Stantec Inc.

Stantec Inc.

February 24, 2005 12:05 ET

Stantec Posts Record Results to Mark 51st Consecutive Year of Profitability


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: STANTEC INC.

TSX SYMBOL: STN

FEBRUARY 24, 2005 - 12:05 ET

Stantec Posts Record Results to Mark 51st Consecutive
Year of Profitability

EDMONTON, ALBERTA--(CCNMatthews - Feb. 24, 2005) - Stantec Inc.
(TSX:STN):

- For the year-end 2004, Stantec generated gross revenue of $520.9
million, a 13.2% increase from $459.9 million last year. Net income
increased 20.4% to $30.2 million from $25.1 million. Basic earnings per
share were 19% higher at $1.63 compared to $1.37 in 2003. A lower tax
rate contributed to the increase in net income and basic earnings per
share.

- In the fourth quarter 2004, gross revenue increased 13.8% to $127.0
million from $111.6 million in 2003. Net income was up 51.2% to $9.6
million compared $6.3 million in 2003 while income before income taxes
was 29.3% higher in the fourth quarter at $13.0 million compared to
$10.0 million. Basic earnings per share increased 48.6% to $0.52
compared to $0.35 in the fourth quarter last year. A lower tax rate
contributed to the increase in net income and basic earnings per share.

- In 2004 Stantec added a US Northeast operating region and the
Bio/Pharmaceuticals practice area through the acquisition of Sear-Brown
in Rochester, NY. The Company strengthened its Architecture & Interior
Design group with the addition of GBR Architects in Winnipeg, MB, and
Dunlop Architects in Toronto, ON. In Vancouver, Stantec expanded its
capabilities in electrical engineering for traffic systems and sporting
facilities by adding the assets and business of Shaflik Engineering.
Stantec divested of its last non fee-for-service division, Goodfellow
Technologies and its patented EFSOP™ technology.

"I'm very pleased to report strong results and another year of solid
growth for our Company," says Tony Franceschini, Stantec President &
CEO. "This past year we implemented improvements to our internal systems
infrastructure while expanding into the US Northeast and bolstering our
Architecture & Interior Design practice to a more national presence in
Canada."

Stantec's project activity through 2004 reflected the Company's standing
as a respected North American leader in the design industry. The
Environmental Infrastructure group is playing a large role in the design
of the upgrades for the Ashbridges Bay Wastewater Treatment Plant in
Toronto, ON_Canada's largest wastewater treatment plant_while in
Vancouver Stantec is providing a full complement of services on the
Seymour-Capilano Water Filtration Plant, which will be one of the
largest water treatment plants in the country. In Phoenix, AZ Stantec
was awarded a contract to provide the design for the most challenging
downtown corridor section of the Central Phoenix/East Valley Light Rail
Transit system. Stantec's airport terminal experience helped to land a
project award to design a new terminal at the Niagara Falls
International Airport in New York State, the Company's first terminal
design project in the US. Also, the Bio/Pharmaceticals group is
providing engineering design for all phases of the development of two
new, world-class solid dosage manufacturing suites for Wyeth
Pharmaceuticals in Puerto Rico.

"Our employees' ability to execute our strategy allowed Stantec to post
a 51st consecutive year of profitability," says Franceschini. "Their
drive, loyalty, and passion for their work made us successful in 2004
and those qualities will carry Stantec to our shared vision of being a
top 10 global design firm."

The Annual General Meeting will be held on May 10, 2005, at 1:00 PM EST
(11:00 AM MST) at Stantec's headquarters in Edmonton, Alberta,
10160-112th Street. The Q4/Year-End Conference Call, being held today at
4:00 PM EST (2:00 PM MST), will be broadcast live and archived on
Stantec's web site at stantec.com in the Investor Relations section.

Stantec, founded in 1954, provides professional design and consulting
services in planning, engineering, architecture, surveying, and project
management. We support public and private sector clients in a diverse
range of markets, at every stage, from initial concept and financial
feasibility to project completion and beyond. Our services are offered
through more than 4,000 employees operating out of over 50 locations in
North America and the Caribbean. Stantec trades on the Toronto Stock
Exchange under the symbol STN.

Management's Discussion and Analysis

This discussion and analysis of Stantec's operations and financial
position, dated February 11, 2005, should be read in conjunction with
the Company's 2004 consolidated financial statements and related notes.

This report includes references to and uses terms that are not
specifically defined in the Canadian Institute of Chartered Accountants
Handbook and do not have any standardized meaning prescribed by Canadian
generally accepted accounting principles (GAAP). These non-GAAP measures
may not be comparable to similar measures presented by other companies.
We refer to and use the terms "net revenue" and "gross margin"
throughout our analysis, and the definitions of these terms are provided
in the Results section.

Caution Regarding Forward-Looking Statements

Stantec's public communications often include written or verbal
forward-looking statements. Forward-looking statements are disclosures
regarding possible events, conditions, or results of operations that are
based on assumptions about future economic conditions and courses of
action and include future-oriented financial information.

Statements of this type are included in this document and may be
included in filings with Canadian securities regulators or in other
communications. Forward-looking statements may involve, but are not
limited to, comments with respect to our objectives for 2005 and beyond,
our strategies or future actions, our targets, our expectations for our
financial condition or share price, and the results of or outlook for
our operations or for the Canadian and US economies.

By their nature, forward-looking statements require us to make
assumptions and are subject to inherent risks and uncertainties. There
is a significant risk that predictions and other forward-looking
statements will not prove to be accurate. We caution readers of this
document to not place undue reliance on our forward-looking statements
since a number of factors could cause actual future results, conditions,
actions, or events to differ materially from the targets, expectations,
estimates, or intentions expressed in these statements.

In addition to the factors set out in the Risk section below, the
following factors, among others, could cause Stantec's actual results to
differ materially from those projected in our forward-looking statements:

- Global capital market activities

- Fluctuations in interest rates and currency values

- The effects of war or terrorist activities

- The effects of disease or illness on local, national, or international
economies

- The effects of disruptions to public infrastructure, such as
transportation or communications

- Disruptions in power or water supply

- Industry and worldwide economic and political conditions

- Regulatory and statutory developments

- The effects of competition in the geographic and business areas in
which we operate;

- The actions of management

- Technological changes

We caution that the above list of factors is not exhaustive and that
when relying on forward-looking statements to make decisions with
respect to Stantec, investors and others should carefully consider these
factors, as well as other uncertainties and potential events, along with
the inherent uncertainty of forward-looking statements. Stantec does not
undertake to update any forward-looking statement, whether written or
verbal, that may be made from time to time by the organization or on its
behalf.

Vision, Core Business, and Strategy

Founded in 1954, Stantec provides professional design and consulting
services in planning, engineering, architecture, interior design,
landscape architecture, surveying, and project management for the
infrastructure and facilities sector. Through multidiscipline service
delivery, we support clients through the entire project life cycle-from
the initial concept and financial feasibility phases to project
completion and beyond.

Our Company's current goal, which we established in 1998, is to become a
top 10 global design and consulting services firm with $1 billion in
annual revenue and 10,000 employees by the year 2008. To achieve this
objective, we will continue to deliver fee-for-service professional
services in the infrastructure and facilities market and to follow an
orderly growth plan. We are confident that we can reach our goal because
we operate in a large market that currently generates more than US$50
billion in sales every year and because we have an organization of
dedicated employees who give us our competitive advantage-the ability to
execute a proven operating strategy through a focused, sustainable
business model. Our three-dimensional model-which is based on
diversifying our operations in distinct geographic regions, specializing
in distinct but complementary practice areas, and providing services in
all five phases of the infrastructure and facilities project life
cycle-allows us to manage risk while continuing to increase our revenue
and earnings.

Geographic Diversification

Currently, our geographic reach principally includes five economic
regions in Canada and the US as well as a project presence in the
Caribbean and other selected international locations. Our strategy for
geographic diversification has two components. The first is to grow our
existing regional operations by expanding our services particularly in
areas where we have not yet reached a mature market presence. We target
to achieve a market penetration of $10 million in revenue per one
million population in these regions. Secondly, our strategy includes
expansion outside our existing regions principally in the US and Canada.
We expect to continue to expand geographically primarily by acquiring
firms that meet our integration criteria and to a lesser extent by
growing organically.

Practice Area Specialization

Specialization and diversification of services are achieved by providing
services in 17 distinct practice areas that can generally be grouped
into five key market segments-Buildings, Environment, Industrial,
Transportation, and Urban Land. Focusing on this combination of project
services helps differentiate us from our competitors, allowing us to
enhance our presence in new geographic regions and markets and to
establish and maintain client relationships. Our strategy for
strengthening this dimension of our business model is to increase the
depth of our expertise in our current practice areas and to selectively
add complementary practice areas to our operations.

Life Cycle Solutions

The third element of our business model is the provision of professional
services in all five phases of the project life cycle-planning, design,
construction, maintenance, and decommissioning. This inclusive approach
allows us to deliver services during periods of strong new capital
project activity (i.e., design and construction) as well as periods of
lower new capital project expenditures (i.e., maintenance and
rehabilitation). Beginning with the planning and design stages, we
provide conceptual and detailed design services, conduct feasibility
studies, and prepare plans and specifications. During the construction
phase, we generally act as the owners' representative, providing project
management, surveying, and resident engineering services. We focus
principally on fee-for-service type work and generally do not act as the
contractor or take on construction risk. Following project completion,
during the maintenance stage, we provide ongoing professional services
for maintenance and rehabilitation in areas such as facilities and
infrastructure management, facilities operations, and performance
engineering. Finally, in the decommissioning phase, we provide solutions
and recommendations for taking facilities out of active service.

Through our "One Team. Infinite Solutions." approach to our business, we
are able to undertake infrastructure and facilities projects of any size
for both public and private sector clients. Currently, the majority of
assignments we pursue are small to midsize projects with a capital value
of less than $100 million and potential project fees for Stantec of less
than $10 million. These types of projects represent the largest share of
the infrastructure and facilities market. Focusing on this project mix
continues to ensure that we do not rely on a few large, single projects
for our revenue and that no single client or project accounts for more
than 5% of our overall business.

Key Performance Drivers

At Stantec our performance depends on our ability to attract and retain
qualified people; make the most of market opportunities; finance our
growth; find, acquire, and integrate firms and/or new employees into our
operations; and achieve top-three market penetration in the geographic
areas we serve. Based on our success with these drivers, we believe we
are well positioned to continue to be a major provider of professional
design and consulting services in our principal geographic regions.

People

The most important driver of our Company's performance is our people.
Our people are our most valuable resource because they create the
project solutions we deliver to clients. To reach our goal of becoming a
top 10 global design firm, we are growing our workforce through a
combination of internal hiring and acquisitions. We measure our success
in this area by total staff numbers. In 2004 our staff increased to
approximately 4,350 from 3,700 in 2003. Currently, our workforce is made
up of about 2,150 professionals, 1,550 technical staff, and 650 support
personnel. We expect our employee numbers to continue to increase in
2005 and beyond as we pursue our growth plan.

To attract and retain qualified staff, our Company offers opportunities
to be part of a multidiscipline team working on challenging projects
with some of the best people in our industry. We are continually
strengthening our people-oriented culture, and in 2004 we completed a
number of activities, including revising our career development and
performance review process to enhance our focus on career development
and modifying and realigning our benefits programs to provide more
personal choice and emphasize wellness and preventative care. These
programs will be implemented in the first quarter of 2005. In addition,
improved and enhanced staff training programs are slated for
introduction in the second quarter.

Because of our "diversified portfolio" approach to business-operating in
different regions and practice areas-we are generally able to redeploy a
portion of our workforce when faced with changes in local, regional, or
national economies or practice area demand. Currently, we see no overall
shortage of qualified staff for our operations. Although there will
always be some areas where it will be difficult to find appropriate
staff during certain periods, as we increase in size we become better
able to address these issues by using staff from other parts of the
Company either through temporary relocation or changes in work
allocation. We are continually improving our ability to work on projects
from multiple office locations through Web-based technology.

Industry Environment/Market Opportunities

Another key driver of our Company's success is our ability to make the
most of opportunities to grow in our marketplace. We believe that growth
is necessary in order to enhance the depth and breadth of our expertise,
broaden our services, increase our shareholder value, provide more
opportunities for our employees, and lever our information technology
systems. Over the last 11 years, we have integrated a total of
approximately 3,400 employees into our operations through a combination
of direct hiring and acquisitions. We are confident that we can continue
to take advantage of acquisition opportunities because we operate in an
industry sector that includes more than 100,000 firms and is estimated
to generate over US$50 billion in revenue in North America every year,
of which we currently have less than a 1% market share. (According to
the Engineering News Record, the largest 500 engineering and
architecture companies in the US alone generated nearly US$50 billion in
fees in 2003.) Our strategy for increasing this percentage is to combine
internal growth with the acquisition of firms that believe in our vision
and want to be part of our growing Company.

In 2004 we completed four acquisitions, one in the US, which established
a new region for Stantec in the Northeast, and three in our Canadian
operations. In total, these acquisitions added approximately 530
employees to our Company. The integration of acquired firms begins
immediately following the acquisition closing date and may take between
six months and three years. It involves incorporation into our
Company-wide information technology and financial management systems as
well as provision of "back office" support services from our corporate
office. This approach allows our new staff to focus on continuing to
serve clients with as little interruption as possible.

Stantec's acquisition program is managed by an acquisition team
dedicated to supporting the Company's growth objectives. The team is
responsible for identifying and valuing acquisition candidates,
undertaking and coordinating due diligence, negotiating and closing
transactions, and assisting with the integration of employees and
systems.

Financing

Stantec's success also depends on our continuing ability to finance our
growth. Adequate financing gives us the flexibility to make appropriate
investments in our future. Over the past 11 years, Stantec has grown at
a compound annual rate of 19%. To fund this growth, the Company requires
cash generated from both internal and external sources. Historically, we
have completed acquisitions using mostly cash and notes, with very
little use of the Company's shares.

We have sought additional financing through the public sale of shares at
times when our growth has outpaced our ability to generate cash inside
the Company for maintaining our internal debt to equity guidelines. Our
practice is to raise additional equity to replenish our cash reserves,
pay down debt, or strengthen the Company's balance sheet. To date, we
have issued additional shares for these purposes on three occasions-in
1997, 2000, and 2002.

Market Penetration

Also key to Stantec's success is achieving a certain level of market
penetration in the geographic areas we serve. Our goal is to be among
the top three service providers in our geographic regions and practice
areas. With this level of market presence, we are less likely to be
affected by downturns in regional economies. Top-three positioning also
gives us increased opportunities to work for the best clients, obtain
the best projects, and attract the best employees in a region, and is
important for building or maintaining the critical mass of staff needed
to generate consistent performance and support regional infrastructure.

Results

Overview of 2004

The following table summarizes some of our key information:



Selected Annual Information
------------------------------------------------------------------------
(in millions of dollars, except per share and share amounts)
(prepared in accordance with Canadian GAAP)
------------------------------------------------------------------------
2004 2003 2002
------------------------------------------------------------------------
Gross revenue 520.9 459.9 428.5
Net income 30.2 25.1 20.2
Earnings per share - basic 1.63 1.37 1.12
Earnings per share - diluted 1.59 1.31 1.07
Cash dividends declared per
Common Share Nil Nil Nil

Total assets 362.1 326.6 299.0
Total long-term debt 34.0 44.6 62.3
Outstanding common shares -
as at December 31 18,871,085 18,327,284 18,282,720
Outstanding common shares -
as at February 11, 2005 18,906,585
Outstanding share options -
as at December 31 1,071,333 1,479,100 1,296,200
Outstanding share options -
as at February 11, 2005 1,033,833
------------------------------------------------------------------------


The information reflected above is impacted by the four acquisitions we
completed in 2004, the four completed in 2003, and the 10 completed in
2002. Each of these acquisitions will impact the level of gross revenue
and net income earned in the year of acquisition and going forward as
further explained in the Results of Operations section below.

Highlights for 2004

- The results we achieved in 2004 compared to the expected ranges we
established in our 2003 Management's Discussion and Analysis are as
follows:



------------------------------------------------------------------------
Measure Expected Range Result Achieved
------------------------------------------------------------------------
Debt to equity ratio - Note 1 At or below 0.5 to 1 less than 0.0
Return on equity - Note 2 At or above 14% 17.3%
Net income as % of net revenue At or above 5% 6.7%
Gross margin as % of net revenue Between 52 and 54% 54.2%
Administrative and marketing
expenses as % of net revenue Between 39 and 41% 40.9%
Effective income tax rate Between 36.5 and 37.5% 32.4%
------------------------------------------------------------------------

Note 1 - Debt to equity ratio is calculated as long-term debt plus
current portion of long-term debt plus bank indebtedness less
cash, all divided by shareholders' equity.

Note 2 - Return on equity is calculated as net income for the year
divided by average shareholders' equity over each of the last
four quarters.


- Earnings per share-Our basic earnings per share increased 19.0% to
$1.63 from $1.37 in 2003.

- Effective income tax rate-Our effective tax rate decreased to 32.4% in
2004 from 36.7% in 2003.

- Growth by acquisition-We completed four acquisitions in 2004,
including the addition of The Sear-Brown Group, Inc., a New York-based
firm with approximately 400 employees, the acquisition of two
architecture companies-GBR Architects Limited and Dunlop Architects
Inc.-and the addition of Shaflik Engineering Ltd. through an asset
purchase.

- Investment in costs and estimated earnings in excess of billings and
in accounts receivable-We reduced our investment (measured by number of
days' revenues) to 101 days at the end of 2004 from 119 days at the end
of 2003. The implementation of our new enterprise management system
during 2003 had a significant impact on our resources-both in terms of
people and finances. Adjusting to the breadth of the new system created
a significant learning curve. One of the impacts was an increase in the
time required to prepare invoices to send to clients. As a result, we
experienced an increase in costs and estimated earnings in excess of
billings during the fourth quarter of 2003.

- Divestitures-In 2003 we entered into an agreement in principle to
dispose of our 50% share in Lockerbie Stanley Inc. This agreement was
finalized in Q3 04. During Q4 04, we divested of our interest in
Goodfellow EFSOP™ technology, which comprised our Technology segment.

- Property sale-During the fourth quarter of 2004, we completed the sale
of our office building in Edmonton, Alberta, for cash proceeds of $34.5
million. Concurrent with the sale, we leased the property back for a
period of 15 years. The gain of $7.1 million realized on the sale has
been deferred and will be recognized as a reduction of rental expense
over the 15-year term of the operating lease.

Critical Accounting Estimates

The notes to our December 31, 2004, consolidated financial statements
outline our significant accounting estimates. The accounting estimates
discussed below are considered particularly important since they require
the most difficult, subjective, or complex management judgments. Because
of the uncertainties inherent in making assumptions and estimates
regarding unknown future outcomes, future events may result in
significant differences between estimates and actual results. We believe
that each of our assumptions and estimates is appropriate to the
circumstances and represents the most likely future outcome.

Revenue and Cost Recognition Estimates on Contracts

Revenue from fixed fee and variable fee with ceiling contracts is
recognized using the percentage of completion method based on the ratio
of contract costs incurred to total estimated contract costs. We believe
that costs incurred are the best available measure of progress toward
completion of these contracts. Estimating total direct contract costs is
subjective and requires the use of our best judgments based upon the
information we have available at that point in time. Our estimate of
total direct contract costs has a direct impact on the revenue we
recognize. If our current estimates of total direct contract costs turn
out to be higher or lower than our previous estimates, we would have
over or underrecognized revenue for the previous period. We also provide
for estimated losses on incomplete contracts in the period in which such
losses are determined. Changes in our estimates are reflected in the
period in which the change is made.

Provision for Doubtful Accounts

We use estimates in determining our allowance for doubtful accounts
related to trade receivables. These estimates are based on our best
assessment of the collectibility of the related receivable balance
based, in part, on the age of the specific receivable balance. Future
collections of receivables that differ from our current estimates will
affect the results of our operations in future periods.

Goodwill

Goodwill is assessed for impairment at least annually. This assessment
includes a comparison of the carrying value of the reporting unit to the
estimated fair value to ensure that the fair value is greater than the
carrying value. We arrive at the estimated fair value of a reporting
unit using valuation methods such as discounted cash flow analysis.
These valuation methods employ a variety of assumptions, including
revenue growth rates, expected operating income, discount rates, and
earnings multiples. Estimating the fair value of a reporting unit is a
subjective process and requires the use of our best estimates. If our
estimates or assumptions change from those used in our current
valuation, we may be required to recognize an impairment loss in future
periods.

Results of Operations

In 2004, because the operations associated with our Design Build and
Technology segments were disposed of during the year, all of our
operations are included in one reportable segment-Consulting Services.

Our Company provides knowledge-based solutions for infrastructure and
facilities projects through value-added professional services
principally under fee-for-service agreements with clients. In the course
of providing services, we incur certain direct costs for subconsultants,
equipment, and other expenditures that are recoverable directly from our
clients. The revenue associated with these direct costs is included in
our gross revenue. Since such direct costs and their associated revenue
can vary significantly from contract to contract, changes in our gross
revenue may not be indicative of our revenue trends. Accordingly, we
also report net revenue, which is gross revenue less subconsultant and
other direct expenses, and analyze our results in relation to net
revenue rather than gross revenue.

The following table summarizes our key operating results on a percentage
of net revenue basis and the percentage increase in the dollar amount of
these results from year to year:



------------------------------------------------------------------------
Percentage of Percentage
Net Revenue Increase
------------------------------------------------------------------------
2004 vs 2003 vs
2004 2003 2002 2003 2002
------------------------------------------------------------------------
Gross revenue 116.0% 117.5% 117.3% 13.2% 7.3%
Net revenue 100.0% 100.0% 100.0% 14.8% 7.2%
Direct payroll costs 45.8% 46.9% 47.6% 12.0% 5.7%
Gross margin 54.2% 53.1% 52.4% 17.2% 8.6%
Administrative and
marketing expenses 40.9% 39.5% 39.9% 18.7% 6.4%
Depreciation on property
and equipment 2.7% 2.5% 2.6% 20.9% 4.3%
Amortization of intangible
assets 0.2% 0.2% 0.3% 0.2% (14.3%)
Net interest expense 0.6% 0.7% 0.7% 6.4% 0.3%
Foreign exchange (gains)
losses 0.0% 0.2% 0.0% (115.3%) 743.9%
Share of income from
associated companies (0.1%) (0.1%) (0.1%) (33.6%) 63.4%
Income before income taxes 9.9% 10.1% 9.0% 12.7% 19.7%
Income taxes 3.2% 3.7% 3.5% (0.6%) 12.8%
Net income 6.7% 6.4% 5.5% 20.4% 24.2%
------------------------------------------------------------------------


As indicated in the highlights above, our operating results for 2004 are
generally consistent with the goals we established in 2003. In
particular, our administrative and marketing expenses were within the
range we expected to achieve, while our gross margin slightly exceeded
expectations. In addition, our effective tax rate continued to fall and,
for 2004, was below the expected range due to factors discussed below.

Gross and Net Revenue

The following tables summarize the impact of certain of the above-noted
items on our gross and net revenue for 2004 compared to 2003 and for
2003 compared to 2002.



Year ended
--------------------------------
Gross revenue 2004 vs 2003 2003 vs 2002
--------------------------------
In millions of $'s
Increase over prior year $60.9 $31.4
--------------------------------
Increase (decrease) due to:
acquisitions completed in current
and prior two years 42.3 41.0
net internal growth 30.0 10.2
impact of foreign exchange rates on
revenue earned by foreign subsidiaries (11.4) (19.8)


Year ended
--------------------------------
Net revenue 2004 vs 2003 2003 vs 2002
--------------------------------

In millions of $'s
Increase over prior year $57.8 $26.3
--------------------------------
Increase (decrease) due to:
acquisitions completed in current
and prior two years 36.4 36.7
net internal growth 31.3 7.0
impact of foreign exchange rates
on revenue earned by foreign
subsidiaries (9.9) (17.4)


Gross revenue earned in Canada during 2004 increased to $325.8 million
from $290.4 million in 2003, and gross revenue generated in the US
increased to $190.4 million from $161.7 million. Gross revenue earned in
our International region in 2004 was $4.7 million, compared to $7.9
million in 2003. As indicated above, the change in exchange rates from
2003 to 2004 impacted the level of gross revenue from our US operations
by $11.4 million. As noted in our 2003 Management's Discussion and
Analysis, the acquisition of The Sear-Brown Group in April of 2004 was
expected to result in an overall increase in our US-generated revenue.
The continuing strength of the Canadian economy also resulted in growth
in revenue from 2003 levels.

Gross Margin

Gross margin is calculated as net revenue minus direct payroll costs.
Direct payroll costs include the cost of salaries and related fringe
benefits for labor hours that are directly associated with the
completion of projects. Labor costs and related fringe benefits for
labor hours that are not directly associated with the completion of
projects are included in administrative and marketing expenses. The
increase in our gross margin percentage in 2004 is due to the lower
proportion of total labor that was charged to projects during 2004
compared to 2003 as well as the mix of projects in progress and being
pursued throughout the year. Total labor costs as a percentage of net
revenue are consistent from 2003 to 2004 at approximately 67.4% for both
years.

Administrative and Marketing Expenses

Administrative and marketing expenses as a percentage of net revenue for
2004 were 40.9% (within the expected range of 39 to 41% for these
expenses) compared to 39.5% in 2003. Administrative and marketing
expenses fluctuate as a result of the amount of staff time charged to
marketing and administrative labor, which is influenced by the mix of
projects in progress and being pursued throughout the year. In 2004 a
higher proportion of total labor was charged to administrative and
marketing labor compared to 2003.

Depreciation on Property and Equipment

Depreciation on property and equipment as a percentage of net revenue
increased to 2.7% in 2004 compared to 2.5% for 2003. In 2004 we began
depreciating our new enterprise management system as well as our new
office building in Edmonton, Alberta.

Foreign Exchange Gains (Losses)

We recorded a foreign exchange gain of $0.1 million in 2004, compared to
a foreign exchange loss of $0.6 million in 2003. The foreign exchange
gains and losses reported in 2003 and 2004 arose on the translation of
the foreign-denominated assets and liabilities held in our Canadian
companies and in our non-US-based foreign subsidiaries.

In 2003 the Canadian dollar rose from US$0.63 at the beginning of the
year to US$0.77 at the end of the year, and the impact of this
significant change on our overall exposure to foreign currency assets
resulted in a cumulative loss of $0.6 million. In 2004 the Canadian
dollar continued to strengthen to US$0.83. To minimize our exposure to
foreign currency fluctuations, we used US-dollar-denominated debt in
2003 and through most of 2004, and late in 2004, with the improvement of
our cash position, we were able to reduce the amount of this debt. As a
result, we entered into forward contracts to sell US dollars in exchange
for Canadian dollars to minimize our exposure to currency fluctuations.
At December 31, 2004, we had contracted to sell US$10.0 million at
forward rates ranging from 1.2050 to 1.2386.

Income Taxes

The effective income tax rate for Stantec in 2004 was 32.4%, compared to
36.7% in 2003 and 39.0% in 2002. In our 2003 Management's Discussion and
Analysis, we anticipated that our effective tax rate would be in the
range of 36.5 to 37.5%. This rate was estimated based on known statutory
rate reductions as well as estimates of income in each of our taxing
jurisdictions. Throughout 2004, the effective tax rate reported in each
quarter was reduced to account for the 0.75% reduction in provincial
statutory rates during the year as well as to reflect increases in
earnings in some of our lower tax rate jurisdictions. During Q4 04, on
the basis of an actuarial report, we reflected additional income in our
regulated insurance subsidiary. A portion of that income of the
subsidiary is subject to tax at lower rates, contributing 1.2% to the
reduction of our consolidated tax rate.

Quarterly Operating Results

The following is a summary of our quarterly operating results for the
last two fiscal years.



------------------------------------------------------------------------
Quarterly Operating Results
(in millions of dollars, except per share amounts)
------------------------------------------------------------------------
2004 2003
--------------------------------------- -------------------------------
31 Dec 30 Sep 30 Jun 31 Mar 31 Dec 30 Sep 30 Jun 31 Mar
--------------------------------------- -------------------------------
Gross
revenue 127.0 139.8 136.8 117.3 111.6 120.8 119.1 108.4
Net
income 9.6 8.5 6.4 5.7 6.3 7.3 6.5 5.0
EPS-basic 0.52 0.46 0.35 0.31 0.35 0.40 0.35 0.27
EPS-
diluted 0.50 0.44 0.33 0.30 0.33 0.38 0.34 0.26
------------------------------------------------------------------------
The quarterly earnings per share on a basic and diluted basis are not
additive and may not equal the annual earnings per share reported. This
is due to the effect of shares issued or repurchased during the year on
the weighted average number of shares. Diluted earnings per share on a
quarterly and annual basis are also affected by the change in the market
price of our shares as we do not include in dilution, options whose
exercise price is not in the money.
------------------------------------------------------------------------

The comparability of our quarterly results is impacted by the following
items:

------------------------------------------------------------------------
(in thousands Q4 2004 vs. Q3 2004 vs. Q2 2004 vs. Q1 2004 vs.
of dollars) Q4 2003 Q3 2003 Q2 2003 Q1 2003
------------------------------------------------------------------------
Increase (decrease)
in gross revenue
due to:
Acquisitions
completed in
current and prior
two years 14,637 12,832 10,080 4,730
Net internal growth 3,418 7,547 9,399 9,667
Impact of foreign
exchange rates on
revenue earned by
foreign subsidiaries (2,675) (1,438) (1,740) (5,520)
Total increase in
gross revenue 15,380 18,941 17,739 8,877
------------------------------------------------------------------------


During Q4 04, our gross revenue increased $15.4 million, or 13.8%, to
$127.0 million from $111.6 million in Q4 03. Approximately $14.6 million
of this increase resulted from the acquisitions completed in 2002, 2003,
and 2004 and net internal growth of $3.4 million, offset by the effect
of a change in foreign exchange rates of $2.6 million.

Our effective income tax rate for the full year 2004 was 32.4%. To the
end of Q3 04, the effective tax rate was estimated at 35.0%. The
year-to-date change is reflected in the Q4 04 rate of 26.1%.

Financial Condition and Liquidity

Our cash flow from operating activities was $77.4 million in 2004,
compared to $16.9 million in 2003 and $36.1 million in 2002. The
implementation of our new enterprise management system in the fourth
quarter of 2003 contributed to the significant reduction in cash flows
from operating activities for the year. The reduction in our investment
in costs and estimated earnings in excess of billings and in accounts
receivable from 119 to 101 days during 2004 was the primary reason for
the increased cash flow in the year. Maintaining and slightly improving
this level of investment will continue to provide adequate funds to
finance our working capital requirements.

In 2004, $10.2 million in cash was used in investing activities,
compared to $33.5 million in 2003. A number of significant investing
activities occurred during 2004, including the sale of our Edmonton
office building, the sale of our interest in Goodfellow EFSOP™
technology, the completion of our largest acquisition to date, and our
investment in short-term investments related to self-insured liabilities
arising on the implementation of our regulated insurance company. In
2003 our investment activities included investment in our new enterprise
management system, investment in construction costs associated with an
addition to our Edmonton office building, and investment in four
acquisitions. The net impact of these various investment activities was
to decrease the amount of cash used in 2004 from 2003 by $23.3 million.

We used $36.0 million in financing activities in 2004, compared to the
use of $4.2 million in 2003. Additional funds received in 2004 on the
exercise of share options, as well as the net decrease in funds used to
repurchase shares under our normal course issuer bid, were offset by the
use of funds to pay down our bank indebtedness and long-term borrowings.
This bank indebtedness had been incurred in 2003 and early 2004 to
finance the level of investment in accounts receivable and in costs and
estimated earnings in excess of billings that resulted from the
implementation of our new enterprise management system. Improvement in
the level of these investments, as well as proceeds received on the sale
of our Edmonton office building, provided the additional funds to repay
our long-term debt and bank indebtedness.

The following table summarizes the contractual obligations due on our
long-term debt, other liabilities, and operating lease commitments:



------------------------------------------------------------------------
Payments Due by Period
(in thousands of dollars)
------------------------------------------------------------------------
Contractual less than 2 - 3 4 - 5 After
Obligations Total 1 year years years 5 years
------------------------------------------------------------------------
Long-term debt 33,975 12,820 19,585 1,459 111
Other liabilities 19,867 3,049 6,079 3,400 7,339
Operating lease
commitments 207,666 29,509 50,301 34,211 93,645
------------------------------------------------------------------------
Total Contractual
Obligations 261,508 45,378 75,965 39,070 101,095
------------------------------------------------------------------------
------------------------------------------------------------------------


During 2004, we renegotiated our credit facility with a major Canadian
chartered bank. Our new credit facility provides for an operating line
of credit of $30 million. At December 31, 2004, none of this facility
had been utilized ($8.3 million had been used at December 31, 2003). We
also maintain a US$17 million acquisition credit facility, which was
unused at December 31, 2004, and a four-year reducing
US-dollar-denominated term facility, of which $24.0 million was used at
December 31, 2004, ($19.2 million had been used at December 31, 2003).

Our shareholders' equity increased $28.6 million to $189.1 million from
$160.5 million in 2003. This increase resulted from net income of $30.2
million in 2004, the recognition of the fair value of share-based
compensation of $0.7 million, and the issue of shares on the exercise of
options of $3.5 million, offset by the repurchase of shares pursuant to
the Normal Course Issuer Bid of $0.7 million during the year and the
$5.1 million change in our cumulative translation account arising on the
translation of our US-based foreign subsidiaries. The $5.1 million
change is due to the continued strengthening of the Canadian dollar-from
$0.77 to $0.83-in relation to the US dollar during the year.

Our Normal Course Issuer Bid was renewed in 2004 and allows us to
repurchase up to 554,388 shares. We continue to believe that, from time
to time, the market price of our common shares does not fully reflect
the value of our business or future business prospects and that, at such
times, outstanding common shares are an attractive, appropriate, and
desirable use of available Company funds. In 2004 we purchased 29,300
common shares at an average price of $24.57 per share for an aggregate
price of $720,000. In 2003 we purchased 74,700 common shares at an
average price of $18.63 per share for an aggregate price of $1,392,000.

Acquisitions

We completed four acquisitions in 2004 for total consideration of $20.3
million and four acquisitions in 2003 for total consideration of $9.4
million.

In April 2004, we acquired the shares of The Sear-Brown Group, Inc.
headquartered in Rochester, New York, adding 400 employees and opening a
new geographic market in the US Northeast and a new practice area in the
bio/pharmaceuticals industry. This addition was followed in May by the
acquisition of GBR Architects Limited, an architecture, planning,
interior design, and facilities management consulting firm based in
Winnipeg, Manitoba. In October we completed the acquisition of Dunlop
Architects Inc., one of the top architecture firms in Toronto, Ontario,
increasing our architectural and interior design presence in the Greater
Toronto Area, and in November 2004, we acquired the assets and business
of Shaflik Engineering Ltd., a firm based in Vancouver, British
Columbia, that provides services in our Buildings Engineering practice
area.

Future Expectations

Our Company continues to operate in a highly diverse infrastructure and
facilities market within a North American economy that varies
significantly from region to region. The market is made up of many
technical disciplines, clients, and industries and engages both the
private and public sectors. Over the next few years, we expect the
demand for services in this market to be driven by continued population
growth, government regulations, and the need to maintain and replace an
aging North American infrastructure. The market should also benefit from
continued outsourcing of technical services, especially in the public
sector. Its fortunes are at least partially tied to the performance of
the economy, and the overall market outlook offers increasing prospects
for accelerating growth, particularly in the non-residential sectors.

Much of the actual growth seen in 2004 and over the past several years
has been driven by residential construction; however, spending on public
construction appears to be rising, while private non-residential
construction continues to rebound from an extended downturn. Commercial
and industrial owners will be increasingly looking to raise capital
spending as their respective earnings prospects improve. In addition, a
variety of public agencies have begun planning for increased investment
in infrastructure projects after several years of below-trend spending.
As predicted by many forecasters, the residential construction market
could flatten this year both in Canada and the US. However, 2005 will
continue to be a high-performance year for housing, contributing to
ongoing strong performance in our Urban Land market segment. As well, we
expect strength in commercial construction markets, particularly
industrial projects, to support higher project activity.

Although much attention has been focused on delays in US government
funding for programs such as the Transportation Equity Act for the 21st
Century, a recovery in state tax revenues as incomes improve is likely
to be a more significant factor in driving spending on transportation,
environmental, and other capital projects in the US. Our Canadian market
should also benefit from the promised transfer of federal funding to the
provinces for health care and to municipalities for new infrastructure
and the rehabilitation of existing facilities.

Within this overall market outlook, our Company expects to continue to
grow through a combination of internal hiring and acquisitions. We
target to achieve long-term average annual compound growth rates of 15
to 20%, although we may not see growth in this range every year. We have
chosen this target because we believe it is an attainable goal that
allows us to enhance the depth of our expertise, broaden our service
provision, provide expanded opportunities to our employees, and lever
our information technology systems. Our ability to continue to grow at
this rate depends to a large extent on the availability of acquisition
opportunities. Since our industry is made up of 100,000 mostly small
firms, there are many acquisition candidates. At any one time, we are
engaged in discussions with up to 20 or more firms. Currently, the firms
with which we are in some stage of discussion have between 10 and 1,000
employees.

We plan to support our targeted level of growth using a combination of
cash flow from operations and additional financing while maintaining a
return on our equity at or above 14% and a net income at or above 5% of
net revenue. Although we believe that a normal debt to equity ratio at
or below .5 to 1 is an appropriate target for our Company, opportunities
to conclude transactions may make it necessary for us to increase the
amount of debt we carry beyond that limit. If the need to finance a
larger acquisition arises, we will seek to raise cash by issuing
additional shares.

Looking at the results of our current mix of project activity in the US
and Canada, we anticipate that our gross margin as a percentage of net
revenue will remain in the range of 53 to 55% for 2005 and that our
administrative expenses will remain in the range of 40 to 42% of net
revenue. In addition, we expect our effective tax rate for 2005 to be
between 33 and 35%.

RISK

Operations

Like all professional services firms in the infrastructure and
facilities industry, we are exposed to a number of risks in carrying out
the day-to-day activities of our operations. These operating risks
include the following:

- The timing of the completion of projects

- The potential cancellation of client orders and projects

- Our ability to complete projects on schedule and within budget

- Our clients' satisfaction with the quality of our services

- Potential litigation through exposure to third-party claims

- Competition for new contracts, including pricing pressures

- Economic factors that impact the ability of clients to contract for
our services

- The availability of qualified staff and personnel

- The quality of our clients and their credit risk

- Our ability to integrate acquired businesses

- Our ability to obtain the necessary licenses and permits to carry out
our projects

- Risks associated with working in international locations

We guard against these operating risks through our business strategy and
other protective measures. As mentioned previously, our
three-dimensional business model based on geographic, practice area, and
life cycle diversification reduces our dependency on any particular
industry or economic sector for our income. Stantec also protects itself
from exposure to competition by entering into a diverse range of
contracts with a variety of fee amounts.

To address the risk of competition for qualified personnel, we offer a
number of employment incentives, including training programs, access to
a plan that provides the benefit of employee share ownership (for
Canadian employees), and opportunities for professional development and
enhancement, along with compensation plans that we believe to be
innovative, flexible, and designed to reward top performance. In 2004 we
completed an extensive review of our benefits programs for both our US
and Canadian employees with the objectives of providing more personal
choice in coverage and emphasizing wellness and preventative care. Our
new plans are scheduled for implementation across the Company in the
first quarter of 2005.

We also maintain insurance coverage for our operations, including
professional liability insurance. In addition, we have a regulated
captive insurance company to insure and fund the payment of any
professional liability self-insured retention related to claims arising
after August 1, 2003. We, or our clients, also obtain project-specific
insurance for designated projects from time to time. And we invest
resources in a Risk Management team dedicated to providing Company-wide
support and guidance on risk avoidance practices and procedures. One of
our practices is to carry out select client evaluations, including
credit risk appraisals, before entering into contract agreements to
reduce the risk of non-payment for our services.

In 2004 we created a Practice Enhancement team to champion continuous
improvements in project management and the sharing of best practices
across the Company, along with promoting the enhanced reliability and
consistency of services we provide to clients. In addition, we expanded
our Company-wide project manager training program during the year. This
program is aimed at skill development in risk mitigation, project
planning, quality control and assurance, and financial administration,
among other project management responsibilities. We recognize that
through improved project management across our operations we will
increase our ability to deliver projects on schedule and within budget.

As well, we believe our experience and knowledge in conducting business
outside North America help us diminish the risks of undertaking
international projects. Among other issues, international work involves
dealing with political uncertainties, entering into contracts with
foreign clients, and operating under foreign legal systems.

Market

We are also exposed to various market factors that can affect our
performance. Three such market risks include the availability of debt
financing, the impact of the rate of exchange between Canadian and US
dollars, and the effect of changes in interest rates.

As mentioned previously, our Company currently has a term loan and
revolving credit with one financial institution for which we continue to
meet our required borrowing ratios. However, we have no assurance that
debt financing will continue to be available from our current lender or
another financial institution on similar terms. As our need for debt
financing increases, we will seek financing from more than one financial
institution.

Because a significant portion of our Company's revenue and expenses is
generated or incurred in US dollars, we face the challenge of dealing
with fluctuations in exchange rates. To the extent that US-dollar
revenues are greater than US-dollar expenses in a strengthening
US-dollar environment, we expect to see a positive impact on our income
from operations. Conversely, to the extent that US-dollar revenues are
greater than US-dollar expenses in a weakening US-dollar environment, we
expect to see a negative impact. This exchange rate risk primarily
reflects, on an annual basis, the impact of fluctuating exchange rates
on the net difference between total US dollar professional revenues and
US-dollar expenses. Other exchange rate risk arises from the revenues
and expenses generated or incurred by our non-US-based foreign
subsidiaries. Our income from operations will be impacted by exchange
rate fluctuations used in translating these revenues and expenses. In
addition, the impact of exchange rates on the balance sheet accounts of
our non-US-based foreign subsidiaries will affect our operating results.
We also continue to be exposed to exchange rate risk for the US- dollar
and other foreign currency-denominated balance sheet items carried by
our Canadian and International operations.

Finally, changes in interest rates present a risk to our performance.
All of our Company's bank facilities (i.e., operating loans and
acquisition loan) carry a floating rate of interest. We estimate that,
based on our balances at December 31, 2004, a 1% change in interest
rates would impact our earnings per share by less than $0.01.



Stantec Inc.
(Incorporated under the laws of Canada)

CONSOLIDATED BALANCE SHEETS

As at December 31
2004 2003
(in thousands of dollars) $ $
------------------------------------------------------------------------
ASSETS (note 7)
Current
Cash and cash equivalents 37,890 7,343
Accounts receivable, net of allowance for
doubtful accounts of $21,095 in 2004
($16,952 - 2003) 112,476 87,101
Costs and estimated earnings in excess of
billings 40,861 67,094
Income taxes recoverable - 6,921
Prepaid expenses 4,165 3,246
Future income tax assets (note 14) 8,532 5,924
Other assets (note 6) 4,831 -
------------------------------------------------------------------------
208,755 177,629
Property and equipment (note 3) 48,262 67,670
Goodwill (note 4) 84,694 69,696
Intangible assets (note 5) 6,278 5,112
Future income tax assets (note 14) 6,357 3,487
Other assets (note 6) 7,754 2,981
------------------------------------------------------------------------
362,100 326,575
------------------------------------------------------------------------
------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness (note 7) - 17,151
Accounts payable and accrued liabilities 78,718 68,796
Billings in excess of costs and estimated
earnings 18,832 16,882
Income taxes payable 5,732 -
Current portion of long-term debt (note 8) 12,820 13,416
Future income tax liabilities (note 14) 10,653 10,802
------------------------------------------------------------------------
126,755 127,047
Long-term debt (note 8) 21,155 31,159
Other liabilities (note 9) 16,818 1,459
Future income tax liabilities (note 14) 8,316 6,382
------------------------------------------------------------------------
173,044 166,047
------------------------------------------------------------------------
Commitments and contingencies (notes 10 and 11)
Shareholders' equity
Share capital (note 12) 87,656 84,281
Contributed surplus (note 12) 2,544 1,842
Cumulative translation account (note 13) (19,018) (13,861)
Retained earnings 117,874 88,266
------------------------------------------------------------------------
189,056 160,528
------------------------------------------------------------------------
362,100 326,575
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes


Stantec Inc.

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

Years ended December 31

(in thousands of dollars, 2004 2003
except per share amounts) $ $
------------------------------------------------------------------------
INCOME
Gross revenue 520,879 459,942
Less subconsultant and other direct expenses 71,728 68,546
------------------------------------------------------------------------
Net revenue 449,151 391,396
Direct payroll costs 205,513 183,471
------------------------------------------------------------------------
Gross margin 243,638 207,925

Administrative and marketing expenses 183,739 154,788
Depreciation of property and equipment 11,986 9,912
Amortization of intangible assets 927 925
Net interest expense (note 8) 2,805 2,637
Foreign exchange (gains) losses (94) 615
Share of income from associated companies (385) (580)
------------------------------------------------------------------------
Income before income taxes 44,660 39,628
------------------------------------------------------------------------

Income taxes (note 14)
Current 18,065 10,050
Future (3,595) 4,508
------------------------------------------------------------------------
14,470 14,558
------------------------------------------------------------------------

Net income for the year 30,190 25,070
Retained earnings, beginning of the year 88,266 64,240
Shares repurchased (note 12) (582) (1,044)
------------------------------------------------------------------------
Retained earnings, end of the year 117,874 88,266
------------------------------------------------------------------------
------------------------------------------------------------------------

Earnings per share (note 15)
Basic 1.63 1.37
Diluted 1.59 1.31

See accompanying notes


Stantec Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31
2004 2003
(in thousands of dollars) $ $
------------------------------------------------------------------------

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Cash receipts from clients 568,897 465,114
Cash paid to suppliers (169,573) (156,460)
Cash paid to employees (313,321) (274,444)
Dividends from equity investments 300 -
Interest received 6,426 2,710
Interest paid (8,639) (4,462)
Income taxes paid (6,739) (15,565)
------------------------------------------------------------------------
Cash flows from operating activities (note 16) 77,351 16,893
------------------------------------------------------------------------

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Business acquisitions, including cash acquired
and bank indebtedness assumed (note 2) (18,845) (6,046)
Cash of joint venture held for sale - (369)
Purchase of investments held for
self-insured liabilities (9,562) -
Proceeds on disposition of investments 55 195
Proceeds on disposition of Technology segment 1,014 -
Purchase of property and equipment (17,488) (28,713)
Proceeds on disposition of property and equipment 34,672 1,444
------------------------------------------------------------------------
Cash flows used in investing activities (10,154) (33,489)
------------------------------------------------------------------------

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Repayment of long-term debt (35,546) (20,592)
Proceeds from long-term borrowings 13,960 -
Net change in bank indebtedness financing (17,151) 17,151
Repurchase of shares for cancellation (note 12) (720) (1,392)
Proceeds from issue of share capital (note 12) 3,490 651
------------------------------------------------------------------------
Cash flows from (used in) financing activities (35,967) (4,182)
------------------------------------------------------------------------

Foreign exchange loss on cash held in
foreign currency (683) (1,081)
------------------------------------------------------------------------

Net increase (decrease) in cash and cash
equivalents 30,547 (21,859)
Cash and cash equivalents, beginning of the year 7,343 29,202
------------------------------------------------------------------------
Cash and cash equivalents, end of the year 37,890 7,343
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes

Stantec Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003


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). The
preparation of financial statements in conformity with 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, and
future cash flows used to estimate the fair value of reporting units for
goodwill impairment purposes. Actual results may differ from these
estimates. 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.

On January 1, 2004, the Company adopted the recommendations of Section
1100 of the CICA Handbook, Generally Accepted Accounting Principles.
This section establishes standards for financial reporting in accordance
with GAAP. It describes what constitutes GAAP and its sources and states
that an entity should apply every primary source of GAAP that deals with
the accounting and reporting in financial statements of transactions or
events it encounters. The initial adoption of these recommendations on a
prospective basis on January 1, 2004, did not have an impact on the
Company's financial statements.

Principles of consolidation

The consolidated financial statements include the accounts of the
Company and its subsidiary companies, all of which are wholly owned. 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.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 the lower of cost or market value.

Investments

Investments in associated companies over which the Company is able to
exercise significant influence, but not control, are accounted for using
the equity method, which reflects the Company's investment at original
cost plus its share of earnings (losses) net of dividends received.

Other investments, including investments held for self-insured
liabilities, are recorded at cost. When a loss in the value of such
investments occurs that is other than temporary, the investment is
written down to recognize the loss.

Property and equipment

Property and equipment is 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 balance
Business information systems straight-line over 3 to 5 years
Office equipment 20% - 30% declining balance
Automotive equipment 30% declining balance
Leasehold improvements straight-line over term of lease plus
one renewal period to a maximum of
15 years
Buildings 4% - 5% declining balance


Leases

Leases that transfer substantially all of 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 as incurred.

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.

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 year. Other
intangible assets include technology and non-compete agreements, which
are amortized over estimated lives of one to three 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, using
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 the 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. The accrual for self-insured liabilities includes estimates
of the costs of reported claims and is based on estimates of loss using
assumptions made by management, including consideration of actuarial
projections.

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 enters into forward currency exchange contracts to manage
risk associated with net operating assets denominated in US dollars. The
Company's policy is to not utilize derivative financial instruments for
trading or speculative purposes. These derivative contracts, which are
not accounted for as hedges, are marked to market, and any changes in
the market value are recorded in income or expense when the changes
occur. The fair value of these instruments is recorded as accounts
receivable or payable.

Non-interest bearing debt

Non-interest bearing debt is carried at its present value using discount
rates based on the bank prime rate prevailing at the time the debt was
issued. The discount is applied over the term of the debt and is charged
to interest expense.

Fair value of financial instruments

The carrying amounts of cash and cash equivalents, accounts receivable,
costs and estimated earnings in excess of billings, bank indebtedness,
accounts payable and accrued liabilities, and billings in excess of
costs and estimated earnings approximate their fair values because of
the short-term maturity of these instruments. The carrying amount of
bank indebtedness approximates fair value because the applicable
interest rate is based on variable reference rates or is fixed for a
short term. The carrying values of other financial assets and financial
liabilities approximate 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, accounts receivable, and costs and estimated
earnings in excess of billings. The Company maintains an allowance for
estimated credit losses and mitigates the risk of its investment in
bonds through the overall quality and mix of its bond portfolio. The
Company 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 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
the Company's 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.

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 such defined contributions as an expense in the period in
which the contributions are made. The expense recorded in 2004 is
$7,311,000 (2003 - $5,980,000). The Company does not provide
postemployment or postretirement benefits.

Foreign currency translation

Transactions denominated in a foreign currency and the financial
statements of foreign subsidiaries (excluding US-based subsidiaries)
included in the consolidated financial statements are translated as
follows: monetary items at the rate of exchange in effect at the balance
sheet date; non-monetary items at historical exchange rates; and revenue
and expense items (except depreciation and amortization, which are
translated at historical exchange rates) at the average exchange rate
for the year. Any resulting gains or losses are included in income in
the year incurred.

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 year. The resulting exchange gains and losses are
deferred and included as a separate component of shareholders' equity in
the cumulative translation account.

Stock-based compensation and other stock-based payments

The Company has one share option plan, which is 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. 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 upon 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.
Antidilutive options are not considered in computing diluted earnings
per share.

2. BUSINESS ACQUISITIONS

Acquisitions are accounted for under the purchase method of accounting,
and the results of earnings since the respective dates of acquisition
are included in the consolidated statements of income. The purchase
prices of acquisitions are generally subject to price adjustment clauses
included in the purchase agreements. 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. In the case of some acquisitions,
additional consideration may be payable based on future performance
parameters. As at December 31, 2004, the maximum contingent
consideration that may be payable in 2005 and future years is
approximately $712,000. Such additional consideration is recorded as
additional goodwill in the period in which confirmation of the
consideration to be paid is known.

During 2004, the Company acquired the shares and businesses of The
Sear-Brown Group (April 2, 2004), GBR Architects Limited (May 31, 2004),
and Dunlop Architects Inc. (October 8, 2004) and the assets and business
of Shaflik Engineering (November 26, 2004). The Company also adjusted
the purchase price on the Cosburn Patterson Mather Limited (2002), The
Spink Corporation (2001), APAI Architecture Inc. and Mandalian
Enterprises Limited (2003), Graeme & Murray Consultants Ltd. (2002),
Ecological Services Group Inc. (2003), and The RPA Group (2002)
acquisitions pursuant to price adjustment clauses included in the
purchase agreements. The purchase price allocations for the Dunlop
Architects Inc. and GBR Architects Limited acquisitions have not yet
been finalized. Purchase price allocations are completed after the
vendors' final financial statements and income tax returns have been
prepared and accepted by the Company. We expect to finalize these
purchase price allocations during the second quarter of 2005.

During 2003, the Company acquired the shares and businesses of APAI
Architecture Inc. and Mandalian Enterprises Limited (January 2, 2003)
and of Ecological Services Group Inc. (May 30, 2003) for consideration
consisting of cash and promissory notes and the net assets and
businesses of Optimum Energy Management Incorporated (October 31, 2003)
and Inner Dimension Design Associates Inc. (November 28, 2003) for cash
consideration. The Company also paid additional contingent consideration
in connection with the Cosburn Patterson Mather Limited (2002)
acquisition and adjusted the purchase price on The Pentacore Group of
Companies (2001), English Harper Reta Architects (2002), Site
Consultants, Inc. (2002), Beak International Incorporated (2002),
GeoViro Engineering Ltd. (2002), McCartan Consulting Ltd. (2002), and
The RPA Group (2002) acquisitions pursuant to price adjustment clauses
included in the purchase agreements.



Details of the aggregate consideration given and the fair values of net
assets acquired are as follows:


2004 2003
(in thousands of dollars) $ $
------------------------------------------------------------------------

Cash consideration 12,432 4,300
Promissory notes 1,487 3,375
------------------------------------------------------------------------
Purchase price 13,919 7,675
------------------------------------------------------------------------
------------------------------------------------------------------------

Assets and liabilities acquired at fair values
Bank indebtedness assumed (6,413) (1,746)
Non-cash working capital 6,057 3,578
Property and equipment 3,211 1,337
Investments - other 87 44
Goodwill 18,425 3,848
Intangible assets 2,158 1,344
Other liabilities (1,642) -
Long-term debt (8,414) (646)
Future income taxes 450 (84)
------------------------------------------------------------------------
Net assets acquired 13,919 7,675
------------------------------------------------------------------------
------------------------------------------------------------------------

Of the goodwill, $18,413,000 (2003 - $3,816,000) is non-deductible for
income tax purposes.

3. PROPERTY AND EQUIPMENT

2004 2003
--------------------- ---------------------
Accumulated Accumulated
Cost depreciation Cost depreciation
(in thousands of dollars) $ $ $ $
------------------------------------------------------------------------

Engineering equipment 33,622 19,058 27,261 12,257
Business information
systems 9,681 1,796 7,223 328
Office equipment 19,953 7,519 17,654 6,017
Automotive equipment 4,254 2,578 3,406 1,850
Leasehold improvements 11,994 2,031 6,570 1,386
Buildings 1,901 594 27,191 1,553
Land 433 - 1,756 -
------------------------------------------------------------------------
81,838 33,576 91,061 23,391
------------------------------------------------------------------------
Net book value 48,262 67,670
------------------------------------------------------------------------
------------------------------------------------------------------------


In 2004 the Company completed the sale of its Edmonton office building
(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 has been deferred and will be amortized
over the lease term (note 9).

Included in buildings is construction work in progress in the amount of
$89,000 (2003 - $8,942,000) on which depreciation has not started.



4. GOODWILL

2004 2003
(in thousands of dollars) $ $
------------------------------------------------------------------------
Goodwill, beginning of year 69,696 72,423
Current year acquisitions 18,006 5,047
Additional purchase price payments - 925
Other purchase price adjustments 419 (2,124)
Impact of foreign exchange on goodwill balances (3,427) (6,575)
------------------------------------------------------------------------
Goodwill, end of year 84,694 69,696
------------------------------------------------------------------------
------------------------------------------------------------------------

5. INTANGIBLE ASSETS

2004 2003
----------------------- -----------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount amortization Amount amortization
(in thousands of dollars) $ $ $ $
------------------------------------------------------------------------
Client relationships 6,859 1,195 5,626 691
Contract backlog 339 290 905 901
Other intangible assets 750 185 266 93
------------------------------------------------------------------------
7,948 1,670 6,797 1,685
------------------------------------------------------------------------
Carrying amount 6,278 5,112
------------------------------------------------------------------------
------------------------------------------------------------------------

Once an intangible asset is fully amortized, the gross carrying amount
and the related accumulated amortization are removed from the accounts.

6. OTHER ASSETS

2004 2003
(in thousands of dollars) $ $
------------------------------------------------------------------------

Investments held for self-insured liabilities 9,562 -
Investment in associated companies 1,909 1,844
Investments - other 1,114 1,137
------------------------------------------------------------------------
12,585 2,981
Less current portion of investments held for
self-insured liabilities 4,831 -
------------------------------------------------------------------------
7,754 2,981
------------------------------------------------------------------------
------------------------------------------------------------------------


The investments held for self-insured liabilities consist of government
and corporate bonds of $8,740,000 and equity securities of $822,000. The
bonds bear interest at rates ranging from 3.5 to 8.6% per annum. The
estimated fair value of the bonds at December 31, 2004, is $8,761,000
and of the equities is $839,000. The term to maturity of the bond
portfolio is $1,580,000 due within one year and $7,160,000 due from one
to five years.

7. BANK INDEBTEDNESS

The Company has a revolving credit facility in the amount of $30 million
to support general business operations. The facility matures on July 30,
2005, subject to extension by the parties for a 364-day period.
Depending on the form under which the credit facility is accessed, rates
of interest will vary between Canadian prime, US base rate, LIBOR rate
plus 75 basis points, or bankers acceptance rates plus 75 basis points.
At December 31, 2004, none of this facility was accessed (December 31,
2003 - $8,300,000 was utilized). The credit facility agreement contains
restrictive covenants, including, but not limited to, debt to earnings
ratio, earnings to debt service ratio, current assets to current
liabilities ratio and a minimum shareholders' equity. The Company is in
compliance with all covenants under this agreement as at December 31,
2004. All assets of the Company are held as collateral under a general
security agreement for the bank indebtedness and bank loan (note 8).

Included in bank indebtedness at December 31, 2003 was $6,930,000
related to an interim loan obtained to finance the construction of the
Edmonton office building. Interest, calculated daily at Canadian prime
plus 0.25% (2003 - 4.75%), was payable monthly. The loan was supported
by a general security agreement and a second mortgage. It was repaid
during 2004 upon the sale of the Edmonton office building.



8. LONG-TERM DEBT

2004 2003
(in thousands of dollars) $ $
------------------------------------------------------------------------

Non-interest bearing note payable 111 102
Other non-interest bearing notes payable 7,862 14,436
Bank loan 23,997 19,186
Mortgages payable 1,765 10,609
Other 240 242
------------------------------------------------------------------------
33,975 44,575
Less current portion 12,820 13,416
------------------------------------------------------------------------
21,155 31,159
------------------------------------------------------------------------
------------------------------------------------------------------------


The non-interest bearing note payable is due November 1, 2027 in the
amount of $933,000. The note's carrying value of $111,000 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, 2004, the
fair value of the note would be $124,000 (2003 - $124,000).

The carrying values of the other non-interest bearing notes payable have
been calculated using a weighted average rate of interest of 5.80% and
are supported by promissory notes. The notes are due at various times
from 2005 to 2007. The aggregate maturity value of the notes is
$8,336,000 (2003 - $15,132,000). $47,000 (2003 - $206,000) of the notes'
carrying value is payable in US funds (US $39,000; 2003 - US $158,000).
The carrying value of these notes approximates their fair value based on
interest rates in effect at December 31, 2004.

The bank loan is due in equal quarterly principal payments of
US$1,562,000 (or Canadian-dollar equivalent) plus accrued interest to
October 1, 2008, and bears interest at LIBOR or bankers acceptance rates
plus 125 to 165 basis points. The actual rate is dependent upon certain
ratio calculations determined on a quarterly basis. The interest rate
applicable at December 31, 2004, was 3.47% (2003 - 3.71%). $21,997,000
(2003 - $5,186,000) of the bank loan is denominated in US dollars (US
$18,300,000; 2003 - US $4,000,000). Collateral and restrictive covenants
for the bank loan are described in note 7. The Company also maintains a
$17 million US dollar denominated acquisition credit facility, which was
unutilized at December 31, 2004 and 2003.

The mortgages payable bear interest at a weighted average rate of 7.67%,
are due in 2006, and are supported by first mortgages against land and
buildings. Monthly payments of principal and interest are approximately
$16,000.

Other long-term debt bears interest at a weighted average rate of 5.84%
and is due at dates ranging from 2005 to 2007. No assets are pledged in
support of this debt.

Principal repayments required on long-term debt in each of the next five
years and thereafter are as follows:



(in thousands of dollars) $
--------------------------------------------------
2005 12,820
2006 10,968
2007 8,617
2008 1,459
2009 -
Thereafter 111
--------------------------------------------------
33,975
--------------------------------------------------
--------------------------------------------------


In 2004 net interest of $2,805,000 (2003 - $2,637,000) was incurred.
$2,219,000 (2003 - $2,681,000) was incurred on the long-term debt. At
December 31, 2004, the Company had issued and outstanding letters of
credit totaling $1,702,000.



9. OTHER LIABILITIES

2004 2003
(in thousands of dollars) $ $
------------------------------------------------------------------------

Provision for self-insured liabilities 5,236 2,410
Deferred gain on sale leaseback 7,073 -
Lease inducement benefits 4,742 1,902
Lease liabilities on exit activity 2,817 -
------------------------------------------------------------------------
19,868 4,312
Less current portion included in
accrued liabilities 3,050 2,853
------------------------------------------------------------------------
16,818 1,459
------------------------------------------------------------------------
------------------------------------------------------------------------


Effective August 1, 2003, the Company began self-insuring a portion of
its estimated liabilities which may arise in connection with reported
legal claims (note 11). This provision is based on the results of an
actuarial review performed in 2004 with the current and long-term
portion determined based on the actuarial estimate provided. At December
31, 2004, the long-term portion was $4,731,000.

Accrued charges of $0.9 million for lease liabilities arising from
downsizing or closing offices in existing operations were incurred in
2004 with an additional $3.5 million assumed in respect of acquisitions
made during the year. Payments of $1.4 million were made in 2004. The
impact of foreign currency changes on this accrual was a reduction of
$0.2 million.



10. COMMITMENTS

Commitments for annual basic premises rent under long-term leases and
for equipment and vehicle operating leases for the next five years are
as follows:

(in thousands of dollars) $
--------------------------------------------------
2005 29,509
2006 26,551
2007 23,750
2008 17,952
2009 16,259
Thereafter 93,645
--------------------------------------------------
207,666
--------------------------------------------------
--------------------------------------------------


11. CONTINGENCIES

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, and the Company's previous experience with the settlement of
similar claims, 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.



12. SHARE CAPITAL

Authorized
Unlimited Common shares, with no par value
Unlimited Preferred shares issuable in series with attributes
designated by the Board of Directors


Common shares issued and outstanding

Contributed
Capital Stock Surplus
-------------------------------------- ---------------
2004 2003 2004 2003
------------------ ------------------- ------- -------
(in thousands # of # of
of dollars) shares $ shares $ $ $
------------------------------------------------------------------------
Balance,
beginning
of the year 18,327,284 84,281 18,282,720 83,973 1,842 1,247
Share options
exercised for
cash 573,101 3,490 119,264 651
Shares
repurchased
under normal
course issuer
bid (29,300) (134) (74,700) (343) (4) (5)
Reclassification
of fair value
of stock options
previously
expensed 19 (19)
Stock-based
compensation
expense 725 600
------------------------------------------------------------------------
Balance, end
of the year 18,871,085 87,656 18,327,284 84,281 2,544 1,842
------------------------------------------------------------------------


During 2004, 29,300 common shares (2003 - 74,700) were repurchased for
cancellation pursuant to an ongoing normal course issuer bid at a cost
of $720,000 (2003 - $1,392,000). Of this amount, $134,000 (2003 -
$343,000) and $4,000 (2003 - $5,000) reduced the share capital and
contributed surplus accounts respectively, with $582,000 (2003 -
$1,044,000) being charged to retained earnings.

During 2004, the Company recognized a stock-based compensation expense
of $1,014,000 (2003 - $706,000) in administrative and marketing
expenses. The amount relating to the fair value of options granted
($725,000; 2003 - $600,000) was reflected through contributed surplus,
and the amount relating to deferred share unit compensation ($289,000;
2003 - $106,000) was reflected through accrued liabilities, $120,000 of
which was paid during 2004. 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.

Share options

Under the Company's share option plan, options to purchase common shares
may be granted by the Board of Directors to directors, 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 five 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 1,116,073 common shares. At December 31, 2004,
44,740 options are available for issue.

The Company has granted share options to directors, officers, and
employees to purchase 1,071,333 shares at prices between $3.50 and
$27.10 per share. These options expire on dates between March 12, 2005,
and January 2, 2013.



2004 2003
----------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
# of Price # of Price
Shares $ Shares $
------------------------------------------------------------------------
Share options,
beginning
of the year 1,479,100 9.28 1,296,200 6.09
Granted 167,000 24.50 307,500 21.29
Exercised (573,101) 6.09 (119,264) 5.46
Cancelled (1,666) 18.40 (5,336) 12.62
------------------------------------------------------------------------
Share options, end
of the year 1,071,333 13.34 1,479,100 9.28
------------------------------------------------------------------------
------------------------------------------------------------------------

The Company has issued options to directors, officers, and employees at
December 31, 2004, as follows:

Options Outstanding Options Exercisable
------------------------------------------------------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Life in Exercise Shares Exercise
Prices Outstanding Years Price Exercisable Price
$ # $ # $
------------------------------------------------------------------------

3.50 - 3.60 373,000 1.8 3.56 373,000 3.56
5.20 - 7.00 108,100 1.1 6.07 108,100 6.07
14.50 - 18.85 176,733 7.6 15.51 107,822 14.95

21.00 - 27.10 413,500 6.8 23.14 52,167 21.00
------------------------------------------------------------------------
3.50 - 27.10 1,071,333 4.2 13.34 641,089 7.32
------------------------------------------------------------------------
------------------------------------------------------------------------


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 stock price volatility. Because the Company's employee stock
options have characteristics that are significantly different from those
of traded options, and because changes in subjective input assumptions
can materially affect the fair value estimate, in management's opinion
the existing models do not necessarily provide a reliable single measure
of the fair value of the Company's employee stock options.

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 following weighted average
assumptions:



2004 2003
------------- --------------------------
Granted
Granted Granted in excess
at market at market of market
------------- --------------------------
Risk-free interest rate (%) 4.07 4.48 5.04
Expected hold period to
exercise (years) 6.0 6.2 9.1
Volatility in the price of
the Company's shares (%) 26.1 27.4 28.5
Dividend yield 0.0 0.0 0.0
Weighted average fair
value per option 8.46 7.40 6.04


13. CUMULATIVE TRANSLATION ACCOUNT

The foreign currency cumulative translation account represents the
unrealized gain or loss on the Company's net investment in
self-sustaining US based operations. The change in the cumulative
translation account during the year relates to the fluctuation in the
value of the Canadian dollar relative to the US dollar. Balance sheet
accounts denominated in US dollars have been translated to Canadian
dollars at the rate of 1.2020 (2003 - 1.2965).

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:



2004 2003
% %
------------------------------------------------------------------------
Income tax expense at statutory Canadian rates 34.7 36.8
Increase (decrease) resulting from:
Loss (income) from associated companies accounted
for on the equity basis (0.3) (0.6)
Rate differential on foreign income (2.0) 0.6
Non-deductible expenses:
Meals and entertainment 1.4 1.4
Stock compensation 0.6 0.6
Non-taxable foreign income net of non-creditable
withholding taxes (1.3) (1.6)
Other (0.7) (0.5)
------------------------------------------------------------------------
32.4 36.7
------------------------------------------------------------------------
------------------------------------------------------------------------

Significant components of the Company's future
income tax assets and liabilities are as follows:

2004 2003
(in thousands of dollars) $ $
------------------------------------------------------------------------

Future income tax assets
Differences in timing of deductibility of expenses 9,434 6,060
Loss carryforwards 2,316 2,051
Share issue and other financing costs 237 431
Tax cost of property and equipment in excess
of carrying value 684 645
Deferred gain on sale of building 1,518 -
Other 700 224
------------------------------------------------------------------------
14,889 9,411
Less current portion 8,532 5,924
------------------------------------------------------------------------
6,357 3,487
------------------------------------------------------------------------
------------------------------------------------------------------------


2004 2003
(in thousands of dollars) $ $
------------------------------------------------------------------------

Future income tax liabilities
Cash to accrual adjustments on acquisition of US
subsidiaries 2,091 508
Differences in timing of taxability of revenues 7,702 9,955
Carrying value of property and equipment in
excess of tax cost 5,025 2,970
Carrying value of intangible assets in excess of
tax cost 2,016 1,996
Other 2,135 1,755
------------------------------------------------------------------------
18,969 17,184
Less current portion 10,653 10,802
------------------------------------------------------------------------
8,316 6,382
------------------------------------------------------------------------
------------------------------------------------------------------------


At December 31, 2004, loss carryforwards of approximately $3,516,000
are available to reduce the taxable income of certain Canadian
subsidiaries. These losses expire as set out below:


(in thousands of dollars) $
------------------------------------------------------------------------

2006 22
2007 325
2008 1,454
2009 66
2010 636
2014 1,013
------------------------------------------------------------------------
3,516
------------------------------------------------------------------------
------------------------------------------------------------------------


In addition, the Company has loss carryforwards of approximately
$3,795,000 available to reduce the taxable income of certain US
subsidiaries 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 financial
statements.



15. EARNINGS PER SHARE

The number of basic and diluted common shares outstanding, as calculated
on a weighted average basis, is as follows:

2004 2003
# #
------------------------------------------------------------------------

Basic shares outstanding 18,499,598 18,329,960
Share options (dilutive effect of 1,041,333
options; 2003 - 1,419,100) 507,691 788,056
------------------------------------------------------------------------
Diluted shares outstanding 19,007,289 19,118,016
------------------------------------------------------------------------
------------------------------------------------------------------------

16. CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES

Cash flows from operating activities determined by the indirect method
are as follows:

2004 2003
(in thousands of dollars) $ $
------------------------------------------------------------------------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the year 30,190 25,070
Add (deduct) items not affecting cash:
Depreciation of property and equipment 11,986 9,912
Amortization of intangible assets 927 925
Future income tax (3,595) 4,508
Loss on dispositions of investments and
property and equipment (504) 57
Stock-based compensation expense 894 706
Share of income from equity investments (385) (580)
Dividends from equity investments 300
------------------------------------------------------------------------
39,813 40,598
------------------------------------------------------------------------
Change in non-cash working capital accounts:
Accounts receivable (1,542) (1,252)
Costs and estimated earnings in excess
of billings 30,218 (35,239)
Prepaid expenses 496 113
Accounts payable and accrued liabilities (4,589) 13,944
Billings in excess of costs and estimated
earnings 1,600 4,951
Income taxes payable/recoverable 11,355 (6,222)
------------------------------------------------------------------------
37,538 (23,705)
------------------------------------------------------------------------
Cash flows from operating activities 77,351 16,893
------------------------------------------------------------------------
------------------------------------------------------------------------

17. JOINT VENTURES

The Company participates in joint ventures with other parties as
follows:

Percentage Owned
2004 2003
% %
------------------------------------------------------------------------
yyC.T. Joint Venture 20 20
Stantec - S&L Partnership 50 50
Colt Stantec Joint Venture 50 50
Edmonton International Airports Joint Venture 33 33
Pine Creek Consultants Joint Venture 33 33
Dunlop Joint Ventures 33-80 n/a
------------------------------------------------------------------------


As part of the acquisition of Dunlop Architects Inc. (Dunlop), the
Company acquired the interests of 13 joint ventures entered into by
Dunlop. The interest held in these joint ventures ranges from 33 to 80%,
and each is project specific.

A summary of the assets, liabilities, revenues, expenses, and cash flows
included in the consolidated financial statements related to joint
ventures is as follows:



Statements of income: 2004 2003
(in thousands of dollars) $ $
------------------------------------------------------------------------
Gross revenue 1,186 11,949
Subconsultant and other direct expenses 894 9,611
Administrative and marketing expenses 217 776
------------------------------------------------------------------------
Net income for the year 75 1,562
------------------------------------------------------------------------
------------------------------------------------------------------------

Balance sheets:
Current assets 3,445 1,547
------------------------------------------------------------------------
------------------------------------------------------------------------

Current liabilities 2,822 1,583
------------------------------------------------------------------------
------------------------------------------------------------------------

Statements of cash flows:
Cash flows used in operating activities (274) (86)
------------------------------------------------------------------------
------------------------------------------------------------------------


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 that 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 (CEO) of the Company.

During 2003, the Company had seven operating segments, of which five
were aggregated into the Consulting Services reportable segment. The two
remaining operating segments (Design Build and Technology), which were
below the quantitative thresholds in the recommendations of the Canadian
Institute of Chartered Accountants, were disclosed in the Other
reportable segment. In addition to the above-noted operating segments,
corporate administration groups reported to the CEO and were included in
the Other reportable segment. In the second quarter of 2004, an
additional operating segment was added upon the acquisition of The
Sear-Brown Group, Inc. This new segment has been aggregated into the
Consulting Services reportable segment.

The Design Build operating segment consisted of the operations of the
Company's 50% share of Lockerbie Stanley Inc. that, at December 31,
2003, was reflected as assets held for sale pending the finalization of
an agreement to sell the Company's interest. The sale was completed in
2004. In addition, during 2004, the Company sold the operations related
to its Technology segment. Operations sold during the year have not been
presented as discontinued operations, because the amounts are not
material.

Effective 2004, because the operations that comprised the Company's
Design Build and Technology segments were sold and because the Company's
corporate administration groups are not material, all operations of the
Company are included in one reportable segment as Consulting Services.



Geographic information

2004 2003
----------------------- -----------------------
Property and Property and
Gross Equipment, Gross Equipment,
Revenues Goodwill, Revenues Goodwill,
Intangible Intangible
(in thousands Assets Assets
of dollars) $ $ $ $
------------------------------------------------------------------------

Canada 325,844 86,731 290,413 104,088
United States 190,362 52,032 161,655 37,815
International 4,673 471 7,874 575
------------------------------------------------------------------------
520,879 139,234 459,942 142,478
------------------------------------------------------------------------
------------------------------------------------------------------------


Gross revenue is attributed to countries based on the location of work
performed.

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.

19. FORWARD CONTRACTS

At December 31, 2004, the Company had entered into foreign currency
forward contracts that are not accounted for as hedges. These
arrangements provided for the sale of US$10.0 million at rates ranging
from 1.2050 to 1.2386 per US dollar. The fair values of these contracts,
estimated using market rates at December 31, 2004, are $229,000 (2003 -
nil). During the year, net unrealized gains of $229,000 (2003 - nil)
relating to derivative financial instruments were recorded in foreign
exchanges (gains) losses.

20. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform to the
presentation adopted for the current year.


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Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    Stantec
    Jay Averill
    Media & Communications
    (780) 917-7441
    or
    Stantec
    Simon Stelfox
    Investor Relations
    (780) 917-7288
    www.stantec.com