Colliers International (CIGI) 40-F 2004 FY Annual report (Canada)

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EXHIBIT 2

REPORT OF MANAGEMENT

To the shareholders of FirstService Corporation:

        Management is responsible for the preparation of FirstService Corporation's consolidated financial statements. Management believes that the consolidated financial statements fairly reflect the form and substance of transactions and that the consolidated financial statements reasonably present the Company's financial condition and results of operations. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and reconciled to Canadian generally accepted accounting principles in note 22 to the consolidated financial statements in all material respects. Management has included in the Company's consolidated financial statements amounts based on estimates and judgments that it believes are reasonable under the circumstances.

        PricewaterhouseCoopers LLP, the independent auditors of the Company, have audited the Company's consolidated financial statements in accordance with Canadian generally accepted auditing standards, and they provide an objective, independent review of the fairness of reported operating results and financial position.

        The Board of Directors of the Company has an Audit Committee that meets with financial management and the independent auditors to review accounting, auditing, internal accounting controls, and financial reporting matters.

/s/ Jay S. Hennick President and CEO	/s/ John B. Friedrichsen Senior Vice President and CFO
May 7, 2004

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INDEPENDENT AUDITORS' REPORT

To the shareholders of FirstService Corporation:

        We have audited the consolidated balance sheets of FirstService Corporation as at March 31, 2004 and 2003 and the consolidated statements of earnings, shareholders' equity and cash flows for each year in the three-year period ended March 31, 2004. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

        In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at March 31, 2004 and 2003 and the results of its operations and cash flows for each year in the three-year period ended March 31, 2004 in accordance with United States generally accepted accounting principles.

/s/ PricewaterhouseCoopers LLP
Chartered Accountants

Toronto, Canada
May 7, 2004

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FIRSTSERVICE CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands of U.S. dollars, except per share amounts) — in accordance with United States generally accepted accounting principles

For the years ended March 31		2004			2003			2002
Revenues		$	609,794		$	523,127		$	493,551
Cost of revenues			424,069			359,254			334,464
Selling, general and administrative expenses (note 5)			132,328			113,991			104,043
Other income, net (note 6)			(897	)		(1,106	)		(196	)
Depreciation and amortization			15,223			13,285			11,953
			39,071			37,703			43,287
Interest, net			7,905			8,936			12,952
Earnings before income taxes and minority interest			31,166			28,767			30,335
Income taxes (note 14)			9,201			7,701			10,195
Earnings before minority interest			21,965			21,066			20,140
Minority interest share of earnings			3,101			3,040			3,658
Net earnings from continuing operations			18,864			18,026			16,482
Net earnings from discontinued operations, net of income taxes (note 4)			160			414			547
Net earnings		$	19,024		$	18,440		$	17,029
Net earnings per share (note 15)
Basic
	Continuing operations	$	1.32		$	1.29		$	1.22
	Discontinued operations		0.01			0.03			0.04
		$	1.33		$	1.32		$	1.26
Diluted
	Continuing operations	$	1.29		$	1.24		$	1.13
	Discontinued operations		0.01			0.03			0.04
		$	1.30		$	1.27		$	1.17

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

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FIRSTSERVICE CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands of U.S. dollars) — in accordance with United States generally accepted accounting principles

As at March 31			2004			2003
Assets
Current assets
	Cash and cash equivalents		$	15,620		$	5,378
	Accounts receivable, net of an allowance of $3,976 (2003 — $5,343)			97,367			85,484
	Inventories (note 7)			15,229			15,095
	Prepaids and other (note 7)			15,659			13,617
	Deferred income taxes (note 14)			3,358			2,808
				147,233			122,382
Other receivables (note 8)				5,397			5,839
Interest rate swaps (note 17)				6,805			6,279
Fixed assets (note 9)				49,826			46,600
Other assets (note 9)				2,829			2,777
Deferred income taxes (note 14)				2,167			103
Intangible assets (note 10)				37,717			31,427
Goodwill (note 11)				185,579			173,624
				290,320			266,649
			$	437,553		$	389,031
Liabilities
Current liabilities
	Accounts payable		$	20,526		$	22,564
	Accrued liabilities (note 7)			49,353			34,270
	Income taxes payable			1,985			1,209
	Unearned revenue			9,736			8,369
	Long-term debt — current (note 12)			3,502			3,030
	Deferred income taxes (note 14)			1,266			1,066
				86,368			70,508
Long-term debt less current portion (note 12)				160,386			161,889
Deferred income taxes (note 14)				19,594			19,404
Minority interest				16,104			13,824
				196,084			195,117
Shareholders' equity
	Capital stock (note 13)			68,557			60,571
		Issued and outstanding 14,087,018 (2003 — 13,501,343) Subordinate Voting Shares and 662,847 (2003 — 662,847) convertible Multiple Voting Shares
	Contributed surplus (note 13)			183			—
	Receivables pursuant to share purchase plan (note 13)			(2,148	)		(2,434	)
	Retained earnings			81,972			62,948
	Cumulative other comprehensive earnings			6,537			2,321
				155,101			123,406
			$	437,553		$	389,031
Commitments and contingencies (note 18)

On behalf of the Board,
/s/ Jay S. Hennick Director	/s/ Peter F. Cohen Director

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

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FIRSTSERVICE CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in thousands of U.S. dollars) — in accordance with United States generally accepted accounting principles

		Issued and outstanding shares		Capital stock			Contributed surplus			Receivables pursuant to share purchase plan			Retained earnings			Cumulative other comprehensive earnings (loss)			Total shareholders' equity
Balance, March 31, 2001		13,168,240		$	54,863		$	—		$	(3,196	)	$	27,736		$	(183	)	$	79,220
Comprehensive earnings:
	Net earnings	—			—			—			—			17,029			—			17,029
	Foreign currency translation adjustments	—			—			—			—			—			(443	)		(443	)
Comprehensive earnings																				16,586
Subordinate Voting Shares:
	Stock options exercised	607,025			2,849			—			—			—			—			2,849
Cash payments on share purchase plan		—			—			—			566			—			—			566
Balance, March 31, 2002		13,775,265			57,712			—			(2,630	)		44,765			(626	)		99,221
Comprehensive earnings:
	Net earnings	—			—			—			—			18,440			—			18,440
	Foreign currency translation adjustments	—			—			—			—			—			2,947			2,947
Comprehensive earnings																				21,387
Subordinate Voting Shares:
	Stock options exercised	421,625			3,002			—			—			—			—			3,002
	Purchased for cancellation	(32,700	)		(143	)		—			—			(257	)		—			(400	)
Cash payments on share purchase plan		—			—			—			196			—			—			196
Balance, March 31, 2003		14,164,190			60,571			—			(2,434	)		62,948			2,321			123,406
Comprehensive earnings:
	Net earnings	—			—			—			—			19,024			—			19,024
	Foreign currency translation adjustments	—			—			—			—			—			4,216			4,216
Comprehensive earnings																				23,240
Subordinate Voting Shares:
	Stock option expense							322												322
	Stock options exercised	585,675			7,986			(139	)		—			—			—			7,847
Cash payments on share purchase plan		—			—			—			286			—			—			286
Balance, March 31, 2004		14,749,865		$	68,557		$	183		$	(2,148	)	$	81,972		$	6,537		$	155,101

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

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FIRSTSERVICE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of U.S. dollars) — in accordance with United States generally accepted accounting principles

For the years ended March 31		2004			2003			2002
Cash provided by (used in)
Operating activities
Net earnings		$	19,024		$	18,440		$	17,029
Less net earnings from discontinued operations			(160	)		(414	)		(547	)
Items not affecting cash:
	Depreciation and amortization		15,223			13,285			11,953
	Deferred income taxes		(683	)		2,786			230
	Minority interest share of earnings		3,101			3,040			3,658
	Write-off of financing fees on early debt retirement		—			—			1,375
	Other		(181	)		(287	)		471
Changes in operating assets and liabilities:
	Accounts receivable		(2,256	)		9,661			(7,092	)
	Inventories		839			(4,292	)		(579	)
	Prepaids and other		(1,069	)		(1,042	)		(1,988	)
	Accounts payable		(10,464	)		(355	)		(1,777	)
	Accrued liabilities		12,778			(6,629	)		404
	Income taxes payable		(1,670	)		(1,503	)		589
	Unearned revenue		575			(3,033	)		371
Net cash provided by operating activities			35,057			29,657			24,097
Investing activities
Acquisitions of businesses, net of cash acquired			(16,019	)		(9,561	)		(15,363	)
Purchases of minority shareholders' interests			(1,098	)		(6,352	)		(4,623	)
Purchases of fixed assets			(13,121	)		(9,335	)		(14,912	)
Purchases of intangible assets			(551	)		(579	)		(1,150	)
(Increase) decrease in other assets			(163	)		2,069			683
Decrease (increase) in other receivables			1,869			(578	)		80
Net cash used in investing activities			(29,083	)		(24,336	)		(35,285	)
Financing activities
Increases in long-term debt			60,522			14,474			169,042
Repayments of long-term debt			(62,559	)		(28,683	)		(155,246	)
Financing fees paid			(525	)		—			(3,030	)
Proceeds received on exercise of stock options			7,847			3,002			2,849
Collection of receivables pursuant to share purchase plan			286			196			566
Repurchases of Subordinate Voting Shares			—			(400	)		—
Dividends paid to minority shareholders of subsidiaries			(510	)		(191	)		(139	)
Net cash provided by (used in) financing activities			5,061			(11,602	)		14,042
Net cash (used in) provided by discontinued operations			(318	)		1,483			21
Effect of exchange rate changes on cash			(475	)		2,844			(658	)
Increase (decrease) in cash and cash equivalents during the year			10,242			(1,954	)		2,217
Cash and cash equivalents, beginning of year			5,378			7,332			5,115
Cash and cash equivalents, end of year		$	15,620		$	5,378		$	7,332

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

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FIRSTSERVICE CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of U.S. dollars, except per share amounts) — in accordance with United States generally accepted accounting principles

1.     DESCRIPTION OF THE BUSINESS

FirstService Corporation (the "Company") is a provider of property and business services to commercial, institutional and residential customers in the United States and Canada. The Company's operations are conducted through four segments: Residential Property Management, Integrated Security Services, Consumer Services and Business Services.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The preparation of the financial statements in conformity with United States generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates are related to goodwill, intangible assets and the collectibility of accounts receivable. Actual results could be materially different from these estimates. Significant accounting policies are summarized as follows:

Basis of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions and accounts are eliminated on consolidation.

Cash and cash equivalents

Cash equivalents consist of highly liquid investments, which are readily convertible into cash and have original maturities of three months or less.

Inventories

Inventories are carried at the lower of cost and net realizable value. Cost is determined by the weighted average or first-in, first-out methods. The weighted average and the first-in, first-out methods represent approximately 35% and 65% of total inventories, respectively (2003 — 45% and 55%). Finished goods and work-in-progress include the cost of materials, direct labor and manufacturing overhead costs.

Fixed assets

Fixed assets are stated at cost less accumulated depreciation. The cost of additions and improvements are capitalized, while maintenance and repairs are expensed as incurred. Fixed assets are depreciated over their estimated useful lives as follows:

Buildings	5% declining balance and 20 to 40 years straight-line
Vehicles	3 to 10 years straight-line
Furniture and equipment	20% to 30% declining balance and 3 to 10 years straight-line
Computer equipment and software	20% declining balance and 3 to 5 years straight-line
Enterprise system software	5 to 10 years straight-line
Leasehold improvements	term of the leases to a maximum of 10 years

The Company reviews the carrying value of fixed assets for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of the impairment loss is based on the excess of the carrying amount of the asset over fair value calculated using discounted expected future cash flows.

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Financial instruments

The Company uses interest rate swaps to hedge its interest rate exposure. The swaps are carried at fair value on the balance sheet, with gains or losses recognized in earnings. The carrying value of the hedged debt is adjusted for changes in fair value attributable to the hedged interest rate risk; the associated gain or loss is recognized currently in earnings. The company uses foreign exchange contracts to fix its exposure to Canadian dollar expenses. These contracts are not hedge accounted for. They are carried on the balance sheet at fair value and gains or losses are recognized in earnings.

Financing fees

Financing fees related to the revolving credit facility are amortized to interest expense on a straight-line basis over the term of the associated debt. Financing fees related to the senior secured notes are amortized to interest expense using the effective interest method.

Goodwill and intangible assets

Goodwill and intangible assets are accounted for in accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 141,Business Combinations, ("SFAS 141") and SFAS No. 142,Goodwill and Other Intangible Assets ("SFAS 142"). Goodwill represents the excess of purchase price over the fair value of identifiable assets acquired in a business combination and is not subject to amortization.

Intangible assets are recorded at cost and are amortized over their estimated useful lives as follows:

Management contracts and other	straight-line over life of contract ranging from 2 to 15 years
Customer lists and relationships	straight-line over 2 to 15 years
Trademarks and trade names	straight-line over 25 to 35 years
Franchise rights	by pattern of use

The Company reviews the carrying value of intangible assets for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of the impairment loss is based on the excess of the carrying amount of the asset over fair value calculated using discounted expected future cash flows.

Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired, in which case the carrying value of the asset is written down to fair value. Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit's carrying amount, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using a discounted cash flow approach. If the carrying amount of the reporting unit exceeds its fair value, then a second step is performed to measure the amount of impairment loss, if any.

Revenue recognition and unearned revenue

(a)

Company-owned services

Revenues from Residential Property Management, Company-owned Consumer Services, Integrated Security Services and Business Services are recognized at the time the service is rendered or the product is shipped. Revenues from Integrated Security Services installation contracts and Residential Property Management painting and restoration contracts in process are recognized on the percentage of completion method, generally in the ratio of actual costs to total estimated contract costs, unless the Company cannot reasonably estimate its gross margins in which case the completed contract method is used. Amounts received from customers in advance of services being provided are recorded as unearned revenue when received.

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(b)

Franchised services

The Company's franchised Consumer Services are conducted principally through subsidiaries California Closet Company, Inc., Paul Davis Restoration, Inc., Pillar to Post, Inc., CertaPro Painters Ltd. and College Pro Painters Ltd. Royalties are charged as a percentage of revenues, as defined, where reported by the franchisees except for CertaPro Painters Ltd., where the franchisees are charged either a fixed monthly amount or a percentage of revenues. Revenues from administrative and other support services, as applicable, are recognized as the services are provided.

Advertising costs

Advertising costs are expensed as incurred except for prepaid direct-response advertising, which is recorded as a current asset and is amortized over the period of expected sales revenue resulting from such advertising.

Foreign currency translation

Assets and liabilities of the Company's subsidiary operations that are measured in a functional currency other than the U.S. dollar are translated into U.S. dollars at the exchange rates prevailing at year-end and revenues and expenses at the weighted average exchange rates for the year. Realized exchange gains and losses are included in earnings. Currency translation adjustments are included in other comprehensive earnings.

Income taxes

Income taxes have been provided using the asset and liability method whereby deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period in which the change occurs. A valuation allowance is recorded when there is uncertainty regarding realization of a deferred income tax asset.

Income taxes are not provided on the unremitted earnings of U.S. subsidiaries because it has been the practice and is the intention of the Company to reinvest these earnings indefinitely in its U.S. subsidiaries.

Stock-based compensation

Effective April 1, 2003, the Company is accounting for stock options as compensation expense in accordance with SFAS No. 123,Accounting for Stock-Based Compensation ("SFAS 123"). SFAS No. 148,Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of SFAS 123 ("SFAS 148") provides alternative methods of transitioning to the fair value based method of accounting for employee stock options as compensation expense. The Company is using the "prospective method" of SFAS 148 and is expensing the fair value of new option grants awarded subsequent to March 31, 2003. The financial statements for the year ended March 31, 2004 include $322 of stock option expense.

Prior to April 1, 2003, the Company applied Accounting Principles Board ("APB") Opinion No. 25,Accounting for Stock Issued to Employees ("APB 25"), and related interpretations in accounting for its stock option plan. No compensation expense was recognized when shares or stock options were issued to employees or directors. However, the Company disclosed pro forma earnings and earnings per share to reflect compensation costs in accordance with the methodology prescribed under SFAS 123.

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3.     ACQUISITIONS

2004 acquisitions:

The Company completed six small business acquisitions during the year. Four were completed in the Consumer Services segment in October 2003, one was completed in Residential Property Management in January 2004 and one was completed in Integrated Security Services in February 2004.

The Company purchased minority interests from two shareholders in the Business Services segment during the year.

2003 acquisitions:

The Company completed seven small acquisitions during the year, three in Consumer Services and two in each of Residential Property Management and Business Services, which collectively are shown in the Acquisitions column below.

The Company also acquired minority interests from several shareholders in the Business Services, Residential Property Management and Integrated Security Services segments during the year.

Details of the 2004 acquisitions are as follows:

	2004
	Acquisitions			Purchases of minority shareholders' interests
Current assets	$	2,587		$	—
Long-term assets		700			—
Current liabilities		(2,136	)		—
Long-term liabilities		(3,238	)		—
Minority interest		(223	)		674
		(2,310	)		674
Cash consideration	$	13,722		$	1,098
Acquired intangibles		8,011			—
Acquired goodwill		8,021			424
Contingent consideration at date of acquisition	$	6,002		$	—

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Details of the 2003 acquisitions are as follows:

	2003
	Acquisitions			Purchases of minority shareholders' interests
Current assets	$	821		$	—
Long-term assets		1,347			—
Current liabilities		(1,389	)		—
Long-term liabilities		(942	)		(840	)
Minority interest		(229	)		775
		(392	)		(65	)
Cash consideration	$	6,599		$	6,352
Acquired intangibles		2,226			2,064
Acquired goodwill		4,765			4,353
Contingent consideration at date of acquisition	$	4,074		$	1,000

In 2002, the Company finalized the allocation of the purchase price with respect to the March 2001 Watts acquisition. The final adjustment to this purchase equation and the purchase equations on other acquisitions resulted in additional goodwill and accrued liabilities in the amount of $1,860, net of income taxes, principally to reflect costs to restructure operations of one of the acquired Watts subsidiaries. At March 31, 2004, an accrual of $1,719 still exists relating to that acquired subsidiary.

Certain vendors, at the time of acquisition, are entitled to receive contingent consideration if the acquired businesses achieve specified earnings levels during the two- to five-year periods following the dates of acquisition. Such contingent consideration is issued at the expiration of the contingency period. As at March 31, 2004, there was contingent consideration outstanding of up to $16,200 ($12,700 as at March 31, 2003). The contingencies will expire during the period extending to January 2009. The contingent consideration will be recorded when the contingencies are resolved and the consideration is issued or becomes issuable, at which time the Company will record the fair value of the consideration issued or issuable, including interest, if any, as additional costs of the acquired businesses. Contingent consideration issued or issuable during the year ended March 31, 2004 was $1,565 net of deferred income tax of $95 (2003 — $3,143, net of deferred income tax of $165).

The acquisitions referred to above were accounted for by the purchase method of accounting for business combinations. Accordingly, the accompanying consolidated statements of earnings do not include any revenues or expenses related to these acquisitions prior to these respective closing dates. The cash portions of the acquisitions were financed through available cash and borrowings from the Company's revolving credit facility. The goodwill acquired during 2004 was not deductible for tax purposes.

Following are the Company's unaudited pro forma results assuming the 2004 and 2003 acquisitions occurred on April 1 of the respective year of acquisition. The year immediately prior to the year of each respective acquisition also includes the pro forma results of the respective acquisitions.

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(unaudited)		2004		2003
Pro forma revenue		$	622,268	$	555,841
Pro forma net earnings from continuing operations			19,631		19,185
Pro forma net earnings per share from continuing operations
	Basic	$	1.37	$	1.38
	Diluted		1.34		1.32

These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of results of operations that would have actually resulted had the combinations been in effect at the beginning of each year or of future results of operations.

4.     DISPOSITION

On April 1, 2004, immediately after year-end, the Company sold substantially all of the assets of the Company-owned lawn care operations carried on by its subsidiary Greenspace Services Ltd. to a third party. The sale proceeds and the expected resulting gain will be reported in the financial statements for the quarter ended June 30, 2004. The sale proceeds were approximately $14,215, which was comprised of cash in the amount of $5,009, assumption of liabilities in the amount of approximately $5,469 and a note receivable in the amount of $3,737. The note receivable is non-interest bearing and is receivable in five annual installments during the period April 1, 2005 to April 1, 2009. For the years ended March 31, 2004, 2003 and 2002, the operating results of the Canadian lawn care operations, which were previously included in the Consumer Services segment, have been reported as discontinued operations. The operating results and balance sheets of the discontinued operations are as follows:

Operating results		2004		2003		2002
Revenues		$	23,091	$	19,565	$	19,138
Earnings from discontinued operations before income taxes			250		962		793
Provision for income taxes			90		548		246
Net earnings from discontinued operations			160		414		547
Net earnings per share from discontinued Operations
	Basic	$	0.01	$	0.03	$	0.04
	Diluted		0.01		0.03		0.04

Balance sheets	2004		2003
Current assets	$	6,083	$	5,466
Fixed assets		3,090		2,581
Intangible assets		604		713
Goodwill		2,115		1,890
Total assets	$	11,892	$	10,650
Current liabilities	$	6,689	$	6,587
Long-term liabilities		790		671
Total liabilities	$	7,479	$	7,258

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5.     UNUSUAL ITEM

During 2003, the Company received $4,228 of executive life insurance proceeds upon the deaths of two senior management employees, one in the Business Services segment in the amount of $3,228 and one in Residential Property Management in the amount of $1,000. The amounts received were recorded as reductions of selling, general and administrative costs. No such proceeds were received in 2004 or 2002.

6.     OTHER INCOME

In accordance with the Company's partnership philosophy, it may from time to time sell shares of its operating subsidiaries to operating management. During 2004, the Company sold a 5% interest in California Closet Company, Inc. and a 5.5% interest in CertaPro Painters, Ltd. to officers of the respective businesses, resulting in dilution gains of $1,137. In 2003, the Company sold a 7.5% interest in Paul Davis Restoration, Inc. to two of its officers, resulting in a dilution gain on sale of $1,106. The 2004 and 2003 share sales were financed by secured interest-bearing loans (see note 8(a)). In 2002, the Company recorded gains totaling $196 relating to the sale of shares of two subsidiaries. Also included in 2004 other income is a loss of $240 related to the Company's disposal of the security officer assets of its Chicago Integrated Security Services branch.

7.     COMPONENTS OF WORKING CAPITAL ACCOUNTS

		2004		2003
Inventories
	Work-in-progress	$	8,888	$	6,009
	Finished goods		3,156		4,560
	Supplies and other		2,769		4,222
	Small equipment		416		304
		$	15,229	$	15,095
Prepaids and other
	Insurance	$	3,259	$	3,108
	Advertising		2,804		2,441
	Transportation		1,775		1,248
	Security deposits		1,410		1,129
	Other		6,411		5,691
		$	15,659	$	13,617
Accrued liabilities
	Accrued payroll and benefits	$	27,472	$	16,707
	Customer advances		13,617		10,663
	Costs to restructure operations of acquired subsidiary		1,719		1,667
	Other		6,545		5,233
		$	49,353	$	34,270

During 2003, the Company incurred $1,904 of severances and related costs in its Business Services segment as part of a plan to reduce overheads and more aggressively realize synergies within the segment. Of this amount, $133 remained unpaid at March 31, 2004 and was included in accrued payroll and benefits within accrued liabilities.

33

8.     OTHER RECEIVABLES

Other receivables are comprised of:

(a)

$4,003 (2003 — $2,578) of secured interest-bearing loans due from minority shareholders of four (2003 — four) subsidiaries.



(b)

$1,194 (2003 — $1,347) of long-term customer receivables, certain of which are interest bearing; and



(c)

$200 (2003 — $1,914) of interest bearing franchise fees receivable from franchisees in the Consumer Services segment.

9.     FIXED ASSETS AND OTHER ASSETS

2004	Cost		Accumulated depreciation / amortization		Net 2004
Fixed assets
Land	$	2,273	$	—	$	2,273
Buildings		7,829		1,475		6,354
Vehicles		17,661		10,372		7,289
Furniture and equipment		43,176		29,738		13,438
Computer equipment and software		26,069		14,516		11,553
Enterprise system software		3,975		1,717		2,258
Leasehold improvements		12,820		6,159		6,661
Total	$	113,803	$	63,977	$	49,826
Other assets
Investments	$	815	$	—	$	815
Financing fees		3,802		1,788		2,014
Total	$	4,617	$	1,788	$	2,829

2003	Cost		Accumulated depreciation / amortization		Net 2003
Fixed assets
Land	$	2,234	$	—	$	2,234
Buildings		7,228		1,156		6,072
Vehicles		16,788		10,182		6,606
Furniture and equipment		36,345		23,112		13,233
Computer equipment and software		24,835		14,397		10,438
Enterprise system software		4,549		2,402		2,147
Leasehold improvements		11,612		5,742		5,870
Total	$	103,591	$	56,991	$	46,600
Other assets
Investments	$	756	$	—	$	756
Financing fees		3,119		1,098		2,021
Total	$	3,875	$	1,098	$	2,777

Included in fixed assets are vehicles under capital lease at a cost of $7,299 (2003 — $5,846) with a net book value of $3,324 (2003 — $3,130), furniture and equipment under capital lease at a cost of $288 (2003 — $882) and net book value of $150 (2003 — $497) and computer equipment and software under capital lease at a cost of $2,343 (2003 — $822) with a net book value of $1,274 (2003 — $393).

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10.   INTANGIBLE ASSETS

2004	Gross carrying amount		Accumulated amortization		Net 2004
Management contracts and other	$	3,924	$	1,423	$	2,501
Customer lists and relationships		7,374		1,692		5,682
Trademarks and trade names		12,517		1,367		11,150
Franchise rights		20,698		2,314		18,384
	$	44,513	$	6,796	$	37,717

2003	Gross carrying amount		Accumulated amortization		Net 2003
Management contracts and other	$	2,085	$	1,067	$	1,018
Customer lists and relationships		6,506		1,122		5,384
Trademarks and trade names		11,327		970		10,357
Franchise rights		16,464		1,796		14,668
	$	36,382	$	4,955	$	31,427

During the year ended March 31, 2004, the company acquired the following intangible assets:

	Amount		Estimated weighted average amortization period in years
Management contracts and other	$	1,949	9.8
Customer lists and relationships		1,104	10.9
Trademarks and trade names		1,137	30.0
Franchise rights		4,387	Pattern of use
	$	8,577	22.4

The following is the estimated annual amortization expense for each of the next five years ending March 31:

2005	$	2,372
2006		2,305
2007		2,255
2008		2,035
2009		1,896

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11.   GOODWILL

	Residential Property Management			Integrated Security Services		Consumer Services			Business Services		Corporate		Consolidated
Balance, March 31, 2002	$	55,483		$	24,812	$	27,558		$	52,415	$	—	$	160,268
Goodwill resulting from adjustments to purchase price allocations		(238	)		69		(143	)		19		—		(293	)
Goodwill resulting from contingent acquisition payments		1,450			1,693		—			—		—		3,143
Goodwill resulting from purchases of minority shareholders' interests		3,013			380		—			960		—		4,353
Goodwill acquired during year		2,557			—		2,208			—		—		4,765
Foreign exchange		—			34		149			1,205		—		1,388
Balance, March 31, 2003		62,265			26,988		29,772			54,599		—		173,624
Goodwill resulting from adjustments to purchase price allocations		372			—		165			—		—		537
Goodwill resulting from contingent acquisition payments		664			341		560			—		—		1,565
Goodwill resulting from purchases of minority shareholders' interests		—			—		—			424		—		424
Goodwill acquired during year		168			231		7,622			—		—		8,021
Foreign exchange		—			78		339			991		—		1,408
Balance, March 31, 2004	$	63,469		$	27,638	$	38,458		$	56,014	$	—	$	185,579

12.   LONG-TERM DEBT

	2004		2003
Revolving credit facility of $90,000, (2003 — $140,000) of which up to US$40,000 may be drawn in Canadian funds	$	—	$	52,026
8.06% Senior Secured Notes due June 29, 2011		100,000		100,000
6.40% Senior Secured Notes due September 30, 2015		50,000		—
Adjustment to Senior Secured Notes resulting from interest rate swaps		6,805		6,279
Capital leases bearing interest ranging from 5% to 10%, maturing at various dates through 2008		4,128		3,478
Other long-term debt bearing interest at 8%, maturing at various dates through 2008		2,955		3,136
		163,888		164,919
Less: current portion		3,502		3,030
	$	160,386	$	161,889

The revolving credit facility was unused at March 31, 2004. At March 31, 2003, US$35,281 and C$24,578 (US$16,745) was drawn. Included in capital leases at March 31, 2004 and 2003 are obligations in Canadian dollars of $2,222 (US$1,694) and $2,478 (US$1,689), respectively. Included in other long-term debt at March 31, 2004 and 2003 are obligations in Canadian dollars of $1,335 (US$1,018) and $1,569 (US$1,069), respectively.

36

At March 31, 2004, the estimated aggregate amount of principal repayments on long-term debt required in each of the next five fiscal years and thereafter to meet the retirement provisions are as follows:

2005	$	3,502
2006		16,572
2007		15,203
2008		14,610
2009		14,340
Thereafter		92,856

The Company's amended and restated credit agreement provides a $90,000 committed senior revolving credit facility renewable and extendible in 364-day increments, and if not renewed, a two-year final maturity. The revolving credit facility was most recently renewed and extended on May 7, 2003. The revolving credit facility bears interest at 1.50% to 3.00% over floating reference rates, depending on certain leverage ratios. The average interest rate during fiscal 2004 was 3.45%. At March 31, 2004, the revolving credit facility was unused, had outstanding letters of credit in the amount of $5,993 and had $84,007 of available credit.

The Company has outstanding $100,000 of 8.06% fixed-rate Senior Secured Notes (the "8.06% Notes"). The 8.06% Notes have a final maturity of June 29, 2011, with seven equal annual principal repayments beginning on June 29, 2005. On October 1, 2003, the Company issued $50,000 of 6.40% fixed-rate Senior Secured Notes (the "6.40% Notes") to a group of U.S. institutional investors. The 6.40% Notes have a final maturity of September 30, 2015 with equal annual principal repayments commencing on September 30, 2012. The proceeds of the 6.40% Notes were used to repay amounts drawn on the revolving credit facility. Concurrent with the issuance of the 6.40% Notes, the Company's revolving credit facility was reduced to $90,000 from $140,000 resulting in no net change to the Company's overall borrowing capacity.

The Company has indemnified the holders of the 8.06% Notes and 6.40% Notes (collectively, the "Notes") from all withholding taxes that are or may become applicable to any payments made by the Company on the Notes. The Company has interest rate swap agreements related to the Notes. See note 17 for information regarding hedge accounting.

The revolving credit facility and the Notes rank equally in terms of seniority. The Company has granted these lenders collateral including the following: an interest in all of the assets of the Company including the shares of the Company's subsidiaries, an assignment of material contracts and an assignment of the Company's "call rights" with respect to shares of the subsidiaries held by minority interests.

The covenants and other limitations within the revolving credit facility and the Notes agreement are substantially the same. The covenants require the Company to maintain certain ratios including leverage, fixed charge coverage, interest coverage and net worth. The Company is prohibited from undertaking certain mergers, acquisitions and dispositions without prior approval.

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13.   CAPITAL STOCK

The authorized capital stock of the Company is as follows:

An unlimited number of preference shares, issuable in series;

An unlimited number of Subordinate Voting Shares having one vote per share; and

An unlimited number of Multiple Voting Shares having 20 votes per share, convertible at any time into Subordinate Voting Shares at a rate of one Subordinate Voting Share for each Multiple Voting Share outstanding.

The following table provides a summary of total capital stock:

	Subordinate Voting Shares			Multiple Voting Shares
								Total Amount
	Number	Amount		Number	Amount		Total Number
Balance, March 31, 2002	13,112,418	$	57,339	662,847	$	373	13,775,265	$	57,712
Balance, March 31, 2003	13,501,343		60,198	662,847		373	14,164,190		60,571
Balance, March 31, 2004	14,087,018		68,184	662,847		373	14,749,865		68,557

In February 2004, the Company approved a long-term incentive plan ("LTIP") for the Chief Executive Officer ("CEO"). Under the LTIP, the CEO is entitled to receive a payment upon the arm's length sale of control of the Company or upon a distribution of the Company's assets to shareholders. The payment amount is determined with reference to the price per Subordinate Voting Share received by shareholders upon an arm's length sale or upon a distribution of assets. The right to receive the payment may be transferred among members of the CEO's family, their holding companies and trusts.

The Company's contributed surplus account relates to stock option compensation expense accounting under SFAS 123. Contributed surplus is credited at the time stock option compensation expense is recorded. As stock options are exercised, contributed surplus is reduced and capital stock is credited.

During the year ended March 31, 2003, the Company repurchased 32,700 (2004 and 2002 — nil) Subordinate Voting Shares under a Normal Course Issuer Bid filed with the Toronto Stock Exchange, which allowed the Company to repurchase up to 5% of its outstanding shares on the open market during a twelve-month period.

The Company has $2,148 (C$3,034) (2003 — $2,434 (C$3,439)) of interest bearing loans receivable related to the purchase of 365,000 Subordinate Voting Shares (2003 — 387,500 shares). The loans, which are collateralized by the shares issued, have a ten-year term from the grant date, however, they are open for repayment at any time. The maturities of these loans are as follows, for the years ending March 31.

2005	$	—
2006		—
2007		916
2008		467
2009		765
	$	2,148

The Company has a stock option plan for certain officers and key full-time employees of the Company and its subsidiaries. Options are granted at the market price for the underlying shares on the date of grant. Each option vests over a four-year term and expires five years from the date granted and allows for the purchase of one Subordinate Voting Share. Options are exercisable in either U.S. or Canadian dollars. At March 31, 2004, there were 1,144,315 options outstanding to 44 individuals at prices ranging from $10.50 to $23.14 (C$15.60 to C$36.89) per share, expiring on various dates through February 2009. At March 31, 2004, there were 107,030 options available for future grants.

38

The number of Subordinate Voting Shares issuable under options and the average option prices per share are as follows:

	Shares issuable under options						Weighted average price per share (US$)
	2004		2003		2002		2004		2003		2002
Shares issuable under options — Beginning of year	1,782,990		2,119,115		2,119,640		$	15.95	$	13.20	$	8.57
Granted	133,000		101,500		625,000			15.99		15.58		20.93
Exercised for cash	(585,675	)	(421,625	)	(607,025	)		12.54		7.41		4.70
Expired or forfeited	(186,000	)	(16,000	)	(18,500	)		23.65		19.00		7.25
Shares issuable under options — End of year	1,144,315		1,782,990		2,119,115		$	16.01	$	15.95	$	13.20
Options exercisable — End of year	667,933		876,506		925,498

	Weighted average price per share (C$)
	2004		2003		2002
Shares issuable under options — Beginning of year	$	23.41	$	21.05	$	13.52
Granted		23.89		24.14		32.77
Exercised for cash		18.73		11.48		7.35
Expired or forfeited		35.33		29.43		11.35
Shares issuable under options — End of year	$	23.92	$	23.41	$	21.05

The weighted average fair values of options granted in 2004, 2003 and 2002 were $5.31 (C$7.18), $5.10 (C$7.90) and $6.59 (C$10.31) per share, respectively.

The options outstanding as at March 31, 2004 to purchase Subordinate Voting Shares are as follows:

	Options outstanding				Options exercisable
Range of exercise prices (US$)	Number Outstanding	Weighted average remaining contractual life (years)	Weighted average exercise price (US$)		Number exercisable	Weighted average exercise price (US$)
$10.50 to $11.68	304,440	0.9	$	11.09	272,883	$	11.14
$12.00 to $14.62	374,875	2.3		13.45	221,200		13.78
$15.70 to $23.14	465,000	3.2		21.38	173,850		22.08
	1,144,315	2.3	$	16.01	667,933	$	14.86

	Options outstanding				Options exercisable
Range of exercise prices (C$)	Number outstanding	Weighted average remaining contractual life (years)	Weighted average exercise price (C$)		Number exercisable	Weighted average exercise price (C$)
$15.60 to $17.25	304,440	0.8	$	16.48	272,883	$	16.56
$18.20 to $22.50	374,875	2.3		20.39	221,200		20.91
$25.00 to $36.89	465,000	3.2		31.63	173,850		32.67
	1,144,315	2.3	$	23.92	667,933	$	22.19

39

Prior to April 1, 2003, the Company had accounted for stock options under the intrinsic value method under APB 25, as permitted by GAAP. Had compensation expense for stock options been determined under the fair value method under SFAS 123 for all periods, pro forma reported net earnings and earnings per share would reflect the following:

		2004			2003			2002
Net earnings as reported		$	19,024		$	18,440		$	17,029
Deduct: Stock-based compensation expense determined under fair value method, net of tax			(2,158	)		(2,179	)		(1,144	)
Pro forma net earnings			16,866			16,261			15,885
Pro forma net earnings per share:
	Basic	$	1.18		$	1.17		$	1.17
	Diluted		1.16			1.12			1.09
Assumptions:
	Risk-free interest rate		3.0%			4.5%			5.0%
	Expected life in years		4.4			4.4			4.0
	Volatility		30%			30%			30%
	Dividend yield		0.0%			0.0%			0.0%

14.   INCOME TAXES

Income taxes differ from the amounts that would be obtained by applying the statutory rate to the respective years' earnings before taxes. These differences result from the following items:

		2004			2003			2002
Income tax expense using combined statutory rate of approximately 40% (2003 — 40%; 2002 — 41%)		$	12,509		$	11,377		$	12,545
Non-deductible expenses:
	Loss not tax effected		—			—			443
	Other		576			735			250
Non-taxable proceeds of life insurance policies			—			(1,691	)		—
Foreign tax rate reduction			(3,884	)		(2,720	)		(3,043	)
Provision for income taxes as reported		$	9,201		$	7,701		$	10,195

Earnings before income taxes and minority interest by tax jurisdiction comprise the following:

	2004		2003		2002
Canada	$	13,612	$	13,273	$	10,820
United States		17,554		15,494		19,515
Total	$	31,166	$	28,767	$	30,335

40

The provision for income taxes comprises the following:

		2004		2003		2002
Current
	Canada	$	3,360	$	1,319	$	2,844
	United States		5,665		5,129		6,862
			9,025		6,448		9,706
Deferred
	Canada		67		585		(1,130	)
	United States		109		668		1,619
			176		1,253		489
Total		$	9,201	$	7,701	$	10,195

The significant components of deferred income taxes are as follows:

		2004		2003
Deferred income tax assets
	Expenses not currently deductible	$	553	$	900
	Provision for doubtful accounts		128		410
	Inventory and other reserves		24		350
	Loss carry-forwards		4,820		1,251
			5,525		2,911
Deferred income tax liabilities
	Depreciation and amortization		20,219		19,464
	Prepaid and other expenses deducted for tax purposes		560		865
	Financing fees		81		141
			20,860		20,470
Net deferred income tax liability		$	15,335	$	17,559

As at March 31, 2004, the Company had U.S. and Canadian net operating loss carry-forward balances of approximately $10,240 and $2,000, respectively. These amounts are available to reduce future federal, state and provincial income taxes. Net operating loss carry-forward balances attributable to the U.S. expire over the next 20 years while net operating losses attributable to Canada expire over the next 7 years.

15.   SHARES OUTSTANDING FOR EARNINGS PER SHARE CALCULATIONS

		2004	2003		2002
Shares issued and outstanding at beginning of year		14,164,190	13,775,265		13,168,240
Weighted average number of shares:
	Issued in the year	120,662	148,141		397,077
	Repurchased in the year	—	(2,346	)	—
Weighted average number of shares used in computing basic earnings per share		14,284,852	13,921,060		13,565,317
Assumed exercise of stock options, net of shares assumed acquired under the Treasury Stock Method		310,976	576,485		1,034,551
Number of shares used in computing diluted earnings per share		14,595,828	14,497,545		14,599,868

41

16.   OTHER SUPPLEMENTAL INFORMATION

		2004		2003		2002
Products and services segmentation
Revenue
	Products	$	108,983	$	96,219	$	75,337
	Services		500,811		426,908		418,214
Total			609,794		523,127		493,551
Cost of revenue
	Products	$	67,721	$	57,633	$	46,060
	Services		356,348		301,621		288,404
Total			424,069		359,254		334,464
Franchised operations
Revenue		$	64,947	$	57,497	$	54,173
Operating earnings			11,369		11,121		9,283
Initial franchise fee revenue			4,467		3,822		2,951
Cash payments made during the year
	Income taxes	$	13,388	$	7,667	$	10,649
	Interest		5,156		7,916		9,633
Non-cash financing activities
	Increases in capital lease obligations	$	1,352	$	1,565	$	1,965
Depreciation and amortization expense
	Fixed assets	$	13,011	$	11,447	$	10,671
	Intangible assets		2,212		1,838		1,282
			15,223		13,285		11,953
Other expenses
	Advertising expense	$	8,577	$	8,141	$	6,103
	Rent expense		15,679		14,280		13,445

17.   FINANCIAL INSTRUMENTS

Concentration of credit risk

The Company is subject to credit risk with respect to its accounts receivable, other receivables, interest rate swaps and foreign exchange contracts. Concentrations of credit risk with respect to the receivables are limited due to the large number of entities comprising the Company's customer base and their dispersion across many different service lines in two countries. The counter-parties to the interest rate swaps and foreign exchange contracts are investment-grade financial institutions that the Company anticipates will satisfy their obligations under the contracts.

Interest rate risk

The Company maintains an interest rate risk management strategy that uses interest rate swaps to lower the long-term cost of borrowed funds. The Company's specific goals are to (i) manage interest rate sensitivity by modifying the characteristics of its debt and (ii) lower the long-term cost of its borrowed funds. Fluctuations in interest rates create an unrealized appreciation or depreciation in the market value of the Company's fixed-rate debt when that fair value is compared with the cost of the borrowed funds. The effect of this unrealized appreciation or depreciation in market value, however, will generally be offset by the gain or loss on the interest rate swaps that are linked to the debt.

42

The Company has interest rate swap agreements to exchange the fixed rates on the Notes for variable rates. On the 8.06% Notes, one interest rate swap exchanges the fixed rate on $75,000 of principal for LIBOR + 250.5 basis points and a second exchanges the fixed rate on $25,000 for LIBOR + 445 basis points. The terms of the swaps match the term of the 8.06% Notes with a maturity of June 29, 2011. On October 2, 2003, the Company entered into two interest rate swap agreements to exchange the fixed rate on the $50,000 of 6.40% Notes for a variable rate of LIBOR + 170 basis points. The terms of the swaps match the term of the 6.40% Notes with a maturity of September 30, 2015.

The swaps are being accounted for as fair value hedges in accordance with SFAS No. 133,Accounting for Derivative Instruments and Hedging Activities. The swaps are carried at fair value on the balance sheet, with gains or losses recognized in earnings. The carrying value of the hedged debt is adjusted for changes in fair value of the swaps; the associated gain or loss is recognized currently in earnings. The fair values of the swaps are determined based on the present value of the estimated future net cash flows using implied rates in the applicable yield curve as of the valuation date. Due to changes in the yield curve, the fair value of the swaps fluctuates and at March 31, 2004, the fair values represented a gain of $6,805 (2003 — $6,279).

The Company from time to time uses foreign exchange contracts to fix Canadian dollar expenses relative to U.S. dollar revenues. As at March 31, 2004, four such contracts were open, with maturities extending to March 30, 2005. Details are summarized below.

Buy currency	Canadian dollars
Sell currency	U.S. dollars
Notional value	$8,000
Weighted average exchange rate	1.3547
Gain included in earnings	$   219

Fair values of financial instruments

The carrying amounts for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair values due to the short maturity of these instruments, unless otherwise indicated.

	2004				2003
	Carrying amount		Fair value		Carrying amount		Fair value
Other receivables	$	5,397	$	5,379	$	5,839	$	5,784
Long-term debt including current portion		157,083		175,085		158,640		166,892
Interest rate swaps		6,805		6,805		6,279		6,279
Foreign exchange contracts		219		219		—		—

18.   COMMITMENTS AND CONTINGENCIES

(a)

Lease commitments

Minimum operating lease payments are as follows:

Year ending March 31
2005	$	16,810
2006		13,460
2007		10,937
2008		10,111
2009		7,543
Thereafter		15,795

43

(b)

Shareholder agreements

The Company has shareholder agreements with the minority owners of its subsidiaries. These agreements allow the Company to "call" the minority position for a predetermined formula price, which is usually equal to the multiple of net earnings before extraordinary items, minority interest share of earnings, income taxes, interest, depreciation, and amortization paid by the Company for the original acquisition. The minority owners may also "put" their interest to the Company at the same price subject to certain limitations. The purchase price may, at the option of the Company, be paid primarily in Subordinate Voting Shares. Acquisitions of these minority interests would be accounted for using the purchase method. The total obligation if all call or put options were exercised at March 31, 2004 was approximately $30,000 (2003 — $26,000). The acquisition of all outstanding minority interests would increase net earnings.

(c)

Contingencies

The Company is involved in legal proceedings and claims primarily arising in the normal course of its business. In the opinion of management, the Company's liability, if any, would not materially affect its financial condition or operations.

(d)

Guarantee

In connection with a contract, the Company has assumed risks associated with work to be performed by a third party. In the unlikely event of non-performance by the third party, the maximum exposure to the Company would be $7,626.

19.   RELATED PARTY TRANSACTIONS

During the year, the Company paid $544 (2003 — $847) in rent to entities in which an officer of the Company has equity interests. In addition, the Company paid $514 (2003 — $853) in rent to entities controlled by minority shareholders of subsidiaries. The transactions were completed at market rates.

During the year, the Company reorganized the management structure of its Residential Property Management operations. As a result, several minority shareholders contributed their shares to new entities. These transactions were accounted for at cost.

20.   SEGMENTED INFORMATION

Operating segments

The Company has four reportable operating segments. The segments are grouped with reference to the types 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. Residential Property Management provides property management, maintenance, landscaping and other services to residential community associations in the United States. Integrated Security Services provides security systems installation, maintenance, monitoring and manpower to primarily commercial customers in Canada and the United States. Consumer Services provides franchised and Company-owned property services to customers in the United States and Canada. Business Services provides marketing support and business process outsourcing services to corporate and institutional clients in Canada and the United States. Corporate includes the costs of operating the Company's headquarters.

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2004	Residential Property Management		Integrated Security Services		Consumer Services		Business Services		Corporate			Consolidated
Revenues	$	241,293	$	122,748	$	92,870	$	152,449	$	434		$	609,794
Depreciation and amortization		4,363		1,948		2,313		6,450		149			15,223
Operating earnings		13,675		6,241		14,116		12,071		(7,032	)		39,071
Interest, net													(7,905	)
Income taxes													(9,201	)
Minority interest													(3,101	)
Net earnings from continuing operations													18,864
Net earnings from discontinued operations													160
Net earnings												$	19,024
Total assets	$	110,439	$	75,198	$	102,802	$	144,677	$	4,437		$	437,553
Total additions to long-lived assets	$	6,566	$	2,953	$	19,966	$	6,047	$	340		$	35,872

2003	Residential Property Management		Integrated Security Services		Consumer Services		Business Services		Corporate			Consolidated
Revenues	$	214,965	$	107,548	$	73,852	$	126,373	$	389		$	523,127
Depreciation and amortization		4,089		1,502		1,924		5,620		150			13,285
Operating earnings		10,531		5,834		12,163		14,153		(4,978	)		37,703
Interest, net													(8,936	)
Income taxes													(7,701	)
Minority interest													(3,040	)
Net earnings from continuing operations													18,026
Net earnings from discontinued operations													414
Net earnings												$	18,440
Total assets	$	107,998	$	64,803	$	83,923	$	117,432	$	14,875		$	389,031
Total additions to long-lived assets	$	10,991	$	3,942	$	7,749	$	7,781	$	41		$	30,504

2002	Residential Property Management		Integrated Security Services		Consumer Services		Business Services		Corporate			Consolidated
Revenues	$	205,376	$	95,507	$	64,826	$	127,478	$	364		$	493,551
Depreciation and amortization		3,716		1,377		1,780		4,964		116			11,953
Operating earnings		15,118		5,158		10,184		17,412		(4,585	)		43,287
Interest, net													(12,952	)
Income taxes													(10,195	)
Minority interest													(3,658	)
Net earnings from continuing operations													16,482
Net earnings from discontinued operations													547
Net earnings												$	17,029
Total assets	$	106,268	$	57,515	$	77,060	$	117,874	$	7,212		$	365,929
Total additions to long-lived assets	$	13,237	$	5,154	$	8,984	$	13,365	$	478		$	41,218

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Geographic information

Revenues in each geographic segment are reported by customer location.

	2004		2003		2002
Canada
Revenues	$	174,992	$	149,570	$	149,531
Total long-lived assets		68,408		68,710		53,082
United States
Revenues	$	434,802	$	373,557	$	344,020
Total long-lived assets		204,715		182,941		180,685
Consolidated
Revenues	$	609,794	$	523,127	$	493,551
Total long-lived assets	$	273,123	$	251,651	$	233,767

21.   IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In February 2003, FASB Interpretation No. 46,Consolidation of Variable Interest Entities (an interpretation of ARB No. 51) ("FIN 46") was issued. In December 2003, FASB issued FASB Interpretation No. 46 (revised December 2003) ("FIN 46R"). FIN 46R addresses consolidation by business enterprises of variable interest entities having certain characteristics and replaces FIN 46. FIN 46R is effective for the Company's annual financial statements for the year ended March 31, 2004, and had no impact on the consolidated financial statements.

In May 2003, FASB issued SFAS No. 150,Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity ("SFAS 150"), which was effective for the Company on July 1, 2003. SFAS 150 establishes standards for how to classify and measure certain financial instruments with characteristics of both liabilities and equity. The adoption of SFAS 150 did not have a material impact on the consolidated financial statements.

22.   RECONCILIATION TO CANADIAN GAAP

The following adjustments are required to reconcile these consolidated financial statements to Canadian generally accepted accounting principles:

(i)

Deficit elimination.    On September 15, 1997, the shareholders of the Company approved a reduction of the stated capital attributable to the Company's capital stock by $5,683, thereby eliminating the Company's deficit as at March 31, 1997. While permitted under Canadian GAAP, this elimination is not permitted under United States GAAP.



(ii)

Currency translation adjustments.    Under United States GAAP, currency translation and certain other transactions must be reported in an equity account called "other comprehensive earnings". Under Canadian GAAP, such an account does not exist, and currency translations are reported in an equity account called "currency translation adjustments". The Company's foreign currency translation adjustments account is similar to the other comprehensive earnings account in all material respects.

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(iii)

Accounting for interest rate swaps.    Under Canadian GAAP, hedge accounting does not require interest rate swaps to be recorded on the balance sheet. However, the earnings impact of interest rate swaps is identical under Canadian and United States GAAP.

There are no reconciling items between United States and Canadian GAAP that impact the consolidated statements of earnings. Below is a continuity schedule of retained earnings under Canadian GAAP:

	2004		2003
Balance, beginning of year	$	68,631	$	50,448
Net earnings		19,024		18,440
Subordinate Voting Shares purchased for cancellation		—		(257	)
Balance, end of year	$	87,655	$	68,631

The tables below provide a reconciliation of the Company's affected consolidated balance sheet accounts from United States GAAP to Canadian GAAP.

As at March 31, 2004		United States GAAP		Reconciling adjustments			Canadian GAAP
Assets
	Interest rate swaps	$	6,805	$	(6,805	)	$	—
	Subtotal non-current assets		290,320		(6,805	)		283,515
Total assets		$	437,553	$	(6,805	)	$	430,748
Liabilities
	Long-term debt less current portion	$	160,386	$	(6,805	)	$	153,581
	Subtotal non-current liabilities		196,084		(6,805	)		189,279
Shareholders' equity
	Capital stock		68,557		(5,683	)		62,874
	Retained earnings		81,972		5,683			87,655
Subtotal shareholders' equity			155,101		—			155,101
Total liabilities and shareholders' equity		$	437,553	$	(6,805	)	$	430,748

As at March 31, 2003		United States GAAP		Reconciling adjustments			Canadian GAAP
Assets
	Interest rate swaps	$	6,279	$	(6,279	)	$	—
	Subtotal non-current assets		266,649		(6,279	)		260,370
Total assets		$	389,031	$	(6,279	)	$	382,752
Liabilities
	Long-term debt less current portion	$	161,889	$	(6,279	)	$	155,610
	Subtotal non-current liabilities		195,117		(6,279	)		188,838
Shareholders' equity
	Capital stock		60,571		(5,683	)		54,888
	Retained earnings		62,948		5,683			68,631
Subtotal shareholders' equity			123,406		—			123,406
Total liabilities and shareholders' equity		$	389,031	$	(6,279	)	$	382,752

There are no reconciling items between United States and Canadian GAAP that impact the consolidated statements of cash flows.

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REPORT OF MANAGEMENT
INDEPENDENT AUDITORS' REPORT
FIRSTSERVICE CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS (in thousands of U.S. dollars, except per share amounts) — in accordance with United States generally accepted accounting principles
FIRSTSERVICE CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands of U.S. dollars) — in accordance with United States generally accepted accounting principles
FIRSTSERVICE CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands of U.S. dollars) — in accordance with United States generally accepted accounting principles
FIRSTSERVICE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of U.S. dollars) — in accordance with United States generally accepted accounting principles