Document:

EX-4.5

  Exhibit 4.5

 
  
  

 
  
  

 
  
  

FIRSTSERVICE CORPORATION
  

 
  
  

INTERIM CONSOLIDATED FINANCIAL STATEMENTS
  

 
  
  

 
  
  

 
  
  

Second Quarter
  
 June 30, 2020

 
  
  

 
  
  

 
  
 

  

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2
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 FIRSTSERVICE CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
 (Unaudited)

(in thousands of US dollars, except per share amounts) - in accordance with accounting principles generally accepted in the United States of America
  

	 	 	Three months	 	Six months
	 	 	ended June 30	 	ended June 30
	 	 	 	2020	 	 	 	2019	 	 	 	2020	 	 	 	2019	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Revenues	 	$	621,597	 	 	$	573,908	 	 	$	1,255,428	 	 	$	1,059,563	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cost of revenues	 	 	412,010	 	 	 	388,656	 	 	 	847,159	 	 	 	729,354	 
	Selling, general and administrative expenses	 	 	140,799	 	 	 	121,976	 	 	 	299,585	 	 	 	240,638	 
	Depreciation	 	 	12,624	 	 	 	9,266	 	 	 	24,770	 	 	 	17,646	 
	Amortization of intangible assets	 	 	10,864	 	 	 	4,899	 	 	 	22,225	 	 	 	9,206	 
	Settlement of long-term incentive arrangement	 	 	-	 	 	 	314,379	 	 	 	-	 	 	 	314,379	 
	Acquisition-related items	 	 	397	 	 	 	3,202	 	 	 	802	 	 	 	3,880	 
	Operating earnings (loss)	 	 	44,903	 	 	 	(268,470	)	 	 	60,887	 	 	 	(255,540	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Interest expense, net	 	 	5,530	 	 	 	4,772	 	 	 	14,417	 	 	 	8,341	 
	Other income, net (note 7)	 	 	(147	)	 	 	(6,131	)	 	 	(376	)	 	 	(6,124	)
	Earnings (loss) before income tax	 	 	39,520	 	 	 	(267,111	)	 	 	46,846	 	 	 	(257,757	)
	Income tax (note 8)	 	 	9,603	 	 	 	8,569	 	 	 	11,149	 	 	 	9,778	 
	Net earnings (loss)	 	 	29,917	 	 	 	(275,680	)	 	 	35,697	 	 	 	(267,535	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Non-controlling interest share of earnings (note 12)	 	 	3,326	 	 	 	2,409	 	 	 	5,081	 	 	 	4,205	 
	Non-controlling interest redemption increment (decrement) (note 12)	 	 	(531	)	 	 	947	 	 	 	(1,791	)	 	 	4,967	 
	Net earnings (loss) attributable to Company	 	$	27,122	 	 	$	(279,036	)	 	$	32,407	 	 	$	(276,707	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net earnings (loss) per common share (note 13)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Basic	 	$	0.64	 	 	$	(7.48	)	 	$	0.77	 	 	$	(7.69	)
	Diluted	 	$	0.64	 	 	$	(7.48	)	 	$	0.77	 	 	$	(7.69	)

  
 

The accompanying notes are an integral part of these financial statements.
  

 
  
 

  

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 FIRSTSERVICE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
 (Unaudited)

(in thousands of US dollars) - in accordance with accounting principles generally accepted in the United States of America
  

	 	 	Three months	 	Six months
	 	 	ended June 30	 	ended June 30
	 	 	 	2020	 	 	 	2019	 	 	 	2020	 	 	 	2019	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net earnings (loss)	 	$	29,917	 	 	$	(275,680	)	 	$	35,697	 	 	$	(267,535	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Foreign currency translation gain (loss)	 	 	3,115	 	 	 	1,078	 	 	 	(2,936	)	 	 	1,406	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Comprehensive earnings (loss)	 	 	33,032	 	 	 	(274,602	)	 	 	32,761	 	 	 	(266,129	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Less: Comprehensive earnings attributable to non-controlling interests	 	 	2,795	 	 	 	3,356	 	 	 	3,290	 	 	 	9,172	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Comprehensive earnings (loss) attributable to Company	 	$	30,237	 	 	$	(277,958	)	 	$	29,471	 	 	$	(275,301	)

  
 

The accompanying notes are an integral part of these financial statements. 
  

 
  
  
  

 
  
  
  

 
 

  

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 FIRSTSERVICE CORPORATION

CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (in
thousands of US dollars) - in accordance with accounting principles generally accepted in the United States of America
  

	 	 	 	June 30,
 2020
	 	 	 	December 31,
 2019
	 
	Assets	 	 	 	 	 	 	 	 
	Current Assets	 	 	 	 	 	 	 	 
	Cash and cash equivalents	 	$	245,257	 	 	$	121,198	 
	Restricted cash	 	 	20,028	 	 	 	13,093	 
	Accounts receivable, net of allowance of $15,369 (December 31, 2019 - $13,136)	 	 	361,046	 	 	 	393,730	 
	Income tax recoverable	 	 	-	 	 	 	4,147	 
	Inventories	 	 	100,187	 	 	 	94,511	 
	Prepaid expenses and other current assets	 	 	38,010	 	 	 	41,457	 
	 	 	 	764,528	 	 	 	668,136	 
	 	 	 	 	 	 	 	 	 
	Other receivables	 	 	3,934	 	 	 	4,033	 
	Other assets	 	 	7,950	 	 	 	7,791	 
	Fixed assets	 	 	128,684	 	 	 	131,545	 
	Operating lease right-of-use assets (note 6)	 	 	139,580	 	 	 	132,893	 
	Intangible assets	 	 	344,545	 	 	 	366,224	 
	Goodwill	 	 	644,794	 	 	 	644,847	 
	 	 	 	1,269,487	 	 	 	1,287,333	 
	 	 	$	2,034,015	 	 	$	1,955,469	 
	 	 	 	 	 	 	 	 	 
	Liabilities and shareholders' equity	 	 	 	 	 	 	 	 
	Current Liabilities	 	 	 	 	 	 	 	 
	Accounts payable	 	$	79,501	 	 	$	76,226	 
	Accrued liabilities	 	 	171,014	 	 	 	165,444	 
	Income taxes payable	 	 	6,476	 	 	 	-	 
	Unearned revenues	 	 	90,082	 	 	 	74,100	 
	Operating lease liabilities - current (note 6)	 	 	33,045	 	 	 	30,622	 
	Long-term debt - current (note 9)	 	 	56,669	 	 	 	5,545	 
	Contingent acquisition consideration - current (note 11)	 	 	3,788	 	 	 	6,269	 
	 	 	 	440,575	 	 	 	358,206	 
	 	 	 	 	 	 	 	 	 
	Long-term debt - non-current (note 9)	 	 	588,525	 	 	 	761,078	 
	Operating lease liabilities - non-current (note 6)	 	 	117,024	 	 	 	111,247	 
	Contingent acquisition consideration (note 11)	 	 	6,478	 	 	 	8,154	 
	Unearned revenues	 	 	12,105	 	 	 	12,593	 
	Other liabilities	 	 	50,315	 	 	 	45,403	 
	Deferred income tax	 	 	54,063	 	 	 	58,239	 
	 	 	 	828,510	 	 	 	996,714	 
	Redeemable non-controlling interests (note 12)	 	 	162,613	 	 	 	174,662	 
	 	 	 	 	 	 	 	 	 
	Shareholders' equity	 	 	602,317	 	 	 	425,887	 
	 	 	$	2,034,015	 	 	$	1,955,469	 

  
 

The accompanying notes are an integral part of these financial statements. 
 

 
 

  

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 FIRSTSERVICE CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 (Unaudited)

(in thousands of US dollars, except share information)
  

	 	 	 	Common shares	 	 	 	 	 	 	 	 	 	 	 	Accumulated	 	 	 	 	 
	 	 	 	Issued and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	other	 	 	 	 	 
	 	 	 	outstanding	 	 	 	 	 	 	 	Contributed	 	 	 	 	 	 	 	comprehensive	 	 	 	 	 
	 	 	 	shares	 	 	 	Amount	 	 	 	surplus	 	 	 	Deficit	 	 	 	loss	 	 	 	Total	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, December 31, 2019	 	 	41,495,957	 	 	$	605,428	 	 	$	50,789	 	 	$	(229,874	)	 	$	(456	)	 	$	425,887	 
	Net earnings	 	 	-	 	 	 	-	 	 	 	-	 	 	 	5,285	 	 	 	-	 	 	 	5,285	 
	Other comprehensive earnings (loss)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(6,051	)	 	 	(6,051	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Impact of ASU 2016-13 (Topic 326)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(53	)	 	 	-	 	 	 	(53	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Common Shares:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Stock option expense	 	 	-	 	 	 	-	 	 	 	3,969	 	 	 	-	 	 	 	-	 	 	 	3,969	 
	Stock options exercised	 	 	120,000	 	 	 	4,535	 	 	 	(924	)	 	 	-	 	 	 	-	 	 	 	3,611	 
	Dividends	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(6,867	)	 	 	-	 	 	 	(6,867	)
	Balance, March 31, 2020	 	 	41,615,957	 	 	$	609,963	 	 	$	53,834	 	 	$	(231,509	)	 	$	(6,507	)	 	$	425,781	 
	Net earnings	 	 	-	 	 	 	-	 	 	 	-	 	 	 	27,122	 	 	 	-	 	 	 	27,122	 
	Other comprehensive earnings	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	3,115	 	 	 	3,115	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Common Shares:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Stock option expense	 	 	-	 	 	 	-	 	 	 	2,443	 	 	 	-	 	 	 	-	 	 	 	2,443	 
	Stock options exercised	 	 	26,150	 	 	 	1,310	 	 	 	(295	)	 	 	-	 	 	 	-	 	 	 	1,015	 
	Dividends	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(7,167	)	 	 	-	 	 	 	(7,167	)
	Issued (note 10)	 	 	1,797,359	 	 	 	150,008	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	150,008	 
	Balance, June 30, 2020	 	 	43,439,466	 	 	$	761,281	 	 	$	55,982	 	 	$	(211,554	)	 	$	(3,392	)	 	$	602,317	 

  
  

 
  
  
  

 
  
  
  

 
  
  
 

  

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 FIRSTSERVICE CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (continued)
 (Unaudited)

(in thousands of US dollars, except share information)
  

	 	 	 	Common shares	 	 	 	 	 	 	 	 	 	 	 	Accumulated	 	 	 	 	 
	 	 	 	Issued and	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	other	 	 	 	 	 
	 	 	 	outstanding	 	 	 	 	 	 	 	Contributed	 	 	 	 	 	 	 	comprehensive	 	 	 	 	 
	 	 	 	shares	 	 	 	Amount	 	 	 	surplus	 	 	 	Deficit	 	 	 	loss	 	 	 	Total	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Balance, December 31, 2018	 	 	35,980,047	 	 	$	148,707	 	 	$	45,097	 	 	$	45,537	 	 	$	(3,115	)	 	$	236,226	 
	Net earnings	 	 	-	 	 	 	-	 	 	 	-	 	 	 	2,329	 	 	 	-	 	 	 	2,329	 
	Other comprehensive earnings	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	328	 	 	 	328	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Impact of ASC 842 - Leases	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(338	)	 	 	-	 	 	 	(338	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Subsidiaries’ equity transactions	 	 	-	 	 	 	-	 	 	 	(19	)	 	 	-	 	 	 	-	 	 	 	(19	)
	Common Shares:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Stock option expense	 	 	-	 	 	 	-	 	 	 	2,855	 	 	 	-	 	 	 	-	 	 	 	2,855	 
	Stock options exercised	 	 	134,650	 	 	 	5,342	 	 	 	(1,338	)	 	 	-	 	 	 	-	 	 	 	4,004	 
	Dividends	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(5,418	)	 	 	-	 	 	 	(5,418	)
	Balance, March 31, 2019	 	 	36,114,697	 	 	$	154,049	 	 	$	46,595	 	 	$	42,110	 	 	$	(2,787	)	 	$	239,967	 
	Net earnings (loss)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(279,036	)	 	 	-	 	 	 	(279,036	)
	Other comprehensive earnings	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	1,078	 	 	 	1,078	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Impact of ASC 842 - Leases	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(52	)	 	 	-	 	 	 	(52	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Subsidiaries’ equity transactions	 	 	-	 	 	 	-	 	 	 	39	 	 	 	-	 	 	 	-	 	 	 	39	 
	Common Shares:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Stock option expense	 	 	-	 	 	 	-	 	 	 	1,755	 	 	 	-	 	 	 	-	 	 	 	1,755	 
	Stock options exercised	 	 	188,400	 	 	 	5,401	 	 	 	(959	)	 	 	-	 	 	 	-	 	 	 	4,442	 
	Dividends	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(5,883	)	 	 	-	 	 	 	(5,883	)
	Issued	 	 	2,918,860	 	 	 	251,503	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	251,503	 
	Balance, June 30, 2019	 	 	39,221,957	 	 	$	410,953	 	 	$	47,430	 	 	$	(242,861	)	 	$	(1,709	)	 	$	213,813	 

  
  

 
  
  
  

 
  
  
  

  

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 FIRSTSERVICE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)

(in thousands of US dollars) - in accordance with accounting principles generally accepted in the United States of America
  

	 	 	Three months ended	 	Six months ended
	 	 	June 30	 	June 30
	 	 	 	2020	 	 	 	2019	 	 	 	2020	 	 	 	2019	 
	Cash provided by (used in)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Operating activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net earnings (loss)	 	$	29,917	 	 	 	(275,680	)	 	$	35,697	 	 	$	(267,535	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Items not affecting cash:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Depreciation and amortization	 	 	23,488	 	 	 	14,164	 	 	 	46,995	 	 	 	26,851	 
	Non-cash settlement of long-term incentive arrangement	 	 	-	 	 	 	289,721	 	 	 	-	 	 	 	289,721	 
	Deferred income tax	 	 	(2,149	)	 	 	992	 	 	 	(4,205	)	 	 	1,465	 
	Other	 	 	1,845	 	 	 	(4,192	)	 	 	5,669	 	 	 	(1,058	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Changes in non-cash working capital:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accounts receivable	 	 	11,911	 	 	 	(27,828	)	 	 	32,893	 	 	 	(19,228	)
	Inventories	 	 	(3,539	)	 	 	(2,496	)	 	 	(5,669	)	 	 	1,208	 
	Prepaid expenses and other current assets	 	 	3,595	 	 	 	1,045	 	 	 	2,876	 	 	 	806	 
	Payables and accruals	 	 	28,814	 	 	 	11,439	 	 	 	18,335	 	 	 	(4,922	)
	Unearned revenues	 	 	13,088	 	 	 	9,044	 	 	 	15,492	 	 	 	14,700	 
	Other liabilities	 	 	6,252	 	 	 	2,619	 	 	 	4,958	 	 	 	3,340	 
	Contingent acquisition consideration	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(962	)
	Net cash provided by operating activities	 	 	113,222	 	 	 	18,828	 	 	 	153,041	 	 	 	44,386	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Investing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Acquisitions of businesses, net of cash acquired (note 5)	 	 	-	 	 	 	(519,758	)	 	 	-	 	 	 	(545,531	)
	Disposal of business, net of cash disposed (note 7)	 	 	-	 	 	 	13,030	 	 	 	-	 	 	 	13,030	 
	Purchases of fixed assets	 	 	(6,733	)	 	 	(11,551	)	 	 	(22,081	)	 	 	(22,287	)
	Other investing activities	 	 	(603	)	 	 	3,188	 	 	 	(786	)	 	 	859	 
	Net cash used in investing activities	 	 	(7,336	)	 	 	(515,091	)	 	 	(22,867	)	 	 	(553,929	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Financing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Increase in long-term debt	 	 	7,887	 	 	 	543,216	 	 	 	25,282	 	 	 	590,750	 
	Repayment of long-term debt	 	 	(112,959	)	 	 	-	 	 	 	(147,206	)	 	 	(1,871	)
	Proceeds received on common share issuance (note 10)	 	 	150,008	 	 	 	-	 	 	 	150,008	 	 	 	-	 
	Purchases of non-controlling interests, net	 	 	(11,316	)	 	 	(14,223	)	 	 	(15,067	)	 	 	(33,210	)
	Contingent acquisition consideration	 	 	(2,179	)	 	 	(2,182	)	 	 	(3,398	)	 	 	(8,035	)
	Proceeds received on exercise of options	 	 	1,015	 	 	 	4,442	 	 	 	4,626	 	 	 	8,446	 
	Financing fees paid	 	 	-	 	 	 	(3,428	)	 	 	-	 	 	 	(3,696	)
	Dividends paid to common shareholders	 	 	(6,867	)	 	 	(5,418	)	 	 	(13,091	)	 	 	(10,275	)
	Distributions paid to non-controlling interests	 	 	-	 	 	 	(3,075	)	 	 	(50	)	 	 	(4,269	)
	Net cash provided by financing activities	 	 	25,589	 	 	 	519,332	 	 	 	1,104	 	 	 	537,840	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Effect of exchange rate changes on cash, cash equivalents and restricted cash	 	 	626	 	 	 	(508	)	 	 	(284	)	 	 	(311	)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Increase in cash, cash equivalents and restricted cash	 	 	132,101	 	 	 	22,561	 	 	 	130,994	 	 	 	27,986	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash, cash equivalents and restricted cash, beginning of period	 	 	133,184	 	 	 	85,269	 	 	 	134,291	 	 	 	79,844	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash, cash equivalents and restricted cash, end of period	 	$	265,285	 	 	 	107,830	 	 	$	265,285	 	 	$	107,830	 

  
 

The accompanying notes are an integral part of these financial statements.

 
  
 

  

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FIRSTSERVICE CORPORATION
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020
 (Unaudited)
 (in thousands of US
dollars, except per share amounts)
  
  

1.       DESCRIPTION OF THE BUSINESS – FirstService Corporation (the “Company”) is a North American provider of residential property
management and other essential property services to residential and commercial customers. The Company’s operations are conducted in two segments: FirstService Residential and FirstService Brands. The segments are grouped with reference to the
nature of services provided and the types of clients that use those services.
  
 FirstService Residential is a
full-service property manager and in many markets provides a full range of ancillary services primarily in the following areas: on-site staffing, including building engineering and maintenance, full-service amenity management, security, concierge
and front desk personnel; proprietary banking and insurance products; and energy conservation and management solutions.
  

FirstService Brands provides a range of essential property services to residential and commercial customers in North America through franchise networks and company-owned locations. The
principal brands in this division include Paul Davis Restoration, Global Restoration, California Closets, Century Fire Protection, Certa Pro Painters, Pillar to Post Home Inspectors, and Floor Coverings International.

 
 2.       RISKS and UNCERTAINTIES – Currently, one of the most significant risks and
uncertainties is the potential adverse effect of the current pandemic of the novel coronavirus, or COVID-19. The COVID-19 pandemic in North America has had an impact on most of the Company’s operations, particularly its service lines tied to
home improvement. All of its businesses have been designated essential services in most of their geographic regions. The various “stay-at-home” and social distancing measures continue to impact the Company’s ability to operate on the
premises of its residential and commercial customers. Although many regions where the Company operates have re-opened, it is challenging to predict the financial performance in upcoming reporting periods with reasonable accuracy due to the lack of
visibility around the duration and severity of the crisis and its dynamic changes.
  
 Given the uncertainties
surrounding the impact of the COVID-19 pandemic, the Company took certain actions during the first and second quarters to preserve liquidity, manage cash flow and strengthen its financial flexibility. Such actions included, but were not limited to,
expense containment initiatives in areas including labour costs and other operating expenses, capital expenditures reductions, and management of its working capital requirements, as well as completing a private placement for $150,008 in the second
quarter of the current year. Refer to note 10 for more detail.
  
 3.       SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES – These condensed consolidated financial statements have been prepared by the Company in accordance with the disclosure requirements for the presentation of interim financial information pursuant to applicable Canadian
securities law. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America have been condensed
or omitted in accordance with such disclosure requirements, although the Company believes that the disclosures are adequate to make the information not misleading. These interim financial statements should be read in conjunction with the audited
consolidated financial statements for the year ended December 31, 2019.
  
 These interim financial
statements follow the same accounting policies as the most recent audited consolidated financial statements, with the exception of the change described below. In the opinion of management, the condensed consolidated financial statements contain all
adjustments necessary to present fairly the financial position of the Company as at June 30, 2020 and the results of operations and its cash flows for the three and six month periods ended June 30, 2020 and 2019. All such adjustments are of a
normal recurring nature. The results of operations for the three and six month periods ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020.

 
 

  

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 Credit Losses

 On January 1, 2020, the Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which replaces existing incurred loss impairment guidance
and establishes a single allowance framework for financial assets carried at amortized cost. The Company adopted Topic 326 using a modified retrospective approach, which requires a cumulative-effect adjustment, if any, to the opening balance of
retained earnings (deficit) to be recognized on the date of adoption with prior periods not restated. The cumulative-effect adjustment recorded on January 1, 2020 was not material.

 
 Accounting policy for Credit Losses
 Accounts
receivable: The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The measurement of expected credit losses is based on relevant information about past events, including historical
experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may impact a customer’s ability to pay.
  

A reconciliation of our allowance for doubtful accounts is found below: 
  

	(In thousands)	 	 	2020	 
	 	 	 	 	 
	Allowance for doubtful accounts, December 31, 2019	 	$	13,136	 
	Bad debt expense	 	 	5,295	 
	Write-offs to accounts receivable	 	 	(3,266	)
	Recoveries to accounts receivable	 	 	495	 
	Adjustment to opening retained earnings	 	 	53	 
	Other	 	 	(344	)
	Allowance for doubtful accounts, June 30, 2020	 	$	15,369	 

  

4.       REVENUE RECOGNITION STANDARD – Within the FirstService Brands segment, franchise fee revenue recognized during the six months ended
June 30, 2020 that was included in deferred revenue at the beginning of the period was $2,387 (2019 - $2,062). These fees are recognized over the life of the underlying franchise agreement, usually between 5 - 10 years.

 
 External broker costs and employee sales commissions in obtaining new franchisees are capitalized in accordance
with the new revenue standard and are amortized over the life of the underlying franchise agreement. Costs amortized during the six months ended June 30, 2020 were $1,047 (2019 - $934). The closing amount of the capitalized costs to obtain
contracts on the balance sheet as at June 30, 2020 was $5,981 (December 31, 2019 - $6,711). There were no impairment losses recognized related to those assets in the quarter.

 
 The Company’s backlog represents remaining performance obligations and is defined as contracted work yet to
be performed. As at June 30, 2020, the aggregate amount of backlog was $332,530. The Company expects to recognize revenue on the remaining backlog over the next 12 months.

 
 Disaggregated revenues are as follows:

 

	 	 	Three months	 	Six months
	 	 	ended June 30	 	ended June 30
	 	 	 	2020	 	 	 	2019	 	 	 	2020	 	 	 	2019	 
	Revenues	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	FirstService Residential	 	$	338,153	 	 	$	370,405	 	 	$	677,816	 	 	$	689,715	 
	FirstService Brands company-owned	 	 	252,261	 	 	 	162,862	 	 	 	516,361	 	 	 	298,563	 
	FirstService Brands franchisor	 	 	29,538	 	 	 	39,413	 	 	 	58,813	 	 	 	69,223	 
	FirstService Brands franchise fee	 	 	1,645	 	 	 	1,228	 	 	 	2,438	 	 	 	2,062	 

  
 The Company disaggregates revenue by segment, and within the
FirstService Brands segment, further disaggregates its company-owned operations revenue; these businesses primarily recognize revenue over time as they perform because of continuous transfer of control to the customer. As such, revenue is recognized
based on the extent of progress towards completion of the performance obligation. The Company generally uses the cost-to-cost measure of progress method. The extent of progress towards completion is measured based on the ratio of costs incurred to
date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred.

 
 

  

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 We believe this disaggregation best depicts how the nature, amount, timing and uncertainty
of the Company’s revenue and cash flows are affected by economic factors.
  

5.       ACQUISITIONS – During the six months ended June 30, 2020, the Company did not complete any acquisitions. In the prior year period, the
Company completed eleven acquisitions, including three in the FirstService Residential segment and eight in the FirstService Brands segment; the acquisition date fair value of consideration transferred was as follows: cash of $545,531, and
contingent consideration of $4,605.
  
 Certain vendors, at the time of acquisition, are entitled to receive a contingent
consideration payment if the acquired businesses achieve specified earnings levels during the one- to two-year periods following the dates of acquisition. The ultimate amount of payment is determined based on a formula, the key inputs to which are
(i) a contractually agreed maximum payment; (ii) a contractually specified revenue or earnings level; and (iii) the actual revenue or earnings for the contingency period. If the acquired business does not achieve the specified revenue or earnings
level, the maximum payment is reduced for any shortfall, potentially to nil.
  
 Contingent consideration is
recorded at fair value each reporting period. The fair value recorded on the consolidated balance sheet as at June 30, 2020 was $10,266 (see note 11). The estimated range of outcomes (undiscounted) for these contingent consideration arrangements is
$10,303 to a maximum of $12,121. The contingencies will expire during the period extending to September 2023. During the six months ended June 30, 2020, $3,398 was paid with reference to such contingent consideration (2019 - $8,997).

 
 6.       LEASES – The Company has operating leases for corporate offices, copiers, and
certain equipment. Its leases have remaining lease terms of 1 year to 10 years, some of which may include options to extend the leases for up to 8 years, and some of which may include options to terminate the leases within 1 year. The Company
evaluates renewal terms on a lease by lease basis to determine if the renewal is reasonably certain. The amount of operating lease expense recorded in the statement of earnings for the six months ended June 30, 2020 was $18,371 (2019 -
$14,635).
  
 Other information related to leases was as follows (in thousands, except lease term and discount
rate):
  

	Supplemental Cash Flows Information, six months ended June 30	 	 	2020	 
	 	 	 	 	 
	Cash paid for amounts included in the measurement of operating lease liabilities	 	$	18,151	 
	Right-of-use assets obtained in exchange for operating lease obligation	 	$	22,226	 

  
 7.      OTHER INCOME - Other
income is comprised of the following: 
  

	 	 	Three months ended	 	Six months ended
	 	 	June 30	 	June 30
	 	 	 	2020	 	 	 	2019	 	 	 	2020	 	 	 	2019	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Gain on disposal of business	 	$	-	 	 	$	(6,082	)	 	$	-	 	 	$	(6,082	)
	Other (income) expense	 	 	(147	)	 	 	(49	)	 	 	(376	)	 	 	(42	)
	 	 	$	(147	)	 	$	(6,131	)	 	$	(376	)	 	$	(6,124	)

  
 During the second quarter of the
prior year, the Company completed the divestiture of two non-core businesses. The Company sold its national accounts commercial painting operations for cash consideration of $3,386 and notes receivable of $2,800. The pre-tax gain on disposal was
$1,406. The Company also completed the sale of its Florida and Arizona-based landscaping operations for cash consideration of $9,644 (net of cash disposed of $600). The pre-tax gain on disposal was $4,676.

 
 

  

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 8.       INCOME TAX – The provision for income tax for the six months
ended June 30, 2020 reflected an effective tax rate of 24% (2019 - negative 4%) relative to the statutory rate of approximately 27% (2019 - 27%). The difference between the effective rate and the statutory rate relates to the differential between
tax rates in certain jurisdictions, as well as taxable permanent differences.
  

9.       LONG-TERM DEBT – The Company has $150,000 of senior secured notes (the “Senior Notes”) bearing interest at a rate of 3.84%. The
Senior Notes are due on January 16, 2025, with five annual equal repayments beginning on January 16, 2021.
  

The Company has a Credit Agreement with a syndicate of lenders. The Credit Agreement is comprised of a committed multi-currency revolving credit facility of $450,000
(the “Facility”) and a term loan (drawn in a single advance) in the aggregate amount of $440,000 (the “Term Loan”). The Facility portion of the Credit Agreement has a term ending on January 17, 2023 and bears interest at 0.25% to
2.50% over floating preference rates, depending on certain leverage ratios. The Term Loan portion of the Credit Agreement has a term ending on June 21, 2024, with repayments of 5% per annum, paid quarterly, beginning in September 2020, with the
balance payable at maturity, and bears interest at 0.25% to 2.50% over floating preference rates, depending on certain leverage ratios. The Credit Agreement requires a commitment fee of 0.25% to 0.50% of the unused portion, depending on certain
leverage ratios. The Company may repay amounts owing under the Credit Agreement at any time without penalty. The Facility is available to fund working capital requirements (including acquisitions and any associated contingent purchase consideration)
and other general corporate purposes.
  
 The indebtedness under the Credit
Agreement and the Senior Notes rank equally in terms of seniority. The Company has granted the lenders under the Credit Agreement and the holders of the Senior Notes various security, including an interest in all of our assets. The Company is
prohibited under the Credit Agreement and the Senior Notes from undertaking certain acquisitions and dispositions, and incurring certain indebtedness and encumbrances, without prior approval of the lenders under the Credit Agreement and the holders
of the Senior Notes.
  
 10.       PRIVATE PLACEMENT – On May 22, 2020, the Company completed
the sale, on a private placement basis, of a total of 1,797,359 common shares of FirstService, at a price of US$83.46 per share, to Durable Capital Partners LP, for proceeds of $150,008. The net proceeds of the private placement were used to repay
existing indebtedness under the Facility.
  
 11.       FAIR VALUE MEASUREMENTS – The
following table provides the financial assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2020:
  

	 	 	 	 	Fair value measurements at June 30, 2020
	 	 	 	 	 	 	 	 	 
	 	 	 	Carrying value at	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	June 30, 2020	 	 	 	Level 1	 	 	 	Level 2	 	 	 	Level 3	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Contingent consideration liability	 	$	10,266	 	 	$	-	 	 	$	-	 	 	$	10,266	 
	Interest rate swap liability	 	 	2,572	 	 	 	-	 	 	 	2,572	 	 	 	-	 

  
 

The Company has one interest rate swap in place to exchange the floating interest rate on $100,000 of debt under its Credit Agreement for a fixed rate. The fair value of the interest
rate swap liability was determined using widely accepted valuation techniques. The inputs to the measurement of the fair value of contingent consideration related to acquisitions are Level 3 inputs using a discounted cash flow model; significant
model inputs were expected future operating cash flows (determined with reference to each specific acquired business) and discount rates (which range from 8% to 10%). The range of discount rates is attributable to level of risk related to economic
growth factors combined with the length of the contingent payment periods; and the dispersion was driven by unique characteristics of the businesses acquired and the respective terms for these contingent payments. Within the range of discount rates,
there is a data point concentration at 9%. A 2% increase in the weighted average discount rate would not have a significant impact on the fair value of the contingent consideration balance.

 
 

  

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 Changes in the fair value of the contingent consideration liability are comprised of the
following:
  

	 	 	 	2020	 
	 	 	 	 	 
	Balance, January 1	 	$	14,423	 
	Fair value adjustments	 	 	(1,723	)
	Resolved and settled in cash	 	 	(3,398	)
	Other	 	 	964	 
	Balance, June 30	 	$	10,266	 
	 	 	 	 	 
	Less: Current portion	 	 	3,788	 
	Non-current portion	 	$	6,478	 

  
 The
carrying amounts for cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate fair values due to the short maturity of these instruments, unless otherwise indicated. The inputs to the
measurement of the fair value of long term debt are Level 3 inputs. The fair value measurements were made using a net present value approach; significant model inputs were expected future cash outflows and discount rates (which range from 1.5% to
2.0%).
  

	 	 	June 30, 2020	 	December 31, 2019
	 	 	 	Carrying	 	 	 	Fair	 	 	 	Carrying	 	 	 	Fair	 
	 	 	 	amount	 	 	 	value	 	 	 	amount	 	 	 	value	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Other receivables	 	$	3,934	 	 	$	3,934	 	 	$	4,033	 	 	$	4,033	 
	Long-term debt	 	 	645,194	 	 	 	663,685	 	 	 	766,623	 	 	 	779,279	 

  
 12.       REDEEMABLE
NON-CONTROLLING INTERESTS – The minority equity positions in the Company’s subsidiaries are referred to as redeemable non-controlling interests (“RNCI”). The RNCI are considered to be redeemable securities. Accordingly, the RNCI
is recorded at the greater of: (i) the redemption amount; or (ii) the amount initially recorded as RNCI at the date of inception of the minority equity position. This amount is recorded in the “mezzanine” section of the balance sheet,
outside of shareholders’ equity. Changes in the RNCI amount are recognized immediately as they occur. The following table provides a reconciliation of the beginning and ending RNCI amounts:

 

	 	 	 	2020	 
	 	 	 	 	 
	Balance, January 1	 	$	174,662	 
	RNCI share of earnings	 	 	5,081	 
	RNCI redemption increment (decrement)	 	 	(1,791	)
	Distributions paid to RNCI	 	 	(50	)
	Purchases of interests from RNCI, net	 	 	(15,067	)
	Other	 	 	(222	)
	Balance, June 30	 	$	162,613	 

  
 The
Company has shareholders’ agreements in place at each of its non-wholly owned subsidiaries. These agreements allow the Company to “call” the non-controlling interest at a price determined with the use of a formula price, which is
usually equal to a fixed multiple of trailing two-year average earnings before income taxes, interest, depreciation, and amortization, less debt. The agreements also have redemption features which allow the owners of the RNCI to “put”
their equity to the Company at the same price subject to certain limitations. The formula price is referred to as the redemption amount and may be paid in cash or in the Company’s Common Shares. The redemption amount as of June 30, 2020 was
$159,160. The redemption amount is lower than that recorded on the balance sheet as the formula prices of certain RNCI are lower than the amount initially recorded at the inception of the minority equity position. If all put or call options were
settled with Common Shares as at June 30, 2020, approximately 1,600,000 such shares would be issued; this would be accretive to net earnings per common share.
  

Increases or decreases to the formula price of the underlying shares are recognized in the statement of earnings as the NCI redemption increment.

 
 

  

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 13.       NET EARNINGS PER COMMON SHARE – Earnings
per share calculations cannot be anti-dilutive, therefore diluted shares are not used in the denominator when the numerator is in a loss position. The following table reconciles the basic and diluted common shares outstanding:

 

	 	 	Three months ended	 	Six months ended
	(in thousands)	 	June 30	 	June 30
	 	 	 	2020	 	 	 	2019	 	 	 	2020	 	 	 	2019	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Basic shares	 	 	42,397	 	 	 	37,284	 	 	 	41,977	 	 	 	36,002	 
	Assumed exercise of Company stock options	 	 	313	 	 	 	431	 	 	 	345	 	 	 	450	 
	Diluted shares	 	 	42,710	 	 	 	37,715	 	 	 	42,322	 	 	 	36,452	 

  

14.       STOCK-BASED COMPENSATION
  

Company stock option plan
 The Company has a stock option plan for certain directors, officers and full-time employees of the Company
and its subsidiaries, other than its Founder and Chairman. The stock option plan came into existence on June 1, 2015. Options are granted at the market price for the underlying shares on the date of grant. Each option vests over a four-year
term, expires five years from the date granted and allows for the purchase of one Common Share. All Common Shares issued are new shares. Grants under the Company’s stock option plan are equity-classified awards. As at June 30, 2020, there were
214,500 options available for future grants.
  
 Grants under the Company’s stock option plan are
equity-classified awards. There were no stock options granted during the three months ended June 30, 2020 (2019 - nil). Stock option activity for the six months ended June 30, 2020 was as follows:

 

	 	 	 	 	 	 	 	 	 	 	 	Weighted	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	average	 	 	 	 	 
	 	 	 	 	 	 	 	Weighted	 	 	 	remaining	 	 	 		 
	 	 	 		 	 	 	average	 	 	 	contractual 	 	 	 	Aggregate	 
	 	 	 	Number of	 	 	 	exercise	 	 	 	life	 	 	 	intrinsic	 
	 	 	 	options	 	 	 	price	 	 	 	(years)	 	 	 	value	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Shares issuable under options -	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Beginning of period	 	 	1,639,100	 	 	$	60.26	 	 	 	 	 	 	 	 	 
	Granted	 	 	475,000	 	 	 	111.36	 	 	 	 	 	 	 	 	 
	Exercised	 	 	(146,150	)	 	 	33.98	 	 	 	 	 	 	 	 	 
	Shares issuable under options -	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	End of period	 	 	1,967,950	 	 	$	74.55	 	 	 	2.84	 	 	$	56,604	 
	Options exercisable - End of period	 	 	856,527	 	 	$	57.59	 	 	 	1.90	 	 	$	37,470	 

  
 The amount of compensation
expense recorded in the statement of earnings for the six months ended June 30, 2020 was $6,412 (2019 - $4,610). As of June 30, 2020, there was $16,588 of unrecognized compensation cost related to non-vested awards which is expected to be recognized
over the next 5 years. During the six month period ended June 30, 2020, the fair value of options vested was $6,837 (2019 - $4,591).
  

15.       CONTINGENCIES – 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.
  

16.       SEGMENTED INFORMATION – The Company has two reportable operating segments. The segments are grouped with reference to the nature of
services provided and the types of clients that use those services. The Company assesses each segment’s performance based on operating earnings or operating earnings before depreciation and amortization. FirstService Residential provides
property management and related property services to residential communities in North America. FirstService Brands provides franchised and company-owned essential property services to residential and commercial customers in North America. Corporate
includes the costs of operating the Company’s corporate head office.
  
 

  

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 OPERATING SEGMENTS 
  

	 	 	 	FirstService	 	 	 	FirstService	 	 	 	 	 	 	 	 	 
	 	 	 	Residential	 	 	 	Brands	 	 	 	Corporate	 	 	 	Consolidated	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Three months ended June 30	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2020	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Revenues	 	$	338,153	 	 	$	283,444	 	 	$	-	 	 	$	621,597	 
	Depreciation and amortization	 	 	7,260	 	 	 	16,208	 	 	 	20	 	 	 	23,488	 
	Operating earnings	 	 	31,980	 	 	 	17,364	 	 	 	(4,441	)	 	 	44,903	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2019	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Revenues	 	$	370,405	 	 	$	203,503	 	 	$	-	 	 	$	573,908	 
	Depreciation and amortization	 	 	6,696	 	 	 	7,458	 	 	 	11	 	 	 	14,165	 
	Operating earnings	 	 	32,278	 	 	 	20,705	 	 	 	(321,453	)	 	 	(268,470	)

  

	 	 	 	FirstService	 	 	 	FirstService	 	 	 	 	 	 	 	 	 
	 	 	 	Residential	 	 	 	Brands	 	 	 	Corporate	 	 	 	Consolidated	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Six months ended June 30	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2020	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Revenues	 	$	677,816	 	 	$	577,612	 	 	$	-	 	 	$	1,255,428	 
	Depreciation and amortization	 	 	13,136	 	 	 	33,811	 	 	 	48	 	 	 	46,995	 
	Operating earnings	 	 	49,404	 	 	 	22,271	 	 	 	(10,788	)	 	 	60,887	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2019	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Revenues	 	$	689,715	 	 	$	369,848	 	 	$	-	 	 	$	1,059,563	 
	Depreciation and amortization	 	 	12,662	 	 	 	14,168	 	 	 	22	 	 	 	26,852	 
	Operating earnings	 	 	47,926	 	 	 	24,597	 	 	 	(328,063	)	 	 	(255,540	)

  
 GEOGRAPHIC INFORMATION 

 

	 	 	 	United States	 	 	 	Canada	 	 	 	Consolidated	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Three months ended June 30	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	2020	 	 	 	 	 	 	 	 	 	 	 	 
	Revenues	 	$	546,191	 	 	$	75,406	 	 	$	621,597	 
	Total long-lived assets	 	 	987,499	 	 	 	270,104	 	 	 	1,257,603	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	2019	 	 	 	 	 	 	 	 	 	 	 	 
	Revenues	 	$	534,180	 	 	$	39,728	 	 	$	573,908	 
	Total long-lived assets	 	 	992,705	 	 	 	255,520	 	 	 	1,248,225	 

  

	 	 	 	United States	 	 	 	Canada	 	 	 	Consolidated	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Six months ended June 30	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	2020	 	 	 	 	 	 	 	 	 	 	 	 
	Revenues	 	$	1,105,326	 	 	$	150,102	 	 	$	1,255,428	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	2019	 	 	 	 	 	 	 	 	 	 	 	 
	Revenues	 	$	989,478	 	 	$	70,085	 	 	$	1,059,563	 

 
  

17.       SUBSEQUENT EVENT – On July 2, 2020, the Company’s subsidiary, Global Restoration Holdings, acquired a controlling interest in Rolyn
Companies, Inc. (“Rolyn”), a leading commercial and large loss restoration services provider in the Mid-Atlantic region of the United States. Rolyn generates annual run-rate revenues of approximately $75,000.EX-4.6

  Exhibit 4.6

 
 FIRSTSERVICE CORPORATION
  

MANAGEMENT’S DISCUSSION AND ANALYSIS
 For the Six Month Period Ended June 30, 2020

(in US dollars)
 August 6, 2020
  

The following Management’s Discussion and Analysis (“MD&A”) should be read together with the unaudited interim consolidated financial statements of FirstService
Corporation (the “Company” or “FirstService”) for the three and six month periods ended June 30, 2020 and the Company’s audited consolidated financial statements, and MD&A, for the year ended December 31, 2019.
The interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). All financial information herein is presented in United States dollars.

 
 The Company has prepared this MD&A with reference to National Instrument 51-102 – Continuous
Disclosure Obligations of the Canadian Securities Administrators (the "CSA"). Under the U.S./Canada Multijurisdictional Disclosure System, the Company is permitted to prepare this MD&A in accordance with the disclosure requirements of Canada,
which requirements are different from those of the United States. This MD&A provides information for the three and six month periods ended June 30, 2020 and up to and including August 6, 2020.

 
 Additional information about the Company, including the Company’s Annual Information Form, which is
included in FirstService’s Annual Report on Form 40-F, can be found on SEDAR at www.sedar.com and on the US Securities and Exchange Commission website at www.sec.gov.

 
  
 Consolidated review

 
 We reported solid operating results for the second quarter ended June 30, 2020. Consolidated revenue growth
was 8% relative to the same quarter in the prior year, and resulted in growth in adjusted EBITDA, operating earnings and earnings per share. On an organic basis, our top-line decreased approximately 9%, as a result of the COVID-19 pandemic and the
various “stay at home” measures mandated by governments in the markets in which we operate.
  
 During
the past year, we completed several acquisitions, which provided additional revenue growth for the second quarter of 2020, most notably our acquisition of Global Restoration Holdings (“Global”). Global provides us with a market leader in
large loss and commercial property restoration and a platform for future growth both organically and through tuck-under acquisitions to expand its geographic footprint and increase its national client account coverage.

 
 Results of operations - three months ended June 30, 2020
  

Revenues for our second quarter were $621.6 million, 8% higher than the comparable prior year quarter. On an organic basis, revenues declined 9%, as most of our operations were
negatively impacted by the COVID-19 pandemic.
  
 Adjusted EBITDA (see “Reconciliation of non-GAAP
measures” below) for the second quarter was $71.2 million versus $65.0 million reported in the prior year quarter. Our Adjusted EBITDA margin was 11.5% of revenues versus 11.3% of revenues in the prior year quarter. Operating earnings
for the second quarter were $44.9 million, up from an operating loss of $268.5 million in the prior year quarter, the difference being primarily attributable to the 2019 settlement of the long-term incentive arrangement (“LTIA”) with
our Founder and Chairman for $314.4 million.
  
 Depreciation and amortization expense totalled
$23.5 million for the quarter relative to $14.2 million in the prior year quarter, with the increase mainly due to the amortization of intangible assets from our Global Restoration acquisition in the FirstService Brands segment.

 
 Other income of $6.1 million in the prior year quarter was primarily due to the gain on sale from two
small, non-core divestitures: (i) our Arizona and Florida-based landscaping operations: and (ii) our national accounts commercial painting operations.
  

  

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 The consolidated income tax rate for the quarter was 24% of earnings before income tax,
compared to negative 3% in the prior year quarter, and relative to the statutory rate of 27% in both periods. In the prior year quarter, the tax rate was impacted by the settlement of the LTIA, which was not deductible for tax purposes. The
effective tax rate for the full year is expected to be approximately 25%.
  
 Net earnings for the quarter were
$29.9 million, versus a loss of $275.7 million in the prior year quarter, with the difference primarily attributable to the settlement of the LTIA.
  

The NCI redemption increment for the second quarter was a recovery of $0.5 million, versus an expense of $0.9 million in the prior period, and was attributable to changes in
the trailing two-year average of earnings of non-wholly owned subsidiaries.
  
 The FirstService Residential
segment reported revenues of $338.2 million for the second quarter, down 9% versus the prior year quarter. The revenue decline was primarily attributable to client facility closures that negatively impacted the delivery of our amenity
management services, stemming from the COVID-19 pandemic. Adjusted EBITDA was $37.2 million, versus $39.2 million in the prior year quarter. Operating earnings were $32.0 million, versus $32.3 million for the second quarter of
last year. Margins expanded during the quarter from a combination of aggressive cost reduction initiatives and lower than expected decline in higher margin ancillary revenue.

 
 Second quarter revenues at our FirstService Brands segment were $283.4 million, up 39% relative to the
prior year period. Revenues declined 10% on an organic basis, but was more than offset by the contribution from the large Global Restoration transaction and other tuck-under acquisitions, which were not reflected in last year’s second quarter.
The decrease in organic revenue resulted from the various government-mandated “stay at home” measures which negatively impacted activity levels in our service lines tied to home improvement. Adjusted EBITDA for the quarter was
$35.8 million, or 12.6% of revenues, versus $28.4 million, or 14.0% of revenues, in the prior year period. The year-over-year margin decline was principally driven by acquisition mix, with the addition of Global Restoration yielding lower
margins than the overall division. Operating earnings for the second quarter were $17.4 million, or 6.1% of revenues, versus $20.7 million, or 10.2% of revenues, in the prior year quarter, with the decrease due to increased amortization of
intangible assets arising from the Global Restoration transaction.
  
 Corporate costs, as presented in Adjusted
EBITDA, were $1.9 million in the quarter, relative to $2.6 million in the prior year period. On a GAAP basis, corporate costs for the quarter were $4.4 million, relative to $321.4 million in the prior year, with the decrease in
costs attributable to the 2019 settlement of the LTIA.
  
 Results of operations - six months ended June 30, 2020

 
 Revenues for the six months ended June 30, 2020 were $1.26 billion, 18% higher than the comparable
prior year. Revenues declined 1% on an organic basis.
  
 Year-to-date Adjusted EBITDA (see “Reconciliation
of non-GAAP measures” below) was $115.1 million versus $94.2 million reported in the comparable prior year period. Operating earnings for the period were $60.9 million, versus an operating loss of $255.5 million in the prior
year, with the variance primarily attributable to the 2019 settlement of the LTIA.
  
 We recorded depreciation
and amortization expense of $47.0 million for the six month period relative to $26.9 million in the prior year period, with the increase primarily related to recently acquired company-owned operations in our FirstService Brands
segment.
  
 Net interest expense for the six month period was $14.4 million, up from $8.3 million
recorded in the prior year period. The increase was driven primarily by the increase in our average outstanding debt versus the prior year.
  

Our consolidated income tax rate for the six month period was 24%, compared to negative 4% of earnings before income tax in the prior year-to-date period, and relative to the statutory
rate of 27% in both periods. In the prior year period, the tax rate was impacted by the settlement of the LTIA, which was not deductible for tax purposes.
  

  

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 Net earnings for the six month period were $35.7 million, versus a net loss of
$267.5 million in the prior year period. The increase was primarily attributable to the settlement of the LTIA in the prior year period.
  

The NCI redemption increment for the period was a recovery of $1.8 million, versus an expense of $5.0 million in the prior period, and was attributable to changes in the
trailing two-year average of earnings of non-wholly owned subsidiaries.
  
 Our FirstService Residential segment
reported revenues of $677.8 million for the six month period, down 2% over the prior year period. Revenue decline was attributable to reduced demand for certain ancillary services during the second quarter as a result of the COVID-19 pandemic,
partially offset by contribution from contract wins earlier in the year. Adjusted EBITDA was $61.1 million relative to $61.0 million in the prior year period. Operating earnings were $49.4 million for the six month period, relative to
$47.9 million in the prior year period. Our operating earnings margins were up modestly versus the prior year.
  

Year-to-date revenues at FirstService Brands were $577.6 million, an increase of 56% relative to the prior year period. On an organic basis, revenues were down 3%. Organic growth in
the division was negatively impacted in the second quarter by the COVID-19 pandemic and government-mandated “stay at home” measures, with our home improvement brands being particularly affected by these events. Adjusted EBITDA for the
period was $57.8 million, or 10.0% of revenues, versus $39.5 million, or 10.7% of revenues, for the prior year period. Operating earnings were $22.3 million, or 3.9% of revenues, versus $24.6 million, or 6.7% of revenues, in the
prior year period. Margins were impacted by our Global Restoration operation, which has lower margins than the overall division. Our operating earnings margin was also impacted by increased intangible amortization from the Global Restoration
acquisition.
  
 Corporate costs, as presented in Adjusted EBITDA, for the six month period were
$3.8 million, relative to $6.3 million in the prior year period. On a GAAP basis, corporate costs were $10.8 million versus $328.1 million in the prior year period, with the decrease primarily attributable to the settlement of
the LTIA.
  
  
  
  

 
  
  
  

  

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 Summary of quarterly results (unaudited)
  

The following table sets forth FirstService’s unaudited quarterly consolidated results of operations data for each of the ten most recent quarters. The information in the table
below has been derived from FirstService’s unaudited interim consolidated financial statements that, in management’s opinion, have been prepared on a consistent basis and include all adjustments necessary for a fair presentation of
information. The information below is not necessarily indicative of results for any future quarter. 
  

	Quarter	Q1	 	Q2	 	Q3	 	Q4
	(in thousands of US$, except per share amounts)	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	YEAR ENDING DECEMBER 31, 2020	 	 	 	 	 	 	 	 	 	 	 
	Revenues	$	633,831	 	$	621,597	 	 	 	 	 	 
	Operating earnings	 	15,984	 	 	44,903	 	 	 	 	 	 
	Net earnings per share 	 	 	 	 	 	 	 	 	 	 	 
	 	Basic	 	0.13	 	 	0.64	 	 	 	 	 	 
	 	Diluted	 	0.13	 	 	0.64	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	YEAR ENDED DECEMBER 31, 2019	 	 	 	 	 	 	 	 	 	 	 
	Revenues	$	485,655	 	$	573,908	 	$	672,253	 	$	675,594
	Operating earnings	 	12,930	 	 	(268,470)	 	 	49,698	 	 	31,423
	Net earnings per share	 	 	 	 	 	 	 	 	 	 	 
	 	Basic	 	0.06	 	 	(7.48)	 	 	0.51	 	 	0.13
	 	Diluted	 	0.06	 	 	(7.48)	 	 	0.50	 	 	0.13
	 	 	 	 	 	 	 	 	 	 	 	 	 
	YEAR ENDED DECEMBER 31, 2018	 	 	 	 	 	 	 	 	 	 	 
	Revenues	$	426,456	 	$	495,348	 	$	506,356	 	$	503,313
	Operating earnings	 	11,073	 	 	42,350	 	 	45,298	 	 	28,847
	Net earnings per share	 	 	 	 	 	 	 	 	 	 	 
	 	Basic	 	0.17	 	 	0.63	 	 	0.72	 	 	0.32
	 	Diluted	 	0.17	 	 	0.62	 	 	0.70	 	 	0.31
	 	 	 	 	 	 	 	 	 	 	 	 	 
	OTHER DATA	 	 	 	 	 	 	 	 	 	 	 
	Adjusted EBITDA - 2020	$	43,865	 	$	71,231	 	 	 	 	 	 
	Adjusted EBITDA - 2019	 	29,150	 	 	65,031	 	$	77,144	 	$	63,857
	Adjusted EBITDA - 2018	 	25,414	 	 	57,118	 	 	59,426	 	 	48,653
	Adjusted EPS - 2020	 	0.37	 	 	0.86	 	 	 	 	 	 
	Adjusted EPS - 2019	 	0.30	 	 	1.12	 	 	0.92	 	 	0.66
	Adjusted EPS - 2018	 	0.25	 	 	0.86	 	 	0.89	 	 	0.62

  

Seasonality and quarterly fluctuations
  
 Certain segments of
the Company’s operations are subject to seasonal variations. The seasonality of the 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.
  
 FirstService Residential generates peak revenues and earnings in the third
quarter, as seasonal ancillary swimming pool management revenues are earned. FirstService Brands includes certain franchise operations, which generate the majority of their revenues during the second and third quarters, and restoration operations
which are influenced by weather patterns that typically should result in higher revenues and earnings in the fourth quarter.
 
  

  

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 Reconciliation of non-GAAP
measures
  
 In this MD&A, we make reference to “adjusted EBITDA” and “adjusted earnings
per share”, which are financial measures that are not calculated in accordance with GAAP.
  
 Adjusted EBITDA is defined as net
earnings, adjusted to exclude: (i) income tax; (ii) other expense (income); (iii) interest expense; (iv) depreciation and amortization; (v) acquisition-related items; (vi) stock-based compensation expense; and (vii) settlement of the LTIA. We use
adjusted EBITDA to evaluate our own operating performance and our ability to service debt, as well as an integral part of our planning and reporting systems. Additionally, we use this measure in conjunction with discounted cash flow models to
determine the Company’s overall enterprise valuation and to evaluate acquisition targets. We present adjusted EBITDA as a supplemental measure because we believe such measure is useful to investors as a reasonable indicator of operating
performance because of the low capital intensity of the Company’s service operations. We believe this measure is a financial metric used by many investors to compare companies, especially in the services industry. This measure 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 flow from operating activities, as determined in accordance with GAAP. Our method
of calculating adjusted EBITDA may differ from other issuers and accordingly, this measure may not be comparable to measures used by other issuers. A reconciliation of net earnings to adjusted EBITDA appears below.

 
 

	 	 	Three months ended	 	Six months ended
	(in thousands of US$)	 	June 30	 	June 30
	 	 	 	2020	 	 	 	2019	 	 	 	2020	 	 	 	2019	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net earnings (loss)	 	$	29,917	 	 	$	(275,680	)	 	$	35,697	 	 	$	(267,535	)
	Income tax	 	 	9,603	 	 	 	8,569	 	 	 	11,149	 	 	 	9,778	 
	Other income, net	 	 	(147	)	 	 	(6,131	)	 	 	(376	)	 	 	(6,124	)
	Interest expense, net	 	 	5,530	 	 	 	4,772	 	 	 	14,417	 	 	 	8,341	 
	Operating earnings (loss)	 	 	44,903	 	 	 	(268,470	)	 	 	60,887	 	 	 	(255,540	)
	Depreciation and amortization	 	 	23,488	 	 	 	14,165	 	 	 	46,995	 	 	 	26,852	 
	Settlement of long-term incentive arrangement	 	 	—  	 	 	 	314,379	 	 	 	—  	 	 	 	314,379	 
	Acquisition-related items	 	 	397	 	 	 	3,202	 	 	 	802	 	 	 	3,880	 
	Stock-based compensation expense	 	 	2,443	 	 	 	1,755	 	 	 	6,412	 	 	 	4,610	 
	Adjusted EBITDA	 	$	71,231	 	 	$	65,031	 	 	$	115,096	 	 	$	94,181	 

  
 

Adjusted earnings per share is defined as diluted net earnings per share, adjusted for the effect, after income tax, of: (i) the non-controlling interest redemption increment; (ii)
acquisition-related items; (iii) amortization expense related to intangible assets recognized in connection with acquisitions; (iv) stock-based compensation expense; (v) a stock-based compensation tax adjustment related to a US GAAP change; and (vi)
settlement of the LTIA. We believe this measure is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company and enhances the comparability of operating results from period to
period. Adjusted earnings per share is not a recognized measure of financial performance under GAAP, and should not be considered as a substitute for diluted net earnings per share, as determined in accordance with GAAP. Our method of calculating
this non-GAAP measure may differ from other issuers and, accordingly, this measure may not be comparable to measures used by other issuers. A reconciliation of net earnings to adjusted net earnings and of diluted net earnings per share to adjusted
earnings per share appears below.
  
 

  

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	 	 	Three months ended	 	Six months ended
	(in thousands of US$)	 	June 30	 	June 30
	 	 	 	2020	 	 	 	2019	 	 	 	2020	 	 	 	2019	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net earnings (loss)	 	$	29,917	 	 	$	(275,680	)	 	$	35,697	 	 	$	(267,535	)
	Non-controlling interest share of earnings	 	 	(3,326	)	 	 	(2,409	)	 	 	(5,081	)	 	 	(4,205	)
	Settlement of long-term incentive arrangement	 	 	—  	 	 	 	314,379	 	 	 	—  	 	 	 	314,379	 
	Acquisition-related items	 	 	397	 	 	 	3,202	 	 	 	802	 	 	 	3,880	 
	Amortization of intangible assets	 	 	10,864	 	 	 	4,899	 	 	 	22,225	 	 	 	9,206	 
	Stock-based compensation expense	 	 	2,443	 	 	 	1,755	 	 	 	6,412	 	 	 	4,610	 
	Stock-based compensation tax adjustment for US GAAP change	 	 	—  	 	 	 	(1,510	)	 	 	—  	 	 	 	(2,854	)
	Income tax on adjustments	 	 	(3,460	)	 	 	(2,439	)	 	 	(7,446	)	 	 	(4,301	)
	Non-controlling interest on adjustments	 	 	(298	)	 	 	(80	)	 	 	(520	)	 	 	(168	)
	Adjusted net earnings	 	$	36,537	 	 	$	42,117	 	 	$	52,089	 	 	$	53,012	 

  

	 	 	Three months ended	 	Six months ended
	(in US$)	 	June 30	 	June 30
	 	 	 	2020	 	 	 	2019	 	 	 	2020	 	 	 	2019	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Diluted net earnings (loss) per share	 	$	0.64	 	 	$	(7.40	)	 	$	0.77	 	 	$	(7.59	)
	Non-controlling interest redemption increment (decrement)	 	 	(0.01	)	 	 	0.03	 	 	 	(0.04	)	 	 	0.14	 
	Settlement of long-term incentive arrangement	 	 	—  	 	 	 	8.34	 	 	 	—  	 	 	 	8.62	 
	Acquisition-related items	 	 	0.01	 	 	 	0.07	 	 	 	0.02	 	 	 	0.09	 
	Amortization of intangible assets, net of tax	 	 	0.18	 	 	 	0.09	 	 	 	0.37	 	 	 	0.18	 
	Stock-based compensation expense, net of tax	 	 	0.04	 	 	 	0.03	 	 	 	0.11	 	 	 	0.09	 
	Stock-based compensation tax adjustment for US GAAP change	 	 	—  	 	 	 	(0.04	)	 	 	—  	 	 	 	(0.08	)
	Adjusted earnings per share	 	$	0.86	 	 	$	1.12	 	 	$	1.23	 	 	$	1.45	 

  
 We believe that the presentation of
adjusted EBITDA and adjusted earnings per share, which are non-GAAP financial measures, provides important supplemental information to management and investors regarding financial and business trends relating to the Company’s financial
condition and results of operations. We use these non-GAAP financial measures when evaluating operating performance because we believe that the inclusion or exclusion of the items described above, for which the amounts are non-cash or non-recurring
in nature, provides a supplemental measure of our operating results that facilitates comparability of our operating performance from period to period, against our business model objectives, and against other companies in our industry. We have chosen
to provide this information to investors so they can analyze our operating results in the same way that management does and use this information in their assessment of our core business and the valuation of the Company. Adjusted EBITDA and
adjusted earnings per share are not calculated in accordance with GAAP, and should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP financial measures have
limitations in that they do not reflect all of the costs or benefits associated with the operations of our business as determined in accordance with GAAP. As a result, investors should not consider these measures in isolation or as a substitute for
analysis of our results as reported under GAAP.
  
 Liquidity and capital resources

 
 Net cash provided by operating activities for the six month period ended June 30, 2020 was $153.0 million,
up from $44.4 million in the prior year period. The increase in operating cash flow was primarily attributable to changes in non-cash working capital, including a focus on accounts receivable collections, and the deferral of certain
current-year tax payments to the third quarter of 2020. We believe that cash from operations and other existing resources will continue to be adequate to satisfy the ongoing working capital needs of the Company.

 
 For the six months ended June 30, 2020, capital expenditures were $22.1 million, relatively flat versus the
prior year period. Current year investments include service vehicle fleet replacements and additions in the FirstService Brands segment, as well as information technology system and hardware investments in both segments. Based on our current
operations, maintenance capital expenditures for the year ending December 31, 2020 are expected to be approximately $45 million.
  

  

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 In July 2020, we paid a quarterly dividend of $0.165 per share on the Common Shares in
respect of the quarter ended June 30, 2020.
  
 Net indebtedness as at June 30, 2020 was
$399.9 million, versus $645.6 million at December 31, 2019. Net indebtedness is calculated as the current and non-current portion of long-term debt less cash and cash equivalents. We are in compliance with the covenants contained in
our financing agreements as at June 30, 2020 and, based on our outlook for the balance of the year, we expect to remain in compliance with these covenants. We had $381.1 million of available un-drawn credit as of June 30, 2020.

 
 In relation to acquisitions completed during the past two years, we have outstanding contingent consideration
totalling $10.3 million as at June 30, 2020 ($14.4 million as at December 31, 2019) assuming all contingencies are satisfied and payment is due in full. Such payments, if any, are due during the period extending to September 2023. The
contingent consideration liability is recognized at fair value upon acquisition and is updated to fair value each quarter, unless it contains an element of compensation, in which case such element is treated as compensation expense over the
contingency period. The contingent consideration is based on achieving specified earnings levels, and is paid or payable at the end of the contingency period. We estimate that, based on current operating results, approximately 85% of the contingent
consideration outstanding as of June 30, 2020 will ultimately be paid.
  
 The following table summarizes our
contractual obligations as at June 30, 2020:
  

	Contractual obligations	Payments due by period
	(in thousands of US$)	 	 	 	 	Less than	 	 	 	 	 	 	 	 	After
	 	 	Total	 	 	1 year	 	 	1-3 years	 	 	4-5 years	 	 	5 years
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Long-term debt	$	634,140	 	$	52,649	 	$	151,219	 	$	430,272	 	$	-
	Interest on long-term debt	 	78,190	 	 	24,227	 	 	40,118	 	 	13,269	 	 	576
	Capital lease obligations	 	11,054	 	 	4,020	 	 	5,142	 	 	1,892	 	 	-
	Contingent acquisition consideration	 	10,266	 	 	3,788	 	 	6,478	 	 	-	 	 	-
	Operating leases	 	163,729	 	 	18,773	 	 	69,167	 	 	39,075	 	 	36,714
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total contractual obligations	$	897,379	 	$	103,457	 	$	272,124	 	$	484,508	 	$	37,290

  

At June 30, 2020, we had commercial commitments totaling $7.9 million comprised of letters of credit outstanding due to expire within one year. We are required to make semi-annual
payments of interest on our senior secured notes at an interest rate of 3.8%.
  
 Redeemable non-controlling interests

 
 In most operations where managers or employees are also minority owners, the Company is party to
shareholders’ agreements. These agreements allow us to “call” the minority position at a value determined with the use of a formula price, which is in most cases equal to a multiple of trailing two-year average earnings, less debt.
Minority owners may also “put” their interest to the Company at the same price, with certain limitations including: (i) the inability to “put” more than one-third to one-half of their holdings in any twelve-month period; and (ii)
the inability to “put” any holdings for at least one year after the date of our initial acquisition of the business or the date the minority shareholder acquired the stock, as the case may be. The total value of the minority
shareholders’ interests (the “redemption amount”), as calculated in accordance with shareholders’ agreements, was as follows.
  

	 	 	 	June 30	 	 	 	December 31	 
	(in thousands of US$)	 	 	2020	 	 	 	2019	 
	 	 	 	 	 	 	 	 	 
	FirstService Residential	 	$	57,502	 	 	$	62,407	 
	FirstService Brands	 	 	101,658	 	 	 	108,576	 
	 	 	$	159,160	 	 	$	170,983	 

  
 

  

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The amount recorded on our balance sheet under the caption “Redeemable non-controlling interests” (“RNCI”) is the greater of: (i) the redemption amount (as above);
and (ii) the amount initially recorded as RNCI at the date of inception of the minority equity position. As at June 30, 2020, the RNCI recorded on the balance sheet was $162.6 million. The purchase prices of the RNCI may be satisfied in cash or
in Common Shares of FirstService. If all RNCI were redeemed with cash on hand and borrowings under our Facility, the pro forma estimated accretion to diluted net earnings per share for the six months ended June 30, 2020 would be $0.03 and the
accretion to adjusted EPS would be $0.07.
  
 Off-balance sheet arrangements

 
 The Company does not believe that it has off-balance sheet arrangements that have, or are reasonably likely to
have, a current or future material effect on the Company’s financial performance or financial condition.
  
 Critical
accounting policies and estimates
  
 The preparation of consolidated financial statements requires
management to make estimates and assumptions with respect to the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. These estimates and assumptions are based upon management’s
historical experience and are believed by management to be reasonable under the circumstances. Such estimates and assumptions are evaluated on an ongoing basis and form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results could differ significantly from these estimates. Our critical accounting policies and estimates have been reviewed and discussed with our Audit Committee. There have been
no material changes to our critical accounting policies and estimates from those disclosed in the Company’s MD&A for the year ended December 31, 2019, except as noted below.

 
 Credit Losses
 On January 1, 2020, the
Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), which replaces existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost.
The Company adopted Topic 326 using a modified retrospective approach, which requires a cumulative-effect adjustment, if any, to the opening balance of retained earnings (deficit) to be recognized on the date of adoption with prior periods not
restated. The cumulative-effect adjustment recorded on January 1, 2020 was not material.
  
 Accounting policy
for Credit Losses
 Accounts receivable: The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The measurement of
expected credit losses is based on relevant information about past events, including historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may impact a customer’s ability to
pay.
  
 Financial instruments
  

We use financial instruments as part of our strategy to manage the risk associated with interest rates and currency exchange rates from time to time. We do not use financial instruments
for trading or speculative purposes. As of the date of this MD&A, we have one interest swap in place to exchange the floating interest rate on $100 million of debt under our Credit Agreement for a fixed rate.

 
 Transactions with related parties
  

The Company has entered into office space rental arrangements and property management contracts with senior managers of certain subsidiaries. These senior managers are usually also
minority shareholders of the subsidiaries. The business purpose of the transactions is to rent office space for the Company and to generate property management revenues for the Company. The recorded amount of the rent expense for the six months
ended June 30, 2020 was $0.8 million (2019 - $0.5 million).
  
 As at June 30, 2020, the
Company had $2.6 million of loans receivable from minority shareholders (December 31, 2019 - $2.6 million). The business purpose of the loans receivable was to finance the sale of non-controlling interests in subsidiaries to senior
managers. The loan amounts are measured based on the formula price of the underlying non-controlling interests, and interest rates are determined based on the Company’s cost of borrowing plus a spread. The loans generally have terms of 5 to 10
years, but are open for repayment without penalty at any time.
  
 

  

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 Outstanding share data
  

The authorized capital of the Company consists of an unlimited number of Common Shares. The holders of Common Shares are entitled to one vote in respect of each Common Share held at all
meetings of the shareholders of the Company.
  
 As of the date hereof, the Company has outstanding 43,466,716
Common Shares. In addition, as at the date hereof, 1,940,700 Common Shares are issuable upon exercise of options granted under the Company’s stock option plan.
  

Canadian tax treatment of dividends
  
 For the purposes of the
enhanced dividend tax credit rules contained in the Income Tax Act (Canada) and any corresponding provincial and territorial tax legislation, all dividends (and deemed dividends) paid by us to Canadian residents on our Common Shares are designated
as “eligible dividends”. Unless stated otherwise, all dividends (and deemed dividends) paid by us hereafter are designated as “eligible dividends” for the purposes of such rules.

 
 Changes in internal controls over financial reporting

 
 There have been no changes in our internal controls over financial reporting during the three and six month
periods ended June 30, 2020 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
  

Public Health Crisis
  

FirstService’s business, operations and financial condition could be materially adversely affected by the outbreak of epidemics or pandemics or other health crises beyond our
control, including current or future waves of the COVID-19 outbreak. Many governments may declare that an outbreak, or one or more waves or an outbreak, constitutes an emergency in their jurisdictions. Reactions to the spread of an outbreak, or the
worsening of an outbreak from time to time, may lead to, among other things, significant restrictions on travel, business closures, quarantines, social distancing and other containment measures and a general reduction in consumer activity. While
these effects may be temporary, the duration of any business disruptions and related financial impact cannot be reasonably estimated, and may be instituted, terminated and re-instituted from time to time as an outbreak worsens or waves of an
outbreak occur from time to time.
  
 Such public health crises can also result in volatility and disruptions in
the supply and demand for various products and services, global supply chains and financial markets, as well as declining trade and market sentiment and reduced mobility of people, all of which could affect interest rates, credit ratings, credit
risk and inflation. The risks to FirstService of such public health crises also include risks to employee health and safety and a slowdown or temporary suspension of operations in geographic locations impacted by an outbreak.

 
  
  
 

  

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 Forward-looking statements

 
 This MD&A contains forward-looking statements with respect to expected financial performance, strategy and
business conditions. The words “believe,” “anticipate,” “estimate,” “plan,” “expect,” “intend,” “may,” “project,” “will,” “would,” and similar
expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements reflect management's current beliefs with respect to future events and are based on
information currently available to management. Forward-looking statements involve significant known and unknown risk and uncertainties. Many factors could cause our actual results, performance or achievements to be materially different from any
future results, performance or achievements that may be expressed or implied by such forward-looking statements. Factors which may cause such differences include, but are not limited to those set out below, those set out above under “Public
Health Crisis” and those set out in detail in the “Risk Factors” section of the Company’s Annual Information Form, which is included in the Company’s Annual Report on Form 40-F:

 

		•	The COVID-19 pandemic and its related impact on global, regional and local economic conditions, and in particular its impact on client demand for our services, our ability to deliver services and ensure the health and
productivity of our employees.

		•	Economic conditions, especially as they relate to credit conditions, consumer spending and demand for managed residential property, particularly in regions where our business may be concentrated.

		•	Residential real estate property values, resale 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.

		•	Economic deterioration impacting our ability to recover goodwill and other intangible assets.

		•	A decline in our ability to generate cash from our businesses to fund future acquisitions and meet our debt obligations.

		•	The effects of changes in foreign exchange rates in relation to the U.S. dollar on our Canadian dollar denominated revenues and expenses.

		•	Competition in the markets served by the Company.

		•	Labour shortages or increases in wage and benefit costs.

		•	The effects of changes in interest rates on our cost of borrowing.

		•	A decline in our performance impacting our continued compliance with the financial covenants under our debt agreements, or our ability to negotiate a waiver of certain covenants with our lenders.

		•	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.

		•	A decline in our ability to make acquisitions at reasonable prices and successfully integrate acquired operations.

		•	The performance of acquired businesses and potential liabilities acquired in connection with such acquisitions.

		•	Changes in laws, regulations and government policies at the federal, state/provincial or local level that may adversely impact our businesses.

		•	Risks related to liability for employee acts or omissions, or installation/system failure, in our fire protection businesses.

		•	A decline in our performance impacting our ability to pay dividends on our common shares.

		•	Risks arising from any regulatory review and litigation.

		•	Risks associated with intellectual property and other proprietary rights that are material to our business.

		•	Disruptions or security failures in our information technology systems.

		•	Political conditions, including any outbreak or escalation of terrorism or hostilities and the impact thereof on our business.

		•	Performance in our commercial and large loss property restoration business.

		•	Volatility of the market price of our common shares.

		•	Potential future dilution to the holders of our common shares.

		•	Risks related to our qualification as a foreign private issuer.

		•	Although the spin-off is complete, the transaction exposes FirstService to certain ongoing tax and indemnification risks.

  
 

  

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 We caution that the foregoing list is not exhaustive of all possible factors,
as other factors could adversely affect our results, performance or achievements. The reader is cautioned against undue reliance on these forward-looking statements. 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, particularly in light of the ongoing and developing COVID-19 pandemic and its impact on the global economy and its anticipated impact on our business. All forward-looking statements in this MD&A are qualified by these
cautionary statements. The forward-looking statements are made as of the date of this MD&A and, unless otherwise required by applicable securities laws, we do not intend, nor do we undertake any obligation, to update or revise any
forward-looking statements contained in this MD&A to reflect subsequent information, events, results or circumstances or otherwise.
 

 
 Additional information
  

Additional information regarding the Company, including our Annual Information Form for the year ended December 31, 2019, is available on SEDAR at www.sedar.com and on EDGAR at
www.sec.gov.
  
 Further information about us can also be obtained at www.firstservice.com.

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