UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q/A
Amendment No. 1

ý    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003

or

o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 

Commission File Number 0-24762

FIRSTSERVICE CORPORATION
(Exact name of Registrant as specified in its charter)

FirstService Building
1140 Bay Street, Suite 4000
Toronto, Ontario, Canada
M5S 2B4
(416) 960-9500
(Address and telephone number of Registrant's principal executive office)

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý    No o

        Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of the latest practicable date:

Subordinate Voting Shares — 13,506,843 as of July 18, 2003
Multiple Voting Shares — 662,847 as of July 18, 2003

Explanatory note

        This Amendment No. 1 to our report on Form 10-Q for the quarter ended June 30, 2003, initially filed with the Securities and Exchange Commission ("SEC") on July 25, 2003 (the "Originally Filed 10-Q"), is being filed to reflect restatements of the consolidated financial statements for the three month periods ended June 30, 2003 and 2002, and as at June 30, 2003 and March 31, 2003.

        The restatements are the result of a detailed review of the accounting for certain intangible assets, including purchase accounting and accounting upon the adoption of FASB Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. The restatements affect the following accounts: goodwill, intangible assets, deferred income tax liabilities, minority interest, amortization expense and income tax expense. For a complete description of the restatements, please see note 3 to the consolidated financial statements included in Item 1.

        This Amendment No. 1 amends and restates Items 1,2 and 6 of the Originally Filed 10-Q, and no other information in the Originally Filed 10-Q is amended hereby. The explanatory caption at the beginning of each Item of this Amendment No. 1 sets forth the nature of the revisions to that Item.

        We did not amend our Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for periods affected by the restatements that ended prior to March 31, 2003, and the consolidated financial statements, auditors' reports and related financial information for the affected periods should no longer be relied upon.

        For a discussion of events and developments subsequent to June 30, 2003, see:

•

Our amended Quarterly Report on Form 10-Q/A for the period ended September 30, 2003, which contains unaudited restated consolidated financial statements for the three and six months ended September 30, 2003 and 2002. This amended report was filed concurrently with this Amendment No. 1.



•

Our other filings made subsequent to June 30, 2003 available at the SEC's website www.sec.gov.

2

FIRSTSERVICE CORPORATION

Form 10-Q/A
for the quarterly period ended June 30, 2003

INDEX

3

PART I    FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The unaudited condensed consolidated financial statements, including the notes thereto, have been revised to reflect restatements, and except for these revisions, do not reflect events and developments subsequent to June 30, 2003.

FIRSTSERVICE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

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

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

4

FIRSTSERVICE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)
(in thousands of U.S. Dollars) — in accordance with U.S. generally accepted accounting principles

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

5

FIRSTSERVICE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF RETAINED EARNINGS AND CUMULATIVE OTHER COMPREHENSIVE EARNINGS (LOSS)

(Unaudited)
(in thousands of U.S. Dollars, except share information) — in accordance with U.S. generally accepted accounting principles

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

6

FIRSTSERVICE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
(in thousands of U.S. Dollars) — in accordance with U.S. generally accepted accounting principles

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

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FIRSTSERVICE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2003
(Unaudited)
(in thousands of U.S. Dollars, except per share amounts)

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

        2. SUMMARY OF PRESENTATION — The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") for the presentation of interim financial information. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information not misleading. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles.

        In the opinion of management, the condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of June 30, 2003 and the results of its operations and cash flows for the three-month periods ended June 30, 2003 and 2002. All such adjustments are of a normal recurring nature. The results of operations for the three months ended June 30, 2003 are not necessarily indicative of the results to be expected for the fiscal year ending March 31, 2004. For further information, refer to the consolidated financial statements and footnotes thereto for the fiscal year ended March 31, 2003 contained in the Company's Form 10-K/A as filed with the SEC.

        3. RESTATEMENTS — As a result of a detailed review of the accounting for certain intangible assets, including purchase accounting at the times of acquisition and accounting upon the adoption of Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, at April 1, 2001, the Company has made certain restatements. In particular, the Company recorded deferred income taxes with respect to franchise intangible assets acquired upon the October 1998 acquisition of California Closet Company, Inc. ("CCC") and the October 1997 acquisition of Paul Davis Restoration, Inc. ("PDR"). In addition, the Company reevaluated the estimated useful lives of the franchise intangible assets associated with CCC and PDR. It was determined that the amortization of franchise rights should follow the pattern of use, specifically the attrition rate of the franchisees that were present at the dates of acquisition. The amortization of trademarks and trade names was determined to be 35 and 25 years for CCC and PDR, respectively. Previously, all of these assets were treated as indefinite life intangible assets.

        The following presents the impact on net earnings of the restatement adjustments for the quarters ended June 30, 2003 and 2002.

        The consolidated balance sheets as at June 30, 2003 and March 31, 2003 were restated. The recognition of deferred income taxes related to the CCC and PDR franchise intangible assets resulted in an increase to

8

goodwill and an increase to deferred income taxes long-term liability. In addition, the balance sheets were restated to take into account the amortization expense, income tax recovery, minority interest, and effect on retained earnings resulting from the restatement adjustments to net earnings described in the chart above. A reconciliation of the consolidated balance sheets at June 30, 2003 and March 31, 2003 follows.

9

        4. NEW ACCOUNTING STANDARDS — In April 2003, SFAS No. 149, Amendment of SFAS 133 on Derivative Instruments and Hedging Activities ("SFAS 149") was issued. SFAS 149 amends and clarifies financial

10

accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 149 is effective for contracts entered into or modified after June 30, 2003 and hedging relationships designated after June 30, 2003. The Company does not expect SFAS 149 to have a material impact on its financial condition or results of operations.

        In May 2003, SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS 150") was issued. SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity, and is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective July 1, 2003. The Company believes SFAS 150 will have no impact on its financial condition or results of operations.

        5. ACQUISITIONS OF BUSINESSES AND PURCHASES OF MINORITY INTERESTS — There were no acquisitions of businesses during the quarter. During the prior year period, one business acquisition in the amount of $238 ($63 net of cash acquired) was completed.

        Certain vendors, at the time of acquisition, are entitled to receive contingent consideration if the acquired businesses achieve specified earnings levels during the two- to four-year periods following the dates of acquisition. Such contingent consideration is issued at the expiration of the contingency period. As at June 30, 2003, there was contingent consideration outstanding of up to $12,700 ($12,700 as at March 31, 2003). The contingencies will expire during the period extending to April 2007. Vendors are entitled to receive interest on contingent consideration issued to them, which interest is calculated from the acquisition date to the payment date at interest rates ranging from 5% to 7%. The contingent consideration will be recorded when the contingencies are resolved and the consideration is issued or becomes issuable, at which time the Company will record the fair value of the consideration issued or issuable, including interest, as additional costs of the acquired businesses. There was no contingent consideration issued or issuable during the quarter (2002 quarter — nil).

        During the quarter ended June 30, 2003 the Company did not purchase any minority interests. In the 2002 quarter, shares were purchased from two minority shareholders for total consideration of $1,841.

        6. LONG-TERM DEBT — The Company has an amended and restated credit agreement with a syndicate of banks that provides a $140,000 committed senior revolving credit facility (the "Credit Facility") renewable and extendible in 364-day increments, and if not renewed, a two-year final maturity. The Credit Facility was most recently renewed and extended on May 7, 2003. The Credit Facility bears interest at 1.5% to 3.0% over floating reference rates, depending on certain leverage ratios. At June 30, 2003, the Company had drawn $50,700 on the Credit Facility.

        The Company has outstanding $100,000 of 8.06% fixed-rate Senior Secured Notes (the "Notes"), held by a group of U.S. institutional investors. The final maturity of the Notes is June 29, 2011, with equal annual principal repayments commencing on June 29, 2005.

        The Credit Facility and the Notes rank equally in terms of seniority. The Company has granted the lenders and Note-holders various security including the following: an interest in all of the assets of the Company including the Company's share of its subsidiaries, an assignment of material contracts and an assignment of the Company's "call rights" with respect to shares of the subsidiaries held by minority interests.

        The covenants and other limitations within the amended and restated credit agreement and the Note agreement are substantially the same. The covenants require the Company to maintain certain ratios including leverage, fixed charge coverage, interest coverage and net worth. The Company is limited from undertaking

11

certain mergers, acquisitions and dispositions without prior approval. The Company was also limited from paying dividends, but was granted approval to do so during the quarter.

        7. FINANCIAL INSTRUMENTS — The Company has two interest rate swap agreements to exchange the fixed rate on the Notes for variable rates. The first interest rate swap exchanges the fixed rate on $75,000 of principal for LIBOR + 250.5 basis points and the second on $25,000 for LIBOR + 445 basis points. The terms of the swaps match the term of the Notes with a maturity of June 29, 2011. The swaps are being accounted for as a fair value hedge in accordance with SFAS 133. The swaps are carried at fair value on the balance sheet, with gains or losses recognized in earnings. The carrying value of the hedged debt is adjusted for changes in fair value attributable to the hedged interest rate risk; the associated gain or loss is recognized currently in earnings. So long as the hedge is considered highly effective, the net impact on earnings is nil. The fair value of the swaps is determined based on the present value of the estimated future net cash flows using implied rates in the applicable yield curve as of the valuation date. Due to changes in the yield curve, the fair values of the swaps fluctuate and at June 30, 2003, the fair values were a gain of $8,311.

        The Company from time to time purchases and sells foreign currencies by using forward contracts, which have not been specifically identified as hedges. The values of these contracts are marked to market with resulting gains and losses included in earnings. At June 30, 2003 the Company had outstanding one foreign currency contract to purchase $Cdn1,667 at a rate of $Cdn1.3892. The purpose of the contract is to match expected future U.S. dollar denominated cash inflows at the Canadian Business Services operations to Canadian dollar denominated expenses.

        8. EARNINGS PER SHARE — The following table presents a reconciliation of the denominators used in computing earnings per share:

        9. STOCK-BASED COMPENSATION — The Company has a stock option plan for officers, key full-time employees and directors of the Company and its subsidiaries. Options are granted at the market price for the underlying shares on the date of grant. Each option vests over a four-year period and expires five years from the date granted and allows for the purchase of one Subordinate Voting Share.

        In December 2002, SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure an Amendment of SFAS 123 ("SFAS 148") was issued. SFAS 148 provides alternative methods of transition for making a voluntary change to fair value-based accounting for stock-based compensation. The Company continues to account for its stock option plans under the intrinsic value recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and related interpretations. Effective for interim periods beginning after December 15, 2002, SFAS 148 also requires disclosure of pro forma results on a quarterly basis as if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123").

        In accordance with APB 25, no stock-based employee compensation cost has been recognized in earnings. The following table illustrates the effect on net earnings and earnings per share if the Company had applied the

12

fair value recognition provisions of SFAS 123, as amended, to all options outstanding under the Company's stock option plan.

        During the three-month period ended June 30, 2003, the Company granted 37,000 stock options that call for settlement by the issuance of Subordinate Voting Shares at a weighted average exercise price of $12.00 per share with an estimated fair value of $4.03 per share (2002 — 34,000 stock options at a weighted average exercise price of $22.04 per share and an estimated fair value of $7.64 per share). The value of these option grants was estimated at the date of grant using a Black-Scholes pricing model with the following assumptions:

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

        11. GUARANTEE — In connection with a contract, the Company has assumed risks associated with work to be performed by a third party. In the unlikely event of non-performance by the third party, the maximum exposure to the Company would be $7,421.

        12. SEGMENTED INFORMATION — The Company has four reportable operating segments. The segments are grouped with reference to the types of services provided and the types of clients that use those services. The Company assesses each segment's performance based on operating earnings or operating earnings before depreciation and amortization. Residential Property Management provides property management, maintenance, landscaping, painting and restoration and other services to residential community associations in the United States. Integrated Security Services provides security systems installation, maintenance, monitoring and manpower to primarily commercial customers in Canada and the United States. Consumer Services provides franchised and Company-owned property services to consumers in the United States and Canada.

13

Business Services provides customer support and fulfillment and business process outsourcing services to corporate and institutional clients in Canada and the United States. Corporate includes the costs of operating the Company's headquarters.

OPERATING SEGMENTS

GEOGRAPHIC INFORMATION

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ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in U.S. Dollars)

The Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") has been revised to reflect the restatements and to update certain forward-looking statements to reflect current expectations, as well as to incorporate certain conforming changes. Apart from these revisions, this MD&A does not reflect events and developments subsequent to June 30, 2003.

Results of operations — three months ended June 30, 2003 and 2002

        Revenues for our first quarter of fiscal 2004 were $157.8 million, 8% higher than the comparative first quarter. Approximately 2% or $3.5 million of the increase resulted from acquisitions completed during the last twelve months.

        During the quarter, 31% of our revenues were originally denominated in Canadian currency, and the balance in U.S. dollars. Based on the average foreign exchange rates in effect during the quarter, the Canadian dollar was 11% stronger relative to the U.S. dollar during the quarter than in the comparable quarter last year. The Company's Canadian dollar denominated revenues and earnings benefit from a stronger Canadian dollar upon conversion to U.S. dollars. This is offset by exchange losses incurred by certain Business Services operations based in Canada that sell services to U.S. clients in U.S. dollars. If exchange rates had stayed constant year-over-year, the current year's first quarter revenues would have been $4.8 million lower and EBITDA¹ would have been $0.1 million higher.

1

EBITDA is defined as net earnings before extraordinary items, minority interest share of earnings, income taxes, interest, depreciation and amortization. EBITDA excludes income taxes and interest, both of which are charges that require cash settlement. EBITDA is not a recognized measure for financial statement presentation under United States generally accepted accounting principles (U.S. GAAP(2)). The most directly comparable U.S. GAAP measure is operating earnings. Operating earnings takes into account depreciation and amortization expenses, while EBITDA does not. Management utilizes EBITDA as a measure to assess the performance of its operations, to evaluate acquisition candidates and establish pricing, for performance-based compensation purposes, and within its debt covenants with its lenders. The Company believes EBITDA is a reasonable measure of operating performance because of the low capital intensity of its service operations. The Company believes EBITDA is a financial metric used by many investors to compare companies, especially in the services industry, on the basis of operating results and the ability to incur and service debt. The table below reconciles EBITDA to operating earnings.

        The quarter's EBITDA was $17.1 million, down $1.4 million from the prior year quarter. Our EBITDA margin declined to 10.8% of revenues from 12.7% of revenues principally due to a client loss at the end of the third quarter of fiscal 2003 and lower transaction volumes from clients in the Business Services segment. Operating earnings for the quarter were $13.1 million, a decline of $2.0 million versus last year, reflecting increased depreciation and amortization expenses in addition to the EBITDA margin decline.

        Depreciation expense increased 13% year-over-year, to $3.4 million, as result of fixed asset additions and fixed assets acquired through business acquisitions during the prior year. Amortization arising from intangible assets acquired during the past year caused amortization expense to increase to $0.6 million for the quarter versus $0.4 million in the prior year quarter.

        Interest expense was $2.1 million versus $2.3 million recorded in the prior year quarter. The average interest rate during the quarter was 5.2% versus 5.6% last year. We continued to benefit from low floating reference rates during the quarter. Substantially all of our indebtedness was at variable interest rates during the quarter. We monitor interest rates closely and we intend to fix a portion of our debt if economic indicators warrant.

15

        The consolidated income tax rate declined to approximately 30% of earnings before income taxes and minority interest from 33% in the prior year's quarter. The reduction in tax rate is primarily the result of continuing leverage from the cross-border tax structure we implemented in fiscal 2000.

        Net earnings for the quarter were $6.4 million, compared to $7.3 million in the prior year quarter. Lower interest and income taxes partially offset the quarter's lower operating earnings.

        Revenues from our Residential Property Management operations were $62.1 million for the quarter, up $5.0 million or 9% versus the prior year quarter. Approximately 3% of the growth resulted from the acquisition of a Manhattan-based property management business, Cooper Square Realty, Inc., in February 2003. The balance was generated internally, with strong growth in our core contractual management revenues offsetting a planned decline in our South Florida restoration activities.

        Residential Property Management EBITDA was $6.6 million, up $0.2 million relative to the prior year quarter. The EBITDA margin was 10.7% versus 11.4% in the prior year period, primarily as a result of a mix change due to a lower proportion of restoration revenues, which typically carry higher margins than core management revenues.

        In our Integrated Security Services segment, revenues rose 11% to $30.2 million. Foreign exchange on our Canadian operations accounted for approximately half of the revenue increase, while strong initial systems installation sales at our U.S. operations accounted for the balance.

        Integrated Security Services EBITDA was $2.1 million, equivalent to the amount reported last year. Margins declined to 6.9% from 7.7% in the prior year period. We undertook several large high-profile initial systems installation projects in the New York area during the quarter at lower than usual margins in anticipation of winning higher margin follow-on revenues in the future.

        Our Consumer Services segment's revenues were $32.3 million, an increase of 11% over the prior year period. Four percent of the increase was the result of two California Closets "branchise" acquisitions completed during fiscal 2003, 5% was from the impact of foreign exchange rates on Canadian operations, and the remaining 2% was from organic growth.

        EBITDA at Consumer Services was $6.1 million, up $0.1 million relative to the prior year. The margin declined to 18.9% from 20.7% primarily as a result of the change in revenue mix caused by an increase in the proportion of Company-owned operations as a result of recent acquisitions, which carry lower margins than franchise revenues.

        First quarter revenues in Business Services were $33.1 million, an increase of 2% over the fiscal 2003 period. After removing the impact of foreign exchange rates on Canadian operations, revenue declined 4% year over year due to the departure of a large client at the end of the third quarter of fiscal 2003 as well as lower transaction volumes from several clients.

        Business Services EBITDA was $3.8 million versus $5.1 million reported in the same period one year ago, primarily a result of lower revenues and corresponding under-utilization of warehouse capacity. The impact of foreign exchange rates on our Canadian operations that sell services to U.S. clients in U.S. dollars accounted for approximately $0.4 million of the EBITDA decline. The quarter's margin was 11.3%, down from 15.7% in the prior year period. Since the beginning of the year, we have secured new clients to replace some of the revenues lost during fiscal 2003. We expect to see the impact of these new clients starting in the second quarter.

        Corporate expenses for the quarter totaled $1.4 million. The $0.2 million increase relative to the prior year was due to severance of an executive and the impact of foreign exchange.

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Restatements

        On January 27, 2004, we announced that as a result of a detailed review of the accounting for certain intangible assets, including purchase accounting at the times of acquisition and accounting upon the adoption of Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, at April 1, 2001, certain restatements would be made. In particular, we recorded deferred income taxes with respect to franchise intangible assets acquired upon the October 1998 acquisition of California Closet Company, Inc. ("CCC") and the October 1997 acquisition of Paul Davis Restoration, Inc. ("PDR"). In addition, we reevaluated the useful lives of the franchise intangible assets associated with CCC and PDR. It was determined that the amortization of franchise rights should follow the pattern of use, specifically the attrition rate of the franchisees that were present at the dates of acquisition. The amortization of trademarks and trade names was determined to be 35 and 25 years for CCC and PDR, respectively. Previously, all of these assets were treated as indefinite life intangible assets.

        The impact of the restatements upon net earnings for the three months ended June 30, 2003 and 2002 was $0.1 million. This was comprised of an increase to amortization expense of $0.2 million less income tax and minority interest effects of $0.1 million. The cumulative impact of the restatements upon retained earnings as at June 30, 2003 was $1.1 million. On an annual basis, the impact upon net earnings for the years ended March 31, 2003 and 2002 is $0.4 million comprised of additional amortization expense of $0.8 million less income tax and minority interest effects of $0.4 million. The annual impact on diluted earnings per share for each of these years is $0.03.

Outlook for the remainder of fiscal 2004

        Also on January 27, 2004, we put forth an updated outlook for the balance of 2004, which incorporates operating results achieved year-to-date and the impact of the restatement adjustments. The updated outlook is as follows: revenues $610 million to $620 million; EBITDA $55.0 million to $56.0 million; and diluted earnings per share of $1.27 to $1.30. The previous outlook, which did not incorporate the restatement adjustments, was: revenues $590 million to $600 million; EBITDA $54.5 million to $56.0 million, and diluted earnings per share of $1.27 to $1.32.

Seasonality and quarterly fluctuations

        Certain segments of the Company's operations, which in the aggregate comprise approximately 15% of revenues, are subject to seasonal variations. Specifically, the demand for residential lawn care, exterior painting, and swimming pool management in the northern United States and Canada is highest during late spring, summer and early fall and very low during winter. As a result, these operations generate a large percentage of their annual revenues between April and September. The Company has historically generated lower profits or net losses during its first and fourth fiscal quarters, from October to March. Residential Property Management (with the exception of swimming pool management), Integrated Security Services, and Business Services generate revenues evenly throughout the fiscal year.

        The seasonality of swimming pool management and certain Consumer Services operations (exterior painting and lawn care) results in variations in quarterly EBITDA margins. Variations in quarterly EBITDA margins can also be caused by acquisitions, which alter the consolidated service mix. The Company's non-seasonal businesses typically generate a consistent EBITDA margin over all four quarters, while the Company's seasonal businesses experience high EBITDA margins in the first two quarters, offset by negative EBITDA in the last two quarters. As non-seasonal revenues increase as a percentage of total revenues, the Company's quarterly EBITDA margin fluctuations should be reduced.

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Liquidity and capital resources

        Net cash provided by operating activities for the three-month period was $12.1 million, up from $7.5 million in the prior year. The most significant factor contributing to the increase in cash flow was more efficient utilization of working capital. We believe that cash from operations and other existing resources will continue to be adequate to satisfy the ongoing working capital needs of the Company.

        Net indebtedness as at June 30, 2003 was $147.0 million, down from $153.3 million at March 31, 2003. Net indebtedness is calculated as the current and non-current portion of long-term debt adjusted for interest rate swaps less cash and cash equivalents. Cash from operating activities primarily effected the $6.2 million reduction in net indebtedness during the three-month period.

        There have been no material changes to the terms of the Company's financing agreements since March 31, 2003 except the renewal and extension of the Credit Facility on May 7, 2003. We are in compliance with the covenants within our financing agreements as at June 30, 2003 and, based on our outlook for the balance of the year, we expect to remain in compliance with the covenants. We had $84.9 million of available un-drawn credit as of June 30, 2003.

        For the three months ended June 30, 2003, capital expenditures were $4.8 million. Significant purchases included service vehicle fleet replacement and expansion for the Company-owned Consumer Services and Residential Property Management operations and a call center technology upgrade in Business Services. Capital expenditures for the year are expected to be approximately $11.0 million, similar to the amount expended during fiscal 2003.

        In relation to acquisitions completed during the past three years, we have outstanding contingent consideration totaling $12.7 million as at June 30, 2003 ($12.7 million as at March 31, 2003). The amount of the contingent consideration is not recorded as a liability unless the outcome of the contingency is determined to be beyond a reasonable doubt. The contingent consideration is based on achieving specified earnings levels, and is issued or issuable at the end of the contingency period. When the contingencies are resolved and additional consideration is distributable, we will record the fair value of the additional consideration as additional costs of the acquired businesses.

        In those operations where operating managements are also minority owners, the Company is party to shareholders' agreements. These agreements allow us to "call" the minority position for a predetermined formula price, which is usually equal to the multiple of earnings paid by the Company for the original acquisition. Minority owners may also "put" their interest to the Company at the same price, with certain limitations. The total value of the minority shareholders' interests, as calculated in accordance with shareholders' agreements, was approximately $26.0 million at June 30, 2003, unchanged from March 31, 2003. While it is not our intention to acquire outstanding minority interests, this step would materially increase net earnings. On an annual basis, the impact of the acquisition of all minority interests would increase interest expense by $1.0 million, reduce income taxes by $0.3 million and reduce minority interest share of earnings by $3.2 million, resulting in an approximate net increase to net earnings of $2.5 million.

Critical accounting policies

        There has been no change in the Company's critical accounting policies since March 31, 2003.

New accounting standards

        In April 2003, the Financial Accounting Standards Board issued SFAS No. 149, Amendment of SFAS 133 on Derivative Instruments and Hedging Activities ("SFAS 149"). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 149

18

is effective for contracts entered into or modified after June 30, 2003 and hedging relationships designated after June 30, 2003. The Company does not expect SFAS 149 to have a material impact on its financial condition or results of operations.

        In May 2003, SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS 150") was issued. SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity, and is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective July 1, 2003. The Company believes SFAS 150 will have no impact on its financial condition or results of operations.

Forward-looking statements

        This quarterly report on Form 10-Q contains or incorporates by reference certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend that such forward-looking statements be subject to the safe harbors created by such legislation. Such forward-looking statements involve risks and uncertainties and include, but are not limited to, statements regarding future events and the Company's plans, goals and objectives. Such statements are generally accompanied by words such as "intend", "anticipate", "believe", "estimate", "expect" or similar statements. Our actual results may differ materially from such statements. Factors that could result in such differences, among others, are:

•

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



•

U. S. and Canadian economic conditions, especially as they relate to consumer spending and business spending on customer relations and promotion.



•

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



•

Competition in the markets served by the Company.



•

Labor shortages or increases in wage rates.



•

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 government policies at the federal, state/provincial or local level that may adversely impact our firearms registration processing, lawn care, or textbook fulfillment activities.



•

The effects of changes in the Canadian dollar foreign exchange rate in relation to the U.S. dollar on the Company's Canadian dollar denominated revenues and expenses.



•

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

        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.

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PART II    OTHER INFORMATION

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FIRSTSERVICE CORPORATION

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