration given or
      received. Transaction costs on financial instruments are expensed when
      incurred. Purchases and sales of financial assets are accounted for at
      trade dates. Subsequent to initial recognition, the fair values of
      financial instruments are based on the bid prices in quoted active markets
      for financial assets and on the ask prices for financial liabilities. The
      fair values of cash and cash equivalents, cash held in escrow, accounts
      receivable, and accounts payable and accrued liabilities approximate their
      carrying amounts because of the short-term maturity of these instruments.
      The carrying amount of bank loans approximates their fair value because
      the applicable interest rate is based on variable reference rates. The
      carrying values of other financial assets and financial liabilities
      approximate their fair values except as otherwise disclosed in the
      consolidated financial statements.
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-26
 
 Credit
Risk
 
 Credit
risk is the risk of financial loss to the Company if a counterparty to a
financial instrument fails to meet its contractual obligation. Financial
instruments that subject the Company to credit risk consist primarily of cash
and cash equivalents, derivative financial instruments, investments held for
self-insured liabilities, and accounts receivable.
  The
Company limits its exposure to credit risk by placing its cash and cash
equivalents in and entering into derivative agreements with high-quality credit
institutions. Investments held for self-insured liabilities include bonds and
equities. The risk associated with bonds and equities is mitigated by the
overall quality and mix of the Company's investment portfolio. The Company does
not invest in any asset-backed commercial paper (ABCP) and, therefore, does not
consider itself to be exposed to current uncertainties in the ABCP
marketplace.
  The
Company maintains an allowance for estimated credit losses on accounts
receivable. The estimate is based on the best assessment of the collectibility
of the related receivable balance based, in part, on the age of the outstanding
accounts receivable and on the Company's historical collection and loss
experience.
  The
Company mitigates the risk associated with accounts receivable by providing
services to diverse clients in various industries and sectors of the economy. It
does not concentrate its credit risk in any particular client, industry,
economic, or geographic sector. In addition, management reviews accounts
receivable past due on an ongoing basis with the objective of identifying
matters that could potentially delay the collection of funds at an early stage.
The Company monitors accounts receivable to an internal target of days of
revenue in accounts receivable (a non-GAAP measure). At December 31, 2008, there
were 64 days of revenue in accounts receivable (2007 – 72 days). The maximum
amount of credit risk exposure is limited to the carrying amount of the balances
in the financial statements.
 
 Liquidity
Risk
 
 Liquidity
risk is the risk that the Company will not be able to meet its obligations as
they fall due. The Company’s liquidity needs can be met through a variety of
sources, including cash generated from operations, long- and short-term
borrowings from the $300 million credit facility, and the issuance of common
shares. The Company believes that internally generated cash flows, supplemented
by borrowings and additional equity issues, if necessary, will be sufficient to
cover its normal operating and capital expenditures as well as currently
anticipated acquisition activity in 2009. Liquidity
risk is managed according to the Company’s internal guideline of maintaining a
debt to equity ratio of less than 0.5 to 1.
 
 Interest
Rate Risk
 
 Interest
rate risk is the risk that the fair value of the future cash flows of a
financial instrument will fluctuate because of changes in market rates of
interest. The Company is subject to interest rate cash flow risk to the extent
that its credit facilities are based on floating rates of interest. In addition,
the Company is subject to interest rate pricing risk to the extent that its
investments held for self-insured liabilities contain fixed-rate government and
corporate bonds. The Company minimizes its exposure to floating rates of
interest, when appropriate, by entering into interest rate swap agreements (note
11).
  If the
interest rate on the Company's loan balance at December 31, 2008, had been 0.5%
higher, with all other variables held constant, net income would have decreased
by $247,000 in the year. If the interest rate had been 0.5% lower, there would
have been an equal and opposite impact on net income. This analysis excludes
US$100 million of the revolving credit facility due to the interest rate swap
agreement entered into during the year.
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-27
 
 Foreign
      Exchange Risk
  Foreign
      exchange risk is the risk that the fair value of the future cash flows of
      a financial instrument will fluctuate because of changes in foreign
      exchange rates. Foreign exchange gains or losses in the Company’s net
      income arise on the translation of foreign-denominated assets and
      liabilities (such as accounts receivable, accounts payable and accrued
      liabilities, and long-term debt) held in the Company’s Canadian operations
      and non-US-based foreign subsidiaries. The Company minimizes its exposure
      to foreign exchange fluctuations on these items by matching US- dollar
      liabilities and, when appropriate, by entering into forward contracts to
      buy or sell US dollars in exchange for Canadian dollars (note
      11).
  Foreign
      exchange fluctuations may also arise on the translation of the Company’s
      US-based subsidiaries and are recorded as currency translation adjustments
      in other comprehensive income. The Company does not hedge for this foreign
      exchange risk.
  15.
              Capital
      Management
  The
      Company’s objective when managing capital is to provide sufficient
      capacity to cover normal operating and capital expenditures as well as
      acquisition growth while maintaining an adequate return for shareholders.
      The Company defines its capital as the aggregate of long-term debt
      (including the current portion) and shareholders'
  equity.
  The
      Company manages its capital structure to maintain the flexibility to
      adjust to changes in economic conditions and acquisition growth and to
      respond to interest rate, foreign exchange, credit, and other risks. In
      order to maintain or adjust its capital structure, the Company may
      purchase shares for cancellation pursuant to normal course issuer bids,
      issue new shares, or raise or retire
debt.
  The
      Company periodically monitors capital by maintaining the following ratio
      targets:
  •
              Net
      debt to equity ratio below 0.5 to 1
 •
              Return
      on equity (ROE) at or above 14%
  These
      objectives are established on an annual basis and are monitored on a
      quarterly basis. The targets for 2008 remained unchanged from
      2007.
  Net
      debt to equity ratio, a non-GAAP measure, is calculated as the sum of (1)
      long-term debt, including current portion, plus bank indebtedness, less
      cash and cash held in escrow, divided by (2) shareholders’ equity. The
      Company's net debt to equity ratio was 0.26 to 1 at December 31, 2008
      (December 31, 2007 – 0.19 to 1). Going forward, there may be occasions
      when the Company exceeds its target by completing acquisitions that
      increase its debt level above the target for a period of
    time.
  ROE,
      a non-GAAP measure, is calculated as net income for the last four
      quarters, divided by average shareholders' equity over each of these
      quarters. The Company's ROE was 6.1% for the year ended December 31, 2008,
      (December 31, 2007 – 16.4%). The Company's ROE was below target because of
      the goodwill and intangible assets impairment charge recorded in the third
      quarter of 2008.
  The
      Company is subject to restrictive covenants related to its $300 million
      revolving credit facility that are measured on a quarterly basis. These
      covenants include, but are not limited to, debt to earnings ratio and
      earnings to debt service ratio. Failure to meet the terms of one or more
      of these covenants may constitute a default, potentially resulting in
      accelerating the repayment of the debt obligation. The Company was in
      compliance with all the covenants under this agreement as at and
      throughout the year ended December 31,
2008.
   NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-28
  16.
                Accumulated
      Other Comprehensive Income
(Loss)
  Realized
      GainsUnrealized
              
              
              Unrealized
              
              
              on
      FinancialCumulative
              
              
              Losses
      on
              
              
              Gains
      (Losses)
              
              
              AssetsTranslation
              
              
              Cash
      Flow
              
              
              on
      Financial
              
              
              Transferred
      toAdjustments
              
              
              Hedge
              
              
              Assets
              
              
              Net
      Income
              
              
              Total(In
      thousands of Canadian dollars)
              
              $
              
              
              $
              
              
              $
              
              
              $
              
              
              $Balance,
      December 31, 2005
              
              
              (25,575
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (25,575
              )Current
      period activity
              
              
              731
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              731Balance,
      December 31, 2006
              
              
              (24,844
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (24,844
              )Change
      in accounting policy
              
              
              -
              
              
              
              -
              
              
              
              481
              
              
              
              -
              
              
              
              481Balance,
      January 1, 2007, asadjusted
              
              
              (24,844
              )
              
              
              -
              
              
              
              481
              
              
              
              -
              
              
              
              (24,363
              )Current
      period activity
              
              
              (45,669
              )
              
              
              -
              
              
              
              1,280
              
              
              
              (249
              )
              
              
              (44,638
              )Income
      tax effect
              
              
              -
              
              
              
              -
              
              
              
              (31
              )
              
              
              4
              
              
              
              (27
              )Balance,
      December 31, 2007
              
              
              (70,513
              )
              
              
              -
              
              
              
              1,730
              
              
              
              (245
              )
              
              
              (69,028
              )Current
      period activity
              
              
              76,923
              
              
              
              (4,218
              )
              
              
              (3,706
              )
              
              
              (152
              )
              
              
              68,847Income
      tax effect
              
              
              -
              
              
              
              1,244
              
              
              
              65
              
              
              
              3
              
              
              
              1,312Balance,
      December 31, 2008
              
              
              6,410
              
              
              
              (2,974
              )
              
              
              (1,911
              )
              
              
              (394
              )
              
              
              1,131
  Effective
January 1, 2007, the Company adopted the CICA Handbook Section 3855, “Financial
Instruments—Recognition and Measurement”; Section 1530, “Comprehensive Income”;
and Section 3251, “Equity.” By adopting these standards, the Company recorded
investments held for self-insured liabilities at fair value on January 1, 2007.
In accordance with transitional provisions, other assets increased by
approximately $493,000, opening accumulated other comprehensive income increased
by approximately $481,000 (after-tax), and future income tax liabilities
increased by $12,000.
  The
foreign currency cumulative translation adjustments represent the unrealized
gain or loss on the Company's net investment in self-sustaining US-based
operations. The change in the cumulative translation adjustments during the year
relates to the fluctuation in the value of the Canadian dollar relative to the
US dollar. Balance sheet accounts denominated in US dollars have been translated
to Canadian dollars at the rate of 1.2180 (December 31, 2007 –0.9913; 2006 –
1.1654).
  The
unrealized gains (losses) on financial assets represent the change in fair value
on investments held for self-insured liabilities (note 6).
  The
unrealized gains (losses) on cash flow hedge represent the unrealized gain or
loss on the Company's interest rate swap agreement (note 11). The minimum length
of time over which the Company is hedging its exposure to the variability in
future cash flows from the interest on its revolving credit facility is 20
months.
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-29
 
 
  17.
                      Income
      Taxes
 The
effective income tax rate in the consolidated statements of income differs from
statutory Canadian tax rates as a result of the following:
 
 2008
              
              
              2007
              
              
              2006%
              
              
              %
              
              
              %Income
      tax expense at statutory Canadian rates
              
              
              31.2
              
              
              
              33.6
              
              
              
              34.1Increase
      (decrease) resulting from:Impairment
      of goodwill
              
              
              24.8
              
              
              
              -
              
              
              
              -Income
      from associated companies
              
              
              -
              
              
              
              (0.1
              )
              
              
              (0.1
              )Rate
      differential on foreign income
              
              
              (0.1
              )
              
              
              (0.9
              )
              
              
              1.1Non-deductible
      expenses:Meals
      and entertainment
              
              
              1.1
              
              
              
              0.9
              
              
              
              0.9Stock-based
      compensation
              
              
              1.0
              
              
              
              0.1
              
              
              
              0.3Non-taxable
      foreign income net of non-creditablewithholding
      taxes
              
              
              (2.9
              )
              
              
              (3.2
              )
              
              
              (2.9
              )Other
              
              
              (0.1
              )
              
              
              (0.3
              )
              
              
              (0.7
              )55.0
              
              
              
              30.1
              
              
              
              32.7
 
 Since the
Company operates in several tax jurisdictions, its income is subject to various
rates of taxation. The details of income before income taxes are as
follows:
 
 2008
              
              
              2007
              
              
              2006(In
      thousands of Canadian dollars)
              
              $
              
              
              $
              
              
              $Domestic
              
              
              128,225
              
              
              
              101,433
              
              
              
              79,109Foreign
              
              
              (63,726
              )
              
              
              (2,319
              )
              
              
              10,315Total
      income before income taxes
              
              
              64,499
              
              
              
              99,114
              
              
              
              89,424The
      details of the income tax expense (recovery) are as
    follows:
  2008
              
              
              2007
              
              
              2006(In
      thousands of Canadian dollars)
              
              $
              
              
              $
              
              
              $Current:
              Domestic
              
              
              41,329
              
              
              
              34,179
              
              
              
              25,766Foreign
              
              
              (116
              )
              
              
              815
              
              
              
              5,718Total
      current expense
              
              
              41,213
              
              
              
              34,994
              
              
              
              31,484Future:
              Domestic
              
              
              (133
              )
              
              
              (1,598
              )
              
              
              725Foreign
              
              
              (5,598
              )
              
              
              (3,561
              )
              
              
              (2,967
              )Total
      future recovery
              
              
              (5,731
              )
              
              
              (5,159
              )
              
              
              (2,242
              )Total:
              Domestic
              
              
              41,196
              
              
              
              32,581
              
              
              
              26,491Foreign
              
              
              (5,714
              )
              
              
              (2,746
              )
              
              
              2,751Total
      income tax expense
              
              
              35,482
              
              
              
              29,835
              
              
              
              29,242
 
 Significant
components of the Company's future income tax assets and liabilities are as
follows:
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-30
 2008
              
              
              2007(In
      thousands of Canadian dollars)
              
              $
              
              
              $Future
      income tax assetsDifferences
      in timing of deductibility of expenses
              
              
              23,120
              
              
              
              18,101Loss
      carryforwards
              
              
              8,328
              
              
              
              4,171Share
      issue and other financing costs
              
              
              133
              
              
              
              220Tax
      cost of property and equipment in excess of carrying value
              
              
              2,114
              
              
              
              451Deferred
      gain on sale of building
              
              
              1,124
              
              
              
              1,224Other
              
              
              1,232
              
              
              
              1,21536,051
              
              
              
              25,382Less
      current portion
              
              
              15,265
              
              
              
              13,30820,786
              
              
              
              12,074
  2008
              
              
              2007(In
      thousands of Canadian dollars)
              
              
              $
              
              
              
              $Future
      income tax liabilitiesCash
      to accrual adjustments on acquisitions of US subsidiaries
              
              
              5,025
              
              
              
              4,285Differences
      in timing of taxability of revenues
              
              
              7,492
              
              
              
              6,804Carrying
      value of property and equipment in excess of tax cost
              
              
              6,283
              
              
              
              5,760Carrying
      value of intangible assets in excess of tax cost
              
              
              20,743
              
              
              
              14,607Other
              
              
              869
              
              
              
              1,01240,412
              
              
              
              32,468Less
      current portion
              
              
              13,920
              
              
              
              11,75026,492
              
              
              
              20,718
 
 At
December 31, 2008, loss carryforwards of approximately $1,714,000 are available
to reduce the taxable income of certain Canadian subsidiaries. These losses
expire as set out below:
 
 (In
      thousands of Canadian dollars)
              
              
              $pre
      2016
              
              
              3702026
              
              
              1,1062027
              
              
              2381,714
 
 In
addition, the Company has federal loss carryforwards of approximately
$20,930,000 (US$17,255,000) that are available to reduce the taxable income of
certain US subsidiaries and that expire at varying times over the next 20
years.
  The
potential income tax benefits that will result from the application of Canadian
and US tax losses have been recognized in these consolidated financial
statements.
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-31
 
 
 18.
                    Earnings
      Per Share
 
 The
number of basic and diluted common shares outstanding, as calculated on a
weighted average basis, is as follows:
 
 2008
              
              
              2007
              
              
              2006#
              
              
              
              #
              
              
              
              #Basic
      shares outstanding
              
              
              
              
              
              45,584,612
              
              
              
              45,577,261
              
              
              
              45,068,266Share
      options (dilutive effect of 1,621,828 options;2007
      – 1,751,022;
      2006 – 1,702,784)
              
              
              472,107
              
              
              
              630,280
              
              
              
              648,430Restricted
      shares (dilutive effect of nil restricted shares;2007
      – 5,792;
      2006 – 55,666)
              
              
              562
              
              
              
              19,156
              
              
              
              74,813Diluted
      shares outstanding
              
              
              
              
              
              
              46,057,281
              
              
              
              46,226,697
              
              
              
              45,791,509
 
 At
December 31, 2008, 440,000 options were antidilutive and therefore were not
considered in computing diluted earnings per share.
 19.
                  Cash
      Flows From Operating
Activities
  Cash flows from operating activities determined by the indirect method are
      as follows:2008
              
              
              2007
              
              
              2006(In
      thousands of Canadian dollars)
              
              $
              
              
              $
              
              
              $CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income for the year
              
              
              29,017
              
              
              
              69,279
              
              
              
              60,182Add
      (deduct) items not affecting cash:Depreciation
      of property and equipment
              
              
              25,405
              
              
              
              19,038
              
              
              
              15,604Amortization
      of intangible assets
              
              
              10,679
              
              
              
              3,702
              
              
              
              6,132Impairment
      of goodwill and intangible assets
              
              
              58,369
              
              
              
              -
              
              
              
              -Future
      income tax
              
              
              (5,731
              )
              
              
              (5,159
              )
              
              
              (2,242
              )Gain
      on dispositions of investments and property andequipment
              
              
              (520
              )
              
              
              (1,085
              )
              
              
              (1,238
              )Stock-based
      compensation expense
              
              
              5,118
              
              
              
              3,452
              
              
              
              2,224Provision
      for self-insured liability
              
              
              12,470
              
              
              
              6,153
              
              
              
              6,329Other
      non-cash items
              
              
              (3,445
              )
              
              
              (2,135
              )
              
              
              (994
              )Share
      of income from equity investments
              
              
              (160
              )
              
              
              (292
              )
              
              
              (285
              )Dividends
      from equity investments
              
              
              150
              
              
              
              450
              
              
              
              450131,352
              
              
              
              93,403
              
              
              
              86,162Change
      in non-cash working capital accounts:Accounts
      receivable
              
              
              23,987
              
              
              
              20,848
              
              
              
              (14,117
              )Costs
      and estimated earnings in excess of billings
              
              
              21,305
              
              
              
              (25,067
              )
              
              
              23,029Prepaid
      expenses
              
              
              2,499
              
              
              
              1,715
              
              
              
              (269
              )Accounts
      payable and accrued liabilities
              
              
              (20,088
              )
              
              
              (11,106
              )
              
              
              (3,958
              )Billings
      in excess of costs and estimated earnings
              
              
              2,728
              
              
              
              3,485
              
              
              
              4,590Income
      taxes payable/recoverable
              
              
              (1,753
              )
              
              
              4,221
              
              
              
              (2,048
              )28,678
              
              
              
              (5,904
              )
              
              
              7,227Cash
      flows from operating activities
              
              
              160,030
              
              
              
              87,499
              
              
              
              93,389
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-32
 20.
                    Joint
      Ventures
 The
      Company participates in joint ventures with other parties as
      follows:Percentage
      Owned2008
                2007
                2006%
                %
                %yyC.T.
      Joint Venture
                17
                17
                17Stantec
      – S&L Partnership
                50
                50
                50Edmonton
      International Airports Joint Venture
                33
                33
                33Pine
      Creek Consultants Joint Venture
                n/a
                n/a
                33Dunlop
      Joint Ventures
                33–68
                33 –68
                33–80Stantec
      Architecture Ltd./J.L. Richards & AssociatesJoint
      Venture
                50
                50
                50Stantec/Parkin
      Joint Venture
                67
                67
                -Smith/Chong
      Joint Venture
                50
                50
                -Coleson
      Power Joint Venture
                50
                50
                -Accent
      Engineering Consultants, Inc. Joint Venture
                40
                40
                -FFEB
      Joint Venture
                30
                30
                -Hatch
      McIntosh Alliance Joint Venture
                50
                -
                -Kuwabara
      Payne McKenna Blumberg (KPMB)
                45
                -
                -
 
 In 2004,
as part of the acquisition of Dunlop Architects Inc. (Dunlop), the Company
acquired the interest of 13 joint ventures entered into by Dunlop, with 11
remaining active at December 31, 2006. In 2007, with the acquisition of Murphy
Hilgers Architects Inc., four of the 11 joint ventures became 100% owned by the
Company, leaving five of the joint ventures originally entered into by Dunlop
active as at December 31, 2008.
  A summary
of the assets, liabilities, revenues, expenses, and cash flows included in the
consolidated financial statements related to joint ventures (before intercompany
eliminations) is as follows:
 
 2008
                
                
                2007
                
                
                2006(In
      thousands of Canadian dollars)
                
                $
                
                
                $
                
                
                $Statement
      of incomeGross
      revenue
                
                
                25,827
                
                
                
                4,464
                
                
                
                4,451Subconsultant
      and other direct expenses
                
                
                24,524
                
                
                
                3,912
                
                
                
                4,612Administrative
      and marketing expenses
                
                
                911
                
                
                
                129
                
                
                
                75Net
      income (loss) for the year
                
                
                392
                
                
                
                423
                
                
                
                (236
                )Balance
      sheetsCurrent
      assets
                
                
                12,649
                
                
                
                5,536
                
                
                
                2,086Current
      liabilities
                
                
                12,120
                
                
                
                4,867
                
                
                
                1,800Statement
      of cash flowsCash
      flows from (used in) operating activities
                
                
                (547
                )
                
                
                (493
                )
                
                
                173
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-33
  21.
                      Segmented
      Information
  The
Company provides comprehensive professional services in the area of
infrastructure and facilities throughout North America and internationally. It
considers the basis on which it is organized, including geographic areas and
service offerings, in identifying its reportable segments. Operating segments of
the Company are defined as components of the Company for which separate
financial information is available and is evaluated regularly by the chief
operating decision maker in allocating resources and assessing performance. The
chief operating decision maker is the chief executive officer of the Company,
and the Company's operating segments are based on its regional geographic
areas.
  The
Company has three operating segments, which are aggregated into the Consulting
Services reportable segment.
 
 Geographic
      information
                
                Property
      and Equipment,Goodwill,
      Intangible Assets2008
                
                
                2007(In
      thousands of Canadian dollars)
                
                $
                
                
                $Canada
                
                
                183,828
                
                
                
                154,404United
      States
                
                
                422,881
                
                
                
                298,470International
                
                
                508
                
                
                
                492607,217
                
                
                
                453,366
 Geographic
      information
                
                
                
                
                Gross
      Revenue2008
                
                
                2007
                
                
                2006(In
      thousands of Canadian dollars)
                
                $
                
                
                $
                
                
                
                $Canada
                
                
                649,465
                
                
                
                539,349
                
                
                
                461,281United
      States
                
                
                677,545
                
                
                
                405,195
                
                
                
                348,055International
                
                
                24,941
                
                
                
                10,075
                
                
                
                6,7971,351,951
                
                
                
                954,619
                
                
                
                816,133
  Gross revenue is
attributed to countries based on the location of the project.
  Practice
      area information
                
                
                
                
                Gross
      Revenue2008
                
                
                2007
                
                
                2006(In
      thousands of Canadian dollars)
                
                $
                
                
                $
                
                
                $Consulting
      ServicesBuildings
                
                
                282,516
                
                
                
                211,801
                
                
                
                184,254Environment
                
                
                390,016
                
                
                
                175,936
                
                
                
                149,376Industrial
                
                
                241,142
                
                
                
                138,977
                
                
                
                94,806Transportation
                
                
                172,313
                
                
                
                143,140
                
                
                
                106,026Urban
      Land
                
                
                265,964
                
                
                
                284,765
                
                
                
                281,6711,351,951
                
                
                
                954,619
                
                
                
                816,133
 
 Customers
 
 The
Company has a large number of clients in various industries and sectors of the
economy. Gross revenue is not concentrated in any particular
client.
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-34
 
 22.
                Employee
      Future Benefits
  In
      2008, the Company recorded an expense of $19,034,000 (2007 – $13,863,000;
      2006 – $11,567,000) for contributions made to defined contribution plans
      in the year.
  23.
                Investment
      Tax Credits
  Investment
      tax credits arising from qualifying scientific research and experimental
      development efforts pursuant to existing tax legislation are recorded as a
      reduction of the applicable administrative and marketing expenses when
      there is reasonable assurance of their ultimate realization. In 2008,
      investment tax credits of $1,260,000 (2007 – $1,662,000; 2006 – $500,000)
      were recorded and reduced administrative and marketing
      expenses.
  24.
                US
      GAAP
  The
      consolidated financial statements of the Company are prepared in Canadian
      dollars in accordance with accounting principles generally accepted in
      Canada that, in most respects, conform to accounting principles generally
      accepted in the United States. The following adjustments and disclosures
      would be required in order to present these consolidated financial
      statements in accordance with US GAAP. Investments in joint ventures are
      accounted for using the equity method under US GAAP, whereas Canadian GAAP
      requires the proportionate consolidation method. As permitted by the SEC,
      disclosure of the effect of this difference is not
    required.
  a) Other
disclosure requirements
  i) Net
income and comprehensive income
  There
      are no identifiable material items that would result in a change in net
      income presented under Canadian GAAP and US
  GAAP.
  Comprehensive
      income is measured in accordance with Statement of Financial Accounting
      Standards No. 130, “Reporting Comprehensive Income” (SFAS 130). This
      standard defines comprehensive income as all changes in equity other than
      those resulting from investments by owners and distributions to owners and
      includes adjustments arising on the translation of self-sustaining foreign
      operations. As well, under US GAAP, comprehensive income includes the
      difference between the recorded and fair value of the Company’s
      investments held for self-insured liabilities since these investments are
      classified as available for sale (note 6). Effective January 1, 2007, the
      Company is required to provide similar disclosure under Canadian GAAP, on
      a prospective basis, in the consolidated statements of shareholders'
      equity and comprehensive income.
  
 Statement
      of Comprehensive Income2006(In
      thousands of Canadian dollars)
                
                $Net
      income under Canadian and US GAAP
                
                
                60,182Other
      comprehensive income, net of tax:Unrealized
      foreign exchange gains on translation of self-sustaining foreign
      operations
                
                
                731Unrealized
      gains on financial assets
                
                
                217Comprehensive
      Income
                
                
                61,130Accumulated
      other comprehensive loss, beginning of the year
                
                
                (25,311
                )Unrealized
      foreign exchange gains on translation of self-sustaining foreign
      operations
                
                
                731Unrealized
      gains on financial assets
                
                
                217Accumulated
      other comprehensive loss, end of the year
                
                
                (24,363
                )
 
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-35
 
 ii)
      Allowance for doubtful accounts2008
                
                
                2007
                
                
                2006(In
      thousands of Canadian dollars)
                
                $
                
                
                $
                
                
                $Balance,
      beginning of the year
                
                
                10,508
                
                
                
                6,303
                
                
                
                10,423Provision
      for doubtful accounts
                
                
                22,508
                
                
                
                17,221
                
                
                
                6,681Deductions
                
                
                (23,702
                )
                
                
                (11,275
                )
                
                
                (11,061
                )Impact
      of foreign exchange
                
                
                2,283
                
                
                
                (1,741
                )
                
                
                260Balance,
      end of the year
                
                
                11,597
                
                
                
                10,508
                
                
                
                6,303
 
 Comparative
figures have been restated to eliminate allowances from accounts receivable
assumed from acquired companies. Accounts receivable assumed from acquired
companies are recognized at their fair value at the time of
acquisition.
 
 iii)
Liabilities for uncertain tax positions
 
 On
January 1, 2007, the Company implemented Financial Accounting Standards Board
(FASB) Interpretation No. 48, "Accounting for Uncertain Income Taxes." The
Company files income tax returns in the Canadian federal jurisdiction, US
federal jurisdiction, and various provinces, states, and foreign jurisdictions.
With few exceptions, the Company is no longer subject to Canadian and US
corporate income taxes or income tax examinations by the tax authorities of
other foreign jurisdictions for years before 2003.
 
 2008
                
                
                2007(In
      thousands of Canadian dollars)
                
                $
                
                
                $Balance,
      beginning of the year
                
                
                1,412
                
                
                
                1,243Additions
      based on tax positions related to the current year
                
                
                321
                
                
                
                96Additions
      based on tax positions related to the prior year
                
                
                -
                
                
                
                218Reductions
      for tax position of prior year
                
                
                (218
                )
                
                
                -Impact
      of foreign exchange
                
                
                209
                
                
                
                (145
                )Balance,
      end of year
                
                
                1,724
                
                
                
                1,412
 
 The
Company's policy is to recognize interest and penalties relating to liabilities
effective January 1, 2007, for unrecognized tax benefits in interest expense.
The liability for interest and penalties relating to unrecognized tax benefits
is recorded in accrued liabilities. During the year ended December 31, 2008, the
Company recognized approximately $111,000 (2007 – $942,000) [$87,000 (2007 –
$585,000) net of tax] in interest and penalties. A significant portion of the
interest and penalties recognized in 2007 related to a preacquisition Internal
Revenue Service audit. The Company had approximately $446,000 (2007 –
$1,362,000) [$348,000 (2007 – $882,000) net of tax] for the payment of interest
and penalties accrued at December 31, 2008.
  Approximately
$1,543,000 (2007 – $1,194,000) of unrecognized tax benefits, if recognized,
would impact the Company's effective tax rate.
  During
the next 12 months, it is reasonably possible that the Company's unrecognized
tax benefits may change since it expects to receive Notices of Assessment from
the Canada Revenue Agency with respect to its claim for scientific research and
experimental development efforts.
 
 b)
Recent accounting pronouncements
  Fair
value measurements
 
 In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, “Fair Value Measurements”
(SFAS 157), effective for fiscal years beginning after November 15, 2007. SFAS
157 establishes a framework for measuring fair value under US GAAP and requires
additional disclosure. The statement defines a fair
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-36
 
 value
hierarchy, with the highest priority being quoted prices in active markets.
Under this statement, fair value measurements are disclosed by level within the
hierarchy. This standard does not require any new fair value measurements. The
adoption of this standard for financial assets and liabilities had no material
effect on the Company's financial position or results of operations. The
Company's adoption of SFAS 157 for non-financial assets and liabilities is
deferred to fiscal 2009 as allowed by FASB Staff Position (FSP) FAS 157-2,
"Effective Date of FASB Statement No. 157."
  
 In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, “The Fair Value Option for Financial Assets and Financial
Liabilities—Including an Amendment to FASB Statement No. 115” (SFAS 159),
effective for fiscal years beginning after November 15, 2007, although earlier
adoption was permitted. SFAS 159 allows an entity to choose to measure certain
financial instruments and other items at fair value that are not currently
required to be measured at fair value. At each subsequent reporting period,
unrealized gains and losses would be reported in earnings on items for which the
fair value option has been elected. The adoption of this standard had no
material effect on the Company's financial position or results of
operations.
 
 Business
combinations
 
 In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141R, “Business Combinations”
(SFAS 141R), effective for fiscal years beginning after December 15, 2008. This
pronouncement changed the accounting for business combinations in a number of
areas. SFAS 141R establishes principles and requirements governing how an
acquiring company recognizes and measures in its financial statements
identifiable assets acquired, liabilities assumed, any non-controlling interest
in the acquiree, and goodwill acquired. The statement also establishes
disclosure requirements that will enable users of the acquiring company's
financial statements to evaluate the nature and financial effects of its
business combinations. Although the Company is currently considering the impact
of the adoption of this standard on its consolidated financial statements, the
impact will be limited to any future acquisitions beginning in fiscal
2009.
  In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
160, “Noncontrolling Interests in Consolidated Financial Statements—An Amendment
of ARB No. 51” (SFAS 160), effective for fiscal years beginning after December
15, 2008. SFAS 160 changed the accounting and reporting for ownership interests
in subsidiaries held by parties other than the parent. These non-controlling
interests are to be presented in the consolidated statement of financial
position within equity but separate from the parent’s equity. The amount of
consolidated net income attributable to the parent and to the non-controlling
interest is to be clearly identified and presented on the face of the
consolidated statement of income. In addition, SFAS 160 establishes standards
for a change in a parent’s ownership interest in a subsidiary and the valuation
of retained non-controlling equity investments when a subsidiary is
deconsolidated. It also establishes reporting requirements for providing
sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. The
Company is currently considering the impact of adopting SFAS 160 on its
consolidated financial statements and cannot reasonably estimate its effect at
this time.
 
 Other
 
 In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161,
“Disclosures about Derivative Instruments and Hedging Activities—An Amendment of
FASB Statement No. 133” (SFAS 161). This standard applies to all derivative
instruments and related hedged items accounted for under SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities” (SFAS 133). SFAS
161 requires entities to provide greater transparency about how and why they use
derivative instruments, how they account for derivative instruments and related
hedged items under SFAS 133, and how derivative instruments and related hedged
items affect their financial position, results of operations, and cash flows.
SFAS 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, and will be adopted by the
Company in fiscal 2009. The Company does not expect the adoption of this
standard to have a material effect on its consolidated financial
statements.
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-37
 
 In
November 2008, the FASB issued FSP Emerging Issues Task Force (EITF) 03-6-1,
“Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities.” FSP EITF 03-6-1 clarifies that share-based payment
awards that entitle their holders to receive non-forfeitable dividends or
dividend equivalents before vesting should be considered participating
securities. This interpretation is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and will be adopted by the
Company in fiscal 2009. The Company is currently considering the impact of
adopting FSP EITF 03-6-1 on its consolidated financial statements and cannot
reasonably estimate its effect at this time.
  In
November 2008, the FASB ratified EITF Issue No. 08-7, “Accounting for Defensive
Intangible Assets” (EITF 08-7). EITF 08-7 applies to defensive intangible
assets, which are acquired intangible assets that the acquirer does not intend
to actively use but to hold to prevent its competitors from obtaining access to
them. Because these assets are identifiable separately, EITF 08-7 requires an
acquiring entity to account for them as separate units of accounting. Defensive
intangible assets must be recognized at fair value. EITF 08-7 is effective for
defensive intangible assets acquired in fiscal years beginning on or after
December 15, 2008, and will be adopted by the Company in fiscal 2009. The
Company is currently considering the impact of adopting EITF 08-7 on its
consolidated financial statements and cannot reasonably estimate its effect at
this time.
  In
November 2008, the EITF issued EITF Issue No. 08-6, “Equity Method Investment
Considerations” (EITF 08-6), which clarifies the accounting for certain
transactions and impairment considerations involving equity method investments.
This interpretation is effective for financial statements issued for fiscal
years beginning on or after December 15, 2008. The Company will adopt this
standard in fiscal 2009. The Company is currently considering the impact of
adopting EITF 08-6 on its consolidated financial statements and cannot
reasonably estimate its effect at this time.
  25.
                  Subsequent
      Event
 
 On
January 2, 2009, the Company acquired the shares and business of Jacques
Whitford Group Ltd. and Jacques Whitford Global Group Limited for cash
consideration of $64,000,000 and notes payable of $79,000,000. These firms are
leading providers of environmental management and remediation and geotechnical
engineering services. Their addition will significantly strengthen the service
offerings in the Company's Environment practice. This acquisition also increases
the Company’s presence in Atlantic Canada; expands and enhances its geotechnical
engineering capabilities; increases its ability to provide environmental and
geoscientific assessments in Canada's Arctic and Alberta for resource
development; expands its ability to support the mining sector; and expands its
air quality services.
  26.
                  Comparative
      Figures
 
 Certain
comparative figures have been reclassified to conform to the presentation
adopted for the current year.
  NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 December
31, 2008
 STANTEC
INC.
 F-37
 
 
  Board
      of Directors
                    
                    Shareholder
      Information
                    Investor
      RelationsAram
      H. Keith
                    Ivor M. Ruste1
                    Transfer
      Agent
                    Stantec
      Inc.Irvine,
      California
                    Calgary,
      Alberta
                    Computershare
      Trust
                    10160
      – 112 StreetVice
      Chairman of the Board,
                    Executive
      Vice President and
                    Company
      of Canada
                    Edmonton
      ABStantec
      Inc.
                    Chief
      Risk Officer,
                    Calgary,
      Alberta
                    Canada
      T5K 2L6EnCana
      Corporation
                    
                    Tel:
      (780) 917-7000Auditors
                    Fax:
      (780) 917-7330Robert J.
      Bradshaw2
                    Ronald Triffo2
                    Ernst
      & Young LLP
                    ir@stantec.comToronto,
      Ontario
                    Edmonton,
      Alberta
                    Chartered
      AccountantsCorporate
      Director
                    Chairman
      of the Board,
                    Edmonton,
      Alberta
                    Annual
      MeetingStantec
      Inc.
                    
                    14-May-091Audit
      Committee
                    Principal
      Bank
                    11:00
      AM MDTRobert R.
      Mesel1
                    2Corporate Governance
      and
                    Canadian
      Imperial Bank
                    Royal
      Alberta MuseumKiawah
      Island, South Carolina
                    Compensation
      Committee
                    of
      Commerce
                    12845
      – 102 AvenueCorporate
      Director
                    
                    
                    Edmonton,
      AlbertaSecurities
      Exchange Listing
                    CanadaOfficers
                    Stantec
      shares are traded onAnthony
      P. Franceschini
                    
                    the
      TSX and NYSE under theEdmonton,
      Alberta
                    Ronald
      Triffo
                    symbol
      STN.President
      & CEO,
                    ChairmanStantec
      Inc.Anthony
      P. FranceschiniPresident
      & CEOSusan E. Hartman1,
      2Rochester,
      New York
                    Mark
      E. JacksonPresident
      and Owner,
                    Senior
      Vice President & COOThe
      Hartman GroupDaniel
      J. LefaivreSenior
      Vice President & CFOJeffrey
      S. LloydVice
      President & Secretary