ARCHIVED - Financial Statement Discussion and Analysis
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Table of contents
- Discussion and Analysis
The following Financial Statement Discussion and Analysis (FSD&A) should be read in conjunction with the audited consolidated financial statements and accompanying notes for the National Research Council of Canada (NRC) for the fiscal year ended March 31, 2012.
The responsibility for the preparation of the FSD&A rests with the management of NRC. It has been prepared in accordance with the Public Sector Statement of Recommended Practice SORP-1.
The purpose of the FSD&A is to highlight information and provide explanations which enhance the users' understanding of NRC's financial position and results of operations, while demonstrating NRC's accountability for its resources. Additional information on NRC's performance is available in the NRC Departmental Performance Report (DPR).
The FSD&A consists of two distinct segments: Highlights, and Discussion and Analysis. Please note that all financial information presented herein is denominated in Canadian dollars, unless otherwise indicated.
Special note regarding forward-looking statements
The words "estimate", "will", "intend", "should", "anticipate", and similar expressions are intended to identify forward-looking statements. These statements reflect assumptions and expectations of NRC, based on its experience and perceptions of trends and current conditions. Although NRC believes the expectations reflected in such forward-looking statements are reasonable, they may prove to be inaccurate, and consequently NRC's actual results could differ materially from expectations set out in this FSD&A. In particular, the risk factors described in the "Risks and Uncertainties" section of this report could cause actual results or events to differ materially from those contemplated in forward-looking statements.
The National Research Council (NRC) was established by the National Research Council Act. The mission of NRC is to work with clients and partners to provide strategic research, scientific and technical services to develop and deploy solutions to meet Canada's current and future industrial and societal needs.
NRC's budget is allocated through appropriations approved by Parliament, and some of NRC's operations are funded through revenue generated from external parties. NRC has separate voted appropriations for Operating expenditures, Capital expenditures and Grants and contributions, as well as statutory authority for spending of revenues (pursuant to paragraph 5 (1) e of the National Research Council Act), Contributions to employee benefit plans, Spending proceeds from the disposal of surplus Crown assets, Collection agency fees and Losses on foreign exchange.
Appropriations provided to NRC do not parallel financial reporting according to Canadian public sector accounting standards since appropriations are primarily based on cash accounting principles. Consequently, items recognized in the Consolidated Statement of Operations and the Consolidated Statement of Financial Position are not necessarily the same as those provided through appropriations from Parliament. Note 3 of the consolidated financial statements provides a reconciliation between the bases of reporting.
These consolidated financial statements include a portion of the accounts of the Canada-France-Hawaii Telescope Corporation (CFHT). In 2011-12, NRC determined that its relationship with CFHT constituted a government partnership for accounting purposes and should be proportionately consolidated in NRC's financial statements. Further details are described in Note 2b and 4b of NRC's consolidated financial statements.
Restatement of 2010-11 Figures
During 2011-12, amendments were made to Treasury Board Accounting Standard 1.2 - Departmental and Agency Financial Statements. This standard is the primary source of accounting guidance used by Government of Canada departments and agencies when preparing departmental financial statements. Notable changes under the new standard include government funding and transfers being shown on the Statement of Operations and Departmental Net Financial Position, as well as a "Planned Results" column used as comparables. The Consolidated Statement of Financial Position has also been changed to now include the Departmental net debt position. The Statement of Equity has been removed and a Statement of Change in Net Debt added. To comply with the new standard, certain comparative figures from 2010-11 have been restated as detailed in Note 4 of NRC's consolidated financial statements. Variances described in this document refer to the restated figures.
2010-11 figures were also restated to take into account the proportionate consolidation of CFHT described above.
Consolidated Statement of Financial Position
NRC's financial position, as shown by the Departmental net financial position line, has improved from $514.8 million as at March 31, 2011 to $525.2 million as at March 31, 2012. NRC's total net liabilities as of March 31, 2012 were $267.1 million in 2012, a decrease of $44 million from 2011, while net financial assets totalled $216.3 million, a decrease of $9.2 million from 2011. A decrease in Tangible capital assets is the primary reason for a $24.4 million decrease in non-financial assets as at March 31, 2012.
NRC's departmental net debt represents NRC's total Net Liabilities, less its Total Net Financial Assets - a measure of future income required to pay for past transactions and events. It decreased by $34.8 million, from $85.6 million in 2010-11 to $50.8 million in 2011-12.
Detailed explanation and analysis of liability and asset balances can be found in the Variance and Trend Analysis section.
Consolidated Statement of Operations and Departmental Net Financial Position
NRC's 2011-12 net cost from continuing operations was $676.7 million, a significant decrease from $832.0 million in 2010-11. While revenue increased slightly by $2.8 million to $170.9 million, expenses decreased by $152.4 million to $847.6 million. Grants and contributions expenses decreased by $141.7 million, mainly related to industrial research assistance provided by NRC. NRC's $10.4 million surplus from operations after government funding and transfers ($25.6 million surplus in 2010-11) resulted in an increase in its Departmental net financial position from $514.8 million to $525.2 million.
The following chart illustrates NRC's total expenses categorized by major expense over the past two fiscal years:
Accessible version of NRC’s total expenses categorized by major expense, over the past two fiscal years.
|Personnel||Operations||Grants and Contributions||Total|
For further details and analysis of revenue and expense amounts and variances, refer to the section Variance and Trend Analysis below.
Consolidated Statement of Cash Flow
The net cash provided by the Government of Canada in 2011-12 was $657.9 million ($825.1 million in 2010-11). Cash used in operating activities declined by $149.8 million and there was a $17.6 million decrease in cash used in capital investing activities.
Parliamentary authorities are primarily based on cash accounting principles. They are shown in Note 3 of the NRC consolidated financial statements.
The following chart illustrates NRC's voted parliamentary authorities over the past three fiscal years, including the Main Estimates, the Supplementary Estimates, Transfers, Adjustments and Warrants. Statutory amounts (Spending of revenues pursuant to paragraph 5 (1) e of the National Research Council Act, Contributions to employee benefit plans, Spending proceeds from the disposal of surplus Crown assets, Collection agency fees and Losses on foreign exchange) are shown within "Actual Spending by Source".
Accessible version of NRC's voted parliamentary authorities over the past three fiscal years, including the Main Estimates, the Supplementary Estimates, Transfers, Adjustments and Warrants. Statutory amounts.
|Empty cell: for position only||Empty cell: for position only||Operating Expenditure Authorities||Capital Expenditure Authorities||Grants and Contributions Authorities||Statutory Revenue||Other Statutory Amounts||Financial Arrangement with OGD||Specified Purpose Account||Total Voted||Total Authorities||Total Spent|
|2011-12||Voted Parliametary Authorities||405.7||42.3||165.3||No data||No data||No data||No data||613.3||No data||No data|
|Use of Funds by Source||404.2||35.3||148.0||50.2||60.8||62.6||22.5||587.5||698.5||783.6|
|2010-11||Voted Parliametary Authorities||427.9||53.2||294.9||No data||No data||No data||No data||776.0||No data||No data|
|Use of Funds by Source||423.5||49.7||290.9||74.9||64.3||56.9||20.9||764.1||903.3||981.1|
|2009-10||Voted Parliametary Authorities||438.6||52.6||274.6||No data||No data||No data||No data||765.8||No data||No data|
|Use of Funds by Source||430.5||51.2||271.0||109.0||68.4||68.6||16.5||752.7||931.0||1016.1|
- Total Voted Parliamentary Authorities: NRC is provided with Parliamentary Authorities in three Votes: Vote 60 - Operating expenditures, Vote 65 - Capital expenditures, and Vote 70 - Grants and contributions.
- Total Authorities Used: The total authorities used during the year (and shown in Note 3 of NRC's consolidated financial statements). These include voted authorities and statutory authorities.
- Total Funds Spent: All authorities, as well as NRC spending of funds from Other Government Departments and Specified Purpose Accounts.
In 2011-12, available parliamentary authorities decreased by $162.7 million, from $776.0 million in 2010-11 to $613.3 million, primarily due to the sunsetting of funding received under Canada's Economic Action Plan (EAP). Available Parliamentary Authorities in both 2009-10 and 2010-11 are significantly higher than 2011-12, reflecting EAP funding.
NRC's actual use of funds applied to Voted parliamentary authorities totalled $587.5 million. In addition, NRC had $60.8 of Other statutory authorities and $135.4 million of revenue funded expenditures.
NRC is shifting more support toward Canadian businesses, to assist them to develop innovative products and services. This is a change that NRC believes will make the organization a much more attractive and valuable partner to industry, and enable it to make a much larger contribution to innovation in Canada.
As outlined in the 2012 federal budget, NRC will strengthen its market-driven business models to understand and address real industry issues in a timely manner, such as increasing innovation capacity, reducing risk in early stage technology development, and facilitating the development and deployment of innovative products, processes and services for targeted markets.
Much of 2011-12 was focused on defining, planning and setting the foundations for NRC's new organizational structure. NRC is moving from a technology-push approach, to one that is much more business-like, focused on market-driven innovation outcomes and benefits to Canada. The value to industry will be powered by strong business-like management, a sound financial system, and an increased focus on the needs of industry clients.
NRC also reviewed its vision and mission. Once fully in force, NRC's vision is to be the most effective research and technology organization in the world, stimulating sustainable domestic prosperity. Working with clients and partners, NRC's mission is to focus on the innovation services, strategic research, scientific and technical services to develop and deploy solutions to meet Canada's current and future industrial and societal needs.
This brings greater strategic and market focus to the research, technology development and innovation work NRC does with industry and the public sector; to create greater short-term impact and contribute to Canada's long-term sustainable prosperity.
Discussion and Analysis
NRC funds the majority of its salary, operating and capital expenditures from parliamentary appropriations. The non-salary portion of this funding is fixed, with no indexing for price increases. As a result, the actual funding for NRC, in terms of buying power, has been declining over the past decade. Furthermore, when excluding the effect of funds received through Canada's Economic Action Plan in 2010-11 and 2009-10, NRC's parliamentary appropriations have decreased yearly since 2006-07.
NRC owns and manages 182 specialized buildings and facilities across Canada that comprise approximately 556,000 square meters of space. It also has an equipment and informatics base (excluding CFHT assets) of $607.7 million in cost, with $173.8 million in net book value ($615.1 million in cost, with $188.2 million in net book value in 2010-11). NRC's capacity to fund the upgrade or replacement of these assets from its appropriations is limited. However, through its 5 year investment plan, NRC is investing funds to maintain its buildings and laboratories.
Sunsetting Funding: For certain new initiatives, it is the practice of the government to provide funding on a sunsetting basis. Rather than providing a permanent increase to appropriations, the government may allocate funding for specified purposes for a limited period of time with the option for renewal. Renewal is conditional on various factors, including performance, achieving desired objectives, linkages to priorities, and availability of funds.
Although NRC funding is not necessarily provided on an ongoing basis, new government-approved initiatives often entail ongoing commitments from NRC such as maintenance of new facilities and new staff salaries. There may be stakeholders that support these new initiatives, and in some cases invest in them, with expectations that the initiative will exist beyond the original funding window. These challenges add complexity to planning, budgeting and operations.
Currently, NRC has numerous initiatives and projects funded on a sunsetting basis, examples of which include the following:
- The Genomics R&D Initiatives (GRDI) is a federal program that coordinates genomics R&D in 6 federal departments and agencies to support their mandates, public policy objectives and key national interest in human health, agriculture and food safety, environment and natural resources management. NRC will receive funding of $8.8 million in each of 2012-13 and 2013-14 for this initiative.
Foreign Currency: In its normal course of operation, NRC makes some purchases in foreign currencies, which expose it to an element of risk due to fluctuations in foreign exchange. NRC purchased C$48 million worth of goods and services in foreign currencies in 2011-12 (C$43.1 million in 2010-11). 94% of these foreign currency purchases were in US dollars (94% in 2010-11). During 2011-12, it cost NRC an average of $0.998 Canadian dollars to purchase $1 US ($1.014 in 2010-11). In addition, NRC had C$29.3 million worth of foreign currency receipts in 2011-12, of which $28.7 million (98%) was received in US currency, compared to $37.3 million out of $38 million (98%) received in 2010-11. These figures exclude CFHT-related amounts.
Revenue: NRC activities generate revenues which can be reinvested in operations. NRC has increased its external sources of funding over the past years. The portion of NRC's salary, operating and capital expenditures funded from external sources of income reached 21% in 2011-12.
NRC's Centre for Surface Transportation Technology (NRC-CSTT) and NRC's Canadian Hydraulics Centre (NRC-CHC) rely primarily on external sources of revenue to fund their operations. In addition, NRC's largest institute - NRC's Institute for Aerospace Research (NRC-IAR) - generates external revenue to fund 57% of its operations. Significant downturns in the industries or government partners that these groups deal with could impact NRC's ability to continue operations at current levels.
As part of its organizational strategy, NRC is looking to further increase external revenue in future years.
Shared Services Canada
Effective November 15, 2011, NRC transferred responsibility for its email, data centre and network services and support to Shared Services Canada (SSC) in accordance with an Order-in-Council described in Note 16 of NRC's consolidated financial statements. Net liabilities of $2 million were transferred to SSC and are not included within NRC's Consolidated Statement of Financial Position. NRC continued to administer the transferred activities on behalf of SSC for the remainder of the fiscal year. During the transition period, $8.7 million of expenses were incurred on behalf of SSC, and were transferred to SSC at year-end. These expenses are included in NRC's Consolidated Statement of Operations and Departmental Net Financial Position as shown in Note 15a (Common services provided without charge by other government departments and agencies).
Variance and Trend Analysis
The following analysis explains the meaning of main items appearing on the consolidated financial statements, significant variances, and financial trends.
NRC's total net liabilities were $267.1 million as at March 31, 2012, consisting of $269.2 million of gross liabilities, of which $2.1 million are accounts payable and accrued liabilities held on behalf of government. Net liabilities decreased by $44.0 million from the prior year balance of $311.1 million. NRC's gross liabilities consist of the following:
Accounts Payable and Accrued Liabilities: NRC's accounts payable and accrued liabilities as at March 31, 2012 were $104.9 million ($139.4 million as at March 31, 2011). The $34.5 million decrease is mainly due to a $34.3 million decrease in payables to suppliers and contributions payable as well as an $8.8 million decrease in payables to other government departments, partially offset by an $8.3 million increase in accrued wages and employee benefits. Accounts payable and accrued liabilities are broken down in Note 5 of the consolidated financial statements. The following graph shows the three largest categories.
Accessible version of NRC's accounts payable and accrued liabilities showing the three largest categories.
|Suppliers and contribution recipients||$74.3||$108.6|
|Payables to other Federal Government departments and agencies||$12.4||$21.3|
|Accrued salaries, wages and employee benefits||$16.6||$8.2|
The $34.3 million decrease in payables to suppliers and contribution recipients is the result of a decrease in the amount of purchases toward the end of the fiscal year when compared to the previous year. The $8.9 million decrease in payables to other federal government departments and agencies is caused by a reduction in the amount owed to Treasury Board by NRC related to employee benefit plans (EBP).
The $8.4 million increase in Accrued salaries, wages and employee benefits was mainly the result of a $4.1 million increase in the termination benefits accrual, and recognizing $3.9 million in retroactive pay from anticipated collective bargaining settlements.
Also included within Accounts Payable and Accrued Liabilities are contaminated site liabilities which increased by $557 thousand. As disclosed in Note 14a of the consolidated financial statements, a new site liability was established in 2011-12 for remediation work expected.
Vacation Pay and Compensatory Leave: Vacation pay and compensatory leave liabilities have decreased in each of the past three fiscal years, to total $35.1 million at March 31, 2012 - a $3.6 million decrease from 2010-11. The decrease is a result of additional restrictions imposed on carry-over conditions in recent collective bargaining agreements and management oversight activities taken to manage outstanding vacation liabilities.
Accessible version of Vacation Pay and Compensatory Leave.
|Vacation Pay and Compensatory Leave||$ 49.1||$ 43.2||$ 38.7||$ 35.1|
Deferred Revenue: Deferred revenue totalled $60.7 million as at March 31, 2012, compared to $63.8 million in 2011, and is broken down in Note 6 of the consolidated financial statements. The two main categories of deferred revenue are as follows:
Deferred revenue for contributions related to leased tangible capital assets result from tangible capital assets provided to NRC under three lease agreements with monetary consideration below fair market value. These leases of facilities were established at nominal cost with the University of Western Ontario to accommodate NRC's Industrial Materials Institute (NRC-IMI) and NRC's Institute for Research Construction (NRC-IRC), the University of Alberta to accommodate NRC's National Institute for Nanotechnology (NRC-NINT), and the University of Prince Edward Island to accommodate NRC's Institute for Marine Biosciences (NRC-IMB).
When new capital leases are recognized, NRC establishes a non-financial tangible capital asset as well as corresponding deferred revenue equal to the fair market value of the capital lease. Over time and as the asset is used, NRC recognizes equal amounts of amortization and revenue (lease inducement revenue). As a result, no impact occurs on NRC's net cost of operations or its net financial position. As at March 31, 2012, the balance of the liability was $45.5 million ($48 million as at March 31, 2011). The balance decreased by $2.5 million in the current year, representing the revenue recognized in the year.
NRC had other deferred revenues related to goods and services and joint projects of $15.1 million as at March 31, 2012 ($15.7 million as at March 31, 2011). This balance includes $7.7 million related to collaborative research projects ($8.9 million in 2010-11) and $2.1 million related to projects under NRC's Canadian Construction Materials Centre ($1.8 million in 2010-11). Funds for these two types of projects are generally received prior to work commencing and revenue is recognized as services are provided.
$1.7 million of the balance relates to funds received for construction of a facility for the Hitachi Electron Microscopy Product Centre (HEMIC) ($1.7 million as at March 31 2011), a collaboration involving NRC-NINT. The revenue will be recognized over the life of the collaboration, beginning when the facility is put into use in 2012-13.
Lastly, $2 million of the balance comes from deferred conference and seminar registration fees received for events that have not yet occurred ($1.2 million as at March 31, 2011). NRC conducts many conferences and seminars which often require registration many months in advance of the conference date. Receipts from registration are recorded as deferred and recognized when the conference takes place.
Accessible version of other deferred revenues related to goods and services and joint projects.
|Contributions related to leased tangible capital assets||$45.5||$48.0|
|Goods and Services and Joint Projects / CFHT||$15.2||$15.8|
Employee Future Benefits: Employee future benefits represent the liability for severance benefits payable to employees upon termination of employment with the public service. The allowance is established at year end by applying an actuarial rate to total annual salary cost of NRC's indeterminate employees. This rate is determined by Treasury Board based on the liability for the government as a whole.
A change to employment conditions for executives and certain non-represented employees has resulted in the cessation of accumulation of their severance benefits beginning in 2012. Some of these employees have elected to have their benefits accumulated to date partially or fully paid out, reducing NRC's total liability. This, as well as a decrease in salary expense for NRC's continuing workforce, explains the $2.8 million decrease in employee future benefits.
Due from Consolidated Revenue Fund (CRF): This account represents the amount of cash that NRC is entitled to withdraw from the federal government treasury. This includes cash to discharge liabilities for which NRC has already received an appropriation, as well as revenue received but not spent. NRC's due from CRF was $183.8 million as at March 31, 2012, down from $197.3 million as at March 31, 2011. Changes in the composition of the balance include a $42 million decrease in accounts payable eligible for payment from the CRF and a $20.1 million decrease in specified purpose account deferred revenue, partially offset by a $48.4 million increase in revenue available for use in subsequent years.
Accounts Receivable: Accounts receivable and advances totalled $28.9 million as at March 31, 2012, a $3 million increase from 2011. Details can be found in Note 9 to the consolidated financial statements.
- : The graph below shows the aged accounts receivable from external parties, other government departments, and employee advances, but does not include repayable contributions under the NRC-IRAP Technology Partnerships Canada (TPC) program, which are shown separately. In 2011-12, 94% (92% in 2010-11) of accounts receivable were aged 90 days or below indicating that operating receivables are collected in a timely manner.
Accessible version of the aged accounts receivable from external parties, other government departments, and employee advances.
The NRC-IRAP Technology Partnerships Canada (TPC) program has been administered by NRC on behalf of Industry Canada since 1998. This program provides conditionally repayable contributions to small and medium-sized enterprises (SMEs) to support the pre-commercialization phase of their technology development. This conditional repayment program, in most cases, requires quarterly repayments of the contribution based on a percentage of the recipient's gross revenue once certain conditions are met. Although no new contributions have been made since 2008-09, the wind down phase requires the collection of the repayable contributions over the next several years as per repayable contribution agreements in place and conditions therein.
The TPC program supports small start-up firms, whose future success is often entirely dependent on one technology. Failure to bring the technology to market, at times, can result in the firm ceasing operations. The TPC accounts receivable as at March 31, 2012 was $6.9 million ($7.8 million in 2011) with a corresponding allowance for doubtful accounts of $4.8 million ($5.7 million in 2011). The large allowance, as well as the fact that a majority of TPC receivables are aged greater than 180 days (see graph below), highlight the collection risk of the program. The portion of the TPC program administered by NRC is being transferred back to Industry Canada in 2012-13.
Accessible version of the Aged Repayable Contriburtions - IRAP-TCP
Cash and Investments: This line item includes Cash and investments held by CFHT, as well as Equity Investments held by NRC. It is broken down in Note 10 of the consolidated financial statements. CFHT Investments include time certificates of deposit and U.S. government securities.
As part of its mandate to promote industrial innovation in Canada, NRC provides financial assistance to firms through access to equipment, intellectual property and incubation space in its laboratories and Industrial Partnership Facilities. NRC has on occasion taken an equity position in a company in return for assistance provided. NRC divests of equity investments by taking into account the interests and market liquidity of the company involved.
The full value of equity investments recorded on the Consolidated Statement of Financial Position reflects NRC's investment in publicly traded companies as its shares in privately held corporations are deemed to have no market value. NRC's equity investments decreased from $472 thousand to $344 thousand in 2011-12 as a result of write-down in the book value of NRC's shares in two public companies. NRC also sold shares in a private company, realizing a gain of $354.
The following table provides an overview of NRC's 2011-12 equity holdings and disposal transactions.
|Company||Opening Balance ($)||Book value of equity investments acquired, sold or written off during the year ($)||Closing balance ($)||Market value of publicly traded equity investments ($)||Proceeds from sale of equity investments ($)||Gain on sale of quity investments ($)|
|Privately held Corporations||2||(1)||1||n/a||355||354|
|Cequence Energy Ltd.||1||-||1||14,685||-||-|
NRC intends to eventually liquidate the remaining equity positions.
Prepaid Expenses: NRC's prepaid expenses as at March 31, 2012 were $11.7 million ($11.5 million as at March 31, 2011). Subscriptions make up the largest component of NRC's prepaid expenses. Canada's science library subscribes to many of the world's major scientific and technical journals and databases.
Accessible version of NRC's prepaid expenses as at March 31, 2012
|Subscriptions (4,6)||Payment in lieu of taxes (2,0)||Maintenance and licences (1,7)||Utilities, materials & supplies (1,0)||Other (1,0)||Professional Services (0,7)||Travel (7,0)|
Endowment Fund Investments: The Holmes Endowment Fund is an investment bequeathed to NRC in July 1994. Up to two-thirds of the endowment fund's yearly net income is used to finance the H.L. Holmes award. The award covers a one- or two-year period and provides the opportunity to Canadian post-doctoral students to study at world famous graduate schools or research institutes under outstanding researchers. In 2011-12, NRC provided a grant totalling $115 thousand to the recipient of the 2011 NRC H.L. Holmes Award. The recipient is using the total award of $200 thousand to fund two years of collaborative research at the Wellcome Trust Sanger Institute in Cambridge in the UK. The research combines genetic sequencing with computer informatics to better understand breast cancer.
The endowment fund had a fair market value of $5 million on March 31, 2012 ($4.8 million on March 31, 2011). The investments within the portfolio had an average effective return of 4.41%. The endowment fund is presented at an amortized cost of $4.7 million ($4.6 million as at March 31, 2011) on the Consolidated Statement of Financial Position and not at fair value.
Tangible Capital Assets: NRC's tangible capital asset net book value has decreased from $579.5 million in 2010-11 to $555.5 million in 2011-12. Total tangible capital asset acquisitions totalled $45.1 million, amortization totalled $66.0 million, and net adjustments, disposals and write-offs totalled $3.3 million.
Additions to Tangible Capital Assets totalled $45.1 million 2011-12, a decrease from the $62.3 million spent in 2010-11. Of the $45.1 million in tangible capital asset additions, $16.3 million relates to spending on assets under construction as at March 31, 2012. The remaining balance is primarily made up of investments in machinery, equipment and furniture ($12.7 million or 28%), as well as $10.7 million or 24% in buildings and facilities. In 2010-11, $10.1 million was spent in capital asset additions from funding received under Canada's Economic Action Plan.
The following represents significant tangible capital assets expenditures in 2011-12:
- $9.8 million of recapitalization work was completed in 2011-12 including: electrical system upgrades ($2.8 million), roofing ($2.1 million), mechanical system upgrades ($1.7 million), site work ($1.7 million), interior architectural work ($700 thousand), elevator upgrades ($500 thousand), and exterior building upgrades ($300 thousand)
- $1.8 million was invested in an energy retrofit for the 100 Sussex Drive Building. This investment will be completed in 2013-2014 and is forecasted to save $1.0 million annually in energy savings. The planned total project costs for this project is $8.9 million.
- NRC's Institute for Microstructural Sciences (NRC-IMS) invested $1 million (in addition to $1.2 million invested in 2010-11) on a SPTS li2L model Inductively Coupled Plasma (ICP) etch tool. The Canadian Photonics Fabrication Centre (CPFC) at NRC-IMS fabricates a variety of lasers, detectors and modulators for a large number of external clients. The fabrication process involves a dry etching process under vacuum. The new ICP etch tool will provide improved Etch process uniformity and control, reduced down time, and increased dry etch capacity in the largest segment of CPFC's activities.
- NRC's National Institute for Nanotechnology (NRC-NINT) invested $760 thousand (in addition to $3.3 million in previous years) toward a project to build an equipment room and renovate existing floor space to meet the requirements of new equipment being installed as part of the Hitachi Microscopy Products Centre (HEMIC) initiative, a $14 million collaboration expected to speed up commercialization of NINT microscope innovations.
- NRC's Human Resource Branch invested $700 thousand into a human resources project that will leverage NRC's existing SAP financial system. This investment will enable NRC to support its employees, managers and corporate functions through a highly automated and efficient HR service offering, with a strong base of web-accessible self-service functions available 24/7 via a self-service portal. The project is expected to be complete in 2015-2016 and has an estimated total project cost of $5.6 million.
- NRC's Institute for Aerospace Research (NRC-IAR) invested $640 thousand (in addition to $1.7 million invested in 2010-11) in a test facility to support a large high pressure and high temperature combustion project. This is a key asset to test and develop low emission gas turbines, and generate revenue for NRC through rentals of the test facility.
- NRC's Plant Biotechnology Institute (NRC-PBI) invested $600 thousand into the purchase of advanced genomics technologies to support activities directly related to the Genome Canada Canadian Triticum Advancement through Genomics (CTAG) project. This project, led by the University of Saskatchewan Crop Development Centre, will provide the basis for new breeder tool development which will ultimately lead to more profitable Canadian wheat varieties.
The following diagram depicts NRC's distribution of tangible capital asset acquisitions over the last two fiscal years.
Accessible version of NRC's distribution of tangible capital asset acquisitions over the last two fiscal years.
|Assets under construction||36.1%||38.6%|
|Buildings and facilities||23.7%||30.0%|
|Machinery, equipment and furniture||28.2%||23.7%|
Expenses are shown in the Consolidated Statement of Operations and Departmental Net Financial Position by Program Activity Architecture (PAA) categories. They are detailed by type of expense in Note 16 of the consolidated financial statements.
NRC's expenses decreased from $1,000.1 million in 2010-11 to $847.6 million in 2011-12. The two largest categories of expenses are salaries and employee benefits (53.7% of total expenses in 2011-12 and 45.9% in 2010-11) and grants & contributions (16.9% of total expenses in 2011-12, 28.5% in 2010-11). The following table illustrates expenses by type of expense:
Accessible version of Expenses.
|Salaries and employee benefits||455.5||459.2|
|Grants and contributions||143.6||285.3|
|Utilities, materials and supplies||78.1||81.1|
|Professional and special services||41.7||18.6|
|Transportation and communication||18.6||19.5|
|Repairs and maintenance||17.4||17.5|
|Payment in lieu of taxes||15.1||14.0|
Gross expenses (including those incurred on behalf of government) of $848.7 million were $11.2 million lower than the amount forecast in NRC's Future Oriented Financial Statements reported in the 2010-11 Report on Plans and Priorities (RPP), and shown as Planned Results on the Consolidated Statement of Operations and Departmental Net Financial Position. The variance is primarily from non-salary operating expenses below forecast amounts due to expense restraint measures, most notably utilities materials and supplies, professional and special services, transportation and communication, and amortization.
Salaries and Employee Benefits: Salaries and employee benefits include such costs as gross salaries and wages, overtime pay, retroactive salary adjustments, employee entitlements and allowances, severance pay, pension and medical benefits. Total NRC salaries and employee benefits have decreased by $3.7 million, from $459.2 million in 2010-11 to $455.5 million in 2011-12. The decrease is primarily the result of fewer full-time equivalent employees (FTEs) compared to 2010-11.
Grants and Contributions: Grants and contributions decreased by $141.7 million, from $285.3 million in 2010-11 to $143.6 million in 2011-12. This decrease is the result of reduced parliamentary appropriations for grants and contributions due to the sunsetting of Canada Economic Action Plan (EAP) funding: $100 million for NRC's Industrial Research Assistance Program (NRC-IRAP), and the remainder from the Federal Economic Development Agency for Southern Ontario and the Community Adjustment Fund.
The following chart illustrates NRC's net grants and contributions categorized by major program.
Accessible version of NRC's net grants and contributions categorized by major program
|Industrial Research Assistance Programs (91,2) (contributions to SMEs, Organizations and Youth Programs)||TRIUMF contributions (44,0)||International Telescope contributions (7,2)||Other grants and contributions (1,2)|
Utilities, Materials and Supplies: Utilities, materials and supplies include expenditures such as electricity, natural gas, serial renewals, electronic data processing (EDP) equipment with cost under $5,000, fuel, software, laboratory equipment and laboratory products. Utilities, material and supply costs decreased by $3.0 million from $81.1 million in 2010-11 to $78.1 million in 2011-12. The 3.7% decrease is due to reduced spending in several areas including chemical and related products and electronic data processing equipment. These types of variations are a result of the varying nature of projects from year to year which can have different material and supply requirements.
Amortization: Tangible capital assets yield benefits over many accounting periods. As such, NRC's use of tangible capital assets to provide services is recognized as an expense on a straight-line basis over the estimated useful life of each asset class. Amortization expense amounted to $66 million in 2011-12 ($67.9 million in 2010-11).
Professional and Special Services: Professional and special services decreased by $2.6 million in 2011-12, from $44.3 million in 2010-11 to $41.7 million. This 5.9% decrease is primarily due to reduced spending on professional fees related to building improvements. Another factor was the $2 million spent remediating contaminated sites in 2010-11. As most remediation work as completed in past years, only $52 thousand of decontamination costs were incurred in 2011-12.
Transportation and Communication: Transportation and communication expenses decreased by $0.9 million in 2011-12, from $19.5 million in 2010-11 to $18.6 million in 2011-12. The 4.6% decrease is mainly attributable to NRC's ongoing efforts to reduce travel costs, which have decreased yearly since 2008-09.
Repairs and Maintenance: NRC has a significant amount of capital investments, such as buildings, facilities, and research equipment. The repair and maintenance costs related to the maintenance of these assets totalled $17.4 million in 2011-12 and is consistent with the $17.5 million incurred in 2010-11.
Payment in lieu of taxes (PILT): NRC owns property and as an agency of the Government of Canada, is exempt from paying property tax. Since federal properties benefit from the services provided by Canadian municipalities, the Government of Canada firmly supports the principle that, as a property owner, it should share the cost of local government equitably with other property owners in the community. As such, federal departments and agencies, including NRC, transfer amounts to municipalities in lieu of taxes. Public Works and Government Services Canada (PWGSC) assesses the amount to be transferred by NRC under the PILT program each year. In 2011-12, NRC paid PILT of $15.1 million ($14 million in 2010-11).
Other: Other expenses of $11.6 million ($11.4 million in 2010-11) include, but are not limited to, rental charges of $4.6 million ($4.6 million in 2010-11), award costs of $2.3 million ($2.7 million in 2010-11), cost of goods sold of $2.5 million ($1.7 million in 2010-11) and information costs of $2 million ($2.2 million in 2010-11).
Expenses incurred on behalf of government: New Treasury Board accounting standards require expenses incurred on behalf of government be backed out of the Consolidated Statement of Operations and Departmental Net Financial Position since they should not be considered part of the department's net cost of operations. $1.2 million of expenses (primarily salary) were incurred under the NRC-IRAP TPC program, which NRC administers on behalf of Industry Canada ($1.1 million in 2010-11); these are partially offset by a $108 thousand decrease in NRC's allowance for doubtful accounts and write-offs ($64 thousand increase in 2010-11) related to this program.
NRC's total revenues were $170.9 million in 2011-12, a slight increase from the $168.1 million earned in 2010-11. The following chart provides a breakdown of the revenue components.
Accessible version of Revenues.
|Financial arrangements with other government departments and agencies||63.8||56.8|
|Services of non-regulatory nature||59.9||54.3|
|Revenues from joint project and cost sharing agreements||24.2||32.6|
|Rights and privileges||8.6||9.6|
|Sales of goods and information products||5.2||4.6|
|Lease and use of property||5.0||4.6|
Gross revenue (including revenue earned on behalf of government) of $172.4 million was $12.4 million higher than the amount forecast in NRC's Future Oriented Financial Statements reported in the 2010-11 RPP. This positive result reflects the NRC strategy to increase its external revenue funding.
Services of a Non-Regulatory Nature: In 2011-12, 35% or $59.9 million (32% or $54.3 million in 2010-11) of NRC revenues were generated from services of a non-regulatory nature, which primarily consists of research services provided directly to industry and academic clients. The $5.6 million increase comes from increases at many institutes, most significantly a $3.8 million increase at NRC's Institute for Aerospace Research (NRC-IAR) due to high demand from Canadian aerospace manufactures associated with the development of new aircraft, as well as significant increases at NRC's Canadian Hydraulics Centre (NRC-CHC), Institute for Ocean Technology (NRC-IOT) and Institute for Research in Construction (NRC-IRC).
Rights and Privileges: Royalty revenue is earned from companies that license the rights to use NRC technologies. Royalties are typically based on a percentage of the licensee's sales. In 2011-12, NRC generated $8.6 million in royalties, down from $9.6 million in 2010-11. The largest contributor of revenue earned from this income stream is NRC's Institute for Biological Sciences (NRC-IBS) which generated $3.4 million in royalties.
Sales of Goods and Information Products: As part of its goal to disseminate scientific and technical information of importance to industry, NRC has publications and certified reference materials that it sells to clients. Total sales of goods and information products totalled $5.2 million in 2011-12, as compared to $4.6 million in 2010-11. The largest component of revenue derived from the sale of goods and information products are sales of codes, most significantly National Model Building Codes by NRC's Institute for Research in Construction (NRC-IRC).
Lease and Use of Property: Facilitating access to NRC researchers and facilities is an important part of technology transfer at NRC. To this end, NRC provides laboratory space to companies on a commercial basis, often as part of a collaboration or technology transfer agreement. Revenue from lease and use of property amounted to $5 million in 2011-12, compared to $4.6 million in 2010-11, demonstrating NRC's ability to continuously attract external stakeholders to utilize NRC facilities, laboratories and research equipment.
Financial Arrangements with Other Government Departments and Agencies: NRC undertakes research and administers funding on behalf of other federal government departments through NRC programs. The incremental costs associated with this work are reimbursed to NRC. In 2011-12, the amount of work undertaken for other government departments was significant, totalling $63.8 million, an increase of $7 million from the $56.8 million earned in 2010-11. As part of NRC's increased focus on new revenue generation opportunities, many institutes saw increases in financial arrangement revenue, including a $2.6 million increase at NRC's Centre for Surface Transportation Technology (NRC-CSTT) and a $1.5 million increase at NRC-IRC.
Revenues from Joint Project and Cost Sharing Agreements: NRC receives income in the course of collaborative research projects that involve cost sharing arrangements for work that is likely to lead to new expertise or technology. In 2011-12, collaborative funding across all sectors at NRC earned $24.2 million ($32.6 million in 2010-11). The decrease reflects adjustments made in 2010-11 to properly reflect deferred revenue balances on the Consolidated Statement of Financial Position, some of which related to revenue which should have been recognized in previous years.
Revenue from joint research projects are recognized in accordance with the level of progress toward completing project deliverables.
Revenue earned on behalf of government: New Treasury Board accounting standards require revenues earned on behalf of government be backed out of the Consolidated Statement of Operations and Departmental Net Financial Position since they should not be considered part of the department's net cost of operations. This includes $1.2 million of financial arrangement revenue provided by Industry Canada for the NRC-IRAP TPC program, which NRC administers on their behalf ($1.1 million in 2010-11), and $255 thousand of interest revenues ($309 thousand in 2010-11) on outstanding receivables.
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