EXHIBIT
3
 
 FIRSTSERVICE
CORPORATION
 Management’s
discussion and analysis of results of operations and financial condition for the
nine-month period ended December 31, 2008
 (in US
dollars)
 February
27, 2009
 
 The
following Management’s Discussion and Analysis of Results of Operations and
Financial Condition (“MD&A”) should be read together with the audited
consolidated financial statements and the accompanying notes (the “Consolidated
Financial Statements”) of FirstService Corporation (the “Company” or
“FirstService”) for the nine-month period ended December 31, 2008. The
Consolidated Financial Statements have been prepared in accordance with
generally accepted accounting principles in the United States (“GAAP”). All
financial information herein is presented in United States dollars.
 
 The
Company has prepared this MD&A with reference to National Instrument 51-102
– Continuous Disclosure Obligations of the Canadian Securities Administrators
(the "CSA"). Under the U.S./Canada Multijurisdictional Disclosure System, the
Company is permitted to prepare this MD&A in accordance with the disclosure
requirements of Canada, which requirements are different from those of the
United States. This MD&A provides information for the nine-month period
ended December 31, 2008 and up to and including February 27, 2009.
 
 Additional
information about the Company, including the Company’s Annual Information Form,
which is included in FirstService’s Annual Report on Form 40-F, can be found on
SEDAR at www.sedar.com and on the U.S. Securities and Exchange Commission (the
"SEC") website at www.sec.gov.
 
 In
May 2008, the Company changed its financial year-end from March 31 to December
31. A Notice of Change in Year-End was filed with regulators by the Company, a
copy of which can obtained at www.sedar.com.
 
 
 Consolidated
review
 The operating results for the
nine-month period ended December 31, 2008 from two of our three operating
segments were resilient, while our Commercial Real Estate Services segment was
affected by the global economic slowdown and credit
contraction.  Revenues for the nine-month period were $1.32 billion,
an increase of 12% over the same nine-month period one year ago primarily
attributable to recently completed acquisitions.  Our adjusted diluted
earnings per share from continuing operations1 were $1.09 for the
nine-month period, versus $1.48 in the comparable prior year period (GAAP -
$0.11 versus $1.17 in the comparable prior year period).
    1 Adjusted
diluted earnings per share from continuing operations is defined as diluted net
earnings per share from continuing operations plus the effect, after income
taxes, of: (i) amortization of intangible assets acquired in connection with
acquisitions; (ii) non-cash impairment loss on available-for-sale securities;
(iii) a non-recurring bonus paid to management upon the divestiture of the
Integrated Security division; (iv) stock-based compensation expense; and (v) a
cost containment charge.  The Company believes this measure is useful
because: (i) amortization expense is a non-cash charge that impacts the earnings
of acquisitive companies and reduces comparability with non-acquisitive
companies; (ii) it eliminates the effect of a non-cash impairment of securities;
(iii) the divesture bonus was a payment made in connection with a discontinued
operation; (iv) stock-based compensation expense is a non-cash charge that is
effectively double-counted, as the dilutive effects of stock options are
factored into the diluted share count; and (v) the charge to contain future
operating costs is non-recurring.  This is not a recognized measure of
financial performance under GAAP, and should not be considered as a substitute
for diluted net earnings per share from continuing operations, as determined in
accordance with GAAP. The Company’s method of calculating this measure may
differ from other issuers and, accordingly, this measure may not be comparable
to measures used by other issuers.  A reconciliation appears
below.
  
 We completed six business acquisitions
during the period.  The aggregate purchase price for these
acquisitions was $31.8 million, funded from cash on hand and borrowings on our
revolving credit facility.  The most significant acquisition occurred
on October 16, 2008 in our Commercial Real Estate Services segment, where we
acquired a 65% interest in Williams Real Estate (subsequently rebranded as
FirstService Williams Real Estate), a New York-based provider of brokerage,
management, consulting and advisory services.  We also acquired five
complementary regional operations, three in Commercial Real Estate, and one in
each of Residential Property Management and Property Services.
 
 On July 1, 2008, we completed our
divesture of the Integrated Security Services segment.  This
divestiture intensified our strategic focus on real estate services and provided
us with proceeds to fund our growth.  The sale proceeds were $155.0
million and a net after-tax gain of $69.7 million was recorded.  These
operations have been classified as discontinued operations for all periods
presented.
 
 In
December 2008, we decided sell our equity interest in our Chicago-based US
commercial mortgage brokerage and servicing operation (“USMB”) due to adverse
credit market conditions.  USMB was previously reported within the
Commercial Real Estate Services segment.  USMB is classified as held
for sale as of December 31, 2008 and, by reason of its being held for sale, its
operating results are reported as discontinued operations for all periods
presented.  We wrote our investment in USMB down to fair value less
cost to sell as of December 31, 2008, resulting in an after-tax net loss of
$11.0 million, also reported in discontinued operations.
 
 Results
of operations – nine-month period ended December 31, 2008
 FirstService reported revenues from
continuing operations of $1.32 billion for the nine-month period ended December
31, 2008, an increase of 12% relative to the comparable prior
period.  The increase was comprised of internal growth of 2%, impact
of acquisitions of 12% and a 2% decline as a result of foreign exchange, as the
US dollar appreciated against the local currencies at our global
operations.
 
 Operating earnings decreased 8%
relative to the comparable prior period, to $83.1 million, while EBITDA2 was up 1% to $124.4
million.  The gap between the operating earnings
  ______________________________________
  (in
      US$)
                                                  
                                                  Nine
      months ended
                                                    December
      31
                                                  
                                                  
                                                  Year
      ended March 312008
                                                  
                                                  
                                                  2007
                                                  
                                                  
                                                  2008
                                                  
                                                  
                                                  2007
                                                  
                                                  
                                                  2006Diluted
      net earnings per common share from continuing operations
                                                  
                                                  $
                                                  0.11
                                                  
                                                  
                                                  $
                                                  1.17
                                                  
                                                  
                                                  $
                                                  0.89
                                                  
                                                  
                                                  $
                                                  1.08
                                                  
                                                  
                                                  $
                                                  0.83Pro
      forma impact of dividends on preferred shares
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (0.12
                                                  )
                                                  
                                                  
                                                  (0.12
                                                  )
                                                  
                                                  
                                                  (0.35
                                                  )
                                                  
                                                  
                                                  (0.34
                                                  )Amortization,
      net of tax
                                                  
                                                  
                                                  0.25
                                                  
                                                  
                                                  
                                                  0.24
                                                  
                                                  
                                                  
                                                  0.33
                                                  
                                                  
                                                  
                                                  0.23
                                                  
                                                  
                                                  
                                                  0.20Impairment
      loss on available-for-sale securities, net of tax
                                                  
                                                  
                                                  0.41
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  0.09
                                                  
                                                  
                                                  
                                                  -Integrated
      Security division divestiture bonus, net of tax
                                                  
                                                  
                                                  0.12
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Stock-based
      compensation expense, net of tax
                                                  
                                                  
                                                  0.05
                                                  
                                                  
                                                  
                                                  0.19
                                                  
                                                  
                                                  
                                                  0.22
                                                  
                                                  
                                                  
                                                  0.12
                                                  
                                                  
                                                  
                                                  0.06Cost
      containment, net of tax
                                                  
                                                  
                                                  0.15
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Adjusted
      diluted net earnings per common share from continuing
      operations
                                                  
                                                  $
                                                  1.09
                                                  
                                                  
                                                  $
                                                  1.48
                                                  
                                                  
                                                  $
                                                  1.32
                                                  
                                                  
                                                  $
                                                  1.17
                                                  
                                                  
                                                  $
                                                  0.75
 2EBITDA
is defined as net earnings before minority interest share of earnings, income
taxes, interest, depreciation and amortization, stock-based compensation expense
and other non-cash or non-recurring expenses.  The Company uses EBITDA
to evaluate operating performance.  EBITDA is an integral part of the
Company’s planning and reporting systems.  Additionally, the Company
uses multiples of current and projected EBITDA in conjunction with discounted
cash flow models to determine its overall enterprise valuation and to evaluate
acquisition targets.  The Company believes EBITDA is a reasonable
measure of operating performance because of the low capital intensity of its
service operations.  The Company believes EBITDA is a financial metric
used by many investors to compare companies, especially in the services
industry, on the basis of operating results and the ability to incur and service
debt.  EBITDA is not a recognized measure of financial performance
under GAAP, and should not be considered as a substitute for operating earnings,
net earnings or cash flows from operating activities, as determined in
accordance with GAAP.  The Company’s method of calculating EBITDA may
differ from other issuers and, accordingly, EBITDA may not be comparable to
measures used by other issuers.  A reconciliation of net earnings from
continuing operations to EBITDA appears below.
  Page 2 of
17
 and
EBITDA performance relative to revenue growth is attributable to: (i) Property
Services margin declines, due to service mix; and (ii) Commercial Real Estate
Services brokerage transaction volume decreases.  The gap between
operating earnings and EBITDA is primarily the result of cost containment
charges incurred in our Commercial Real Estate operations during the nine months
ended December 31, 2008 and incremental depreciation resulting from capital
spending on Commercial Real Estate office renovations and information technology
during the past twelve months.
 
 Depreciation and amortization expense
was $31.7 million relative to $26.9 million in the comparable prior
period.  With regard to the recent Commercial Real Estate Services
acquisitions, we recorded a short-lived intangible asset relating to the backlog
of pending brokerage transactions that existed at the acquisition
dates.  The intangible is being amortized to coincide with the
expected completion dates of the underlying brokerage transactions over the next
twelve months.  As of December 31, 2008, the net book value of
unamortized backlog was $2.5 million.  The increase in depreciation
and amortization is the result of: (i) intangible assets recognized upon
acquisitions during the past two years; and (ii) increases in fixed assets
resulting from capital expenditures offset by (iii) a decrease in the amount of
backlog amortization as a result of lower acquisition activity during the past
twelve months.
 
 Interest expense decreased to $11.1
million from $11.8 million in the comparable prior period.  Our
weighted average interest rate decreased to 5.4% from 7.1% in the comparable
prior period.  The $2.9 million of interest income earned during the
period was attributable to cash on hand.
 
 Other income for the current period
includes distributions received on our investment in Resolve Business
Outsourcing Income Fund (“Resolve”) and earnings from investments accounted for
under the equity method in Commercial Real Estate Services.
 
 We hold an investment in 2.4 million
units of Resolve, representing a 7% stake.  In November 2008, Resolve
suspended the payment of its monthly distribution.  We determined that
as of September 30, 2008, and again at December 31, 2008, our investment in
Resolve was other-than-temporarily impaired and recorded an aggregate non-cash
impairment charge of $14.7 million during the period.
 
 In July 2008, we paid a $5.7 million
cash divestiture bonus to management in connection with the successful
completion of and substantial gain on the sale of the Integrated Security
division.  Although the divestiture bonus related to a discontinued
operation, under GAAP it was required to be reported in continuing
operations.
    (in
      thousands of US$)
                                                          
                                                          Nine
      months ended
                                                            December
      31
                                                          
                                                          
                                                          Year
      ended March 312008
                                                          
                                                          
                                                          2007
                                                          
                                                          
                                                          2008
                                                          
                                                          
                                                          2007
                                                          
                                                          
                                                          2006Net
      earnings from continuing operations
                                                          
                                                          $
                                                          11,508
                                                          
                                                          
                                                          $
                                                          42,354
                                                          
                                                          
                                                          $
                                                          35,474
                                                          
                                                          
                                                          $
                                                          34,963
                                                          
                                                          
                                                          $
                                                          26,757Minority
      interest
                                                          
                                                          
                                                          14,519
                                                          
                                                          
                                                          
                                                          16,112
                                                          
                                                          
                                                          
                                                          16,803
                                                          
                                                          
                                                          
                                                          15,282
                                                          
                                                          
                                                          
                                                          11,778Income
      taxes
                                                          
                                                          
                                                          30,878
                                                          
                                                          
                                                          
                                                          25,740
                                                          
                                                          
                                                          
                                                          17,108
                                                          
                                                          
                                                          
                                                          20,367
                                                          
                                                          
                                                          
                                                          16,084Other
      income, net
                                                          
                                                          
                                                          (2,422
                                                          )
                                                          
                                                          
                                                          (3,824
                                                          )
                                                          
                                                          
                                                          (4,650
                                                          )
                                                          
                                                          
                                                          (4,589
                                                          )
                                                          
                                                          
                                                          (3,766
                                                          )Interest
      expense, net
                                                          
                                                          
                                                          8,252
                                                          
                                                          
                                                          
                                                          9,543
                                                          
                                                          
                                                          
                                                          13,387
                                                          
                                                          
                                                          
                                                          7,843
                                                          
                                                          
                                                          
                                                          10,234Impairment
      loss on available-for-sale
                                                            securities
                                                          
                                                          
                                                          14,680
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          3,139
                                                          
                                                          
                                                          
                                                          -Integrated
      Security division divestiture bonus
                                                          
                                                          
                                                          5,715
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -Operating
      earnings
                                                          
                                                          
                                                          83,130
                                                          
                                                          
                                                          
                                                          89,925
                                                          
                                                          
                                                          
                                                          78,122
                                                          
                                                          
                                                          
                                                          77,005
                                                          
                                                          
                                                          
                                                          61,087Depreciation
      and amortization
                                                          
                                                          
                                                          31,746
                                                          
                                                          
                                                          
                                                          26,861
                                                          
                                                          
                                                          
                                                          37,673
                                                          
                                                          
                                                          
                                                          26,022
                                                          
                                                          
                                                          
                                                          20,921Stock-based
      compensation expense
                                                          
                                                          
                                                          2,551
                                                          
                                                          
                                                          
                                                          6,444
                                                          
                                                          
                                                          
                                                          7,819
                                                          
                                                          
                                                          
                                                          4,956
                                                          
                                                          
                                                          
                                                          2,311Cost
      containment
                                                          
                                                          
                                                          6,934
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -EBITDA
                                                          
                                                          $
                                                          124,361
                                                          
                                                          
                                                          $
                                                          123,230
                                                          
                                                          
                                                          $
                                                          123,614
                                                          
                                                          
                                                          $
                                                          107,983
                                                          
                                                          
                                                          $
                                                          84,319
  Page 3 of
17
 Our consolidated income tax rate for
the nine-month period ended December 31, 2008 was 54% versus 31% in the
comparable prior period.  The current period’s tax rate was higher
than expected due to the recognition of a valuation allowance on deferred tax
assets related primarily to operating loss carry-forwards.  The most
significant factor leading to the determination that a valuation allowance was
necessary is uncertainty in the near-term outlook for taxable income in our US
Commercial Real Estate operations.  The loss carry-forwards have a
statutory carry-forward period of 20 years.  Our tax rate for both
periods reflects the continuing benefit of cross-border financing structures
first implemented in fiscal 2000.
 
 Net earnings from continuing operations
were $11.5 million, relative to $42.3 million in the comparable prior period.
The majority of the decrease is attributable to the Resolve impairment loss and
the Integrated Security divestiture bonus.  Increases in operating
earnings at our Property Services and Residential Property Management segments
were more than offset by declines in our Commercial Real Estate Services
segment.
 
 The Commercial Real Estate Services
segment reported revenues of $578.2 million during the current period, down 7%
relative to $619.2 million in the comparable prior period.  Internal
revenues declined 11%, foreign exchange resulted in a revenue decline of 3% and
growth of 7% was attributable to acquisitions in four markets including New
York.  EBITDA (before a cost containment charge) was $42.4 million, at
a margin of 7.3%, versus the comparable prior period’s EBITDA of $54.4 million
at a margin of 8.8%.  The margin decline was primarily a result of the
following factors: (i) operating losses at certain US brokerage offices due to
declines in investment and sales brokerage volumes; and (ii) compression due to
revenue declines in all markets.  During the year we took steps to
contain costs and align our service capabilities with anticipated
revenues.  As a result, a $6.9 million cost containment charge was
incurred relating to non-recurring severances and lease
terminations.
 
 In
Residential Property Management, revenues increased 18% to $475.3
million.  Internal growth, resulting from property management contract
wins, was 9%, while recent business acquisitions accounted for the balance of
the growth.  Residential Property Management reported EBITDA of $44.3
million or 9.3% of revenues, up from $40.2 million or 9.9% of revenues in the
comparable prior period.
 
 The
Property Services operations reported revenues of $269.1 million, an increase of
72% versus the comparable prior period.  Of the increase, 37% was
attributable to acquisitions, particularly Field Asset Services, while internal
growth was 35%.  Internal growth was led by growth in residential
foreclosure management revenues at the Field Asset Services contractor network,
offsetting a 12% decline at our consumer-oriented franchise
systems.  EBITDA for the period was $42.0 million, 19% higher than the
comparable prior period, and the EBITDA margin decreased from 22.5% to
15.6%.  The margin decrease was attributable to: (i) the impact of
Field Asset Services, which operates at a lower margin than the remainder of the
segment, on average; and (ii) royalty revenue declines at consumer-oriented
franchise systems, which have a direct impact on earnings.
 
 Corporate
costs for the nine months were $6.8 million relative to $13.1 million in the
comparable prior period.  Costs in the current period benefited from a
$0.8 million favorable foreign exchange impact, as most costs are incurred in
Canadian dollars.  Included in the prior period was $3.3 million of
incremental stock option expense related to options granted during the period
from 1995 to 2006.
 
 Discontinued operations include: (i)
the Integrated Security Services segment; (ii) USMB, formerly included in the
Commercial Real Estate Services segment; (iii) the Canadian Commercial Mortgage
Securitization (“CCMS”) operation, formerly included in the Commercial Real
Estate Services segment; and (iv) the Business Services segment, disposed in
March 2006.  Revenues from discontinued operations were $49.6 million
and EBITDA was a loss of $8.3 million.  Included in EBITDA was a loss
of $6.7 million at CCMS, comprised of the settlement of a
  Page 4 of
17
 portion
of the hedging instruments and a mark-to-market loss on the remaining hedging
instruments.
 
 Results
of operations – year ended March 31, 2008
 FirstService reported revenues from
continuing operations of $1.55 billion for the year ended March 31, 2008
(“fiscal 2008”), an increase of 34% relative to the prior year.  The
increase was comprised of internal growth of 10%, acquisitions of 21% and the
impact of foreign exchange of 3%.
 
 Operating earnings increased 1%
relative to the prior year, to $78.1 million.  EBITDA increased 15% to
$123.6 million.  The gap between the operating earnings decline
relative to revenue and EBITDA growth was primarily the result of: (i) an
increase in stock-based compensation expense; and (ii) the rapid amortization of
brokerage backlog intangibles related to recent acquisitions in Commercial Real
Estate Services, which has a significant impact on the first year after
acquisition.
 
 Depreciation and amortization expense
was $37.7 million relative to $26.0 million in the prior year.  With
regard to the recent Commercial Real Estate Services acquisitions, we recorded a
short-lived intangible asset relating to the backlog of pending brokerage
transactions that existed at the acquisition dates.  The intangible is
being amortized to coincide with the expected completion dates of the underlying
brokerage transactions.  The balance of the increase in depreciation
and amortization is the result of: (i) intangible assets recognized upon
acquisitions during the past two years; and (ii) increases in fixed assets
resulting from capital expenditures and acquisitions.
 
 Interest expense increased to $16.9
million from $13.2 million in the prior year.  Our weighted average
interest rate increased slightly to 7.1% from 6.9% in the prior
year.  The $3.5 million of interest income earned during the year was
attributable to cash on hand.
 
 Other income for fiscal 2008 includes
distributions received on our investment in Resolve and earnings from
investments accounted for under the equity method in Commercial Real Estate
Services.
 
 Our consolidated income tax rate for
fiscal 2008 was 25% versus 29% in the prior year. On January 1, 2008 we
recognized a $2.3 million deferred tax asset relating to the deductibility, for
tax purposes, of stock option expense.  We had previously not
recognized this tax benefit.
 
 Net earnings from continuing operations
were $35.5 million, up $0.5 million versus fiscal 2007.  Increases in
our Property Services and Residential Property Management segments were offset
by declines in our Commercial Real Estate Services segment coupled with
increased costs at Corporate, resulting in the decrease in net
earnings.
 
 Our Commercial Real Estate Services
segment reported revenues of $787.5 million during fiscal 2008, up 36% relative
to $577.7 million in the prior year.  Internal growth was 10%, foreign
exchange contributed 6% and the balance was attributable to acquisitions in
several markets including South Eastern Europe, Boston and
Hawaii.  EBITDA was $42.8 million, at a margin of 5.4%, versus the
prior year’s EBITDA of $46.8 million at a margin of 8.1%.  The margin
decline was primarily a result of the following factors: (i) operating losses at
certain US brokerage offices due to declines in investment and sales brokerage
volumes; and (ii) lower margins at our Australian operations relative to the
prior year.  Margins in Canada, Eastern Europe, Asia and Latin America
were generally consistent with those experienced in the prior year.
 
 In
Residential Property Management, revenues increased 29% to $545.0
million.  Internal growth, resulting from property management contract
wins, was 9%, while acquisitions in California, Texas and the Northeast
accounted for the balance of the growth.  Residential Property
Management reported EBITDA of $50.2 million or 9.2% of revenues, up from $40.3
  Page 5 of
17
 million
or 9.5% of revenues in the prior year.  The decrease in margin was
primarily the result of a decrease in higher margin ancillary
services.
 
 The
Property Services operations reported revenues of $217.0 million, an increase of
44% versus the prior year.  Of the increase, 34% was attributable to
acquisitions, particularly Field Asset Services, while internal growth was 9%
and foreign exchange had an impact of 1%.  Internal growth was led by
increases in royalty revenues primarily at our CertaPro
system.  EBITDA for the year was $38.4 million, 26% higher than the
prior year, and the EBITDA margin decreased from 20.3% to 17.7%.  The
margin decrease was attributable to: (i) the impact of Field Asset Services,
which operates at a lower margin than the rest of the segment and (ii) unusually
low expenses in the comparative year, due to bad debt recoveries and the
deferral of a franchisees’ conference.
 
 Corporate
costs rose to $15.6 million from $14.6 million in fiscal
2007.  Included in the current year is a charge of $3.3 million
related to additional stock-based compensation expense as a result of the stock
option review completed in the third quarter.  No senior management
bonuses were accrued in fiscal 2008 under our performance-based incentive
compensation plan.
 
 Discontinued
operations include: (i) the Integrated Security Services segment; (ii) USMB,
formerly included in the Commercial Real Estate Services segment; (iii) CCMS,
formerly included in the Commercial Real Estate Services segment and (iii) the
Business Services segment, disposed in March 2006.  Revenues from
discontinued operations were $222.9 million.  The Company realized a
gain of $2.3 million in August 2007 on the settlement of a liability in
connection with the March 2006 disposal of our Business Services
operations.  The net loss from discontinued operations was $1.1
million.
 
 Results
of operations – year ended March 31, 2007
 FirstService reported revenues from
continuing operations of $1.15 billion for the year ended March 31, 2007
(“fiscal 2007”), an increase of 25% relative to the prior year.  The
increase was comprised of internal growth of 12%, acquisitions of 13% and the
impact of foreign exchange of 1%.
 
 Operating earnings increased 26%
relative to the prior year, to $77.0 million.  EBITDA increased 28% to
$108.0 million.  There was a small gap between operating earnings
growth relative to revenue and EBITDA growth composed of an increase in
stock-based compensation expense largely offset by the rapid amortization of
brokerage backlog intangibles related to recent acquisitions in Commercial Real
Estate Services, which has a significant impact on the first year after
acquisition.
 
 Depreciation and amortization expense
was $26.0 million relative to $20.9 million in the prior year.  With
regard to the recent commercial real estate services acquisitions, we recorded a
short-lived intangible asset relating to the backlog of pending brokerage
transactions that existed at the acquisition dates.  The intangible is
being amortized to coincide with the expected completion dates of the underlying
brokerage transactions.  The balance of the increase in depreciation
and amortization is the result of: (i) intangible assets recognized upon
acquisitions during the past two years and (ii) increases in fixed assets
resulting from capital expenditures and acquisitions.
 
 Interest expense increased to $13.2
million from $11.3 million in the prior year.  Our weighted average
interest rate increased to 6.9% versus 6.6% in the prior year as substantially
all of our debt was at fixed interest rates during the year, versus a mix of
fixed and floating in the prior year.  The $5.3 million of interest
income earned during the year was attributable to surplus cash on hand,
including the $110.5 million received upon the sale of Resolve.
 
 Page 6 of
17
 Other income for fiscal 2007 primarily
includes distributions received on our investment in Resolve and earnings from
investments accounted for under the equity method in commercial real estate
services.
 
 Our consolidated income tax rate for
fiscal 2007 was 29% versus 29% in the prior year. The current and prior year’s
tax rate reflected the continuing benefit of cross-border financing structures
first implemented in fiscal 2000.  We also realized the benefit of a
$1.8 million reduction in tax liability during the year related to resolution of
tax matters from prior years.
 
 Net earnings from continuing operations
were $35.0 million, an increase of 31% relative to fiscal 2006.  All
of the Company’s continuing operations contributed to the increase in net
earnings.
 
 The Commercial Real Estate Services
segment reported revenues of $577.7 million during fiscal 2007, up 32% relative
to $438.0 million in the prior year.  Internal growth was 11%, foreign
exchange contributed 1% and the balance of growth was the result of acquisitions
completed during the past two years.  EBITDA was $46.8 million, at a
margin of 8.1%, versus the prior year’s EBITDA of $37.3 million at a margin of
8.5%.
 
 In
Residential Property Management, revenues increased 22% to $423.8
million.  After considering the 6% impact of acquisitions, internal
growth was 16% and was attributable to significant property management contract
wins and an increase in ancillary service revenues.  Residential
Property Management reported EBITDA of $40.3 million or 9.5% of revenues, up
from $31.4 million or 9.1% of revenues in the prior year.  The
increase in margin was primarily the result of operating leverage.
 
 The
Property Services operations reported revenues of $150.8 million, an increase of
12% versus the prior year.  Of the increase, 9% was attributable to
internal growth, 2% to acquisitions and 1% to foreign
exchange.  Internal growth was led by increases in royalty revenues at
our major franchise systems.  EBITDA for the year was $30.6 million,
19% higher than the prior year, and the EBITDA margin increased 110 basis points
to 20.3%.  The margin increase was attributable to California Closets
and Paul Davis Restoration, where revenue growth was coupled with reduced
expenses, including the recovery of bad debts and the deferral of a franchisees’
conference.
 
 Corporate
costs rose to $14.6 million from $12.5 million in fiscal
2006.  Professional fees and performance-based incentive compensation
were higher than the previous year. Also included in Corporate is $1.9 million
in non-cash stock option expense, an increase of $0.5 million relative to the
prior year.
 
 Discontinued
operations include: (i) the Integrated Security Services segment; (ii) USMB,
formerly included in the Commercial Real Estate Services segment; (iii) CCMS,
formerly included in the Commercial Real Estate Services segment and (iii) the
Business Services segment, disposed in March 2006.  Revenues from
discontinued operations were $206.9 million.  Net earnings from
discontinued operations were $1.3 million.
 
 Canadian
commercial mortgage securitization operations
 The CCMS
operations were wound down in March 2008 and are classified as discontinued
operations for all periods presented. The remaining mortgage assets are carried
at the lower of cost and fair value less cost to sell and the related interest
rate derivative contracts are carried at fair value.  We expect to
dispose of the mortgage loans receivable, along with the related derivative
contracts, as soon as practicable.
 
 As of
December 31, 2008, we had $12.7 million (March 31, 2008 - $20.8 million; March
31, 2007 - $13.7 million) of mortgage loans receivable and a right to purchase
$86.4 million (March 31, 2008 - $151.9 million; March 31, 2007 - $189.4 million)
of mortgages from our co-
  Page 7 of
17
 lenders.  As
at December 31, 2008, we had interest rate derivative contracts to convert $60.3
million of fixed-rate mortgage loans receivable to floating rates (March 31,
2008 - $143.5 million; March 31, 2007 - $167.8 million) with a fair value loss
of $10.8 million (March 31, 2008 - $11.7; March 31, 2007 - gain of $0.4
million).  The derivative contracts expire on March 31,
2009.  Because the derivative contracts do not qualify as accounting
hedges, changes in fair value are recognized in earnings from discontinued
operations.
 
 Stock-based
compensation expense
 One of
our key operating principles is for senior management to have a significant
long-term equity stake in the businesses they operate.  The equity
owned by senior management takes the form of stock, stock options or notional
value appreciation plans, the latter two of which require the recognition of
compensation expense under GAAP.  The amount of expense recognized
with respect to Company stock options is determined by allocating the grant-date
fair value of each option over the expected term of the option.  The
amount of expense recognized with respect to subsidiary stock options and
subsidiary notional value appreciation plans is re-measured
quarterly.  The following table sets out the period expense related to
stock-based compensation:
 
 (in
      thousands of US$)
                                                  
                                                  Nine
      months ended
                                                    December
      31
                                                  
                                                  
                                                  Year
      ended March 312008
                                                  
                                                  
                                                  2007
                                                  
                                                  
                                                  2008
                                                  
                                                  
                                                  2007
                                                  
                                                  
                                                  2006
                                                  
                                                  
                                                  2005Stock
      option expense – Company
                                                  
                                                  $
                                                  1,723
                                                  
                                                  
                                                  $
                                                  5,127
                                                  
                                                  
                                                  $
                                                  5,938
                                                  
                                                  
                                                  $
                                                  1,916
                                                  
                                                  
                                                  $
                                                  1,380
                                                  
                                                  
                                                  $
                                                  622Stock
      option expense – subsidiary
                                                  
                                                  
                                                  (103
                                                  )
                                                  
                                                  
                                                  994
                                                  
                                                  
                                                  
                                                  1,508
                                                  
                                                  
                                                  
                                                  1,791
                                                  
                                                  
                                                  
                                                  552
                                                  
                                                  
                                                  
                                                  177Notional
      value appreciation plans
                                                  
                                                  
                                                  931
                                                  
                                                  
                                                  
                                                  323
                                                  
                                                  
                                                  
                                                  373
                                                  
                                                  
                                                  
                                                  1,249
                                                  
                                                  
                                                  
                                                  379
                                                  
                                                  
                                                  
                                                  889Total
      expense
                                                  
                                                  $
                                                  2,551
                                                  
                                                  
                                                  $
                                                  6,444
                                                  
                                                  
                                                  $
                                                  7,819
                                                  
                                                  
                                                  $
                                                  4,956
                                                  
                                                  
                                                  $
                                                  2,311
                                                  
                                                  
                                                  $
                                                  1,688
 
 Page 8 of
17
 Selected
annual information - last five fiscal periods
 (in
thousands of US$, except per share amounts)
 
 Nine
      months ended
                                                    December
      31
                                                  
                                                  
                                                  Year
      ended March 312008
                                                  
                                                  
                                                  2007
                                                  
                                                  
                                                  2008
                                                  
                                                  
                                                  2007
                                                  
                                                  
                                                  2006
                                                  
                                                  
                                                  2005OPERATIONSRevenues
                                                  
                                                  $
                                                  1,322,680
                                                  
                                                  
                                                  $
                                                  1,180,582
                                                  
                                                  
                                                  $
                                                  1,549,713
                                                  
                                                  
                                                  $
                                                  1,152,821
                                                  
                                                  
                                                  $
                                                  918,668
                                                  
                                                  
                                                  $
                                                  508,115Operating
      earnings
                                                  
                                                  
                                                  83,130
                                                  
                                                  
                                                  
                                                  89,925
                                                  
                                                  
                                                  
                                                  78,122
                                                  
                                                  
                                                  
                                                  77,005
                                                  
                                                  
                                                  
                                                  61,087
                                                  
                                                  
                                                  
                                                  27,838Net
      earnings from continuing operations
                                                  
                                                  
                                                  11,508
                                                  
                                                  
                                                  
                                                  42,354
                                                  
                                                  
                                                  
                                                  35,474
                                                  
                                                  
                                                  
                                                  34,963
                                                  
                                                  
                                                  
                                                  26,757
                                                  
                                                  
                                                  
                                                  12,172Net
      earnings from discontinued operations
                                                  
                                                  
                                                  50,528
                                                  
                                                  
                                                  
                                                  1,406
                                                  
                                                  
                                                  
                                                  (1,075
                                                  )
                                                  
                                                  
                                                  1,253
                                                  
                                                  
                                                  
                                                  42,740
                                                  
                                                  
                                                  
                                                  11,035Net
      earnings
                                                  
                                                  
                                                  62,036
                                                  
                                                  
                                                  
                                                  43,760
                                                  
                                                  
                                                  
                                                  34,399
                                                  
                                                  
                                                  
                                                  34,863
                                                  
                                                  
                                                  
                                                  69,497
                                                  
                                                  
                                                  
                                                  23,207FINANCIAL
      POSITIONTotal
      assets
                                                  
                                                  $
                                                  990,637
                                                  
                                                  
                                                  $
                                                  1,059,461
                                                  
                                                  
                                                  $
                                                  1,089,343
                                                  
                                                  
                                                  $
                                                  816,998
                                                  
                                                  
                                                  $
                                                  711,004
                                                  
                                                  
                                                  $
                                                  626,728Long-term
      debt
                                                  
                                                  
                                                  266,369
                                                  
                                                  
                                                  
                                                  331,348
                                                  
                                                  
                                                  
                                                  356,030
                                                  
                                                  
                                                  
                                                  235,131
                                                  
                                                  
                                                  
                                                  248,686
                                                  
                                                  
                                                  
                                                  220,015Shareholders’
      equity
                                                  
                                                  
                                                  345,839
                                                  
                                                  
                                                  
                                                  312,161
                                                  
                                                  
                                                  
                                                  305,685
                                                  
                                                  
                                                  
                                                  264,875
                                                  
                                                  
                                                  
                                                  237,752
                                                  
                                                  
                                                  
                                                  185,871Book
      value per common share
                                                  
                                                  
                                                  6.87
                                                  
                                                  
                                                  
                                                  5.44
                                                  
                                                  
                                                  
                                                  5.19
                                                  
                                                  
                                                  
                                                  8.85
                                                  
                                                  
                                                  
                                                  7.91
                                                  
                                                  
                                                  
                                                  6.15COMMON
      SHARE DATANet
      earnings per common share:BasicContinuing
      operations
                                                  
                                                  $
                                                  0.13
                                                  
                                                  
                                                  $
                                                  1.27
                                                  
                                                  
                                                  $
                                                  0.95
                                                  
                                                  
                                                  $
                                                  1.17
                                                  
                                                  
                                                  $
                                                  0.89
                                                  
                                                  
                                                  $
                                                  0.41Discontinued
      operations
                                                  
                                                  
                                                  1.71
                                                  
                                                  
                                                  
                                                  0.05
                                                  
                                                  
                                                  
                                                  (0.03
                                                  )
                                                  
                                                  
                                                  0.04
                                                  
                                                  
                                                  
                                                  1.41
                                                  
                                                  
                                                  
                                                  0.37Cumulative
      effect adjustment
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (0.04
                                                  )
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -1.83
                                                  
                                                  
                                                  
                                                  1.32
                                                  
                                                  
                                                  
                                                  0.92
                                                  
                                                  
                                                  
                                                  1.17
                                                  
                                                  
                                                  
                                                  2.30
                                                  
                                                  
                                                  
                                                  0.78DilutedContinuing
      operations
                                                  
                                                  $
                                                  0.11
                                                  
                                                  
                                                  $
                                                  1.17
                                                  
                                                  
                                                  $
                                                  0.89
                                                  
                                                  
                                                  $
                                                  1.08
                                                  
                                                  
                                                  
                                                  0.83
                                                  
                                                  
                                                  
                                                  0.38Discontinued
      operations
                                                  
                                                  
                                                  1.70
                                                  
                                                  
                                                  
                                                  0.05
                                                  
                                                  
                                                  
                                                  (0.04
                                                  )
                                                  
                                                  
                                                  0.04
                                                  
                                                  
                                                  
                                                  1.38
                                                  
                                                  
                                                  
                                                  0.36Cumulative
      effect adjustment
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (0.04
                                                  )
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -1.81
                                                  
                                                  
                                                  
                                                  1.22
                                                  
                                                  
                                                  
                                                  0.85
                                                  
                                                  
                                                  
                                                  1.08
                                                  
                                                  
                                                  
                                                  2.21
                                                  
                                                  
                                                  
                                                  0.74Weighted
      average common shares (thousands)Basic
                                                  
                                                  
                                                  29,584
                                                  
                                                  
                                                  
                                                  29,879
                                                  
                                                  
                                                  
                                                  29,905
                                                  
                                                  
                                                  
                                                  29,903
                                                  
                                                  
                                                  
                                                  30,171
                                                  
                                                  
                                                  
                                                  29,777Diluted
                                                  
                                                  
                                                  29,755
                                                  
                                                  
                                                  
                                                  30,417
                                                  
                                                  
                                                  
                                                  30,547
                                                  
                                                  
                                                  
                                                  30,354
                                                  
                                                  
                                                  
                                                  30,896
                                                  
                                                  
                                                  
                                                  30,467Cash
      dividends per common share
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -PREFERRED
      SHARE DATANumber
      outstanding (thousands)
                                                  
                                                  
                                                  5,772
                                                  
                                                  
                                                  
                                                  5,979
                                                  
                                                  
                                                  
                                                  5,979
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Cash
      dividends per preferred share
                                                  
                                                  $
                                                  1.31
                                                  
                                                  
                                                  $
                                                  0.72
                                                  
                                                  
                                                  $
                                                  1.16
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -OTHER
      DATAEBITDA
                                                  
                                                  $
                                                  124,361
                                                  
                                                  
                                                  $
                                                  123,230
                                                  
                                                  
                                                  $
                                                  123,614
                                                  
                                                  
                                                  $
                                                  107,983
                                                  
                                                  
                                                  $
                                                  84,319
                                                  
                                                  
                                                  $
                                                  47,814Adjusted
      diluted net earnings per share from continuing operations
                                                  
                                                  
                                                  1.09
                                                  
                                                  
                                                  
                                                  1.48
                                                  
                                                  
                                                  
                                                  1.32
                                                  
                                                  
                                                  
                                                  1.17
                                                  
                                                  
                                                  
                                                  0.75
                                                  
                                                  
                                                  
                                                  0.26
 
 Seasonality
and quarterly fluctuations
 Certain
segments of the Company’s operations are subject to seasonal variations. The
Commercial Real Estate Services segment historically generates peak revenues and
earnings in the month of December followed by a low in January to March as a
result of the timing of closings on commercial real estate brokerage
transactions.  Revenues and earnings during the balance of the year
are relatively even.  These brokerage operations comprise
approximately 35% of consolidated revenues.  The demand for exterior
painting (Property Services segment) and swimming pool management in the
northern United States and Canada (Residential Property Management segment) is
highest during late spring, summer and early fall and very low during
winter.  These operations generate most of their annual revenues and
earnings between April and September and comprise approximately 5% of
consolidated revenues.
 
 The
seasonality of these service lines results in variations in quarterly revenues
and operating margins.  Variations can also be caused by acquisitions
or dispositions, which alter the consolidated service mix.
 
 Page 9 of
17
 Quarterly
results – fiscal periods ended December 31, 2008, March 31, 2008 and
2007
 (in
thousands of US$, except per share amounts)
 Fiscal
      period
                
                
                Q1
                
                
                
                Q2
                
                
                
                Q3
                
                
                
                Q4
                
                
                PeriodNine-month
      period ended December 31, 2008Revenues
                
                $
                454,769
                
                
                $
                450,051
                
                
                $
                417,860
                
                
                NA
                
                
                $
                1,322,680Operating
      earnings
                
                
                35,278
                
                
                
                35,442
                
                
                
                12,410
                
                
                
                
                
                
                
                83,130Net
      earnings (loss) from continuing operations
                
                
                17,240
                
                
                
                13,250
                
                
                
                (18,982
                )
                
                
                
                
                
                
                11,508Net
      earnings (loss) from discontinued operations
                
                
                625
                
                
                
                68,073
                
                
                
                (18,170
                )
                
                
                
                
                
                
                50,528Net
      earnings (loss)
                
                
                17,865
                
                
                
                81,323
                
                
                
                (37,152
                )
                
                
                
                
                
                
                62,036Net
      earnings (loss) per common share:Basic
                
                
                0.51
                
                
                
                2.68
                
                
                
                (1.36
                )
                
                
                
                
                
                
                1.83Diluted
                
                
                0.47
                
                
                
                2.66
                
                
                
                (1.36
                )
                
                
                
                
                
                
                1.81Fiscal
      year ended March 31, 2008Revenues
                
                $
                359,661
                
                
                $
                373,287
                
                
                $
                447,634
                
                
                $
                369,131
                
                
                $
                1,549,713Operating
      earnings (loss)
                
                
                33,449
                
                
                
                32,833
                
                
                
                23,643
                
                
                
                (11,803
                )
                
                
                78,122Net
      earnings (loss) from continuing operations
                
                
                14,958
                
                
                
                16,314
                
                
                
                11,082
                
                
                
                (6,880
                )
                
                
                35,474Net
      earnings (loss) from discontinued operations
                
                
                3,124
                
                
                
                1,379
                
                
                
                (3,097
                )
                
                
                (2,481
                )
                
                
                (1,075
                )Net
      earnings (loss)
                
                
                18,082
                
                
                
                17,693
                
                
                
                7,985
                
                
                
                (9,361
                )
                
                
                34,399Net
      earnings (loss) per common share:Basic
                
                
                0.61
                
                
                
                0.53
                
                
                
                0.18
                
                
                
                (0.40
                )
                
                
                0.92Diluted
                
                
                0.56
                
                
                
                0.50
                
                
                
                0.15
                
                
                
                (0.40
                )
                
                
                0.85Fiscal
      year ended March 31, 2007Revenues
                
                $
                275,326
                
                
                $
                289,792
                
                
                $
                316,983
                
                
                $
                270,721
                
                
                $
                1,152,822Operating
      earnings
                
                
                26,036
                
                
                
                24,957
                
                
                
                15,176
                
                
                
                10,836
                
                
                
                77,005Net
      earnings from continuing operations
                
                
                11,926
                
                
                
                12,711
                
                
                
                7,069
                
                
                
                3,258
                
                
                
                34,963Net
      earnings (loss) from discontinued operations
                
                
                2,207
                
                
                
                (738
                )
                
                
                688
                
                
                
                (905
                )
                
                
                1,253Net
      earnings
                
                
                12,780
                
                
                
                11,973
                
                
                
                7,757
                
                
                
                2,353
                
                
                
                34,863Net
      earnings per common share:Basic
                
                
                0.43
                
                
                
                0.40
                
                
                
                0.26
                
                
                
                0.08
                
                
                
                1.17Diluted
                
                
                0.39
                
                
                
                0.38
                
                
                
                0.25
                
                
                
                0.06
                
                
                
                1.08OTHER
      DATAEBITDA
      - Period ended December 31, 2008
                
                $
                47,113
                
                
                $
                47,451
                
                
                $
                29,797
                
                
                NA
                
                
                
                124,361EBITDA
      - Year ended March 31, 2008
                
                
                41,509
                
                
                
                42,760
                
                
                
                38,961
                
                
                
                384
                
                
                
                123,614EBITDA
      - Year ended March 31, 2007
                
                
                32,736
                
                
                
                30,966
                
                
                
                23,526
                
                
                
                20,757
                
                
                
                107,983
 
 Discussion
of third quarter results
 Operating
results for the third quarter ended December 31, 2008 were affected by the
global financial slowdown, particularly in our Commercial Real Estate Services
and Property Services segments.  Commercial Real Estate revenues
declined 28% versus the prior year quarter due to reduced brokerage transaction
volume which was affected by reduced business confidence and the inavailability
of credit for real estate transactions, and profit margins were negatively
impacted.  Property Services revenues were up 35% versus the prior
year period, however within the segment, US residential property foreclosure
services revenues doubled, while revenues from consumer-oriented franchise
systems, particularly California Closets, declined 31%.  Property
Services profit margins declined due to mix change away from higher margin
franchising revenues.
 
 Financial
outlook
 We are
committed to a long-term growth strategy that includes average internal revenue
growth in the 8-10% range combined with acquisitions to build each of our
service platforms, resulting in targeted average annual percentage growth in
revenues, EBITDA and earnings per share in excess of 15%.  Economic
conditions will negatively or positively impact these percentage growth rates in
any given year.  Given current economic conditions, for 2009 we expect
modest revenue and earnings growth in our Residential Property Management and
Property Services segments.  We are presently unable to forecast
operating results for 2009 for our Commercial Real Estate
operations.
  Page 10
of 17
 Liquidity
and capital resources
 The
Company generated cash flow from operating activities, including discontinued
operations, of $66.4 million for nine-month period ended December 31,
2008.  Operating cash flow excluding the effect of discontinued
operations, was $68.2 million, down 15% versus the comparable prior nine month
period.  The decrease in operating cash flow was attributable to
investments in working capital, particularly accrued liabilities, and lower
earnings.  We believe that cash from operations and other existing
resources will continue to be adequate to satisfy the ongoing working capital
needs of the Company.
 
 Net
indebtedness as at December 31, 2008 was $186.7 million, versus $280.7 million
at March 31, 2008 and $137.9 million at March 31, 2007.  Net
indebtedness is calculated as the current and non-current portions of long-term
debt less cash and cash equivalents.  During the nine-month period
ended December 31, 2008, we received proceeds of $155.0 million on our
Integrated Security division divestiture and we invested: (i) $36.5 million in
business acquisitions; and (ii) $38.5 million in acquisitions of minority
interests.
 
 We are in
compliance with the covenants required of our financing agreements as at
December 31, 2008 and we expect to remain in compliance with such covenants
going forward.  We had $134.2 million of available revolving credit as
of December 31, 2008.
 
 On September 6, 2007, we entered into
an amended and restated credit agreement with a syndicate of banks to provide a
$225 million committed senior revolving credit facility with a five year term to
replace the existing $110 million facility.  The amended facility has
an accordion feature allows for an additional $50 million of
borrowings.  The amended facility bears interest at 0.75% to 1.30%
over floating reference rates, depending on the ratio of our net debt to
adjusted EBITDA.
 
 During the nine-month period ended
December 31, 2008, we repurchased 960,300 Subordinate Voting Shares for
cancellation under our approved normal course issuer bid at a cost of $14.8
million and 206,800 7% Cumulative Preference Shares, Series 1 (the "Preferred
Shares") at a cost of $3.4 million.
 
 Capital
expenditures for the period were $14.7 million.  The most significant
expenditures were in the Commercial Real Estate Services segment, with additions
to leaseholds, computer software, computer hardware and furniture totaling $7.9
million.
 
 During the nine-month period ended
December 31, 2008, we paid $7.8 million of dividends on the Preferred
Shares.  The annual Preferred Share dividend obligation, based on the
number of Preferred Shares outstanding as of December 31, 2008, is $10.1
million.  We also distributed $11.4 million to minority shareholders
of subsidiaries during the same period, primarily to facilitate the payment of
income taxes on account those subsidiaries organized as flow-through
entities.
 
 In
relation to acquisitions completed during the past three fiscal periods, we have
outstanding contingent consideration totaling $51.8 million as at December 31,
2008 (March 31, 2008 - $53.6 million; March 31, 2007 - $14.8 million) assuming
all contingencies are satisfied and payment due in full.  The amount
of the contingent consideration is not recorded as a liability unless the
outcome of the contingency is resolved and additional consideration is paid or
payable.  The contingent consideration is based on achieving specified
earnings levels, and is paid or payable at the end of the contingency period,
which extends to February 2012.  We estimate that, based on current
operating results, approximately 40% of the contingent consideration outstanding
as of December 31, 2008 will ultimately be paid.  When the
contingencies are resolved and additional consideration is payable, we will
record the fair value of the additional consideration as additional costs of the
acquired businesses.
 
 Page 11
of 17
 One of
our subsidiaries has issued options to purchase shares to its operating
managers.  The numerators for our diluted earnings per share
calculations are adjusted to account for potential dilution from stock options
in the subsidiary.  When stock options are exercised, the minority
shareholders become party to a shareholders’ agreement as described
below.
 
 All
minority shareholders of our subsidiaries are party to shareholders’
agreements.  These agreements allow us to “call” the minority position
at fair value determined with the use of a formula price, which is usually equal
to a multiple of trailing two-year average earnings.  Minority owners
may also “put” their interest to the Company at the same price, with certain
limitations.  The total value of the minority shareholders’ interests,
as calculated in accordance with the shareholders’ agreements, was approximately
$193 million at December 31, 2008 (March 31, 2008 - $233 million; March 31, 2007
- $154 million).  As of December 31, 2008, we had $14.9 million of
loans receivable from minority shareholders secured by the shares and
accordingly, the net value of the minority shares is $178.1
million.  The purchase price of minority interests may be paid in
Subordinate Voting Shares of FirstService.  While it is not our
intention to acquire the outstanding minority interests, this step could
materially increase net earnings.
 
 The
following table summarizes our contractual obligations as at December 31,
2008:
 
 Contractual
      obligations
                      
                      Payments
      due by period(in
      thousands of US$)
                      
                      Total
                      
                      
                      Less
      than 1 year
                      
                      
                      1-3
      years
                      
                      
                      4-5
      years
                      
                      
                      After
      5 yearsLong-term
      debt
                      
                      $
                      261,909
                      
                      
                      $
                      18,684
                      
                      
                      $
                      49,606
                      
                      
                      $
                      127,821
                      
                      
                      $
                      65,798Capital
      lease obligations
                      
                      
                      4,460
                      
                      
                      
                      2,215
                      
                      
                      
                      2,175
                      
                      
                      
                      70
                      
                      
                      
                      -Operating
      leases
                      
                      
                      203,921
                      
                      
                      
                      40,774
                      
                      
                      
                      71,975
                      
                      
                      
                      50,592
                      
                      
                      
                      40,580Unconditional
      purchase obligations
                      
                      
                      14,955
                      
                      
                      
                      14,955
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Other
      long-term obligations
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Total
      contractual obligations
                      
                      $
                      485,245
                      
                      
                      $
                      76,628
                      
                      
                      $
                      123,756
                      
                      
                      $
                      178,483
                      
                      
                      $
                      106,378
 
 At
December 31, 2008, we had unconditional purchase obligations of $15.0 million
with respect to stock “puts” exercised by minority shareholders.  At
December 31, 2008, we had commercial commitments totaling $5.8 million comprised
of letters of credit outstanding due to expire within one year.  We
are required to make semi-annual payments of interest on our long-term debt at a
weighted average interest rate of 6.3%.
 
 To manage our insurance costs, we take
on risk in the form of high deductibles on many of our coverages.  We
believe this step reduces overall insurance costs in the long term, but may
cause fluctuations in the short term depending on the frequency and severity of
insurance incidents.
 
 Discussion
of critical accounting estimates
 Critical
accounting estimates are those that management deems to be most important to the
portrayal of our financial condition and results of operations, and that require
management’s most difficult, subjective or complex judgments, due to the need to
make estimates about the effects of matters that are inherently
uncertain.  We have identified five critical accounting estimates:
goodwill impairment testing, acquisition purchase price allocations,
amortization of intangible assets, accounts receivable allowances and accounting
for income taxes.
 
 Annual goodwill impairment testing
requires judgment on the part of management.  Goodwill impairment
testing involves making estimates concerning the fair value of reporting units
and then comparing the fair value to the carrying amount of each
unit.  The determination of what constitutes a reporting unit requires
significant management judgment.  Estimates of fair value can be
impacted by sudden changes in the business environment or prolonged economic
downturns, declines in the market value of the Company’s own shares and
therefore require significant management judgment in their
determination.  A 10% decline in the fair value of each reporting unit
as of December 31, 2008 would not result in an indication of
impairment.  A
  Page 12
of 17
 sustained
economic downturn could result in the impairment of goodwill and recognition of
an impairment loss within the next year.
 
 Acquisition purchase price allocations
require use of estimates and judgment on the part of management, especially in
the determination of intangible assets acquired.  For example, if
different assumptions were used regarding the profitability and expected lives
of acquired customer contracts and relationships, different amounts of
intangible assets and related amortization could be reported.  A 10%
increase in the amount allocated to intangible assets during the nine-month
period ended December 31, 2008 would result in an increase to amortization
expense for the period of $0.3 million.
 
 Amortization of intangible assets
requires management to make estimates of useful lives and to select methods of
amortization.  Useful lives and methods of amortization are determined
at the time assets are initially acquired, and then are reevaluated each
reporting period.  Significant judgment is required to determine
whether events and circumstances warrant a revision to remaining periods of
amortization.  Changes to estimated useful lives and methods of
amortization could result in increases or decreases in amortization
expense.  A 10% reduction to the weighted average useful life of
intangible assets, other than short-lived brokerage backlog, would result in an
increase to the amortization expense for the period of $1.7
million.
 
 Accounts receivable allowances are
determined using a combination of historical experience, current information,
and management judgment.  Actual collections may differ from our
estimates.  A 10% increase in the accounts receivable allowance would
increase bad debt expense by $1.3 million.
 
 Income taxes are calculated based on
the expected treatment of transactions recorded in the consolidated financial
statements.  The benefits of certain net operating loss
carry-forwards, which have been recognized in the financial statements, require
significant management judgment regarding future realization.  In
determining current and deferred components of income taxes, we interpret tax
legislation and make assumptions about the timing of the reversal of deferred
tax assets and liabilities.  If our interpretations differ from those
of tax authorities or if the timing of reversals is not as anticipated, the
provision for income taxes could increase or decrease in future
periods.
 
 Transactions
with related parties
 Please refer to note 19 to the
consolidated financial statements for information regarding transactions with
related parties.
 
 Recently
adopted accounting standards
 On April
1, 2008, the Company adopted Statement of Financial Accounting Standards No.
157, Fair Value
Measurements (“SFAS 157”).  SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements.  SFAS 157 applies under other accounting
pronouncements that require or permit fair value measurements.  As a
result of FASB Staff Position No. 157-2, the application of SFAS 157 is delayed
to January 1, 2009 for all non-financial assets and liabilities that are
recognized or disclosed at fair value on a non-recurring basis.  The
adoption of SFAS 157 did not have a material effect on the Company’s results of
operations or financial position, however additional disclosures are now
required in the financial statements
 
 Impact
of recently issued accounting standards
 In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS
141R”).  SFAS 141R changes the method of accounting for business
acquisitions at the acquisition date and in subsequent periods.  This
standard is effective prospectively for business combinations for which the
acquisition date is on or after January 1, 2009. The Company has evaluated the
impact of the adoption of SFAS 141R and the following changes in practice will
be required for acquisitions completed under the standard: (i) transaction
  Page 13
of 17
 costs
will be expensed, resulting in increases to selling, general and administrative
expenses; (ii) contingent consideration will be recognized at the acquisition
date, resulting in increases to goodwill and accrued liabilities; and (iii) the
fair value of contingent consideration will be re-measured quarterly, resulting
in increased volatility in earnings.
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS
160”).  SFAS 160 changes the accounting and reporting for
non-controlling (formerly referred to as minority interests).  SFAS
160 also affects the guidance in EITF No. D-98, Classification and Measurement of
Redeemable Securities (“EITF D-98”).  SFAS 160 is effective for
the Company as of January 1, 2009.  The Company has evaluated the
impact of the adoption of SFAS 160 as well as the changes to
EITF-98.  The following changes in practice will be required: (i)
non-controlling interest will be presented in the “mezzanine” section of the
balance sheet at the redemption value, resulting in a significant increase in
non-controlling interest and (ii) purchases by the Company of non-controlling
interest will be recorded as a reduction of non-controlling
interest.  Upon the initial adoption of SFAS 160 on January 1, 2009,
the Company will increase non-controlling interest in the amount of
approximately $135 million and will record a corresponding decrease to retained
earnings.
 
 In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS 161”).  SFAS 161
requires enhanced disclosures about the Company’s derivative and hedging
activities such as the objective for using derivative instruments, the method of
accounting for derivative instruments and related hedged items under SFAS No.
133 and its related interpretations, and the effect of derivative instruments
and related hedged items on the Company’s financial position, financial
performance, and cash flows. The Standard is effective for the Company as of
January 1, 2009.  The Company is currently evaluating the impact of
the adoption of SFAS 161 on its financial statement note
disclosures.
 
 In April
2008, the FASB staff issued Statement of Position No. 142-3, Determination of the Useful Life of
Intangible Assets (“FSP 142-3”).  FSP 142-3 amends the factors
used when considering the useful life of recognized intangible
assets.  The Standard is effective for the Company as of January 1,
2009.  The Company is currently evaluating the impact of the adoption
of FSP 142-3 on its financial position and results of operations.
 
 Outstanding
share data
 The authorized capital of the Company
consists of an unlimited number of preference shares, issuable in series, of
which are authorized an unlimited number of Preferred Shares, an unlimited
number of Subordinate Voting Shares and an unlimited number of Multiple Voting
Shares.  The holders of Subordinate Voting Shares are entitled to one
vote in respect of each Subordinate Voting Share held at all meetings of the
shareholders of the Company.  The holders of Multiple Voting Shares
are entitled to twenty votes in respect of each Multiple Voting Share held at
all meetings of the shareholders of the Company. The holders of the Preferred
Shares are not entitled, except as otherwise provided by law or in the
conditions attaching to the Preferred Shares as a class, to receive notice of,
attend or vote at any meeting of the shareholders of the Company. Each Multiple
Voting Share is convertible into one Subordinate Voting Share at any time at the
election of the holders thereof. The Preferred Shares are redeemable for cash or
convertible into Subordinate Voting Shares at the option of the Company at any
time as set out in the Articles of the Company.
 
 As of the date hereof, the Company has
outstanding 28,007,790 Subordinate Voting Shares, 1,325,694 Multiple Voting
Shares and 5,772,274 Preferred Shares.  In addition, as at the date
hereof, 1,580,755 Subordinate Voting Shares are issuable upon exercise of
options granted under the Company’s stock option plans.
 
 Page 14
of 17
 Canadian
tax treatment of preferred dividends
 For the
purposes of the enhanced dividend tax credit rules contained in the Income Tax Act (Canada) and
any corresponding provincial and territorial tax legislation, all dividends (and
deemed dividends) paid by us to Canadian residents on our Preferred Shares are
designated as “eligible dividends”.  Unless stated otherwise, all
dividends (and deemed dividends) paid by us hereafter are designated as
“eligible dividends” for the purposes of such rules.
 
 Disclosure
controls and procedures
 Our Chief
Executive Officer and Chief Financial Officer, with the assistance and
participation of other Company management, have evaluated the effectiveness of
the design and operation of the Company’s disclosure controls and procedures (as
defined in Canada by National Instrument 52-109 – Certification of Disclosure in
Issuers’ Annual and Interim Filings and in the United States by
Rules 13a-15(e) and 15d-15(e) of the United States Securities and
Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2008
(the “Evaluation Date”).  Based on that evaluation, the Chief
Executive Officer and the Chief Financial Officer have concluded that, as of the
Evaluation Date, the Company’s disclosure controls and procedures were effective
to give reasonable assurance that information required to be disclosed by the
Company in reports that it files or submits under Canadian securities
legislation and the Exchange Act is: (i) recorded, processed, summarized and
reported within the time periods specified therein; and (ii) accumulated and
communicated to management, including the Chief Executive Officer and the Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
  Management’s
report on internal control over financial reporting
 Management
is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company.  Internal control over financial
reporting is a process designed by, or under the supervision of, the Company’s
principal executive and financial officers and effected by the Company’s Board
of Directors, management and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP and the
requirements of Canadian securities regulators and the SEC, as applicable, and
includes those policies and procedures that:(i)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the Company;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP, and the
requirements of Canadian securities regulators and the SEC, as applicable, and
that receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company; and (iii)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that could
have a material effect on the financial statements.
 
 Due to
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
 
 We have
excluded six individually insignificant entities acquired by the Company during
the last fiscal period from its assessment of internal control over financial
reporting as at December 31, 2008.  The total assets and total
revenues of these majority-owned entities of the Company represent 1.6%and 1.4%, respectively,
of the related consolidated financial statement amounts including discontinued
operations as at and for the nine-month period ended December 31,
2008.
 
 Management,
under the supervision of the Chief Executive Officer and the Chief Financial
Officer, has assessed the effectiveness of the Company’s internal control over
financial reporting as at December 31, 2008, based on the criteria set forth in
Internal Control – Integrated
  Page 15
of 17
 Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management has concluded that, as at December 31, 2008, the
Company’s internal control over financial reporting was effective.
  The effectiveness of the Company's
internal control over financial reporting as at December 31, 2008, has been
audited by PricewaterhouseCoopers LLP, the Company’s independent auditors.  The attestation report of
PricewaterhouseCoopers LLP is included in PricewaterhouseCoopers LLP’s report to
the shareholders of the Company dated February 27, 2009, which accompanies the
Company’s audited consolidated financial statements for the nine-month period
ended December 31, 2008.
 
 Changes
in internal control over financial reporting
 During
the nine-month period ended December 31, 2008, there were no changes in our
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
  Additional
information
 Copies of publicly filed documents of
the Company, including our Annual Information Form, can be found through the
SEDAR website at www.sedar.com.
 
 Forward-looking
statements
 This
MD&A contains forward-looking statements with respect to expected financial
performance, strategy and business conditions. The words “believe,”
“anticipate,” “estimate,” “plan,” “expect,” “intend,” “may,” “project,” “will,”
“would,” and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain these
identifying words. These statements reflect management's current beliefs with
respect to future events and are based on information currently available to
management. Forward-looking statements involve significant known and unknown
risk and uncertainties. Many factors could cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements that may be expressed or implied by such forward-looking
statements. Factors which may cause such differences include, but are not
limited to:
 
 ·
            Commercial
      real estate property values, vacancy rates and general conditions of
      financial liquidity for real estate
  transactions.
 ·
            Economic
      conditions, especially as they relate to consumer
  spending.
 ·
            Extreme
      weather conditions impacting demand for our services or our ability to
      perform those services.
 ·
            Political
      conditions, including any outbreak or escalation of terrorism or
      hostilities and the impact thereof on our
  business.
 ·
            Competition
      in the markets served by the
Company.
 ·
            Labor
      shortages or increases in wage and benefit
  costs.
 ·
            The
      effects of changes in interest rates on our cost of
    borrowing.
 ·
            Unexpected
      increases in operating costs, such as insurance, workers’ compensation,
      health care and fuel prices.
 ·
            Changes
      in the frequency or severity of insurance incidents relative to our
      historical experience.
 ·
            The
      effects of changes in foreign exchange rates in relation to the US dollar
      on the Company’s Canadian dollar, Australian dollar and Euro denominated
      revenues and expenses.
 ·
            Our
      ability to make acquisitions at reasonable prices and successfully
      integrate acquired operations.
 ·
            Changes
      in government policies at the federal, state/provincial or local level
      that may adversely impact our
businesses.
 
 Page 16
of 17
 The
reader is cautioned against undue reliance on these forward-looking statements.
Although the forward-looking statements contained in this MD&A are based
upon what management currently believes to be reasonable assumptions, we cannot
assure that actual results, performance or achievements will be consistent with
such statements. The forward-looking statements are made as of the date of this
MD&A and we do not intend, and do not assume any obligation to update or
revise any such statements.
 
 
 
 
 Page 17 of 17