Management's Discussion and Analysis

This Management’s Discussion and Analysis of Stantec Inc.’s operations and cash flows for the quarter ended September 30, 2006, should be read in conjunction with our Company’s unaudited interim consolidated financial statements and related notes for the quarter ended September 30, 2006, the Management’s Discussion and Analysis and audited consolidated financial statements and related notes included in our 2005 Annual Report, and the Report to Shareholders contained in our 2006 Third Quarter Report. Unless otherwise indicated, all amounts shown below are in Canadian dollars. We continue to use the same accounting policies and methods as those used in 2005. Additional information regarding our Company, including our Annual Information Form, is available on SEDAR at www.sedar.com. Such additional information is not incorporated by reference herein and should not be deemed to be made part of this Management’s Discussion and Analysis.

During the second quarter of 2006, our shareholders approved the subdivision of our common shares on a two-for-one basis. All references to common shares, per share amounts, and stock-based compensation plans in this Management’s Discussion and Analysis have been restated to reflect the stock split on a retroactive basis.

Statements of this type are contained in this report, including the discussion of our goal in the Visions, Core Business, and Strategy section and of our annual targets and expectations for our practice areas in the Results and Outlook sections, and may be contained in filings with security regulators or in other communications. Forward-looking statements may involve, but are not limited to, comments with respect to our objectives for 2006 and beyond, our strategies or future actions, our targets, our expectations for our financial condition or share price, or the results of or outlook for our operations or for the Canadian or 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 report 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 forward-looking statements.

Future outcomes relating to forward-looking statements may be influenced by many factors, including, but not limited to, global capital market activities; fluctuations in interest rates or currency values; our ability to execute our strategic plans or to complete or integrate acquisitions; critical accounting estimates; 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 or worldwide economic or political conditions; regulatory or statutory developments; the effects of competition in the geographic or business areas in which we operate; the actions of management; or technological changes.

We caution that the foregoing list is not exhaustive of all possible factors and that other factors could adversely affect our results. The Risk Factors section in our 2005 Annual Report provides additional information concerning key factors that could cause actual results to differ materially from those projected in our forward-looking statements. Investors and the public should carefully consider these factors, other uncertainties, and potential events as well as the inherent uncertainty of forward-looking statements when relying on these statements to make decisions with respect to our Company. The forward-looking statements contained herein represent our expectations as of October 27, 2006, and, accordingly, are subject to change after such date. Except as may be required by law, we do not undertake to update any forward-looking statement, whether written or verbal, that may be made from time to time.

Our Company provides professional consulting services in the fields of planning, engineering, architecture, interior design, landscape architecture, surveying and geomatics, environmental sciences, project management, and project economics for infrastructure and facilities projects. Through multidiscipline service delivery, we support clients throughout the project life cycle—from the initial conceptual planning to project completion and beyond. Our goal is to become a top 10 global design and consulting

services firm with $1 billion in annual revenue by the year 2008 while providing quality services that have a positive impact on our world. Our vision, core business, and strategy and the key performance drivers and capabilities required to meet our goals have not changed in Q3 06 from the description included in our 2005 Annual Report.


	Quarter ended Sep 30				Three quarters ended Sep 30
(In millions of Canadian dollars, except per share amounts)	2006	2005	Change $	Change %	2006	2005	Change $	Change %
Gross revenue	210.2	146.1	64.1	43.9%	604.3	437.4	166.9	38.2%
Net revenue	182.0	125.9	56.1	44.6%	527.3	372.7	154.6	41.5%
Net income	16.5	12.8	3.7	27.9%	44.6	32.6	12.0	36.5%
Earnings per share - basic (note)	0.36	0.33	0.03	9.1%	0.99	0.85	0.14	16.5%
Earnings per share - diluted (note)	0.36	0.32	0.04	12.5%	0.97	0.83	0.14	16.9%
Cash flows from operating activities	20.3	21.0	(0.7)	n/a	38.5	33.5	5.0	n/a
Cash flows used in investing activities	(3.6)	(91.4)	87.8	n/a	(11.8)	(102.7)	90.9	n/a
Cash flows from (used in) financing activities	(24.4)	73.8	98.2	n/a	(51.8)	66.2	(118.0)	n/a


Measure	2006 Expected Range	Performance to Q3 06
Debt to equity ratio (note 1)	At or below 0.5 to 1	0.10à
Return on equity (note 2)	At or above 14%	14.6%à
Net income as % of net revenue	At or above 5%	8.4%à
Gross margin as % of net revenue	Between 54 and 56%	56.5%P
Administrative and marketing expenses as % of net revenue	Between 40 and 42%	40.5%à
Effective income tax rate	Between 32 and 34%	34.2%Í

Under our Company’s share option plan and as part of our incentive program, our Board of Directors granted 471,000 stock options to various officers and employees in the Company. These options vest equally over a three-year period and have a contractual life of seven years from the grant date.

Our financial condition continues to remain strong as shareholders’ equity increased by $35.3 million year to date mainly due to year-to-date net income of $44.6 million, offset by a $10.3 million change in our cumulative translation account. The cumulative translation account represents an unrealized exchange loss on our investment in our self-sustaining US subsidiaries when translated into Canadian dollars. This amount increased year to date due to the strengthening Canadian dollar. Our total liabilities and total assets decreased by $60.7 million and $25.5 million, respectively, from December 31, 2005, due primarily to the reduction of our revolving credit facility by $49.4 million paid using existing cash and cash equivalents on hand at December 31, 2005, as well as cash generated from operations in 2006. The decline in total assets was also due to a $18.5 million decrease in restricted cash, which was used to fund acquisitions in 2006, the repayment of acquired debt, and the payment of promissory notes for acquisitions completed in prior years. The declines in cash and cash equivalents and restricted cash were offset by a net increase of $12.9 million in accounts receivable and in costs and estimated earnings in excess of billings due to the continued growth of our Company.


	Quarter ended Sep 30			Three quarters ended Sep 30
	% of Net Revenue		% Increase*	% of Net Revenue		% Increase*
	2006	2005	2006 vs. 2005	2006	2005	2006 vs. 2005
Gross revenue	115.5%	116.0%	43.9%	114.6%	117.4%	38.2%
Net revenue	100.0%	100.0%	44.6%	100.0%	100.0%	41.5%
Direct payroll costs	43.1%	43.3%	43.9%	43.5%	44.0%	40.0%
Gross margin	56.9%	56.7%	45.1%	56.5%	56.0%	42.7%
Administrative and marketing expenses	40.1%	38.4%	50.7%	40.5%	40.0%	43.3%
Depreciation of property and equipment	2.3%	2.5%	38.1%	2.2%	2.3%	29.6%
Amortization of intangible assets	0.8%	0.3%	278.0%	0.9%	0.2%	469.3%
Net interest expense	0.2%	0.2%	97.3%	0.3%	0.2%	230.4%
Share of (income) loss from associated companies	0.0%	0.0%	n/m	0.0%	0.0%	107.8%
Foreign exchange (gains) losses	0.1%	(0.3%)	(126.5%)	0.0%	(0.1%)	(93.7%)
Other income	(0.1%)	(0.1%)	40.0%	(0.2%)	(0.1%)	391.7%
Income before income taxes	13.5%	15.7%	24.1%	12.8%	13.5%	34.8%
Income taxes	4.5%	5.5%	17.0%	4.4%	4.7%	31.5%
Net income for the period	9.0%	10.2%	27.9%	8.4%	8.8%	36.5%

The following discussion outlines certain factors affecting the results of our operations for the third quarter of 2006 and for the first three quarters of 2006 and should be read in conjunction with our unaudited consolidated financial statements for the quarter ended September 30, 2006.

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.


Gross Revenue	Quarter ended Sep 30			Three quarters ended Sep 30
(In millions of Canadian dollars)		2006 vs. 2005			2006 vs. 2005
Increase (decrease) due to:
Acquisition growth		51.3			153.4
Net internal growth		16.3			25.3
Impact of foreign exchange rates on revenue earned by foreign subsidiaries		(3.5	)		(11.8	)
Total increase in gross revenue		64.1			166.9


Net Revenue	Quarter ended Sep 30			Three quarters ended Sep 30
(In millions of Canadian dollars)		2006 vs. 2005			2006 vs. 2005
Increase (decrease) due to:
Acquisition growth		46.4			138.8
Net internal growth		12.7			25.9
Impact of foreign exchange rates on revenue earned by foreign subsidiaries		(3.0	)		(10.1	)
Total increase in net revenue		56.1			154.6

The net increase in gross revenue was $64.1 million for Q3 06 over Q3 05 due to growth of $51.3 million from acquisitions and of $16.3 million from internal growth, offset by an impact of foreign exchange rates on revenue earned by foreign subsidiaries of $3.5 million.

The large increase in gross and net revenue from acquisitions in the quarter-over-quarter comparison was due to the revenue earned in Q3 06 attributed to the CPV Group Architects & Engineers Ltd. (CPV), The Keith Companies, Inc. (Keith), and the Keen Engineering Co. Ltd. (Keen) acquisitions, which occurred during the third and fourth quarters of 2005, and to the Carinci Burt Rogers Engineering, Inc., Dufresne-Henry, Inc., and ACEx Technologies, Inc. acquisitions, which were completed in the first half of 2006.


(In millions of Canadian dollars)	Quarter ended Sep 30						Three quarters ended Sep 30
Practice Area Gross Revenue	2006		2005		Change		2006		2005		Change
Buildings		46.3		32.8		13.5		137.3		104.9		32.4
Environment		38.6		23.5		15.1		106.9		73.1		33.8
Industrial & Project Management		24.7		16.2		8.5		67.2		49.7		17.5
Transportation		29.1		22.3		6.8		81.1		67.1		14.0
Urban Land		71.5		51.3		20.2		211.8		142.6		69.2
Total		210.2		146.1		64.1		604.3		437.4		166.9


(In millions of Canadian dollars)	Quarter ended Sep 30						Three quarters ended Sep 30
Practice Area Gross Revenue	Total Change		Change Due to Acquisitions		Change Due to Net Internal Growth and Foreign Exchange		Total Change		Change Due to Acquisitions		Change Due to Net Internal Growth and Foreign Exchange
Buildings		13.5		12.5		1.0		32.4		36.9		(4.5	)
Environment		15.1		11.2		3.9		33.8		28.1		5.7
Industrial & Project Management		8.5		3.0		5.5		17.5		8.6		8.9
Transportation		6.8		4.4		2.4		14.0		7.4		6.6
Urban Land		20.2		20.2		0.0		69.2		72.4		(3.2	)
Total		64.1		51.3		12.8		166.9		153.4		13.5

All of our practice areas generate a portion of their gross revenue in the United States. The value of the Canadian dollar averaged US$0.89 in Q3 06 compared to US$0.83 in Q3 05, representing an appreciation of 7.2%. Year to date, the value of the Canadian dollar averaged US$0.88 compared to US$0.82 in 2005. This strengthening of the

Gross revenue for the Buildings practice area grew by 41.2% in Q3 06 compared to Q3 05 and by 30.9% year to date in 2006 compared to 2005. Of the $32.4 million increase year to date, $25.1 million was due to revenue earned from the buildings practice acquired from the Keen acquisition, and $6.4 million was due to revenue earned from the buildings practice acquired from the CPV acquisition. In Q3 06 our Architecture group continued to secure larger projects and to experience higher project volumes. In particular, the Buildings practice area continued to be very active in western Canada, resulting in a strong backlog. For example, during the quarter this practice area secured a multimillion-dollar contract to provide mechanical, electrical, and civil engineering services for the development of an acute care hospital facility—the Legacy project—in Vancouver, British Columbia. To assist in meeting increased demand, the Buildings practice area has made use of work-sharing initiatives across the Company.

Gross revenue for the Environment practice area increased by 64.3% in Q3 06 compared to Q3 05 and by 46.2% year to date in 2006 compared to 2005. In 2005 the Environment practice area focused on improving the operational effectiveness of underperforming operations. During the last half of 2004, certain of our operations in the Environment practice area were curtailed through staff reductions, resulting in a decrease in the level of revenue generated in 2005. This strategic realignment enhanced the Environment practice area’s ability to improve its year-to-date gross revenue and gross margin (58.1% in 2006 versus 56.3% in 2005). Year to date, $20.9 million of gross revenue was generated from the environment practice acquired from the Keith

acquisition, and $7.2 million of gross revenue was generated from the environment practice acquired from the Dufresne-Henry, Inc. acquisition. The Environment practice area has remained strong because of larger projects and higher labor utilization rates. For example, during Q3 06 the practice area secured a contract to design the Whistler advanced wastewater treatment plant near the site of the 2010 Winter Olympics in British Columbia.

Gross revenue for the Industrial & Project Management practice area grew by 52.5% in Q3 06 compared to Q3 05 and by 35.2% year to date in 2006 compared to 2005. Of the $17.5 million increase year to date, $8.1 million was due to revenue earned from the industrial and project management practice acquired from the Keith acquisition. The increase in internal growth was primarily due to securing projects in the oil sands sector in western Canada. The Industrial & Project Management practice area has been positioning itself to capture the support facilities and infrastructure segment related to the energy and resources sector and projects in the power telecommunications sector. For example, the practice area is in the process of completing a multimillion-dollar contract to provide services for the Fort Hills Oil Sands project in northern Alberta. Due to competition for qualified staff, especially in western Canada, this practice area is also exploring new strategies for attracting additional labor resources.

Gross revenue for the Transportation practice area increased by 30.5% in Q3 06 compared to Q3 05 and by 20.9% year to date in 2006 compared to 2005. Of the $14.0 million increase year to date, $6.1 million was due to revenue earned from the transportation portion of the Dufresne-Henry, Inc. acquisition. Opportunities in the United States are increasing due to the implementation of the new six-year, US$286.4 billion

Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users signed on August 10, 2005. This legislation has increased the funds available for transportation projects, which is starting to translate into contracts for our Company, increasing our backlog in the United States. A portion of this increase is from the New York State Thruway Authority for contracts such as the Interstate 90 Buffalo project. The outlook for our Transportation practice area in Canada remains strong.

Gross revenue for the Urban Land practice area grew by 39.4% in Q3 06 compared to Q3 05 and by 48.5% year to date in 2006 compared to 2005. Of the $69.2 million increase year to date, $70.3 million was due to revenue earned from the urban land practice acquired from the Keith acquisition, and $2.1 million was due to revenue earned from the urban land practice acquired from the Dufresne-Henry, Inc. acquisition. These acquisitions have increased our presence in the urban land market in the United States. Our urban land services are offered primarily in Alberta, southern Ontario, California, Arizona, Nevada, Utah, and Colorado. Most of these regions are stable or experiencing moderate declines in housing starts. Due to our strong market position in these regions, we expect our performance to remain strong for the remainder of 2006.

For a definition of gross margin, refer to the Definition of Non-GAAP Measures section in our 2005 Annual Report. Gross margin as a percentage of net revenue was 56.9% in Q3 06 compared to 56.7% in Q3 05. Our year-to-date gross margin was 56.5% for 2006 compared to 56.0% for 2005. Overall, our year-to-date gross margin exceeds the anticipated range of 54 to 56% set out in our 2005 Annual Report. Improved markets


	Quarter ended Sep 30						Three quarters ended Sep 30
Practice Area Gross Margin	2006			2005			2006			2005
Buildings		57.9	%		58.9	%		56.0	%		56.1	%
Environment		58.6	%		56.7	%		58.1	%		56.3	%
Industrial & Project Management		49.9	%		50.3	%		50.4	%		49.9	%
Transportation		55.0	%		55.1	%		55.8	%		55.7	%
Urban Land		58.4	%		58.1	%		58.1	%		58.0	%

Our gross margin percentages were relatively stable, with a modest increase of 1.9% for the quarter and of 1.8% year to date in the Environment practice area. Because of the nature of our business model, which is based on diversifying our operations across geographic regions, practice areas, and all phases of the infrastructure and facilities project life cycle, there will continue to be fluctuations in the margins reported from quarter to quarter depending on the mix of projects in progress during any quarter.

Administrative and marketing expenses as a percentage of net revenue were 40.1% for Q3 06 compared to 38.4% for Q3 05. Year-to-date administrative and marketing expenses as a percentage of net revenue were 40.5% for 2006 compared to 40.0% for 2005 and were within our expected range of 40 to 42% for fiscal 2006. Quarter over quarter, the increase in these expenses was due to higher professional liability claims

costs accrued in Q3 06 than in Q3 05. Administrative and marketing expenses may also fluctuate from quarter to quarter as a result of the amount of non-billable staff time allocated to administration and marketing, which is influenced by the ratio of work carried out on proposals and other non-billable administrative and marketing activities during the period.

Depreciation of property and equipment as a percentage of net revenue decreased to 2.3% in Q3 06 from 2.5% in Q3 05 and to 2.2% from 2.3% on a year-to-date basis. Quarter over quarter, our depreciation expense dollars have remained relatively constant, resulting in a reduction as a percentage of an increasing net revenue base.

The timing of completed acquisitions, the size of acquisitions, and the type of intangible assets acquired impact the amount of amortization of intangible assets in a period. Client relationships and other intangible assets are amortized over estimated useful lives ranging from 10 to 15 years, whereas contract backlog is amortized over an estimated useful life of generally less than one and a half years. As a result, the impact of amortization of contract backlog can be significant in the two to six quarters following an acquisition. The table below summarizes the amortization of identifiable intangible assets for the third quarter of 2006 and 2005 and on a year-to-date basis for 2006 and 2005:


(in thousands of Canadian dollars)	Quarter ended Sep 30				Three quarters ended Sep 30
	2006		2005		2006		2005
Amortization of client relationships		609		180		1,809		466
Amortization of backlog		930		195		2,848		245
Other		60		48		176		138
Total amortization of intangible assets		1,599		423		4,833		849

An increase of $1.2 million in Q3 06 and of $4.0 million year to date compared to the same periods last year was mainly due to the intangible assets acquired from the Keith acquisition on September 15, 2005, and from the Keen acquisition in the fourth quarter of 2005. Of the $4.8 million amortized year to date, $3.0 million related to backlog and client relationships acquired in the Keith acquisition. Of Keith’s total contract backlog, we identified $4.0 million as an intangible asset upon acquisition. Of this $4.0 million, $1.2 million remains to be amortized over the next five months.

The increase of $213,000 in net interest expense in Q3 06 compared to Q3 05 and of $1,265,000 on a year-to-date basis compared to 2005 was a result of our long-term debt position throughout the first two quarters of 2006 being higher than in the same period in 2005. During Q3 05, we accessed our revolving credit facility to finance the Keith acquisition, and in the last two quarters, we began repaying the credit facility using cash generated from operations in 2006 and existing cash and cash equivalents. Depending on the form under which the credit facility is accessed and certain financial covenant calculations, rates of interest may vary among Canadian prime, US base rate, or LIBOR or bankers acceptance rates plus 65 or 85 basis points. Our average interest rate increased 1.02% to 5.36% at September 30, 2006, compared to 4.34% at December 31,

During Q3 06, we recorded a foreign exchange loss of $99,000 compared to a $373,000 gain in Q3 05. On a year-to-date basis, we recorded a foreign exchange gain of $20,000 in 2006 compared to a $319,000 gain in 2005. The foreign exchange gains and losses reported arose on the translation of the foreign-currency-denominated assets and liabilities held in our Canadian companies and in our non-US-based foreign subsidiaries. We minimize our exposure to foreign exchange fluctuations by matching US-dollar assets with US-dollar liabilities and, when appropriate, by entering into forward contracts to buy or sell US dollars in exchange for Canadian dollars. In Q4 05 we borrowed US dollars to complete the Keith acquisition. We did not enter into any forward contracts in the first three quarters of 2006. The exchange rate in effect at the end of Q3 06 was US$0.89 compared to US$0.86 at the end of 2005.

Our effective income tax rate for the first three quarters of 2006 was 34.2% compared to 35.0% for the year ended December 31, 2005. During the year, the Quebec government enacted Bill 15, legislation that retroactively eliminated the benefit of certain financing trust arrangements. As a result of this legislative change, we recorded an additional $1.0 million of income tax expense in Q2 06 related to 2005. We continue to adjust our income tax rate quarterly, based on changes in statutory rates in the jurisdictions in which we operate as well as on our estimated earnings in each of these jurisdictions. We expect that our effective tax rate by the end of the year will be in the range of 32 to 34%.

The following table sets forth selected data derived from our consolidated financial statements for each of the eight most recently completed quarters. This information should be read in conjunction with the applicable interim unaudited and annual audited consolidated financial statements and related notes thereto.

Quarterly Unaudited Financial Information (In millions of Canadian dollars, except per share amounts)

	Dec 31, 2005		Mar 31, 2006		Jun 30, 2006		Sep 30, 2006
Gross revenue		180.6		185.3		208.8		210.2
Net revenue		151.9		163.1		182.2		182.0
Net income		8.0		11.4		16.7		16.5
EPS - basic		0.18		0.25		0.37		0.36
EPS - diluted		0.17		0.25		0.36		0.36


	Dec 31, 2004		Mar 31, 2005		Jun 30, 2005		Sep 30, 2005
Gross revenue		127.0		141.1		150.2		146.1
Net revenue		107.1		119.1		127.7		125.9
Net income		9.6		6.7		13.1		12.8
EPS - basic		0.26		0.18		0.34		0.33
EPS - diluted		0.25		0.17		0.34		0.32
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, since we do not include in dilution options whose exercise price is not in the money.


(In millions of Canadian dollars)	Q3 06 vs. Q3 05			Q2 06 vs. Q2 05			Q1 06 vs. Q1 05			Q4 05 vs. Q4 04
Increase (decrease) in gross revenue due to:
Acquisition growth		51.3			55.3			46.8			40.8
Net internal growth		16.3			8.5			0.5			14.4
Impact of foreign exchange rates on revenue earned by foreign subsidiaries		(3.5	)		(5.2	)		(3.1	)		(1.6	)
Total increase in gross revenue		64.1			58.6			44.2			53.6

During Q4 05, our gross revenue grew $53.6 million, or 42.2%, compared to Q4 04. Approximately $40.8 million of this increase resulted from acquisitions completed in 2003, 2004, and 2005. Net income decreased by $1.6 million during Q4 05 compared to the same period in 2004 partially due to the $1.0 million in additional professional liability claims expense based on an independent actuarial report completed in Q4 05. Net income was also affected by an increase of $1.8 million in the amortization of intangible assets over Q4 04 arising on the three acquisitions completed in 2005. The weighted average number of shares in the Company outstanding during Q4 05 was 44,615,200 (including the 6,657,552 shares issued as part of the Keith acquisition) compared to 37,064,170 shares outstanding during Q4 04. The combined impact of these items reduced our reported earnings per share by $0.16. As well, costs were incurred during the integration of the acquired entities in Q4 05, since we added approximately 1,000 staff to our Company from the Keith and Keen acquisitions.

During Q1 06, our gross revenue grew $44.2 million, or 31.3%, compared to Q1 05. Approximately $46.8 million of this increase was a result of the CPV, Keith, and Keen acquisitions, which occurred in the last half of 2005. With the integration of project work for over 1,000 employees into our operations from these acquisitions, net income

During Q2 06, our gross revenue grew by $58.6 million, or 39.1%, compared to Q2 05. Approximately $55.3 million of this increase was a result of the three acquisitions completed in the last half of 2005 and of the Carinci Burt Rogers Engineering, Inc., Dufresne-Henry, Inc., and ACEx Technologies, Inc. acquisitions completed in the first half of 2006. Net income increased by $3.6 million in Q2 06 compared to the same period in 2005, and earnings per share increased by $0.03 compared to the same period last year. Net income and earnings per share would have increased $7.6 million and $0.10, respectively, had it not been for a $4.0 million positive adjustment made in Q2 05 related to management’s revised estimate of provision for doubtful accounts receivable. That revised estimate was based on improved information on historical loss experience that became available to us through the use of our enterprise management system.


(In millions of Canadian dollars, except ratios)	Sep 30, 2006			Dec 31, 2005			% Change
Current assets		248.2			280.4			(11.5	%)
Current liabilities		(139.0	)		(157.8	)		(11.9	%)
Working capital		109.2			122.6			(10.9	%)
Current ratio		1.79			1.78			n/a


(In millions of Canadian dollars)	Quarter ended Sep 30									Three quarters ended Sep 30
	2006			2005			$ Change			2006			2005			$ Change
Cash flows from operating activities		20.3			21.0			(0.7	)		38.5			33.5			5.0
Cash flows used in investing activities		(3.6	)		(91.4	)		87.8			(11.8	)		(102.7	)		90.9
Cash flows from (used in) financing activities		(24.4	)		73.8			98.2			(51.8	)		66.2			(118.0	)

Our liquidity needs can be met through a variety of sources, including cash generated from operations, borrowings from our $160 million credit facility, and the issuance of common shares. We also have access to restricted cash, which can be used to finance future acquisitions, future capital expenditures, the repayment of debt acquired in acquisitions, and the payment of promissory notes for completed acquisitions. Our primary use of funds is for paying operational expenses, completing acquisitions, and sustaining capital spending on property and equipment. We continue to manage according to the management guidelines established in our 2005 Annual Report of maintaining a debt to equity ratio of less than 0.5 to 1.

Our working capital (current assets less current liabilities) at the end of Q3 06 was $109.2 million compared to $122.6 million at December 31, 2005. During this period, current assets decreased by $32.2 million, and current liabilities decreased by $18.8 million. The decrease in current assets from December 31, 2005, was primarily due to a decline of $25.4 million in our cash and cash equivalents. As well, current assets

decreased due to a decline of $18.5 million in restricted cash, which was used to fund acquisitions in 2006, the repayment of acquired debt, and the payment of promissory notes for acquisitions completed in prior years. Accounts payable and accrued liabilities decreased from December 31, 2005, primarily due to the timing of payments to suppliers and employees. The decrease in working capital during the first three quarters of 2006 was offset by a $10.4 million addition of non-cash working capital from acquisitions completed during the year and from the finalization of purchase price allocations and the payment of additional contingent consideration in connection with acquisitions completed in prior years.

Our cash flows from operating activities decreased by $0.7 million in Q3 06 compared to the same period in 2005 and increased by $5.0 million year to date compared to the first three quarters of 2005. The decline quarter over quarter was due to an increase of $4.9 million in income taxes paid. The year-to-date increase was mainly due to an increase of $9.0 million in cash receipts from clients less cash paid to suppliers and employees when comparing 2006 to 2005. Our cash flows for the quarter and year-to-date were also positively affected by an increase in revenue generated by the acquisitions that were integrated in the latter half of 2005 and in the first three quarters of 2006.

Our cash flows used in investing activities decreased by $87.8 million in Q3 06 compared to the same period in 2005 and by $90.9 million year to date compared to the first three quarters of 2005. Year to date, we used $12.1 million for the acquisition of Carinci Burt Rogers Engineering, Inc., Dufresne-Henry, Inc., and ACEx Technologies,

Inc. versus $87.4 million for acquisition activity in 2005, of which $86.7 million was used for the CPV and Keith acquisitions. The use of cash and cash equivalents for acquisitions in 2006 is offset by a drawdown of restricted cash that we acquired in connection with the Keith acquisition to be used for future acquisition purposes.

As a professional services organization, we are not capital intensive. Expenditures are made primarily for property and equipment, including such items as computer equipment and business information systems software, furniture, leasehold improvements, and other office and field equipment. Our capital expenditures increased to $3.7 million in Q3 06 from $2.5 million in Q3 05 and to $14.6 million year to date compared to $10.6 million in 2005. Our Q3 06 expenditures were within the expected range for 2006 to support ongoing operational activity and growth. During Q3 06, our capital expenditures were financed by cash flows from operations.

Our cash flows used in financing activities rose by $98.2 million in Q3 06 compared to the same period in 2005 and by $118.0 million year to date compared to the first three quarters of 2005. In Q3 06 we repaid $26.3 million of our revolving credit facility versus borrowing $95.9 million in Q3 05 for acquisition purposes, in particular the Keith acquisition. The positive cash flows generated from operations during the quarter provided the cash flow to reduce our credit facility balance. At September 30, 2006, we had $127.4 million available under our $160 million credit facility for future activities.

Share options exercised during the first three quarters of 2006 generated cash of $1,489,000 compared to $810,000 for the same period in 2005. During the first three quarters of 2006, we repurchased 51,600 (2005 - 13,600) shares for cancellation pursuant to an ongoing normal course issuer bid at a cost of $1,016,000 compared to $195,000 in 2005.

As at September 30, 2006, there were 45,076,781 common shares and 1,832,788 share options outstanding. During the period of September 30, 2006, to October 27, 2006, no shares were repurchased under our normal course issuer bid; no shares were issued on the vesting of restricted shares; no new share options were issued; and 7,002 share options were exercised. As at October 27, 2006, there were 45,083,783 common shares and 1,825,786 share purchase options outstanding.

As part of our continuing operations, we enter into long-term contractual arrangements from time to time due mainly to our long-term debt and operating lease commitments. During the first three quarters ended September 30, 2006, the only material change made to the contractual obligations reported in our 2005 Annual Report was the assumption of approximately $1.2 million annually in operating lease obligations in connection with the acquisition of Carinci Burt Rogers Engineering, Inc., Dufresne-Henry, Inc., and ACEx Technologies, Inc. As well, we repaid $49.4 million on our revolving credit facility during the first three quarters of 2006.

As at September 30, 2006, our only significant off-balance sheet financial arrangements related to letters of credit in the amount of $1.0 million (December 31, 2005-$1.1 million) that expire at various dates before September 2007. These letters of credit were issued in the normal course of operations, including the guarantee of certain office rental obligations.

We are exposed to various market factors that can affect our performance with respect to currency and interest rates. For the first three quarters of 2006, there has been no significant change in our market risks from those described in our 2005 Annual Report.

The outlook for the remainder of 2006 continues to be positive since we operate in a highly diverse infrastructure and facilities market in North America. Results may fluctuate from quarter to quarter depending on variables such as project mix, economic factors, and integration activities from acquisitions. For the first three quarters of 2006, there have been no significant changes in our industry environment or market opportunities, and our expectations remain consistent with those described in the Outlook section of the Management’s Discussion and Analysis included in our 2005 Annual Report except for a moderate slowdown in housing starts in some of the regions in which we operate, including Arizona, Nevada, Utah, Colorado, and California. Due to our strong market position in these regions, we expect our performance to remain strong for the remainder of 2006.