Interim Financial Statements for the quarter ended June 30, 2005

FIRSTSERVICE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)

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

	Three months ended June 30
		2005			2004

Revenues	$	287,897		$	167,043

Cost of revenues		180,398			114,877
Selling, general and administrative expenses		75,542			33,893
Depreciation		4,495			3,247
Amortization of intangibles other than brokerage backlog		868			622
Amortization of brokerage backlog		669			-
Operating earnings		25,925			14,404
Other income, net		(674	)		-
Interest expense		4,204			2,239
Earnings before income taxes and minority interest		22,395			12,165

Income taxes		6,943			3,526
Earnings before minority interest		15,452			8,639

Minority interest share of earnings		4,332			1,388

Net earnings from continuing operations		11,120			7,251
Net earnings from discontinued operations, net of income taxes		-			2,142
Net earnings	$	11,120		$	9,393

Net earnings per share:
Basic
Continuing operations	$	0.37		$	0.25
Discontinued operations		-			0.07
	$	0.37		$	0.32

Diluted
Continuing operations	$	0.35		$	0.24
Discontinued operations		-			0.07
	$	0.35		$	0.31

FIRSTSERVICE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

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

		June 30, 2005			March 31, 2005

Assets
Current assets
Cash and cash equivalents	$	67,947		$	37,458
Accounts receivable, net of allowance of $8,515 (March 31, 2005 - $8,471)		161,431			168,927
Income taxes recoverable		1,483			2,498
Inventories		21,426			20,878
Prepaids and other assets		12,861			12,591
Deferred income taxes		6,979			6,418
		272,127			248,770

Other receivables		7,049			7,077
Interest rate swaps		2,255			283
Fixed assets		59,694			57,241
Other assets		8,429			6,402
Deferred income taxes		10,240			8,992
Intangible assets		60,249			61,423
Goodwill		239,404			236,540
		387,320			377,958
	$	659,447		$	626,728

Liabilities and shareholders’ equity
Current liabilities
Accounts payable	$	39,217		$	41,905
Accrued liabilities		102,750			113,524
Income taxes payable		1,288			3,673
Unearned revenues		7,109			5,154
Long-term debt - current		17,857			18,206
Deferred income taxes		-			320
		168,221			182,782

Long-term debt - non-current		232,478			201,809
Deferred income taxes		32,162			29,802
Minority interest		29,843			26,464
		294,483			258,075

Shareholders’ equity
Capital stock		73,681			73,542
Contributed surplus		1,084			805
Receivables pursuant to share purchase plan		(2,148	)		(2,148	)
Retained earnings		114,131			103,011
Cumulative other comprehensive earnings		9,995			10,661
		196,743			185,871
	$	659,447		$	626,728

	Issued and outstanding shares		Capital stock		Contributed surplus		Receivables pursuant to share purchase plan			Retained earnings		Cumulative other comprehensive earnings		Total shareholders’ equity
Balance, March 31, 2004	29,499,730	$	68,557	$	183	$	(2,148	)	$	81,972	$	6,537	$	155,101

Comprehensive earnings:
Net earnings	-		-		-		-			9,393		-		9,393
Foreign currency translation adjustments	-		-		-		-			-		282		282
Comprehensive earnings														9,675
Subordinate Voting Shares:
Stock option expense	-		-		67		-			-		-		67
Stock options exercised	91,250		662		-		-			-		-		662
Balance, June 30, 2004	29,590,980	$	69,219	$	250	$	(2,148	)	$	91,365	$	6,819	$	165,505




Balance, March 31, 2005	30,192,788	$	73,542	$	805	$	(2,148	)	$	103,011	$	10,661		$	185,871

Comprehensive earnings:
Net earnings	-		-		-		-			11,120		-			11,120
Foreign currency translation adjustments	-		-		-		-			-		(666	)		(666	)
Comprehensive earnings															10,454
Subordinate Voting Shares:
Stock option expense	-		-		279		-			-		-			279
Stock options exercised	18,000		139		-		-			-		-			139
Balance, June 30, 2005	30,210,788	$	73,681	$	1,084	$	(2,148	)	$	114,131	$	9,995		$	196,743

FIRSTSERVICE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

	Three months ended June 30
		2005			2004
Cash provided by (used in)

Operating activities
Net earnings from continuing operations	$	11,120		$	7,251
Items not affecting cash:
Depreciation and amortization		6,032			3,869
Deferred income taxes		232			(612	)
Minority interest share of earnings		4,332			1,388
Other		514			83
Changes in non-cash working capital:
Receivables		7,512			(7,971	)
Inventories		(446	)		(2,677	)
Prepaids and other assets		(261	)		1,969
Payables and accruals		(14,612	)		3,888
Unearned revenue		1,839			397
Net cash provided by operating activities		16,262			7,585

Investing activities Acquisitions of businesses, net of cash acquired		(3,209	)		(6,028	)
Purchases of minority shareholders’ interests, net		(883	)		(813	)
Purchases of fixed assets		(6,824	)		(4,146	)
Purchases of other assets		(1,164	)		(25	)
Decreases in other receivables		27			171
Net cash used in investing activities		(12,053	)		(10,841	)

Financing activities
Increase (decrease) in long-term debt, net		28,240			(446	)
Issuances of Subordinate Voting Shares		139			662
Financing fees paid		(1,134	)		-
Dividends paid to minority shareholders of subsidiaries		(741	)		(103	)
Net cash provided by financing activities		26,504			113
Net cash provided by discontinued operations		-			4,697
Effect of exchange rate changes on cash		(224	)		811
Increase in cash and cash equivalents during the period		30,489			2,365
Cash and cash equivalents, beginning of period		37,458			15,620
Cash and cash equivalents, end of period	$	67,947		$	17,985

DESCRIPTION OF THE BUSINESS - FirstService Corporation (the “Company”) is a provider of property and business services to commercial, residential and institutional customers in the United States, Canada and several other countries. The Company’s operations are conducted through five segments: Residential Property Management, Commercial Real Estate Services, Integrated Security Services, Property Improvement Services and Business Services.

SUMMARY OF PRESENTATION - 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 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 consolidated financial statements for the year ended March 31, 2005.

These interim financial statements follow the same accounting policies as the most recent annual financial statements. 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, 2005 and the results of operations and its cash flows for the three month period ended June 30, 2005. All such adjustments are of a normal recurring nature. The results of operations for the three month period ended June 30, 2005 are not necessarily indicative of the results to be expected for the year ending March 31, 2006.

DISPOSITIONS OF BUSINESSES - On April 1, 2004, the Company sold substantially all of the assets of the lawn care operation carried on by its subsidiary Greenspace Services Ltd. to a third party. During the quarter ended March 31, 2005, the Company sold (i) substantially all of the assets of the South Florida concrete restoration operations carried on by its subsidiary Aqua-Shield Corp. to a third party and (ii) all of the shares of its subsidiary Stained Glass Overlay, Inc., a franchisor of decorative glass treatments, to an officer of that entity.

Operating results		Three months ended June 30, 2005		Three months ended June 30, 2004

Revenues	$	-	$	3,927
Earnings from discontinued operation before income taxes		-		(32	)
Provision for income taxes		-		(13	)
Net earnings from discontinued operations		-		(19	)
Net gain on disposal		-		2,161
Net earnings from discontinued operations	$	-	$	2,142

Net earnings per share from discontinued operations:
Basic	$	-	$	0.07
Diluted		-		0.07

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 four-year periods following the dates of acquisition. Such contingent consideration is issued at the expiration of the contingency period. As at June 30, 2005, there was contingent consideration outstanding of up to $11,100 ($14,200 as at March 31, 2005). The contingencies will expire during the period extending to January 2009. Vendors are entitled to receive interest on contingent consideration issued to them, which interest is calculated from the acquisition date to the payment date at interest rates ranging from 5% to 7%. 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, as additional costs of the acquired businesses. There was $729 of contingent consideration issued during the three months ended June 30, 2005 (2004 - nil) and allocated to goodwill.

TRANSACTIONS IN MINORITY SHAREHOLDERS’ INTERESTS - During the three months ended June 30, 2005, the Company completed purchases of shares from minority shareholders for consideration of $1,074 (2004 - $813). The purchase prices for the 2005 transactions were allocated as follows: minority interest $307; intangible assets $500; goodwill $267. Also during the three month period ended June 30, 2005, the Company sold shares in one subsidiary for cash proceeds of $191, which was allocated as follows: dilution gain $115; minority interest $76. There were no sales of shares in the prior year period.

LONG-TERM DEBT - On April 1, 2005 the Company entered into an amended and restated credit agreement with a syndicate of banks to provide a $110,000 committed senior revolving credit facility with a three year term to replace its previous $90,000 facility. The amended revolving credit facility bears interest at 1.00% to 2.25% over floating reference rates, depending on certain leverage ratios. On the same date, the Company issued $100,000 of 5.44% fixed rate Senior Secured Notes (the “5.44% Notes”). The 5.44% Notes have a final maturity of April 1, 2015 with five equal annual principal repayments beginning on April 1, 2011. The proceeds of the private placement were used to repay outstanding balances on the previous revolving credit facility.

The Credit Facility and the Notes rank equally in terms of seniority. The Company has granted the lenders and Note-holders various security including the following: an interest in all of the assets of the Company including the Company’s share of its 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 partners.

The covenants and other limitations within the amended and restated credit agreement and the Note agreements 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 limited from undertaking certain mergers, acquisitions and dispositions without prior approval.

FINANCIAL INSTRUMENTS - The Company has interest rate swap agreements to exchange the fixed rates on the Notes for variable rates. On the 8.06% Notes, an interest rate swap exchanges the fixed rate on $64,285 of principal for LIBOR + 250.5 basis points and another exchanges the fixed rate on $21,429 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 the 6.40% Senior Secured Notes, an interest rate swap agreement exchanging the fixed rate on $20,000 of principal for a variable rate of LIBOR + 170 basis points was cancelled in May 2005 for a net loss of $48.

The interest rate swaps are being accounted for as fair value hedges in accordance with Statement of Financial Accounting Standards (“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 attributable to the hedged interest rate risk; the associated gain or loss is recognized concurrently in earnings. So long as the hedge is considered highly effective, the net impact on earnings is nil. The fair value of the swaps is 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 values of the swaps fluctuate and at June 30, 2005, the aggregate fair values were a net gain of $2,255 (March 31, 2005 - gain of $283).

The Company from time to time purchases and sells foreign currencies using forward contracts, which have not been specifically identified as hedges. The values of these contracts are marked to market with resulting gains and losses included in earnings. At June 30, 2005 the Company had outstanding six foreign currency contracts to purchase an aggregate of C$7,407 at a rate of C$1.2251 per US$1.0000 between September 2005 and March 2006, the fair value of which represented a gain of C$92 (US$75). The purpose of the contracts is to match expected future Canadian dollar denominated expenses at the Canadian Business Services operations to US dollar denominated revenues.

	Three months ended June 30
		2005			2004

Net earnings from continuing operations	$	11,120		$	7,251
Dilution of net earnings resulting from assumed exercise of stock options in subsidiaries		(431	)		-
Net earnings from continuing operations for diluted earnings per share calculation purposes	$	10,689		$	7,251

Net earnings	$	11,120		$	9,393
Dilution of net earnings resulting from assumed exercise of stock options in subsidiaries		(431	)		-
Net earnings for diluted earnings per share calculation purposes	$	10,689		$	9,393

10.

STOCK-BASED COMPENSATION - The Company has a stock option plan for 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 period and expires five years from the date granted and allows for the purchase of one Subordinate Voting Share.

Effective April 1, 2003, the Company began 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 under SFAS 148 and is expensing the fair value of new option grants awarded subsequent to March 31, 2003. The financial statements for the three months ended June 30, 2005 include $279 of stock option expense (2004 - $67).

Prior to April 1, 2003, the Company had accounted for stock options under the intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, as permitted by GAAP. Had compensation expense 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:

	Three months ended June 30
		2005			2004

Net earnings, as reported	$	11,120		$	9,393
Less: stock-based compensation expense determined under fair value method		(158	)		(457	)
Pro forma net earnings	$	10,962		$	8,936
Reported earnings per share:
Basic	$	0.37		$	0.32
Diluted		0.35			0.31
Pro forma net earnings per share:
Basic	$	0.36		$	0.30
Diluted		0.34			0.30

11.

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, combines with amounts set aside, will not have a material impact on the Company’s financial condition or the results of operations.

12.

SEGMENTED INFORMATION - The Company has five 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. Residential Property Management provides property management, maintenance, landscaping and other ancillary services to residential community associations in the United States. Commercial Real Estate Services provides brokerage, property management and advisory services to commercial customers in North America, Australia and several other countries. Integrated Security Services provides security systems installation, maintenance, monitoring and manpower to primarily commercial customers in Canada and the United States. Property Improvement Services provides franchised and Company-owned property services to consumers 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 expenses of the Company’s headquarters.

		Residential Property Management		Commercial Real Estate Services		Integrated Security Services		Property Improvement Services		Business Services		Corporate			Consolidated
Three months ended June 30

2005
Revenues	$	84,081	$	99,304	$	32,501	$	35,222	$	36,681	$	108		$	287,897
Operating earnings		7,333		10,157		1,078		8,706		1,022		(2,371	)		25,925

2004
Revenues	$	67,958	$	-	$	34,125	$	29,519	$	35,420	$	21		$	167,043
Operating earnings		5,536		-		2,014		6,871		1,988		(2,005	)		14,404

Operating results for the three months ended June 30, 2005, the first quarter of fiscal 2006, relative to the same period a year ago were up significantly, with higher revenues, operating earnings and net earnings generated through a combination of acquired and internal growth. Our newest operating segment, Commercial Real Estate Services, operating as Colliers International, generated results that were beyond our expectations, largely due to robust market conditions in this sector. In addition, two of our four other operating segments reported gains in revenues and in operating earnings for the quarter.

On July 27, 2005, we updated our financial outlook for fiscal 2006 to reflect the better than expected results of the Commercial Real Estate Services business. The updated outlook is for revenues for $1.10 billion to $1.15 billion, EBITDA (see “Reconciliation of non-GAAP measures” below) of $97 to $104 million and adjusted diluted earnings per share from continuing operations (see “Reconciliation of non-GAAP measures” below) of $1.05 to $1.15. The adjustment relates to amortization of the short-lived backlog intangible asset acquired upon the November 30, 2004 acquisition of CMN International Inc. (“CMN”), and represents approximately $0.04 per diluted share. Accordingly, the outlook for diluted earnings per share from continuing operations is $1.01 to $1.11. The previous outlook, issued on May 18, 2005, was for revenues of $1.05 to $1.15 billion; EBITDA of $92.0 to $99.0 million; adjusted diluted earnings per share from continuing operations of $0.97 to $1.07 and diluted earnings per share from continuing operations $0.93 to $1.03.

First quarter EBITDA was $32.0 million versus $18.3 million reported in the prior year quarter. CMN accounted for $11.8 million of the increase. Our EBITDA margin was 11.1% of revenues versus 10.9% of revenues in the prior year quarter, while our operating earnings margin was 9.0% versus 8.6% in the prior year quarter. The increase in margins attributable to the acquisition of CMN was offset by year-over-year margin declines in Business Services and Integrated Security Services. Operating earnings for the quarter were $25.9 million, up from $14.4 million in the prior year period. Adjusted for the impact of backlog amortization, operating earnings were $26.6 million. The increase in operating earnings, aside from the effect of backlog amortization, was primarily driven by CMN.

Interest expense was $4.2 million versus $2.2 million recorded in the prior year quarter. The average interest rate during the quarter was 6.7%, approximately 100 basis points higher than last year’s quarter. The increase in rate was attributable to a larger proportion of fixed-rate financing in place upon the closing of the April 1, 2005 Senior Secured Notes placement, which carries higher interest rates than the floating rate debt in place one year ago. Net indebtedness at the end of the quarter was $41.2 million higher than one year ago as a result of the acquisition of CMN.

The consolidated income tax rate was approximately 31% of earnings before income taxes and minority interest relative to 29% in the prior year’s quarter. The current quarter’s tax rate is primarily the result of efficiencies generated from the cross-border tax structure we implemented in fiscal 2000. The difference in rates between the periods reflects changes in the relative impact of this tax structure due to the recent growth of the Company.

Net earnings from continuing operations for the quarter were $11.1 million, up 52% versus $7.3 million in the prior year quarter. Adjusting for the impact of backlog amortization, net earnings from continuing operations were $11.5 million, up 59%. The increase was attributable to earnings from CMN, as well as strong quarterly results in the Residential Property Management and Property Improvement Services segments.

Earnings per share and diluted earnings per share calculations were impacted by higher net earnings, dilution from stock options granted to employees of subsidiaries, particularly CMN, and changes in the number of FirstService shares outstanding. Stock option exercises during the past twelve months caused the weighted average number of shares outstanding to increase 2.2% to 30.2 million. Diluted shares outstanding increased 2.2% to 30.9 million as a result of higher dilution from currently outstanding stock options, as well as the impact of stock options exercised during the past twelve months.

Our Residential Property Management segment reported revenues of $84.1 million for the quarter, up 24% versus the prior year quarter. Internal growth was 19%, and an additional 5% of growth came from acquisitions completed during the last twelve months. Internal growth was generated from new contractual property management clients in Florida, New York, Phoenix and Las Vegas as well as ancillary financial services. Acquisition growth was attributable to the Chicago and Las Vegas platforms acquired in June 2004 and December 2004, respectively, and two recent tuck-under acquisitions in South Florida. Residential Property Management EBITDA was $8.6 million relative to $6.6 million in the prior year quarter and margins increased to 10.3% from 9.7%. The increase in margin was the result of operating leverage and an increase in higher-margin ancillary financial services revenues.

The Commercial Real Estate Services segment generated $99.3 million of revenues and $11.8 million of EBITDA during the quarter. Revenues exceeded our expectations and were 41% higher than in the same period last year (at which time CMN was not owned by us). The year-over-year increase was largely market driven, as commercial real estate sales transaction volume increased in many of the markets in which we participate. Revenues in Far East markets including Hong Kong, India and China were up in excess of 100% versus prior year, while New Zealand was up 60%, Eastern Europe was up 40% and North America was up 25%. Some of this revenue growth is attributable to large sales brokerage transactions completed during the quarter which may not recur. Revenue growth measured in US dollars was positively impacted by approximately 3% due to the US dollar’s decline in value relative to Canadian, Australian and other currencies. The EBITDA margin of 11.9% reflects the substantial leverage gained through high brokerage activity levels. The expected annualized margin for these operations is 6-8%.

First quarter revenues of our Integrated Security Services segment were $32.5 million. Revenues declined 5% (9% after removing the impact of foreign exchange on our Canadian operations) relative to the prior year’s quarter, largely due to start-up delays with two large US systems projects. Integrated Security Services EBITDA was $1.7 million versus $2.6 million reported one year ago, and margins declined to 5.3% from 7.5% on lower revenues. On an annual basis, growth in revenues and earnings is expected.

Property Improvement revenues were $35.2 million, an increase of 19% over the prior year period. Internal growth was 13%, while acquisitions and foreign exchange accounted for 5% and 1%, respectively. Internal revenue growth was driven by the Paul Davis Restoration franchise system and our California Closets “branchise” stores. Acquisition growth was attributable to two recently acquired California Closets branchises in Phoenix and Dallas. EBITDA was $9.5 million, up from $7.5 million in the prior year period.

First quarter revenues in Business Services were $36.7 million, an increase of 4% over the fiscal 2005 period. After removing the impact of foreign exchange rate changes, revenue declined 2%. Client transaction volumes were flat generally due to timing of promotional campaigns. Business Services EBITDA was $2.6 million relative to $3.5 million reported one year ago, and was impacted by start-up costs associated with a large student loan contract which began generating revenues in mid-July as well as costs incurred for an initiative to improve the operating performance and capacity utilization of the fulfillment operations.

(in thousands of US$, except per share amounts		Q1		Q2			Q3			Q4

FISCAL 2006
Revenues	$	287,897
Operating earnings		25,925
Net earnings		11,120
Net earnings per share:
Basic		0.37
Diluted		0.35

FISCAL 2005
Revenues	$	167,043	$	180,700		$	218,184		$	246,362
Operating earnings		14,404		18,707			15,069			3,389
Net earnings from continuing operations		7,251		9,681			5,305			410
Net earnings (loss) from discontinued operation		2,142		(153	)		(363	)		(1,065	)
Net earnings		9,393		9,528			4,942			(655	)
Net earnings per share:
Basic		0.32		0.32			0.17			(0.02	)
Diluted		0.31		0.31			0.16			(0.04	)

FISCAL 2004
Revenues			$	152,974		$	144,661		$	151,810
Operating earnings				15,530			6,758			5,535
Net earnings from continuing operations				7,364			3,043			3,981
Net earnings (loss) from discontinued operation				1,605			(1,033	)		(2,347	)
Net earnings				8,969			2,010			1,634
Net earnings per share:
Basic				0.32			0.07			0.06
Diluted				0.31			0.07			0.05

OTHER DATA
EBITDA - Fiscal 2006	$	31,957
EBITDA - Fiscal 2005		18,273	$	22,797		$	24,646		$	13,047
EBITDA - Fiscal 2004				19,114			10,573			9,512

We define EBITDA as net earnings before extraordinary items, discontinued operations, minority interest share of earnings, income taxes, interest, depreciation and amortization. We use EBITDA to evaluate operating performance and as a measure for debt covenants with our lenders. EBITDA is an integral part of our planning and reporting systems. We use multiples of current and projected EBITDA in conjunction with discounted cash flow models to determine our overall enterprise valuation and to evaluate acquisition targets. We believe EBITDA is a reasonable measure of operating performance because of the low capital intensity of our service operations. We also believe EBITDA is a financial metric used by many investors to compare companies, especially in the services industry, on the basis of operating results and the ability to incur and service debt. EBITDA is not a recognized measure of financial performance generally accepted accounting principles (“GAAP”) in the United States, and should not be considered as a substitute for operating earnings, net earnings or cash flows from operating activities, as determined in accordance with GAAP. Our method of calculating EBITDA may differ from other issuers and accordingly, EBITDA may not be comparable to measures used by other issuers. A reconciliation of EBITDA to net earnings appears below.

We are presenting adjusted earnings measures to eliminate the impact of amortization of the short-lived brokerage backlog intangible asset recognized upon the acquisition of CMN. The brokerage backlog intangible asset represents the fair value of the pipeline of pending commercial real estate brokerage transactions that existed at the acquisition date. The adjusted earnings measures are not recognized measures of financial performance under GAAP and should not be considered as a substitute for operating earnings, net earnings or cash flows from operating activities, as determined in accordance with GAAP. The following tables provide a reconciliation of the adjusted measures:

	Three months ended June 30
		2005			2004

Adjusted operating earnings	$	26,594		$	14,404
Amortization of brokerage backlog		(669	)		-
Operating earnings	$	25,925		$	14,404

Adjusted net earnings from continuing operations	$	11,548		$	7,251
Amortization of brokerage backlog		(669	)		-
Deferred income taxes		241			-
Net earnings from continuing operations	$	11,120		$	7,251

Adjusted diluted net earnings per share from continuing operations	$	0.36		$	0.24
Amortization of brokerage backlog, net of deferred income taxes		(0.01	)		-
Diluted net earnings per share from continuing operations	$	0.35		$	0.24

Certain segments of our operations are subject to seasonal variations. The demand for exterior painting (Property Improvement Services segment) and swimming pool management in the northern United States and Canada (Residential Property Management segment) is highest during late spring, summer and early fall and very low during winter. These operations generate most of their annual revenues and earnings between April and September and comprise approximately 7% of consolidated annual revenues.

The newly acquired Commercial Real Estate Services operation generates peak brokerage revenues and earnings in the month of December followed by a low in January and February as a result of the timing of closings on commercial real estate brokerage transactions. Brokerage revenues and earnings during the balance of the year have historically been relatively even, however historical patterns are not necessarily indicative of future results. These operations comprise approximately 20% of consolidated annual revenues.

Net indebtedness as at June 30, 2005 was $180.1 million, versus $182.3 million at March 31, 2005. Net indebtedness is calculated as the current and non-current portion of long-term debt adjusted for interest rate swaps less cash and cash equivalents. We are in compliance with the covenants within our financing agreements as at June 30, 2005 and, based on our outlook for the balance of the year, we expect to remain in compliance with these covenants. We had $99.2 million of available un-drawn credit as of June 30, 2005.

In relation to acquisitions completed during the past three years, we have outstanding contingent consideration totaling $11.1 million as at June 30, 2005 ($14.2 million as at March 31, 2005). The amount of the contingent consideration is not recorded as a liability unless the outcome of the contingency is determined to be beyond a reasonable doubt. The contingent consideration is based on achieving specified earnings levels, and is issued or issuable at the end of the contingency period. When the contingencies are resolved and additional consideration is distributable, we will record the fair value of the additional consideration as additional costs of the acquired businesses.

In those operations where managers, employees or brokers are also minority owners, the Company is party to shareholders’ agreements. These agreements allow us to “call” the minority position for a predetermined formula price, which is usually equal to the multiple of trailing two-year average EBITDA underlying the purchase price paid by the Company for the original acquisition, less debt. Minority owners may also “put” their interest to the Company at the same price, with certain limitations. The total value of the minority shareholders’ interests, as calculated in accordance with shareholders’ agreements, was approximately $70 million at June 30, 2005 (March 31, 2005 - $70 million). The purchase prices of the minority interests may be satisfied with any combination of cash and / or Subordinate Voting Shares and could materially increase net earnings. Based on our estimates, on an annualized basis, the acquisition of all minority interests with cash would increase interest expense by $4.2 million, increase amortization expense by $5.6 million (including $3.6 million of short-lived backlog amortization), reduce income taxes by $3.0 million and reduce minority interest share of earnings by $7.5 million, resulting in an approximate increase to net earnings of $0.7 million. Excluding the impact of backlog amortization, net earnings would increase by approximately $3.0 million.

Contractual obligations	Payments due by period
(in thousands of US$)		Total		Less than 1 year		1-3 years		4-5 years		After 5 years

Long-term debt	$	245,062	$	16,617	$	32,764	$	28,572	$	167,109
Capital lease obligations		5,273		1,240		4,033		-		-
Operating leases		157,515		26,730		49,296		33,827		47,662
Unconditional purchase obligations		-		-		-		-		-
Other long-term obligations		-		-		-		-		-
Total contractual obligations	$	407,850	$	44,587	$	86,093	$	62,399	$	214,771

During the quarter, we paid rent to entities in which an officer of the Company has equity interests and to entities controlled by minority shareholders of subsidiaries of the Company. The business purpose of these transactions was to rent office and warehouse space. The amount of the transactions was $0.3 million (2004 - $0.3 million), and they were completed at market rates. The ongoing operating lease commitments associated with these transactions are included in the contractual obligations table above.

We maintain an interest rate risk management strategy that uses interest rate swaps to lower the long-term cost of borrowed funds. Our specific goals are to (i) manage interest rate sensitivity by modifying the characteristics of our debt and (ii) lower the long-term cost of borrowed funds. Fluctuations in interest rates create an unrealized appreciation or depreciation in the market value of our 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.

The authorized capital of the Company consists of an unlimited number of preference shares, issuable in series, an unlimited number of Subordinate Voting Shares and an unlimited number of Multiple Voting Shares. The holders of Subordinate Voting Shares are entitled to one vote in respect of each Subordinate Voting Share held at all meetings of the shareholders of the Company. The holders of Multiple Voting Shares are entitled to twenty votes in respect of each Multiple Voting Share held at all meetings of the shareholders of the Company. On December 15, 2004, the Company completed 2 for 1 stock split effected in the form of a stock dividend.

This interim report contains certain forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties and include, but are not limited to, statements regarding future events and our plans, goals and objectives. Such statements are generally accompanied by words such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “project”, “will” or similar words and phrases. Our actual results may differ materially from such statements. Factors that could result in such differences, among others, are:

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.

Balance sheets		June 30, 2005		March 31, 2005

Current assets	$	2,634	$	7,246
Non-current assets		-		-
Total assets	$	2,634	$	7,246

Current liabilities	$	430	$	1,286
Non-current liabilities		-		-
Total liabilities	$	430	$	1,286

		Three months ended June 30, 2005		Three months ended June 30, 2004

Earnings from equity investments	$	484	$	-
Dilution gain on sale of shares of subsidiary		115		-
Gain on foreign exchange contracts		75		-
	$	674	$	-

	Three months ended June 30
	2005	2004

Basic shares	30,204	29,560
Assumed exercise of Company stock options	675	640
Diluted shares	30,879	30,200

		United States		Canada		Other		Consolidated

Three months ended June 30

2005
Revenues	$	165,299	$	83,214	$	39,384	$	287,897
Total long-lived assets		248,252		86,474		24,621		359,347

2004
Revenues	$	121,014	$	46,029	$	-	$	167,043
Total long-lived assets		224,499		49,715		-		274,214