Exhibit
99.4
 STANTEC
INC.
 
 CONSOLIDATED
FINANCIAL STATEMENTS
 
 FOR
THE YEARS ENDED DECEMBER 31, 2007, AND 2006
      
 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 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, 2007.
  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
Neill and Gunter, Incorporated; Neill and Gunter Limited; and Neill and Gunter
(Nova Scotia) Limited (the Neill and Gunter companies), each acquired on October
19, 2007, and of Fuller, Mossbarger, Scott & May Engineers, Inc. (FMSM) and
Leestown Leasing, L.L.C., acquired on December 31, 2007. The assets and
liabilities and results of operations from these companies are included in the
Company’s consolidated financial statements. The total assets of the Neill and
Gunter companies and of FMSM and Leestown Leasing, L.L.C., on their
acquisition dates, were $74.6 million and $54.4 million, respectively. These
assets as a percentage of the Company's total assets, as at December 31, 2007,
were 9.2% and 6.7%, respectively. The gross revenue earned by the Neill and
Gunter companies and FMSM and Leestown Leasing, L.L.C., from their dates of
acquisition to December 31, 2007, constituted 1.3% and 0.0%, respectively, of
the Company's gross revenue for the year ended December 31, 2007.
  Ernst
& Young LLP, which has audited the consolidated financial statements of the
Company for the year ended December 31, 2007, has also issued a report on the
effectiveness of the Company’s internal control over financial
reporting.
 
  graphic
                graphicTony
      Franceschini P.Eng.
                Don
      Wilson CAPresident
      & CEO
                Senior
      Vice President & CFOFebruary
      20, 2008
                February
      20, 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, 2007
and 2006 and the consolidated statements of income, shareholders' equity and
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 2007. 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 provides 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, 2007 and 2006
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2007 in accordance with Canadian generally
accepted accounting principles.
  As
discussed in Note 1 to the consolidated financial statements, effective January
1, 2007 the Company adopted the requirements of the Canadian Institute of
Chartered Accountants Handbook Section 3855, “Financial Instruments –Recognition
and Measurement”; Section 1530, “Comprehensive Income”; and Section 3251,
“Equity”.
  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, 2007 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 20, 2008, expressed an unqualified opinion thereon.
 
 GRAPHIC
 Chartered Accountents
 Edmonton, Canada
 February 20, 2008 Chartered
Accountants
 Edmonton,
Canada
 February
20, 2008
 
 STANTEC
INC.
 F-2
 
 
 Independent
Auditors' Report on Internal Controls
 
 (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 of December
31, 2007, 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 Neill and Gunter, Incorporated; Neill and Gunter Limited;
Neill and Gunter (Nova Scotia) Limited, and Fuller, Mossbarger, Scott & May
Engineers, Inc. and Leestown Leasing, L.L.C., which are included in the 2007
consolidated financial statements of Stantec Inc. and constituted 9.2% and 6.7%,
respectively, of total assets at December 31, 2007 and 1.3% and 0.0%,
respectively, 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 Neill and Gunter,
Incorporated; Neill and Gunter Limited; Neill and Gunter (Nova Scotia) Limited,
and Fuller, Mossbarger, Scott & May Engineers, Inc. and Leestown Leasing,
L.L.C.
  In our
opinion, Stantec Inc. maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, 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 of December 31, 2007
and 2006, 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, 2007 of Stantec Inc. and our report dated
February 20, 2008, expressed an unqualified opinion thereon.
 
 GRAPHIC
 Chartered Accountents
 Edmonton, Canada
 february 20,
2008
 STANTEC
INC.
 F-3
 
 Consolidated
Balance Sheets
 December
      31
                
                
                December
      312007
                
                
                2006(In
      thousands of Canadian dollars)
                
                $
                
                
                $ASSETS(note
      8)CurrentCash
      and cash equivalents
                
                
                14,175
                
                
                
                28,363Restricted
      cash
                
                
                -
                
                
                
                1,545Accounts
      receivable, net of allowance for doubtful accounts of$10,508
      in 2007 ($6,303 – 2006)
                
                
                206,063
                
                
                
                164,968Costs
      and estimated earnings in excess of billings
                
                
                65,064
                
                
                
                41,152Income
      taxes recoverable
                
                
                5,019
                
                
                
                3,993Prepaid
      expenses
                
                
                6,617
                
                
                
                6,591Future
      income tax assets (note
      14)
                
                
                13,308
                
                
                
                9,711Other
      assets (note
      6)
                
                
                13,002
                
                
                
                8,228Total
      current assets
                
                
                323,248
                
                
                
                264,551Property
      and equipment (note
      3)
                
                
                88,156
                
                
                
                65,009Goodwill
      (note
      4)
                
                
                332,922
                
                
                
                251,491Intangible
      assets (note
      5)
                
                
                32,288
                
                
                
                22,819Future
      income tax assets (note
      14)
                
                
                12,074
                
                
                
                9,984Other
      assets (note
      6)
                
                
                24,873
                
                
                
                20,616Total
      assets
                
                
                813,561
                
                
                
                634,470LIABILITIES
      AND SHAREHOLDERS' EQUITYCurrentAccounts
      payable and accrued liabilities (note
      7)
                
                
                155,020
                
                
                
                107,132Billings
      in excess of costs and estimated earnings
                
                
                34,423
                
                
                
                28,721Income
      taxes payable
                
                
                9,955
                
                
                
                7,425Current
      portion of long-term debt (note
      8)
                
                
                21,549
                
                
                
                4,181Future
      income tax liabilities (note
      14)
                
                
                11,750
                
                
                
                12,236Total
      current liabilities
                
                
                232,697
                
                
                
                159,695Long-term
      debt (note
      8)
                
                
                74,539
                
                
                
                12,046Future
      income tax liabilities (note
      14)
                
                
                20,718
                
                
                
                18,273Other
      liabilities (note
      9)
                
                
                42,909
                
                
                
                33,561Total
      liabilities
                
                
                370,863
                
                
                
                223,575Commitments, contingencies, and
      guarantees(notes 2, 8,
      10, and 11)Shareholders'
      equityShare
      capital (note
      12)
                
                
                218,790
                
                
                
                212,781Contributed
      surplus (note
      12)
                
                
                6,266
                
                
                
                5,458Deferred
      stock compensation
                
                
                (110
                )
                
                
                (250
                )Retained
      earnings
                
                
                286,780
                
                
                
                217,750Accumulated
      other comprehensive income (AOCI) (note
      13)
                
                
                (69,028
                )
                
                
                (24,844
                )Total
      shareholders' equity
                
                
                442,698
                
                
                
                410,895Total
      liabilities and shareholders' equity
                
                
                813,561
                
                
                
                634,470See
      accompanying notes
  On
      behalf of the Board of Directors:graphic
                graphicDirector
                DirectorSTANTEC
      INC.F-4
 
 Consolidated
Statements of Income
 Years
      ended December 31
                
                2007
                
                
                2006
                
                
                2005(In
      thousands of Canadian dollars, except per share amounts)
                
                $
                
                
                $
                
                
                $INCOMEGross
      revenue
                
                
                954,619
                
                
                
                816,133
                
                
                
                618,020Less
      subconsultant and other direct expenses
                
                
                123,731
                
                
                
                108,206
                
                
                
                93,468Net
      revenue
                
                
                830,888
                
                
                
                707,927
                
                
                
                524,552Direct
      payroll costs
                
                
                360,101
                
                
                
                304,677
                
                
                
                234,553Gross
      margin
                
                
                470,787
                
                
                
                403,250
                
                
                
                289,999Administrative
      and marketing expenses (notes 12 and21)
                
                
                351,346
                
                
                
                292,064
                
                
                
                212,992Depreciation
      of property and equipment
                
                
                19,038
                
                
                
                15,604
                
                
                
                12,389Amortization
      of intangible assets
                
                
                3,702
                
                
                
                6,132
                
                
                
                2,542Net
      interest expense (note
      8)
                
                
                1,594
                
                
                
                1,892
                
                
                
                571Share
      of income from associated companies
                
                
                (292
                )
                
                
                (285
                )
                
                
                (187
                )Foreign
      exchange gains
                
                
                (2,480
                )
                
                
                (74
                )
                
                
                (449
                )Other
      income
                
                
                (1,235
                )
                
                
                (1,507
                )
                
                
                (359
                )Income
      before income taxes
                
                
                99,114
                
                
                
                89,424
                
                
                
                62,500Income taxes(note
      14)Current
                
                
                34,994
                
                
                
                31,484
                
                
                
                21,735Future
                
                
                (5,159
                )
                
                
                (2,242
                )
                
                
                143Total
      income taxes
                
                
                29,835
                
                
                
                29,242
                
                
                
                21,878Net
      income for the year
                
                
                69,279
                
                
                
                60,182
                
                
                
                40,622Earnings per share(note
      15)Basic
                
                
                1.52
                
                
                
                1.34
                
                
                
                1.02Diluted
                
                
                1.50
                
                
                
                1.31
                
                
                
                0.99See
      accompanying notes
 
 STANTEC
INC.
 F-5
 
 
 Consolidated
Statements of Shareholders' Equity and Comprehensive Income
 
 AccumulatedOtherShares
                
                Share
                
                Contributed
                
                Deferred
                
                
                
                ComprehensiveOutstanding
                
                Capital
                
                Surplus
                
                Stock
                
                Retained
                
                Income
      (AOCI)(note
      12)
                
                (note
      12)
                
                (note
      12)
                
                Compensation
                
                Earnings
                
                (note
      13)
                Total(In
      thousands of Canadian dollars, except shares

                    outstanding)
                #
                
                $
                
                $
                
                $
                
                $
                
                $
                $Balance,
      December 31, 2004
                37,742,170
                
                87,656
                
                2,544
                
                -
                
                117,874
                
                (19,018)
                189,056Comprehensive
      income:Net
      income
                
                
                
                
                
                
                
                
                40,622
                
                
                40,622Currency
      translation adjustments
                
                
                
                
                
                
                
                
                
                
                (6,557)
                (6,557
                )Total
      comprehensive income
                
                
                
                
                
                
                
                
                40,622
                
                (6,557)
                34,065Share
      options exercised for cash
                240,140
                
                961
                
                
                
                
                
                
                
                
                961Stock-based
      compensation expense
                
                
                
                
                963
                
                (833
                )
                
                
                
                130Shares
      repurchased under normal course issuer bid
                (13,600
                )
                (33
                )
                (1
                )
                
                
                (161
                )
                
                (195
                )Shares
      issued on acquisition
                6,657,552
                
                123,365
                
                
                
                
                
                
                
                
                123,365Reclassification
      of fair value of share optionspreviously
      expensed
                
                
                159
                
                (159
                )
                
                
                
                
                
                -Restricted
      shares issued on acquisition
                
                
                
                
                2,175
                
                
                
                
                
                
                2,175Share
      issue costs
                
                
                (1,504
                )
                
                
                
                
                
                
                
                (1,504
                )Balance,
      December 31, 2005
                44,626,262
                
                210,604
                
                5,522
                
                (833
                )
                158,335
                
                (25,575)
                348,053Retained
      earnings and AOCI
                
                
                
                
                
                
                
                
                132,760Balance,
      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 normal course issuer bid
                (51,600
                )
                (243
                )
                (6
                )
                
                
                (767
                )
                
                (1,016
                )Reclassification
      of fair value of share optionspreviously
      expensed
                
                
                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
                
                
                
                
                
                
                
                
                192,906Balance,
      December 31, 2006
                45,201,785
                
                212,781
                
                5,458
                
                (250
                )
                217,750
                
                (24,844)
                410,895Change
      in accounting policy (note 1)
                
                
                
                
                
                
                
                
                
                
                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 transferred to net income
                
                
                
                
                
                
                
                
                
                
                (245)
                (245
                )Total
      comprehensive income
                
                
                
                
                
                
                
                
                69,279
                
                (44,665)
                24,614Share
      options exercised for cash
                386,598
                
                1,920
                
                
                
                
                
                
                
                
                1,920
 Stock-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 optionspreviously
      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
                
                
                
                
                
                
                
                
                217,752See
      accompanying notes
 STANTEC
INC.
 F-6
 Consolidated
Statements of Cash Flows
 
 Years
      ended December 31
                
                2007
                
                
                2006
                
                
                2005(In
      thousands of Canadian dollars)
                
                $
                
                
                $
                
                
                $CASH
      FLOWS FROM (USED IN) OPERATING ACTIVITIESCash
      receipts from clients
                
                
                940,085
                
                
                
                816,846
                
                
                
                637,391Cash
      paid to suppliers
                
                
                (259,493
                )
                
                
                (221,056
                )
                
                
                (200,445
                )Cash
      paid to employees
                
                
                (565,803
                )
                
                
                (467,766
                )
                
                
                (355,621
                )Dividends
      from equity investments
                
                
                450
                
                
                
                450
                
                
                
                550Interest
      received
                
                
                6,496
                
                
                
                6,292
                
                
                
                6,531Interest
      paid
                
                
                (4,271
                )
                
                
                (7,665
                )
                
                
                (6,551
                )Income
      taxes paid
                
                
                (33,656
                )
                
                
                (37,588
                )
                
                
                (28,882
                )Income
      taxes recovered
                
                
                3,691
                
                
                
                3,876
                
                
                
                4,341Cash flows from operating
      activities(note
      16)
                
                
                87,499
                
                
                
                93,389
                
                
                
                57,314CASH
      FLOWS FROM (USED IN) INVESTING ACTIVITIESBusiness
      acquisitions, net of cash acquired (note
      2)
                
                
                (105,353
                )
                
                
                (12,181
                )
                
                
                (100,383
                )Restricted
      cash used for acquisitions
                
                
                1,073
                
                
                
                19,793
                
                
                
                9,000Increase
      in investments held for self-insured liabilities
                
                
                (3,786
                )
                
                
                (4,355
                )
                
                
                (7,295
                )Proceeds
      on disposition of investments
                
                
                51
                
                
                
                9
                
                
                
                522Collection
      of notes receivable from disposition of Technologyand
      Design Build segments
                
                
                -
                
                
                
                -
                
                
                
                406Purchase
      of property and equipment
                
                
                (27,291
                )
                
                
                (18,920
                )
                
                
                (17,005
                )Proceeds
      on disposition of property and equipment
                
                
                134
                
                
                
                104
                
                
                
                155Cash
      flows used in investing activities
                
                
                (135,172
                )
                
                
                (15,550
                )
                
                
                (114,600
                )CASH
      FLOWS FROM (USED IN) FINANCING ACTIVITIESRepayment
      of long-term debt
                
                
                (78,514
                )
                
                
                (85,612
                )
                
                
                (46,875
                )Proceeds
      from long-term borrowings
                
                
                117,049
                
                
                
                9,142
                
                
                
                95,929Repayment
      of acquired bank indebtedness (note
      2)
                
                
                (6,282
                )
                
                
                (1,787
                )
                
                
                -Repurchase
      of shares for cancellation (note
      12)
                
                
                (294
                )
                
                
                (1,016
                )
                
                
                (195
                )Share
      issue costs (note
      12)
                
                
                -
                
                
                
                -
                
                
                
                (1,969
                )Proceeds
      from issue of share capital (note
      12)
                
                
                1,920
                
                
                
                1,865
                
                
                
                961Cash
      flows from (used in) financing activities
                
                
                33,879
                
                
                
                (77,408
                )
                
                
                47,851Foreign
      exchange loss on cash held in foreign currency
                
                
                (394
                )
                
                
                (211
                )
                
                
                (312
                )Net
      increase (decrease) in cash and cash equivalents
                
                
                (14,188
                )
                
                
                220
                
                
                
                (9,747
                )Cash
      and cash equivalents, beginning of the year
                
                
                28,363
                
                
                
                28,143
                
                
                
                37,890Cash
      and cash equivalents, end of the year
                
                
                14,175
                
                
                
                28,363
                
                
                
                28,143See
      accompanying notes
 
 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, environmental sciences, and project
  economics.
  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
      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
22.
  Changes
      in accounting policies
  a) Financial instruments,
      equity, and comprehensive income.Effective January 1, 2007, the
      Company adopted the Canadian Institute of Chartered Accountants (CICA)
      Handbook Section 3855, “Financial Instruments—Recognition and
      Measurement”; Section 1530, “Comprehensive Income”; and Section 3251,
      “Equity.” These pronouncements further align Canadian GAAP with US GAAP
      and International Financial Reporting Standards (IFRS) and require the
      following:
  
 •
                Financial
      assets are classified as loans or receivables, held to maturity, held for
      trading, or available for sale. Held-to-maturity classification is
      restricted to fixed maturity instruments that the Company intends and is
      able to hold to maturity, and these instruments are accounted for at
      amortized cost.

                    Held-for-trading
      instruments are recorded at fair value, with realized and unrealized gains
      and losses reported in net income. The remaining financial assets are
      classified as available for sale. These
      assets are recorded at fair value, with accumulated unrealized gains and
      losses reported in a new category of the consolidated balance sheets under
      shareholders’ equity called “Accumulated Other Comprehensive Income” until
      the financial asset is disposed of, at which time the realized gains and
      losses are recognized in net income. Changes in fair value from reporting
      period to reporting period are recorded in "Other Comprehensive
      Income."
    •
                Financial
      liabilities are classified as either held for trading or other.
      Held-for-trading instruments are recorded at fair value, with realized and
      unrealized gains and losses reported in net income. Other instruments are
      accounted for at amortized cost, with related gains and losses reported in
      net income.
  •
                Derivatives
      are classified as held for trading unless designated as hedging
      instruments. All derivatives are recorded at fair value on the
      consolidated balance sheets (note
20).
 
 As a
result of adopting these standards, the Company classified its financial
instruments as follows:
 
 •
                Cash
      and cash equivalents and restricted cash are classified as financial
      assets held for trading.
  •
                Accounts
      receivable net of allowance for doubtful accounts are classified as
      receivables.
  •
                Investments
      held for self-insured liabilities are classified as financial assets
      available for sale.
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-8
 
 
 •
                Accounts
      payable and accrued liabilities and long-term debt are classified as other
      financial liabilities.
 
 In
accordance with the provisions of these new standards, accumulated other
comprehensive income is included on the Company's consolidated balance sheets as
a separate component of shareholders’ equity. Accumulated other comprehensive
income includes, on a net of tax basis, net unrealized gains and losses on
available-for-sale financial assets and unrealized foreign currency translation
gains and losses on self-sustaining foreign operations. On January 1, 2007, in
accordance with transitional provisions, unrealized foreign currency translation
losses on self-sustaining foreign operations were reclassified from the
cumulative translation account to accumulated other comprehensive income. Prior
periods presented were also restated to reflect this
reclassification.
  The
impact of recording investments held for self-insured liabilities at fair value
on January 1, 2007, in accordance with transitional provisions was to increase
other assets by approximately $493,000, increase opening accumulated other
comprehensive income by approximately $481,000 (after-tax), and increase future
income tax liabilities by $12,000. Accumulated other comprehensive income
decreased by the $24,800,000 balance previously reported in the cumulative
translation account. These transition adjustments did not affect net income or
basic or diluted earnings per share. Prior period consolidated financial
statements were not restated except for the presentation of the cumulative
translation account.
  b) Accounting changes.Effective January 1, 2007, the Company adopted the new CICA Handbook
Section 1506, “Accounting Changes.” This section establishes criteria for
changing accounting policies, together with the accounting treatment and
disclosure of changes in accounting policies, changes in accounting estimates,
and the correction of errors. It includes the disclosure, on an interim and
annual basis, of a description and the impact on the Company's financial results
of any new primary source of Canadian GAAP that has been issued but is not yet
effective. The adoption of this new section did not have an effect on the
Company's financial position or on the results of its operations.
 
 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 used to estimate the fair value
of reporting units for goodwill impairment purposes. Actual results may differ
from these estimates.
 
 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 dates 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.
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-9
 
 
 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 accumulated 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 to 5 yearsOffice
      equipment
                20
      –30%
                declining
      balanceAutomotive
      equipment
                30
      %
                declining
      balanceLeasehold
      improvements
                
                
                straight-line
      over term of lease to a maximum of 15
                  years
      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. 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.
 
 Goodwill
and intangible assets
 
 The cost
of intangible assets with finite 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. Goodwill is not amortized but is evaluated
annually for impairment by comparing the fair value of the reporting unit,
determined on a discounted after-tax cash flow basis, to the carrying value. An
impairment loss would be recognized if the carrying value of the goodwill were
to exceed its fair value.
 
 Long-lived
assets
 
 The
Company monitors the recoverability of long-lived assets, including property and
equipment and intangible assets with finite lives, employing factors such as
expected future asset utilization, business climate, and future undiscounted
cash flows expected to result from the use of the related assets. An impairment
loss would be recognized if the carrying value of a long-lived asset were to
exceed its fair value.
 
 Accrual
and investments held for self-insured liabilities
 
 The
Company self-insures certain risks related to professional liability and
automobile physical damages. The accrual 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
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-10
 
 
 consideration
of actuarial projections. The accrual 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 accrual for self-insured liabilities. These
investments are classified in other assets as investments held for self-insured
liabilities.
 
 Forward
contracts
 
 The
Company may enter into forward currency exchange contracts to manage risk
associated with net operating assets denominated in US dollars. The Company's
policy is not to use derivative financial instruments for trading or speculative
purposes. These derivative contracts, which are not accounted for as hedges, are
recognized at fair value, and any changes in the fair value are recorded in net
income when the changes occur. The fair value of such instruments is recorded as
either accounts receivable or payable.
 
 Non-interest-bearing
debt
 
 Non-interest-bearing
debt is carried at its amortized cost using the effective interest rate
method.
 
 Fair
value of financial instruments
 
 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,
restricted cash, 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
its 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
financial statements.
 
 Credit
risk
 
 Financial
instruments that subject the Company to credit risk consist primarily of cash
and cash equivalents, investments held for self-insured liabilities, and
accounts receivable. The risk associated with its investment in bonds is
mitigated through the overall quality and mix of its bond portfolio. The Company
maintains an allowance for estimated credit losses. It provides services to
diverse clients in various industries and sectors of the economy, and its credit
risk is not concentrated in any particular client, industry, economic, or
geographic sector.
 
 Interest
rate risk
 
 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 has not entered into any derivative agreements to mitigate these
risks.
 
 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 represents work in progress that has
been recognized as revenue but not yet invoiced to clients. Billings in excess
of costs and estimated earnings represents 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.
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-11
 
 
 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 month. 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 12) 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 its
compensation expense arising from stock-based awards. In years prior to January
1, 2002, the Company recognized no compensation expense when shares or stock
options were issued.
 
 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.
 
 Earnings
per share
 
 Basic
earnings per share is computed based on the weighted average number of common
shares outstanding during the year. Diluted earnings per share is 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 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) Financial
instruments —disclosure and presentation.In November 2006, the CICA issued the new handbook Section 3862,
“Financial Instruments—Disclosures,” and Section 3863, “Financial
Instruments—Presentation,” effective for fiscal years beginning on or after
October 1, 2007. These pronouncements further aligned Canadian GAAP with US GAAP
and IFRS. Early adoption of these recommendations is permitted. 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
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-12
 
 
 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 liabilities 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 is not expected to have a material effect on the Company’s
financial position or on the results of its operations.
  b) Capital disclosures.In
November 2006, the CICA released the new handbook Section 1535, “Capital,”
effective for fiscal years beginning on or after October 1, 2007. 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 is not expected to have a material effect on the
Company's financial position or on the results of its operations.
  c) International financial reporting
standards.The CICA plans to converge Canadian GAAP for public companies
with IFRS over a transition period that is expected to end in 2011. The Company
has not yet determined the impact of the CICA's plan on its consolidated
financial statements.
  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 value 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 balance sheet date, these purchase
price adjustment clauses are reviewed and may result in an increase or reduction
to the promissory note consideration recorded at acquisition to reflect either
more or less non-cash working capital than was originally recorded.
  As at
December 31, 2007, additional consideration, specified in certain purchase
agreements, may be payable based on future performance parameters. This
contingent consideration is 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, 2007, there was $300,000 (December 31, 2006 – nil) contingent
consideration of this nature.
  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 2007
 
 On March
9, 2007, the Company acquired the net assets and business of Nicolson Tamaki
Architects Inc. for cash consideration and promissory notes. 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 promissory notes. 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 eastern United States.
  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.
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-13
 
 
 On August
31, 2007, the Company acquired the shares and business of Trico Engineering
Consultants, Inc. for cash consideration and promissory notes. 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 promissory notes. This
acquisition, headquartered in San Francisco 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 achitecture practice.
  On
October 1, 2007, the Company acquired the shares and business of Woodlot
Alternatives, Inc. for cash consideration and promissory notes. 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, promissory notes, and Stantec common
shares. The number of common shares issued (96,925) as consideration 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.
  On
November 16, 2007, the Company acquired the net assets and business of Moore
Paterson Architects Inc. for cash consideration and promissory notes. 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 promissory notes. This acquisition expanded the
Company's operations in Toronto, Ontario, and added further depth to its
expertise in designing health care, judicial, and retail/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 promissory notes.
This acquisition created a presence in Kentucky, Ohio, Missouri, and Indiana and
brought geotechnical engineering capabilities to the Company. In addition, 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.
  During
2007, the purchase price allocations for the Dufresne-Henry, Inc., ACEx
Technologies, Inc., Nicolson Tamaki Architects Inc., and Land Use Consultants,
Inc. acquisitions were finalized. 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.,
Brentcliffe Financial Service Inc., Dekko Studio Inc., Fuller, Mossbarger, Scott
& May Engineers, Inc., and Leestown Leasing, L.L.C. acquisitions have not
been finalized. The Company expects to finalize the purchase price allocations
for Vollmer Associates LLP during the first quarter of 2008; the purchase price
allocations for Geller DeVellis Inc. during the second quarter of 2008; the
purchase price allocations for Trico Engineering Consultants, Inc., Chong
Partners Architecture, Inc., and Woodlot Alternatives, Inc. during the third
quarter of 2008; and the purchase price allocations for the Neill and Gunter
companies, Moore Paterson Architects Inc., Murphy Hilgers Architects Inc., and
Fuller, Mossbarger, Scott & May Engineers, Inc. during the fourth quarter of
2008.
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-14
 
 
 Acquisitions
in 2006
 
 On March
6, 2006, the Company acquired the shares and business of Carinci Burt Rogers
Engineering, Inc. for cash consideration and promissory notes. This acquisition
supplemented the Company’s buildings engineering capabilities and presence in
the Greater Toronto Area.
  On April
14, 2006, the Company acquired the shares and business of Dufresne-Henry, Inc.
for cash consideration and promissory notes. Along with complementing the
Company's New York operations, this acquisition expanded its services into four
new states in New England and created an initial platform for growth in Florida.
Dufresne-Henry, Inc.’s staff added to the Company's professional services in
engineering, planning, environmental sciences, and landscape
architecture.
  On May
12, 2006, the Company acquired the shares and business of ACEx Technologies,
Inc. for cash consideration and promissory notes. This acquisition complemented
the Company’s services in the areas of transit, rail and power communications,
and control systems engineering and added new locations in Oakland, California,
and Irving, Texas.
  During
2006, 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), and ACEx Technologies, Inc. (2006) acquisitions pursuant to price
adjustment clauses included in the purchase agreements.
 
 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
                
                
                Total2007
                
                
                2006(In
      thousands of Canadian dollars)
                
                $
                
                
                $Cash
      consideration
                
                
                109,955
                
                
                
                13,321Share
      consideration
                
                
                3,426
                
                
                
                -Promissory
      notes
                
                
                41,199
                
                
                
                6,308Purchase
      price
                
                
                154,580
                
                
                
                19,629Assets
      and liabilities acquired at fair valuesCash
      acquired
                
                
                4,602
                
                
                
                1,140Bank
      indebtedness assumed
                
                
                (6,282
                )
                
                
                (1,787
                )Non-cash
      working capital
                
                
                20,151
                
                
                
                12,294Property
      and equipment
                
                
                17,025
                
                
                
                3,078Investments
                
                
                12
                
                
                
                -Goodwill
                
                
                114,017
                
                
                
                8,306Intangible
      assetsClient
      relationships
                
                
                8,933
                
                
                
                1,219Contract
      backlog
                
                
                4,298
                
                
                
                388Other
                
                
                2,914
                
                
                
                101Other
      long-term liabilities
                
                
                (1,933
                )
                
                
                (2,146
                )Long-term
      debt
                
                
                (6,486
                )
                
                
                (551
                )Future
      income taxes
                
                
                (2,671
                )
                
                
                (2,413
                )Net
      assets acquired
                
                
                154,580
                
                
                
                19,629
 
 Of the
goodwill and intangible assets resulting from acquisitions completed in 2007,
$35,936,000 (2006 – nil) 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 as part of the purchase price allocation (note
9).
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-15
 
 
 Pro forma data(unaudited)
 
 The
following unaudited pro forma data presents information as if the acquisitions
of Nicolson Tamaki Architects Inc.; Vollmer Associates LLP; Land Use
Consultants, Inc.; 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.;
Brentcliffe Financial Service Inc.; Dekko Studio Inc.; Fuller, Mossbarger, Scott
& May Engineers, Inc.; Leestown Leasing, L.L.C.; Carinci Burt Rogers
Engineering, Inc.; Dufresne-Henry, Inc.; and ACEx Technologies, Inc. had
occurred on January 1, 2006. This unaudited pro forma data is provided for
information purposes only and is based on historical information. This unaudited
pro forma data does not necessarily reflect the actual results of operations
that would have occurred if these acquired entities and Stantec Inc. had
comprised a single entity during the periods since January 1, 2006, nor is it
necessarily indicative of the future results of the operations of the combined
entities.
 
 2007
                
                
                2006$
                
                
                $(In
      thousands of Canadian dollars, except per share amounts)
      (Unaudited)Pro
      forma gross revenue
                
                
                1,148,659
                
                
                
                1,123,390Pro
      forma net revenue
                
                
                954,909
                
                
                
                931,108Pro
      forma net income
                
                
                75,860
                
                
                
                67,389Basic
      pro forma earnings per share
                
                
                1.66
                
                
                
                1.50Diluted
      pro forma earnings per share
                
                
                1.64
                
                
                
                1.47
  3.
                
                Property
      and Equipment
  2007
                
                
                2006Accumulated
                
                
                
                
                
                AccumulatedCost
                
                
                Depreciation
                
                
                Cost
                
                
                Depreciation(In
      thousands of Canadian dollars)
                
                $
                
                
                $
                
                
                $
                
                
                $Engineering
      equipment
                
                
                60,295
                
                
                
                31,689
                
                
                
                48,783
                
                
                
                27,454Business
      information systems
                
                
                18,055
                
                
                
                10,675
                
                
                
                13,755
                
                
                
                7,097Office
      equipment
                
                
                30,151
                
                
                
                15,288
                
                
                
                25,315
                
                
                
                12,760Automotive
      equipment
                
                
                7,952
                
                
                
                4,433
                
                
                
                6,765
                
                
                
                3,850Leasehold
      improvements
                
                
                35,774
                
                
                
                7,185
                
                
                
                20,240
                
                
                
                4,244Buildings
                
                
                5,446
                
                
                
                1,114
                
                
                
                5,574
                
                
                
                913Land
                
                
                867
                
                
                
                -
                
                
                
                895
                
                
                
                -158,540
                
                
                
                70,384
                
                
                
                121,327
                
                
                
                56,318Net
      book value
                
                
                
                
                
                
                88,156
                
                
                
                
                
                
                
                65,009
 
 Included
in leasehold improvements is construction work in progress in the amount of
$2,845,000 (2006 – $292,000) on which
depreciation has not started.
 
 4.
                
                Goodwill
  2007
                
                
                2006(In
      thousands of Canadian dollars)
                
                
                $
                
                
                
                $Goodwill,
      beginning of the year
                
                
                251,491
                
                
                
                242,674Current
      year acquisitions
                
                
                112,892
                
                
                
                6,618Contingent
      consideration payments
                
                
                199
                
                
                
                -Purchase
      price adjustments
                
                
                926
                
                
                
                1,688Impact
      of foreign exchange
                
                
                (32,586
                )
                
                
                511Goodwill,
      end of the year
                
                
                332,922
                
                
                
                251,491
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-16
 
 
 5.
                
                Intangible
      Assets
  2007
                
                
                
                2006(In
      thousands of Canadian dollars)
                
                
                GrossCarryingAmount$
                
                
                
                AccumulatedAmortization$
                
                
                
                GrossCarryingAmount$
                
                
                
                AccumulatedAmortization$Client
      relationships
                
                
                32,023
                
                
                
                6,525
                
                
                
                26,140
                
                
                
                4,692Contract
      backlog
                
                
                4,583
                
                
                
                564
                
                
                
                4,316
                
                
                
                3,587Other
                
                
                3,369
                
                
                
                598
                
                
                
                948
                
                
                
                30639,975
                
                
                
                7,687
                
                
                
                31,404
                
                
                
                8,585
 Carrying
      amount
                
                32,288
                
                
                22,819
 
 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, 2007, the estimated aggregate
amortization expense for each of the next five years and thereafter is as
follows:
 
 (In
      thousands of Canadian dollars)
                
                
                
                $2008
                
                
                7,6122009
                
                
                3,5342010
                
                
                3,4152011
                
                
                3,3252012
                
                
                3,238Thereafter
                
                
                11,16432,288
  6.
                
                Other
      Assets
  2007
                
                
                2006(In
      thousands of Canadian dollars)
                
                $
                
                
                $Investments
      held for self-insured liabilities
                
                
                28,913
                
                
                
                22,720Investments
      in associated companies
                
                
                1,187
                
                
                
                1,347Investments
      – other
                
                
                701
                
                
                
                823Holdbacks
      on long-term contracts
                
                
                2,583
                
                
                
                2,278Other
                
                
                4,491
                
                
                
                1,67637,875
                
                
                
                28,844Less
      current portion of investments held for self-insured
      liabilities
                
                
                13,002
                
                
                
                8,22824,873
                
                
                
                20,616
 
 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 as at December 31, 2007. Fair values at December 31,
2006, were not reflected on the consolidated balance sheet (note
1).
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-17
 
 
 The fair
value of the bonds at December 31, 2007, was $20,024,000 (2006 – $15,458,000),
and the fair value of the equities was $8,889,000 (2006 – $7,755,000). The
amortized cost of the bonds at December 31, 2007, was $19,949,000 (2006 –
$15,589,000), and the cost of the equities was $7,449,000 (2006 – $7,131,000).
The bonds bear interest at rates ranging from 2.9 to 7.0% per annum (2006 – 2.9
to 7.0%) . The term to maturity of the bond portfolio, stated at fair value, is
$3,694,000 (2006 – $1,854,000) due within one year, $15,445,000 (2006
–$11,600,000) due from two to five years, and $885,000 (2006 – $2,004,000) due
from six to 10 years.
 
 7.
                Accounts
      Payable and Accrued Liabilities
  2007
                
                
                2006(In
      thousands of Canadian dollars)
                
                $
                
                
                $Trade
      accounts payable
                
                
                40,155
                
                
                
                26,188Employee
      and payroll liabilities
                
                
                83,621
                
                
                
                63,771Accrued
      liabilities
                
                
                31,244
                
                
                
                17,173155,020
                
                
                
                107,132
  8.
                
                Long-Term
      Debt
  2007
                
                
                2006(In
      thousands of Canadian dollars)
                
                $
                
                
                $Non-interest-bearing
      note payable
                
                
                147
                
                
                
                134Other
      notes payable
                
                
                43,872
                
                
                
                7,935Bank
      loan
                
                
                52,069
                
                
                
                8,15896,088
                
                
                
                16,227Less
      current portion
                
                
                21,549
                
                
                
                4,18174,539
                
                
                
                12,046
 
 The
non-interest-bearing note payable is due November 1, 2027, in the amount of
$933,000. The note's carrying value of $147,000 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, 2007, the fair value of the note would
be $233,000 (2006 –$203,000).
  The
carrying values of the other notes payable have been calculated using a weighted
average rate of interest of 4.95% and may be supported by promissory notes. The
notes are due at various times from 2008 to 2011. The aggregate maturity value
of the notes is $43,976,000 (2006 – $8,154,000). As at December 31, 2007,
$24,849,000 ( 2006 – $1,357,000) of the notes' carrying value was payable in US
funds (2007 – US$24,633,000; 2006 –US$1,164,000). The carrying value of the
other notes payable approximates their fair value based on interest rates in
effect at December 31, 2007.
  The
Company has a revolving credit facility in the amount of $160 million that
expires on August 31, 2010. This 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 or 85 basis points. As at December 31, 2007, $49,069,350 of the bank
loan was payable in US funds (US$49,500,000) and $3,000,000 in Canadian funds.
As at December 31, 2006, $8,158,000 of the bank loan was payable in US funds
(US$7,000,000). Loans may be repaid under the credit facility from time to time
at the option of the Company. The average interest rate applicable at December
31, 2007, was 5.51% (2006 – 6.00%) . The credit facility agreement contains
restrictive covenants, including, but not limited to, debt to earnings ratio and
earnings to debt service ratio. The Company was in compliance with all the
covenants under this agreement as at and throughout the year ended December 31,
2007. All
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-18
 
 
 the
assets of the Company are held as collateral under a general security agreement
for the bank loan. Subsequent to December 31, 2007, the Company was successful
in reaching an agreement to increase the limit of the revolving credit facility
from $160 million to $250 million (note 23).
  The funds
available under the revolving credit facility are reduced by any outstanding
letters of credit. At December 31, 2007, the Company had issued and outstanding
letters of credit totaling $141,000 (2006 – $1,058,000) payable in Canadian
funds and $1,321,000 (US$1,332,000) (2006 – $891,000, US$764,000) payable in US
funds that expire at various dates before January 2009. These letters of credit
were issued in the normal course of operations, including the guarantee of
certain office rental obligations. At December 31, 2007, $106,469,000 was
available in the revolving credit facility for future activities.
  As at
December 31, 2007, the Company had an additional $475,000 (US $479,000) in
letters of credit outstanding that were assumed from certain acquisitions
completed in 2007. During 2007, the Company entered into a US$4 million surety
facility to facilitate, as part of the normal course of operations, the issuance
of bonds for certain types of project work. As at December 31, 2007, $50,000
(US$50,000) in bonds had been issued under this credit facility.
  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)
                
                
                $2008
                
                
                21,5492009
                
                
                17,1072010
                
                
                57,2192011
                
                
                662012
                
                
                -Thereafter
                
                
                14796,088
 
 The
interest incurred on long-term debt in 2007 was $2,444,000 (2006 – $2,612,000;
2005 – $2,000,000). In 2007 total interest expense, net of interest income, was
$1,594,000 (2006 – $1,892,000; 2005 – $571,000).
 
 9.
                
                Other
      Liabilities
  2007
                
                
                2006(In
      thousands of Canadian dollars)
                
                $
                
                
                $Provision
      for self-insured liabilities
                
                
                17,659
                
                
                
                16,041Deferred
      gain on sale leaseback
                
                
                5,749
                
                
                
                6,187Lease
      inducement benefits
                
                
                16,191
                
                
                
                10,499Liabilities
      on lease exit activities
                
                
                4,112
                
                
                
                2,833Liability
      for uncertain tax positions
                
                
                1,412
                
                
                
                -Other
                
                
                3,220
                
                
                
                2,33348,343
                
                
                
                37,893Less
      current portion included in accrued liabilities
                
                
                5,434
                
                
                
                4,33242,909
                
                
                
                33,561
 
 Provision
for self-insured liabilities
 
 The
Company self-insures a portion of its estimated liabilities that may arise in
connection with reported legal claims (note 11). This provision for self-insured
liabilities is based on the results of an actuarial review performed in 2007 and
2006, with the current and long-term portion determined based on the actuarial
estimate. At December 31, 2007, the long-term portion was $16,225,000 (2006 –
$14,492,000).
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-19
 
 
 2007
                
                
                2006(In
      thousands of Canadian dollars)
                
                $
                
                
                $Provision,
      beginning of the year
                
                
                16,041
                
                
                
                11,346Current
      year provision
                
                
                6,153
                
                
                
                6,329Payment
      for claims settlement
                
                
                (2,822
                )
                
                
                (2,087
                )Impact
      of foreign exchange
                
                
                (1,713
                )
                
                
                453Provision,
      end of the year
                
                
                17,659
                
                
                
                16,041
 
 The
self-insured liability increased during 2007 primarily due to new claims
incurred and reported since the end of 2006. 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,
(included in buildings and land) 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.
 
 2007
                
                
                2006(In
      thousands of Canadian dollars)
                
                $
                
                
                $Liability,
      beginning of the year
                
                
                2,833
                
                
                
                2,251Current
      year provision:Established
      for existing operations
                
                
                989
                
                
                
                96Resulting
      from acquisitions
                
                
                740
                
                
                
                2,146Costs
      paid or otherwise settled
                
                
                (1,522
                )
                
                
                (1,649
                )Adjustments
      to purchase price allocation
                
                
                1,193
                
                
                
                -Impact
      of foreign exchange
                
                
                (121
                )
                
                
                (11
                )Liability,
      end of the year
                
                
                4,112
                
                
                
                2,833
 
 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)
                
                
                
                $2008
                
                
                49,8292009
                
                
                45,6892010
                
                
                40,6042011
                
                
                34,5552012
                
                
                29,803Thereafter
                
                
                98,678299,158
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-20
 
 
 The
premises rental expense for the year ended December 31, 2007, was $41,113,000
(2006 – $35,724,000; 2005 – $29,282,000).
  11. 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 provisions
for probable and reasonably estimable liabilities associated with these claims
and that their ultimate resolutions 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.
  12. 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
2007, 9,200 common shares (2006 – 51,600; 2005 – 13,600) were repurchased for
cancellation pursuant to an ongoing normal course issuer bid at a cost of
$294,000 (2006 – $1,016,000; 2005 – $195,000). Of this amount, $44,000 and
$1,000 (2006 – $243,000 and $6,000; 2005 – $33,000 and $1,000) reduced the share
capital and contributed surplus accounts, respectively, with $249,000 (2006 –
$767,000; 2005 – $161,000) being charged to retained earnings.
  During
2007 and 2006, the Company did not incur any share issue costs. During 2005, the
Company incurred share issue costs of $1,969,000 less a future tax recovery of
$465,000.
  During
2007, the Company recognized a stock-based compensation expense of $3,452,000
(2006 – $2,224,000; 2005 – $1,814,000) in administrative and marketing expenses.
Of the amount expensed, $1,919,000 related to the fair value of options granted
(2006 – $1,078,000; 2005 – $963,000), $1,416,000 related to deferred share unit
compensation (2006 – $576,000; 2005 – $519,000), and $117,000 related to the
restricted shares issued on the Keith acquisition (2006 – $570,000; 2005 –
$332,000). The fair value of options granted was reflected through
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-21
 
 
 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 seven 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 4,514,126 common shares. At December 31, 2007,
2,181,732 options were available for issue.
  The
Company has granted share options to officers and employees to purchase
1,751,022 shares at prices between $7.25 and $30.61 per share. These options
expire on dates between October 9, 2009, and August 17, 2014.
  2007
                
                
                2006
                
                
                2005Weighted
                
                
                
                
                
                Weighted
                
                
                
                
                
                WeightedAverage
                
                
                
                
                
                Average
                
                
                
                
                
                AverageExercise
                
                
                
                
                
                Exercise
                
                
                
                
                
                ExerciseShares
                
                
                Price
                
                
                Shares
                
                
                Price
                
                
                Shares
                
                
                Price#
                
                
                $
                
                
                #
                
                
                $
                
                
                #
                
                
                $Share
      options,beginning
      of theyear
                
                
                1,702,784
                
                
                
                11.92
                
                
                
                1,876,528
                
                
                
                6.94
                
                
                
                2,142,666
                
                
                
                6.67Granted
                
                
                467,500
                
                
                
                30.61
                
                
                
                471,000
                
                
                
                20.40
                
                
                
                -
                
                
                
                -Exercised
                
                
                (386,598
                )
                
                
                4.97
                
                
                
                (607,080
                )
                
                
                3.07
                
                
                
                (240,140
                )
                
                
                4.00Forfeited
                
                
                (31,664
                )
                
                
                18.69
                
                
                
                (35,664
                )
                
                
                12.59
                
                
                
                (25,998
                )
                
                
                11.85Cancelled
                
                
                (1,000
                )
                
                
                20.42
                
                
                
                (2,000
                )
                
                
                10.50
                
                
                
                -
                
                
                
                -Share
      options, endof
      the year
                
                
                1,751,022
                
                
                
                18.32
                
                
                
                1,702,784
                
                
                
                11.92
                
                
                
                1,876,528
                
                
                
                6.94
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.  F-22
 
 
 The
options held by officers and employees at December 31, 2007, 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
                
                
                
                260,800
                
                
                
                2.11
                
                
                
                7.93
                
                
                
                260,800
                
                
                
                2.11
                
                
                
                7.9310.50–13.55
                
                
                
                592,054
                
                
                
                3.87
                
                
                
                11.68
                
                
                
                532,054
                
                
                
                3.74
                
                
                
                11.4720.37–20.42
                
                
                
                430,668
                
                
                
                5.65
                
                
                
                20.39
                
                
                
                138,342
                
                
                
                5.65
                
                
                
                20.3930.61
                
                
                
                467,500
                
                
                
                6.63
                
                
                
                30.61
                
                
                
                -
                
                
                
                -
                
                
                
                -7.25–30.61
                
                
                
                1,751,022
                
                
                
                4.78
                
                
                
                18.32
                
                
                
                931,196
                
                
                
                3.57
                
                
                
                11.80
  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 both at the share market price on the
grant date and in excess of the share market price on the grant date was
determined using the weighted average assumptions indicated below. No options
were granted in 2005.
 
 2007
                
                
                2006Granted
      at Market
                
                Granted
      at MarketRisk-free
      interest rate (%)
                
                
                4.31
                
                
                
                4.05Expected
      hold period to exercise (years)
                
                
                5.5
                
                
                
                6.0Volatility
      in the price of the Company's shares (%)
                
                
                27.5
                
                
                
                29.4Weighted
      average fair value per option ($)
                
                
                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, 2007, 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
                
                
                680,664
                
                
                
                6.29Granted
                
                
                467,500
                
                
                
                10.65Vested
                
                
                (296,674
                )
                
                
                5.67Forfeited
                
                
                (31,664
                )
                
                
                6.89Non-vested
      share options, end of the year
                
                
                819,826
                
                
                
                8.98
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-23
 
 
 As of
December 31, 2007, 819,826 options remained unvested, and a total unrecognized
compensation cost of $5,339,000 related to the Company’s share option plans.
This cost is expected to be recognized over a weighted average period of 2.25
years.
  For all
outstanding options at December 31, 2007, the aggregate intrinsic value was
$36.0 million. For fully vested share options and share options expected to vest
at December 31, 2007, the aggregate intrinsic value was $34.7 million. For
options exercisable at December 31, 2007, the intrinsic value at December 31,
2007, was $25.2 million. The total intrinsic value of options exercised during
the years ended December 31, 2007, 2006, and 2005, was $8.2 million, $9.8
million, and $2.7 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. Upon death or retirement,
deferred share units are paid out to the directors in the form of cash and
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 2007, $450,000 deferred share units were paid
(2006 – $159,000; 2005 – nil). These units are recorded at fair value based on
the current market price of the Company’s common shares. As at December 31,
2007, 56,000 units were outstanding (2006 –48,000; 2005 – 40,000).
 
 Restricted
shares
 
 In 2005
the former shareholders of Keith received restricted shares in connection with
the acquisition of Keith. These restricted shares vest over a period ending
April 1, 2008. Upon the vesting of restricted shares, common shares are issued.
As at December 31, 2007, 5,792 restricted shares were outstanding (2006 –
55,666; 2005 – 117,392).
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-24
 
 
 13.
      Accumulated Other Comprehensive IncomeUnrealizedCumulative
                
                
                Gains
      on
                
                
                Realized
      GainsTranslation
                
                
                Financial
                
                
                Transferred
      toAdjustments
                
                
                Assets
                
                
                Net
      Income
                
                
                Total(In
      thousands of Canadian dollars)
                
                $
                
                
                $
                
                
                $
                
                
                $Balance,
      December 31,
      2004
                
                
                (19,018
                )
                
                
                -
                
                
                
                -
                
                
                
                (19,018
                )Current
      period activity
                
                
                (6,557
                )
                
                
                -
                
                
                
                -
                
                
                
                (6,557
                )Balance,
      December 31,
      2005
                
                
                (25,575
                )
                
                
                -
                
                
                
                -
                
                
                
                (25,575
                )Balance,
      December 31,
      2005
                
                
                (25,575
                )
                
                
                -
                
                
                
                -
                
                
                
                (25,575
                )Current
      period activity
                
                
                731
                
                
                
                -
                
                
                
                -
                
                
                
                731Balance,
      December 31,
      2006
                
                
                (24,844
                )
                
                
                -
                
                
                
                -
                
                
                
                (24,844
                )Balance,
      December 31,
      2006
                
                
                (24,844
                )
                
                
                -
                
                
                
                -
                
                
                
                (24,844
                )Change
      in accounting policy (note
      1)
                
                
                -
                
                
                
                481
                
                
                
                -
                
                
                
                481Balance,
      January 1, 2007, as adjusted
                
                
                (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
                )
 
 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 0.9913 (December 31, 2006 –1.1654; 2005 –
1.1630) .
 
 NOTES TO
THE CONSOLIDATED FINANCIAL
 STATEMENTS
STANTEC INC.
 F-25
 
 
 14.
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:
 
 2007
                
                
                2006
                
                
                2005%
                
                
                %
                
                
                %Income
      tax expense at statutory Canadian rates
                
                
                33.6
                
                
                
                34.1
                
                
                
                34.8Increase
      (decrease) resulting from:Income
      from associated companies
                
                
                (0.1
                )
                
                
                (0.1
                )
                
                
                (0.1
                )Rate
      differential on foreign income
                
                
                (0.9
                )
                
                
                1.1
                
                
                
                0.7Non-deductible
      expenses:Meals
      and entertainment
                
                
                0.9
                
                
                
                0.9
                
                
                
                1.1Stock-based
      compensation
                
                
                -
                
                
                
                0.3
                
                
                
                0.5Non-taxable
      foreign income net of non-creditablewithholding
      taxes
                
                
                (3.2
                )
                
                
                (2.9
                )
                
                
                (1.6
                )Other
                
                
                (0.2
                )
                
                
                (0.7
                )
                
                
                (0.4
                )30.1
                
                
                
                32.7
                
                
                
                35.0
 
 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:
 
 2007
                
                
                2006
                
                
                2005(In
      thousands of Canadian dollars)
                
                $
                
                
                $
                
                
                
                $Domestic
                
                
                101,433
                
                
                
                79,109
                
                
                
                61,323Foreign
                
                
                (2,319
                )
                
                
                10,315
                
                
                
                1,177Total
      income before income taxes
                
                
                99,114
                
                
                
                89,424
                
                
                
                62,500The
      details of the income tax expense (recovery) are as
    follows:
  2007
                
                
                2006
                
                
                2005(In
      thousands of Canadian dollars)
                
                $
                
                
                $
                
                
                $Current:
      Domestic
                
                
                34,179
                
                
                
                25,766
                
                
                
                21,172Foreign
                
                
                815
                
                
                
                5,718
                
                
                
                563Total
      current expense
                
                
                34,994
                
                
                
                31,484
                
                
                
                21,735Future:
      Domestic
                
                
                (1,598
                )
                
                
                725
                
                
                
                5Foreign
                
                
                (3,561
                )
                
                
                (2,967
                )
                
                
                138Total
      future expense
                
                
                (5,159
                )
                
                
                (2,242
                )
                
                
                143Total:
      Domestic
                
                
                32,581
                
                
                
                26,491
                
                
                
                21,177Foreign
                
                
                (2,746
                )
                
                
                2,751
                
                
                
                701Total
      income tax expense
                
                
                29,835
                
                
                
                29,242
                
                
                
                21,878
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-26
 
 
 Significant
      components of the Company's future income tax assets and liabilities are
      as follows:2007
                
                
                2006(In
      thousands of Canadian dollars)
                
                $
                
                
                $Future
      income tax assetsDifferences
      in timing of deductibility of expenses
                
                
                18,101
                
                
                
                12,599Loss
      carryforwards
                
                
                4,171
                
                
                
                4,199Share
      issue and other financing costs
                
                
                220
                
                
                
                347Tax
      cost of property and equipment in excess of carrying value
                
                
                451
                
                
                
                332Deferred
      gain on sale of building
                
                
                1,224
                
                
                
                1,359Other
                
                
                1,215
                
                
                
                85925,382
                
                
                
                19,695Less
      current portion
                
                
                13,308
                
                
                
                9,71112,074
                
                
                
                9,984
   2007
                
                
                2006(In
      thousands of Canadian dollars)
                
                $
                
                
                
                $Future
      income tax liabilitiesCash
      to accrual adjustments on acquisitions of US subsidiaries
                
                
                4,285
                
                
                
                2,512Differences
      in timing of taxability of revenues
                
                
                6,804
                
                
                
                10,463Carrying
      value of property and equipment in excess of tax cost
                
                
                10,422
                
                
                
                7,970Carrying
      value of intangible assets in excess of tax cost
                
                
                9,945
                
                
                
                8,822Other
                
                
                1,012
                
                
                
                74232,468
                
                
                
                30,509Less
      current portion
                
                
                11,750
                
                
                
                12,23620,718
                
                
                
                18,273
 
 At
December 31, 2007, loss carryforwards of approximately $6,931,000 (2006 –
$3,541,000) are available to reduce the taxable income of certain Canadian
subsidiaries. These losses expire as set out below:
 
 (In
      thousands of Canadian dollars)
                
                
                $2010
                
                
                3152014
                
                
                5022015
                
                
                182026
                
                
                1,2512027
                
                
                4,8456,931
 
 In
addition, the Company has federal loss carryforwards of approximately $7,187,000
(2006 – $6,262,000) 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
 STANTEC
INC.
 F-27
 
 
 15.
Earnings Per Share
  
 The
number of basic and diluted common shares outstanding, as calculated on a
weighted average basis, is as follows:
 
 2007
                
                
                2006
                
                
                2005#
                
                
                #
                
                
                #Basic
      shares outstanding
                
                
                45,577,261
                
                
                
                45,068,266
                
                
                
                39,840,234Share
      options (dilutive effect of 1,751,022 options;2006
      – 1,702,784;
      2005 – 1,876,528)
                
                
                630,280
                
                
                
                648,430
                
                
                
                1,067,584Restricted
      shares (dilutive effect of 5,792 restrictedshares;
      2006 – 55,666; 2005 – 117,392)
                
                
                19,156
                
                
                
                74,813
                
                
                
                34,414Diluted
      shares outstanding
                
                
                46,226,697
                
                
                
                45,791,509
                
                
                
                40,942,232
  16.
      Cash Flows From (Used In) Operating
      Activities
  Cash
      flows from operating activities determined by the indirect method are as
      follows:
  2007
                
                
                2006
                
                
                2005(In
      thousands of Canadian dollars)
                
                $
                
                
                $
                
                
                $CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income for the year
                
                
                69,279
                
                
                
                60,182
                
                
                
                40,622Add
      (deduct) items not affecting cash:Depreciation
      of property and equipment
                
                
                19,038
                
                
                
                15,604
                
                
                
                12,389Amortization
      of intangible assets
                
                
                3,702
                
                
                
                6,132
                
                
                
                2,542Future
      income tax
                
                
                (5,159
                )
                
                
                (2,242
                )
                
                
                143Loss
      (gain) on dispositions of investments and propertyand
      equipment
                
                
                (1,085
                )
                
                
                (1,238
                )
                
                
                562Stock-based
      compensation expense
                
                
                3,452
                
                
                
                2,224
                
                
                
                1,814Provision
      for self-insured liability
                
                
                6,153
                
                
                
                6,329
                
                
                
                8,244Other
      non-cash items
                
                
                (2,135
                )
                
                
                (994
                )
                
                
                (1,332
                )Share
      of income from equity investments
                
                
                (292
                )
                
                
                (285
                )
                
                
                (187
                )Dividends
      from equity investments
                
                
                450
                
                
                
                450
                
                
                
                55093,403
                
                
                
                86,162
                
                
                
                65,347Change
      in non-cash working capital accounts:Accounts
      receivable
                
                
                20,848
                
                
                
                (14,117
                )
                
                
                15,748Costs
      and estimated earnings in excess of billings
                
                
                (25,067
                )
                
                
                23,029
                
                
                
                (19,572
                )Prepaid
      expenses
                
                
                1,715
                
                
                
                (269
                )
                
                
                487Accounts
      payable and accrued liabilities
                
                
                (11,106
                )
                
                
                (3,958
                )
                
                
                (1,177
                )Billings
      in excess of costs and estimated earnings
                
                
                3,485
                
                
                
                4,590
                
                
                
                1,664Income
      taxes payable/recoverable
                
                
                4,221
                
                
                
                (2,048
                )
                
                
                (5,183
                )(5,904
                )
                
                
                7,227
                
                
                
                (8,033
                )Cash
      flows from operating activities
                
                
                87,499
                
                
                
                93,389
                
                
                
                57,314
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-28
 
 
 17.
      Joint VenturesThe
      Company participates in joint ventures with other parties as
      follows:
  Percentage
      Owned2007
                
                
                2006
                
                
                2005%
                
                
                %
                
                
                %yyC.T.
      Joint Venture
                
                
                17
                
                
                
                17
                
                
                
                20Stantec
      – S&L Partnership
                
                
                50
                
                
                
                50
                
                
                
                50Edmonton
      International Airports Joint Venture
                
                
                33
                
                
                
                33
                
                
                
                33Pine
      Creek Consultants Joint Venture
                
                
                n/a
                
                
                
                33
                
                
                
                33Dunlop
      Joint Ventures
                
                
                33–68
                
                
                
                33–80
                
                
                
                33–80Stantec
      Architecture Ltd./J.L. Richards & AssociatesJoint
      Venture
                
                
                50
                
                
                
                50
                
                
                
                50Stantec
      /Parkin Joint Venture
                
                
                67
                
                
                
                -
                
                
                
                -Faulkner
      Brown/Chong Joint Venture
                
                
                50
                
                
                
                -
                
                
                
                -Smith/Chong
      Joint Venture
                
                
                50
                
                
                
                -
                
                
                
                -Coleson
      Power Joint Venture
                
                
                50
                
                
                
                -
                
                
                
                -Accent
      Engineering Consultants, Inc. Joint Venture
                
                
                40
                
                
                
                -
                
                
                
                -FFEB
      Joint Venture
                
                
                30
                
                
                
                -
                
                
                
                -
 
 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 seven of the joint ventures originally entered into by Dunlop
active as at December 31, 2007.
  As at
December 31, 2007, the Company has five active joint ventures—Faulkner
Brown/Chong Joint Venture, Smith/Chong Joint Venture, Coleson Power Joint
Venture, Accent Engineering Consultants, Inc. Joint Venture, and FFEB Joint
Venture—that were acquired in the year as part of the acquisition of Chong
Partners Architecture, Inc., Neill and Gunter Limited, Neill and Gunter (Nova
Scotia) Limited, and Fuller, Mossbarger, Scott & May Engineers,
Inc.
  A summary
of the assets, liabilities, revenues, expenses, and cash flows included in the
consolidated financial statements related to joint ventures is as
follows:
 
 2007
                
                
                2006
                
                
                2005(In
      thousands of Canadian dollars)
                
                $
                
                
                $
                
                
                $Statement
      of incomeGross
      revenue
                
                
                4,464
                
                
                
                4,451
                
                
                
                5,941Subconsultant
      and other direct expenses
                
                
                3,912
                
                
                
                4,612
                
                
                
                5,072Administrative
      and marketing expenses
                
                
                129
                
                
                
                75
                
                
                
                147Net
      income (loss) for the year
                
                
                423
                
                
                
                (236
                )
                
                
                722Balance
      sheetsCurrent
      assets
                
                
                5,536
                
                
                
                2,086
                
                
                
                3,743Current
      liabilities
                
                
                4,867
                
                
                
                1,800
                
                
                
                2,842Statement
      of cash flowsCash
      flows from (used in) operating activities
                
                
                (493
                )
                
                
                173
                
                
                
                (488
                )
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-29
 
 
 18.
Segmented Information
 
 The
Company provides comprehensive professional services in the area of
infrastructure and facilities throughout North America and internationally. The
Company 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 Assets2007
                
                
                2006(In
      thousands of Canadian dollars)
                
                $
                
                
                $Canada
                
                
                154,404
                
                
                
                106,497United
      States
                
                
                298,470
                
                
                
                232,387International
                
                
                492
                
                
                
                435453,366
                
                
                
                339,319
  Geographic
      information
                
                Gross
      Revenue2007
                
                
                2006
                
                
                2005(In
      thousands of Canadian dollars)
                
                $
                
                
                $
                
                
                $Canada
                
                
                539,349
                
                
                
                461,281
                
                
                
                380,471United
      States
                
                
                405,195
                
                
                
                348,055
                
                
                
                233,428International
                
                
                10,075
                
                
                
                6,797
                
                
                
                4,121954,619
                
                
                
                816,133
                
                
                
                618,020Gross
      revenue is attributed to countries based on the location of the work
      performed.
 Practice
area information
 Gross
      Revenue2007
                
                
                2006
                
                
                2005(In
      thousands of Canadian dollars)
                
                $
                
                
                $
                
                
                
                $Consulting
      ServicesBuildings
                
                
                211,801
                
                
                
                184,254
                
                
                
                147,432Environment
                
                
                175,936
                
                
                
                149,376
                
                
                
                103,353Industrial
                
                
                138,977
                
                
                
                94,806
                
                
                
                67,834Transportation
                
                
                143,140
                
                
                
                106,026
                
                
                
                90,559Urban
      Land
                
                
                284,765
                
                
                
                281,671
                
                
                
                208,842954,619
                
                
                
                816,133
                
                
                
                618,020
 
 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
 STANTEC
INC.
 F-30
 
 
 19.
                Employee
      Future Benefits
  In
      2007 the Company recorded an expense of $13,863,000 (2006 – $11,567,000;
      2005 – $8,436,000) for contributions made to defined contribution plans in
      the year.
  20.
                Financial
      Instruments—Forward Contracts
  As
      at December 31, 2007, the Company had entered into a foreign currency
      forward contract that provided for the purchase of US$34.1 million at the
      rate of 0.9804 per US dollar. As at December 31, 2006, the Company had
      entered into a foreign currency forward contract that provided for the
      sale of US$4.5 million at the rate of 1.1608 per US dollar. These
      derivative financial instruments were entered into to mitigate foreign
      currency fluctuation risk on net operating assets or liabilities
      denominated in US dollars. The fair value of these contracts, estimated
      using market rates at December 31, 2007, resulted in a gain of $371,145,
      (2006 – loss of $19,167). The unrealized gains and losses relating to
      these derivative financial instruments were recorded in foreign exchange
      gains.
  21.
                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. Investment
      tax credits of $1,662,000 (2006 – $500,000; 2005 – $1,239,000) were
      recorded and reduced administrative and marketing
  expenses.
  22.
                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 as described in note
  1.
  
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-31
 
 
 Statement
      of Comprehensive Income2006
                
                
                2005(In
      thousands of Canadian dollars)
                
                $
                
                
                $Net
      income under Canadian and US GAAP
                
                
                60,182
                
                
                
                40,622Other
      comprehensive income, net of tax:Unrealized
      foreign exchange gain (loss) on translation of
    self-sustainingforeign
      operations
                
                
                731
                
                
                
                (6,557
                )Unrealized
      gains on financial assets
                
                
                217
                
                
                
                227Comprehensive
      Income
                
                
                61,130
                
                
                
                34,292Accumulated
      other comprehensive income, beginning of the year
                
                
                (25,311
                )
                
                
                (18,981
                )Unrealized
      foreign exchange gain (loss) on translation of
    self-sustainingforeign
      operations
                
                
                731
                
                
                
                (6,557
                )Unrealized
      gains on financial assets
                
                
                217
                
                
                
                227Accumulated
      other comprehensive income, end of the year
                
                
                (24,363
                )
                
                
                (25,311
                )
  ii)
Allowance for doubtful accounts
 2007
                
                
                2006
                
                
                2005(In
      thousands of Canadian dollars)
                
                $
                
                
                $
                
                
                $Balance,
      beginning of the year
                
                
                6,303
                
                
                
                10,423
                
                
                
                21,095Provision
      for doubtful accounts
                
                
                17,221
                
                
                
                6,681
                
                
                
                1,706Deductions
                
                
                (11,275
                )
                
                
                (11,061
                )
                
                
                (12,163
                )Impact
      of foreign exchange
                
                
                (1,741
                )
                
                
                260
                
                
                
                (215
                )Balance,
      end of the year
                
                
                10,508
                
                
                
                6,303
                
                
                
                10,423
 
 Comparative
figures have been restated to eliminate allowances from accounts receivable
assumed from acquired companies. Accounts receivables assumed from acquired
companies are recognized at their fair value at the time of
acquisition.
 
 iii)
Liabilities for uncertain tax positions
 
 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 2002.
 
 2007(In
      thousands of Canadian dollars)
                
                $Opening
      balance upon adoption of accounting policy
                
                
                1,243Additions
      based on tax positions related to the current year
                
                
                96Additions
      based on tax positions related to the prior year
                
                
                218Impact
      of foreign exchange
                
                
                (145
                )Balance,
      end of year
                
                
                1,412
 
 The
Company's policy is to recognize interest and penalties relating to liabilities
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, 2007, the Company recognized
approximately $942,000 ($585,000 net of tax) in interest and penalties. A
significant portion of the interest and penalties recognized in 2007 related to
a
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-32
 
 
 preacquisition
Internal Revenue Service (IRS) audit. The Company had approximately $1,362,000
($882,000 net of tax) for the payment of interest and penalties accrued at
December 31, 2007.
  Approximately
$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 as a result of the following:
 
 •
                The
      Company expects to settle a preacquisition IRS audit within the next 12
      months. The significant item under review is the recognition of costs and
      estimated earnings in excess of billings for income tax
      purposes.
  •
                The
      Company expects to receive Notices of Assessment from the Canada Revenue
      Agency within the next 12 months with respect to its 2006 claim for
      scientific research and experimental development
  efforts.
 
 As a
result of implementing the Financial Accounting Standards Board (FASB)
Interpretation No. 48 on January 1, 2007, the Company reclassified the uncertain
tax benefit from future income taxes, and there was no impact on retained
earnings. The amount of unrecognized tax benefits as of the date of adoption was
$1,243,000.
 
 b)
Recent accounting pronouncements
  Stock-based
compensation
 
 In
December 2004, the FASB issued Statement of Financial Accounting Standards No.
123 (revised 2004), “Share-Based Payment” (SFAS 123R), effective for the first
interim or annual financial statements beginning on or after June 15, 2005. SFAS
123R requires all share-based payments to employees, including grants of
employee stock options, to be recognized in financial statements based on their
fair values. The Company recognizes share-based payments at fair value for
options granted subsequent to January 1, 2002, using the Black-Scholes
option-pricing model. The Company has adopted SFAS 123R using the
modified-prospective transition method. The adoption of the modified-prospective
transition method has resulted in no additional share option expense being
recognized as part of the reconciliation of Canadian and US GAAP disclosures in
these consolidated financial statements.
 
 Uncertainty
in income taxes
 
 In June
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes—An Interpretation of FAS Statement No. 109” (FIN 48), effective for
fiscal years beginning on or after December 15, 2006. FIN 48 creates a single
model for addressing the accounting for uncertainty in tax positions. It also
clarifies the accounting for income taxes by prescribing the minimum recognition
threshold a tax position is required to meet before being recognized in
financial statements. In addition, this interpretation provides guidance on
derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure, and transition. The Company adopted FIN 48 as of
January 1, 2007, as required. The adoption of this pronouncement had no material
effect on the Company’s financial position or results of
operations.
 
 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 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 Company is
currently considering the impact of the adoption of this standard on its
consolidated financial statements.
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-33
 
 
 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 early
adoption is 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 is not
expected to have an 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 changes the accounting for business combinations in a number of
areas. SFAS 141R establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any non-controlling interest in the acquiree,
and the goodwill acquired. The statement also establishes disclosure
requirements that will enable users of the financial statements to evaluate the
nature and financial effects of the business combination. Although the Company
is currently considering the impact of the adoption of this standard on its
consolidated financial statements, it 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 changes 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 the adoption of this standard on
its consolidated financial statements.
 
 23.
Subsequent Events
  Acquisitions
 
 On
January 2, 2008, the Company acquired the shares and business of R.D. Zande. The
acquisition of this firm strengthens the Company's operations in the midwestern
United States and increases the depth of its service offerings to public sector
clients in the environment sector. R.D. Zande 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. The addition of this firm supplements the transit-related services
offered by the Company's Rochester, New York, office. Rochester Signal, Inc.
provides signal design, 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). The acquisition of this firm significantly increases 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.
 
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-34
 
 
 R.D.
Zande, Rochester Signal, Inc., and Secor were acquired for an aggregate cash
consideration of $67,027,000 and promissory notes of $10,692,000.
 
 Revolving
credit facility
 
 On
January 22, 2008, the Company reached an agreement to increase the limit of its
existing revolving credit facility from $160 million to $250 million. Depending
on the form under which the credit facility is accessed and on the Company's
debt to earnings ratio, rates of interest will vary between Canadian prime, US
base rate, or LIBOR or bankers' acceptance rates plus 65, 85, or 125 basis
points. The agreement also includes a provision for access to an additional $50
million under the same terms and conditions upon approval from the
lenders.
 
 24.
Comparative Figures
 
 Certain
comparative figures have been reclassified to conform to the presentation
adopted for the current year.
     
 NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS
 STANTEC
INC.
 F-35
 Board
      of Directors
                    Aram
      Keith
                    Irvine,
      California
                    Vice
      Chairman of the Board,
                    Stantec
      Inc.
                    
                    Robert J.
      Bradshaw2
                    Toronto,
      Ontario
                    Chairman,
                    Contor
      Industries Limited
                    
                    Robert R.
      Mesel1
                    Kiawah
      Island, South
                    Carolina
                    Corporate
      Director
                    
                    Anthony
      P. Franceschini
                    Edmonton,
      Alberta
                    President
      & CEO,
                    Stantec
      Inc.
                    
                    William D.
      Grace1, 2
                    Edmonton,
      Alberta
                    Corporate
      Director
                    
                    Susan E.
      Hartman2
                    Rochester,
      New York
                    President
      and Owner,
                    The
      Hartman Group
                  Ivor Ruste1
                    Calgary,
      Alberta
                    Executive
      Vice President
                    and
      Chief Risk Offi cer,
                    EnCana
      Corporation
                    
                    Ronald
      P. Triffo
                    Edmonton,
      Alberta
                    Chairman
      of the Board,
                    Stantec
      Inc.
                    1Audit Committee
                    2Corporate Governance and
                    Compensation
      Committee
                    
                    Offi
      cers
                    Ronald
      P. Triffo
                    Chairman
                    
                    Anthony
      P. Franceschini
                    President
      & CEO
                    
                    Mark
      Jackson
                    Senior
      Vice President &
                    COO
                    
                    Donald
      W. Wilson
                    Senior
      Vice President &
                    CFO
                    
                    Jeffrey
      S. Lloyd
                    Vice
      President & Secretary
                  Shareholder
                    Information
                    
                    Transfer
      Agent
                    
                    Computershare
      Trust
                    Company
      of Canada
                    Calgary,
      Alberta
                    
                    Auditors
                    
                    Ernst
      & Young LLP
                    Chartered
      Accountants
                    Edmonton,
      Alberta
                    
                    Principal
      Bank
                    
                    Canadian
      Imperial Bank
                    of
      Commerce
                    
                    Securities
      Exchange
                    Listing
                    
                    Stantec
      shares are traded on
                    the
      TSX under the symbol
                    STN
      and on the NYSE under
                    the
      symbol SXC.
                  Investor
      Relations
                    
                    Stantec
      Inc.
                    10160
      - 112 Street
                    Edmonton
      AB
                    Canada
      T5K 2L6
                    Tel:
      (780) 917-7000
                    Fax:
      (780) 917-7330
                    ir@stantec.com
                    
                    Annual
      Meeting
                    
                    May
      1, 2008
                    11:00
      AM MDT
                    Enterprise
      Square
                    10230
      Jasper Avenue
                    Edmonton,
      Alberta
                    Canada
  Page
37