2014 Annual Report
go foward. go further.
Giving Everyday People
the Credit They Deserve
No one should be forced to settle for less simply
because they are not perceived to be good enough.
Responsible financial decisions make the world go
round. Our role is to ensure that access is available
to conscientious people everywhere who aspire to
a better future. They are everyday people who want
nothing more than to be given a chance. People with
the same needs as everyone else: To be treated with
dignity and respect. To see their dreams come true.
2014 Annual Report | 1
2 | easyhome Ltd.
B U S I N E S S O V E R V I E W
We have taken
easy to a whole
new level.
goeasy is our new master brand
that unites easyhome Leasing and
easyfinancial and recognizes that
we serve the needs of the same
customer – the cash and credit
constrained consumer.
easyhome
easyhome Ltd. is the Canadian leader in providing goods and
financial services to the cash and credit constrained consumer.
We serve our customers through two key operating divisions,
easyhome Leasing and easyfinancial.
The markets for providing goods and financial services to the
cash and credit constrained consumer are large and underserved
in Canada. Typically, our consumers are denied credit products
and services by the traditional retailers and banks, and do not
want to go down the more expensive payday loan route.
easyhome Leasing
easyhome Leasing is merchandise leasing, with an option to
purchase. Consumers can acquire top-quality, brand name
household furnishings, appliances and home electronic products
under weekly or monthly agreements. Our programs appeal to
a wide variety of consumers who are looking for alternatives
to traditional retailers and who are attracted to a leasing
transaction that does not involve a credit check, does not require
an initial down payment, includes delivery and set up and offers
them the flexibility to terminate the arrangement at any time.
easyfinancial
easyfinancial offers unsecured, installment loans in amounts
ranging from $500 to $10,000 with repayment terms from
9 to 48 months. Customers can choose to repay the entire
loan balance at any time during the term without penalty.
Our loan products often serve as a vehicle to help rebuild
credit and provide access to financing for the cash and credit
constrained consumer.
goeasy
goeasy is our new master brand. It is driven by three core
pillars: access, relief and respect. When a customer deals with
any of our business units, they will know they can obtain greater
access to products and services through us than they can
through more traditional retailers or banks who have denied
them in the past. We will provide our customers with relief
from their financial challenges with the promise of a decision
within 30 minutes, and most importantly, our customers will
know that they will be respected by our Company and our
people throughout their entire customer experience.
2014 Annual Report | 3
Q & A
Q&A
After a year of solid
achievements, members of
the senior management team
answer the questions most
often asked by shareholders.
Q. How are you financing the growth
of easyfinancial?
Goertz: In 2014, we took steps to ensure we could rapidly
expand our easyfinancial business. We put ourselves in
a position of strength by increasing our available access
to debt from $85 million to $200 million, while reducing
interest rates and improving flexibility. This provides us
with funds to grow easyfinancial quickly and also lower
our overall cost of borrowing.
Steve Goertz
EVP & CFO
4 | easyhome Ltd.
Q. What does the growth trajectory look like
for easyfinancial over the next three years?
Q. Why would someone take out
an easyfinancial loan?
Mullins: We expect to substantially grow our easyfinancial
footprint by adding 60 to 65 new locations in 2015. This
includes the purchase of 45 locations from a former payday
loan operator that we opened in March 2015, and another
15 to 20 new locations throughout the year. In 2016, we plan
to add another 20 to 30 locations.
We anticipate growing our overall revenue by 18 to 20% in each
of the next two years, which will be achieved by increasing our
gross consumer loans receivable portfolio to $280-295 million
by the end of 2015, and to $340-370 million by the end of 2016.
Fiederer: Many of our consumers have been denied credit
products and services by the banks and do not want to go
down the more expensive payday loan route. This is a big
segment of the population – an estimated seven million
people in Canada. We treat our customers with respect and
provide them with relief from their financial challenges
with the promise of a decision within 30 minutes. Our loan
products also can serve as a vehicle to help rebuild credit.
An area of focus for us is developing financial education for our
customers. There is a surprising lack of financial educational
materials available for the seven million Canadians who are
considered to be cash and credit constrained. Creating financial
literacy is about giving our customers the tools and education
they need to better manage their finances with the ultimate goal
of helping them improve their financial position. We feel strongly
that helping our customers improve their financial position is a
positive for both our customers and our brand.
Jason Mullins
EVP & COO
Andrea Fiederer
SVP & CMO
Q & A
Q. The US is a much bigger market than Canada. Why
are you focusing so heavily on the Canadian market?
Q. How do you enhance the profitability
of the leasing business?
Yeilding: When we launched easyhome Leasing in the U.S.
in 2007, consumer spending was at its peak and consumer
confidence was very high. Since then, much has changed.
The U.S. market is hyper competitive and experiencing
significant price and margin compression – pressures we
are not seeing in Canada. So near the end of 2014, we made
the decision to sell our U.S. franchise business to our Master
Franchisor. This was motivated by a number of factors, but
was primarily driven by the decision to focus on the strong
opportunities that the Canadian market presents. The U.S. is
a very different market with a unique set of opportunities and
challenges. Omni-channel retailing goes hand in glove with
goeasy. To introduce the same online support and transactional
capabilities and to roll out the goeasy brand to all the U.S.
franchisees would be very costly and would distract from
the clearer and more profitable Canadian opportunity.
Ferguson: We plan to optimize the leasing business by
focusing on the most strategic and most attractive store
locations. In 2014, we closed 15 stores that we determined
to be non-strategic. While this reduced our count, it paved
the way for solid organic growth across our store network.
In the fourth quarter of 2014, same-store sales growth for
the leasing business was up 2.6%. This consolidation of
locations was further enhanced by our goeasy master brand
and online capabilities. goeasy will increase our brand
exposure and help drive online sales.
David Yeilding
SVP Finance
James Ferguson
SVP Retail
Q. Does an uncertain economic environment
such as drop in oil prices impact the risk profile
you apply to the business?
Appel: Market research tells us that the three prime macro-
economic indicators that affect our customers the most are
the price of gas, inflation on food and clothing and the rate of
employment. By late 2014 and early 2015, we have seen a fall
in gas prices, meaning customers have more money to spend
or repay debt, inflation near zero and employment almost
back to 2007 pre-recession levels.
We constantly monitor the evolving economic environment
in Canada, including the drop in oil prices. While it may be
a negative pressure in oil producing provinces, it is also a
benefit for provinces with a larger manufacturing base. Our
loan book closely aligns with the population of the various
provinces. Ontario represents 44% of the easyfinancial loan book
and Alberta accounts for only 13%. On balance, we feel that our
customers are better off with lower oil prices and that the macro-
economic shift of lower oil prices is positive for our business.
Q. How are you using technology to meet
changing customer needs?
Pennel: In 2014, we implemented a new, proprietary loan
application management system to process applications
originated in branch and on-line. We have a new credit decision
engine that is fully integrated with our customer relationship
management system to more efficiently meet the needs of our
growing customer base.
Even though it was just launched in the second half of 2014, the
new goeasy ad campaign contributed to a dramatic increase in
on-line loan applications. This is consistent with a shift toward
online applications across the business and is indicative of our
customers’ preferences.
Our new system gives us a significantly enhanced view of
the customer application process and lets us quickly and
easily track our loan originations geographically, by industry
or by employer. It also allows us to dynamically adjust our
underwriting criteria, serve our customers and manage our
loan portfolio better.
Jason Appel
SVP Risk and Analytics
Shane Pennel
SVP Operations
and Shared Services
H I G H L I G H T S
Achieved 18.4% total revenue
growth and 19.6% same
store sales growth
2014 was the thirteenth consecutive
year of growing revenues and
delivering positive net income
Grew easyfinancial’s consumer
loans receivable portfolio by a
record 74% to finish the year with
a gross consumer loans receivable
portfolio of $192.2 million
Achieved 31% growth in adjusted
earnings and 17% growth in
adjusted earnings per share which
provided record results
Increased the available credit
facilities from $85 million to $200
million to support the growth of
easyfinancial while increasing
flexibility and decreasing the
interest rate
Opened 39 new
easyfinancial locations
E-commerce transactional
websites were enhanced and
promoted to improve access to the
company’s products and services
Implemented a proprietary loan
application management system
to process applications originated
in the retail and online channels
Launched a new masterbrand:
goeasy, to provide a corporate
umbrella that unites all of the
company’s business units
Completed the wind-down of our
U.S. operations to focus on the
opportunities in the Canadian
marketplace
8 | easyhome Ltd.
Annual Revenue ($000s)
300,000
250,000
200,000
150,000
100,000
50,000
$ –
$259,150
$218,814
$199,673
$188,325
CAGR = 11.1%
$168,189
$174,184
$158,081
$139,704
$116,334
$100,337
$86,070
$65,936 $70,488
$75,989
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Note: All revenue restated to IFRS
easyhome Leasing
easyfinancial
Normalized Annual Net Income ($000s)
20,000
17,500
15,000
12,500
10,000
7,500
5,000
2,500
$ –
18,600
14,182
10,445
8,983
8,956
8,844
10,481
9,612
7,671
6,476
6,773
4,027
2,618
465
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Note: 2001 to 2009 amounts reported on a Canadian GAAP basis. 2010 to 2014 amounts reported under IFRS
F I N A N C I A L S U M M A R Y
(in $000s except per share amounts, employee counts, percentages and ratios)
2014
2013
2012
2011
2010
Income statement
Revenue
Operating income
Net income
Diluted earnings per share
Balance sheet
Lease assets
Gross consumer loans receivable
Total assets
External debt
Shareholders’ equity
Cash flow
Net issuance of consumer loans receivable
Purchase of lease assets
Purchase of property and equipment, intangibles and goodwill
Dividend payments
Key metrics
Adjusted earnings1
Adjusted earnings per share1
Operating margin (adjusted)1
Return on equity (adjusted)1
Same store revenue growth
External debt to shareholders’ equity
External debt to adjusted EBITDA1
Employees
259,150
218,814
199,673
188,325
174,184
34,593
19,748
1.42
24,965
14,182
1.15
17,709
11,057
0.92
15,267
9,612
0.81
9,710
6,072
0.58
64,526
68,453
192,225
110,704
68,075
70,658
66,996
47,565
67,692
23,800
319,472
232,900
189,927
159,123
139,088
121,597
61,374
39,611
153,968
135,633
105,013
33,123
97,542
18,251
91,511
101,021
49,066
12,339
4,527
52,152
49,423
11,233
4,060
31,425
55,446
11,630
4,038
29,398
48,614
5,584
3,913
16,872
47,130
6,226
3,562
18,600
14,182
10,481
1.34
12.9%
12.9%
19.6%
0.79
2.91
1.15
11.4%
12.4%
17.7%
0.45
2.01
9,612
0.81
8.1%
8,844
0.84
7.9%
0.87
8.7%
10.4%
10.2%
10.4%
8.9%
0.38
1.82
8.2%
0.34
1.72
4.3%
0.20
0.95
1,496
1,254
1,241
1,259
1,191
1Certain financial statement amounts have been adjusted to exclude unusual and non-recurring items. Further details on such adjustments can be found in the Management’s Discussion and Analysis.
2014 Annual Report | 9
Last year
marked another
successful year
David Ingram
President and
Chief Executive Officer (CEO)
10 | easyhome Ltd.
10 | goeasy
M E S S A G E T O S H A R E H O L D E R S
2014 – A year of accomplishments
Last year marked another successful year of easyhome’s
long-term plan to aggressively grow the Company and be the
Canadian leader in providing goods and financial services to
the cash and credit constrained consumer. We achieved record
performance for both revenue and profit, driven primarily
by the success of easyfinancial. This financial strength led
our Board of Directors to approve an 18% increase to our
quarterly dividend from $0.085 to $0.10 per share.
In 2014, we continued to execute on our strategic imperatives
of evolving our delivery channels, expanding the size and
scope of easyfinancial and executing with efficiency and
effectiveness. Four major achievements shaped the year
and helped us on our path to achieving our full potential.
First, we strengthened our balance sheet to support future
growth by increasing the Company’s debt facilities from $85
million to $200 million while reducing interest rates and
improving flexibility. This not only gave us access to fund
our growth but also lowered our overall cost of borrowing.
Second, we wound down our U.S.-based franchising
business, allowing us to focus on the Canadian market. We
believe the Canadian market offers the best opportunity for
us, as there is a large, unmet need with the cash and credit
constrained consumer.
Third, we saw success in improving our operating margin, a
key metric for our business. In 2014, our operating margin
for easyfinancial was 32.7%, up from the 31.0% achieved in
2013. While we do expect that the earnings drag from the
increased number of new store openings in 2015 will bring
easyfinancial margins to 28 – 32% next year, we are confident
that easyfinancial margins will return to more robust levels
of 32 – 35% in 2016 and beyond.
Our fourth achievement of the year was the launch of our first
multi-faceted branding campaign to introduce customers to
our easyhome leasing and easyfinancial businesses under a
new common brand called goeasy.
Shortly after the end of the year, we purchased the lease
rights and obligations for 45 retail locations across Canada
from a former payday loan operator. This acquisition will
allow us to accelerate our easyfinancial retail build-out in
2015 as we were able to carefully select the best locations
to match our unfilled targeted geography. The timing is well
aligned as consumer demand for an alternative to banks
and payday loans has grown significantly over the last 12
months and these branches will provide further access and
convenience to our chosen customer demographic.
Growing easyfinancial with confidence
As part of our strategy, we have made the decision to focus
on Canada. We believe there is a large, relatively untapped
market for credit solutions for customers with less than
perfect credit history or who are looking for alternatives.
Historically, the consumer demand for these loans was
satisfied by the consumer lending arms of several large,
international financial institutions. Since 2009, many of
the largest participants in this market have either closed
their operations or dramatically reduced their size due to
changes in banking regulations related to risk adjusted
capital reserves, leaving easyfinancial as the only national
participant with stated growth aspirations. We estimate
that the historic Canadian market for unsecured consumer
installment loans, consistent with the products offered by
easyfinancial, was in excess of $1.5 billion at its peak, and
will grow to more than $2 billion annually.
To be successful in this market, we have developed
proprietary underwriting practices and credit scoring
models that have been developed using the historical
performance of our loan portfolio. In the fourth quarter
of 2014, we implemented a proprietary loan application
management system to process applications originated
in branch and online. This system is supported by a new
credit decision engine built in partnership with a global
leader in risk management technology solutions and is fully
integrated with our customer relationship management
system enabling us to more efficiently meet the needs of
our growing customer base.
2014 Annual Report | 11
With our loan application and customer relationship
management fully integrated on one platform, we have
achieved greater centralized control over the underwriting
process and are better positioned to optimize our lending
activities with new and existing customers whose needs
are constantly changing.
Market research has determined that the three main
macro-economic indicators that affect our customers
are the price of gas, the rate of food/clothing inflation and
employment. The decrease in gas prices that we have
experienced in the early part of 2015 is a positive as it
generally means customers have more money to spend
or repay debt. Inflation in Canada has remained low while
employment levels are almost back to 2007 pre-recession
levels. All of these factors give us increased confidence in
our growth strategy and we see our experience and risk
management expertise as key competitive advantages
that would be very difficult to replicate.
We continue to monitor the economic environment in
Canada. For example, consumer confidence dipped late in
2014, driven partly by the falling price of oil. Conventional
wisdom indicates that a decline in the price of oil will have a
negative impact on Alberta’s economy. When this occurred,
we were able to quickly assess our risk and determined
that our direct exposure to the industry sector as a whole
was less than 2%. Our loan book closely aligns with the
population of the various provinces, and as such, Ontario
represents 44% of the easyfinancial loan book and Alberta
accounts for only 13%. In the long run, the declining dollar
creates a positive outlook for the Ontario economy, which
is more focused on manufacturing. On balance we feel that
our customers are better off with lower oil prices and that
this macro-economic shift is positive for our business.
New master brand – goeasy
In September, we launched a new master brand – goeasy.
The new goeasy master brand will provide a corporate
umbrella that unites and supports our sub-brands of
easyhome Leasing and easyfinancial and allows us to more
effectively reach our targeted demographic – the cash and
credit constrained consumer – with all lines of business,
including lease-to-own furniture, appliances, electronics and
computers, loans from $500 up to $10,000 and mortgages.
The values of the new goeasy master brand are Access,
Relief and Respect. When a customer deals with any of
our business units, they will know they can obtain greater
access to products and services through us than they
can through more traditional retailers or banks who have
denied them in the past. We will provide our customers
with relief from their financial challenges with the promise
of a decision within 30 minutes. And, most importantly,
our customers will know that they will be respected by
our Company and our people throughout their entire
customer experience. To date, our customer satisfaction
surveys undertaken by a third party reveal that 95% of
our customers are satisfied or highly satisfied with their
experience with us.
goeasy is an integral part of our omni-channel marketing
strategy whereby customers can engage or transact with
us in store, online, on the telephone or on their mobile
device. Our advertisements are designed to educate our
customers about our values as well as our products and
services and ultimately allow them to access our product
and service offering in the way that suits them. Web traffic
to our sites, a key measure of success for our goeasy
launch, was up 153% in the fourth quarter of 2014 from
the same period of 2014. We have seen significant growth
in online orders within our leasing business while online
applications for easyfinancial increased 181% in the fourth
quarter of 2014 compared with the comparable period
12 | easyhome Ltd.
Outlook for 2015 and beyond
We remain very confident for 2015 and beyond. We expect
to substantially grow our easyfinancial footprint by adding
60 to 65 new locations in 2015, including the 45 acquired
locations already announced, and another 20 to 30 locations
in 2016. We anticipate growing our revenue by 18 to 22%
in each of the next two years, which will be achieved by
increasing our gross consumer loans receivable portfolio
to $280-295 million by the end of 2015, and to $340-370
million by the end of 2016. While growth is important to us,
we intend to grow in a sustainable fashion, always with a
keen eye on risk management.
On behalf of the management team, I want to thank our
employees for their dedication over the past year. I would
also like to thank our Board of Directors for their guidance
and their commitment to good governance as we execute
on our exciting growth strategy.
Sincerely,
David Ingram,
President & CEO
of 2013. Building our brand recognition through goeasy
allows us to access a larger pool of customers who may
not currently be serviced by one of our nearby locations
or who are more comfortable transacting electronically.
Enhancing our online transactional capabilities means that
our customers have a positive experience while accessing
us remotely.
We make goods and credit available to people so they can
access the things they need to make life better. We take
pride in treating our customers with dignity and respect
by helping them gain momentum and empowering them
to help themselves. Together, we are building a business
around these values and we are succeeding. We provide
products that serve a need in the market. We deliver
them with a high level of respectful customer service
and we operate with a discipline that allows us to be
efficient and effective managers, improving returns to our
shareholders. As we build market awareness, customer
trust and loyalty will follow. This will allow us to pursue
new lines of businesses, such as mortgages, which will
allow us to deepen the relationship with our customers
and further fuel our growth.
The right team to manage growth
As part of our five-year plan, we have recruited some of
the top people in their respective fields to manage our
growth strategy. In the past year, we have added key
members to the management team to oversee key roles
in risk, marketing, finance, and operations.
We now have the right people and systems in place to
manage our rapid growth plans, while ensuring that the
quality of our loan portfolio is not compromised.
2014 Annual Report | 13
14 | easyhome Ltd.
T A B L E O F C O N T E N T S
Management’s Discussion and Analysis of Financial Conditions and Results of Operations .....................................16
Caution Regarding Forward Looking Statements ...............................................................................................................................16
Overview of the Business ............................................................................................................................................................................17
Corporate Strategy ........................................................................................................................................................................................19
Outlook ..............................................................................................................................................................................................................23
Analysis of Results for the Year Ended December 31, 2014 ............................................................................................................25
Selected Annual Information .....................................................................................................................................................................33
Analysis of Results for the Three Months Ended December 31, 2014 ..........................................................................................34
Selected Quarterly Information .................................................................................................................................................................41
Portfolio Analysis...........................................................................................................................................................................................41
Key Performance Indicators and Non-IFRS Measures ......................................................................................................................47
Financial Condition........................................................................................................................................................................................54
Liquidity and Capital Resources ................................................................................................................................................................55
Outstanding Shares and Dividends ..........................................................................................................................................................56
Commitments, Guarantees and Contingencies ....................................................................................................................................56
Risk Factors ....................................................................................................................................................................................................57
Critical Accounting Estimates ....................................................................................................................................................................62
Adoption of New Accounting Standards and Standards Issued But Not Yet Effective .............................................................63
Internal Controls ............................................................................................................................................................................................63
Managements Responsibility for Financial Reporting ....................................................................................................65
Audited Consolidated Financial Statements ....................................................................................................................67
Corporate Information ......................................................................................................................................................105
2014 Annual Report | 15
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A LY S I S O F
F I N A N C I A L C O N D I T I O N A N D R E S U LT S O F O P E R A T I O N S
Date: February 18, 2015
The following Management’s Discussion and Analysis [“MD&A”] presents an analysis of the financial condition
of easyhome Ltd. and
its subsidiaries [collectively referred to as “easyhome” or the “Company”] as at
December 31, 2014 compared to December 31, 2013, and the results of operations for the three month period
and year ended December 31, 2014 compared with the corresponding periods of 2013. This MD&A should be read
in conjunction with the Company’s audited consolidated financial statements and the related notes for the year
ended December 31, 2014. The financial information presented herein has been prepared in accordance
with International Financial Reporting Standards [“IFRS”], unless otherwise noted. All dollar amounts are in
thousands of Canadian dollars unless otherwise indicated.
This MD&A is the responsibility of management. The Board of Directors has approved this MD&A after receiving the
recommendations of the Company’s Audit Committee, which is comprised exclusively of independent directors, and the
Company’s Disclosure Committee.
This MD&A refers to certain financial measures that are not determined in accordance with IFRS. Although these
measures do not have standardized meanings and may not be comparable to similar measures presented by other
companies, these measures are defined herein or can be determined by reference to our financial statements. The
Company discusses these measures because it believes that they facilitate the understanding of the results of its
operations and financial position.
Additional information is contained in the Company’s filings with Canadian securities regulators, including the Company’s
Annual Information Form. These filings are available on SEDAR at www.sedar.com and on the Company’s website at
www.easyhome.ca.
Caution Regarding Forward Looking Statements
This MD&A includes forward-looking statements about easyhome, including, but not limited to, its business
operations, strategy and expected financial performance and condition. Forward-looking statements
include,
but are not limited to, those with respect to the estimated number of new locations to be opened, targets
for growth of the consumer loans receivable portfolio, annual revenue growth targets, strategic initiatives,
new product offerings and new delivery channels, anticipated cost savings, planned capital expenditures,
anticipated capital requirements, liquidity of the Company, plans and references to future operations and results
and critical accounting estimates. In certain cases, forward-looking statements that are predictive in nature, depend upon
or refer to future events or conditions, and/or can be identified by the use of words such as ‘expects’, ‘anticipates’, ‘intends’,
‘plans’, ‘believes’, ‘budgeted’, ‘estimates’, ‘forecasts’, ‘targets’ or negative versions thereof and similar expressions, and/or
state that certain actions, events or results ‘may’, ‘could’, ‘would’, ‘might’ or ‘will’ be taken, occur or be achieved.
Forward-looking statements are based on certain factors and assumptions, including expected growth, results
of operations and business prospects and are inherently subject to, among other things, risks, uncertainties and
assumptions about the Company’s operations, economic factors and the industry generally, as well as those factors
referred to in the section entitled “Risk Factors”. There can be no assurance that forward-looking statements will
prove to be as accurate as actual results and future events could differ materially from those expressed or implied by
forward-looking statements made by the Company, due to, but not limited to important factors such as the Company’s
ability to enter into new lease and/or financing agreements, collect on existing lease and/or financing agreements, open
new locations on favourable terms, secure new franchised locations, purchase products which appeal to customers at
16 | easyhome Ltd.
a competitive rate, respond to changes in legislation, react to uncertainties related to regulatory action, raise capital
under favourable terms, manage the impact of litigation (including shareholder litigation), control costs at all levels of
the organization and maintain and enhance the system of internal controls. The Company cautions that the foregoing
list is not exhaustive.
The reader is cautioned to consider these and other factors carefully and not place undue reliance on forward-looking
statements, which may not be appropriate for other purposes. The Company is under no obligation (and expressly
disclaims any such obligation) to update or alter the forward-looking statements whether as a result of new information,
future events or otherwise, unless required by law.
Overview of the Business
easyhome Ltd. is the Canadian leader in providing goods and financial services to the cash and credit constrained
consumer. easyhome Ltd. serves its customers through two key operating divisions, easyhome Leasing and easyfinancial.
The activities of both easyhome Leasing and easyfinancial are governed by federal laws which set a maximum rate of
interest and by the various consumer disclosure acts that exist in each province. As the Company does not offer payday
loans and does not accept customer deposits, it is not subject to payday loan legislation or the rules set out for banks
by the Office of the Superintendent of Financial Institutions.
Overview of easyhome Leasing
The oldest and largest segment of easyhome’s business is merchandise leasing, with an option to purchase, top-quality,
brand name household furnishings, appliances and home electronic products to consumers under weekly or monthly
agreements. The Company’s programs appeal to a wide variety of consumers who are looking for alternatives to
traditional retailers and who are attracted to a leasing transaction that does not involve a credit check, does not require
an initial down payment, includes delivery and set up and offers them the flexibility to terminate the arrangement at
any time. These consumers may not be able to purchase merchandise because of a lack of credit or insufficient cash
resources, who have a short-term or otherwise temporary need for the merchandise, or who simply want to use the
merchandise, with no long-term obligation, before making a purchase decision.
Customers who wish to lease merchandise with an option to purchase from easyhome are required to enter into
easyhome’s standard form merchandise leasing agreement [a “Merchandise Lease Agreement”]. The Merchandise
Lease Agreement provides that the customer will lease merchandise for a set term and make periodic payments on a
weekly or monthly basis. Generally, customers are required to make an initial up-front lease payment and thereafter
the periodic payments are collected in advance for each payment period. If the customer makes all of the periodic
payments throughout the lease term, he or she will obtain ownership of the merchandise. In addition, at specified
times during the term of a Merchandise Lease Agreement, customers can exercise an option to purchase the
leased merchandise at a predetermined price. easyhome maintains ownership of its merchandise until this purchase
option is exercised. Ultimately, easyhome customers have the flexibility to return the merchandise at any time without
any further obligations.
easyhome Leasing operates through both corporately owned stores located across Canada and through a network
of franchised locations. Additionally, since 2013, the Company allows customers to enter into merchandise leasing
transactions through its e-commerce platform.
2014 Annual Report | 17
Overview of easyfinancial
easyfinancial is the Company’s financial services arm, offering installment loans and other ancillary financial services.
easyfinancial offers unsecured, installment loans in amounts from $500 to $10,000 for 9 to 48 month terms with
bi-weekly, semi-monthly and monthly repayment options. Customers can choose to repay the entire loan balance at any
time during the term without penalty. As a credit reporting lender, easyfinancial positions its loan products as a vehicle
to help rebuild credit and provide access to financing for the cash and credit constrained consumer.
easyfinancial is a logical complement to the easyhome Leasing business, leveraging the resources of its affiliate and its
expertise in transacting with a similar customer segment.
easyfinancial’s loans occupy a critical niche in the marketplace, bridging the gap between traditional financial institutions
and costly payday lenders. Traditional financial institutions are unable to effectively offer credit solutions to consumers
that are deemed to be a higher credit risk due to the consumer’s financial situation or less than perfect credit history.
These same consumers prefer to avoid the high fees and onerous repayment terms imposed on them by payday lenders
for access to credit solutions that they require to deal with unforeseen financial situations. easyfinancial’s products
appeal to these cash and credit constrained consumers who are looking for alternatives.
The Company believes that there is significant demand for the products offered by easyfinancial in the Canadian
marketplace. Historically, the consumer demand for these loans was satisfied by the consumer lending arms of several
large, international financial institutions. Since 2009, many of the largest participants in this market have either closed
their operations or dramatically reduced their size due to changes in banking regulations related to risk adjusted capital
reserves, leaving easyfinancial as the only national participant with stated growth aspirations. The Company estimates
that the historic Canadian market for unsecured consumer installment loans, consistent with the products offered by
easyfinancial, was in excess of $1.5 billion and that this market was serviced by over 600 retail locations.
The easyfinancial business was initially developed using a kiosk that was physically located within an existing easyhome
Leasing location. In 2011, to better meet customer demand for its products, the Company determined that the easyfinancial
business would scale more successfully by operating out of stand-alone locations that were physically separated from
the easyhome Leasing stores. These larger and higher capacity stand-alone locations also exhibited a more rapid growth
trajectory. The first easyfinancial stand-alone location was opened in July 2011. Future location growth will be focused
on stand-alone locations, which will also free up retail showroom space at the easyhome Leasing stores.
In 2013, a transactional website was launched by easyfinancial for securing consumer installment loans. This new
delivery channel allowed the Company to reach consumers who may not have had access to a physical location or those
who preferred to interact through the privacy and convenience of their home.
The Company recognizes that the loan products it offers to consumers carry a higher risk of default than the loan
products offered by traditional banks and, as such, the Company will incur a higher level of delinquencies and charge
offs, but that this will be offset by the higher yield generated on the consumer loans receivable. To assist with the
management of this risk, the Company has developed proprietary underwriting practices and credit scoring models
that have been developed using the historical performance of its portfolio. The Company continuously enhances these
practices and scoring models to make better lending decisions, with a goal of maximizing total returns.
18 | easyhome Ltd.
Corporate Strategy
The Company is committed to being the Canadian leader in providing goods and financial services to the cash and
credit constrained consumer. To maintain this position, the Company must continuously evolve to meet the needs of
its chosen consumer segment. Additionally, the Company must focus on maintaining its competitive advantage by
capitalizing on the key aspects of each business unit, including brand awareness, superior customer service and its
cross-country retail network. Cost efficiencies through economies of scale and shared services will further contribute
to the Company’s ability to contend with competitive activities in the marketplace.
To achieve this long-term goal, the Company has three key business imperatives:
• Evolving the delivery channels to better meet the needs of its customers
• Expanding the size and scope of easyfinancial
• Executing with efficiency and effectiveness
Evolving the Delivery Channels
Up until 2013, all of easyhome’s interactions with its leasing and financial services customers occurred at a physical
retail location. In 2013, transactional websites were launched by easyhome Leasing for the leasing of new furniture,
appliances and electronics, and easyfinancial for securing consumer installment loans. These new delivery channels
allowed the Company to reach consumers who may not have had access to a physical location or those who preferred
to interact through the privacy and convenience of their home. Further optimization of these channels will be achieved
through ongoing analysis of transactional performance data and the enhancement of the transactional websites.
As a further means of responding to consumer demand and capturing growth, easyfinancial will also evolve its delivery
channels by exploring indirect lending. Indirect lending involves creating partnerships with merchants, both online
and offline, to provide financing for their customers who do not qualify for the traditional credit products offered by
these merchants. Under such a delivery channel, these customers will be given the opportunity to apply for a loan
through easyfinancial at the point of purchase, thereby allowing them to purchase the desired products or services
from the merchant partner. Lastly, effective centralized support services will ensure a superior customer experience
by providing just in time support to the indirect lending channel backed by a fully integrated, real-time CRM platform.
The easyhome Leasing business will complement this expansion into indirect lending. Consumer loans made by
easyfinancial to consumers for the purchase of product categories that are similar to those offered by easyhome Leasing
will be secured by the purchased merchandise. In the event that the loan goes into default, the goods can be repossessed
and the value of these recovered goods can be realized by leasing or selling the assets through the easyhome Leasing
store network. In this manner, the Company can better manage its risk and has a significant competitive advantage over
potential competitors that lack a viable outlet for realizing against the security.
Expanding the Size and Scope of easyfinancial
In addition to evolving its delivery channels, the Company will continue to focus on expanding the size and scope of
easyfinancial. The Company believes that there is significant demand for the products offered by easyfinancial in the
Canadian marketplace and that a large portion of this demand is currently not being satisfied.
2014 Annual Report | 19
The Company has made significant investments in its processes and infrastructure to position its easyfinancial business
for long-term sustainable growth, including making the following key enhancements:
• Outside experts were engaged by the Company to evaluate all of the key easyfinancial control processes
and make recommendations on industry best practices. All of the opportunities identified by these experts
have been addressed.
• The Company has developed an internal competence in evaluating and managing credit risk. Using leading edge,
data-driven modeling and analytical techniques, underwriting and credit adjudication rules were enhanced with
the goal of balancing throughput and charge offs to optimize returns.
• An industry standard banking platform was implemented to ensure that the loans receivable portfolio could be
appropriately managed and information could be securely maintained on a scalable infrastructure.
• In 2014, the Company implemented a proprietary loan application management system to process applications
originated in its retail and online channels. This system is supported by a new credit decision engine built in
partnership with a global leader in risk management technology solutions and is fully integrated with Company’s
customer relationship management platform enabling it to more efficiently meet the needs of its growing
customer base.
• The easyfinancial management team was enhanced through the recruitment of senior managers with broad
experience in the financial services and mobile technology industries.
• Through a combination of equity offerings, debt offerings and renegotiation of existing lending relationships, the
Company secured the necessary capital to fund the expected growth for the near-term. The continued successful
growth of the easyfinancial portfolio and the strengthened balance sheet should provide for access to further
levels of capital in the future at reduced costs.
Unlike easyhome Leasing, the retail footprint of easyfinancial is not yet mature and requires expansion. The Company
estimates that its retail footprint for easyfinancial could expand to over 250 locations across Canada. The Company
is responding to this opportunity by strategically adding new stand-alone locations. In addition to providing more
convenient access to the customers that wish to transact in a physical retail environment, the critical mass of physical
locations will strengthen the Company’s financial services brand, establishing easyfinancial as the leader in providing
financing solutions to consumers who are looking for an alternative to traditional banks and payday lenders.
Over the long-term, the Company expects the operating margin of its easyfinancial business unit to exceed 35% (before
any allocation of indirect corporate costs, interest and taxes). This operating margin, however, will be muted in periods
of rapid expansion. Additional easyfinancial store openings will provide a drag on margins as the relatively fixed cost
base of a new location in the months after opening will be disproportionately large until the consumer loans receivable
portfolio for that location has grown to a sufficient size to generate larger revenues. The Company will continue to
make investments in technology as it develops the required platforms for the new delivery channels. Additionally, the
Company will make greater investments in marketing and advertising expenditures, particularly in electronic media,
that will drive further growth of the portfolio, but will increase the expense load in the periods where such marketing
and advertising occurs.
20 | easyhome Ltd.
The expansion of easyfinancial will also be aided by the introduction of complementary financial products. The Company
has a stated goal of being the Canadian leader in providing goods and financial services to the cash and credit constrained
consumer and so the Company intends to build out a suite of products that can ladder a customer from establishing
credit to home ownership. In cases where the Company has the expertise and resources to offer these products directly,
it will do so. In other cases, it will look to partner with primary providers of these products and offer such products to
the Company’s customers under a commission or fee type arrangement. As an example, in 2014 the Company launched
a licensed mortgage brokerage business designed to assist customers in obtaining mortgage financing.
Executing with Efficiency and Effectiveness
The Company believes that the products and services presented to its customers are clearly differentiated from its competitors.
easyhome Leasing has established itself as the Canadian market leader by providing a more inviting retail experience than its
direct competitors, providing consumers with the guaranteed lowest weekly payment rates, and by employing more engaged
and better trained retail associates. easyfinancial provides consumers with a financing alternative that is less costly than
payday loans and quicker and more convenient than traditional banks, all in an inviting retail or electronic environment.
To meet the demands of its customers and to maximize the profitability of the overall business, the Company will continue
to focus on improving its level of execution across all areas of the business.
Offer High Levels of Customer Service and Satisfaction
Customer retention is of paramount importance. Frequent and positive customer interactions encourage repeat business and
provide high levels of service and satisfaction. As part of its effort to provide superior customer service, the Company offers
quick delivery of its merchandise and rapid loan decisions and funding. The Company believes that competent, knowledgeable
and motivated personnel are necessary in order to achieve high levels of customer service and satisfaction. Accordingly,
the Company has intensive employee training programs, as well as performance measurement programs, incentive driven
compensation plans and other tools, in order to drive a positive customer experience and ensure customer retention.
Increase Store Level Efficiency
Although the Company will pursue the previously described methods to encourage customer retention and growth, it must
also aggressively manage all discretionary spending. Supplier relationships and economies of scale will be leveraged to
reduce overall costs. Idle inventory levels within its stores will be maintained at optimum levels, balancing the need to
provide customers with the choice and selection they require with the capital committed and management effort required
to maintain this inventory. Other costs, especially labour, will be tightly controlled through centrally established thresholds,
allowing spending to occur only when it will result in improved revenues. In addition, the Company will remediate and, if
necessary, close underperforming stores, merging their portfolios with other nearby locations.
Utilize Data Analysis as a Competitive Advantage
The Company has a tremendous volume of customer data that it has gained from years of operating its merchandise
leasing and consumer lending businesses. The Company has made significant investments in information technology to
safeguard the privacy of this data and also to allow the business to analyze this data to make better business decisions.
The intelligent use of this data and analysis will allow easyfinancial to continually enhance its underwriting practices and
credit scoring models to make better lending decisions. It will allow easyhome Leasing to better understand the retention
patterns of its customers and develop marketing and customer relationship programs that are tailored to each customer’s
needs while maximizing profitability to the Company.
2014 Annual Report | 21
Leverage the Synergies of Both Business Units
The easyhome Leasing and easyfinancial businesses offer different products to a common customer segment and
share many operational practices such as customer relationship management, collections and contract administration.
Historically, and as is common with both industries, these practices have been performed by each business unit at the
local operating store level. While this approach results in more direct contact with customers, it makes it difficult to
foster best practices and achieve economies of scale.
In the fourth quarter of 2013, The Company opened a new Shared Service Centre to provide operational support for
both business units in areas such as collections, customer retention and customer care and to support the new delivery
channels that do not operate with a dedicated local presence. The Company believes that this hybrid structure will
allow local operators to continue to provide a strong level of service directly to their customers, and will enable many
administrative and support functions to be performed at a reduced cost, employing best practices. Going forward,
additional opportunities for providing coordinated operational support for all business units will be explored.
Continue to Invest in New Technologies
As indicated previously, the Company has made significant investments in technology over the past several years to
provide easyfinancial with a scalable platform on which to support significant future growth and to allow new delivery
channels to be accessed. This investment in new technologies will continue in the future as the Company evolves its
delivery channels and expands the size and scope of easyfinancial. Investments in new technology will also be made to
provide the operators and support staff with additional tools so that they can better service their customers and obtain
greater levels of efficiency.
Improve Brand Recognition Through goeasy
In the third quarter of 2014 the Company announced a new master brand: goeasy. Going forward, the Company’s new
goeasy master brand will provide a corporate umbrella that unites and supports its sub-brands of easyhome and
easyfinancial and allow it to more effectively reach its targeted demographic – the cash and credit constrained consumer
– with all its lines of business.
The values of the new goeasy master brand are Access, Relief and Respect. When a customer deals with any of the
Company’s business units, they will know they can obtain greater access to products and services than they can through
more traditional retailers or banks who have denied them in the past. Customers will be provided with relief from their
financial challenges with the promise of a decision within 30 minutes. Finally, customers will know that they will be
respected by the Company and its people throughout their entire customer experience. These are the core pillars that
anchor the goeasy brand.
The new master brand launch also involved a shift away from traditional paper based advertising channels towards
a greater investment in broadcast and digital media. By focusing on the master brand, the Company will maximize
the impact of its advertising dollars. Both of the Company’s sub-brands (easyhome and easyfinancial) will be united
under this one umbrella with one common message focused around the core brand pillars. It will reach a new set of
customers that are unaware of the Company’s products and services. Longer term, the master brand will facilitate the
launch of new products and services and reduce the cost of customer acquisition.
22 | easyhome Ltd.
Outlook
The discussion in this section is qualified in its entirety by the cautionary language regarding forward-looking statements
found in the “Caution Regarding Forward-Looking Statements” of this MD&A.
Update of 2014 Targets
The Company’s 2014 targets, along with the underlying assumptions and risk factors, were originally communicated
in its December 31, 2013 MD&A and subsequently revised in its June 30, 2014 MD&A.
New easyhome Leasing stores opened in year
Corporately owned stores
Franchise stores that are consolidated
for financial statement purposes
Franchise stores
New easyfinancial locations opened in year
Gross consumer loans receivable portfolio at
year end
easyfinancial operating margin
Total revenue growth
Actual
Results for
2014
Revised
Targets for
2014
Explanation for Variance to Targets
–
2
5
36
$192.2
million
32.7%
18.4%
–
2
3
Target achieved
Target achieved
Target achieved
30 – 35
Target achieved
$180 – $190
million
Target surpassed due to stronger
than anticipated demand for the
easyfinancial product
30 – 32%
Target achieved
14 – 16%
Target surpassed due to stronger
than anticipated demand for the
easyfinancial product
Looking to 2015, easyhome’s strategic focus remains unchanged. The Company will focus on evolving its delivery
channels, expanding the size and scope of easyfinancial and executing with efficiency and effectiveness.
2014 Annual Report | 23
Update of Two Year Targets
The Company’s 2015 and 2016 targets were originally reported in its December 31, 2013 MD&A and were subsequently
revised during 2014 due to the strong growth of the Company’s easyfinancial business. The following table outlines the
Company’s targets for 2015 and 2016 and provides the material assumptions used to develop such forward-looking
statements. In addition to targets on new store openings and revenue growth, the Company has provided additional
targets specific to the easyfinancial business as this business unit has a relatively short history and is going through a
period of rapid expansion. These targets are inherently subject to risks which are identified in the following tables, as
well as those risks referred to in the section entitled “Risk Factors”.
Targets for
2015
Targets for
2016
Assumptions
Risk Factors1
• The Company continues to be
able to access growth capital for
its easyfinancial business at a
reasonable cost.
• Virtually all new locations will
operate as stand-alone branches.
• The earnings drag from newly
opened locations is within
acceptable levels.
• The Company’s ability to
secure new real estate and
experienced personnel.
• The new store opening plan and
the development of new delivery
channels occur as expected.
• The Company continues to be
able to access growth capital
for its easyfinancial business
at a reasonable cost.
• Retail business conditions are
assumed to be within normal
parameters with respect to
consumer demand and margins.
• The Company’s ability to
secure new real estate and
experienced personnel.
• Nominal growth for the easyhome
Leasing business unit.
• Continued accelerated growth of
the consumer loans receivable
portfolio, driven by new delivery
channels, additional store openings
and increased marketing spend.
• Retail business conditions are
assumed to be within normal
parameters with respect to
consumer demand and margins.
• Changes to regulations
governing the products offered
by the Company.
• No changes to the yield on
easyfinancial’s products.
• Although the long term
• The Company’s ability to
easyfinancial margin is expected
to be 35%, operating margins
in 2015 will be moderated by
investments made to drive future
growth including the additional
cost of the 45 acquired sites
• Yield and cost rates at
mature locations are indicative
of future performance
achieve operating efficiencies
as its locations mature.
• The earnings drag from newly
opened locations is within
acceptable levels.
New easyfinancial
locations opened
in year
60 – 65
20 – 30
Gross consumer
loans receivable
portfolio at
year end
$280 – $295
million
$340 – $370
million
Total revenue growth
18% – 22%
18% – 22%
easyfinancial
operating margin
28% – 32%
32% – 35%
1 Risk factors include those risks referred to in the section entitled “Risk Factors”.
24 | easyhome Ltd.
Analysis of Results for the Year Ended December 31, 2014
Financial Highlights and Accomplishments
• 2014 was the thirteenth consecutive year of growing revenues and delivering profits. Since 2001, total
revenue has seen a compounded annual growth rate of 11.1% while net income has grown from a loss
of $1.9 million in 2001 to net income of $19.7 million in 2014. In 2014, the Company delivered record
levels of revenue, net income and earnings per share.
• easyhome continued to grow revenue during 2014. Revenue for the year increased to $259.2 million
from $218.8 million in 2013, an increase of $40.4 million or 18.4%. The growth was driven primarily by
the expansion of easyfinancial and its consumer loan receivable portfolio. Same store revenue growth
for the year, which includes revenue growth from easyfinancial, was 19.6%. Excluding the impact of
easyfinancial, same store revenue growth was 2.6%.
• The Company continued to secure the additional capital needed to fund the growth of its consumer loans
receivable portfolio at lower costs throughout the year. In the third quarter of 2014, the Company entered
into a new $200 million credit facility, replacing the Company’s previous debt facilities and providing
$115 million of additional capital to support the growth of easyfinancial. The new credit facility, which
expires on October 4, 2018, is comprised of a $180 million term loan and a $20 million revolving operating
facility. This additional capital will allow easyfinancial to continue to expand during 2015.
• In the third quarter of 2014, the Company announced the launch of a new master brand: goeasy. The
Company’s new goeasy master brand will provide a corporate umbrella that unites and supports its
sub-brands of easyhome and easyfinancial and allows it to more effectively reach its targeted demographic
– the cash and credit constrained consumer. The new master brand launch was complemented by an
integrated advertising campaign which included television ads, a new website (www.goeasy.com) and
social media channels, as well as in-store and direct mail marketing. The brand launch, and incremental
marketing to fuel the growth of easyfinancial, resulted in higher advertising spend in 2014.
• During 2014, the consumer loans receivable portfolio experienced record growth, increasing by
$81.5 million compared with growth of $40.0 million in 2013. The gross consumer loans receivable
as at December 31, 2014 was $192.2 million compared with $110.7 million as at December 31, 2013, up
73.6%. Similarly, easyfinancial revenue increased by 72.3% in the year compared to 2013, driven by the
expanded consumer loans receivable portfolio. During the year, easyfinancial opened 37 new branches.
• The key metrics measuring the performance of the Company’s consumer loans receivable portfolio both
improved in the year. Bad debt expense as a percentage of revenue improved from 25.3% in 2013 to 24.1%
in the current year while net charge offs as a percentage of average gross consumer loans receivable
improved from 13.9% in 2013 to 13.0% in the current year.
• During the fourth quarter of 2014, the Company decided to wind down its operations in the U.S. and focus
on the Canadian marketplace. This wind down involved the sale of the Company’s rights to future royalty
payments from its franchisees, the recognition of impairment provisions against certain intangible
assets and property and equipment located in the U.S. and the recording of other restructuring charges
which consisted of provisions for onerous leases, severance and other charges. For the quarter ended
December 31, 2014, a net credit of $1.2 million was recorded as restructuring and other charges within
operating income. No further related charges are expected in future periods.
2014 Annual Report | 25
• Operating income for 2014 was $34.6 million compared to $25.0 million in 2013, an increase of $9.6 million
or 38.6%. Overall operating margin for the year was 13.3%, up from the 11.4% reported in 2013. Excluding
restructuring and other items, adjusted operating earnings for the year was $33.4 million, up $8.4 million
or 33.7% compared with 2013. Adjusted operating margin was 12.9% for the year.
• Net income for 2014 reached a record level of $19.7 million or $1.42 per share on a diluted basis compared
with $14.2 million or $1.15 per share in 2013, an increase of $5.5 million and $0.27 respectively. Excluding
the impact of restructuring and other items, adjusted earnings for 2014 was $18.6 million or $1.34 per
share on a diluted basis.
• During the fourth quarter of 2014, the Company implemented a proprietary loan application management
system to process applications originated in its retail and online channels. This system is supported by a
new credit decision engine built in partnership with a global leader in risk management technology solutions
and is fully integrated with Company’s customer relationship management platform enabling it to more
efficiently meet the needs of its growing customer base.
26 | easyhome Ltd.
Summary Financial Results and Key Performance Indicators
(in $000’s except earnings per share and percentages)
Dec. 31, 2014
Dec. 31, 2013
$ / %
% Change
Year Ended
Variance
Variance
Summary Financial Results
Revenue
Operating expenses before depreciation and amortization
259,150
167,916
218,814
140,137
EBITDA
EBITDA margin
Depreciation and amortization expense
Operating income
Operating margin
Finance costs
Effective income tax rate
Net income for the period
Diluted earnings per share
Adjusted (Normalized) Financial Results1
Adjusted EBITDA margin
Adjusted operating earnings
Adjusted operating margin
Adjusted earnings
Adjusted earnings per share
Key Performance Indicators1
Same store revenue growth
Same store revenue growth excluding easyfinancial
Potential monthly lease revenue
Change in potential monthly lease revenue due
to ongoing operations
easyhome Leasing operating margin
Gross consumer loans receivable
Growth in consumer loans receivable
Gross loan originations
Bad debt expense as a percentage of easyfinancial revenue
Net charge offs as a percentage of average
gross consumer loans receivable
easyfinancial operating margin
1 See description in section “Key Performance Indicators and Non-IFRS Measures”.
41,809
16.1%
56,641
34,593
13.3%
8,800
23.4%
19,748
1.42
15.7%
33,368
12.9%
18,600
1.34
19.6%
2.6%
10,955
30,599
14.0%
53,712
24,965
11.4%
5,638
26.6%
14,182
1.15
14.0%
24,965
11.4%
14,182
1.15
17.7%
7.3%
11,430
143
243
15.4%
192,225
81,521
233,805
24.1%
13.0%
32.7%
16.4%
110,704
40,046
142,008
25.3%
13.9%
31.0%
18.4%
19.8%
36.6%
–
5.5%
38.6%
–
56.1%
–
39.2%
23.5%
–
33.7%
–
31.1%
16.5%
–
–
(4.2%)
(41.1%)
73.6%
103.6%
64.6%
–
40,366
27,779
11,210
2.1%
2,929
9,628
1.9%
3,162
(3.2%)
5,566
0.27
1.7%
8,403
1.5%
4,418
0.19
1.9%
(4.7%)
(475)
(100)
(1.0%)
81,521
41,475
91,797
(1.2%)
(0.9%)
1.7%
2014 Annual Report | 27
Store Locations Summary
easyhome Leasing
Corporately owned stores
Consolidated franchise locations
Total consolidated stores
Canadian franchise stores
U.S. franchise stores1
Total franchise stores
Total easyhome Leasing stores
easyfinancial
Kiosks (in store)
Stand-alone locations
National loan office
Total easyfinancial locations
Locations as at
Dec. 31, 2013
Locations opened
during year
Locations closed
/ sold during year
Conversions
Locations as at
Dec. 31, 2014
173
9
182
19
36
55
237
65
53
1
119
–
2
2
–
5
5
7
1
36
–
37
(6)
(3)
(9)
(1)
(42)
(43)
(52)
–
(2)
–
(2)
(4)
(2)
(6)
5
1
6
–
(2)
2
–
–
163
6
169
23
–
23
192
64
89
1
154
1During the fourth quarter of 2014, the Company decided to wind down its operations in the U.S. and focus on the Canadian marketplace. This wind down involved the sale of the Company’s rights
to future royalty payments from its U.S. franchisees. The stores for which royalties will no longer be received were treated as locations closed or sold during the quarter for reporting purposes.
28 | easyhome Ltd.
Summary Financial Results by Operating Segment
($ in 000’s except earnings per share)
easyhome Leasing
easyfinancial
Corporate
Total
Revenue
158,322
100,828
–
259,150
Year Ended December 31, 2014
Total operating expenses before depreciation
and amortization and restructuring and other items
Restructuring and other items
Depreciation and amortization
Operating income (loss)
Finance costs
Income before income taxes
Income taxes
Net income for the period
Diluted earnings per share
81,305
–
52,711
24,306
64,524
–
3,298
33,006
23,312
169,141
(1,225)
632
(22,719)
(1,225)
56,641
34,593
8,800
25,793
6,045
19,748
1.42
($ in 000’s except earnings per share)
easyhome Leasing
easyfinancial
Corporate
Total
Year Ended December 31, 2014
Revenue
Total operating expenses before depreciation
and amortization
Depreciation and amortization
Operating income (loss)
Finance costs
Income before income taxes
Income taxes
Net income for the period
Diluted earnings per share
160,296
82,778
51,210
26,308
58,518
38,435
1,918
18,165
–
218,814
18,924
140,137
584
(19,508)
53,712
24,965
5,638
19,327
5,145
14,182
1.15
2014 Annual Report | 29
Revenue
Revenue for the year ended December 31, 2014 was $259.2 million compared to $218.8 million in 2013, an increase of
$40.3 million or 18.4%. Same store sales growth for the year was 19.6%. The increase to revenue was driven by the
growth of the easyfinancial business.
easyhome Leasing – Revenue for the year ended December 31, 2014 was $158.3 million, a decrease of $2.0 million from
2013. The year over year change in revenue can be attributed to several factors:
• Revenue growth across the Canadian store network (excluding the impact of store sales and closures)
was $0.8 million in 2014 compared to the prior year.
• The acquisition of leasing portfolios in the year which were merged with existing stores resulted in an additional
$0.2 million of revenue in 2014 when compared with 2013.
• Growth in the franchise network, both from consolidated franchise locations and fees generated from
unconsolidated franchises, contributed to $1.6 million of revenue growth.
• Revenue gains were offset by store closures and sales which occurred during the past two years
(net of the transfer of portfolios to nearby locations) resulting in a $4.6 million decline in revenue.
easyfinancial – Revenue for the year ended December 31, 2014 was $100.8 million, an increase of $42.3 million or 72.3%
from 2013. The increase was due to the growth of the consumer loans receivable portfolio, which increased from $110.7
million as at December 31, 2013 to $192.2 million as at December 31, 2014, an increase of $81.5 million or 73.6%. The gross
consumer loans receivable portfolio grew by $81.5 million in the year as compared with growth of $40.0 million in 2013.
Total Operating Expenses before Depreciation and Amortization (and Restructuring and Other Items)
Total operating expenses before depreciation and amortization and restructuring and other items was $169.1 million
for the year ended December 31, 2014, an increase of $29.0 million or 20.7% from 2013. The increase in operating
expenses was driven primarily by the higher costs associated with the expanding easyfinancial business and higher
corporate costs partially offset by lower operating costs within the Leasing business. Total operating expenses before
depreciation and amortization and restructuring and other items represented 65.3% of revenue for 2014 as compared
with 64.0% for 2013.
easyhome Leasing – Total operating expenses before depreciation and amortization for the year ended December 31, 2014
were $81.3 million, a decrease of $1.5 million or 1.8% from 2013. Net cost reductions related to lower advertising and
marketing expenditures during the year and a reduced number of stores. Consolidated leasing store count declined
from 182 as at December 31, 2013 to 169 at December 31, 2014.
easyfinancial – Total operating expenses before depreciation and amortization were $64.5 million for the year ended
December 31, 2014, an increase of $26.1 million or 67.9% from 2013. Operating expenses excluding bad debt expense
increased by $16.6 million or 70.3% in the year driven by: i) higher advertising and marketing costs including the
costs associated with the launch of the Company’s master brand – goeasy, ii) 35 additional branches when compared
to December 31, 2013 and the shift towards higher capacity stand alone branches, iii) higher costs associated with
easyfinancial’s shared service centre to support the larger loan book and iv) incremental expenditures to develop new
distribution channels and manage the growing branch network. Overall, branch count increased from 119 as at December
31, 2013 to 154 as at December 31, 2014. Additionally, stand-alone branches increased from 53 as at December 31, 2013
to 89 as at December 31, 2014.
30 | easyhome Ltd.
Bad debt expense increased to $24.3 million for 2014 from $14.8 million in 2013, an increase of $9.5 million or 64.2%.
The relative increase in bad debt expense trailed the growth of the consumer loans receivable portfolio which grew by
73.6% over the past 12 months. Bad debt expense expressed as a percentage of easyfinancial revenue, was 24.1% for the
year, down from the 25.3% reported in 2013. Similarly, net charge-offs as a percentage of the average gross consumer
loans receivable improved from 13.9% reported in 2013 to 13.0% in 2014.
Corporate – Total operating expenses before depreciation and amortization and restructuring and other items was
$23.3 million for the year ending December 31, 2014 compared to $18.9 million in 2013, an increase of $4.4 million or 23.3%.
The increase was due primarily to higher incentive compensation expenses. Stock based compensation expense, which is
driven in part by movements in the Company’s share price, increased by $2.5 million in 2014 as compared to 2013. Accrued
short-term bonus expense, which is based on earnings performance against targets, increased due to the improved
operating results of the Company compared with 2013. Corporate expenses before depreciation and amortization and
restructuring and other items represented 9.0% of revenue in 2014 compared to 8.6% of revenue in 2013.
Restructuring and other items – During the fourth quarter of 2014, the Company decided to wind down its operations in the
U.S. and focus on the Canadian marketplace. This involved the sale of the Company’s rights to future royalty payments
from its franchisees, the recognition of impairment provisions against certain intangible assets and property and
equipment located in the U.S. and the recording of other restructuring charges which consisted of provisions for onerous
leases, severance and other charges. For the year ended December 31, 2014, a net credit of $1.2 million was recorded
as restructuring and other charges within operating income. No further related charges are expected in future periods.
Depreciation and Amortization
Depreciation and amortization for the year ended December 31, 2014 was $56.6 million, up $2.9 million or 5.4% from 2013.
The increase was attributable to: i) the growing easyfinancial branch network and the increased number of stand-alone
locations, ii) the amortization of new easyfinancial systems and iii) an increase in the depreciation and amortization
expense within the leasing business.
Leasing depreciation and amortization as a percentage of leasing revenue for the year was 33.3% up from 31.9% in 2013
due to a combination of: i) decreasing average lease terms – particularly on used inventory, ii) merchandising activities
to optimize inventory levels for the goeasy master brand launch in the third quarter of 2013 and iii) increased product costs
not passed on to customers.
Overall depreciation and amortization represented 21.9% of revenue for 2014, down from 24.5% in 2013.
2014 Annual Report | 31
Operating Income (Income before Finance Costs and Income Taxes)
Operating income for 2014 was $34.6 million compared to $25.0 million in 2013, an increase of $9.6 million or 38.6%.
Overall operating margin for the year was 13.3%, up from the 11.4% reported in 2013. Excluding restructuring and other
items, adjusted operating earnings for the quarter was $33.4 million, up $8.4 million or 33.7% compared with 2013.
Adjusted operating margin was 12.9% for the year up from 11.4% in 2013.
easyhome Leasing – Operating income was $24.3 million for 2014 down $2.0 million from 2013 and driven primarily by
lower revenue, higher depreciation and amortization and partially offset by lower store operating costs associated with
a reduced number of stores.
easyfinancial – Operating income was $33.0 million for 2014, compared with $18.2 million in 2013, an increase of $14.8 million
or 81.3%. Operating margin for the year was 32.7% compared with 31.0% in 2013. The growth in operating income
and operating margin was driven by the growing consumer loans receivable portfolio allowing easyfinancial to achieve
further economies of scale.
Finance Costs
Finance costs for 2014 were $8.8 million, up $3.7 million from 2013. This increase in finance costs was driven by higher
average borrowing levels as well as an increased blended borrowing rate.
Income Tax Expense
The effective income tax rate for 2014 was 23.4% compared to 26.6% in 2013. During the fourth quarter of 2014, the
Company decided to wind down its operations in the U.S. which involved the sale of the Company’s rights to future
royalty payments from its U.S. franchisees. This resulted in a gain on sale in the Company’s U.S. subsidiary which had
adequate tax loss carryforwards to eliminate any tax payable on the transaction thus resulting in a low effective income
tax rate in the year. Excluding the impact of the Company’s U.S. operations, the Company’s effective tax rate for its
Canadian operations for 2014 was 26.5%.
Net Income and EPS
Net income for 2014 was $19.7 million or $1.42 per share on a diluted basis compared with $14.2 million or $1.15 per
share in 2013, an increase of $5.5 million and $0.27 respectively. Excluding the impact of restructuring and other items,
adjusted earnings for 2014 was $18.6 million or $1.34 per share on a diluted basis.
32 | easyhome Ltd.
Selected Annual Information
Operating Results
($ in 000’s except per share amounts)
Revenue
Net income
Dividends declared
on common shares
Cash dividends declared
per common share
Earnings per Share
Basic
Diluted
Assets and Liabilities
($ in 000’s)
Total Assets
Liabilities
Bank debt
Term loan
Other
Total Liabilities
2014
259,150
19,748
2013
218,814
14,182
2012
199,673
11,057
4,530
4,178
4,043
0.34
0.34
1.47
1.42
1.16
1.15
0.34
0.93
0.92
2011
188,325
2010
174,184
9,612
4,029
0.34
0.81
0.81
6,072
3,562
0.34
0.58
0.58
As At
Dec. 31, 2014
As At
Dec. 31, 2013
As At
Dec. 31, 2012
As At
Dec. 31, 2011
As At
Dec. 31, 2010
319,472
232,900
189,927
159,123
139,088
1,756
119,841
43,907
165,504
23,496
37,878
35,893
97,267
21,281
18,330
45,303
84,914
33,123
–
28,458
61,581
18,251
–
29,326
47,577
2014 Annual Report | 33
Analysis of Results for the Three Months Ended December 31, 2014
Fourth Quarter Highlights
• easyhome continued to grow revenue during the fourth quarter of 2014. Revenue for the quarter reached a
record high of $70.0 million, up from the $57.8 million reported in the fourth quarter of 2013 and an increase
of $12.2 million or 21.2%. The growth was driven primarily by the expansion of easyfinancial and its consumer
loans receivable portfolio. Same-store revenue growth for the quarter, which includes revenue growth from
easyfinancial, was 20.8%. Excluding the impact of easyfinancial, same-store revenue growth was 2.6%.
• The gross consumer loans receivable portfolio as at December 31, 2014 was $192.2 million compared with
$110.7 million as at December 31, 2013, an increase of $81.5 million or 73.6%. The loan book grew by $26.5
million in the quarter compared with growth of $17.9 million in the fourth quarter of 2013. Loan originations
were also strong in the quarter at $74.2 million, up 44.8% compared with the fourth quarter of 2013. Similarly,
easyfinancial revenue increased by 70.0% in the quarter compared to the same period of 2013, driven by a larger
consumer loans receivable portfolio. easyfinancial opened 12 new stand-alone branches in the quarter.
• Bad debt expense expressed as a percentage of easyfinancial revenue, was 22.0% for the fourth quarter of 2014,
down from the 24.6% reported for the fourth quarter of 2013. Similarly, net charge-offs as a percentage of the
average gross consumer loans receivable on an annualized basis improved from 13.2% reported in the fourth
quarter of 2013 to 11.3% in the current quarter. During the fourth quarter of 2014, the Company sold certain
previously charged off accounts for total proceeds of $0.9 million which has been included in the net charge offs.
• Operating income for the three month period ended December 31, 2014 was $11.5 million compared to
$7.5 million for the comparable period in 2013, an increase of $4.0 million or 53.7%. Excluding restructuring and
other items, adjusted operating earnings for the quarter was $10.3 million, up $2.8 million or 37.4% compared
with the fourth quarter of 2013. Adjusted operating margin was 14.7% for the quarter up from 13.0% in the
fourth quarter of 2013.
• Net income for the fourth quarter of 2014 was $7.1 million or $0.51 per share on a diluted basis compared with
$4.3 million or $0.33 per share in the fourth quarter of 2013, an increase of $2.8 million and $0.18 respectively.
Excluding the impact of restructuring and other items, adjusted earnings for the fourth quarter of 2014 was
$6.0 million or $0.43 per share on a diluted basis.
34 | easyhome Ltd.
Summary Financial Results and Key Performance Indicators
(in $000’s except earnings per share and percentages)
Dec. 31, 2014
Dec. 31, 2013
$ / %
% Change
Three Months Ended
Variance
Variance
Summary Financial Results
Revenue
Operating expenses before depreciation and amortization
EBITDA
EBITDA margin1
Depreciation and amortization expense
Operating income
Operating margin1
Finance costs
Effective income tax rate
Net income for the period
Diluted earnings per share
Adjusted (Normalized) Financial Results1
Adjusted EBITDA margin
Adjusted operating earnings
Adjusted operating margin
Adjusted earnings
Adjusted earnings per share
Key Performance Indicators1
Same store revenue growth
Same store revenue growth excluding easyfinancial
Potential monthly lease revenue
Change in potential monthly lease revenue due
to ongoing operations
easyhome Leasing operating margin
Gross consumer loans receivable
Growth in consumer loans receivable
Gross loan originations
Bad debt expense as a percentage of easyfinancial revenue
Net charge offs as a percentage of average
gross consumer loans receivable
easyfinancial operating margin
1 See description in section “Key Performance Indicators and Non-IFRS Measures”.
70,042
44,024
13,518
19.3%
14,476
11,542
16.5%
2,907
17.6%
7,112
0.51
17.6%
10,317
14.7%
5,964
0.43
20.8%
2.6%
10,955
57,796
36,708
8,930
15.5%
13,579
7,509
13.0%
1,414
28.9%
4,336
0.33
15.5%
7,509
13.0%
4,336
0.33
20.3%
6.8%
11,430
12,246
7,316
4,588
3.8%
897
4,033
3.5%
1,493
(11.3%)
2,776
0.18
2.1%
2,808
1.7%
1,628
0.10
0.5%
(4.2%)
(475)
21.2%
19.9%
51.4%
–
6.6%
53.7%
–
105.6%
–
64.0%
54.5%
–
37.4%
–
37.5%
30.3%
–
–
(4.2%)
593
662
(69)
(10.4%)
15.4%
192,225
26,505
74,198
22.0%
11.3%
35.0%
16.4%
110,704
17,912
51,242
24.6%
13.2%
34.1%
(1.0%)
81,521
8,593
22,956
(2.6%)
(1.9%)
0.9%
73.6%
48.0%
44.8%
–
–
–
2014 Annual Report | 35
Store Locations Summary
easyhome Leasing
Corporately owned stores
Consolidated franchise locations
Total consolidated stores
Canadian franchise stores
U.S. franchise stores1
Total franchise stores
Total easyhome Leasing stores
easyfinancial
Kiosks (in store)
Stand-alone locations
National loan office
Total easyfinancial locations
Locations as at
Sept. 30, 2014
Locations opened
during quarter
Locations closed /
sold during quarter
Conversions
Locations as at
Dec. 31, 2014
164
9
173
22
40
62
235
64
78
1
143
–
1
1
–
2
2
3
–
12
–
12
–
(3)
(3)
(1)
(42)
(43)
(46)
–
(1)
–
(1)
(1)
(1)
(2)
2
–
2
–
–
–
–
–
163
6
169
23
–
23
192
64
89
1
154
1During the fourth quarter of 2014, the Company decided to wind down its operations in the U.S. and focus on the Canadian marketplace. This wind down involved the sale of the Company’s rights
to future royalty payments from its U.S. franchisees. The stores for which royalties will no longer be received were treated as locations closed or sold during the quarter for reporting purposes.
36 | easyhome Ltd.
Summary Financial Results by Operating Segment
($ in 000’s except earnings per share)
easyhome Leasing
easyfinancial
Corporate
Three Months Ended December 31, 2014
Revenue
Total operating expenses before depreciation
and amortization and restructuring and other items
Restructuring and other items
Depreciation and amortization
Operating income (loss)
Finance costs
Income before income taxes
Income taxes
Net income for the period
Diluted earnings per share
39,370
19,944
–
13,344
6,082
30,672
18,972
–
968
10,732
($ in 000’s except earnings per share)
easyhome Leasing
easyfinancial
Corporate
Three Months Ended December 31, 2013
Revenue
Total operating expenses before depreciation
and amortization
Depreciation and amortization
Operating income (loss)
Finance costs
Income before income taxes
Income taxes
Net income for the period
Diluted earnings per share
39,742
20,384
12,822
6,536
18,054
11,290
606
6,158
6,333
45,249
(1,225)
164
(5,272)
Total
70,042
(1,225)
14,476
11,542
2,907
8,635
1,523
7,112
0.51
Total
57,796
–
–
5,034
36,708
151
(5,185)
13,579
7,509
1,414
6,095
1,759
4,336
0.33
2014 Annual Report | 37
Revenue
Revenue for the three month period ended December 31, 2014 was $70.0 million compared to $57.8 million in the
same period in 2013, an increase of $12.2 million or 21.2%. Same store sales growth for the quarter was 20.8%.
Revenue growth was driven primarily by the growth of easyfinancial.
easyhome Leasing – Revenue for the three month period ended December 31, 2014 was $39.4 million, a decrease
of $0.4 million from the comparable period in 2013. Factors impacting revenue in the period included:
• Revenue growth across the Canadian store network (excluding the impact of store sales and closures)
was $0.4 million in the fourth quarter of 2014 compared with the fourth quarter of 2013. Same store sales
growth excluding the impact of easyfinancial was 2.6% in the quarter.
• The acquisition of leasing portfolios in the quarter which were merged with existing stores resulted
in an additional $0.2 million of revenue in the quarter compared with the comparable period of 2013.
• Growth in the franchise network, both from consolidated franchise locations and fees generated from
unconsolidated franchises, contributed to $0.2 million of revenue growth.
• Revenue gains were offset by store closures and sales which occurred during the past 15 months
(net of the transfer of portfolios to nearby locations) resulting in a $1.2 million decline in revenue.
easyfinancial – Revenue for the three month period ended December 31, 2014 was $30.7 million, an increase of
$12.6 million or 70.0% from the comparable period in 2013. The increase was due to the growth of the consumer
loans receivable portfolio, which increased from $110.7 million as at December 31, 2013 to $192.2 million as at
December 31, 2014, an increase of $81.5 million or 73.6%. The gross consumer loans receivable portfolio grew by
$26.5 million in the quarter as compared with growth of $17.9 million for the fourth quarter of 2013. Loan originations
were also strong in the quarter at $74.2 million, up 44.8% compared with the fourth quarter of 2013.
Total Operating Expenses before Depreciation and Amortization (and Restructuring and Other Items)
Total operating expenses before depreciation and amortization and restructuring and other items were $45.2 million
for the three month period ended December 31, 2014, an increase of $8.5 million or 23.2% from the comparable period
in 2013. The increase in operating expenses was driven primarily by the higher costs associated with the expanding
easyfinancial business as well as higher corporate costs. Total operating expenses before depreciation and amortization
and restructuring and other items represented 64.6% of revenue for the fourth quarter of 2014 compared with 63.5% for
the fourth quarter of 2013.
easyhome Leasing – Total operating expenses before depreciation and amortization for the three month period ended
December 31, 2014 was $19.9 million, a decrease of $0.4 million or 2.2% from the comparable period in 2013. Increased store
level costs were more than offset by cost reductions associated with closed or sold locations and reduced marketing and
advertising spend. Consolidated leasing store count declined from 182 as at December 31, 2013 to 169 at December 31, 2014.
easyfinancial – Total operating expenses before depreciation and amortization were $19.0 million for the fourth quarter of
2014, an increase of $7.7 million or 68.0% from the comparable period in 2013. Operating expenses, excluding bad debt,
increased by $5.4 million or 78.6% in the quarter driven by: i) $0.8 million in additional advertising and marketing costs to
support the strong growth in the consumer loans receivable portfolio, ii) the increased costs associated with 35 additional
branches when compared to December 31, 2013 and the shift towards higher capacity stand alone branches, iii) higher
costs associated with easyfinancial’s shared service centre and iv) incremental expenditures to develop new distribution
38 | easyhome Ltd.
channels and manage the growing branch network. Overall, branch count increased from 119 as at December 31, 2013 to
154 as at December 31, 2014. Additionally, stand-alone branches increased from 53 as at December 31, 2013 to 89 as at
December 31, 2014.
Bad debt expense increased to $6.8 million for the fourth quarter of 2014 from $4.4 million during the comparable period
in 2013, up $2.4 million or 51.8%. The relative increase in bad debt expense trailed the growth of the consumer loans
receivable portfolio which grew by 73.6% over the past 12 months. Bad debt expense expressed as a percentage of
easyfinancial revenue, was 22.0% for the fourth quarter of 2014, down from the 24.6% reported for the fourth quarter of
2013. Similarly, net charge-offs as a percentage of the average gross consumer loans receivable on an annualized basis
improved from 13.2% reported in the fourth quarter of 2013 to 11.3% in the current quarter. During the fourth quarter of
2014, the Company sold certain previously charged off accounts for total proceeds of $0.9 million which has been included
in the net charge offs. Excluding these proceeds, net charge offs as a percentage of the average gross consumer loans
receivable on an annualized basis was 13.2%.
Corporate – Total operating expenses before depreciation and amortization and restructuring and other items was $6.3 million
for the fourth quarter of 2014 compared to $5.0 million in the fourth quarter of 2013, an increase of $1.3 million or 25.8%.
The increase related primarily to higher accrued incentive compensation expenses as well as higher salaries, information
technology and other administrative costs. The increase in accrued incentive compensation expenses was driven by the
strong financial performance of the business which exceeded internal targets. Similarly, stock based compensation expense
increased by $0.4 million in the quarter driven by the increased vesting of share based units due to the strong financial
performance partially offset by the impact on stock based compensation expense of the share price declining by 11.7% in the
quarter. Corporate expenses before depreciation and amortization and restructuring and other items represented 9.0% of
revenue in the fourth quarter of 2014 as compared to 8.7% of revenue in the fourth quarter of 2013.
Restructuring and other items – During the fourth quarter of 2014, the Company decided to wind down its operations in the
U.S. and focus on the Canadian marketplace. This wind down involved the sale of the Company’s rights to future royalty
payments from its franchisees, the recognition of impairment provisions against certain intangible assets and property and
equipment located in the U.S. and the recording of other restructuring charges which consisted of provisions for onerous
leases, severance and other charges. For the quarter ended December 31, 2014, a net credit of $1.2 million was recorded
as restructuring and other charges within operating income. No further related charges are expected in future periods.
Depreciation and Amortization
Depreciation and amortization for the three month period ended December 31, 2014 was $14.5 million, up $0.9 million or
6.6% from the comparable period in 2013. The increase was attributable to the growing easyfinancial branch network, the
amortization of new easyfinancial systems as well as higher depreciation and amortization within the leasing business.
Leasing depreciation and amortization as a percentage of leasing revenue for the quarter was 33.8%, up from 32.2% in
the fourth quarter of 2013. The increased depreciation rate was due to a combination of decreasing average lease terms,
particularly on used inventory, and increased product costs not passed on to customers.
Overall depreciation and amortization represented 20.7% of revenue for the three months ended December 31, 2014, down
from 23.5% in the comparable period of 2013.
2014 Annual Report | 39
Operating Income (Income before Finance Costs and Income Taxes)
Operating income for the three month period ended December 31, 2014 was $11.5 million compared to $7.5 million for
the comparable period in 2013, an increase of $4.0 million or 53.7%. Overall operating margin for the quarter was 16.5%,
up from the 13.0% reported in the fourth quarter of 2013. Excluding restructuring and other items, adjusted operating
earnings for the quarter was $10.3 million, up $2.8 million or 37.4% compared with the fourth quarter of 2013. Adjusted
operating margin was 14.7% for the quarter, up from 13.0% in the fourth quarter of 2013.
easyhome Leasing – Operating income was $6.1 million for the fourth quarter of 2014, down $0.5 million or 6.9% when
compared with the fourth quarter of 2013. The decline in operating income was the result of store sales or closures
during the past 15 months which reduced operating income by $0.2 million and increases to operating expenses and
lease asset depreciation which more than offset the organic increase in revenue. Operating margin for the fourth quarter
of 2014 was 15.4%, down from 16.4% reported in the fourth quarter of 2013.
easyfinancial – Operating income was $10.7 million for the fourth quarter of 2014 compared with $6.2 million for the
comparable period in 2013, an increase of $4.5 million or 74.3%. The growth in operating income was driven primarily
by the growth of the consumer loans receivable portfolio. Operating margin for the fourth quarter of 2014 was 35.0%
compared with 34.1% in the comparable period of 2013.
Finance Costs
Finance costs for the three month period ended December 31, 2014 were $2.9 million, up $1.5 million from the same
period in 2013. This increase in finance costs was driven by higher average borrowing levels.
Income Tax Expense
The effective income tax rate for the fourth quarter of 2014 was 17.6% compared to 28.9% in the fourth quarter of 2013.
During the fourth quarter of 2014, the Company decided to wind down its operations in the U.S. which involved the
sale of the Company’s rights to future royalty payments from its U.S. franchisees. This resulted in a gain on sale in the
Company’s U.S. subsidiary which had adequate tax loss carryforwards to eliminate any tax payable on the transaction
thus resulting in a low effective income tax rate in the quarter.
Net Income and EPS
Net income for the fourth quarter of 2014 was $7.1 million or $0.51 per share on a diluted basis compared with $4.3 million
or $0.33 per share in the fourth quarter of 2013, an increase of $2.8 million and $0.18 respectively. Excluding the impact
of restructuring and other items, adjusted earnings for the fourth quarter of 2014 was $6.0 million or $0.43 per share on
a diluted basis.
40 | easyhome Ltd.
Selected Quarterly Information
($ in millions except per share amounts
and percentages)
Revenue
Net income for the period
Net income as a percentage
of revenue
Earnings per Share1
Basic
Diluted
Dec.
2014
70.0
7.1
Sept.
2014
65.5
3.5
Jun.
2014
63.2
4.5
Mar.
2014
60.3
4.6
Dec.
2013
57.8
4.3
Sept.
2013
54.9
3.8
Jun.
2013
53.8
3.1
Mar.
2013
52.4
2.9
Dec.
2012
51.7
3.8
10.2%
5.3%
7.2%
7.7%
7.5%
6.8%
5.8%
5.6%
7.3%
0.53
0.51
0.26
0.25
0.34
0.33
0.35
0.34
0.34
0.33
0.32
0.31
0.26
0.26
0.24
0.24
0.32
0.31
1Quarterly earnings per share are not additive and may not equal the annual earnings per share reported. This is due to the effect of stock issued during the year on the basic weighted average
number of common shares outstanding together with the effects of rounding.
Portfolio Analysis
The Company generates its revenue from a portfolio of lease agreements and consumer loans receivable that are originated
through the initial transaction with its customers. To a large extent, the business results for a period are determined by the
performance of these portfolios and the make-up of the portfolios at the end of a period are an important indicator of future
business results.
The Company measures the performance of its portfolios during a period and their make-up at the end of a period using a
number of key portfolio indicators as described in more detail below. Several of these key performance indicators are not
measurements in accordance with IFRS and should not be considered as an alternative to net income or any other measure of
performance under IFRS.
The discussion in this section refers to certain financial measures that are not determined in accordance with IFRS. Although
these measures do not have standardized meanings and may not be comparable to similar measures presented by other
companies, these measures are defined herein or can be determined by reference to the Company’s financial statements. The
Company discusses these measures because it believes that they facilitate the understanding of the results of its operations
and financial position.
2014 Annual Report | 41
easyhome Leasing Portfolio Analysis
Potential Monthly Leasing Revenue
The Company measures its leasing portfolio through potential monthly lease revenue. Potential monthly lease revenue
reflects the revenue that the Company’s portfolio of leased merchandise would generate in a month providing it collected
all lease payments due in that period. Growth in potential monthly lease revenue is driven by several factors including
an increased number of customers, an increased number of leased assets per customer as well as an increase in the
average price of the leased items.
The change in the potential monthly lease revenue during the periods were as follows:
Three Months Ended
Year Ended
($ in 000’s)
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2014
Dec. 31, 2013
Opening potential monthly lease revenue
10,655
10,843
11,430
11,634
Change due to store openings or acquisitions during the period
Change due to store closures or sales during the period
Change due to ongoing operations
Net change
73
(366)
593
300
26
(101)
662
587
104
(722)
143
(475)
26
(473)
243
(204)
Ending potential monthly lease revenue
10,955
11,430
10,955
11,430
easyhome Leasing Portfolio by Product Category
At the end of the periods, the Company’s leasing portfolio as measured by potential monthly lease revenue was allocated
between the following product categories:
($ in 000’s)
Furniture
Appliances
Electronics
Computers
Potential monthly lease revenue
Year Ended
Dec. 31, 2014
Dec. 31, 2013
4,191
1,196
3,706
1,862
10,955
4,247
1,298
3,729
2,156
11,430
42 | easyhome Ltd.
easyhome Leasing Portfolio by Geography
At the end of the periods, the Company’s Leasing portfolio as measured by potential monthly lease revenue was allocated
between the following geographic regions:
($ in 000’s except percentages)
Newfoundland & Labrador
Nova Scotia
Prince Edward Island
New Brunswick
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
USA
December 31, 2014
December 31, 2013
$
944
864
202
734
571
3,956
265
728
1,430
953
308
% of total
8.6%
7.9%
1.8%
6.7%
5.2%
36.1%
2.4%
6.7%
13.1%
8.7%
2.8%
$
954
934
197
739
541
4,085
283
709
1,411
1,066
511
% of total
8.3%
8.2%
1.7%
6.5%
4.7%
35.7%
2.5%
6.2%
12.3%
9.4%
4.5%
Potential monthly lease revenue
10,955
100.0%
11,430
100.0%
easyhome Leasing Charge-Offs
When easyhome Leasing enters into a leasing transaction with a customer, a sale is not recorded as easyhome retains
ownership of the related asset under the lease. Instead, the Company recognizes its leasing revenue over the term of
the lease as payments are received from the customer. Periodically, the lease agreement is terminated by the customer
or by the Company prior to the anticipated end date of the lease and the assets are returned by the customer to the
possession of the Company. In some instances, the Company is unable to regain possession of the assets and so the
asset must be charged off. Net charge offs (charge offs less subsequent recoveries of previously charged off assets) are
included in the depreciation of lease assets expense for financial reporting purposes.
($ in 000’s except percentages)
Net charge offs
Leasing revenue
Net charge offs as a percentage of easyhome Leasing revenue
Three Months Ended
Year Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2014
Dec. 31, 2013
1,633
39,370
4.1%
1,411
39,742
3.6%
5,145
158,322
3.2%
4,976
160,296
3.1%
2014 Annual Report | 43
Consumer Loans Receivable Portfolio Analysis
Loan Originations and Net Principal Written
Gross loan originations is the value of all consumer loans receivable advanced to the Company’s customers during
the period where new credit underwritings have been performed. Included in gross loan originations are loans to new
customers and new loans to existing customers, a portion of which is applied to eliminate their prior borrowings. Net
principal written details the Company’s gross loan originations during a period, excluding that portion of the originations
that has been used to eliminate the prior borrowings. The gross loans originations and net principal written during the
period were as follows:
($ in 000’s)
Loan originations to new customers
Loan originations to existing customers
Less: Proceeds applied to repay existing loans
Net advance to existing customers
Net principal written
Gross Consumer Loans Receivable
Three Months Ended
Year Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2014
Dec. 31, 2013
33,011
41,187
(21,091)
20,096
53,107
19,857
31,385
(16,122)
15,263
35,120
104,194
129,611
(63,243)
66,368
170,562
60,130
81,878
(39,629)
42,249
102,379
The measure that the Company uses to measure its easyfinancial portfolio is gross consumer loans receivable. Gross
consumer loans receivable reflects the period end balance of the portfolio before provisioning for potential future
charge-offs. Growth in gross consumer loans receivable is driven by several factors including an increased number of
customers and an increased loan value per customer.
The changes in the gross consumer loans receivable portfolio during the periods were as follows:
Three Months Ended
Year Ended
($ in 000’s)
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2014
Dec. 31, 2013
Opening gross consumer loans receivable
Gross loan originations
Gross principal payments and other adjustments
Gross charge offs before recoveries
Net growth in gross consumer loans receivable during the period
Ending gross consumer loans receivable
165,720
74,198
(41,047)
(6,646)
26,505
192,225
92,792
51,242
110,704
233,805
(29,808)
(130,682)
(3,522)
17,912
110,704
(21,602)
81,521
192,225
70,658
142,008
(89,153)
(12,809)
40,046
110,704
44 | easyhome Ltd.
Net Charge Offs
In addition to loan originations, the consumer loans receivable portfolio during a period is impacted by charge offs
of delinquent customers. The Company charges off delinquent customers when they are 90 days contractually in
arrears. Subsequent collections of previously charged off accounts are netted with charge offs during a period to
arrive at net charge offs.
Net charge-offs are actual loans charged off net of recoveries. Average gross consumer loans receivable has been
calculated based on the average of the month end loan balances for the indicated period. This metric is a measure of the
collection performance of the easyfinancial consumer loans receivable portfolio. For interim periods, the rate is annualized.
($ in 000’s except percentages)
Net charge offs
Average gross consumer loans receivable
Net charge offs as a percentage of average gross
consumer loans receivable (annualized)
easyfinancial Bad Debt Expenses
Three Months Ended
Year Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2014
Dec. 31, 2013
5,167
182,548
3,414
103,537
19,500
149,615
11.3%
13.2%
13.0%
12,106
86,968
13.9%
The Company’s bad debt expense for a period includes the net charge offs for that particular period plus any increases
or decreases to its allowance for loan losses.
The details of the Company’s bad debt expense for the period were as follows:
($ in 000’s except percentages)
Net charge offs
Net change in allowance for loan losses
Bad debt expense
easyfinancial revenue
Bad debt expense as a percentage of easyfinancial revenue
Three Months Ended
Year Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2014
Dec. 31, 2013
5,167
1,590
6,757
30,672
22.0%
3,414
1,032
4,449
18,054
24.6%
19,500
4,764
24,264
100,828
24.1%
12,106
2,694
14,800
58,518
25.3%
2014 Annual Report | 45
easyfinancial Allowance for Loan Losses
The allowance for loan losses is a provision that is reported on the Company’s balance sheet that is netted against the gross
consumer loans receivable to arrive at the net consumer loans receivable. The allowance for loan losses provides for a
portion of the future charge offs that have not yet occurred within the portfolio of consumer loans receivable that exist at the
end of a period. It is determined by the Company using a standard calculation that is not subject to management’s discretion
or estimates that considers i) the relative maturity of the loans within the portfolio, ii) the long-term expected charge off rates
based on actual historical performance and iii) the long-term expected charge off pattern (timing) for a vintage of loans over
their life based on actual historical performance. The allowance for loan losses essentially estimates the charge offs that are
expect to occur over the subsequent five month period for loans that existed as of the balance sheet date.
($ in 000’s except percentages)
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2014
Dec. 31, 2013
Three Months Ended
Year Ended
Allowance for loan losses, beginning of period
Net charge offs written off against the allowance
Change in allowance due to lending and collection activities
Allowance for loan losses, ending of period
Allowance for loan losses as a percentage of the ending
gross consumer loans receivable
Aging of the Consumer Loans Receivable Portfolio
9,941
(5,166)
6,757
11,532
6.0%
5,736
(3,417)
4,449
6,768
6.1%
6,768
(19,500)
24,264
11,532
4,074
(12,106)
14,800
6,768
6.0%
6.1%
An aging analysis of the consumer loans receivable portfolio at the end of the periods is as follows:
December 31, 2014
December 31, 2013
$
% of total
$
% of total
178,590
92.9%
102,588
92.7%
9,004
1,505
1,273
1,853
13,635
192,225
4.7%
0.8%
0.7%
0.9%
7.1%
5,445
811
855
1,005
8,116
100.0%
110,704
4.9%
0.7%
0.8%
0.9%
7.3%
100%
($ in 000’s except percentages)
Current
Days past due
1 – 30 days
31 – 44 days
45 – 60 days
61 – 90 days
Gross consumer loans receivable
46 | easyhome Ltd.
easyfinancial Consumer Loans Receivable Portfolio by Geography
At the end of the periods, the Company’s easyfinancial consumer loans receivable portfolio was allocated between the
following geographic regions:
($ in 000’s except percentages)
Newfoundland & Labrador
Nova Scotia
Prince Edward Island
New Brunswick
Quebec
Ontario
Manitoba
Saskatchewan
Alberta
British Columbia
Territories
December 31, 2014
December 31, 2013
$
% of total
$
% of total
11,773
18,715
2,757
12,115
–
84,393
6,826
9,567
24,872
19,600
1,607
6.1%
9.7%
1.4%
6.3%
–
43.9%
3.7%
5.0%
12.9%
10.2%
0.8%
8,301
13,771
2,067
6,875
–
47,034
3,782
5,387
12,666
10,444
377
7.5%
12.4%
1.9%
6.2%
–
42.6%
3.4%
4.9%
11.4%
9.4%
0.3%
Gross consumer loans receivable
192,225
100.0%
110,704
100.0%
Key Performance Indicators and Non-IFRS Measures
In addition to the reported financial results under IFRS and the metrics described in the Portfolio Analysis section of
this MD&A, the Company also measures the success of its strategy using a number of key performance indicators as
described in more detail below. Several of these key performance indicators are not measurements in accordance with
IFRS and should not be considered as an alternative to net income or any other measure of performance under IFRS.
The discussion in this section refers to certain financial measures that are not determined in accordance with IFRS. Although
these measures do not have standardized meanings and may not be comparable to similar measures presented by other
companies, these measures are defined herein or can be determined by reference to the Company’s financial statements.
The Company discusses these measures because it believes that they facilitate the understanding of the results of its
operations and financial position.
2014 Annual Report | 47
Several non-IFRS measures that are used throughout this discussion are defined as follows:
Same Store Revenue Growth
Same store revenue growth measures the revenue growth for all stores that have been open for a minimum of 15 months.
To calculate same store revenue growth for a period, the revenue for that period is compared to the same period
in the prior year. Same store revenue growth is influenced by both the Company’s product offerings as well as the
number of stores which have been open for a 12-36 month time frame, as these stores tend to be in the strongest
period of growth at this time.
($ in 000’s except percentages)
Same store revenue growth
Same store revenue growth excluding easyfinancial
Three Months Ended
Year Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2014
Dec. 31, 2013
20.8%
2.6%
20.3%
6.8%
19.6%
2.6%
17.7%
7.3%
Operating Margin, Adjusted Operating Earnings, Adjusted Operating Margin, Adjusted Earnings,
Adjusted Earnings Per Share
At various times, operating income, operating margin, net income and earnings per share may be affected by unusual
items which have occurred in the period and which impact the comparability of these measures with other periods.
The Company defines operating margin as operating income divided by revenue. Items are considered unusual if
they are outside of normal business activities, significant in amount and scope and are not expected to occur on a
recurring basis. The Company defines i) adjusted operating earnings as operating income excluding such unusual
and non-recurring items, ii) adjusted earnings as net income excluding such items and iii) adjusted earnings per
share as diluted earnings per share excluding such items. The Company believes that adjusted operating earnings,
adjusted earnings and adjusted earnings per share are important measures of the profitability of operations adjusted
for the effects of unusual items.
48 | easyhome Ltd.
Items which can be used to adjust operating income, net income and earnings per share for the three months and years
ended December 31, 2014 and 2013 include those indicated in the chart below:
($ in 000’s except earnings per share)
Operating margin
Operating income as stated
Divided by revenue
Operating margin
Adjusted operating margin
Operating income as stated
Restructuring and other items included in operating expenses1
Adjusted operating earnings
Divided by revenue
Adjusted operating margin
Adjusted earnings and adjusted earnings per share
Net income as stated
Restructuring and other items included in operating expenses1
Tax impact of above items
After tax impact
Adjusted earnings
Weighted average number of shares outstanding
Diluted earnings per share as stated
Per share impact of restructuring and other items
Adjusted earnings per share
Three Months Ended
Year Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2014
Dec. 31, 2013
11,542
70,042
16.5%
11,542
(1,225)
10,317
70,042
14.7%
7,112
(1,225)
77
(1,148)
5,964
14,002
0.51
0.08
0.43
7,509
57,796
13.0%
7,509
–
7,509
57,796
13.0%
4,336
–
–
–
4,336
13,094
0.33
–
0.33
34,593
259,150
13.3%
34,593
(1,225)
33,368
259,150
12.9%
19,748
(1,225)
77
(1,148)
18,600
13,944
1.42
0.08
1.34
24,965
218,814
11.4%
24,965
–
24,965
218,814
11.4%
14,182
–
–
–
14,182
12,309
1.15
–
1.15
1During the fourth quarter of 2014, the Company decided to wind down its operations in the U.S. and focus on the Canadian marketplace. This wind down involved the sale of the Company’s rights
to future royalty payments from its franchisees, the recognition of impairment provisions against certain intangible assets and property and equipment located in the U.S. and the recording
of other restructuring charges which consisted of provisions for onerous leases, severance and other charges. For the year ended December 31, 2014, a net credit of $1,225 was recorded as
restructuring and other charges within operating income. No further related charges are expected in future periods.
2014 Annual Report | 49
Operating Expenses Before Depreciation and Amortization
The Company defines operating expenses before depreciation and amortization as total operating expenses excluding
depreciation and amortization expenses for the period. The Company believes that operating expenses before
depreciation and amortization is an important measure of the cost of operations adjusted for the effects of purchasing
decisions that may have been made in prior periods.
($ in 000’s except percentages)
Operating expenses before depreciation and amortization as stated
Restructuring charges and other items included in operating expenses
Adjusted operating expenses before depreciation and amortization
Divided by revenue
Operating expenses before depreciation and amortization as % of revenue
($ in 000’s except percentages)
Operating expenses before depreciation and amortization as stated
Restructuring charges and other items included in operating expenses
Adjusted operating expenses before depreciation and amortization
Divided by revenue
Operating expenses before depreciation and amortization as % of revenue
Three Months Ended
Dec. 31, 2014
Dec. 31, 2014
(adjusted)
Dec. 31, 2013
44,024
–
44,024
70,042
62.9%
44,024
1,225
45,249
70,042
64.6%
36,708
–
36,708
57,796
63.5%
Dec. 31, 2014
Year Ended
Dec. 31, 2014
(adjusted)
Dec. 31, 2013
167,916
–
167,916
259,150
64.8%
167,916
1,225
169,141
259,150
65.3%
140,137
–
140,137
218,814
64.0%
50 | easyhome Ltd.
Operating Margin
The Company defines operating margin as operating income divided by revenue for the Company as a whole and for
its operating segments: easyhome Leasing and easyfinancial. The Company believes operating margin is an important
measure of the profitability of its operations which in turn, assists it in assessing the Company’s ability to generate
cash to pay interest on its debt and to pay dividends.
($ in 000’s except percentages)
easyhome Leasing
Operating income
Divided by revenue
easyhome Leasing operating margin
easyfinancial
Operating income
Divided by revenue
easyfinancial operating margin
Total
Operating income
Divided by revenue
Total operating margin
Total (adjusted)
Operating income as stated
Restructuring and other items included in operating expenses
Adjusted operating earnings
Divided by revenue
Total (adjusted) operating margin
Three Months Ended
Year Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2014
Dec. 31, 2013
6,082
39,370
15.4%
10,732
30,672
35.0%
11,542
70,042
16.5%
11,542
(1,225)
10,317
70,042
14.7%
6,536
39,742
16.4%
6,158
18,054
34.1%
7,509
57,796
13.0%
7,509
–
7,509
57,796
13.0%
24,306
158,322
15.4%
33,006
100,828
32.7%
34,593
259,150
13.3%
34,593
(1,225)
33,368
259,150
12.9%
26,308
160,296
16.4%
18,165
58,518
31.0%
24,965
218,814
11.4%
24,965
–
24,965
218,814
11.4%
2014 Annual Report | 51
Earnings before Interest, Taxes, Depreciation and Amortization [“EBITDA”] and EBITDA Margin
The Company defines EBITDA as earnings before interest, taxes, depreciation and amortization, excluding depreciation
of lease assets. The Company uses EBITDA, among other measures, to assess the operating performance of its ongoing
businesses. EBITDA margin is calculated as EBITDA divided by revenue.
($ in 000’s except percentages)
Net income as stated
Finance costs
Income Tax Expense
Depreciation and amortization, excluding dep. of lease assets
EBITDA
Restructuring and other items included in operating expenses
Adjusted EBITDA
Divided by revenue
EBITDA margin
($ in 000’s except percentages)
Net income as stated
Finance costs
Income Tax Expense
Depreciation and amortization, excluding dep. of lease assets
EBITDA
Restructuring and other items included in operating expenses
Adjusted EBITDA
Divided by revenue
EBITDA margin
Three Months Ended
Dec. 31, 2014
Dec. 31, 2014
(adjusted)
Dec. 31, 2013
7,112
2,907
1,523
1,976
13,518
–
13,518
70,042
19.3%
7,112
2,907
1,523
1,976
13,518
(1,225)
12,293
70,042
17.6%
Dec. 31, 2014
Year Ended
Dec. 31, 2014
(adjusted)
19,748
19,748
8,800
6,045
7,216
41,809
–
41,809
259,150
16.1%
8,800
6,045
7,216
41,809
(1,225)
40,584
259,150
15.7%
4,336
1,414
1,759
1,421
8,930
–
8,930
57,796
15.5%
Dec. 31, 2013
14,182
5,638
5,145
5,634
30,599
–
30,599
218,814
14.0%
52 | easyhome Ltd.
Return on Equity
The Company defines return on equity as annualized net income in the period divided by average shareholders’ equity for
the period. The Company believes return on equity is an important measure of how shareholders’ invested capital is
utilized in the business.
($ in 000’s except percentages)
Net income as stated
Restructuring and other items included in operating expenses
Tax impact of above items
After tax impact
Adjusted earnings
Multiplied by number of periods in year
Divided by average shareholders' equity for the period
Return on equity
($ in 000’s except percentages)
Net income as stated
Restructuring and other items included in operating expenses
Tax impact of above items
After tax impact
Adjusted net income
Divided by average shareholders' equity for the period
Return on equity
Three Months Ended
Dec. 31, 2014
Dec. 31, 2014
(adjusted)
Dec. 31, 2013
7,112
–
–
–
7,112
X 4/1
150,561
18.9%
Dec. 31, 2014
19,748
–
–
–
19,748
144,110
13.7%
7,112
(1,225)
77
(1,148)
5,964
X 4/1
150,561
15.8%
Year Ended
Dec. 31, 2014
(adjusted)
19,748
(1,225)
77
(1,148)
18,600
144,110
12.9%
4,336
–
–
–
4,336
X 4/1
124,216
14.0%
Dec. 31, 2013
14,182
–
–
–
14,182
114,071
12.4%
2014 Annual Report | 53
Financial Condition
The following table provides a summary of certain information with respect to the Company’s capitalization and financial
position as at December 31, 2014 and December 31, 2013.
($ in 000’s except for ratios)
Total assets
External debt (includes term loan)
Other liabilities
Total liabilities
Shareholders’ equity
Total capitalization (total debt plus total shareholders’ equity)
External debt to shareholders’ equity
External debt to total capitalization
External debt to EBITDA
Dec. 31, 2014
Dec. 31, 2013
319,472
121,597
43,907
165,504
153,968
275,565
0.79
0.44
2.91
232,900
61,374
35,893
97,267
135,633
197,007
0.45
0.31
2.01
Total assets were $319.5 million as at December 31, 2014, an increase of $86.6 million or 37.2% over December 31, 2013.
The growth in total assets was driven primarily by: i) the increased size of the net consumer loans receivable portfolio
which increased by $76.8 million over the past 12 months, ii) the Company’s investment in property and equipment
(specifically stand-alone easyfinancial locations) and intangible assets (specifically systems to support easyfinancial)
which collectively increased by $2.6 million and iii) a $9.3 million increase in amounts receivable which included $4.4
million of proceeds related to the sale of the Company’s U.S. royalty rights which were received after December 31, 2014.
The $86.6 million growth in total assets was financed by a $68.2 million increase in total liabilities, including a $60.2
million increase in external debt, and a $18.4 million increase in total shareholder’s equity. Although the Company has
continued to maintain its dividend payments to its shareholders, a large portion of the Company’s earnings over the
prior 12 months have been retained to fund the growth of easyfinancial.
On July 28, 2014, the Company entered into a new $200 million credit facility which replaced the Company’s previous
debt facilities. The new credit facility, which expires on October 4, 2018, is comprised of a $180 million term loan and a
$20 million revolving operating facility. $105 million of the term loan was drawn at closing with the balance available
in periodic advances until July 31, 2015. As at December 31, 2014, $125 million had been drawn under the term loan.
Borrowings under the term loan bear interest at the Canadian Bankers’ Acceptance rate plus 722 bps. Borrowing under
the revolving operating facility bears interest at the lender’s prime rate plus 200 to 300 bps, depending on the Company’s
debt to EBITDA ratio. The new credit facility is secured by a first charge over substantially all assets of the Company.
As at December 31, 2014, the Company’s interest rate under the term loan credit facility and revolving operating facility
were 8.50% and 5.00%, respectively.
54 | easyhome Ltd.
Liquidity and Capital Resources
Summary of Cash Flow Components
($ in 000’s)
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2014
Dec. 31, 2013
Three Months Ended
Year Ended
Cash provided by operating activities before issuance
of consumer loans receivable
Net issuance of consumer loans receivable
Cash (used in) provided by operating activities
Cash used in investing activities
Financing activities
Net increase (decrease) in cash for the period
17,385
22,276
94,077
70,989
(31,671)
(14,286)
(11,357)
20,752
(4,891)
(21,329)
(101,021)
947
(21,162)
20,741
526
(6,944)
(50,290)
56,070
(1,164)
(52,152)
18,837
(57,880)
36,741
(2,302)
Cash flows used in operating activities for the three month period ended December 31, 2014 were $14.3 million. Included in
this amount was a net investment of $31.7 million to increase the easyfinancial consumer loans receivable portfolio. If this
net investment in the easyfinancial consumer loans receivable portfolio was treated as cash flows from investing activities,
the cash flows generated by operating activities would be $17.4 million in the fourth quarter of 2014, down $4.9 million
compared to the fourth quarter of 2013. While net income increased significantly in the quarter compared to the fourth
quarter of 2013, this impact on cash flow was more than offset by the Company’s increased investment in working capital.
Cash flows provided by operating activities in the fourth quarter of 2014 enabled the Company to: i) meet the growth
demands of easyfinancial as described above, ii) invest $15.7 million in new lease assets, iii) invest $3.2 million in
additional property and equipment and intangible assets and iv) maintain its dividend payments.
During the quarter the Company generated $20.8 million in cash flow from financing activities as the Company increased
its debt under its credit facility to finance the growth of easyfinancial.
Cash flows provided by operating activities for the year ended December 31, 2014 were $6.9 million. Included in this
amount was a net investment of $101.0 million to increase the easyfinancial consumer loans receivable portfolio. If
this net investment in the easyfinancial consumer loans receivable portfolio was treated as cash flows from investing
activities, the cash flows generated by operating activities would be $94.1 million in the year, up $23.1 million as
compared to 2013. This increase in cash flow was driven by higher income, a reduction in working capital balances and
higher non-cash expenses.
Cash flows provided by operating activities in 2014 enabled the Company to: i) meet the growth demands of easyfinancial
as described above, ii) invest $49.1 million in new lease assets, iii) invest $12.3 million in additional property and equipment
and intangible assets (primarily new easyfinancial branches and systems) and iv) maintain its dividend payments.
During 2014, the Company generated $56.1 million in cash flow from financing activities.
The Company believes that the cash flows provided by operations will be sufficient in the near-term to meet operational
requirements, purchase lease assets, meet capital spending requirements and pay dividends. Also, the additional
availability under the Company’s credit facilities will allow the Company to grow its consumer loans receivable portfolio
through much of 2015. However, for easyfinancial to achieve its full long-term growth potential, additional sources of
financing over and above the currently available credit facility and term loan are required. There is no certainty that
these long term sources of capital will be available or at terms favourable to the Company.
2014 Annual Report | 55
Outstanding Shares and Dividends
As at February 18, 2015 there were 13,331,166 shares, 138,069 DSUs, 601,462 options, 560,930 RSUs, and no warrants
outstanding.
For the quarter ended December 31, 2014, the Company paid a $0.085 per share quarterly dividend on outstanding
common shares. The Company reviews its dividend distribution policy on a regular basis, evaluating its financial position,
profitability, cash flow and other factors the Board of Directors considers relevant. No dividends may be declared in the
event there is a default of the loan facility, or where such payment would lead to a default.
The following table sets forth the quarterly dividends paid by the Company in the fourth quarter of the years indicated:
Dividend per share
Percentage increase
2014
$ 0.085
0.0%
2013
$ 0.085
0.0%
2012
$ 0.085
0.0%
2011
$ 0.085
0.0%
2010
$ 0.085
0.0%
2009
$ 0.085
0.0%
2008
$ 0.085
21.4%
Commitments, Guarantees and Contingencies
Commitments
The Company is committed to long-term service contracts and operating leases for premises, equipment, vehicles and
signage. The minimum annual lease payments plus estimated operating costs and other commitments required for the
next 5 years and thereafter are as follows:
($ in 000’s)
Premises
Other operating lease obligations
Other
Total contractual obligations
Contingencies
Within 1 year
After 1 year
but not more
than 5 years
More than
5 years
25,990
1,065
7,280
34,335
44,948
1,615
10,250
56,813
2,689
26
–
2,715
The Company is involved in various legal matters arising in the ordinary course of business. The resolution of these matters
is not expected to have a material adverse effect on the Company’s financial position, financial performance or cash flows.
The Company has agreed to indemnify its directors and officers and particular employees in accordance with the
Company’s policies. The Company maintains insurance policies that may provide coverage against certain claims.
56 | easyhome Ltd.
Risk Factors
Overview
The Company’s activities are exposed to a variety of commercial, operational, financial and regulatory risks. The
Company’s overall risk management program focuses on the unpredictability of financial and economic markets and
seeks to minimize potential adverse effects on the Company’s financial performance. The Company’s Board of Directors
has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Audit
Committee of the Board of Directors reviews the Company’s risk management policies on an annual basis.
Commercial Risks
Dependence on Key Personnel
One of the significant limiting factors in the Company’s performance and expansion plans will be the hiring and retention
of the best people for the job. Over the past few years, the Company has improved its hiring competencies and its
training programs.
In particular, the Company is dependent on the abilities, experiences and efforts of its senior management team and
other key employees. The loss of these individuals without adequate replacement could materially adversely affect its
business and operations.
As a consequence of its growth strategy and relatively high employee turnover at the store and branch level, the
Company requires a growing number of qualified managers and other store or branch personnel to operate its retail
locations successfully. There is competition for such personnel and there can be no assurances that the Company will
be successful in attracting and retaining such personnel as it may require. If the Company is unable to attract and retain
qualified personnel or its costs to do so increase dramatically, its operations would be materially adversely affected.
Competition
easyhome Leasing – Competition from U.S. based merchandise leasing companies and others in the Canadian market
will increase the competition for customers and employees. Although the Company believes that such competition
will stimulate rent to own industry growth, this increased competition could have a material adverse effect on the
Company’s operational results should the Company not be able to adequately respond to it. Other factors that may
adversely affect the performance of the Leasing business are further competition from merchandise rental businesses
and, to a lesser extent, rental stores that do not offer a purchase option. The Company also competes with discount
stores and other retail outlets that offer an installment sales program or offer a financing transaction to facilitate
the purchase of consumer merchandise. Furthermore, additional competitors, both domestic and international, may
emerge since barriers to entry are relatively low.
easyfinancial – The Company’s financial services business occupies a market niche between traditional financial institutions and
short-term payday lenders. As such, it competes with companies from each of these sectors. Competition is based primarily
on access, flexibility and cost (interest rate). Since the Company’s products are more affordable than payday loans while
being more accessible and flexible than banks, the Company offers alternatives to customers that are not being adequately
served by the incumbent participants in either of these market sectors. Although there may be other, larger companies that
offer products similar to those offered by the Company’s financial services business, the Company believes that the potential
marketplace is sufficiently large enough that such competition will not adversely affect the Company’s operational results
in the near term. Additionally, the large volume of data relating to its customers and related loan performance which the
Company has compiled and uses to create its loan underwriting models forms an effective barrier to entry.
2014 Annual Report | 57
Macroeconomic Conditions
Certain changes in macroeconomic conditions can have a negative impact on the Company’s customers and its
performance. The Company’s chosen customer segment is the cash and credit constrained individual. These customers
are affected by adverse macroeconomic conditions such as higher unemployment rates or costs of living, which can
lower the Company’s collection rates and result in higher loss rates and adversely affect the Company’s performance,
financial condition and liquidity. The Company can neither predict the impact current economic conditions will have on
its future results, nor predict when the economic environment will change.
Litigation
From time to time the Company may be involved in material litigation. There can be no assurance that any litigation
in which the Company may become involved in the future will not have a material adverse effect on the Company’s
business, financial condition or results of operations.
Operational Risks
Operational risk, which is inherent in all business activities, is the potential for loss as a result of external events, human
behaviour (including error and fraud, non-compliance with mandated policies and procedures or other inappropriate
behaviour) or inadequacy, or the failure of processes, procedures or controls. The impact may include financial loss, loss
of reputation, loss of competitive position or regulatory and civil penalties. While operational risk cannot be eliminated,
the Company takes reasonable steps to mitigate this risk by putting in place a system of oversight, policies, procedures
and internal controls.
Strategic Risk
The Company believes it has the correct strategy to address the current market opportunities. The Company’s growth
strategy is focused on easyfinancial. The Company’s ability to increase its customer and revenue base is contingent, in
part, on its ability to secure additional locations for easyfinancial, to grow its consumer loans receivable portfolio, to
access customers through new delivery channels and to execute with efficiency and effectiveness.
Strategic risk is the risk from changes in the business environment, fundamental changes in demand for the Company’s
products or services, improper implementation of decisions, execution of the Company’s strategy or inadequate
responsiveness to changes in the business environment, including changes in the competitive or regulatory landscape.
The impact of poor execution by management or an inadequate response to changes in the business environment could
have a material adverse effect on the Company’s financial condition, liquidity and results of operations.
Credit Risk
Credit risk is the risk of loss that arises when a customer or third party fails to pay an amount owing to the Company.
The maximum exposure to credit risk is represented by the carrying amount of the amounts receivable, consumer loans
receivable and lease assets with customers under merchandise lease agreements. The Company leases products and
makes consumer loans to thousands of customers pursuant to policies and procedures that are intended to ensure that
there is no concentration of credit risk with any particular individual, company or other entity, although the Company is
subject to a higher level of credit risk due to the credit constrained nature of many of the Company’s customers and in
circumstances where its policies and procedures are not complied with.
58 | easyhome Ltd.
For easyhome Leasing, the credit risk related to assets on lease with customers results from the possibility of customer
default with respect to agreed upon payments or in their not returning the leased asset. The Company has a standard
collection process in place in the event of payment default, which concludes with the recovery of the lease asset if
satisfactory payment terms cannot be worked out, as the Company maintains ownership of the lease assets until
payment options are exercised.
For amounts receivable from third parties the risk relates to the possibility of default on amounts owing to the Company.
The Company deals with credible companies, performs ongoing credit evaluations of debtors and creates an allowance
on its financial statements for uncollectible amounts where determined to be appropriate.
The credit risk on the Company’s consumer loans receivable made in accordance with policies and procedures is
impacted by both the Company’s credit policies and the lending practices which are overseen by the Company’s senior
management. Credit quality of the customer is assessed based on a credit rating scorecard and individual credit
limits are defined in accordance with this assessment. The consumer loans receivable are unsecured. The Company
evaluates the concentration of risk with respect to customer loans receivable as low, as its customers are located in
several jurisdictions and operate independently. The Company develops underwriting models based on the historical
performance of groups of customer loans which guide its lending decisions. To the extent that such historical data used
to develop its underwriting models is not representative or predictive of current loan book performance, the Company
could suffer increased loan losses.
The Company maintains an allowance for loan losses (i.e. expected losses that will be incurred in relation to the Company’s
consumer loan’s portfolio). The process for establishing an allowance for loan losses is critical to the Company’s results
of operations and financial conditions. The allowance is determined by the Company using a standard calculation that is
not subject to management’s discretion that considers i) the relative maturity of the loans within the portfolio, ii) the long-
term expected charge off rates based on actual historical performance and iii) the long-term expected charge off pattern
(timing) for a vintage of loans over their life based on actual historical performance. To the extent that such historical data
used to develop its allowance for loans losses is not representative or predictive of current loan book performance, the
Company could suffer increased loan losses above and beyond those provided for on its financial statements.
The Company cannot guarantee that delinquency and loss levels will correspond with the historical levels experienced
and there is a risk that delinquency and loss rates could increase significantly.
Technology Risk
The Company is dependent upon the successful and uninterrupted functioning of its computer, internet and data
processing systems. The failure of these systems could interrupt operations or materially impact the Company’s ability
to enter into new lease or lending transactions and service customer accounts. Although the Company has extensive
information technology security plans and disaster recovery plans, if sustained, such a failure could have a material
adverse effect on the Company’s financial condition, liquidity and results of operations.
The Company’s operations rely heavily on the secure processing, storage and transmission of confidential customer
information. While the Company has taken reasonable steps to protect its data and that of its customers, the risk of the
Company’s inability to protect customer information, or breaches in the Company’s information systems, may adversely
affect the Company’s reputation and result in significant costs or regulatory penalties and remedial action.
2014 Annual Report | 59
Internal Controls over Financial Reporting
The effective design of internal controls over financial reporting is essential for the Company to prevent and detect
fraud or material errors that may have occurred. The Company is also obligated to comply with the Form 52-109F2
Certification of interim filings of the Ontario Securities Commission, which requires the Company’s CEO and CFO to
submit a quarterly certificate of compliance. The Company and its management have taken reasonable steps to ensure
that adequate internal controls over financial reporting are in place. However, there is a risk that a fraud or material
error may go undetected and that such material fraud or error could adversely affect the Company.
Risk Management Processes and Procedures
The Company has established a risk oversight committee and created processes and procedures to identify, measure,
monitor and mitigate significant risks to the organization. However to the extent that such risk go unidentified or are not
adequately or expeditiously addressed by management the Company could be adversely affected.
Financial Risks
Inadequate Access to Financing
The Company has historically been funded through various sources such as private placement debt and public market
equity offerings. The availability of additional financing will depend on a variety of factors including the availability of
credit to the financial services industry and the Company’s financial performance and credit ratings.
The Company believes that the cash flow expected to be provided by operations during 2015, coupled with the increased loan
facilities obtained in the third quarter of 2014 will be sufficient in the near term to meet operational requirements, purchase
leased assets, meet capital spending requirements, satisfy financial obligations and pay dividends. Additionally, the Company
is able to manage the growth of its consumer loans receivable portfolio based on the amount of available financing.
The Company has publicly stated that it intends to significantly expand its consumer lending business. To achieve this goal,
it will require additional funds which can be obtained through various sources, including debt or equity financing. There can
be no assurance, however, that additional funding will be available when needed or will be available on terms favourable
to the Company. The inability to access adequate sources of financing, or to do so on favourable terms, may adversely affect
the Company’s capital structure and the Company’s ability to fund operational requirements and satisfy financial obligations.
If additional funds are raised by issuing equity securities, shareholders may incur dilution.
Interest Rate Risk
Interest rate risk measures the Company’s risk of financial loss due to adverse movements in interest rates. The Company
is subject to interest rate risk as all credit facilities bear interest at variable rates. The Company does not hedge interest
rates and future changes in interest rates will affect the amount of interest expense payable by the Company.
Foreign Exchange
The Company sources some of its merchandise out of the U.S. and as such, the Company’s Canadian operations have U.S.
denominated cash and payable balances. While the Company sold off most of its U.S. franchise rights in 2014, it continues
to have some operations in the U.S. As a result, the Company has both foreign exchange transaction and translation risk.
Although easyhome has significant U.S. denominated purchases, the Company has historically been able to price its
lease transactions to compensate for the impact of foreign currency fluctuations on its purchases. However in periods
of rapid change in the Canadian to U.S. dollar exchange rate, the Company may not be able to pass on such changes in
60 | easyhome Ltd.
the cost of purchased products to its customers which may negatively impact the Company’s financial performance. The
Company currently does not actively hedge foreign currency risk and transacts in foreign currencies on a spot basis.
Liquidity Risk
Liquidity risk is the risk that the Company’s financial condition is adversely affected by an inability to meet funding
obligations and support its business growth. The Company manages its capital to maintain its ability to continue as
a going concern and to provide adequate returns to shareholders by way of share appreciation and dividends. The
capital structure of the Company consists of external debt and shareholders’ equity, which comprises issued capital,
contributed surplus and retained earnings.
The Company manages its capital structure and makes adjustments to it in light of economic conditions. The Company,
upon approval from its Board of Directors, will balance its overall capital structure through new share issuances, share
repurchases, the payment of dividends, increasing or decreasing debt or by undertaking other activities as deemed
appropriate under the specific circumstances. The Company’s strategy, objectives, measures, definitions and targets
have not changed significantly from the prior period.
The Company’s revolving operating facility and term debt facility must be renewed on a periodic basis. These facilities
contain restrictions on the Company’s ability to, among other things, pay dividends, sell or transfer assets, incur
additional debt, repay other debt, make certain investments or acquisitions, repurchase or redeem shares and engage
in alternate business activities. The facilities also contain a number of covenants that require the Company to maintain
certain specified financial ratios. Failure to meet any of these covenants could result in an event of default under these
facilities which could, in turn, allow the lenders to declare all amounts outstanding to be immediately due and payable.
In such a case, the financial condition, liquidity and results of operations of the Company could materially suffer.
The Company has been successful in renewing and expanding the revolving credit and term debt facilities in the past.
If the Company were unable to renew these facilities on acceptable terms when they became due, however, there could
be a material adverse effect on the Company’s financial condition, liquidity and results of operations.
The Company has significant debt that is subject to certain financial and non-financial covenants. A violation of any or all
of the debt covenants may result in the lender requiring the Company to repay the outstanding debt, which would have
a material adverse effect on the Company’s financial position, liquidity and results of operation.
Possible Volatility of Stock Price
The market price of the Company’s Common Shares, similar to that of many other Canadian (and indeed worldwide)
companies, has been subject to significant fluctuation in response to numerous factors, including the recent credit
crisis and related recession, as well as variations in the annual or quarterly financial results of the Company, timing
of announcements of acquisitions or material transactions by the Company or its competitors, other conditions in the
economy in general or in the industry in particular, changes in applicable laws and regulations and other factors.
Moreover, from time to time, the stock markets experience significant price and volume volatility that may affect the
market price of the Common Shares for reasons unrelated to the Company’s performance. No prediction can be made
as to the effect, if any, that future sales of Common Shares or the availability of shares for future sale (including shares
issuable upon the exercise of stock options) will have on the market price of the Common Shares prevailing from time
to time. Sales of substantial numbers of such shares or the perception that such sales could occur may adversely affect
the prevailing price of the Common Shares. Significant changes in the stock price could jeopardize the Company’s ability to
raise growth capital through an equity offering without significant dilution to existing shareholders.
2014 Annual Report | 61
Regulatory Risks
Government Regulation and Compliance
The Company takes reasonable measures to ensure compliance with governing statutes, regulations and regulatory
policies. A failure to comply with such statutes, regulations or regulatory policies could result in sanctions, fines or
other settlements that could adversely affect both its earnings and reputation. Changes to laws, statutes, regulations
or regulatory policies could also change the economics of the Company’s merchandise leasing and consumer lending
businesses.
Numerous consumer protection laws and related regulations impose substantial requirements upon lenders involved
in consumer finance, including leasing and lending. Also, federal and provincial laws impose restrictions on consumer
transactions and require contract disclosures relating to the cost of borrowing and other matters. These requirements
impose specific statutory liabilities upon creditors who fail to comply with their provisions.
easyhome currently operates in an unregulated environment with regards to capital requirements. The Criminal Code
of Canada, however, imposes a restriction on the cost of borrowing in any lending transaction to 60% per year. The
application of capital requirements or a reduction in the maximum cost of borrowing could have a material adverse
effect on the Company’s financial condition, liquidity and results of operations.
Privacy, Information Security, and Data Protection Regulations
The Company is subject to various privacy, information security and data protection laws and takes reasonable
measures to ensure compliance with all requirements. Legislators and regulators are increasingly adopting new
privacy information security and data protection laws which may increase the Company’s cost of compliance. While the
Company has taken reasonable steps to protect its data and that of its customers, a breach in the Company’s information
security may adversely affect the Company’s reputation and also result in fines or penalties from governmental bodies.
Critical Accounting Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the year. Actual amounts could differ
from these estimates.
Significant changes in assumptions, including those with respect to future business plans and cash flows, could change
the recorded amounts by a material amount.
The Company’s critical accounting estimates are fully described in the Company’s December 31, 2014 Notes to the
Financial Statements.
62 | easyhome Ltd.
Adoption of New Accounting Standards and Standards Issued But Not Yet Effective
No new accounting standards were adopted by the Company during the reporting period.
The Company will be required to adopt IFRS 9, Financial Instruments, which is the IASB’s project to replace IAS 39.
IFRS 9 is required to be applied for years beginning on or after January 1, 2018 with early adoption permitted, and will
provide new requirements for the classification and measurement of financial assets and liabilities, impairment and
hedge accounting. The Company has not yet assessed the impact of this standard.
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers, which clarifies the principles for
recognizing revenue and cash flows arising from contracts with customers. The standard is effective for annual periods
beginning on or after January 1, 2017, with early adoption permitted, and is to be applied retrospectively. The Company
has not yet assessed the impact of this standard.
Internal Controls
Disclosure Controls and Procedures [“DC&P”]
DC&P are designed to provide reasonable assurance that information required to be disclosed by the Company in reports
filed with or submitted to various securities regulators is recorded, processed, summarized and reported within the
time periods specified. This information is gathered and reported to the Company’s management, including the Chief
Executive Officer [“CEO”] and Chief Financial Officer [“CFO”], so that timely decisions can be made regarding disclosure.
The Company’s management, under supervision of, and with the participation of, the CEO and CFO, have designed and
evaluated the Company’s DC&P, as required in Canada by National Instrument 52-109, “Certification of Disclosure in
Issuers’ Annual and Interim Filings”. Based on this evaluation, the CEO and CFO have concluded that the design of the
system of disclosure controls and procedures were effective as at December 31, 2014.
Internal Control over Financial Reporting [“ICFR”]
ICFR is a process designed by, or under the supervision of, senior management, and effected by the Board of Directors,
management and other personnel, to provide reasonable assurances regarding the reliability of financial reporting and
preparation of the Company’s consolidated financial statements in accordance with IFRS. Management is responsible
for establishing and maintaining ICFR and designs such controls to attempt to ensure that the required objectives
of these internal controls have been met. Management uses the Internal Control – Integrated Framework (1992) to
evaluate the effectiveness of internal control over financial reporting, which is a recognized and suitable framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission [“COSO”]. Management is in the
process of transitioning to the 2013 COSO framework and implementation will be completed during the 2015 fiscal year.
2014 Annual Report | 63
In designing and evaluating such controls, it should be recognized that due to inherent limitations, any controls, no matter
how well designed and operated, can provide only reasonable assurance and may not prevent or detect all misstatements
as a result of, among other things, error or fraud. Projections of any evaluations 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 and/or procedures may deteriorate.
Changes to ICFR During 2014
There were no material changes in the Company’s ICFR that occurred or were finalized during the year ended
December 31, 2014.
Evaluation of ICFR at December 31, 2014
As at December 31, 2014, under the direction and supervision of the CEO and CFO, the Company has evaluated the
effectiveness of the Company’s ICFR. The evaluation included a review of key controls, testing and evaluation of such
test results. Based on this evaluation, the CEO and CFO have concluded that the design and operation of the Company’s
internal controls over financial reporting were effective as at December 31, 2014.
64 | easyhome Ltd.
M A N A G E M E N T ’ S R E S P O N S I B I I L T Y F O R F I N A N C I A L R E P O R T I N G
The accompanying consolidated financial statements and the 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 International Financial
Reporting Standards [“IFRS”] and include some amounts based on management’s best estimates and judgments. When
alternative accounting methods exist, management has chosen those it considers most appropriate in the circumstances.
Management has prepared the financial information presented elsewhere in the annual report and has ensured that it
is consistent with the financial statements.
easyhome Ltd. maintains a system of internal controls to provide reasonable assurance that transactions are properly
authorized, financial records are accurate and reliable, and the Company’s assets are properly accounted for and
adequately safeguarded.
The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting
and is ultimately responsible for reviewing and approving the financial statements. The Board of Directors carries out
its responsibility for the financial statements through its Audit Committee. This Committee meets periodically with
management and the external auditors to review the financial statements and the annual report and to discuss audit,
financial and internal control matters. The Company’s external auditors have full and free access to the Audit Committee.
The financial statements have been subject to an audit by the Company’s external auditors, Ernst & Young LLP,
in accordance with Canadian generally accepted auditing standards on behalf of the shareholders.
David Ingram
President and Chief Executive Officer
Steve Goertz
Executive Vice President & Chief Financial Officer
2014 Annual Report | 65
I N D E P E N D E N T A U D I T O R ’ S R E P O R T
To the Shareholders of easyhome Ltd.
We have audited the accompanying consolidated financial statements of easyhome Ltd., which comprise the consolidated
statements of financial position as at December 31, 2014 and 2013, and the consolidated statements of income,
comprehensive income, changes in shareholders’ equity and cash flows for the years then ended, and a summary of
significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards, and for such internal control as management determines
is necessary to enable the preparation of consolidated financial statements that are free from material misstatement,
whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted
our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply
with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks
of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
easyhome Ltd. as at December 31, 2014 and 2013, and its financial performance and its cash flows for the years then ended
in accordance with International Financial Reporting Standards.
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
February 18, 2015
66 | easyhome Ltd.
C O N S O L I D A T E D S T A T E M E N T S O F F I N A N C I A L P O S I T I O N
(expressed in thousands of Canadian dollars)
ASSETS
Cash (note 5)
Amounts receivable (note 6)
Prepaid expenses
Consumer loans receivable (note 7)
Lease assets (note 8)
Property and equipment (note 9)
Deferred tax assets (note 16)
Intangible assets (note 10)
Goodwill (note 10)
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Revolving operating facility (note 11)
Accounts payable and accrued liabilities
Income taxes payable
Dividends payable (note 13)
Deferred lease inducements
Unearned revenue
Provisions (note 12)
Term loan (note 11)
TOTAL LIABILITIES
Contingencies (note 20)
Shareholders’ equity
Share capital (note 13)
Contributed surplus (note 14)
Accumulated other comprehensive income
Retained earnings
TOTAL SHAREHOLDERS' EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
See accompanying notes to the consolidated financial statements
On behalf of the Board:
As At
December 31, 2014
As At
December 31, 2013
1,165
16,508
1,971
180,693
64,526
16,915
6,725
11,006
19,963
319,472
1,756
32,837
3,042
1,133
2,603
3,978
314
119,841
165,504
80,364
6,458
694
66,452
153,968
319,472
2,329
7,206
1,699
103,936
68,453
15,793
3,997
9,524
19,963
232,900
23,496
24,301
3,929
1,130
2,749
3,763
21
37,878
97,267
79,923
4,169
307
51,234
135,633
232,900
David Ingram, Director
Donald K. Johnson, Director
2014 Annual Report | 67
C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E
(expressed in thousands of Canadian dollars except earnings per share)
December 31, 2014
December 31, 2013
Year Ended
REVENUE
Lease revenue
Interest income
Other
EXPENSES BEFORE DEPRECIATION AND AMORTIZATION
Salaries and benefits
Stock based compensation (note 14)
Advertising and promotion
Bad debts
Occupancy
Distribution and travel
Other
Restructuring and other items (note 15)
DEPRECIATION AND AMORTIZATION
Depreciation of lease assets
Depreciation of property and equipment
Amortization of intangible assets
Impairment, net (note 9)
Total operating expenses
Operating income
Finance costs (note 11)
Income before income taxes
Income tax expense (recovery) (note 16)
Current
Deferred
Net income
Basic earnings per share (note 17)
Diluted earnings per share (note 17)
See accompanying notes to the consolidated financial statements
68 | easyhome Ltd.
151,068
64,237
43,845
259,150
78,012
6,264
9,089
24,264
28,147
7,084
16,281
(1,225)
153,347
37,581
27,886
218,814
66,127
3,803
7,379
14,800
26,232
6,988
14,808
–
167,916
140,137
49,425
4,789
2,133
294
56,641
224,557
34,593
8,800
25,793
8,774
(2,729)
6,045
19,748
1.47
1.42
48,078
4,389
1,309
(64)
53,712
193,849
24,965
5,638
19,327
4,554
591
5,145
14,182
1.16
1.15
C O N S O L I D A T E D S T A T E M E N T S O F C O M P R E H E N S I V E I N C O M E
(expressed in thousands of Canadian dollars)
Net income
Other comprehensive income (loss)
Change in foreign currency translation reserve
Transfer of realized translation gains
Comprehensive income
See accompanying notes to the consolidated financial statements
Year Ended
December 31, 2014
December 31, 2013
19,748
14,182
627
(240)
20,135
444
–
14,626
C O N S O L I D AT E D S TAT E M E N T S O F C H A N G E S I N S H A R E H O L D E R S ’ E Q U I T Y
Share
Capital
Contributed
Surplus
Total
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
84,092
51,234
307
135,633
(expressed in thousands of Canadian dollars)
Balance, December 31, 2013
Common shares issued
Stock-based compensation (note 14)
Comprehensive income
Dividends
79,923
441
–
–
–
4,169
(67)
2,356
–
–
374
2,356
–
–
–
–
19,748
(4,530)
Balance, December 31, 2014
80,364
6,458
86,822
66,452
Balance, December 31, 2012
Common shares issued
Stock-based compensation (note 14)
Comprehensive income
Dividends
60,885
19,038
–
–
–
3,035
–
1,134
–
–
63,920
19,038
1,134
–
–
–
–
14,182
(4,178)
Balance, December 31, 2013
79,923
4,169
84,092
51,234
See accompanying notes to the consolidated financial statements
41,230
(137)
105,013
–
–
387
–
694
374
2,356
20,135
(4,530)
153,968
–
–
444
–
307
19,038
1,134
14,626
(4,178)
135,633
2014 Annual Report | 69
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
(expressed in thousands of Canadian dollars)
December 31, 2014
December 31, 2013
Year Ended
OPERATING ACTIVITIES
Net income
Add (deduct) items not affecting cash
Depreciation of lease assets
Depreciation of property and equipment
Impairment, net (note 9)
Amortization of intangible assets
Stock-based compensation (note 14)
Bad debts expense
Deferred income tax expense (recovery) (note 16)
Gain on sale of assets
Net change in other operating assets and liabilities (note 18)
Net issuance of consumer loans receivable
Cash (used in) provided by operating activities
INVESTING ACTIVITIES
Purchase of lease assets
Purchase of property and equipment
Purchase of intangible assets
Proceeds on sale of assets
Cash used in investing activities
FINANCING ACTIVITIES
Advances (repayments) of revolving operating facility
Advances of term loan
Payment of common share dividends (note 13)
Issuance of common shares (note 13)
Cash provided by financing activities
Net decrease in cash during the period
Cash, beginning of period
Cash, end of period
See accompanying notes to the consolidated financial statements
70 | easyhome Ltd.
19,748
14,182
49,425
4,789
294
2,133
2,356
24,264
(2,729)
(4,643)
95,637
(1,560)
(101,021)
(6,944)
(49,066)
(6,893)
(5,446)
11,115
(50,290)
(21,740)
81,963
(4,527)
374
56,070
(1,164)
2,329
1,165
48,078
4,389
(64)
1,309
1,134
14,800
235
(1,259)
82,804
(11,815)
(52,152)
18,837
(49,423)
(6,693)
(4,540)
2,776
(57,880)
2,215
19,548
(4,060)
19,038
36,741
(2,302)
4,631
2,329
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 2014 and 2013
(Expressed in thousands of Canadian dollars except where otherwise indicated)
1. CORPORATE INFORMATION
easyhome Ltd. [“Parent Company”] was incorporated under the laws of Alberta, Canada by Certificate and Articles of
Incorporation dated December 14, 1990 and was continued as a corporation in Ontario pursuant to Articles of Continuance
dated July 22, 1993. The Parent Company has common shares listed on the Toronto Stock Exchange [“TSX”]. The Parent
Company’s head office is located in Mississauga, Ontario, Canada.
The Company’s principal operating activities include i) merchandise leasing of household furnishings, appliances
and home electronic products to consumers under weekly or monthly leasing agreements and ii) offering unsecured
instalment loans to consumers.
The Company operates in two reportable segments: easyhome Leasing and easyfinancial. As at December 31, 2014,
the Company operated 192 easyhome Leasing stores (including 23 franchises and 6 consolidated franchises) and
154 easyfinancial locations (December 31, 2013 – 237 easyhome Leasing stores including 55 franchises and 9 consolidated
franchises, and 119 easyfinancial locations).
2. BASIS OF PREPARATION
The consolidated financial statements were authorized for issue by the Board of Directors on February 18, 2015.
Statement of Compliance with IFRS
The consolidated financial statements of the Company have been prepared in accordance with International Financial
Reporting Standards [“IFRS”] as issued by the International Accounting Standards Board [“IASB”]. The policies applied
in these consolidated financial statements were based on IFRS issued and outstanding as at December 31, 2014.
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the financial statements of the parent company, easyhome Ltd., and all
companies that it controls [collectively referred to as “easyhome” or the “Company”]. easyhome Ltd. controls an entity:
i) when it has the power to direct the activities of the entity which have the most significant impact on the entity’s risks
and/or returns; ii) where it is exposed to significant risks and/or returns arising from the entity; and iii) where it is able
to use its power to affect the risks and/or returns to which it is exposed. This includes all wholly owned subsidiaries and
certain special purpose entities [“SPEs”] where easyhome Ltd. has control but does not have ownership of a majority of
voting rights.
As at December 31, 2014, the Parent Company’s principal subsidiaries were:
• RTO Asset Management Inc.
• easyfinancial Services Inc.
• easyhome U.S. Ltd.
• easyfinancial mortgages Inc.
• easyfranchise LLC
2014 Annual Report | 71
The Company’s SPEs consisted of certain franchises for which the Company exerts effective control by the provision of
financing rather than through ownership of a majority of voting rights. An entity is controlled when the Company has
power over an entity, exposure, or rights to, variable returns from its involvement with the entity and is able to use its
power over the entity to affect its return from the entity. The Company’s SPEs are fully consolidated from the date at
which the Company obtains control, until the date that such control ceases. Control ceases when the SPE has the ability
to operate as a stand-alone entity without financial and operational support from the Company, which is generally
considered to be the date at which the SPE repays the amounts loaned to it by the Company.
The financial statements of the subsidiaries and SPEs were prepared for the same reporting period as the consolidated
financial statements of the Parent Company using consistent accounting policies as described in these consolidated
financial statements.
All intra-group transactions and balances were eliminated on consolidation.
Presentation Currency
The consolidated financial statements are presented in Canadian dollars [“CAD”], which is the Parent Company’s
functional currency. The functional currency is the currency of the primary economic environment in which a reporting
entity operates and is normally the currency in which the entity generates and expends cash. All financial information
presented in CAD has been rounded to the nearest thousand, unless noted otherwise.
Foreign Currency Translation
The Parent Company’s presentation and functional currency is the Canadian dollar. Each entity in the Company
determines its own functional currency and items included in the financial statements of each entity are measured
using that functional currency. The functional currency of the Company’s U.S. subsidiaries, easyhome U.S. Ltd. and
easyfranchise LLC and several of its SPEs, is the U.S. dollar. The functional currency of all other entities in the Company
is the Canadian dollar.
Foreign currency transactions are initially recorded at the rate prevailing at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies are retranslated into the functional currency at the spot rate on the
reporting date. All differences are recorded in comprehensive income. Non monetary items that are measured in terms
of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions.
The assets and liabilities of foreign operations are translated into CAD at the rate of exchange prevailing at the
reporting date and items in comprehensive income are translated at the average exchange rates prevailing for the year.
The exchange differences arising on the translation are recognized in other comprehensive income. On disposal of a
foreign operation, the component of accumulated other comprehensive income relating to that particular foreign operation
is recognized in net income.
The Parent Company has monetary items that are receivable from foreign operations. A monetary item for which
settlement is neither planned nor likely to occur in the foreseeable future is, in substance, a part of the Parent Company’s
net investment in that foreign operation. Exchange differences arising on a monetary item that forms part of a reporting
entity’s net investment in a foreign operation are recognized in income in the separate financial statements of the
72 | easyhome Ltd.
foreign operation. In the consolidated financial statements such exchange differences are recognized initially in other
comprehensive income and reclassified from accumulated other comprehensive income to net income on disposal of
the net investment in foreign operations.
Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the
revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding
promotional discounts, rebates and sales taxes. The Company assesses its revenue arrangements against specific
criteria in order to determine if it is acting as principal or agent. The Company has concluded that it is acting as principal
in all of its revenue arrangements except for the sale of certain customer protection products where it acts as agent
and therefore recognizes such revenue on a net basis.
i) Lease Revenue
Merchandise is leased to customers pursuant to agreements that provide for weekly or monthly lease payments
collected in advance. The lease agreements can be terminated by the customer at the end of the weekly or monthly
lease period without any further obligation or cost to the customer.
Lease revenue consists of lease payments, product damage liability waivers and processing and other fees. Revenue
from lease agreements is recognized when earned. Lease revenue also consists of revenue from the ultimate sale of
goods to customers which represents the culmination of the lease asset life cycle and occurs when title passes to the
customer. Such revenue is measured at the fair value of the consideration received or receivable.
ii) Interest Revenue
Interest revenue from consumer loans receivable is recognized when earned using the effective interest rate method.
iii) Other Revenue
Other revenue consists primarily of the sale of customer protection products, revenue generated from franchising
including royalties, franchise fees and other fees, all of which are recognized when earned.
Vendor Rebates
The Company participates in various vendor rebate programs, including vendor volume rebates and vendor advertising
incentives. The Company records the benefit of vendor volume rebates on purchases made as a reduction of lease
assets based on the rebate amounts the Company believes are probable and reasonably estimable during the term of
each rebate program. Vendor advertising incentives that are related to specific advertising programs are accounted for
as a reduction of the related expenses.
Cash
Cash is comprised of bank balances, cash on hand and demand deposits, adjusted for in-transit items such as
outstanding cheques and deposits.
2014 Annual Report | 73
Financial Assets
Financial assets consist of amounts receivable and consumer loans receivable, which are stated net of an allowance for
loan losses. Financial assets are initially measured at fair value.
Amounts receivable are subsequently measured at amortized cost and are carried at the amount of cash expected
to be received.
The Company’s consumer loans receivable are subsequently measured at amortized cost. Amortized cost is determined
using the effective interest rate method. The effective interest rate is the rate that exactly discounts the estimated future
cash receipts through the expected life of the consumer loans receivable to the carrying amount. When calculating
the effective interest rate, the Company estimates future cash flows considering all contractual terms of the financial
instrument, but not future loan losses. There are no significant incremental costs incurred in writing consumer loans.
The Company does not have any financial assets that are subsequently measured at fair value.
Financial assets are derecognized when the rights to receive cash flows from the asset have expired or the Company
has transferred its rights to receive cash flows from an asset.
Impairment of Financial Assets
The Company assesses at each reporting date whether there is any objective evidence that a financial asset or a group
of financial assets is impaired. A financial asset or group of financial assets is deemed to be impaired if, and only if, there
is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the
asset (an incurred ‘loss event’), the event has a negative impact on the estimated cash flows of the financial asset and
the loss can be reliably estimated. The carrying amount of the financial asset is reduced through the use of an allowance
account and the amount of the loss is recognized as a bad debts expense.
The allowance for loan losses is a provision that is reported on the Company’s balance sheet that is netted against the
gross consumer loans receivable to arrive at the net consumer loans receivable. The allowance for loan losses provides
for a portion of the future charge offs that have not yet occurred within the portfolio of consumer loans receivable
that exist at the end of a period. It is determined by the Company using a standard calculation that is not subject to
management’s discretion or estimates that considers i) the relative maturity of the loans within the portfolio, ii) the
long-term expected charge off rates based on actual historical performance and iii) the long-term expected charge
off pattern (timing) for a vintage of loans over their life based on actual historical performance. The allowance for loan
losses essentially estimates the charge offs that are expect to occur over the subsequent five month period for loans
that existed as of the balance sheet date. Customer loan balances which are delinquent greater than 90 days are written
off against the allowance for loan losses.
Financial assets, together with the associated allowances, are written off when there is no realistic prospect of further
recovery. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an
event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced
by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to bad debts expense.
74 | easyhome Ltd.
Lease Assets
Lease assets are stated at cost net of accumulated depreciation and accumulated impairment losses, if any.
The cost of lease assets comprises their purchase price and any costs directly attributable to bringing the assets to the
location and condition necessary for them to be capable of operating in the manner intended by management. Vendor
volume rebates are recorded as a reduction of the cost of lease assets.
As the leases are effectively cancellable by the customer with a week’s notice, and there are no bargain purchase
options provided to the customer, the customer leases are considered operating in nature. Lease agreements entitle
customers to buy out a lease asset earlier in accordance with conditions stipulated in the lease agreements.
The residual value, useful life and depreciation method of the lease assets are reviewed at each financial year end, and
if expectations differ from previous estimates, they are adjusted and the changes are accounted for prospectively as
a change in accounting estimates. In the event management determines that the Company can no longer lease or sell
certain lease assets, they are written off. The residual value of lease assets is nominal.
Depreciation on lease assets is charged to net income as follows:
• Assets on lease, excluding game stations, computers and related equipment, are depreciated in proportion
to the lease payments received to the total expected lease amounts provided over the lease agreement term
[the “units of activity method”]. Lease assets that are subject to the units of activity method of depreciation that
are not on lease for less than 90 consecutive days are not depreciated during such period. After that they are
depreciated on a straight-line basis over 36 months. When an asset goes on lease, depreciation will revert to
the units of activity method.
• Game stations are depreciated on a straight-line basis over 18 months. Computers and related equipment are
depreciated on a straight-line basis over 24 months. The depreciation for game stations, computers and related
equipment commences at the earlier of the date of the first lease or 90 days after arrival in the store and
continues uninterrupted thereafter on a straight-line basis over the periods indicated.
• Depreciation for all lease assets includes the remaining book values at the time of disposition of the lease assets
that have been sold and amounts which have been charged off as stolen, lost or no longer suitable for lease.
The Company’s lease assets are subject to theft, loss or other damage from its customers. The Company records
a provision against the carrying value of lease assets for estimated losses.
2014 Annual Report | 75
Property and Equipment
The cost of property and equipment comprises their purchase price and any costs directly attributable to bringing the
assets to the location and condition necessary for them to be capable of operating in the manner intended by management.
Property and equipment are stated at cost net of accumulated depreciation and accumulated impairment losses, if any.
Subsequent costs are included in an asset’s carrying amount or recognized as a separate asset, as appropriate, only when
it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can
be measured reliably. All other expenses are charged to net income as repairs and maintenance expense when incurred.
Depreciation on property and equipment is charged to net income.
Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets as follows:
Asset category
Furniture and fixtures
Computer and office equipment
Automotive
Signage
Leasehold improvements
Estimated useful lives
7 years
5 and 7 years
5 years
7 years
the lesser of 5 years or lease term
Property and equipment are derecognized upon disposal or when no future economic benefits are expected from their
use or disposal. Any gains or losses arising on derecognition of the assets (calculated as the difference between the
net disposal proceeds and the carrying amount of the assets) are included in net income in the period the assets are
derecognized.
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired
in a business combination is their estimated fair value at the date of acquisition. Following initial recognition, intangible
assets are carried at cost less any accumulated amortization and accumulated impairment losses, if any. Internally
generated intangible assets, excluding capitalized development costs, are not capitalized and the expenditure is
reflected in net income in the period in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever
there is an indication that the intangible asset may be impaired. The amortization period and the amortization method
for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period for potential
impairment indicators. Changes in the expected useful life or the expected pattern of consumption of future economic
benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and
are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is
recognized in net income.
Customer lists and software are amortized over their estimated useful lives of five years.
76 | easyhome Ltd.
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually. The assessment
of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the
change in useful life from indefinite to finite is made on a prospective basis.
The Company’s trademarks have been assessed to have an indefinite life.
Gains or losses arising from the derecognition of intangible assets are measured as the difference between the net disposal
proceeds and the carrying amounts of the asset and are recognized in net income when the assets are derecognized.
Development Costs
Development costs, including those related to the development of software, are recognized as an intangible asset when
the Company can demonstrate:
• the technical feasibility of completing the intangible asset so that it will be available for use or sale;
• its intention to complete and its ability to use or sell the asset;
• how the asset will generate future economic benefits;
• the availability of resources to complete the asset; and
• the ability to measure reliably the expenditure during development.
Following initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset
to be carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset
begins when development is complete and the asset is available for use. It is amortized over the period of the expected
future benefit. During the period of development, the asset is tested for impairment annually.
Business Combinations and Goodwill
Business combinations are accounted for using the purchase method. The cost of an acquisition is measured at the fair
value of the assets given, equity instruments and liabilities incurred or assumed at the date of exchange. Acquisition
costs for business combinations incurred subsequent to January 1, 2010 are expensed. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination are measured initially at fair value at the date of
acquisition, irrespective of the extent of any non-controlling interest.
Goodwill is initially measured at cost being the excess of the cost of the business combination over the Company’s
share in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. If the fair values of
the assets, liabilities and contingent liabilities can only be calculated on a provisional basis, the business combination
is recognized initially using provisional values. Any adjustments resulting from the completion of the measurement
process are recognized within twelve months of the date of acquisition.
After initial recognition, goodwill is measured at cost less accumulated impairment losses, if any. Goodwill is not
amortized. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition
date, allocated to each of the Company’s operating segments that are expected to benefit from the synergies of the
combination, irrespective of whether other assets and liabilities of the acquiree are assigned to those segments.
2014 Annual Report | 77
Impairment of Non-financial Assets
The Company assesses, at each reporting date, whether there is an indication that an asset or a cash-generating unit
[“CGU”] may be impaired. A CGU is defined as the smallest identifiable group of assets that generates cash inflows that
are largely independent of the cash inflows from other assets or groups of assets. The Company has determined that
this is at the individual store level.
If an indication of impairment exists, or when annual testing for an asset is required, the Company estimates the asset’s
or CGU’s recoverable amount. The recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell
and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate
cash inflows that are largely independent of those from other assets or groups of assets, in which case it is determined
for the CGU to which the asset belongs. Where the carrying amount of an asset or CGU exceeds its recoverable amount,
the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate
that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. In
determining fair value less costs to sell, an appropriate valuation model is used. In cases where fair value less costs to
sell cannot be estimated, value in use is utilized as the basis to determine the recoverable amount. Impairment losses
are recognized in net income.
The impairment test calculations are based on detailed budgets and forecasts which are prepared annually for each
CGU to which the assets are allocated. These budgets and forecasts generally cover a period of five years with a long-
term growth rate applied after the fifth year.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication
that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists,
the Company estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed
only if there has been a change in the assumptions used to determine the asset or CGU’s recoverable amount since the
last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset or CGU does not
exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of amortization,
had no impairment loss been recognized for the asset or CGU in prior years. Such reversal is recognized in net income.
Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired.
Impairment is determined for goodwill by assessing the recoverable amount of each group of CGUs to which the
goodwill relates. Where the recoverable amount of the CGUs is less than their carrying amount, an impairment loss is
recognized. Impairment losses relating to goodwill cannot be reversed in future periods.
Intangible assets with indefinite useful lives are tested for impairment annually at the CGU level and when circumstances
indicate that the carrying value may be impaired.
78 | easyhome Ltd.
Financial Liabilities
Financial liabilities are initially recognized at fair value and in the case of loans and borrowings, they are recognized
at the fair value of proceeds received, net of directly attributable transaction costs. The Company’s financial liabilities
include a revolving operating facility, interest-bearing loans and accounts payable and accrued liabilities.
After initial recognition, the Company’s interest bearing debt is subsequently measured at amortized cost using the
effective interest rate method. Amortized cost is calculated by taking into account any fees or costs related to the
interest bearing debt. Interest expense is included in finance costs.
Non-interest bearing financial liabilities, such as accounts payable and accrued liabilities, are carried at the amount owing.
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired. Any gains
or losses are recognized in net income when liabilities are derecognized.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement
at inception date, whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the
arrangement conveys a right to use the asset.
i) Company as a Lessee
Finance leases which transfer substantially all the risks and rewards incidental to ownership of the leased item are
capitalized at the inception of the lease at the fair value of the leased asset, or, if lower, at the present value of the minimum
lease payments. Subsequent lease payments are apportioned between finance charges and a reduction of the lease
liability. Finance charges are recognized in net income. Capitalized leased assets are depreciated over the shorter of the
estimated useful life of the asset and the lease term. The Company has not entered into any finance leases.
Operating lease payments (net of any amortization of incentives) are expensed as incurred. Incentives received from the
lessor to enter into an operating lease are capitalized and depreciated over the term of the lease.
ii) Company as a Lessor
Leases where the Company does not transfer substantially all the risks and benefits of ownership of the asset are
classified as operating leases. The leasing income is recognized on a straight-line basis over the lease term.
The Company is in the business of leasing assets. As the leases are effectively cancellable by the customer with a
week’s notice, and there are no bargain purchase option provided to the customer, the customer leases are considered
operating in nature.
2014 Annual Report | 79
Provisions
Provisions are recognized when the Company has a present obligation, legal or constructive, as a result of a past
event, and the costs to settle the obligation are both probable and reliably measurable. Where there is expected to be a
reimbursement of some or all of a provision, for example under an insurance contract, the reimbursement is recognized
as a separate asset but only when the reimbursement is virtually certain. If the effect of the time value of money is
material, provisions are discounted. Where discounting is used, the increase in the provision as a result of the passage
of time is recognized as a finance cost.
Contingencies
Contingent liabilities are recognized in the consolidated financial statements where the likelihood of the obligation arising
is considered probable and measurable by management. Contingent assets are not recognized in the consolidated
financial statements even if probable, rather note disclosure is provided. Probable is defined as being more than 50%
likely to occur.
Taxes
i) Current Income Tax
Current income tax assets and are measured at the amount expected to be recovered from or paid to the taxation
authorities. The tax rates and tax laws used to compute the amount are those enacted or substantively enacted by the
end of the reporting period.
Current income tax assets and liabilities are only offset if a legally enforceable right exists to offset the amounts and the
Company intends to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Current income tax relating to items recognized directly in equity is recognized in equity and not in net income.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax
regulations are subject to interpretation and establishes provisions where appropriate.
ii) Deferred Income Tax
Deferred income tax is provided using the liability method on temporary differences at the reporting date between
the tax basis of assets and liabilities and their carrying amount for financial reporting purposes. Deductible income
tax liabilities are recognized for all taxable temporary differences. Deferred income tax assets are recognized for all
deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it
is probable that taxable income will be available against which the deductible temporary differences and the carry
forward of unused tax credits and unused tax losses can be utilized.
The following temporary differences do not result in deferred income tax assets or liabilities:
• the initial recognition of assets or liabilities, not arising in a business combination, that does not affect
accounting or taxable profit;
• goodwill; and
• investment in subsidiaries, associates and jointly controlled entities where the timing of reversal of the
temporary differences can be controlled and reversal in the foreseeable future is not probable.
80 | easyhome Ltd.
The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced to the
extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred
income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at the end of each reporting
period and are recognized to the extent that it has become probable that future taxable income will be available to
allow the deferred income tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the period when
the asset is realized or the liability is settled, based on tax rates that have been enacted or substantively enacted by the
end of the reporting period.
Deferred income tax assets and liabilities are offset if a legally enforceable right exists to set off current income tax
assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the
same taxation authority.
iii) Sales Tax
Revenues, expenses and assets are recognized net of the amount of sales tax except where the sales tax incurred on a
purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognized
as part of the cost of acquisition of the asset or as part of the expense item as applicable.
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of amounts
receivable or accounts payable and accrued liabilities in the consolidated statements of financial position.
Stock-based Payment Transactions
The Company has stock-based compensation plans as described in note 14.
i) Equity-Settled Transactions
The Company has stock options, Restricted Share Units [“RSU”] and Deferred Share Units [“DSU”] which are currently
accounted for as equity-settled awards. The cost of such equity-settled transactions is measured by reference to the fair
value determined using the market value on the grant date or the Black-Scholes option valuation model, as appropriate.
The inputs into this model are based on management’s judgments and estimates.
The cost of equity-settled transactions is charged to net income, with a corresponding increase in contributed surplus, over
the period in which the performance and or service conditions are fulfilled. The cumulative expense recognized for
equity-settled transactions at each reporting date reflects the extent to which the vesting period has expired and the
Company’s best estimate of the number of equity instruments that will ultimately vest. The income or expense for a
period represents the movement in cumulative expense recognized at the beginning and end of that period and is
recognized in stock based compensation expense.
No expense is recognized for awards that do not ultimately vest, except for equity-settled transactions where vesting
is conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether or not the
market or non-vesting condition is satisfied, provided that all other performance and or service conditions are satisfied.
Where the terms of an equity-settled award are modified, the minimum expense recognized is the expense as if the
terms had not been modified and if the original terms of the award are met. An additional expense is recognized for any
modification that increases the total fair value of the share-based payment transaction, or is otherwise beneficial to the
employee as measured at the date of modification.
2014 Annual Report | 81
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense
not yet recognized for the award is recognized immediately. This includes any award where non-vesting conditions
within the control of either the Company or the employee are not met. However, if a new award is substituted for the
cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards
are treated as if they are a modification of the original award, as described in the previous paragraph. All cancellations
of equity-settled awards are treated equally.
ii) Cash-Settled Transactions
The Company has Performance Share Units [“PSU”] which mirror the value of the Company’s publicly-traded common
shares and can only be settled in cash [“cash-settled transactions”]. The cost of cash-settled transactions is measured
initially at fair value at the grant date. The liability is remeasured to fair value, at each reporting date up to and including
the settlement date, based on the value of the Company’s publicly-traded common shares and the Company’s best
estimate of the number of cash-settled instruments that will ultimately vest. Changes in fair value are recognized in
stock based compensation expense.
The cost of cash-settled transactions is charged to net income, with a corresponding increase in liabilities, over
the period in which the performance and or service conditions are fulfilled. The cumulative expense recognized for
cash-settled transactions at each reporting date reflects the extent to which the vesting period has expired and the
Company’s best estimate of the number of cash-settled instruments that will ultimately vest. The income or expense
for a period represents the movement in cumulative expense recognized during the period and is recognized in stock
based compensation expense.
No expense is recognized for awards that do not ultimately vest.
Earnings Per Share
Basic earnings per share is computed by dividing the net income by the weighted average number of common shares
outstanding during the year.
Diluted earnings per share is calculated using the treasury stock method, which assumes that the cash that would be
received on the exercise of options and warrants is applied to purchase shares at the average price during the period
and that the difference between the shares issued upon exercise of the options and the number of shares obtainable
under this computation, on a weighted average basis, is added to the number of shares outstanding.
Significant Accounting Judgments, Estimates and Assumptions
The preparation of the consolidated financial statements in conformity with IFRS requires management to make
accounting judgements, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent
assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods.
82 | easyhome Ltd.
These accounting judgments, estimates and assumptions are continuously evaluated and are based on management’s
historical experience, best knowledge of current events and conditions and other factors that are believed to be
reasonable under the circumstances. As future events and their effects cannot be determined with precision, actual
results could differ significantly from these estimates, which could materially impact these consolidated financial
statements. Changes in estimates will be reflected in the consolidated financial statements in future periods.
Key areas of estimation where management has made difficult, complex or subjective judgments often in respect
of matters that are inherently uncertain are as follows:
i) Consumer Loan Losses
The allowance for loan losses consists of both specific allowances on identified impaired loans and an estimate of incurred
losses in the loan portfolio that have not yet been identified based on an assessment of historical loss rates and patterns.
ii) Cost of Lease Assets
Lease assets are recorded at cost, including freight. Vendor volume rebates are recorded as a reduction of the cost
of lease assets and are determined based on the rebate amounts the Company believes are probable and reasonably
estimable during the term of each rebate program.
iii) Depreciation of Lease Assets
Assets on lease, (excluding game stations, computers and related equipment) are depreciated in the proportion of lease
payments received to total expected lease amounts provided over the lease agreement term, which are estimated by
management for each product category.
iv) Depreciation of Property and Equipment
Property and equipment are recorded at cost, including freight, and are depreciated on a straight-line basis over their
estimated useful lives, which are estimated by management for each class of asset.
v) Impairment on Non-Financial Assets
The indicators of impairment are based on management’s judgment. If an indication of impairment exists, or when annual
testing for an asset is required, the Company estimates the asset’s or CGU’s recoverable amount. Where the carrying
amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its
recoverable amount. In assessing the recoverable amount, management estimates the asset’s or CGU’s value in use. Value
in use is based on the estimated future cash flows of the asset or CGU discounted to their present value using a discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset.
The impairment test calculations are based on detailed budgets and forecasts which are prepared for each CGU to
which the assets are allocated. These budgets and forecasts generally cover a period of five years with a long-term
growth rate applied after the fifth year. Key areas of management judgment involve the five-year cash flow forecast, the
growth rate applied to cash flows subsequent to the five years and the discount rate.
2014 Annual Report | 83
vi) Impairment of Goodwill and Indefinite Life Intangibles
In assessing the recoverable amount, management estimated the group of CGU’s value in use. Value in use is based
on the estimated future cash flows of the asset or CGU discounted to their present value using a discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset. The impairment
test calculations are based on detailed budgets and forecasts which are prepared for each CGU to which the assets are
allocated. These budgets and forecasts generally cover a period of five years with a long-term growth rate applied after
the third year. Key areas of management judgment involve the five-year cash flow forecast, the growth rate applied to
cash flows subsequent to the five years and the discount rate.
vii) Fair Value of Stock-Based Compensation
The fair value of stock-based compensation plan grants are measured at the grant date using either the related
market value or the Black-Scholes option valuation model, as appropriate. The Black-Scholes option valuation model
was developed for use in estimating the fair value of traded options that are fully transferable and have no vesting
restrictions. In addition, option valuation models require the input of highly subjective assumptions, including expected
share price volatility. The Company’s share options have characteristics significantly different from those of freely
traded options and because changes in subjective input assumptions can materially affect the fair value estimate, the
existing models do not necessarily provide a single reliable measure of the fair value of the unit options granted.
The vesting of the Company’s stock-based compensation plans is based on the expected achievement of long-term
targets, the assessment of which is subject to management’s judgment.
viii) Provisions
Provisions are recognized when the Company has a present obligation, legal or constructive, as a result of a past event,
and the costs to settle the obligation are both probable and reliably measurable, as determined by management.
ix) Contingencies
Contingent liabilities are recognized in the consolidated financial statements where the likelihood of the obligation
arising is deemed probable and measurable by management. Contingent assets are not recognized in the consolidated
financial statements even if probable; rather note disclosure is provided. Probable is defined as being more than 50%
likely to occur as determined by management.
x) Taxation Amounts
Income tax provisions, including current and deferred income tax assets and liabilities, may require estimates and
interpretations of federal and provincial income tax rules and regulations and judgments as to their interpretation and
application to the Company’s specific situation. Therefore, it is possible that the ultimate value of the tax assets and
liabilities could change in the future and that changes to these amounts could have a material effect on the Company’s
consolidated financial statements.
xi) Unearned Revenue
Unearned revenue includes lease fees that have not yet been earned and processing fees that are received at the
inception of a consumer lease. The processing fees are recognized into income over the expected life of the lease
agreement, as estimated by management.
84 | easyhome Ltd.
xii) Consolidated SPE Franchises
The Company consolidates certain SPE franchises to which it provided financing but did not have ownership of a
majority of voting shares, based on whether the Company effectively exerts control over the entity as determined
by management. An entity is controlled when the Company has power over an entity, exposure, or rights, to variable
returns from its involvement with the entity, and is able to use its power over the entity to affect its return from the
entity. The financing provided to SPE franchises is secured by the assets of the franchise, bears interest at market rates
and on standard terms and conditions.
4. STANDARDS ISSUED BUT NOT YET EFFECTIVE
IFRS 9 Financial Instruments
The Company will be required to adopt IFRS 9, Financial Instruments, which is the IASB’s project to replace IAS 39.
IFRS 9 is required to be applied for years beginning on or after January 1, 2018 with early adoption permitted, and will
provide new requirements for the classification and measurement of financial assets and liabilities, impairment and
hedge accounting. The Company has not yet assessed the impact of this standard.
IFRS 15 Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers, which clarifies the principles for
recognizing revenue and cash flows arising from contracts with customers. The standard is effective for annual periods
beginning on or after January 1, 2017, with early adoption permitted, and is to be applied retrospectively. The Company
has not yet assessed the impact of this standard.Cash
5 .CASH
Cash on hand and at banks
6. AMOUNTS RECEIVABLE
Vendor rebate receivable
Due from franchisees
Loan interest receivable
Other
Current
Non-current
December 31, 2014
December 31, 2013
1,165
2,329
December 31, 2014
December 31, 2013
921
5,233
2,916
7,438
16,508
15,789
719
16,508
964
2,014
1,573
2,655
7,206
5,661
1,545
7,206
Other amounts receivable consisted of amounts due from customers, indirect taxes, insurance and other items.
2014 Annual Report | 85
7. CONSUMER LOANS RECEIVABLE
Consumer loans receivable represented amounts advanced to customers of easyfinancial. Loan terms generally range
from 9 to 48 months.
Consumer loans receivable
Allowance for loan losses
Current
Non-current
December 31, 2014
December 31, 2013
192,225
(11,532)
180,693
87,473
93,220
180,693
110,704
(6,768)
103,936
55,444
48,492
103,936
An aging analysis of consumer loans receivable past due is as follows:
1 – 30 days
31 – 44 days
45 – 60 days
61 – 90 days
December 31, 2014
December 31, 2013
$
% of total loans
9,004
1,505
1,273
1,853
13,635
4.7%
0.8%
0.7%
0.9%
7.1%
$
5,445
811
855
1,005
8,116
% of total loans
4.9%
0.7%
0.8%
0.9%
7.3%
The changes in the allowance for loan losses are summarized below:
Balance, beginning of the period
Net amounts written off against allowance
Increase due to lending and collection activities
Balance, end of the period
Year Ended
December 31, 2014
December 31, 2013
6,768
(19,500)
24,264
11,532
4,074
(12,106)
14,800
6,768
86 | easyhome Ltd.
8. LEASE ASSETS
Cost
As at December 31, 2012
Additions
Disposals
Foreign exchange differences
As at December 31, 2013
Additions
Disposals
Foreign exchange differences
As at December 31, 2014
Accumulated depreciation
As at December 31, 2012
Depreciation for the year
Disposals
Foreign exchange differences
As at December 31, 2013
Depreciation for the year
Disposals
Foreign exchange differences
As at December 31, 2014
Net book value
As at December 31, 2013
As at December 31, 2014
Total
102,059
49,423
(51,606)
221
100,097
49,066
(57,487)
258
91,934
(33,984)
(48,078)
50,462
(44)
(31,644)
(49,425)
53,756
(95)
(27,408)
68,453
64,526
2014 Annual Report | 87
9. PROPERTY AND EQUIPMENT
Furniture and
Fixtures
Computer and
Office Equipment
Automotive
Signage
Leasehold
Improvements
Cost
As at December 31, 2012
Additions
Disposals
Foreign exchange differences
As at December 31, 2013
Additions
Disposals
Foreign exchange differences
As at December 31, 2014
10,981
1,818
(420)
27
12,406
1,528
(465)
43
13,512
Accumulated Depreciation and Provision for Impairment
As at December 31, 2012
(6,387)
Depreciation
Provision for impairment
Recovery of impairment
Disposals
Foreign exchange differences
As at December 31, 2013
Depreciation
Provision for impairment
Recovery of impairment
Impairment related
to restructuring and
other items
Disposals
Foreign exchange differences
(1,170)
(53)
7
333
(4)
(7,274)
(1,200)
(219)
91
(79)
343
(11)
9,315
1,324
(2,850)
11
7,800
1,314
(552)
20
8,582
(6,216)
(909)
(40)
7
2,784
(1)
(4,375)
(1,003)
(59)
54
(42)
355
(5)
457
–
(183)
2
276
–
(46)
–
230
(332)
(60)
–
–
159
(1)
(234)
(31)
–
–
–
35
–
4,757
605
(294)
9
5,077
634
(248)
13
5,476
(3,518)
(413)
(7)
47
236
(1)
(3,656)
(375)
(50)
38
(18)
198
(4)
15,539
2,946
(881)
51
17,655
3,417
(1,098)
82
20,056
(10,867)
(1,837)
(35)
138
730
(11)
(11,882)
(2,180)
(199)
50
(88)
910
(31)
Total
41,049
6,693
(4,628)
100
43,214
6,893
(2,409)
158
47,856
(27,320)
(4,389)
(135)
199
4,242
(18)
(27,421)
(4,789)
(527)
233
(227)
1,841
(51)
As at December 31, 2014
(8,349)
(5,075)
(230)
(3,867)
(13,420)
(30,941)
Net Book Value
As at December 31, 2013
As at December 31, 2014
5,132
5,163
3,425
3,507
42
–
1,421
1,609
5,773
6,636
15,793
16,915
88 | easyhome Ltd.
As at December 31, 2014, the amount of property and equipment classified as under construction or development and
not being amortized was $0.2 million (2013 – $0.3 million).
Various impairment indicators were used to determine the need to test a cash-generating unit [“CGU”] for impairment.
A CGU was defined as the smallest identifiable group of assets that generated cash inflows that were largely
independent of the cash inflows from other assets or groups of assets. The Company determined that this was at
the individual store level. Examples of impairment indicators include a significant decline in revenue, performance
significantly below budget and expectations and negative CGU operating income. Where these impairment indicators
existed, the carrying value of the assets within a CGU was compared with its estimated recoverable value which
was generally considered to be the CGU’s value in use. When determining the value in use of a CGU, the Company
developed a discounted cash flow model for the individual CGU. Sales and cost forecasts were based on actual
operating results, five-year operating budgets consistent with strategic plans presented to the Company’s Board of
Directors and a 1% long-term growth rate consistent with industry practice. The pre-tax discount rate used on the
forecasted cash flows was 17%. Where the carrying value of the CGU’s assets exceeded the recoverable amounts,
as represented by the CGU’s value in use, the store’s property and equipment assets were written down. It was
concluded that, due to the portability of lease assets held within the CGU and the cash flows generated by individual
lease assets, no impairment write-down of the lease assets was required. As such, the CGU impairment charge was
limited to the property and equipment held by the impaired CGU.
For the year ended December 31, 2014, the Company recorded an impairment charge of $527 (2013 – $135) offset by
an impairment recovery of $233 (2013 – $199). The net impairment charge for 2014 was $294 (2013 – recovery of $64).
Additionally $227 of impairment charges were recorded in restructuring and other items as outlined in Note 15. All
impairment charges and recoveries relate solely to the easyhome Leasing segment.
2014 Annual Report | 89
10. INTANGIBLE ASSETS AND GOODWILL
Cost
As at December 31, 2012
Additions
Disposals
Foreign exchange differences
As at December 31, 2013
Additions
Impairment related to restructuring and other items
Disposals
Foreign exchange differences
As at December 31, 2014
Accumulated amortization and provision for impairment
As at December 31, 2012
Amortization for the year
Disposals
Foreign exchange differences
As at December 31, 2013
Amortization for the year
Disposals
Foreign exchange differences
As at December 31, 2014
Net book value
As at December 31, 2013
As at December 31, 2014
Intangible Assets
Trademarks
Customer Lists
Software
Total
1,709
–
–
118
1,827
81
(1,992)
–
165
81
–
–
–
–
–
–
–
–
–
327
–
–
–
327
355
–
–
–
6,073
4,540
(902)
–
9,711
5,010
–
(17)
–
8,109
4,540
(902)
118
11,865
5,446
(1,992)
(17)
165
682
14,704
15,467
–
(60)
–
–
(60)
(79)
–
–
(1,896)
(1,249)
864
–
(2,281)
(2,054)
13
–
(1,896)
(1,309)
864
–
(2,341)
(2,133)
13
–
(139)
(4,322)
(4,461)
1,827
81
267
543
7,430
10,382
9,524
11,006
On December 31, 2014, the Company sold its rights to receive royalties from its U.S. franchise network as outlined in
Note 15. As the royalties that the Company will receive in the future from the U.S. market have been virtually eliminated,
an impairment provision of $1,992 equal to the net book value of the U.S. trademarks was recorded in the year.
The Company continued to hold other trademarks which were purchased and were not internally generated. Trademarks
are considered indefinite life intangible assets as there is no foreseeable limit to the period over which the assets are
expected to generate net cash flows.
Included in software additions for the year ended December 31, 2014 were $4.8 million (2013 – $4.4 million) of internally
developed software application and website costs.
Goodwill was $20.0 million as at December 31, 2014 (2013 – $20.0 million). There were no disposals or impairments
applied to goodwill during the years ended December 31, 2014 and 2013.
90 | easyhome Ltd.
Goodwill and indefinite life intangible assets were allocated to the appropriate group of CGUs to which they relate. The
carrying value of goodwill was fully allocated to the Canadian leasing CGUs. Impairment testing is performed annually
and was performed as at December 31, 2014 and December 31, 2013. The impairment test consisted of comparing the
carrying value of assets within the CGU to the recoverable amount of that CGU as measured by discounting the expected
future cash flows using a value in use approach. The discounted cash flow model was based on historical operating
results, detailed sales and cost forecasts over a five-year period, a 1% long-term growth rate consistent with industry
averages and a pre-tax discount rate used on the forecasted cash flows of 17%, all of which were consistent with the
strategic plans presented to the Company’s Board of Directors.
Based on the analysis performed by management, no impairment charge was required on goodwill.
11. REVOLVING OPERATING FACILITY AND TERM LOAN
On July 28, 2014, the Company entered into a new $200.0 million credit facility, which replaced the Company’s then
existing bank revolving credit facility and term loan facility. The new credit facility was comprised of a $180.0 million
term loan and a $20.0 million revolving operating facility. $105.0 million of the term loan was drawn at closing with
the balance available in periodic advances until July 31, 2015. Borrowings under the term loan bore interest at the
Canadian Bankers’ Acceptance rate plus 722 bps, while borrowing under the revolving operating facility bore interest
at the lender’s prime rate plus 200 to 300 bps depending on the Company’s debt to earnings before interest, taxes,
depreciation and amortization [“EBITDA”] ratio. This credit facility expires on October 4, 2018 and was secured by a first
charge over substantially all assets of the Company.
As at December 31, 2014, the Company had drawn the following amounts on the credit facility:
Amounts borrowed under revolving operating facility
Unamortized deferred financing costs
Revolving operating facility
Amounts borrowed under term loan
Unamortized deferred financing costs
Term loan
December 31, 2014
December 31, 2013
1,756
–
1,756
125,000
(5,159)
119,841
24,063
(567)
23,496
40,000
(2,122)
37,878
As at December 31, 2014, the Company’s interest rates under the term loan and revolving operating facility were
8.5% and 5.0%, respectively.
The financial covenants of the credit facility as at December 31, 2014 were as follows:
Financial Covenant
Total debt to EBITDA ratio
Total debt to tangible net worth ratio
Adjusted EBITDA for preceding 12 months (consolidated)
Requirements
December 31, 2014
< 3.50
< 1.29
> 36,070
3.12
1.00
40,647
The financial covenant requirements described above vary each quarter as per the lending agreement and were based
on the Company’s future forecast over these periods. As at December 31, 2014, the Company was in compliance with all
of its financial covenants under its lending agreements.
2014 Annual Report | 91
Finance Costs
Included in finance costs in the consolidated statements of income was interest expense on the credit facilities and
amortization of deferred financing costs as follows:
Interest expense
Amortization of deferred financing costs
Finance costs
12. PROVISIONS
As at December 31, 2012
Incurred during the year
Utilized during the year
Unused amounts reversed
As at December 31, 2013
Incurred during the year
Utilized during the year
As at December 31, 2014
Year Ended
December 31, 2014
December 31, 2013
7,621
1,179
8,800
Onerous Leases Due
to Impairment
Other Onerous
Leases
68
–
(31)
(25)
12
314
(12)
314
468
35
(348)
(146)
9
–
(9)
–
4,965
673
5,638
Total
536
35
(379)
(171)
21
314
(21)
314
On December 31, 2014, $314 was recorded as a provision for onerous leases due to impairment in relation to the
Company exiting the U.S. market as described in Note 15.
December 31, 2014
December 31, 2013
96
218
314
21
–
21
Current
Non-current
92 | easyhome Ltd.
13. SHARE CAPITAL
Authorized Capital
The authorized capital of the Company consisted of an unlimited number of common shares with no par value and an
unlimited number of preference shares.
Each common share represents a shareholder’s proportionate undivided interest in the Company. Each common share
confers to its holder the right to one vote at any meeting of shareholders and to participate equally and rateably in any
dividends of the Company. The common shares are listed for trading on the Toronto Stock Exchange.
Common Shares Issued and Outstanding
The changes in common shares are summarized as follows:
Year Ended
December 31, 2014
Year Ended
December 31, 2013
# of shares (in 000’s)
$
# of shares (in 000’s)
13,289
79,923
–
39
2
–
403
38
11,940
1,347
–
2
$
60,885
19,020
–
18
13,330
80,364
13,289
79,923
Balance, beginning of the period
Common share equity offering
Exercise of stock options
Dividend reinvestment plan
Balance, end of the period
Common Share Equity Offering
On November 12, 2013, the Company and a syndicate of underwriters completed a common share equity offering
for 1,346,900 common shares of the Company at a price of $14.85 per common share. The Company received gross
proceeds of $20.0 million and net proceeds of $19.0 million (including cash proceeds of $18.7 million and a deferred tax
benefit of $0.3 million).
Dividends on Common Shares
For the year ended December 31, 2014, the Company paid dividends of $4.5 million (2013 – $4.1 million) or $0.34 per share
(2013 – $0.34 per share). The Company declared a dividend of $0.085 per share on November 6, 2014 to shareholders of
record on December 29, 2014, payable on January 9, 2015. The dividend paid on January 9, 2015 was $1.1 million.
2014 Annual Report | 93
14. STOCK-BASED COMPENSATION
Share Option Plan
Under the Company’s stock option plan, options to purchase common shares may be granted by the Board of Directors
to directors, officers and employees. Options are generally granted at exercise prices equal to the fair market value at
the grant date, vest at the end of a three-year period based on earnings per share targets and have exercise lives of five
years. The aggregate number of common shares reserved for issuance and which may be purchased upon the exercise
of options granted pursuant to the plan shall not exceed 2.0 million common shares.
Outstanding balance, beginning of year
Options granted
Options exercised
Options forfeited or expired
Outstanding balance, end of year
Exercisable balance, end of year
Year Ended
December 31, 2014
Year Ended
December 31, 2013
# of Options
(in 000’s)
Weighted Average
Exercise Price
$
# of Options
(in 000’s)
Weighted Average
Exercise Price
$
538
190
(39)
(88)
601
203
9.81
17.52
8.54
13.39
11.81
8.73
518
202
–
(182)
538
238
13.05
9.61
–
18.81
9.81
10.44
Outstanding options to directors, officers and employees as at December 31, 2014 were as follows:
Range of Exercise
Prices
$
8.00 – 10.99
11.00 – 14.99
15.00 – 19.99
20.00 – 24.99
8.00 – 24.99
Outstanding
Weighted Average
Remaining
Contractual
Life in Years
Weighted Average
Exercise Price
$
1.92
–
4.17
4.67
2.64
9.16
–
17.12
24.45
11.81
Options
# (in 000’s)
410
–
180
11
601
Exercisable
Options
# (in 000’s)
203
–
–
–
203
Weighted Average
Exercise Price
$
8.73
–
–
–
8.73
The Company used the fair value method of accounting for stock options granted to employees and directors. During
the year ended December 31, 2014, the Company granted 190,332 options (2013 – 202,296 options), and recorded an
expense of $402 (2013 – expense of $208), in stock-based compensation expense in the consolidated statements of
income, with a corresponding adjustment to contributed surplus.
Options granted during 2014 were determined using the Black-Scholes option pricing model with the following
assumptions, resulting in a weighted average fair value of $4.85 per option.
Risk-free interest rate (% per annum)
Expected hold period to exercise (years)
Volatility in the price of the Company’s shares (%)
Dividend yield (%)
94 | easyhome Ltd.
2014
1.34
5.00
37.14
2.00
2013
1.25
5.00
38.31
3.54
Restricted Share Unit [“RSU”] Plan
On May 8, 2014, the Company’s shareholders approved a resolution to amend the RSU Plan, increasing the maximum
number of Common Shares reserved for issuance from treasury under the RSU Plan by 150,000 shares, from 615,000
to 765,000 shares.
During the year ended December 31, 2014, the Company granted 171,460 RSUs (2013 – 414,610 RSUs) to employees of
the Company under its RSU Plan. RSUs are granted at fair market value at the grant date and generally vest at the end
of a three-year period based on long-term targets. For the year ended December 31, 2014, $1,764 (2013 – $765) was
recorded as an expense in stock-based compensation expense in the consolidated statements of income. Additionally,
for the year ended December 31, 2014, an additional 5,926 RSUs (2013 – 5,229 RSUs) were granted as a result of
dividends declared.
Performance Share Unit [“PSU”] Plan
During the year ended December 31, 2014, the Company granted 171,134 PSUs (2013 – 295,486 PSUs) to senior executives
of the Company under its PSU Plan. On July 30, 2014, the PSUs granted in 2014 were cancelled in exchange for an
equivalent number of RSUs that were granted to senior executives of the Company (see RSU Plan described above).
PSUs are granted at fair market value at the grant date and vest at the end of a three-year period based on long-term
targets. For the year ended December 31, 2014, $3,908 (2013 – $2,669) was recorded as an expense in stock-based
compensation expense in the consolidated statements of income. Additionally, for the year ended December 31, 2014,
an additional 11,270 PSUs (2013 – 28,225 PSUs) were granted as a result of dividends declared.
The PSU liability as at December 31, 2014 was $6,872 (2013 – $2,841).
Deferred Share Unit [“DSU”] Plan
During the year ended December 31, 2014, the Company granted 7,250 DSUs (2013 – 9,710 DSUs) to directors under its
DSU Plan. DSUs are granted at fair market value at the grant date and vest immediately upon grant. For the year ended
December 31, 2014, $190 (2013 – $160) was recorded as stock-based compensation expense under the DSU Plan in the
consolidated statements of income. Additionally, for the year ended December 31, 2014, an additional 2,232 DSUs (2013
– 3,678 DSUs) were granted as a result of dividends declared.
Equity-settled stock based compensation
Cash-settled stock based compensation
Stock based compensation
Year Ended
December 31, 2014
December 31, 2013
2,356
3,908
6,264
1,134
2,669
3,803
2014 Annual Report | 95
Contributed Surplus
The following is a continuity of the activity in the contributed surplus account:
Contributed surplus, beginning of year
Equity settled stock-based compensation expense
Stock options
Restricted share units
Deferred share units
Reduction due to exercise of stock options
Contributed surplus, end of year
15. RESTRUCTURING AND OTHER ITEMS
Proceeds on sale of U.S. royalty rights
Impairment of trademark
Impairment of fixed assets
Other restructuring charges
Restructuring and other items
Year Ended
December 31, 2014
December 31, 2013
4,169
402
1,764
190
2,356
(67)
6,458
3,035
208
766
160
1,134
–
4,169
Year Ended
December 31, 2014
December 31, 2013
4,742
(1,992)
(227)
(1,298)
1,225
–
–
–
–
–
During the fourth quarter of 2014, the Company decided to wind down its operations in the U.S. and focus on the Canadian
marketplace. This wind down involved the sale of the Company’s rights to future royalty payments from its franchisees,
the recognition of impairment provisions against certain intangible assets and property and equipment located in the
U.S. and the recording of other restructuring charges which consisted of provisions for onerous leases, severance and
other charges. For the year ended December 31, 2014, a net credit of $1.2 million was recorded as restructuring and
other charges within operating income. No further related charges are expected in future periods.
Subsequent to December 31, 2014, the Company continued to provide financial support to a small number of U.S.
franchise locations in accordance with the contractual relationships. These franchise locations were classified as SPEs
for financial reporting purposes.
96 | easyhome Ltd.
16. INCOME TAXES
The Company’s income tax provision was determined as follows:
Combined basic federal and provincial income tax rates
Expected income tax expense
Non-deductible expenses
U.S. and SPE results not tax effected
Other
Income tax expense
The significant components of the Company’s income tax expense were as follows:
Current income tax
Current income tax charge
Adjustments related to intercompany management fees and other
Deferred income tax
Relating to origination and reversal of temporary differences
Income tax expense
The significant components of the Company’s deferred tax assets are as follows:
Tax cost of lease assets and property and equipment in excess of net book value
Amounts receivable and provisions
Deferred salary arrangements
Lease inducements
Unearned revenue
Financing fees
Other
Deferred tax asset
Year Ended
December 31, 2014
December 31, 2013
27.2%
7,005
263
(764)
(459)
6,045
27.2%
5,249
241
(64)
(281)
5,145
Year Ended
December 31, 2014
December 31, 2013
7,990
784
(2,729)
6,045
3,704
850
591
5,145
December 31, 2014
December 31, 2013
444
3,342
2,546
100
239
213
(159)
6,725
(177)
2,054
1,043
659
232
382
(196)
3,997
During 2014, all changes to the deferred tax assets were recorded as an expense in deferred tax expense in the
consolidated statements of income. In 2013, the recognition of the deferred tax asset related to the commons share
equity offering completed on November 12, 2013 was recorded as a credit to share capital on the consolidated statements
of financial position.
At December 31, 2014, there was no recognized deferred tax liabilities (2013 – nil) for taxes that would be payable on the
undistributed earnings of the Company’s subsidiaries. The Company has determined that undistributed earnings of its
subsidiaries would not be distributed in the foreseeable future.
2014 Annual Report | 97
17. EARNINGS PER SHARE
Basic Earnings Per Share
Basic earnings per share amounts were calculated by dividing the net income for the year by the weighted average
number of ordinary shares and DSUs outstanding. DSUs were included in the calculation of the weighted average
number of ordinary shares outstanding as these units vest upon grant.
Net income
Weighted average number of ordinary shares outstanding (in 000’s)
Basic earnings per ordinary share
Year Ended
December 31, 2014
December 31, 2013
19,748
13,449
1.47
14,182
12,243
1.16
For the year ended December 31, 2014, 130,285 DSUs (2013 – 121,111 DSUs) were included in the weighted average
number of ordinary shares outstanding.
Diluted Earnings Per Share
Diluted earnings per share reflect the potential dilution that could occur if additional common shares are assumed to
be issued under securities that entitle their holders to obtain common shares in the future. The number of additional
shares for inclusion in diluted earnings per share was determined using the treasury stock method, whereby stock
options and warrants, whose exercise price is less than the average market price of the Company’s common shares,
were assumed to be exercised and the proceeds are used to purchase common shares at the average market price for
the period. The incremental number of common shares issued under stock options and warrants was included in the
calculation of diluted earnings per share.
Net income
Weighted average number of ordinary shares outstanding (in 000’s)
Dilutive effect of stock-based compensation (in 000’s)
Weighted average number of diluted shares outstanding
Dilutive earnings per ordinary share
Year Ended
December 31, 2014
December 31, 2013
19,748
13,449
495
13,944
1.42
14,182
12,243
66
12,309
1.15
For the year ended December 31, 2014, 182,332 stock options to acquire common shares (2013 – 237,367 options),
were considered anti-dilutive using the treasury stock method and therefore excluded in the calculation of diluted
earnings per share.
98 | easyhome Ltd.
18. NET CHANGE IN OTHER OPERATING ASSETS AND LIABILITIES
The net change in other operating assets and liabilities was as follows:
Amounts receivable
Prepaid expenses
Accounts payable and accrued liabilities
Dividends payable
Income taxes payable
Deferred lease inducements
Unearned revenue
Provisions
Year Ended
December 31, 2014
December 31, 2013
(9,302)
(272)
8,536
3
(887)
(146)
215
293
(1,670)
(735)
(8,854)
118
(287)
287
(159)
(515)
Net change in other operating assets and liabilities
(1,560)
(11,815)
Supplemental disclosures in respect of the consolidated statements of cash flows comprised the following:
Income taxes paid
Income taxes refunded
Interest paid
Interest received
Year Ended
December 31, 2014
December 31, 2013
9,694
61
7,637
62,568
5,438
331
4,978
36,639
The Company is committed to software maintenance, development and licensing service agreements, and operating
leases for premises and vehicles. The minimum annual lease payments plus estimated operating costs required for the
next five years and thereafter are as follows:
Premises
Other operating lease obligations
Other
Total contractual obligations
Within 1 year
After 1 year but not
more than 5 years
More than 5 years
25,990
1,065
7,280
34,335
44,948
1,615
10,250
56,813
2,689
26
–
2,715
During the year ended December 31, 2014, $24.0 million (2013 – $22.9 million) was recognized as an expense in the
consolidated statements of income in respect of operating leases.
The Company maintains an irrevocable standby letter of credit, issued from its credit facilities in the amount of $0.1
million, for its corporate office lease.
2014 Annual Report | 99
20. CONTINGENCIES
The Company was involved in various legal matters arising in the ordinary course of business. The resolution of these matters
is not expected to have a material adverse effect on the Company’s financial position, financial performance or cash flows.
The Company has agreed to indemnify its directors and officers and particular employees in accordance with the
Company’s policies. The Company maintains insurance policies that may provide coverage against certain claims.
21. CAPITAL RISK MANAGEMENT
The Company manages its capital to maintain its ability to continue as a going concern and to provide adequate returns
to shareholders by way of share appreciation and dividends. The capital structure of the Company consists of bank debt,
term debt and shareholders’ equity, which comprises issued share capital, contributed surplus and retained earnings.
The Company manages its capital structure and makes adjustments to it in light of economic conditions. The Company,
upon approval from its Board of Directors, will balance its overall capital structure through new share issues, share
repurchases, the payment of dividends, increasing or decreasing bank debt and term debt or by undertaking other
activities as deemed appropriate under specific circumstances. The Company’s strategy, objectives, measures,
definitions and targets have not changed significantly in the past year.
The Company has externally imposed capital requirements as governed through its financing facilities. These
requirements are to ensure the Company continues to operate in the normal course of business and to ensure
the Company manages its debt relative to net worth. The capital requirements are congruent with the Company’s
management of capital.
The Company monitors capital on the basis of its bank and term loan covenants as described in Note 11.
For the years ended December 31, 2014 and 2013, the Company was in compliance with all of its externally imposed
financial covenants.
22. FINANCIAL RISK MANAGEMENT
Overview
The Company’s activities are exposed to a variety of financial risks: credit risk, liquidity risk, interest rate risk and
currency risk. The Company’s overall risk management program focuses on the unpredictability of financial and
economic markets and seeks to minimize potential adverse effects on the Company’s financial performance.
Credit Risk
The maximum exposure to credit risk is represented by the carrying amount of the amounts receivable, consumer loans
receivable and lease assets with customers under merchandise lease agreements. The Company leases products and
makes consumer loans to thousands of customers pursuant to policies and procedures that are intended to ensure that
there is no concentration of credit risk with any particular individual, company or other entity, although the Company is
subject to a higher level of credit risk due to the credit constrained nature of many of the Company’s customers and in
circumstances where its policies and procedures are not complied with.
The credit risk related to lease assets with customer’s results from the possibility of customer default with respect to
agreed upon payments or in not returning the lease assets. The Company has a standard collection process in place
100 | easyhome Ltd.
in the event of payment default, which includes the recovery of the lease asset if satisfactory payment terms cannot
be worked out with the customer, as the Company maintains ownership of the lease assets until payment options are
exercised. Lease asset losses for the year ended December 31, 2014 represented 3.2% (2013 – 3.1%) of total revenue
for the easyhome Leasing segment.
The credit risk on the Company’s consumer loans receivable made in accordance with policies and procedures is impacted
by both the Company’s credit policies and the lending practices which are overseen by the Company’s senior management.
Credit quality of the customer is assessed based on a credit rating scorecard and individual credit limits are defined in
accordance with this assessment. The consumer loans receivable are unsecured. The Company evaluates the concentration
of risk with respect to customer loans receivable as low, as its customers are located in several jurisdictions and operate
independently. As at December 31, 2014, the Company’s gross loan portfolio was $192.2 million (2013 – $110.7 million).
The credit risk related to other amounts receivable are managed in accordance with policies and procedures resulting
from the possibility of default on rebate payments, amounts due from licensee and franchisees and other amounts
receivable. The Company deals with credible companies, performs ongoing credit evaluations of creditors and
consumers and allows for uncollectible amounts when determined to be appropriate.
Liquidity Risk
The Company addresses liquidity risk management by maintaining sufficient availability of funding through its committed
credit facility. The Company manages its cash resources based on financial forecasts and anticipated cash flows, which
are periodically reviewed with the Company’s Board of Directors.
The Company believes that the cash flow provided by operations and funds available from the credit facility will be sufficient
in the near term to meet operational requirements, purchase lease assets, meet capital spending requirements and pay
dividends. In addition, the incremental financing obtained through the credit facility will allow the Company to continue
growing its consumer loans receivable portfolio in 2015. In order for the Company to achieve the full growth opportunities
available, however, additional sources of financing over and above the currently available credit facility are required. There
is no certainty that these long-term sources of capital will be available or at terms favourable to the Company.
Substantially all liabilities are due within 12 months with the exception of the revolving operating facility and term loan,
which are due as disclosed in Note 11.
Interest Rate Risk
Interest rate risk measures the Company’s risk of financial loss due to adverse movements in interest rates. The Company
is subject to interest rate risk as the revolving operating facility bears interest at the lead lenders prime rate plus
200 to 300 bps, depending on the Company’s total debt to EBITDA ratio and the term loan bears interest at 722 bps over the
Canadian Bankers’ Acceptance rate. As at December 31, 2014, the interest rate on the revolving operating facility was 5.0%
per annum (2013 – 5.0% per annum) and the interest rate on the term loan was 8.5% per annum (2013 – 9.98% per annum).
The Company does not hedge interest rates. Accordingly, future changes in interest rates will affect the amount of
interest expense payable by the Company.
As at December 31, 2014, all of the Company’s borrowings were subject to movements in floating interest rates. A 1%
movement in the prime interest rate and bankers’ acceptance rate would have increased or decreased net income for
the year by approximately $928.
2014 Annual Report | 101
Currency Risk
Currency risk measures the Company’s risk of financial loss due to adverse movements in currency exchange rates.
The Company sources a portion of the assets it leases in Canada from U.S. suppliers. As a result, the Company has
foreign exchange transaction exposure. These purchases are funded using regular spot rate purchases. Pricing to
customers can be adjusted to reflect changes in the Canadian dollar landed cost of imported goods and, as such, there
is not a material foreign currency transaction exposure.
During 2014, the Company had foreign currency transaction exposure through its SPEs and franchise locations in the
United States.
The earnings of the Company’s U.S. subsidiaries and SPEs are translated into Canadian dollars each period. A 5%
movement in the Canadian and U.S. dollar exchange rate would have increased or decreased net income for the year
by approximately $152.
23. FINANCIAL INSTRUMENTS
Recognition and Measurement of Financial Instruments
The Company classified its financial instruments as follows:
Financial Instruments
Cash
Amounts receivable
Consumer loans receivable
Accounts payable and accrued liabilities
Revolving operating facility
Term loan
Measurement
December 31, 2014
December 31, 2013
Fair value
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
1,165
16,508
180,693
32,837
1,756
119,841
2,329
7,206
103,936
24,301
23,496
37,878
The carrying values of these financial instruments approximated their fair values.
Fair Value Measurement
All assets and liabilities for which fair value was measured or disclosed in the consolidated financial statements were
categorized within the fair value hierarchy, described as follows, based on the lowest level input that was significant to the fair
value measurement as a whole:
• Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities
• Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement
is directly or indirectly observable
• Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement
is unobservable
102 | easyhome Ltd.
The hierarchy required the use of observable market data when available. The following table provides the fair value
measurement hierarchy of the Company’s financial assets and liabilities measured at amortized cost as at December 31, 2014:
Amounts receivable
Consumer loans receivable
Accounts payable and accrued liabilities
Revolving operating facility
Term loan
Total
16,508
180,693
32,837
1,756
119,841
Level 1
Level 2
–
–
–
–
–
–
–
–
–
–
Level 3
16,508
180,693
32,837
1,756
119,841
There were no transfers between Level 1, Level 2, or Level 3 during the period.
24. RELATED PARTY TRANSACTIONS
The following summarizes the expense related to key management personnel during the reporting periods.
Short-term employee benefits including salaries
Share-based payment transactions
25. SEGMENTED REPORTING
Year Ended
December 31, 2014
December 31, 2013
3,631
4,281
7,912
2,864
2,381
5,245
For management purposes, the Company had two reportable segments: easyhome Leasing and easyfinancial.
Accounting policies for each of these business segments were the same as those disclosed in note 3. General and
administrative expenses directly related to the Company’s business segments were included as operating expenses for
those segments. All other general and administrative expenses were reported separately. Management assessed the
performance based on segment operating income (loss). The following tables summarize the relevant information for
the years ended December 31, 2014 and 2013:
Year Ended
December 31, 2014
Revenue
Total operating expenses before depreciation
and amortization and restructuring and
other items
Restructuring and other items
Depreciation and amortization
Segment operating income (loss)
Finance costs
Income (loss) before income taxes
easyhome Leasing
easyfinancial
Corporate
158,322
100,828
–
Total
259,150
81,305
–
52,711
24,306
–
24,306
64,524
–
3,298
33,006
–
33,006
23,312
169,141
(1,225)
632
(22,719)
8,800
(31,519)
(1,225)
56,641
34,593
8,800
25,793
2014 Annual Report | 103
104 | easyhome Ltd.
Year EndedDecember 31, 2013easyhome LeasingeasyfinancialCorporate TotalRevenue160,29658,518–218,814Total operating expenses before depreciation and amortization82,77838,43518,924140,137Depreciation and amortization51,2101,91858453,712Segment operating income (loss)26,30818,165(19,508)24,965Finance costs––5,6385,638Income (loss) before income taxes26,30818,165(25,146)19,327The Company operated across Canada and in certain U.S. states. During the year ended December 31, 2014, 97% or $251.3 million of revenue was generated in Canada and 3% or $7.9 million of revenue was generated in the U.S. (2013 – 97% or $212.1 million of revenue was generated in Canada and 3% or $6.7 million of revenue was generated in the U.S.). Additionally, as at December 31, 2014, $309.0 million of the Company’s assets were located in Canada and $10.5 million were located in the U.S. (2013 – $224.3 million in Canada and $8.6 million in the U.S.). As at December 31, 2014, the Company’s goodwill of $20.0 million (2013 – $20.0 million) related entirely to its easyhome Leasing segment.The Company’s easyhome Leasing business consisted of four major product categories: furniture, electronics, computers and appliances. Lease revenue generated by these product categories as a percentage of total lease revenue for the years ended December 31, 2014 and 2013 was as follows:Year EndedDecember 31, 2014 (%)December 31, 2013(%)Furniture3838Electronics3432Computers1618Appliances121210010026. SUBSEQUENT EVENTOn February 10, 2015, the Company acquired the lease rights and obligations as well as certain related assets for 45 retail locations across Canada. These retail locations will be opened as new easyfinancial branches which will provide consumer loans to Canadian consumers. C O R P O R A T E I N F O R M A T I O N
Head Office
33 City Centre Drive
Suite 510
Mississauga, Ontario
L5B 2N5
Tel:
(905) 272-2788
Fax: (905) 272-9886
Investor Relations
David Ingram
President & Chief Executive Officer
Tel:
(905) 272-2788
Steve Goertz
Executive Vice President
& Chief Financial Officer
Tel:
(905) 272-2788
Bankers
Canadian Imperial Bank
of Commerce
Toronto, Ontario
Transfer Agents
TMX Equity Transfer Services
Toronto, Ontario
Listed
Toronto Stock Exchange
Trading Symbol: EH
Auditors
Ernst & Young LLP
Toronto, Ontario
Solicitors
Torys LLP
Toronto, Ontario
Website
www.easyhome.ca
Board of Directors
Corporate Officers
Donald K. Johnson
Chairman of the Board
David Ingram
President & Chief Executive Officer
David Ingram
President & Chief Executive Officer, easyhome Ltd.
Steven Goertz
Executive Vice President & Chief Financial Officer
David A. Lewis
Corporate Director
David Appel
Corporate Director
Jason Mullins
Executive Vice President & Chief Operating Officer
Andrea Fiederer
Senior Vice President & Chief Marketing Officer
Sean Morrison
Managing Director, Maxim Capital Corp.
Jason Appel
Senior Vice President, Risk and Analytics
David J. Thomson
Corporate Director
Karen Basian
Chief Executive Officer, Beehive5
James Ferguson
Senior Vice President, Retail
Shane Pennell
Senior Vice President, Operations and Shared Services
David Yeilding
Senior Vice President, Finance
Jay Guyatt
Vice President, General Counsel and Corporate Secretary
33 City Centre Drive, Suite 510,
Mississauga, Ontario L5B 2N5
Tel: (905) 272-2788 Fax: (905) 272-9886
www.easyhome.ca