Financial Statement Discussion and Analysis
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, 2013.
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), and information on its plans and priorities is available in the NRC Report on Plans and Priorities (RPP).
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. 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 authorities approved by Parliament, and some of NRC's operations are funded through revenue generated from external parties. NRC has separate voted authorities for operating expenditures, capital expenditures and grants and contributions. In addition, NRC has statutory authority for spending of revenues (pursuant to paragraph 5(1)(e) of the National Research Council Act), contributions to employee benefit plans, proceeds from the disposal of surplus Crown assets, collection agency fees and loss on foreign exchange.
Authorities provided to NRC do not parallel financial reporting according to Canadian public sector accounting standards, since authorities are primarily based on cash accounting principles. Consequently, items recognized in the Consolidated Statement of Operations and Departmental Net Financial Position and the Consolidated Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 of the Consolidated Financial Statements provides a reconciliation between the two 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 of NRC's consolidated financial statements.
Consolidated Statement of Financial Position
NRC's financial position, as shown by the Departmental net financial position line in the Consolidated Statement of Financial Position, was strengthened to $565.8 million as at March 31, 2013, from $525.2 million in 2012. NRC's total net liabilities as of March 31, 2013 were $321 million, an increase of $53.9 million from 2012. Net financial assets totalled $326.9 million, an increase of $110.5 million from 2012.
NRC had a departmental net surplus of $5.9 million, an improvement of $56.6 million from the previous year's debt position of $50.8 million. Departmental net surplus represents NRC's total net liabilities, less its total net financial assets. It is a measure of future income required to pay for past transactions and events.
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 2012‑13 net cost from continuing operations was $759.8 million compared to $676.7 million in 2011‑12. Total revenue of $155.3 million represents a $15.6 million decrease from the prior year while expenses increased by $67.4 million to $915 million.
Additional parliamentary funding provided a $104.1 million increase in Grants and Contributions expenses. Most other expense categories saw a decrease. NRC's $40.5 million net surplus from operations after government funding and transfers ($10.4 million in 2011‑12) caused the Departmental net financial position to grow from $525.2 million to $565.8 million.
The following illustrates NRC's total expenses by major category over the past two fiscal years:
Long description of NRC's total expenses by major category
|Grants and Contributions||248||144|
For further detail and analysis of revenues and expenses, refer to the section Variance and Trend Analysis below.
Consolidated Statement of Cash Flow
The net cash provided by the Government of Canada in 2012‑13 was $647.4 million ($657.9 million in 2011‑12). Cash used in operating activities declined by $12.3 million and cash used in investing activities declined by $0.4 million. These reductions were offset by a $2.2 million increase 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 illustrates NRC's voted parliamentary authorities over the past three fiscal years, including the Main Estimates, the Supplementary Estimates, Transfers, Adjustments and Warrants. The "Use of Funds by Source" figures also include the statutory expenditures.
Long description of NRC's voted parliamentary authorities
|Voted Parliamentary Authorities||Use of Funds by Source||Voted Parliamentary Authorities||Use of Funds by Source||Voted Parliamentary Authorities||Use of Funds by Source|
|Operating expenditure authorities||411.9||406.5||405.7||404.2||427.9||423.5|
|Capital Expenditure Authorities||42.3||42.2||42.3||35.3||53.2||49.7|
|Grants and Contributions Authorities||260.5||253.2||165.3||148.0||294.9||290.9|
|Total Voted Parliamentary Authorities||714.7 Table 2 note a||701.9 Table 2 note a||613.3 Table 2 note a||587.5 Table 2 note a||776.0 Table 2 note a||764.1 Table 2 note a|
|Other Statutory aAmounts||57.4||60.8||64.3|
|Total Authorities Used||804.8 Table 2 note b||698.5 Table 2 note b||903.3 Table 2 note b|
|Specified Purpose Account||22.5||20.9|
|Total Funds Spent||855.9 Table 2 note c||783.6 Table 2 note c||981.1 Table 2 note c|
In 2012‑13, available parliamentary authorities increased by $101.4 million, including an additional $90 million in grants and contributions funding received to expand NRC's Industrial Research Assistance Program (IRAP), as announced in Canada's Economic Action Plan 2012.
NRC's actual use of funds applied to Voted parliamentary authorities totalled $701.9 million. In addition, NRC had $96.6 million of revenue funded expenditures and spent $56.8 million under other statutory authorities (mainly contributions to employee benefit plans).
Discussion and analysis
NRC funds the majority of its salary, operating and capital expenditures from parliamentary authorities.
NRC owns and manages 180 specialized buildings and facilities across Canada that comprise approximately 555,000 square meters of space. It also has an equipment and informatics base (excluding CFHT assets) of $624.2 million in cost, with $159.4 million in net book value ($607.7 million in cost, with $173.8 million in net book value in 2011‑12). Through its 5 year investment plan, NRC is investing appropriate 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 parliamentary authorities, the government may allocate funding for specified purposes for a limited period of time with a renewal option. Renewal is conditional on various factors including performance, achieving desired objectives, linkages to priorities, and availability of funds.
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:
- Transforming the National Research Council: Economic Action Plan 2013 provides $120.8 million over two years (expiring at the end of 2014‑2015) to invest in NRC's strategic focus to help the growth of innovative businesses in Canada. NRC will receive $61.2 million in 2013‑14 and $59.6 million in 2014‑15.
- Digital Technologies Adoption Pilot Program (DTAPP): Administered by NRC‑IRAP, DTAPP represents a significant investment into the Canadian economy in an effort to increase the productivity growth of SMEs in Canada through the adoption of digital technologies across all sectors. NRC‑IRAP will receive funding of $37.5 million in 2013‑14 for this initiative.
- TRIUMF: NRC receives $19.3 million in annual funding for TRIUMF, Canada's National Laboratory for Particle and Nuclear Physics. NRC will also receive an additional $89 million funding over the next two years that is sunsetting at the end of 2014‑15. Since 1976, NRC has provided over $1.1 billion in funding to TRIUMF of which a total of $44 million was provided during 2012‑13.
- Genomics R&D Initiatives: The Genomics R&D Initiatives (GRDI) is a federal program that coordinates genomics R&D in 6 federal departments and agencies. GRDI supports policy objectives in human health, agriculture and food safety, environment and natural resources management. NRC received funding of $8.8 million in 2012‑13 for these initiatives, and will receive an additional $8.8 million in 2013‑14.
Foreign Currency: In its normal course of operation, NRC makes some of its purchases in foreign currencies which exposes it to foreign exchange risk. NRC purchased C$40.6 million worth of goods and services in foreign currencies in 2012‑13 (C$48 million in 2011‑12); $37.1 million (91%) of the foreign currency purchases were in US dollars ($45.1 million or 94% in 2011‑12). During 2012‑13, it cost NRC an average of $1.006 Canadian dollars to purchase $1 US ($0.998 in 2011‑12).
In addition, NRC had C$23.8 million worth of foreign currency receipts in 2012‑13, of which $23 million (97%) was received in US currency compared to $29.3 million received in foreign currency in 2011‑12 of which $28.7 million (98%) was in US currency.
Revenue: NRC activities generate revenues which can be reinvested in its operations. In 2012‑13, 16% of NRC's salary, operating and capital expenditures were funded by revenue from external sources (21% in 2011‑12).
NRC is focused on increasing its external revenue generating activities to strengthen its future financial sustainability. However, significant unexpected downturns affecting industries or government partners of NRC could impact its ability to fund operations.
Variance and Trend Analysis
The following analysis describes the main items appearing on the consolidated financial statements and provides analysis of significant variances and financial trends.
NRC's total net liabilities were $321 million as at March 31, 2013, an increase of $53.9 million from the prior year balance of $267.1 million. NRC's liabilities consist of the following:
Accounts Payable and Accrued Liabilities: NRC's accounts payable and accrued liabilities as at March 31, 2013 were $167.6 million ($104.9 million as at March 31, 2012). The following shows the three largest categories:
Long description of three largest Accounts Payable and Accrued Liabilities categories
|Other Government Departments and Agencies||16.8||12.4|
|Accrued Wages and Employee Benefits||21.5||16.6|
The $53.3 million increase in accounts payable to external parties is primarily the result of higher accounts payable for NRC‑IRAP at year-end. The contributions budget for NRC‑IRAP doubled in 2012‑13, and explains $44.6 million of the total increase in the amount of accounts payable to external parties as of March 31, 2013. There was also a $4.4 million increase in accounts payable to other government departments and agencies, and a $4.9 million increase in accrued wages and employee benefits.
Also included within Accounts Payable and Accrued Liabilities are contractor holdbacks, liabilities for contaminated sites, sales tax payable and CFHT accounts payable (totalling $1.7 million in 2012‑13 and $1.6 million in 2011‑12), as detailed in Note 4 of the consolidated financial statements.
Vacation Pay and Compensatory Leave: Vacation pay and compensatory leave liabilities have decreased in each of the past four fiscal years to represent $31.7 million at March 31, 2013 — a $3.4 million decrease from 2011‑12. The decrease is a result of changes to collective bargaining and management oversight activities taken to manage outstanding vacation liabilities.
Long description of Vacation Pay and Compensatory Leave
|Fiscal Year||Vacation Pay and Compensatory Leave Liabilities|
Lease Inducements: Lease inducements totalled $42.9 million as at March 31, 2013. This balance relates to 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, the University of Alberta, and the University of Prince Edward Island, to accommodate NRC research facilities.
These lease inducement liabilities have corresponding non-financial tangible capital assets and were originally recorded at the fair market value of the capital lease. Over the lease period, NRC recognizes equal amounts of amortization and lease inducement revenue. As a result, there is no impact to NRC's net cost of operations or its net financial position. The balance decrease of $2.5 million in the current year is accounted for as revenue recognized during the period.
Deferred Revenue: Deferred revenue represents funds received for which NRC has an obligation to other parties for the provision of goods, services or the use of assets in the future. The March 31, 2013 balance of $11.5 million ($15.2 million in 2012) is explained in Note 5 of the consolidated financial statements. The significant components include:
- $9 million of deferred revenue from research services and technical services projects. These are the two largest categories of revenue at NRC. When funds are received prior to work commencing or when the amount of funds received exceeds the value of the work performed as of March 31, 2013, deferred revenue is recorded. Revenue is then recognized as services are provided.
- $1.7 million received to construct a facility for the Hitachi Electron Microscopy Product Centre (HEMIC) as part of a collaboration agreement. This amount was deferred and the revenue will be recognized over the life of the collaboration beginning when the facility is put into use in 2013‑14.
Employee Future Benefits: Employee future benefits represent the liability for severance benefits payable to employees upon termination of employment with the public service. This 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. The March 31, 2013 balance of $67.2 million represents a slight decrease from the prior year balance of $68.3 million. Note 7b of the consolidated financial statements provides additional detail.
Due from the 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 parliamentary authorities as well as revenue received but not spent. NRC's due from the CRF was $290.7 million as at March 31, 2013, a significant increase from the $183.8 million recorded at March 31, 2012. The $106.9 million total increase includes a $60 million increase in accounts payable and accrued liabilities that are eligible for payment from the CRF and a $46 million increase in revenue available for use in subsequent years.
Accounts Receivable: Accounts receivable and advances, as detailed in Note 8 of the financial statements, totalled $30.6 million as at March 31, 2013, a $1.8 million increase from March 31, 2012. This includes accounts receivable with external parties worth $26.4 million ($21.9 million as at March 31, 2012). The corresponding allowance for doubtful accounts was $327 thousand ($497 thousand as at March 31, 2012), a favourable amount considering the total value of NRC's external revenues. Another $4.5 million ($5.2 million as at March 31, 2012) of the accounts receivable balance relates to other government departments and agencies.
The March 31, 2012 accounts receivable balance also included a net $2.1 million of repayable contributions relating to the NRC‑IRAP Technology Partnerships Canada (TPC) program. As NRC no longer administered this program in 2012‑13, a nil balance is reflected as at March 31, 2013.
Aged Accounts Receivable: The graph below presents the aged accounts receivable from external parties, other government departments, and employee advances. The prior year amounts exclude repayable contributions under the NRC‑IRAP TPC program, which is no longer administered by NRC. In 2012‑13, 95% (94% in 2011‑12) of accounts receivable were aged 90 days or below indicating that receivables are collected in a timely manner.
Long description of aged accounts receivable from external parties
Cash and Investments: In addition to the Equity Investments held by NRC, this line item includes the consolidated balance of cash and investments held by CFHT as detailed in Note 9 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 or in exchange for outstanding debts to NRC. 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 in 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 $344 thousand to $215 thousand in 2012‑13 as a result of write-down in the book value of one of the public companies in which NRC holds shares.
The following table provides an overview of NRC's 2012‑13 equity holdings:
|Company||Opening balance ($)||Book value of equity investments acquired, sold or written off during the year ($)||Closing balance ($)||Market value of publicly traded equity investments ($)|
|Cequence Energy Ltd.||1||-||1||393|
|Privately held corporation||1||-||1||n/a|
NRC does not intend to hold publicly held securities for the long term.
Prepaid Expenses: NRC's prepaid expenses as at March 31, 2013 were $12.9 million ($11.7 million as at March 31, 2012), the components of which are shown in the chart below. 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.
Long description of NRC's prepaid expenses as at March 31, 2013
Prepaid Expenses as at March 31, 2013 (in $ millions)
- Subscriptions: 5.6
- Maintenance: 2.8
- Other: 2.6
- Payment in lieu of taxes: 1.9
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 annual net income is used to finance the H.L. Holmes award. The award covers a one or two-year period and provides an opportunity for Canadian post-doctoral students to study at world famous graduate schools or research institutes. In 2012‑13, NRC provided one grant totalling $108 thousand to a recipient of the 2011 NRC H.L. Holmes Award. The recipient is using a 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 $5.1 million on March 31, 2013 ($5 million on March 31, 2012). The investments within the portfolio had an average effective return of 3.99% in 2012‑13 (4.41% in 2011‑12). The endowment fund is presented at an amortized cost of $4.8 million ($4.7 million as at March 31, 2012) on the Consolidated Statement of Financial Position and not at fair value. Note 10 of the consolidated financial statements provides additional detail.
Tangible Capital Assets: The net book value of NRC's tangible capital assets decreased from $555.5 million in 2011‑12 to $537.8 million in 2012‑13. Total tangible capital asset acquisitions amounted to $46.8 million with amortization of $64.6 million and net adjustments, disposals and write-offs of $0.1 million. Note 11 of the consolidated financial statements provides additional detail.
The additions to Tangible Capital Assets of $46.8 million in 2012‑13 represented a slight increase from the $45.1 million spent in 2011‑12. The most significant acquisition categories were assets under construction ($22.6 million or 48%), building and facilities ($10.7 million or 23%) and investments in machinery, equipment and furniture ($10.3 million or 22%).
Long description of NRC's Tangible Capital Asset Acquisitions
|Assets under construction||48.4%||36.1%|
|Buildings and facilities||22.9%||23.7%|
|Machinery, equipment and furniture||22.0%||28.2%|
|Informatics equipment/Informatics software/Other||6.7%||12.0%|
The following represents significant tangible capital assets expenditures over $1 million in 2012‑13:
- $13.6 million of building recapitalization work was completed in 2012‑13 including: electrical system upgrades ($2.4 million), roofing ($1.6 million), mechanical system upgrades ($4.1 million), site work ($1.1 million), interior architectural work ($1.1 million), elevator upgrades ($375 thousand), and exterior building upgrades ($3.0 million)
- $5.3 million was invested in an energy and mechanical system retrofit at the 100 Sussex Drive Building (in addition to $1.8 million invested in 2011‑12). This investment will be completed in 2014‑2015 and is expected to provide $1.0 million annually in energy cost savings. Planned total project costs are $9.5 million.
- NRC's Aerospace Portfolio invested $2.0 million to repaint the shell of the U70 low-speed wind tunnel located at its Uplands facility in Ottawa. The high revenue generating wind tunnel required repainting to prevent potential damage to the structure from corrosion.
- NRC's Aerospace Portfolio invested $1.6 million (in addition to $1.8 million in previous years) towards the construction of a Synthetic Fuels Facility to support a large high pressure and high temperature combustion project. This is a key asset required to test and develop low emission gas turbines, and generate revenue for NRC through the use of the test facility.
- NRC's Aerospace Portfolio invested $1.2 million to refurbish one of NRC's helicopters to replace the actuators with a modern fly-by-wire system. The system will enable the helicopter to serve as an airborne simulator. The experimental fly-by-wire capacity meets the high demand from Canadian Industry and the Department of National Defence.
- NRC's Human Health Therapeutics Portfolio invested $1.2 million in Genomics Technologies and Plant Growth facilities required for the NRC Canadian Wheat Improvement Flagship Program. This program will make a significant contribution to improving the yield, sustainability, and profitability of Canadian wheat.
- NRC's Human Health Therapeutics Portfolio invested $1.1 million to acquire equipment and instrumentation to establish state-of-the art capacity in physiochemical characterization of protein biologics. It will allow the NRC to successfully deploy vaccine and biologics programs that will foster industrial innovation and growth through technology support, and deliver results in line with the objectives of the federal government's Science and Technology Strategy, particularly with respect to regenerative medicine and health in an aging population.
Expenses are shown in the Consolidated Statement of Operations and Departmental Net Financial Position by Program Alignment Architecture (PAA) categories. They are also detailed by type of expense in Note 16 of the consolidated financial statements.
NRC's expenses increased from $847.6 million in 2011‑12 to $915.0 million in 2012‑13. The two largest categories of expenses are salaries and employee benefits (46.8% of total expenses in 2012‑13 and 53.7% in 2011‑12) and grants & contributions (27.1% of total expenses in 2012‑13, 16.9% in 2011‑12). The following illustrates expenses by type:
Long description of NRC's expenses by type
|Salaries and employee benefits||428.5||455.5|
|Grants and contributions||247.7||143.6|
|Utilities, materials and supplies||71.9||78.1|
|Professional and special services||51.0||41.7|
|Transportation and communication||12.9||18.6|
|Repairs and maintenance||14.9||17.4|
|Payment in lieu of taxes||14.5||15.1|
Total expenses of $915.0 million were $108.0 million higher than the amount forecast in NRC's Future Oriented Financial Statements reported in the 2012‑13 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 due to Grants and Contribution expense ($78.2 million (46%) higher than forecast), as the government had not yet announced the budget increase for NRC IRAP at the time the forecast was established. Salary and employee benefits were $27.5 million (6.9%) higher than forecast.
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 health and dental plan costs. Total NRC salaries and employee benefits have decreased by $27.0 million, from $455.5 million in 2011‑12 to $428.5 million in 2012‑13. The decrease is primarily the result of fewer full-time equivalent employees (FTEs) compared to 2011‑12, offset in part by higher workforce adjustment payments in 2011‑12. Additionally, new government-wide employment contract agreements resulted in certain NRC employees classifications no longer eligible for severance benefits reducing annual severance liability expenses.
Grants and Contributions: Grants and contributions increased by $104.1 million, from $143.6 million in 2011‑12 to $247.7 million in 2012‑13, as shown in the chart below. The increase is the result of an additional $110.0 million per year in funding to double the Industrial Research Assistance Program as announced in Canada's Economic Action Plan 2012.
Long description of NRC's Grants and Contributions
Net Grants and Contributions, 2012-13 (in $ millions)
- Industrial Research Assistance Programs: 195.1
- TRIUMF contributions: 44.0
- International Telescopes and Affiliations: 8.6
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 $6.2 million from $78.1 million in 2011‑12 to $71.9 million in 2012‑13. The 8% reduced spending included areas such as laboratory equipment and parts, and electronics and electronic supplies. Spending in these areas depends on 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 $64.6 million in 2012‑13 ($66 million in 2011‑12).
Professional and Special Services: Professional and special services increased by $9.3 million in 2012‑13 to $51 million, from $41.7 million in 2011‑12. This 22% increase is primarily due to NRC having transferred responsibility for its email, data centre and network services and support to Shared Services Canada (SSC) following the Government of Canada initiative to centralize these services. The services now received from SSC are recognized as services received without charge in professional services expenses. A total of $16.1 million was recognized in expenses, as shown in Note 14a of the financial statements.
Transportation and Communication: Transportation and communication expenses decreased by $5.7 million in 2012‑13, from $18.6 million in 2011‑12 to $12.9 million in 2012‑13. The 31% decrease is mainly attributable to NRC having transferred responsibility for its email, data centre and network services and support to SSC.
Repairs and Maintenance: NRC has a significant amount of infrastructure investments such as buildings, facilities, and research equipment. The repair and maintenance costs related to the maintenance of these assets totalled $14.9 million in 2012‑13, a decrease from the $17.4 million incurred in 2011‑12. Expenditures in this area can vary from year to year based on many factors including requirements for services.
Payment in lieu of taxes (PILT): NRC owns property and is exempt from paying property tax as an agency of the Government of Canada. The Government of Canada, as a property owner, supports the principle that it should share the cost of local government equitably with other property owners in the community since federal properties benefit from municipal services. 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 2012‑13, NRC paid PILT of $14.5 million ($15.1 million in 2011‑12).
Other: Other expenses of $9.0 million ($11.6 million in 2011‑12) include, but are not limited to, rental charges of $4.4 million ($4.6 million in 2011‑12), information costs of $1.8 million ($2 million in 2011‑12) award costs of $1.6 million ($2.3 million in 2011‑12), and cost of goods sold of $0.7 million ($2.5 million in 2011‑12).
Expenses incurred on behalf of government: 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. In 2011‑12, $1.1 million of such expenses (primarily salary) were incurred under the NRC‑IRAP TPC program which NRC administered on behalf of Industry Canada. The administration of this program was transferred to Industry Canada in April 2012.
NRC's total revenues decreased from $170.9 million in 2011‑12 to $155.3 million in 2012‑13. The following chart provides a breakdown of the revenue components:
Long description of NRC's revenue components
|Intellectual Property, Royalties and Fees||8.5||8.6|
|Sales of goods and information products||4.4||5.2|
Revenues of $155.3 million were $25.4 million lower than the amount forecast in NRC's Future Oriented Financial Statements reported in the 2012‑13 RPP. The refocusing of NRC research activities began during 2012‑13, and revenue growth over this period of transition was slower than expected.
Technical Services: In 2012‑13, $79.5 million or 51% ($104.4 million or 61% in 2011‑12) of NRC revenues were generated from technical services. These are standard services delivered using existing NRC technology and expertise with projects that have a low level of technical risks and do not generate new intellectual property. The decrease is attributable to the transition of NRC research activities and transformation of business processes, which caused delays in program approval and required additional time spent on program planning. NRC also had several large projects in 2011‑12 that were completed during that period.
Research Services: In 2012‑13, $50.5 million or 33% ($42.3 million or 25% in 2011‑12) of NRC revenues were generated from research services, which are non-standard services delivered with incremental intellectual contribution and some level of technical/scientific risks. This includes Collaborative Research Services, where clients can provide intellectual contribution to the project and share the total cost of the project. The $8.2 million increase is the result of a greater emphasis on programs directed toward Research Service type projects versus Technical Services projects.
Intellectual Property Royalties and Fees: 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 2012‑13, NRC generated $8.5 million in royalties similar to the $8.6 million realized in 2011‑12.
Rentals: 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 $6.2 million in 2012‑13, compared to $5 million in 2011‑12.
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 $4.4 million in 2012‑13, as compared to $5.2 million in 2011‑12. 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 Construction Portfolio.
Other: Other revenue of $6.2 million ($5.4 million in 2011‑12) include, but are not limited to, lease inducement revenue of $2.5 million ($2.5 million in 2011‑12) and grants and contributions revenue of $2.9 million ($2.1 million in 2011‑12).
Revenue earned on behalf of government: 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. In 2011‑12, this included $1.2 million of financial arrangement revenue provided by Industry Canada for the NRC‑IRAP TPC program, which NRC administered on their behalf (NRC no longer administered the program during 2012‑13), and $255 thousand of interest revenues which NRC cannot use for its operations. The 2012‑13 balance of $128 thousand results from a reversal of IRAP-TPC interest revenue from 2011‑12.
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