EXHIBIT 2

FIRSTSERVICE CORPORATION

MANAGEMENT’S REPORTS

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The accompanying consolidated financial statements and management discussion and analysis (“MD&A”) ofFirstService Corporation (the “Company”) and all information in this annual report are the responsibility of management and have been approved by the Board of Directors.

The consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America using the best estimates and judgments of management, where appropriate.  The most significant of these accounting principles are set out in note 2 to the consolidated financial statements. Management has prepared the financial information presented elsewhere in this annual report and has ensured that it is consistent with the consolidated financial statements.

The MD&A has been prepared in accordance with National Instrument 51-102 of the Canadian Securities Administrators, taking into consideration other relevant guidance, including Regulation S-K of the US Securities and Exchange Commission.

The Board of Directors of the Company has an Audit Committee consisting of three independent directors.  The Audit Committee meets regularly to review with management and the independent auditors any significant accounting, internal control, auditing and financial reporting matters.

These consolidated financial statements have been audited by PricewaterhouseCoopers LLP, which have been appointed as the independent auditors of the Company by the shareholders.  As auditors, PricewaterhouseCoopers LLP obtain an understanding of the Company’s internal controls and procedures for financial reporting to plan and conduct such audit procedures as they consider necessary to express their opinion on the consolidated financial statements. As auditors, PricewaterhouseCoopers LLP have full and independent access to the Audit Committee to discuss their findings.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of its effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has excluded six individually insignificant entities acquired by the Company during the last fiscal period from its assessment of internal control over financial reporting as at December 31, 2008.   The total assets and total revenues of these majority-owned entities of the Company represent 1.6%and 1.4%, respectively, of the related consolidated financial statement amounts including discontinued operations as at and for the nine-month period ended December 31, 2008.

Management has assessed the effectiveness of the Company’s internal control over financial reporting as at December 31, 2008, based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that, as at December 31, 2008, the Company’s internal control over financial reporting was effective.

The effectiveness of the Company's internal control over financial reporting as at December 31, 2008, has been audited by PricewaterhouseCoopers LLP, the Company’s independent auditors as stated in their report which appears herein.

/s/ Jay S. Hennick Chief Executive Officer /s/ John B. Friedrichsen Chief Financial Officer

February 27, 2009

Page 2 of 42

INDEPENDENT AUDITORS’ REPORT

To the Shareholders of FirstService Corporation

We have completed integrated audits of FirstService Corporation’s December 31, 2008 and March 31, 2008 consolidated financial statements and of its internal control over financial reporting as at December 31, 2008 and audits of its 2007 and 2006 consolidated financial statements.  Our opinions, based on our audits, are presented below.

Consolidated financial statements

We have audited the accompanying consolidated balance sheets of FirstService Corporation as at December 31, 2008, March 31, 2008 and March 31, 2007, and the related consolidated statements of earnings, shareholders’ equity and cash flows for the nine-month period ended December 31, 2008 and each of the years in the three-year period ended March 31, 2008.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits of the Company’s financial statements as at December 31, 2008 and March 31, 2008 and for the nine months and year then ended in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States).  We conducted our audits of the Company’s financial statements as at March 31, 2007 and March 31, 2006 and for the years then ended in accordance with Canadian generally accepted auditing standards.  Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  A financial statement audit also includes assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as at December 31, 2008, March 31, 2008 and March 31, 2007 and the results of its operations and its cash flows for nine-month period ended December 31, 2008 and each of the years in the three-year period ended March 31, 2008 in accordance with accounting principles generally accepted in the United States of America.

Internal control over financial reporting

We have also audited FirstService Corporation’s internal control over financial reporting as at  December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.  Our responsibility is to express an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and

Page 3 of 42

performing such other procedures as we consider necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded six individually insignificant entities acquired by the Company from its assessment of internal control over financial reporting as at December 31, 2008 because these entities were acquired by the Company in purchase business combinations during the nine-month period ended December 31, 2008.  The total assets and total revenues of these majority owned entities represent 1.6% and 1.4%, respectively, of the related consolidated financial statement amounts including discontinued operations as at and for the nine months ended December 31, 2008.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as at December 31, 2008 based on criteria established in Internal Control — Integrated Framework issued by COSO.

/s/ PricewaterhouseCoopers LLP

Chartered Accountants, Licensed Public Accountants

Toronto, Canada

February 27, 2009

Comments by auditor for U.S. readers on Canada-U.S. reporting differences

In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there is a change in accounting principles that has a material effect on the comparability of the Company’s consolidated financial statements, such as the change from the adoption of a new accounting standard on April 1, 2007 described in note 14 to the consolidated financial statements. Our report to the shareholders dated February 27, 2009 is expressed in accordance with Canadian reporting standards which do not require a reference to such a change in accounting principles in the Auditors’ Report when the change is properly accounted for and adequately disclosed in the consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

Chartered Accountants, Licensed Public Accountants

Toronto, Canada

February 27, 2009

Page 4 of 42

FIRSTSERVICE CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands of US dollars, except per share amounts)

	Nine months ended December 31,			Year ended March 31,
	2008			2008			2007			2006
Revenues
Services	$	1,280,167		$	1,486,972		$	1,043,768		$	855,572
Products		42,513			62,741			109,053			63,096
Total revenues		1,322,680			1,549,713			1,152,821			918,668
Cost of revenues (exclusive of depreciation shown below)
Services		779,305			884,976			632,926			539,855
Products		22,116			32,851			75,688			34,309
Selling, general and administrative expenses		406,383			516,091			341,180			262,496
Depreciation		18,814			19,727			13,707			9,873
Amortization of intangible assets other than brokerage backlog		11,229			12,730			6,161			3,494
Amortization of brokerage backlog		1,703			5,216			6,154			7,554
		83,130			78,122			77,005			61,087
Interest expense		11,107			16,859			13,151			11,272
Interest income		(2,855	)		(3,472	)		(5,308	)		(1,038	)
Other income, net (note 5)		(2,422	)		(4,650	)		(4,589	)		(3,766	)
Integrated Security division divestiture bonus		5,715			-			-			-
Impairment loss on available-for-sale securities (note 7)		14,680			-			3,139			-
Earnings before income taxes and minority interest		56,905			69,385			70,612			54,619
Income taxes (note 14)		30,878			17,108			20,367			16,084
Earnings before minority interest		26,027			52,277			50,245			38,535
Minority interest share of earnings		14,519			16,803			15,282			11,778
Net earnings from continuing operations		11,508			35,474			34,963			26,757
Net earnings (loss) from discontinued operations, net of income taxes (note 4)		50,528			(1,075	)		1,253			42,740
Net earnings before cumulative effect of change in accounting principle		62,036			34,399			36,216			69,497
Cumulative effect of change in accounting principle, net of income taxes (note 2)		-			-			(1,353	)		-
Net earnings	$	62,036		$	34,399		$	34,863		$	69,497
Preferred share dividends		7,760			6,952			-			-
Net earnings available to common shareholders	$	54,276		$	27,447		$	34,863		$	69,497
Net earnings (loss) per common share (note 15)
Basic
Continuing operations	$	0.12		$	0.95		$	1.17		$	0.89
Discontinued operations		1.71			(0.03	)		0.04			1.41
Cumulative effect of change in accounting principle		-			-			(0.04	)		-
	$	1.83		$	0.92		$	1.17		$	2.30
Diluted
Continuing operations	$	0.11		$	0.89		$	1.08		$	0.83
Discontinued operations		1.70			(0.04	)		0.04			1.38
Cumulative effect of change in accounting principle		-			-			(0.04	)		-
	$	1.81		$	0.85		$	1.08		$	2.21

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

Page 5 of 42

FIRSTSERVICE CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands of US dollars)

	December 31, 2008		March 31, 2008			March 31, 2007
Assets Current assets
Cash and cash equivalents	$	79,642	$	75,371		$	97,191
Restricted cash		10,240		8,858			16,930
Accounts receivable, net of an allowance of $12,817 (March 31, 2008 - $10,716; March 31, 2007 - $7,543)		175,520		185,384			128,568
Income taxes recoverable		18,080		16,887			9,968
Inventories (note 6)		10,572		11,178			10,124
Prepaid expenses and other current assets		20,876		20,748			15,508
Deferred income taxes (note 14)		11,718		19,540			10,430
Assets held for sale (note 4)		14,210		90,849			73,638
		340,858		428,815			362,357
Other receivables		16,832		4,445			6,599
Other assets (note 7)		12,459		29,383			28,942
Fixed assets (note 8)		76,789		79,949			60,880
Deferred income taxes (note 14)		10,072		12,194			2,684
Intangible assets (note 9)		178,227		163,220			92,064
Goodwill (note 10)		348,897		311,413			209,652
Assets held for sale (note 4)		6,503		59,924			53,820
		649,779		660,528			454,641
	$	990,637	$	1,089,343		$	816,998
Liabilities Current liabilities
Accounts payable	$	58,172	$	49,465		$	28,905
Accrued liabilities (note 6)		157,820		188,130			150,313
Income taxes payable		7,567		36			4,390
Unearned revenues		27,600		23,846			17,282
Long-term debt – current (note 11)		20,899		24,777			22,101
Deferred income taxes (note 14)		75		411			3,318
Liabilities related to assets held for sale (note 4)		12,946		46,977			30,518
		285,079		333,642			256,827
Long-term debt – non-current (note 11)		245,470		331,253			213,030
Other liabilities		21,832		17,914			4,506
Deferred income taxes (note 14)		42,072		41,618			29,084
Liabilities related to assets held for sale (note 4)		278		763			370
Minority interest		50,067		58,468			48,306
		359,719		450,016			295,296
Shareholders’ equity
Preferred shares (note 12)		144,307		149,477			-
Common shares (note 12)		86,913		88,919			80,108
Contributed surplus		25,899		13,135			6,557
Receivables pursuant to share purchase plan		-		(765	)		(1,232	)
Retained earnings		88,349		43,415			175,346
Accumulated other comprehensive earnings		371		11,504			4,096
		345,839		305,685			264,875
	$	990,637	$	1,089,343		$	816,998

Commitments and contingencies (notes 12 and 18)

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

On behalf of the Board of Directors,

/s/ Bernard I. Ghert                                            /s/ Jay S. Hennick

Director                                                                Director

Page 6 of 42

FIRSTSERVICE CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands of US dollars, except share amounts)

	Preferred shares				Common shares
	Issued and out- standing shares (note 12)		Amount		Issued and outstanding shares (note 12)			Amount			Contri- buted surplus			Receivables pursuant to share purchase plan			Retained earnings			Accumulated other comprehen- sive earnings (loss)			Total shareholders’ equity
Balance, March 31, 2005		-		-		30,192,788		$	73,542		$	805		$	(2,148	)	$	103,011		$	10,661		$	185,871
Comprehensive earnings:
Net earnings		-		-		-			-			-			-			69,497			-			69,497
Foreign currency       translation adjustments		-		-		-			-			-			-			-			(7,988	)		(7,988	)
Unrealized loss on available for-sale equity securities, net of income taxes of $335		-		-		-			-			-			-			-			(1,528	)		(1,528	)
Comprehensive earnings																								59,981
Subordinate Voting Shares:
Stock option expense		-		-		-			-			1,380			-			-			-			1,380
Stock options exercised		-		-		434,650			3,740			(22	)		-			-			-			3,718
Purchased for cancellation		-		-		(571,650	)		(1,595	)		-			-			(12,116	)		-			(13,711	)
Cash payments received		-		-		-			-			-			513			-			-			513
Balance, March 31, 2006		-		-		30,055,788			75,687			2,163			(1,635	)		160,392			1,145			237,752
SAB 108 adjustment (note 22)		-		-		-			-			-			-			(5,377	)		-			(5,377	)
Comprehensive earnings:
Net earnings		-		-		-			-			-			-			34,863			-			34,863
Foreign currency      translation adjustments		-		-		-			-			-			-			-			1,423			1,423
Reclass to earnings of unrealized loss on available-for-sale equity securities, net of income taxes of $335		-		-		-			-			-			-			-			1,528			1,528
Comprehensive earnings																								37,814
Subsidiaries’ equity transactions		-		-		-			-			2,562			-			-			-			2,562
Subordinate Voting Shares:
Stock option expense		-		-		-			-			1,879			-			-			-			1,879
Stock options exercised		-		-		564,800			6,482			(47	)		-			-			-			6,435
Purchased for cancellation		-		-		(697,700	)		(2,061	)		-			-			(14,532	)		-			(16,593	)
Cash payments received		-		-		-			-			-			403			-			-			403
Balance, March 31, 2007		-		-		29,922,888			80,108			6,557			(1,232	)		175,346			4,096			264,875

Page 7 of 42

FIRSTSERVICE CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands of US dollars, except share amounts)

	Preferred shares						Common shares
	Issued and out- standing shares (note 12)			Amount			Issued and outstanding shares (note 12)			Amount			Contri- buted surplus			Receivables pursuant to share purchase plan			Retained earnings			Accumulated other comprehen- sive earnings (loss)			Total shareholders’ equity
Balance, March 31, 2007		-			-			29,922,888			80,108			6,557			(1,232	)		175,346			4,096			264,875
FIN 48 adjustment (note 14)		-			-			-			-			-			-			(4,200	)		-			(4,200	)
Comprehensive earnings:
Net earnings		-			-			-			-			-			-			34,399			-			34,399
Foreign currency      translation adjustments		-			-			-			-			-			-			-			7,497			7,497
Unrealized loss on available-for-sale equity securities, net of income taxes of $20		-			-			-			-			-			-			-			(89	)		(89	)
Comprehensive earnings																										41,807
Subsidiaries’ equity transactions		-			-			-			-			1,634			-			-			-			1,634
Subordinate Voting Shares:
Issued for purchase of        minority interest		-			-			282,649			5,868			-			-			-			-			5,868
Stock option expense		-			-			-			2,440			3,498			-			-			-			5,938
Stock options exercised		-			-			159,550			1,372			(198	)		-			-			-			1,174
Purchased for cancellation		-			-			(252,500	)		(869	)		-			-			(5,701	)		-			(6,570	)
Cash payments received		-			-			-			-			1,644			467			-			-			2,111
Stock dividend (note 12)		5,979,074			149,477			-			-			-			-			(149,477	)		-			-
Preferred Shares:    Dividends (note 12)		-			-			-			-			-			-			(6,952	)		-			(6,952	)
Balance, March 31, 2008		5,979,074			149,477			30,112,587			88,919			13,135			(765	)		43,415			11,504			305,685
Comprehensive earnings:
Net earnings		-			-			-			-			-			-			62,036			-			62,036
Foreign currency      translation adjustments		-			-			-			-			-			-			-			(11,222	)		(11,222	)
Reclass to earnings of unrealized loss on available-for-sale equity securities, net of income taxes of $20		-			-			-			-			-			-			-			89			89
Comprehensive earnings																										50,903
Subsidiaries’ equity transactions		-			-			-			-			11,268			-			-			-			11,268
Subordinate Voting Shares:
Issued for purchase of        minority interest		-			-			23,952			263			-			-			-			-			263
Stock option expense		-			-			-			-			1,723			-			-			-			1,723
Tax benefit on options exercised		-			-			-			-			376			-			-			-			376
Stock options exercised		-			-			157,245			1,388			(603	)		-			-			-			785
Purchased for cancellation		-			-			(960,300	)		(3,657	)		-			-			(11,123	)		-			(14,780	)
Cash payments received		-			-			-			-			-			765			-			-			765
Preferred Shares:
Purchased for cancellation		(206,800	)		(5,170	)		-			-			-			-			1,781			-			(3,389	)
Dividends (note 12)		-			-			-			-			-			-			(7,760	)		-			(7,760	)
Balance, December 31, 2008		5,772,274		$	144,307			29,333,484		$	86,913		$	25,899		$	-		$	88,349		$	371		$	345,839

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 US dollars)

Cash provided by (used in)	Nine months ended December 31,			Year ended March 31,
	2008			2008			2007			2006
Operating activities
Net earnings	$	62,036		$	34,399		$	34,863		$	69,497
Cumulative effect of change in accounting principle		-			-			1,353			-
Net (earnings) loss from discontinued operations		(50,528	)		1,075			(1,253	)		(42,740	)
Items not affecting cash:
Depreciation and amortization		31,746			37,673			26,022			20,921
Deferred income taxes		10,125			(19,860	)		(7,142	)		(3,970	)
Minority interest share of earnings		14,519			16,803			15,282			11,778
Stock option expense		1,620			7,446			3,707			1,932
Impairment loss on available-for-sale securities		14,680			-			3,139			-
Other		822			2,446			(1,036	)		716
Incremental tax benefit on stock options exercised		(5,184	)		-			-			-
Changes in operating assets and liabilities:
Accounts receivable		16,584			(23,222	)		(14,116	)		(12,664	)
Inventories		(61	)		(915	)		(3,022	)		(3,124	)
Prepaid expenses and other assets		1,397			(3,431	)		(1,459	)		(2,658	)
Accounts payable		13,144			1,058			(9,932	)		7,425
Accrued liabilities		(55,268	)		23,409			28,912			13,531
Income taxes		1,858			(22,095	)		(6,612	)		(5,047	)
Unearned revenues		(917	)		3,994			293			190
Other liabilities		11,622			-			-			-
Discontinued operations		(1,815	)		(1,610	)		(9,209	)		3,562
Net cash provided by operating activities		66,380			57,170			59,790			59,349
Investing activities
Acquisitions of businesses, net of cash acquired		(36,494	)		(152,529	)		(66,617	)		(14,105	)
Purchases of minority shareholders’ interests in subsidiaries		(38,463	)		(6,773	)		(6,437	)		(11,625	)
Sales of interests in subsidiaries to minority shareholders		168			3,294			3,167			-
Purchases of fixed assets		(14,719	)		(31,624	)		(25,095	)		(16,242	)
Proceeds on sale of equity securities		-			-			4,875			-
Changes in restricted cash		(1,381	)		8,071			(9,797	)		-
Other investing activities		(2,679	)		3,790			(78	)		(383	)
Discontinued operations		153,682			(3,794	)		(2,163	)		98,837
Net cash provided by (used in) investing activities		60,114			(179,565	)		(102,145	)		56,482
Financing activities
Increase in long-term debt		89,238			206,924			5,935			102,614
Repayment of long-term debt		(180,033	)		(87,386	)		(21,430	)		(74,100	)
Financing fees paid		-			(544	)		(150	)		(1,396	)
Proceeds received on exercise of stock options		785			1,174			6,435			3,740
Incremental tax benefit on stock options exercised		5,184			-			-			-
Repurchase of Subordinate Voting Shares		(14,780	)		(6,570	)		(16,593	)		(13,711	)
Repurchase of Preferred Shares		(3,389	)		-			-			-
Collection of receivables pursuant to share purchase plan		765			467			403			513
Capital contributions		-			1,644			-			-
Dividends paid to preferred shareholders		(7,760	)		(6,952	)		-			-
Distributions paid to minority shareholders of subsidiaries		(11,379	)		(6,878	)		(3,296	)		(1,939	)
Discontinued operations		-			(5,184	)		4,904			-
Net cash (used in) provided by financing activities		(121,369	)		96,695			(23,792	)		15,721
Effect of exchange rate changes on cash and cash equivalents		(5,742	)		2,196			2,379			(1,072	)
(Decrease) increase in cash and cash equivalents during the period		(617	)		(23,504	)		(63,768	)		130,480
Cash and cash equivalents, beginning of period	$	75,371		$	97,191		$	164,407		$	30,511
Amount held by discontinued operations		5,295			6,979			3,531			6,947
		80,666			104,170			167,938			37,458
Cash and cash equivalents, end of period	$	79,642		$	75,371		$	97,191		$	164,407
Amount held by discontinued operations		407			5,295			6,979			3,531
		80,049			80,666			104,170			167,938

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

Page 9 of 42

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(in thousands of US dollars, except share and per share amounts)

1.   Description of the business

FirstService Corporation (the “Company”) is a provider of real estate-related services to commercial, institutional and residential customers in North America and various countries around the world.  The Company’s operations are conducted in three segments: Commercial Real Estate Services, Residential Property Management and Property Services.  As described in note 4, the Company reported two former segments in discontinued operations: (i) Integrated Security Services segment, which was sold on July 1, 2008 and (ii) Business Services segment, which was disposed in March 2006.

On May 14, 2008, the Company’s Board of Directors approved a change in the Company’s fiscal year-end from March 31 to December 31.  Accordingly, these consolidated financial statements have been prepared for the nine-month period ended December 31, 2008.  See note 21 for unaudited comparative prior period results for the nine-month period.

2.   Summary of significant accounting policies

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“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 the fair value determination of assets acquired and liabilities assumed in business combinations, impairment testing of fair values of goodwill and intangible assets, the collectibility of accounts receivable and determination of deferred income taxes.  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, its majority-owned subsidiaries and those variable interest entities where the Company is the primary beneficiary.  Where the Company does not have a controlling interest but has the intent and ability to exert significant influence, the equity method is used.  Inter-company transactions and accounts are eliminated on consolidation.

Cash and cash equivalents

Cash equivalents consist of short term interest-bearing securities, which are readily convertible into cash and have original maturities at the date of purchase of three months or less.

Restricted cash

Restricted cash consists of cash and cash equivalents over which the Company has legal ownership but is restricted as to its availability or intended use, including funds restricted by statutory deposit requirements and funds held on behalf of clients.

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.

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Fixed assets

Fixed assets are carried at cost less accumulated depreciation.  The costs 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	20 to 40 years straight-line
Vehicles	3 to 5 years straight-line
Furniture and equipment	3 to 10 years straight-line
Computer equipment and software	3 to 5 years straight-line
Leasehold improvements	term of the lease to a maximum of 10 years

 

Investments in securities

The Company classifies investments in securities as a component of other assets.  Investments in available-for-sale marketable equity securities are carried at fair value with unrealized gains and losses included in other comprehensive earnings on an after-tax basis.  Other-than-temporary impairment losses are recorded in current period earnings.  Investments in held-to-maturity marketable debt securities are carried at amortized cost and are subject to impairment testing.  Investments in other equity securities are accounted for using the equity method or cost method, as applicable, and are subject to impairment testing.  Realized gains or losses and equity earnings or losses are recorded in other income.

Fair value

On April 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”).  SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements.  As a result of FASB Staff Position No. 157-2, the application of SFAS 157 is delayed to January 1, 2009 for all non-financial assets and liabilities that are recognized or disclosed at fair value on a non-recurring basis.

The adoption of SFAS 157 did not have a material effect on the Company’s results of operations or financial position, however additional disclosures are now required (see note 17).  Financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy.  A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.  The three levels are as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 – Observable market-based inputs other than quoted prices in active markets for identical assets or liabilities

Level 3 – Unobservable inputs

Financing fees

Financing fees related to the revolving credit facility and Senior Notes are deferred and amortized to interest expense using the effective interest method.

Goodwill and intangible assets

Goodwill represents the excess of purchase price over the fair value of assets acquired and liabilities assumed in a business combination and is not subject to amortization.

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

Customer lists and relationships	straight-line over 4 to 25 years
Franchise rights	by pattern of use, currently estimated at 2.5% to 15% per year
Trademarks and trade names:
Indefinite life	not amortized

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Finite life	straight-line over 15 to 35 years
Management contracts and other	straight-line over life of contract ranging from 2 to 15 years
Brokerage backlog	as underlying brokerage transactions are completed

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

Goodwill and indefinite life intangible assets are tested for impairment annually or more frequently if events or changes in circumstances indicate the asset might be impaired, in which case the carrying amount 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.  Impairment of indefinite life intangible assets is tested by comparing the carrying amount to fair value on an individual intangible asset basis.

Revenue recognition and unearned revenue

Real estate brokerage operations

Commission revenues from sales brokerage transactions are recognized at the time the service has been provided and the commission becomes legally due, except when future contingencies exist.  In most cases, close of escrow or transfer of title is a future contingency, and accordingly revenue recognition is deferred until this contingency is satisfied.

Commission revenues from real estate leasing are recognized once obligations under the commission arrangement are satisfied.  Terms and conditions of a commission arrangement generally include execution of the lease agreement and satisfaction of future contingencies such as tenant occupancy.  In most cases, a portion of the commission is earned upon execution of the lease agreement, with the remaining portion contingent on a future event, typically tenant occupancy; revenue recognition for the remaining portion is deferred until all contingencies are satisfied.

(b)  Franchisor operations

The Company operates several franchise systems within its Property Services segment.  Initial franchise fees are recognized when all material services or conditions related to the sale of the franchise have been performed or satisfied.  Royalty revenues are recognized based on a contracted percentage of franchisee revenues, as reported by the franchisees.  Revenues from administrative and other support services, as applicable, are recognized as the services are provided.

(c)  Service operations other than real estate brokerage and franchisor operations

Revenues are recognized at the time the service is rendered or the product is shipped.  Revenues from painting, restoration and real estate project management and appraisal projects in process are recognized on the percentage of completion method, generally in the ratio of actual costs to total estimated contract costs.  In cases where anticipated costs to complete a project exceed the revenue to be recognized, a provision for the additional estimated losses is recorded in the period when the loss becomes apparent.

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Amounts received from customers in advance of services being provided are recorded as unearned revenues when received.

Stock based compensation

On April 1, 2006, the Company adopted SFAS No. 123R, Share Based Payment, (“SFAS 123R”) using the modified prospective approach.  The aggregate cumulative effect of the change in accounting principle upon adoption of this standard, net of income taxes of nil, was $1,353.

SFAS 123R requires that, for equity classified awards, compensation cost is measured at the grant date based on the estimated fair value of the award.  The related stock option compensation expense is allocated using the graded attribution method.  For liability classified awards, the fair value of the award is measured each period it is outstanding and changes in fair value are recorded as compensation expense.

Notional value appreciation plans

Under these plans, subsidiary employees are compensated if the notional value of the subsidiary increases.  Awards under these plans generally have a ten year term and vest after five years.  The increase in notional value is calculated with reference to growth in earnings relative to a fixed threshold amount plus or minus changes in indebtedness relative to a fixed opening amount.  The calculation is designed to motivate and reward employees to grow earnings and repay indebtedness and is not measured by or linked to the growth in fair value of the subsidiary’s stock.  If an award is subject to a vesting condition, then graded attribution is applied to the intrinsic value.  The related compensation expense is recorded in the consolidated statement of earnings and the liability is recorded in accrued liabilities on the consolidated balance sheet.

Foreign currency translation

Assets, liabilities and operations of foreign subsidiaries are recorded based on the functional currency of each entity.  For certain foreign operations, the functional currency is the local currency, in which case the assets, liabilities and operations are translated at current exchange rates from the local currency to the reporting currency, the US dollar.  The resulting unrealized gains or losses are reported as a component of cumulative other comprehensive earnings.  Realized and unrealized foreign currency gains or losses related to any foreign dollar denominated monetary assets and liabilities are included in net earnings.

Income taxes

Income taxes have been provided using the liability method whereby deferred income tax assets and liabilities are recognized for the expected future income tax consequences of events that have been recognized in the consolidated financial statements or income tax returns.  Deferred income tax assets and liabilities are measured using enacted income 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 income tax assets and liabilities of a change in income tax rates is recognized in earnings in the period in which the change occurs.  A valuation allowance is recorded unless it is more likely than not that realization of a deferred income tax asset will occur.

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

On April 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS 109, (“FIN 48”) which clarifies the accounting and reporting for uncertainties in income tax law (see note 14).  In

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accordance with FIN 48, the Company classifies interest and penalties associated with income tax positions in income tax expense.

Prior period comparative information

In prior periods, earned but unbilled revenues related to staffing services were classified within inventory.  These amounts are classified within accounts receivable as at December 31, 2008.  Comparative figures have been adjusted for this classification change in the amounts of $9,340 as of March 31, 2008 (March 31, 2007 - $5,169).

3.   Acquisitions

Nine months ended December 31, 2008 acquisitions:

The Company completed six individually insignificant acquisitions across the three operating segments during the nine-month period ended December 31, 2008.  The Company acquired minority interests from shareholders in all operating segments.

Certain of the purchase price allocations for these acquisitions are preliminary pending finalization of analyses of the assets acquired and liabilities assumed.  Details of these acquisitions are as follows:

	Nine months ended December 31, 2008
	Aggregate acquisitions			Purchases of minority shareholders’ interests
Current assets	$	7,897		$	-
Long-term assets		286			619
Current liabilities		(3,919	)		-
Long-term liabilities		(1,901	)		(5,447	)
Minority interest		(2,472	)		8,398
		(109	)		3,570
Subordinate Voting Share     consideration	$	-		$	263
Cash consideration	$	31,760		$	38,463
Acquired intangible assets		13,652			17,149
Goodwill		18,217			18,007

Year ended March 31, 2008 acquisitions:

On October 1, 2007, the Company acquired 80% of the shares of Field Asset Services, Inc., a provider of property services to foreclosed residential properties on behalf of its financial institution clients, headquartered in Austin, Texas.  The Company also completed 14 individually insignificant acquisitions in its Commercial Real Estate Services, Residential Property Management and Property Services segments during the year ended March 31, 2008.  The Company acquired minority interests from shareholders in all operating segments.

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Details of the initial acquisition allocations are as follows:

	Year ended March 31, 2008
	Field Asset Services, Inc.			Aggregate other acquisitions			Purchases of minority shareholders’ interests
Current assets	$	9,012		$	26,894		$	92
Long-term assets		564			9,052			(695	)
Current liabilities		(10,855	)		(41,135	)		(276	)
Long-term liabilities		-			(16,880	)		(2,321	)
Minority interest		(89	)		(3,109	)		4,253
		(1,368	)		(25,178	)		1,053
Subordinate Voting Share     consideration	$	-		$	-		$	5,868
Cash consideration	$	43,337		$	102,226		$	6,773
Acquired intangible assets		22,080			59,277			6,069
Goodwill		22,625			68,127			5,519

Year ended March 31, 2007 acquisitions:

On May 19, 2006, the Company acquired all of the shares of PRDnationwide Group, a commercial real estate services business headquartered in Brisbane, Australia.  The Company also completed 12 individually insignificant acquisitions in all three operating segments during the year ended March 31, 2007.  The Company also acquired minority interests from shareholders in all segments, but primarily in Commercial Real Estate Services.

Details of the initial acquisition allocations are as follows:

	Year ended March 31, 2007
	PRDnationwide Group			Aggregate other acquisitions			Purchases of minority shareholders’ interests
Current assets	$	2,134		$	16,390		$	-
Long-term assets		2,627			22,162			(1,561	)
Current liabilities		(4,796	)		(34,096	)		201
Long-term liabilities		(4,892	)		(7,074	)		(48	)
Minority interest		(223	)		(6,200	)		645
		(5,150	)		(8,818	)		(763	)
Note consideration	$	-		$	2,522		$	1,044
Cash consideration	$	21,475		$	43,604		$	6,603
Acquired intangible assets		9,519			29,156			2,376
Goodwill		17,106			25,788			6,034

Year ended March 31, 2006 acquisitions:

During the year ended March 31, 2006, the Company completed six individually insignificant acquisitions in all three operating segments.  The Company also acquired minority interests from shareholders in all segments.

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Details of the initial acquisition allocations are as follows:

	Year ended March 31, 2006
	Aggregate acquisitions			Purchases of minority shareholders’ interests
Current assets	$	5,915		$	-
Long-term assets		2,257			-
Current liabilities		(11,931	)		-
Long-term liabilities		(5,899	)		(2,254	)
Minority interest		(840	)		2,679
		(10,498	)		425
Note consideration	$	3,050		$	-
Cash consideration	$	11,346		$	11,998
Acquired intangible assets		14,854			6,213
Goodwill		10,040			5,360

The purchase prices of acquisitions resulted in the recognition of goodwill.  The primary factors contributing to goodwill are assembled workforces, synergies with existing operations and future growth prospects.  For acquisitions completed during the nine-month period ended December 31, 2008, goodwill in the amount of $9,575 is deductible for income tax purposes (year ended March 31, 2008 - $49,410; year ended March 31, 2007 - $6,814; year ended March 31, 2006 - nil).

Certain vendors, at the time of acquisition, are entitled to receive contingent consideration if the acquired businesses achieve specified earnings levels during the one- to four-year periods following the dates of acquisition.  Such contingent consideration is paid in cash at the expiration of the contingency period.  As at December 31, 2008, there was contingent consideration outstanding of up to $51,800 (March 31, 2008 - $53,600; March 31, 2007 - $14,800).  The contingencies will expire during the period extending to February 2012.  The contingent consideration is recorded when the contingencies are resolved and the consideration is paid or becomes payable, at which time the Company records the fair value of the consideration paid or payable, including interest, if any, as additional costs of the acquired businesses.  Total contingent consideration recognized for the nine-month period ended December 31, 2008 was $10,242, net of income tax of nil (year ended March 31, 2008 - $2,864, net of income tax of $1; year ended March 31, 2007 - $5,732, net of income tax of $342; year ended March 31, 2006 - $2,759 net of income tax of $90).  Contingent consideration paid during the nine-month period ended December 31, 2008 was $4,734 (year ended March 31, 2008 - $6,848; year ended March 31, 2007 - $1,747) and the amount payable as at December 31, 2008 was $5,508 (March 31, 2008 - nil; March 31, 2007 - $4,306); see note 6.

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 their respective closing dates.  The consideration for the acquisitions during the nine-month period ended December 31, 2008 was financed from cash on hand and borrowings on the Company’s revolving credit facility.

Following are the Company’s unaudited consolidated pro forma results assuming the acquisitions occurred on the first day of the period of acquisition.  The year immediately prior to the period of acquisition also includes the pro forma results of the acquisitions.

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(unaudited)	Nine months ended December 31,  2008		Year ended March 31, 2008
Pro forma revenues	$	1,356,153	$	1,761,163
Pro forma net earnings from continuing operations		12,587		41,198
Pro forma net earnings per share from continuing operations
Basic	$	0.16	$	1.15
Diluted		0.14		1.07

These unaudited consolidated pro forma results have been prepared for illustrative 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 period or of future results of operations.

4.   Dispositions

On July 1, 2008, the Company completed the sale of the businesses comprising its Integrated Security Services (“ISS”) segment.  As a condition to closing, the Company was required to acquire the minority interests of its non-wholly owned ISS subsidiaries.  The Company received aggregate cash consideration of $162,385 ($155,031 net of cash sold).  The pre-tax gain on the disposal was $80,497, before current income taxes of $10,788, resulting in a net gain of $69,709.  The net gain on disposal included the realization of a gain of $6,792 related to cumulative foreign currency translation.  The ISS segment has been reported as discontinued operations for all periods presented.

In December 2008, the Company decided to sell its Chicago-based US mortgage brokerage and servicing operation (“USMB”) due to adverse credit market conditions.  USMB was previously reported within the Commercial Real Estate Services segment.  USMB is classified as held for sale as of December 31, 2008, and its operating results are reported as discontinued operations for all periods presented.  The Company wrote the net assets of USMB down to fair value less cost to sell as of December 31, 2008, with a loss in the amount of $11,021, which included a deferred income tax valuation allowance of $1,501.

In January 2008, the Company decided to exit its Canadian commercial mortgage securitization operation (“CCMS”) due to adverse credit market conditions.  CCMS was previously reported within the Commercial Real Estate Services segment.  The exit was complete as of March 31, 2008 except for the disposal of the remaining mortgage loans receivable and related taxes and interest rate derivative contracts.  The mortgage assets are expected to be sold as soon as practicable.  This operation has been reported as discontinued operations for all periods presented.

On March 17, 2006, the Company sold its 88.3% interest in Resolve Corporation (“Resolve”), its Business Services segment, to a subsidiary of Resolve Business Outsourcing Income Fund (“RBO Fund”) upon the initial public offering of RBO Fund.  The Company received aggregate consideration of $137,393, comprised of $116,972 in the form of cash ($110,476 net of cash sold) and $20,421 in the form of equity securities of a subsidiary of RBO Fund, which are exchangeable for publicly traded units of RBO Fund.  These securities are classified as available-for-sale (note 7).  The pre-tax gain on the disposal was $44,082, before current income taxes of $4,693 and deferred income taxes of $3,570, resulting in a net gain of $35,819.  The net gain on disposal included the realization of a gain of $5,487 related to cumulative foreign currency translation.  Resolve is reported as discontinued operations for all periods presented.

During the year ended March 31, 2008, a gain was recognized in connection with the settlement of a liability related to the Resolve disposal.  The settlement resulted in a cash

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payment to the purchaser of the disposed operation in the amount of $1,036 and a gain on settlement in the amount of $2,265 (including an income tax benefit of $187).

The operating results of the discontinued operations are as follows:

Operating results	Nine months ended December 31,			Year ended March 31,
	2008			2008			2007			2006
Revenues
ISS	$	47,158		$	208,430		$	176,475		$	149,064
USMB		8,840			23,502			28,169			-
CCMS		(6,407	)		(9,064	)		2,221			402
Resolve		-			-			-			160,204
		49,591			222,868			206,865			309,670
Operating earnings (loss) before income taxes
ISS	$	1,595		$	10,174		$	5,337		$	3,217
USMB		(5,566	)		(3,322	)		(1,038	)		-
CCMS		(5,651	)		(11,413	)		(1,205	)		(816	)
Resolve		-			2,078			(728	)		7,429
		(9,622	)		(2,483	)		2,366			9,830
(Recovery of) provision for income taxes		(1,462	)		(1,408	)		1,113			2,909
Net operating (loss) earnings from discontinued operations		(8,160	)		(1,075	)		1,253			6,921
Net gain on disposal		69,709			-			-			35,819
Net loss on write down of USMB		(11,021	)		-			-			-
Net earnings (loss) from discontinued operations	$	50,528		$	(1,075	)	$	1,253		$	42,740
Net earnings (loss) per share from discontinued operations
Basic	$	1.71		$	(0.03	)	$	0.04		$	1.41
Diluted		1.70			(0.04	)		0.04			1.38

The assets and liabilities of ISS are classified as held for sale and are as follows:

Balance sheets	December 31, 2008		March 31, 2008		March 31, 2007
Assets held for sale
Cash and cash equivalents	$	-	$	3,834	$	1,210
Accounts receivable, net		-		46,937		38,900
Inventories		-		15,164		16,475
Prepaid expenses and other current assets		-		856		1,158
Fixed assets		-		5,153		4,500
Goodwill		-		30,630		30,784
Other		-		2,671		2,272
Total	$	-	$	105,245	$	95,299
Liabilities held for sale
Bank overdraft	$	-	$	-	$	5,132
Accounts payable		-		11,765		6,516
Accrued liabilities		-		18,048		15,139
Unearned revenues		-		3,585		3,001
Other		-		472		18
Total	$	-	$	33,870	$	29,806

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The assets and liabilities of USMB are classified as held for sale and are as follows:

Balance sheets	December 31, 2008		March 31, 2008		March 31, 2007
Assets held for sale
Cash and cash equivalents	$	406	$	1,447	$	5,615
Accounts receivable, net		714		1,005		1,268
Deferred income taxes		-		1,888		963
Fixed assets		594		1,042		812
Goodwill		-		10,682		10,694
Intangible assets		1,886		2,699		3,177
Other		294		244		266
Total	$	3,894	$	19,007	$	22,795
Liabilities held for sale
Accrued liabilities	$	1,790	$	1,219	$	4,041
Other		278		321		1,209
Total	$	2,068	$	1,540	$	5,250

The assets and liabilities of CCMS are classified as held for sale and are as follows:

Balance sheets	December 31, 2008		March 31, 2008		March 31, 2007
Assets held for sale
Cash and cash equivalents	$	1	$	14	$	154
Mortgage loans receivable		12,679		20,809		13,716
Deferred income taxes		3,945		6,803		503
Other		194		642		124
Total	$	16,819		28,268	$	14,497
Liabilities held for sale
Interest rate derivative contracts	$	10,820	$	11,724	$	368
Other		336		2,354		595
Total	$	11,156	$	14,078	$	963

CCMS has fixed-rate commercial mortgage loans receivable.  The mortgages were funded under co-lending agreements whereby CCMS advanced 20% or less of the principal amount.  The co-lenders advanced 80% or more of the principal amount directly to the borrowers.  The CCMS interest in the mortgages is subordinate to the co-lenders’ interests.  CCMS has the right to purchase the co-lenders’ interest in any mortgage at any time at par value and the co-lenders have the right to purchase the CCMS interest in the mortgages after six months at par value.  Mortgage loans receivable are carried on an individual basis at the lower of cost and market, which is calculated based on contractually established commitments from investors or current investor yield requirements.

When CCMS sells mortgage loans, the mortgage loans are removed from the balance sheet and a gain or loss is recognized in current period earnings immediately, based on the carrying values of the mortgage loans transferred.  Servicing rights are sold with the mortgages and it is CCMS policy not to retain a residual interest in the mortgages sold.

CCMS entered into interest rate derivative contracts to cover the full value of the mortgages written, including the portion funded by a co-lender which CCMS has the right and intention to call, while mortgages await sale.  The contracts are recorded on the consolidated balance sheets as assets or liabilities and carried at fair value.  Changes in the fair value of contracts are recognized in net earnings from discontinued operations. The contracts effectively convert the fixed-rate mortgage loans to floating rates.  Hedge

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accounting has not been accorded to the portion of the contracts that match the mortgages held for sale as the contracts do not meet the criteria for hedge accounting.

As at December 31, 2008, CCMS had interest rate derivative contracts to convert $60,344 of fixed-rate mortgage loans receivable to floating rates (March 31, 2008 - $143,500; March 31, 2007 - $167,807) with a fair value loss of $10,758 (March 31, 2008 - $11,724; March 31, 2007 – gain of $368).  The derivative contracts expire on March 31, 2009.  The fair values of derivative contracts 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.

For the nine-month period ended December 31, 2008 a loss of $6,407 was recorded in discontinued operations relating to the derivative contracts, which was comprised of $875 unrealized losses (year ended March 31, 2008 - unrealized losses of $11,278; year ended March 31, 2007 - unrealized gains of $3,245) on outstanding contracts and $5,532 of realized losses (year ended March 31, 2008 - realized gains of $1,812; year ended March 31, 2007 - realized losses of $3,613) on the settlement of the contracts.

During the nine-month period ended December 31, 2008, CCMS recognized pre-tax gains (after realized gains on derivatives contracts) of nil (year ended March 31, 2008 - $2,516; year ended March 31, 2007 - $2,120) on the securitization of mortgage loans with unpaid principal balances of nil (year ended March 31, 2008 - $195,903; year ended March 31, 2007 - $39,208).  In connection with the sale of mortgages, CCMS is obligated to cure or repurchase any mortgage sold that has a breach or defect related to the origination and underwriting process.  As at December 31, 2008, the Company determined that the fair value of future payments under this obligation was nil.  The fair value was initially measured based on a the present value of the expected cash flows in conjunction with considering the premium that would be required to issue a similar guarantee in a standalone arm’s length transaction with an unrelated party.

5.   Other income

	Nine months ended December 31,		Year ended March 31,
	2008		2008		2007		2006
Earnings from available-for-sale securities	$	1,268	$	2,292	$	2,078	$	-
Earnings from equity method investments		207		2,006		1,625		1,329
Net gain on sale of equity securities		-		-		886		2,211
Other		947		352		-		226
	$	2,422	$	4,650	$	4,589	$	3,766

Page 20 of 42

6.   Components of working capital accounts

	December 31, 2008		March 31, 2008		March 31, 2007
Inventories
Work-in-progress	$	4,465	$	3,530	$	3,295
Finished goods		2,797		4,251		4,350
Supplies and other		3,310		3,397		2,479
	$	10,572	$	11,178	$	10,124
Accrued liabilities
Accrued payroll, commission and benefits	$	107,756	$	159,696	$	92,668
Accrued interest		2,160		3,871		4,159
Customer advances		3,161		2,937		9,713
Contingent acquisition consideration payable		5,508		-		4,306
Liabilities in connection with Resolve operation		-		-		2,912
Other		39,235		21,626		36,555
	$	157,820	$	188,130	$	150,313

7.   Other assets

	December 31, 2008		March 31, 2008		March 31, 2007
Available-for-sale equity securities	$	2,720	$	17,291	$	17,419
Equity method investments		2,703		5,086		5,046
Held-to-maturity debt securities		2,446		2,280		3,763
Financing fees, net of accumulated amortization of $1,655 (March 31, 2008 - $1,703; March 31, 2007 - $1,554)		1,223		1,754		1,690
Other		3,367		2,972		1,024
	$	12,459	$	29,383	$	28,942

The Company’s available-for-sale equity securities consist of securities of a subsidiary of RBO Fund (see note 4).  During the nine-month period ended December 31, 2008, the Company’s available-for-sale securities were deemed to be other-than-temporarily impaired and a non-cash charge of $14,680 ($12,038 net of income taxes) was recorded in the statement of earnings as of December 31, 2008.

8.   Fixed assets

December 31, 2008			Accumulated
	Cost		depreciation		Net
Land	$	3,070	$	-		3,070
Buildings		11,683		2,717		8,966
Vehicles		22,158		14,842		7,316
Furniture and equipment		51,713		28,678		23,035
Computer equipment and software		47,457		25,100		22,357
Leasehold improvements		27,814		15,769		12,045
		163,895		87,106		76,789

Page 21 of 42

March 31, 2008			Accumulated
	Cost		depreciation		Net
Land	$	3,070	$	-	$	3,070
Buildings		11,683		2,517		9,166
Vehicles		21,217		13,050		8,167
Furniture and equipment		46,327		21,850		24,477
Computer equipment and software		40,462		18,681		21,781
Leasehold improvements		24,874		11,586		13,288
	$	147,633	$	67,684	$	79,949

March 31, 2007			Accumulated
	Cost		depreciation		Net
Land	$	3,070	$	-	$	3,070
Buildings		11,225		2,093		9,132
Vehicles		18,425		10,742		7,683
Furniture and equipment		31,486		13,910		17,576
Computer equipment and software		26,060		11,452		14,608
Leasehold improvements		16,138		7,327		8,811
	$	106,404	$	45,524	$	60,880

Included in fixed assets are vehicles and computer equipment under capital lease at a cost of $11,750 (March 31, 2008 - $11,510; March 31, 2007 - $9,385) and net book value of $4,773 (March 31, 2008 - $5,518; March 31, 2007 - $4,937).

9.   Intangible assets

December 31, 2008	Gross carrying amount		Accumulated amortization		Net
Customer lists and relationships	$	115,585	$	23,157	$	92,428
Franchise rights		34,266		9,154		25,112
Trademarks and trade names:
Indefinite life		20,907		-		20,907
Finite life		35,369		4,425		30,944
Management contracts and other		10,641		4,285		6,356
Brokerage backlog		7,054		4,574		2,480
	$	223,822	$	45,595	$	178,227

March 31, 2008	Gross carrying amount		Accumulated amortization		Net
Customer lists and relationships	$	99,005	$	15,126	$	83,879
Franchise rights		31,682		7,941		23,741
Trademarks and trade names:
Indefinite life		18,559		-		18,559
Finite life		30,155		3,833		26,322
Management contracts and other		11,850		3,518		8,332
Brokerage backlog		5,608		3,221		2,387
	$	196,859	$	33,639	$	163,220

Page 22 of 42

March 31, 2007	Gross carrying amount		Accumulated amortization		Net
Customer lists and relationships	$	41,308	$	6,638	$	34,670
Franchise rights		26,862		6,597		20,265
Trademarks and trade names:
Indefinite life		15,696		-		15,696
Finite life		18,000		2,742		15,258
Management contracts and other		6,502		1,520		4,982
Brokerage backlog		6,936		5,743		1,193
	$	115,304	$	23,240	$	92,064

During the nine-month period ended December 31, 2008, the Company acquired the following intangible assets:

	Amount		Estimated weighted average amortization period (years)
Customer lists and relationships	$	20,140		10.3
Franchise rights		1,951		19.2
Trademarks and trade names		6,867		19.4
Brokerage backlog		1,843		0.9
	$	30,801		10.9

The following is the estimated annual amortization expense for recorded intangible assets for each of the next five years ending December 31:

2009	$ 17,922
2010	14,730
2011	13,160
2012	11,862
2013	10,551

During the nine-month period ended December 31, 2008, charges of $275 (year ended March 31, 2008 - $1,149; year ended March 31, 2007 - $437; year ended March 31, 2006 - nil) were recognized in connection with impairments of intangible assets.  In all three periods, the impairments were attributable to faster than expected erosion of customer relationships in the Commercial Real Estate and Residential Property Management segments.  The charges were recorded in amortization expense.  The fair value of the intangible assets and the asset groups they are components of were estimated using discounted expected future cash flows.

Page 23 of 42

10.   Goodwill

	Commercial Real Estate Services			Residential Property Management			Property  Services			Consolidated
Balance, March 31, 2006	$	51,867		$	71,297		$	43,245		$	166,409
Adjustments to goodwill resulting from adjustments to purchase price allocations		363			-			(566	)		(203	)
Goodwill resulting from contingent acquisition consideration		-			5,654			-			5,654
Goodwill resulting from purchases of minority shareholders’ interests		4,985			-			883			5,868
Goodwill acquired during period		29,695			1,296			1,209			32,200
Goodwill disposed during period		-			-			(836	)		(836	)
Foreign exchange		560			-			-			560
Balance, March 31, 2007		87,470			78,247			43,935			209,652
Adjustments to goodwill resulting from adjustments to purchase price allocations		27			(594	)		71			(496	)
Goodwill resulting from contingent acquisition consideration		2,757			26			81			2,864
Goodwill resulting from purchases of minority shareholders’ interests		2,228			1,109			2,212			5,549
Goodwill acquired during period		39,103			29,024			22,625			90,752
Goodwill disposed during period		(421	)		-			-			(421	)
Foreign exchange		3,332			11			170			3,513
Balance, March 31, 2008		134,496			107,823			69,094			311,413
Adjustments to goodwill resulting from adjustments to purchase price allocations		(1,838	)		(2,239	)		4,500			423
Goodwill resulting from contingent acquisition consideration		1,898			6,477			-			8,375
Goodwill resulting from purchases of minority shareholders’ interests		4,842			10,024			3,141			18,007
Goodwill acquired during period		16,681			297			1,239			18,217
Foreign exchange		(7,391	)		(62	)		(85	)		(7,538	)
Balance, December 31, 2008	$	148,688		$	122,320		$	77,889		$	348,897

Goodwill in the amount of $10,682 related to the USMB discontinued operation was written off as of December 31, 2008.

11.   Long-term debt

	December 31, 2008		March 31, 2008		March 31, 2007
Revolving credit facility	$	62,482	$	132,500	$	-
8.06% Senior Notes		42,856		57,142		71,428
6.40% Senior Notes		50,000		50,000		50,000
5.44% Senior Notes		100,000		100,000		100,000
Capital leases bearing interest ranging from 5% to 10%, maturing at various dates through 2013		4,460		5,589		4,455
Other long-term debt bearing interest at 4% to 10%, maturing at various dates through 2014		6,571		10,799		9,248
		266,369		356,030		235,131
Less: current portion		20,899		24,777		22,101
	$	245,470	$	331,253	$	213,030

Page 24 of 42

On September 6, 2007, the Company entered into an amended and restated credit agreement with a syndicate of banks to provide a $225,000 committed senior revolving credit facility with a five-year term.  The amended revolving credit facility bears interest at 0.75% to 1.30% over floating reference rates, depending on certain leverage ratios determined quarterly.  The revolving credit facility had $134,236 of available un-drawn credit as at December 31, 2008 ($70,700 was un-drawn at March 31, 2008; nil was drawn at March 31, 2007).  As of December 31, 2008, letters of credit in the amount of $5,782 were outstanding ($4,300 as at March 31, 2008; $4,900 as at March 31, 2007).  The revolving credit facility requires a commitment fee of 0.25% to 0.50% of the unused portion, depending on certain leverage ratios, and also includes an uncommitted accordion provision providing an additional $50,000 of borrowing capacity under certain circumstances.

The Company has outstanding $42,856 of 8.06% fixed-rate Senior Notes (the “8.06% Notes”) (March 31, 2008 - $57,142; March 31, 2007 - $71,428).  The 8.06% Notes have a final maturity of June 29, 2011, with seven equal annual principal repayments which began on June 29, 2005.  The Company also has outstanding $50,000 of 6.40% fixed-rate Senior Notes (the “6.40% Notes”).  The 6.40% Notes have a final maturity of September 30, 2015 with four equal annual principal repayments commencing on September 30, 2012.  The Company also has outstanding $100,000 of 5.44% fixed-rate Senior 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 Company has indemnified the holders of the 8.06% Notes, 6.40% Notes and 5.44% 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 believes this exposure is not material as of December 31, 2008.

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 (note 18(b)).

The covenants of the revolving credit facility and the Notes agreements 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.

The effective interest rate on the Company’s debt is 5.4%.  The estimated aggregate amount of principal repayments on long-term debt required in each of the next five years ending December 31 and thereafter to meet the retirement provisions are as follows:

2009	$ 20,899
2010	16,655
2011	35,126
2012	95,236
2013	32,655
Thereafter	65,798

Page 25 of 42

12.   Capital stock

The authorized capital stock of the Company is as follows:

An unlimited number of Preferred 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 issued and outstanding:

	Preferred Shares		Subordinate Voting Shares		Multiple Voting Shares		Total Common Shares
	Number	Amount	Number	Amount	Number	Amount	Number	amount
Balance, March 31, 2007	-	$ -	28,597,194	$ 79,735	1,325,694	$ 373	29,922,888	$ 80,108
Balance, March 31, 2008	5,979,074	149,477	28,786,893	88,546	1,325,694	373	30,112,587	88,919
Balance, December 31, 2008	5,772,274	144,307	28,007,790	86,540	1,325,694	373	29,333,484	86,913

On August 1, 2007, the Company issued a stock dividend in the form of 7% Cumulative Preference Shares, Series 1 (the “Preferred Shares”) to holders of Subordinate Voting Shares and Multiple Voting Shares (together the “Common Shares”).  One Preferred Share was issued for every five outstanding Common Shares.  The stock dividend resulted in the issuance of 5,979,074 Preferred Shares, with an aggregate par value of $149,477.  Each Preferred Share has a stated amount of $25.00.  Preferred dividends are payable quarterly on or about the last day of each quarter.

As at December 31, 2008, the Company may redeem each Preferred Share for $25.75 payable in cash, or alternatively the Company may convert each Preferred Share into Subordinate Voting Shares based on a price of $25.75.  The redemption or conversion price is scheduled to decline in annual increments of $0.25 such that the price will be fixed at $25.00 on and after August 1, 2011.  Holders of the Preferred Shares have no redemption or conversion rights.

The following table provides the pro forma impact on diluted earnings per common share of the preferred dividends on the comparative periods.

	Nine months ended December 31,		Year ended March 31,
	2008		2008			2007			2006
Diluted earnings per common share from continuing operations:
As reported	$	0.11	$	0.89		$	1.08		$	0.83
Impact of preferred dividends on comparative periods		-		(0.12	)		(0.35	)		(0.35	)
Pro forma	$	0.11	$	0.77		$	0.73		$	0.48

During the nine-month period ended December 31, 2008, the Company repurchased 960,300 (year ended March 31, 2008 - 252,500; year ended March 31, 2007 - 697,700) Subordinate Voting Shares for cancellation 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 repurchase cost is allocated to common shares for the weighted average book value and to retained earnings for any excess.

Page 26 of 42

During the nine-month period ended December 31, 2008, the Company repurchased 206,800 (years ended March 31, 2008 and 2007 - nil) Preferred Shares for cancellation 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 repurchase cost is allocated to preferred shares for the weighted average book value and to retained earnings for any deficiency.

Pursuant to an agreement approved in February 2004, the Company agreed that it will make payments to its Chief Executive Officer (“CEO”) that are contingent upon the arm’s length sale of control of the Company or upon a distribution of the Company’s assets to shareholders.  The payment amounts will be 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 payments may be transferred among members of the CEO’s family, their holding companies and trusts.  The agreement provides for the CEO to receive each of the following two payments.  The first payment is an amount equal to 5% of the product of: (i) the total number of Subordinate and Multiple Voting Shares outstanding on a fully diluted basis at the time of the sale and (ii) the per share consideration received by holders of Subordinate and Multiple Voting Shares minus a base price of C$5.675.  The second payment is an amount equal to 5% of the product of (i) the total number of shares outstanding on a fully diluted basis at the time of the sale and (ii) the per share consideration received by holders of Subordinate Voting Shares minus a base price of C$11.05.

13.   Stock-based compensation

The following table provides a summary of stock-based compensation expense:

	Nine months ended December 31,			Year ended March 31,
	2008			2008		2007		2006
Stock option expense – Company plan	$	1,723		$	5,938	$	1,916	$	1,380
Stock option expense – subsidiary plan		(103	)		1,508		1,791		552
Notional value appreciation plans – subsidiaries		931			373		1,249		379
	$	2,551		$	7,819	$	4,956	$	2,311

Company stock option plan

The Company has a stock option plan for certain officers and key full-time employees of the Company and its subsidiaries, other than its CEO.  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.  All Subordinate Voting Shares issued under the plan are new shares.  As at December 31, 2008, there were 854,000 options available for future grants (March 31, 2008 - 338,000; March 31, 2007 - 506,000).

Page 27 of 42

Grants under the Company’s stock option plan are equity classified awards under SFAS 123R.  Stock option activity for the three years ended March 31, 2008 and nine-month period ended December 31, 2008 was as follows:

	Number of options	Weighted average exercise price	Weighted average remaining contractual life (years)	Aggregate intrinsic value
Shares issuable under options –   March 31, 2005	1,844,000	$ 9.72
Granted	328,000	19.61
Exercised	(434,650)	8.60
Forfeited	(21,000)	9.38
Shares issuable under options –   March 31, 2006	1,716,350	$ 11.96
Granted	305,000	20.65
Exercised	(564,800)	11.40
Forfeited	(11,000)	13.43
Shares issuable under options –   March 31, 2007	1,445,550	14.12
Granted	175,500	32.24
Exercised	(159,550)	7.28
Forfeited	(7,500)	27.81
Shares issuable under options –   March 31, 2008	1,454,000	16.94
Granted	349,000	17.10
Exercised	(157,245)	4.76
Forfeited	(65,000)	15.54
Shares issuable under options –    December 31, 2008	1,580,755	$ 18.24	2.61	$ 753
Options exercisable –    December 31, 2008	676,055	$ 15.61	1.70	$ 752

As at December 31, 2008, the range of option exercise prices was $5.59 to $33.25 per share.  Also as at December 31, 2008, the aggregate intrinsic value and weighted average remaining contractual life for in-the-money options vested and expected to vest were $753 and 0.9 years, respectively.

The following table summarizes information about option exercises during the nine-month period ended December 31, 2008 and three years ended March 31, 2008:

	Nine months ended December 31,		Year ended March 31,
	2008		2008		2007		2006
Number of options exercised		157,245		159,550		564,800		434,650
Aggregate fair value	$	2,342	$	4,885	$	13,266	$	10,784
Intrinsic value		1,593		3,711		6,831		7,044
Amount of cash received	$	749	$	1,174	$	6,435	$	3,740
Tax benefit recognized	$	542	$	-	$	-	$	-

As at December 31, 2008, there was $2,343 of unrecognized compensation cost related to non-vested awards which is expected to be recognized over the next 4.0 years.  During the nine-month period ended December 31, 2008, the fair value of options vested

Page 28 of 42

was $682 (year ended March 31, 2008 - $1,734; year ended March 31, 2007 - $1,220; year ended March 31, 2006 - $739).

In October 2007, the Company received an inquiry from the Ontario Securities Commission related to granting of Company stock options.  A comprehensive review of historical stock option granting processes and the related accounting for the 13-year period from 1995 to 2007 was conducted by a Special Committee of the Company’s Board of Directors comprised of independent directors.  As a result of the review, the Special Committee found that the practice followed by the Company in granting stock options was not accounted for correctly and recommended the measurement dates of certain option grants be revised for accounting purposes.  As a result, $3,278 of incremental non-cash compensation expense was recorded in the year ended March 31, 2008 to correct the error and exercise prices of outstanding unexercised options were revised.  In addition, cash payments of $1,644 were received in the year ended March 31, 2008 on account of adjustments to exercise prices of previously exercised options and recorded as contributed surplus.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, utilizing the following weighted average assumptions:

	Nine months ended December 31,			Year ended March 31,
	2008			2008			2007			2006
Risk-free interest rate		2.2	%		4.8	%		4.3	%		4.7	%
Expected life in years		4.70			3.75			3.75			4.40
Expected volatility		30.5	%		26.4	%		25.2	%		30.0	%
Dividend yield		0	%		0	%		0	%		0	%
Weighted average fair value per option granted	$	4.53		$	9.31		$	6.70		$	7.65

The risk-free interest rate is based on the implied yield of a zero-coupon US Treasury bond with a term equal to the option’s expected term.  The expected term represents the estimated period of time until exercise and is based on historical experience.  Prior to January 1, 2008, the expected term was calculated using the simplified method under SAB 107.  The expected volatility is based on the historical prices of the Company’s shares.  The dividend yield assumption is based on the Company’s present intention to retain all earnings in respect of the Common Shares.

Subsidiary stock option plan

The Company has a stock option plan at one of its subsidiaries.  Grants under the subsidiary stock option plan are equity classified awards and liability classified awards under SFAS 123R.  The impact of potential dilution from this plan is reflected in the Company’s diluted earnings per common share (note 15).

Page 29 of 42

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:

	Nine months ended December 31,			Year ended March 31,
	2008			2008			2007			2006
Income tax expense using combined statutory rate of 34% (March 31, 2008 – 35%; March 31, 2007 - 36%; March 31, 2006 – 36%)	$	19,062		$	24,588		$	25,504		$	19,728
Permanent differences		(1,117	)		70			1,023			(917	)
Adjustments in tax liabilities of prior periods		(2,405	)		522			(1,790	)		-
Effects of changes in enacted tax rates		1,495			(420	)		(451	)		-
Changes in provisions for uncertain tax positions		2,629			1,733			-			-
Stock-based compensation		(645	)		(1,290	)		1,353			834
Foreign tax rate differential		(4,498	)		(9,373	)		(5,272	)		(3,561	)
Withholding taxes		476			-			-			-
Other taxes		254			-			-
Losses not recognized – valuation allowance		15,627			1,278			-
Provision for income taxes as reported	$	30,878		$	17,108		$	20,367		$	16,084

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

	Nine months ended December 31,		Year ended March 31,
	2008		2008		2007		2006
Canada	$	17,399	$	15,515	$	3,340	$	1,075
United States		18,043		32,154		45,892		41,401
Foreign		21,463		21,716		21,380		12,143
Total	$	56,905	$	69,385	$	70,612	$	54,619

Page 30 of 42

The provision for income taxes comprises the following:

	Nine months ended December 31,			Year ended March 31,
	2008			2008			2007			2006
Current
Canada	$	3,554		$	8,839		$	(1,494	)	$	328
United States		22,496			18,063			19,912			14,936
Foreign		7,989			12,743			7,343			4,482
		34,039			39,645			25,761			19,746
Deferred
Canada		(6,553	)		(10,829	)		(713	)		(1,235	)
United States		4,596			(8,319	)		(3,094	)		(2,146	)
Foreign		(1,204	)		(3,389	)		(1,587	)		(281	)
		(3,161	)		(22,537	)		(5,394	)		(3,662	)
Total	$	30,878		$	17,108		$	20,367		$	16,084

The significant components of deferred income taxes are as follows:

	December 31, 2008			March 31, 2008			March 31, 2007
Deferred income tax assets
Loss carry-forwards	$	8,117		$	24,106		$	4,819
Expenses not currently deductible		8,641			3,155			7,605
Stock-based compensation		1,942			3,284			-
Provision for doubtful accounts		2,566			1,092			649
Inventory and other reserves		524			97			41
		21,790			31,734			13,114
Deferred income tax liabilities
Depreciation and amortization		39,956			34,172			28,365
Unrealized foreign exchange gains		1,428			4,582			1,010
Investments		526			2,717			2,397
Prepaid and other expenses deducted for tax purposes		132			448			458
Financing fees		105			110			172
		42,147			42,029			32,402
Net deferred income tax liability	$	(20,357	)	$	(10,295	)	$	(19,288	)

As at December 31, 2008, the Company had Canadian net operating loss carry-forward balances of approximately $26,235 (March 31, 2008 - $41,432; March 31, 2007 - $15,515) prior to a valuation allowance of nil (March 31, 2008 - $3,950; March 31, 2007 - $3,950).  These amounts are available to reduce future federal and provincial income taxes.  Net operating loss carry-forward balances attributable to Canada and the United States expire over the next 20 years.  The Company also had foreign net operating loss carry-forward balances as at December 31, 2008 of approximately $58,633 (March 31, 2008 - $43,582; March 31, 2007 - $17,619), prior to a valuation allowance of $57,457 (March 31, 2008 - $19,062; March 31, 2007 - $15,416).  Foreign capital loss carry-forward balances amounted to $8,017 (March 31, 2008 - $9,870; March 31, 2007 - $9,870) as at December 31, 2008 prior to a valuation allowance of $8,017 (March 31, 2008 - $9,870; March 31, 2007 - $9,870).  Additional net operating loss and capital loss carry-forward balances of $15,416 as at December 31, 2008 (March 31, 2008 - $15,416; March 31, 2007 - $15,416) and $8,017 (March 31, 2008 - $9,870; March 31, 2007 - $9,870) respectively relate to losses acquired in the 2004 CMN acquisition.  Any benefit realized with respect to these losses would be recorded as a reduction in goodwill.

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Cumulative unremitted earnings of US and foreign subsidiaries approximated $141,730 as at December 31, 2008 (March 31, 2008 - $145,014; March 31, 2007 - $110,898).

The cumulative effect of the adoption of FIN 48 was an increase in tax provisions of $3,800, including $700 of accrued interest, which was accounted for as a reduction to retained earnings as at April 1, 2007 of $4,200 and a reduction in goodwill of $400.  The liability for income taxes associated with uncertain tax positions was $4,735 as at April 1, 2007, $10,671 as at March 31, 2008 and $12,903 as at December 31, 2008.

A reconciliation of the beginning and ending amounts of gross unrecognized tax benefit is as follows:

Balance, April 1, 2007	$	4,735
Increases based on tax positions related to the current period		445
Increases for tax positions of prior periods		1,470
Decreases for tax positions of prior periods		(490	)
Increases from acquisitions		4,511
Balance, March 31, 2008	$	10,671
Increases based on tax positions related to the current period		2,459
Increases for tax positions of prior periods		603
Decreases for tax positions of prior periods (including lapses in statutes of limitations)		(830	)
Balance, December 31, 2008	$	12,903

Of the $12,903 (March 31, 2008 - $10,671) in gross unrecognized tax benefits, $8,062, (March 31, 2008 - $5,341) would affect the Company’s effective tax rate if recognized.  For the nine-month period ended December 31, 2008, $554 of interest and penalties related to provisions for income taxes was recorded in income tax expense (year ended March 31, 2008 - $77).  As at December 31, 2008, the Company had accrued $1,331 (March 31, 2008 - $777; March 31, 2007 - $700) for potential income-tax related interest and penalties.

The Company’s significant tax jurisdictions include the United States of America, Canada and Australia.  The number of years with open tax audits varies depending on the tax jurisdictions.  Generally, income tax returns filed with the Canada Revenue Agency and related provinces are open for three to four years and income tax returns filed with the U.S. Internal Revenue Service and related states are open for three to five years.  Tax returns in Australia are generally open for four years.

Within the next twelve months, the Company believes it is reasonably possible that the total amount of unrecognized tax benefits associated with certain positions may be reduced due to lapses in the statutes of limitations.  The Company estimates that the unrecognized tax benefits at December 31, 2008 could be reduced by approximately $753.

The Company does not currently expect any other material impact on earnings to result from the resolution of matters related to open taxation years, other than noted above.  Actual settlements may differ from the amounts accrued.  The Company has, as part of its FIN 48 analysis, made its current estimates based on facts and circumstances known to date and cannot predict changes in facts and circumstances that may affect its current estimates.

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15.   Earnings per common share

The following table reconciles the numerator used to calculate diluted earnings per common share:

	Nine months ended December 31,			Year ended March 31,
	2008			2008			2007			2006
Net earnings from continuing operations	$	11,508		$	35,474		$	34,963		$	26,757
Dilution of net earnings resulting from assumed exercise of stock options in subsidiaries		(530	)		(1,473	)		(2,228	)		(1,253	)
Preferred Share dividends		(7,760	)		(6,952	)		-			-
Net earnings from continuing operations for diluted earnings per share calculation purposes	$	3,218		$	27,049		$	32,735		$	25,504
Net earnings available to common shareholders	$	54,276		$	27,447		$	34,863		$	69,497
Dilution of net earnings resulting from assumed exercise of stock options in subsidiaries		(530	)		(1,473	)		(2,228	)		(1,253	)
Net earnings for diluted earnings per share calculation purposes	$	53,746		$	25,974		$	32,635		$	68,244

The Preferred Shares are anti-dilutive and thus not included in the denominator for diluted earnings per common share calculations.  The following table reconciles the denominator used to calculate earnings per common share:

	Nine months ended December 31,			Year ended March 31,
	2008			2008			2007			2006
Shares issued and outstanding at beginning of period		30,112,587			29,922,888			30,055,788			30,192,788
Weighted average number of shares:
Issued during the period		63,469			106,139			210,843			137,943
Repurchased during the period		(592,113	)		(124,371	)		(364,101	)		(160,040	)
Weighted average number of shares used in computing basic earnings per share		29,583,943			29,904,656			29,902,530			30,170,691
Assumed exercise of stock options, net of shares assumed acquired under the Treasury Stock Method		170,739			642,310			451,774			725,286
Number of shares used in computing diluted earnings per share		29,754,682			30,546,966			30,354,304			30,895,977

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16.   Other supplemental information

	Nine months ended December 31,		Year ended March 31,
	2008		2008		2007		2006
Franchisor operations
Revenues	$	63,987	$	99,351	$	95,354	$	88,531
Operating earnings		17,308		26,199		21,163		16,728
Initial franchise fee revenues		3,887		5,606		5,571		3,482
Cash payments made during the period
Income taxes	$	20,628	$	45,275	$	25,748	$	25,179
Interest		13,907		19,268		16,276		12,481
Non-cash financing activities
Increases in capital lease obligations	$	1,403	$	4,115	$	1,502	$	3,284
Other expenses
Rent expense	$	35,546	$	46,681	$	31,794	$	26,762

17.   Financial instruments

Concentration of credit risk

The Company is subject to credit risk with respect to its cash and cash equivalents, accounts receivable and other receivables.  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 various countries.

Interest rate risk

The Company maintains an interest rate risk management strategy that uses interest rate hedging contracts from time to time.  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 affect the fair value of the hedging contracts as their value depends on the prevailing market interest rate.  Hedging contracts are monitored on a monthly basis.

As at December 31, 2008, March 31, 2008 and March 31, 2007, except as disclosed in note 4, the Company had no interest rate hedges.

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.  The following are estimates of the fair values for other financial instruments:

	December 31, 2008				March 31, 2008				March 31, 2007
	Carrying amount		Fair value		Carrying amount		Fair value		Carrying amount		Fair value
Other receivables	$	16,832	$	16,832	$	4,445	$	4,445	$	6,599	$	6,599
Held-to-maturity securities		6,195	$	6,199		4,773	$	4,833	$	5,592	$	5,561
Available-for-sale securities		2,720		2,720		17,291		17,291		17,419		17,419
Long-term debt		266,369		302,494		356,030		392,429		235,131		261,009

Other receivables include notes receivable from minority shareholders and from the sale of former subsidiaries.  Held-to-maturity investments have various maturities through to

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2013 and are included under the balance sheet captions “restricted cash”, “prepaid expenses and other current assets” and “other assets”.  Available-for-sale securities consist of equity securities of a subsidiary of RBO Fund (see note 7).

The following table provides the financial assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2008:

	Carrying value at December 31,		Fair value measurements at December 31, 2008
	2008		Level 1		Level 2		Level 3
Available-for-sale securities	$	2,720	$	2,720	$	-	$	-
Interest rate derivative contracts   (discontinued operations)		10,758		-		10,758		-

The valuation technique used to measure the fair value for available-for-sale securities is the quoted market price.  Interest rate derivative contracts are measured at fair value using a valuation model with market price inputs obtained from third parties.

The following table provides the financial assets and liabilities measured at fair value for impairment assessment as of December 31, 2008 and are subject to fair value adjustments in certain circumstances:

	Carrying value at December 31,		Fair value measurements at December 31, 2008
	2008		Level 1		Level 2		Level 3
Held-to-maturity securities	$	6,195	$	-	$	6,199	$	-

Held-to-maturity investments are valued based on market prices obtained from third parties.

18.   Commitments and contingencies

(a)   Lease commitments

Minimum operating lease payments are as follows:

Year ending December 31
2009	$ 40,774
2010	38,418
2011	33,557
2012	28,127
2013	22,465
Thereafter	40,580

(b)   Minority shareholder agreements

The Company has shareholder agreements with the minority owners of its subsidiaries.  These agreements allow the Company to “call” the minority position at fair value determined with the use of a formula price, which is usually equal to a multiple of average net earnings before extraordinary items, minority interest share of earnings, income taxes, interest, depreciation, and amortization for a defined period.  The minority owners may also “put” their interest to the Company at the same price subject to certain limitations.  The purchase price may be paid in cash or in Subordinate Voting Shares.  Acquisitions of these non-controlling interests, if any, would be accounted for as a reduction in non-controlling interest (see note 23).  The total obligation if all call or put

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options were exercised as at December 31, 2008 was approximately $193,000 (March 31, 2008 - $233,000; March 31, 2007 - $154,000).  As at December 31, 2008, the Company had $14,867 of loans receivable from minority shareholders secured by the shares and accordingly, the net obligation was $178,133.  If all put or call options were settled with Subordinated Voting Shares as at December 31, 2008, approximately 13,975,000 such shares would be issued.

(c)   Contingencies

In the normal course of operations, the Company is subject to routine claims and litigation incidental to its business.  Litigation currently pending or threatened against the Company includes disputes with former employees and commercial liability claims related to services provided by the Company.  The Company believes resolution of such proceedings, combined with amounts recorded, will not have a material impact on the Company’s financial condition or the results of operations.

19.   Related party transactions

During the nine-month period ended December 31, 2008, the Company paid $2,640 (year ended March 31, 2008 - $2,579; year ended March 31, 2007 - $826; year ended March 31, 2006 - $775) in rent to entities controlled by minority shareholders of subsidiaries.  In addition, $2,249 (year ended March 31, 2008 - $1,168; year ended March 31, 2007 - $388; year ended March 31, 2006 - $335) of service revenues were earned from entities controlled by minority shareholders of subsidiaries and $1,103 (year ended March 31, 2008 - $493; year ended March 31, 2007 - $66; year ended March 31, 2006 - $62) of expenses were paid to entities controlled by minority shareholders of subsidiaries.  During the year ended March 31, 2008, the Company received $1,644 of cash payments from officers and directors on account of adjustments to exercise prices of previously exercised options.

As at December 31, 2008, the Company had $14,867 of loans receivable from minority shareholders (March 31, 2008 – $1,946; March 31, 2007 - $1,514).

20.   Segmented information

Operating segments

The Company has three 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.  Commercial Real Estate Services provides commercial property brokerage and other advisory services to clients in North America and in various other countries around the world.  Residential Property Management provides property management and related property services to residential communities in the United States.  Property Services operates franchise systems, a vendor network and Company-owned “branchise” stores with customers in the United States and Canada. Corporate includes the costs of operating the Company’s corporate head office.

Included in total assets of the Commercial Real Estate Services segment at December 31, 2008 is $2,377 (March 31, 2008 - $3,342; March 31, 2007 - $4,667; March 31, 2006 - $4,608) of investments in subsidiaries accounted for under the equity method.

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Nine months ended December 31, 2008	Commercial Real Estate Services		Residential Property Management		Property Services		Corporate			Consolidated
Revenues	$	578,192	$	475,251	$	269,114	$	123		$	1,322,680
Depreciation and   amortization		17,975		7,815		5,695		261			31,746
Operating earnings		17,442		36,436		36,278		(7,026	)		83,130
Other expense, net											(17,973	)
Interest expense, net											(8,252	)
Income taxes											(30,878	)
Minority interest											(14,519	)
Net earnings from continuing operations											11,508
Net earnings from discontinued operations											50,528
Net earnings										$	62,036
Total assets	$	404,781	$	332,765	$	222,485	$	9,893		$	969,924
Discontinued operations											20,713
										$	990,637
Total additions to long-lived assets		21,501		21,068		7,395		-			49,964

Year ended March 31, 2008	Commercial Real Estate Services		Residential Property Management		Property Services		Corporate			Consolidated
Revenues	$	787,467	$	544,926	$	216,972	$	348		$	1,549,713
Depreciation and amortization		21,219		10,450		5,654		350			37,673
Operating earnings		21,554		39,790		32,745		(15,967	)		78,122
Other income, net											4,650
Interest expense, net											(13,387	)
Income taxes											(17,108	)
Minority interest											(16,803	)
Net earnings from continuing operations											35,474
Net loss from discontinued operations											(1,075	)
Net earnings										$	34,399
Total assets	$	407,850	$	290,692	$	191,553	$	48,475		$	938,570
Discontinued operations											150,773
										$	1,089,343
Total additions to long-lived assets		79,873		64,471		53,560		364			198,268

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Year ended March 31, 2007	Commercial Real Estate Services		Residential Property Management		Property Services		Corporate			Consolidated
Revenues	$	577,676	$	423,797	$	150,794	$	554		$	1,152,821
Depreciation and amortization		13,502		7,644		4,653		223			26,022
Operating earnings		33,250		32,622		25,911		(14,778	)		77,005
Other income, net											1,450
Interest expense, net											(7,843	)
Income taxes											(20,367	)
Minority interest											(15,282	)
Net earnings from continuing operations											34,963
Net earnings from  discontinued operations											1,253
Cumulative effect of change in accounting principle											(1,353	)
Net earnings										$	34,863
Total assets	$	292,708	$	206,977	$	123,832	$	66,023		$	689,540
Discontinued operations											127,458
											816,998
Total additions to long-lived assets		72,137		27,917		10,165		331			110,550

Year ended March 31, 2006	Commercial Real Estate Services		Residential Property Management		Property Services		Corporate			Consolidated
Revenues	$	438,032	$	346,133	$	134,136	$	367		$	918,668
Depreciation and amortization		11,386		5,618		3,749		168			20,921
Operating earnings		25,940		25,767		22,016		(12,636	)		61,087
Other income, net											3,766
Interest expense, net											(10,234	)
Income taxes											(16,084	)
Minority interest											(11,778	)
Net earnings from continuing operations											26,757
Net earnings from discontinued operations											42,740
Net earnings										$	69,497
Total assets	$	204,042	$	150,641	$	114,188	$	149,375		$	618,246
Discontinued operations											92,758
											711,004
Total additions to long-lived assets		36,799		10,400		9,909		546			57,654

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Geographic information

Revenues in each geographic region are reported by customer location.  Amounts reported in geographic regions other than the United States, Canada and Australia are primarily denominated in US dollars and Euros.

	Nine months ended December 31,		Year ended March 31,
	2008		2008		2007		2006
United States
Revenues	$	852,644	$	978,868	$	760,366	$	621,548
Total long-lived assets		444,192		394,168		253,077		211,853
Canada
Revenues	$	210,048	$	227,249	$	177,940	$	148,249
Total long-lived assets		70,792		75,181		67,268		37,130
Australia
Revenues	$	97,975	$	156,812	$	117,794	$	78,011
Total long-lived assets		30,658		32,629		29,514		15,273
Other
Revenues	$	162,013	$	186,784	$	96,721	$	70,860
Total long-lived assets		58,271		52,604		12,737		13,874
Consolidated
Revenues	$	1,322,680	$	1,549,713	$	1,152,821	$	918,668
Total long-lived assets	$	603,913	$	554,582	$	362,596	$	278,130

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21.   Transition period comparative data

The following table presents certain financial information for the nine-month periods ended December 31, 2008 and 2007, respectively:

	Nine months ended December 31, 2008		Nine months ended December 31, 2007
			(unaudited)
Revenues	$	1,322,680	$	1,180,582
Operating earnings		83,130		89,925
Earnings before income taxes and minority interest		56,905		84,206
Income taxes		30,878		25,740
Earnings before minority interest		26,027		58,466
Minority interest share of earnings		14,519		16,112
Net earnings from continuing operations		11,508		42,354
Net earnings from discontinued operations, net of income taxes		50,528		1,406
Net earnings	$	62,036	$	43,760
Net earnings per common share
Basic	$	1.83	$	1.32
Diluted		1.81		1.21
Weighed average common shares outstanding
Basic		29,583,943		29,878,635
Diluted		29,754,682		30,417,231

22.   Application of Staff Accounting Bulletin No. 108

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108 Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB 108”).  SAB 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements.  Traditionally, the impacts of misstatements were evaluated under either an earnings-based (“rollover”) approach or a balance sheet-based (“iron curtain”) approach.  The rollover approach focuses on the impact of misstatements on the statement of earnings, including the reversing impact of prior year misstatements, but its use can lead to the accumulation of misstatements on the balance sheet.  The iron curtain approach focuses on the effect of correcting the period-end balance sheet with less emphasis on the reversing effects of prior years’ errors on the statement of earnings.  Prior to the application of SAB 108, the Company used the rollover approach for quantifying financial statement misstatements.

In SAB 108, the SEC staff established an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the Company’s financial statements and the related financial statement disclosures.  This model is commonly referred to as a “dual approach” because it requires quantification of errors under both the rollover and iron curtain approaches.

The Company adopted the provisions of SAB 108 in connection with the annual consolidated financial statements for the year ended March 31, 2007.  The provisions of

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SAB 108 may be applied by either (i) restating prior financial statements as if the dual approach had always been applied, or (ii) recording the cumulative effect of initially applying the dual approach as adjustments to the carrying values of assets and liabilities as of April 1, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings.  The Company elected to record the effects of applying SAB 108 using the cumulative effect transition method (method (ii)).  The following summarizes the effects of applying SAB 108 to errors previously considered immaterial under the rollover approach:

(a)   In the Company’s Commercial Real Estates Services operations, broker and management compensation vary during the calendar year based on exceeding pre-determined production or earnings thresholds.  Since the time this segment was acquired in November 2004, the Company recorded compensation expense incrementally as thresholds were exceeded, but should have recorded compensation expense systematically on a basis approximating the expected average commission rate for the calendar year.  As a result, the accrued compensation liability as of April 1, 2006 was understated by $7,951.  The Company recorded a $7,951 increase in the liability as of April 1, 2006 with a corresponding reduction in retained earnings to correct this misstatement.

(b)   In the Company’s Residential Property Management operations, certain subsidiaries did not accrue vacation pay since the time they were acquired in 1996 and 1997.  As a result, accrued vacation pay liability as of April 1, 2006 was understated by $1,607.  The Company recorded a $1,607 increase in the liability as of April 1, 2006 with a corresponding reduction in retained earnings to correct this misstatement.

(c)   In the Company’s Residential Property Management operations, certain prepaid insurance expenses were not eliminated on consolidation.  As a result, prepaid insurance as of April 1, 2006 was overstated by $467.  The Company recorded a $467 decrease in the prepaid insurance as of April 1, 2006 with a corresponding reduction in retained earnings to correct this misstatement.

As a result of the misstatements described above, the provision for income taxes was cumulatively overstated by $3,599 as at April 1, 2006.  The Company recorded an increase in deferred income tax asset in the amount of $3,599 with a corresponding increase in retained earnings to correct this misstatement.  The Company also recorded a reduction in minority interest in the amount of $1,049 with a corresponding increase to retained earnings.  Accordingly, the net reduction to retained earnings recorded as of April 1, 2006 to record the initial application of SAB 108 was $5,377.

23.   Impact of recently issued accounting standards

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141R”).  SFAS 141R changes the method of accounting for business acquisitions at the acquisition date and in subsequent periods.  This standard is effective prospectively for business combinations for which the acquisition date is on or after January 1, 2009. The Company has evaluated the impact of the adoption of SFAS 141R and the following changes in practice will be required for acquisitions completed under the standard: (i) transaction costs will be expensed, resulting in increases to selling, general and administrative expenses; (ii) contingent consideration will be recognized at the acquisition date, resulting in increases to goodwill and accrued liabilities; and (iii) the fair value of contingent consideration will be re-measured quarterly, resulting in increased volatility in earnings.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS 160”).  SFAS

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160 changes the accounting and reporting for non-controlling (formerly referred to as minority interests).  SFAS 160 also affects the guidance in EITF No. D-98, Classification and Measurement of Redeemable Securities (“EITF D-98”).  SFAS 160 is effective for the Company as of January 1, 2009.  The Company has evaluated the impact of the adoption of SFAS 160 as well as the changes to EITF-98.  The following changes in practice will be required: (i) non-controlling interest will be presented in the “mezzanine” section of the balance sheet at the redemption value, resulting in a significant increase in non-controlling interest and (ii) purchases by the Company of non-controlling interest will be recorded as a reduction of non-controlling interest.  Upon the initial adoption of SFAS 160 on January 1, 2009, the Company will increase non-controlling interest in the amount of approximately $143,000 and will record a corresponding decrease to retained earnings.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”).  SFAS 161 requires enhanced disclosures about the Company’s derivative and hedging activities such as the objective for using derivative instruments, the method of accounting for derivative instruments and related hedged items under SFAS No. 133 and its related interpretations, and the effect of derivative instruments and related hedged items on the Company’s financial position, financial performance, and cash flows. The Standard is effective for the Company as of January 1, 2009.  The Company is currently evaluating the impact of the adoption of SFAS 161 on its financial statement note disclosures.

In April 2008, the FASB staff issued Statement of Position No. 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”).  FSP 142-3 amends the factors used when considering the useful life of recognized intangible assets.  The Standard is effective for the Company as of January 1, 2009.  The Company is currently evaluating the impact of the adoption of FSP 142-3 on its financial position and results of operations.

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