I'm asked to do balance sheet, projected balance sheet and statement of earnings. I'm also asked to do an analysis of the case

Many projects completed by Oakville Hydro required some type of underground construction. For instance, underground power lines needed ditches dug, and vertical structures, such as street lights. Prior to 2006, this construction was outsourced because Oakville Hydro did not possess the necessary skilled labour and equipment. In 2006, Oakville Hydro management recognized the potential to lower costs by eliminating the outsourcing of construction and created its own construction company for underground work: El-Con, a wholly owned subsidiary of Oakville Hydro. EL-CON Services and Management El-Con was classified as a full-service underground utility construction company, providing construction and locating services. Its construction division specialized in excavation, horizontal drilling and wire installation. A typical project for its locating division involved locating underground gas lines, pipes and cables. Although El-Con's primary goal was to tend to the construction needs of Oakville Hydro, the parent company also expected it to secure and service external clients. Currently, El-Con targeted other electricity companies, gas utilities, telecommunication companies and any private property owners maintaining an underground infrastructure. El-Con employed 25 unionized workers and was, therefore, considered a medium-sized firm. There were two noteworthy items in the collective agreement between the union and management. First, managers had the flexibility to request employees to perform various tasks based on business needs and were not required to restrict their employees to work defined by their job titles. This arrangement meant that if an idle employee was capable of performing a needed task, the idle worker was required to do that task, regardless of job title. Second, employees' wage rates had been negotiated on the lower end of the industry scale but were complemented with a generous benefits package. A lower base wage helped El- Con to manage its costs and, ultimately, allowed it to offer lower prices. The major point of difference between El-Con and its competitors was that El-Con had the support of a large parent company. This relationship gave El-Con access to Oakville Hydro's buying power and support services, including human resources, finance, engineering and information technology. As a result, El-Con was one of the few companies in the area that could provide engineering and construction services. This capability enabled El-Con to assist clients during the planning phase of their projects. El- Con also benefited from stable revenues by servicing its parent company. A Competitive Bidding System The underground utility construction market in the region of Halton was relatively small compared to the entire construction industry, and the region experienced stable levels of competition. All contracts were awarded through a bidding system in which El-Con and its five main competitors quoted prices for the project. Typically, the firm that quoted the lowest price for the project would win the contract. This bidding system did not favour El-Con, a company that was committed to quality and safety but was not necessarily at the lowest price point. Although customers claimed to value a company's safety record, this feature rarely superseded the price quoted in the bidding process. 2 The Halton Region was composed of the City of Burlington, the Town of Halton Hills, the Town of Milton and the Town of Oakville. 161 Page 3 9B11N025 Economic Impact As a construction company, El-Con was heavily influenced by the Canadian economy. In 2009, the Canadian economy was struggling as its gross domestic product (GDP) decreased by 2.46 per cent, and 8.26 per cent of the labour force was unemployed. During this weak economic time, most businesses reduced their major capital expenditure plans and delayed other projects. For El-Con, this situation meant fewer opportunities to secure external contracts for locating services or construction work. The internal revenue coming from Oakville Hydro was strongly correlated to the Ontario housing market because each new housing division required the setup of an electrical infrastructure. Unfortunately for both Oakville Hydro and El-Con, the number of new housing starts in Ontario had dropped dramatically from 75,076 in 2008 to 50,370 in 2009. New housing starts were projected to recover in 2010 to 60,700. Many projects completed by Oakville Hydro required some type of underground construction. For instance, underground power lines needed ditches dug, and vertical structures, such as street lights. Prior to 2006, this construction was outsourced because Oakville Hydro did not possess the necessary skilled labour and equipment. In 2006, Oakville Hydro management recognized the potential to lower costs by eliminating the outsourcing of construction and created its own construction company for underground work: El-Con, a wholly owned subsidiary of Oakville Hydro. EL-CON Services and Management El-Con was classified as a full-service underground utility construction company, providing construction and locating services. Its construction division specialized in excavation, horizontal drilling and wire installation. A typical project for its locating division involved locating underground gas lines, pipes and cables. Although El-Con's primary goal was to tend to the construction needs of Oakville Hydro, the parent company also expected it to secure and service external clients. Currently, El-Con targeted other electricity companies, gas utilities, telecommunication companies and any private property owners maintaining an underground infrastructure. El-Con employed 25 unionized workers and was, therefore, considered a medium-sized firm. There were two noteworthy items in the collective agreement between the union and management. First, managers had the flexibility to request employees to perform various tasks based on business needs and were not required to restrict their employees to work defined by their job titles. This arrangement meant that if an idle employee was capable of performing a needed task, the idle worker was required to do that task, regardless of job title. Second, employees' wage rates had been negotiated on the lower end of the industry scale but were complemented with a generous benefits package. A lower base wage helped El- Con to manage its costs and, ultimately, allowed it to offer lower prices. The major point of difference between El-Con and its competitors was that El-Con had the support of a large parent company. This relationship gave El-Con access to Oakville Hydro's buying power and support services, including human resources, finance, engineering and information technology. As a result, El-Con was one of the few companies in the area that could provide engineering and construction services. This capability enabled El-Con to assist clients during the planning phase of their projects. El- Con also benefited from stable revenues by servicing its parent company. A Competitive Bidding System The underground utility construction market in the region of Halton was relatively small compared to the entire construction industry, and the region experienced stable levels of competition. All contracts were awarded through a bidding system in which El-Con and its five main competitors quoted prices for the project. Typically, the firm that quoted the lowest price for the project would win the contract. This bidding system did not favour El-Con, a company that was committed to quality and safety but was not necessarily at the lowest price point. Although customers claimed to value a company's safety record, this feature rarely superseded the price quoted in the bidding process. 2 The Halton Region was composed of the City of Burlington, the Town of Halton Hills, the Town of Milton and the Town of Oakville. 161 Page 3 9B11N025 Economic Impact As a construction company, El-Con was heavily influenced by the Canadian economy. In 2009, the Canadian economy was struggling as its gross domestic product (GDP) decreased by 2.46 per cent, and 8.26 per cent of the labour force was unemployed. During this weak economic time, most businesses reduced their major capital expenditure plans and delayed other projects. For El-Con, this situation meant fewer opportunities to secure external contracts for locating services or construction work. The internal revenue coming from Oakville Hydro was strongly correlated to the Ontario housing market because each new housing division required the setup of an electrical infrastructure. Unfortunately for both Oakville Hydro and El-Con, the number of new housing starts in Ontario had dropped dramatically from 75,076 in 2008 to 50,370 in 2009. New housing starts were projected to recover in 2010 to 60,700