EXHIBIT 99.1

FIRSTSERVICE CORPORATION

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Second Quarter

June 30, 2012

FIRSTSERVICE CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(Unaudited)

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

United States of America

	Three months					Six months
	ended June 30					ended June 30
	2012			2011		2012			2011
Revenues	$	593,193		$	565,472	$	1,083,249		$	1,043,854
Cost of revenues		386,832			355,819		717,977			656,433
Selling, general and administrative expenses		165,877			167,655		314,965			323,858
Depreciation		7,763			7,583		15,434			14,719
Amortization of intangible assets		4,490			5,773		9,288			10,707
Acquisition-related items (note 5)		2,874			502		9,427			1,374
Operating earnings		25,357			28,140		16,158			36,763
Interest expense, net		4,266			4,305		8,773			8,686
Other (income) expense, net (note 6)		(125	)		862		(288	)		1,939
Earnings before income tax		21,216			22,973		7,673			26,138
Income tax (note 7)		6,567			12,041		3,861			16,496
Net earnings		14,649			10,932		3,812			9,642
Non-controlling interest share of earnings (note 10)		4,366			3,307		3,843			3,553
Non-controlling interest redemption increment (note 10)		(537	)		1,739		3,096			7,555
Net earnings (loss) attributable to Company		10,820			5,886		(3,127	)		(1,466	)
Preferred share dividends		2,460			2,526		4,920			5,051
Net earnings (loss) attributable to common shareholders	$	8,360		$	3,360	$	(8,047	)	$	(6,517	)
Net earnings (loss) per common share (note 11)
Basic	$	0.28		$	0.11	$	(0.27	)	$	(0.22	)
Diluted	$	0.28		$	0.11	$	(0.27	)	$	(0.22	)

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

Page 2 of 13

FIRSTSERVICE CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)

(Unaudited)

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

	Three months					Six months
	ended June 30					ended June 30
	2012			2011		2012			2011
Net earnings	$	14,649		$	10,932	$	3,812		$	9,642
Foreign currency translation gain (loss)		(5,364	)		3,659		(331	)		8,642
Reclassification to earnings of other comprehensive income
on investment (note 5)		-			-		2,553			-
Comprehensive earnings		9,285			14,591		6,034			18,284
Less: Comprehensive earnings attributable to non-controlling
shareholders		3,290			4,497		6,300			10,762
Comprehensive earnings (loss) attributable to Company	$	5,995		$	10,094	$	(266	)	$	7,522

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

Page 3 of 13

FIRSTSERVICE CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

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

	June 30, 2012			December 31, 2011
Assets
Current Assets
Cash and cash equivalents	$	77,037		$	97,799
Restricted cash		5,106			4,493
Accounts receivable, net of allowance of $20,580 (December 31, 2011 -
$19,700)		316,268			286,019
Income tax recoverable		13,157			9,661
Inventories		18,431			11,831
Prepaid expenses and other current assets		35,484			23,874
Deferred income tax		16,514			16,527
		481,997			450,204
Other receivables		7,456			6,684
Other assets		13,602			10,344
Fixed assets		94,032			94,150
Deferred income tax		96,990			87,940
Intangible assets		179,379			188,909
Goodwill		397,668			395,487
		789,127			783,514
	$	1,271,124		$	1,233,718
Liabilities and shareholders' equity
Current Liabilities
Accounts payable	$	64,485		$	82,114
Accrued liabilities		260,783			272,106
Income taxes payable		3,493			3,214
Unearned revenues		28,161			19,448
Long-term debt - current (note 8)		37,121			216,373
Deferred income tax		995			995
		395,038			594,250
Long-term debt - non-current (note 8)		341,645			100,042
Convertible debentures (note 8)		77,000			77,000
Contingent acquisition consideration (note 9)		9,680			10,166
Other liabilities		31,348			29,077
Deferred income tax		37,295			38,160
		496,968			254,445
Non-controlling interests (note 10)		138,678			141,404
Shareholders' equity
Preferred shares (note 13)		140,561			140,561
Common shares		117,357			110,821
Contributed surplus		28,816			27,970
Deficit		(77,380	)		(63,958	)
Accumulated other comprehensive earnings		31,086			28,225
		240,440			243,619
	$	1,271,124		$	1,233,718

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

Page 4 of 13

FIRSTSERVICE CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

(in thousands of US dollars, except share information) - in accordance with accounting principles generally accepted in the

United States of America

	Preferred shares				Common shares												Accumulated
	Issued and				Issued and												other		Total
	outstanding				outstanding						Contributed						comprehensive		shareholders'
	shares		Amount		shares			Amount			surplus			Deficit			earnings		equity
Balance, December 31, 2011		5,622,634	$	140,561		29,941,254		$	110,821		$	27,970		$	(63,958	)	$	28,225	$	243,619
Comprehensive earnings:
Net earnings		-		-		-			-			-			3,812			-		3,812
Other comprehensive earnings		-		-		-			-			-			-			2,222		2,222
Other comprehensive earnings
attributable to NCI		-		-		-			-			-			-			639		639
NCI share of earnings		-		-		-			-			-			(3,843	)		-		(3,843	)
NCI redemption increment		-		-		-			-			-			(3,096	)		-		(3,096	)
Subsidiaries’ equity
transactions		-		-		-			-			420			-			-		420
Subordinate Voting Shares:
Stock option expense		-		-		-			-			1,715			-			-		1,715
Stock options exercised		-		-		288,000			7,472			(1,801	)		-			-		5,671
Tax benefit on options
exercised		-		-		-			-			512			-			-		512
Purchased for cancellation		-		-		(200,000	)		(936	)		-			(5,375	)		-		(6,311	)
Preferred Shares:
Dividends (note 13)		-		-		-			-			-			(4,920	)		-		(4,920	)
Balance, June 30, 2012		5,622,634	$	140,561		30,029,254		$	117,357		$	28,816		$	(77,380	)	$	31,086	$	240,440

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

Page 5 of 13

FIRSTSERVICE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

	Three months ended						Six months ended
	June 30						June 30
	2012			2011			2012			2011
Cash provided by (used in)
Operating activities
Net earnings	$	14,649		$	10,932		$	3,812		$	9,642
Items not affecting cash:
Depreciation and amortization		12,253			13,356			24,722			25,426
Deferred income tax		(3,289	)		(555	)		(10,486	)		(1,321	)
Other		3,560			1,830			4,552			4,820
Changes in non-cash working capital:
Accounts receivable		(35,669	)		(35,037	)		(9,239	)		(27,394	)
Inventories		(2,425	)		(219	)		(6,601	)		(2,959	)
Prepaid expenses and other current assets		(3,069	)		2,015			(4,488	)		(3,670	)
Payables and accruals		21,958			24,315			(50,627	)		(39,198	)
Unearned revenues		7,423			6,826			8,679			8,191
Other liabilities		2,520			662			3,282			1,436
Net cash provided by (used in) operating activities		17,911			24,125			(36,394	)		(25,027	)
Investing activities
Acquisitions of businesses, net of cash acquired (note 4)		(554	)		(8,689	)		(13,205	)		(9,873	)
Purchases of fixed assets		(7,429	)		(7,828	)		(14,299	)		(13,172	)
Other investing activities		579			30			451			(474	)
Net cash used in investing activities		(7,404	)		(16,487	)		(27,053	)		(23,519	)
Financing activities
Increase in long-term debt		32,537			52,908			318,741			122,853
Repayment of long-term debt		(26,120	)		(59,910	)		(256,390	)		(71,910	)
Purchases of non-controlling interests		(2,592	)		(59	)		(1,631	)		(1,497	)
Proceeds received on exercise of options		45			794			5,671			5,173
Incremental tax benefit on stock options exercised		6			146			512			463
Dividends paid to preferred shareholders		(2,460	)		(2,526	)		(4,920	)		(5,051	)
Distributions paid to non-controlling interests		(2,111	)		(1,795	)		(8,144	)		(5,617	)
Repurchases of subordinate voting shares		-			(1,429	)		(6,311	)		(16,446	)
Other financing activities		(410	)		(85	)		(5,270	)		(85	)
Net cash (used in) provided by financing activities		(1,105	)		(11,956	)		42,258			27,883
Effect of exchange rate changes on cash		(362	)		596			427			1,908
Increase (decrease) in cash and cash equivalents		9,040			(3,722	)		(20,762	)		(18,755	)
Cash and cash equivalents, beginning of period		67,997			85,326			97,799			100,359
Cash and cash equivalents, end of period	$	77,037		$	81,604		$	77,037		$	81,604

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

Page 6 of 13

FIRSTSERVICE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012

(Unaudited)

(in thousands of US dollars, except 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 (“CRE”) Services, Residential Property Management and Property Services.  The Company operates as Colliers International within CRE; FirstService Residential Management, American Pool Enterprises and various regional brands within Residential Property Management; and Field Asset Services and several franchise brands within Property Services.

2.           SUMMARY OF PRESENTATION – These condensed consolidated financial statements have been prepared by the Company in accordance with the disclosure requirements for the presentation of interim financial information pursuant to applicable Canadian securities law.  Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America have been condensed or omitted in accordance with such disclosure requirements, although the Company believes that the disclosures are adequate to make the information not misleading.  These interim financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2011.

These interim financial statements follow the same accounting policies as the most recent audited consolidated financial statements, except as noted below.  In the opinion of management, the condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as at June 30, 2012 and the results of operations and its cash flows for the three and six month periods ended June 30, 2012.  All such adjustments are of a normal recurring nature.  The results of operations for the three and six month periods ended June 30, 2012 are not necessarily indicative of the results to be expected for the year ending December 31, 2012.

During the second quarter of 2011, the Company identified an error related to the recognition of certain property management contract revenue in the CRE segment where it was determined, in consultation with clients, that a portion of the management fees previously recorded were not chargeable.  The Company assessed the materiality of this item on the earnings for the six months ended June 30, 2011 and all other periods subsequent to those dates, in accordance with the SEC’s Staff Accounting Bulletin No. 99 (“SAB 99”), and concluded that this error was not material to any such periods.  In accordance with SEC’s Staff Accounting Bulletin No. 108 (“SAB 108”), the interim consolidated financial statements herein include the adjustment to correct the immaterial error and to reflect the corrected accounts receivable balance as of that date. This correction resulted in a reduction of accounts receivable of $3,300 and a decrease in revenues of $3,300.

3.           IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS – On January 1, 2012, the Company adopted updated guidance issued by the FASB on fair value measurement and disclosure (ASU 2011-04).  This update changes certain fair value measurement principles and enhances disclosure requirements, particularly for Level 3 fair value measurements. The guidance was adopted prospectively and did not impact the Company’s results of operations or financial position but did result in enhanced disclosure for Level 3 fair value measurements of assets and liabilities.

On January 1, 2012, the Company adopted new guidance issued by the FASB on the presentation of comprehensive income (ASU 2011-5). This guidance requires entities to present the total of comprehensive earnings, the components of net earnings and the components of other comprehensive earnings either in a single continuous statement of comprehensive earnings or in two separate but consecutive statements. The guidance does not change the items that must be reported in other comprehensive earnings or when an item of other comprehensive earnings must be reclassified to net earnings. This guidance was adopted retrospectively and resulted in a change in disclosure of comprehensive earnings from within the statement of shareholders’ equity to a separate statement of comprehensive earnings.

Page 7 of 13

4.           ACQUISITIONS – On March 28, 2012, the Company acquired the assets and select liabilities of Colliers International UK plc (in administration) (“CI UK”) by way of a pre-packaged transaction that involved CI UK being placed into administration immediately prior to the acquisition. This acquisition expanded the Company’s Commercial Real Estate segment’s geographic presence to new markets, including the United Kingdom, Ireland and Spain. The acquisition date fair value of consideration transferred was $13,205, paid in cash. The initial purchase price allocation is not yet complete, pending final determination of the fair value of assets acquired. Four individually insignificant acquisitions were completed during the six month period ended June 30, 2011 for total consideration of $9,873.  These acquisitions were accounted for by the purchase method of accounting for business combinations and accordingly, the consolidated statements of earnings do not include any revenues or expenses related to these acquisitions prior to their respective closing dates.

Certain vendors, at the time of acquisition, are entitled to receive a contingent consideration payment if the acquired businesses achieve specified earnings levels during the one- to four-year periods following the dates of acquisition.  The ultimate amount of payment is determined based on a formula, the key inputs to which are (i) a contractually agreed maximum payment; (ii) a contractually specified earnings level and (iii) the actual earnings for the contingency period.  If the acquired business does not achieve the specified earnings level, the maximum payment is reduced for any shortfall, potentially to nil.

Unless it contains an element of compensation, contingent consideration is recorded at fair value each reporting period.  The fair value recorded on the consolidated balance sheet as at June 30, 2012 was $11,811 (see note 9).  The estimated range of outcomes (undiscounted) for these contingent consideration arrangements is $12,700 to a maximum of $14,900. The compensation element is recorded on a straight line basis over the contingency period and as of June 30, 2012 totaled $5,263, and was recorded in “Other liabilities” on the balance sheet.  The estimated range of outcomes related to the compensation element is $9,400 to a maximum of $11,100. The contingencies will expire during the period extending to December 2013.  During the three months ended June 30, 2012, $3,462 was paid with reference to such contingent consideration (2011 - $85).  In addition, as at June 30, 2012, the Company had recorded in “Accrued Liabilities” $1,862 of consideration payable related to acquisitions where all contingencies had been resolved (December 31, 2011 - $3,109).

5.           ACQUISITION-RELATED ITEMS - Acquisition-related expense (income) is comprised of the following:

	Three months ended					Six months ended
	June 30					June 30
	2012		2011			2012		2011
Reclassification from accumulated other comprehensive loss	$	-	$	-		$	2,553	$	-
Contingent consideration compensation expense		940		658			1,944		1,249
Contingent consideration fair value adjustments		373		(270	)		1,062		(200	)
Transaction costs		1,561		114			3,868		325
	$	2,874	$	502		$	9,427	$	1,374

On March 28, 2012, CI UK entered an administration process, and as a result the Company’s 29.5% equity investment, held since October 2009, ceased. As such, the Company released $2,553 of accumulated other comprehensive losses related to this investment into earnings.

6.           OTHER (INCOME) EXPENSE - Other (income) expense is comprised of the following:

	Three months ended							Six months ended
	June 30								June 30
	2012				2011				2012			2011
(Income) loss from equity method investments		$	(345	)	$	889			$	(430	)	$	2,096
Other			220			(27	)			142			(157	)
		$	(125	)	$	862			$	(288	)	$	1,939

Page 8 of 13

7.           INCOME TAX – The provision for income tax for the six months ended June 30, 2012 reflected an effective tax rate of 50% (2011 - 63%) relative to the combined statutory rate of approximately 28% (2011 - 28%). The difference between the effective rate and the statutory rate is related to the geographic mix of taxable earnings and losses and the impact of discrete items. The effective tax rate for the six months ended June 30, 2011 was also impacted by the recognition of valuation allowances on deferred income tax assets related to US operating loss carry-forward balances. Certain US operations were reorganized during the three months ended December 31, 2011, which resulted in such valuation allowances not being required during the six months ended June 30, 2012.

8.           LONG-TERM DEBT – On March 1, 2012, the Company entered into an amended and restated credit agreement with a syndicate of banks to provide a $350,000 committed senior revolving credit facility including an uncommitted accordion provision allowing for an additional $100,000 of borrowing capacity under the same terms.  The revolving credit facility has a five year term ending March 1, 2017 and bears interest at 1.25% to 3.00% over floating reference rates, depending on certain leverage ratios.

The revolving credit facility and the Company’s two outstanding issues of Senior Notes rank equally in terms of seniority.  The Company has granted the lenders and Note-holders various collateral including an interest in all of the assets of the Company.  The covenants require the Company to maintain certain ratios including financial leverage, fixed charge coverage, interest coverage and net worth.  The Company is limited from undertaking certain mergers, acquisitions and dispositions without prior approval.

The Company has issued and outstanding $77,000 principal amount of 6.50% convertible unsecured subordinated debentures (“Convertible Debentures”) with a maturity date of December 31, 2014.  At the holder’s option, the Convertible Debentures may be converted at any time prior to maturity into Subordinate Voting Shares based on an initial conversion rate of approximately 35.7143 common shares per $1,000 principal amount of Convertible Debentures (which represents an initial conversion price of $28.00 per share).  The Company may also, at its option, redeem the Convertible Debentures at any time on or after December 31, 2012.  Subject to specified conditions, the Company has the right to repay the outstanding principal amount of the Convertible Debentures, on maturity or redemption, through the issuance of Subordinate Voting Shares.  The Company also has the option to satisfy its obligation to pay interest through the issuance and sale of Subordinate Voting Shares.  The Convertible Debentures are unsecured and contain no financial ratio covenants.

9.           FAIR VALUE MEASUREMENTS – The following table provides the financial assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2012:

				Fair value measurements at June 30, 2012
	Carrying value at
	June 30, 2012				Level 1		Level 2		Level 3
Interest rate swap asset		$	366		$	-	$	366	$	-
Contingent consideration liability			11,811			-		-		11,811

The fair value of the interest rate swap asset was determined using widely accepted valuation techniques.  The measurement of the fair value of contingent consideration related to acquisitions was made using a discounted cash flows approach with Level 3 inputs; significant model inputs were expected future operating cash flows and discount rates.  Changes in the fair value of the contingent consideration liability are comprised of the following:

Page 9 of 13

	2012
Balance, January 1	$	12,844
Amounts recognized on acquisitions		98
Fair value adjustments		1,062
Resolved and settled in cash		(581)
Resolved and recorded in accrued liabilities		(1,634)
Foreign exchange		22
Balance, June 30	$	11,811
Less: Current portion (included in "Accrued liabilities")		2,131
Non-current portion	$	9,680

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 inputs to the measurement of the fair value of long term debt are Level 3 inputs.  The fair value measurements were made using a net present value approach; significant model inputs were expected future cash outflows and discount rates.  The following are estimates of the fair values of other financial instruments:

	June 30, 2012				December 31, 2011
	Carrying amount		Fair value		Carrying amount		Fair value
Other receivables	$	7,456	$	7,456	$	6,684	$	6,684
Long-term debt		378,766		391,393		316,415		332,918
Convertible debentures		77,000		90,090		77,000		83,930

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

	2012
Balance, January 1	$	141,404
NCI share of earnings		3,843
NCI share of other comprehensive earnings		(639)
NCI redemption increment		3,096
Distributions paid to NCI		(8,144)
Purchases of interests from NCI, net		(1,634)
NCI recognized on business acquisitions		752
Balance, June 30	$	138,678

The Company has shareholders’ agreements in place at each of its non-wholly owned subsidiaries. These agreements allow the Company to “call” the non-controlling interest at a price determined with the use of a formula price, which is usually equal to a fixed multiple of average annual net earnings before extraordinary items, income taxes, interest, depreciation, and amortization. The agreements also have redemption features which allow the owners of the NCI to “put” their equity to the Company at the same price subject to certain limitations.  The formula price is referred to as the redemption amount and may be paid in cash or in Subordinate Voting Shares. The redemption amount as of June 30, 2012 was $124,875.  The redemption amount is lower than that recorded on the balance sheet as the formula prices of certain NCI are lower than the amount initially recorded at the inception of the minority equity position. If all put or call options were settled with Subordinate Voting Shares as at June 30, 2012, approximately 4,600,000 such shares would be issued.

Page 10 of 13

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

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

	Three months ended				Six months ended
(in thousands)	June 30				June 30
	2012		2011		2012		2011
Basic shares		30,029		30,093		30,006		30,184
Assumed exercise of Company stock options		326		522		360		517
Diluted shares		30,355		30,615		30,366		30,701

12.         STOCK-BASED COMPENSATION

Company stock option plan

The Company has a stock option plan for certain directors, 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, expires five years from the date granted and allows for the purchase of one Subordinate Voting Share.  All Subordinate Voting Shares issued are new shares.  As at June 30, 2012, there were 635,250 options available for future grants.

Grants under the Company’s stock option plan are equity-classified awards.  There were 327,000 stock options granted during the six months ended June 30, 2012 (2011 - 300,000).  Stock option activity for the six months ended June 30, 2012 was as follows:

						Weighted average
				Weighted		remaining
	Number of			average		contractual life		Aggregate
	options			exercise price		(years)		intrinsic value
Shares issuable under options -
Beginning of period		1,895,550		$	20.83
Granted		327,000			31.78
Exercised		(288,000	)		19.91
Forfeited		(44,500	)		29.95
Shares issuable under options -
End of period		1,890,050		$	22.65		2.58	$	12,839
Options exercisable - End of period		982,100		$	20.11		1.75	$	8,717

The amount of compensation expense recorded in the statement of earnings for the six months ended June 30, 2012 was $1,715 (2011 - $1,542).  As of June 30, 2012, there was $4,027 of unrecognized compensation cost related to non-vested awards which is expected to be recognized over the next 4 years.  During the six month period ended June 30, 2012, the fair value of options vested was $3,417 (2011 - $2,232).

Subsidiary stock option plan

The Company has stock option plans at its commercial real estate subsidiary entitling the holders to acquire up to a 14.9% interest in the subsidiary.  Grants under the subsidiary stock option plans are liability classified awards.  The fair value of the liability relating to these awards is calculated each period using the Black-Scholes option pricing model.  The fair value of the liability related to these awards as at June 30, 2012 was nil (December 31, 2011 - nil) and the compensation expense recognized related to the awards for the six months ended June 30, 2012 was nil (2011 - nil).

Page 11 of 13

13.         PREFERRED SHARES – A dividend of $0.4375 per Preferred Share, for the period March 31, 2012 up to but excluding June 29, 2012, was paid on June 29, 2012.  Each Preferred Share has a stated amount of $25.00.  The Company may redeem each Preferred Share for $25.00 payable in cash, or alternatively the Company may convert each Preferred Share into Subordinate Voting Shares based on a price of $25.00.  Holders of the Preferred Shares have no redemption or conversion rights.

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

15.         SEGMENTED INFORMATION – The Company has three reportable operating segments. The segments are grouped with reference to the nature of services provided and the types of clients that use those services.  The Company assesses each segment’s performance based on operating earnings or operating earnings before depreciation and amortization.  CRE 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 North America.  Property Services provides franchised and Company-owned property services to customers in North America. Corporate includes the costs of operating the Company’s corporate head office.

OPERATING SEGMENTS
	Commercial Real Estate Services			Residential Property Management		Property Services		Corporate			Consolidated
Three months ended June 30
2012
Revenues	$	291,635		$	214,052	$	87,455	$	51		$	593,193
Operating earnings		10,725			12,768		6,599		(4,735	)		25,357
2011
Revenues	$	245,731		$	195,657	$	124,042	$	42		$	565,472
Operating earnings		4,053			14,474		13,491		(3,878	)		28,140
	Commercial Real Estate Services			Residential Property Management		Property Services		Corporate			Consolidated
Six months ended June 30
2012
Revenues	$	504,905		$	405,941	$	172,301	$	102		$	1,083,249
Operating earnings		(3,644	)		20,836		7,203		(8,237	)		16,158
2011
Revenues	$	441,330		$	363,891	$	238,551	$	82		$	1,043,854
Operating earnings		685			21,271		22,472		(7,665	)		36,763

Page 12 of 13

GEOGRAPHIC INFORMATION
	United States		Canada		Australia		Other		Consolidated
Three months ended June 30
2012
Revenues	$	386,286	$	80,621	$	44,608	$	81,678	$	593,193
Total long-lived assets		465,760		94,185		49,491		61,643		671,079
2011
Revenues	$	390,273	$	78,709	$	45,621	$	50,869	$	565,472
Total long-lived assets		458,709		92,192		56,860		60,153		667,914
	United States		Canada		Australia		Other		Consolidated
Six months ended June 30
2012
Revenues	$	732,220	$	146,597	$	78,113	$	126,319	$	1,083,249
2011
Revenues	$	730,633	$	140,719	$	76,714	$	95,788	$	1,043,854

Page 13 of 13

FIRSTSERVICE CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2012

(in US dollars)

July 27, 2012

The following Management’s Discussion and Analysis (“MD&A”) should be read together with the unaudited interim consolidated financial statements of FirstService Corporation (the “Company” or “FirstService”) for the three and six month periods ended June 30, 2012 and the Company’s audited consolidated financial statements, and MD&A, for the year ended December 31, 2011. The interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).  All financial information herein is presented in United States dollars.

The Company has prepared this MD&A with reference to National Instrument 51-102 – Continuous Disclosure Obligations of the Canadian Securities Administrators (the "CSA"). Under the U.S./Canada Multijurisdictional Disclosure System, the Company is permitted to prepare this MD&A in accordance with the disclosure requirements of Canada, which requirements are different from those of the United States. This MD&A provides information for the three and six month periods ended June 30, 2012 and up to and including July 27, 2012.

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

Consolidated review

Two of our three service lines reported solid revenue growth for the second quarter of 2012, partially offset by a decline in revenues at our Property Services division primarily as a result of reductions in property preservation and distressed asset management volumes. Consolidated revenue growth for the second quarter of 2012 was 5%.

Late in the first quarter of 2012, we acquired assets of the Colliers International UK plc (“CI UK”) operations in the UK, Ireland and Spain. During the second half of 2011, we completed several acquisitions in our Residential Property Management and Commercial Real Estate Services divisions, which provided additional revenue growth in the first half of 2012. These acquisitions, which are in the process of being integrated into our operations, increase the geographic footprint and market share of our existing service lines.

On March 1, 2012, we entered into an amended and restated credit agreement with a syndicate of eleven banks to provide a new, committed $350 million senior revolving credit facility with an uncommitted accordion provision allowing for an increase in credit availability to $450 million, with a term of five years extending to March 1, 2017. The new credit facility replaced an existing credit facility which was set to mature in September 2012, on similar terms as the existing credit facility.

Results of operations - three months ended June 30, 2012

Revenues for our second quarter were $593.2 million, 5% higher than the comparable prior year quarter.  Acquisitions contributed 7% to revenues, while the negative impact of foreign exchange relative to the US dollar reduced revenues by 2%. Internally generated revenues, after considering the effects of acquisitions and foreign exchange, were flat.

Adjusted EBITDA (see “Reconciliation of non-GAAP measures” below) for the second quarter was $41.2 million versus $46.8 million reported in the prior year quarter. Our Adjusted EBITDA margin was 6.9% of revenues versus 8.3% of revenues in the prior year quarter, primarily as a result of a volume declines and increased scope of services required in our Property Services operations. Operating earnings for the second quarter were $25.4 million, down from $28.1 million in the prior year period. The operating earnings margin was 4.3% versus 5.0% in the prior year quarter. Second quarter 2011 earnings were impacted by a $4.3 million reorganization charge in our Property Services operations (see discussion below).

Depreciation and amortization expense totalled $12.3 million for the quarter relative to $13.4 million for the prior year quarter. The prior period’s results included $0.8 million of accelerated amortization of intangible assets in our Property Services segment.

Net interest expense was $4.3 million, the same as $4.3 million recorded in the prior year quarter.  The average interest rate on debt during the quarter was 3.9%, down from 4.9% in the prior year quarter due to ongoing repayments of fixed-rate Senior Notes which reduced our average interest rate.

The consolidated income tax rate for the quarter was 31%, relative to 52% of earnings before income tax in the prior year quarter. The prior period rate was impacted by valuation allowances with respect to deferred income tax assets in connection with operating loss carry-forwards. The accumulated valuation allowances related to US operating loss carry-forwards were reversed during the fourth quarter of 2011 in connection with a reorganization of certain operations, and as a result, no such valuation allowances were required to be recognized in the second quarter of 2012.

Net earnings for the quarter were $14.6 million, versus $10.9 million in the prior year quarter.  The increase was primarily attributable to the lower tax rate.

Our Commercial Real Estate segment generated $291.6 million of revenues during the second quarter, an increase of 19%, which included a 12% increase related to recent acquisitions and a 3% decrease related to foreign currency exchange rate fluctuations relative to the US dollar. Internal revenue growth measured in local currency was 10%, and was comprised primarily of increased lease brokerage, appraisal and property management activity. Regionally, Americas internal revenues were up 15% (17% on a local currency basis), Asia Pacific internal revenues were up 4% (7% on a local currency basis) and Europe internal revenues were down 14% (down 10% on a local currency basis). Second quarter Adjusted EBITDA was $17.9 million, up from $11.1 million in the year-ago period. Results in the prior year period were unfavorably impacted by a $3.3 million reversal of property management contract revenues in the Americas region, where it was determined in consultation with the client that a portion of the management fees previously recorded were not chargeable.

The Residential Property Management segment reported revenues of $214.1 million for the second quarter, up 9% versus the prior year quarter. Excluding the impact of recently completed acquisitions, internal revenues were up 5% as a result of strong client retention and new client wins. Adjusted EBITDA was $18.8 million, up 5% relative to $17.9 million in the prior year quarter. Consistent with the first quarter, profitability was impacted by pricing pressure on contract renewals in our core property management operations, where securing price increases has been challenging given the current economic environment, and lower ancillary revenues which carry higher margins.

Second quarter Property Services revenues were $87.5 million, down 29% relative to the prior year period, primarily due to a reduction in the flow of new properties coming under service in our property preservation and distressed asset management contractor network. Adjusted EBITDA for the quarter was $8.6 million versus $21.1 million in the prior year period.  The decline was the result of a reduction in new property volumes, increases in the scope of client engagements and competitive pricing pressure at our contractor network operations. As announced on June 25, 2012, we made a decision to transition out of a large unprofitable distressed asset management contract effective August 2012, and accordingly the results for the second quarter ended June 30, 2012 continued to include this contract.

Corporate costs were $4.8 million for the quarter, relative to $3.8 million in the prior year period.  The current period’s results were impacted by an accrual for a loss under our high retention self-insurance program.

Results of operations - six months ended June 30, 2012

Revenues for the six months ended June 30, 2012 were $1.08 billion, 4% higher than the comparable prior year period. Acquisitions contributed 5% to revenues, while the negative impact of foreign exchange relative to the US dollar decreased revenues by 1%. Internally generated revenues, after considering the effects of acquisitions and foreign exchange, were flat.

Page 2 of 11

Year to date Adjusted EBITDA (see “Reconciliation of non-GAAP measures” below) was $52.0 million versus $69.4 million reported in the comparable prior year period. Our Adjusted EBITDA margin was 4.8% of revenues versus 6.7% of revenues in the prior year period, primarily due to a margin declines in the Property Services segment. Operating earnings for the period were $16.2 million, down from $36.8 million in the prior year period, attributable in part to an $8.1 million increase in acquisition-related items in our Commercial Real Estate Services segment related to the CI UK acquisition. Our operating earnings margin was 1.5% versus 3.5% in the prior year period.

We recorded depreciation and amortization expense of $24.7 million for the six month period relative to $25.4 million for the prior year period. Prior period results included $0.8 million of accelerated amortization in our Property Services segment.

Net interest expense for the six month period was $8.8 million, up from $8.7 million recorded in the prior year period.  The average interest rate on debt during the period was 4.2%, down from 5.1% in the prior year period as a result of continuing repayments of higher cost fixed-rate debt. Net indebtedness (defined as current and non-current long-term debt less cash and cash equivalents) at the end of the quarter was $378.7 million versus $287.1 million a year ago.

Our consolidated income tax rate was 50%, versus 63% of the earnings before income tax in the prior year to date period. The prior period’s rate was impacted by a valuation allowance with respect to deferred income tax assets in connection with operating loss carry-forwards. The current period’s rate was impacted by geographic earnings mix as well as the impact of discrete items.

Net earnings for the six month period were $3.8 million, versus $9.6 million in the prior year period.  The change was primarily comprised of a reduction in Adjusted EBITDA in the Property Services division (see discussion below), an increase in acquisition-related items related primarily to the CI UK acquisition, both offset by a reduction in income tax expense.

The Commercial Real Estate segment reported revenues of $504.9 million during the six months ended June 30, 2012, an increase of 14% relative to the prior year period. Of the revenue growth, 7% was attributable to recent acquisitions, and 9% was attributable to internal growth, offset by a 2% reduction attributable to unfavorable changes in foreign exchange rates. Internal growth was comprised primarily of increased lease brokerage and appraisal activity. Regionally, Americas internal revenues were up 14% (15% on a local currency basis), Asia Pacific internal revenues were up 4% (5% on a local currency basis), and Europe revenues were down 8% (down 4% on a local currency basis). Adjusted EBITDA for the period was $15.9 million, up from $13.7 million in the year-ago period. The margin was 3.2%, relative to 3.1% in the prior year period. The current period’s margin was impacted by revenue mix favoring low margin services as well as costs to open new offices, both during the first quarter of 2012. The prior period’s margin was impacted by a $3.3 million adjustment to property management revenues in the second quarter of 2011 in the Americas.

Our Residential Property Management segment reported revenues of $405.9 million for the six month period, up 12% over the prior year period. After considering recently completed acquisitions, internal revenues were up 6%.  Adjusted EBITDA was $31.0 million relative to $29.4 million in the prior year period. Current year profitability was adversely affected by continued pricing pressure in our core property management operations.

For the six month period, Property Services revenues were $172.3 million, a decrease of 28% relative to the prior year period. The revenue decline was attributable to the segment’s property preservation and distressed asset management contractor network operations, which experienced declines in new property volumes, consistent with market reductions in foreclosure activity. Adjusted EBITDA for the period was $11.5 million versus $32.4 million in the one year ago period, with the reduction attributable to volume reductions, increased scope of work and pricing pressure in the segment’s contractor network operations.

Corporate costs for the six month period were $8.1 million, relative to $7.5 million in the prior year period.

Page 3 of 11

Operating outlook

In our Commercial Real Estate segment, our operating outlook is as follows. Americas region revenues are expected to show continued strong year-over-year revenue gains for the balance of the year, supported by current pipelines of new business which are elevated relative to the same time in the prior year. Asia Pacific region operations are expected to show only modest growth in revenues for the balance of the year, with margins remaining flat relative to the prior year, as a result of softening market conditions in the region. Europe region operations are expected to be flat relative to prior year results for the balance of the year due to difficult trading conditions and the lack of financial liquidity currently being experienced in the region. The segment’s Adjusted EBITDA margin is expected to improve in the second half of 2012 relative to the prior year as a result of increased operating leverage from additional revenues in the Americas.

Based on new contracts recently won and our expectations for new business wins and client retention, our Residential Property Management operations are expected to continue to show year-over-year revenue gains for the balance of the year, with Adjusted EBITDA margins comparable to the prior year period.

In our Property Services operations, we expect revenues to contract relative to the prior year comparative period for the balance of the year based our transition out of a large unprofitable distressed property management contract in August 2012, as well as continuing reductions in market foreclosure activity. This contract currently generates annual run rate revenues of approximately $100 million. We expect to incur approximately $2 million in office lease termination, severance and reorganization costs related to this contract transition. After the transition is complete, we expect Adjusted EBITDA margins to improve relative to the results reported year to date in 2012.

Strategic review and reorganization of Property Services operations

During the second quarter of 2011, we concluded a strategic review of our Property Services operations. The outcomes of the review included a transition of managerial oversight of the entire segment to the executive team at FirstService and the purchase of the balance of the non-controlling interests in the segment the Company did not already own in July 2011 for total consideration of $29.9 million. The total cost of the strategic review and reorganization recorded during the year ended December 31, 2011, including severance and advisory fees, was $5.6 million.

Seasonality and quarterly fluctuations

Certain segments of the Company's operations are subject to seasonal variations. The seasonality of the service lines noted below results in variations in quarterly revenues and operating margins. Variations can also be caused by acquisitions or dispositions, which alter the consolidated service mix.

The Commercial Real Estate segment generates peak revenues and earnings in the month of December followed by a low in January and February as a result of the timing of closings on commercial real estate brokerage transactions. Revenues and earnings during the balance of the year are relatively even. These brokerage operations comprise approximately 29% of annual consolidated revenues.

Summary of quarterly results (unaudited)

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

Page 4 of 11

Quarter		Q1			Q2		Q3		Q4
(in thousands of US$, except per share amounts)
YEAR ENDING DECEMBER 31, 2012
Revenues	$	490,056		$	593,193
Operating earnings		(9,199	)		25,357
Net earnings (loss) per common share:
Basic		(0.55	)		0.28
Diluted		(0.55	)		0.28
YEAR ENDED DECEMBER 31, 2011
Revenues	$	478,382		$	565,472	$	585,424	$	594,893
Operating earnings		8,623			28,140		32,466		28,832
Net earnings (loss) per common share:
Basic		(0.33	)		0.11		0.17		2.19
Diluted		(0.33	)		0.11		0.17		2.01
YEAR ENDED DECEMBER 31, 2010
Revenues						$	530,418	$	552,090
Operating earnings							32,234		21,459
Net earnings (loss) per common share:
Basic							0.18		(0.12	)
Diluted							0.18		(0.12	)
OTHER DATA
Adjusted EBITDA - 2012	$	10,831		$	41,191
Adjusted EBITDA - 2011		22,631			46,812	$	47,633	$	44,485
Adjusted EBITDA - 2010							45,668		36,996
Adjusted EPS - 2012		(0.10	)		0.45
Adjusted EPS - 2011		0.14			0.54		0.61		0.52
Adjusted EPS - 2010							0.61		0.37

Reconciliation of non-GAAP measures

In this MD&A, we make reference to “Adjusted EBITDA” and “Adjusted earnings per common share”, which are financial measures that are not calculated in accordance with GAAP.

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

Page 5 of 11

	Three months ended					Six months ended
(in thousands of US$)	June 30					June 30
	2012			2011		2012			2011
Net earnings	$	14,649		$	10,932	$	3,812		$	9,642
Income tax		6,567			12,041		3,861			16,496
Other expense (income)		(125	)		862		(288	)		1,939
Interest expense, net		4,266			4,305		8,773			8,686
Operating earnings		25,357			28,140		16,158			36,763
Depreciation and amortization		12,253			13,356		24,722			25,426
Acquisition-related items		2,874			502		9,427			1,374
Stock-based compensation expense		707			476		1,715			1,542
Reorganization charge		-			4,338		-			4,338
Adjusted EBITDA	$	41,191		$	46,812	$	52,022		$	69,443

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

	Three months ended						Six months ended
(in thousands of US$)	June 30						June 30
	2012			2011			2012			2011
Net earnings (loss) attributable to common shareholders	$	8,360		$	3,360		$	(8,047	)	$	(6,517	)
Non-controlling interest redemption increment		(537	)		1,739			3,096			7,555
Acquisition-related items		2,874			502			9,427			1,374
Amortization of intangible assets		4,490			5,773			9,288			10,707
Stock-based compensation expense		707			476			1,715			1,542
Reorganization charge		-			4,338			-			4,338
Income tax on adjustments		(1,858	)		(3,568	)		(3,951	)		(5,680	)
Deferred income tax valuation allowance		-			4,731			-			9,005
Non-controlling interest on adjustments		(340	)		(734	)		(864	)		(1,277	)
Adjusted net earnings	$	13,696		$	16,617		$	10,664		$	21,047

	Three months ended					Six months ended
(in US$)	June 30					June 30
	2012			2011		2012			2011
Diluted net earnings (loss) per common share	$	0.28		$	0.11	$	(0.27	)	$	(0.22	)
Non-controlling interest redemption increment		(0.02	)		0.06		0.10			0.25
Acquisition-related items		0.08			0.02		0.29			0.05
Amortization of intangible assets, net of tax		0.09			0.11		0.19			0.21
Stock-based compensation expense, net of tax		0.02			0.01		0.04			0.03
Reorganization charge		-			0.09		-			0.09
Deferred income tax valuation allowance		-			0.14		-			0.27
Adjusted earnings per common share	$	0.45		$	0.54	$	0.35		$	0.68

Page 6 of 11

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

Liquidity and capital resources

Net cash used by operating activities for the six month period ended June 30, 2012 was $36.4 million, versus cash used of $25.0 million the prior year period. The decline in operating cash flow was attributable to a reduction in operating earnings, particularly in the Property Services segment, as well as a modest increase in working capital usage, primarily in our Commercial Real Estate division. Operating cash flow was positive for the second quarter of 2012 and is expected to be positive in the third and fourth quarters. We believe that cash from operations, which is expected to be positive on an annual basis, and other existing resources will continue to be adequate to satisfy the ongoing working capital needs of the Company.

We purchased 200,000 Subordinate Voting Shares on the open market during the six months ended June 30, 2012 at a cost of $6.3 million. The purchased shares were cancelled.

For the six months ended June 30, 2012, capital expenditures were $14.3 million. Significant purchases included information technology systems in the CRE segment. Based on our current operations, capital expenditures for the year ending December 31, 2012 are expected to be approximately $36.0 million.

During the six months ended September 30, 2011, we made one acquisition in the Commercial Real Estate segment, at an initial cash cost of $13.2 million.

Net indebtedness as at June 30, 2012 was $378.7 million, versus $295.6 million at December 31, 2011. Net indebtedness is calculated as the current and non-current portion of long-term debt less cash and cash equivalents. The change in indebtedness resulted primarily from investments in working capital, purchases of our shares on the open market, purchases of non-controlling interests and business acquisitions. We are in compliance with the covenants within our financing agreements as at June 30, 2012 and, based on our outlook for the balance of the year, we expect to remain in compliance with these covenants. On March 1, 2012 we entered into an amended and restated credit agreement with a five year term extending to March 1, 2017. We had $49.9 million of available un-drawn credit as of June 30, 2012.

In relation to acquisitions completed during the past three years, we have outstanding contingent consideration totalling $26.0 million as at June 30, 2012 ($28.5 million as at December 31, 2011) assuming all contingencies are satisfied and payment is due in full. Such payments, if any, are due during the period extending to December 2013. The contingent consideration liability is recognized at fair value upon acquisition and is updated to fair value each quarter, unless it contains an element of compensation, in which case such element is treated as compensation expense over the contingency period. The contingent consideration is based on achieving specified earnings levels, and is paid or payable at the end of the contingency period. We estimate that, based on current operating results, approximately 80% of the contingent consideration outstanding as of June 30, 2012 will ultimately be paid.

Page 7 of 11

The following table summarizes our contractual obligations as at June 30, 2012:

Contractual obligations	Payments due by period
(in thousands of US$)			Less than						After
	Total		1 year		1-3 years		4-5 years		5 years
Long-term debt	$	376,392	$	35,496	$	65,885	$	275,011	$	-
Convertible debentures		77,000		-		77,000		-		-
Capital lease obligations		2,374		1,625		733		16		-
Operating leases		264,518		66,974		93,187		48,391		55,966
Total contractual obligations	$	720,284	$	104,095	$	236,805	$	323,418	$	55,966

At June 30, 2012, we had commercial commitments totaling $11.0 million comprised of letters of credit outstanding due to expire within one year.  We are required to make semi-annual payments of interest on our senior notes and Convertible Debentures at a weighted average interest rate of 6.1%.

Non-controlling interests

In most operations where managers, employees or brokers are also minority owners, the Company is party to shareholders’ agreements.  These agreements allow us to “call” the minority position at a value determined with the use of a formula price, which is in most cases equal to a multiple of trailing two-year average earnings, less debt.  Minority owners may also “put” their interest to the Company at the same price, with certain limitations including (i) the inability to “put” more than 50% of their holdings in any twelve-month period and (ii) the inability to “put” any holdings for at least one year after the date of our initial acquisition of the business or the date the minority shareholder acquired the stock, as the case may be.  The total value of the minority shareholders’ interests (the “redemption amount”), as calculated in accordance with shareholders’ agreements, was as follows.

	June 30		December 31
(in thousands of US$)	2011		2011
Commercial Real Estate	$	50,629	$	52,058
Residential Property Management		60,353		61,322
Property Services		13,893		13,638
	$	124,875	$	127,018

The amount recorded on our balance sheet under the caption “non-controlling interests” is the greater of: (i) the redemption amount (as above) or (ii) the amount initially recorded as NCI at the date of inception of the minority equity position. As at June 30, 2012, the NCI recorded on the balance sheet was $138.7 million. The purchase prices of the NCI may be satisfied in cash or in Subordinate Voting Shares of FirstService.

Off-balance sheet arrangements

We do not have any material off-balance sheet arrangements other than those disclosed in notes 14 and 21 to the December 31, 2011 audited consolidated financial statements.

Critical accounting policies and estimates

The preparation of consolidated financial statements requires management to make estimates and assumptions with respect to the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities.  These estimates and assumptions are based upon management’s historical experience and are believed by management to be reasonable under the circumstances. Such estimates and assumptions are evaluated on an ongoing basis and form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ significantly from these estimates.  Our critical accounting policies and estimates have been reviewed and discussed with our Audit Committee.  There have been no material changes to our critical accounting policies and estimates from those disclosed in the Company’s MD&A for the year ended December 31, 2011.

Page 8 of 11

Recently adopted accounting standards

On January 1, 2012, we adopted updated guidance issued by the FASB on fair value measurement and disclosure (ASU 2011-04). This update changes certain fair value measurement principles and enhances disclosure requirements, particularly for Level 3 fair value measurements. The guidance was adopted prospectively and did not impact the Company’s results of operations or financial position but did result in enhanced disclosure for Level 3 fair value measurements of assets and liabilities.

On January 1, 2012, we adopted new guidance issued by the FASB on the presentation of comprehensive income (ASU 2011-5). This guidance requires entities to present the total of comprehensive earnings, the components of net earnings and the components of other comprehensive earnings either in a single continuous statement of comprehensive earnings or in two separate but consecutive statements. The guidance does not change the items that must be reported in other comprehensive earnings or when an item of other comprehensive earnings must be reclassified to net earnings. This guidance was adopted retrospectively and resulted in a change in disclosure of comprehensive earnings from within the statement of shareholders’ equity to a separate statement of comprehensive earnings.

Impact of IFRS

On January 1, 2011, many Canadian companies were required to adopt International Financial Reporting Standards (“IFRS”). In 2004, in accordance the rules of the CSA, the Company elected to report exclusively using U.S. GAAP. Under the rules of the CSA, the Company is permitted to continue preparing its financial statements in accordance with U.S. GAAP and, as a result, did not adopt IFRS on January 1, 2011.

Financial instruments

We use financial instruments as part of our strategy to manage the risk associated with interest rates and currency exchange rates. We do not use financial instruments for trading or speculative purposes. As of the date of this MD&A, we had one interest rate swap in place to exchange the fixed interest rate on $30.0 million of notional value on our Senior Notes for a floating rate.

Outstanding share data

The authorized capital of the Company consists of an unlimited number of preference shares, issuable in series, of which are authorized an unlimited number of 7% Cumulative Preference Shares, Series 1 (the “Preferred Shares”), an unlimited number of Subordinate Voting Shares and an unlimited number of Multiple Voting Shares.  The holders of Subordinate Voting Shares are entitled to one vote in respect of each Subordinate Voting Share held at all meetings of the shareholders of the Company.  The holders of Multiple Voting Shares are entitled to twenty votes in respect of each Multiple Voting Share held at all meetings of the shareholders of the Company.  The holders of the Preferred Shares are not entitled, except as otherwise provided by law or in the conditions attaching to the preference shares as a class, to receive notice of, attend or vote at any meeting of the shareholders of the Company. Each Multiple Voting Share is convertible into one Subordinate Voting Share at any time at the election of the holders thereof. The Preferred Shares are redeemable for cash or convertible into Subordinate Voting Shares at the option of the Company at any time as set out in the Articles of the Company.

The Company also has outstanding $77.0 million principal amount of Convertible Debentures. The Convertible Debentures mature on December 31, 2014 and accrue interest at the rate of 6.50% per annum payable semi-annually in arrears on June 30 and December 31 in each year, commencing June 30, 2010. At the holder’s option, the Convertible Debentures may be converted into Subordinate Voting Shares of FirstService at any time prior to the close of business on the earlier of the business day immediately preceding either the maturity date and the date specified by FirstService for redemption of the Convertible Debentures. The conversion price is $28.00 for each Subordinate Voting Share, subject to adjustment in certain circumstances. The Convertible Debentures will not be redeemable before December 31, 2012. On and after December 31, 2012 and prior to December 31, 2013, the Convertible Debentures may be redeemed in whole or in part from time to time at FirstService’s option, provided that the volume weighted average trading price of the Subordinate Voting Shares on the Toronto Stock Exchange (converted into a US dollar equivalent) during the 20 consecutive trading days ending on the fifth trading day preceding the date on which the notice of the redemption is given is not less than 125% of the conversion price. On and after December 31, 2013 and prior to the maturity date, FirstService may, at its option, redeem the Convertible Debentures, in whole or in part, from time to time at par plus accrued and unpaid interest. Subject to specified conditions, FirstService has the right to repay the outstanding principal amount of the Convertible Debentures, on maturity or redemption, through the issuance of Subordinate Voting Shares. FirstService also has the option to satisfy its obligation to pay interest through the issuance and sale of Subordinate Voting Shares. A summary of additional terms of the Convertible Debentures is set out in the section entitled “Description Of The Securities Being Distributed” contained in the Company’s prospectus dated November 3, 2009 qualifying the distribution of the Convertible Debentures, which section is incorporated herein by reference.

Page 9 of 11

As of the date hereof, the Company has outstanding 28,703,560 Subordinate Voting Shares, 1,325,694 Multiple Voting Shares and 5,622,634 Preferred Shares. In addition, as at the date hereof: (a) 1,890,050 Subordinate Voting Shares are issuable upon exercise of options granted under the Company stock option plan; and (b) 2,750,000 Subordinate Voting Shares are issuable upon conversion or redemption or in respect of repayment at maturity of the outstanding Convertible Debentures (using the conversion price of $28.00 for each Subordinate Voting Share), with a maximum of 3,871,290 Subordinate Voting Shares being issuable upon conversion of the Convertible Debentures following certain “change of control” transactions. During the six month period ended June 30, 2012, the Company repurchased 200,000 Subordinate Voting Shares under its Normal Course Issuer Bid.

Canadian tax treatment of preferred dividends

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

Changes in internal controls over financial reporting

There have been no changes in our internal controls over financial reporting during the three and six month periods ended June 30, 2012 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

Forward-looking statements

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

·   Economic conditions, especially as they relate to commercial and consumer credit conditions and consumer spending.

·   Commercial real estate property values, vacancy rates and general conditions of financial liquidity for real estate transactions.

·   Residential real estate property values, loan default rates, foreclosure rates and the conversion rates of properties to lender-owned.

·   Extreme weather conditions impacting demand for our services or our ability to perform those services.

·   Competition in the markets served by the Company.

Page 10 of 11

·   Labour shortages or increases in wage and benefit costs.

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

·   Unexpected increases in operating costs, such as insurance, workers’ compensation, health care and fuel prices.

·   Changes in the frequency or severity of insurance incidents relative to our historical experience.

·   The effects of changes in foreign exchange rates in relation to the US dollar on the Company’s Canadian dollar, Australian dollar and Euro denominated revenues and expenses.

·   Our ability to make acquisitions at reasonable prices and successfully integrate acquired operations.

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

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

We caution that the foregoing list is not exhaustive of all possible factors, as other factors could adversely affect our results, performance or achievements. The reader is cautioned against undue reliance on these forward-looking statements. Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in such forward-looking statements will be realized. The inclusion of such forward-looking statements should not be regarded as a representation by the Company or any other person that the future events, plans or expectations contemplated by the Company will be achieved.  We note that past performance in operations and share price are not necessarily predictive of future performance. We disclaim any intention and assume no obligation to update or revise any forward-looking statement even if new information becomes available, as a result of future events or for any other reason.

Additional information

Additional information regarding the Company, including our Annual Information Form, is available on SEDAR at www.sedar.com.

Page 11 of 11