FirstService
2019 Annual Report
Creating
Value
One Step
at a Time
Financial Highlights
Revenues
Revenues
(US$ millions)
(US$ millions)
$2,407
$2,407
$1,931
$1,931
$1,729
$1,729
$1,483
$1,483
$1,264
$1,264
2015
2015
2016
2016
2017
2017
2018
2018
2019
2019
Growth
2018 – 2019
Growth
2018 – 2019
25%
25%
17%
17%
CAGR
2015 – 2019
CAGR
2015 – 2019
Organic Revenue
Growth
Organic Revenue
Growth
8%
8%
6%
6%
6%
6%
6%
6%
7%
7%
6% +
6% +
Annual Organic
Annual Organic
Growth
Growth
Since 2015
Since 2015
2015
2015
2016
2016
2017
2017
2018
2018
2019
2019
Adjusted EBITDA
Adjusted EBITDA
(US$ millions)
(US$ millions)
Adjusted EPS
Adjusted EPS
(US$)
(US$)
$235
$235
$191
$191
$159
$159
$130
$130
$103
$103
Growth
2018 – 2019
Growth
2018 – 2019
23%
23%
23%
23%
CAGR
2015 – 2019
CAGR
2015 – 2019
$3.00
$3.00
$2.61
$2.61
$1.99
$1.99
$1.62
$1.62
$1.20
$1.20
Growth
2018 – 2019
Growth
2018 – 2019
15%
15%
26%
26%
CAGR
2015 – 2019
CAGR
2015 – 2019
2015
2015
2016
2016
2017
2017
2018
2018
2019
2019
2015
2015
2016
2016
2017
2017
2018
2018
2019
2019
Long Track
Record of Strong
and Sustainable
Growth
Annual Dividends
Annual Dividends
(US$)
(US$)
$0.66
$0.66
$0.60
$0.54
$0.60
$0.54
$0.49
$0.49
$0.44
$0.40
$0.44
$0.40
65%
65%
Cumulative
Cumulative
Growth
Growth
Since 2015
Since 2015
2015
2015
2016
2016
2017
2017
2018
2018
2019
2019
2020
2020
A Message From Our CEO
2019 was an exciting, action-
packed year for FirstService
Corporation, headlined by
company milestones including
the largest acquisition in our
history, the elimination of our
dual class share structure and
our first equity offering in over
20 years.
D. Scott Patterson
Chief Executive Officer
Behind these headlines our operating teams steadily and confidently
continued to deliver as we generated 7% organic growth across the
organization while maintaining our margins. Our teams recognize
and appreciate that our relentless focus on customer experience
differentiates us and drives our organic growth.
The alignment around service excellence defines the culture across
FirstService and coalesces our teams around a common purpose.
As a group we intend to win and we know that winning over the long
term is directly related to how we treat our customers day to day.
We continue to learn and improve as we listen to our customers
and front line associates and act on feedback themes. We are better
today than we were last year and we will be better again at this time
next year. I take tremendous pride and comfort in knowing that
every day 24,000 FirstService associates are focused on making
incremental gains that do not necessarily show up in milestone-
making press releases.
Some of the highlights which made 2019 a memorable year include:
Acquisition of Global Restoration
In June, we closed the acquisition of Global Restoration, the second
largest commercial and large loss property restoration firm in
North America. The acquisition is complementary to our Paul Davis
franchise system and gives us an entry into the massive commercial
restoration market. We have partnered with the best management
team in the industry and are very excited about our growth opportunity
in the years to come. Between closing and year-end we added four
tuck-under acquisitions, enhancing our geographic footprint and
further strengthening our leadership team.
Residential Management Market Leadership in Chicago
Early in the year our FirstService Residential division significantly
expanded its presence in the competitive Chicago market through
the acquisitions of Lieberman Management Services and DK Condo,
the condominium division of Draper and Kramer. These acquisitions
cemented our position as the clear market leader in Chicago and are
strategically important in terms of enhancing our national scale. By
year-end these businesses were operating and unified under the
The alignment around service
excellence defines the culture
across FirstService.
FirstService Residential brand, positioning us for strong growth
in this major metropolitan market.
expanded our focus to include two other important pillars –
Our People and Our Environment.
Elimination of Dual Class Share Structure
In April, we settled the Long-Term Incentive Arrangement with Jay
Hennick, our Founder, Chairman and largest shareholder. As part of
the agreement Jay converted his multiple voting shares to subordinate
voting shares on a one-for-one basis, thereby eliminating the dual
class share structure and aligning all shareholders with one class of
voting shares. We are very pleased to have successfully transitioned
control with a structure that accomplished Jay’s goal of maintaining
a significant equity interest in the Company.
Growth Capital
2019 was also a very successful year in terms of capital deployment
with $580 million invested in 15 acquisitions at a weighted average
EBITDA multiple largely consistent with our history and stated
criteria. We enjoy tremendous support from our lenders and were
able to successfully upsize our lines of credit and seamlessly invest
over three times the amount that we have averaged since
our spin-off in 2015. We believe the strategic acquisitions that we
completed during the year will help accelerate growth for the next
several years.
To maintain a conservative balance sheet we completed a $200 million
equity offering which brought our leverage ratio down to 2.4x and
within our long-term target range of 2.0x and 2.5x. It represented
our first public equity issuance since 1998, which is remarkable
given that our top line has grown at an almost 20% compounded
annual rate over the 21-year period. This track record is a strong
reflection on our powerful cash flow business model.
Social Purpose
Our Social Purpose continued to evolve during 2019 driven by the
caring and dedicated individuals who represent FirstService across
North America.
I was privileged to attend and participate in a number of events
this year. Seeing our teams give their time to enhance the lives of
others and to support each other leaves me with a feeling of great
pride. I am also reminded about what matters most, and why
#FirstServeOthers is such an integral part of our culture and our
future. Please see our website for details and stories about how
our teams bring our Social Purpose to life.
Summary and Look Forward
We are extremely pleased with our performance and accomplishments
during 2019. I have shared just a few of our highlights above and
there were many more that are worthy of mention.
In aggregate, the notable achievements of 2019 have put us in a
great position as we enter a new decade. We have strong leadership
positions in huge service markets yet our share of these markets is
still modest. This structural dynamic presents a significant long
term growth opportunity driven by our platform “engines.” This has
been true for many years and we continue to take advantage of the
opportunity while occasionally adding “engines” as we did in 2016
with Century Fire, and this past year with Global Restoration. Our
long term goal is to grow our revenues at an average rate of at least
10% with incremental growth at the EBITDA and earnings per share
lines. We are confident we can continue to deliver on this stated goal
for years to come.
I started this letter with a tribute to our associates who live our
values and deliver on our brand promises every day. I will finish
the letter by thanking them for all they do. I also thank our loyal
customers for their business and referrals and our shareholders
for their continued support.
When we began our Social Purpose journey in 2018, there was an
emphasis on Our Community. That emphasis continues and we’ve
D. Scott Patterson
Chief Executive Officer
SUPPLEMENT TO
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
AND
MANAGEMENT INFORMATION CIRCULAR
OF
FIRSTSERVICE CORPORATION
Wednesday, April 8, 2020
at 11:00 a.m. (Toronto time)
NEW LOCATION
1255 Bay Street, Suite 600
Toronto, Ontario M5R 2A9
March 16, 2020
Dear Shareholder:
Important Notice regarding Participation in the Annual Meeting of Shareholders on April 8, 2020
The health of our shareholders and our employees is the top priority for FirstService Corporation (“FirstService”).
In view of the current situation regarding the spread of the coronavirus (COVID-19), we have taken the following
precautionary measures for the upcoming Annual Meeting of Shareholders of FirstService (the “AGM”) to be held
on Wednesday, April 8, 2020 at 11:00 a.m. (Toronto time):
•
•
•
•
the location of the AGM has been changed to FirstService’s head office, located at 1255 Bay Street, Suite
600, Toronto, Ontario M5R 2A9;
attendance in person at the AGM will be restricted to registered shareholders and proxyholders; all external
guests will not be allowed to attend. This restriction will be stringently enforced. Attendees who
nonetheless wish to attend in person may be subject to health screening at the entrance and will be asked to
spread out in the room and avoid close contact with other attendees;
attendance by board members, employees and other representatives of FirstService will be reduced to those
necessary to conduct the AGM;
the AGM will be limited to the formal business set out in FirstService’s management information circular
for the AGM dated February 28, 2020 (the “Circular”). Unlike in prior years, drinks and appetizers will
not be provided following the AGM; and
• management will be making a webinar presentation on FirstService’s business operations.
Registered shareholders are those shareholders who hold their shares directly with FirstService and therefore have
their names and addresses recorded in FirstService’s share registry. Most FirstService shareholders are not registered
shareholders. If you purchased FirstService shares through a broker or other intermediary and/or a broker or other
intermediary holds your FirstService shares in an account you have with them, you are a non-registered shareholder.
Given the current circumstances, FirstService strongly encourages registered shareholders and proxyholders not to
attend the AGM in person. In particular, persons who have travelled outside of Canada prior to the AGM, who do
not feel well or who are otherwise in weakened state should not attend the AGM in person. Instead, the Circular and
information provided by your broker or other intermediary contains information on how shareholders may vote their
shares through the internet, by facsimile or by mail, among other possible methods. In addition, shareholders will
have the opportunity to listen to a live webcast of the AGM and see the webinar management presentation. The
details concerning the live webcast and webinar will be provided on FirstService’s website at www.firstservice.com
prior to the AGM. A recorded version of the AGM and a copy of the webinar management presentation will also be
made available on FirstService’s website following the AGM.
FirstService hopes that by applying the above measures, the AGM can take place in a safe environment. FirstService
is monitoring the situation closely and will advise if further action is to be taken as circumstances evolve and further
guidance is given and restrictions are imposed by governmental bodies. We thank you for your understanding, and
look forward to welcoming you again in person at our 2021 Annual Meeting.
Sincerely yours,
Douglas G. Cooke
Senior Vice President, Corporate Controller and
Corporate Secretary
SUPPLEMENT TO
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that an annual meeting (the “Meeting”) of the shareholders of FirstService
Corporation (“FirstService”) will be held at the FirstService’s head office, 1255 Bay Street, Suite 600, Toronto,
Ontario M5R 2A9 on Wednesday, April 8, 2020, at 11:00 a.m. (Toronto time) for purposes set out in the Notice of
Annual Meeting of Shareholders of FirstService dated February 28, 2020 (the “Original Notice”).
Other than the location of the meeting, all other information contained in the Original Notice remains in effect.
DATED at Toronto, Ontario this 16th day of March, 2020.
By Order of the Board of Directors
DOUGLAS G. COOKE
Senior Vice President, Corporate Controller and
Corporate Secretary
FirstService Corporation
MD&A and Consolidated Financial Statements
December 31, 2019
FIRSTSERVICE CORPORATION
Management’s discussion and analysis for the year ended December 31, 2019
(in US dollars)
February 20, 2020
The following management’s discussion and analysis (“MD&A”) should be read together with the audited
consolidated financial statements and the accompanying notes (the “Consolidated Financial Statements”) of
FirstService Corporation (“we,” “us,” “our,” the “Company” or “FirstService”) for the year ended December 31,
2019. The Consolidated Financial Statements have been prepared in accordance with generally accepted
accounting principles in the United States (“GAAP”). All financial information herein is presented in United States
dollars.
The Company has prepared this MD&A with reference to National Instrument 51-102 – Continuous Disclosure
Obligations of the Canadian Securities Administrators (the “CSA”). Under the U.S./Canada Multijurisdictional
Disclosure System, the Company is permitted to prepare this MD&A in accordance with the disclosure requirements
of Canada, which requirements are different from those of the United States. This MD&A provides information for
the year ended December 31, 2019 and up to and including February 20, 2020.
Additional information about the Company, including the Company’s current Annual Information Form, which is
included in FirstService’s Annual Report on Form 40-F, can be found on SEDAR at www.sedar.com and on EDGAR
at www.sec.gov.
This MD&A includes references to “Adjusted EBITDA” and “Adjusted EPS”, which are financial measures that are
not calculated in accordance with GAAP. For a reconciliation of these non-GAAP measures to the most directly
comparable GAAP financial measures, see “Reconciliation of non-GAAP financial measures.”
FirstService’s business
FirstService is a leading provider of branded essential property services comprised of two reportable operating
segments: (i) FirstService Residential, the largest provider of residential property management services in North
America; and (ii) FirstService Brands, a leading provider of essential property services to residential and
commercial customers through both franchise systems and company-owned operations. The segments are grouped
with reference to the nature of services provided and the types of clients that use those services. FirstService
Residential and FirstService Brands are described in further detail in our Annual Information Form.
Consolidated review
Our consolidated revenues for the year ended December 31, 2019 were $2.41 billion, an increase of 25% over the
prior year. The top-line performance included approximately 7% organic growth, with the balance from recent
acquisitions, with resulting growth in Adjusted EBITDA and Adjusted EPS (see definitions and reconciliations
below). GAAP Operating Earnings and earnings per share were down versus the prior year period as a result of
recognizing an expense associated with settling the long-term incentive arrangement (“LTIA”) with our Founder and
Chairman in the amount of $314.4 million.
We acquired controlling interests in fifteen businesses in 2019, including three in our FirstService Residential
segment and twelve in our FirstService Brands segment. The total initial cash consideration for these acquisitions
was $579.9 million. Our acquisition of Global Restoration (aka Bellwether FOS Holdco, Inc.) was the largest
acquisition of 2019, with a purchase price of $506.7 million (net of cash acquired). Global Restoration is a market
leader in large loss and commercial property restoration, and provides us with a platform for future growth both
organically and through tuck-under acquisitions to expand its geographic footprint and increase its national client
account coverage.
Our tuck-under acquisitions increase the geographic footprint and broaden our service offering at FirstService
Residential. They also support the growth of our company-owned operations at FirstService Brands, including
acquisitions of California Closets and Paul Davis Restoration franchises in selected key markets and expansion of
our operations and broadening of our service capabilities at Century Fire.
1
Results of operations – year ended December 31, 2019
Our revenues were $2.41 billion for 2019, up 25% relative to 2018. The increase included organic revenue growth of
7%, with the balance coming from recent acquisitions.
The operating loss for the period was $174.4 million, down from $127.6 million of operating earnings in the prior
year period, with the decrease attributable to the settlement of the LTIA with our Founder and Chairman in the
amount of $314.4 million. Adjusted EBITDA rose 23% to $235.2 million in 2019 versus $190.6 million in the prior
year. Our FirstService Residential division generated earnings growth in 2019 as a result of strong organic growth
and modest operating margin improvements. Our FirstService Brands division was positively impacted by solid
organic growth and significant acquisition growth in 2019.
Depreciation expense was $40.9 million in 2019 relative to $35.3 million in the prior year, with the increase
primarily related to recently acquired company-owned operations in our FirstService Brands segment.
Amortization expense was $38.7 million in 2019 relative to $17.5 million in 2018, with the increase attributable to
our significant Global Restoration acquisition in the FirstService Brands segment.
Net interest expense increased to $32.1 million in 2019 from $12.6 million in the prior year, with the difference
primarily attributable to an increase in our average outstanding debt to finance the Global Restoration acquisition.
Our weighted average interest rate increased to 4.4% in 2019 from 4.0% in the prior year.
Other income of $6.0 million was primarily due to the gain on sale from two small, non-core divestitures: (i) our
Arizona and Florida-based landscaping operations within FirstService Residential; and (ii) our national accounts
commercial painting operations within FirstService Brands, both occurring in the second quarter of 2019. Also
included in other income was a small loss in the fourth quarter of the current year on the sale of our College Pro
window cleaning operations for nominal consideration, as part of our exit from the College Pro franchise system
within the FirstService Brands segment. In conjunction with this sale, we also wound-down our College Pro painting
operations at the end of 2019.
Our consolidated income tax rate for the nine month period was negative 14%, compared to 22% of earnings before
income tax in the prior year-to-date period, and relative to the statutory rate of 27% in both periods. The current
period’s tax rate was affected by the settlement of the LTIA, which is not deductible for tax purposes.
Net loss for the period was $227.6 million, versus net earnings of $90.3 million in the prior year period. The
decrease was attributable to the settlement of the LTIA.
The non-controlling interest (“NCI”) share of earnings was $7.9 million for the year, relative to $11.2 million in the
prior year period, with the decrease primarily attributable to the significant purchases of NCI in the current year. The
NCI redemption increment for 2019 was $16.1 million, versus $13.2 million in the prior period, and was attributable
to changes in the trailing two-year average of earnings of non-wholly owned subsidiaries.
At FirstService Residential, revenues were $1.41 billion in 2019, an increase of 13% compared to the prior year.
Organic growth was 7% and was driven primarily by strong sales resulting in new contract wins throughout the year
across most markets. This segment reported Adjusted EBITDA of $130.6 million in 2019 or 9.2% of revenues,
relative to $112.8 million or 9.0% of revenues in the prior year. Operating earnings for 2019 were $104.7 million or
7.4% of revenues, relative to $89.0 million or 7.1% of revenues in the prior year.
Our FirstService Brands operations reported revenues of $995.4 million in 2019, an increase of 47% versus the prior
year, comprised of 6% organic growth and the balance from recent acquisitions, principally the acquisition of Global
Restoration. Organic growth was largely attributable to double-digit revenue growth at all of our service lines, with
the exception of Paul Davis Restoration which experienced milder weather patterns and lower activity levels
throughout 2019 compared to the prior year. Adjusted EBITDA for this segment was $118.3 million in 2019 or
11.9% of revenues, relative to $88.4 million or 13.1% of revenues in the prior year. The margins were negatively
impacted by our recently acquired Global Restoration operation, which had lower margins than the overall division,
and the lower revenue performance at Paul Davis Restoration. Operating earnings were $60.6 million or 6.1% of
revenues, versus $55.0 million or 8.1% of revenues a year ago. Our operating earnings margin was further impacted
by increased intangible amortization from the acquisition of Global Restoration.
2
Corporate costs, as presented in Adjusted EBITDA were $13.7 million in 2019 relative to $10.5 million in the prior
year. The year-over-year increase primarily reflects the impacts of foreign exchange. On a GAAP basis, corporate
costs were $339.7 million versus $16.5 million in the prior year period, with the increase primarily attributable to the
settlement of the LTIA in the second quarter of 2019.
Results of operations – year ended December 31, 2018
Our revenues were $1.93 billion for 2018, up 12% relative to 2017. The increase was comprised of organic revenue
growth of 6%, with the balance coming from recent acquisitions.
Operating earnings increased 22% to $127.6 million in 2018, while Adjusted EBITDA rose 20% to $190.6 million.
Our FirstService Residential division generated earnings growth in 2018 as a result of continued operating margin
improvements. Our FirstService Brands division was positively impacted by significant organic revenue growth and
acquisition activity in 2018. During the fourth quarter of 2018, we made the decision to wind-down our Service
America operations, one of eight property service lines reported within the FirstService Brands division. We have
previously indicated that Service America was a small, non-core business, with declining revenues, poor
profitability and limited growth prospects. The wind-down of Service America during 2018 did not significantly
impact our consolidated full year results.
Depreciation expense was $35.3 million in 2018 relative to $27.7 million in the prior year, with the increase
primarily related to recently acquired company-owned operations in our FirstService Brands segment. We also
incurred accelerated software depreciation in relation to the wind-down of our Service America operations.
Amortization expense was $17.5 million in 2018 relative to $14.4 million in 2017, with the increase attributable to
recent acquisitions in the FirstService Brands segment.
Net interest expense increased to $12.7 million in 2018 from $9.9 million in the prior year, which was attributable to
the increase in our average outstanding debt, as well as our weighted average interest rate increasing to 4.0% in 2018
from 3.6% in the prior year.
Our consolidated income tax rate for 2018 was 22%, flat versus the prior year period.
Net earnings were $90.3 million in 2018, compared to $75.0 million in the prior year. The increase was primarily
attributable to strong profitability driven mainly by operating margin improvements in the FirstService Residential
division and strong organic revenue growth and significant acquisition activity in the FirstService Brands division.
At FirstService Residential, revenues were $1.25 billion in 2018, an increase of 7% compared to the prior year.
Organic growth was 4% and was primarily driven by competitive contract wins across our markets. This segment
reported Adjusted EBITDA of $112.8 million in 2018 or 9.0% of revenues, relative to $99.9 million or 8.5% of
revenues in the prior year. Operating earnings for 2018 were $89.0 million or 7.1% of revenues, relative to $77.6
million or 6.6% of revenues in the prior year. Margin expansion in this division was driven by continued operating
improvements and further optimization of labour resources.
Our FirstService Brands operations reported revenues of $676.6 million in 2018, an increase of 22% versus the prior
year. Organic growth of 9% was largely attributable to double-digit revenue growth at our California Closets and
Century Fire company-owned operations, and within our franchised operations which largely benefit from strong
home improvement spending. Adjusted EBITDA for this segment was $88.4 million in 2018 or 13.1% of revenues,
relative to $71.7 million or 12.9% of revenues in the prior year. Operating earnings for 2018 were $55.0 million or
8.1% of revenues, versus $44.0 million or 7.9% of revenues in the prior year.
Corporate costs, as presented in Adjusted EBITDA were $10.5 million in 2018 relative to $12.3 million in the prior
year. The year-over-year decrease primarily reflects the impact of foreign exchange. On a GAAP basis, corporate
costs for 2018 were $16.5 million, compared to $16.6 million in the prior year.
3
Selected annual information - last five years
(in thousands of US$, except share and per share amounts)
(derived from audited financial statements prepared in accordance with US GAAP)
Operations
Revenues
Operating earnings (loss)
Net earnings
Financial position
Total assets
Long-term debt
Redeemable non-controlling interests
Shareholders' equity
Common share data
Net earnings (loss) per common share:
Basic
Diluted
Weighted average common shares
outstanding (thousands)
Basic
Diluted
Cash dividends per common share
Other data
Adjusted EBITDA
Adjusted EPS
Notes:
$
$
$
$
$
2019
Year ended December 31
2018
2017
2016
2015
2,407,210 $
(174,419)
(227,631)
1,931,473 $
127,568
90,280
1,729,031 $
104,962
75,047
1,482,889 $
90,550
54,243
1,264,077
70,747
38,198
1,955,469 $
766,623
174,662
425,887
1,007,474 $
334,523
151,585
236,226
848,266 $
269,625
117,708
192,286
770,964 $
250,909
102,352
181,028
600,483
201,199
77,559
167,026
(6.58)
(6.58)
1.83
1.80
1.43
1.41
0.93
0.92
0.59
0.59
38,225
38,662
0.60
35,952
36,571
0.54
35,909
36,559
0.49
35,966
36,366
0.44
36,013
36,425
0.40
235,182 $
3.00
190,611 $
2.61
159,312 $
1.99
130,324 $
1.62
103,038
1.20
(1) Any per share amounts prior to June 1, 2015 in the table above have been calculated using former FirstService
Corporation’s share balances and the terms of the June 1, 2015 spin-off. There are differences in accounting policies in
2019 with respect to the new lease standard (ASC 842) and in 2018 with respect to ASC 606 - Revenue from contracts
with customers.
(2) On May 2019, we effected an amendment to our articles that eliminated the multiple voting shares and the “blank
cheque” preference shares as part of the authorized capital of FirstService, and re-classified our subordinate voting
shares as common shares. The information in the table provided prior to May 10, 2019 relates to the subordinate voting
shares and multiple voting shares of FirstService.
Results of operations – fourth quarter ended December 31, 2019
Consolidated operating results for the fourth quarter ended December 31, 2019 were up significantly relative to the
results experienced in the comparable prior year quarter, driven by strong top-line growth at our FirstService Brands
segment and improved margins at our FirstService Residential operations.
FirstService Residential revenues increased 11%, with Adjusted EBITDA increasing 15% and operating earnings
increasing 15% in the fourth quarter ended December 31, 2019 versus the prior year quarter. Performance was
primarily driven by 7% organic growth as a result of new contract wins across our markets and strong ancillary
services growth.
Our FirstService Brands operations experienced substantial revenue growth of 72% in the fourth quarter ended
December 31, 2019 compared to the prior year quarter, with strong contribution from acquisition activity, primarily
Global Restoration. Organic growth of 2% for the quarter was driven by strong performance within our Century Fire
and California Closets service lines, largely offset by a significant year-over-year decline at our Paul Davis
Restoration company-owned operations due to softer weather-related activity levels. FirstService Brands’ Adjusted
4
EBITDA increased 59% in the fourth quarter versus the prior year quarter. Operating earnings increased 26% versus
the prior year quarter. The Adjusted EBITDA margin decreased to 11.6% from 12.5% in the prior year quarter, and
was principally driven by the lower activity levels and revenue at Paul Davis Restoration, as well as the addition of
Global Restoration, with its lower margin profile than the overall FirstService Brands division, to the current quarter
results. The operating earnings margin in the segment decreased to 4.2% from 5.8% in the prior year quarter, as a
result of increased amortization of backlog and other intangible assets from the Global Restoration acquisition.
Summary of quarterly results - years ended December 31, 2019 and 2018
(in thousands of US$, except per share amounts)
(derived from unaudited interim consolidated financial statement prepared in accordance with US GAAP)
Year ended December 31, 2019
Revenues
Operating earnings
Net earnings
Net earnings per share:
Basic
Diluted
Year ended December 31, 2018
Revenues
Operating earnings
Net earnings
Net earnings per share:
Basic
Diluted
Other data
Adjusted EBITDA - 2019
Adjusted EBITDA - 2018
Adjusted EPS - 2019
Adjusted EPS - 2018
Q1
Q2
Q3
Q4
Year
$
485,655 $
12,930
8,145
573,908 $
(268,470)
(275,680)
672,253 $
49,698
26,336
675,594 $ 2,407,410
(174,419)
(227,631)
31,423
13,568
0.06
0.06
(7.48)
(7.48)
0.51
0.50
0.13
0.13
(6.58)
(6.58)
$
426,456 $
11,073
8,935
495,348 $
42,350
29,894
506,356 $
45,298
31,664
503,313 $ 1,931,473
127,568
90,280
28,847
19,787
0.17
0.17
0.63
0.62
0.72
0.70
0.32
0.31
1.83
1.80
$
29,150 $
25,414
0.30
0.25
65,031 $
57,118
1.12
0.86
77,144 $
59,426
0.92
0.89
63,857 $
48,653
0.66
0.62
235,182
190,611
3.00
2.61
Operating outlook
We are committed to a long-term growth strategy that includes average annual organic revenue growth in the mid-
single digit range, combined with tuck-under acquisitions within each of our service platforms, resulting in targeted
average annual growth in revenues of 10% or higher. We are targeting some incremental operating leverage and
higher growth rates for operating earnings, and earnings per share. Economic conditions will negatively or positively
impact these target growth rates in any given year.
In our FirstService Residential segment, revenues are expected to increase at a mid-single digit percentage organic
growth rate in 2020 primarily from new business wins. Any additional tuck-under acquisitions will augment organic
growth. Operating margins for 2020 are expected to be in-line with 2019.
Our FirstService Brands segment is expected to generate mid-single digit percentage organic revenue growth in
2020 primarily from growth of our company-owned operations at California Closets, Paul Davis Restoration,
Century Fire, and Global Restoration. Tuck-under acquisitions within our company-owned operations at Paul Davis
Restoration, Global Restoration, California Closets and Century Fire will add to organic growth. Operating margins
are expected to remain in-line with 2019, unless influenced by further acquisitions of businesses with different
margin profiles.
The foregoing contains forward-looking statements, and readers should refer to “Forward-looking statements and
risks” below regarding our cautions relating to these forward-looking statements and the material risk factors that
could cause actual results to differ materially from these forward-looking statements. The above forward-looking
statements are made on the assumption that general economic conditions and the conduct of the Company’s
5
businesses remain as they exist on the date hereof, with none of the material risk factors (as noted under “Forward-
looking statements and risks” below) occurring during 2020.
Seasonality and quarterly fluctuations
Certain segments of the Company’s operations are subject to seasonal variations. The seasonality of the service lines
results in variations in quarterly revenues and operating margins. Variations can also be caused by acquisitions or
dispositions, which alter the consolidated service mix.
FirstService Residential generates peak revenues and earnings in the third quarter, as seasonal ancillary swimming
pool management revenues are earned. FirstService Brands includes certain franchise operations, which generate the
majority of their revenues during the second and third quarters, and restoration operations which are influenced by
weather patterns that typically should result in higher revenues and earnings in the fourth quarter.
Liquidity and capital resources
The Company generated cash flow from operating activities of $107.8 million for the year ended December 31,
2019, relative to $99.4 million in the prior year. Operating cash flow was favourably impacted by strong profitability
at both of our segments. We believe that cash from operations and other existing resources, including our revolving
credit facility described below, will continue to be adequate to satisfy the ongoing working capital needs of the
Company.
In June 2019, in connection with the acquisition of Global Restoration, we entered into a $890 million amended and
restated credit agreement, consisting of our existing $450 million revolving credit facility and a new $440 million
term loan (drawn in a single advance). The maturity date of the revolving credit facility remains January 2023, and
the maturity date of the term loan is June 2024, with repayments of 5% per annum, paid quarterly, beginning in
September 2020, with the balance payable at maturity.
We have outstanding $150 million of senior secured notes bearing interest at a rate of 3.84% to 4.84%, depending
on leverage ratios. As of December 31, 2019, the current interest rate is 4.84%. The senior secured notes are due on
January 16, 2025, with five annual equal repayments beginning on January 16, 2021.
During 2019, we invested cash in acquisitions as follows: an aggregate of $579.9 million (net of cash acquired) in
fifteen new business acquisitions, $10.1 million in contingent consideration payments related to previously
completed acquisitions, and $30.6 million in acquisitions of redeemable non-controlling interests (“RNCI”).
In relation to acquisitions completed during the past three years, we have outstanding contingent consideration,
assuming all contingencies are satisfied and payment is due in full, totalling $14.4 million as at December 31, 2019
(December 31, 2018 - $13.3 million). The contingent consideration liability is recognized at fair value upon
acquisition and is updated to fair value each quarter. The contingent consideration is based on achieving specified
earnings levels, and is paid or payable after the end of the contingency period, which extends to July 2022. We
estimate that a majority of the contingent consideration outstanding as of December 31, 2019 will ultimately be paid.
Capital expenditures for the year were $46.6 million (2018 - $40.6 million), which consisted primarily of office
leasehold improvements, new vehicles and productivity-enhancing information technology systems in both of our
operating segments.
Net indebtedness as at December 31, 2019 was $645.6 million, versus $268.2 million at December 31, 2018. Net
indebtedness is calculated as the current and non-current portions of long-term debt less cash and cash equivalents.
We were in compliance with the covenants contained in our credit agreement and the agreement governing our
senior secured notes as at December 31, 2019 and we expect to remain in compliance with such covenants going
forward.
The Company declared common share dividends totalling $0.60 per share during 2019, with $0.585 paid in cash
during the year and $0.15 paid in January 2020. In February 2020, our Board of Directors approved an increase to
our dividend such that, commencing with the quarter ended March 31, 2020, the quarterly dividend would be
US$0.165 (a rate of US$0.66 per annum). The Company’s policy is to pay quarterly dividends on its common shares
in the future, subject to the discretion of our Board of Directors.
6
During the year we distributed $5.7 million (2018 - $6.9 million) to non-controlling shareholders of subsidiaries, in
part to facilitate the payment of income taxes on account of those subsidiaries organized as flow-through entities.
The following table summarizes our contractual obligations as at December 31, 2019:
Contractual obligations
(in thousands of US$)
Payments due by period
Total
Less than
1 year
1-3 years
4-5 years
Long-term debt
Interest on long term debt
Capital lease obligations
Contingent acquisition consideration
Operating leases
$
756,470 $
130,801
10,153
14,423
161,564
$
12,874
32,976
3,896
6,269
36,128
105,190 $
59,410
4,764
8,154
61,442
608,406 $
36,687
1,493
-
33,914
After
5 years
30,000
1,728
-
-
30,080
Total contractual obligations
$ 1,073,411 $
92,143
$
238,960 $
680,500 $
61,808
At December 31, 2019, we had commercial commitments totaling $6.3 million comprised of letters of credit
outstanding due to expire within one year. We are required to make semi-annual payments of interest on our senior
secured notes at an interest rate of 4.84%.
To manage our insurance costs, we take on risk in the form of high deductibles on many of our coverages. We
believe this step reduces overall insurance costs in the long term, but may cause fluctuations in the short term
depending on the frequency and severity of insurance incidents.
In most operations where managers or employees are also non-controlling owners, the Company is party to
shareholders’ agreements. These agreements allow us to “call” the minority position at a value determined with the
use of a formula price, which is in most cases equal to a multiple of trailing two-year average earnings, less debt.
Non-controlling owners may also “put” their interest to the Company at the same price, with certain limitations
including (i) the inability to “put” more than 33% or 50% of their holdings in any twelve-month period and (ii) the
inability to “put” any holdings for at least one year after the date of our initial acquisition of the business or the date
the non-controlling shareholder acquired their interest, as the case may be. The total value of the RNCI (the
“redemption amount”), as calculated in accordance with shareholders’ agreements, was as follows.
(in thousands of US$)
FirstService Residential
FirstService Brands
December 31
2019
December 31
2018
$
$
62,407 $
108,576
170,983 $
80,631
68,501
149,132
The amount recorded on our balance sheet under the caption “redeemable non-controlling interests” is the greater of
(i) the redemption amount (as above) or (ii) the amount initially recorded as RNCI at the date of inception of the
minority equity position. As at December 31, 2019, the RNCI recorded on the balance sheet was $174.7 million. The
purchase prices of the RNCI may be paid in cash or in common shares of FirstService. If all RNCI were redeemed in
cash, the pro forma estimated accretion to net earnings per share for 2019 would be $0.46, and the accretion to
Adjusted EPS would be $0.04.
Stock-based compensation expense
One of our key operating principles is for senior management to have a significant long-term equity stake in the
businesses they operate. The equity owned by senior management takes the form of stock, stock options or notional
value appreciation plans, the latter two of which require the recognition of compensation expense under GAAP. The
amount of expense recognized with respect to stock options is determined for the Company plan by allocating the
grant-date fair value of each option over the expected term of the option. The amount of expense recognized with
respect to the notional value appreciation plans is re-measured quarterly.
7
Critical accounting estimates
Critical accounting estimates are those that management deems to be most important to the portrayal of our financial
condition and results of operations, and that require management’s most difficult, subjective or complex judgments,
due to the need to make estimates about the effects of matters that are inherently uncertain. We have identified three
critical accounting estimates: determination of fair values of assets acquired and liabilities assumed in business
combinations, impairment testing of the carrying value of goodwill, and the collectability of accounts receivable.
The determination of fair values of assets acquired and liabilities assumed in business combinations requires the use
of estimates and judgment by management, particularly in determining fair values of intangible assets acquired. For
example, if different assumptions were used regarding the profitability and expected attrition rates of acquired
customer relationships, different amounts of intangible assets and related amortization could be reported.
Impairment of goodwill is tested at the reporting unit level. The Company has seven reporting units determined with
reference to business segment, customer type, service delivery model and geography. Impairment is tested by first
assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is
less than its carrying amount. Where it is determined to be more likely than not that its fair value is greater than its
carrying amount, then no further testing is required. Where the qualitative analysis is not sufficient to support that
the fair value exceeds the carrying amount then a goodwill impairment test is performed. A quantitative goodwill
impairment test is performed by comparing the fair value of each reporting unit to its carrying value, including
goodwill. Fair value is estimated using a market multiple method, which estimates market multiples of earnings
before interest, taxes, depreciation and amortization (“EBITDA”) for comparable entities with similar operations
and economic characteristics. Significant assumptions used in estimating the fair value of each reporting unit include
the market multiples of EBITDA.
Accounts receivable allowances are determined using a combination of historical experience, current information,
and management judgment. Actual collections may differ from our estimates. A 10% increase in the accounts
receivable allowance would increase bad debt expense by $1.3 million.
Reconciliation of non-GAAP financial measures
In this MD&A, we make reference to “Adjusted EBITDA” and “Adjusted EPS,” which are financial measures that
are not calculated in accordance with GAAP.
Adjusted EBITDA is defined as net earnings, adjusted to exclude: (i) income tax; (ii) other expense (income); (iii)
interest expense; (iv) depreciation and amortization; (v) acquisition-related items; (vi) stock-based compensation
expense; and (vii) settlement of the LTIA. The Company uses Adjusted EBITDA to evaluate its own operating
performance and its ability to service debt, as well as an integral part of its planning and reporting systems.
Additionally, this measure is used in conjunction with discounted cash flow models to determine the Company’s
overall enterprise valuation and to evaluate acquisition targets. Adjusted EBITDA is presented as a supplemental
measure because the Company believes such measure is useful to investors as a reasonable indicator of operating
performance because of the low capital intensity of its service operations. The Company believes this measure is a
financial metric used by many investors to compare companies, especially in the services industry. This measure is
not a recognized measure of financial performance under GAAP in the United States, and should not be considered
as a substitute for operating earnings, net earnings or cash flow from operating activities, as determined in
accordance with GAAP. The Company’s method of calculating Adjusted EBITDA may differ from other issuers and
accordingly, this measure may not be comparable to measures used by other issuers. A reconciliation of net earnings
to Adjusted EBITDA appears below.
8
(in thousands of US$)
Net earnings (loss)
Income tax
Other income
Interest expense, net
Operating earnings (loss)
Depreciation and amortization
Settlement of long-term incentive arrangement
Acquisition-related items
Stock-based compensation expense
Adjusted EBITDA
Year ended
December 31
2019
$
$
(227,631) $
27,147
(6,015)
32,080
(174,419)
79,557
314,379
7,539
8,126
235,182 $
2018
90,280
24,922
(254)
12,620
127,568
52,772
-
4,504
5,767
190,611
Adjusted EPS is defined as diluted net earnings per share, adjusted for the effect, after income tax, of: (i) the non-
controlling interest redemption increment; (ii) acquisition-related items; (iii) amortization of intangible assets
recognized in connection with acquisitions; (iv) stock-based compensation expense; (v) a stock-based compensation
tax adjustment related to a US GAAP change; and (vi) settlement of the LTIA. The Company believes this measure
is useful to investors because it provides a supplemental way to understand the underlying operating performance of
the Company and enhances the comparability of operating results from period to period. Adjusted EPS is not a
recognized measure of financial performance under GAAP, and should not be considered as a substitute for diluted
net earnings per common share, as determined in accordance with GAAP. The Company’s method of calculating
this non-GAAP measure may differ from other issuers and, accordingly, this measure may not be comparable to
measures used by other issuers. A reconciliation of diluted net earnings per common share to Adjusted EPS appears
below.
(in US$)
Diluted net earnings per share
Non-controlling interest redemption increment
Settlement of long-term incentive arrangement
Acquisition-related items
Amortization of intangible assets, net of tax
Stock-based compensation expense, net of tax
Stock-based compensation tax adjustment for US GAAP change
Adjusted EPS
$
$
Year ended
December 31
2019
(6.51) $
0.42
8.13
0.16
0.72
0.15
(0.07)
3.00 $
2018
1.80
0.36
-
0.09
0.35
0.12
(0.11)
2.61
We believe that the presentation of Adjusted EBITDA and Adjusted EPS, which are non-GAAP financial measures,
provides important supplemental information to management and investors regarding financial and business trends
relating to the Company’s financial condition and results of operations. We use these non-GAAP financial measures
when evaluating operating performance because we believe that the inclusion or exclusion of the items described
above, for which the amounts are non-cash or non-recurring in nature, provides a supplemental measure of our
operating results that facilitates comparability of our operating performance from period to period, against our
business model objectives, and against other companies in our industry. We have chosen to provide this information
to investors so they can analyze our operating results in the same way that management does and use this
information in their assessment of our core business and the valuation of the Company. Adjusted EBITDA and
Adjusted EPS are not calculated in accordance with GAAP, and should be considered supplemental to, and not as a
substitute for, or superior to, financial measures calculated in accordance with GAAP. Non-GAAP financial
measures have limitations in that they do not reflect all of the costs or benefits associated with the operations of our
business as determined in accordance with GAAP. As a result, investors should not consider these measures in
isolation or as a substitute for analysis of our results as reported under GAAP.
9
Initial adoption of, and changes in, accounting policies
The Company adopted ASU 842, Leases, as of January 1, 2019, using the modified retrospective approach. In
addition, the Company elected the package of practical expedients permitted under the transition guidance within the
new standard, which among other things, allowed the Company to carry forward the historical lease classification.
The Company has lease agreements with lease and non-lease components, and has elected to account for each lease
component (e.g., fixed rent payments) separately from the non-lease components (e.g., common-area maintenance
costs). The Company has also elected not to recognize the right-of-use assets and lease liabilities for short-term
leases that have a lease term of 12 months or less. Leases are recognized on the balance sheet when the lease term
commences, and the associated lease payments are recognized as an expense on a straight-line basis over the lease
term.
In June 2016, FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments. In November 2018, FASB issued ASU 2018-19, Codification
Improvements to Topic 326, Financial Instruments – Credit Losses, which amends the scope and transition
requirements of ASU 2016-13. The standard requires a financial asset (or a group of financial assets) measured at
amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit
losses is based on relevant information about past events, including historical experience, current conditions and
reasonable and supportable forecasts that affect the collectability of the reported amount. The standard will become
effective for the Company beginning January 1, 2020 and will require a cumulative-effect adjustment to
Accumulated retained earnings as of the beginning of the first reporting period in which the guidance is effective
(that is, a modified-retrospective approach). The Company is currently evaluating the impact of this guidance on its
consolidated financial statements.
Off-balance sheet arrangements
The Company does not believe that it has off-balance sheet arrangements that have, or are reasonably likely to have,
a current or future material effect on the Company’s financial performance or financial condition.
Transactions with related parties
The Company has entered into office space rental arrangements and property management contracts with senior
managers of certain subsidiaries. These senior managers are usually also minority shareholders of the subsidiaries.
The business purpose of the transactions is to rent office space for the Company and to generate property
management revenues for the Company. The recorded amount of the rent expense for the year ended December 31,
2019 was $1.3 million (2018 - $1.2 million). These amounts are settled monthly in cash, and are priced at market
rates. The rental arrangements have fixed terms of up to 10 years.
As at December 31, 2019, the Company had $2.6 million of loans receivable from minority shareholders (December
31, 2018 - $2.1 million). The business purpose of the loans receivable was to finance the sale of non-controlling
interests in subsidiaries to senior managers. The loan amounts are measured based on the formula price of the
underlying non-controlling interests, and interest rates are determined based on market rates plus a spread. The loans
generally have terms of 5 to 10 years, but are open for repayment without penalty at any time.
Outstanding share data
The authorized capital of the Company consists of an unlimited number of common shares. The holders of common
shares are entitled to one vote in respect of each common share held at all meetings of the shareholders of the
Company.
As of the date hereof, the Company has outstanding 41,588,007 common shares. In addition, as at the date hereof
2,022,050 common shares are issuable upon exercise of options granted under the Company’s stock option plan.
Canadian tax treatment of common share dividends
For the purposes of the enhanced dividend tax credit rules contained in the Income Tax Act (Canada) and any
corresponding provincial and territorial tax legislation, all dividends (and deemed dividends) paid by us to Canadian
residents on our common shares are designated as “eligible dividends”. Unless stated otherwise, all dividends (and
deemed dividends) paid by us hereafter are designated as “eligible dividends” for the purposes of such rules.
10
Disclosure controls and procedures
Our Chief Executive Officer and Chief Financial Officer, with the assistance and participation of other Company
management, have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and
procedures (as defined in Canada by National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual
and Interim Filings and in the United States by Rules 13a-15(e) and 15d-15(e) of the United States Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2019. Based on that evaluation, the
Chief Executive Officer and the Chief Financial Officer have concluded that, as of December 31, 2019, the
Company’s disclosure controls and procedures were effective to give reasonable assurance that information required
to be disclosed by the Company in reports that it files or submits under Canadian securities legislation and the
Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified therein; and (ii)
accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s report on internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for
the Company. Internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with GAAP.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
We have excluded fifteen entities acquired by the Company during the 2019 fiscal year from our assessment of
internal control over financial reporting as at December 31, 2019. The total assets and total revenues of the fifteen
majority-owned entities represent 11.8% and 13.4%, respectively, of the related consolidated financial statement
amounts as at and for the year ended December 31, 2019.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as at
December 31, 2019, based on the criteria set forth in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has
concluded that, as at December 31, 2019, the Company’s internal control over financial reporting was effective.
The effectiveness of the Company's internal control over financial reporting as at December 31, 2019, has been
audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report
dated February 20, 2020 which accompanies the Company’s audited consolidated financial statements for the year
ended December 31, 2019.
Changes in internal control over financial reporting
During the year ended December 31, 2019, there were no changes in our internal control over financial reporting
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Legal proceedings
FirstService is involved in litigation in the normal course of its business, both as a defendant and as a plaintiff.
Management reviews all of the relevant facts for each claim and applies judgment in evaluating the likelihood and, if
applicable, the amount of any potential loss. Where a potential loss is considered probable and the amount is
reasonably estimable, provisions for loss are made based on management’s assessment of the likely outcome. Where
a range of loss can be reasonably estimated with no best estimate in the range, FirstService records the minimum
amount in the range. FirstService does not provision for claims for which the outcome is not determinable or claims
for which the amount of the loss cannot be reasonably estimated. Any settlements or awards under such claims are
provisioned for when reasonably determinable.
As of February 20, 2020, there are no claims outstanding for which FirstService has assessed the potential loss as
both probable to result and reasonably estimable, therefore no accrual has been made.
11
Market risk of financial instruments
FirstService is engaged in operating and financing activities that generate risk in three primary areas as set out
below. See Note 18 to the Consolidated Financial Statements for additional information regarding these risks.
FirstService’s overall risk management program and business practices seek to minimize any potential adverse
effects on FirstService’s financial performance. Risk management is carried out by the senior management team and
is reviewed by FirstService’s board of directors.
For an understanding of other potential risks, including non-financial risks, see the section entitled “Risk Factors” in
the Company’s Annual Information Form for the year ended December 31, 2019 available on SEDAR at
www.sedar.com, which is also included in the Company’s Annual Report on Form 40-F available on EDGAR at
www.sec.gov.
Foreign exchange
FirstService is exposed to foreign exchange risk as a result of transactions in currencies other than its functional
currency, the U.S. dollar. A majority of FirstService’s revenues in fiscal 2019 were transacted in U.S. dollars. A
portion of FirstService’s revenues were denominated in Canadian dollars, which results in foreign currency exposure
related to fluctuations between the Canadian and U.S. dollars. FirstService’s head office expenses are incurred in
Canadian dollars, which is hedged by Canadian dollar denominated revenue. As an additional part of its risk
management strategy, FirstService maintains net monetary asset and/or liability balances in foreign currencies and
may engage in foreign currency hedging activities using financial instruments, including currency forward contracts
and currency options. FirstService does not use financial instruments for speculative purposes. As at the date of this
MD&A, FirstService does not have any such financial instruments.
FirstService’s credit agreement allows FirstService to borrow under its revolving credit facility in Canadian and U.S.
dollars. To mitigate any foreign exchange risk related to its Canadian dollar denominated debt, FirstService may
from time to time enter into forward foreign exchange contracts to sell Canadian dollars in an amount equal to the
principal amount of its Canadian dollar denominated borrowings. As at the date of this MD&A, FirstService does
not have any such foreign exchange contracts.
Interest rate
FirstService has no significant interest-bearing assets. FirstService’s income and operating cash flows are
substantially independent of changes in market interest rates.
FirstService’s primary interest rate risk arises from its long-term debt under its credit agreement and senior secured
notes. FirstService manages its exposure to changes in interest rates by using a combination of fixed and variable
rate debt, varying lengths of terms to achieve the desired proportion of variable and fixed rate debt and, from time to
time, may enter into hedging/interest rate swap contracts. Fluctuations in interest rates affect the fair value of any
hedging/interest rate swap contracts as their value depends on the prevailing market interest rate. Hedging/interest
rate swap contracts are monitored on a monthly basis. As at the date of this MD&A, FirstService does not have any
such hedging/interest rate swap contracts. An increase (or decrease) in interest rates by 1% would result in a $6.1
million increase (or decrease) in annual interest expense under the credit facility contained in FirstService’s credit
agreement.
Credit risk
Credit risk refers to the risk of losses due to failure of FirstService’s customers or other counterparties to meet their
payment obligations. Credit risk also arises from deposits with banks. Credit risk with respect to the customer
receivables are limited due to the large number of entities comprising FirstService’s customer base and their
dispersion across many different service lines. Credit risk with respect to deposits is limited by the use of multiple
large and reputable banks.
12
Forward-looking statements and risks
This MD&A contains forward-looking statements with respect to expected financial performance, strategy and
business conditions. The words “believe,” “anticipate,” “estimate,” “plan,” “expect,” “intend,” “may,” “project,”
“will,” “would,” and similar expressions are intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words. These statements reflect management’s current beliefs
with respect to future events and are based on information currently available to management. Forward-looking
statements involve significant known and unknown risk and uncertainties. Many factors could cause our actual
results, performance or achievements to be materially different from any future results, performance or
achievements that may be expressed or implied by such forward-looking statements. Factors which may cause such
differences include, but are not limited to those set out below and those set out in detail in the “Risk Factors” section
of the Company’s Annual Information Form for the year ended December 31, 2019 available on SEDAR at
www.sedar.com, which is also included in the Company’s Annual Report on Form 40-F available on EDGAR at
www.sec.gov:
Economic conditions, especially as they relate to credit conditions, consumer spending and demand for
managed residential property, particularly in regions where our business may be concentrated.
Residential real estate property values, resale rates and general conditions of financial liquidity for real
estate transactions.
Extreme weather conditions impacting demand for our services or our ability to perform those services.
Economic deterioration impacting our ability to recover goodwill and other intangible assets.
A decline in our ability to generate cash from our businesses to fund future acquisitions and meet our debt
obligations.
The effects of changes in foreign exchange rates in relation to the U.S. dollar on our Canadian dollar
denominated revenues and expenses.
Competition in the markets served by the Company.
Labour shortages or increases in wage and benefit costs.
The effects of changes in interest rates on our cost of borrowing.
A decline in our performance impacting our continued compliance with the financial covenants under our
debt agreements, or our ability to negotiate a waiver of certain covenants with our lenders.
Unexpected increases in operating costs, such as insurance, workers’ compensation, health care and fuel
prices.
Changes in the frequency or severity of insurance incidents relative to our historical experience.
A decline in our ability to make acquisitions at reasonable prices and successfully integrate acquired
operations.
The performance of acquired businesses and potential liabilities acquired in connection with such
acquisitions.
Changes in laws, regulations and government policies at the federal, state/provincial or local level that
may adversely impact our businesses.
Risks related to liability for employee acts or omissions, or installation/system failure, in our fire
protection businesses.
A decline in our performance impacting our ability to pay dividends on our common shares.
Risks arising from any regulatory review and litigation.
Risks associated with intellectual property and other proprietary rights that are material to our business.
Disruptions or security failures in our information technology systems.
Political conditions, including any outbreak or escalation of terrorism or hostilities and the impact thereof
on our business.
Performance in our commercial and large loss property restoration business.
Volatility of the market price of our common shares.
Potential future dilution to the holders of our common shares.
Risks related to our qualification as a foreign private issuer.
Although the spin-off is complete, the transaction exposes FirstService to certain ongoing tax and
indemnification risks.
13
We caution that the foregoing list is not exhaustive of all possible factors, as other factors could adversely affect our
results, performance or achievements. The reader is cautioned against undue reliance on these forward-looking
statements. Although we believe that the assumptions underlying our forward-looking statements are reasonable,
any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated
in such forward-looking statements will be realized. The inclusion of such forward-looking statements should not be
regarded as a representation by the Company or any other person that the future events, plans or expectations
contemplated by the Company will be achieved. We note that past performance in operations and share price are not
necessarily predictive of future performance. All forward-looking statements in this MD&A are qualified by these
cautionary statements. The forward-looking statements are made as of the date of this MD&A and, unless otherwise
required by applicable securities laws, we do not intend, nor do we undertake any obligation, to update or revise any
forward-looking statements contained in this MD&A to reflect subsequent information, events, results or
circumstances or otherwise.
Additional information
Copies of publicly filed documents of the Company, including our Annual Information Form, can be found through
the SEDAR website at www.sedar.com and on EDGAR at www.sec.gov.
14
FirstService Corporation
Consolidated Financial Statements
Year ended
December 31, 2019
15
FIRSTSERVICE CORPORATION
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.
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 registered public accounting firm of the Company by the shareholders. Their report outlines the scope of their
examination and opinion on the consolidated financial statements and the effectiveness of ICFR at December 31, 2019. As
auditors, PricewaterhouseCoopers LLP have full and independent access to the Audit Committee to discuss their findings.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of its effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has excluded fifteen entities acquired by the Company during the last fiscal period, including the acquisition of
Global Restoration, from its assessment of internal control over financial reporting as at December 31, 2019. The total assets and
total revenues of the fifteen majority-owned entities represent 11.8% and 13.4%, respectively, of the related consolidated
financial statement amounts as at and for the year ended December 31, 2019.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as at December 31, 2019,
based on the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management has concluded that, as at December 31,
2019, the Company’s internal control over financial reporting was effective.
The effectiveness of the Company's internal control over financial reporting as at December 31, 2019, has been audited by
PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm as stated in their report which
appears herein.
/s/ Scott Patterson
Chief Executive Officer
February 20, 2020
/s/ Jeremy Rakusin
Chief Financial Officer
16
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of FirstService Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of FirstService Corporation and its subsidiaries (together, the
Company) as of December 31, 2019 and 2018, and the related consolidated statements of earnings (loss), consolidated statements
of comprehensive earnings (loss), consolidated statements of shareholders' equity and consolidated statements of cash flows for
the years then ended, including the related notes (collectively referred to as the consolidated financial statements). We also have
audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United States of America (US GAAP). Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.
Change in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases
in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on
the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of
the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded 15 entities from
its assessment of internal control over financial reporting as of December 31, 2019 because they were acquired by the Company
in purchase business combinations during 2019. We have also excluded these 15 entities from our audit of internal control over
financial reporting. Total assets and total revenues of these majority-owned entities excluded from management’s assessment and
our audit of internal control over financial reporting represent 11.8% and 13.4%, respectively, of the consolidated financial
statement amounts as of and for the year ended December 31, 2019.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide
17
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Acquisition of Global Restoration - Fair Value of Intangible Assets
As described in Note 4 to the consolidated financial statements, the Company acquired Global Restoration for net cash
consideration of $506.7 million in 2019, which resulted in $222.1 million of intangible assets being recorded. Intangible assets
acquired comprised of customer relationships of $213.2 million, backlog of $7.1 million, trademarks and trade names of $1.8
million. Management recorded the intangible assets acquired at fair value on the date of acquisition using the income approach on
an individual asset basis. Management applied judgment in estimating the fair value of intangible assets acquired, which included
the use of assumptions with respect to future earnings before interest, taxes, depreciation and amortization (EBITDA) margins,
revenue growth rates, expected attrition rates of acquired customer relationships and discount rates.
The principal considerations for our determination that performing procedures relating to the fair value of intangible assets
recorded in the acquisition of Global Restoration is a critical audit matter are (i) there was a high degree of auditor judgment and
subjectivity in performing procedures relating to the fair value measurement of intangible assets acquired due to the judgment
applied by management when developing the estimate; (ii) significant audit effort was required in evaluating the assumptions
relating to the estimated fair value of intangible assets, including future EBITDA margins, revenue growth rates, expected
attrition rates of acquired customer relationships and discount rates; and (iii) the audit effort involved the use of professionals
with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
acquisition accounting, including controls over management’s valuation of intangible assets and controls over development of the
assumptions related to the valuation of intangible assets, including future EBITDA margins, revenue growth rates, expected
attrition rates of acquired customer relationships and discount rates. These procedures also included, among others, (i) reading the
purchase agreement; (ii) testing management’s process for estimating the fair value of intangible assets; (iii) evaluating the
appropriateness of the valuation method; (iv) testing the completeness, accuracy and relevance of the data used in estimating the
fair value of intangible assets; and (v) evaluating the reasonableness of assumptions used by management. Evaluating the
reasonableness of assumptions used by management including future EBITDA margins, revenue growth rates and expected
attrition rates of acquired customer relationships involved considering the past performance of the acquired business, economic
and industry forecasts, and similar prior acquisitions made by the Company. Professionals with specialized skill and knowledge
were used to assist in the evaluation of the Company’s valuation method and certain assumptions, such as the discount rates.
Goodwill Impairment Assessment
As described in Notes 2 and 10 to the consolidated financial statements, the Company’s goodwill balance was $644.8 million as
of December 31, 2019. Management conducts an impairment test as of August 1 of each year, or more frequently if events or
changes in circumstances indicate that the carrying value of goodwill may be impaired. Potential impairment is identified by
comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value is estimated by management
using a market multiple method. Management applied significant judgment in estimating the fair value of each reporting unit,
which included the use of significant assumptions with respect to multiples of EBITDA for comparable entities with similar
operations and economic characteristics.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment is
a critical audit matter are (i) there was significant judgment applied by management when estimating the fair value of the
reporting units; which in turn led to (ii) a high degree of auditor judgment and subjectivity in performing procedures to evaluate
management’s significant assumptions, including multiples of EBITDA for comparable entities with similar operations and
economic characteristics.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to
management’s goodwill impairment assessment, including controls over the estimation of the fair value of the Company’s
18
reporting units. These procedures also included, among others, (i) testing management’s process for estimating the fair value of
the reporting units; (ii) evaluating the appropriateness of the market multiple method; (iii) testing the completeness, accuracy and
relevance of the data used in estimating the fair value of the reporting units; and (iv) evaluating the reasonableness of the
significant assumptions used by management, including multiples of EBITDA for comparable entities with similar operations and
economic characteristics. Evaluating the reasonableness of the significant assumptions used by management involved (i)
comparing the multiples of EBITDA to the multiples of similar prior acquisitions made by the Company and to the current
trading multiple of the Company, as well as to external market and industry data, and (ii) performing sensitivity analyses.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
February 20, 2020
We have served as the Company's auditor since 2014.
19
FIRSTSERVICE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(in thousands of US dollars, except per share amounts)
Years ended December 31
Revenues
Cost of revenues (exclusive of depreciation and
amortization shown below)
Selling, general and administrative expenses
Depreciation
Amortization of intangible assets
Settlement of long-term incentive arrangement ("LTIA") (note 19)
Acquisition-related items (note 4)
Operating earnings (loss)
Interest expense, net
Other (income) expense, net (note 6)
Earnings (loss) before income tax
Income tax (note 15)
Net earnings (loss)
Non-controlling interest share of earnings (note 12)
Non-controlling interest redemption increment (note 12)
Net earnings (loss) attributable to Company
Net earnings (loss) per common share (note 16)
Basic
Diluted
The accompanying notes are an integral part of these financial statements.
2019
2018
$
2,407,410
$
1,931,473
1,634,097
546,257
40,859
38,698
314,379
7,539
(174,419)
32,080
(6,015)
(200,484)
27,147
(227,631)
7,874
16,105
(251,610)
(6.58)
(6.58)
$
$
$
1,320,252
426,377
35,257
17,515
-
4,504
127,568
12,620
(254)
115,202
24,922
90,280
11,180
13,235
65,865
1.83
1.80
$
$
$
20
FIRSTSERVICE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
(in thousands of US dollars)
Years ended December 31
Net earnings (loss)
Foreign currency translation (loss) gain
Comprehensive earnings (loss)
Less: Comprehensive earnings attributable to non-controlling
shareholders
Comprehensive earnings (loss) attributable to Company
2019
$
(227,631)
2,659
(224,972)
23,979
$
(248,951)
2018
90,280
(2,623)
87,657
24,415
63,242
$
$
The accompanying notes are an integral part of these financial statements.
21
FIRSTSERVICE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands of US dollars)
As at December 31
Assets
Current assets
Cash and cash equivalents
Restricted cash
Accounts receivable, net of allowance of $13,136 (December 31, 2018 -
$9,177)
Income tax recoverable
Inventories (note 7)
Prepaid expenses and other current assets
Other receivables
Other assets
Deferred income tax (note 15)
Fixed assets (note 8)
Operating lease right-of-use assets (note 5)
Intangible assets (note 9)
Goodwill (note 10)
Liabilities and shareholders' equity
Current liabilities
Accounts payable
Accrued liabilities (note 7)
Unearned revenues
Operating lease liabilities - current (note 5)
Long-term debt - current (note 11)
Contingent acquisition consideration - current (note 18)
Long-term debt - non-current (note 11)
Operating lease liabilities - non-current (note 5)
Contingent acquisition consideration (note 18)
Unearned revenues
Other liabilities
Deferred income tax (note 15)
Redeemable non-controlling interests (note 12)
Shareholders' equity
Commitments and contingencies (note 19)
The accompanying notes are an integral part of these financial statements.
On behalf of the Board of Directors,
/s/Bernard I. Ghert /s/D. Scott Patterson
Director Director
2019
2018
$
$
$
121,198
13,093
393,730
4,147
94,511
41,457
668,136
4,033
4,955
2,836
131,545
132,893
366,224
644,847
1,287,333
1,955,469
76,226
165,444
74,100
30,622
5,545
6,269
358,206
761,078
111,247
8,154
12,593
45,403
58,239
996,714
174,662
$
$
$
66,340
13,504
239,925
9,337
48,227
37,739
415,072
4,212
6,135
-
98,102
-
148,798
335,155
592,402
1,007,474
41,709
132,572
36,746
-
3,915
12,005
226,947
330,608
-
1,281
13,453
40,797
6,577
392,716
151,585
425,887
1,955,469
$
236,226
1,007,474
$
22
FIRSTSERVICE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands of US dollars, except share information)
Balance, December 31, 2017
Net earnings
Other comprehensive loss
Subsidiaries’ equity transactions
Common Shares:
Stock option expense
Stock options exercised
Dividends
Purchased for cancellation
Balance, December 31, 2018
Net earnings (loss)
Other comprehensive earnings
Impact of ASC 842 - Leases (note 5)
Subsidiaries’ equity transactions
Common Shares:
Stock option expense
Stock options exercised
Dividends
Issued - settlement of LTIA (note 19)
Issued - share offering (note 13)
Balance, December 31, 2019
Common shares
Issued and
outstanding
shares Amount
35,916,383 $ 143,770
Contributed
surplus
$ 41,463 $
Accumulated
other
Retained
Earnings comprehensive
loss
(Deficit)
(492)
7,545
$
-
-
-
-
-
-
-
-
(336)
65,865
-
-
-
194,100
-
(130,436)
-
5,479
-
(542)
35,980,047 $ 148,707
5,767
(1,797)
-
-
$ 45,097 $
-
-
-
-
-
-
-
-
-
-
-
(10)
-
-
(19,417)
(8,456)
45,537
(251,610)
-
(390)
-
-
432,050
-
2,918,860
2,165,000
-
13,481
-
251,503
191,737
41,495,957 $ 605,428
8,126
(2,424)
-
-
-
-
-
(23,411)
-
-
$ 50,789 $(229,874)
$
$
-
(2,623)
-
-
-
-
-
(3,115)
-
2,659
-
-
-
-
-
-
-
(456)
The accompanying notes are an integral part of these financial statements.
Total
$ 192,286
65,865
(2,623)
(336)
5,767
3,682
(19,417)
(8,998)
$ 236,226
(251,610)
2,659
(390)
(10)
8,126
11,057
(23,411)
251,503
191,737
$ 425,887
23
2019
2018
$
(227,631)
$
90,280
79,557
251,503
(8,988)
2,258
(17,396)
(7,107)
(1,033)
858
7,228
4,644
11,808
13,069
(962)
107,808
(579,863)
13,030
(46,628)
(1,504)
(614,965)
624,052
(194,193)
191,737
(4,000)
(34,319)
3,671
(9,094)
11,057
(22,044)
(5,725)
-
561,142
462
54,447
79,844
$
134,291
$
52,772
-
1,989
5,837
(37,100)
(5,780)
(6,152)
(3,249)
12,462
(5,142)
(6,330)
1,257
(1,383)
99,461
(59,444)
-
(40,597)
(6,158)
(106,199)
103,914
(41,626)
-
(575)
(3,600)
1,200
(7,862)
3,682
(18,780)
(6,913)
(8,998)
20,442
(754)
12,950
66,894
79,844
FIRSTSERVICE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of US dollars)
Years ended December 31
Cash provided by (used in)
Operating activities
Net earnings
Items not affecting cash:
Depreciation and amortization
Settlement of long-term incentive arrangement
Deferred income tax
Other
Changes in non-cash working capital:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable
Accrued liabilities
Income tax payable
Unearned revenues
Other liabilities
Contingent acquisition consideration paid
Net cash provided by operating activities
Investing activities
Acquisitions of businesses, net of cash acquired (note 4)
Disposal of businesses, net of cash disposed (note 6)
Purchases of fixed assets
Other investing activities
Net cash used in investing activities
Financing activities
Increase in long-term debt
Repayment of long-term debt
Proceeds received on common share issuance (note 13)
Financing fees paid
Purchases of non-controlling interests
Sale of interests in subsidiaries to non-controlling interests
Contingent acquisition consideration paid
Proceeds received on exercise of stock options
Dividends paid to common shareholders
Distributions paid to non-controlling interests
Repurchases of Common Shares
Net cash provided by financing activities
Effect of exchange rate changes on cash
Increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of year
Cash, cash equivalents and restricted cash, end of year
24
FIRSTSERVICE CORPORATION
NOTES TO 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 North American provider of residential property
management and other essential property services to residential and commercial customers. The
Company’s operations are conducted in two segments: FirstService Residential and FirstService Brands.
The segments are grouped with reference to the nature of services provided and the types of clients that use
those services.
FirstService Residential is a full-service property manager and in many markets provides a full range of
ancillary services primarily in the following areas: (i) on-site staffing, including building engineering and
maintenance, full-service amenity management, security, concierge and front desk personnel; (ii)
proprietary banking and insurance products; and (iii) energy conservation and management solutions.
FirstService Brands provides a range of essential property services to residential and commercial customers
in North America through franchise networks and company-owned locations. The principal brands in this
division include Paul Davis Restoration, Global Restoration, California Closets, CertaPro Painters, Pillar to
Post Home Inspectors, Floor Coverings International, and Century Fire Protection.
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 determination of fair values of
assets acquired and liabilities assumed in business combinations, recoverability of goodwill and intangible
assets, estimated fair value of contingent consideration related to acquisitions, and the collectability of
accounts receivable. 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 and its majority-owned
subsidiaries where the Company is the primary beneficiary. Where the Company does not have a
controlling interest but has the ability to exert significant influence, the equity method is used. Inter-
company transactions and accounts are eliminated on consolidation.
Cash and cash equivalents
Cash equivalents consist of short-term interest-bearing securities, which are readily convertible into cash
and have original maturities at the date of purchase of three months or less.
Restricted cash
Restricted cash consists of cash over which the Company has legal ownership but is restricted as to its
availability or intended use, including funds held on behalf of clients and franchisees.
On January 1, 2018, the Company adopted updated guidance issued by the FASB on restricted cash (ASU
No. 2016-18). This ASU requires the statement of cash flows to explain the change during the period in the
total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash
equivalents. The Company’s restricted cash balance consists primarily of cash related to our marketing
funds in the FirstService Brands segment, cash held for certain employees’ benefit plans, and cash held for
25
insurance broker commissions owed in our FirstService Residential segment. This update has been applied
retrospectively.
Accounts Receivable
In the ordinary course of business, the Company extends non-interest bearing trade credit to its customers.
Accounts receivable are reported on the face of the consolidated balance sheets, net of an allowance for
doubtful accounts. The Company maintains an allowance for doubtful accounts to provide for the estimated
amount of receivables that will not be collected. In determining the allowance for doubtful accounts, the
Company analyzes
the aging of accounts receivable, historical payment experience, customer
creditworthiness and current economic trends.
Inventories
Inventories are carried at the lower of cost and net realizable value. Cost is determined using the weighted
average method. Work-in-progress inventory relates to construction contracts and real estate project
management projects in process and are accounted for using the percentage of completion method.
Fixed assets
Fixed assets are carried at cost less accumulated depreciation. The costs of additions and improvements are
capitalized, while maintenance and repairs are expensed as incurred. Fixed assets are reviewed for
impairment whenever events or circumstances indicate that the carrying value of an asset group may not be
recoverable. An impairment loss is recorded to the extent the carrying amount exceeds the estimated fair
value of an asset group. Fixed assets are depreciated over their estimated useful lives as follows:
Buildings
Vehicles
Furniture and equipment
Computer equipment and software
Leasehold improvements
20 to 40 years straight-line
3 to 5 years straight-line
3 to 10 years straight-line
3 to 5 years straight-line
term of the lease to a maximum of 10 years straight-line
Fair value
The Company uses the fair value measurements framework for financial assets and liabilities and for non-
financial assets and liabilities that are recognized or disclosed at fair value on a non-recurring basis. The
framework defines fair value, gives guidance for measurement and disclosure, and establishes a three-level
hierarchy for observable and unobservable inputs used to measure fair value. The classification of an asset
or liability within the hierarchy is determined based on the lowest level input that is significant to the fair
value measurement. The three levels are as follows:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2 – Observable market-based inputs other than quoted prices in active markets for identical assets or
liabilities
Level 3 – Unobservable inputs for which there is little or no market data, which requires the Company to
develop its own assumptions
Financing fees
Financing fees related to our amended and restated credit agreement (the “Credit Agreement”) with a
syndicate of lenders and our $150,000 of senior secured notes (the “Senior Notes”) are deferred and
amortized to interest expense using the effective interest method.
Adoption of ASC 842
The Company adopted ASU 842, Leases, as of January 1, 2019, using the modified retrospective approach.
In addition, the Company elected the package of practical expedients permitted under the transition
guidance within the new standard, which among other things, allowed the Company to carry forward the
historical lease classification.
The Company has lease agreements with lease and non-lease components, and has elected to account for
each lease component (e.g., fixed rent payments) separately from the non-lease components (e.g., common-
26
area maintenance costs). The Company has also elected not to recognize the right-of-use assets and lease
liabilities for short-term leases that have a lease term of 12 months or less. Leases are recognized on the
balance sheet when the lease term commences, and the associated lease payments are recognized as an
expense on a straight-line basis over the lease term.
See note 5 to the consolidated financial statements for additional disclosures about the impact of adoption
of ASC 842.
Accounting Policy for Leases under ASC 842
At lease commencement, which is generally when the Company takes possession of the asset, the Company
records a lease liability and a corresponding right-of-use asset. Lease liabilities represent the present value
of minimum lease payments over the expected lease term, which includes options to extend or terminate the
lease when it is reasonably certain those options will be exercised. The present value of the lease liability is
determined using the Company’s incremental collateralized borrowing rate at the lease commencement.
Minimum lease payments include base rent, fixed escalation of rental payments, and rental payments that
are adjusted periodically depending on a rate or index. In determining minimum lease payments, the
Company does not separate non-lease components for real estate leases. Non-lease components are
generally services that the lessor performs for the Company associated with the leased asset, such as
common area maintenance.
Right-of-use assets represent the right to control the use of the leased asset during the lease and are initially
recognized in an amount equal to the lease liability. In addition, prepaid rent, initial direct costs, and
adjustments for lease incentives are components of the right-of-use asset. Over the lease term the lease
expense is amortized on a straight-line basis beginning on the lease commencement date. Right-of-use
assets are assessed for impairment as part of the impairment of long-lived assets, which is performed
whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group
may not be recoverable.
A right-of-use asset and lease liability are not recognized for leases with an initial term of 12 months or
less, and the lease expense is recognized on a straight-line basis over the lease term.
Goodwill and intangible assets
Goodwill represents the excess of purchase price over the fair value of assets acquired and liabilities
assumed in a business combination and is not subject to amortization.
Intangible assets are recorded at fair value on the date they are acquired. They are amortized over their
estimated useful lives as follows:
Customer relationships
Franchise rights
Trademarks and trade names
Management contracts and other
Backlog
straight-line over 4 to 20 years
by pattern of use, currently estimated at 2.5% to 15% per year
straight-line over 1 to 35 years
straight-line over life of contract ranging from 2 to 15 years
straight-line over 6 to 12 months
The Company reviews the carrying value of finite life intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset group may not be recoverable from
the estimated future cash flows expected to result from their use and eventual disposition. If the sum of the
undiscounted expected future cash flows is less than the carrying amount of the asset group, an impairment
loss is recognized. Measurement of the impairment loss is based on the excess of the carrying amount of
the asset group over the fair value calculated using an income approach.
Goodwill is tested for impairment annually, on August 1, 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.
27
Impairment of goodwill is tested at the reporting unit level. The Company has seven reporting units
determined with reference to business segment, customer type, service delivery model and geography.
Impairment is tested by first assessing qualitative factors to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying amount. Where it is determined to be more
likely than not that its fair value is greater than its carrying amount, then no further testing is required.
Where the qualitative analysis is not sufficient to support that the fair value exceeds the carrying amount
then a goodwill impairment test is performed. A quantitative goodwill impairment test is performed by
comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value is
estimated using a market multiple method, which estimates market multiples of earnings before interest,
taxes, depreciation and amortization (“EBITDA”) for comparable entities with similar operations and
economic characteristics. Significant assumptions used in estimating the fair value of each reporting unit
include the market multiples of EBITDA.
Redeemable non-controlling interests
Redeemable non-controlling interests (“RNCI”) are recorded at the greater of (i) the redemption amount or
(ii) the amount initially recorded as RNCI at the date of inception of the minority equity position. This
amount is recorded in the “mezzanine” section of the balance sheet, outside of shareholders’ equity.
Changes in the RNCI amount are recognized immediately as they occur.
Revenue recognition and unearned revenues
The Company accounts for a contract with a customer when there is approval and commitment from both
parties, the rights of the parties are identified, payment terms are identified, the contract has commercial
substance and collectability of consideration is probable. The Company’s revenues are measured based on
consideration specified in the contract of each customer and revenue is recognized as the performance
obligations are satisfied by transferring the control of the service or product to a customer.
(a) Franchisor operations
The Company operates several franchise systems within its FirstService Brands segment. Initial franchise
fees are deferred and recognized over the term of the franchise agreement. 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.
The Company’s franchise systems operate marketing funds on behalf of franchisees. Advertising fund
contributions from franchisees are reported as revenues and advertising fund expenditures are reported as
expenses in our statements of earnings. To the extent that contributions received exceed advertising
expenditures, the excess amount is accrued and offset as a deferred liability, whereas any expenditures in
excess of contributions are expensed as incurred. As such, advertising fund contributions and the related
revenues and expenses may be reported in different periods.
(b) Revenues from construction contracts and service operations other than franchisor operations
Revenues are recognized at the time the service is rendered. Certain services including but not limited to
restoration and construction contracts, are recognized over time based on percentage of completion, based
on a 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 revenues when received.
Stock-based compensation
For equity classified awards, compensation cost is measured at the grant date based on the estimated fair
value of the award. The related stock option compensation expense is allocated using the graded attribution
method.
28
Notional value appreciation plans
Under these plans, subsidiary employees are compensated if the notional value of the subsidiary increases.
Awards under these plans generally have a term of up to fifteen years and a vesting period of five years.
The increase in notional value is calculated with reference to growth in earnings relative to a fixed
threshold amount plus or minus changes in indebtedness relative to a fixed opening amount. 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 selling, general and administrative expenses and the liability is
recorded in accrued liabilities.
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
accumulated other comprehensive earnings. Realized and unrealized foreign currency gains or losses
related to any foreign dollar denominated monetary assets and liabilities are included in net earnings.
Income tax
Income tax has 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 reverse, 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 based on available evidence.
The Company recognizes uncertainty in tax positions taken or expected to be taken in a tax return by
recording a liability for unrecognized tax benefits on its balance sheet. Uncertainties are quantified by
applying a prescribed recognition threshold and measurement attribute.
The Company classifies interest and penalties associated with income tax positions in income tax expense.
Business combinations
All business combinations are accounted for using the purchase method of accounting. Transaction costs
are expensed as incurred.
The determination of fair values of assets and liabilities assumed in business combinations requires the use
of estimates and judgement by management, particularly in determining fair values of intangible assets
acquired.
The fair value of the contingent consideration is classified as a financial liability and is recorded on the
balance sheet at the acquisition date and is re-measured at fair value at the end of each period until the end
of the contingency period, with fair value adjustments recognized in earnings.
29
3.
Revenue from contracts with customers
Within the FirstService Brands segment, franchise fee revenue recognized during the twelve months ended
December 31, 2019 that was included in deferred revenue at the beginning of the period was $4,462 (2018 -
$3,392). These fees are recognized over the life of the underlying franchise agreement, usually between 5 -
10 years.
External broker costs and employee sales commissions in obtaining new franchisees are capitalized in
accordance with the revenue standard and are amortized over the life of the underlying franchise
agreement. Costs amortized during the twelve months ended December 31, 2019 were $1,717 (2018 -
$1,220). The closing amount of the capitalized costs to obtain contracts on the balance sheet as at
December 31, 2019 was $6,711 (2018 - $7,031). There were no impairment losses recognized related to
those assets in the quarter.
The Company’s backlog represents remaining performance obligations and is defined as contracted work
yet to be performed. As at December 31, 2019, the aggregate amount of backlog was $300,499. The
Company expects to recognize revenue on the remaining backlog over the next 12 months.
Disaggregated revenues are as follows:
Revenues
FirstService Residential
FirstService Brands company-owned operations
FirstService Brands franchisor
FirstService Brands franchise fee
Year ended
December 31
2019
2018
$ 1,411,998
836,637
153,826
4,949
$ 1,254,840
540,058
132,079
4,496
The Company disaggregates revenue by segment, and within the FirstService Brands segment, further
disaggregates its company-owned operations revenue; these businesses primarily recognize revenue over
time as they perform because of continuous transfer of control to the customer. As such, revenue is
recognized based on the extent of progress towards completion of the performance obligation. The
Company generally uses the cost-to-cost measure of progress method. The extent of progress towards
completion is measured based on the ratio of costs incurred to date to the total estimated costs at
completion of the performance obligation. Revenues, including estimated fees or profits, are recorded
proportionally as costs are incurred.
We believe this disaggregation best depicts how the nature, amount, timing and uncertainty of the
Company’s revenue and cash flows are affected by economic factors.
4.
Acquisitions
2019 acquisitions:
The Company acquired controlling interests in fifteen businesses, including three in the FirstService
Residential segment and twelve in the FirstService Brands segment.
In the FirstService Brands segment, the Company acquired Global Restoration (aka Bellwether FOS
Holdco, Inc.), a leading commercial and large loss firm headquartered in Colorado and with operations
across the U.S. and Canada.
Details of the final fair values of assets acquired and liabilities assumed for the Company’s significant
Global Restoration acquisition, which closed in June 2019 are as follows:
30
Accounts receivable
Inventories
Prepaid expenses and other current assets
Fixed assets
Operating lease right-of-use assets
Accounts payable
Accrued liabilities
Unearned revenues
Operating lease liabilities - current
Other current liabilities
Operating lease liabilities - non-current
Long-term debt - non-current
Other liabilities
Deferred tax liabilities
Redeemable non-controlling interests
Cash consideration, net of cash acquired of $6,518
Backlog
Customer relationships
Trademarks and trade names
Goodwill
Global
Restoration
118,678
31,677
3,240
22,574
10,566
(24,337)
(21,345)
(12,779)
(6,500)
(649)
(4,072)
(5,711)
(615)
(51,590)
(25,433)
33,704
(506,680)
7,130
213,150
1,850
250,846
$
$
$
$
$
“Acquisition-related items” related to the Global Restoration acquisition included transaction costs of
$2,158.
The Global Restoration acquisition was 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 Global Restoration prior to the June 21, 2019 closing date. The
consideration for the transaction was financed from borrowings under the Credit Agreement, consisting of
the Company’s revolving credit facility as well as a $440,000 term loan (see note 11 for further detail).
The amounts of revenues and earnings contributed from the date of acquisition and included in the
Company’s consolidated results for the year ended December 31, 2019, and the supplemental pro forma
revenues and earnings of the combined entity had the acquisition date for Global Restoration been January
1, 2018, are as follows:
Actual from Global Restoration for 2019
Supplemental pro forma for 2019 (unaudited)
Supplemental pro forma for 2018 (unaudited)
Revenues
Net earnings
$
219,204
2,613,433
2,368,673
$
14,991
(211,188)
125,174
Supplemental pro forma results were adjusted for non-recurring items.
31
Other 2019 acquisitions:
In the FirstService Residential segment, the Company acquired controlling interests in regional firms
operating in Chicago and western Canada.
Within the FirstService Brands segment, in addition to Global Restoration, the Company acquired five
independent restoration companies, operating in Ohio, California, Missouri, Illinois and Quebec, as well as
a Paul Davis Restoration franchise located in the mid-western U.S. The Company also acquired three
California Closets franchises operating in Maryland, New Jersey, and Arizona and two fire protection
operations based in Houston and Atlanta.
Details of the other 2019 acquisitions, in aggregate, are as follows:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Deferred tax liabilities
Redeemable non-controlling interest
Cash consideration, net of cash acquired of $4,964
Acquisition date fair value of contingent consideration
Total purchase consideration
Backlog
Customer relationships
Trademarks and trade names
Management contracts and other
Goodwill
Aggregate
Acquisitions
34,454
8,175
(29,059)
(1,574)
(6,328)
(9,874)
(4,206)
(73,183)
(10,611)
(83,794)
4,240
13,168
567
11,644
58,381
$
$
$
$
$
$
For these other 2019 acquisitions, “Acquisition-related items” included both transaction costs and
contingent acquisition consideration fair value adjustments. Acquisition-related transaction costs for the
year ended December 31, 2019 totaled $5,884 (2018 - $4,671). Also included in acquisition-related items
was a reversal of $503 related to contingent acquisition consideration fair value adjustments (2018 – $167).
The acquisitions referred to above were accounted for by the purchase method of accounting for business
combinations. Accordingly, the accompanying consolidated statements of earnings do not include any
revenues or expenses related to these acquisitions prior to their respective closing dates. The consideration
for the acquisitions during the year ended December 31, 2019 was financed from borrowings under the
Credit Agreement and cash on hand.
The amount of revenues and earnings contributed from the date of acquisition and included in the
Company’s consolidated results for the year ended December 31, 2019, and the supplemental pro forma
revenues and earnings of the combined entity had the acquisition date been January 1, 2018, are as follows:
Actual from other acquired entities for 2019
Supplemental pro forma for 2019 (unaudited)
Supplemental pro forma for 2018 (unaudited)
Revenues
Net earnings
$
103,124
2,494,196
2,163,426
$
3,780
(221,769)
106,069
Supplemental pro forma results were adjusted for non-recurring items.
32
2018 acquisitions:
The Company acquired controlling interests in twelve businesses, three in the FirstService Residential
segment and nine in the FirstService Brands segment. In the FirstService Residential segment, the
Company acquired regional firms operating in South Carolina, Georgia, and Ontario. In the FirstService
Brands segment, the Company acquired two California Closets franchises located in Las Vegas and
Houston, an independent restoration company in Florida, three Paul Davis Restoration franchises based in
Alberta, Kentucky, and Seattle, and three fire protection companies operating in the Southeastern U.S., all
of which will be operated as company-owned locations.
Details of these acquisitions are as follows:
Current assets
Non-current assets
Current liabilities
Deferred tax liabilities
Redeemable non-controlling interest
Note consideration
Cash consideration, net of cash acquired of $3,038
Acquisition date fair value of contingent consideration
Total purchase consideration
Acquired intangible assets
Goodwill
Aggregate
Acquisitions
22,383
6,961
(12,049)
(4,230)
(19,889)
(6,824)
(1,035)
(59,444)
(4,536)
(65,015)
28,960
42,879
$
$
$
$
$
$
In all years presented, the fair values of non-controlling interests for all acquisitions were determined using
an income approach with reference to a discounted cash flow model using the same assumptions implied in
determining the purchase consideration.
The purchase price allocations of all 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 certain acquisitions completed during the year ended December 31, 2019, goodwill
in the amount of $6,911 is deductible for income tax purposes (2018 - $26,401). No goodwill that arose
from the Global Restoration acquisition is deductible for tax purposes.
The determination of fair values of assets acquired and liabilities assumed in business combinations
required the use of estimates and judgement by management, particularly in determining fair values of
intangible assets acquired. Intangible assets acquired at fair value on the date of acquisition are recorded
using the income approach on an individual asset basis. The assumptions used in estimating the fair values
of intangible assets include future EBITDA margins, revenue growth rates, expected attrition rates of
acquired customer relationships and the discount rates. Also, given the significance of the acquisition, the
fair values of identifiable assets and liabilities related to the Global Restoration acquisition were developed
with the assistance of a third-party valuation firm.
The Company typically structures its business acquisitions to include contingent consideration. Vendors, at
the time of acquisition, are entitled to receive a contingent consideration payment if the acquired businesses
achieve specified earnings levels during the one- to two-year periods following the dates of acquisition.
The ultimate amount of payment is determined based on a formula, the key inputs to which are (i) a
contractually agreed maximum payment; (ii) a contractually specified earnings level and (iii) the actual
earnings for the contingency period. If the acquired business does not achieve the specified earnings level,
the maximum payment is reduced for any shortfall, potentially to nil.
33
The fair value of the contingent consideration liability recorded on the consolidated balance sheet as at
December 31, 2019 was $14,423 (see note 18). The estimated range of outcomes (undiscounted) for these
contingent consideration arrangements is determined based on the formula price and the likelihood of
achieving specified earnings levels over the contingency period, and ranges from $13,187 to a maximum of
$15,514. These contingencies will expire during the period extending to July 2022. During the year ended
December 31, 2019, $10,056 was paid with reference to such contingent consideration (2018 - $9,245).
5.
Leases
The standard had a material impact on the Company’s consolidated balance sheet, the primary impact being
the recognition of right-of-use (“ROU”) assets and lease liabilities for operating leases, while its accounting
for finance leases remained substantially unchanged.
Select Consolidated Balance Sheet line items, which reflect the adoption of ASC 842 are as follows:
(In thousands)
Assets:
Prepaid
Operating lease right-of-use-assets
Liabilities and equity:
Accrued liabilities
Operating lease liabilities
Retained Earnings
As Previously
Reported, at
31-Dec-18
Adjustments
As Adjusted for
1-Jan-19
$
37,739
-
$
(125)
99,265
$
37,614
99,265
132,572
-
45,537
(7,939)
107,469
(390)
124,633
107,469
45,147
Adoption of ASC 842 had no impact to net earnings in the Company's Consolidated Statements of Earnings
as well as no impact to net cash from or used in operating, investing or financing activities in the
Company's Consolidated Statements of Cash Flows.
The Company has operating leases for corporate offices, copiers, and certain equipment. Its leases have
remaining lease terms of 1 year to 10 years, some of which may include options to extend the leases for up
to 8 years, and some of which may include options to terminate the leases within 1 year. The Company
evaluates renewal terms on a lease by lease basis to determine if the renewal is reasonably certain. The
amount of operating lease expense recorded in the statement of earnings for the twelve months ended
December 31, 2019 was $32,161 (2018 - $26,784).
Other information related to leases was as follows (in thousands, except lease term and discount rate):
Supplemental Cash Flows Information, twelve months ended December 31
Cash paid for amounts included in the measurement of operating lease liabilities
Right-of-use assets obtained in exchange for operating lease obligation
$
$
Weighted Average Remaining Operating Lease Term
Weighted Average Discount Rate
2019
32,383
55,663
5 years
4.2%
34
Future minimum operating lease payments under non-cancellable leases as of December 31, 2019
were as follows:
2020
2021
2022
2023
2024
Thereafter
Total future minimum lease payments
Less imputed interest
Total
$
36,128
34,586
26,856
20,049
13,865
30,080
161,564
(19,695)
141,869
Future minimum operating lease payments under non-cancellable leases as of December 31, 2018
were as follows:
2019
2020
2021
2022
2023
Thereafter
Total future minimum lease payments
6.
Other (income) expense
Gain on disposal of business
Other (income) expense
$
24,505
23,124
19,643
15,384
11,946
21,446
116,048
2019
$
$
(6,082)
67
(6,015)
$
$
2018
-
(254)
(254)
During the second quarter, the Company completed the divestiture of two non-core businesses. The
Company sold its national accounts commercial painting operations for cash consideration of $3,386 and
notes receivable of $2,800. The pre-tax gain on disposal was $1,406. The Company also completed the sale
of its Florida and Arizona-based landscaping operations for cash consideration of $9,644 (net of cash
disposed of $600). The pre-tax gain on disposal was $4,676.
7.
Components of working capital accounts
Inventories
Work-in-progress
Finished goods
Supplies and other
Accrued liabilities
Accrued payroll and benefits
Value appreciation plans
Customer advances
Other
December 31,
2019
December 31,
2018
$
$
$
$
66,514
15,347
12,650
94,511
94,010
6,510
1,454
63,470
165,444
$
$
$
$
26,534
11,843
9,850
48,227
73,454
8,860
1,365
48,893
132,572
35
8.
Fixed assets
December 31, 2019
Land
Buildings
Vehicles
Furniture and equipment
Computer equipment and software
Leasehold improvements
December 31, 2018
Land
Buildings
Vehicles
Furniture and equipment
Computer equipment and software
Leasehold improvements
Accumulated
depreciation
Cost
$
2,521
10,602
85,585
92,863
112,752
43,170
$ 347,493
$
-
5,136
48,308
54,806
83,371
24,327
$ 215,948
Net
$
2,521
5,466
37,277
38,057
29,381
18,843
$ 131,545
Accumulated
depreciation
Cost
$
2,521
10,581
67,441
74,052
100,743
34,477
$ 289,815
$
-
4,952
40,821
49,275
76,108
20,557
$ 191,713
$
$
Net
2,521
5,629
26,620
24,777
24,635
13,920
98,102
Included in fixed assets are vehicles, office and computer equipment under finance lease at a cost of
$21,060 (2018 - $9,628) and net book value of $10,745 (2018 - $4,404).
Gross
carrying Accumulated
amortization
amount
$ 360,228
49,806
30,303
79,073
$ 519,410
$
71,474
26,707
18,543
36,462
$ 153,186
Gross
carrying Accumulated
amortization
amount
$ 135,844
48,558
27,506
50,290
$ 262,198
$
52,600
22,500
16,360
21,940
$ 113,400
Net
$ 288,754
23,099
11,760
42,611
$ 366,224
Net
$
83,244
26,058
11,146
28,350
$ 148,798
9.
Intangible assets
December 31, 2019
Customer relationships
Franchise rights
Trademarks and trade names
Management contracts and other
December 31, 2018
Customer relationships
Franchise rights
Trademarks and trade names
Management contracts and other
36
During the year ended December 31, 2019, the Company acquired the following intangible assets:
Customer relationships
Franchise rights
Trademarks and trade names
Management Contracts and other
Estimated
weighted
average
amortization
period (years)
11.9
7.7
3.8
6.0
11.3
$
Amount
226,318
965
2,417
22,049
$
251,749
The following is the estimated annual amortization expense for recorded intangible assets for each of the
next five years ending December 31:
2020
2021
2022
2023
2024
$ 42,602
34,690
34,010
32,669
30,967
FirstService FirstService
Residential
Brands Consolidated
$ 188,223 $ 103,697 $ 291,920
42,879
2,555
(2,199)
335,155
309,227
(2,254)
1,483
1,236
$ 211,726 $ 433,121 $ 644,847
6,248
922
(1,450)
193,943
18,446
(2,025)
527
835
36,631
1,633
(749)
141,212
290,781
(229)
956
401
10.
Goodwill
Balance, December 31, 2017
Goodwill acquired during the year
Other items
Foreign exchange
Balance, December 31, 2018
Goodwill acquired during the year
Goodwill disposed during the year
Other items
Foreign exchange
Balance, December 31, 2019
Goodwill represents the excess of purchase price over the value assigned to the net tangible and identifiable
intangible assets of businesses acquired. A test for goodwill impairment is required to be completed
annually, in the Company’s case as of August 1, or more frequently if events or changes in circumstances
indicate the asset might be impaired. Based on the quantitative assessment in 2019, the Company has
concluded that goodwill is not impaired.
11.
Long-term debt
Credit Agreement
Senior Notes
Capital leases maturing at various dates through 2022
Other long-term debt maturing at various dates up to 2023
Less: current portion
Long-term debt - non-current
December 31,
2019
$
$
602,977
150,000
10,153
3,493
766,623
5,545
761,078
37
The Company has $150 million of Senior Notes bearing interest at a rate of 4.84%. The Senior Notes are
due on January 16, 2025, with five annual equal repayments beginning on January 16, 2021.
The Company has entered into the Credit Agreement with a syndicate of lenders. The Credit Agreement is
comprised of a committed multi-currency revolving credit facility of $450,000 (the “Facility”) and a term
loan (drawn in a single advance) in the aggregate amount of $440,000 (the “Term Loan”). The Facility
portion of the Credit Agreement has a term ending on January 17, 2023 and bears interest at 0.25% to
2.50% over floating preference rates, depending on certain leverage ratios. The Term Loan portion of the
Credit Agreement has a term ending on June 21, 2024, with repayments of 5% per annum, paid quarterly,
beginning in September 2020, with the balance payable at maturity, and bears interest at 0.25% to 2.50%
over floating preference rates, depending on certain leverage ratios. The weighted average interest rate for
2019 was 4.4%. The Facility had $261,259 of available un-drawn credit as at December 31, 2019. As of
December 31, 2019, letters of credit in the amount of $6,316 were outstanding ($5,214 as at December 31,
2018). The Credit Agreement requires a commitment fee of 0.25% to 0.50% of the unused portion,
depending on certain leverage ratios. The Company may repay amounts owing under the Credit Agreement
at any time without penalty. The Facility is available to fund working capital requirements (including
acquisitions and any associated contingent purchase consideration) and other general corporate purposes.
The Term Loan was implemented in order to substantially finance the purchase price for Global
Restoration.
The indebtedness under the Credit Agreement and the Senior Notes rank equally in terms of seniority. The
Company has granted the lenders under the Credit Agreement and the holders of the Senior Notes various
security, including an interest in all of our assets. The Company is prohibited under the Credit Agreement
and the Senior Notes from undertaking certain acquisitions and dispositions, and incurring certain
indebtedness and encumbrances, without prior approval of the lenders under the Credit Agreement and the
holders of the Senior Notes.
The effective interest rate on the Company’s long-term debt for the year ended December 31, 2019 was
4.4%. The estimated aggregate amount of principal repayments on long-term debt required in each of the
next five years ending December 31 and thereafter to meet the retirement provisions are as follows:
$
2020
2021
2022
2023
2024 and thereafter
16,770
55,230
54,724
220,980
418,919
12.
Redeemable non-controlling interests
The minority equity positions in the Company’s subsidiaries are referred to as redeemable non-controlling
interests (“RNCI”). The RNCI are considered to be redeemable securities. Accordingly, the RNCI is
recorded at the greater of (i) the redemption amount or (ii) the amount initially recorded as RNCI at the
date of inception of the minority equity position. This amount is recorded in the “mezzanine” section of the
balance sheet, outside of shareholders’ equity. Changes in the RNCI amount are recognized immediately as
they occur. The following table provides a reconciliation of the beginning and ending RNCI amounts:
Balance, January 1
RNCI share of earnings
RNCI redemption increment
Distributions paid to RNCI
Purchases of interests from RNCI, net
RNCI recognized on business acquisitions
Other
Balance, December 31
38
2019
151,585
7,874
16,105
(5,725)
(30,648)
35,307
164
174,662
$
$
2018
117,708
11,180
13,235
(6,913)
(3,890)
19,889
376
151,585
$
$
The Company has shareholders’ agreements in place at each of its non-wholly owned subsidiaries. These
agreements allow the Company to “call” the non-controlling interest at a price determined with the use of a
formula price, which is usually equal to a fixed multiple of average annual net earnings before
extraordinary items, income taxes, interest, depreciation, and amortization. The agreements also have
redemption features which allow the owners of the RNCI to “put” their equity to the Company at the same
price subject to certain limitations. The formula price is referred to as the redemption amount and may be
paid in cash or in Common Shares. The redemption amount as of December 31, 2019 was $170,983 (2018 -
$149,132). The redemption amount is lower than that recorded on the balance sheet as the formula price of
certain RNCI are lower than the amount initially recorded at the inception of the minority equity position.
If all put or call options were settled with Common Shares as at December 31, 2019, approximately
1,800,000 such shares would be issued, and would have resulted in an increase of $0.90 to earnings per
share for the year ended December 31, 2019.
13.
Capital stock
The authorized capital stock of the Company is as follows:
An unlimited number of Common Shares having one vote per share.
The following table provides a summary of total capital stock issued and outstanding:
Balance, December 31, 2019
41,495,957 $
605,428
Common Shares
Number
Amount
On December 13, 2019, the Company completed a public offering of a total of 2,165,000 Common
Shares at a price of US$92.50 per share, for gross proceeds of US$200,262 (net proceeds of $191,737) with
a syndicate of underwriters led by BMO Capital Markets and TD Securities Inc. The net proceeds of the
offering were used to repay existing indebtedness under the Facility.
14.
Stock-based compensation
The Company has a stock option plan for certain officers and key full-time employees 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 term, expires five years from the date granted and allows for the purchase of
one Common Share. All Common Shares issued are new shares. As at December 31, 2019, there were
689,500 options available for future grants.
Grants under the Company’s stock option plan are equity-classified awards. Stock option activity for the
year ended December 31, 2019 is as follows:
Shares issuable under options -
Beginning of period
Granted
Exercised
Shares issuable under options -
December 31, 2019
Options exercisable - End of period
Number of
options
1,633,150
438,000
(432,050)
1,639,100
610,952
Weighted
average
exercise price
Weighted average
remaining
contractual life
(years)
Aggregate
intrinsic value
$
$
$
44.68
83.89
25.30
60.26
47.49
2.6
1.8
$
$
53,724
27,831
39
The Company incurred stock-based compensation expense related to these awards of $8,126 during the
year ended December 31, 2019 (2018 - $5,767).
As at December 31, 2019, the range of option exercise prices was $23.96 to $83.89 per share. Also as at
December 31, 2019, the aggregate intrinsic value and weighted average remaining contractual life for in-
the-money options vested and expected to vest were $53,724 and 2.61 years, respectively.
The following table summarizes information about option exercises during year ended December 31, 2019:
Number of options exercised
Aggregate fair value
Intrinsic value
Amount of cash received
Tax benefit recognized
2019
432,050
37,890
26,833
11,057
2,932
$
$
As at December 31, 2019, there was $9,043 of unrecognized compensation cost related to non-vested
awards which is expected to be recognized over the next 4 years. During the year ended December 31,
2019, the fair value of options vested was $4,711 (2018 - $11,670).
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:
Risk free rate
Expected life in years
Expected volatility
Dividend yield
Weighted average fair value per option granted
2019
2.4%
4.75
30.6%
0.7%
$23.85
The risk-free interest rate is based on the implied yield of a zero-coupon US Treasury bond with a term
equal to the option’s expected term. The expected life in years represents the estimated period of time until
exercise and is based on historical experience. The expected volatility is based on the historical prices of
the Company’s shares over the previous four years.
15.
Income tax
Income tax differs from the amounts that would be obtained by applying the statutory rate to the respective
year’s earnings before tax. Differences result from the following items:
Income tax expense using combined statutory rate of
26.5% (2018 - 26.5%, 2017 - 26.5%)
Permanent differences
Tax effect of flow through entities
Adjustments to tax liabilities for prior periods
Non-deductible stock-based compensation
Excess tax benefits related to stock-based compensation
Foreign, state and provincial tax rate differential
Settlement of long-term incentive arrangement
Other taxes
Provision for income taxes as reported
2019
(53,128)
1,566
(307)
(328)
2,153
(3,672)
(2,402)
83,310
(45)
27,147
$
$
$
$
2018
30,529
785
(491)
(526)
1,528
(3,968)
(2,863)
-
(72)
24,922
40
Earnings before income tax by jurisdiction comprise the following:
Canada
United States
Total
Income tax expense (recovery) comprises the following:
Current
Canada
United States
Deferred
Canada
United States
Total
The significant components of deferred income tax are as follows:
Deferred income tax assets
Loss carry-forwards
Expenses not currently deductible
Stock-based compensation
Allowance for doubtful accounts
Inventory and other reserves
$
$
$
$
$
Deferred income tax liabilities
Depreciation and amortization
Basis differences of partnerships and other entities
Prepaid and other expenses deducted for tax purposes
Net deferred income tax asset (liability) before valuation allowance
Valuation allowance
Net deferred income tax asset (liability)
$
2019
(323,100)
122,616
(200,484)
2019
369
33,978
34,347
(1,620)
(5,580)
(7,200)
27,147
2019
2,788
23,283
749
3,860
3,024
33,704
86,072
793
1,276
88,141
(54,437)
965
(55,402)
$
$
$
$
$
$
2018
6,854
108,348
115,202
2018
(554)
23,615
23,061
403
1,458
1,861
24,922
2018
1,567
20,440
1,312
2,018
113
25,450
29,393
166
1,689
31,248
(5,798)
779
(6,577)
The recoverability of deferred income tax assets is dependent on generating sufficient taxable income
before the 20 year loss carry-forward limitation. Although realization is not assured, the Company believes
it is more likely than not that the deferred tax asset will be realized. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if estimates of future taxable income
during the carry-forward period are reduced.
The Company has gross operating loss carry-forwards as follows:
Loss carry forward
Canada
United States
$
2019
4,430 $
18,615
2018
1,638
12,562
Gross losses not recognized
2018
-
2019
- $
$
15,840
10,529
Net
2019
4,430 $
2,775
$
2018
1,638
2,033
These amounts above are available to reduce future federal, state, and provincial income taxes in their
respective jurisdictions. Net operating loss carry-forward balances attributable to the United States and
Canada expire over the next 6 to 20 years.
41
Cumulative unremitted earnings of US and foreign subsidiaries approximated $528,519 as at December 31,
2019 (2018 - $429,173). Income tax is 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.
The gross unrecognized tax benefits are $148 (2018 - $148). Of this balance, $148 (2018 - $148) would
affect the Company’s effective tax rate if recognized. For the year ended December 31, 2019, there was no
adjustment to interest and penalties related to provisions for income tax (2018 - nil). As at December 31,
2019, the Company had accrued $38 (2018 - $38) for potential income tax related interest and penalties.
The Company’s significant tax jurisdictions include the United States and Canada. The number of years
with open tax audits varies depending on the tax jurisdictions. Generally, income tax returns filed with the
Canada Revenue Agency and related provinces are open for three to four years and income tax returns filed
with the U.S. Internal Revenue Service and related states are open for three to five years.
The Company does not currently expect any other material impact on earnings to result from the resolution
of matters related to open taxation years, other than noted above. Actual settlements may differ from the
amounts accrued. The Company has, as part of its analysis, made its current estimates based on facts and
circumstances known to date and cannot predict changes in facts and circumstances that may affect its
current estimates.
16.
Net earnings per common share
The following table reconciles the denominator used to calculate earnings per common share:
Shares issued and outstanding at beginning of period
Weighted average number of shares:
Issued during the period
Repurchased during the period
Weighted average number of shares used in computing
basic earnings per share
Assumed exercise of stock options, net of shares assumed
acquired under the Treasury Stock Method
Number of shares used in computing diluted earnings
per share
17.
Other supplemental information
Franchisor operations
Revenues
Operating earnings
Initial franchise fee revenues
Depreciation and amortization
Total assets
Cash payments made during the period
Income taxes
Interest
Non-cash financing activities
Increases in finance lease obligations
42
2019
2018
35,980,047
35,916,383
2,245,229
-
111,904
(76,076)
38,225,276
35,952,211
437,204
619,089
38,662,480
36,571,300
2019
2018
148,607
33,999
4,956
6,959
140,439
31,562
29,772
$
$
132,079
37,709
4,496
5,893
128,627
28,221
11,714
9,928
$
1,919
$
$
$
18.
Financial instruments
Concentration of credit risk
The Company is subject to credit risk with respect to its cash and cash equivalents, accounts receivable and
other receivables. Concentrations of credit risk with respect to cash and cash equivalents are limited by the
use of multiple large and reputable banks. 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.
Interest rate risk
The Company maintains an interest rate risk management strategy that uses interest rate hedging contracts
from time to time. The Company’s specific goals are to: (i) manage interest rate sensitivity by modifying
the characteristics of its debt and (ii) lower the long-term cost of its borrowed funds.
Foreign currency risk
Foreign currency risk is related to the portion of the Company’s business transactions denominated in
currencies other than U.S. dollars. A portion of revenue is generated by the Company’s Canadian
operations. The Company’s head office expenses are incurred in Canadian dollars which is economically
hedged by Canadian dollar denominated revenue.
Fair values of financial instruments
The following table provides the financial assets and liabilities carried at fair value measured on a recurring
basis as of December 31, 2019:
Carrying value at
Fair value measurements
December 31, 2019
Level 1
Level 2
Level 3
Contingent consideration liability
$
14,423
$
-
$
-
$
14,423
The inputs to the measurement of the fair value of contingent consideration related to acquisitions are Level
3 inputs. The fair value measurements were made using a discounted cash flow model; significant model
inputs were expected future operating cash flows (determined with reference to each specific acquired
business) and discount rates (which range from 8% to 10%). The range of discount rates is attributable to
level of risk related to economic growth factors combined with the length of the contingent payment
periods; and the dispersion was driven by unique characteristics of the businesses acquired and the
respective terms for these contingent payments. Within the range of discount rates, there is a data point
concentration at 9%. A 2% increase in the weighted average discount rate would not have a significant
impact on the fair value of the contingent consideration balance.
Balance, December 31, 2018
Amounts recognized on acquisitions
Amounts recognized on acquisitions of management contracts
Fair value adjustments
Resolved and settled in cash
Other
Balance, December 31, 2019
Less: current portion
Non-current portion
$
$
$
$
13,286
10,611
1,751
(503)
(10,056)
(666)
14,423
6,269
8,154
43
The carrying amounts for cash and cash equivalents, restricted cash, accounts receivable, accounts payable
and accrued liabilities approximate fair values due to the short maturity of these instruments, unless
otherwise indicated. The inputs to the measurement of the fair value of long term debt are Level 3 inputs.
The fair value measurements were made using a net present value approach; significant model inputs were
expected future cash outflows and discount rates (which range from 2.0% to 2.5%). The following are
estimates of the fair values for other financial instruments:
Other receivables
Long-term debt
2019
Carrying
amount
2018
Fair
value
Carrying
amount
Fair
value
$
4,033 $
4,033 $
4,212 $
766,623
779,279
334,523
4,212
344,198
Other receivables include notes receivable from non-controlling shareholders and other non-current
receivables.
19.
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.
In May 2019, the Company settled the restated management services agreement (“MSA”), including the
long-term incentive arrangement (the “LTIA”), between the Company and Jay S. Hennick, the Company’s
Founder and Chairman. As part of the settlement, the Multiple Voting Shares of the Company were
converted into Subordinate Voting Shares on a one-for-one basis for no consideration, thereby eliminating
the Company’s dual class share structure. For consideration of $314,379, which is the purchase price
determined with reference to the LTIA formula provided in the restated MSA, FirstService acquired all of
the shares in the company which indirectly held the MSA. The Company, under the terms of the
transaction: (a) paid $62,900 (approximately C$84,300) in cash; and issued a total of 2,918,860
Subordinate Voting Shares. Subsequent to the completion of the transaction, the MSA was terminated,
thereby eliminating the LTIA and all future fees and other entitlements owing thereafter, and the Company
filed an amendment to its articles that re-classified its Subordinate Voting Shares as Common Shares. The
settlement of the LTIA was considered a modification of a share-based payment arrangement, which was
accounted for as compensation expense in the Company’s Consolidated Statements of Earnings. The net
cash impact was included in operating activities in the Company’s Consolidated Statements of Cash Flows.
20.
Related party transactions
The Company has entered into office space rental arrangements and property management contracts with
senior managers of certain subsidiaries. These senior managers are usually also minority shareholders of
the subsidiaries. The business purpose of the transactions is to rent office space for the Company and to
generate property management revenues for the Company. The recorded amount of the rent expense for the
year ended December 31, 2019 was $1,330 (2018 - $1,156). These amounts are settled monthly in cash,
and are priced at market rates. The rental arrangements have fixed terms of up to 10 years.
As at December 31, 2019, the Company had $2,564 of loans receivable from minority shareholders
(December 31, 2018 - $2,064). The business purpose of the loans receivable was to finance the sale of non-
controlling interests in subsidiaries to senior managers. The loan amounts are measured based on the
formula price of the underlying non-controlling interests, and interest rates are determined based on market
rates plus a spread. The loans generally have terms of 5 to 10 years, but are open for repayment without
penalty at any time.
44
21.
Segmented information
Operating segments
The Company has two reportable operating segments. The segments are grouped with reference to the
nature of services provided and the types of clients that use those services. The Company assesses each
segment’s performance based on operating earnings or operating earnings before depreciation and
amortization. FirstService Residential provides property management and related property services to
residential communities in North America. FirstService Brands provides franchised and Company-owned
property services to customers in North America. Corporate includes the costs of operating the Company’s
corporate head office. The reportable segment information excludes intersegment transactions.
2019
FirstService
Residential
FirstService
Brands
Corporate
Consolidated
Revenues
Depreciation and amortization
Operating earnings (loss)
Other income, net
Interest expense, net
Income taxes
Net earnings
Total assets
Total additions to long lived
assets
$ 1,411,998
25,628
104,706
$
995,412
53,886
60,586
$
-
43
(339,711)
$
625,310
$ 1,323,024
$
7,135
$
$
$
2,407,410
79,557
(174,419)
6,015
(32,080)
(27,147)
(227,631)
1,955,469
112,482
636,555
308
749,345
2018
FirstService
Residential
FirstService
Brands
Corporate
Consolidated
Revenues
Depreciation and amortization
Operating earnings (loss)
Other expense, net
Interest expense, net
Income taxes
Net earnings
Total assets
Total additions to long lived
assets
$ 1,254,840
23,045
89,043
$
676,633
29,686
54,988
$
-
41
(16,463)
$
474,837
$
525,850
$
6,787
$
$
$
1,931,473
52,772
127,568
254
(12,620)
(24,922)
90,280
1,007,474
31,548
90,592
-
122,140
45
Geographic information
Revenues in each geographic region are reported by customer locations.
United States
Revenues
Total long-lived assets
Canada
Revenues
Total long-lived assets
Consolidated
Revenues
Total long-lived assets
2019
2018
$
$
$
2,184,789
1,022,721
222,621
252,788
2,407,410
1,275,509
$
$
$
1,822,688
539,645
108,785
42,410
1,931,473
582,055
22.
Impact of recently issued accounting standards
In June 2016, FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments. In November 2018, FASB issued ASU 2018-19,
Codification Improvements to Topic 326, Financial Instruments – Credit Losses, which amends the scope
and transition requirements of ASU 2016-13. The standard requires a financial asset (or a group of financial
assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The
measurement of expected credit losses is based on relevant information about past events, including
historical experience, current conditions and reasonable and supportable forecasts that affect the
collectability of the reported amount. The standard will become effective for the Company beginning
January 1, 2020 and will require a cumulative-effect adjustment to Accumulated retained earnings as of the
beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective
approach). The Company is currently evaluating the impact of this guidance on its consolidated financial
statements.
In December 2019, FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting
for Income Taxes. This ASU affects a number of aspects of tax accounting including simplifying the
accounting for income taxes by removing a number of reporting exceptions. The amendments in this update
are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2020. The Company is currently evaluating the impact of this guidance on its consolidated financial
statements.
46
Head Office
1255 Bay Street, Suite 600
Toronto, Ontario M5R 2A9
Canada
Phone: 416.960.9566
FirstService.com
Notice of
Shareholders’ Meeting
The annual meeting of the shareholders will be
held on Wednesday, April 8, 2020 at 11:00 a.m. (ET)
at The TMX Gallery, located in First Canadian Place,
130 King Street West, Toronto, Ontario, Canada.
Corporate Information
Registrar and Transfer Agent
Canada – TSX Trust Company
Phone: 1.866.600.5869
E-mail: tmxeinvestorservices@tmx.com
U.S. co-transfer agent – Computershare
Phone: 1.800.368.5948
E-mail: webqueries@computershare.com
Stock Exchange Listings
NASDAQ Global Select Market – FSV
Toronto Stock Exchange – FSV
FirstService common shares are included
in the S&P/TSX Composite Index.
FirstService.com