Nuclear Power Generating Equipment in Canada: A Strategic Reference, 2003

Nuclear Power Generating Equipment in Canada: A Strategic Reference, 2003

Edited by

Philip M. Parker, Ph.D. Eli Lilly Chair Professor of Innovation, Business and Society INSEAD (Fontainebleau & Singapore)

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About Icon Group International, Inc. Icon Group International, Inc.’s primary mission is to assist managers with their international information needs. U.S.-owned and operated, Icon Group has field offices in Paris, Hong Kong, and Lomé, Togo (West Africa). Created in 1994, Icon Group has published hundreds of multi-client databases, and global/regional market data, industry and country publications. Global/Regional Management Studies: Summarizing over 190 countries, management studies are generally organized into regional volumes and cover key management functions. The human resource series covers minimum wages, child labor, unionization and collective bargaining. The international law series covers media control and censorship, search and seizure, and trial justice and punishment. The diversity management series covers a variety of environmental context drivers that effect global operations. These include women’s rights, children’s rights, discrimination/racism, and religious forces and risks. Global strategic planning studies cover economic risk assessments, political risk assessments, foreign direct investment strategy, intellectual property strategy, and export strategies. Financial management studies cover taxes and tariffs. Global marketing studies focus on target segments (e.g. seniors, children, women) and strategic marketing planning. Country Studies: Often managers need an in-depth, yet broad and up-to-date understanding of a country’s strategic market potential and situation before the first field trip or investment proposal. There are over 190 country studies available. Each study consists of analysis, statistics, forecasts, and information of relevance to managers. The studies are continually updated to insure that the reports have the most relevant information available. In addition to raw information, the reports provide relevant analyses which put a more general perspective on a country (seen in the context of relative performance vis-à-vis benchmarks). Industry Studies: Companies are racing to become more international, if not global in their strategies. For over 2000 product/industry categories, these reports give the reader a concise summary of latent market forecasts, pro-forma financials, import competition profiles, contacts, key references and trends across 200 countries of the world. Some reports focus on a particular product and region (up to four regions per product), while others focus on a product within a particular country.

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Table of Contents 1

INTRODUCTION & METHODOLOGY.............................................................................1

1.1

What Does This Report Cover?

1

1.2

How to Strategically Evaluate Canada

1

1.3

Latent Demand and Accessibility in Canada

3

2 2.1

NUCLEAR POWER GENERATING EQUIPMENT IN CANADA..................................5 Latent Demand and Accessibility: Background

5

2.2 Latent Demand: Aspects of Interest 5 2.2.1 Market Size ................................................................................................................................................ 5 2.2.2 Latent Demand: Dynamics ......................................................................................................................... 6 2.2.3 Import Market ............................................................................................................................................ 6 2.3 Accessibility: The Structure of Competition 6 2.3.1 Latent Demand: Target Buyers .................................................................................................................. 7 2.4 Accessibility: Key Factors 7 2.4.1 Latent Demand: Leading Segments............................................................................................................ 7 2.4.2 Export Services in Canada ......................................................................................................................... 8

3

FINANCIAL INDICATORS: ELECTRIC SERVICES......................................................9

3.1 Overview 9 3.1.1 Financial Returns and Gaps in Canada....................................................................................................... 9 3.1.2 Labor Productivity Gaps in Canada ......................................................................................................... 12 3.1.3 Limitations and Extensions ...................................................................................................................... 13 3.2 Financial Returns in Canada: Asset Structure Ratios 14 3.2.1 Overview .................................................................................................................................................. 14 3.2.2 Assets – Definitions of Terms .................................................................................................................. 14 3.2.3 Asset Structure: Outlook .......................................................................................................................... 17 3.2.4 Large Variances: Assets ........................................................................................................................... 18 3.2.5 Key Percentiles and Rankings .................................................................................................................. 21 3.3 Financial Returns in Canada: Liability Structure Ratios 29 3.3.1 Overview .................................................................................................................................................. 29 3.3.2 Liabilities and Equity – Definitions of Terms .......................................................................................... 29 3.3.3 Liability Structure: Outlook ..................................................................................................................... 31 3.3.4 Large Variances: Liabilities ..................................................................................................................... 32 3.3.5 Key Percentiles and Rankings .................................................................................................................. 35 3.4 Financial Returns in Canada: Income Structure Ratios 42 3.4.1 Overview .................................................................................................................................................. 42 3.4.2 Income Statements – Definitions of Terms .............................................................................................. 42 3.4.3 Income Structure: Outlook ....................................................................................................................... 45 3.4.4 Large Variances: Income.......................................................................................................................... 46 3.4.5 Key Percentiles and Rankings .................................................................................................................. 49

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3.5 Financial Returns in Canada: Profitability Ratios 57 3.5.1 Overview .................................................................................................................................................. 57 3.5.2 Ratios – Definitions of Terms .................................................................................................................. 57 3.5.3 Ratio Structure: Outlook .......................................................................................................................... 59 3.5.4 Large Variances: Ratios ........................................................................................................................... 60 3.5.5 Key Percentiles and Rankings .................................................................................................................. 63 3.6 Productivity in Canada: Asset-Labor Ratios 71 3.6.1 Overview .................................................................................................................................................. 71 3.6.2 Asset to Labor: Outlook ........................................................................................................................... 72 3.6.3 Asset to Labor: International Gaps........................................................................................................... 73 3.6.4 Key Percentiles and Rankings .................................................................................................................. 76 3.7 Productivity in Canada: Liability-Labor Ratios 84 3.7.1 Overview .................................................................................................................................................. 84 3.7.2 Liability to Labor: Outlook ...................................................................................................................... 85 3.7.3 Liability and Equity to Labor: International Gaps.................................................................................... 86 3.7.4 Key Percentiles and Rankings .................................................................................................................. 89 3.8 Productivity in Canada: Income-Labor Ratios 96 3.8.1 Overview .................................................................................................................................................. 96 3.8.2 Income to Labor: Outlook ........................................................................................................................ 97 3.8.3 Income to Labor: Gaps ............................................................................................................................. 98 3.8.4 Key Percentiles and Rankings ................................................................................................................ 101

4

MACRO-ACCESSIBILITY IN CANADA .......................................................................109

4.1 Executive Summary 109 4.1.1 Market Entry Vehicles............................................................................................................................ 109 4.2 Economic Fundamentals and Dynamics 109 4.2.1 Government Intervention Risks.............................................................................................................. 110 4.2.2 Balance of Payments Issues ................................................................................................................... 110 4.2.3 Economic Relationship with the United States ...................................................................................... 110 4.3 Infrastructure Development 110 4.3.1 Transportation ........................................................................................................................................ 110 4.3.2 Information Technology......................................................................................................................... 111 4.4

Political System

111

4.5 Marketing Strategies 112 4.5.1 Distribution Channel Options................................................................................................................. 112 4.5.2 Creating a Sales Officce ......................................................................................................................... 114 4.5.3 Marketing Factors .................................................................................................................................. 114 4.5.4 Advertising Options ............................................................................................................................... 115 4.5.5 Pricing Issues.......................................................................................................................................... 115 4.5.6 Public Sector Marketing......................................................................................................................... 116 4.5.7 Services Industries.................................................................................................................................. 117 4.5.8 Intellectual Property Risks ..................................................................................................................... 118 4.5.9 Hiring Local Counsel ............................................................................................................................. 119 4.5.10 Regional Marketing Differences in Canada ........................................................................................... 119 4.5.11 Trade Barriers......................................................................................................................................... 123 4.5.12 Local Standards ...................................................................................................................................... 123

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Government Procurement....................................................................................................................... 124 Provincial Liquor Boards ....................................................................................................................... 124 Services .................................................................................................................................................. 124 “Cultural Industries”............................................................................................................................... 124 Investment Barriers ................................................................................................................................ 124 Controls on Exports................................................................................................................................ 125 Import Documentation Requirements .................................................................................................... 125 Entering Temporary Imports .................................................................................................................. 125 Labeling Issues....................................................................................................................................... 126 Restrictions on Imports .......................................................................................................................... 126 Local Standards ...................................................................................................................................... 127 Free Trade Zone Options........................................................................................................................ 128 Adherence to Free Trade Agreements .................................................................................................... 128

4.6 Openness to Foreign Investment 128 4.6.1 Legal Framework ................................................................................................................................... 129 4.6.2 Investments in “Cultural Industries” ...................................................................................................... 131 4.6.3 Investments in the Financial Sector........................................................................................................ 131 4.6.4 Investments in Other Sectors.................................................................................................................. 132 4.6.5 Investment Incentives............................................................................................................................. 132 4.6.6 Intellectual Property Risks ..................................................................................................................... 133 4.6.7 Performance Requirements and Incentives ............................................................................................ 133 4.6.8 Regulatory System ................................................................................................................................. 133 4.6.9 Labor ...................................................................................................................................................... 133 4.6.10 Expropriation and Compensation ........................................................................................................... 134 4.6.11 Dispute Settlement ................................................................................................................................. 134 4.6.12 Political Violence ................................................................................................................................... 134 4.6.13 Bilateral Investment Agreements ........................................................................................................... 134 4.6.14 Capital Outflow Policy........................................................................................................................... 135 4.7 Trade and Project Financing 135 4.7.1 The Banking System .............................................................................................................................. 135 4.7.2 Foreign Exchange Control Risks............................................................................................................ 135 4.7.3 General Financing Availability .............................................................................................................. 135 4.7.4 Export Financing .................................................................................................................................... 135 4.7.5 Terms of Payment .................................................................................................................................. 136 4.7.6 Financing Insurance ............................................................................................................................... 136 4.7.7 Financing Projects .................................................................................................................................. 136 4.8 Travel Issues 136 4.8.1 Local Business Practices ........................................................................................................................ 136 4.8.2 Travel Advisory and Visas ..................................................................................................................... 137 4.8.3 Transportation Infrastructure.................................................................................................................. 137 4.8.4 Language ................................................................................................................................................ 138 4.8.5 Telecommunications .............................................................................................................................. 138 4.8.6 Health and Food ..................................................................................................................................... 138 4.9

Economic and Trade Statistics

139

4.10 Contact Information 140 4.10.1 U.S. Embassy and Consulates in Canada ............................................................................................... 140 4.10.2 US-Canadian Bilateral Business Councils, Chambers of Commerce, and Others ................................. 141 4.10.3 Canadian Trade and Industry Associations ............................................................................................ 141 4.10.4 Federal Canadian Government Contacts in Canada ............................................................................... 143 www.icongrouponline.com

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Canadian Commercial Banks ................................................................................................................. 145 U.S. Commercial Banks in Canada ........................................................................................................ 146 U.S. Government Contacts in the United States..................................................................................... 146 Canadian Government Contacts in the United States............................................................................. 147 Newspapers ............................................................................................................................................ 148 Advertising and Business Publications............................................................................................... 150

Market Research

150

DISCLAIMERS, WARRANTEES, AND USER AGREEMENT PROVISIONS .........151

5.1

Disclaimers & Safe Harbor

151

5.2

Icon Group International, Inc. User Agreement Provisions

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1 1.1

INTRODUCTION & METHODOLOGY WHAT DOES THIS REPORT COVER?

The primary audience for this report is managers involved with the highest levels of the strategic planning process and consultants who help their clients with this task. The user will not only benefit from the hundreds of hours that went into the methodology and its application, but also from its alternative perspective on strategic planning relating to nuclear power generating equipment in Canada. As the editor of this report, I am drawing on a methodology developed at INSEAD, an international business school (www.insead.edu). For any given industry or sector, including nuclear power generating equipment, the methodology decomposes a country’s strategic potential along four key dimensions: (1) latent demand, (2) micro-accessibility, (3) proxy operating proforma financials, and (4) macro-accessibility. A country may have very high latent demand, yet have low accessibility, making it a less attractive market than many smaller potential countries having higher levels of accessibility. With this perspective, this report provides both a micro and a macro strategic profile of nuclear power generating equipment in Canada. It does so by compiling published information that directly relates to latent demand and accessibility, either at the micro or macro level. The reader new to Canada can quickly understand where Canada fits into a firm’s strategic perspective. In Chapter 2, the report investigates latent demand and micro-accessibility for nuclear power generating equipment in Canada. In Chapters 3 and 4, the report covers proxy operating proforma financials and macro-accessibility in Canada. Macro-accessibility is a general evaluation of investment and business conditions in Canada.

1.2

HOW TO STRATEGICALLY EVALUATE CANADA

Perhaps the most efficient way of evaluating Canada is to consider key dimensions which themselves are composites of multiple factors. Composite portfolio approaches have long been used by strategic planners. The biggest challenge in this approach is to choose the appropriate factors that are the most relevant to international planning. The two measures of greatest relevance to nuclear power generating equipment are “latent demand” and “market accessibility”. The figure below summarizes the key dimensions and recommendations of such an approach. Using these two composites, one can prioritize all countries of the world. Countries of high latent demand and high relative accessibility (e.g. easier entry for one firm compared to other firms) are given highest priority. The figure below shows two different scenarios. Accessibility is defined as a firm’s ease of entering or supplying from or to a market (the “supply side”), and latent demand is an indicator of the potential in serving from or to the market (the “demand side”).

Introduction & Methodology

2

Framework for Prioritizing Countries Demand/Market Potential Driven Firm

High

Highest Priority

High Priority Latent Demand

Moderate Priority Low Priority

Low

Lowest Priority Low

High Relative Accessibility

Accessibility/Supply Averse Firm High Highest Priority High Priority Latent Demand

Moderate Priority Low Priority

Lowest Priority Low High

Low Relative Accessibility

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Introduction & Methodology

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In the top figure, the firm is driven by market potential, whereas the bottom figure represents a firm that is driven by costs or by an aversion to difficult markets. This report treats the reader as coming from a “generic firm” approaching the global market – neither a market-driven nor a costdriven company. Planners must therefore augment this report with their own company-specific factors that might change the priorities (e.g. a Canadian firm may have higher accessibility in Canada than a German firm).

1.3

LATENT DEMAND AND ACCESSIBILITY IN CANADA

This report provides a detailed overview of factors driving latent demand and accessibility for nuclear power generating equipment in Canada. Latent demand is largely driven by economic fundamentals specific to nuclear power generating equipment. This topic is discussed in Chapter 2 using work carried out in Canada on behalf of American firms and authored by the United States government (typically commercial attachés or similar persons in local offices of the U.S. Department of State). I have included a number of edits to clarify the information provided. Latent demand only represents half of the picture. Chapter 2 also deals with micro-accessibility for nuclear power generating equipment in Canada. I use the term “micro” since the discussion is focused specifically on nuclear power generating equipment. Chapter 3 is also a stand-alone report that I have authored. It covers proxy pro-forma financial indicators of firms operating in Canada. I use the word “proxy” because the provided figures only cover a “what if” scenario, based on actual operating results for firms in Canada. The numbers are only indicative of an average firm whose primary activity is in Canada. It covers a vertical analysis of the maximum likelihood balance sheet, income statement, and financial ratios of firms operating in Canada. It does so for a particular Standard Industrial Classification (SIC) code. That code covers “electric services”, as defined in Chapter 3. Again, while “electric services” does not exactly equate to “nuclear power generating equipment”, it nevertheless gives an indicator of how Canada compares to other countries for a proxy adjacent category along various dimensions. Chapter 4 deals with macro-accessibility and covers factors that go beyond nuclear power generating equipment. A country may at first sight appear to be attractive due to a high latent demand, but it is often less attractive when one considers at the macro level how easy it might be to serve that entire potential and/or general business risks. While accessibility will always vary from one company to another for a given country, the following domains are typically considered when evaluating macro-accessibility in Canada: •

Openness to Trade in Canada

•

Openness to Direct Investment in Canada

•

Local Marketing and Entry Strategy Alternatives

•

Local Human Resources

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Introduction & Methodology •

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Local Risks

Across these domains, a number of not-so-obvious factors can affect accessibility and risk. These are covered in the Chapter 4, which is a general overview of investment and business conditions in Canada. Chapter 4 is also presented from the perspective of an American firm, though is equally applicable to most firms entering Canada. This chapter is also authored by local offices of the U.S. government, as is Chapter 2. Likewise, I have included a number of edits to clarify the provided information as it relates to the general strategic framework mentioned earlier.

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2

2.1

NUCLEAR POWER GENERATING EQUIPMENT IN CANADA LATENT DEMAND AND ACCESSIBILITY: BACKGROUND

The U.S. Commercial Service in Toronto believes that the market for nuclear generating equipment in Canada will experience substantial growth over the course of the next two to four years. In Ontario, The Ontario Power Generation and Bruce Power will upgrade six reactors that were decommissioned in 1997. This growth will be further bolstered if Canada is awarded the ITER project, an international fusion demonstration program worth an estimated US$8.6 billion (C$13 billion). The United States is currently a principal supplier for nuclear generating equipment in Canada and U.S. companies are well positioned to increase their market presence. We encourage U.S. companies to contact the U.S. Commercial Service for assistance with increasing their export potential in this growing segment of the energy market.

2.2

LATENT DEMAND: ASPECTS OF INTEREST

Export opportunities are growing in Canada for U.S. manufacturers of nuclear generating equipment . The recent statement by the Canadian Nuclear Association regarding the planned restoration of six nuclear reactors in Ontario by 2004 means that roughly 20 percent (78 million megawatt hours) of Canada’s total electricity requirements will be supplied by nuclear power. Ontario Power Generation (OPG), Ontario's primary electricity supplier, plans to upgrade four reactors at their Pickering Station and Bruce Power plans to restart two reactors at their Tiverton, Ontario facility. Bruce Power is a leasing partnership between OPG and British Energy. The Atomic Energy of Canada Ltd. (AECL) conducts research, development and basic CANDU (Canada Deuterium Uranium) reactor design and engineering work. The AECL also markets the CANDU reactor in international markets and manages reactor-building projects. Fourteen of Canada's 22 CANDU nuclear power reactors are currently in operation in the provinces of Ontario (12), Quebec (1) and New Brunswick (1). Combined they provide about 14 percent of all the electricity produced in the country and nearly half of the electricity used in Ontario. The other eight reactors, all located in Ontario, were shut down in 1997. Currently, many of Canada’s CANDU nuclear reactors have reached, or exceeded, half of their expected operating lifetime. Nuclear reactors at Gentilly-2 facility in Quebec and Point LePreau plant in New Brunswick are currently operating at reduced power due to aging issues. Public Works and Government Services Canada recently issued a tender for a research study to assess the implications of these aging power facilities. On May 1, 2002, the Ontario government officially opens its US$6.5 billion (CDN$10 billion) electricity market to competition. The open energy market in Ontario will create demand for new power generation in the next two to four years. To fill this demand, OPG and Bruce Power plan to upgrade six nuclear reactors in Ontario with new nuclear generating equipment and technologies.

2.2.1

Market Size

The total nuclear reactor upgrade market in Canada is estimated to be US$1.7 billion (C$2.7 billion) over the next five years. Canada's 22 nuclear reactors are distributed among five nuclear plants located in the provinces of Ontario (3), Quebec (1) and New Brunswick (1). Ontario is in the forefront of restoring their nuclear facilities. OPG states that they will have the first of four nuclear reactors at their Pickering nuclear plant returned to service in the third quarter of 2002. OPG plans to bring on-line the other three reactors at approximately six-month intervals, at a total

Nuclear Power Generating Equipment

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cost of US$950 million (C$1.5 billion). Bruce Power, the only other nuclear power generator in Ontario, announced that they have started a program to return two nuclear reactors back to service by the summer of 2003, at a cost of US$220 million (C$340 million). HydroQuebec has launched a rehabilitation study for their Gentilly-2 reactor near Trois Rivieres. The results of the study and an announcement of future restoration plans for the plant is not expected until 2003. New Brunswick Power has started an assessment and feasibility study to replace pressure and feeder tubes at its Point LePreau nuclear station. They also announced plans to upgrade the plant starting in 2006. Their total investment is projected to be US$550 million (C$845 million).

2.2.2

Latent Demand: Dynamics

Technology and competition are shaping the future of nuclear generating equipment in Canada. New technological advancements that reduce operating and maintenance costs will be in high demand as Canada undergoes refurbishment of its nuclear facilities. Competition in a newly deregulated market in Ontario will increase pressure on nuclear energy generators to become a low cost supplier of electricity competing directly with other forms of power generation namely, coal-fired, gas-operated and hydroelectric plants. U.S. manufacturers have a technical edge over their competitors and are well positioned to benefit from the growing nuclear generating equipment market. Canada’s expertise in producing and handling tritium and deuterium has contributed to Canada’s leading position as the host country for the US$8.6 billion ITER project, an internationally financed fusion demonstration reactor. Canada, France, Germany, Japan, and Russia are vying for the world’s second largest collaborative research and development investment. A decision on the site location is expected in the later part of 2002 with construction scheduled to begin in 2003. If Canada wins the ITER bid, additional business opportunities will be created for U.S. exporters of nuclear generating equipment and related engineering services.

2.2.3

Import Market

The North America Free Trade Agreement (NAFTA) has eliminated all tariffs on nuclear generating equipment, giving U.S. exporters an edge over third country suppliers like France, Germany, and the United Kingdom. According to Statistics Canada, total imports of nuclear reactor related products (HS 8401) in Canada were US$1.7 billion (C$2.59 million) in 2001, an increase of 69.3 percent over 2000. One-third of these imports came from the United States. The potential for increased U.S. imports for this market segment will be driven by the restoration of Canada’s aging nuclear reactors. If Canada is awarded the ITER project, the market demand for nuclear generating equipment will increase. In past years, the import market for nuclear generating equipment has been characterized by ups and downs due to a drawn-out deregulating process in Ontario and a very long sales cycle associated with nuclear reactors. Canada's AECL has sold five nuclear reactors worldwide in the last ten years, a considerable amount by industry standards.

2.3

ACCESSIBILITY: THE STRUCTURE OF COMPETITION

The main domestic manufacturers of nuclear generating equipment in Canada include Babcock & Wilcox Canada, Bot Engineering Limited, General Electric Canada Inc. (Nuclear Division), Invar Manufacturing Limited, Siemens Canada Inc., and Zircatec Precision Industries Inc.. General Electric Canada Inc. has been steadily getting out of the

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Nuclear Power Generating Equipment

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nuclear component manufacturing in Canada. According to the AECL, GE Canada did not bid on recent supplier contracts for AECL’s nuclear reactors in China and Korea.

2.3.1

Latent Demand: Target Buyers

U.S. firms supplying components for nuclear reactors have excellent opportunities to sell to the Atomic Energy of Canada Limited (AECL) and Canadian energy generators such as OPG, Bruce Power, HydroQuebec and New Brunswick Power. Each organization has specific procurement policies and all have approved supplier lists from which they source many of their products and services for the operation and maintenance of their nuclear facilities. The AECL recently completed its purchasing contracts for the construction of its overseas nuclear facilities, two of which are in China and four in the Republic of Korea. An AECL official confirmed that large proportions of these supplier contracts were signed with U.S. manufacturers. U.S. exporters have additional export opportunities with AECL by having their products utilized in CANDU reactors that are currently in operation in Argentina (1), India (2), Pakistan (1), and Romania (1).

2.4

ACCESSIBILITY: KEY FACTORS

New U.S. firms seeking to enter into the Canadian nuclear marketplace have an existing competitive advantage due to the fact that a significant number of U.S. firms supply nuclear components to the Canadian nuclear industry. OPG, Ontario’s leading electricity supplier, stated that approximately 40 percent of the nuclear components purchased for OPG’s reactors come from the United States. U.S. companies can also sell their products and services to engineering firms such as Canatom NPM Inc., the largest private sector engineering company in Canada engaged in engineering, procurement, project management and construction for the nuclear industry in Canada. To become a qualified supplier, U.S. firms must provide detailed company information and documentation concerning quality assurance programs for the product being sold as well as other pertinent information such as a line card. Some Canadian organizations may want to conduct a further quality assurance audit before a supply contract can be signed. Availability of technical assistance, engineering consulting, training, and installation support are essential for U.S. suppliers who want to achieve long-term sales and profitability in the Canadian market. OPG’s Nuclear Fuel & Strategic Supply department maintains long-term supply planning and strategic procurement with key suppliers through negotiation, contract development and procurement support for major projects. Currently, OPG is trying to reduce the number of suppliers it maintains in its vendor database, through corporate alliances, commodity agreements and blanket contracts.

2.4.1

Latent Demand: Leading Segments

New technological advancements that facilitate nuclear station operation and performance that can significantly enhance predictive and preventative maintenance practices will be of significant interest to nuclear equipment buyers. Best prospects in this market segment include computer and remote inspection systems, instrumentation and control systems, fluid sealing technology, fuel channel services, robotic systems for radioactive environments, safety equipment, spare & replacement parts, testing & analysis equipment, used fuel storage equipment, refurbishment equipment and services, high-level and low-level waste management equipment.

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Nuclear Power Generating Equipment

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Export Services in Canada

The U.S. Commercial Service provides U.S. firms with a wide range of cost effective business development services in Canada, including market research, corporate matchmaking, and assistance with finding agents and distributors. With professionally staffed offices throughout Canada, we can help U.S. firms promote their products and services and realize their full export potential. Call us today and find out how we can help you join the largest trading relationship in the world. Additional information on Canada can be found on the Web at www.buyusa.com. This B2B market place provides you with customized international trade counseling, international market research on countries and industries worldwide and exposure for your company at global promotional events. For additional information and assistance on this report, please contact Peter D. Dykeman, Commercial Specialist, in Toronto by Tel: (416) 595 5412 ext. 226; Fax (416) 595 5419; or E-mail [email protected]. U.S. Commercial Service offices in Canada can be reached at the following telephone numbers: •

CS Calgary: (403) 265-2116

•

CS Halifax: (902) 429-2482

•

CS Ottawa: (613) 688-5217

•

CS Montreal: (514) 398-0673

•

CS Toronto: (416) 595-5412

•

CS Vancouver: (604) 685-3382

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3 3.1

FINANCIAL INDICATORS: ELECTRIC SERVICES OVERVIEW

Is Canada competitive? With the globalization of markets, the increased mobility of corporate assets, and the need for productive human resources, this question has become all the more complex to answer. The financial indicators section was prepared to tackle this question by focusing on certain fundamentals: financial performance and labor productivity. Rather than focus on the economy as a whole, the analysis presented here considers only one sector: electric services. We are essentially interested in the degree to which firms operating in Canada have fundamentally different financial structures and performance compared to firms located elsewhere. With respect to this view of competitiveness, if one were to invest or operate in Canada, how would the firm’s asset structure likely vary compared to a firm operating in some other country in North America or average location in the world? In Canada, do firms typically hold more cash and other short term assets, or do they concentrate their assets in physical plant and equipment? On the liability side, do firms operating in Canada have a higher percent of payables compared to other firms operating in North America, or do they hold a higher concentration of long term debt? The structure of the income statement is also telling. Do firms operating in Canada have relatively higher costs of goods sold, operating costs, or income taxes compared to firms located elsewhere in the region or the world in general? Are returns on equity higher in Canada? Are profit margins greater? Are inventories held longer? The financial indicators section was designed to answer these and similar questions that naturally affect one’s decision to invest or operate in Canada. Again, we are particularly interested in electric services, and not the economy as a whole. In many instances, people make all the difference. In addition to financial competitiveness, we consider the extent to which labor deployment and productivity in Canada differs from regional and global benchmarks. In this case, we are interested in the amount of labor required to operate a typical business in Canada and the likely returns on this human investment. What is the typical ratio of short-term and long-term assets to employee (employed in electric services operations)? What are typical capital-labor ratios? How different are these ratios to those in North America in general and the world as a whole? What are the average sales and net profits per employee in Canada compared to regional benchmarks? The goal of this section is to assist managers in gauging the competitive performance of Canada at the global level for electric services. With the globalization of markets, greater foreign competition, and the reduction of entry barriers, it becomes all the more important to benchmark Canada against other countries on a worldwide basis. Doing so, however, is not an obvious task. This report generates international benchmarks and measures gaps that might be revealed from such an exercise. First, data is collected from companies across all regions of the world. For each of these firms, data are standardized into comparable categories (assets, liabilities, income and ratios), by country, region and on a worldwide basis. From there, we eliminate all currency effects by standardizing within each category. Global benchmarks are then compared to those estimated for electric services in Canada. Though we heavily rely on historical performance, the figures reported are not historical but are forecasts and projections for the coming fiscal year.

3.1.1

Financial Returns and Gaps in Canada

The approach used in this report to evaluate operating performance for electric services in Canada is called "vertical analysis." For those unfamiliar with this type of analysis, frequently taught in graduate schools of business, the

Financial Indicators

10

reader is recommended Jae K. Shim and Joel G. Siegel’s recent book titled Financial Management.1 In their discussion of financial statement analysis and ratios, Skim and Siegel (p. 42-43), describe common-size statement (vertical analysis) as follows: A common-size statement is one that shows each item in percentage terms. Preparation of common-size statements is known as vertical analysis, in which a material financial statement item is used as a base value and all other accounts on the financial statement are compared to it. In the balance sheet, for example, total assets equal 100 percent, and each individual asset is stated as a percentage of total assets. Similarly, total liabilities and stockholders’ equity are assigned a value of 100 percent and each liability or equity account is then stated as a percentage of total liabilities and stockholders’ equity, respectively. … For the income statement, a value of 100 percent is assigned to net sales, and all other revenues and expense accounts are related to it. It is possible to see at a glance how each dollar of sales is distributed among various costs, expenses, and profits. The authors suggest that vertical analyses involve industry-based comparisons. Such a comparison “allows you to answer the question, ‘How does a business fare in the industry?’ You must compare the company’s ratios to… industry norms.” (p. 43-44) This approach is extended to country competitiveness (in this case Canada) for a particular sector (in this case electric services). This involves calculating country, regional and global norms. This introduction will describe the seven-stage methodology used to perform this analysis. Each stage should be seen as a working assumption behind the numbers presented in later chapters. Stage 1. Industry Classification. This stage begins by classifying the company into an industry. For this, we have relied on a combination of the North American Industry Classification System (NAICS pronounced “Nakes”), a relatively new system for classifying business establishments, and the older Standard Industrial Classification (SIC) system. Adopted in 1997, NAICS codes are the new industry classification codes used by statistical agencies of the United States. NAICS was developed jointly by the U.S., Canada, and Mexico to provide comparability in statistics about business activity across North America. After 60 years of service, the outdated SIC system was retired on October 1, 2000, leaving only the NAICS codes for official use. The NAICS classification system adds some 350 new industries and represents a revision to over 60% of the previous SIC industries. Despite its official retirement, the SIC system is still commonly used (and often reported in firm’s financial statements). For most companies in the world, classification within either the new NAICS or older SIC systems is a rather straight forward exercise. For some, however, it can be problematic. This is true for several reasons. The first being that the SIC or NAICS classification systems are rather broad for many product and industry categories (a firm’s products or services may be only a minor aspect of the classification’s definition). The second is that some firms’ activities span multiple codes. Finally, it is possible that a firm is classified by one source using its SIC code, and by another using its NAICS code, and by a third using both. Furthermore, some sources do not report either code, but instead use qualitative statements of the firm’s activities. Nevertheless, if one wishes to pursue a vertical analysis, some classification needs to take place which selects a peer group. In making this classification, one can rely on a number of sources. In some countries, firms must “self” classify in official periodic reports (e.g. annular reports, 10Ks, etc.) to public authorities (such as the Securities and Exchange Commission). These reports are then open for public scrutiny (e.g. EDGAR filings). In other cases, commercial data vendors or private research firms provide SIC/NAICS codes for specific companies. These include: • • • • • •

Bloomberg - www.bloomberg.com Datastream (Thomson Financial) - www.datastream.com Dun & Bradstreet - www.dnb.com Hoovers - www.hoovers.com HarrisInfoSource - www.HarrisInfo.com InfoUSA - www.infousa.com

1

Skim and Siegel (2000), Financial Management published by Barron’s Educational Series, Inc. (BARON’S BUSINESS LIBRARY Series), ISBN: 0-7641-1402-6. www.icongrouponline.com

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Financial Indicators • • • • • • •

11

Investext (Thomson Financial) - www.investext.com Kompass International Neuenschwander SA. – www.kompass.com Moody's Investors Service - www.moodys.com Primark (Thomson Financial) - www.primark.com Profound (The Dialog Corporation – A Thomson Company) - www.profound.com Reuters - www.reuters.com Standard & Poor's - www.standardandpoors.com

It is interesting to note that commercial vendors often report different qualitative descriptions and industrial classifications from one to another. These descriptions and classifications may also be different from those reported by the firm itself. Anyone hoping to perform a benchmarking study, therefore, has to make a judgment call across these various sources in order to determine a reasonable classification. In this report, we have decided a metaanalytic process, by combining various sources (including linking a classification’s keywords to qualitative descriptions of the firm’s product line). In cases of inconsistency, the most recent or globally comparable available is chosen. Again, the overall goal is to classify firms, which either produce similar products, offer similar services, or are in the same stage of the value chain for a particular industrial classification. In the case of this report, the SIC code selected is: 491;4911; which is defined as “electric services”. This classification should be seen as a working assumption. In order to obtain a more detailed discussion of this classification, the reader is referred to the Web sites developed by the U.S. Census Bureau: http://www.census.gov/epcd/www/naics.html. Basic definitions and descriptions are provided at: http://www.census.gov/epcd/www/drnaics.htm#q1. A full correspondence table between SIC and NAICS codes, and detailed definitions are given at http://www.census.gov/epcd/www/naicstab.htm. Stage 2. Firm-level Data Collection. A global search was conducted across over 20,000 companies in over 40 major economies, including Canada, for those that report financials (balance sheet and income statements) and that are involved in electric services. It should be noted that the public-domain financials can be either historic or projections. It should also be noted that even historic figures can be modified in the future and often represent “estimates” of performance. Stage 3. Standardization. Once collected, public domain financial figures of firms identified in Stage 2 are standardize into comparable categories (assets, liabilities, and income). Again, these are limited to firms involved in some aspect of electric services (i.e. are members of the value chain). From there, we eliminate all currency effects by standardizing within each category (creating ratios). In order to maintain comparability over time and across countries, vertical analysis is used. In the case of a firm’s assets, we treat the total assets as equaling 100, irrespective of the value of the local currency. All other assets are then calculated as a percent of total assets. In this way, the structure of the firm’s assets can be easily interpreted and compared with international benchmarks. For liabilities, total liabilities and equity are indexed to equal to 100. For the income statement, total revenue is indexed to equal 100, and all other figures are calculated as a percent of these figures. Stage 4. Filtering. Not all the firms selected in Stage 2 or the ratios calculated in Stage 3 are used for the country, regional or global benchmarks, as a number of companies are purposely dropped from the analysis. This is justified by the “outlier” phenomenon that plagues such analysis. The problem lies in that any given company in the benchmarking pool may be facing some exceptional event or may be organized in an exceptional way so as to make its ratios vastly different from the norm. By including such firms, the global benchmarks can be overly skewed. In many countries, firms are organized into holding groups. These groups nominally have very few employees (e.g. 4 to 25 employees), but have extremely large assets, liabilities, or revenues. As such, the inclusion or exclusion of firms having this form of management can affect the ratios and benchmarks reported. Likewise, some firms have no net sales, no assets, no liabilities, or ratios. Others have ratios that appear implausible for a normal or viable company. In order to not allow these firms to affect the global benchmarks, only those firms with reasonable financials have been chosen. Finally, in some countries, detailed financials are not available or are not comparable to either the company in question or the global norm (e.g. various forms of depreciation). In this case, only those which

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12

exist and are comparable are reported. The details, therefore, that comprise a given ratio or set of ratios may not be reported. This may lead to the addition of several ratios, not summing to the whole. Stage 5. Calculation of Global Norms. Once the filtering process has eliminated outliers, a final list of companies included is compiled. Based on this list, the ratios discussed in Stage 3 are calculated for every firm, and then averaged to create country, regional and global benchmarks. The world average is calculated using each country’s population as a weight. Stage 6. Projection of Deviations. The goal of this report is not only to estimate raw ratios or averages, but also to present the difference between Canada and projected global averages for that same ratio. Furthermore, it can be insightful to know the location of each ratio within the distribution of the countries represented in Stage 5. These deviations, in fact, can be seen as projections or likely scenarios for the future. This is often true for two reasons. First, while a company’s financials change from year to year, its ratios are often stable. This is especially true for the country, regional and global benchmarks which represent averages across companies. From a purely Bayesian sense, the difference between the company’s recent ratios and the benchmarks are a reasonable prior for future deviations. This is true, even if the entire industry is hit by an external or exogenous shock, such as an oil crisis or economic slowdown. In other words, we assume that the structure of the variance in the industry’s financials remains stable. Second, many of the data are based on preliminary reports that might be changed in future filings. As forecasts, therefore, the numbers derived from these are also forecasts of past and future performance (with associated uncertainties). The calculation of the difference between a country’s ratios and the global benchmarks is meant to yield roughly approximate forecasts, or "useful measures". Within North America, the reliability of estimates varies from one country to another for those ratios given in tables that report national averages. This is true because reliable source statistics are not available for all countries in North America. Countries with the highest reliability, or sample sizes after filtering in Stage 4, include Canada, and USA. Others are generally econometrically extrapolated using models that use country characteristics (e.g. income per capita) as independent variables (i.e. countries having similar economic structures are assumed to have similar operating ratios). Again, the forecasts are based on the assumption of relative stability. This assumption has proven extremely robust in previous applications of this methodology (i.e. today’s weather is a good predictor of tomorrow’s weather, but not the weather three years from now). The results reported should be viewed as those for a “proto-typical” firm operating in Canada whose primary activity is electric services. Stage 7. Projection of Ranks and Percentiles. Based on the calculation of deviations, relative ranks and percentiles are calculated across the firms used in the benchmarks. The percentile estimates the percent of a representative sample of countries in the world having values of the ratio lower than Canada. It is important to note that a percentile being high (or low) does not mean good (or bad) past, present or future financial performance. The reader must draw this conclusion on their own. The estimates provided were created to provide managerial insight, and not a recommendation with respect to particular investments within any country. We graphically report, for each part of the financial statement, the larger structural differences between Canada and the regional and global benchmarks, and provide a summary table of ranks and percentiles. These are estimates for firm which would be involved in electric services. A deviation from the global norm need not be a bad sign. Rather, it is simply a substantial difference that might merit further attention or perhaps signal a country's relative strength or weakness for the coming fiscal year.

3.1.2

Labor Productivity Gaps in Canada

In the case of labor productivity measures, this report maintains comparability over time and across countries by using a common currency (the US dollar) and relates each measure to a “per employee basis”. Ratios are projected using raw financial statistics and, as ratios, are therefore comparable. Given a country’s human resource ratios, the resulting figures are benchmarked across regional and global averages. The seven stage approach given above is used in a similar manner.

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We then report, for each part of the financial statement, the larger labor productivity gaps that Canada has vis-à-vis the worldwide average (for electric services). Again, a gap need not be a bad sign. Rather, it is simply a substantial difference that might merit further attention or signal a firm’s relative incentive to invest locally. All figures are projections, so due caution is required.

3.1.3

Limitations and Extensions

Shim and Siegal (p. 60) stress that “while ratio analysis is an effective tool for assessing a company’s financial condition,” operating Canada or any other country, “its limitations must be recognized.” They find that (p. 59) “no single ratio or group of ratios is adequate for assessing all aspects of a company’s financial condition” operating in a particular country. The authors note the following limitations associated with ratio analyses which apply to the global benchmarking and vertical analysis presented here (p.60): • • • • • • • •

Accounting standards or policies may limit useful comparisons across companies Management accounting practices across companies and countries may not be performed in the same style Ratios are static and do not reveal future trends Ratios do not indicate the quality of the components used to calculate the ratios (i.e. ratios have ambiguous interpretations) Reported ratios may not reflect real values Companies may be highly diversified, limiting the comparability of their ratios to others Industry averages or norms are approximate; finer industry definitions may be required for certain interpretations or comparisons Financial statements and resulting ratios often mean different things to different people depending on their points of view or motivations.

Again, all figures reported here are estimates, so due caution is required. The above caveats, and the fact that statements made in this report are forward-looking, requires that this point be emphasized. A number of intervening factors can have material effect on the ratios and variances forecasted. These include changes in a company's management style, exchange rate volatility, changes in accounting standards, the lack of oversight or comparability in accounting standards, changes in economic conditions, changes in competition, changes in the global economy, changes in source data quality, and similar factors.

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Financial Indicators

3.2 3.2.1

14

FINANCIAL RETURNS IN CANADA: ASSET STRUCTURE RATIOS Overview

In this chapter we consider the asset structure of companies involved in electric services operating in Canada benchmarked against global averages. The chapter begins by defining relevant terms. A common-size statement, or vertical analysis of assets is then presented for companies operating in Canada and the average global benchmarks (total assets = 100 percent). For ratios where there are large deviations between Canada and the benchmarks, graphics are provided (sometimes referred to as a financial “gap” analysis). Then the distribution of ratios is presented in the form of ranks and percentiles. Certain key vertical analysis asset ratios are highlighted across countries in the comparison group.

3.2.2

Assets – Definitions of Terms

The following definitions are provided for those less familiar with the asset-side of financial statement analysis. As this chapter deals with the vertical analysis and global benchmarking of assets, only definitions covering certain terms used in this chapter’s tables and graphs are provided here. The glossary below reflects commonly accepted definitions across various countries and official sources. •

Accumulated Depreciation - Buildings. Accumulated depreciation is commonly understood as a contra asset account used to report the accumulation of periodic credits to reflect the use of the estimated service life of a fixed asset. Buildings are fixed assets which represent the acquisition and improvement costs of permanent structures owned or held by the company. Such structures typically include office buildings, storage quarters, or other facilities and also associated items such as loading docks, heating and airconditioning equipment, refrigeration equipment, and all other property permanently attached to or forming an integral part of the structure. However, it generally does not include furniture, fixtures, or other equipment which are not an integral part of the building.

•

Accumulated Depreciation - Land. Accumulated depreciation of land is commonly understood as a contra asset account used to report the accumulation of periodic credits to reflect the use of the estimated service life of land as a fixed asset. If land is purchased, its capitalized value typically includes the purchase price plus costs such as legal fees, filling and excavation costs which are incurred to put the land in condition for its intended use. If land is acquired by gift, its capitalized value typically reflects its appraised value at time of acquisition. Land does not typically include depletable resources.

•

Accumulated Depreciation - Transportation Equipment. Accumulated depreciation of transportation equipment is commonly understood to be contra asset account used to report the accumulation of periodic credits to reflect the use of the estimated service life of transportation equipment.

•

Accumulated Depreciation -Machinery & Equipment. Accumulated depreciation of machinery and equipment is commonly understood to be contra asset account used to report the accumulation of periodic credits to reflect the use of the estimated service life of machinery and equipment.

•

Buildings. Buildings are defined as fixed assets which represent the acquisition and improvement costs of permanent structures owned or held by the company. Such structures include office buildings, storage quarters, or other facilities and also associated items such as loading docks, heating and air-conditioning equipment, refrigeration equipment, and all other property permanently attached to or forming an integral part of the structure. However, it does not include furniture, fixtures, or other equipment which are not an integral part of the building.

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•

Cash. Cash is typically defined as money on hand, on deposit with chartered bank, or held in the form of eligible securities.

•

Current Assets. Current assets are generally defined to be resources which are available, or can readily be made available, to meet the cost of operations or to pay current liabilities.

•

Deferred Charges. Deferred charges are generally understood to represent the amount which has been paid for services already received by the company but has not been charged to operations.

•

Intangible Other Assets. Intangible assets are generally understood to be nonphysical assets such as legal rights (patents and trademarks) recorded at their historical cost then reduced by systematic amortization.

•

Investments in Unconsolidated Subsidiaries. Investments in unconsolidated subsidiaries are typically defined as investments for the purpose of generating revenue in subsidiaries whose financial statements are not combined with the company's.

•

land. Land is generally considered to be a fixed asset. If land is purchased, its capitalized value typically includes the purchase price plus costs such as legal fees, filling and excavation costs which are incurred to put the land in condition for its intended use. If land is acquired by gift, its capitalized value typically reflects its appraised value at the time of acquisition. Land typically does not include depletable resources.

•

long Term Receivables. Long-term receivables are commonly defined as amounts due within a period exceeding one year from private persons, businesses, agencies, funds, or governmental units which are expected to be collected in the form of moneys, goods, and/or services.

•

Machinery & Equipment. Machinery and equipment is commonly defined as a fixed asset classification which typically includes tangible property (other than land, buildings, and improvements other than buildings) with a life of more than one year. Such assets typically include office equipment, furniture, machine tools, and motor vehicles. Equipment may be attached to a structure for purposes of securing the item, but unless it is permanently attached to an integral part of the building or structure, it will generally be classified as equipment and not buildings. Equipment is generally defined as tangible property other than land, buildings, or improvements other than buildings, which is used in operations. Examples include machinery, tools, trucks, cars, furniture, and furnishings.

•

Prepaid Expenses. Prepaid expenses are typically defined as those supplies and/or services (not inventory) acquired or purchased but not consumed or used at the end of the accounting period.

•

Progress Payments. Progress payments are commonly defined as periodic payments to a supplier, contractor, or subcontractor for work as it is completed as desired, in order to reduce working capital requirements.

•

Property Plant and Equipment - Gross. Gross property, plant and equipment generally consists of the gross book value (rather than the more commonly-used measures of fixed capital stocks in current or real value), of all commercial buildings, associated land and equipment used therein that are owned by the company and that are either used or operated by the company or leased or rented to others.

•

Property Plant and Equipment - Net. Net PP&E equals the original cost of property, plant, and equipment (PP&E), less accumulated depreciation, depletion and amortization (DD&A).

•

Raw Materials. Raw materials are materials which will be converted by a manufacturer into a finished product.

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Financial Indicators

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•

Receivables (Net). Net receivables are defined as the net amount due to the company from private persons, businesses, agencies, funds, or governmental units which is expected to be collected in the form of moneys, goods, and/or services.

•

Short Term Investments. Short-term investments are investments which can be typically liquidated in less than one year.

•

Tangible Other Assets. Other tangible assets are commonly understood to be something substantial or real that is capable of being given an actual or approximate value (market or estimated), not classified elsewhere.

•

Total Assets. Total assets are defined as the financial representation of economic resources, the beneficial interest in which is legally or equitably secured to a particular organization as a result of a past transaction or event.

•

Total Inventories. Total inventories are defined as the total amount of goods on hand.

•

Transportation Equipment. Transportation equipment is equipment used for the transportation of goods for sale.

•

Work in Process. Work in progress includes goods which have been started but are not yet ready for sale.

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Financial Indicators

3.2.3

17

Asset Structure: Outlook

Using the methodology described in the introduction, the following table summarizes asset structure benchmarks for firms involved in electric services in Canada. To allow comparable benchmarking, a common index of Total Assets = 100 is used. All figures are current-year projections for companies operating in Canada based on latest financial results available. Asset Structure Canada North America World Avg. _________________________________________________________________________________________________________

Cash & Short Term Investments Cash Short Term Investments Receivables (Net) Total Inventories Raw Materials Work in Process Progress Payments & Other Prepaid Expenses Other Current Assets Current Assets - Total Long Term Receivables Investments in Unconsolidated Subsidiaries Other Investments Property Plant and Equipment - Net Property Plant and Equipment - Gross Land Buildings Machinery & Equipment Transportation Equipment Other Property Plant & Equipment Accumulated Depreciation - Total Accumulated Depreciation - Land Accumulated Depreciation - Buildings Accumulated Depreciation -Machinery & Equipment Accumulated Depreciation - Transportation Equipment Accumulated Depreciation - Other Prop & Equip Other Assets Deferred Charges Tangible Other Assets Intangible Other Assets Total Assets

4.78 2.65 0.99 8.40 3.97 0.25 3.24 0.71 0.48 0.97 18.58 0.42 4.83 0.25 70.27 101.55 2.68 10.52 5.13 71.03 82.00 31.28 0.03 2.23 2.97 44.40 23.35 6.30 3.45 1.72 1.51 100.00

6.51 4.12 2.41 11.44 3.81 2.16 0.87 0.46 0.59 1.62 23.54 0.52 5.05 1.37 57.80 100.00 4.03 22.99 45.80 5.25 28.61 42.71 1.50 9.53 23.65 3.35 14.03 6.11 0.96 0.96 4.48 100.00

8.61 4.67 3.34 13.59 2.41 0.81 0.22 1.49 0.90 2.09 27.24 0.33 3.14 4.71 54.17 88.01 4.81 13.03 49.92 1.86 22.10 33.17 0.44 3.81 21.61 1.13 6.89 5.48 0.79 0.70 1.74 100.00

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

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Financial Indicators

3.2.4

18

Large Variances: Assets

The following graphics summarize for electric services the large asset structure gaps between firms operating in Canada and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Receivables (Net) 15 10

11.44

13.59

8.4

5 0 -5

-5.19

-10 Canada

North America

World Average

Gap

Gap: Current Assets - Total 27.24

30 20

23.54 18.58

10 0 -10 Canada

North America

World Average

-8.66 Gap

Gap: Other Investments 6

4.71

4 2

1.37 0.25

0 -2 -4

-4.46

-6 Canada

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North America

World Average

Gap

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Gap: Property Plant and Equipment - Net 80

70.27 57.8

60

54.17

40 16.1

20 0 Canada

North America

World Average

Gap

Gap: Property Plant and Equipment - Gross 120

101.55

100 88.01

100 80 60 40

13.54

20 0 Canada

North America

World Average

Gap

Gap: Machinery & Equipment 60

45.8

49.92

40 20

5.13

0 -20 -40

-44.79

-60 Canada

North America

World Average

Gap

Gap: Transportation Equipment 80

71.03

69.17

60 40 20

5.25

1.86

0 Canada

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North America

World Average

Gap

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Financial Indicators

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Gap: Other Property Plant & Equipment 100

82

80 59.9 60 40

28.61

22.1

20 0 Canada

North America

World Average

Gap

Gap: Accumulated Depreciation -Machinery & Equipment 30

23.65

21.61

20 10

2.97

0 -10 -20 Canada

North America

World Average

-18.64 Gap

Gap: Accumulated Depreciation - Transportation Equipment 50

44.4

43.27

40 30 20 10

3.35

1.13

0 Canada

North America

World Average

Gap

Gap: Accumulated Depreciation - Other Prop & Equip 25

23.35

20

16.46 14.03

15 10

6.89

5 0 Canada

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World Average

Gap

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Financial Indicators

3.2.5

21

Key Percentiles and Rankings

We now consider the distribution of asset ratios for electric services using ranks and percentiles. What percent of countries have a value lower or higher than Canada (what is the ratio's rank or percentile)? The table below answers this question with respect to the vertical analysis of asset structure. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance. After the summary table below, a few key vertical asset ratios are highlighted in additional tables. Asset Structure

Canada

Rank of Total

Percentile

4.78 2.65 0.99 8.40 3.97 0.25 3.24 0.71 0.48 0.97 18.58 0.42 4.83 0.25 70.27 101.55 2.68 10.52 5.13 71.03 82.00 31.28 0.03 2.23 2.97 44.40 23.35 6.30 3.45 1.72 1.51 100.00

40 of 53 26 of 50 37 of 48 37 of 53 12 of 53 44 of 46 7 of 33 10 of 43 17 of 34 27 of 52 40 of 53 18 of 42 21 of 46 34 of 46 10 of 53 18 of 51 13 of 39 27 of 48 50 of 50 2 of 35 2 of 51 26 of 51 12 of 13 22 of 45 46 of 46 2 of 32 4 of 48 26 of 53 2 of 33 6 of 35 28 of 51

24.53 48.00 22.92 30.19 77.36 4.35 78.79 76.74 50.00 48.08 24.53 57.14 54.35 26.09 81.13 64.71 66.67 43.75 0.00 94.29 96.08 49.02 7.69 51.11 0.00 93.75 91.67 50.94 93.94 82.86 45.10

_________________________________________________________________________________________________________

Cash & Short Term Investments Cash Short Term Investments Receivables (Net) Total Inventories Raw Materials Work in Process Progress Payments & Other Prepaid Expenses Other Current Assets Current Assets - Total Long Term Receivables Investments in Unconsolidated Subsidiaries Other Investments Property Plant and Equipment - Net Property Plant and Equipment - Gross Land Buildings Machinery & Equipment Transportation Equipment Other Property Plant & Equipment Accumulated Depreciation - Total Accumulated Depreciation - Land Accumulated Depreciation - Buildings Accumulated Depreciation -Machinery & Equipment Accumulated Depreciation - Transportation Equipment Accumulated Depreciation - Other Prop & Equip Other Assets Deferred Charges Tangible Other Assets Intangible Other Assets Total Assets

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

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Financial Indicators

22

Cash & Short Term Investments Countries

Value (total assets = 100)

Rank

Percentile

27.84 27.77 18.10 17.02 16.12 15.90 14.07 12.20 11.77 11.02 9.94 9.24 9.16 8.11 7.89 7.89 7.86 7.81 7.71 7.54 7.42 7.34 6.48 6.15 6.12 5.55 5.34 5.28 5.27 5.08 5.03 4.89 4.78 4.55 3.76 3.36 3.05 2.86 2.76 2.27 2.13 1.84 1.65 1.53 1.22

1 2 4 5 6 7 9 11 12 13 14 15 16 18 19 20 21 22 23 24 25 27 29 30 31 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 51 52 53

98.11 96.23 92.45 90.57 88.68 86.79 83.02 79.25 77.36 75.47 73.58 71.70 69.81 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 49.06 45.28 43.40 41.51 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 11.32 9.43 7.55 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Turkey Mexico Thailand Singapore China Malaysia Switzerland Pakistan Germany Belgium Philippines Luxembourg France South Africa New Zealand Czech Republic Indonesia Hong Kong Norway Poland South Korea the United Kingdom Denmark Netherlands Greece Austria Argentina Italy Spain Israel Ireland India Canada Brazil Japan Finland Australia Sweden USA Peru Taiwan Russian Federation Hungary Chile Portugal

the Middle East Latin America Asia Asia Asia Asia Europe the Middle East Europe Europe Asia Europe Europe Africa Oceana Europe Asia Asia Europe Europe Asia Europe Europe Europe Europe Europe Latin America Europe Europe the Middle East Europe Asia North America Latin America Asia Europe Oceana Europe North America Latin America Asia Europe Europe Latin America Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

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Financial Indicators

23

Receivables (Net) Countries

Value (total assets = 100)

Rank

Percentile

37.93 26.09 25.37 25.16 23.38 22.27 20.63 19.47 18.79 18.74 18.71 16.91 16.71 15.67 15.54 14.39 14.19 13.99 13.84 13.82 13.37 12.96 12.86 12.57 12.39 11.62 11.43 11.03 10.40 10.15 9.76 8.67 8.40 8.31 8.16 8.05 7.21 7.06 6.91 6.75 6.75 6.18 4.98 4.61 3.94

1 2 3 4 5 6 7 8 9 10 11 13 14 15 16 17 19 20 21 22 23 24 25 27 28 29 30 31 32 33 34 36 37 38 39 40 41 42 43 44 45 46 49 50 51

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 75.47 73.58 71.70 69.81 67.92 64.15 62.26 60.38 58.49 56.60 54.72 52.83 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 7.55 5.66 3.77

Region

_________________________________________________________________________________________________________

Singapore Netherlands Israel Ireland India Russian Federation France Italy Turkey Mexico South Korea Philippines Switzerland Pakistan Germany Finland South Africa Spain Denmark Hungary Indonesia Poland Norway Chile Belgium the United Kingdom Greece New Zealand Brazil Malaysia Luxembourg Japan Canada Argentina Portugal USA Peru Australia Hong Kong China Sweden Czech Republic Austria Thailand Taiwan

Asia Europe the Middle East Europe Asia Europe Europe Europe the Middle East Latin America Asia Asia Europe the Middle East Europe Europe Africa Europe Europe Europe Asia Europe Europe Latin America Europe Europe Europe Oceana Latin America Asia Europe Asia North America Latin America Europe North America Latin America Oceana Asia Asia Europe Europe Europe Asia Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

24

Total Inventories Countries

Value (total assets = 100)

Rank

Percentile

25.19 24.98 11.91 7.60 7.53 7.50 4.76 4.71 4.33 4.15 4.00 3.97 3.88 3.75 3.72 3.60 3.15 3.12 2.90 2.61 2.53 2.49 2.47 2.45 2.23 2.14 2.06 1.83 1.75 1.62 1.57 1.48 1.47 1.41 1.22 1.00 0.99 0.99 0.88 0.88 0.87 0.57 0.35 0.12 0.07

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 20 22 23 24 25 26 28 29 31 33 35 36 37 38 39 40 41 42 43 44 45 46 47 50 51 52 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 62.26 58.49 56.60 54.72 52.83 50.94 47.17 45.28 41.51 37.74 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 11.32 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Israel Ireland Singapore Greece Norway South Korea Belgium Russian Federation Denmark Poland Japan Canada Finland Italy France Pakistan Philippines Sweden India Germany Thailand Indonesia Australia USA Spain Taiwan South Africa China the United Kingdom Luxembourg Switzerland Hong Kong Hungary Malaysia Czech Republic Peru Austria Netherlands Turkey Mexico Portugal Chile Brazil Argentina New Zealand

the Middle East Europe Asia Europe Europe Asia Europe Europe Europe Europe Asia North America Europe Europe Europe the Middle East Asia Europe Asia Europe Asia Asia Oceana North America Europe Asia Africa Asia Europe Europe Europe Asia Europe Asia Europe Latin America Europe Europe the Middle East Latin America Europe Latin America Latin America Latin America Oceana

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

25

Current Assets - Total Countries

Value (total assets = 100)

Rank

Percentile

68.43 56.90 56.43 53.87 53.72 37.58 36.08 34.89 34.52 34.17 33.80 33.30 32.71 29.72 29.71 29.32 29.24 28.93 27.84 27.29 26.73 26.05 25.96 25.34 25.23 25.08 24.95 23.66 21.31 20.63 20.34 20.03 19.26 18.58 17.71 15.99 15.70 15.61 14.17 14.06 14.02 12.21 12.03 10.89 9.01

1 2 3 4 5 7 8 9 10 11 12 13 14 16 17 18 19 20 22 23 24 25 26 27 28 29 30 31 34 35 36 38 39 40 41 42 43 44 46 47 48 49 50 51 52

98.11 96.23 94.34 92.45 90.57 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 69.81 67.92 66.04 64.15 62.26 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 35.85 33.96 32.08 28.30 26.42 24.53 22.64 20.75 18.87 16.98 13.21 11.32 9.43 7.55 5.66 3.77 1.89

Region

_________________________________________________________________________________________________________

Singapore Israel Ireland Turkey Mexico Philippines India France South Korea Germany Netherlands Switzerland Pakistan Italy Indonesia Norway Russian Federation Belgium Malaysia Greece Finland Czech Republic Thailand Denmark Poland China South Africa the United Kingdom Spain Luxembourg Hong Kong New Zealand Hungary Canada Japan USA Chile Brazil Argentina Australia Sweden Portugal Austria Peru Taiwan

Asia the Middle East Europe the Middle East Latin America Asia Asia Europe Asia Europe Europe Europe the Middle East Europe Asia Europe Europe Europe Asia Europe Europe Europe Asia Europe Europe Asia Africa Europe Europe Europe Asia Oceana Europe North America Asia North America Latin America Latin America Latin America Oceana Europe Europe Europe Latin America Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

26

Property Plant and Equipment - Net Countries

Value (total assets = 100)

Rank

Percentile

85.41 85.36 76.44 74.23 73.08 71.80 71.58 71.26 70.27 68.31 68.30 67.61 65.98 65.90 65.50 65.15 64.72 64.57 64.49 64.17 63.74 63.57 63.35 62.66 62.56 59.07 57.94 57.79 56.93 54.48 53.52 53.40 52.39 46.86 42.63 42.06 40.81 40.60 38.26 38.16 37.74 29.84 28.43 9.38 9.30

1 2 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 26 27 28 29 30 31 33 34 35 36 38 39 40 41 42 43 44 45 48 49 52 53

98.11 96.23 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 50.94 49.06 47.17 45.28 43.40 41.51 37.74 35.85 33.96 32.08 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 9.43 7.55 1.89 0.00

Region

_________________________________________________________________________________________________________

Argentina Peru Hungary Japan Brazil Greece Poland Luxembourg Canada Chile Russian Federation Sweden Australia Czech Republic Thailand the United Kingdom USA Pakistan South Africa Spain Portugal Taiwan Denmark Malaysia China Austria Hong Kong Netherlands Norway South Korea India Italy New Zealand France Germany Finland Belgium Switzerland Turkey Mexico Philippines Indonesia Singapore Israel Ireland

Latin America Latin America Europe Asia Latin America Europe Europe Europe North America Latin America Europe Europe Oceana Europe Asia Europe North America the Middle East Africa Europe Europe Asia Europe Asia Asia Europe Asia Europe Europe Asia Asia Europe Oceana Europe Europe Europe Europe Europe the Middle East Latin America Asia Asia Asia the Middle East Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

27

Accumulated Depreciation - Total Countries

Value (total assets = 100)

Rank

Percentile

148.74 136.33 106.39 104.32 90.67 83.55 77.85 77.48 58.84 56.75 48.28 46.55 45.15 44.26 43.50 40.46 39.52 37.04 35.89 35.05 34.89 34.82 32.78 31.28 31.28 30.61 27.56 26.69 24.94 23.36 22.45 18.87 14.81 14.46 14.37 14.33 11.67 11.58 11.32 10.72 8.95 4.36 2.41

1 2 3 4 5 6 7 8 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 41 42 43 45 47 50 51

98.04 96.08 94.12 92.16 90.20 88.24 86.27 84.31 80.39 78.43 76.47 74.51 72.55 70.59 68.63 66.67 64.71 62.75 60.78 58.82 56.86 54.90 52.94 50.98 49.02 47.06 45.10 43.14 41.18 39.22 37.25 35.29 33.33 31.37 29.41 27.45 19.61 17.65 15.69 11.76 7.84 1.96 0.00

Region

_________________________________________________________________________________________________________

Portugal Luxembourg Germany Japan Netherlands Austria Russian Federation Poland Denmark Hungary Spain Finland Switzerland Belgium Brazil Sweden India USA Czech Republic Pakistan Norway France the United Kingdom Chile Canada China Taiwan Singapore Italy South Korea Hong Kong Peru Malaysia Thailand Turkey Mexico Israel Ireland Philippines Australia Indonesia Greece New Zealand

Europe Europe Europe Asia Europe Europe Europe Europe Europe Europe Europe Europe Europe Europe Latin America Europe Asia North America Europe the Middle East Europe Europe Europe Latin America North America Asia Asia Asia Europe Asia Asia Latin America Asia Asia the Middle East Latin America the Middle East Europe Asia Oceana Asia Europe Oceana

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

28

Intangible Other Assets Countries

Value (total assets = 100)

Rank

Percentile

34.53 34.24 27.53 13.23 12.58 11.62 10.24 9.69 8.30 8.24 6.60 6.40 5.75 5.75 5.63 5.23 4.38 4.13 3.96 3.91 3.06 1.84 1.65 1.51 1.33 1.20 1.07 0.92 0.89 0.89 0.78 0.65 0.54 0.47 0.41 0.34 0.32 0.16 0.16 0.09 0.06 0.02 0.01

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 18 19 20 21 23 25 26 28 30 31 32 33 34 35 36 37 38 39 40 42 43 45 46 48 49 50 51

98.04 96.08 94.12 92.16 90.20 88.24 86.27 84.31 82.35 80.39 78.43 76.47 74.51 72.55 70.59 68.63 64.71 62.75 60.78 58.82 54.90 50.98 49.02 45.10 41.18 39.22 37.25 35.29 33.33 31.37 29.41 27.45 25.49 23.53 21.57 17.65 15.69 11.76 9.80 5.88 3.92 1.96 0.00

Region

_________________________________________________________________________________________________________

Israel Ireland New Zealand Finland Australia France Portugal Italy Austria USA Chile the United Kingdom Norway Hong Kong Switzerland Philippines Malaysia Indonesia Spain Belgium Germany Thailand Netherlands Canada Luxembourg Poland Singapore Czech Republic Sweden China Japan South Africa South Korea Peru Brazil Hungary Greece Turkey Mexico Denmark Russian Federation Pakistan Argentina

the Middle East Europe Oceana Europe Oceana Europe Europe Europe Europe North America Latin America Europe Europe Asia Europe Asia Asia Asia Europe Europe Europe Asia Europe North America Europe Europe Asia Europe Europe Asia Asia Africa Asia Latin America Latin America Europe Europe the Middle East Latin America Europe Europe the Middle East Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

3.3 3.3.1

29

FINANCIAL RETURNS IN CANADA: LIABILITY STRUCTURE RATIOS Overview

In this chapter we consider the liability structure of firms operating in Canada benchmarked against global averages. The chapter begins by defining relevant terms. A common-size statement, or vertical analysis of liabilities and shareholder equity is then presented for the proto-typical firm operating in Canada and the average global benchmarks (sometimes referred to as a financial “gap” analysis). The figure reflect firms involved in electric services in Canada. For ratios where there are large deviations between Canada and the benchmarks, graphics are provided (total liabilities and equity = 100 percent). Then the distribution of ratios is presented in the form of ranks and percentiles. Certain key vertical analysis liability ratios are highlighted.

3.3.2

Liabilities and Equity – Definitions of Terms

The following definitions are provided for those less familiar with the liability-side of financial statement analysis. As this chapter deals with the vertical analysis and global benchmarking of liabilities and equity, only definitions covering certain terms used in this chapter’s tables and graphs are provided here. The glossary below reflects commonly accepted definitions across various countries and official sources. •

Accounts Payable. Accounts payable are defined as amounts owed on open account to private persons or organizations for goods or services received.

•

Capital Surplus. Capital surplus is commonly defined as an amount of equity which is directly contributed capital in excess of the par value.

•

Capitalized Lease Obligations. A capitalized lease obligation is commonly defined as an ownership arrangement in which the item under lease is typically a long-term asset. Capital leases are generally recorded as assets with liability at the current value of the lease payment.

•

Common Equity. Common equity is defined to equal the company's net worth. It typically comprises capital stock, capital surplus, retained earnings, and, in some cases, net worth reserves. Common equity is the portion of total net worth belonging to the common stockholders. Synonyms which are often used for common equity are “common stock” and “net worth”.

•

Common Stock. Common stock is defined as the securities which represent the company's ownership interest. Common stockholders typically assume greater risk than preferred stockholders; although common stockholders maintain greater control and generally greater dividends and capital appreciation. Common stock can be used interchangeably with the term capital stock when the company has no preferred stock.

•

Current Liabilities - Total. Total current liabilities are defined as the total amount of obligations which would require the use of current assets or other current liabilities to pay.

•

Current Portion of Long Term Debt. The current proportion of long term debt is typically defined as debt which is payable in more than one year.

•

Deferred Income. Deferred income is commonly defined as the amount for services rendered that has not yet been received.

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Financial Indicators

30

•

Deferred Taxes. Deferred taxes are compulsory charges from a previous accounting period which are yet unpaid.

•

Deferred Taxes - Credit. Deferred tax credits are defined as credits against compulsory charges from a previous accounting period which are yet unpaid.

•

Dividends Payable. Dividends payable typically include the declared dividend dollar amount that a company is obligated to pay. The dividend payment eliminates dividends payable and reduces cash.

•

Income Taxes Payable. Income taxes payable are understood to mean taxes which are levied by state, federal, and local governments on the company's reported accounting profit. Income taxes payable are those which are due in the current accounting period.

•

Long Term Debt. Long-term debt is defined to be due in a period exceeding one year or one operating cycle, whichever is longer. Long-term debt can have an extended repayment period such as a many-year mortgage on land and buildings, or debt that's intended to be permanent such as bonds issued to investors.

•

Long Term Debt Excluding Capitalized Leases. Long term debt excluding capitalized leases is defined as debt which is typically due in a period exceeding one year or one operating cycle, whichever is longer, less capitalized leases (see Long Term Debt for exceptions). Capital leases are generally recorded as assets with liability at the current value of the lease payment.

•

Minority Interest. Minority interest is the proportional share of the minority ownership's interest (less than 50 percent) in the earnings or losses.

•

Preferred Stock. Preferred stock receives payment of dividends from the company's earnings before common stock. Preferred stock generally maintains priority in the case of the company's liquidation. Usually the dividends from preferred stock are priced at a specific rate which has been determined by the board of directors.

•

Retained Earnings. proprietary funds.

•

Shareholders Equity. Shareholders equity is commonly defined to be the amount of total equity reserved for common and preferred shareholders.

•

Short Term Debt. Short term debt is generally defined as debt payable within one year.

•

Total Liabilities. Total liabilities are generally defined to include all the claims against a corporation. Liabilities include accounts and wages and salaries payable, dividends declared payable, accrued taxes payable, fixed or long-term liabilities such as mortgage bonds, debentures, and bank loans.

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Retained earnings is an equity account reflecting the accumulated earnings of

©2004 Icon Group International, Inc.

Financial Indicators

3.3.3

31

Liability Structure: Outlook

Using the methodology described in the introduction, the following table summarizes liability and equity structure benchmarks for firms involved in electric services in Canada. To allow comparable benchmarking, a common index of Total Liabilities & Shareholders Equity = 100 is used. All figures are current-year projections for companies operating in Canada based on latest financial results available. Liability Structure Canada North America World Avg. _________________________________________________________________________________________________________

Accounts Payable Short Term Debt & Current Portion of Long Term Debt Income Taxes Payable Dividends Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Long Term Debt Excluding Capitalized Leases Capitalized Lease Obligations Provision For Risks and Charges Deferred Income Deferred Taxes Deferred Taxes - Credit Deferred Taxes - Debit Other Liabilities Total Liabilities Minority Interest Preferred Stock Common Equity Common Stock Capital Surplus Other Appropriated Reserves Retained Earnings Treasury Stock Total Liabilities & Shareholders Equity

8.73 6.79 0.39 0.68 2.33 17.89 43.51 43.40 0.11 0.49 0.66 1.84 3.96 1.07 1.50 65.44 2.57 2.55 29.44 13.40 7.59 -0.40 12.83 0.08 100.00

7.49 5.91 0.98 0.72 7.01 20.89 18.23 18.17 0.06 2.47 2.24 1.70 3.24 1.42 2.60 45.63 0.94 0.23 45.21 18.03 10.42 2.85 10.89 0.25 100.00

6.65 4.71 1.98 1.20 6.75 19.54 15.79 15.67 0.12 1.45 0.81 2.40 1.13 0.46 4.13 43.14 2.20 0.12 46.30 15.01 9.48 6.76 17.55 0.09 100.00

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

3.3.4

32

Large Variances: Liabilities

The following graphics summarize for electric services the large liability structure gaps between firms operating in Canada and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Accounts Payable 10

8.73 7.49

8

6.65

6 4

2.08

2 0 Canada

North America

World Average

Gap

Gap: Other Current Liabilities 8 6 4 2 0 -2 -4 -6

7.01

6.75

2.33

-4.42 Canada

North America

World Average

Gap

Gap: Long Term Debt 50

43.51

40 27.72

30 18.23

20

15.79

10 0 Canada

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North America

World Average

Gap

©2004 Icon Group International, Inc.

Financial Indicators

33

Gap: Long Term Debt Excluding Capitalized Leases 50

43.4

40 27.73

30 18.17

20

15.67

10 0 Canada

North America

World Average

Gap

Gap: Deferred Taxes - Credit 3.96 4

3.24 2.83

3 2 1.13 1 0 Canada

North America

World Average

Gap

Gap: Other Liabilities 5 4 3 2 1 0 -1 -2 -3

4.13 2.6 1.5

-2.63 Canada

North America

World Average

Gap

Gap: Total Liabilities 70 60 50 40 30 20 10 0

65.44 45.63

43.14 22.3

Canada

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North America

World Average

Gap

©2004 Icon Group International, Inc.

Financial Indicators

34

Gap: Preferred Stock 3

2.55

2.43

2.5 2 1.5 1 0.23

0.5

0.12

0 Canada

North America

World Average

Gap

Gap: Common Equity 50 40 30 20 10 0 -10 -20

45.21

46.3

29.44

Canada

North America

-16.86 Gap

World Average

Gap: Other Appropriated Reserves 8 6 4 2 0 -2 -4 -6 -8

6.76 2.85 0.4

-6.36 Canada

North America

World Average

Gap

Gap: Retained Earnings 17.55

20 15

12.83

10.89

10 5 0 -5 Canada

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North America

World Average

-4.72 Gap

©2004 Icon Group International, Inc.

Financial Indicators

3.3.5

35

Key Percentiles and Rankings

We now consider the distribution of liability ratios for electric services using ranks and percentiles. What percent of countries have a value lower or higher than Canada (what is the ratio's rank or percentile)? The table below answers this question with respect to the vertical analysis of liability The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance. After the summary table below, a few key vertical liability ratios are highlighted in additional tables. Liability Structure

Canada

Rank of Total

Percentile

8.73 6.79 0.39 0.68 2.33 17.89 43.51 43.40 0.11 0.49 0.66 1.84 3.96 1.07 1.50 65.44 2.57 2.55 29.44 13.40 7.59 -0.40 12.83 0.08 100.00

17 of 51 13 of 53 35 of 48 15 of 27 48 of 53 31 of 53 2 of 52 2 of 52 14 of 22 33 of 38 15 of 28 19 of 40 7 of 22 15 of 23 31 of 51 6 of 53 13 of 39 1 of 8 47 of 53 24 of 51 16 of 42 45 of 47 27 of 51 12 of 17

66.67 75.47 27.08 44.44 9.43 41.51 96.15 96.15 36.36 13.16 46.43 52.50 68.18 34.78 39.22 88.68 66.67 87.50 11.32 52.94 61.90 4.26 47.06 29.41

_________________________________________________________________________________________________________

Accounts Payable Short Term Debt & Current Portion of Long Term Debt Income Taxes Payable Dividends Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Long Term Debt Excluding Capitalized Leases Capitalized Lease Obligations Provision For Risks and Charges Deferred Income Deferred Taxes Deferred Taxes - Credit Deferred Taxes - Debit Other Liabilities Total Liabilities Minority Interest Preferred Stock Common Equity Common Stock Capital Surplus Other Appropriated Reserves Retained Earnings Treasury Stock Total Liabilities & Shareholders Equity

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

36

Accounts Payable Countries

Value (total liabilities & equity = 100)

Rank

Percentile

21.59 21.43 19.36 15.33 14.63 14.54 14.42 14.01 13.98 11.98 11.59 9.44 9.37 9.07 8.99 8.73 8.19 7.60 7.57 6.58 6.09 5.81 5.57 5.04 5.02 4.68 4.48 4.36 3.93 3.65 3.64 3.64 3.45 3.02 2.94 2.90 2.64 2.55 2.32 2.16 2.00 1.78 1.59

1 2 3 4 5 6 7 8 9 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 32 33 34 36 38 39 40 42 43 45 46 47 50 51

98.04 96.08 94.12 92.16 90.20 88.24 86.27 84.31 82.35 78.43 76.47 74.51 72.55 70.59 68.63 66.67 64.71 62.75 60.78 58.82 56.86 54.90 52.94 50.98 49.02 47.06 45.10 43.14 41.18 37.25 35.29 33.33 29.41 25.49 23.53 21.57 17.65 15.69 11.76 9.80 7.84 1.96 0.00

Region

_________________________________________________________________________________________________________

Singapore Netherlands South Korea Luxembourg Czech Republic Israel Ireland Turkey Mexico Russian Federation India New Zealand Italy Poland Belgium Canada France Spain Switzerland Pakistan Hungary the United Kingdom USA Denmark Norway Germany Portugal Philippines Brazil Peru Chile Hong Kong Indonesia Japan Austria China Sweden Australia Thailand Finland Taiwan Malaysia Greece

Asia Europe Asia Europe Europe the Middle East Europe the Middle East Latin America Europe Asia Oceana Europe Europe Europe North America Europe Europe Europe the Middle East Europe Europe North America Europe Europe Europe Europe Asia Latin America Latin America Latin America Asia Asia Asia Europe Asia Europe Oceana Asia Europe Asia Asia Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

37

Current Liabilities - Total Countries

Value (total liabilities & equity = 100)

Rank

Percentile

43.35 37.78 34.09 32.31 32.30 31.60 31.51 31.08 30.85 30.82 30.29 27.70 27.66 25.04 24.81 24.58 24.36 23.13 21.59 21.59 21.49 21.01 20.92 20.11 19.47 19.04 19.00 18.36 17.97 17.89 17.86 17.85 17.53 17.53 17.30 14.93 14.67 13.66 13.01 12.72 12.36 12.35 11.80 8.64 8.61

1 2 3 4 5 6 7 8 9 10 11 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 38 39 40 41 42 44 45 46 49 50

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 28.30 26.42 24.53 22.64 20.75 16.98 15.09 13.21 7.55 5.66

Region

_________________________________________________________________________________________________________

Netherlands South Korea Singapore Italy Hungary Turkey Mexico Israel Denmark Ireland Czech Republic France Japan the United Kingdom Spain Pakistan Norway India Luxembourg South Africa Austria Belgium Russian Federation Finland Portugal Germany China Chile USA Canada Switzerland Poland Greece Argentina New Zealand Philippines Australia Hong Kong Peru Brazil Sweden Malaysia Indonesia Taiwan Thailand

Europe Asia Asia Europe Europe the Middle East Latin America the Middle East Europe Europe Europe Europe Asia Europe Europe the Middle East Europe Asia Europe Africa Europe Europe Europe Europe Europe Europe Asia Latin America North America North America Europe Europe Europe Latin America Oceana Asia Oceana Asia Latin America Latin America Europe Asia Asia Asia Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

38

Long Term Debt Countries

Value (total liabilities & equity = 100)

Rank

Percentile

47.88 43.51 39.30 37.32 35.27 34.64 33.94 31.73 27.48 27.34 27.10 26.00 25.25 25.18 24.86 24.56 21.64 19.98 19.66 19.31 19.26 19.15 19.06 18.91 17.35 16.96 16.60 16.53 15.59 15.43 14.47 12.55 12.29 9.59 9.24 8.22 7.17 6.84 5.73 2.01 1.24 1.06 0.35 0.05

1 2 4 5 7 8 9 10 11 12 13 15 16 17 18 19 21 23 24 25 26 27 28 29 31 32 33 34 35 36 37 39 40 42 43 44 45 46 47 48 49 50 51 52

98.08 96.15 92.31 90.38 86.54 84.62 82.69 80.77 78.85 76.92 75.00 71.15 69.23 67.31 65.38 63.46 59.62 55.77 53.85 51.92 50.00 48.08 46.15 44.23 40.38 38.46 36.54 34.62 32.69 30.77 28.85 25.00 23.08 19.23 17.31 15.38 13.46 11.54 9.62 7.69 5.77 3.85 1.92 0.00

Region

_________________________________________________________________________________________________________

Thailand Canada Japan Australia Norway Portugal Sweden USA Malaysia Netherlands Pakistan Finland Turkey Mexico Philippines New Zealand the United Kingdom Austria Indonesia Chile Belgium Spain Israel Ireland South Africa Italy China France South Korea Peru Switzerland Hong Kong Denmark India Czech Republic Luxembourg Germany Brazil Poland Singapore Hungary Russian Federation Greece Taiwan

Asia North America Asia Oceana Europe Europe Europe North America Asia Europe the Middle East Europe the Middle East Latin America Asia Oceana Europe Europe Asia Latin America Europe Europe the Middle East Europe Africa Europe Asia Europe Asia Latin America Europe Asia Europe Asia Europe Europe Europe Latin America Europe Asia Europe Europe Europe Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

39

Total Liabilities Countries

Value (total liabilities & equity = 100)

Rank

Percentile

75.08 74.25 67.54 66.32 65.55 65.44 62.79 62.51 62.47 62.13 61.96 60.76 60.43 59.09 58.60 58.47 57.43 57.36 56.43 56.28 54.92 54.90 54.30 52.49 51.40 50.97 50.43 49.90 49.02 47.51 47.29 44.43 40.70 40.13 38.91 38.12 36.90 36.84 32.78 30.77 29.51 29.05 27.84 22.80 17.76

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 18 19 20 21 22 23 24 25 26 27 28 29 30 32 33 36 37 38 39 40 41 42 44 45 47 48 50 51 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 39.62 37.74 32.08 30.19 28.30 26.42 24.53 22.64 20.75 16.98 15.09 11.32 9.43 5.66 3.77 0.00

Region

_________________________________________________________________________________________________________

Netherlands Japan USA France Pakistan Canada Norway Germany Sweden Turkey Mexico Portugal Switzerland South Africa Finland Thailand Italy Austria Belgium Australia South Korea the United Kingdom Spain Malaysia Israel Ireland Denmark New Zealand Chile Czech Republic India Luxembourg Peru Singapore Philippines Taiwan China Hungary Greece Indonesia Hong Kong Poland Brazil Russian Federation Argentina

Europe Asia North America Europe the Middle East North America Europe Europe Europe the Middle East Latin America Europe Europe Africa Europe Asia Europe Europe Europe Oceana Asia Europe Europe Asia the Middle East Europe Europe Oceana Latin America Europe Asia Europe Latin America Asia Asia Asia Asia Europe Europe Asia Asia Europe Latin America Europe Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

40

Common Equity Countries

Value (total liabilities & equity = 100)

Rank

Percentile

82.24 75.90 66.94 63.16 61.88 61.34 59.30 57.89 55.37 54.20 53.41 52.71 51.89 50.11 50.10 49.43 49.03 48.61 48.12 45.31 44.67 42.89 41.92 41.89 40.83 40.69 39.62 38.53 37.87 37.77 37.27 37.02 34.37 33.98 31.25 31.01 30.41 30.36 30.17 29.44 29.11 27.97 27.66 25.26 17.40

1 2 3 4 5 6 7 8 9 10 11 12 14 15 16 17 18 19 20 21 22 24 26 27 28 29 30 31 32 33 35 36 38 40 42 43 44 45 46 47 48 50 51 52 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 54.72 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 33.96 32.08 28.30 24.53 20.75 18.87 16.98 15.09 13.21 11.32 9.43 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Argentina Russian Federation Poland Hungary Taiwan Hong Kong Peru China Singapore Luxembourg Greece India Czech Republic Philippines New Zealand Israel Ireland Brazil Chile Malaysia South Korea the United Kingdom Australia Spain Thailand South Africa Indonesia Italy Turkey Mexico Switzerland Belgium Pakistan Denmark Portugal Austria Finland USA Norway Canada Germany Sweden France Japan Netherlands

Latin America Europe Europe Europe Asia Asia Latin America Asia Asia Europe Europe Asia Europe Asia Oceana the Middle East Europe Latin America Latin America Asia Asia Europe Oceana Europe Asia Africa Asia Europe the Middle East Latin America Europe Europe the Middle East Europe Europe Europe Europe North America Europe North America Europe Europe Europe Asia Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

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41

Retained Earnings Countries

Value (total liabilities & equity = 100)

Rank

Percentile

45.06 44.69 42.13 32.11 27.59 24.28 23.86 22.97 22.91 22.44 21.66 20.16 19.79 17.78 17.78 17.13 16.12 15.80 15.76 15.56 13.28 12.83 11.11 10.61 9.62 9.34 9.10 8.60 7.90 7.55 7.04 6.34 6.30 6.05 5.48 3.80 3.34 3.20 2.86 2.50 1.44 0.00 -1.04

1 2 3 4 5 6 7 8 9 10 11 12 13 15 16 17 19 20 21 22 26 27 29 30 31 32 33 34 35 36 37 39 40 41 42 43 44 45 46 48 49 50 51

98.04 96.08 94.12 92.16 90.20 88.24 86.27 84.31 82.35 80.39 78.43 76.47 74.51 70.59 68.63 66.67 62.75 60.78 58.82 56.86 49.02 47.06 43.14 41.18 39.22 37.25 35.29 33.33 31.37 29.41 27.45 23.53 21.57 19.61 17.65 15.69 13.73 11.76 9.80 5.88 3.92 1.96 0.00

Region

_________________________________________________________________________________________________________

Israel Ireland India South Africa the United Kingdom Norway Switzerland Austria New Zealand Hong Kong Philippines Finland Denmark Thailand Czech Republic Indonesia Malaysia Turkey Mexico Japan Singapore Canada USA Germany Portugal South Korea Greece Russian Federation Chile China Spain Argentina Italy Australia Sweden Peru Luxembourg France Brazil Taiwan Hungary Pakistan Poland

the Middle East Europe Asia Africa Europe Europe Europe Europe Oceana Asia Asia Europe Europe Asia Europe Asia Asia the Middle East Latin America Asia Asia North America North America Europe Europe Asia Europe Europe Latin America Asia Europe Latin America Europe Oceana Europe Latin America Europe Europe Latin America Asia Europe the Middle East Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

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Financial Indicators

3.4 3.4.1

42

FINANCIAL RETURNS IN CANADA: INCOME STRUCTURE RATIOS Overview

In this chapter we consider the income structure of companies operating in Canada benchmarked against global averages. The chapter begins by defining relevant terms. A common-size statement, or vertical analysis of income is then presented for the proto-typical firm involved in electric services operating in Canada and the average global benchmarks (total revenue = 100 percent). For ratios where there are large deviations between Canada and the benchmarks, graphics are provided. Then the distribution of ratios is presented in the form of ranks and percentiles. Certain key vertical analysis income ratios are highlighted across countries in the comparison group.

3.4.2

Income Statements – Definitions of Terms

The following definitions are provided for those less familiar with the income-side of financial statement analysis. As this chapter deals with the vertical analysis and global benchmarking of income, only definitions covering certain terms used in this chapter’s tables and graphs are provided here. The glossary below reflects commonly accepted definitions across various countries and official sources. •

Amortization. Amortization generally refers to the depreciation, depletion, or charge-off to expense of intangible and tangible assets over a period of time. Amortization is commonly understood to be the taking as an expense (writing off) of the loss of value of an intangible asset such as a copyright, a patent, or a mailing list, in an accounting period.

•

Cost of Goods Sold (excluding depreciation). For retail companies, cost of goods sold is generally defined as the equivalent of starting inventory plus purchases minus ending inventory. In manufacturing, cost of goods sold is defined to equal the starting inventory plus the cost of goods manufactured minus ending inventory. Most pure service firms do not generally have cost of goods sold.

•

Current Domestic Income Tax. Current domestic income taxes are commonly defined as compulsory charges levied by the government where the company is located on current income.

•

Current Foreign Income Tax. Current foreign income taxes are commonly defined as compulsory charges levied by foreign governments on current income.

•

Deferred Domestic Income Tax. Deferred domestic income tax is defined as a compulsory charge from a previous accounting period which is yet unpaid to the government where the company is located on current income.

•

Deferred Foreign Income Tax. Deferred foreign income tax is generally defined as a compulsory charge from a previous accounting period which is yet unpaid to foreign governments on current income.

•

Depletion. Depletion is commonly defined to be included as one of the elements of amortization, and is understood to be the portion of the carrying value (other than the portion associated with tangible assets) prorated in each accounting period for financial reporting purposes.

•

Depreciation. Depreciation generally is defined as the expiration in the service life of fixed assets, other than depletable assets, attributable to wear and tear, deterioration, action of the physical elements,

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43

inadequacy and obsolescence. Depreciation is commonly defined as the portion of the cost of a fixed asset charged as an expense during a particular period. In accounting for depreciation, the cost of a fixed asset, less any salvage value, is prorated over the estimated service life of such an asset, and each period is charged with a portion of such cost. Through this process, the cost of the asset is ultimately charged off as an expense. •

Earnings Before Interest and Taxes (EBIT). EBIT is a financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and non-operating profit before the deduction of interest and income taxes.

•

Equity in Earnings. Equity in earnings is defined as a company's proportional share (based on ownership) of the net earnings or losses of an unconsolidated company.

•

Extraordinary Items. Extraordinary items are defined to include income and expense items associated with events and transactions that possess a high degree of abnormality and are of a type that would not reasonably be expected to recur in the foreseeable future.

•

Gain/Loss Sale of Assets. Gains or losses associated with the sale of assets are defined as increases or decreases in equity (net assets) resulting from the sale of assets.

•

Gross Income. Gross income is commonly defined as all the money, goods, and property received by the company that must be included as taxable income.

•

Income Taxes. Income taxes are defined to include those taxes levied by state, federal, and local governments on the company's reported accounting profit. Income taxes generally include both deferred and paid taxes. They are generally determined after the interest expense has been deducted.

•

Interest Capitalized. Interest capitalized is generally added to a fixed asset instead of expensed. Capitalized interest can usually be found in footnotes or the face of the income statement.

•

Interest Expense on Debt. Interest expenses on debt are those which are spent on current debt and added to the net income so avoid underestimating interest coverage.

•

Minority Interest. Minority interest is the proportional share of the minority ownership's interest (less than 50 percent) in the earnings or losses.

•

Net Income Available to Common. Net income available to common is defined as the net income available to common stockholders.

•

Net Income Before Preferred Dividends. Net income before preferred dividends is generally calculated as the difference between total revenues and total expense prior to the granting of preferred dividends.

•

Net Sales or Revenues. Revenues or net sales are defined as payments made to and received by an entity. May take the form of taxes, user fees, fines, fees for service, and so on.

•

Non-Operating Interest Income. Non-operating interest income is generally understood to be any interest received (e.g., royalty, production payment, net profits interest) that does not involve the operation of the company.

•

Operating Expenses. Operating expenses are generally defined as those incurred in paying for the company’s day-to-day activities.

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44

•

Operating Income. Operating income is generally defined to equal operating revenues less operating expenses. It typically excludes items of other revenue and expense such as equity in earnings of unconsolidated companies, dividends, interest income and expense, income taxes, extraordinary items, and cumulative effect of accounting changes.

•

Preferred Dividend Requirements. Preferred dividend requirements are those dividend requirements set forth by the board to determine the amount of preferred dividends payable.

•

Pretax Equity In Earnings. Pretax equity in earnings is generally defined to equal a company's proportional share (based on ownership) of the gross earnings or losses of an unconsolidated company.

•

Pretax Income. Pretax income is generally defined as income before tax deductions.

•

Selling, General & Administrative Expenses. Selling, general and administrative expenses are expenses independent from cost of sales for the purpose of illustrating the amount of the company's selling and administrative costs. Generally included in this figure are the costs of employees' salaries, commissions, and travel expenses; company payroll and office costs; and advertising and promotion.

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Financial Indicators

3.4.3

45

Income Structure: Outlook

Using the methodology described in the introduction, the following table summarizes income structure benchmarks for firms involved in electric services in Canada. To allow comparable benchmarking, a common index of Net Sales or Revenues = 100 is used. All figures are current-year projections for companies operating in Canada based on latest financial results available. Income Structure Canada North America World Avg. _________________________________________________________________________________________________________

Net Sales or Revenues Cost of Goods Sold (Excluding Depreciation) Depreciation, Depletion & Amortization Gross Income Selling, General & Administrative Expenses Other Operating Expenses Operating Expenses - Total Operating Income Extraordinary Credit - Pretax Extraordinary Charge - Pretax Non-Operating Interest Income Pretax Equity In Earnings Other Income/Expense Net Earnings Before Interest and Taxes (EBIT) Interest Expense on Debt Interest Capitalized Pretax Income Income Taxes Current Domestic Income Tax Current Foreign Income Tax Deferred Domestic Income Tax Deferred Foreign Income Tax Minority Interest Equity in Earnings Net Income Before Extra Items/Prefer Dividends Extraordinary Items & Gain/Loss Sale Of Assets Net Income Before Preferred Dividends Preferred Dividend Requirements Net Income Available to Common

100.00 59.13 8.71 31.97 14.45 81.55 10.18 18.45 0.03 1.27 0.18 1.94 3.52 22.52 9.76 0.62 13.30 2.19 2.32 0.04 -0.29 -0.03 0.58 0.09 10.66 0.79 11.45 0.34 10.35

100.00 61.85 9.04 22.56 7.62 78.55 3.66 14.66 0.62 1.09 2.59 0.10 1.19 17.51 5.05 0.08 12.52 3.05 2.10 0.05 0.31 0.00 -0.09 0.29 9.68 -0.04 9.65 0.04 9.64

100.00 55.52 9.96 26.33 5.29 69.79 3.78 20.28 0.34 0.50 2.12 -0.08 1.81 23.37 4.13 0.08 19.38 4.49 2.11 0.02 0.12 0.00 1.31 0.08 13.56 -0.02 13.55 0.02 13.54

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

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Financial Indicators

3.4.4

46

Large Variances: Income

The following graphics summarize for electric services the large income structure gaps between firms operating in Canada and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Cost of Goods Sold (Excluding Depreciation) 70 60 50 40 30 20 10 0

59.13

61.85

55.52

3.61 Canada

North America

World Average

Gap

Gap: Gross Income 35 30 25 20 15 10 5 0

31.97 26.33 22.56

5.64

Canada

North America

World Average

Gap

Gap: Selling, General & Administrative Expenses 15

14.45

9.16

10

7.62 5.29

5 0 Canada

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North America

World Average

Gap

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Financial Indicators

47

Gap: Other Operating Expenses 100

81.55

78.55

80

69.79

60 40 11.76

20 0 Canada

North America

World Average

Gap

Gap: Operating Expenses - Total 12

10.18

10 8

6.4

6

3.66

4

3.78

2 0 Canada

North America

World Average

Gap

Gap: Interest Expense on Debt 10

9.76

8 5.63

5.05

6

4.13

4 2 0 Canada

North America

World Average

Gap

Gap: Pretax Income 19.38

20 15

13.3

12.52

10 5 0 -5

-6.08

-10 Canada

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North America

World Average

Gap

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48

Gap: Income Taxes 5 4 3 2 1 0 -1 -2 -3

4.49 3.05 2.19

-2.3 Canada

North America

World Average

Gap

Gap: Net Income Before Extra Items/Prefer Dividends 13.56

15 10.66

9.68

10 5 0 -2.9 -5 Canada

North America

World Average

Gap

Gap: Net Income Before Preferred Dividends 15

13.55 11.45

10

9.65

5 0 -2.1 -5 Canada

North America

World Average

Gap

Gap: Net Income Available to Common 13.54

15 10.35 10

9.64

5 0 -3.19

-5 Canada

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World Average

Gap

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Financial Indicators

3.4.5

49

Key Percentiles and Rankings

We now consider the distribution of income ratios for electric services using ranks and percentiles. What percent of countries have a value lower or higher than Canada (what is the ratio's rank or percentile)? The table below answers this question with respect to the vertical analysis of income structure. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance. After the summary table below, a few key vertical income ratios are highlighted in additional tables. Income Structure

Canada

Rank of Total

Percentile

100.00 59.13 8.71 31.97 14.45 81.55 10.18 18.45 0.03 1.27 0.18 1.94 3.52 22.52 9.76 0.62 13.30 2.19 2.32 0.04 -0.29 -0.03 0.58 0.09 10.66 0.79 11.45 0.34 10.35

25 of 52 42 of 53 25 of 52 10 of 36 27 of 51 11 of 44 27 of 53 24 of 28 17 of 36 47 of 51 2 of 32 13 of 53 28 of 53 10 of 53 1 of 15 32 of 53 35 of 53 17 of 38 9 of 12 29 of 33 6 of 7 14 of 36 13 of 17 29 of 53 2 of 10 26 of 53 2 of 7 31 of 53

51.92 20.75 51.92 72.22 47.06 75.00 49.06 14.29 52.78 7.84 93.75 75.47 47.17 81.13 93.33 39.62 33.96 55.26 25.00 12.12 14.29 61.11 23.53 45.28 80.00 50.94 71.43 41.51

_________________________________________________________________________________________________________

Net Sales or Revenues Cost of Goods Sold (Excluding Depreciation) Depreciation, Depletion & Amortization Gross Income Selling, General & Administrative Expenses Other Operating Expenses Operating Expenses - Total Operating Income Extraordinary Credit - Pretax Extraordinary Charge - Pretax Non-Operating Interest Income Pretax Equity In Earnings Other Income/Expense Net Earnings Before Interest and Taxes (EBIT) Interest Expense on Debt Interest Capitalized Pretax Income Income Taxes Current Domestic Income Tax Current Foreign Income Tax Deferred Domestic Income Tax Deferred Foreign Income Tax Minority Interest Equity in Earnings Net Income Before Extra Items/Prefer Dividends Extraordinary Items & Gain/Loss Sale Of Assets Net Income Before Preferred Dividends Preferred Dividend Requirements Net Income Available to Common

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

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Financial Indicators

50

Cost of Goods Sold (Excluding Depreciation) Countries

Value (total revenue = 100)

Rank

Percentile

89.77 85.48 84.41 81.99 81.66 80.98 80.41 80.14 78.27 78.04 76.78 76.76 76.59 72.32 70.33 69.01 69.00 64.56 64.42 64.23 63.85 63.75 63.00 59.48 59.13 59.10 58.60 58.44 56.71 55.31 55.19 54.97 53.65 53.20 51.86 50.94 50.44 49.46 46.57 43.59 41.85 40.78 37.25 29.45

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 34 35 36 37 38 39 40 41 42 43 45 50

98.08 96.15 94.23 92.31 90.38 88.46 86.54 84.62 82.69 80.77 78.85 76.92 75.00 73.08 71.15 69.23 67.31 65.38 63.46 61.54 59.62 57.69 55.77 53.85 51.92 50.00 48.08 46.15 44.23 42.31 40.38 38.46 34.62 32.69 30.77 28.85 26.92 25.00 23.08 21.15 19.23 17.31 13.46 3.85

Region

_________________________________________________________________________________________________________

Netherlands Belgium Hungary South Korea Israel Ireland Poland Russian Federation Czech Republic Denmark Portugal Germany Taiwan India France New Zealand Austria Spain Singapore Finland Luxembourg Sweden Switzerland Japan Canada Pakistan Turkey Mexico the United Kingdom Chile Argentina USA China Italy Peru Hong Kong Norway Brazil Malaysia Greece Australia Thailand Philippines Indonesia

Europe Europe Europe Asia the Middle East Europe Europe Europe Europe Europe Europe Europe Asia Asia Europe Oceana Europe Europe Asia Europe Europe Europe Europe Asia North America the Middle East the Middle East Latin America Europe Latin America Latin America North America Asia Europe Latin America Asia Europe Latin America Asia Europe Oceana Asia Asia Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

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Financial Indicators

51

Selling, General & Administrative Expenses Countries

Value (total revenue = 100)

Rank

Percentile

30.95 28.57 28.31 27.14 25.60 19.02 16.57 15.93 14.74 14.45 12.69 11.91 11.61 10.74 9.70 9.22 8.79 8.40 7.62 7.60 7.48 7.23 6.91 6.11 5.88 5.47 5.37 5.01 4.48 3.93 0.95 0.06

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 24 25 26 28 29 31 32 33 35 36

97.22 94.44 91.67 88.89 86.11 83.33 80.56 77.78 75.00 72.22 69.44 66.67 63.89 61.11 58.33 55.56 52.78 50.00 47.22 44.44 41.67 38.89 33.33 30.56 27.78 22.22 19.44 13.89 11.11 8.33 2.78 0.00

Region

_________________________________________________________________________________________________________

Japan Norway Greece Brazil France Italy Finland the United Kingdom USA Canada Chile New Zealand Taiwan Australia Singapore Denmark Sweden Poland Turkey Mexico Germany Malaysia Thailand Switzerland Hungary Hong Kong China South Korea Peru Pakistan Austria Russian Federation

Asia Europe Europe Latin America Europe Europe Europe Europe North America North America Latin America Oceana Asia Oceana Asia Europe Europe Europe the Middle East Latin America Europe Asia Asia Europe Europe Asia Asia Asia Latin America the Middle East Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

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52

Operating Expenses - Total Countries

Value (total revenue = 100)

Rank

Percentile

23.87 15.69 14.73 13.28 13.25 12.63 12.53 10.96 10.48 10.18 9.22 8.71 7.49 7.17 6.45 6.37 5.86 5.22 5.09 4.88 3.56 3.18 3.08 2.37 1.97 1.91 1.86 1.81 1.70 1.28 0.90 0.83 0.62 0.59 0.43 0.02 0.01

1 2 3 4 5 6 7 9 10 11 14 15 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 39 41 42 43 44

97.73 95.45 93.18 90.91 88.64 86.36 84.09 79.55 77.27 75.00 68.18 65.91 61.36 59.09 56.82 54.55 52.27 50.00 47.73 45.45 43.18 40.91 38.64 36.36 34.09 31.82 29.55 27.27 25.00 22.73 20.45 18.18 11.36 6.82 4.55 2.27 0.00

Region

_________________________________________________________________________________________________________

Belgium Singapore Norway USA Philippines Israel Ireland Switzerland Indonesia Canada Germany France Russian Federation Luxembourg the United Kingdom Australia Spain Austria Italy Brazil Hong Kong Czech Republic China Hungary Portugal Japan India Poland Malaysia Finland Thailand Peru Netherlands Sweden South Korea Pakistan Denmark

Europe Asia Europe North America Asia the Middle East Europe Europe Asia North America Europe Europe Europe Europe Europe Oceana Europe Europe Europe Latin America Asia Europe Asia Europe Europe Asia Asia Europe Asia Europe Asia Latin America Europe Europe Asia the Middle East Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

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Operating Income Countries

Value (total revenue = 100)

Rank

Percentile

44.32 37.92 35.04 34.23 33.02 32.11 31.87 27.86 26.54 25.24 25.01 24.94 24.39 20.12 19.55 18.79 18.52 18.49 18.45 16.94 16.67 15.07 13.05 12.87 12.29 11.88 9.68 9.41 9.26 9.14 8.89 8.68 8.29 7.99 7.11 6.98 6.16 4.75 3.71 3.68 2.76 2.16 1.13 0.69 -2.59

1 2 4 5 6 9 10 13 14 15 17 18 19 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53

98.11 96.23 92.45 90.57 88.68 83.02 81.13 75.47 73.58 71.70 67.92 66.04 64.15 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 11.32 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Philippines Thailand Indonesia Hong Kong Malaysia Peru Australia Pakistan China Argentina Turkey Mexico Chile Sweden South Africa Greece the United Kingdom India Canada USA Spain Brazil New Zealand Switzerland Singapore Italy Portugal Czech Republic Luxembourg Japan Finland Belgium Austria Denmark France South Korea Russian Federation Norway Israel Ireland Hungary Germany Taiwan Netherlands Poland

Asia Asia Asia Asia Asia Latin America Oceana the Middle East Asia Latin America the Middle East Latin America Latin America Europe Africa Europe Europe Asia North America North America Europe Latin America Oceana Europe Asia Europe Europe Europe Europe Asia Europe Europe Europe Europe Europe Asia Europe Europe the Middle East Europe Europe Europe Asia Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

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54

Earnings Before Interest and Taxes (EBIT) Countries

Value (total revenue = 100)

Rank

Percentile

59.23 56.58 46.01 41.49 37.74 36.90 36.38 35.92 35.82 32.78 30.79 30.56 28.23 25.76 24.97 23.99 23.62 23.16 22.75 22.52 21.88 20.93 20.90 20.28 19.48 18.67 16.93 16.52 16.02 13.31 12.72 12.58 12.34 11.92 11.29 9.69 8.71 8.69 8.67 8.21 7.97 5.53 3.43 3.40 0.66

1 2 3 4 6 7 8 9 10 15 17 18 19 21 22 23 24 25 26 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53

98.11 96.23 94.34 92.45 88.68 86.79 84.91 83.02 81.13 71.70 67.92 66.04 64.15 60.38 58.49 56.60 54.72 52.83 50.94 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 11.32 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Greece New Zealand Philippines Thailand Malaysia Hong Kong Indonesia Turkey Mexico Australia Pakistan Peru China Chile Luxembourg South Africa Sweden Argentina India Canada Spain the United Kingdom Switzerland Brazil Czech Republic Italy USA Singapore Finland Austria Belgium Germany Portugal Russian Federation Taiwan Norway France Netherlands Japan Denmark South Korea Hungary Israel Ireland Poland

Europe Oceana Asia Asia Asia Asia Asia the Middle East Latin America Oceana the Middle East Latin America Asia Latin America Europe Africa Europe Latin America Asia North America Europe Europe Europe Latin America Europe Europe North America Asia Europe Europe Europe Europe Europe Europe Asia Europe Europe Europe Asia Europe Asia Europe the Middle East Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

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55

Pretax Income Countries

Value (total revenue = 100)

Rank

Percentile

58.88 51.62 35.41 34.75 32.00 28.00 26.61 26.54 25.58 25.12 24.71 23.67 23.12 22.61 21.79 19.77 17.20 17.02 15.96 15.93 15.21 14.04 13.40 13.30 12.96 11.35 11.20 11.09 10.56 10.31 9.54 9.46 9.06 8.09 6.52 6.47 5.43 5.42 5.17 4.49 2.96 2.60 1.66 1.65 -2.36

1 2 3 4 5 7 9 10 12 13 14 16 17 18 19 22 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53

98.11 96.23 94.34 92.45 90.57 86.79 83.02 81.13 77.36 75.47 73.58 69.81 67.92 66.04 64.15 58.49 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 11.32 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Greece New Zealand Philippines Hong Kong Malaysia Indonesia Turkey Mexico China Thailand Peru Luxembourg Pakistan Argentina India Chile Switzerland Australia Spain the United Kingdom Italy South Africa Singapore Canada Sweden Russian Federation Taiwan USA Germany Brazil Finland Czech Republic Austria Belgium France South Korea Japan Denmark Hungary Portugal Netherlands Norway Israel Ireland Poland

Europe Oceana Asia Asia Asia Asia the Middle East Latin America Asia Asia Latin America Europe the Middle East Latin America Asia Latin America Europe Oceana Europe Europe Europe Africa Asia North America Europe Europe Asia North America Europe Latin America Europe Europe Europe Europe Europe Asia Asia Europe Europe Europe Europe Europe the Middle East Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

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56

Income Taxes Countries

Value (total revenue = 100)

Rank

Percentile

13.57 9.88 8.63 7.84 7.09 7.07 6.96 5.81 5.50 5.19 4.82 4.52 4.31 4.14 4.05 4.02 3.87 3.63 3.45 3.27 3.14 2.75 2.69 2.67 2.57 2.39 2.31 2.26 2.21 2.19 2.19 1.99 1.95 1.87 1.73 1.40 1.24 0.97 0.91 0.72 0.40 0.40 0.29 0.04 -0.32

1 2 3 4 6 7 8 11 12 13 14 15 16 17 18 19 20 21 22 23 25 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 46 49 50 51 52 53

98.11 96.23 94.34 92.45 88.68 86.79 84.91 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 52.83 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 13.21 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Greece Peru Argentina Malaysia Turkey Mexico India Italy China Russian Federation Hong Kong Spain Australia Switzerland Brazil USA Thailand Luxembourg Sweden the United Kingdom Germany New Zealand Portugal Singapore Finland Czech Republic Japan Chile Denmark Canada South Korea Austria Belgium France Taiwan Pakistan South Africa Hungary Philippines Indonesia Israel Ireland Norway Netherlands Poland

Europe Latin America Latin America Asia the Middle East Latin America Asia Europe Asia Europe Asia Europe Oceana Europe Latin America North America Asia Europe Europe Europe Europe Oceana Europe Asia Europe Europe Asia Latin America Europe North America Asia Europe Europe Europe Asia the Middle East Africa Europe Asia Asia the Middle East Europe Europe Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

3.5 3.5.1

57

FINANCIAL RETURNS IN CANADA: PROFITABILITY RATIOS Overview

In this chapter we consider additional financial ratios estimated for firms involved in electric services operating in Canada benchmarked against global averages. The chapter begins by defining relevant terms. Estimates are then presented for the proto-typical firm operating in Canada compared to average global benchmarks. For ratios where there are large deviations between the average firm in Canada and the benchmarks, graphics are provided. Then the distribution of ratios is presented in the form of ranks and percentiles. Certain key ratios are highlighted across countries in the comparison group.

3.5.2

Ratios – Definitions of Terms

The following definitions are provided for those less familiar with financial ratio analysis. As this chapter deals with the global benchmarking of ratios, only definitions covering certain terms used in this chapter’s tables and graphs are provided here. The glossary below reflects commonly accepted definitions across various countries and official sources. •

Accounts Receivables Days. The number of days' receivable sales generally correlates to the amount of the accounts receivables to the average daily sales on account. Accounts receivables days is often determined by dividing the gross receivables by (net sales/365).

•

Cash Earnings Return On Equity (%). Cash earnings return on equity generally measures the return of revenues to the shareholders. This ratio is generally calculated by dividing (net income before nonrecurring items minus preferred dividends) by the average common equity.

•

Cash Flow. Cash flow is generally defined as being equal to the company's net income plus the charge-off amounts for depreciation, depletion, amortization, extraordinary charges to reserves. These are bookkeeping deductions which are not paid out as cash.

•

Current Ratio. The current ratio is generally defined as a ratio of liquidity measuring the ability of a business to pay its current obligations when due. The current ratio is generally calculated by dividing total current assets by total current liabilities. Managers and lenders often want the current ratio to be 2.00 or greater. This ratio is often seen as an indication of short-term debt-paying ability. The higher the ratio, the more liquid the company.

•

Dividend Payout (% Earnings) - Total Dividends (%). The dividend payout ratio is generally used to measure the amount of current earnings per common share which are paid out in dividends. This ratio is generally determined by dividing dividends per common share by diluted earnings per share.

•

Fixed Charge Coverage Ratio. The fixed charge coverage ratio is generally seen as an indication of the company's ability to cover its fixed charges. This ratio is typically determined by dividing recurring earnings excluding interest expense, tax expense, equity earnings, and minority earnings plus interest from rentals by interest expense including capitalized interest and interest from rentals.

•

Gross Profit Margin (%). The gross profit margin is typically defined to equals the difference, in percent, between net sales revenue and the cost of goods sold.

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Financial Indicators

58

•

Inventories (# of Days) Held. Inventory days held is generally determined by dividing the ending inventory by (the cost of goods held/365). The number of days held results in the average daily cost of goods held.

•

Inventory Turnover (%). Inventory turnover is used as a measure of the balance of inventory. It generally compares the amount of inventory with the total sales for the year. The ratio can reflect both on the quality of the inventory and the efficiency of management. Typically, the higher the turnover rate, the greater the likelihood that profits would be larger and less working capital bound up in inventory.

•

Net Margin (%). The net margin is the ratio of net income dollars generated by each dollar of sales.

•

Operating Profit Margin (%). Operating profit margin percent is the ratio of operating profit to net sales. Operating profit (loss) is income or loss before taxes calculated by the difference between total revenues and total expense disregarding the effects of any extraordinary transactions.

•

Quick Ratio. The quick ratio, also commonly known as the “acid test ratio”, is a refined current ratio and is often seen as a more conservative measure of liquidity. The quick ratio is generally determined by dividing cash and equivalents plus trade receivables by total current liabilities. The ratio shows the degree to which a company's current liabilities can be covered by the most liquid current assets. Financial management texts generally conclude that any value of less than 1 to 1 implies a reciprocal dependency on inventory or other current assets to liquidate short-term debt.

•

Reinvestment Rate - Total (%). The reinvestment rate is typically defined as the rate at which an investor assumes interest payments made on a debt security can be reinvested over the life of that security.

•

Return on Assets (%). Return on assets is generally used to measure a company's ability to use assets to create profit.

•

Return on Equity - Total (%). The return on total equity ratio is often seen to reflect the profitability of the company's operations after income taxes. Return on equity is often considered to be a good measure of the company's profitability. Tax laws and tax loss carryovers can affect the net income and therefore can also affect the return on equity.

•

Return on Invested Capital (%). The ratio of return on invested capital is typically defined as an evaluation of earnings performance without regard to the method of financing. This ratio measures the earnings on investment and is an indication of how well the company utilizes its asset base. Return on investment is a type of return on capital, therefore this ratio can be an indication of the company’s ability to reward investors who provide long-term funds and to attract future investors.

•

Tax Rate (%). The tax rate is typically defined as the average rate of domestic tax owed to government by the company.

•

Working Capital. Net working capital equals the difference between total current assets and total current liabilities. Working capital often reflects a company's ability to expand volume and meet obligations. Since growth is usually one goal, the amount of working capital on this year's balance sheet should be greater than that of the previous year's. This is an efficiency, or turnover, ratio which benchmarks the rate at which current assets less current liabilities are used by the company in making sales. A low ratio can indicate a less profitable use of working capital in making sales. On the other hand, a very high ratio can indicate the company is wasting current assets which could be more efficiently deployed in production and in increasing sales and profits; or that the company my be undercapitalized, and thus vulnerable to liquidity problems in a period of weak business conditions.

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Financial Indicators

3.5.3

59

Ratio Structure: Outlook

Using the methodology described in the introduction, the following table summarizes ratio structure benchmarks for firms involved in electric services in Canada. All figures are current-year projections for companies operating in Canada based on latest financial results available. Ratios Canada North America World Avg. _________________________________________________________________________________________________________

Profitability Return on Equity - Total (%) Reinvestment Rate - Total (%) Return on Assets (%) Return on Invested Capital (%) Cash Earnings Return On Equity (%) Cash Flow % Sales Cost Goods Sold / Sales (%) Gross Profit Margin (%) Selling, General & Administrative Expense/Net Sales (%) Operating Profit Margin (%) Operating Inc / Total Capital (%) Pretax Margin (%) Tax Rate (%) Net Margin (%) Total Asset Turnover (X) th USD Asset Utilization Inventory Turnover (%) Net Sales % Working Capital Capital Expenditure % Gross Fixed Assets Capital Expenditure % Total Assets Capital Expenditure % Total Sales Accumulated Depreciation % Gross Fixed Assets Leverage Total Debt % Total Capital Long Term Debt % Total Capital Equity % Total Capital Preferred Stock % Total Capital Fixed Charge Coverage Ratio Dividend Payout (% Earnings) - Total Dividends Fixed Assets % Common Equity Working Capital % Total Capital Liquidity Quick Ratio Current Ratio Inventories % Total Current Assets Accounts Receivables Days Inventories (# of Days) Held

15.41 8.51 6.13 7.23 29.06 19.66 59.13 31.97 14.45 18.45 9.20 13.30 17.74 11.45 0.54

14.10 6.89 6.80 10.00 28.51 19.53 61.85 22.56 7.57 14.66 11.45 12.52 26.69 9.65 0.60

14.68 9.23 13.41 11.19 -3271.90 25.99 55.52 26.33 5.23 20.28 -2656.26 19.38 27.45 13.55 0.60

12.36 12.17 7.17 7.20 20.40 29.40

152.95 9.10 7.73 6.99 14.93 35.49

66.26 13.53 7.32 7.27 17.64 31.85

59.11 55.63 37.96 3.33 2.14 44.59 270.76 0.53

30.23 25.11 64.72 0.33 26.58 31.86 154.38 3.62

25.61 21.69 66.62 0.18 298.47 29.28 135.22 10.91

1.47 1.77 25.17 88.42 48.92

1.00 1.24 13.46 65.03 39.07

1.31 1.58 8.82 99.26 43.64

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

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©2004 Icon Group International, Inc.

Financial Indicators

3.5.4

60

Large Variances: Ratios

The following graphics summarize for electric services the large ratio structure gaps between firms operating in Canada and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Cash Earnings Return On Equity (%) 4000 3000 2000 1000 0 -1000 -2000 -3000 -4000

3271.9

29.06

28.51

-3242.84 Canada

North America

World Average

Gap

Gap: Operating Inc / Total Capital (%) 2656.26

3000 2000 1000

9.2

11.45

0 -1000 -2000 -2647.06

-3000 Canada

North America

World Average

Gap

Gap: Inventory Turnover (%) 200

152.95

150 100 50

66.26 12.36

0 -50

-53.9

-100 Canada

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North America

World Average

Gap

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Financial Indicators

61

Gap: Total Debt % Total Capital 59.11 60 50 40

30.23

30

33.5 25.61

20 10 0 Canada

North America

World Average

Gap

Gap: Long Term Debt % Total Capital 60

55.63

50 33.94

40 25.11

30

21.69

20 10 0 Canada

North America

World Average

Gap

Gap: Equity % Total Capital 80 60 40

64.72

66.62

37.96

20 0 -20

-28.66

-40 Canada

North America

World Average

Gap

Gap: Fixed Charge Coverage Ratio 298.47 300 200 100

2.14

26.58

0 -100 -200 -300 Canada

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North America

World Average

-296.33 Gap

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Financial Indicators

62

Gap: Dividend Payout (% Earnings) - Total Dividends 50

44.59

40

31.86

29.28

30 15.31

20 10 0 Canada

North America

World Average

Gap

Gap: Fixed Assets % Common Equity 300

270.76

250 200

154.38

150

135.22

135.54

100 50 0 Canada

North America

World Average

Gap

Gap: Inventories % Total Current Assets 30

25.17

25 20

16.35 13.46

15

8.82

10 5 0 Canada

North America

World Average

Gap

Gap: Accounts Receivables Days 100

99.26

88.42

80

65.03

60 40 20 0

-10.84

-20 Canada

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North America

World Average

Gap

©2004 Icon Group International, Inc.

Financial Indicators

3.5.5

63

Key Percentiles and Rankings

We now consider the distribution of financial ratios for electric services using ranks and percentiles. What percent of countries have a value lower or higher than Canada (what is the ratio's rank or percentile)? The table below answers this question with respect to financial ratios. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance. After the summary table below, a few key financial ratios are highlighted in additional tables. Ratios

Canada

Rank of Total

Percentile

15.41 8.51 6.13 7.23 29.06 19.66 59.13 31.97 14.45 18.45 9.20 13.30 17.74 11.45 0.54

14 of 52 12 of 52 23 of 52 26 of 52 22 of 52 34 of 53 25 of 52 25 of 52 10 of 36 27 of 53 26 of 52 32 of 53 36 of 52 26 of 53 26 of 53

73.08 76.92 55.77 50.00 57.69 35.85 51.92 51.92 72.22 49.06 50.00 39.62 30.77 50.94 50.94

12.36 12.17 7.17 7.20 20.40 29.40

39 of 52 9 of 53 25 of 51 19 of 53 17 of 53 31 of 51

25.00 83.02 50.98 64.15 67.92 39.22

59.11 55.63 37.96 3.33 2.14 44.59 270.76 0.53

3 of 53 3 of 52 50 of 53 1 of 8 45 of 53 9 of 43 5 of 53 34 of 53

94.34 94.23 5.66 87.50 15.09 79.07 90.57 35.85

1.47 1.77 25.17 88.42 48.92

16 of 53 19 of 53 4 of 53 18 of 52 22 of 52

69.81 64.15 92.45 65.38 57.69

_________________________________________________________________________________________________________

Profitability Return on Equity - Total (%) Reinvestment Rate - Total (%) Return on Assets (%) Return on Invested Capital (%) Cash Earnings Return On Equity (%) Cash Flow % Sales Cost Goods Sold / Sales (%) Gross Profit Margin (%) Selling, General & Administrative Expense/Net Sales (%) Operating Profit Margin (%) Operating Inc / Total Capital (%) Pretax Margin (%) Tax Rate (%) Net Margin (%) Total Asset Turnover (X) th USD Asset Utilization Inventory Turnover (%) Net Sales % Working Capital Capital Expenditure % Gross Fixed Assets Capital Expenditure % Total Assets Capital Expenditure % Total Sales Accumulated Depreciation % Gross Fixed Assets Leverage Total Debt % Total Capital Long Term Debt % Total Capital Equity % Total Capital Preferred Stock % Total Capital Fixed Charge Coverage Ratio Dividend Payout (% Earnings) - Total Dividends Fixed Assets % Common Equity Working Capital % Total Capital Liquidity Quick Ratio Current Ratio Inventories % Total Current Assets Accounts Receivables Days Inventories (# of Days) Held

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

64

Gross Profit Margin (%) Countries

Value

Rank

Percentile

Greece Australia Thailand Philippines Malaysia Hong Kong Norway Peru Argentina USA Italy Chile the United Kingdom Indonesia China Brazil Turkey Singapore Mexico Canada Pakistan Switzerland Japan New Zealand Sweden Finland Spain Luxembourg France India Russian Federation Austria Israel Ireland Germany Czech Republic Taiwan South Korea Portugal Denmark Belgium Poland Hungary Netherlands

47.10 45.91 45.74 44.07 41.23 39.98 38.52 37.41 37.34 36.00 35.49 35.41 35.02 34.84 34.01 33.79 32.63 32.60 32.54 31.97 31.51 27.98 26.20 24.96 24.22 22.80 22.80 21.70 20.75 20.03 17.92 17.30 16.34 16.20 13.83 12.78 12.75 12.42 11.64 11.08 7.84 7.62 6.30 1.32

1 2 3 4 6 7 8 10 12 13 14 15 17 18 19 20 22 23 24 25 26 28 30 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52

98.08 96.15 94.23 92.31 88.46 86.54 84.62 80.77 76.92 75.00 73.08 71.15 67.31 65.38 63.46 61.54 57.69 55.77 53.85 51.92 50.00 46.15 42.31 38.46 36.54 34.62 32.69 30.77 28.85 26.92 25.00 23.08 21.15 19.23 17.31 15.38 13.46 11.54 9.62 7.69 5.77 3.85 1.92 0.00

Region

_________________________________________________________________________________________________________

Europe Oceana Asia Asia Asia Asia Europe Latin America Latin America North America Europe Latin America Europe Asia Asia Latin America the Middle East Asia Latin America North America the Middle East Europe Asia Oceana Europe Europe Europe Europe Europe Asia Europe Europe the Middle East Europe Europe Europe Asia Asia Europe Europe Europe Europe Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

65

Pretax Margin (%) Countries

Value

Rank

Percentile

Greece New Zealand Philippines Hong Kong Malaysia Indonesia Turkey Mexico China Thailand Peru Luxembourg Pakistan Argentina India Chile Switzerland Australia Spain the United Kingdom Italy South Africa Singapore Canada Sweden Russian Federation Taiwan USA Germany Brazil Finland Czech Republic Austria Belgium France South Korea Japan Denmark Hungary Portugal Netherlands Norway Israel Ireland Poland

58.88 51.62 35.41 34.75 32.00 28.00 26.61 26.54 25.58 25.12 24.71 23.67 23.12 22.61 21.79 19.77 17.20 17.02 15.96 15.93 15.21 14.04 13.40 13.30 12.96 11.35 11.20 11.09 10.56 10.31 9.54 9.46 9.06 8.09 6.52 6.47 5.43 5.42 5.17 4.49 2.96 2.60 1.66 1.65 -2.36

1 2 3 4 5 7 9 10 12 13 14 16 17 18 19 22 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53

98.11 96.23 94.34 92.45 90.57 86.79 83.02 81.13 77.36 75.47 73.58 69.81 67.92 66.04 64.15 58.49 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 11.32 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Europe Oceana Asia Asia Asia Asia the Middle East Latin America Asia Asia Latin America Europe the Middle East Latin America Asia Latin America Europe Oceana Europe Europe Europe Africa Asia North America Europe Europe Asia North America Europe Latin America Europe Europe Europe Europe Europe Asia Asia Europe Europe Europe Europe Europe the Middle East Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

66

Quick Ratio Countries

Value

Rank

Percentile

3.30 2.49 2.31 2.22 1.98 1.93 1.90 1.89 1.83 1.61 1.47 1.44 1.44 1.33 1.23 1.23 1.17 1.16 1.11 1.09 1.07 1.00 0.99 0.99 0.98 0.98 0.97 0.96 0.94 0.92 0.90 0.87 0.82 0.78 0.71 0.71 0.70 0.69 0.66 0.64 0.64 0.50 0.49 0.48 0.36

1 4 5 6 7 9 10 11 12 15 16 17 18 19 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 42 43 44 45 46 47 48 50 51 52 53

98.11 92.45 90.57 88.68 86.79 83.02 81.13 79.25 77.36 71.70 69.81 67.92 66.04 64.15 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 20.75 18.87 16.98 15.09 13.21 11.32 9.43 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Thailand Germany Philippines Malaysia Switzerland Singapore Turkey Mexico Indonesia Brazil Canada India China Poland Belgium Russian Federation Pakistan France Norway New Zealand South Africa Greece Denmark Israel Hong Kong Ireland Finland Italy Spain Chile Luxembourg the United Kingdom Sweden Argentina South Korea Australia Taiwan Peru USA Netherlands Czech Republic Austria Hungary Portugal Japan

Asia Europe Asia Asia Europe Asia the Middle East Latin America Asia Latin America North America Asia Asia Europe Europe Europe the Middle East Europe Europe Oceana Africa Europe Europe the Middle East Asia Europe Europe Europe Europe Latin America Europe Europe Europe Latin America Asia Oceana Asia Latin America North America Europe Europe Europe Europe Europe Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

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©2004 Icon Group International, Inc.

Financial Indicators

67

Current Ratio Countries

Value

Rank

Percentile

3.65 3.13 3.05 2.48 2.47 2.37 2.23 2.10 2.09 1.85 1.84 1.83 1.77 1.69 1.56 1.55 1.54 1.53 1.49 1.42 1.38 1.36 1.36 1.33 1.27 1.20 1.16 1.11 1.10 1.06 1.05 1.04 1.02 0.98 0.98 0.96 0.96 0.91 0.81 0.80 0.69 0.64 0.63 0.59 0.52

1 2 3 7 8 9 11 12 13 15 16 17 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 45 46 47 48 49 50 52 53

98.11 96.23 94.34 86.79 84.91 83.02 79.25 77.36 75.47 71.70 69.81 67.92 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 15.09 13.21 11.32 9.43 7.55 5.66 1.89 0.00

Region

_________________________________________________________________________________________________________

Thailand Philippines Germany Switzerland Indonesia Malaysia Singapore Turkey Mexico Israel India Ireland Canada Brazil Greece China Poland Belgium Russian Federation Finland Pakistan Norway France Hong Kong Sweden South Africa New Zealand Denmark Italy the United Kingdom Chile Taiwan Spain Czech Republic Luxembourg USA Australia South Korea Argentina Peru Netherlands Hungary Portugal Austria Japan

Asia Asia Europe Europe Asia Asia Asia the Middle East Latin America the Middle East Asia Europe North America Latin America Europe Asia Europe Europe Europe Europe the Middle East Europe Europe Asia Europe Africa Oceana Europe Europe Europe Latin America Asia Europe Europe Europe North America Oceana Asia Latin America Latin America Europe Europe Europe Europe Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

68

Inventories % Total Current Assets Countries

Value

Rank

Percentile

Israel Ireland Greece Canada Sweden Taiwan Denmark South Korea Japan Finland USA Belgium Russian Federation Poland Singapore Norway Italy Thailand Pakistan Peru Spain France Austria Germany South Africa Philippines India Switzerland Malaysia Hungary Australia Czech Republic China Luxembourg the United Kingdom Hong Kong Portugal Indonesia Netherlands Chile Brazil Turkey Mexico Argentina New Zealand

44.64 44.27 27.85 25.17 23.85 23.76 22.74 20.29 18.29 17.40 17.06 16.65 16.27 15.45 14.61 14.42 12.49 11.21 11.17 11.05 10.69 10.64 9.21 9.15 9.07 9.04 8.24 8.18 8.03 7.78 7.74 7.64 7.63 7.60 7.47 7.38 7.16 7.15 6.84 4.67 2.81 1.60 1.59 0.88 0.35

1 2 3 4 5 6 7 8 10 11 12 13 14 15 16 17 18 19 20 21 22 23 25 26 27 28 30 31 33 34 35 37 38 39 40 41 42 43 44 47 48 49 50 52 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 52.83 50.94 49.06 47.17 43.40 41.51 37.74 35.85 33.96 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 11.32 9.43 7.55 5.66 1.89 0.00

Region

_________________________________________________________________________________________________________

the Middle East Europe Europe North America Europe Asia Europe Asia Asia Europe North America Europe Europe Europe Asia Europe Europe Asia the Middle East Latin America Europe Europe Europe Europe Africa Asia Asia Europe Asia Europe Oceana Europe Asia Europe Europe Asia Europe Asia Europe Latin America Latin America the Middle East Latin America Latin America Oceana

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

69

Accounts Receivables Days Countries

Value

Rank

Percentile

Philippines Indonesia Italy Greece Russian Federation India Malaysia Brazil France Switzerland Singapore Spain Pakistan Luxembourg Canada Germany Chile Israel Poland Ireland Norway Finland Denmark Portugal Australia Sweden Argentina South Africa Turkey Mexico Belgium Netherlands Thailand China Peru the United Kingdom South Korea USA Taiwan Hong Kong Austria Japan Hungary Czech Republic

256.48 202.80 165.75 158.84 147.40 144.73 134.24 132.36 130.07 105.13 101.38 96.72 91.38 90.26 88.42 87.61 85.56 84.36 84.30 83.66 82.49 79.28 76.21 75.41 73.87 72.08 66.96 66.73 65.39 65.21 64.81 60.11 59.68 59.25 58.03 56.93 56.86 53.19 50.84 49.71 44.25 42.04 41.00 33.43

1 3 5 6 7 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 36 37 38 39 40 41 42 43 45 48 50 51 52

98.08 94.23 90.38 88.46 86.54 82.69 80.77 78.85 76.92 75.00 73.08 71.15 69.23 67.31 65.38 63.46 61.54 59.62 57.69 55.77 53.85 51.92 50.00 48.08 46.15 44.23 42.31 40.38 38.46 36.54 34.62 30.77 28.85 26.92 25.00 23.08 21.15 19.23 17.31 13.46 7.69 3.85 1.92 0.00

Region

_________________________________________________________________________________________________________

Asia Asia Europe Europe Europe Asia Asia Latin America Europe Europe Asia Europe the Middle East Europe North America Europe Latin America the Middle East Europe Europe Europe Europe Europe Europe Oceana Europe Latin America Africa the Middle East Latin America Europe Europe Asia Asia Latin America Europe Asia North America Asia Asia Europe Asia Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

70

Inventories (# of Days) Held Countries

Value

Rank

Percentile

Greece Thailand Finland Switzerland Israel Ireland Philippines Sweden Indonesia Norway India Pakistan Singapore Malaysia Italy Canada USA Taiwan Hong Kong Poland Belgium France Peru Australia Russian Federation Japan China Denmark Spain South Korea Germany the United Kingdom Luxembourg South Africa Czech Republic Austria Brazil Portugal Chile Netherlands Hungary Turkey Mexico Argentina

317.16 194.42 142.15 106.57 101.78 100.94 96.07 77.54 75.96 67.56 65.06 60.63 57.86 54.42 49.88 48.92 39.01 38.89 37.99 35.61 33.06 32.44 31.53 31.33 29.54 28.75 26.48 25.40 23.28 22.99 22.28 18.70 17.24 16.53 15.17 13.62 12.98 9.68 8.46 6.97 5.40 4.62 4.61 1.15

1 2 5 6 7 8 9 12 13 15 16 17 18 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 52

98.08 96.15 90.38 88.46 86.54 84.62 82.69 76.92 75.00 71.15 69.23 67.31 65.38 61.54 59.62 57.69 55.77 53.85 51.92 50.00 48.08 46.15 44.23 42.31 40.38 38.46 36.54 34.62 30.77 28.85 26.92 25.00 23.08 21.15 19.23 17.31 15.38 13.46 11.54 9.62 7.69 5.77 3.85 0.00

Region

_________________________________________________________________________________________________________

Europe Asia Europe Europe the Middle East Europe Asia Europe Asia Europe Asia the Middle East Asia Asia Europe North America North America Asia Asia Europe Europe Europe Latin America Oceana Europe Asia Asia Europe Europe Asia Europe Europe Europe Africa Europe Europe Latin America Europe Latin America Europe Europe the Middle East Latin America Latin America

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

3.6 3.6.1

71

PRODUCTIVITY IN CANADA: ASSET-LABOR RATIOS Overview

In this chapter, we consider numerous asset-labor ratios for electric services in Canada benchmarked against global averages. Productivity and utilization ratios are presented for companies oprating in Canada and the average global benchmarks for electric services. For ratios where there are large deviations between Canada and the benchmarks, graphics are provided (sometimes referred to as a “gap” analysis). Then the distribution of ratios is presented in the form of ranks and percentiles. Certain asset-labor ratios are highlighted across countries in the comparison group. In the case of asset-labor ratios, this report maintains comparability over time and across countries by using a common currency (the US dollar) and relates each measure to a “per employee basis”. Ratios are projected using raw financial statistics and, as ratios, are therefore comparable. Given a country’s human resource ratios, the resulting figures are benchmarked across regional and global averages. We then report the larger asset-labor ratio gaps for electric services that Canada has vis-à-vis the worldwide average. Again, a gap need not be a bad sign. Rather, it is simply a substantial difference that might merit further attention or signal a firm’s relative incentive to invest locally. All figures are projections, so due caution is required.

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Financial Indicators

3.6.2

72

Asset to Labor: Outlook

The following tables and graphs are prepared using the methodology described at the beginning of this section. All units are in thousands of US dollars per employee. All figures are current-year projections for electric services in Canada based on latest financial results available. Labor-asset Ratios ($k/employee) Canada North America World Avg. _________________________________________________________________________________________________________

Cash & Short Term Investments Cash Short Term Investments Receivables (Net) Total Inventories Raw Materials Work in Process Progress Payments & Other Prepaid Expenses Other Current Assets Current Assets - Total Long Term Receivables Investments in Unconsolidated Subsidiaries Other Investments Property Plant and Equipment - Net Property Plant and Equipment - Gross Land Buildings Machinery & Equipment Transportation Equipment Other Property Plant & Equipment Accumulated Depreciation - Total Accumulated Depreciation - Land Accumulated Depreciation - Buildings Accumulated Depreciation -Machinery & Equipment Accumulated Depreciation - Transportation Equipment Accumulated Depreciation - Other Prop & Equip Other Assets Deferred Charges Tangible Other Assets Intangible Other Assets Total Assets

135.94 9.49 8.24 113.93 31.81 2.96 3.57 0.79 4.79 15.31 301.47 8.26 156.51 3.42 905.48 1238.84 23.52 53.79 57.95 34.43 962.98 333.37 0.46 14.91 31.60 21.52 270.67 66.35 41.39 19.48 11.57 1421.20

92.12 40.39 49.91 97.74 26.91 8.76 2.10 14.89 4.90 19.28 237.63 8.04 53.96 16.62 702.87 1089.66 38.63 178.45 622.84 8.25 263.43 354.92 7.93 40.42 222.10 6.14 101.37 134.25 14.27 32.96 46.55 1141.89

95.27 33.68 45.45 118.83 18.31 4.40 1.44 10.36 3.26 19.77 253.88 4.31 39.05 17.28 776.49 1221.51 24.35 120.53 421.47 5.40 160.36 375.31 2.12 20.18 131.11 3.62 34.41 127.96 8.38 23.99 30.38 1204.34

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

3.6.3

73

Asset to Labor: International Gaps

The following graphics summarize for electric services the large labor-asset gaps between firms operating in Canada and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Current Assets - Total ($k/employee) 350 300 250 200 150 100 50 0

301.47 237.63

253.88

47.59

Canada

North America

World Average

Gap

Gap: Investments in Unconsolidated Subsidiaries ($k/employee) 200 156.51 150

117.46

100 53.96 50

39.05

0 Canada

North America

World Average

Gap

Gap: Property Plant and Equipment - Net ($k/employee) 1000

905.48 702.87

800

776.49

600 400 128.99

200 0 Canada

www.icongrouponline.com

North America

World Average

Gap

©2004 Icon Group International, Inc.

Financial Indicators

74

Gap: Buildings ($k/employee) 178.45

200

120.53

150 100

53.79

50 0 -50

-66.74

-100 Canada

North America

World Average

Gap

Gap: Machinery & Equipment ($k/employee) 800

622.84

600

421.47

400 200

57.95

0 -200 -400 Canada

North America

World Average

-363.52 Gap

Gap: Other Property Plant & Equipment ($k/employee) 1000

962.98 802.62

800 600 400

263.43 160.36

200 0 Canada

North America

World Average

Gap

Gap: Accumulated Depreciation - Total ($k/employee) 400

333.37

354.92

375.31

300 200 100 0

-41.94

-100 Canada

www.icongrouponline.com

North America

World Average

Gap

©2004 Icon Group International, Inc.

Financial Indicators

75

Gap: Accumulated Depreciation -Machinery & Equipment ($k/employee) 250 200 150 100 50 0 -50 -100

222.1 131.11 31.6

Canada

North America

-99.51 Gap

World Average

Gap: Accumulated Depreciation - Other Prop & Equip ($k/employee) 300

270.67 236.26

250 200 150

101.37

100 34.41

50 0 Canada

North America

World Average

Gap

Gap: Other Assets ($k/employee) 134.25

150 100

127.96

66.35

50 0 -50

-61.61

-100 Canada

North America

World Average

Gap

Gap: Total Assets ($k/employee) 1500

1421.2 1141.89

1204.34

1000 500

216.86

0 Canada

www.icongrouponline.com

North America

World Average

Gap

©2004 Icon Group International, Inc.

Financial Indicators

3.6.4

76

Key Percentiles and Rankings

We now consider the distribution of asset-labor ratios using ranks and percentiles across . What percent of countries have a productivity indicator lower or higher than Canada (what is the indicator's rank or percentile)? The table below answers this question with respect to asset-labor structure. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance or productivity. After the summary table below, a few key asset-labor ratios are highlighted in additional tables. Asset Structure ($k/employee)

Canada

Rank of Total

Percentile

Cash & Short Term Investments Cash Short Term Investments Receivables (Net) Total Inventories Raw Materials Work in Process Progress Payments & Other Prepaid Expenses Other Current Assets Current Assets - Total Long Term Receivables Investments in Unconsolidated Subsidiaries Other Investments Property Plant and Equipment - Net Property Plant and Equipment - Gross Land Buildings Machinery & Equipment Transportation Equipment Other Property Plant & Equipment Accumulated Depreciation - Total Accumulated Depreciation - Land Accumulated Depreciation - Buildings Accumulated Depreciation -Machinery & Equipment Accumulated Depreciation - Transportation Equipment Accumulated Depreciation - Other Prop & Equip Other Assets Deferred Charges Tangible Other Assets Intangible Other Assets Total Assets

135.94 9.49 8.24 113.93 31.81 2.96 3.57 0.79 4.79 15.31 301.47 8.26 156.51 3.42 905.48 1238.84 23.52 53.79 57.95 34.43 962.98 333.37 0.46 14.91 31.60 21.52 270.67 66.35 41.39 19.48 11.57 1421.20

13 of 53 36 of 50 38 of 48 18 of 53 14 of 53 38 of 46 11 of 33 33 of 43 15 of 34 15 of 52 18 of 53 15 of 42 11 of 46 31 of 46 15 of 53 22 of 51 16 of 39 34 of 48 44 of 50 2 of 35 2 of 51 20 of 51 8 of 13 31 of 45 39 of 46 3 of 32 4 of 48 22 of 53 5 of 33 8 of 35 30 of 51 17 of 53

75.47 28.00 20.83 66.04 73.58 17.39 66.67 23.26 55.88 71.15 66.04 64.29 76.09 32.61 71.70 56.86 58.97 29.17 12.00 94.29 96.08 60.78 38.46 31.11 15.22 90.63 91.67 58.49 84.85 77.14 41.18 67.92

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

77

Cash & Short Term Investments Countries

Value ($K/employee)

Rank

Percentile

777.76 663.64 344.99 281.92 252.20 183.95 183.45 179.21 162.64 135.94 134.14 123.93 94.29 94.29 93.70 83.07 74.09 71.71 67.95 65.67 61.86 60.69 56.30 56.01 45.36 44.52 41.11 38.61 35.72 33.58 24.05 23.84 22.84 22.33 21.80 18.19 14.12 12.87 12.05 11.91 8.95 8.87 4.07 3.49 0.74

1 2 3 5 7 8 9 10 12 13 14 15 16 17 18 19 21 22 24 25 26 27 28 29 31 32 33 34 35 36 38 39 40 41 42 43 44 45 46 47 48 49 51 52 53

98.11 96.23 94.34 90.57 86.79 84.91 83.02 81.13 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 60.38 58.49 54.72 52.83 50.94 49.06 47.17 45.28 41.51 39.62 37.74 35.85 33.96 32.08 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 11.32 9.43 7.55 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Belgium Pakistan Thailand Malaysia Switzerland Turkey Mexico USA China Canada Germany Australia South Korea New Zealand Philippines Netherlands Indonesia Hong Kong Denmark Luxembourg the United Kingdom Austria Argentina Spain Peru Norway Italy Sweden France Finland Japan Poland Czech Republic Brazil South Africa Chile Greece Taiwan Portugal Singapore Israel Ireland India Hungary Russian Federation

Europe the Middle East Asia Asia Europe the Middle East Latin America North America Asia North America Europe Oceana Asia Oceana Asia Europe Asia Asia Europe Europe Europe Europe Latin America Europe Latin America Europe Europe Europe Europe Europe Asia Europe Europe Latin America Africa Latin America Europe Asia Europe Asia the Middle East Europe Asia Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

78

Receivables (Net) Countries

Value ($K/employee)

Rank

Percentile

1060.13 557.76 337.58 332.82 292.45 238.84 216.06 199.14 173.10 165.60 144.60 143.94 131.72 116.94 116.62 114.33 113.93 111.28 110.04 109.74 103.66 102.26 96.24 87.59 85.84 80.76 71.33 69.46 64.32 61.88 61.83 57.31 55.59 49.89 46.91 44.71 44.34 27.61 26.82 26.38 23.86 23.84 16.94 10.95 8.03

1 2 3 4 5 6 7 8 9 10 11 12 13 15 16 17 18 19 20 21 23 24 27 29 30 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 75.47 71.70 69.81 67.92 66.04 64.15 62.26 60.38 56.60 54.72 49.06 45.28 43.40 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 11.32 9.43 7.55 5.66 3.77 1.89

Region

_________________________________________________________________________________________________________

Belgium Netherlands Pakistan South Korea Switzerland China Australia Italy Germany USA Philippines Spain New Zealand Thailand Malaysia Indonesia Canada Peru Turkey Mexico France Denmark Sweden Argentina the United Kingdom Portugal Norway Chile Luxembourg Hong Kong Finland Brazil Austria Poland Japan Israel Ireland Singapore India Greece Taiwan Hungary Czech Republic South Africa Russian Federation

Europe Europe the Middle East Asia Europe Asia Oceana Europe Europe North America Asia Europe Oceana Asia Asia Asia North America Latin America the Middle East Latin America Europe Europe Europe Latin America Europe Europe Europe Latin America Europe Asia Europe Latin America Europe Europe Asia the Middle East Europe Asia Asia Europe Asia Europe Europe Africa Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

79

Total Inventories Countries

Value ($K/employee)

Rank

Percentile

334.42 137.23 123.90 75.51 68.38 58.96 55.16 44.39 44.02 38.64 35.43 31.81 26.91 24.11 21.21 20.29 19.72 19.06 18.74 17.54 17.49 15.87 14.43 14.24 12.96 12.42 12.35 11.76 11.33 10.69 9.56 8.65 8.02 6.18 4.86 4.65 4.64 3.73 3.03 2.93 2.55 1.81 1.62 1.31 0.85

1 2 3 4 5 6 7 9 10 12 13 14 15 16 17 19 20 21 22 24 25 26 28 29 31 32 33 34 35 36 37 38 39 40 41 42 43 45 46 47 49 50 51 52 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 83.02 81.13 77.36 75.47 73.58 71.70 69.81 67.92 64.15 62.26 60.38 58.49 54.72 52.83 50.94 47.17 45.28 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 15.09 13.21 11.32 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Belgium South Korea Pakistan Finland Sweden Italy Thailand Israel Ireland Switzerland Malaysia Canada USA Philippines Japan Spain Peru Indonesia Germany Greece France China Hong Kong Netherlands Taiwan Luxembourg Austria Denmark Norway Singapore the United Kingdom Portugal Australia Poland South Africa Turkey Mexico Czech Republic India Chile Hungary Russian Federation Brazil Argentina New Zealand

Europe Asia the Middle East Europe Europe Europe Asia the Middle East Europe Europe Asia North America North America Asia Asia Europe Latin America Asia Europe Europe Europe Asia Asia Europe Asia Europe Europe Europe Europe Asia Europe Europe Oceana Europe Africa the Middle East Latin America Europe Asia Latin America Europe Europe Latin America Latin America Oceana

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

80

Current Assets - Total Countries

Value ($K/employee)

Rank

Percentile

2176.38 1273.34 661.20 601.37 577.55 531.09 489.37 437.73 418.41 376.09 374.93 350.69 318.98 318.11 310.26 301.47 277.29 239.21 230.69 223.12 218.85 183.40 181.89 179.60 168.35 161.30 149.24 144.53 142.44 133.36 120.79 104.63 100.27 99.44 98.89 82.78 81.28 69.00 63.00 54.55 51.86 40.23 37.79 33.71 10.78

1 2 3 4 5 6 7 9 10 12 13 14 15 16 17 18 21 23 24 25 26 28 29 30 31 32 33 34 35 36 38 39 40 41 42 43 44 45 46 47 48 49 50 51 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 83.02 81.13 77.36 75.47 73.58 71.70 69.81 67.92 66.04 60.38 56.60 54.72 52.83 50.94 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 11.32 9.43 7.55 5.66 3.77 0.00

Region

_________________________________________________________________________________________________________

Belgium Pakistan Netherlands Switzerland South Korea Thailand USA Malaysia China Germany Australia Philippines Turkey Mexico Italy Canada Indonesia New Zealand Finland Sweden Spain Denmark the United Kingdom Peru Hong Kong France Argentina Norway Luxembourg Austria Portugal Japan Israel Ireland Chile Brazil Poland Czech Republic Greece Taiwan Singapore India South Africa Hungary Russian Federation

Europe the Middle East Europe Europe Asia Asia North America Asia Asia Europe Oceana Asia the Middle East Latin America Europe North America Asia Oceana Europe Europe Europe Europe Europe Latin America Asia Europe Latin America Europe Europe Europe Europe Asia the Middle East Europe Latin America Latin America Europe Europe Europe Asia Asia Asia Africa Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

81

Property Plant and Equipment - Net Countries

Value ($K/employee)

Rank

Percentile

8402.94 2859.49 2679.52 1670.96 1551.04 1182.19 1159.21 1102.27 1013.54 1007.51 974.90 905.48 899.81 845.51 782.65 706.89 705.75 654.83 640.04 630.75 625.75 591.96 523.82 466.46 463.68 452.34 418.10 393.73 389.94 385.81 384.82 384.76 384.33 368.66 311.32 247.69 211.63 165.74 132.62 111.56 53.84 27.05 16.52 16.39 13.71

1 2 3 5 6 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 40 42 44 45 46 47 49 50 51 52 53

98.11 96.23 94.34 90.57 88.68 83.02 81.13 79.25 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 24.53 20.75 16.98 15.09 13.21 11.32 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Australia Pakistan Peru China Thailand Malaysia USA Sweden South Korea Hong Kong Spain Canada Argentina Japan Austria Italy Netherlands Belgium Chile Portugal New Zealand Switzerland Norway Luxembourg the United Kingdom Finland Brazil Philippines Denmark Turkey Taiwan Mexico France Germany Indonesia Poland Czech Republic Greece Hungary South Africa India Russian Federation Israel Ireland Singapore

Oceana the Middle East Latin America Asia Asia Asia North America Europe Asia Asia Europe North America Latin America Asia Europe Europe Europe Europe Latin America Europe Oceana Europe Europe Europe Europe Europe Latin America Asia Europe the Middle East Asia Latin America Europe Europe Asia Europe Europe Europe Europe Africa Asia Europe the Middle East Europe Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

82

Accumulated Depreciation - Total Countries

Value ($K/employee)

Rank

Percentile

1479.43 1472.03 1314.95 1265.65 1099.93 907.12 839.57 833.72 742.68 655.57 647.23 626.55 580.71 580.65 481.64 428.26 416.84 366.09 333.37 323.79 315.23 304.64 229.66 214.72 209.83 205.08 203.78 202.53 188.55 166.84 152.87 152.45 135.76 132.58 107.34 97.23 40.99 38.82 28.76 20.57 20.40 13.26 10.06

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 20 21 22 23 26 27 28 29 30 31 32 33 34 35 37 38 40 42 45 46 47 48 49 50 51

98.04 96.08 94.12 92.16 90.20 88.24 86.27 84.31 82.35 80.39 78.43 76.47 74.51 72.55 70.59 68.63 66.67 64.71 60.78 58.82 56.86 54.90 49.02 47.06 45.10 43.14 41.18 39.22 37.25 35.29 33.33 31.37 27.45 25.49 21.57 17.65 11.76 9.80 7.84 5.88 3.92 1.96 0.00

Region

_________________________________________________________________________________________________________

Netherlands Portugal Austria Japan Germany China Luxembourg Pakistan Spain Belgium Finland Sweden Switzerland USA Peru Australia Hong Kong South Korea Canada Chile Thailand Norway Italy Denmark France Brazil Malaysia the United Kingdom Poland Taiwan Turkey Mexico Philippines Czech Republic Indonesia Hungary India Russian Federation New Zealand Israel Ireland Singapore Greece

Europe Europe Europe Asia Europe Asia Europe the Middle East Europe Europe Europe Europe Europe North America Latin America Oceana Asia Asia North America Latin America Asia Europe Europe Europe Europe Latin America Asia Europe Europe Asia the Middle East Latin America Asia Europe Asia Europe Asia Europe Oceana the Middle East Europe Asia Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

83

Intangible Other Assets Countries

Value ($K/employee)

Rank

Percentile

380.71 328.77 194.33 124.03 101.36 74.19 72.78 72.58 63.95 61.19 60.84 60.34 59.65 59.25 50.57 40.86 40.64 40.46 38.31 35.82 31.23 23.39 20.35 13.17 11.57 10.75 9.76 7.91 6.29 5.80 2.69 2.58 1.88 1.67 1.24 0.88 0.88 0.75 0.67 0.49 0.13 0.02 0.02

1 2 3 4 5 6 7 8 9 10 11 12 13 14 16 18 19 20 21 23 24 27 28 29 30 31 32 33 34 35 37 38 39 40 41 42 43 45 46 47 49 50 51

98.04 96.08 94.12 92.16 90.20 88.24 86.27 84.31 82.35 80.39 78.43 76.47 74.51 72.55 68.63 64.71 62.75 60.78 58.82 54.90 52.94 47.06 45.10 43.14 41.18 39.22 37.25 35.29 33.33 31.37 27.45 25.49 23.53 21.57 19.61 17.65 15.69 11.76 9.80 7.84 3.92 1.96 0.00

Region

_________________________________________________________________________________________________________

USA New Zealand Australia Italy Portugal Hong Kong Norway Austria Philippines Switzerland Israel Ireland Belgium the United Kingdom Indonesia Chile Finland France Malaysia Spain Thailand Germany Netherlands South Korea Canada Sweden Luxembourg China Japan Peru Poland Czech Republic Brazil Denmark South Africa Turkey Mexico Greece Hungary Singapore Argentina Russian Federation Pakistan

North America Oceana Oceana Europe Europe Asia Europe Europe Asia Europe the Middle East Europe Europe Europe Asia Latin America Europe Europe Asia Europe Asia Europe Europe Asia North America Europe Europe Asia Asia Latin America Europe Europe Latin America Europe Africa the Middle East Latin America Europe Europe Asia Latin America Europe the Middle East

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

3.7 3.7.1

84

PRODUCTIVITY IN CANADA: LIABILITY-LABOR RATIOS Overview

In this chapter we consider the liability-labor ratios of companies operating in Canada benchmarked against global averages for electric services. For ratios where there are large deviations between Canada and the benchmarks, graphics are provided (sometimes referred to as a “gap” analysis). Then the distribution of productivity ratios is presented in the form of ranks and percentiles. Certain key liability-labor ratios are highlighted for electric services across countries in the comparison group. Definitions of liability statement terms are given in Chapter 3. In the case of liability-labor ratios, this report maintains comparability over time and across countries by using a common currency (the US dollar) and relates each measure to a “per employee basis”. Ratios are projected using raw financial statistics and, as ratios, are therefore comparable. Given a country’s human resource ratios, the resulting figures are benchmarked across regional and global averages. I then report the larger liability-labor ratio gaps for electric services that Canada has vis-à-vis the worldwide average. Again, a gap need not be a bad sign. Rather, it is simply a substantial difference that might merit further attention or signal a firm’s relative incentive to invest locally. All figures are projections, so due caution is required.

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©2004 Icon Group International, Inc.

Financial Indicators

3.7.2

85

Liability to Labor: Outlook

The following tables and graphs are prepared using the methodology described at the beginning of this section. All units are in thousands of US dollars per employee. All figures are current-year projections for electric services in Canada based on latest financial results available. Labor-liability Ratios ($k/employee) Canada North America World Avg. _________________________________________________________________________________________________________

Accounts Payable Short Term Debt & Current Portion of Long Term Debt Income Taxes Payable Dividends Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Long Term Debt Excluding Capitalized Leases Capitalized Lease Obligations Provision For Risks and Charges Deferred Income Deferred Taxes Deferred Taxes - Credit Deferred Taxes - Debit Other Liabilities Total Liabilities Minority Interest Preferred Stock Common Equity Common Stock Capital Surplus Other Appropriated Reserves Retained Earnings Unrealized Foreign Exchange Gain/Loss Treasury Stock Total Liabilities & Shareholders Equity

76.01 71.11 4.23 9.80 25.88 173.37 665.12 664.66 0.46 7.28 6.84 39.48 69.90 18.76 20.48 906.27 38.69 31.30 444.94 245.89 87.07 -9.12 196.97 -0.07 1.04 1421.20

52.82 81.97 9.99 24.86 52.78 202.14 302.42 301.21 1.26 21.78 8.52 30.87 50.76 18.95 58.84 610.57 5.70 2.88 508.28 218.24 87.42 17.51 97.83 -3.50 2.97 1141.89

51.76 107.78 8.82 14.41 63.00 231.08 397.36 395.59 1.83 14.78 4.31 22.92 23.19 5.93 43.88 707.54 64.52 1.42 425.89 161.04 48.86 37.57 62.93 -0.04 1.06 1204.34

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

3.7.3

86

Liability and Equity to Labor: International Gaps

The following graphics summarize for electric services the large labor-liability gaps between firms operating in Canada and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Other Current Liabilities ($k/employee) 80 52.78

60 40

63

25.88

20 0 -20 -37.12 Gap

-40 Canada

North America

World Average

Gap: Current Liabilities - Total ($k/employee) 250 200 150 100 50 0 -50 -100

173.37

202.14

231.08

-57.71 Canada

North America

World Average

Gap

Gap: Long Term Debt ($k/employee) 700 600 500 400 300 200 100 0

665.12

397.36 302.42

Canada

www.icongrouponline.com

North America

267.76

World Average

Gap

©2004 Icon Group International, Inc.

Financial Indicators

87

Gap: Long Term Debt Excluding Capitalized Leases ($k/employee) 700 600 500 400 300 200 100 0

664.66

395.59 301.21

Canada

North America

269.07

World Average

Gap

Gap: Deferred Taxes - Credit ($k/employee) 69.9 70 60 50 40 30 20 10 0

50.76

46.71 23.19

Canada

North America

World Average

Gap

Gap: Total Liabilities ($k/employee) 1000

906.27 707.54

800

610.57

600 400 198.73 200 0 Canada

North America

World Average

Gap

Gap: Common Stock ($k/employee) 250

245.89 218.24

200

161.04

150 84.85

100 50 0 Canada

www.icongrouponline.com

North America

World Average

Gap

©2004 Icon Group International, Inc.

Financial Indicators

88

Gap: Capital Surplus ($k/employee) 100

87.07

87.42

80 60

48.86 38.21

40 20 0 Canada

North America

World Average

Gap

Gap: Other Appropriated Reserves ($k/employee) 37.57

40 30 20 10 0 -10 -20 -30

17.51 9.12

Canada

North America

-28.45 Gap

World Average

Gap: Retained Earnings ($k/employee) 196.97 200 134.04

150 97.83 100

62.93

50 0 Canada

North America

World Average

Gap

Gap: Total Liabilities & Shareholders Equity ($k/employee) 1500

1421.2 1141.89

1204.34

1000 500

216.86

0 Canada

www.icongrouponline.com

North America

World Average

Gap

©2004 Icon Group International, Inc.

Financial Indicators

3.7.4

89

Key Percentiles and Rankings

We now consider the distribution of liability-labor ratios using ranks and percentiles across . What percent of countries have a value lower or higher than Canada (what is the indicator's rank or percentile)? The table below answers this question with respect to liability-labor ratios. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance or productivity. After the summary table below, a few key liabilitylabor ratios are highlighted in additional tables. Liability Structure ($k/employee)

Canada

Rank of Total

Percentile

Accounts Payable Short Term Debt & Current Portion of Long Term Debt Income Taxes Payable Dividends Payable Other Current Liabilities Current Liabilities - Total Long Term Debt Long Term Debt Excluding Capitalized Leases Capitalized Lease Obligations Provision For Risks and Charges Deferred Income Deferred Taxes Deferred Taxes - Credit Deferred Taxes - Debit Other Liabilities Total Liabilities Minority Interest Preferred Stock Common Equity Common Stock Capital Surplus Other Appropriated Reserves Retained Earnings Unrealized Foreign Exchange Gain/Loss Treasury Stock Total Liabilities & Shareholders Equity

76.01 71.11 4.23 9.80 25.88 173.37 665.12 664.66 0.46 7.28 6.84 39.48 69.90 18.76 20.48 906.27 38.69 31.30 444.94 245.89 87.07 -9.12 196.97 -0.07 1.04 1421.20

11 of 51 21 of 53 29 of 48 9 of 27 42 of 53 24 of 53 7 of 52 7 of 52 14 of 22 24 of 38 15 of 28 9 of 40 5 of 22 11 of 23 23 of 51 15 of 53 8 of 39 1 of 8 19 of 53 10 of 51 12 of 42 45 of 47 12 of 51 14 of 26 10 of 17 17 of 53

78.43 60.38 39.58 66.67 20.75 54.72 86.54 86.54 36.36 36.84 46.43 77.50 77.27 52.17 54.90 71.70 79.49 87.50 64.15 80.39 71.43 4.26 76.47 46.15 41.18 67.92

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

90

Accounts Payable Countries

Value ($K/employee)

Rank

Percentile

1041.24 482.81 255.84 176.55 149.67 112.73 106.91 101.11 91.22 90.68 76.01 71.12 68.37 64.05 50.78 50.64 50.64 44.33 44.01 42.93 42.04 39.89 39.19 37.05 33.96 33.49 28.14 27.05 25.62 25.41 23.77 22.40 21.11 20.37 19.98 19.74 17.65 12.10 11.06 10.40 10.28 4.22 3.68

1 2 3 4 5 6 7 8 9 10 11 12 13 14 18 19 20 23 24 25 26 27 28 29 31 32 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

98.04 96.08 94.12 92.16 90.20 88.24 86.27 84.31 82.35 80.39 78.43 76.47 74.51 72.55 64.71 62.75 60.78 54.90 52.94 50.98 49.02 47.06 45.10 43.14 39.22 37.25 33.33 31.37 29.41 27.45 25.49 23.53 21.57 19.61 17.65 15.69 13.73 11.76 9.80 7.84 5.88 3.92 1.96

Region

_________________________________________________________________________________________________________

Belgium Netherlands South Korea Australia Switzerland New Zealand USA Italy China Luxembourg Canada Spain Thailand Philippines Turkey Mexico Indonesia Portugal Pakistan Peru France Czech Republic Sweden the United Kingdom Austria Germany Poland Hong Kong Israel Ireland Japan Brazil Norway Malaysia Denmark Chile Singapore Taiwan India Hungary Finland Russian Federation Greece

Europe Europe Asia Oceana Europe Oceana North America Europe Asia Europe North America Europe Asia Asia the Middle East Latin America Asia Europe the Middle East Latin America Europe Europe Europe Europe Europe Europe Europe Asia the Middle East Europe Asia Latin America Europe Asia Europe Latin America Asia Asia Asia Europe Europe Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

91

Current Liabilities - Total Countries

Value ($K/employee)

Rank

Percentile

1445.92 965.60 786.73 724.09 651.70 491.34 388.98 381.37 326.95 319.13 282.17 257.98 226.98 210.87 206.68 195.11 192.73 190.72 189.62 184.69 177.92 174.88 173.37 167.66 158.37 157.93 155.06 154.42 144.24 140.68 140.46 134.60 130.12 80.42 76.93 57.85 54.76 54.31 52.30 48.64 40.47 28.56 28.47 26.21 7.64

1 2 3 4 5 6 7 8 9 10 11 12 14 15 16 17 18 19 20 21 22 23 24 25 27 28 29 30 34 35 36 37 39 41 42 43 44 45 46 47 48 49 50 51 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 83.02 81.13 79.25 77.36 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 49.06 47.17 45.28 43.40 35.85 33.96 32.08 30.19 26.42 22.64 20.75 18.87 16.98 15.09 13.21 11.32 9.43 7.55 5.66 3.77 0.00

Region

_________________________________________________________________________________________________________

Belgium Pakistan Netherlands Australia South Korea China Italy USA Peru Spain Switzerland Austria Japan Malaysia New Zealand Sweden Portugal Thailand the United Kingdom Argentina Philippines Hong Kong Canada Finland Turkey Mexico Germany Norway Denmark Indonesia Luxembourg France Chile Czech Republic Brazil Hungary Israel Ireland Taiwan Poland Greece South Africa Singapore India Russian Federation

Europe the Middle East Europe Oceana Asia Asia Europe North America Latin America Europe Europe Europe Asia Asia Oceana Europe Europe Asia Europe Latin America Asia Asia North America Europe the Middle East Latin America Europe Europe Europe Asia Europe Europe Latin America Europe Latin America Europe the Middle East Europe Asia Europe Europe Africa Asia Asia Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

92

Long Term Debt Countries

Value ($K/employee)

Rank

Percentile

5053.36 1718.01 1114.48 928.34 665.12 643.06 637.93 614.52 475.98 465.67 440.17 383.58 344.20 342.83 339.55 338.78 333.57 329.43 293.30 269.21 268.48 268.47 258.81 256.07 228.09 215.45 190.94 159.56 71.48 65.89 55.36 48.37 44.47 39.06 33.59 33.32 28.18 18.64 12.01 2.13 1.28 0.80 0.50 0.30

1 2 3 5 7 8 9 10 11 12 13 14 16 17 18 19 20 21 22 24 25 26 27 28 31 32 34 35 36 37 38 39 40 41 42 43 44 46 47 48 49 50 51 52

98.08 96.15 94.23 90.38 86.54 84.62 82.69 80.77 78.85 76.92 75.00 73.08 69.23 67.31 65.38 63.46 61.54 59.62 57.69 53.85 51.92 50.00 48.08 46.15 40.38 38.46 34.62 32.69 30.77 28.85 26.92 25.00 23.08 21.15 19.23 17.31 15.38 11.54 9.62 7.69 5.77 3.85 1.92 0.00

Region

_________________________________________________________________________________________________________

Australia Pakistan Thailand China Canada USA Malaysia Sweden Japan Peru Belgium Austria Finland Portugal Philippines South Korea Netherlands Norway New Zealand Turkey Indonesia Mexico Italy Spain Hong Kong Chile the United Kingdom Switzerland France Denmark Germany Luxembourg Brazil South Africa Israel Ireland Czech Republic Poland India Hungary Singapore Greece Russian Federation Taiwan

Oceana the Middle East Asia Asia North America North America Asia Europe Asia Latin America Europe Europe Europe Europe Asia Asia Europe Europe Oceana the Middle East Asia Latin America Europe Europe Asia Latin America Europe Europe Europe Europe Europe Europe Latin America Africa the Middle East Europe Europe Europe Asia Europe Asia Europe Europe Asia

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

93

Total Liabilities Countries

Value ($K/employee)

Rank

Percentile

6613.83 2696.71 2676.79 1983.24 1428.68 1339.61 1173.71 1047.77 1031.31 1030.81 1021.45 1002.73 906.27 883.05 780.77 757.68 711.22 639.46 601.28 596.00 561.51 523.78 500.81 470.26 462.25 448.88 447.66 442.54 414.15 398.88 288.56 285.03 230.76 187.10 164.58 139.18 95.25 90.57 89.83 87.88 75.68 64.93 50.42 32.53 8.47

1 2 3 4 5 6 7 9 11 12 13 14 15 16 17 19 20 21 22 23 24 25 26 27 28 29 30 32 34 35 38 39 40 41 42 43 44 45 46 47 48 49 50 52 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 83.02 79.25 77.36 75.47 73.58 71.70 69.81 67.92 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 45.28 43.40 39.62 35.85 33.96 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 11.32 9.43 7.55 5.66 1.89 0.00

Region

_________________________________________________________________________________________________________

Australia Pakistan Belgium USA China Thailand Netherlands Malaysia Peru Sweden South Korea Switzerland Canada Austria Japan Italy Spain Finland Portugal New Zealand Germany Philippines Norway Hong Kong France Turkey Mexico the United Kingdom Indonesia Chile Denmark Luxembourg Taiwan Argentina Brazil Czech Republic South Africa Israel Ireland Poland Greece Hungary India Singapore Russian Federation

Oceana the Middle East Europe North America Asia Asia Europe Asia Latin America Europe Asia Europe North America Europe Asia Europe Europe Europe Europe Oceana Europe Asia Europe Asia Europe the Middle East Latin America Europe Asia Latin America Europe Europe Asia Latin America Latin America Europe Africa the Middle East Europe Europe Europe Europe Asia Asia Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

94

Common Equity Countries

Value ($K/employee)

Rank

Percentile

3193.36 2023.62 1897.43 1032.13 950.56 924.81 884.97 866.46 742.82 652.55 620.86 612.83 598.43 586.53 460.24 444.94 418.44 408.94 379.69 375.92 374.59 354.32 335.75 334.83 318.74 309.46 309.30 289.14 286.84 257.08 244.69 242.07 236.28 209.60 203.29 165.50 124.14 123.29 108.87 87.11 86.39 79.18 58.94 32.31 29.74

1 2 3 5 6 7 8 9 10 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 30 31 32 33 35 36 37 38 40 41 43 44 45 46 47 48 49 50 52 53

98.11 96.23 94.34 90.57 88.68 86.79 84.91 83.02 81.13 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 47.17 43.40 41.51 39.62 37.74 33.96 32.08 30.19 28.30 24.53 22.64 18.87 16.98 15.09 13.21 11.32 9.43 7.55 5.66 1.89 0.00

Region

_________________________________________________________________________________________________________

Australia Peru Pakistan Hong Kong USA Belgium Thailand Argentina South Korea Switzerland Malaysia China New Zealand Spain Italy Canada Chile Sweden Luxembourg Germany Taiwan Austria Turkey Mexico Brazil Philippines Portugal the United Kingdom Norway Denmark Indonesia Poland Japan Finland Netherlands Czech Republic France Greece Hungary Israel Ireland South Africa India Singapore Russian Federation

Oceana Latin America the Middle East Asia North America Europe Asia Latin America Asia Europe Asia Asia Oceana Europe Europe North America Latin America Europe Europe Europe Asia Europe the Middle East Latin America Latin America Asia Europe Europe Europe Europe Asia Europe Asia Europe Europe Europe Europe Europe Europe the Middle East Europe Africa Asia Asia Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

95

Retained Earnings Countries

Value ($K/employee)

Rank

Percentile

377.27 309.78 276.91 273.65 273.15 265.16 260.72 227.13 208.95 196.97 160.44 151.05 149.84 128.23 124.48 122.41 106.60 106.31 101.39 95.19 85.30 79.40 78.75 75.29 73.16 71.05 66.83 66.34 63.84 43.76 34.23 23.82 22.51 21.00 18.92 18.24 15.11 7.19 6.05 2.92 2.35 0.00 -0.51

1 2 3 4 5 6 7 10 11 12 13 14 15 16 17 18 20 21 22 25 26 27 28 29 30 32 33 34 35 36 37 39 40 41 42 43 44 45 47 48 49 50 51

98.04 96.08 94.12 92.16 90.20 88.24 86.27 80.39 78.43 76.47 74.51 72.55 70.59 68.63 66.67 64.71 60.78 58.82 56.86 50.98 49.02 47.06 45.10 43.14 41.18 37.25 35.29 33.33 31.37 29.41 27.45 23.53 21.57 19.61 17.65 15.69 13.73 11.76 7.84 5.88 3.92 1.96 0.00

Region

_________________________________________________________________________________________________________

Switzerland Thailand Malaysia New Zealand Hong Kong Austria USA Norway South Korea Canada the United Kingdom Japan Germany Philippines Finland Australia Turkey Mexico Indonesia Portugal Spain Israel Ireland South Africa Italy Sweden Argentina Czech Republic Chile Peru India Denmark Luxembourg Greece France Brazil Taiwan China Singapore Russian Federation Hungary Pakistan Poland

Europe Asia Asia Oceana Asia Europe North America Europe Asia North America Europe Asia Europe Asia Europe Oceana the Middle East Latin America Asia Europe Europe the Middle East Europe Africa Europe Europe Latin America Europe Latin America Latin America Asia Europe Europe Europe Europe Latin America Asia Asia Asia Europe Europe the Middle East Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

3.8 3.8.1

96

PRODUCTIVITY IN CANADA: INCOME-LABOR RATIOS Overview

In this chapter we consider the income-labor ratios for electric services in Canada benchmarked against global averages. For ratios where there are large deviations between the average firm operating in Canada and the benchmarks, graphics are provided (sometimes referred to as a “gap” analysis). Then the distribution of ratios is presented in the form of ranks and percentiles. Certain key income-labor ratios are highlighted across countries in the comparison group. In the case of income-labor ratios, this report maintains comparability over time and across countries by using a common currency (the US dollar) and relates each measure to a “per employee basis”. Ratios are projected using raw financial statistics and, as ratios, are therefore comparable. Given a country’s human resource ratios, the resulting figures are benchmarked across regional and global averages. We then report the larger income-labor ratio gaps for electric services that Canada has vis-à-vis the worldwide average. Again, a gap need not be a bad sign. Rather, it is simply a substantial difference that might merit further attention or signal a firm’s relative incentive to invest locally. All figures are projections, so due caution is required.

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

3.8.2

97

Income to Labor: Outlook

The following tables and graphs are prepared using the methodology described at the beginning of this section. All units are in thousands of US dollars per employee. All figures are current-year projections for electric services in Canada based on latest financial results available. Labor-income Ratios ($k/employee) Canada North America World Avg. _________________________________________________________________________________________________________

Net Sales or Revenues Cost of Goods Sold (Excluding Depreciation) Depreciation, Depletion & Amortization Gross Income Selling, General & Administrative Expenses Other Operating Expenses Operating Expenses - Total Operating Income Extraordinary Credit - Pretax Extraordinary Charge - Pretax Non-Operating Interest Income Pretax Equity In Earnings Other Income/Expense Net Earnings Before Interest and Taxes (EBIT) Interest Expense on Debt Interest Capitalized Pretax Income Income Taxes Current Domestic Income Tax Current Foreign Income Tax Deferred Foreign Income Tax Minority Interest Equity in Earnings Net Income Before Extra Items/Prefer Dividends Extraordinary Items & Gain/Loss Sale Of Assets Net Income Before Preferred Dividends Preferred Dividend Requirements Net Income Available to Common

458.81 271.17 39.38 144.03 47.00 370.85 53.75 87.96 0.05 4.65 0.58 10.58 18.18 110.86 48.14 2.66 65.04 9.78 8.97 0.27 -0.23 2.27 0.67 53.77 4.29 58.06 1.66 52.32

512.03 354.10 42.92 131.39 34.20 427.75 13.08 89.02 2.45 4.52 13.45 0.26 5.18 102.43 29.14 0.43 73.66 15.95 9.74 0.09 -0.02 -0.36 1.65 59.20 -0.09 59.11 0.19 59.01

554.26 408.20 38.32 126.90 26.85 253.94 11.58 75.11 0.87 2.24 8.54 -0.23 6.84 82.52 23.78 0.24 63.72 12.64 6.95 0.03 0.00 6.12 0.55 45.85 -0.05 45.80 0.10 45.74

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

3.8.3

98

Income to Labor: Gaps

The following graphics summarize for electric services the large labor-income gaps between firms operating in Canada and the world average. A gap cannot necessarily be interpreted as a positive or negative reflection on performance. Gaps may signal areas of specialization, market focus, or expertise. More contextual information is required to fully interpret these gaps. The gaps highlighted here are simply those that are large.

Gap: Net Sales or Revenues ($k/employee) 600 500 400 300 200 100 0 -100

458.81

Canada

512.03

North America

554.26

-95.45 Gap

World Average

Gap: Cost of Goods Sold (Excluding Depreciation) ($k/employee) 500 400 300 200 100 0 -100 -200

354.1

408.2

271.17

-137.03 Canada

North America

World Average

Gap

Gap: Gross Income ($k/employee) 150

144.03

131.39

126.9

100 50 17.13 0 Canada

www.icongrouponline.com

North America

World Average

Gap

©2004 Icon Group International, Inc.

Financial Indicators

99

Gap: Selling, General & Administrative Expenses ($k/employee) 50

47

40

34.2 26.85

30

20.15

20 10 0 Canada

North America

World Average

Gap

Gap: Other Operating Expenses ($k/employee) 500 400

427.75 370.85 253.94

300 200

116.91

100 0 Canada

North America

World Average

Gap

Gap: Operating Expenses - Total ($k/employee) 60

53.75

50

42.17

40 30 20

13.08

11.58

10 0 Canada

North America

World Average

Gap

Gap: Operating Income ($k/employee) 100

87.96

89.02 75.11

80 60 40

12.85

20 0 Canada

www.icongrouponline.com

North America

World Average

Gap

©2004 Icon Group International, Inc.

Financial Indicators

100

Gap: Other Income/Expense Net ($k/employee) 20

18.18

15

11.34

10 5.18

6.84

5 0 Canada

North America

World Average

Gap

Gap: Earnings Before Interest and Taxes (EBIT) ($k/employee) 120

110.86

102.43

100

82.52

80 60 28.34

40 20 0 Canada

North America

World Average

Gap

Gap: Interest Expense on Debt ($k/employee) 50

48.14

40 29.14 30

23.78

24.36

20 10 0 Canada

North America

World Average

Gap

Gap: Net Income Before Preferred Dividends ($k/employee) 60

58.06

59.11 45.8

50 40 30 20

12.26

10 0 Canada

www.icongrouponline.com

North America

World Average

Gap

©2004 Icon Group International, Inc.

Financial Indicators

3.8.4

101

Key Percentiles and Rankings

We now consider the distribution of income-labor ratios using ranks and percentiles across . What percent of countries have a value lower or higher than Canada (what is the ratio's rank or percentile)? The table below answers this question with respect to income-labor ratios. The ranks and percentiles indicate, from highest to lowest, where a value falls within the distribution of all countries considered in the global benchmark (the number of countries in the benchmark per line item may vary, as indicated in the Rank). Again, a high or low figure does not necessarily indicate good or bad performance or productivity. After the summary table below, a few key income-labor ratios are highlighted in additional tables. Income Structure ($k/employee)

Canada

Rank of Total

Percentile

458.81 271.17 39.38 144.03 47.00 370.85 53.75 87.96 0.05 4.65 0.58 10.58 18.18 110.86 48.14 2.66 65.04 9.78 8.97 0.27 -0.23 2.27 0.67 53.77 4.29 58.06 1.66 52.32

27 of 53 24 of 52 29 of 53 20 of 52 8 of 36 19 of 51 5 of 44 19 of 53 24 of 28 16 of 36 46 of 51 1 of 32 11 of 53 21 of 53 9 of 53 3 of 15 24 of 53 26 of 53 14 of 38 8 of 12 6 of 7 11 of 36 11 of 17 21 of 53 2 of 10 20 of 53 2 of 7 21 of 53

49.06 53.85 45.28 61.54 77.78 62.75 88.64 64.15 14.29 55.56 9.80 96.88 79.25 60.38 83.02 80.00 54.72 50.94 63.16 33.33 14.29 69.44 35.29 60.38 80.00 62.26 71.43 60.38

_________________________________________________________________________________________________________

Net Sales or Revenues Cost of Goods Sold (Excluding Depreciation) Depreciation, Depletion & Amortization Gross Income Selling, General & Administrative Expenses Other Operating Expenses Operating Expenses - Total Operating Income Extraordinary Credit - Pretax Extraordinary Charge - Pretax Non-Operating Interest Income Pretax Equity In Earnings Other Income/Expense Net Earnings Before Interest and Taxes (EBIT) Interest Expense on Debt Interest Capitalized Pretax Income Income Taxes Current Domestic Income Tax Current Foreign Income Tax Deferred Foreign Income Tax Minority Interest Equity in Earnings Net Income Before Extra Items/Prefer Dividends Extraordinary Items & Gain/Loss Sale Of Assets Net Income Before Preferred Dividends Preferred Dividend Requirements Net Income Available to Common

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

102

Cost of Goods Sold (Excluding Depreciation) Countries

Value ($K/employee)

Rank

Percentile

8588.44 2877.97 1910.73 1046.96 967.62 902.94 780.65 620.89 524.20 393.83 376.81 362.27 330.94 325.65 295.08 291.35 288.36 287.58 285.16 281.91 276.04 271.77 271.17 263.72 226.48 213.67 202.00 178.78 173.50 170.61 159.52 153.05 140.23 134.05 128.18 127.12 120.75 98.65 84.42 78.00 62.11 59.33 25.94 17.64

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 23 24 26 28 29 31 32 33 34 35 36 37 38 39 40 41 42 43 45 47 48 50 51

98.08 96.15 94.23 92.31 90.38 88.46 86.54 84.62 82.69 80.77 78.85 76.92 75.00 73.08 71.15 69.23 67.31 65.38 63.46 61.54 59.62 55.77 53.85 50.00 46.15 44.23 40.38 38.46 36.54 34.62 32.69 30.77 28.85 26.92 25.00 23.08 21.15 19.23 17.31 13.46 9.62 7.69 3.85 1.92

Region

_________________________________________________________________________________________________________

Belgium Netherlands South Korea Switzerland China Pakistan Australia Germany USA Spain Austria New Zealand the United Kingdom Thailand Sweden Japan Turkey Mexico Peru Italy Portugal Denmark Canada Argentina Luxembourg Hong Kong France Finland Hungary Chile Norway Czech Republic Malaysia Poland Israel Ireland Taiwan Philippines India Indonesia Singapore Brazil Greece Russian Federation

Europe Europe Asia Europe Asia the Middle East Oceana Europe North America Europe Europe Oceana Europe Asia Europe Asia the Middle East Latin America Latin America Europe Europe Europe North America Latin America Europe Asia Europe Europe Europe Latin America Europe Europe Asia Europe the Middle East Europe Asia Asia Asia Asia Asia Latin America Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

103

Selling, General & Administrative Expenses Countries

Value ($K/employee)

Rank

Percentile

131.11 96.42 94.93 92.19 62.55 55.72 47.76 47.00 45.59 38.86 38.64 38.53 37.09 33.20 31.36 28.31 28.16 26.39 25.65 23.48 21.94 18.31 16.85 16.11 13.60 10.33 9.42 8.86 8.28 7.24 6.98 0.02

1 2 3 4 5 6 7 8 9 10 11 12 13 15 16 17 18 19 20 22 23 26 27 28 29 30 31 32 33 34 35 36

97.22 94.44 91.67 88.89 86.11 83.33 80.56 77.78 75.00 72.22 69.44 66.67 63.89 58.33 55.56 52.78 50.00 47.22 44.44 38.89 36.11 27.78 25.00 22.22 19.44 16.67 13.89 11.11 8.33 5.56 2.78 0.00

Region

_________________________________________________________________________________________________________

Japan USA South Korea Italy New Zealand the United Kingdom China Canada Norway Sweden Turkey Mexico Brazil Chile Germany Peru Thailand Australia France Switzerland Pakistan Taiwan Greece Malaysia Poland Hong Kong Denmark Singapore Hungary Austria Finland Russian Federation

Asia North America Asia Europe Oceana Europe Asia North America Europe Europe the Middle East Latin America Latin America Latin America Europe Latin America Asia Oceana Europe Europe the Middle East Asia Europe Asia Europe Asia Europe Asia Europe Europe Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

104

Operating Expenses - Total Countries

Value ($K/employee)

Rank

Percentile

92.60 72.85 62.92 59.96 53.75 50.14 43.21 36.36 34.24 32.04 28.75 28.41 27.09 23.55 22.52 21.00 19.83 19.67 14.04 11.48 10.57 10.28 7.96 7.07 6.71 6.28 5.83 5.14 4.94 4.90 4.53 2.48 1.86 1.80 1.49 0.01 0.01

1 2 3 4 5 6 7 8 9 10 12 13 14 16 17 18 20 21 22 23 24 25 28 29 30 31 32 33 34 35 37 39 40 41 42 43 44

97.73 95.45 93.18 90.91 88.64 86.36 84.09 81.82 79.55 77.27 72.73 70.45 68.18 63.64 61.36 59.09 54.55 52.27 50.00 47.73 45.45 43.18 36.36 34.09 31.82 29.55 27.27 25.00 22.73 20.45 15.91 11.36 9.09 6.82 4.55 2.27 0.00

Region

_________________________________________________________________________________________________________

Australia USA Belgium Switzerland Canada Germany Norway Philippines Austria Italy Indonesia France Spain the United Kingdom Netherlands Hong Kong Israel Ireland South Korea Japan Thailand Luxembourg Finland Portugal Malaysia Peru Czech Republic Singapore China Hungary Brazil India Sweden Russian Federation Poland Pakistan Denmark

Oceana North America Europe Europe North America Europe Europe Asia Europe Europe Asia Europe Europe Europe Europe Asia the Middle East Europe Asia Asia Asia Europe Europe Europe Asia Latin America Europe Asia Asia Europe Latin America Asia Europe Europe Europe the Middle East Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

105

Operating Income Countries

Value ($K/employee)

Rank

Percentile

691.54 685.01 268.59 187.36 183.81 164.53 145.39 132.51 120.61 120.29 119.96 117.23 102.15 97.55 87.96 86.73 79.16 75.16 68.52 62.94 61.38 59.43 55.35 49.23 45.80 34.80 32.34 31.49 28.34 18.43 18.09 18.09 17.83 17.82 15.20 14.03 11.18 7.73 5.82 5.80 5.77 1.85 1.79 -1.92 -11.98

1 2 3 5 6 7 8 10 12 13 14 15 17 18 19 20 21 22 23 25 26 27 29 30 31 33 34 35 36 37 38 39 40 41 42 43 45 46 47 48 49 50 51 52 53

98.11 96.23 94.34 90.57 88.68 86.79 84.91 81.13 77.36 75.47 73.58 71.70 67.92 66.04 64.15 62.26 60.38 58.49 56.60 52.83 50.94 49.06 45.28 43.40 41.51 37.74 35.85 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 15.09 13.21 11.32 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Australia Pakistan Peru Belgium Hong Kong Thailand Malaysia USA Argentina Turkey Mexico South Korea Sweden Switzerland Canada Spain China Philippines New Zealand Italy Chile Indonesia the United Kingdom Japan Austria Portugal Luxembourg Finland Denmark France Norway South Africa Germany Brazil Czech Republic Singapore Greece India Israel Hungary Ireland Russian Federation Taiwan Poland Netherlands

Oceana the Middle East Latin America Europe Asia Asia Asia North America Latin America the Middle East Latin America Asia Europe Europe North America Europe Asia Asia Oceana Europe Latin America Asia Europe Asia Europe Europe Europe Europe Europe Europe Europe Africa Europe Latin America Europe Asia Europe Asia the Middle East Europe Europe Europe Asia Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

106

Earnings Before Interest and Taxes (EBIT) Countries

Value ($K/employee)

Rank

Percentile

772.70 756.16 297.03 252.59 239.94 200.12 187.25 186.74 177.14 162.10 159.22 154.68 134.80 116.15 114.49 112.88 110.86 110.65 90.55 90.42 77.88 73.54 68.91 65.29 62.20 61.58 59.48 57.12 45.66 44.38 35.25 31.14 28.09 24.99 23.94 23.30 22.85 18.32 17.80 11.36 9.78 5.38 5.33 2.55 2.06

1 2 3 4 5 6 7 8 10 12 13 14 17 18 19 20 21 22 23 24 25 26 27 29 30 31 32 34 35 36 38 39 40 41 42 43 44 45 46 48 49 50 51 52 53

98.11 96.23 94.34 92.45 90.57 88.68 86.79 84.91 81.13 77.36 75.47 73.58 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 52.83 50.94 49.06 45.28 43.40 41.51 39.62 35.85 33.96 32.08 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Australia Pakistan New Zealand Belgium Peru Hong Kong Turkey Mexico Thailand USA Switzerland Malaysia South Korea Luxembourg Sweden Spain Canada Argentina Germany Italy Philippines Austria China the United Kingdom Chile Indonesia Netherlands Finland Japan Portugal Greece Czech Republic Norway France Brazil Denmark South Africa Singapore Taiwan Hungary India Israel Ireland Russian Federation Poland

Oceana the Middle East Oceana Europe Latin America Asia the Middle East Latin America Asia North America Europe Asia Asia Europe Europe Europe North America Latin America Europe Europe Asia Europe Asia Europe Latin America Asia Europe Europe Asia Europe Europe Europe Europe Europe Latin America Europe Africa Asia Asia Europe Asia the Middle East Europe Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

www.icongrouponline.com

©2004 Icon Group International, Inc.

Financial Indicators

107

Pretax Income Countries

Value ($K/employee)

Rank

Percentile

524.60 367.06 271.02 208.54 189.35 188.28 139.33 139.00 138.62 127.22 123.68 113.08 108.40 108.07 91.21 82.06 80.64 71.47 68.44 65.04 56.99 53.37 49.13 46.39 42.20 41.68 35.04 29.65 28.24 26.02 19.95 17.65 17.28 16.15 15.96 14.49 13.05 12.21 10.61 8.51 2.61 2.59 2.44 0.91 -0.72

1 2 3 4 5 6 8 9 10 12 13 14 15 16 17 18 19 21 23 24 25 26 27 28 30 31 33 35 36 37 38 39 40 41 42 43 44 45 46 48 49 50 51 52 53

98.11 96.23 94.34 92.45 90.57 88.68 84.91 83.02 81.13 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 60.38 56.60 54.72 52.83 50.94 49.06 47.17 43.40 41.51 37.74 33.96 32.08 30.19 28.30 26.42 24.53 22.64 20.75 18.87 16.98 15.09 13.21 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Pakistan Australia New Zealand Belgium Peru Hong Kong Switzerland Turkey Mexico USA Malaysia Luxembourg South Korea Argentina Thailand Germany Spain China Italy Canada Sweden Philippines the United Kingdom Austria Indonesia Chile Greece Finland Japan Netherlands France Taiwan Czech Republic Portugal Denmark Singapore Brazil South Africa Hungary India Israel Ireland Russian Federation Norway Poland

the Middle East Oceana Oceana Europe Latin America Asia Europe the Middle East Latin America North America Asia Europe Asia Latin America Asia Europe Europe Asia Europe North America Europe Asia Europe Europe Asia Latin America Europe Europe Asia Europe Europe Asia Europe Europe Europe Asia Latin America Africa Europe Asia the Middle East Europe Europe Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

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Income Taxes Countries

Value ($K/employee)

Rank

Percentile

145.39 84.91 83.41 47.84 41.23 36.16 35.46 35.36 34.51 27.20 27.13 25.00 24.37 22.72 16.55 15.30 14.45 12.73 11.89 11.79 11.61 11.50 9.78 9.67 8.48 8.43 8.08 6.91 5.09 5.01 4.94 3.51 3.41 2.77 2.73 2.03 2.03 1.60 1.49 1.08 0.64 0.63 0.38 -0.46 -2.47

1 2 3 5 6 7 8 9 10 12 13 14 15 16 17 18 19 20 21 22 23 24 26 27 29 30 31 32 33 34 35 36 37 38 39 41 42 44 46 48 49 50 51 52 53

98.11 96.23 94.34 90.57 88.68 86.79 84.91 83.02 81.13 77.36 75.47 73.58 71.70 69.81 67.92 66.04 64.15 62.26 60.38 58.49 56.60 54.72 50.94 49.06 45.28 43.40 41.51 39.62 37.74 35.85 33.96 32.08 30.19 28.30 26.42 22.64 20.75 16.98 13.21 9.43 7.55 5.66 3.77 1.89 0.00

Region

_________________________________________________________________________________________________________

Australia Belgium Peru USA Argentina South Korea Turkey Mexico Malaysia Italy Hong Kong Switzerland Spain Germany Luxembourg Sweden New Zealand China Austria Thailand Japan the United Kingdom Canada Portugal Denmark Finland Greece France Brazil Chile Czech Republic Netherlands Singapore India Taiwan Hungary Philippines Indonesia Pakistan Russian Federation Israel Ireland South Africa Poland Norway

Oceana Europe Latin America North America Latin America Asia the Middle East Latin America Asia Europe Asia Europe Europe Europe Europe Europe Oceana Asia Europe Asia Asia Europe North America Europe Europe Europe Europe Europe Latin America Latin America Europe Europe Asia Asia Asia Europe Asia Asia the Middle East Europe the Middle East Europe Africa Europe Europe

_________________________________________________________________________________________________________

Source: Philip M. Parker, Professor, INSEAD, copyright 2004

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4 4.1

MACRO-ACCESSIBILITY IN CANADA EXECUTIVE SUMMARY

Canada has a population of roughly one tenth that of the United States, and the Canadian economy mirrors the US economy in about the same ratio. In many respects, the two countries have developed along similar lines. This has made Canada an ideal export and investment destination for American companies looking for an environment and marketplace most similar to their own. We believe that for export-ready US firms, or for companies that are just beginning to think about exporting, Canada is the logical first choice. Its business practices and attitudes are more similar to those in the United States than are those of any other country in the world. For US companies that already have some Canada experience and are exploring new opportunities in the country's diverse regional markets, geographical proximity reduces time and expense. NAFTA offers tariff-free benefits for US-produced goods. Add the advantages of congruent time zones, a straightforward regulatory regime, and a common language, and doing business in Canada simply makes good sense. Cultural and historical ties, and strong awareness of business and technological developments in the United States are also key factors contributing to the enormous volume of sales of US goods and services in the Canadian market. Third-country competition tends to be far less prevalent in Canada than in most other international markets. NAFTA tariff benefits boost the advantages that US exporters already have in the Canadian market, compared to their competitors from Europe, Asia and elsewhere. In general, Canadians have strong national pride and will often favor Canadian products over US products if price and quality are similar. Nevertheless, US firms that can offer technical, cost, or product advantages over locally produced goods can do as well in the Canadian market as they can in the domestic American market.

4.1.1

Market Entry Vehicles

The US Commercial Service encourages American firms to come to Canada to participate in one of a variety of lowcost market entry programs offered by the US Government. Our Dealmaker events, for example, offer pre-screened appointments with Canadian firms, briefing sessions with experts, and networking events at minimal cost to US companies. Customized assistance and appointment scheduling is also offered to US firms under the Gold Key program. For additional information on the Canadian market, please contact the US Department of Commerce Export Assistance Center serving your area or the Commercial Service of the US Embassy in Ottawa, Canada. US exporters seeking general export assistance and/or country-specific commercial information should contact the Trade Information Center by Tel: (800) 872-8723 or (202) 482-0543, or by Fax: (202) 482-4473. Information for US exporters is also available at the following Web sites: www.usatrade.gov/canada, www.export.gov, and www.tradeinfo.doc.gov.

4.2

ECONOMIC FUNDAMENTALS AND DYNAMICS

Canada has a thriving economy that is closely integrated with that of the United States, resembling the US not only in per capita output, but also in its market-oriented economic system and pattern of production.

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Government Intervention Risks

Production and services in Canada are predominantly privately owned and operated. However, the federal and provincial governments are significantly involved in the economy. They provide a broad regulatory framework and engage in redistribution of wealth from high-income individuals and regions to lower income persons and provinces. Federal government economic policies since the mid-1980s have emphasized reduction of public sector interference in the economy and promotion of private sector initiative and competition. Nevertheless, federal government regulatory regimes affect foreign investment in telecommunications, publishing, broadcasting, aviation, mining, and fishing.

4.2.2

Balance of Payments Issues

The most traded commodities are transportation equipment, energy products, investment-related machinery and equipment, natural resources other than energy, and agricultural products. Canadian FDI in the United States is concentrated in finance and insurance, metallic minerals and metal products, communications, and chemical products.

4.2.3

Economic Relationship with the United States

The United States and Canada are allies and close friends that share a wide range of fundamental values, a commitment to democracy, and traditions of tolerance and respect for human rights. Both have dynamic market economies with sophisticated industrial, agricultural, natural resource, and service sectors, and both are committed to high living standards for their citizens. These factors complement the obvious geographic facts and have combined to make each the other's best customer. Despite the occasional friction over trade issues, the bilateral relationship, probably the most intensive and complex in the world, is positive and highly cooperative.

4.3 4.3.1

INFRASTRUCTURE DEVELOPMENT Transportation

Canada has excellent roads, railroads, air transport systems and port access. Canada's truck, air and rail services are well integrated with US networks, providing efficient access to consumers and suppliers throughout North America.

Railways Canada's two major railways, Canadian National Railways (CNR) and the Canadian Pacific Railway Company (CPR) offer rail services on a national scale, including inter-modal services, to shippers and receivers from the Atlantic Ocean to the Pacific Ocean. Both transcontinental railways are already highly integrated with the rail transportation systems in the United States. In particular, the CNR owns the Illinois Central Railroad and Wisconsin Central Railroad and through the IC has direct rail connections to ports on the Gulf of Mexico.

Motor Freight Canada has more than 500,000 miles of public roads. The 4,500-mile Trans-Canada Highway is the country's major east-west route, linking all 10 provinces. The road network includes a large number of crossing points with the US, eighteen of which are major trade gateways. Every year, roughly ten million trucks cross the United States-Canada border. The provinces have jurisdiction over highways in Canada and common carriers require an operating

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authority (or trip permit) from the appropriate provincial Department of Transport or Highways in which cartage will occur.

Water Transport Canada is a maritime nation with access to three oceans (the Pacific, the Atlantic, and the Arctic) and to the world's longest inland waterway open to ocean shipping, the Great Lakes/St. Lawrence Seaway System. Vancouver is Canada's largest port and the main terminal for goods being shipped to the Asia-Pacific region. In the eastern part of Canada, shipments are divided among several ports, including Montreal, Halifax, Saint John, and Quebec City. Despite the cold climate in winter, many of Canada's deep-water ports are open year round. Modern container facilities at major ports, such as Halifax, Montreal, and Vancouver, connect with inland container trains to ensure rapid movement of goods throughout North America. Canada, like the United States, places restrictions on foreign activity in the “Coasting Trade.” Foreign-flagged vessels require a license to operate commercially within Canadian territorial waters.

Aviation Canada has a highly developed air transportation system that includes eight airports with more than one million passengers per year each, 18 other major airports, and some 500 smaller paved airports. Canada's principal airline, Air Canada, has comprehensive domestic and international route networks and is complemented by several national discount carriers and a number of regional carriers. Air connections between the United States and Canada are extensive, with well-developed facilities for freight and passenger traffic. Canadian and American carriers have unlimited access to fly between any US-Canada city pair. Travel between the United States and Canada is facilitated by the presence of US border inspection personnel (Customs, Immigration and Agriculture) who “pre-clear” USbound passengers at seven airports in Canada: Calgary, Edmonton, Montreal, Ottawa, Toronto, Vancouver, and Winnipeg.

4.3.2

Information Technology

Canada is one of the most “wired” nations in the world. All major cities are well connected to a high-speed Internet backbone and, according to OECD figures, Canada has the lowest Internet access costs among G-8 countries. The Government of Canada has made a priority of supporting high-speed research networks and Internet access for institutions and communities.

4.4

POLITICAL SYSTEM

Canada is a parliamentary democracy and a federal state composed of ten provinces and three territories. A government is elected for a period not to exceed five years, but normally calls elections during the fourth year. Since 1984, the federal government has “devolved” many powers and social programs to the provinces, at first for political reasons and later, in the 1990s, in response to a fiscal crisis. During much of the same period, trade between individual provinces and the United States grew faster than inter-provincial trade, exacerbating economic strains on the Canadian federal system. Following elimination of the federal budget deficit by the end of 1997, in January 1999 the federal government finally reached agreement with the provinces on an approach to joint decision-making for new social spending.

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MARKETING STRATEGIES Distribution Channel Options

Sales to Canadian companies are handled through relatively short marketing channels, and in many cases products move directly from manufacturer to end-user. A large number of Canadian industries are dominated by a handful of companies that are highly concentrated geographically. In many cases, 90 percent or more of the prospective customers for an industrial product are located in or near two or three cities. Canada's consumer goods market, on the other hand, is much more widely dispersed than its industrial market. The use of marketing intermediaries in consumer goods is common practice. Often, complete coverage of the consumer market requires representation in the various regions of Canada. Toronto, the largest metropolitan area and commercial center of the country, is usually the most logical location for establishing sole representation. From a regional perspective, the country may be divided geographically into five distinct markets, plus the territories, which are detailed later in this chapter. Establishing representation in each of these markets provides optimal coverage and the ability to target promotional programs to suit specialized market needs.

Agents and Distributors Distribution channels in Canada vary greatly according to the products and commodities involved. Large industrial equipment, for example, is usually purchased directly by end-users. In contrast, smaller equipment and industrial supplies are frequently imported by wholesalers, exclusive distributors, or by manufacturers' sales subsidiaries. US firms have historically preferred to appoint manufacturers' agents that regularly call on potential customers to develop the market. Many sales agents expect to work on a two-tier commission basis. Agents receive a lower commission for contract shipments and a higher rate when purchases are made from the local agent's own stocks. Consumer goods are purchased by importing wholesalers, department stores, mail-order houses, chain stores, purchasing cooperatives, and many large, single-line retailers. Manufacturers' agents play an important role in the importation and distribution of consumer goods. In addition, the importance of department stores, mail-order houses and cooperative purchasing organizations as direct importers has increased substantially. Many of these groups have their own purchasing agents in the United States. For assistance in identifying appropriate agents and distributors in Canada, US companies are advised to contact the Export Assistance Center serving their area to request the International Partner Search (IPS) or Gold Key Service. To locate the nearest office, please call the US Department of Commerce's Trade Information Center at the toll-free number: 1-800-872-8723, or check the US Commercial Service Web site: www.usatrade.gov.

Franchising Activities Canada is among the largest foreign markets for US franchises. Canada's franchising sector is comprised of roughly 1,300 franchises and over 80, 000 individual units, ranging from restaurants to non-food retail establishments, from automotive product retailers to purveyors of business services. Annual sales generated by franchises in Canada, which account for only about 5 percent of total businesses in the country, total over US$60 billion, or roughly half of all service and retail sales. Franchises have enjoyed exceptional success in Canada. The principal advantage US franchisers have over others is the strong recognition and familiarity of American products and services with consumers. The high volume of travel to the United States, combined with constant exposure to US media, results in very high receptivity even before these products and services come onto the market. Overall, US companies seeking operations (supported by sufficient marketing and promotional campaigns) can expect to be extremely well received by Canadian consumers and franchise investors.

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The franchise model is an increasingly attractive method of doing business because no federal regulations exist which specifically restrict franchise activities. Ontario and Alberta are the only provinces with franchise legislation. These provincial regulations ensure that small business investors are better able to make informed decisions prior to committing to franchise agreements. Disclosure requirements provide prospective franchisees with information about how sellers plan to approach key contractual issues, such as termination, and afford buyers stronger legal remedies regarding court action. Similar legislation is now under consideration in other provinces. US franchisers already doing business here, and those considering establishing themselves, should take note of the proposed legislation and the strong likelihood of its adoption. Franchisers should be prepared to review existing and/or new franchise agreements, internal disclosure policies, and operating procedures to ensure their consistency with the new legislation. US franchisers seeking market entry should review guidelines and regulations as related in US Commercial Service market reports, available on our Web site at: www.usatrade.gov. The Canadian Franchise Association also has a comprehensive Web site located at: www.cfa.ca. Further, each province or territory in Canada should be viewed as a unique market, both on a regulatory and business level. Market entry strategy should include information on whether the company… •

is export-ready as determined by its US penetration;

•

has done the necessary market research and financial analysis to determine that its concept will work in Canada; and

•

is appropriately registered to ensure conformity of corporate disclosure documents.

Direct Marketing Options Per capita, Canadian consumers purchase more goods through the mail than do their US counterparts. Tapping into this market can be as easy as placing an advertisement in a magazine or on the Internet. In general, Canadian audiences are targeted using the same techniques that are used in the United States. However, shipping goods to Canadian customers involves additional preparation. When mailing goods to Canada, properly completed paperwork will ensure the goods reach their destination without delay. For most mail order shipments, the only paperwork needed is a standard business invoice. When completing the invoice, two elements are critical: a description of the goods and the value of the goods. Companies should indicate the amount paid by the customer for the goods, in either US or Canadian dollars. If goods are shipped on a no-charge basis (samples or demos), companies must indicate the retail value of the shipment. Two copies of the invoice should be attached to the outside of the package. All goods entering Canada are cleared through Customs, where duties are levied based on the value of the item(s). Duties for a specific product are determined by the type of product and the country of origin. The Customs Act states, “that the validation for duty is the selling price that appears on commercial invoices covering sales in the country of export. This price may include freight, warranty, and other charges applicable in the domestic market of the country of export.” All shipments to Canada are also subject to the seven-percent Goods and Services Tax (GST), a multi-stage sales tax. Although companies pay the GST on each purchase, it is recoverable because the GST is a consumer tax, not a business tax. Canada Post also charges a C$5 (approximately US$3.65) processing fee on all packages that owe duty or tax. Mail-order companies can avoid having the C$5 fee assessed to their customers by registering to collect Canadian duties and taxes themselves as a Non-Resident Importer. Companies registering with Canada Customs and Revenue

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Agency (http://www.ccra-adrc.gc.ca/) will be required to prepay duties and taxes monthly. Companies can also arrange to put up a bond in the amount of the estimated duties and taxes.

Joint Ventures and Licensing Options In the broadest sense, any arrangement in which two or more businesses combine resources for some definable undertaking is considered a joint venture. The Canadian legal system provides great flexibility and imposes few restrictions as to the form that joint ventures may take, such as equity or non-equity. Some joint ventures require approval from the Government of Canada under the Investment Canada Act. Approval is based on the “net benefit” of the venture to Canada. The “benefit criteria” include: the level of Canadian participation; the positive impact on productivity; technological development; product innovation; industrial efficiency; and product variety in Canada. In certain key industries, joint ventures with Canadian partners may prove to be the most effective or, in some cases, the only means of market entry for US companies. There are a variety of reasons that Canada is an attractive market for foreign licensors. Most notably, Canada has no regulatory scheme governing licensing arrangements. Foreign licensors also do not require registration or public disclosure. Moreover, the Investment Canada Act has no direct application to licensing unless it relates in some way to the control of a Canadian enterprise.

4.5.2

Creating a Sales Officce

Incorporation in Canada is a straightforward and inexpensive procedure, accomplished federally under the Canada Business Corporations Act, or provincially under provincial corporate statutes. The major differences between incorporating federally and provincially are: the need to publicize financial statements; fees; and turnaround time on the incorporation process. Incorporating federally allows companies to conduct business in any province, although the corporation may still be required to pay a license or registration fee in some provinces. A flat fee of C$500 (approximately US$365) is charged to incorporate federally. Fee structures vary among the provinces, although most provinces charge approximately C$200-300. An average of three-four weeks is required to process an application. Information on incorporating federally under the Canada Business Corporations Act can be obtained from Industry Canada's Corporation Branch. Visit their Web site for more information: http://strategis.ic.gc.ca. As indicated above, a company incorporated under the laws of one province must register to operate in each of the other provinces in which it wants to do business. An important exception is the reciprocal arrangement between the provinces of Ontario and Quebec that allows companies incorporated under regulations in one of these provinces to do business in the other without additional licensing requirements. Also, the province of New Brunswick does not require registration of extra-provincial companies. It is noted that firms established or operating in the province of Quebec must comply with the requirements of Quebec's Charter of the French Language and adopt a French corporate name. Firms considering establishing operations in Quebec are advised to contact the Office de la Langue Francaise (Office of the French Language), which routinely works with companies to develop plans for complying with Quebec's language laws.

4.5.3

Marketing Factors

For first-time exporters to the market, it is important to note that distinct cultural differences between Canada and the United States may in some cases dictate a wholly Canadian approach to selling, advertising and marketing. Although many strategies used by firms in the United States can be equally effective in the Canadian market, US companies

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are advised to not automatically assume that selling in Canada is the same as selling in the domestic American market. US companies should carefully research the implications of promotional activities prior to their implementation in Canada.

4.5.4

Advertising Options

Television advertising accounts for the largest percentage of net ad revenues, followed by advertising in magazines and newspapers. Although a majority of Canadians speak English, the French-speaking areas, concentrated in Quebec province, should be considered a distinct market. Quebec is well served by French-language press, radio and television. Advertising directed toward this market should be specifically tailored to Quebec's distinct cultural identity, consumer tastes, preferences and styles. Over 600 advertising agencies operate throughout Canada and a number of these are subsidiaries of US companies. Canadian advertising rates are generally comparable with those in the United States.

The Press There are currently more than 108 daily newspapers in Canada, of which 95 percent are published in English and approximately 5 percent in French. Trade magazines, usually sent to specific audiences without charge, typically carry a large amount of advertising and serve almost every major industry sector in Canada. In 2002, the top 5 general interest Canadian magazines were: TV Guide (weekly: 837,800), Chatelaine (monthly: 716,700), MacLean's (weekly: 512,400), Readers Digest (monthly: 500,600), and Time Canada (weekly: 360,000), Canada's two daily national newspapers with substantial business sections are: The Globe and Mail (Monday-Friday: 363,000) and The National Post (Monday-Friday: 249,900, Saturday: 284,700). The Toronto Star (Monday-Friday 462,700, Saturday & Sunday: 1,188,400) has high circulation numbers due to the fact that the paper serves the whole Toronto Metropolitan area and is also available throughout the entire country. Additional information on print media is included in Chapter 11.

Television and Radio More than 89 percent of Canadian households have at least two television sets and approximately 98 percent of Canadians have some form of audio equipment (e.g. radio or CD player). Hundreds of public and commercial firms operate cable television and major broadcasting stations in metropolitan areas. More than 617 television stations, 1,880 licensed radio stations, and 785 cable television systems, serving over 14,285,000 subscribers, broadcast in Canada. The Canadian Broadcasting Corporation (CBC) operates both English- and French-language national television networks. Both networks broadcast on two channels, one with regular programming and one with all-news programming. There are two private national television networks: CTV, broadcasting on two English-language channels (regular programming and all-news) and Global Television, broadcasting on a single English language channel. There are also 105 independent television stations in Canada.

4.5.5

Pricing Issues

As in the United States, product pricing is key to remaining competitive. In the retail sector, for example, Canadian businesses have followed the successful American trend toward larger stores with highly competitive prices. Retailers in sectors such as food, drugs, consumer electronics, home improvement, office equipment and supplies, and general consumer goods have invested in large discount-style operations to expand sales in an increasingly competitive market. The emergence of high-volume warehouse merchandising in this market is the direct result of consumer demand for competitively priced quality goods. Value for dollar is the predominant purchasing determinant in both the consumer and industrial markets.

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When determining appropriate product pricing levels, US firms should pay particular attention to the effects of exchange rates and applicable taxes on the price charged to customers and end-users. A price survey of competitive products available from domestic and third-country sources is an absolute necessity in developing any pricing strategy. Moreover, US firms should be careful not to select pricing levels which may constitute “dumping” or “predatory pricing” infringements under the NAFTA or other international trade agreements. Supplying Canadian companies have a strong awareness of, and preference for, US products and services. Nevertheless, Canadian customers, whether corporate or individual, demand high-quality sales service and after-sale customer support, particularly because of the often significant distances involved between customers in Canada and sellers in the United States. Corporate clients often expect the US seller to have an agent or distributor whom they can contact immediately should any problems arise. Like their counterparts in the United States, Canadian customers expect fast service and emergency replacement if required. An American company entering Canada should evaluate the system of after-sale service and support in the US market, and replicate that network as closely as possible in the Canadian market. If the market demands a strong network of sales and after-sale service in the United States, it is probable that success in Canada will depend on appointing agents who can provide that service. There are many companies in Canada that can offer that service as an agent or representative, or on a retainer basis. Alternatively, many US companies have found that establishing a toll-free telephone number that services both Canada and the United States is extremely useful in maintaining contact with customers. This gives Canadian customers instant access to US vendors for solving problems, answering questions, or simply providing a higher “comfort level” with a new product.

4.5.6

Public Sector Marketing

The US-Canada Free Trade Agreement (FTA) expanded the size of Canada's federal government procurement markets by lowering the threshold for contracts offered by federal entities to as low as C$25,000 (approximately US$18,250) for goods and C$100,000 (US$73,000) for services and construction. The FTA opened these markets to free, non-discriminatory competition between US and Canadian suppliers. It stipulated clear, fair rules of bid selection and provided for an effective bid challenge system. This meant that a US company bidding on a Government of Canada contract could compete on equal footing with its Canadian competitors, and would be judged solely on its ability to deliver a low-cost, high-quality product. The NAFTA incorporated FTA provisions and expanded them to cover services and contracts offered by selected Crown corporations. The new, liberalized NAFTA thresholds make the following available to US firms: •

Contracts of C$37,500 (approx. US$27,370) or more offered by a federal entity such as a Department or Agency for goods. The list of these federal entities was expanded to include Communication Canada, Transport Canada, and the Ministry of Fisheries and Oceans.

•

Contracts of C$84,400 (approx. US$61,610) or more offered by a federal entity for services.

•

Contracts of C$10.9 million (approx. US$7.957 million) or more offered by a federal entity for construction services.

•

Contracts of C$422,200 (approx. US$308,210) or more offered by a Crown corporation or other federal government enterprise for goods and services. The list of these corporations includes the St. Lawrence Seaway Authority, the Royal Canadian Mint, the Canadian National Railway, Via Rail, Canada Post, and numerous others.

•

Contracts of C$13.5 million (approx. US$9.855 million) offered by Crown corporations or federal government enterprises for construction services.

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The WTO Agreement on Government Procurement (WTO-AGP), which came into effect on January 1, 1996, applies to most federal government departments. It is a multilateral agreement that aims to secure greater international competition. The WTO-AGP applies to the procurement of goods and services valued at C$255,800 (approx. US$186,730) or more, and construction requirements valued at C$9.8 million (approx. US$7.154 million) or more. The Canadian government's official Internet-based electronic tendering service, MERX, gives subscribers access to more than 1,500 open tenders from the federal government, provincial governments, and many municipalities, school boards, universities and hospitals. Approximately 200 new tenders are posted daily. US companies can log onto MERX (www.merx.com) free of charge to view and search open tenders. Bid documents can then be ordered directly from the Web site. MERX subscribers, who pay C$29.95 (approx. US$21.90) per month, have access to additional services, such as reduced prices for bid documents, lists of companies that have ordered a particular bid document, and a matching service that informs users of opportunities that fit their predetermined criteria. MERX also has a call center for technical support or general questions, which is available 24 hours a day, seven days a week at: 1-800-964-MERX (1-800-964-6379).

4.5.7

Services Industries

The services sectors are a significant part of the Canadian economy. The services industries generated an unprecedented 70 percent of Canada's economic output in 2002, up from 68 percent in 2001. This proportion has risen because goods output, which is very sensitive to business cycle fluctuations, fell during 2002, while services output continued to expand. In 2002, services accounted for over US$330 billion of Canada's GDP. The share of services in GDP is also increasing due to the convergence of forces such as demographics and the expansion of technical knowledge. Analysts believe Canada's services sector will continue expanding by at least 5 percent annually over the next two years. The Canadian services sector is broken down into three categories: •

Producer services include transportation, storage, communications, wholesale trade, finance, insurance, real estate, and business services. The value of the transportation and warehousing sectors has fallen by 2 percent since 2001. Over half of this drop was caused by declines in air and truck transportation. Air travel declined following the events of September 11, 2001 and during the war with Iraq, while the demand for truck transportation fell due to retrenchment in goods production.

•

Consumer services include retail trade, accommodation, food and beverage services, and “other” service industries. This share of the services market has remained constant over the past thirty years.

•

Government or non-market services include government services, education, health and social services. Government services have continued to decrease, due to rapid growth in private sector offerings.

Canada has a trade deficit in services overall and with the United States, which partially balances out Canada's surplus in merchandise trade. However, Canada's exports of services are growing faster than its imports of services, resulting in a steady decrease in Canada's services trade deficit over the last few years. The majority of Canada's trade in services is with the US.

US-Canada Free Trade Agreement The US-Canada Free Trade Agreement (FTA), of 1989, was the first such agreement to include trade in services. The Agreement ensures those companies in more than 150 service sectors can provide their services in the partner country without discrimination. The FTA did not change existing regulations governing services in the two countries, but locked in current levels of protection. In effect, the Canadian Government is prohibited from passing new legislation that would further restrict the right of a US-based engineering, advertising or other covered service firms from doing business in Canada. The services chapter of the FTA includes special provisions for the architecture, tourism, and telecommunications sectors.

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NAFTA Provisions NAFTA (1994) further extended agreements on trade in services to cover nearly all service sectors and removed citizenship or permanent residency requirements for the licensing of professional service providers. The NAFTA provisions on the temporary entry of people have significantly opened up opportunities for US and Mexican service firms in Canada. Under this section of NAFTA, individuals considered “professionals” are automatically granted a work authorization for Canada. This allows individuals in many categories, such as architects, management consultants, and physicists, to work for Canadian companies without being subjected to Canada's job validation process. (This is a process by which it must be shown that there is a shortage of qualified Canadians who could perform the work required). However, these NAFTA provisions do not override other domestic requirements for individuals in those professions, such as the need to be licensed in a province in order to do business there. In addition, there are many categories that are not included in the list of professionals, such as language instructors and IT trainers. Individuals in these categories are subject to Canada's job validation process. Citizenship and Immigration Canada has published a guide for American and Mexican business people that explains the provisions governing entry of temporary foreign workers under NAFTA. The guide is available at: http://www.cic.gc.ca.

4.5.8

Intellectual Property Risks

Trademarks A businessperson contemplating the establishment of a company in Canada should take steps to protect his or her trademark in Canada before actually starting to sell products or perform services in the country. An individual may base the application on either actual use or intended use of the trademark in Canada. A Canadian application may also be based on a registration of the trademark in the applicant's country of origin and use by the applicant or a licensee in that country, in which case a registration can be obtained without proof of use in Canada. Accordingly, if there is any likelihood that a market in Canada will exist for the trademarked product, a foreign trader should file an application in Canada as soon as possible. This practice will minimize the possibility that someone else, observing the use abroad, will file in Canada first and preclude registration by the true owner of the mark. A Canadian trademark registration can often be obtained within 12 to 15 months of filing and is granted for a term of 15 years. Under present legislation, the registration may be renewed for successive 15-year periods on payment of renewal fees. Amendments introduced in implementation of the NAFTA strengthen the ability of the owner of a registered trademark to stop the importation of allegedly infringing goods from abroad. It is now possible to obtain a court order requiring Canadian customs officials to detain such infringing goods pending trial. However, the US Government has encouraged Canada to consider further strengthening enforcement by authorizing customs agents to seize shipments of allegedly infringing goods prior to judicial action.

Patents The Patent Act governs patents in Canada. The Act allows for patenting of processes as well as products. Canada has a “first to file” system with an absolute novelty requirement, and the Patent Office publishes the specifications only when the patent is issued. Deferred examination is possible, and provisions exist for payment of maintenance for pending applications and issued patents. Canada's Patent Act extends 20-year patent protection to patents filed prior to October 1, 1989. Canada is a signatory of the Patent Cooperation Treaty, which provides for foreign patent protection in Canada for other treaty signatories. From the perspective of the inventor, the treaty standardizes the country's patent practices with those of Canada's principal trading partners and makes it easier for Canadians to acquire foreign patents. Officials from the United States Patent and Trademark Office and the Canadian Intellectual Property Office meet frequently to exchange information and to consider mutually beneficial future joint activities.

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Copyright Canada is a member of the World Intellectual Property Organization (WIPO) and a signatory of the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. As a NAFTA signatory, Canada also adheres to the Bern Convention for the Protection of Literary and Artistic Works (1971), and the 1952 Universal Copyright Convention (UCC). These agreements require that Canada provide national treatment with respect to intellectual property rights (IPR). However, Canada's Copyright Act has two stipulations that follow the principles of reciprocity instead of national treatment, which have yet to be resolved to the satisfaction of the United States. The first calls for a “neighboring rights” royalty, whereby broadcasters pay royalties to domestic recording artists and producers, as well as to those from countries that are signatories of the Rome Convention, which the United States is not. The second is for a “private copying” levy to be paid by manufacturers and importers of recordable blank cassettes, tapes and compact discs, with the proceeds going to domestic artists and artists from countries that extend the same benefits to Canada. The United States does not have such a levy for cassettes and tapes, only for compact discs. Canada's federal Industry Minister has the authority to grant benefits to countries that are currently precluded, but has yet to make a decision with respect to American artists and producers. Canada's Copyright Act has been amended several times to harmonize it with the country's international IPR agreements. In early 2003, the Act was amended to specifically exclude the Internet from its compulsory licensing regime, aligning its copyright application of the Internet with that of the other G7 countries.

4.5.9

Hiring Local Counsel

The use of attorneys for expediting routine business dealings in Canada is far less prevalent than in the United States, and the tendency to litigate disputes is also less common. Nonetheless, US companies should consult with a local attorney when establishing a corporate investment or other presence, or prior to making contractual commitments related to the marketing of products or services. This requirement becomes even more critical in agreements involving copyright, patent, trademark, or other forms of intellectual property protection. Most large Canadian law firms have partnerships or strong associations with counterpart firms in the United States and are experienced with international business law. Any legal problems or difficulties with Canadian government agencies are likely to be best handled by an experienced local legal representative. The US Embassy and Consulates in Canada can provide lists of local attorneys experienced in a range of commercial and other legal matters.

4.5.10

Regional Marketing Differences in Canada

The Canadian market mirrors the US market in many respects. However, just as there are differences among regional markets in the United States, there are important differences among Canadian regions. Some of these differences will have an impact on the way US firms approach these markets. Canada can be divided into six marketing regions: •

The Atlantic Provinces

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New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador.

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The Province of Quebec

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The Province of Ontario

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The Prairie Provinces

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Manitoba, Saskatchewan, and Alberta

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The Territories

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The Yukon, the Northwest Territories, and Nunavut

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The Atlantic Provinces The Atlantic provinces represent a geographic area close to the size of France and have a combined population of 2.4 million. The only Atlantic province that borders a US state (Maine) is New Brunswick, and it is, therefore, one of the principal entry points for American-made goods. Additional products enter the region through distribution centers in Ontario and Quebec, adding significantly to the total sales of US products in this region. The region is known for its resource sectors, notably the major energy projects, and the diverse industries represented in its four, economically independent provinces: New Brunswick, Nova Scotia, Newfoundland and Labrador, and Prince Edward Island. Historically, the Atlantic provinces have been known as net importers of finished products, and exporters of resource-based and semi-processed materials and services. This traditional mix has changed over recent years as services, IT products, and assorted finished goods are exported from the region, along with fishery and forestry products, and natural gas. The region enjoys strong relationships with states in the northeast US, the result of a longstanding trading pattern that began before Canadian confederation. However, with the support of the Canadian federal and provincial governments, companies in all four provinces have increased that reach to include many other states such as Georgia, Louisiana, and Texas. Well-placed distributors, agents, and manufacturer's representatives, many of whom have long established relationships with US suppliers across diverse sectors, serve local and regional business. Because of the geographic distance between US suppliers and these four provincial markets, some type of local representation in the region is essential for sales success. Buyers in the area regularly state that American companies are better served by representatives located in the Atlantic provinces than by those based in Ontario or Quebec. Personal contact between vendor and purchaser is highly valued in this part of Canada, and, where pricing and other factors are not major issues, these relationships can greatly influence the success of a US company in this market. This is very important for new-to-market companies, where an intimate knowledge of local business practices often makes the difference between success and failure. Typical are those situations requiring after-sale service or high levels of quality control, as is often seen in sales to governments and institutions. Purchasing requirements are not necessarily the same in every province, even though product specifications may be similar. Population size should not be the sole indicator for determining market potential. A diverse industrial base, major projects, international traders, and seasonal industries such as tourism, all contribute to major procurements for the region and for offshore markets. For major projects, business relationships such as joint ventures, partnering, and various forms of alliances and consortia have all been applied successfully and are viewed by local business as an effective way to win sales. The energy sector continues to provide a major economic push to the region, with exploration for gas and oil continuing, combined with a new gas distribution system being built in Nova Scotia. Also, this part of Canada is known for the significant number of telecommunications companies, a high level of activity in marine technologies, growth in biotechnology firms and in the environmental industries.

The Province of Quebec The province of Quebec is 81 percent French-speaking and home to an increasingly diverse, pluralistic society exposed to highly competitive global markets. Quebec is Canada's second largest economic region, after Ontario. The capital of the province is Quebec City. Highly cosmopolitan Montreal is the world's second-largest Frenchspeaking city after Paris, yet largely bilingual in English and the driving power in Quebec's economy. Many US companies have located sales and manufacturing facilities in Quebec.

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With an abundance of natural resources and energy, Quebec remains strong in the agriculture, mining, and hydroelectric industries. The traditionally strong manufacturing and service sectors also provide stability in the highly industrialized Quebec economy. Recent growth in the aerospace, telecommunications, pharmaceuticals, biotechnology, and information technology sectors are helping Quebec become a high-tech powerhouse. These strengths contribute to Quebec's strong demand for US products. Leading imports from the United States are vehicles, computers, aircraft engines and parts, telecommunications equipment, automobile parts, trucks and tractors, electronic parts, airplane and helicopter parts, pharmaceuticals and medicines, plastics, chemicals, wood products and paper.

The Province of Ontario Ontario is the economic engine of Canada due to its substantial and highly diverse industrial base. Ontario's capital, Toronto, is Canada's commercial center, home to half the country's largest financial institutions, 90 percent of its international banks, and over 75 percent of US subsidiaries in Canada. Ontario's highly diversified economy offers excellent opportunities in all sectors ranging from automotive, plastics, and aerospace to information and telecommunications technology, computer software, and the life sciences. Knowledge-intensive industries such as computers, software, and medical technologies are among the fastest growing sectors in Ontario. The automotive industry accounts for 21 percent of Ontario's manufacturing output and 45 percent of its exports. Ontario rivals the State of Michigan as North America's largest auto assembly center. In addition to being Canada's industrial heartland, Ontario produces more than 200 agricultural commodities, a diversity unmatched in most parts of the world. Ontario is a world leader in food technology research and development as well. The province also accounts for 30 percent of Canada's mineral mining and 20 percent of its forestry products. Ontario is the nucleus of the Canadian high-tech industry. Ottawa, Canada's national capital, is an important center for both the telecom and photonics industries. The city's high-tech sector has experienced remarkable growth in the last five years and has attracted the attention of numerous information technology and telecommunications companies from across the United States. Home to high-tech companies such as Nortel Networks, Corel Corporation, and JDS Uniphase, the advanced technology sector in Ottawa generates almost US$14 billion in annual sales. Toronto is especially strong in software and related technologies, including e-commerce. There are more than 3,000 IT firms in the Greater Toronto Area alone, with annual revenues of US$24 billion dollars. Ontario's 12 million people (almost 40 percent of Canada's total population) help make it the country's most dynamic province. Ontario workers are ranked among the best educated and most productive in the world. Toronto boasts a population that represents some 100 nationalities. This diversity is embodied in an entrepreneurial workforce and business community that is familiar with, and connected to, business partners around the world. Located in the heart of North America, Ontario provides easy access to prosperous consumer and industrial markets. The province has a modern, integrated transportation infrastructure, including commuter and urban public transit, an excellent rail system, worldwide cargo aviation systems, and extensive in-land and international marine shipping facilities. The volume of trade between the United States and Ontario is enormous, making the province the third largest trading partner of the US (after Canada and Japan). Ontario's largest state trading partner is Michigan, because of the auto industry, although the province also does substantial business with New York, Ohio, California, and Illinois.

The Prairie Provinces The Prairie provinces -- Manitoba, Saskatchewan, and Alberta -- have rich natural resources that have long provided a strong economy. They account for four-fifths of Canada's agricultural land and over two-thirds of its total mineral production, including over ninety percent of its fossil fuels. As these primary industries' contribution to GDP has fallen almost steadily for four decades, the Prairies have steadily diversified their economic base into manufacturing and services.

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Today, the region's economy, led by Alberta, outpaces the nation, and the three provinces have the lowest unemployment rates in the country. The resurgence in the region's economy, driven in large measure by the energy sector, has led to a dramatic expansion in the region's trade with the United States. Driven by strong exports, the food-processing sector has grown steadily and remains the Prairies' largest manufacturing industry. However, all manufacturing sectors, in particular machinery and transport equipment, are recording solid growth and represent excellent markets for US intermediate component, production, and capital equipment suppliers. Service sectors are also blossoming, particularly in the logistics and transportation sectors. Canada is the largest single source of imported hydrocarbons for the United States. Currently, most of Canadian energy exports originate in Alberta, home to the corporate headquarters of the country's oil and gas industry. Steadily rising US demand for natural gas has led to a proliferation of new pipeline projects and large expansions in exploration, drilling, and other production activity. Surging oil prices have accelerated major long-term projects for developing Alberta's huge resources of oil tar sands. This expanded activity has greatly increased export and merger opportunities for US firms, which today boast 40 percent industry ownership. Construction expenditures in Alberta, led in large measure by the energy sector, and aided by the province's rapid population growth, are double the national average: the Calgary/Edmonton corridor recently was found to have the highest per capita income in all of North America. Over the past few years, numerous US firms have selected an agent or distributor located in the Prairies to handle their product lines or services here. Regional distributors can better cover this broad expanse of territory than can representatives from the East. Also, inter-provincial trade barriers and significant transportation costs make it easier for US firms located in states directly south of the border to export northward into this region, than for firms based in eastern Canada to distribute US-origin products westward to the Prairies.

The Province of British Columbia The Canadian province of British Columbia (BC), located on the country's scenic West coast, is renowned for its abundant natural resources and multi-ethnic population. However, it is the lesser-known attributes that should be of most interest to US exporters: •

A highly business-oriented provincial government that is radically improving the commercial climate;

•

A large economy;

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A gateway for business development into the Asia Pacific region.

The provincial government has established a new “P3 Program” designed to encourage growth in areas previously limited by government control. Two key sectors being emphasized in this program are infrastructure and health care, with major new transportation and hospital projects being developed under this initiative. British Columbia's key industries include: •

Energy & Mining

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Forestry

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Fisheries

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Agriculture

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Manufacturing

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In addition, a number of other industries also offer export opportunities for US firms: •

Computer software & hardware,

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Telecommunications equipment,

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Aerospace products,

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Life sciences equipment,

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Computer integrated manufacturing components,

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Electronics equipment,

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Biotech equipment,

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Environmental technology parts and components, and

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Management consulting services.

BC's role as a “Gateway to Asia” continues to develop. The large Asian business community, with especially strong ties in China, Taiwan, and Hong Kong, often serves as agents for governments and businesses in those markets. They source many products and services from the United States.

The Territories: The Yukon, the Northwest Territories, and Nunavut Stretching across the north are the territories of Yukon, Northwest Territories, and Nunavut, occupying roughly onethird of Canada's land mass, but home to only about 100,000 people. Despite this sparse population, however, there are trade opportunities in certain sectors. Mining and related mineral exploration offer the greatest opportunities in all three territories. The government of the Northwest Territories is encouraging the establishment of a secondary diamond industry (cutting, polishing, and valuation) to complement the main diamond mining sector. Tourism and related support industries are also growing, as the three regions encourage adventure travel to these remote northern sites. Special opportunities exist in Nunavut, the newest territory, created on April 1, 1999. This territory is still in the process of setting up its own government and seeks management expertise in establishing systems to administer social services, education, health and other related services. There is also a need for construction and transportation equipment and materials.

4.5.11

Trade Barriers

As a result of the US-Canada Free Trade Agreement (FTA), which went into effect in January 1989, virtually all Canadian tariffs on US products have been eliminated. The North American Free Trade Agreement (NAFTA), which replaced the FTA in January 1994, removed some remaining barriers and expanded specific provisions of the FTA. However, certain non-tariff barriers at both the federal and provincial levels continue to impede access of US goods and services to Canada or retard potential export growth.

4.5.12

Local Standards

The NAFTA provides that testing facilities, inspection agencies, and certification bodies of each country have access to the accreditation systems of the other country without obligation to establish facilities in the other country. While provincial practices do not fall under the NAFTA discipline, provincial requirements will be monitored for fair treatment of American organizations. www.icongrouponline.com

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Government Procurement

The NAFTA provides access to the Canadian Government procurement market through expansion of coverage to Canada's federal departments, some government-owned enterprises (Crown corporations), and selected services and construction contracts.

4.5.14

Provincial Liquor Boards

Canadian provincial government liquor boards have exclusive control over Canada's alcoholic beverage retail pricing, listing, and distribution and sales in most provinces. The NAFTA requires Canadian provinces to accord national treatment to US wines and spirits in their listing policies and, with certain well-defined exceptions, their distribution practices.

4.5.15

Services

Services exports constitute the fastest growing component of the US-Canada bilateral trade relationship. The NAFTA covers all service sectors unless specifically excluded, and applies guiding principles to services trade. A party can protest an existing law, measure, or practice that does not conform to the agreement's principles by formally lodging an exception or reservation for the measure. All federal government reservations were listed during negotiations and cannot be amended. States and provinces subsequently listed their non-conforming measures. This “barrier inventory” exercise provides an opportunity to press for further liberalization in services. NAFTA parties also committed to the removal of citizenship requirements affecting the licensing and practice of professionals.

4.5.16

“Cultural Industries”

Canada's historical concern that its cultural identity may be overwhelmed by US influences has resulted in restrictions on foreign investment in Canadian cultural industries (e.g., broadcasting, publishing). At Canada's insistence, cultural industries were exempted from the provisions of the FTA and NAFTA. However, the United States obtained the right to take actions that have “equivalent commercial effect” against measures that would have been inconsistent with the FTA and NAFTA if this exemption were not involved. Authority for review and approval of all prospective foreign investments in industries related to Canadian culture, heritage or national identity rests with the Minister for Canadian Heritage.

4.5.17

Investment Barriers

Under the Investment Canada Act and related regulations, Canada maintains laws and policies that restrict new or expanded foreign investment in the energy, publishing, telecommunications, transportation, film, music, broadcasting, and cable television sectors.

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Controls on Exports

Canada controls exports under authorization of the Export and Import Permits Act (EIPA). The EIPA establishes two export lists: the Export Control List (ECL), which lists specific products that are subject to export restrictions for specified countries, and the Area Control List (ACL), which lists those countries to which all exports are subject to restrictions. The ECL contains a list of products designated as being of strategic military or industrial value, as well as other products included for purposes of conservation (such as endangered species) or trade agreement monitoring (such as steel products). The ECL specifies that export permits do not have to be obtained where the goods and technology listed are being exported to the US. The exceptions to the general exemption for US-bound shipments are atomic energy materials, various endangered species, and certain forestry products. Under a bilateral arrangement with the US, export permits are not required for most ECL items when shipped to a final destination in the United States. If the ECL goods are only transiting the US for export to other destinations, an export permit is required. However, all goods in Groups 3 (Nuclear Non-Proliferation) and 4 (Nuclear-Related DualUse) and some goods in Groups 2 (Munitions), 5 (Miscellaneous), 7(Chemical and Biological Weapons NonProliferation), and 8 (Chemicals for Production of Illicit Drugs) require an individual export permit when the final destination is the United States. Military export permits are normally denied to countries representing a strategic threat to Canada or its allies. These include countries involved in or under imminent threat of hostilities, countries under UN sanction, or countries whose governments have a persistent record of serious human rights violations, unless there is no reasonable risk that the goods might be used against the civilian population. For further information, including which items require permits for export to the US, contact the Export Controls Division at the Department of Foreign Affairs and International Trade in Ottawa at Tel: (613) 996-2387; Fax: (613) 996-9933; or Internet: www.dfait-maeci.gc.ca.

4.5.19

Import Documentation Requirements

A properly completed Canada Customs Invoice or its equivalent is required for all commercial shipments exported to Canada. In addition, a completed NAFTA Certificate of Origin must accompany shipments of US-produced goods in order to obtain tariff-free treatment under the provisions of the North American Free Trade Agreement. For further information, please contact the Canada Customs and Revenue Agency representative at the Canadian Embassy in Washington at Tel: (202) 682-1740 or Fax: (202) 682-7689.

4.5.20

Entering Temporary Imports

American citizens and other visitors to Canada may bring certain personal goods into Canada duty and tax-free, provided that all such items are declared to Canada Customs and Revenue upon arrival and are not subject to restriction. The temporary entry of certain types of business material (e.g., brochures, commercial samples, and audio-visual projection equipment) may either be subject to the full or reduced rate of duty and tax. If the goods are eligible for free entry, a refundable security deposit -- in the form of cash or bond -- may be required. For further information, please contact the Canada Customs and Revenue Agency representative at the Canadian Embassy in Washington at Tel: (202) 682-1740 or Fax: (202) 682-7689.

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Labeling Issues

Canada requires bilingual labeling (English and French) for most products. The federal Consumer Packaging and Labeling Act require bilingual designation of the generic name on most prepackaged consumer products. Under this Act, the following information must appear on the package/label of a consumer good sold in Canada: •

Product Identity Declaration: Describes a product's common or generic name, or its function. The declaration must be in both English and French.

•

Net Quantity Declaration: Should be expressed in metric units of volume when the product is a liquid or a gas, or is viscous; or in metric units of weight when the product is solid or by numerical count. Net quantity may be expressed in other established trade terms.

•

Dealer's Name and Principal Place of Business: Where the prepackaged product was manufactured or produced for resale. In general, a name and address sufficient for postal delivery is acceptable. This information can be in either English or French.

The agency responsible for inspection of imports, Canada Customs and Revenue Agency, also requires an indication of the country of origin, such as “Made in the USA,” on several classes of imported goods. Goods not properly marked cannot be released from Canada Customs until suitably marked. The Province of Quebec requires that all products sold in that province be labeled in French and that the use of French be given equal prominence with other languages on any packages or containers. The Charter of the French Language requires the use of French on product labeling, warranty certificates, directions for use, public signs and written advertising. Finally, industry is charged with ensuring that any claims about a product being “environmentally-friendly” are accurate and in compliance with relevant legislation. In general, environmental claims that are ambiguous, misleading or irrelevant, or that cannot be substantiated, should not be used. In all cases, environmental claims should indicate whether they are related to the product itself or to the product's packaging materials. The Canadian government has issued a set of guiding principles governing the use of environmental labeling and advertising, which may be obtained by contacting Industry Canada.

4.5.22

Restrictions on Imports

Under the NAFTA, the vast majority of US products shipped to Canada enter the market free from any tariffs or import restrictions. However, under the provisions of the Canadian Customs tariff regulations, certain commodities, such as reprints of Canadian copyrighted work, cannot be imported. Other items are regulated under the Export and Import Permits Act and require a permit for importation into Canada. The Act lists various agricultural products (poultry, eggs, and dairy products), a number of textile and clothing items, and certain steel products. Inquiries regarding the issuance of import permit and quota allocations should be directed to the Department of Foreign Affairs, Export and Import Controls Bureau in Ottawa: •

Tel: 613-996-3711 (textiles and clothing)

•

Tel: 613-995-8358 (steel products)

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Tel: 613-995-2744 (agricultural products).

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Local Standards

Though similar, Canada's product standards are not identical to those in the United States. The Canadian government, like the US government, is concerned with protecting its citizens from faulty or unsafe products. However, in delineating the precise technical specifications required to ensure safety, both countries often use slightly different standards. Under the aegis of the Standards Council of Canada (SCC), several private standards-writing organizations administer technical codes and standards for areas ranging from electrical and plumbing products to health-care technology. These organizations include: •

The Canadian Standards Association (CSA)

•

Underwriters Laboratories of Canada (UL)

•

The Canadian General Standards Board

•

The Canadian Gas Association

The Canadian federal government also has numerous commodity standards to safeguard public welfare. The standards organizations try to avoid duplication of responsibility, but there is some overlap. US manufacturers and exporters should determine what standards are applicable to their products. If certification is required, it generally must be obtained before the goods are imported into Canada. The process can be timeconsuming and, therefore, certification should be one of the first steps taken to establish an export market in Canada. The basic NAFTA rule is simple: standards must not create unnecessary barriers to trade. To reduce such barriers, the NAFTA applies basic principles to bilateral trade: •

Testing facilities and certification bodies are treated in a nondiscriminatory manner;

•

Federal standards-related measures will be harmonized to the greatest extent possible;

•

Greater openness will be provided in the regulatory process.

Standards organizations in the United States and Canada continue to work cooperatively in the development of joint standards and have made progress in several areas. For example, the Air Conditioning and Refrigeration Institute and the CSA have harmonized performance standards for air conditioners and heat pumps, packaged water chillers, and water-source heat pumps. Underwriter's Laboratory (UL) and the Canadian Standards Association (CSA) have established common electrical safety standards for air conditioners, heat pumps, and refrigerant motor-compressors. Since 1992, several US testing and certification organizations, most notably UL and the American Plywood Association, have received accreditation in Canada. The CSA has also officially been recognized by the US Occupational Safety and Health Administration (OSHA) as a nationally recognized testing laboratory. SCC and OSHA accreditation means American manufacturers can gain product approval for both the United States and Canada from one source, thereby eliminating the time and expense of pursuing separate certification for each market. Numerous other US testing and certification organizations have since received accreditation from the SCC. A complete list of these organizations may be obtained by contacting the Standards Council of Canada.

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Free Trade Zone Options

With the exception of one special trade zone at the Sydport Industrial Park in Cape Breton, Nova Scotia, Canada has no free ports or free trade zones. At present, there are no federal or provincial laws specifically governing the establishment and operation of such zones. Goods may be cleared at Customs offices on the border or may be forwarded to a bonded warehouse for storage pending customs examination and clearance. Goods may be sent to a bonded warehouse without the payment of duty, but must be cleared either for export or Canadian consumption within two years. Extended periods are allowed for certain goods. Goods taken from bonded warehouses for consumption are dutiable at rates of the Customs Tariff in effect at the time, and the value for duty purposes is the value at the time of entry for warehousing. Goods exported from bonded warehouses to third countries are subject to Canadian export regulations. Minor operations such as repackaging and sorting can be carried out in bonded warehouses with the permission of Canada Customs and Revenue Agency, but assembly or other industrial activity is prohibited.

4.5.25

Adherence to Free Trade Agreements

The US-Canada FTA, implemented in 1989, vastly expanded opportunities for US exporters and investors in Canada. As a result of the FTA and the 1994 NAFTA, trade barriers came down, investment rules were liberalized, and bilateral cooperation on a wide range of issues has been expanded. Like the United States, Canada is a member of the World Trade Organization (WTO) and was a founding member of its predecessor, the General Agreement on Tariffs and Trade (GATT). Canada has also been an active member of both the Asia-Pacific Economic Cooperation (APEC) forum and the Free Trade Area of the Americas (FTAA) negotiation process. Canada and Israel implemented a bilateral FTA at the start of 1997 that is similar to the US-Israel FTA, but does not deal with government procurement. Canada and Chile implemented a bilateral FTA in mid-1997. This FTA was explicitly designed to facilitate Chile's eventual accession to NAFTA, and includes parallel agreements on environmental protection and labor standards. It immediately eliminates Chile's 11 percent duty on most industrial and resource-based exports from Canada, and commits the two countries to eliminate the use of trade remedy laws against each other's firms within six years. Canada and Costa Rica signed a bilateral FTA in 2001. Canada is currently negotiating an FTA with four other Central American countries (Guatemala, Honduras, Nicaragua, and El Salvador) and is contemplating negotiations with the Caribbean Community (“CARICOM”).

4.6

OPENNESS TO FOREIGN INVESTMENT

With few exceptions, Canada offers foreign investors full national treatment within the context of a developed open market economy operating with democratic principles and institutions. Canada is, however, one of the few OECD countries that still have a formal investment review process, and foreign investment is prohibited or restricted in several sectors of the economy. Canada's economic development is, to a certain extent, reliant on foreign investment inflows. In terms of revenue, four foreign-owned firms rank among the top ten corporations in Canada, and the government estimates that foreign investors control about one-quarter of total Canadian non-financial corporate assets. The United States and Canada agree on important foreign investment principles, including right of establishment and national treatment. The 1989 FTA recognized that a hospitable and secure investment climate was indispensable if

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the two countries were to achieve the full benefits of reducing barriers to trade in goods and services. The agreement established a mutually beneficial framework of investment principles sensitive to the national interests of both countries, with the objective of assuring that investment flowed freely between the two countries and that investors were treated in a fair and equitable manner. The FTA provided higher review thresholds for US investment in Canada than for other foreign investors, but it did not exempt all American investment from review nor did it override specific foreign investment prohibitions, notably in the cultural area. The 1994 NAFTA incorporated the gains made in the FTA, expanded the coverage of the Investment Chapter to several new areas, and broadened the definition of investors with rights under the agreement. It also created the right to binding investor-state dispute settlement arbitration in specific situations.

4.6.1

Legal Framework

Since 1985, foreign investment policy in Canada has been guided by the Investment Canada Act (ICA), which replaced the more restrictive Foreign Investment Review Act. The ICA liberalized policy on foreign investment by recognizing that investment is central to economic growth and is the key to technological advancement. At the same time, it provided for a review of large acquisitions in Canada by non-Canadians and imposed a requirement that these investments be of “net benefit” to Canada. For the vast majority of small acquisitions, as well as the establishment of new businesses, foreign investors need only notify the Canadian government of their investment. While the ICA provides the basic legal framework for foreign investment in Canada, investment in specific sectors may be covered by special legislation. For example, foreign investment in the financial sector is administered by the federal Department of Finance, and the Broadcast Act governs foreign investment in radio and television broadcasting. Under provisions of Canada's Telecommunications Act, foreign ownership of transmission facilities is limited to 20 percent direct ownership and 33 percent through a holding company, for an effective limit of 46.7 percent total foreign ownership. Canada's federal system of government subjects investment to provincial as well as national jurisdiction. Provincial restrictions on foreign investment differ by province, but are largely confined to the purchase of land and to certain types of provincially regulated financial services. In addition, provincial government policies in the areas of labor relations and environmental protection can have an important impact on foreign investors.

Investment Canada Act The Investment Canada Act is intended to regulate foreign investment in Canada. (Please see http://www.investcan.ic.gc.ca.) For investments in a business activity that is related to Canada's cultural heritage or national identity, the federal department responsible for the administration of the ICA is Canadian Heritage. For investments in enterprises that are not related to Canada's cultural heritage or national identity, Industry Canada is responsible for the administration of the ICA. Investment Canada must be notified of any investment by a non-Canadian to establish a new business, regardless of size, or to acquire direct control of any existing business that has assets of at least C$5 million, or to acquire the indirect control of any existing Canadian business with assets exceeding C$50 million in value. However, the C$5 million threshold was increased to C$223 million in 2003 in cases where the acquiring non-Canadian entity is a member of the World Trade Organization (WTO). Also, there is no review process applicable to an indirect acquisition of a Canadian business by any member of the WTO, with the exception of foreign acquisitions of any size in “cultural industries” (publishing, film, music, etc.).

Special Treatment for US Investment US foreign direct investment in Canada is subject to the Investment Canada Act, but the NAFTA further defines the investment relationship between the two countries and adopts the principle of national treatment. The basic obligation assumed by the two countries in Chapter Eleven of the NAFTA is to ensure that future regulation of

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Canadian investors in the United States, and of US investors in Canada, results in treatment no different than that extended to domestic investors within each country -- “national treatment.” Both governments are completely free to regulate the ongoing operation of business enterprises in their respective jurisdictions under, for example, antitrust law, provided they do not discriminate. This principle is founded on the basis of existing practice and is detailed in the framework below. Canada retains the right to review the acquisition of firms in Canada by US investors, but agrees to phase in higher threshold levels. The current review threshold for direct acquisitions is C$223 million. Indirect acquisitions by WTO member investors do not require review, but are nonetheless subject to notification. Existing laws, policies and practices were “grandfathered” in, except where specific changes were required. The practical effect of this was to freeze the various exceptions to national treatment provided in Canadian and US law, such as restrictions on foreign ownership in the communications and transportation industries. Additionally, both governments remain free to tax foreign-owned companies on a different basis from domestic firms, provided this does not result in arbitrary or unjustifiable discrimination, and to exempt the sale of Crown (government-owned) corporations from any national treatment obligations. Finally, the two governments retain some flexibility in the application of national treatment obligations. They need not extend identical treatment, as long as the treatment is “equivalent.” The NAFTA also deals more specifically with the financial services sector. Chapter Fourteen on financial services eliminates discriminatory asset and capital restrictions on US bank subsidiaries in Canada. It also exempts US firms and investors from the federal “10/25” rule so that they will be treated the same as Canadian firms. The “10/25” rule prevents any single non-NAFTA, nonresident from acquiring more than ten percent of the shares, and all such nonresidents in the aggregate from acquiring more than 25 percent of the shares of a federally regulated, Canadiancontrolled financial institution. In 2001, the GOC raised the 10 percent rule to 20 percent for single shareholders. Both the ten percent and the 25 percent limitations were eliminated for American investors in federally chartered, non-bank financial institutions. Several provinces, however, including Ontario and Quebec, have similar “10/25” rules for provincially chartered trust and insurance companies which were not waived under the FTA. Bilateral services trade is largely free of restrictions and the NAFTA ensures that restrictions will not be applied in the future. However, existing restrictions were not affected by the NAFTA. The services agreement is primarily a code of principles, which establishes national treatment, right of establishment, right of commercial presence, and transparency for a number of service sectors specifically enumerated in annexes to the NAFTA. The NAFTA also commits both parties to expand the list of covered service sectors. The NAFTA grants US firms that operate from the United States national treatment for most Canadian federal procurement opportunities. However, inter-provincial trade barriers exist which often exclude US firms established in one Canadian province from bidding on another province's procurement opportunities. As a first step in the ongoing and difficult process of reducing trade barriers within Canada, the federal, provincial and territorial governments negotiated an Internal Trade Agreement that came into effect on July 1, 1995. The Agreement provides a framework for dealing with trade in ten specific sectors and establishes a formal process for resolving trade disputes. Besides the areas described above, the NAFTA includes provisions that: enhance the ability of US investors to: enforce their rights through international arbitration; prohibit a broader range of performance requirements, including forced technology transfer; and expand coverage of the investment chapter to include portfolio and intangible investments as well as direct investment.

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Investments in “Cultural Industries”

Canada defines “cultural industries” to include: •

The publication, distribution or sale of books, magazines, periodicals or newspapers, other than the sole activity of printing or typesetting;

•

The production, distribution, sale or exhibition of film or video recordings, or audio or video music recordings;

•

The publication, distribution or sale of music in print or machine-readable form;

•

Any radio, television and cable television broadcasting undertakings and any satellite programming and broadcast network services.

The ICA requires that foreign investments in the book publishing and distribution sector be compatible with national cultural policies and be of net benefit to Canada. Takeovers of Canadian-owned and controlled distribution businesses are not allowed. The establishment of new film distribution companies in Canada will only be allowed for importation and distribution of proprietary products. (In other words, the importer would have to own world rights or be a major investor). Indirect and direct takeovers of foreign distribution businesses operating in Canada are allowed only if the investor undertakes to reinvest a portion of its Canadian earnings. The Broadcasting Act sets out the broadcasting policy for Canada, the objectives of which include enriching and strengthening the cultural, political, social and economic fabric of Canada. The Canadian radio-television and telecommunications commission (CRTC) is charged with implementing the broadcasting policy. Under current CRTC policy, in cases where a Canadian service is licensed in a format competitive with that of an authorized nonCanadian service, the commission can drop the non-Canadian service if a new Canadian applicant requests it to do so. Licenses will not be granted or renewed to firms that do not have at least 80 percent Canadian control, represented both by shareholding and by representation on the board of directors. All investments in newspapers and periodicals require Canadian government review. Authority for reviewing prospective foreign investments resides with the Minister for Canadian Heritage. Under terms of an agreement signed in June 1999, Canada committed to significantly lower its barriers to foreign magazines. Canadian advertisers, merchants and service providers may now claim a tax deduction for one-half of their advertising costs if they place ads in foreign magazines with zero to 79 percent Canadian editorial content. They may deduct full advertising costs if the magazine contains 80 percent or more original (specifically for the Canadian market) editorial content.

4.6.3

Investments in the Financial Sector

Canada is open to foreign investment in the banking, insurance, and securities brokerage sectors, although, unlike the United States, Canada still has barriers to foreign access to retail banking. US firms are present in all three sectors, but play secondary roles, while Canadian banks have been much more aggressive in entering the US retail banking market because there are no barriers that limit access. Although American and other foreign banks have long been able to establish banking subsidiaries in Canada, no US banks have attempted to undertake retail banking operations in Canada, which is regarded as a fairly “saturated” market. Several US financial institutions have established branches in Canada, chiefly targeting commercial lending, investment banking, and niche markets such as credit card issuance.

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Investments in Other Sectors

Commercial Aviation Foreigners are limited to 25 percent ownership of Canadian air carriers.

Energy and Mining Foreigners cannot be majority owners of uranium mines.

Telecommunications Under provisions of Canada's Telecommunications Act, direct foreign ownership of Type I carriers (owners/operators of transmission facilities) are limited to 20 percent. Ownership and control rules are more flexible for holding companies that wish to invest in Canadian carriers. Under these rules, two-thirds of the holding company's equity must be owned and controlled by Canadians.

Fishing Foreigners can own up to 49 percent of companies that hold Canadian commercial fishing licenses.

Electric Power Generation and Distribution Regulatory reform in electricity continues in Canada, motivated by the expectation that increased competition will lower costs of electricity supply. The provincially owned firms are also interested in gaining greater access to the US power market. Since power markets fall under the competency of the Canadian provinces, they are at the forefront of the reform effort.

Real Estate Primary responsibility for property law rests with the provinces. Prince Edward Island, Saskatchewan, and Nova Scotia all limit real estate sales to out-of-province parties. There is no constitutional protection for property rights in Canada. Consequently, government authorities can expropriate property, although appropriate compensation must be paid.

Privatization Each specific privatization (at the federal or provincial levels of government) is considered on a case-by-case basis, and there is no overall limitations policy with regard to foreign ownership. As an example, the federal Department of Transport did not impose any limitations in the privatization of Canadian National Railway, whose majority shareholders are now US citizens.

4.6.5

Investment Incentives

Both federal and provincial governments in Canada offer a wide array of investment incentives, while municipalities are legally prohibited from doing so. None of the federal incentives, however, are specifically aimed at promoting or discouraging foreign investment in Canada. Rather, the incentives are designed to accomplish broader policy goals, such as investment in research and development, or promotion of regional economies. They are available to any qualified investor, Canadian or foreign, who agrees to use the funds for the stated purpose. Provincial incentives tend to be more investor-specific and are conditioned on applying the funds to an investment in the granting province. Provincial incentives may also be restricted to firms established in the province or that agree to establish a facility in the province. Incentives for investment in cultural industries, at both the federal and provincial level, are generally available only to Canadian-controlled firms. Incentives may take the form of grants, loans, loan guarantees, venture capital, or tax

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credits. Incentive programs in Canada generally are not oriented toward the promotion of exports. Provincial incentive programs for film production in Canada are available to foreign filmmakers.

4.6.6

Intellectual Property Risks

Private property rights are fully protected by Canada's legal system. Foreigners have full and fair access to Canada's legal system. Only the rights of governments to establish monopolies and to expropriate for public purposes limit property rights. Investors from NAFTA countries have mechanisms available to them for dispute resolution regarding property expropriation by the Government of Canada.

4.6.7

Performance Requirements and Incentives

Canada does not explicitly negotiate performance requirements with foreign investors. For investments subject to review, however, the investor's intentions regarding employment, resource processing, domestic content, exports, and technology development or transfer can be examined by the Canadian Government. A special duty remission scheme exists for the automotive sector that makes certain benefits contingent on trade performance. The FTA prohibits the United States or Canada from imposing export or domestic content performance requirements. Government officials at both the federal and provincial levels expect investors who receive investment incentives to use them for the agreed purpose, but no enforcement mechanism exists.

4.6.8

Regulatory System

Canada's regulatory system is similar to that of the United States in terms of its transparency and broad array of institutions involved. Proposed regulatory laws are subject to parliamentary debate and public hearings, and regulations are issued in draft form for public comment prior to implementation. While federal and/or provincial licenses or permits may be needed to engage in economic activities, this kind of regulation is generally for statistical or tax compliance reasons. The Bureau of Competition Policy and the Competition Tribunal, a quasi-judicial body, enforce Canada's antitrust legislation.

4.6.9

Labor

The Federal government and Provincial/territorial governments share jurisdiction for labor regulation and standards. For example, employees in the railroad, airline and banking sectors are covered under the federally administered “Canada Labor Code,” while employees in most other sectors would come under provincial labor codes. As the laws do vary somewhat from one jurisdiction to another, it is advisable to contact a federal or provincial labor office for specifics such as minimum wage and benefit requirements. Over the past several years, job growth has been faster in Canada than in the US. Labor at all skill levels is generally available in Canada, although there are shortages in certain categories of labor, such as in the Information Technology sector. Due in part to the lower value of the Canadian dollar relative to the US dollar, Canadian wage and benefit levels for most non-executive job categories are somewhat lower than levels paid in the United States. The union participation rate is about twice that seen in the United States.

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Expropriation and Compensation

Canadian federal and provincial laws recognize both the right of the government to expropriate private property for a public purpose, and the obligation to pay compensation. The federal government has not nationalized any foreign firm since the nationalization of Axis property during World War II. Both the federal and provincial governments have also assumed control of private firms -- usually financially distressed ones -- after reaching agreement with the former owners.

4.6.11

Dispute Settlement

Canada is a member of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The Canadian government has made a decision in principle to become a member of the International Center for the Settlement of Investment Disputes (ICSID). However, since the legal enforcement mechanism for ICSID would be the provincial court system, the federal government must also obtain agreement from the provinces that they will enforce ICSID decisions. It is unlikely that this will happen in the foreseeable future. Canada accepts binding arbitration of investment disputes to which it is a party only when it has specifically agreed to do so through a bilateral or multilateral agreement, such as a Foreign Investment Protection Agreement. The provisions of Chapter 11 of the NAFTA guide the resolution of investment disputes between the United States and Canada. The NAFTA encourages parties to settle disputes through consultation or negotiation. It also establishes special arbitration procedures for investment disputes separate from the NAFTA's general dispute settlement provisions. Under the NAFTA, a narrow range of disputes (those dealing with government monopolies and expropriation) between an investor from a NAFTA country and a NAFTA government may be settled, at the investor's option, by binding international arbitration. An investor who seeks binding arbitration in a dispute with a NAFTA party gives up his right to seek redress through the court system of the NAFTA party, except for proceedings seeking non-monetary damages.

4.6.12

Political Violence

Although rare, political violence does occur in Canada. Serbian demonstrators protesting the air war in Kosovo vandalized the United States Consulate General in Toronto in 1999. In addition, there have been some violent incidents related to trade and environmental disputes.

4.6.13

Bilateral Investment Agreements

While the terms of the FTA and the NAFTA guide investment relations between Canada and the United States, Canada has also negotiated international investment agreements with non-NAFTA parties. These agreements, known as Foreign Investment Protection Agreements (FIPAs), are bilateral treaties that promote and protect foreign investment through a system of legally binding rights and obligations based on the same principles found in the NAFTA. Within Canada's overall foreign investment strategy, FIPAs complement the NAFTA. Canada has negotiated FIPAs with countries in Central Europe, Latin America, Africa and Asia, and has over 100 international tax treaties in force. Please refer to the following Internet Web site for more information: www.fin.gc.ca.

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Capital Outflow Policy

The Canadian dollar is fully convertible. The Canadian government provides some incentives for Canadian investment in developing countries through Canadian International Development Agency (CIDA) programs. Canada's official export credit agency, the Export Development Corporation (EDC), provides OPIC-like insurance coverage for Canadian foreign investment.

4.7 4.7.1

TRADE AND PROJECT FINANCING The Banking System

The financial services chapter of the NAFTA, which entered into force on January 1, 1994, establishes a comprehensive set of rules to govern trade and investment in financial services among the three signatory countries (the United States, Canada, and Mexico). US banks now enjoy a right of establishment and a guarantee of national treatment in Canada. NAFTA also established a Financial Services Committee to supervise implementation of the chapter and deal with any banking issues that arise between the three countries. If differences of interpretation cannot be resolved by the Committee, the NAFTA parties can take the issue to a dispute settlement mechanism.

4.7.2

Foreign Exchange Control Risks

The Canadian dollar is fully convertible. Canada has no restrictions on the movement of funds into or out of the country. Banks, corporations and individuals are able to deal in foreign funds or arrange payments in any currency they choose.

4.7.3

General Financing Availability

The financial markets in Canada are stable, mature, and accessible to everyone. There are two primary methods of financing a business: equity financing and debt financing. Canadian banks have become sensitive to the growing financial needs of franchised operations. Various loan and repayment plans for franchise operations are now offered by Canadian chartered banks. Depending on the need of the franchise or business in question, bank services can also include payroll and cash management services.

4.7.4

Export Financing

There are no US Government programs available for financing American exports to Canada. Neither the ExportImport Bank of the United States (Ex-Im Bank) nor the Overseas Private Investment Corporation (OPIC) maintains programs for the Canadian market. However, the political, economic and commercial systems in Canada are so stable and similar to those in the United States that the lack of government financing should pose virtually no problem to the overwhelming majority of US firms seeking to export to Canada. Private financing should be available from an American firm's own bank in the United States, or from a Canadian bank with branch operations in the United States, under terms similar to those a company would generally find in the US financial markets. Historically, venture capital has not been readily available in Canada, particularly for non-Canadian firms. In the technology sector, however, there recently has been a dramatic increase in the availability of venture capital available

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to start-up companies. Nonetheless, US firms seeking sources of funding are more likely to find success with those efforts in the United States. In general, American exporters will find the financing of exports to Canada in many ways similar to financing of shipments to another state in the US.

4.7.5

Terms of Payment

Although terms vary from one industry to another and among trading channels, US manufacturers exporting to Canada generally give a discount of one or two percent of the invoice if paid within ten days. American firms exporting to department stores tend to offer between eight and ten percent discount for settlement within ten days. Normal precautions in dealing with a first-time customer should be exercised, and safeguards instituted wherever possible, at least until a satisfactory relationship has been established. The many bank branch offices in Canada and the United States should help maintain maximum flexibility for methods of payment, and facilitate the settlement of accounts. The disposition of charges on export collections or letters of credit through normal banking channels should be resolved between the exporter and the buyer at the time of sale. Canadian buyers will often accept these charges, but an unexpected bill may cause irritation and, if there has been no prior consent to the charge, the foreign buyer has the right to refuse to pay. When this happens, banks are entitled to deduct the collection charges from the remittance under the terms of the “Uniform Rules for the Collection of Commercial Paper” developed by the International Chamber of Commerce.

4.7.6

Financing Insurance

US firms exporting to Canada will not find any strong need for government-backed export insurance against exigencies that may typically be found in many third-country markets. Ex-Im Bank is not active in financing US exports to Canada, nor are OPIC programs available in Canada. With proper application of sound business principles, however, American firms should be able rely on commercial banks as they do in the US domestic market and to avoid most of the problems that require extensive export financing insurance.

4.7.7

Financing Projects

Canada does not qualify for project financing from any of the multilateral development banks, such as the World Bank or the Inter-American Bank for Reconstruction and Development. However, commercial banks in Canada and large US banks with a Canadian presence typically fill this need by putting together financing packages for largescale capital projects.

4.8 4.8.1

TRAVEL ISSUES Local Business Practices

Business customs in Canada closely mirror those in the United States. This is not to say, however, that doing business in Canada is exactly the same as doing business in the United States. US business travelers to Canada should be sensitive to cultural and linguistic differences and allow adequate time for the development of personal contacts in business dealings.

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Travel Advisory and Visas

Citizens or legal permanent residents of the United States do not require entry visas and can usually cross the border between the United States and Canada with minimal difficulty or delay. To expedite border crossings, native-born US citizens should carry either a passport, or a birth certificate and photo ID, such as a driver's license. Naturalized American citizens should carry either a passport, or a naturalization certificate as well as a photo ID. Legal permanent residents of the United States are advised to carry their alien registration card. The North American Free Trade Agreement facilitates the movement of US and Canadian business travelers across each country's borders through streamlined procedures. These procedures assure that qualified persons will be permitted entry into Canada on a temporary basis. Individuals wishing to enter Canada under any of the four categories (business visitors, NAFTA professionals, traders and investors, or intra-company transferees) must be US or Mexican citizens. Business travelers and dependents must also satisfy any other admission requirements of the Canadian Immigration Act. For more information on temporary entry of American businesspersons to Canada, Immigration and Citizenship Canada's Web site: http://www.cic.gc.ca/english/index.html, or contact the Canadian Embassy in Washington: Tel: (202) 682-1740 or Fax: (202) 682-7689. American citizens and other visitors to Canada may bring certain personal goods into Canada duty and tax-free provided that all such items are declared to Canada Customs and Revenue upon arrival and are not subject to restriction. The temporary entry of certain types of business materials (e.g., brochures, commercial samples, and audio-visual projection equipment) may either be subject to the full or reduced rate of duty and tax. If the goods are eligible for free entry, a refundable security deposit -- in the form of cash or bond -- may be required. For further information, please contact the Canada Customs and Revenue representative at the Canadian Embassy in Washington.

4.8.3

Transportation Infrastructure

Except in remote areas of the north, Canada possesses an advanced transportation system comparable to that of the United States. An extensive air network links all major, and many minor, traffic points with adequate connections to the United States and the rest of the world. Travel between the United States and Canada has been enhanced with the implementation of the Open Skies Agreement between the two countries. As of July 2003, Air Canada had roughly 75 percent of the domestic market and no major national competition. This situation results in domestic airfares that, on a per-mile basis, are generally higher than fares in the United States. A good highway system, with less emphasis on interstate roads, exists within 200 miles of the US border and supports heavy truck, bus, and automobile traffic. Canada also has an extensive railway system connecting the country from the Atlantic to the Pacific. The Canadian National Railway handles only cargo, while VIA Rail provides passenger service. In addition, all large cities have a public transit system. The operation of public transport is frequently subsidized by provincial and local governments, making most fares reasonable. In spite of extensive public transport arrangements, Canada is as much an “automobile society” as is the United States. Gasoline is sold in liters in Canada, and Canadian safety standards for cars are similar to those in the United States. Left-hand-drive vehicles are standard and traffic moves on the right side of the road. International highway symbols are used in Canada, and distances and speed limits are given in kilometers. Seat belts and infant/child seat restraints are mandatory in all Canadian provinces. Fines are imposed for non-use of seat belts and child restraints.

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Language

American visitors to Canada should pay particular attention to the fact that the country is officially bilingual, with English and French as the national languages. English is the language spoken in the geographical majority of the country and is also the generally accepted language of business. French is spoken primarily in Quebec and is the official language of that province. The province of New Brunswick is bilingual, with the largest French-speaking population outside of Quebec. A recognition that French is the primary language spoken by a large number of Canadians will be greatly beneficial in helping build relationships with Canadian business partners in Quebec and in other French-speaking areas of the country.

4.8.5

Telecommunications

Telecommunications networks are highly sophisticated in Canada and comparable with those of the United States. Canada is integrated with the US direct-dial long-distance telephone system. (Dial one, the area code and the number, just like making a long-distance call in the United States). All forms of communication and transmission are possible, including voice, text, data, and video.

4.8.6

Health and Food

Canada has no special health risks. Standards of community health and sanitation are comparable to those in the United States. Competent doctors, dentists, and specialists of all types are available, and medical training is equivalent to that in the United States. Most food and other consumables available in the United States can be found in Canada. Canadian prices for food and general consumer goods are sometimes higher than US prices, but this may be offset by a favorable USCanadian dollar exchange rate.

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ECONOMIC AND TRADE STATISTICS

Canadian Domestic Economy Indicator Current GDP, in US$ billions (C$ data converted using C$/US$ forex) Real GDP Growth Rate (%) Current GDP Per Capita (US$ thousands) Govt. Spending (percent of GDP) Inflation (percent) Unemployment (percent) Foreign Exchange Reserves (US$ billions) Average Exchange Rate (C$1.00 = US cents) Federal Debt/GDP (percent) US Economic/Military Assistance

2001 715.2

2002 735.5

2003 883.9

1.9 24.0

3.3 25.0

2.1 26.0

21.0 2.6 7.2 34.2

21.2 2.2 7.6 35.7

21.7 3.0 7.6 37.4*

64.58

63.68

73.00

46.5 N/A

44.5 N/A

42.2 N/A

* As at May 31, 2003. Sources: Statistics Canada; FY2002-03 Federal Budget; Consensus Forecasts Note: Converting values from C$ into US$ distorts levels/growth rates/ratios.

Canadian Trade Statistics (Balance of payments basis, in billions of US$) Exchange Rate (C$1 = US cents) Canadian Exports (Goods & Services) Canadian Imports (Goods & Services) Canadian Exports to the US (Goods & Services) US Imports into Canada (Goods & Services) US Share of Canadian Exports of Goods & Services US Share of Canadian Imports of Goods & Services Total Trade with the world (Goods, Services, Transfers and Investment Income) Total Trade with the US (Goods, Services, Transfers and Investment Income)

2001 64.58 304.3 268.4 248.3 190.6 86% 71% 643.5

2002 63.68 298.4 268.9 243.6 188.0 86% 72% 632.3

2003 73.00 311.4 271.2 267.4 195.3 86% 72% 675.9

477.7

465.4

462.6

Sources: Statistics Canada and Private Sector Forecasts for 2003 Projections Note: Converting values from C$ into US$ distorts levels/growth rates/ratios.

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CONTACT INFORMATION U.S. Embassy and Consulates in Canada

Commercial Service Canada's home page address on the Internet is: www.usatrade.gov/canada US Embassy - Ottawa Commercial Service United States Embassy PO Box 866, Station “B” Ottawa, Ontario K1P 5T1 Tel: (613) 688-5217 Fax: (613) 238-5999 Contact: Thomas Lee Boam, Minister Counselor E-mail: [email protected] US Consulate General - Calgary Commercial Services 615 Macleod Trail SE, Suite 1000 Calgary, Alberta T2G 4T8 Tel: (403) 265-2116 Fax: (403) 266-4743 Contact: Michael Speck, Principal Commercial Officer E-mail: [email protected] US Consulate General - Halifax Commercial Services Purdy's Wharf II, Suite 904 - 1969 Upper Water St., Halifax, Nova Scotia B3J 3R7 Tel: (902) 429-2482, ext. 102 Fax: (902) 429-7690 Contact: Richard Vinson, Commercial Specialist (FSN) E-mail: [email protected] US Consulate General - Montreal Commercial Services 1155 St. Alexandre Street Montreal, Quebec H3B 1Z1 Tel: (514) 398-9695 ext. 2260 Fax: (514) 398-0711 Contact: Richard Kanter, Principal Commercial Officer E-mail: [email protected] US Consulate General - Toronto Commercial Services 480 University Avenue, Suite 602 Toronto, Ontario M5G 1V2 Tel: (416) 595-5412, ext. 221 Fax: (416) 595-5419 Contact: Patrick Santillo, Principal Commercial Officer E-mail: [email protected]

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US Consulate General - Vancouver Commercial Services 1095 W. Pender Street, 21st Floor Vancouver, British Columbia V6E 2M6 Tel: (604) 685-3382 ext. 278 Fax: (604) 687-6095 Contact: Robert Jones, Principal Commercial Officer E-mail: [email protected]

4.10.2

US-Canadian Bilateral Business Councils, Chambers of Commerce, and Others

The American Chamber of Commerce in Canada 260 Adelaide Street East, Box 160 Toronto, Ontario M5A 1N1 Tel: 416-738-7714 Website: www.amchamcanada.ca Canadian-American Business Council 1900 K Street NW Washington, DC 20006 Tel: (202) 496-7340 Fax: (202) 496-7756 Internet Web site: www.canambusco.org

4.10.3

Canadian Trade and Industry Associations

Aerospace Industries Association of Canada (AIAC) 60 Queen Street, Suite 1200 Ottawa, Ontario K1P 5Y7 Tel: (613) 232-4297 Fax: (613) 232-1142 Internet Web site: www.aiac.ca Alliance of Manufacturers and Exporters Canada (AMEC) 5995 Avebury Road, Suite 900 Mississauga, Ontario L5R 3P9 Tel: (905) 568-8300 Fax: (905) 568-8330 Internet Web site: www.the-alliance.com

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Automotive Industries Association of Canada 1272 Wellington Street Ottawa, Ontario K1Y 3A7 Tel: (613) 728-5821 Fax: (613) 728-6021 Internet Web site: www.aiacanada.com CATA Alliance (Canadian Advanced Technology Association) 388 Albert Street Ottawa, Ontario K1R 5B2 Tel: (613) 236-6550 Fax: (613) 236-8189 Internet Web site: www.cata.ca Canadian Chamber of Commerce Delta Office Tower 350 Sparks Street, Suite 501 Ottawa, Ontario K1R 7S8 Tel: (613) 238-4000 Fax: (613) 238-7643 Internet Web site: www.chamber.ca The Canadian Association of Importers & Exporters, Inc. 438 University Avenue, Suite 1618 Toronto, Ontario M5G 2K8 Tel: (416) 595-5333 Fax: (416) 595-8226 Internet Web site: www.importers.ca Conference Board of Canada 255 Smyth Road Ottawa, Ontario K1H 8M7 Tel: (613) 526-3280 Fax: (613) 526-4857 Internet Web site: www.conferenceboard.ca Information Technology Association of Canada (ITAC) 2800 Skymark Avenue, Suite 402 Mississauga, Ontario L4W 5A6 Tel: (905) 602-8345 Fax: (905) 602-8346 Internet Web site: www.itac.ca

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Ottawa Board of Trade 130 Albert Street, Suite 910 Ottawa, Ontario K1P 5G4 Tel: (613) 236-3631 Fax: (613) 236-7498 Internet Web site: www.board-of-trade.org OCRI, Ottawa Economic Development 36 Steacie Drive Ottawa, Ontario K2K 2A9 Tel: (613) 592-8160 Fax: (613) 592-8163 Internet Web site: www.ottawaregion.com

4.10.4

Federal Canadian Government Contacts in Canada

Department of Agriculture and Agri-food Canada Sir John Carling Building 930 Carling Avenue Ottawa, Ontario K1A 0C5 Tel: (613) 759-1000 Fax: (613) 759-6726 Internet Web site: www.agr.ca Department of Foreign Affairs and International Trade Lester B. Pearson Building 125 Sussex Drive Ottawa, Ontario K1A 0G2 Tel: (613) 944-4000 Fax: (613) 944-4500 Internet Web site: www.dfait-maeci.gc.ca Industry Canada 235 Queen Street Ottawa, Ontario K1A 0H5 Tel: (613) 944-2010 Fax: (613) 941-1000 Internet Web site: www.ic.gc.ca

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Industry Canada (for federal labeling requirements) Consumer Packaging and Labeling Section Merchandise Standards Division Consumer Products Branch Place du Portage, 22th Floor 50 Victoria Street Hull, Quebec K1A 0C9 Tel: 1-800-348-5358 Fax: (819) 997-0324 Office de la Langue Francaise (Office of the French Language - for Quebec labeling requirements) Public Relations Services 125 Sherbrooke Street West Montreal, Quebec H2X 1X4 Tel: (514) 873-6565 Fax: (514) 873-3488 Internet Website: www.olf.gouv.qc.ca Public Works and Government Services Canada Place du Portage, Phase III 11 Laurier Street Hull, Quebec K1A 0S5 Tel: (819) 997-6363 Internet Web site: www.pwgsc.gc.ca Canada Customs and Revenue Agency Connaught Building 555 Mackenzie Avenue Ottawa, Ontario K1A 0L8 Tel - Taxation inquiries: (613) 957-1382 Tel - Customs inquiries: (613) 991-0566 Internet Web site: www.ccra-adrc.gc.ca Standards Council of Canada 270 Albert Street Suite 200 Ottawa, Ontario K1P 6N7 Telephone: (613) 238-3222 Fax: (613) 569-7808 Internet Web site: www.scc.ca

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Canadian Commercial Banks

Following is the contact information for the “Big Six” Canadian Schedule I Banks: Bank of Montreal 1 First Canadian Place 100 King St. West, P.O. Box 3 Toronto, Ontario M5X 1A3 Tel: (416) 867-5050 Website: www.bmo.com Canadian Imperial Bank of Commerce (CIBC) Commerce Court Toronto, Ontario M5L 1A2 Tel: (416) 980-2211 Website: www.cibc.com Toronto Dominion Bank Toronto Dominion Center 55 King Street W. Toronto, Ontario M5K 1A2 Tel: (416) 982-4900 Website: www.tdcommercialbanking.com Scotiabank Scotia Plaza 44 King Street West Toronto, Ontario M5H 1H1 Tel: (416) 866-6430 Website: www.scotiabank.ca Royal Bank of Canada 200 Bay Street, Main Floor Royal Bank Plaza Toronto, Ontario M5J 2J5 Tel: (416) 974-3940 Website: www.rbc.com National Bank of Canada 50 O'Connor Street Suite 205 Ottawa, Ontario K1P 6L2 Tel: (613) 236-7966 Fax: 613-236-0882 Website: www.nbc.ca

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U.S. Commercial Banks in Canada

Bank of America Canada 200 Front Street West, Suite 2500 Toronto, Ontario M5V 3L2 Tel: (416) 349-4100 Fax: (416) 349-4285 Internet Web site: www.bankamerica.com Bank of America Canada in Quebec 1250 René-Lévesque West, Suite 4335 Montreal, Quebec H3B 4W8 Tel: (514) 938-1600 Fax: (514) 938-1601 Internet Web site: www.bankamerica.com Citibank Canada 123 Front Street West Toronto, ON M5J 2M3 Tel: (416) 947-5500 Internet Web site: www.citibank.ca

4.10.7

U.S. Government Contacts in the United States

Trade Information Center Tel: (800) 872-8723 or (202) 482-0543 Website: www.usatrade.gov US Department of Commerce International Trade Administration Office of International Operations - Western Hemisphere Room 1202 14th and Constitution Avenue, NW Washington, DC 20230 Tel: (202) 482-2736 Fax: (202) 219-9207 Contact: Danny Devito, Regional Director Website: www.ita.doc.gov US Department of Commerce International Trade Administration Office of NAFTA and Inter-American Affairs Room H-3024 14th and Constitution Avenue, NW Washington, DC 20230 Tel: (202) 482-0393 E-mail: [email protected]

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US Department of Agriculture Foreign Agricultural Service 1400 Independence Avenue, SW Washington, DC 20250 Tel: 202-690-0752 Contact: Trade Assistance and Promotion Officer Website: www.fas.usda.gov US Department of State Bureau of Western Hemispheric Affairs 2201 C Street, NW Room 2663 Washington, DC 20520 Tel: (202) 647-7951 Fax: (202) 647-0791 Website: www.state.gov

4.10.8

Canadian Government Contacts in the United States

Embassy of Canada 501 Pennsylvania Avenue, NW Washington, DC 20001-2114 Tel: (202) 682-1740 Fax: (202) 682-7619 Website: www.can-am.gc.ca Canadian Consulate General - Buffalo HSBC Center, Suite 3000 Buffalo, NY 14203-2884 Tel: (716) 858-9500 Fax: (716) 852-4340 Website: www.can-am.gc.ca Canadian Consulate General - Chicago Two Prudential Plaza 180 North Stetson Avenue, Suite 2400 Chicago, IL 60601 Tel: (312) 616-1860 Fax: (312) 616-1877 Website: www.can-am.gc.ca Canadian Consulate General - Detroit 600 Renaissance Center, Suite 1100 Detroit, MI 48243-1798 Tel: (313) 446-4747 Fax: (313) 567-2164 Website: www.can-am.gc.ca

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Canadian Consulate General - Los Angeles 550 South Hope St., 9th Floor Los Angeles, CA 90071-2327 Tel: (213) 346-2700 Fax: (213) 620-8827 Website: www.can-am.gc.ca Canadian Consulate General - New York 1251 Avenue of the Americas New York City, NY 10020-1175 Tel: (212) 596-1628 Fax: (212) 596-1793 Website: www.can-am.gc.ca Canadian Consulate General - Seattle 412 Plaza 600 Building Sixth Avenue and Stewart Street Seattle, WA 98101-1286 Tel: (206) 443-1777 Fax: (206) 443-9662 Website: www.can-am.gc.ca

4.10.9

Newspapers

The Toronto Star One Yonge Street Toronto, Ontario M5E 1E6 Tel: (416) 367-2000; Fax: (416) 869-4328 Website: www.thestar.ca Circulation: 463, 000 daily; 786,000 Saturdays The Globe and Mail 444 Front Street W. Toronto, Ontario M5V 2S9 Tel: (416) 585-5000; Fax: (416) 585-5085 Website: www.theglobeandmail.com Circulation: 330,000 daily The National Post 300 - 1450 Don Mills Road Don Mills, Ontario M3B 3R5 Phone: (416) 383-2300 Fax: (416) 442-2209 Website: www.nationalpost.com Circulation: 309,000 daily

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Le Journal de Montreal Groupe Québécor Inc. 4545, rue Frontenac Montreal, Quebec H2H 2R7 Tel: (514) 521-4545; Fax: (514) 521-2173 Website: www.journaldemontreal.com Circulation: 277,000 daily; 336,000 Saturdays The Toronto Sun Sun Media Corporation 333 King Street East Toronto, Ontario M5A 3X5 Tel: (416) 947-2222; Fax: (416) 947-3119 Website: www.canoe.ca Circulation: 247,000 daily; 430,000 Sundays The Province Pacific Newspaper Group #1, 200 Granville Street Vancouver, B.C. V6H 3G2 Tel: (604) 605-2000; Fax: (604) 605-2308 Website: www.theprovince.com Circulation: 216,000 daily La Presse 7, rue St-Jacques Montreal, Quebec H2Y1k9 Tel: (514) 285-7272; Fax: (514) 285-4816 Website: cyberpresse.ca Circulation: 190,000 daily; 331,000 Saturdays The Ottawa Citizen 1101 Baxter Road PO Box 5020 Ottawa, Ontario K2C 3M4 Tel: (613) 829-9100; Fax: (613) 596-3622 Website: www.ottawacitizen.com Circulation: 152,000 daily; 210,000 Saturdays The Chronicle-Herald and The Mail-Star 1650 Argyle Street Halifax, Nova Scotia B3J 2T2 Tel: (902) 426-2811; Fax: (902) 426-1158 Website: www.herald.ns.ca Circulation: 96,000 daily morning; 45,800 evening daily The Edmonton Sun 250, 4990 - 92 Avenue Edmonton, AB T6B 3A1 Tel: (780) 468-0261; Fax: (780) 468-0139 Website: www.canoe.ca/edmontonsun Circulation: 85,000 daily; 113,000 Sundays

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The Calgary Sun 2615 - 12 Street NE Calgary, AB T2E 7W9 Tel: (403) 250-2000; Fax: (403) 250-4258 Website: www.canoe.ca/calgarysun Circulation: 72,000 daily; 98,000 Sundays

4.10.10

Advertising and Business Publications

Canadian Advertising Rates & Data Rogers Media Publishing One Mount Pleasant Rd Toronto, Ontario M4Y 2Y5 Tel: (416) 596- 5000; Fax: (416) 596-5158 Website: www.cardmedia.com Email: [email protected] Shows and Exhibitions Rogers Media Publishing One Mount Pleasant Rd Toronto, Ontario M4Y 2Y5 Tel: (416) 596-5000; Fax: (416) 596-5158

4.11

MARKET RESEARCH

Market research is available from a wide variety of sources in Canada, including federal and provincial governments, advertising agencies, accounting firms, government relations consultants and market research companies. In Canada, the primary source of federal government statistics is Statistics Canada, which is roughly comparable to the US Bureau of the Census. Statistics Canada collects a wide variety of detailed statistical data on, balance of payments, industrial production, imports and exports, demographics, inflation rates, and wages. As a starting point for collecting detailed market research on specific industry subsectors and emerging business developments in Canada, American companies should contact the nearest US Department of Commerce Export Assistance Center (EAC). To locate the EAC closest to you, please call (800) 872-8723, or check the Web site of the US Commercial Service (www.usatrade.gov). American companies interested in research on the Canadian market can also contact the Commercial Service office at the US Embassy in Ottawa, Canada at Tel: (613) 688-5217 or Fax: (613) 238-5999.

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5 5.1

DISCLAIMERS, WARRANTEES, AGREEMENT PROVISIONS

AND

USER

DISCLAIMERS & SAFE HARBOR

Summary Disclaimer. This publication ("Report") does not constitute legal, valuation, tax, or financial consulting advice. Nor is it a statement on the performance, management capability or future potential (good or bad) of the company(ies), industry(ies), product(s), region(s), city(ies) or country(ies) discussed. It is offered as an information service to clients, associates, and academicians. Those interested in specific guidance for legal, strategic, and/or financial or accounting matters should seek competent professional assistance from their own advisors. Information was furnished to Icon Group International, Inc. ("Icon Group"), and its subsidiaries (Icon Group International, Inc.), by its internal researchers and/or extracted from public filings, or sources available within the public domain, including other information providers (e.g. EDGAR filings, national organizations and international organizations). Icon Group does not promise or warrant that we will obtain information from any particular independent source. Published regularly by Icon Group, this and similar reports provide analysis on cities, countries, industries, and/or foreign and domestic companies which may or may not be publicly traded. Icon Group reports are used by various companies and persons including consulting firms, investment officers, pension fund managers, registered representatives, and other financial service professionals. Any commentary, observations or discussion by Icon Group about a country, city, region, industry or company does not constitute a recommendation to buy or sell company shares or make investment decisions. Further, the financial condition or outlook for each industry, city, country, or company may change after the date of the publication, and Icon Group does not warrant, promise or represent that it will provide report users with notice of that change, nor will Icon Group promise updates on the information presented. Safe Harbor for Forward-Looking Statements. Icon Group reports, including the present report, make numerous forward-looking statements which should be treated as such. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Reform Act of 1995, and similar local laws. Forward-looking statements involve known and unknown risks and uncertainties, which may cause a company's, city's, country's or industry's actual results or outlook in future periods to differ materially from those forecasted. These risks and uncertainties include, among other things, product price volatility, exchange rate volatility, regulation volatility, product demand volatility, data inaccuracies, computer- or software-generated calculation inaccuracies, market competition, changes in management style, changes in corporate strategy, and risks inherent in international and corporate operations. Forward-looking statements can be identified in statements by the fact that they do not relate strictly to historical or current facts. They use words such as "anticipate,'' "estimate," "expect,'' "project,'' "intend,'' "plan,'' "feel", "think", "hear," "guess," "forecast," "believe," and other words and terms of similar meaning in connection with any discussion of future operating, economic or financial performance. This equally applies to all statements relating to an industry, city, country, region, economic variable, or company financial situation. Icon Group recommends that the reader follow the advice of Nancy M. Smith, Director of SEC's Office of Investor Education and Assistance, who has been quoted to say, "Never, ever, make an investment based solely on what you read in an online newsletter or Internet bulletin board, especially if the investment involves a small, thinly-traded company that isn't well known … Assume that the information about these companies is not trustworthy unless you can prove otherwise through your own independent research." Similar recommendations apply to decisions relating to industry studies, product category studies, corporate strategies discussions and country evaluations. In the case of Icon Group reports, many factors can affect the actual outcome of the period discussed, including exchange rate volatility, changes in accounting standards, the lack of oversight or comparability in accounting standards, changes in economic conditions, changes in competition, changes in the global economy, changes in source data quality, changes in reported data quality, changes in methodology and similar factors. Information Accuracy. Although the statements in this report are derived from or based upon various information sources and/or econometric models that Icon Group believes to be reliable, we do not guarantee their accuracy, reliability, quality, and any such information, or resulting analyses, may be incomplete, rounded, inaccurate or condensed. All estimates included in this report are subject to change without notice. This report is for informational purposes only and is not intended as a recommendation to invest in a city, country, industry or product area, or an offer or solicitation with respect to the purchase or sale of a security, stock, or financial instrument. This report does not take into account the investment

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objectives, financial situation or particular needs of any particular person or legal entity. With respect to any specific company, city, country, region, or industry that might be discussed in this report, investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the information in this report. Investing in either U.S. or non-U.S. securities or markets entails inherent risks. In addition, exchange rate movements may have an effect on the reliability of the estimates provided in this report. Icon Group is not a registered Investment Adviser or a Broker/Dealer.

5.2

ICON GROUP INTERNATIONAL, INC. USER AGREEMENT PROVISIONS

Ownership. User agrees that Icon Group International, Inc. ("Icon Group") and its subsidiaries (Icon Group International, Inc.) retains all rights, title and interests, including copyright and other proprietary rights, in this report and all material, including but not limited to text, images, and other multimedia data, provided or made available as part of this report ("Report"). Restrictions on Use. User agrees that it will not copy nor license, sell, transfer, make available or otherwise distribute the Report to any entity or person, except that User may (a) make available to its employees electronic copies of Report, (b) allow its employees to store, manipulate, and reformat Report, and (c) allow its employees to make paper copies of Report, provided that such electronic and paper copies are used solely internally and are not distributed to any third parties. In all cases the User agrees to fully inform and distribute to other internal users all discussions covering the methodology of this Report and the disclaimers and caveats associated with this Report. User shall use its best efforts to stop any unauthorized copying or distribution immediately after such unauthorized use becomes known. The provisions of this paragraph are for the benefit of Icon Group and its information resellers, each of which shall have the right to enforce its rights hereunder directly and on its own behalf. No Warranty. The Report is provided on an "AS IS" basis. ICON GROUP DISCLAIMS ANY AND ALL WARRANTIES, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, RELATING TO THIS AGREEMENT, PERFORMANCE UNDER THIS AGREEMENT, THE REPORT. Icon Group makes no warranties regarding the completeness, accuracy or availability of the Report. Limitation of Liability. In no event shall Icon Group, its employees or its agent, resellers and distributors be liable to User or any other person or entity for any direct, indirect, special, exemplary, punitive, or consequential damages, including lost profits, based on breach of warranty, contract, negligence, strict liability or otherwise, arising from the use of the report or under this Agreement or any performance under this Agreement, whether or not they or it had any knowledge, actual or constructive, that such damages might be incurred. Indemnification. User shall indemnify and hold harmless Icon Group and its resellers, distributors and information providers against any claim, damages, loss, liability or expense arising out of User's use of the Report in any way contrary to this Agreement. © Icon Group International, Inc., 2004. All rights reserved. Any unauthorized use, duplication or disclosure is prohibited by law and will result in prosecution. Text, graphics, and HTML or other computer code are protected by U.S. and International Copyright Laws, and may not be copied, reprinted, published, translated, hosted, or otherwise distributed by any means without explicit permission. Permission is granted to quote small portions of this report with proper attribution. Media quotations with source attributions are encouraged. Reporters requesting additional information or editorial comments should contact Icon Group via email at [email protected]. Sources: This report was prepared from a variety of sources including excerpts from documents and official reports or databases published by the World Bank, the U.S. Department of Commerce, the U.S. State Department, various national agencies, the International Monetary Fund, the Central Intelligence Agency, and Icon Group International, Inc.

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END

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