EXHIBIT
1
 
 
 
 FIRSTSERVICE
CORPORATION
 
 
 
 
 ANNUAL
INFORMATION FORM
 FOR
THE YEAR ENDED
 MARCH
31, 2008
 
 
 
 
 
 
 
 
 
 
 
 
 MAY
21, 2008
  
 FIRSTSERVICE
CORPORATION
 
 ANNUAL
INFORMATION FORM
 
 MAY
21, 2008
 
 
 All
amounts referred to in this Annual Information Form (“AIF”) are in United States
dollars unless otherwise indicated.  All financial and statistical
data in this AIF is presented as at March 31, 2008 unless otherwise
indicated.
 
 
 Corporate
structure
 FirstService Corporation (the “Company” or
“FirstService”) was formed under the Business Corporations Act
(Ontario) by Certificate of Incorporation dated February 25,
1988.  The Company amalgamated with Coloma Resources Limited pursuant
to a Certificate of Amalgamation dated July 31, 1988, and the amalgamated
corporation continued under the name “FirstService Corporation”.
 
 By Certificate of Amendment dated April 2,
1990, the Company: (i) consolidated each of its Class A Subordinate Voting
Shares on a 30 to 1 basis and changed the designation of that class of shares to
“Subordinate Voting Shares”, each such share carrying one vote; and (ii)
consolidated each of its Class B shares on a 30 to 1 basis and changed the
designation of that class of shares to “Multiple Voting Shares”, each such share
carrying 20 votes.
 
 By
Certificate of Amendment dated June 27, 2007, the first series of Preference
Shares of the Company were created and designated as 7% cumulative preference
shares, series 1 (the "Preferred Shares"), with each Preferred Share having a
stated value of US$25.00 and carrying a fixed cumulative annual dividend of
US$1.75 payable quarterly.
 
 Our Subordinate Voting Shares are publicly
traded on both the Toronto Stock Exchange ("TSX") (symbol: FSV) and the NASDAQ
Stock Market ("NASDAQ") (symbol: FSRV).  Our Preferred Shares, trade
in US$ on the TSX (symbol: FSV.PR.U).  Our head and registered office
is located at 1140 Bay Street, Suite 4000, Toronto, Ontario, M5S
2B4.
 
 Our fiscal
year-end was March 31 up to and including the fiscal year ended March 31,
2008.  On May 14, 2008, our Board of Directors approved a change in
year-end to December 31, effective December 31, 2008, pending receipt of any
necessary consents from relevant tax authorities.
 
 2
 The following
chart sets out the significant subsidiaries of the Company as of March 31, 2008.
The voting securities of such subsidiaries not controlled by us are those owned
by operating management of each respective subsidiary.
 
 Name
      of subsidiary
            Percentage
      of voting securities owned by FirstService
            Jurisdiction
      of incorporationAmerican
      Pool Enterprises, Inc.
            93.12%
            DelawareBLW,
      Inc. (d/b/a Security Services and Technologies)
            82.80%
            PennsylvaniaField
      Asset Services, Inc.
            69.16%
            TexasFirstService
      Commercial Real Estate Services, Inc.
              (d/b/a
      Colliers Macaulay Nicolls and Colliers International)
            83.92%
            OntarioFirstService
      (USA), Inc.
            100.00%
            DelawareFirstService
      Delaware, LLC
            100.00%
            DelawareFirstService
      Delaware, LP
            100.00%
            DelawareIntercon
      Security Ltd.
            100.00%
            OntarioThe
      Continental Group, Inc.
            85.85%
            FloridaThe
      Franchise Company, Inc.
            86.45%
            OntarioThe
      Wentworth Group, Inc.
            84.35%
            PennsylvaniaThe
      Merit Companies, Inc
            74.65%
            Delaware
 
 
 General
development of the business
 Our origins
date back to 1972 when Jay S. Hennick, the Founder and CEO of the Company,
started a Toronto commercial swimming pool and recreational facility management
business, which became the foundation of FirstService.  In 1993, we
completed our initial public offering on the TSX, raising C$20
million.  In 1995 our shares were listed on NASDAQ.  In
1997, a second stock offering was completed in Canada and the United States
raising US$20 million.  In December 2004, a stock dividend was
declared effectively achieving a 2-for-1 stock split for all outstanding
Subordinate and Multiple Voting Shares.
  On August 1,
2007, we issued a stock dividend of Preferred Shares to holders of Subordinate
Voting Shares and Multiple Voting Shares (together the “Common
Shares”).  One Preferred Share was issued for every five outstanding
Common Shares.  The stock dividend resulted in the issuance of
5,979,074 Preferred Shares, with an aggregate par value of $149.5
million.  The annual preferred dividend obligation is $10.5 million,
payable quarterly on or about the last day of each quarter.
 
 From 1994 to
present, we completed numerous acquisitions, developing and growing the service
lines that exist today.
 
 In 1996, we
obtained a revolving credit facility from a syndicate of banks, which has been
amended and restated at various times to the present and now includes a $225
million revolving credit facility due September 2012.  In 2001, we
completed a private placement of $100 million of 8.06% Senior Notes due June 29,
2011 with a group of US institutional investors.  In October 2003, $50
million of 6.40% Senior Notes due September 30, 2015 was issued.  In
April 2005, we completed a further private placement of $100 million of 5.44%
Senior Notes due April 1, 2015.
 
 In November
2004, we established a new commercial real estate services division under the
“Colliers International” brand with the acquisition of CMN International Inc.
(“CMN”).  Generating revenues of $285 million in the year prior to
acquisition and with 80 offices in twenty countries, CMN is the largest
affiliate of the Colliers International commercial real estate services
network.  CMN’s real estate services offerings include brokerage (sale
and leasing), property management, valuation and advisory services.
 
 During the
fiscal year ended March 31, 2005, we sold the assets of Greenspace Services
Ltd., our company-owned lawn care operation and two other non-strategic
businesses.  The combined revenues of the disposed operations for the
fiscal year ended March 31, 2004, the last full year of ownership, were $39
million.
 
 3
 In March
2006, we disposed of Resolve Corporation, our Business Services operation,
through an initial public offering of trust units of Resolve Business
Outsourcing Income Fundin
Canada for consideration comprised of cash and a 7.3% interest in the
trust.  The disposal marked a significant milestone in our strategy of
focusing on property services businesses for future growth.
 
 In April
2008, we announced the divestiture of our Integrated Security Services division,
which includes Intercon Security in Canada and SST in the United States, for
gross proceeds of approximately $187 million.  The transaction is
expected to close upon receipt of regulatory approvals.  FirstService
plans to use the proceeds to drive further growth and intensify its focus on
global diversified real estate services.
 
 
 Business
description
 FirstService
is a leader in the rapidly growing property services sector, providing services
in the following areas: commercial real estate; residential property management;
and property services.  Market-leading brands include Colliers
International in commercial real estate; Continental, Wentworth and Merit in
residential property management; and Field Asset Services, California Closets,
Paul Davis Restoration and CertaPro Painters in property services.
 
 Each service
line provides near-essential services, generates a significant percentage of
recurring revenues, has strong cash flows, generates strong returns on invested
capital and can be leveraged through margin enhancement, cross-selling or
consolidation.
 
 Our
operations are conducted through four operating segments:
  
 
 
 Revenues
      by continuing operating segment
              Year
      ended March 31(in
      thousands of US$)
              2008
              2007
              2006
              2005
              2004Commercial
      Real Estate Services
              $
      810,969
              $
      605,845
              $
      438,032
              $
      120,535
              $
      -Residential
      Property Management
              544,926
              423,797
              346,133
              275,229
              228,790Property
      Services*
              216,972
              150,794
              134,136
              111,779
              89,361Corporate
              348
              554
              367
              572
              434Total
              $
      1,573,215
              $
      1,180,990
              $
      918,668
              $
      508,115
              $
      318,585
 
 * Previously
referred to as Property Improvement Services.
 
 4
 Commercial
Real Estate Services
 Through CMN, we are a leading
international commercial real estate services provider offering a full range of
commercial real estate services in the United States, Canada, Australia, Russia,
and several other countries in Eastern Europe, Asia and Latin
America.  Operations in the United States and Canada generate
approximately 60% of total revenues for this segment, while Asia-Pacific,
Eastern Europe and Latin America generates approximately 40%.  We
provide services to owners, investors and tenants, including brokerage (sale,
leasing, and mortgage), property management and maintenance, valuation and
corporate advisory services.
 
 Commercial real estate brokers match buyers and
sellers of real estate (investors, developers or owners-users) as well as owners
and tenants of space for lease in return for a commission generally based on the
value of the transaction.  CMN’s brokerage activities focus primarily
on office, industrial, retail and multi-unit residential
properties.  The Company also offers complementary commercial real
estate mortgage brokerage services to borrowers seeking financing to acquire
properties or refinance existing mortgages under the Cohen Financial
brand.  Brokerage activities represent approximately 70% of CMN's
revenues and provide opportunities for cross selling other real estate
services.  In calendar year 2007, through a network of 1,900 brokers
across 145 offices, CMN executed transactions valued at $37 billion across a
diverse client base, including corporations, financial institutions, governments
and individuals.  Typically, brokers earn a direct commission on
individual transactions, which provides variability in the Company’s cost
structure.
 
 Commercial property management focuses on the
same client segments as brokerage; however, fees are typically multi-year fixed
fee contracts that are largely recurring in nature.
 
 CMN’s international corporate services group
partners with large corporations in managing their overall portfolio and
transactions.  Professional staff combine proprietary technology with
high level strategic planning, portfolio management, lease administration and
facilities and project management.  Fees in corporate services are
derived from a combination of fixed fee services and transaction based brokerage
fees.
  Commercial real estate brokerage is cyclical
and seasonal in nature, affected by external factors, including interest rates,
access to financing, investor and consumer confidence and other macroeconomic
factors and political risk in any specific region.  CMN’s revenues are
somewhat seasonal in nature, with approximately 70% of transactions occurring in
our fiscal quarters ending in September and December.
 
 CMN is the largest affiliate within the
global Colliers International Property Consultants (“CIPC”)
alliance.  Each member of the CIPC alliance licenses the right to use
the “Colliers International” brand in an exclusive
territory.  Colliers International is recognized as one of the top 3
commercial real estate services organizations worldwide with a network of 293
offices and over 11,000 employees in 61 countries.  Membership in CIPC
provides us with a global brand name and local market intelligence throughout
the world to assist the international community of investors, owners and users
of real estate.  Members of CIPC are required, except in certain
limited circumstances, to direct referrals for other regions to member
firms.
 
 Commercial real estate firms can be segmented
into two tiers: (i) large global full-service firms with international research
abilities, and (ii) regional and niche firms with strengths in their respective
local markets.  Recent industry trends have seen an increase in
outsourcing from sophisticated clients with global needs, creating an
opportunity for full-service global players such as CMN.
 
 There has also been a recent trend amongst
larger firms to further improve their market position through consolidation.
However, the commercial real estate competitive landscape market remains highly
fragmented with the top five real estate organizations combining for only about
10% of the estimated $100 billion global market.
 
 5
 CMN’s growth strategy is to expand its suite of
complementary service offerings and the geography where services are
offered.  This will continue to be achieved both organically and
through selective acquisitions. CMN also plans to enhance its brand and service
delivery through increased broker training and continued development of its
proprietary market tools and research resources.  During the year
ended March 31, 2008, we made investments in several businesses, including
Colliers Russia, Colliers Southeast Europe, Colliers Meredith & Grew in
Boston and Colliers Hawaii.  In January, 2008 we announced the wind
down of our Canadian commercial mortgage securitization operation which is
complete as of the current date other than disposal of remaining mortgage loans
receivable.
 
 CMN’s
business is subject to regulation by the countries and regions in which it
operates.  In most countries or regions, laws require that brokers
must be licensed and conform to a code of ethics, which involves certain
examinations and continuing education.  In addition, CMN’s property
managers are subject to regulation in the various regions in which they
operate.
 
 Residential
Property Management
 We are the
largest manager of private residential communities in North
America.  Private residential communities include condominiums,
cooperatives, gated communities and a variety of other residential developments
governed by multi-unit residential community associations (collectively referred
to as “community associations”).  In total, we manage more than
900,000 residential units in 3,700 community associations in the states of
Arizona, California, Delaware, Florida, Georgia, Illinois, Maryland, Nevada, New
Jersey, New York, North Carolina Pennsylvania, Tennessee, Texas, Virginia and
the District of Columbia.
 
 In Florida, we operate under the Continental,
Service America, and Sterling brands.  In the mid-Atlantic region, we
operate under the Wentworth, Armstrong, Cooper Square, Arco Wentworth, Planned
Companies, and American Pool brands.  In Arizona, we operate as
Rossmar & Graham, while in Illinois we operate as Wolin-Levin.  In
Nevada we operate as RMI and in Texas as Premier, which we acquired in June
2007.  In California, we operate as Merit, which we acquired in April
2007.
 
 In the
residential property management industry, there are two types of professional
property management companies: (i) traditional property managers, and (ii)
full-service property managers.  Traditional property managers
primarily handle administrative property management functions such as collecting
maintenance fees, sourcing and paying suppliers, preparing financial statements
and contracting out support services.  Full-service property managers
provide the same services as traditional property managers but also provide a
variety of other services under one exclusive contract.
 
 FirstService
is a full-service property manager and in many markets provides a full range of
services including grounds maintenance, landscaping, painting, pest control,
irrigation, home service contracts, real estate sales and leasing, heating, air
conditioning, plumbing and swimming pool management and
maintenance.  A majority of the swimming pool related services
revenues are generated outside the “sunbelt” states, and therefore impacted by
weather-related seasonality.  Accordingly, revenues are earned
primarily in the fiscal quarters ending in June and September.
 
 The aggregate
budget of all the community associations in the United States is estimated to be
over $40 billion.  The aggregate budget of the community associations
managed by FirstService is estimated at approximately $5.0
billion.  Currently, FirstService estimates that it accesses in the
range of 18-20% of the aggregate budget of its communities through the various
services that it offers.  Our strategy is to continue to add
communities under management while striving to earn a greater percentage of the
aggregate budget by introducing additional services and products, thereby
offering our clients a single point of accountability.
 
 6
 Based on
recent industry data compiled by the Community Associations Institute, we
estimate that: (i) more than 59.5 million Americans, representing approximately
24 million households, live in condominiums, cooperatives, planned communities
and other residential developments governed by multiple unit residential
community associations; (ii) more than 50% of new homes currently being built in
and around major metropolitan areas in the United States are within these
categories; (iii) there are approximately 300,000 community associations in the
United States; and (iv) the total annual operating expenses for these community
associations are estimated to be $41 billion.  The market is growing
at a rate of approximately 3% per year as a result of the 6,000-8,000 new
community associations formed each year.  In addition, the growing
trend from self-management to professional management, currently almost 50% of
the market, is believed to at least double the effective growth rate for
professional property management companies.
 
 Typically,
owners of private residential units are required to pay quarterly or monthly
fees to cover the expenses of managing the condominium or homeowner
association’s business activities and maintaining community
properties.  Historically, decision making for communities was
delegated to volunteer boards of directors elected by the
owners.  Increasingly, these volunteer boards have outsourced the
responsibility to manage the day-to-day operation and maintenance of community
property to professional property management companies.
 
 The
residential property management industry is extremely fragmented and dominated
by numerous local and regional management companies.  Only a small
number of such companies, however, have the expertise and capital to provide
both traditional property management services as well as the other support
services provided by full-service property managers.  FirstService is
the largest full-service manager of private residential communities in the
United States, managing over 3.3% of the nation’s approximately 24 million units
in community associations.  We enjoy a competitive advantage because
of our size, depth of financial and management resources, and operating
expertise.
 
 Our business
is subject to regulation by the states in which we operate.  In most
states, laws require that property managers must be licensed, which involves
certain examinations and continuing education.  In addition, our
residential real estate sales and leasing operations are subject to regulation
as a real estate brokerage by the various states in which we
operate.
 
 Property
Services
 In our
Property Services division (previously referred to as Property Improvement
Services), we provide a variety of residential and commercial services through
our network of approximately 1,900 franchised and 12 Company-owned locations
across North America.  The principal brands in this division include
Field Asset Services (“FAS”), California Closet Company (“California Closets”),
Paul Davis Restoration, CertaPro Painters, College Pro Painters, Pillar to Post
Home Inspection and Handyman Connection.
 
 FAS,
headquartered in Austin, Texas, is one of North America’s largest residential
property preservation services companies.  FAS provides comprehensive
property preservation, maintenance and repair services to some of the largest
residential mortgage lenders in America, for residential properties acquired
through foreclosure.  FAS currently processes nearly 2,000 client
requests weekly through the use of information technology systems to manage
client portfolios of foreclosed properties.  All maintenance and
repair services are managed through a process that includes outsourcing field
services to a national network of independent service contractors.  At
any one time, FAS provides its services to more than $1.5 billion in client
assets representing over 30,000 residential properties.
 
 7
 California
Closets is the largest provider of installed closet and home storage systems in
North America.  Headquartered in San Rafael, California, California
Closets has 107 franchises in the United States and Canada as well as master
franchises in other countries around the world.  California Closets
receives royalties from franchisees based on a percentage of the franchisees’
revenues.
 
 Paul Davis
Restoration is a Florida-based franchisor of residential and commercial
restoration services serving the insurance restoration industry in the United
States through 228 franchises.  This company provides restoration
services for property damaged by natural or man-made disasters.  Paul
Davis Restoration receives royalties from franchisees based on a percentage of
the franchisees’ revenues.
 
 CertaPro
Painters is a residential and commercial painting franchise system with 298
franchises operating in major markets across the United States and Canada as
well as master franchises in other countries around the
world.  CertaPro Painters focuses on high-end residential and
commercial painting and decorating work and other programs for property managers
who have portfolios of condominium and commercial
properties.  Franchisees pay CertaPro Painters either a royalty based
on a percentage of revenues or a fixed monthly fee, plus administrative fees for
various ancillary services.
 
 College Pro
Painters is a seasonal exterior residential painting franchise system operating
in 25 states and across Canada with approximately 580 franchises.  It
recruits students and trains them to operate the business, including price
estimating, marketing, operating procedures, hiring, customer service and
safety.  College Pro Painters receives a royalty from each franchisee
based on a percentage of revenue.  College Pro Painters’ operations
are seasonal with significant revenue and earnings in the Company’s June and
September quarters followed by losses in the December and March
quarters.
 
 Pillar to
Post is North America’s largest home inspection service provider. Services are
provided through a network of 356 franchises.  Pillar to Post earns
royalties from its franchisees based on a percentage of franchisee
revenues.
 
 Handyman
Connection is North America’s leading home repair and remodeling service
franchiser.  Services are provided by a network of 112 franchises
operating throughout the United States.  Handyman Connection earns
royalties from its franchisees based on a percentage of franchisee
revenues.
 
 Franchise
agreements are for terms of five or ten years, with the exception of College Pro
Painters where the agreements are for a term of one year.  All
franchise agreements contain renewal provisions that can be invoked at little or
no cost.
  We currently
own and operate 12 California Closets franchises located in Boston, Seattle,
Chicago, Jacksonville, San Francisco, Toronto, Dallas, Phoenix, Hartford,
Sacramento, Fresno and Berkeley.  These operations are referred to as
“branchises”.  The purpose of branchising is to reacquire
well-established and profitable franchises located in large territories to
accelerate growth in these territories in partnership with operating
management.  We intend to make several more branchising acquisitions
as opportunities arise.
 
 The
franchised services industry is highly fragmented, consisting principally of a
large number of smaller, single-service or single-concept
companies.  Due to the large size of the overall market for these
services, dominant market share is not considered necessary for becoming a major
player in the industry.  However, because of the low barriers to entry
in this segment, we believe that brand name recognition among consumers is a
critical factor in achieving long-term success in the businesses we
operate.
 
 8
 We believe
that the largest franchise companies in North America have been successful
because of their ability to realize economies of scale through the
centralization and successful application of certain administrative functions
such as finance, marketing, purchasing, training and support
staffing.
 
 Franchise
businesses are subject to US Federal Trade Commission regulations and state and
provincial laws that regulate the offering and sale of
franchises.  Presently, the Company is authorized to sell franchises
in 40 states, in all Canadian provinces and in several other countries around
the world.  In all jurisdictions, we endeavor to have our franchisees
meet or exceed regulatory standards.
 
 Integrated
Security Services
 In April 2008, the Company entered into
an agreement to sell the businesses comprising its Integrated Security Services
segment.This
segment is reported as discontinued operations for all periods
presented.
 
 Business
strategy
 
 Operating
strategy
 Our objective
is to increase the revenues, profitability and market position of each operating
unit and subsequently acquired business, while maintaining the highest level of
service to our customers.  Key elements of our operating strategy
are:
 
 Senior management commitment:
We strongly believe that management ownership at each of our primary operating
units has contributed significantly to our ability to grow our
businesses.  As a result, we expect to continue our practice of
encouraging strong operators of newly acquired platform businesses to retain or
acquire a significant equity stake in the businesses they operate, in the form
of a non-transferable direct equity ownership position, stock options or in
equity-like stock value appreciation rights.  In all cases, we have
the right to purchase the minority interest at a formula price based on a
multiple of trailing EBITDA1.  Management believes that its
strategy of aligning the ownership interests of operating management with those
of the Company provides a powerful incentive to deliver superior financial
performance.
 
 Performance-based
compensation: We use performance-based compensation programs throughout
each of our businesses to attract, retain and motivate our employees. In
general, senior managers receive bonuses that are based on a percentage of the
amount by which their results exceed prior year EBITDA.  Lower level
managers’ incentives are also aligned with business unit EBITDA targets, but may
include other measures deemed important for growing their
business.  We believe these programs are effective incentives to
operating management and employees to deliver consistent, high-quality service
in a cost-effective manner.
 
 Operating efficiencies: We
have been able to obtain significant operating efficiencies through the
implementation of a variety of “best practices” and have achieved meaningful
cost savings through certain economies of scale.  We attempt to
identify and refine our best practices across all of our businesses in order to
benefit from the most innovative and effective management
techniques.  The implementation of best practices has resulted in
improved labor management, customer service and service delivery
routing.  We also achieve significant savings through the volume
purchasing of vehicles, insurance, group benefits, advertising and professional
and financial services.
  _______________________________________________________
 1 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, 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 in the United States, 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.
 
 9
 Marketing penetration and joint
marketing: We capitalize on the complementary nature of our businesses by
introducing new or additional services to customers with which we already have
long-term contractual relationships.  The complementary nature of our
property services businesses also provides certain advantages when introducing a
new service in a market where we have existing operations.  These
advantages include significant market knowledge, demographic information and the
ability to share the established overhead of existing
operations.  Because we provide a number of property services, we are
able to effectively utilize marketing data that is accumulated to conduct
cost-efficient customer referral across our businesses.
 
 Acquisition
strategy
 Our
acquisition strategy has been developed to complement the internal growth
strategies of our existing service lines and as a component of our overall
growth strategy of building a significant, diversified property services
business that generates recurring and predictable cash flows and
earnings.  The acquisition strategy entails the systematic acquisition
of established, well managed, and profitable service companies operating in
fragmented industries that will:
  ·
            Enhance
      the market position of an existing service line, provide an entry into a
      new geographic region/market, or introduce a new service line;
      and
 ·
            Provide
      a return on invested capital that exceeds our weighted average cost of
      capital.
 
 Acquisitions
are classified as “tuck-under” or “platform”.  The majority of
acquisitions that we target and complete are tuck-under acquisitions. These
acquisitions are generally smaller transactions completed within an existing
service line that strengthen its regional presence or competitive position
through increased market share or the addition of a complementary service
line.  Platform acquisitions are larger transactions that either
establish an existing service line in a new geographic region or provide a
vehicle for FirstService to add a new service offering that can be leveraged
through cross-selling of services, sharing of best practices or other synergies
or through further consolidation.  Each acquisition must meet strict
criteria that include the following:
  ·
            Strong,
      experienced management teams in place that are interested in growing their
      businesses and in being rewarded through performance-based
      compensation;
 ·
            History
      of consistent profitability, supported by significant contractual
      revenues;
 ·
            Non-capital
      intensive operations with a variable cost
  structure;
 ·
            Leading
      positions in the markets served;
and
 ·
            In the
      case of platform acquisitions, one or more senior managers who wish to
      retain a significant minority interest in the acquired company in order to
      participate directly in its future growth and development as part of
      FirstService.
 
 In general,
platform companies continue to operate on a stand-alone basis in accordance with
our operating strategy, while drawing on the resources of FirstService to
facilitate future growth.  Most tuck-under acquisitions are fully
integrated into the operations of the service line making the
acquisition.
 
 Our
acquisitions are typically valued on a debt-free basis using a multiple of
normalized and sustainable EBITDA (“Valuation EBITDA”).  Usually,
consideration is paid with a combination of cash at closing and contingent
consideration.  Contingent consideration is typically issuable over a
three-year contingency period, subject to achievement of the Valuation EBITDA on
an averaged basis over the three-year period subsequent to
closing.  In the event that the actual average EBITDA is less than the
Valuation EBITDA, the purchase price and contingent consideration are reduced by
a multiple of the deficiency in EBITDA.
 
 10
 In executing
acquisitions, our acquisition team works closely with operating management of
our service lines to identify, negotiate and complete acquisitions.  A
majority of acquisitions are negotiated on an exclusive basis, without the
imposition of an intermediary-controlled auction process, thereby facilitating a
focused effort by FirstService to build a relationship with its prospective
partner and emphasize the appropriate balance of financial and non-financial, as
well as long-term and short-term attributes of the acquisition to the
vendor.  Notwithstanding the varied acquisition opportunities
available to FirstService, management remains committed to a disciplined
approach to acquisitions, including a rigorous adherence to our strict
acquisition criteria and transaction structure.  As well, we only
allocate our financial and human resources to existing service lines for
acquisitions if the management team has the capacity to integrate the
acquisition and the performance of current operations is meeting or exceeding
expectations.
 
 The
integration process is a critical component of all acquisitions executed by
FirstService.  This process is initiated during due diligence, when
opportunities for integration, operational improvements and the sharing of best
practices are identified and an integration plan is
drafted.  Post-closing, the integration plan is reviewed with
management of the acquired company to ensure that it accurately captures and
prioritizes the issues to be addressed.  Once a buy-in has been
obtained, the integration plan is finalized and a timetable established for the
execution of the plan by management of the acquired company.  This is
a collaborative process with a high degree of involvement from our integration
team in overseeing the implementation and in monitoring progress against the
timetable.
 
 Seasonality
 Certain
segments of the Company’s operations are subject to seasonal
variations.  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
Commercial Real Estate Services operation generates peak revenues and earnings
in the month of December followed by a low in January and February 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 36% 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.
 
 Trademarks
 FirstService’s
trademarks are important for the advertising and brand awareness of all of our
businesses and franchises.  We take precautions to defend the value of
our trademarks by maintaining legal registrations and by litigating against
alleged infringements, if necessary.
 
 In our
Property Services unit, four franchise systems – California Closet Company, Paul
Davis Restoration, Pillar to Post Home Inspection, and Handyman Connection –
have trademarks to which value has been ascribed in the consolidated financial
statements.  These franchise systems have franchises in significant
population centers in the United States.  The value of these
trademarks is derived from the recognition they enjoy among the target audiences
for closet system installations, disaster restoration services, home inspections
and handyman services.  These trademarks have been in existence for
many years, and their prominence among consumers has grown over time through the
addition of franchisees and the ongoing marketing programs conducted by both
franchisees and the Company.
 
 11
 In our
Commercial Real Estate Services unit, the Colliers International trademark was
identified as an acquired intangible asset.  The Colliers
International trademark is highly recognized in the commercial real estate
industry.
 
 Employees
 Excluding discontinued operations, we have
approximately 17,000 employees, rising to a total of approximately 18,000 with
seasonal employees in the spring and summer months.
  Minority
interests
 FirstService
owns a majority interest in nearly all of its subsidiaries, while operating
management of each subsidiary owns the remaining shares.  This
structure was designed to maintain control at FirstService while providing
significant risks and rewards of equity ownership to management at the operating
companies.  In all cases, the Company has the right to “call”
management’s shares, usually payable at the Company’s option with any
combination of FirstService shares or cash.  FirstService may also be
obligated to acquire certain of these minority interests in the event of death,
disability or cessation of employment of the employee or if the shares are “put”
by the employee.  These arrangements provide significant flexibility
to FirstService in connection with management succession planning and
shareholder liquidity matters.
 
 Dividends
and dividend policy
 Our Preferred
Shares (issued by way of stock dividend on August 1, 2008) have a fixed annual
dividend of US$1.75 per Preferred Share payable on or about the last day of each
quarter to holders of record on or about the fifteenth day of the last month in
each quarter, subject to declaration by the Board of Directors of the
Company.  During the fiscal year ended March 31, 2008, dividends were
paid on the Preferred Shares as follows:
 
 ·
            US$0.2877
      per Preferred Share for the period of August 1, 2007 (the date of initial
      issue of the Preferred Shares) to but excluding September 30, 2007, which
      dividend was payable on October 1, 2007 to holders of Preferred Shares of
      record at the close of business on September 19,
  2007;
 ·
            US$0.4375
      per Preferred Share for the period of September 30, 2007 to but excluding
      December 31, 2007, which dividend was payable on December 31, 2007 to
      holders of Preferred Shares of record at the close of business on December
      18, 2007; and
 ·
            US$0.4375
      per Preferred Share for the period of December 31, 2007 to but excluding
      March 31, 2008, which dividend was payable on March 31, 2008 to holders of
      Preferred Shares of record at the close of business on March 18,
      2008.
 
 The payment
of dividends on the Common Shares is at the discretion of the Board of Directors
of the Company, which considers earnings, capital requirements and the financial
condition of the Company, among other relevant factors.  If dividends
were declared on the Common Shares, they could be payable in either US or
Canadian dollars.
 
 12
 Capital
structure
 The
authorized capital of the Company consists of an unlimited number of preference
shares, issuable in series, at the discretion of the Board of Directors of the
Company,of which are
authorized an unlimited number of Preferred Shares, an unlimited number of
Subordinate Voting Shares and an unlimited number of convertible Multiple Voting
Shares.  The holders of Subordinate Voting Shares are entitled to one
(1) 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 (20) votes in respect of each Multiple Voting Share held at all
meetings of the shareholders of the Company. Each Multiple Voting Share is
convertible into one Subordinate Voting Share at the option of the holder.
Effective December 15, 2004, a stock dividend was declared, effectively
achieving a 2-for-1 stock split for all outstanding Subordinate and Multiple
Voting Shares.  On August 1, 2007 a stock dividend occurred in the
amount of one Preferred Share for every five Common Shares.  The
Preferred Shares have a stated value of US$25.00, carry a fixed cumulative
annual dividend of US$1.75 payable quarterlyand
are redeemable for cash or Subordinate Voting Shares at the option 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 preference
shares as a class, to receive notice of, attend or vote at any meeting of the
shareholders of the Company.  As of May 21, 2008, there were
28,786,893 Subordinate Voting Shares, 1,325,694 Multiple Voting Shares and
5,979,074 Preferred Shares issued and outstanding.
 
 A summary of
certain rights attaching to the Subordinate Voting Shares is set out in the
section entitled “Certain Rights of Holders of Subordinate Voting Shares”
contained in the Company’s Management Information Circular (the "Circular")
dated May 21, 2008 filed in connection with the Company’s annual and special
meeting of shareholders to be held on June 23, 2008, which section is
incorporated herein by reference.
 
 Rating
of Preferred Shares
 Our Preferred
Shares are rated by DBRS Ltd. (“DBRS”).  As of the date of this AIF,
the rating was “Pfd-3 (low)” with a status of “under review with developing
implications”.  The status was updated from “stable” on April 15, 2008
to reflect the pending divestiture of our Integrated Security Services
segment.  DBRS rates preferred shares with ratings ranging from
“Pfd-1” to “Pfd-5”, with “Pfd-1” representing the highest rating.  To
show relative rankings with the categories, DBRS may modify them by the addition
of “high” or “low”.  The rating of our Preferred Shares is not a
recommendation to purchase, hold or sell the Preferred Shares and does not
comment as to market price or suitability for a particular
investor.  There can be no assurance that the rating shown above will
remain in effect for any given period of time or that the rating will not be
revised or withdrawn in its entirety by DBRS in the future if, in its judgment,
circumstances so warrant.
 
 
 Market
for securities
 The Company’s
Subordinate Voting Shares are listed for trading on the TSX and
NASDAQ.  The Company’s Preferred Shares are listed for trading on the
TSX, and trade in US$.  The Company’s Multiple Voting Shares are not
listed and do not trade on any public market or quotation system.
 
 13
 The table
below details the price ranges and volumes traded of Subordinate Voting Shares
on NASDAQ in US dollars, and the TSX in Canadian dollars and of Preferred Shares
on the TSX in US dollars, in each case, on a monthly basis during fiscal
2008:
 
 Subordinate
      Voting Shares
            Preferred
      SharesNASDAQ
            TSX
            TSXMonth
            High
      Price (US$)
            Low
      Price (US$)
            Volume
      Traded
            High
      Price (C$)
            Low
      Price (C$)
            Volume
      Traded
            High
      Price (US$)
            Low
      Price (US$)
            Volume
      TradedApril
      2007
            29.64
            26.80
            320,200
            33.00
            30.19
            1,022,894
            –
            –
            –May
      2007
            35.46
            29.44
            883,400
            39.00
            32.61
            1,031,247
            –
            –
            –June
      2007
            37.25
            34.34
            844,000
            39.89
            36.64
            1,054,001
            –
            –
            –July
      2007
            38.29
            31.62
            906,800
            39.93
            34.50
            1,439,467
            24.50
            22.30
            237,207August
      2007
            34.28
            28.87
            858,900
            36.02
            30.86
            1,757,406
            23.00
            21.00
            1,131,883September
      2007
            31.90
            26.23
            1,046,600
            32.03
            27.32
            2,011,560
            23.00
            21.50
            175,118October
      2007
            38.25
            29.90
            1,123,300
            36.30
            29.56
            1,474,785
            22.75
            20.50
            305,593November
      2007
            38.05
            32.41
            1,087,600
            36.16
            32.20
            1,278,187
            21.00
            19.50
            92,728December
      2007
            33.32
            28.99
            601,400
            33.59
            28.81
            1,104,838
            20.75
            19.60
            765,882January
      2008
            31.14
            20.15
            1,389,700
            30.44
            20.26
            2,819,650
            20.30
            19.00
            107,895February
      2008
            23.83
            20.47
            761,300
            24.18
            20.76
            2,070,091
            21.25
            19.15
            77,099March
      2008
            22.89
            20.64
            549,800
            23.16
            20.55
            1,802,772
            20.00
            18.40
            93,801
 
 
 Transfer
agents and registrars
 The transfer agent and registrar for the
Subordinate Voting and Preferred Shares is Equity Transfer and Trust Company,
200 University Ave., Suite 200, Toronto, Ontario, M5H 4H1.  The
transfer agent and registrar for the Multiple Voting Shares is the Company at
1140 Bay Street, Suite 4000, Toronto, Ontario, M5S 2B4.
 
 14
 Directors
and officers
 
 Directors– The following are the
directors of the Company as at May 21, 2008:
 
 Name
      and municipality of residence
            Age
            Present
      position and tenure
            Business
      experience during
              last
      five yearsDavid
      R. Beatty 1,2,3
              Toronto,
      Ontario
            66
            Director
      since May 2001
            Corporate
      Director; Chair and CEO, Beatinvest Limited (an investment company);
      Managing Director of the Canadian Coalition for Good Governance; Professor
      of Strategy, Director of Clarkson Center for Business Ethics and Board
      Effectiveness and Professor of Strategic Management, Rotman School of
      Management, University of TorontoBrendan
      Calder2,3
              Toronto,
      Ontario
            61
            Director
      since June 1996
            Corporate
      Director;
              Adjunct  Professor
      of Strategic Management,
              Rotman
      School of Management,
              University
      of TorontoPeter
      F. Cohen1,2,3
              Toronto,
      Ontario
            55
            Director
      since March 1990; Chair of the Board since May 2005
            President,
      Dawsco Group
              (an
      Ontario-based real estate and investment company)Bernard
      I. Ghert1
              Toronto,
      Ontario
            68
            Director
      since June 2004
            Corporate
      DirectorJay S.
      Hennick
              Toronto,
      Ontario
            51
            Chief
      Executive Officer and Director since May 1988
            Founder
      and Chief Executive Officer of the CompanySteven
      S. Rogers
              Mississauga,
      Ontario
            52
            Director
      since August 1989
            President
      and Chief Executive Officer,
              The
      Franchise Company, Inc.
              (subsidiary
      of the Company)Michael
      D. Harris
              Vaughan,
      Ontario
            63
            Director
      since June 2006
            Senior
      Business Advisor, Goodmans LLP; Corporate Director;
              Senior
      Fellow, The Fraser Institute
              Former
      Premier of the Province of Ontario
 1.
            Member
      of Audit Committee
 2.
            Member
      of Executive Compensation Committee
 3.
            Member
      of Nominating and Corporate Governance
Committee
 
 Each director
remains in office until the following annual shareholders’ meeting or until the
election or appointment of his successor, unless he resigns or his office
becomes vacant.  All directors stand for election or re-election
annually.
 
 Further
background information regarding the directors of the Company is set out in the
sections entitled “Business of the Meeting – Election of Directors" and
"Statement of Corporate Governance Practices" contained in the Circular, which
sections are incorporated herein by reference.
 
 15
 Officers–
The following are the executive officers of the Company as at May 21,
2008:
 
 Name
      and municipality of residence
            Age
            Present
      position with the Company
            First
      becamean
      officerJay S.
      Hennick
              Toronto,
      Ontario
            51
            Founder  and
      Chief Executive Officer
            1988D.
      Scott Patterson
              Toronto,
      Ontario
            47
            President
      and Chief Operating Officer
            1995John B.
      Friedrichsen
              Toronto,
      Ontario
            46
            Senior
      Vice President and Chief Financial Officer
            1998Roman
      Kocur
              Toronto,
      Ontario
            47
            Senior
      Vice President, Strategy and Corporate Development
            2003Michael
      Natale
              Toronto,
      Ontario
            48
            Vice
      President, Performance & Risk Management
            2005Douglas
      G. Cooke
              Toronto,
      Ontario
            48
            Vice
      President, Corporate Controller and Corporate Secretary
            1995
 
 The directors
and executive officers of the Company, as a group, own or control 3,071,009
Subordinate Voting Shares, which represents 10.7% of the total Subordinate
Voting Shares outstanding.  The directors and officers, as a group,
control 53.5% of the total voting rights when all Multiple Voting Shares and
Subordinate Voting Shares are considered. Mr. Hennick controls all of the
Company’s Multiple Voting Shares.
 
 Mr. Rogers
controls a 5.4% voting interest in The Franchise Company Inc., a subsidiary of
the Company.
 
 Legal
proceedings and regulatory actions
 In the normal course of operations, the Company
is subject to routine claims and litigation incidental to its
business.  Litigation currently pending or threatened against the
Company includes disputes with former employees and commercial liability claims
related to services provided by the Company.  The Company believes
resolution of such proceedings, combined with amounts set aside, will not have a
material impact on the Company’s financial condition or the results of
operations.
 
 We have
responded to the information requests of our primary securities regulator, the
Ontario Securities Commission, and the TSX with respect to the Special Committee
of our Board of Directors’ review of our historical stock option granting
processes and the related accounting for the 13 year period from 1995 to 2007
and the measures taken in response.  We will continue to co-operate
with the Ontario Securities Commission, the TSX and any further information
requests in connection with the inquiry.  Until further notified by
the TSX, all grants of stock options by us require the prior consent of the
TSX.
 
 16
 Properties
 The following
chart provides a summary of the properties occupied by the Company and its
subsidiaries as at March 31, 2008:
 
 (square
      feet)
            United
      States (leased)
            United
      States
              (owned)
            Canada
              (leased)
            Canada
              (owned)
            International
              (leased)
            International
              (owned)Residential
      Property
              Management
            575,000
            312,000
            7,500
            -
            -
            -Commercial
      Real Estate
              Services
            462,000
            -
            245,000
            -
            330,000
            -Integrated
      Security Services
            69,000
            -
            71,000
            -
            -
            -Property
      Services
            249,000
            -
            35,000
            -
            -
            -Corporate
            -
            -
            -
            20,000
            -
            -
 
 
 Selected
annual information - last five fiscal years
 (in
thousands of US$, except per share amounts)
 Year
      ended March 31
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004OPERATIONSRevenues
            
            $
            1,573,215
            
            
            $
            1,180,990
            
            
            $
            918,668
            
            
            $
            508,115
            
            
            $
            318,585Operating
      earnings
            
            
            73,576
            
            
            
            76,118
            
            
            
            61,087
            
            
            
            27,838
            
            
            
            21,392Net
      earnings from continuing operations
            
            
            33,065
            
            
            
            34,032
            
            
            
            26,757
            
            
            
            12,172
            
            
            
            11,776Net
      earnings from discontinued operations
            
            
            1,334
            
            
            
            2,184
            
            
            
            42,740
            
            
            
            11,035
            
            
            
            7,248Net
      earnings
            
            
            34,399
            
            
            
            34,863
            
            
            
            69,497
            
            
            
            23,207
            
            
            
            19,024FINANCIAL
      POSITIONTotal
      assets
            
            $
            1,089,343
            
            
            $
            816,998
            
            
            $
            711,004
            
            
            $
            626,728
            
            
            $
            437,553Long-term
      debt
            
            
            356,030
            
            
            
            235,131
            
            
            
            248,686
            
            
            
            220,015
            
            
            
            163,888Shareholders’
      equity
            
            
            305,685
            
            
            
            264,875
            
            
            
            237,752
            
            
            
            185,871
            
            
            
            155,101Book
      value per common share
            
            
            5.19
            
            
            
            8.85
            
            
            
            7.91
            
            
            
            6.15
            
            
            
            5.26COMMON
      SHARE DATANet
      earnings per common share:BasicContinuing
      operations
            
            $
            0.87
            
            
            $
            1.14
            
            
            $
            0.89
            
            
            $
            0.41
            
            
            $
            0.41Discontinued
      operations
            
            
            0.05
            
            
            
            0.07
            
            
            
            1.41
            
            
            
            0.37
            
            
            
            0.26Cumulative
      effect adjustment
            
            
            -
            
            
            
            (0.04
            )
            
            
            -
            
            
            
            -
            
            
            
            -0.92
            
            
            
            1.17
            
            
            
            2.30
            
            
            
            0.78
            
            
            
            0.67DilutedContinuing
      operations
            
            
            0.81
            
            
            
            1.05
            
            
            
            0.83
            
            
            
            0.38
            
            
            
            0.40Discontinued
      operations
            
            
            0.04
            
            
            
            0.07
            
            
            
            1.38
            
            
            
            0.36
            
            
            
            0.25Cumulative
      effect adjustment
            
            
            -
            
            
            
            (0.04
            )
            
            
            -
            
            
            
            -
            
            
            
            -0.85
            
            
            
            1.08
            
            
            
            2.21
            
            
            
            0.74
            
            
            
            0.65Weighted
      average common shares (thousands)Basic
            
            
            29,905
            
            
            
            29,903
            
            
            
            30,171
            
            
            
            29,777
            
            
            
            28,570Diluted
            
            
            30,547
            
            
            
            30,354
            
            
            
            30,896
            
            
            
            30,467
            
            
            
            29,192Cash
      dividends per common share
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -PREFERRED
      SHARE DATANumber
      outstanding (thousands)
            
            
            5,979
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Cash
      dividends per preferred share
            
            $
            1.16
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -OTHER
      DATAEBITDA
      (note 1)
            
            $
            119,874
            
            
            $
            109,809
            
            
            $
            84,319
            
            
            $
            47,814
            
            
            $
            28,352Adjusted
      diluted earnings per share from continuing operations (note
    2)
            
            
            1.02
            
            
            
            1.05
            
            
            
            0.74
            
            
            
            0.34
            
            
            
            0.18
 
 17
 Quarterly
results – fiscal years ended March 31, 2008 and 2007
 (in
thousands of US$, except per share amounts)
 Period
            
            
            Q1
            
            
            
            Q2
            
            
            
            Q3
            
            
            
            Q4
            
            
            YearFISCAL
      2008Revenues
            
            $
            370,494
            
            
            $
            379,935
            
            
            $
            451,100
            
            
            $
            371,686
            
            
            $
            1,573,215Operating
      earnings (loss)
            
            
            34,483
            
            
            
            31,770
            
            
            
            21,162
            
            
            
            (13,839
            )
            
            
            73,576Net
      earnings (loss) from continuing operations
            
            
            15,685
            
            
            
            15,859
            
            
            
            9,683
            
            
            
            (8,162
            )
            
            
            33,065Net
      earnings (loss) from discontinued operations
            
            
            2,397
            
            
            
            1,834
            
            
            
            (1,698
            )
            
            
            (1,199
            )
            
            
            1,334Net
      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
      2007Revenues
            
            $
            281,780
            
            
            $
            296,908
            
            
            $
            326,611
            
            
            $
            275,691
            
            
            $
            1,180,990Operating
      earnings
            
            
            27,701
            
            
            
            23,957
            
            
            
            14,577
            
            
            
            9,883
            
            
            
            76,118Net
      earnings from continuing operations
            
            
            12,925
            
            
            
            11,848
            
            
            
            6,673
            
            
            
            2,586
            
            
            
            34,032Net
      earnings (loss) from discontinued operations
            
            
            1,208
            
            
            
            125
            
            
            
            1,084
            
            
            
            (233
            )
            
            
            2,184Net
      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
      - fiscal 2008 (note 1)
            
            $
            42,739
            
            
            $
            41,894
            
            
            $
            36,684
            
            
            $
            (1,443
            )
            
            $
            119,874EBITDA
      - fiscal 2007 (note 1)
            
            
            34,787
            
            
            
            31,103
            
            
            
            23,837
            
            
            
            20,082
            
            
            
            109,809
 
 Notes
 1.  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, 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 in the United States, 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
annual amounts appears below.
 
 (in
      thousands of US$)Year
      ended March 31
            
            2008
            
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004Operating
      earnings
            
            $
            73,576
            
            
            $
            76,118
            
            
            $
            61,087
            
            
            $
            27,838
            
            
            $
            21,392Depreciation
      and amortization
            
            
            38,479
            
            
            
            28,735
            
            
            
            20,921
            
            
            
            18,288
            
            
            
            6,638112,055
            
            
            
            104,853
            
            
            
            82,008
            
            
            
            46,126
            
            
            
            28,030Stock-based
      compensation expense
            
            
            7,819
            
            
            
            4,956
            
            
            
            2,311
            
            
            
            1,688
            
            
            
            322EBITDA
            
            $
            119,874
            
            
            $
            109,809
            
            
            $
            84,319
            
            
            $
            47,814
            
            
            $
            28,352
  2.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 short-lived intangible assets acquired in connection with recent
Commercial Real Estate Services acquisitions; (ii) the impairment loss on
available-for-sale securities and (iii) incremental stock option expense from
the stock option review recorded in December 2007.  The Company
believes this measure is useful because (i) it isolates the impact of
non-recurring acquisition-related amortization expense; (ii) it eliminates the
effect of a non-cash impairment of securities obtained in connection with the
disposal of a business and (iii) it eliminates the effect of a non-cash
adjustment to historical stock option expense.  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.
  18
 
 (in
      US$)
            
            Year
      ended March 312008
            
            
            2007
            
            
            2006Diluted
      net earnings per common share from continuing operations
            
            $
            0.81
            
            
            $
            1.05
            
            
            $
            0.83Pro
      forma impact of dividends on preferred shares
            
            
            -
            
            
            
            (0.23
            )
            
            
            (0.23
            )Amortization
      of brokerage backlog, net of taxes
            
            
            0.10
            
            
            
            0.15
            
            
            
            0.14Impairment
      loss on available-for-sale securities, net of taxes
            
            
            -
            
            
            
            0.08
            
            
            
            -Incremental
      stock option expense from stock option review
            
            
            0.11
            
            
            
            -
            
            
            
            -Adjusted
      diluted net earnings per common share from continuing
      operations
            
            $
            1.02
            
            
            $
            1.05
            
            
            $
            0.74
 
 
 Risk
and uncertainties
 The Company is subject to various risks and
uncertainties, which are described below in order of significance:
 ·
            Economic
      conditions, especially as they relate to credit conditions and consumer
      spending.
 ·
            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 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 and Australian dollar denominated revenues and
      expenses.
 ·
            Our
      ability to make acquisitions at reasonable prices and successfully
      integrate acquired operations.
 ·
            Risks
      arising from any regulatory review.
 ·
            Changes
      in government policies at the federal, state/provincial or local level
      that may adversely impact our
businesses.
 
 Each of the
above factors may have a material adverse affect on the Company’s business,
operating results and financial condition.
 
 Management's
discussion and analysis
 The section
entitled “Management’s Discussion and Analysis of Results of Operations and
Financial Condition” within the Company’s 2008 annual report is incorporated
herein by reference.
 
 Interest
of management and others in material transactions
 There are no
material interests, direct or indirect, of directors or executive officers of
the Company, any shareholder who beneficially owns, directly or indirectly, or
exercises control or direction over more than 10% of the outstanding shares of
the Company, or any known associate or affiliate of such persons in any
transactions within the three most recently completed financial years of the
Company or during the current financial year which has materially affected, or
would materially affect, the Company.
 
 19
 Material
contracts
 On February
1, 2004, the Company, upon the review, report and recommendation of the
Executive Compensation Committee of the Board of Directors of the Company,
entered into a management services agreement (the "Management Services
Agreement") with Jayset Capital Corp. (“Jayset”) and Jay S.
Hennick.  Mr. Hennick is the sole officer, director and shareholder of
Jayset. The particulars of the Management Services Agreement are set out in the
sections entitled "Executive Compensation – Management Contract" and "Sale of
Control Agreement" contained in the Circular, which sections are incorporated
herein by reference.
 
 On September
10, 2007, the Company successfully completed an amended and restated credit
facility, increasing the amount to $225 million from the then current amount of
$110 million.  The new facility also increased the term to 5 years
from 3 years and included an "accordion feature" providing an additional $50
million in financing under the same terms if required, bringing the total
financing capacity of the facility to $275 million.  The lead arranger
for the financing was TD Securities. The syndicate of banks included incumbents,
The Toronto-Dominion Bank, The Bank of Nova Scotia, Royal Bank of Canada, JP
Morgan Chase Bank, HSBC Bank, as well as new participants United Overseas Bank,
Bank of America and Bank of Montreal.
 
 On April 14,
2008, the Company entered into a definitive agreement to sell its Integrated
Security Services division, FirstService Security, to ADT Security (“ADT”), a
unit of Tyco International.  Under the terms of the agreement, ADT
will acquire 100% of the shares of FirstService Security from FirstService for
cash on closing.  FirstService Security operates under the Intercon
Security brand name in Canada and Security Services & Technologies in the
United States.  The transaction is valued at approximately $187
million and has been approved by the boards of directors of both
companies.  The transaction is expected to close as soon as
practicable following receipt of required regulatory approvals and satisfaction
of other customary closing conditions.
 
 Cease
trade orders, bankruptcies, penalties or sanctions
 To the best
of the knowledge of the Company:
 
 (A)
            none of
      the directors or executive officers of the Company is, as at the date of
      this AIF, or has been, within 10 years before the date of this AIF, a
      director, chief executive officer or chief financial officer of any
      company (including the Company) that: (i) was subject to an order that was
      issued while the director or executive officer was acting in the capacity
      as director, chief executive officer or chief financial officer; or (ii)
      was subject to an order that was issued after the director or executive
      officer ceased to be a director, chief executive officer or chief
      financial officer and which resulted from an event that occurred while
      that person was acting in the capacity as director, chief executive
      officer or chief financial officer;
 
 (B)
            none of
      the directors or executive officers of the Company, or a shareholder
      holding a sufficient number of securities of the Company to affect
      materially the control the Company: (a) is, as at the date of this AIF, or
      has been, within 10 years before the date of this AIF, a director or
      executive officer of any company (including the Company) that, while that
      person was acting in that capacity or within a year of that person ceasing
      to act in that capacity, became bankrupt, made a proposal under any
      legislation relating to bankruptcy or insolvency or was subject to or
      instituted any proceedings, arrangement or compromise with creditors or
      had a receiver, receiver manager or trustee appointed to hold its assets;
      or (b) has, within the 10 years before the date of this AIF, become
      bankrupt, made a proposal under any legislation relating to bankruptcy or
      insolvency, or become subject to or instituted any proceedings,
      arrangement or compromise with creditors, or had a receiver, receiver
      manager or trustee appointed to hold the assets of the director, executive
      officer or shareholder;
 
 20
 except for
David R. Beatty who was a director of Thistle Mining Inc. (“Thistle”) when
Thistle announced on December 21, 2004 that it intended to undertake a
restructuring under the Companies’'Creditors Arrangement
Act.  While Thistle completed the restructuring on June 30,
2005, its common shares were suspended from trading on the Alternative
Investment Market from June 30, 2005 to July 13, 2005 and its common shares were
suspended from trading on the TSX on December 31, 2004 due to the restructuring
until Thistle delisted in February 2006.  Mr. Beatty is no longer a
director of Thistle Mining Inc.
 
 Conflicts
of interest
 Certain
directors and officers of the Company are engaged in and will continue to engage
in activities outside the Company, and as a result, certain directors and
officers of the Company may become subject to conflicts of
interest.  The Business Corporations Act(Ontario) provides that in the event that a director has an interest in a
contract or proposed contract or agreement, the director shall disclose his
interest in such contract or agreement and shall refrain from voting on any
matter in respect of such contract or agreement unless otherwise provided under
the Business Corporations Act(Ontario).  To the extent that conflicts of interest arise,
such conflicts will be resolved in accordance with the provisions of the Business Corporations Act(Ontario).
 
 As at the
date hereof, the Company is not aware of any existing or potential material
conflicts of interest between the Company and a director or officer of the
Company.
 
 Experts
 The Company’s independent auditors are
PricewaterhouseCoopers LLP, Chartered Accountants, who have issued an
independent auditors’ report dated May 20, 2008 in respect of the Company’s
consolidated financial statements as at March 31, 2008 and 2007 and for each
year in the three year period ending March 31, 2008, and the Company’s internal
control over financial reporting as at March 31,
2008.  PricewaterhouseCoopers LLP has advised that they are
independent with respect to the Company within the meaning of the Rules of
Professional Conduct of the Institute of Chartered Accountants of Ontario and
the rules of the SEC.
 
 Audit
Committee
 The Audit
Committee is comprised of three members who are each “independent” and
“financially literate” as required by Multilateral Instrument 52-110 Audit Committees(the “Audit
Committee Rule”).  The members of the Audit Committee during the year
ended March 31, 2008 were Messrs. Ghert - Chair, Beatty and
Cohen.  Mr. Ghert was appointed Chair of the Audit Committee in May
2005.  Mr. Beatty was appointed to the Audit Committee in August 2007,
replacing Mr. Calder.  The Audit Committee has the authority to
conduct any investigation appropriate to fulfilling its responsibilities, and it
has direct access to the external auditors as well as to anyone in the
Company.  The Audit Committee has the ability to retain, at the
Company’s expense, special legal, accounting, or other consultants or experts it
deems necessary in the performance of its duties.  The Audit Committee
meets at least four times annually, or more frequently as circumstances
dictate.
 
 21
 The Audit
Committee reviews the annual and interim financial statements intended for
circulation among shareholders and reports upon these to the Board of Directors
of the Company (the "Board") prior to their approval by the full
Board.  The Audit Committee is also responsible for the oversight of
the integrity of the Company’s internal accounting and control
systems.  The Audit Committee communicates directly with the Company’s
external auditors in order to discuss audit and related matters whenever
appropriate.  In addition, the Board may defer to the Audit Committee
on other matters and questions relating to the financial position of the Company
and its affiliates.  The Board has adopted an Audit Committee mandate,
a copy of which is annexed as Exhibit "A" to Exhibit 1 of the Form 40-F of the
Company in respect of the fiscal year ended March 31, 2007 (a copy of which is
available at www.sedar.com).  The Audit Committee mandate is also
published on the Company’s website (www.firstservice.com).
 
 The education
and related experience of each of the members of the Audit Committee that is
relevant to the performance by such members of their responsibilities on such
committee is described below.
 
 Bernard I. Ghert (Chair) – Mr.
Ghert has a Masters degree in Business Administration (MBA). Mr. Ghert was
previously President and Chief Executive Officer of the Cadillac Fairview
Corporation Limited from 1981 to 1987 and President of Stelworth Investments
Inc. from 1987 to 1992.  Mr. Ghert has been a director of many
organizations in the private and public sectors, including Cadillac Fairview,
Stelworth, CT Financial and Canada Trust, Wellington Insurance, and the Canada
Deposit Insurance Corporation.  Mr. Ghert has served as Director of
the Managers of several Middlefield Funds, President of the Canadian Institute
of Public Real Estate Companies and was a former member of the Advisory Board of
the Office of the Superintendent of Financial Institutions.  Mr. Ghert
current is Chairman of the Independent Review Committee of the Middlefield Group
of Funds, President of the B.I. Ghert Family Foundation and Immediate Past Chair
of the Mount Sinai Hospital Board of Directors.
 
 
 Peter F. Cohen– Mr. Cohen is
a Chartered Accountant and a former partner in an audit practice of a public
accounting firm.  Mr. Cohen is currently the Chair of the Board of the
Company and President and Chief Executive Officer of the Dawsco Group, a private
real estate and investment company owned by Mr. Cohen and his
family.  Mr. Cohen was a co-founder and Chair and Chief Executive
Officer of Centrefund Realty Corporation, a publicly traded shopping center
investment company until August 2000 when control of the company was
sold.  Mr. Cohen is a member of the boards of a number of private
companies and charities.
 
 David Beatty – Mr. Beatty is
currently the Chairman and Chief Executive Officer of Beatinvest Limited (an
investment company), Managing Director of the Canadian Coalition for GoodGovernance and
Professor of Strategic Management and the Director of the Clarkson Centre for
Business Ethics and Board Effectiveness at The Rotman School of Management,
University of Toronto.  Mr. Beatty was previously founding Chairman of
Orogen Minerals Limited, Chairman and Chief Executive Officer of Old Canada
Investment Corporation Limited and President of Weston Foods.  Mr.
Beatty is Honorary Consul to Canada for the Government of Papua New Guinea and
in 1993 was awarded the O.B.E.  A graduate in economics from the
University of Toronto (Trinity College), he was a Nuffield Scholar at the
University of Cambridge (Queens' College) where he obtained an
M.A..
 
 The Audit
Committee Rule requires the Company to disclose whether its Audit Committee has
adopted specific policies and procedures for the engagement of non-audit
services and to prepare a summary of these policies and
procedures.  The mandate of the Audit Committee provides that it is
such committee’s responsibility to: (a) approve the appointment and, when
circumstances warrant, discharge of the external auditor and monitor its
qualifications, performance and independence; (b) approve and oversee the
disclosure of all audit services provided by the external auditor to the Company
or any of its subsidiaries, determining which non-audit services the external
auditor are prohibited from providing and, exceptionally, pre-approve and
oversee the disclosure of permitted non-audit services to be performed by the
  22
 external
auditor, in accordance with applicable laws and regulations; and (c) approve the
basis and amount of the external auditor’s fees and other significant
compensation.  The Audit Committee has adopted a pre-approval policy
pursuant to which the Company may not engage the Company’s external auditor to
carry out certain non-audit services that are deemed inconsistent with the
independence of auditors under US and Canadian applicable laws.  The
Audit Committee must pre-approve all audit services as well as permitted
non-audit services.   The Audit Committee has delegated to the
Chair of the Audit Committee, who is independent, the authority to act on behalf
of the Audit Committee with respect to the pre-approval of all audit and
permitted non-audit services provided by its external auditors from time to
time.  Any approvals by the Chair are reported to the full Audit
Committee at its next meeting.
 
 In addition
to performing the audit of the Company’s annual consolidated financial
statements, PricewaterhouseCoopers LLP provided other services to the Company
and they billed the Company the following fees for each of the Company’s two
most recently completed fiscal years:
 
 (in
      US$)
              Year
      ended March 31
            
            2008
            
            
            2007Audit
      fees (note 1)
            
            $
            2,020,700
            
            
            $
            1,102,400Audit-related
      fees (note 2)
            
            
            324,500
            
            
            
            339,600Tax
      fees (note 3)
            
            
            254,800
            
            
            
            147,100All
      other fees (note 4)
            
            
            -
            
            
            
            5,000$
            2,600,000
            
            
            $
            1,594,100
  Notes:
  1.
      Refers to the aggregate fees billed by the Company’s external auditor for
      audit services, including statutory and subsidiary audits. In fiscal 2008,
      audit fees included $242,000 of fees related to the divestiture of the
      Integrated Security Services
segment.
 2.
      Refers to the aggregate fees billed for assurance and related services by
      the Company’s external auditor that are reasonably related to the
      performance of the audit or review of the Company’s financial statements
      and are not reported under (1) above, including professional services
      rendered by the Company’s external auditor for accounting consultations on
      proposed transactions and consultations related to accounting and
      reporting standards. Such fees included fees incurred in respect of: due
      diligence and other work related to the disposition and acquisition of
      businesses, such work being unrelated to the audit of the Company’s
      financial statements; accounting consultations with respect to proposed
      transactions; as well as other audit-related
  services.
 3.
      Refers to the aggregate fees billed for professional services rendered by
      the Company’s external auditor for tax compliance, tax advice and tax
      planning.
 4.  Refers
      to fees for software product licensing billed by the Company’s external
      auditor.
  Additional
information
 Additional
information, including the directors’ and officers’ remuneration and
indebtedness, principal holders of the Company’s securities and options to
purchase securities, where applicable, is contained in the
Circular.
 
 Copies of
publicly filed documents of the Company, including those incorporated herein by
reference, can be found through the SEDAR web site at
www.sedar.com.  Additional financial information is provided in the
Company’s consolidated comparative financial statements and Management's
Discussion and Analysis for the year ended March 31, 2008.
 
 Upon request,
the Secretary of the Company will provide to any person or company:
 
 (a)
            when
      the securities of the Company are in the course of a distribution under a
      short form prospectus or a preliminary short form prospectus has been
      filed for a distribution of its
securities:
 (i)
            one
      copy of the most recent AIF of the Company, together with one copy of any
      document, or the pertinent pages of any document, incorporated by
      reference in the AIF;
 (ii)
            one
      copy of the comparative financial statements of the Company for its most
      recently completed financial year for which financial statements have been
      filed together with the accompanying report of the auditor and one copy of
      any interim financial statements of the Company for any period after the
      end of its most recently completed financial
  year;
  23
 (iii)
            one
      copy of the management information circular of the Company in respect of
      its most recent annual meeting of shareholders that involved the election
      of directors or one copy of any annual filing prepared instead of the
      management information circular, as appropriate;
  and
 (iv)
            one
      copy of any other documents that are incorporated by reference into the
      preliminary short form prospectus or the short form prospectus and are not
      required to be provided under subparagraphs (i) to (iii);
    or
 
 (b)
            at any
      other time, one copy of any document referred to in subparagraphs (a)(i),
      (ii) and (iii), provided that the Company may require the payment of a
      reasonable charge if the request is made by a person or company who is not
      a shareholder of the Company.
 
 
 Forward-looking
statements
 This AIF
contains or incorporates by reference certain forward-looking
statements.  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 described in the section entitled “Risks and
uncertainties” above.
 
 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 and forward-looking statement even if new information becomes
available, as a result of future events or for any other reason.
  24