Stantec Inc (STN) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the 2008 third-quarter earnings release conference call. At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded. Today is October 30, 2008.

It is now my pleasure to introduce your host, Mr. Franceschini. Please go ahead.

Thank you Marcus and good afternoon everyone and welcome to our 2008 third-quarter conference call. Today we are somewhat a little more challenged logistically than normally since I am in Toronto and Don Wilson, our CFO, is on the line from Edmonton. I also have Dan Lefaivre with me here in Toronto.

As is our practice, we will comment on our results and the general outlook for our markets and then we will be happy to address individual questions. Before we begin, I would like to make you aware of our safe Harbor statement. I would like to caution you that our discussions this afternoon will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 in the US and applicable securities legislation in Canada.

By their very nature, forward-looking statements require us to make assumptions and subject to inherent risks and uncertainties which give rise to the possibility that our estimates, projections, expectations or conclusions will not prove to be accurate, that our assumptions may not be correct and that actual results may differ materially from those discussed in these statements. Additional information about assumptions and material factors that were applied or could cause actual results to differ materially from those discussed in this conference call can be found in the outlook and risk factors sections of the management's discussion and analysis included in our 2007 financial review and in the caution regarding forward-looking statements in our 2008 third-quarter report.

I would also like to advise you that this conference call is being broadcast live over the Internet and will be archived for future reference at Stantec.com under the investors section. Therefore, we ask any members of the media who are joining us today in a listen-only mode and wish to quote anyone other than Don or me to please request permission to do so from the individual concerned.

This morning we released the results of Stantec's operations for the third quarter of 2008. Operating performance for the quarter reached a new record prior to a write-down of intangibles and goodwill due to a significant drop in our share price and current market conditions. I want to address this issue first.

During the quarter, we conducted our annual goodwill and intangible impairment test. The recent fluctuations in the market and in particular in our stock price have increased uncertainties with respect to future overall economic conditions. Under GAAP, we are required to take these factors into account in the valuation of our goodwill. Therefore step one of our goodwill impairment test indicated that a potential impairment to goodwill may exist in our US reporting units.

We are now in the process of performing step two of the impairment test in which we determine the fair value of goodwill in the same manner as if we had acquired the reporting units. Based on a preliminary step to analysis, we recorded a CAD53 million potential impairment to goodwill. Due to uncertainty and changes in expected financial results or other underlying assumptions, these estimates are subject to measurement uncertainty. Again as required under GAAP, we will complete a more comprehensive assessment of fair value in the fourth quarter and record any adjustments to our estimate at December 31, 2008. This non-cash charge decreased our diluted earnings per share by CAD1.16.

During the quarter, we also recorded a CAD5.4 million impairment charge to income based on the results of our annual impairment review of intangible assets. The review concluded that intangible assets relating to certain client relationships acquired as part of The Keith Companies Inc. transaction were not fully recoverable. This non-cash charge decreased our diluted earnings per share by CAD0.05. The goodwill and intangible impairment charges are not cash in nature and do not affect our liquidity, cash flows from operating activities or debt covenants or impact future operations.

Excluding the impact of the CAD58.4 million goodwill and intangible impairment charges, our financial results for the quarter reached a record level with cash flows from operating activities of CAD54.6 million. Our net income for the third quarter of 2008 would have been CAD25.1 million or CAD64.1 million on a year-to-date basis with diluted earnings per share of CAD0.55 for the quarter or CAD1.39 year to date.

Our results for the quarter were as follows, gross revenue increased 47.7% to CAD347.6 million compared to CAD235.3 million for the same period in 2007. Net revenue increased 39.7% to CAD289.2 million compared to CAD207 million. Reported net loss was CAD30 million compared to net income of CAD17.4 million. Diluted earnings per share were a loss of CAD0.66 in the third quarter compared to diluted earnings per share of CAD0.38 in 2007.

Results for year-to-date 2008 are as follows. Gross revenue increased 41.1% to CAD982.7 million compared to CAD696.3 million over the first nine months of 2007. Net revenue increased 35.5% to CAD833.1 million compared to CAD615 million. Reported net income was CAD9 million compared to CAD50.3 million for the first nine months of 2007. And finally, diluted earnings per share were CAD0.20 compared to CAD1.09 for the same period in 2007.

Our record operating performance during the third quarter is a reflection of our ability to adapt to changing market conditions as well as continuing validation of the strength of our business model. Because the model is based on diversifying our work in different geographic regions and practice areas with a good balance between public and private sector clients, it generally enables us to offset decreased demand for services in one area by increased demand for services in another area. We believe that our business model and operating philosophy are particularly well-suited to challenging periods in our business environment. In addition, our focus on operating effectively and efficiently and managing our AR and WIP assets has helped us improve our operations.

I also want to highlight two other important and significant activities in the quarter. On July 2, we acquired Macintosh Engineering, adding over 200 employees who provide us with a much more visible presence in the mining sector particularly in the areas of nickel and copper as well as diamonds, gold and potash. This acquisition also provides us with an expanded international presence since over 50% of the mining work is done outside of North America.

During the third quarter as provided for in our revolving credit facility agreement, we increased our credit facility limit to CAD300 million from CAD250 million and extended the maturity date to August 31, 2011 while maintaining the same pricing terms and conditions. In addition, we entered into a US CAD100 million interest-rate swap agreement that has the effect of converting the variable interest obligation associated with $100 million of the credit facility into a fixed interest rate of 3.43% plus an applicable basis point spread until September 3, 2010. This increased facility provides us flexibility with respect to continuing to pursue strategic acquisition opportunities.

I now want to take a brief look at our business today and why we believe that we are well positioned to continue to mitigate risk through our business model. For the third quarter which is the most representative of our current revenue run rate, our gross revenue mix in our five practice areas is environment 29%; buildings 20%; industrial 19%; and Urban Land 19%, and transportation 13%. As you can see, this is a well balanced mix and it is changing as we adapt to changing market conditions and services demand.

Our organic growth in particular is also excellent with very positive growth in four of our practice areas. Specifically for the third quarter excluding foreign exchange impacts which were minimal, organic growth rates were 23% for buildings; 13% for industrial; 11% for environment; and 5% for transportation.

As we have indicated previously, our Urban Land practice has been impacted by the slowdown of the US housing market and therefore we recorded a negative growth rate of 19%. And since in Q3 '07 Urban Land represented a more significant component of our revenues, this impacts our overall organic growth rate which was a more modest 3.8%. However, I believe that when taken in this context, our organic growth rates are excellent.

There is a similar pattern on a year-to-date basis with an overall organic growth rate of 3% prior to foreign exchange impacts and zero, just slightly over zero after the impact of foreign exchange. These trends bode well for future performance as Urban Land accounts for a decreasing percentage of our revenue.

Our geographic mix is also well balanced with approximately 50% of our fees generated in Canada and 50% generated in the US and our international revenues are now increasing to slightly above 1%.

Of course any business model is only as good as the company's ability to execute. Our ability to execute is entirely dependent on our employees so I again want to thank them for their passion and dedication to their work and to executing our projects. Our focus on operating effectively and efficiently and managing our AR and WIP assets has helped us improve our operations. I would like to highlight that once again our administrative and marketing expenses as a percentage of net revenue have declined from 41.1% in Q3 '07 to 39.2%.

I would now like to highlight some of our new project awards to further illustrate the growing diversity of our services and clients. In the buildings area, we continue to secure major projects in our three principal sectors, healthcare, airports and higher education. For example, we are providing integrated architecture, engineering and sustainability consulting services for the development of a series of new subacute care hospitals at state correctional facilities in California. With the first facility scheduled for completion in 2011, the projects are targeted to achieve at minimum LEED Silver certification.

In Edmonton Alberta, we are prime consultant providing architectural design and structural mechanical and electrical engineering for a new terminal -- or for a terminal building expansion at Edmonton International Airports. The four-year project will target LEED certification at a level to be determined. And we are designing phase one of a new science and technology center and an expansion of the center for continuous learning at Mount Royal College in Calgary, Alberta. These projects are pursuing LEED Silver and LEED Gold ratings respectively.

In the environment area, we continue to generate work in environmental remediation. For example, we are designing a subgrade barrier wall to limit groundwater contamination in the event of an accidental release of fuel at Honolulu International Airport in Hawaii. The project also involves the assessment and recovery of a previous fuel release near the airport uphill from the Ke'ehi Lagoon off the Pacific Ocean.

Project awards in the environmental infrastructure sector include an assignment to complete sewer system evaluation surveys in four neighborhoods in Toledo, Ohio as part of the Toledo waterways initiative. The evaluations will involve smoke and die testing, inspection of over 1300 manholes and catch basins, and conceptual design.

We are also providing project management and engineering design services for the commissioning and replacing one existing wastewater treatment plant as well as upgrading another existing plant at an oil sand site in northern Alberta. The new plant will use ceramic membrane technology the first to do so in Canada and incorporate ultraviolet disinfection and non-chlorine-based residual disinfection to allow the treated wastewater to be recycled.

In the industrial practice area, we continue to provide engineering services to Total E&P Canada in support of infrastructure development for the Athabasca bitumen processing facility and northern Alberta. The most recent assignment includes the design of systems for water supply and disposal, sulfur and propane load out and coke handily. We are also designing an administration building, maintenance shop, fire hall, control building, laboratory, warehouse and three operation shelters for the site.

In the transportation area, we are performing biannual and interim inspections of 500 bridges with 3250 bridge spans across New York City and for the New York State Department of Transportation. The 500 structures include viaducts and overpasses over major arterial highways such as the Long Island Expressway, local street bridges over railroads and railroad yards and major crossings over waterways.

In addition, the New Jersey Department of Transportation selected our transportation team to complete the final design of roadway improvements along Route 46 and Route 3 including four interchanges, five new bridges a bridge superstructure replacement, 29 retaining walls, four noise barriers, three new roundabouts, traffic signals and major utility relocations.

In Red Deer Alberta, we are providing preliminary and detailed design along with construction management services for the North Highway connector project which will form part of the city's new Ring road. And we are providing engineering services for runway safety improvements and rehabilitation at airports in Fredericton New Brunswick, Claremont New Hampshire and Holten, Dexter and Greenville, Maine.

Finally, project awards in Urban Land area reflect our increased focus on the nonresidential segment of the market where we currently generate approximately 40% of our business. This component has been increasing steadily over the past year from about 30% at the beginning of the year. For example, we are providing engineering services for streetscape improvement plants spanning 5 miles, about 8 kilometers, of a central corridor in North Charleston, South Carolina. The project will involve relocating all overhead power lines as well as developing landscape median, new asphalt lanes, curbs and gutters, storm drainage, sidewalks, crosswalks, signage, lighting, landscaping, irrigation, and site furnishing.

We are also designing the third phase about 21 blocks of a streetscape project in downtown Newark, New Jersey, complementing our work on the first and second phases. The design elements will include granite curbing and median planters, decorative lighting and traffic signals and other ornamental features. This is only a very small sample of the projects we are working on.

As you can see, they represent a wide variety of clients and sectors and we believe that these are the types of projects that are well funded, that are necessary for maintaining an effective infrastructure and that are less likely to be impacted during economic downturns. It is also projects like these that give us our passion for what we do and motivate our staff to excel. Most important, they provide diversity and risk mitigation for our company.

I will now briefly address our outlook for our practice areas. The outlook for the buildings practice area remains stable for the balance of 2008 because the majority of our business, about 75% or so, is in Canada. The public sector in Alberta, British Columbia and Ontario, our three biggest markets, is trending toward public private partnerships or PIIIs and Stantec is well-positioned to secure these projects because of our experience, expertise and growing reputation.

Having established the top tier architecture in buildings engineering practice in Canada, going forward we expect to focus on enhancing this practice in the United States.

The outlook for environment is also stable for the rest of 2008. Our backlog is at historically high levels and we continue to cultivate our reputation in the environmental market by developing our expertise in water and wastewater engineering which accounts for a little over 50% of our business as well as geotechnical engineering, wet weather programs, environmental review and permitting and environmental remediation.

The outlook for industrial practice area is also positive for Q4 since the majority of our work is in Canada and we expect to continue to benefit from opportunity in the oil and gas industry even with fluctuating oil prices. We expect to see improving opportunities in some other areas as well including biopharmaceuticals and the life sciences industries.

Currently the outlook for the transportation practice area remains stable for the remainder of 2008. However, future funding for transportation projects especially roadways in our principal markets is somewhat uncertain due to a possible decrease in revenue from our public sector clients from sources such as gas and sales taxes and potential difficulty in obtaining interim financing through municipal bonds. These issues may result in some project deferrals.

The outlook for Urban Land is for a further decline for the balance of 2008 but at a reduced rate. This practice area continues to be impacted by a decline in housing starts in the US particularly California and to a lesser degree in Canada. In response to these market conditions, we have further reduced our staff levels in the third quarter while securing more projects in nonresidential areas such as the municipal energy and utility sectors. As indicated previously, the nonresidential work now accounts for about 40% of our business in the Urban Land area.

We are also taking advantage of work sharing opportunities by using US-based staff to complete projects in Canada and to work in other practice areas within the United States. A specific example is the design of a waterfront park in Kelowna British Columbia which is bringing together staff from several different disciplines and offices in the US.

In summary, on an overall basis the outlook for our company is positive for the balance of the 2008.

And on one final note, I would like to acknowledge the many contributions that Don Wilson has made since joining Stantec in 1990. He was CFO when we completed our initial public offering on the TSX in 1994 and when we listed on the NYSE in 2005. Since our IPO in 1994, he has successfully arranged over CAD600 million in equity issues and debt facilities. And during his 18 years at Stantec, we have grown from CAD65 million in revenue to over CAD1 billion today and completed more than 65 acquisitions.

But what stands out most has been Don's passion for developing strong teams and for full, clear and transparent financial reporting. So thank you Don for your hard work and dedication.

This concludes our comments for today. Don and I are now available to answer any questions you may have. The conference call operator, Marcus, will explain the question procedure.

Thank you. (Operator Instructions) Anthony Zicha, Scotia Capital.

Good afternoon, gentlemen. Tony, you mentioned given the market and credit conditions, what do you expect in terms of growth for next year? You mentioned Q4 but we would like to see if you can give us some color about '09 if you still feel that Stantec still can grow with the 15%?

Well, I think that given the available credit facilities that we have, we certainly have room for one pretty sizable acquisition or several that would add up to certainly a 12% to 15% growth. And we can certainly on the organic side, our expectation now is that if we are near the bottom in terms of Urban Land, that the other at least three of our practice areas are growing at high single digits to a low double digits. And that is 70% or so of our business is in a good organic growth area and about 30% is not.

So at this point from everything that we know, quite honestly there is no reason we can't continue the growth rates that we have established in the past. The only subject is the ability to find that right or more than one strategic acquisition that would fulfill the acquisition growth component.

Tony, still continuing on that subject. You mentioned on Urban Land like that it's then a drag on the earnings and you mentioned in the previous quarter that you cut back on your California staff by 50%. How much more cuts do you still anticipate or are we pretty much at the bottom of those cuts?

Well, I think every time -- the last two quarters we think we said we are getting near the bottom and the rate of decline has been decreasing. So when you look at -- I'm just looking I have my numbers here in terms of total staff reductions. It has certainly been declining and the overall for the year when we look at the US West has been roughly 45% from the beginning -- really since the start of 2007. So -- and that is still pretty close to what it was last month or last quarter I mean.

So I think from our perspective, yes, there has been some additional but more reductions in the third quarter. There may be some additional and more modest reductions in the fourth but then we think we are pretty well there.

Thanks, I will get back in queue.

Richard Stoneman, Dundee Securities.

Good afternoon, Tony, Don. Question on currency, could you give us some idea how a 10% change in the currency between the US dollar and the Canadian dollar would affect your earnings?

Don, can -- are you going to answer that?

Richard, we have disclosed I think a calculation of the impact of a change in the currency on revenues but we haven't broken down the impact of currency changes on income or on earnings because we don't break it down our earnings by Canada and US.

I understand that, Don. But a lot of companies provide a sensitivity to the various currencies they have an exposure to. The number that -- I sort of try and find is earnings. Revenues have moved by 10%, would the earnings move by 10% on a 10% shift in currency?

Not necessarily. And again, it depends on the direction that the earnings are going in a particular country as well. But that is why I say we haven't disclosed the breakdown of earnings by geography. All we have disclosed is the impact on the revenue by geography. So at this point, that is all that we can work with.

Thank you.

Sarah Hughes, Cormark Securities.

Hi, Tony, just a question on the Urban Land, did you see positive or negative growth in Canada this quarter?

This quarter, you know -- just a second I can actually help you with that. Let me just see here. It's too close to call. It is pretty close. It is pretty well neutral this last quarter.

And how has Canada trended over the last few quarters on the Urban Land side?

In total, if you look since the beginning of the year, we have had basically a 1% reduction in staff.

In Canada.

In Canada.

Okay.

So that is like nine people or so, so it is not -- like I said, it's pretty well neutral for the year.

And then just quickly, the SG&A, we see it at 39% this quarter obviously coming in below your guidance target. I was wondering will you look to readjust that target of 41.5% to 43.5%?

Well, that is a good question because we've done a pretty good job this year. Our goal is to continue on that target. But we will -- as we get to the end of the year and we see what is going on, we will adjust it and review it. But clearly, we have got now a little bit better, more sustainable, more than one quarter of keeping the SG&A cost below the targets that we had at the beginning of the year. There is a -- as the accountants would say, a more likely than not probability.

Okay, great. Thank you.

Vahan Ajamian, TD Newcrest.

Hi, Tony. I was wondering if I could get a breakdown of the split between Canada and the US for Urban Land and for transportation? And specifically for transportation, you mentioned some possible funding issues. Wondering what jurisdictions in particular would that be?

Let me deal with transportation first. The split is roughly 60% US, 40% Canada. And our biggest single market is New York and New York State, New York City in the US and then it's kind of like spread out through a number of nine or 10 different states. But the single biggest market for transportation in the US is New York City and New York State and then Canada, it is Alberta and Ontario. And the other split was for Urban Land?

Yes.

Between Canada and the US?

Correct.

It is still roughly -- it is now just between 50% and 55% Canada and 45% -- it is probably closer to 55% Canada, 45% US now.

I see. And I guess New York is one of the main places where you are seeing a potential shortfall in transportation funding?

Like I said, we are giving you a general statement that that is where the funding comes from. So the problem with some of the general statements is that those things may happen. To date we haven't seen it happen in New York but if you look ahead, that is the kinds of things they depend on to get some of the funding.

So the market may become a little smaller. Does that mean that we can't secure as much work as we have right now? Not necessarily. It just means we have to try harder to get that share. So if you assign us the same reduction as the market as a whole, then I think we are going to be a little more challenged in terms of organic growth in the transportation sector in the US next year.

Okay, thank you very much.

John Rogers, D.A. Davidson.

Good afternoon. Tony, first of all, did you say what backlog was?

We have it there. Don, do you have it handy there?

Just checking for that. That is published here somewhere. Our total backlog at the end of Q3 of this year is CADCAD978 million.

I guess with the change in currencies, the pretty sharp swing we have seen over the last couple of weeks and months, are you looking at moving work around at all and is there some work that you might have been doing in Canada for work in the US where you are going to get caught at all by the currency?

John, it's Tony. We always look to work share and to move work around. But quite honestly currency is not the principal indicator for us. A more important indicator is the utilization of the staff. And we are happy to use our US staff in Canada if it means keeping the staff and keeping the utilization up because we can't always match a Canadian lower-priced Canadian staff to the specific project.

So we look at our staff resources as being literally currency neutral and we really don't use that as an indicator or criteria for trying to decide where to assign work. It is more the utilization of the individual staff because it is much harder to replace the experience and the expertise than it is to -- our staff are not fungible like dollars. They have expertise and training and everything else and that is much more important that in the whole scheme of things currency is not the key criteria. (multiple speakers)

I understand that but I guess what I'm as wondering is given the sharp sudden swing.

Yes, no, it's too short term anyway for what we do. And we don't -- I guess the simple answer is no, we are not looking at it.

Okay. In terms of the market prospects especially as it relates to state and provincial funding, when you express some caution there. But are you -- it sounds like you are not actually seeing any projects delayed at this point?

No, not yet.

Is that fair?

If you look at -- I know we don't report the backlog breakdown by practice areas but --

Feel free.

In transportation, it is about the same as it was at the end of the second quarter. So we haven't seen it yet but we are just giving a caution, that is all.

Okay, all right, great. Thank you.

Theoni Pilarinos, Raymond James.

I was just wondering if your asset impairment charges and your goodwill impairment charges affect your access to more capital going forward?

No.

Okay. Thank you.

Shubha Khan, Credit Suisse.

Thanks and good afternoon. I just had a question -- I had a follow-up question on the SG&A side. Now I understand SG&A is partly affected by staff utilization rates but you also mentioned in the release something about higher cost control during the quarter. Could you talk to specifically what expenses may have been lowered and roughly what type of magnitude the savings constituted?

We didn't necessarily reduce expenditures. We are basically controlling our costs better and that was the intent of the statement. The biggest areas that help in keeping your SG&A costs is one, some of the nonbillable time that staff has, ARs that are not collected and things like that. It is really managing things like where we had a bit of a direct cost reduction is we have been closing and disposing of some surplus offices that we had, office space that -- with particularly in the US East where because of some of the acquisitions we had done, we ended up with redundant office locations and that. And it just takes time to work through some of those either as leases come up or as we can sublet some of that space.

So we have made good progress there. We still have more progress to go because we basically I think have done maybe a handful of offices in the last quarter and there is probably still over the next 18 months another two dozen or so offices that we would consider for that as either leases come up or opportunities to sublease. So probably the biggest single item would be office consolidation.

Could you tell us roughly what the magnitude of the cost saving was from office consolidation?

No. But -- I don't have it handy because we again, it is a combination of things. But if you want we can try and come up and post some information on some -- a handful of cost savings that we have. But I think overall, it is just basically more efficient utilization of staff. These are just some specific items you asked on cost savings but it's not going to be material to that 2% difference between where we thought we would be and where we are.

Thank you.

Anthony Zicha, Scotia Capital.

Tony, with reference to the goodwill impairment, you mentioned in the release it was a function of several variables. Can you talk a bit more about this? Was it any particular acquisition or geographic regions or was it something more recent or older acquisitions?

In simple terms, the goodwill impairment component really -- remember we kind of said you have the two tests and first of all, it is the US. It's kind of both East and West so it is our US operations. If you know valuation is not an exact science and what happens is as part of our review, we have to take the step one test essentially says to compare the carrying value to the market cap. And with our stock being beaten up, the market cap goes down considerably and essentially the carrying value ends up being higher than the market cap on a pro rata basis in terms of the allocation.

So what happens is that then you go to the step two and then you are more like a discounted cash flow model and now you are into a number of assumptions in terms of what is going on and so forth. And that is why we said you have the more detail there. At the end of the day it comes down to being able to get our independent value weighters, our auditors and our internal people to agree on some assumptions.

And you put at the end of the day, you hope you get some agreement on the assumptions that you are using so that everybody is comfortable. But what happens is with the stock market being down and the economic conditions tend to be in general less favorable and everybody wants to use higher discount rates to account for at least perceived higher risk; and therefore, as you use higher rates you end up with lower values and you end up having to take an impairment.

So I think what happens it is a bit of an iterative process and we have provided what we believe to be the best estimate and we don't -- we fully expect it to be what we have provided and that is essentially it. It's a evaluation exercise that is fairly well prescribed. So even the words I used in my description were specific in terms of assumptions and what we do and so forth because that is the prescribed methodology to do it. At the end of the day, it is what it is.

It doesn't -- I mean it's interesting we probably had -- not probably -- we had the best quarter in our history. Things are going about as well as they are in the company and everything else, but because of external factors, you have to value some of your things that are on your balance sheet at a lower value. So it is really nothing more than that.

That would infer as well your acquisitions, then you would be seeing a significant decline in valuation metrics out there in the marketplace?

Not necessarily. That is the bazaar thing about all of this. It doesn't necessarily reflect what is happening in the marketplace. It reflects what the prescribed methodology and rules are. We are seeing some softening of the expectations on acquisitions but certainly not significant to the same extent as we are seeing -- what we kind of need to do with respect to some of these assessments. They are softening but certainly not a significant amount.

Okay, thank you very much, Tony.

Richard Stoneman, Dundee Securities.

Tony, your amortization of backlog at the current run rate, you'll have an expense of approximately CAD7 million this year for amortization of backlog. That will leave a balance of backlog left to amortize of CAD1 million. Is it fair to think that next year the amortization of backlog will be significantly lower than CAD7 million based on the current circumstances?

Yes. Whatever we add for any new acquisitions, but yes, that is that defined period and prescribed period of time. So once it is over, it is over.

And the CAD1 million that you will have left to advertise next year would that be over one quarter or two or three quarters?

One or two probably but Don, do you have that?

I don't have the breakdown of the backlog amortization by quarter in 2009 but I think it is fair to state, Richard, that we've indicated that backlog is typically amortized over 12 to 18 months after an acquisition. On each of the acquisitions, if you go to the acquisition note on each quarter, it breaks down the amount that we have added by acquisition and by classification as well.

So if you take a look at the acquisitions that we completed particularly during the last half of 2007 and so far in 2008, you will be able to determine what the backlog is and what it should be by quarter in 2009 as well.

Okay. But in a nutshell, a substantial reduction?

Absolutely. Failing any other major acquisitions between now and the beginning of 2009.

Thank you very much.

Vahan Ajamian, TD Newcrest.

Just wondering if I could get a little more granularity on the organic growth prospects for buildings environment and industrial? Just wondering if there is any key locations or lines of business that are contributing to the high organic growth?

It is kind of different in each area. I think in buildings it has been primarily -- as we talked about some of the projects that we are getting each quarter, we talk about some of the things that are there. There has really been mainly still strong healthcare practice, post secondary higher education. And then the odd specialist project like we talked about the Edmonton Airport this quarter. I think two quarters ago or three quarters ago, we talked about the Bahamas, the new airport in the Bahamas. We seem to get one kind of significant airport project per year and then a bunch of smaller ones in between.

We have good healthcare. We've got -- we just talked about in the US the prison system. It sounds like not the best healthcare client but actually one of the largest healthcare clients in California. I believe there is a program that was mandated by a judge that they have to spend multi-billion dollars to improve the delivery of healthcare in the prison system and the first project out of the gate is the one that we already got.

So it's those kinds of things in the buildings area primarily funded in healthcare, higher education which we see still fairly healthy funding available for those. What was the other practice area you wanted?

The other two, I guess environment and industrial, just some of the key drivers or locations.

Those are a lot more diversified. It is really difficult but industrial is mainly a Canadian business because it is about 70% in Canada. So there we have like four different areas. There's the oil and gas energy resource sector in Western Canada, there is the biopharmaceutical sector in the eastern US, the mining sector now is still quite healthy. We are seeing very good prospects in the mining area particularly when we combine the mining expertise with our program project manager and expertise which is also in the industrial sector.

So that is quite, again it is very diverse. There isn't one indicator and the same with environment. We have oil and gas, petroleum industry, we have water wastewater which is mainly public sector, we have environmental impacts and assessment, things like renewable energies and so forth. I think what these all lead to is if you look at Stantec right now, we probably are operating in well over 50 different sectors of the economy with each one having a different client group. And so many, many projects many, many clients and I think that is why you see quarter after quarter that we are able to perform because we have got some downs, some ups but for the most part, we have more ups than we have downs and that helps us with our performance.

Very helpful, thanks.

Shubha Khan, Credit Suisse.

Thanks. I just had a follow-up question on the goodwill impairment issue. You alluded to several factors or revisions to assumptions that led to this impairment. It appears that one of the issues is you are using a higher discount rate maybe because of an increased risk in the marketplace. But have there been downward revisions to your cash flow assumptions going forward? Are you expecting less revenue growth or margin pressure?

No.

No.

It's purely a factor of the way the process if there is -- it's external -- it's really not -- it's kind of hard to explain from our perspective but from our internal perspective, our own projections haven't changed materially but the external factors have. So to get people to take a look at what the valuation would look like, people will expect to see a higher risk. And whether we agree with it or not at the end of the day, it doesn't matter because you have to get to a conclusion to get everybody on site.

So I think the fundamental difference is that one external factor that people look at is well if the stock has done this much, then clearly the market isn't -- is rewarding us differently for that certain performance so there is inherently more risk in the value not necessarily in our business. And that is the way I look at it is that as the CEO, our company is as healthy as it has been but as you know, when you do a valuation it's a series of assumptions that need to be put in there and the biggest difference has been essentially the risk premium.

In that case, then you are still sticking by your 5% to 7% organic growth rate or mid to high single digit organic growth revenue rate going forward?

Yes, we said -- I think you said on a consolidated basis, it would have been close to 5% to 7% and that is again the only blemish in there this year was really the Urban Land area. So I think the reason we have broken it down for you is that you can -- you will have to make your own assumptions about what each of those areas are going to do. We think there is still going to be a negative growth in Urban Land but at a much decreased rate. But we fully expect to have a positive growth in three of our practice areas which account for 70%; that is an environment, buildings and industrial. And transportation is a little bit on the fence. So 30% of our business is flat to negative and 70% is positive. So we think that that will give us that 5% to 7% overall.

Great color, thanks.

There are no further questions at this time. I will turn things back over to you.

Thank you very much, Marcus. So I want to thank everyone again for joining us today and I certainly look forward to speaking with you again at the end of our fourth-quarter or year-end results for 2008. Thank you very much.

Ladies and gentlemen, this does conclude the conference call for today. We thank you for your participation. You may now disconnect your lines and have a great rest of the day.