EX-2 3 ex2.htm EX-2 EX-2
EXHIBIT 2

MANAGEMENT’S REPORT

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying consolidated financial statements and management discussion and analysis (“MD&A”) of FirstService 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 (“SEC”).

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. This annual report does not include an audit opinion by PricewaterhouseCoopers LLP on management’s assessment or on the effectiveness of the Company’s internal control over financial reporting pursuant to temporary deferred auditor reporting rules of the SEC.

REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal controls over financial reporting for the Company. Internal controls over financial reporting are processes designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated 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 on a timely basis. 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 assessed the effectiveness of the Company’s internal control over financial reporting as at March 31, 2007, based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management has concluded that, as at March 31, 2007, the Company’s internal control over financial reporting was effective.

   
/s/ Jay S. Hennick
Chief Executive Officer
/s/ John B. Friedrichsen
Chief Financial Officer
May 17, 2007
 
- 1 -

INDEPENDENT AUDITORS’ REPORT
 
To the Shareholders of FirstService Corporation:

We have audited the consolidated balance sheets of FirstService Corporation as at March 31, 2007 and 2006 and the consolidated statements of earnings, shareholders’ equity and cash flows for each year in the three-year period ended March 31, 2007. 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 in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at March 31, 2007 and 2006 and the results of its operations and its cash flows for each year in the three-year period ended March 31, 2007 in accordance with accounting principles generally accepted in the United States of America.



/s/ PricewaterhouseCoopers LLP
Chartered Accountants, Licensed Public Accountants

Toronto, Canada
May 17, 2007

- 2 -


FIRSTSERVICE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands of US dollars, except per share amounts)

For the years ended March 31
    
2007
    
2006
    
2005
  
Revenues
                    
    Services
  
$
1,171,582
  
$
914,273
  
$
509,005
  
    Products
    
188,104
    
153,861
    
142,371
  
Total revenues
    
1,359,686
    
1,068,134
    
651,376
  
Cost of revenues (exclusive of depreciation shown below)
                    
    Services
    
728,460
    
589,659
    
336,569
  
    Products
    
131,776
    
94,621
    
86,215
  
Selling, general and administrative expenses
    
384,875
    
295,050
    
172,179
  
Depreciation
    
16,650
    
12,340
    
9,603
  
Amortization of intangible assets other than brokerage backlog
    
6,773
    
3,684
    
2,769
  
Amortization of brokerage backlog
    
8,164
    
7,554
    
8,735
  
     
82,988
    
65,226
    
35,306
  
Interest expense
    
16,807
    
13,128
    
7,192
  
Interest income
    
(6,853
)
  
(1,249
)
  
-
  
Other income, net (note 5)
    
(4,848
)
  
(3,776
)
  
(375
)
Impairment loss on available-for-sale securities (note 7)
    
3,139
    
-
    
-
  
Earnings before income taxes and minority interest
    
74,743
    
57,123
    
28,489
  
Income taxes (note 14)
    
21,738
    
17,208
    
7,014
  
Earnings before minority interest
    
53,005
    
39,915
    
21,475
  
Minority interest share of earnings
    
16,318
    
11,881
    
6,085
  
Net earnings from continuing operations
    
36,687
    
28,034
    
15,390
  
Net (loss) earnings from discontinued operations, net of income taxes (note 4)
    
(471
)
  
41,463
    
7,817
  
Net earnings before cumulative effect of change in accounting principle
    
36,216
    
69,497
    
23,207
  
Cumulative effect of change in accounting principle, net of income taxes (note 13)
    
(1,353
)
  
-
    
-
  
Net earnings
  
$
34,863
  
$
69,497
  
$
23,207
  
                     
Net earnings (loss) per share (note 15)
                    
Basic
                    
    Continuing operations
  
$
1.23
  
$
0.93
  
$
0.52
  
    Discontinued operations
    
(0.02
)
  
1.37
    
0.26
  
    Cumulative effect of change in accounting principle
    
(0.04
)
  
-
   
-
  
   
$
1.17
  
$
2.30
  
$
0.78
  
Diluted
                    
    Continuing operations
  
$
1.14
  
$
0.87
  
$
0.49
  
    Discontinued operations
    
(0.02
)
  
1.34
    
0.25
  
    Cumulative effect of change in accounting principle
    
(0.04
)
  
-
    
-
  
   
$
1.08
  
$
2.21
  
$
0.74
  
The accompanying notes are an integral part of these consolidated financial statements. 
 

 
- 3 -
FIRSTSERVICE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of US dollars)

As at March 31
    
2007
    
2006
  
Assets              
Current assets
              
    Cash and cash equivalents
  
$
99,038
  
$
167,938
  
    Restricted cash
    
16,930
    
-
  
    Accounts receivable, net of an allowance of $8,637 (2006 - $7,482)
    
163,581
    
128,276
  
    Mortgage loans receivable
    
13,716
    
6,874
  
    Income taxes recoverable
    
8,796
    
6,665
  
    Inventories (note 6)
    
31,768
    
27,267
  
    Prepaid expenses and other assets
    
17,593
    
12,858
  
    Deferred income taxes (note 14)
    
10,935
    
5,531
  
     
362,357
    
355,409
  
 
Other receivables
    
7,215
    
8,311
  
Fixed assets (note 8)
    
66,297
    
48,733
  
Other assets (note 7)
    
28,952
    
26,908
  
Deferred income taxes (note 14)
    
5,238
    
4,381
  
Intangible assets (note 9)
    
95,809
    
70,775
  
Goodwill (note 10)
    
251,130
    
196,487
  
     
454,641
    
355,595
  
   
$
816,998
  
$
711,004
  
Liabilities
Current liabilities
              
    Accounts payable
 
$
35,668
  
$
41,790
  
    Accrued liabilities (note 6)
    
169,861
    
108,085
  
    Income taxes payable
    
5,229
    
5,726
  
    Unearned revenues
    
20,632
    
5,349
  
    Long-term debt - current (note 11)
    
22,119
    
18,646
  
    Deferred income taxes (note 14)
    
3,318
    
5,112
  
     
256,827
    
184,708
  
 
Long-term debt - non-current (note 11)
    
213,030
    
230,040
  
Other liabilities
    
4,876
    
-
  
Deferred income taxes (note 14)
    
29,084
    
30,041
  
Minority interest
    
48,306
    
28,463
  
     
295,296
    
288,544
  
Shareholders’ equity
              
Capital stock (note 12)
    
80,108
    
75,687
  
    Issued and outstanding: 28,597,194 (2006 - 28,730,094) Subordinate
    Voting Shares and 1,325,694 (2006 - 1,325,694) convertible Multiple
    Voting Shares
Contributed surplus
    
6,557
    
2,163
  
Receivables pursuant to share purchase plan (note 12)
    
(1,232
)
  
(1,635
)
Retained earnings
   
175,346
    
160,392
  
Cumulative other comprehensive earnings
    
4,096
    
1,145
  
     
264,875
    
237,752
  
   
$
816,998
  
$
711,004
  
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     
       
          
- 4 -

FIRSTSERVICE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands of US dollars, except share amounts)
 
 
    
Issued and outstanding shares
(note 12)
    
Capital stock
    
Contributed surplus
    
Receivables pursuant to share purchase plan
    
Retained earnings
    
Cumulative other comprehensive earnings (loss
)
  
Total shareholders’ equity
  
Balance, March 31, 2004
    
29,499,730
  
$
68,557
  
$
183
  
$
(2,148
)
$
81,972
  
$
6,537
  
$
155,101
  
Comprehensive earnings:
                                            
    Net earnings
    
-
    
-
    
-
    
-
    
23,207
    
-
    
23,207
  
    Foreign currency translation adjustments
    
-
    
-
    
-
    
-
    
-
    
4,124
    
4,124
  
Comprehensive earnings
                                        
27,331
  
Subordinate Voting Shares:
                                            
    Stock option expense
    
-
    
-
    
622
    
-
    
-
    
-
    
622
  
    Stock options exercised
    
911,130
    
5,515
    
-
    
-
    
-
    
-
    
5,515
  
    Purchased for cancellation
    
(218,072
)
  
(530
)
  
-
    
-
    
(2,168
)
  
-
    
(2,698
)
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 on share purchase plan
    
-
    
-
    
-
    
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 21)
    
-
    
-
    
-
    
-
    
(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 on share purchase plan
    
-
    
-
    
-
    
403
    
-
    
-
    
403
  
Balance, March 31, 2007
    
29,922,888
  
$
80,108
  
$
6,557
  
$
(1,232
)
$
175,346
  
$
4,096
  
$
264,875
  
The accompanying notes are an integral part of these consolidated financial statements.
 
 
- 5 -
FIRSTSERVICE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of US dollars)
  
For the years ended March 31
    
2007
    
2006
    
2005
 
Cash provided by (used in)
                    
Operating activities
                    
Net earnings from continuing operations
  
$
36,687
  
$
28,034
  
$
15,390
  
Items not affecting cash:
                    
    Depreciation and amortization
    
31,587
    
23,578
    
21,107
  
    Deferred income taxes
    
(9,531
)
  
(4,901
)
  
473
  
    Minority interest share of earnings
    
16,318
    
11,881
    
6,085
  
    Stock option expense
    
3,707
    
1,932
    
799
  
    Other
    
2,103
    
716
    
166
  
                     
Changes in operating assets and liabilities:
                    
    Accounts receivable
    
(27,039
)
  
(8,483
)
  
(3,171
)
    Mortgage loans receivable
    
(6,842
)
  
(6,874
)
  
-
  
    Inventories
    
(4,684
)
  
(8,622
)
  
(6,678
)
    Prepaid expenses and other assets
    
(1,806
)
  
(2,585
)
  
2,319
  
    Accounts payable
    
(11,847
)
  
9,640
    
(8,337
)
    Accrued liabilities
    
33,159
    
12,612
    
5,387
  
    Income taxes
    
(3,345
)
  
(4,846
)
  
(3,051
)
    Unearned revenues
    
1,554
    
166
    
1,386
  
Discontinued operations
    
(231
)
  
7,101
    
4,566
  
Net cash provided by operating activities
    
59,790
    
59,349
    
36,441
  
                     
Investing activities
                    
Acquisitions of businesses, net of cash acquired
    
(66,826
)
  
(14,105
)
  
(56,830
)
Purchases of minority shareholders’ interests in subsidiaries
    
(6,603
)
  
(11,998
)
  
(2,148
)
Sales of interests in subsidiaries to minority shareholders
    
3,167
    
-
    
-
  
Purchases of fixed assets
    
(26,723
)
  
(18,837
)
  
(12,499
)
(Increase) decrease in other assets
    
(1,367
)
  
109
    
1,236
  
Decrease (increase) in other receivables
    
1,967
    
(600
)
  
1,928
  
Proceeds on sale of equity securities
    
4,875
    
-
    
-
  
Disposals of businesses
    
-
    
110,476
    
-
  
Changes in restricted cash
    
(9,797
)
  
-
    
-
  
Discontinued operations
    
(838
)
  
(8,563
)
  
(142
)
Net cash (used in) provided by investing activities
    
(102,145
)
  
56,482
    
(68,455
)
                     
Financing activities
                    
Increase in long-term debt
    
5,935
    
102,614
    
59,586
  
Repayment of long-term debt
    
(21,430
)
  
(74,100
)
  
(10,956
)
Financing fees paid
    
(150
)
  
(1,396
)
  
(124
)
Proceeds received on exercise of stock options
   
6,435
    
3,740
    
5,515
  
Repurchase of Subordinate Voting Shares
    
(16,593
)
  
(13,711
)
  
(2,698
)
Collection of receivables pursuant to share purchase plan
    
403
    
513
    
-
  
Dividends paid to minority shareholders of subsidiaries
    
(3,524
)
  
(1,939
)
  
(606
)
Net cash (used in) provided by financing activities
    
(28,924
)
  
15,721
    
50,717
  
Effect of exchange rate changes on cash and cash equivalents
    
2,379
    
(1,072
)
  
3,135
  
(Decrease) increase in cash and cash equivalents during the year
    
(68,900
)
  
130,480
    
21,838
  
Cash and cash equivalents, beginning of year
    
167,938
    
37,458
    
15,620
  
Cash and cash equivalents, end of year
  
$
99,038
  
$
167,938
  
$
37,458
  

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

- 6 -

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 property services to commercial, institutional and residential customers in North America and various other countries around the world. The Company’s operations are conducted through four segments: Commercial Real Estate Services, Residential Property Management, Property Improvement Services and Integrated Security Services. The Company disposed of its Business Services segment in March 2006 as disclosed in note 4.

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 impairment testing of fair values of goodwill and intangible assets, the collectibility of accounts receivable and 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 does 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 highly liquid investments, which are readily convertible into cash and have original maturities 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.

Mortgage loans receivable
The Company writes fixed-rate and floating-rate commercial mortgages. The mortgages are funded under co-lending agreements whereby the Company advances 20% or less of the principal amount. The co-lenders advance 80% or more of the principal amount directly to the borrowers. The Company’s interest in the mortgages is subordinate to the co-lenders’ interests. The co-lenders have the right to purchase the Company’s interest in the mortgages after six months and the Company has the right to purchase the co-lenders’ interest in any mortgage at any time 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.

In the ordinary course of business, the Company sells mortgage loans through public securitization and whole loan sales. When the Company 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 the Company’s policy not to retain a residual interest in the mortgages sold.

- 7 -
Inventories
Inventories are carried at the lower of cost and net realizable value. Cost is determined by the weighted average or first-in, first-out methods. The weighted average and the first-in, first-out methods represent approximately 55% and 45% (2006 - 55% and 45%) of total inventories, respectively. Finished goods and work-in-progress include the cost of materials, direct labor and manufacturing overhead costs.

Fixed assets
Fixed assets are stated at cost less accumulated depreciation. The 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 net 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 other equity securities are accounted for using the equity method or cost method, as applicable, and are subject to impairment testing. Income from securities is recorded in other income.

Financial instruments and derivatives
Derivative financial instruments are recorded on the consolidated balance sheets as assets or liabilities and carried at fair value. The Company enters into interest rate swaps to cover the full value of the mortgages written, including the portion that has been funded by a co-lender which the Company has the right and intention to call, while mortgages await sale. Changes in the fair value of swaps are recognized in current period earnings. These swaps convert the fixed-rate mortgage loans to floating rates. Hedge accounting has not been accorded to the portion of these swaps that is matched to the mortgages held for sale as the swaps do not meet the criteria for hedge accounting.

Financing fees
Financing fees related to the revolving credit facility and Senior Notes are 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 identifiable assets acquired 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  
              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  
 
   
- 8 -
  
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 may not be recoverable from the estimated future cash flows expected to result from their use and eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. Measurement of the impairment loss is based on the excess of the carrying amount of the asset over 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 carrying value to fair value on an individual intangible asset basis.

Revenue recognition and unearned revenue
 
(a)
Real estate brokerage operations
Revenues from brokerage transactions are recognized when the related transaction is completed, normally the earlier of the closing date or occupancy, unless future contingencies exist. If contingencies exist, revenue recognition is deferred until the contingencies are satisfied. On real estate leasing commissions where contingencies exist, revenue is recognized (i) on execution of appropriate lease and commissions agreements and receipt of full or partial payment (in accordance with the contract terms) or (ii) when receivable upon occurrence of certain events such as tenant occupancy.

 
(b)
Service operations other than real estate brokerage
Revenues are recognized at the time the service is rendered or the product is shipped. Revenues from security systems installations or similar contracts 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. Amounts received from customers in advance of services being provided are recorded as unearned revenue when received.

 
(c)
Franchise operations
The Company operates several franchise systems within its Property Improvement 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. In addition, the Company operates 11 franchise locations of its California Closets franchise system and these revenues are recognized as in (b) above.

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.

- 9 -
Income taxes
Income taxes have been provided using the asset and 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.

3.
Acquisitions

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 its Commercial Real Estate Services, Residential Property Management and Property Improvement Services 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.

Certain of the purchase price allocations for the 2007 acquisitions are preliminary pending finalization of analyses of the assets acquired and liabilities assumed. Details of the 2007 acquisitions are as follows:
   
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
  
 
 
- 10 -
2006 acquisitions:
During the year ended March 31, 2006, the Company completed six individually insignificant acquisitions in the Commercial Real Estate Services, Property Improvement Services and Residential Property Management segments. The Company also acquired minority interests from shareholders in the Commercial Real Estate Services, Residential Property Management and Integrated Security Services segments.

Details of the 2006 acquisitions are as follows:
   
2006
 
    
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
  
 
2005 acquisitions:
The Company completed the acquisition of 71.8% of the shares of CMN International Inc. (“CMN”) on November 30, 2004 (the Company’s ownership subsequently increased to 83.1% on October 1, 2005 as a result of a purchase of minority interests). CMN is a member of the Colliers International commercial real estate services network, with operations in the United States, Canada, Australia and various other countries. CMN is headquartered in Seattle, Washington.

The Company completed other business acquisitions in the Residential Property Management and Property Improvement Services segments. The Company also purchased minority interests from shareholders in Property Improvement Services.
- 11 -
 
Details of the 2005 acquisitions are as follows:
   
2005
 
    
CMN
    
Aggregate other acquisitions
    
Purchases of minority shareholders’ interests
  
                     
Current assets
  
$
57,150
  
$
1,281
  
$
-
  
Long-term assets
    
16,807
    
1,747
    
-
  
Current liabilities
    
(83,644
)
  
(2,351
)
  
-
  
Long-term liabilities
    
(15,167
)
  
(2,604
)
  
-
  
                     
Minority interest
    
(3,720
)
  
(89
)
  
272
  
                     
     
(28,574
)
  
(2,016
)
  
272
  
Note consideration
  
$
-
  
$
405
  
$
-
  
Cash consideration
  
$
39,833
  
$
10,512
  
$
2,148
  
                     
Acquired intangible assets
    
29,402
    
6,289
    
-
  
Goodwill
    
39,005
    
6,644
    
1,876
  

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 year ended March 31, 2007, goodwill in the amount of $6,814 is deductible for income tax purposes (2006 - nil; 2005 - nil).

Certain vendors, at the time of acquisition, are entitled to receive contingent consideration if the acquired businesses achieve specified earnings levels during the two- to four-year periods following the dates of acquisition. Such contingent consideration is paid in cash at the expiration of the contingency period. As at March 31, 2007, there was contingent consideration outstanding of up to $14,800 (2006 - $8,600). The contingencies will expire during the period extending to January 2009. The contingent consideration will be recorded when the contingencies are resolved and the consideration is paid or becomes payable, at which time the Company will record the fair value of the consideration paid or payable, including interest, if any, as additional costs of the acquired businesses. Contingent consideration paid during the year ended March 31, 2007 was $1,747 and the amount payable as at March 31, 2007 was $4,864 (note 6). Total contingent consideration recognized for the year ended March 31, 2007 was $6,269 net of income tax of $342 (2006 - $2,759, net of income tax of $90).

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 cash portions of the consideration for the 2007 acquisitions were financed from cash on hand.
- 12 -
 
Following are the Company’s unaudited consolidated pro forma results assuming the acquisitions occurred on the first day of the year of acquisition. The year immediately prior to the year of acquisition also includes the pro forma results of the acquisitions.

(unaudited)
    
2007
    
2006
  
               
Pro forma revenues
  
$
1,422,659
  
$
1,220,902
  
Pro forma net earnings from continuing operations
    
38,369
    
32,114
  
               
Pro forma net earnings per share from continuing operations
              
    Basic
  
$
1.28
  
$
1.06
  
    Diluted
    
1.19
    
1.00
  

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

4.
Dispositions

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 8). 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 on Canadian dollars.

During the year ended March 31, 2005, the Company sold three businesses. Two of the disposed businesses were previously included in the Property Improvement Services segment and one was previously included in the Residential Property Management segment. The aggregate proceeds on the dispositions were $15,555 comprised of cash of $5,389, notes receivable of $4,644, and assumption of liabilities by the purchasers of $5,522. The pre-tax gain on disposal was $2,695, before income taxes of $1,495, resulting in a net gain of $1,200. The net gain on disposal included the realization of a gain of $1,578 related to cumulative foreign currency translation on Canadian dollars.
- 13 -
 
For the year ended March 31, 2007, expenses related to indemnity and warranty obligations of previously disposed operations were reported as discontinued operations. For the years ended March 31, 2006 and 2005, the operating results of the disposed operations before the dates of disposal are reported as discontinued operations. The operating results for the discontinued operations are as follows:

Operating results for years ended March 31
    
2007
    
2006
    
2005
  
                     
Revenues
  
$
-
  
$
160,204
  
$
174,078
  
Operating (loss) earnings from discontinued operations before income taxes
    
(728
)
  
7,429
    
10,452
  
(Recovery of) provision for income taxes
    
(257
)
  
1,785
    
3,835
  
Net operating (loss) earnings from discontinued operations
    
(471
)
  
5,644
    
6,617
  
Net gain on disposal
    
-
    
35,819
    
1,200
  
Net (loss) earnings from discontinued operations
    
(471
)
  
41,463
    
7,817
  
                     
Net (loss) earnings per share from discontinued operations
                    
    Basic
  
$
(0.02
)
$
1.37
  
$
0.26
  
    Diluted
    
(0.02
)
  
1.34
    
0.25
  

5.
Other income

     
2007
    
2006
    
2005
  
                     
Earnings from available-for-sale securities
  
$
2,078
  
$
-
  
$
-
  
Earnings from equity method investments
    
1,625
    
1,329
    
125
  
Net gain (loss) on sale of equity securities
    
1,145
   
2,211
    
(62
)
Gain on foreign exchange contracts
    
-
    
121
    
200
  
Dilution gain on sale of subsidiary shares
    
-
    
115
    
112
  
   
$
4,848
  
$
3,776
  
$
375
  

6.
Components of working capital accounts
 
     
2007
    
2006
  
Inventories
              
    Work-in-progress
  
$
18,040
  
$
14,459
  
    Finished goods
    
11,249
    
11,014
  
    Supplies and other
    
2,479
    
1,794
  
   
$
31,768
  
$
27,267
  
               
Accrued liabilities
              
    Accrued payroll, commission and benefits
 
$
103,360
  
$
71,155
  
    Customer advances
    
11,531
    
2,363
  
    Contingent acquisition consideration payable
    
4,864
    
-
  
    Accrued interest
    
4,159
    
4,447
  
    Liabilities in connection with discontinued operations
    
2,912
    
3,387
  
    Other
    
43,035
    
26,733
  
   
$
169,861
  
$
108,085
  

- 14 -
 
7.
Other assets
 
      2007    
2006
  
Available-for-sale equity securities
  
$
17,419
  
$
18,845
  
Equity method investments
    
5,046
    
4,965
  
Held-to-maturity debt securities
    
3,763
    
-
  
Financing fees, net of accumulated amortization of $1,554 (2006 - $1,094)
    
1,690
    
2,143
  
Other
    
1,034
    
955
  
   
$
28,952
  
$
26,908
  

As of March 31, 2007, the Company’s available-for-sale securities were in a continuous loss position for more than twelve months. Accordingly, these securities were deemed to be other-than-temporarily impaired and an unrealized, non-cash loss of $3,139 ($2,574 net of income taxes) was recorded in the statement of earnings as of March 31, 2007.

8.
Fixed assets

2007
          
Accumulated
    
Net
  
 
    
Cost
    
depreciation
    
2007
  
Fixed assets
                    
Land
  
$
3,070
  
$
-
  
$
3,070
  
Buildings
    
11,225
    
2,093
    
9,132
  
Vehicles
   
19,209
    
11,363
    
7,846
  
Furniture and equipment
    
39,598
    
19,758
    
19,840
  
Computer equipment and software
    
36,552
    
19,977
    
16,575
  
Leasehold improvements
    
18,545
    
8,711
    
9,834
  
   
$
128,199
  
$
61,902
  
$
66,297
  

2006
          
Accumulated
    
Net
  
 
    
Cost
    
depreciation
    
2006
  
Fixed assets
                    
Land
  
$
1,915
  
$
-
  
$
1,915
  
Buildings
    
6,886
    
1,781
    
5,105
  
Vehicles
   
17,519
    
10,004
    
7,515
  
Furniture and equipment
    
27,477
    
16,574
    
10,903
  
Computer equipment and software
    
29,836
    
15,911
    
13,925
  
Leasehold improvements
    
13,268
    
3,898
    
9,370
  
   
$
96,901
  
$
48,168
  
$
48,733
  

Included in fixed assets are vehicles and computer equipment under capital lease at a cost of $9,385 (2006 - $7,874) and net book value of $4,937 (2006 - $5,021).
- 15 -
 
9.
Intangible assets
 
2007
    
Gross carrying amount
    
Accumulated amortization
    
Net
2007
  
                     
Customer lists and relationships
  
$
45,597
  
$
8,074
  
$
37,523
  
Franchise rights
    
26,862
    
6,597
    
20,265
  
Trademarks and trade names:
                    
    Indefinite life
    
15,695
    
-
    
15,695
  
    Finite life
    
18,930
    
2,781
    
16,149
  
Management contracts and other
    
6,502
    
1,518
    
4,984
  
Brokerage backlog
    
23,639
    
22,446
    
1,193
  
   
$
137,225
  
$
41,416
  
$
95,809
  


2006
    
Gross carrying amount
    
Accumulated amortization
    
Net
2006
  
                     
Customer lists and relationships
  
$
25,663
  
$
3,758
  
$
21,905
  
Franchise rights
    
23,685
    
4,068
    
19,617
  
Trademarks and trade names:
                    
    Indefinite life
    
15,446
    
-
    
15,446
  
    Finite life
    
12,517
    
2,181
    
10,336
  
Management contracts and other
    
5,618
    
2,354
    
3,264
  
Brokerage backlog
    
15,829
    
15,622
    
207
  
   
$
98,758
  
$
27,983
  
$
70,775
  


During the year ended March 31, 2007, the Company acquired the following intangible assets:
 
    
Amount
    
Estimated weighted average amortization period (years
)
               
Customer lists and relationships
  
$
16,602
    
7.1
  
Franchise rights
    
7,549
    
21.0
  
Trademarks and trade names
    
6,439
    
22.8
  
Management contracts and other
    
2,922
    
7.4
  
Brokerage backlog
    
7,617
    
0.8
  
   
$
41,129
    
10.9
  

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

2008
  
$
9,545
  
2009
    
8,257
  
2010
    
7,954
  
2011
    
7,277
  
2012
    
5,444
  

- 16 -


10.
Goodwill
 
 
    
Commercial Real Estate Services
    
Residential Property Management
    
Property Improvement Services
    
Integrated Security Services
    
Business Services
    
Consolidated
  
                                       
Balance, March 31, 2005
  
$
38,962
  
$
69,666
  
$
41,003
  
$
29,686
  
$
57,223
  
$
236,540
  
                                       
Goodwill resulting from adjustments to purchase
    price allocations
    
78
    
(190
)
  
(315
)
  
-
    
-
    
(427
)
Goodwill resulting from contingent acquisition payments
    
-
    
1,035
    
1,575
    
-
    
-
    
2,610
  
Goodwill resulting from purchases of minority
    shareholders’ interests
    
4,084
    
681
    
222
    
373
    
-
    
5,360
  
Goodwill acquired during year
    
8,983
    
105
    
952
    
-
    
-
    
10,040
  
Goodwill disposed during year
    
(364
)
  
-
    
(192
)
  
-
    
(58,044
)
  
(58,600
)
Foreign exchange
    
124
    
-
    
-
    
19
    
821
    
964
  
Balance, March 31, 2006
    
51,867
    
71,297
    
43,245
    
30,078
    
-
    
196,487
  
                                       
Goodwill resulting from adjustments to purchase
    price allocations
    
363
    
-
    
(566
)
  
-
    
-
    
(203
)
Goodwill resulting from contingent acquisition payments
    
-
    
5,654
    
-
    
537
    
-
    
6,191
  
Goodwill resulting from purchases of minority
    shareholders’ interests
    
4,985
    
-
    
883
    
166
    
-
    
6,034
  
Goodwill acquired during year
    
40,389
    
1,296
    
1,209
    
-
    
-
    
42,894
  
Goodwill disposed during year
    
-
    
-
    
(836
)
  
-
    
-
    
(836
)
Foreign exchange
    
560
    
-
    
-
    
3
    
-
    
563
  
Balance, March 31, 2007
  
$
98,164
  
$
78,247
  
$
43,935
  
$
30,784
  
$
-
  
$
251,130
  


11.
Long-term debt
 
     
2007
    
2006
  
               
Revolving credit facility
  
$
-
  
$
-
  
8.06% Senior Notes
    
71,428
    
85,714
  
6.40% Senior Notes
    
50,000
    
50,000
  
5.44% Senior Notes
    
100,000
    
100,000
  
Capital leases bearing interest ranging from 5% to 10%, maturing at various dates through 2010
    
4,455
    
5,324
  
Other long-term debt bearing interest at 4% to 10%, maturing at various dates through 2010
    
9,266
    
7,648
  
     
235,149
    
248,686
  
Less: current portion
    
22,119
    
18,646
  
   
$
213,030
  
$
230,040
  

On April 1, 2005, the Company entered into an amended and restated credit agreement with a syndicate of banks to provide a $110,000 committed senior revolving credit facility with a three-year term. The amended revolving credit facility bears interest at 1.00% to 2.25% over floating reference rates, depending on certain leverage ratios. The revolving credit facility was unused as at March 31, 2007 and 2006.
 
 
- 17 -
On the same date, the Company completed a private placement of $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 proceeds of the private placement were used to repay outstanding balances on the revolving credit facility. The revolving credit facility requires a commitment fee of 0.25% to 0.50% of the unused portion, depending on certain leverage ratios.

The Company has outstanding $71,428 of 8.06% fixed-rate Senior Notes (the “8.06% Notes”) (2006 - $85,714). 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 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 March 31, 2007.

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

The estimated aggregate amount of principal repayments on long-term debt required in each of the next five fiscal years and thereafter to meet the retirement provisions are as follows:
2008
  
$
22,119
  
2009
    
17,979
  
2010
    
15,668
  
2011
    
14,890
  
2012
    
34,474
  
Thereafter
    
130,019
  


12.
Capital stock

The authorized capital stock of the Company is as follows:

An unlimited number of Preference Shares, issuable in series;
An unlimited number of Subordinate Voting Shares having one vote per share; and 
An unlimited number of Multiple Voting Shares having 20 votes per share, convertible at any time into Subordinate Voting Shares at a rate of one Subordinate Voting Share for each Multiple Voting Share outstanding.
- 18 -
 
The following table provides a summary of total capital stock issued and outstanding:

 
  
Subordinate Voting Shares
Multiple Voting Shares
  
Total
    
Total
  
 
    
Number
    
Amount
    
Number
    
Amount
    
number
    
amount
  
                                       
Balance, March 31, 2005
    
28,867,094
  
$
73,169
    
1,325,694
  
$
373
    
30,192,788
  
$
73,542
  
Balance, March 31, 2006
    
28,730,094
    
75,314
    
1,325,694
    
373
    
30,055,788
    
75,687
  
Balance, March 31, 2007
    
28,597,194
    
79,735
    
1,325,694
    
373
    
29,922,888
    
80,108
  
 
 
During the year ended March 31, 2007, the Company repurchased 697,700 (2006 - 571,650; 2005 - 218,072) 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 capital stock for the weighted average book value and to retained earnings for any excess.

 
The Company has $1,232 (C$1,740) (2006 - $1,635 (C$2,309)) of interest bearing loans receivable related to the purchase of 240,000 Subordinate Voting Shares (2006 - 440,000 shares). The loans, which are collateralized by the shares issued, have a ten-year term from the grant date; however, they are open for repayment at any time. The maturities of these loans are as follows, for the years ending March 31.
 
2008
 $
 467
  
2009
    
765
  
  $
1,232
  
 
 
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 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$10.875. 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$16.25.

13.
Stock-based compensation

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

     
2007
    
2006
    
2005
  
                     
Stock option expense - Company plan
  
$
1,916
  
$
1,380
  
$
622
  
Stock option expense - subsidiaries
    
1,791
    
552
    
177
  
Stock value appreciation plans
    
3,074
    
659
    
889
  
   
$
6,781
  
$
2,591
  
$
1,688
  

From April 1, 2003 until March 31, 2006, the Company recognized stock option compensation expense in the statements of earnings using the fair value method of accounting for stock-based compensation under Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation (“SFAS 123”) as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of SFAS 123 (“SFAS 148”). SFAS 148 provided alternative methods of transitioning to the fair value based method of accounting for employee stock options as compensation expense. The Company used the “prospective method” of SFAS 148 and expensed the fair value of new option grants awarded subsequent to March 31, 2003. Compensation expense was allocated to reporting periods using the graded attribution approach. Forfeitures of stock options were treated as a reduction of expense in the period of forfeiture.

- 19 -
On April 1, 2006, the Company adopted SFAS No. 123R, Share Based Payment, (“SFAS 123R”) using the modified prospective approach. Upon the adoption of SFAS 123R, the Company changed its approach to accounting for stock options issued by subsidiaries of the Company to subsidiary employees, where the employees have the ability to elect to receive cash payments upon exercise. Previously, these options were recorded as liabilities at their intrinsic value. Under SFAS 123R, these options are recorded as liabilities at their fair value, as determined using a Black-Scholes option pricing model. Also, the Company previously accounted for stock option forfeitures as a reduction to expenses in the period of forfeiture whereas under SFAS 123R, forfeitures are estimated and expensed at the grant date. The aggregate cumulative effect of the change in accounting principle, net of income taxes of nil, was $1,353.

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 March 31, 2007, there were 506,000 options available for future grants (2006 - nil).

     
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, 2007 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, 2004
    
2,288,630
  
$
8.01
              
Granted
    
496,500
    
13.63
              
Exercised
    
(911,130
)
  
6.42
              
Forfeited
    
(30,000
)
  
10.43
              
Shares issuable under options - March 31, 2005
    
1,844,000
  
$
10.83
              
Granted
    
328,000
    
19.96
              
Exercised
    
(434,650
)
  
8.60
              
Forfeited
    
(21,000
)
  
9.38
              
Shares issuable under options - March 31, 2006
    
1,716,350
  
$
13.74
              
Granted
    
305,000
    
25.50
              
Exercised
    
(564,800
)
  
11.40
              
Forfeited
    
(11,000
)
  
13.43
              
Shares issuable under options - March 31, 2007
    
1,445,550
  
$
17.31
    
3.12
  
$
14,543
  
Options exercisable - March 31, 2007
    
598,675
  
$
13.58
    
2.34
  
$
8,427
  

As at March 31, 2007, the range of option exercise prices was $6.00 to $25.54 per share. Also as at March 31, 2007, the aggregate intrinsic value and weighted average remaining contractual life for options vested and expected to vest were $13,778 and 3.12 years, respectively.

- 20 -
The following table summarizes information about option exercises during the three years ended March 31, 2007:

     
2007
    
2006
    
2005
  
                     
Number of options exercised
    
564,800
    
434,650
    
911,130
  
                     
Aggregate fair value
  
$
13,266
  
$
10,784
  
$
12,939
  
Intrinsic value
    
6,831
    
7,044
    
7,424
  
Amount of cash received
  
$
6,435
  
$
3,740
  
$
5,515
  
                     
Tax benefit recognized
  
$
-
  
$
-
  
$
-
  
                     

The amount of compensation expense recorded in the consolidated statement of earnings, allocated using the graded attribution method, for the year ended March 31, 2007 was $1,916 (2006 - $1,380; 2005 - $622). As at March 31, 2007, there was $3,176 of unrecognized compensation cost related to non-vested awards which is expected to be recognized over the next 3.75 years. During the year ended March 31, 2007, the fair value of options vested was $1,220 (2006 - $739; 2005 - $337).

The weighted average fair value per share of options granted in 2007 was $6.70 (2006 - $7.65; 2005 - $4.85). 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:

     
2007
    
2006
    
2005
  
                     
Risk-free interest rate
    
4.3
%
  
4.7
%
  
3.2
%
Expected life in years
    
3.75
    
4.4
    
4.4
  
Expected volatility
    
25.2
%
  
30.0
%
  
30.0
%
Dividend yield
    
0
%
  
0
%
  
0
%

The risk-free interest rate is the rate on the grant date on a zero-coupon US Treasury bond with a term equal to the option’s expected term. The expected term represents the average between the vesting date and the contractual term pursuant to SEC Staff Accounting Bulletin No. 107 Share-Based Payment. 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.
- 21 -
 
Prior to April 1, 2003, the Company had accounted for stock options under the intrinsic value method under APB No. 25 Accounting for Stock Issued to Employees. Had compensation expense for stock options been determined under the fair value method under SFAS 123 for all periods, pro forma reported net earnings and earnings per share would reflect the following; there was no impact on the fiscal year ended March 31, 2007:

    
     
2006
    
2005
  
               
Net earnings as reported
  
$
69,497
  
$
23,207
  
Deduct: Stock-based compensation expense determined under fair value method, net of income taxes
    
(738
)
  
(1,826
)
Pro forma net earnings
  
$
68,759
  
$
21,381
  
               
Pro forma net earnings per share:
              
    Basic
  
$
2.28
  
$
0.72
  
    Diluted
    
2.18
    
0.68
  
               
Reported net earnings per share:
              
    Basic
  
$
2.30
  
$
0.78
  
    Diluted
    
2.21
    
0.74
  
 
Subsidiary stock option and appreciation plans
The Company has stock option plans at certain of its subsidiaries. The impact of potential dilution from these plans is reflected in the Company’s diluted earnings per share (note 15).

The Company also has stock value appreciation plans at certain of its subsidiaries that provide for cash payments to be made to subsidiary employees based on the long-term appreciation of the stock value of subsidiaries. The Company’s accounting policy is to record the intrinsic value of these awards as accrued liabilities. 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. Since these plans are settled in cash, no dilutive effect has been reflected in the Company’s diluted earnings per share.


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:

     
2007
    
2006
    
2005
  
Income tax expense using combined statutory rate of approximately
    36% (2006 - 36%; 2005 - 40%)
  
$
26,827
  
$
20,632
  
$
11,394
  
Non-deductible expenses
    
3,143
    
137
    
1,217
  
Reduction in tax liability of prior years
    
(1,788
)
  
-
    
(1,133
)
Effect of changes in enacted tax rates
    
(451
)
  
-
    
-
  
Losses of prior years
    
(553
)
  
-
    
-
  
Foreign tax rate reduction
    
(5,440
)
  
(3,561
)
  
(4,464
)
Provision for income taxes as reported
  
$
21,738
  
$
17,208
  
$
7,014
  

- 22 -
 
Earnings before income taxes and minority interest by tax jurisdiction comprise the following:

     
2007
    
2006
    
2005
  
                     
Canada
  
$
7,808
  
$
5,238
  
$
(4,966
)
United States
    
45,555
    
39,742
    
30,627
  
Foreign
    
21,380
    
12,143
    
2,828
  
Total
 
$
74,743
  
$
57,123
  
$
28,489
  
 
The provision for income taxes comprises the following:
     
2007
    
2006
    
2005
  
                     
Current
                    
    Canada
  
$
1,002
  
$
2,370
  
$
4,553
  
    United States
    
21,310
    
14,792
    
8,479
  
    Foreign
    
7,343
    
4,482
    
834
  
     
29,655
    
21,644
    
13,866
  
Deferred
                    
    Canada
    
(1,540
)
  
(1,778
)
  
(2,890
)
    United States
    
(4,790
)
  
(2,378
)
  
(3,962
)
    Foreign
    
(1,587
)
  
(280
)
  
-
  
     
(7,917
)
  
(4,436
)
  
(6,852
)
Total
  
$
21,738
  
$
17,208
  
$
7,014
  
 
The significant components of deferred income taxes are as follows:
     
2007
    
2006
  
Deferred income tax assets
              
    Expenses not currently deductible
  
$
9,823
  
$
4,374
  
    Provision for doubtful accounts
    
784
    
831
  
    Inventory and other reserves
    
397
    
326
  
    Loss carry-forwards
    
5,169
    
4,381
  
     
16,173
    
9,912
  
Deferred income tax liabilities
              
    Depreciation and amortization
    
28,365
    
29,822
  
    Investments
    
2,397
    
3,953
  
    Prepaid and other expenses deducted for tax purposes
    
458
    
666
  
    Unrealized foreign exchange gains
    
1,010
    
493
  
    Financing fees
    
172
    
219
  
     
32,402
    
35,153
  
Net deferred income tax liability
  
$
16,229
  
$
25,241
  

As at March 31, 2007, the Company had Canadian net operating loss carry-forward balances of approximately $11,565 (2006 - $12,130). These amounts are available to reduce future federal and provincial income taxes. Net operating loss carry-forward balances attributable to Canada expire over the next ten years. The Company also had foreign net operating loss carry-forward balances of approximately $17,619 (2006 - $15,416), offset by a valuation allowance of $15,416 (2006 - $15,416). Foreign capital loss carry-forward balances amounted to $9,870 (2006 - $10,490) as at March 31, 2007 offset by a valuation allowance of $9,870 (2006 - $10,490). Non-capital and capital loss carry-forward balances of $15,416 (2006 - $15,416) and $9,870 (2006 - $10,490) respectively relate to losses acquired in the CMN acquisition, the benefit of which have not been recognized in the financial statements. Any benefit realized with respect to these losses would be recorded as a reduction in goodwill.

- 23 -
Cumulative unremitted earnings of US and foreign subsidiaries approximated $109,928 as at March 31, 2007 (2006 - $81,863).
 
15.
Earnings per share

The following table reconciles the numerator used to calculate diluted earnings per share:
 
     
2007
    
2006
    
2005
  
                     
Net earnings from continuing operations
  
$
36,687
  
$
28,034
  
$
15,390
  
Dilution of net earnings resulting from assumed exercise of stock options in subsidiaries
    
(2,228
)
  
(1,253
)
  
(569
)
Net earnings from continuing operations for diluted earnings per share calculation purposes
  
$
34,459
  
$
26,781
  
$
14,821
  
                     
Net earnings
  
$
34,863
  
$
69,497
  
$
23,207
  
Dilution of net earnings resulting from assumed exercise of stock options in subsidiaries
    
(2,228
)
  
(1,253
)
  
(569
)
Net earnings for diluted earnings per share calculation purposes
  
$
32,635
  
$
68,244
  
$
22,638
  

The following table reconciles the denominator used to calculate earnings per share:

     
2007
    
2006
    
2005
  
                     
Shares issued and outstanding at beginning of year
    
30,055,788
    
30,192,788
    
29,499,730
  
Weighted average number of shares:
                    
Issued during the year
    
210,843
    
137,943
    
381,309
  
Repurchased during the year
    
(364,101
)
  
(160,040
)
  
(103,665
)
                     
Weighted average number of shares used in computing basic earnings per share
    
29,902,530
    
30,170,691
    
29,777,374
  
Assumed exercise of stock options, net of shares assumed acquired under the Treasury Stock Method
    
451,774
    
725,286
    
689,597
  
Number of shares used in computing diluted earnings per share
    
30,354,304
    
30,895,977
    
30,466,971
  


16.
Other supplemental information
 
     
2007
    
2006
    
2005
  
                     
Franchised operations
                    
Revenues
  
$
112,858
  
$
88,531
  
$
79,541
  
Operating earnings
    
20,619
    
16,728
    
15,574
  
Initial franchise fee revenues
    
5,571
    
3,482
    
3,459
  
                     
Cash payments made during the year
                    
Income taxes
  
$
25,764
  
$
25,179
  
$
16,854
  
Interest
    
16,283
    
12,481
    
11,073
  
 
Non-cash financing activities
                    
Increases in capital lease obligations
  
$
1,502
  
$
3,284
  
$
1,986
  
                     
Other expenses
                    
Rent expense
  
$
34,979
  
$
26,762
  
$
14,104
  

- 24 -
 
17.
Financial instruments

Concentration of credit risk
The Company is subject to credit risk with respect to its cash and cash equivalents, accounts receivable, other receivables and interest rate swaps. 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. The counterparty to the interest rate swaps is an investment-grade financial institution that the Company anticipates will satisfy its obligations under the contracts.

The Company is also subject to credit risk with respect to its mortgage loan receivables. This risk is derived from the failure of a borrower to honor its contractual obligations to the Company. The Company manages this credit risk principally by selling all of the mortgage loans that are written.

Interest rate risk
The Company maintains an interest rate risk management strategy that uses interest rate swaps from time to time. The Company’s specific goals are to (i) manage interest rate sensitivity by modifying the characteristics of its debt and mortgage loans receivable and (ii) lower the long-term cost of its borrowed funds. Fluctuations in interest rates will affect the fair value of interest rate swaps as their value will depend on the prevailing market interest rate. Swaps are monitored on a monthly basis.

As at March 31, 2007 and 2006, the Company had no interest rate swaps related to its long-term debt. In May 2005, the Company settled a swap on $20,000 of principal on the 6.40% Notes for a net loss of $48. In December 2005, the Company settled swaps on $85,714 of principal on the 8.06% Notes for a net gain of $120.

As at March 31, 2007, the Company had interest rate swaps to convert $167,807 of fixed-rate mortgage loans receivable to floating rates (2006 - $41,518) with a fair value of $368 (2006 - $57). The swaps have maturity dates ranging from December 2011 to March 2017. Because the swaps do not qualify as accounting hedges, changes in the fair value of the swaps are recognized in earnings. The fair values of swaps are determined based on the present value of the estimated future net cash flows using implied rates in the applicable yield curve as of the valuation date.

For the year ended March 31, 2007 a loss of $3,245 was recorded in revenues relating to these swaps, which was comprised of $368 unrealized gains (2006 - $57) on outstanding swaps and $3,613 of realized losses (2006 - nil) on the settlement of the swaps.

During the year ended March 31, 2007, the Company recognized pre-tax gains (after realized losses on swaps) of $2,120 (2006 - nil) on the securitization of mortgage loans with unpaid principal balances of $39,208 (2006 - nil). In connection with the sale of mortgages, the Company is obligated to cure or repurchase any mortgage sold that has a breach or defect. As at March 31, 2007, the Company was unable to develop an estimate of the maximum potential of future payments under this obligation because the Company is not aware of any breaches or defects.

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:
 
- 25 -
 
     
2007 
  
 2006
  
 
    
Carrying
amount
    
Fair
 value
    
Carrying
amount
    
Fair
value
  
Mortgage loans receivable
  
$
13,716
  
$
13,716
  
$
6,874
  
$
6,874
  
Other receivables
    
7,215
    
7,215
    
8,311
    
8,311
  
Available-for-sale securities
    
17,419
    
17,419
    
18,845
    
18,845
  
Long-term debt
    
235,149
    
261,009
    
248,686
    
267,166
  
Interest rate swaps
    
368
    
368
    
57
    
57
  


18.
Commitments and contingencies

 
(a)
Lease commitments
Minimum operating lease payments are as follows:
 
Year ending March 31        
2008
  
$
30,802
  
2009
    
26,705
  
2010
    
21,239
  
2011
    
16,871
  
2012
    
14,695
  
Thereafter
    
26,904
  
 
 
(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, at the option of the Company, be paid in cash or in Subordinate Voting Shares. Acquisitions of these minority interests, if any, would be accounted for using the purchase method. The total obligation if all call or put options were exercised as at March 31, 2007 was approximately $154,000 (2006 - $79,000).

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

19.
Related party transactions

During the year, the Company paid $826 (2006 - $775; 2005 - $746) in rent to entities controlled by minority shareholders of subsidiaries. The transactions were completed at market rates.

20.
Segmented information

Operating segments
The Company has four reportable operating segments. The segments are grouped with reference to the types of services provided and the types of clients that use those services. The Company assesses each segment’s performance based on operating earnings or operating earnings before depreciation and amortization. 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 Improvement Services provides franchised and Company-owned property services to customers in the United States and Canada. Integrated Security Services provides security systems installation, maintenance, monitoring and security officers to primarily commercial customers in Canada and the United States. Corporate includes the costs of operating the Company’s corporate head office.

Included in total assets of the Commercial Real Estate Services segment at March 31, 2007 is $4,667 (2006 - $4,608; 2005 - $3,797) of investments in subsidiaries accounted for under the equity method.

- 26 -

2007
    
Commercial Real Estate Services
    
Residential Property Management
    
Property Improvement Services
    
Integrated Security Services
    
Corporate
    
Consolidated
  
                                       
Revenues
  
$
608,065
  
$
423,797
  
$
150,794
  
$
176,476
  
$
554
  
$
1,359,686
  
Depreciation and amortization
    
16,235
    
7,644
    
4,653
    
2,832
    
223
    
31,587
  
Operating earnings
    
31,464
    
32,623
    
25,911
    
7,769
    
(14,779
)
  
82,988
  
Other income, net
                                  
1,709
  
Interest expense, net
                                  
(9,954
)
Income taxes
                                  
(21,738
)
Minority interest
                                  
(16,318
)
Net earnings from continuing operations
                                  
36,687
  
Net earnings from discontinued operations
                                  
(471
)
Cumulative effect of change in accounting principle
                                  
(1,353
)
Net earnings
                                
$
34,863
  
Total assets
  
$
328,338
  
$
206,977
  
$
123,832
  
$
91,827
  
$
66,024
  
$
816,998
  
Total additions to long-lived assets
    
89,484
    
27,917
    
10,165
    
2,236
    
331
    
130,133
  

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2006
    
Commercial Real Estate Services
    
Residential Property Management
    
Property Improvement Services
    
Integrated Security Services
    
Corporate
    
Consolidated
  
                                       
Revenues
  
$
438,434
  
$
346,133
  
$
134,136
  
$
149,063
  
$
368
  
$
1,068,134
  
Depreciation and amortization
    
11,388
    
5,618
    
3,749
    
2,655
    
168
    
23,578
  
Operating earnings
    
25,079
    
25,767
    
22,016
    
5,005
    
(12,641
)
  
65,226
  
Other income, net
                                  
3,776
  
Interest expense, net
                                  
(11,879
)
Income taxes
                                  
(17,208
)
Minority interest
                                  
(11,881
)
Net earnings from continuing operations
                                  
28,034
  
Net earnings from discontinued operations
                                  
41,463
  
Net earnings
                                
$
69,497
  
Total assets
  
$
211,321
  
$
150,641
  
$
114,188
  
$
85,479
  
$
149,375
  
$
711,004
  
Total additions to long-lived assets
    
36,799
    
10,400
    
9,909
    
2,809
    
546
    
60,463
  


2005
    
Commercial Real Estate Services
    
Residential Property Management
    
Property Improvement Services
    
Integrated Security Services
    
Corporate
    
Consolidated
  
                                       
Revenues
  
$
120,535
  
$
275,229
  
$
111,779
  
$
143,160
  
$
673
  
$
651,376
  
Depreciation and Amortization
    
9,868
    
5,170
    
3,071
    
2,819
    
179
    
21,107
  
Operating earnings
    
1,276
    
18,917
    
16,796
    
7,468
    
(9,151
)
  
35,306
  
Other income, net
                                  
375
  
Interest expense, net
                                  
(7,192
)
Income taxes
                                  
(7,014
)
Minority interest
                                  
(6,085
)
Net earnings from continuing operations
                                  
15,390
  
Net earnings from discontinued operations
                                  
7,817
  
Net earnings
                                
$
23,207
  
Total assets
  
$
100,634
  
$
150,080
  
$
107,063
  
$
86,598
  
$
12,060
  
$
456,435
  
Discontinued operations
                                  
170,293
  
                                   
626,728
  
Total additions to long-lived assets
    
77,255
    
21,412
    
10,437
    
3,684
    
357
    
113,145
  

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

     
2007
    
2006
    
2005
  
                     
United States
                    
Revenues
  
$
868,976
  
$
685,921
  
$
473,027
  
Total long-lived assets
    
287,056
    
230,811
    
244,447
  
                     
Canada
                    
Revenues
  
$
276,195
  
$
233,342
  
$
132,998
  
Total long-lived assets
    
83,929
    
56,037
    
85,009
  
 
Australia
                    
Revenues
  
$
117,794
  
$
78,011
  
$
24,374
  
Total long-lived assets
    
29,514
    
15,273
    
15,665
  

Other
              
Revenues
  
$
96,721
  
$
70,860
  
$
20,977
  
Total long-lived assets
    
12,737
    
13,874
    
10,083
  

Consolidated
                    
Revenues
  
$
1,359,686
  
$
1,068,134
  
$
651,376
  
Total long-lived assets
  
$
413,236
  
$
315,995
  
$
355,204
  


21.
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.

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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 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.

22.
Impact of recently issued accounting standards

SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment of SFAS No. 140 (“SFAS 156”) was issued in March 2006. The standard amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. The standard is effective for the Company’s fiscal year commencing on April 1, 2007. SFAS 156 is not expected to have a material effect on the Company’s results of operations and financial condition as the Company does not currently retain servicing rights upon securitization of mortgages.

- 30 -
In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on accounting for derecognition, interest, penalties, accounting in interim periods, disclosure and classification of matters related to uncertainty in income taxes as well as transitional requirements upon adoption of FIN 48. The provisions of FIN 48 are effective for the Company’s fiscal year commencing on April 1, 2007. The cumulative effects, if any, of applying FIN 48 will be recorded as an adjustment to opening retained earnings of the period of adoption. The Company has begun the process of evaluating the expected impact of FIN 48 on the consolidated financial statements, but is not yet in a position to assess the full impact and related disclosure.
 
In September 2006, the FASB issued SFAS 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 and is effective for the Company’s fiscal year commencing on April 1, 2008. The Company is currently evaluating the impact of the adoption of SFAS 157.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of SFAS No. 115 (“SFAS 159”). SFAS 159 permits the Company to measure certain financial instruments, assets and liabilities at fair value on an instrument-by-instrument basis under a fair value option. The Company may elect to early adopt SFAS 159 effective April 1, 2007; otherwise, the standard is effective for the Company as of April 1, 2008. The Company is currently evaluating the impact of the adoption of SFAS 159 on its financial position and results of operations.

23.
Subsequent event

On April 18, 2007, the Company acquired 80% of the shares of a residential property management firm based in Orange County, California. The purchase price of $29,600 was funded from cash on hand.

 
 
- 31 -