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Press release from GlobeNewswire (a Nasdaq OMX company)

FirstService Reports Solid Third Quarter Results

Wednesday, October 27, 2010

FirstService Reports Solid Third Quarter Results04:30 EDT Wednesday, October 27, 2010Operating highlights:  Three months endedNine months ended September 30September 30 2010 2009 2010 2009      Revenues (millions) $ 530.4  $ 451.1   $ 1,434.2   $ 1,237.4  Adjusted EBITDA (millions) (note 1) 45.7  43.5  110.3  97.1 Adjusted EPS (note 2) 0.61  0.60  1.23  1.15  TORONTO, Oct. 27, 2010 (GLOBE NEWSWIRE) -- FirstService Corporation (TSX:FSV) (Nasdaq:FSRV), preferred shares – (TSX:FSV.PR.U) today reported results for its third quarter ended September 30, 2010. All amounts are in U.S. dollars. Revenues for the third quarter were $530.4 million, an 18% increase relative to the same quarter in the prior year, Adjusted EBITDA (note 1) was $45.7 million, up 5% from $43.5 million and Adjusted EPS (note 2) was $0.61, versus $0.60 reported in the prior year quarter. GAAP EPS from continuing operations was $0.18 per share in the quarter, compared to $0.16 for the same quarter a year ago. For the nine months ended September 30, 2010, revenues were $1.43 billion, a 16% increase relative to the comparable prior year period, while Adjusted EBITDA was $110.3 million, up 14%, and Adjusted EPS was $1.23, up 7%. GAAP EPS from continuing operations for the nine month period was $0.24, compared to a loss of $1.45 in the prior year period. "Overall, we are pleased with our third quarter results. Colliers International demonstrated strong revenue growth in the United States, Canada and Australia, while continuing to invest in its global platform. Revenues in Residential Property Management and Property Services also grew relative to the prior year quarter despite difficult market conditions," said Jay S. Hennick, Founder and Chief Executive Officer of FirstService. "With a strong balance sheet, low leverage ratios and significant financing capacity, FirstService is well positioned to continue generating strong growth for the balance of the year and beyond," he added.About FirstService Corporation FirstService Corporation is a global diversified leader in the rapidly growing real estate services sector, providing services in commercial real estate, residential property management and property services. Industry-leading service platforms include Colliers International, the third largest global player in commercial real estate services; FirstService Residential Management, the largest manager of residential communities in North America; and TFC, North America's largest provider of property services through franchise and contractor networks. FirstService generates over US$1.9 billion in annual revenues and has more than 18,000 employees worldwide. More information about FirstService is available at www.firstservice.com.Segmented Quarterly Results Commercial Real Estate Services revenues totalled $222.7 million for the third quarter, up 43% relative to the prior year quarter. Revenue growth was comprised of 32% internal growth measured in local currencies, a 4% favourable impact from foreign currency translation and 7% growth from recent acquisitions. Internal growth was primarily driven by sharp year over year revenue increases in the United States, Canada and Australia. Adjusted EBITDA was $8.8 million, up 134% from $3.8 million reported in the prior year quarter. Third quarter results were negatively impacted by $2.0 million in Colliers International global re-branding costs, which are expected to continue being incurred throughout the balance of 2010 and the first half of 2011. Residential Property Management revenues were $181.6 million for the third quarter, up 4% relative to the prior year quarter. Revenue growth was comprised of 1% internal growth and 3% from recent acquisitions. Adjusted EBITDA for the quarter was $19.4 million, up 10% versus $17.6 million in the prior year period. Property Services revenues totalled $126.1 million, up 5% from $120.3 million in the prior year period, attributable evenly to franchising and foreclosure services growth. Adjusted EBITDA for the third quarter was $22.2 million, down 8% versus $24.2 million in the prior year quarter, primarily due to the Field Asset Services property preservation and foreclosure services operations. Foreclosure services margins were consistent with margins in each of the past three quarters and, relative to the prior year quarter, were affected by increases in the scope of client engagements. Corporate costs were $5.4 million in the third quarter, relative to $3.6 million in the prior year period. Consistent with the second quarter, the current quarter's results were primarily impacted by higher performance-based compensation accruals and foreign currency translation of Canadian dollar-denominated expenses.Deferred Income Tax Valuation Allowance During the third quarter, the Company recorded an increase in its valuation allowance with respect to deferred income tax assets, which increased income tax expense by $6.8 million and decreased GAAP earnings per share by $0.21. In the prior year quarter, the valuation allowance amounted to $3.6 million, or $0.11 per share. For the nine months ended September 30, 2010, the increase to income tax expense and reduction to GAAP earnings per share were $13.3 million and $0.41, respectively (2009 - $18.5 million and $0.58, respectively). The valuation allowance relates to tax loss carry-forwards in the Company's Commercial Real Estate operations, which remain available to offset income tax over the next 17 to 20 years.Conference Call FirstService will be holding a conference call on Wednesday, October 27, 2010 at 11:00 a.m. Eastern Time to discuss results for the first quarter. The call will be simultaneously web cast and can be accessed live or after the call at www.firstservice.com in the "Investors / Newsroom" section.Forward-looking Statements This press release includes or may include forward-looking statements. Forward-looking statements include the Company's financial performance outlook and statements regarding goals, beliefs, strategies, objectives, plans or current expectations. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to be materially different from any future results, performance or achievements contemplated in the forward-looking statements. Such factors include: (i) general economic and business conditions, which will, among other things, impact demand for the Company's services and the cost of providing services; (ii) the ability of the Company to implement its business strategy, including the Company's ability to acquire suitable acquisition candidates on acceptable terms and successfully integrate newly acquired businesses with its existing businesses; (iii) changes in or the failure to comply with government regulations; and (iv) other factors which are described in the Company's filings with applicable Canadian and United States securities regulatory authorities (which factors are adopted herein). Summary financial information is provided in this press release. This press release should be read in conjunction with the Company's quarterly financial statements and MD&A to be made available on SEDAR at www.sedar.com.Notes 1. Reconciliation of net earnings (loss) from continuing operations to Adjusted EBITDA: Adjusted EBITDA is defined as net earnings from continuing operations before non-controlling interest share of earnings, income taxes, interest, depreciation, amortization, goodwill impairment charges, acquisition-related items, stock-based compensation expense and cost containment expense. The Company uses this measure to evaluate its own operating performance and as an integral part of its planning and reporting systems. Additionally, the Company uses this measure in conjunction with discounted cash flow models to determine its overall enterprise valuation and to evaluate acquisition targets. The Company believes this measure is a reasonable indicator of operating performance because of the low capital intensity of its service operations. The Company believes this measure is a financial metric used by many investors to compare companies, especially in the services industry. This measure is not a recognized measure of financial performance under GAAP in the United States, and should not be considered as a substitute for operating earnings, net earnings or cash flow from operating activities, as determined in accordance with GAAP. The Company's method of calculating Adjusted EBITDA may differ from other issuers and accordingly, this measure may not be comparable to measures used by other issuers. A reconciliation of net earnings from continuing operations to Adjusted EBITDA appears below.   Three months ended Nine months ended (in thousands of US$) September 30 September 30  2010  2009 2010  2009          Net earnings (loss) from continuing operations $ 14,366 $ 16,678$ 35,677  $ (15,990) Income tax 12,491  12,036 23,452  31,220 Other expense (income) 836 (3,499) 3,748 (4,553) Interest expense, net 4,541  2,928 13,196  8,622 Operating earnings 32,234  28,143 76,073  19,299 Depreciation and amortization 11,642  12,077 35,240  35,694 EBITDA 43,876  40,220 111,313  54,993 Goodwill impairment charge --  -- --  29,583 Acquisition-related items 1,131  --(3,080)  -- Stock-based compensation expense 661  1,525 2,079  4,696 Cost containment --  1,766 --  7,841 Adjusted EBITDA $ 45,668 $ 43,511 $ 110,312 $ 97,113 2. Reconciliation of net earnings (loss) and net earnings (loss) per common share from continuing operations to adjusted net earnings and adjusted net earnings per share: Adjusted diluted net earnings per common share from continuing operations is defined as diluted net earnings per common share from continuing operations plus the effect, after income tax, of: (i) the non-controlling interest redemption increment recognized in connection with the accounting standards on non-controlling interests ("NCI"); (ii) amortization expense related to intangible assets recognized in connection with acquisitions; (iii) goodwill impairment charges; (iv) acquisition-related items; (v) stock-based compensation expense; (vi) cost containment expense and (vii) deferred income tax valuation allowances related to tax loss carry-forwards. The Company believes adjusted earnings per share is a useful measure of operating performance because it enhances the comparability of operating results from period to period. This is not a recognized measure of financial performance under GAAP, and should not be considered as a substitute for diluted net earnings per common share from continuing operations, as determined in accordance with GAAP. The Company's method of calculating this measure may differ from other issuers and, accordingly, this measure may not be comparable to measures used by other issuers. A reconciliation appears below.   Three months ended Nine months ended (in thousands of US$) September 30 September 30  2010 20092010 2009         Net earnings (loss) attributable to common shareholders$ 5,370 $ 4,793$ 7,138 $ (45,604) Non-controlling interest redemption increment 2,643  6,940 8,863  17,787 Company share of net loss from discontinued operations, net of tax --  19 --  2,973 Acquisition-related items 1,131  --(3,080)  -- Amortization of intangible assets 4,510  4,949 14,519  16,202 Goodwill impairment charge --  -- --  29,583 Stock-based compensation expense 661  1,525 2,079  4,696 Cost containment --  1,766 --  7,841 Realized gain on available-for-sale securities -- (3,545) -- (4,488) Income tax on adjustments(1,806) (1,534)(5,759) (8,187) Deferred income tax valuation allowance 6,792   3,563 13,262  18,521 Non-controlling interest on adjustments(712) (672) 411 (5,381) Adjusted net earnings from continuing operations $ 18,589 $ 17,804 $ 37,433  $ 33,943             Three months ended Nine months ended (in US$) September 30 September 30  2010 2009 2010  2009          Net earnings (loss) per common share from continuing operations$ 0.18 $ 0.16$ 0.24 $ (1.45) Non-controlling interest redemption increment 0.09  0.24 0.29  0.60 Acquisition-related items 0.03  --(0.04)  -- Amortization of intangible assets, net of tax 0.09  0.10 0.29  0.33 Goodwill impairment charge --  -- --  0.93 Stock-based compensation expense, net of tax 0.01  0.03 0.04  0.09 Cost containment, net of tax --  0.04 --  0.17 Realized gain on available-for-sale securities -- (0.08) -- (0.10) Deferred income tax valuation allowance 0.21  0.11 0.41  0.58 Adjusted diluted net earnings per common share$ 0.61 $ 0.60$ 1.23 $ 1.15          FIRSTSERVICE CORPORATION    Condensed Consolidated Statements of Earnings (Loss)     (in thousands of US dollars, except per share amounts)           Three months Nine months   ended September 30 ended September 30 (unaudited) 2010  2009 2010  2009          Revenues $ 530,418 $  451,080$ 1,434,181  1,237,433         Cost of revenues  332,008  275,469890,130  762,397 Selling, general and administrative expenses  153,403  135,391435,818  390,460 Depreciation  7,132  7,12820,721  19,492 Amortization of intangible assets  4,510  4,94914,519  16,202 Goodwill impairment charge  --  -- --  29,583 Acquisition-related items (1)  1,131  --(3,080)  --Operating earnings 32,234  28,143 76,073  19,299 Interest expense, net  4,541  2,928 13,196  8,622 Other expense (income)  836 (3,499) 3,748 (4,553) Earnings before income tax  26,857  28,714 59,129  15,230 Income tax (2)  12,491  12,036 23,452  31,220 Net earnings (loss) from continuing operations  14,366  16,678 35,677 (15,990) Discontinued operations, net of income tax (3)  -- (19) -- (3,248)Net earnings (loss) 14,366  16,659 35,677 (19,238) Non-controlling interest share of earnings  3,828  2,401 12,100  1,003 Non-controlling interest redemption increment  2,643  6,940 8,863  17,787 Net earnings (loss) attributable to Company  7,895  7,318 14,714  (38,028) Preferred share dividends  2,525  2,525 7,576  7,576Net earnings (loss) attributable to common shareholders $ 5,370  $ 4,793 $ 7,138 $ (45,604)        Net earnings (loss) per common share      Basic        Continuing operations $  0.18 $ 0.16$ 0.24  $ (1.45) Discontinued operations  --  -- -- (0.10)  $ 0.18 $ 0.16$ 0.24 $ (1.55)         Diluted        Continuing operations $ 0.18 $ 0.16$ 0.24 $ (1.45) Discontinued operations  --  -- -- (0.10)  $ 0.18 $ 0.16$ 0.24 $ (1.55)       Adjusted diluted net earnings per common share from continuing operations (4) $ 0.61 $ 0.60 $ 1.23 $ 1.15        Weighted average common shares (thousands)        Basic  30,245  29,442  30,018   29,401  Diluted  30,494  29,548  30,265   29,433 Notes to Condensed Consolidated Statements of Earnings (1) Acquisition-related items include contingent acquisition consideration fair value adjustments, contingent acquisition consideration-related compensation expense, settlements of contingent liabilities of acquired entities initially recognized at the acquisition date and transaction costs. (2) Income tax expense for the three months ended September 30, 2010 includes a $6,792 valuation allowance related to deferred income tax assets (2009 - $3,563); income tax expense for the nine months ended September 30, 2010 includes a $13,262 valuation allowance (2009 - $18,521). (3) Amount shown is before NCI share. For the three months ended September 30, 2010, NCI share of discontinued operations was nil (2009 – nil); for the nine months ended September 30, 2010, NCI share of discontinued operations was nil (2009 – ($275)). (4) See definition and reconciliation above.Condensed Consolidated Balance Sheets    (in thousands of US dollars)               (unaudited) September 30, 2010 December 31, 2009     Assets     Cash and cash equivalents $ 94,893  $ 99,778 Restricted cash  4,426  5,039 Accounts receivable  253,285  214,285 Inventories  10,008  9,458 Prepaid expenses and other current assets  56,211  53,733Current assets 418,823  382,293 Other non-current assets  43,529  46,479 Fixed assets  80,523  75,939 Goodwill and intangible assets  533,429  504,819Total assets$ 1,076,304$  1,009,530          Liabilities and shareholders' equity     Accounts payable and accrued liabilities $ 301,213$  269,668 Other current liabilities  30,097  29,008 Long-term debt - current  40,464  22,347Current liabilities 371,774  321,023 Long-term debt - non-current  191,952  213,647 Convertible unsecured subordinated debentures  77,000  77,000 Other liabilities  32,770  27,606 Deferred income tax  40,622  40,052 Non-controlling interests  168,898  164,168 Shareholders' equity  193,288  166,034Total liabilities and equity$ 1,076,304  1,009,530          Supplemental balance sheet information    Total debt $ 309,416$  312,994 Total debt excluding convertible debentures  232,416  235,994 Total debt, net of cash  214,523  213,216 Total debt excluding convertible debentures, net of cash  137,523  136,216      Consolidated Statements of Cash Flows       (in thousands of US dollars)           Three months ended Nine months ended   September 30 September 30 (unaudited) 2010  2009 2010  2009         Cash provided by (used in)              Operating activities        Net earnings (loss) from continuing operations $ 14,366 $ 16,678$ 35,677  $ (15,990) Items not affecting cash:        Depreciation and amortization  11,642  12,077 35,240  35,694  Goodwill impairment charge  --  -- --  29,583  Deferred income tax (3,776) (1,547)(7,002)  879  Other 3,195  721(1,298)  1,837          Changes in operating assets and liabilities  18,884  4,905(2,190) (26,572) Discontinued operations  --  6,573 --  621  Net cash provided by operating activities  44,311  39,407 60,427  26,052         Investing activities        Acquisition of businesses, net of cash acquired (9,132) (51)(13,595) (5,225) Purchases of fixed assets (8,037) (7,233)(23,157) (18,548) Other investing activities (771)  11,456 3,505  8,442  Discontinued operations  --  307 -- (167) Net cash (used in) provided by investing activities (17,940)  4,479(33,247) (15,498)        Financing activities        Increase in long-term debt, net (16,982) (32,035)(6,577)  15,786  Purchases of non-controlling interests (2,405) (8,993)(19,593) (29,098) Dividends paid to preferred shareholders (2,525) (2,525)(7,576) (7,576) Other financing activities (1,532) (3,900)(2,540) (9,444) Net cash used in financing activities (23,444) (47,453)(36,286) (30,332)         Effect of exchange rate changes on cash  1,737  1,757 4,221  3,149         Increase (decrease) in cash and cash equivalents  4,664 (1,810)(4,885) (16,629)         Cash and cash equivalents, beginning of period including cash held by discontinued operations  90,229  65,230 99,778  80,049         Cash and cash equivalents, end of period including cash held by discontinued operations  $ 94,893 $ 63,420$ 94,893 $ 63,420            Segmented Revenues, Adjusted EBITDA and Operating Earnings      (in thousands of US dollars)                   Commercial Residential         Real Estate Property Property     (unaudited) Services Management Services Corporate Consolidated       Three months ended September 30                     2010      Revenues$ 222,675 $ 181,579  $ 126,138 $ 26 $ 530,418 Adjusted EBITDA 8,817  19,448  22,177 (5,435) 45,007 Stock-based compensation     661       45,668 Operating earnings 943  16,984  19,715 (5,408) 32,234             2009            Revenues  $ 155,984  $ 174,757  $ 120,305  $ 34  $ 451,080  Adjusted EBITDA  2,008   17,646   24,180  (3,614)  40,220  Stock-based compensation          1,525  Cost containment  1,766         1,766     3,774         43,511              Operating earnings (4,338)  14,720   21,457  (3,696)  28,143                            Commercial Residential         Real Estate Property Property       Services Management Services Corporate Consolidated       Nine months ended September 30                      2010      Revenues$ 593,903 $ 497,602  $ 342,569 $ 107 $ 1,434,181 Adjusted EBITDA 22,726  47,574  52,332 (14,399) 108,233 Stock-based compensation     2,079       110,312 Operating earnings 6,806  38,481  45,254 (14,468) 76,073             2009            Revenues $ 417,043  $ 489,271  $ 331,020  $ 99  $ 1,237,433  Adjusted EBITDA (13,516)  46,074   60,414  (8,396)  84,576  Stock-based compensation          4,696  Cost containment  7,841         7,841    (5,675)        97,113              Operating earnings (62,827)  37,403   53,351  (8,628)  19,299 CONTACT: FirstService Corporation Jay S. Hennick, Founder & CEO D. Scott Patterson, President & COO John B. Friedrichsen, Senior Vice President & CFO (416) 960-9500