**EXHIBIT
      3**




**Management’s
        Discussion and Analysis of Results of Operations and Financial
        Condition**
 (in
        US
        dollars)
 May
        18,
        2007
 
 *The
        following
        discussion should be read in conjunction with the consolidated financial
        statements and notes thereto for the year ended March 31, 2007 prepared in
        accordance with accounting principles generally accepted in the United States
        of
        America.*
 
 **Consolidated
        review**
 FirstService
        Corporation (the “Company” or
“FirstService”) generated strong operating results in fiscal 2007, with revenue
        growth of 27% and growth in adjusted diluted earnings per share from continuing
        operations1of 36%.
 We
          completed
          thirteen business acquisitions during the year. The aggregate purchase
          price for
          these acquisitions was $66.8 million, funded from cash on hand. The most
          significant acquisitions occurred in the Commercial Real Estate Services
          segment, where we added five businesses in the United States, Australia
          and
          Canada providing real estate brokerage, mortgage brokerage, valuation,
          consulting and advisory services. The balance of the acquisitions were
          completed
          in the Residential Property Management and Property Improvement Services
          segments.
 
 On
          April 18, 2007,
          we acquired an 80% interest in a residential property management firm based
          in
          Orange County, California. This acquisition significantly enhances the
          geographic scope of our residential property management operations and
          is
          expected to provide significant opportunities for us to introduce additional
          complimentary services. The purchase price of $29.6 million was funded
          from cash
          on hand.
 
 On
          May 16, 2007, we
          updated our financial outlook for fiscal 2008. The updated outlook is for
          revenues of $1.525 to $1.625 billion, EBITDA1 of $137 to $147
          million, and adjusted diluted earnings per share of $1.48 to $1.60.
 
 
 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) the amortization of short-lived intangible assets
            acquired
            in connection with recent commercial real estate services acquisitions
            and (ii)
            the impairment loss on available-for-sale securities. The Company believes
            this
            measure is useful because (i) it isolates the impact of material non-recurring
            acquisition-related amortization expense and (ii) it eliminates the effect
            of a
            non-cash impairment of securities obtained in connection with the disposal
            of a
            business. This is not a recognized measure of financial performance under
            generally accepted accounting principles (“GAAP”) in the United States of
            America, 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.
 (in
                  US$)
              
              Year
                  ended
                  March 31**2007**
              
              2006
              
              2005Diluted
                  net
                  earnings per share from continuing operations
              
              **$**
              **1.14**
              
              $
              0.87
              
              $
              0.49Amortization
                  of brokerage backlog, net of taxes
              
              
              **0.15**
              
              
              0.14
              
              
              0.18Impairment
                  loss on available-for-sale securities, net of taxes
              
              
              **0.08**
              
              
              -
              
              
              -Adjusted
                  diluted net earnings per share from continuing
                  operations
              
              **$**
              **1.37**
              
              $
              1.01
              
              $
              0.67
  2    EBITDA
        is defined as net earnings before extraordinary items, discontinued operations,
        minority interest share of earnings, income taxes, interest, other income,
        depreciation and amortization, and stock-based compensation expense. 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,
  -
            1 -
  On
        March 17, 2006, we
        completed the divestiture of Resolve Corporation (“Resolve”), our Business
        Services operation, through the initial public offering (“IPO”) of trust units
        by Resolve Business Outsourcing Income Fund (the “RBO Fund”). Proceeds from the
        sale were $110.5 million of cash and a 7.3% retained interest in RBO Fund
        initially valued at $20.4 million. Resolve is classified as a discontinued
        operation for all periods presented. As at March 31, 2007 we continued to
        hold
        our retained interest in RBO Fund, and we recorded an impairment loss of
        $3.1
        million ($2.6 million net of income taxes). We believe the 15% decline in
        the
        market price of RBO Fund units since the time of the IPO was primarily
        attributable to changes in the taxation of income trusts announced by the
        Minister of Finance (Canada) in October 2006.
 
 **Results
        of
        operations****- year ended March 31, 2007**
 FirstService
        reported revenues from continuing
        operations of $1.36 billion for the year ended March 31, 2007, an increase
        of
        27% relative to the prior year. The increase was comprised of internal growth
        of
        13%, acquisitions of 13% and the impact of foreign exchange of 1%.
 
 Operating
        earnings
        increased 27% relative to the prior year, to $83.0 million. EBITDA increased
        33%
        to $121.4 million. The gap between operating earnings growth relative to
        revenue
        and EBITDA growth is 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 $31.6 million relative to $23.6 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. As of March 31, 2007, the net book value of unamortized
        backlog was $1.2 million. The balance of the increase in depreciation and
        amortization is the result of amortization of other intangible assets recognized
        upon acquisitions during the past two years, as well as increases in fixed
        assets resulting from capital expenditures and acquisitions.
 
 Interest
        expense
        increased to $16.8 million from $13.1 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 $6.9 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.
 
 Other
        income for
        fiscal 2007 primarily includes distributions received on our investment in
        RBO
        Fund and earnings from investments accounted for under the equity method
        in
        commercial real estate services.


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 appears below. (in
                    thousands
                    of US$)
                
                Year
                    ended
                    March 31**2007**
                
                2006
                
                2005Operating
                    earnings
                
                **$**
                **82,988**
                
                $
                65,226
                
                $
                35,306Depreciation
                    and amortization
                
                
                **31,587**
                
                
                23,578
                
                
                21,107**114,575**
                
                
                88,804
                
                
                56,413Stock-based
                    compensation expense
                
                
                **6,781**
                
                
                2,591
                
                
                1,688EBITDA
                
                **$**
                **121,356**
                
                $
                91,395
                
                $
                58,101
    -
              2 -
  Our
          consolidated income tax rate for fiscal 2007 was 29% versus 30% in the
          prior
          year. The current year’s tax rate reflected the continuing benefit of
          cross-border financing structures first implemented in fiscal 2000. The
          Minister
          of Finance (Canada) recently proposed measures to curtail the tax benefits
          of
          cross-border financing structures in future years, after a transition period.
          Should these measures become law, our income tax expense after the transition
          period could rise materially. 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 $36.7 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 $608.1 million
          during fiscal 2007, up 39% relative to $438.4 million in the prior year.
          Internal growth was 13%, foreign exchange contributed 1% and the balance
          of
          growth was the result of acquisitions completed during the past two years.
          EBITDA was $47.7 million, at a margin of 7.8%, versus the prior year’s EBITDA of
          $36.5 million at a margin of 8.3%.
  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 Improvement 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.
  Integrated
            Security Services revenues were $176.5 million, an increase of 18% relative
            to
            the prior year, which was attributable to internal growth of 15% in US
            and
            Canadian systems installation revenues and foreign exchange of 3%. Segment
            EBITDA was $10.6 million, or 6.0% of revenues, a 90 basis point improvement
            relative to the prior year. The margin increase was attributable to significant
            improvements in realized gross margins on US systems
            projects.
  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.
  **Results
          of operations - year ended March 31, 2006**
 FirstService
          reported revenues from continuing operations of $1.07 billion for the year
          ended
          March 31, 2006, an increase of 64% relative to the prior year. The increase
          was
          comprised of internal growth of 18%, acquisitions of 44% and the impact
          of
          foreign exchange of 2%.
  Operating
          earnings increased 85% relative to the prior year, to $65.2 million. EBITDA
          increased 57% to $91.4 million. The gap between operating earnings growth
          relative to revenue and EBITDA growth is primarily the result of rapid
          amortization of brokerage backlog intangibles related to recent acquisitions
          in
          commercial real estate services, which have a significant impact on the
          first
          year after acquisition.
  
 -
              3 -
  Depreciation
            and amortization expense was $23.6 million relative to $21.1 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 amortized to coincide with the expected completion dates
            of the
            underlying brokerage transactions. The balance of the increase in depreciation
            and amortization was the result of amortization of other intangible assets
            recognized upon acquisitions during the past two years, as well as increases
            in
            fixed assets resulting from capital expenditures and
            acquisitions.
  Interest
          expense increased to $13.1 million from $7.2 million in the prior year.
          Our
          weighted average interest rate increased to approximately 6.6% versus 6.2%
          in
          the prior year as we modified our predominately floating rate structure
          to fixed
          interest rates during the year. The issuance of $100 million of 5.44% Senior
          Notes at the beginning of the fiscal year had a downward impact on the
          weighted
          average interest rate, but increased the average debt outstanding.
  Other
          income for fiscal 2006 includes a $2.2 million pre-tax gain on the sale
          of two
          non-strategic subsidiaries. These operations generated revenues of approximately
          $4.5 million during the twelve months prior to sale. Also in other income
          was
          $1.3 million of earnings from investments
          accounted for under the equity method, primarily in commercial real estate
          services.
  Our
          consolidated income tax rate for fiscal 2006 was 30%. The prior year’s tax rate
          was 25%, and reflected the benefit of a $1.1 million reduction in tax liability
          related to resolution of tax matters from prior years. We continue to benefit
          from the cross-border tax structures first implemented in fiscal
          2000.
  Net
          earnings from continuing operations was $28.0 million, an increase of 82%
          relative to fiscal
          2005. All of the Company’s continuing operations contributed to the increase in
          net earnings.
  Discontinued
          operations reported after-tax net earnings of $5.6 million, representing
          the
          earnings of Resolve for the 11.5 month period it was owned by us during
          fiscal
          2006. The earnings for fiscal 2005 were $6.6 million and included a gain
          on the
          settlement of a long term contract by Resolve during the fourth quarter
          of that
          fiscal year. We received proceeds of $137.4 million
          on the sale of Resolve, comprised of $117.0 million of cash and a 7.3%
          retained
          interest in the RBO Fund valued at $20.4 million, resulting in a $35.8
          million
          net gain on disposal, after taxes of
          $8.3
          million. As at March 31, 2006, we had an unrealized loss, net of income
          taxes,
          of $1.5 million with regard to our investment in RBO Fund which was recorded
          in
          cumulative other comprehensive earnings.
  The
          Commercial Real Estate Services segment reported revenues of $438.4 million
          during fiscal 2006, relative to $120.5 million in the prior year. Internal
          growth was 24%, foreign exchange contributed 2% and the balance of growth
          was
          the result of acquisitions completed during the past two years. EBITDA
          was $36.5
          million, at a margin of 8.3%, versus the prior year’s EBITDA of $11.1 million at
          a margin of 9.2%. The higher margin in the prior year period reflected
          four
          months of operations which included the seasonal peak month of December,
          while
          the fiscal 2006 results reflect a full year of operations.
  In
          Residential Property Management, revenues increased 26% to $346.1 million.
          After
          considering the 3% impact of acquisitions, internal growth was 23% and
          was
          attributable to significant property management contract wins, particularly
          in
          South Florida, and an increase in ancillary service revenues. Residential
          Property Management reported EBITDA of $31.4 million or 9.1% of revenues,
          up
          from $24.1 million or 8.8% of revenues in the prior year. The increase
          in
  
 -
              4 -
 
 margin
          is the result of an increase in higher margin ancillary services and operating
          leverage. The margins of both years were favorably impacted by productivity
          gains resulting from grounds maintenance and cleanup work in the aftermath
          of
          hurricanes in August through October of each year.
  The
          Property Improvement Services operations reported revenues of $134.1 million,
          an
          increase of 20% versus the prior year. Of the increase, 14% was attributable
          to
          internal growth, 5% to acquisitions and 1% to foreign exchange. EBITDA
          for the
          year was $25.8 million, 30% higher than the prior year, and the EBITDA
          margin
          increased 140 basis points to 19.2%. Solid results were generated at all
          of our
          major franchise systems, including California Closets, Paul Davis
          Restoration, Pillar to Post Home Inspections, CertaPro Painters, and College
          Pro
          Painters.
  Integrated
          Security Services revenues were $149.1 million, an increase of 4% relative
          to
          the prior year, which was attributable to foreign exchange on Canadian
          operations. Segment EBITDA
          was $7.7 million, or 5.1% of revenues, a 190 basis point decline relative
          to the
          prior year. The
          change in margin was the result of lower gross margins on systems installations
          in certain markets as a result of competitive pricing pressure, delays
          in the
          startup of several large projects and costs incurred to open new branch
          offices.
  Corporate
          costs rose to $12.5 million from $9.0 million in fiscal 2005. Professional
          fees
          were significantly higher than the previous year. In addition, the Company
          recorded $1.4 million of stock option expense during the year, an increase
          of
          $0.8 million relative to the prior year.
  **Stock-based
          compensation expense**
 One
          of
          our key operating principles is for senior management to have a significant
          long-term equity stake in the businesses they operate. The equity owned
          by
          senior management takes the form of stock, stock options or stock value
          appreciation plans, the latter two of which require the recognition of
          compensation expense under GAAP. The amount of expense recognized with
          respect
          to Company stock options is determined by allocating the grant-date fair
          value
          of each option over the expected term of the option. The amount of expense
          recognized with respect to subsidiary stock options and subsidiary stock
          value
          appreciation plans is re-measured quarterly and is directly related to the
          fair value of the respective subsidiaries’ shares. The following table sets out
          the annual expense related to stock-based compensation.
 (in
                      thousands of US$)
                    **Year
                      ended March 31**
                  
                  **2007**
                  
                  **2006**
                  
                  **2005**
                  
                  **2004**
                  
                  **2003**Stock
                      option expense - Company
                  
                  $
                  1,916
                  
                  $
                  1,380
                  
                  $
                  622
                  
                  $
                  322
                  
                  $
                  -Stock
                      option expense - subsidiaries
                  
                  
                  1,791
                  
                  
                  552
                  
                  
                  177
                  
                  
                  -
                  
                  
                  -Stock
                      value appreciation plans
                  
                  
                  3,074
                  
                  
                  659
                  
                  
                  889
                  
                  
                  -
                  
                  
                  -Total
                      stock-based compensation expense
                  
                  $
                  6,781
                  
                  $
                  2,591
                  
                  $
                  1,688
                  
                  $
                  322
                  
                  $
                  -
   -
              5 -
 **Selected
          annual information - last five fiscal years**
 **(in
          thousands of US$, except per share amounts)**
 **Year
                        ended March 31**
                    
                    **2007**
                    
                    **2006**
                    
                    **2005**
                    
                    **2004**
                    
                    **2003****OPERATIONS**Revenues
                    
                    $
                    1,359,686
                    
                    $
                    1,068,134
                    
                    $
                    651,376
                    
                    $
                    441,333
                    
                    $
                    382,302Operating
                        earnings
                    
                    
                    82,988
                    
                    
                    65,226
                    
                    
                    35,306
                    
                    
                    27,633
                    
                    
                    23,278Net
                        earnings from continuing operations
                    
                    
                    36,687
                    
                    
                    28,034
                    
                    
                    15,390
                    
                    
                    14,649
                    
                    
                    11,446Net
                          (loss) earnings from discontinuedoperations
                    
                    
                    (471
                    )
                    
                    41,463
                    
                    
                    7,817
                    
                    
                    4,375
                    
                    
                    6,994Net
                        earnings
                    
                    
                    34,863
                    
                    
                    69,497
                    
                    
                    23,207
                    
                    
                    19,024
                    
                    
                    18,440**FINANCIAL
                        POSITION**Total
                        assets
                    
                    $
                    816,998
                    
                    $
                    711,004
                    
                    $
                    626,728
                    
                    $
                    437,553
                    
                    $
                    389,031Long-term
                        debt
                    
                    
                    235,149
                    
                    
                    248,686
                    
                    
                    220,015
                    
                    
                    163,888
                    
                    
                    164,919Shareholders’
                        equity
                    
                    
                    264,875
                    
                    
                    237,752
                    
                    
                    185,871
                    
                    
                    155,101
                    
                    
                    123,406Book
                        value per share
                    
                    
                    8.85
                    
                    
                    7.91
                    
                    
                    6.15
                    
                    
                    5.26
                    
                    
                    4.36**OTHER
                        DATA**EBITDA
                    
                    $
                    121,356
                    
                    $
                    91,395
                    
                    $
                    58,101
                    
                    $
                    36,541
                    
                    $
                    30,815Diluted
                        earnings per share from continuing operations adjusted for
                      brokerage
                        backlog amortization and impairment loss on available-for-
                      sale
                        securities
                    
                    
                    1.37
                    
                    
                    1.01
                    
                    
                    0.67
                    
                    
                    0.50
                    
                    
                    0.40**SHARE
                        DATA**Net
                        earnings per shareBasicContinuing
                        operations
                    
                    $
                    1.23
                    
                    $
                    0.93
                    
                    $
                    0.52
                    
                    $
                    0.51
                    
                    $
                    0.41Discontinued
                        operations
                    
                    
                    (0.02
                    )
                    
                    1.37
                    
                    
                    0.26
                    
                    
                    0.16
                    
                    
                    0.25Cumulative
                        effect adjustment
                    
                    
                    (0.04
                    )
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -1.17
                    
                    
                    2.30
                    
                    
                    0.78
                    
                    
                    0.67
                    
                    
                    0.66DilutedContinuing
                        operations
                    
                    
                    1.14
                    
                    
                    0.87
                    
                    
                    0.49
                    
                    
                    0.50
                    
                    
                    0.40Discontinued
                        operations
                    
                    
                    (0.02
                    )
                    
                    1.34
                    
                    
                    0.25
                    
                    
                    0.15
                    
                    
                    0.24Cumulative
                        effect adjustment
                    
                    
                    (0.04
                    )
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -1.08
                    
                    
                    2.21
                    
                    
                    0.74
                    
                    
                    0.65
                    
                    
                    0.64Weighted
                        average shares (thousands)Basic
                    
                    
                    29,903
                    
                    
                    30,171
                    
                    
                    29,777
                    
                    
                    28,570
                    
                    
                    27,842Diluted
                    
                    
                    30,354
                    
                    
                    30,896
                    
                    
                    30,467
                    
                    
                    29,192
                    
                    
                    28,995Cash
                        dividends per share
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
  **Seasonality
          and quarterly fluctuations**
 Certain
          segments of the Company’s operations are subject to seasonal variations. The
          demand for exterior painting (Property Improvement 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
          6%
          of consolidated revenues.
  The
          Commercial Real Estate Services segment 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 25% 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.
 -
              6 -
 
 **Quarterly
          results - fiscal years ended March 31, 2007 and 2006**
 **(in
          thousands of US$, except per share amounts)**
 **Period**
                  
                  **Q1**
                  
                  **Q2**
                  
                  **Q3**
                  
                  **Q4**
                  
                  **Year****FISCAL
                      2007**Revenues
                  
                  $
                  325,504
                  
                  $
                  338,681
                  
                  $
                  374,757
                  
                  $
                  320,744
                  
                  $
                  1,359,686Operating
                      earnings
                  
                  
                  30,351
                  
                  
                  24,873
                  
                  
                  17,504
                  
                  
                  10,260
                  
                  
                  82,988Net
                      earnings from continuing operations
                  
                  
                  14,133
                  
                  
                  11,973
                  
                  
                  7,757
                  
                  
                  2,824
                  
                  
                  36,687Net
                      loss from discontinuedoperations
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (471
                  )
                  
                  (471
                  )Net
                      earnings
                  
                  
                  12,780
                  
                  
                  11,973
                  
                  
                  7,757
                  
                  
                  2,353
                  
                  
                  34,863Net
                      earnings per share:Basic
                  
                  
                  0.43
                  
                  
                  0.40
                  
                  
                  0.26
                  
                  
                  0.08
                  
                  
                  1.17Diluted
                  
                  
                  0.39
                  
                  
                  0.38
                  
                  
                  0.25
                  
                  
                  0.06
                  
                  
                  1.08**FISCAL
                      2006**Revenues
                  
                  $
                  251,216
                  
                  $
                  272,320
                  
                  $
                  296,651
                  
                  $
                  247,947
                  
                  $
                  1,068,134Operating
                      earnings
                  
                  
                  24,903
                  
                  
                  24,430
                  
                  
                  12,930
                  
                  
                  2,963
                  
                  
                  65,226Net
                      earnings from continuing operations
                  
                  
                  10,964
                  
                  
                  11,228
                  
                  
                  5,371
                  
                  
                  471
                  
                  
                  28,034Net
                      earnings from discontinued operations
                  
                  
                  156
                  
                  
                  2,564
                  
                  
                  2,782
                  
                  
                  35,961
                  
                  
                  41,463Net
                      earnings
                  
                  
                  11,120
                  
                  
                  13,792
                  
                  
                  8,153
                  
                  
                  36,432
                  
                  
                  69,497Net
                      earnings per share:Basic
                  
                  
                  0.37
                  
                  
                  0.46
                  
                  
                  0.27
                  
                  
                  1.21
                  
                  
                  2.30Diluted
                  
                  
                  0.35
                  
                  
                  0.44
                  
                  
                  0.26
                  
                  
                  1.18
                  
                  
                  2.21**OTHER
                      DATA**EBITDA
                      - fiscal 2007
                  
                  $
                  38,301
                  
                  $
                  32,871
                  
                  $
                  27,550
                  
                  $
                  22,634
                  
                  $
                  121,356EBITDA
                      - fiscal 2006
                  
                  
                  29,756
                  
                  
                  29,157
                  
                  
                  21,075
                  
                  
                  11,407
                  
                  
                  91,395
   **Liquidity
          and capital resources**
 The
          Company generated cash flow from operating activities, including discontinued
          operations, of $59.8 million for fiscal 2007. Operating cash flow excluding
          the
          effect of discontinued operations, was $60.0 million, up 15% versus the
          prior
          year. The modest increase in operating cash flow relative to earnings growth
          was
          attributable to investments in working capital, particularly accounts
          receivable, to support the growth of the Company. 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 March 31, 2007 was $136.1 million, versus $80.7 million
          at
          March 31,
          2006. Net indebtedness is calculated as the current and non-current portions
          of
          long-term debt adjusted for interest rate swaps less cash and cash equivalents.
          The disposal of Resolve in March 2006 was the primary driver for the
          comparatively low net indebtedness figure as at March 31, 2006. During
          the year
          ended March 31, 2007, we invested $66.8 million in business acquisitions
          using
          cash on hand, driving the increase in net indebtedness.
  We
          are
          in compliance with the covenants required of our financing agreements as
          at
          March 31, 2007 and, based on our outlook for fiscal 2008, we expect to
          remain in
          compliance with such covenants. We had $105.1 million of available revolving
          credit as of March 31, 2007.
  On
          April 1, 2005, we entered into an amended and restated credit agreement
          with a
          syndicate of banks to provide a $110 million committed senior revolving
          credit
          facility with a three year term to replace the existing $90 million facility.
          The amended revolving credit facility bears interest at 1.00% to 2.25%
          over
          floating reference rates, depending on the ratio of our net debt to adjusted
          EBITDA. The covenants remained substantially unchanged relative to the
          prior
          credit agreement.
  Also
          on
          April 1, 2005, we completed a private placement of $100 million of 5.44%
          Senior
          Notes with a group of US institutional investors. These Senior Notes have
          a
          final maturity of April
  
 -
              7 -
 
 1,
          2015
          with five equal annual principal repayments beginning on April 1, 2011.
          The
          proceeds of the private placement were used to fully repay outstanding
          balances
          on the revolving credit facility.
  During
          fiscal 2007, we repurchased 697,700 Subordinate Voting Shares for cancellation
          under our stock repurchase program at a cost of $16.6 million. We purchased
          an
          additional 121,400
          shares in late March 2007 at a cost of $3.4 million, but since these trades
          had
          not settled as
          of
          March 31, 2007, they were not recognized in the financial
          statements.
  During
          the second half of fiscal 2006, we founded Colliers International Mortgage
          Corp., a commercial mortgage backed securities conduit business (“Colliers
          Mortgage”) within our Commercial Real Estate Services operations. Colliers
          Mortgage originates commercial mortgage loans in the $0.5 to $25 million
          range
          and then sells pools of these loans to third parties. Under its financing
          agreements, the Company is permitted to have outstanding a maximum of $30
          million of mortgage loans receivable. To facilitate higher loan volumes,
          we have
          arranged for third party co-lenders to directly fund 80% or more of each
          loan.
          Immediately before selling pools of mortgages, Colliers Mortgage has the
          option
          to acquire the co-lenders’ portion of the loans. As of March 31, 2007, we had
          $13.7 million (2006 - $6.9 million) of mortgage loans receivable and a
          right to
          purchase $189.4 million (2006 - $27.5 million) of mortgages from our
          co-lenders.
  As
          at
          March 31, 2007, we had interest rate swaps to convert $167.8 million of
          fixed-rate mortgage loans receivable to floating rates (2006 - $41.5 million)
          with a fair value of $0.4 million (2006 - $0.1 million). The swaps have
          maturity
          dates ranging from December 2011 to March 2017. Because the swaps do not
          qualify
          as accounting hedges, changes in the fair value of the swaps are recognized
          in
          earnings. Substantially all of the swaps outstanding at March 31, 2007
          were
          settled in April 2007 upon the completion of a securitization.
  Capital
          expenditures for the year were $26.7 million. Significant purchases included
          an
          office and warehouse building in Fort Lauderdale, Florida to support our
          Residential Property Management operations and leasehold improvements at
          several
          locations in our Commercial Real Estate Services operations.
  When
          making acquisitions, we generally purchase executive life insurance policies
          on
          the principal
          managers of the acquired businesses. We believe this practice mitigates
          risk on
          acquisitions. At March 31, 2007, the Company had 30 such life insurance
          policies
          in force.
  In
          relation to acquisitions completed during the past three years, we have
          outstanding contingent consideration totaling $14.8 million as at March
          31, 2007
          (2006 - $8.6 million). 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. 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.
  In
          certain cases, our subsidiaries have issued options to purchase shares
          of
          subsidiaries to operating managers. The subsidiary stock options are accounted
          for in the same manner as stock options of the Company. In addition, the
          numerators for our diluted earnings per share calculations are adjusted
          to
          account for potential dilution from stock options in subsidiaries. When
          stock
          options are exercised, the minority shareholders become party to shareholders’
agreements 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
  
 -
              8 -
 limitations.
            The total value of the minority shareholders’ interests, as calculated in
            accordance with the shareholders’ agreements, was approximately $154 million at
            March 31, 2007 (2006 -$79 million). The purchase price of minority interests
            may, at our option, be paid in Subordinate Voting Shares of FirstService.
            While
            it is not our intention to acquire outstanding minority interests, this
            step may
            materially increase net earnings. On an annual basis, we estimate the
            impact of
            the acquisition of all minority interests with cash would increase interest
            expense by $10.0 million, increase amortization expense by $5.3 million,
            reduce
            income taxes by $4.6 million and reduce minority interest share of earnings
            by
            $16.4 million, resulting in an approximate increase to net earnings of
            $5.7
            million, all relative to the amounts reported for the year ended March
            31,
            2007.
  The
          following table summarizes our contractual obligations as at March 31,
          2007:
 **Contractual
                      obligations**
                  
                  **Pa****yments
                      due by pe****riod**(in
                      thousands of US$)
                  
                  **Total**
                  
                  **Less
                      than**
                    **1****year**
                  
                  **1-3
                      years**
                  
                  **4-5
                      years**
                  
                  **After
                      5 years**Long-term
                      debt
                  
                  $
                  230,694
                  
                  $
                  20,531
                  
                  $
                  31,150
                  
                  $
                  48,994
                  
                  $
                  130,019Capital
                      lease obligations
                  
                  
                  4,455
                  
                  
                  1,588
                  
                  
                  2,497
                  
                  
                  370
                  
                  
                  -Operating
                      leases
                  
                  
                  137,219
                  
                  
                  30,802
                  
                  
                  47,945
                  
                  
                  31,567
                  
                  
                  26,905Unconditional
                      purchase obligations
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Other
                      long-term obligations
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Total
                      contractual obligations
                  
                  $
                  372,368
                  
                  $
                  52,921
                  
                  $
                  81,592
                  
                  $
                  80,931
                  
                  $
                  156,924
  At
            March 31, 2007, we had commercial commitments totaling $4.9 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 6.5%.
  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, and therefore
            require significant management judgment in their determination. A 10%
            decline in
            the fair value of each reporting unit would not result in an indication
            of
            impairment.
  Acquisition
            purchase price allocations require use of estimates and judgment on the
            part of
            management, especially in the determination of intangible assets acquired
            relative to the amount that is classified as goodwill. 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 the amount allocated
            to
            intangible assets during fiscal 2007 would result in an increase to annual
            amortization expense of $0.4 million.
 
 -
              9 -
 
  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 annual amortization expense
          of
          $0.5 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 $0.9 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.
  **Impact
          of recently issued accounting standards**
 On
          April 1, 2006, the Company recorded a $1.4 million after-tax charge to
          recognize
          the cumulative effect of a change in accounting principle with respect
          to the
          adoption of SFAS No. 123(R), *Share
          Based Payment* (“SFAS
          123R”). Upon the adoption of SFAS 123R, the Company changed its approach to
          accounting for stock options issued by subsidiaries of the Company to subsidiary
          employees, where the employees have the ability to elect to receive cash
          payments upon exercise. Previously, these options were recorded as liabilities
          at their intrinsic value. Under SFAS 123R, these options are classified
          as
          liability-classed awards with the fair value of the option, as determined
          using
          the Black-Scholes stock option valuation method, recorded as liabilities.
          Also
          upon the adoption of SFAS 123R, the Company changed its method of measuring
          and
          recognizing compensation expense on share-based awards from recognizing
          forfeitures as incurred to estimating forfeitures at the date of
          grant.
  In
          September 2006, the U.S. Securities and Exchange Commission (“SEC”) staff issued
          SEC Staff Accounting Bulletin No. 108 (“SAB 108”). SAB 108 was issued in order
          to eliminate the diversity of practice surrounding how public companies
          quantify
          financial statement misstatements. Traditionally, the impacts of misstatements
          were evaluated under either an earnings-based (“rollover”) approach or a balance
          sheet-based (“iron curtain”) approach. The rollover
          approach focuses on the impact of misstatements on the statement of earnings,
          including the
          reversing impact of prior year misstatements, but its use can lead to the
          accumulation of misstatements on the balance sheet. The iron curtain approach
          focuses on the effect of correcting the period-end balance sheet with less
          emphasis on the reversing effects of prior years’ errors on the statement of
          earnings. Prior to the application of SAB 108, the Company used the rollover
          approach for quantifying financial statement misstatements. In SAB 108,
          the SEC
          staff established an approach that requires quantification of financial
          statement misstatements based on the effects of the misstatements on each
          of the
          Company’s financial statements and the related financial statement disclosures.
          This model is commonly referred to as a “dual approach” because it requires
          quantification of errors under both the rollover and iron curtain approaches.
          We
          initially applied the provisions of SAB 108 in connection with our
          annual
  
 -
              10 -
 
 consolidated
          financial statements for the year ended March 31, 2007. The net reduction
          to
          retained earnings recorded as of April 1, 2006 to record the initial application
          of SAB 108 was $5.4 million.
  SFAS
          No. 156, *Accounting
          for Servicing of Financial Assets, an amendment of SFAS No.* *140* (“SFAS
          156”) was issued in March 2006. The standard amends SFAS No. 140, Accounting
          for
          Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
          with respect to the accounting for separately recognized servicing assets
          and
          servicing liabilities. The standard is effective for the Company’s fiscal year
          commencing on April 1, 2007. SFAS 156 is not expected to have a material
          effect
          on the Company’s results of operations and financial condition as the Company
          does not currently retain servicing rights upon securitization of
          mortgages.
  In
          June
          2006, the Financial Accounting Standards Board (“FASB”) issued FASB
          Interpretation No. 48, *Accounting
          for Uncertainty in Income Taxes - an interpretation of FASB Statement No.
          109* (“FIN
          48”). FIN 48 prescribes a recognition threshold and measurement attribute
          for
          the financial statement recognition and measurement of a tax position taken
          or
          expected to be taken in a tax return. FIN 48 also provides guidance on
          accounting for derecognition, interest, penalties, accounting in interim
          periods, disclosure and classification of matters related to uncertainty
          in
          income taxes as well as transitional requirements upon adoption of FIN
          48. The
          provisions of FIN 48 are effective for the Company’s fiscal year commencing on
          April 1, 2007. The cumulative effects, if any, of applying FIN 48 will
          be
          recorded as an adjustment to opening retained earnings of the period of
          adoption. The Company has begun the process of evaluating the expected
          impact of
          FIN 48 on the consolidated financial statements, but is not yet in a position
          to
          assess the full impact and related disclosure.
  In
          September 2006, the FASB issued SFAS 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 and is effective for the Company’s
          fiscal year commencing
          on April 1, 2008. The Company is currently evaluating the impact of the
          adoption
          of SFAS 157.
  In
          February 2007, the FASB issued SFAS No. 159, *The
          Fair Value Option for Financial Assets and Financial Liabilities Including
          an
          Amendment of SFAS No. 115* (“SFAS
          159”). SFAS 159 permits the Company to measure certain financial instruments,
          assets and liabilities at fair value on an instrument-by-instrument basis
          under
          a fair value option. The Company may elect to early adopt SFAS 159 effective
          April 1, 2007; otherwise, the standard is effective for the Company as
          of April
          1, 2008. The Company is currently evaluating the impact of the adoption
          of SFAS
          159 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, 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.
  As
          of
          the date hereof, the Company has outstanding 28,475,794 Subordinate Voting
          Shares, 1,325,694 Multiple Voting Shares and no Preference Shares. In addition,
          as at the date hereof, 1,445,550 Subordinate Voting Shares are issuable
          upon
          exercise of options granted under the Company’s stock option plans.
  -
              11 -
 
 
 **Disclosure
          controls and procedures**
 Our
          disclosure controls and procedures are designed to provide reasonable assurance
          that information is accumulated and communicated to management, including
          the
          Company’s Chief Executive Officer and Chief Financial Officer, to allow timely
          decisions regarding required disclosure. Management of the Company, including
          the Chief Executive Officer and Chief Financial Officer, evaluated the
          effectiveness of the Company’s disclosure controls and procedures (as defined in
          the rules of the Canadian Securities Administrators (“CSA”) and the SEC) as of
          March 31, 2007 and concluded that such disclosure controls and procedures
          were
          effective as at March 31, 2007 and ensure that information is recorded,
          processed, summarized and reported with the time periods specified under
          Canadian and US securities laws.
  **Management’s
          annual report on internal control over financial reporting**
 The
          following report is provided by management in respect of FirstService’s internal
          controls over financial reporting (as defined in the rules of the CSA and
          SEC):
  1.
                Management
                    is responsible for establishing and maintaining adequate internal
                    controls
                    over financial reporting for the Company. Internal controls over
                    financial
                    reporting are processes designed to provide reasonable assurance
                    regarding
                    the reliability of financial reporting and the preparation of
                    consolidated
                    financial statements for external purposes in accordance with
                    GAAP.
 2.
                Management
                    has used the criteria set forth in*Internal
                    Control - Integrated Framework*issued
                    by the Committee of Sponsoring Organizations of the Treadway
                    Commission
                    (“COSO”) to assess the effectiveness of the Company’s internal controls
                    over financial reporting. Management believes that the COSO framework
                    is a
                    suitable framework for its assessment of the Company’s internal controls
                    over financial reporting because it is free from bias, permits
                    reasonable
                    consistent qualitative and quantitative measurements of FirstService’s
                    internal controls, is sufficiently complete so that those relevant
                    factors
                    that would alter a conclusion about the effectiveness of the
                    Company’s
                    internal controls are not omitted, and is relevant to an evaluation
                    of
                    internal controls over financial
                    reporting.
 3.
                Management
                    has assessed the effectiveness of the Company’s internal controls over
                    financial reporting as at March 31, 2007, and has concluded that
                    such
                    internal controls over financial reporting are effective. There
                    are no
                    material weaknesses in FirstService’s internal controls over financial
                    reporting that have been identified by
                    management.
  **Changes
          in internal controls over financial reporting**
 There
          have been no changes in FirstService’s internal controls over financial
          reporting during the year ended March 31, 2007, that have materially affected
          or
          are reasonably likely to materially affect the Company’s internal controls over
          financial reporting.
  **Additional
          information**
 Copies
          of publicly filed documents of the Company, including our Annual Information
          Form, can be found through the SEDAR web site at www.sedar.com .
  **Forward-looking
          statements**
 This
          management discussion and analysis report contains or incorporates by reference
          certain forward-looking statements within the meaning of the Private Securities
          Litigation Reform Act of 1995. We intend that such forward-looking statements
          be
          subject to the safe harbors created by such legislation. Such forward-looking
          statements involve risks and uncertainties and include, but are not limited
          to,
          statements regarding future events and the Company’s plans, goals and
          objectives. Such statements are generally accompanied by words such as
“intend”,
“anticipate”, “believe”, “estimate”, “expect” or similar statements. Our actual
          results may differ materially from such statements. Factors that could
          result in
          such differences, among others, are:
  • Economic
          conditions, especially as they relate to consumer spending.
  
 -
              12 -
  •
                Commercial
                    real estate property values, vacancy rates and general conditions
                    of
                    financial liquidity for real estate
                    transactions.
 •
                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 theimpact
                    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 the Canadian dollar foreign exchange rates
                    in
                    relation to the USdollar
                    on the Company’s Canadian and Australian dollar 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.
  Although
            we believe that the assumptions underlying our forward-looking statements
            are
            reasonable, any of the assumptions could prove inaccurate and, therefore,
            there
            can be no assurance that the results contemplated in such forward-looking
            statements will be realized. The inclusion of such forward-looking statements
            should not be regarded as a representation by the Company or any other
            person
            that the future events, plans or expectations contemplated by the Company
            will
            be achieved. We note that past performance in operations and share price
            are not
            necessarily predictive of future performance. We disclaim any intention
            and
            assume no obligation to update or revise any forward-looking statement
            even if
            new information becomes available, as a result of future events or for
            any other
            reason.