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National Research Council Canada - For the Year Ending March 31, 2012

Statement of Management Responsibility

National Research Council Canada (NRC) management is responsible for these future-oriented financial statements, including responsibility for the appropriateness of the assumptions on which these statements are prepared.  These statements are based on the best information available and assumptions adopted as at December 13, 2010 and reflect the plans described in NRC’s Report on Plans and Priorities.

These future-oriented financial statements of NRC have not been audited.

John R. McDougall, P.Eng
President

Daniel Gosselin, FCA
Vice-President Corporate Management
and Chief Financial Officer

Ottawa, Canada
January 21, 2011

National Research Council Canada Future-oriented Statement of Operations For the Year Ending March 31
(in thousands of dollars) Estimated Results 2011 Forecast 2012
Expenses
Manufacturing Technologies
185,972 180,898
Information and Communication Technologies (ICT) and Emerging Technologies
91,855 89,438
Industrial Research Assistance
296,430 146,977
Health and Life Sciences Technologies
138,182 135,216
Energy and Environmental Technologies
56,828 55,505
National Science and Technology Infrastructure
108,569 106,163
Scientific, Technical and Medical Information
34,502 31,463
Internal Services
117,566 114,310
1,029,904 859,970
Revenues
Manufacturing Technologies
72,963 73,862
Information and Communication Technologies (ICT) and Emerging Technologies
18,769 18,728
Industrial Research Assistance
1,296 900
Health and Life Sciences Technologies
28,318 28,276
Energy and Environmental Technologies
16,226 16,104
National Science and Technology Infrastructure
11,186 11,167
Scientific, Technical and Medical Information
4,322 4,277
Internal Services
6,704 6,686
159,784 160,000
Net Cost of Continuing Operations 870,120 699,970
Net Cost of Discontinued Operations (Note 12) 3,533
Net Cost of Operations 873,653 699,970

Information for the year ended March 31, 2011 includes actual amounts from April 1, 2011 to
October 31, 2011.

Segmented Information (Note 10)

The accompanying notes form an integral part of these future-oriented financial statements.

National Research Council Canada
Notes to the Future-oriented Financial Statements (Unaudited)

For the Year ending March 31


1. Authority and Objectives

The National Research Council Canada (NRC) exists under the National Research Council Act and is a departmental corporation named in Schedule II of the Financial Administration 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.

In delivering its mandate, NRC reports under the following program activities:

  • Manufacturing Technologies: Multidisciplinary research and development in consultation with industry, universities, government departments and other key innovation players to improve the global competitiveness of Canadian industry by transforming knowledge and innovation into real economic value and by transferring technologies into industrial solutions for the marketplace.
  • Information and Communication Technologies (ICT) and Emerging Technologies: Mobilizes, collaborates and partners with key university, government and private sector players and forms major research collaborations to develop integrated research solutions in the areas of information and communications technologies and emerging technologies.
  • Industrial Research Assistance: Provides a range of technical and business-oriented advisory services, as well as financial support for small and medium-sized Canadian businesses engaged in research and development of technological innovations to augment their capacity and capability to innovate, commercialize and generate significant economic activity for Canadian Industry.
  • Health and Life Science Technologies: Mobilizes and partners with key university, government and private sector players and forms major research collaborations to develop integrated research solutions for complex health and related life science issues.
  • Energy and Environmental Technologies: In partnership with other government departments, universities and industry, brings together the knowledge and expertise needed to make an impact on areas of critical importance to Canada in environmental and sustainable energy.
  • National Science and Technology Infrastructure: Manages national science and engineering facilities and infrastructure critical to research, development and innovation by Canadian scientific and technological communities.
  • Scientific, Technical and Medical Information: Operates and maintains the national science library, specifically holding the national collection of Scientific, Technical and Medical information, to facilitate knowledge discovery, cross discipline research, innovation and commercialization.
  • Internal Services: Groups of activities and resources administered to support the needs of programs and other corporate obligations of the organization. Includes only those activities and resources that apply across the organization and not to those provided specifically to a program.

2. Significant Assumptions

The future-oriented financial statements have been prepared on the basis of the government priorities and the plans of the NRC as described in the Report on Plans and Priorities.

The main assumptions are as follows:

  1. Expenses and revenues, including the determination of amounts internal and external to the government, are based on a combination of information obtained through an organization-wide business planning process, monthly financial forecasts, and historical experience. The general historical pattern is expected to continue.
  2. Program Activity Architecture (PAA) distribution in 2011-12 will be proportionally consistent with 2010-11.
  3. No significant change in foreign exchange rates is expected.

These assumptions are adopted as at December 13, 2010.

3. Variations and Changes to the Forecast Financial Information

While every attempt has been made to accurately forecast final results for the remainder of 2010-11 and for 2011-12, actual results achieved for both years are likely to vary from the forecast information presented, and this variation could be material.

In preparing these financial statements, NRC has made estimates and assumptions concerning the future. These estimates and judgements may differ from the subsequent actual results. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. As with all estimates and assumptions, there is a measure of uncertainty surrounding them and this uncertainty increases as the forecast horizon extends.

Factors that could lead to material differences between the future-oriented financial statements and the historical financial statements include:

  1. These statements are based on approvals received as at December 13, 2010. Subsequent increases or decreases to these approved amounts would have an impact on spending.
  2. Revenue generated for 2011-12 is estimated at the 2010-11 level due to the speculative nature of revenue, and as the new NRC strategy has not yet been finalized. Economic conditions may affect both the amount of revenue earned and the collectability of accounts receivables. Variations to revenue earned would have an impact on spending.
  3. Further changes to the operating budget through additional new initiatives, technical adjustments or reductions to program funding.
  4. Ratification of new collective bargaining agreements will result in an increase to salary expenditures (although there could be a corresponding drop in other operating expenses). Most of NRC's collective bargaining agreements are set to expire during the 2011-12 fiscal year. Due to the uncertain nature of future collective bargaining, no related increases have been forecast in the statements.
  5. The timing and amounts of acquisitions and disposals of tangible capital assets may affect gains/losses and amortization expense.

Once the Report on Plans and Priorities is presented, NRC will not be updating the forecasts for any changes to appropriations or forecast financial information made in ensuing supplementary estimates. Variances will be explained in the Departmental Performance Report.

4. Summary of Significant Accounting Policies

These future-oriented financial statements have been prepared in accordance with the Treasury Board accounting policies stated below, which are based on Canadian generally accepted accounting principles for the public sector. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian generally accepted accounting principles.

Significant accounting policies are as follows:

  1. Parliamentary authorities
    NRC is financed mainly by the Government of Canada through Parliamentary authorities. The cash accounting basis is used to recognize transactions affecting parliamentary authorities. The future-oriented financial statements are based on accrual accounting. Consequently, items presented in the Future-oriented Statement of Operations are not necessarily the same as those provided through authorities from Parliament. Note 5 provides a reconciliation between the bases of reporting.
  2. Net Cash Provided by Government
    NRC operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received by NRC is deposited to the CRF and all cash disbursements made by NRC are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements including transactions between departments of the Government
  3. Amounts due from/to the CRF
    Amounts due from/to the CRF are the result of timing differences at year-end between when a transaction affects authorities and when it is processed through the CRF. Amounts due from the CRF represent the net amount of cash that NRC is entitled to draw from the CRF without further appropriations to discharge its liabilities.
  4. Revenues:

    • Revenue is recognized in the year in which the underlying transaction or event occurred that gave rise to revenue.
    • Funds that have been received are recorded as deferred revenue provided the NRC has an obligation to other parties for the provision of goods, services or the use of assets in the future.
    • Funds received from external parties for specified purposes are recorded upon receipt as deferred revenue and are recognized as revenue in the year in which the related expenses are incurred.
    • Contributions of leased tangible capital assets are deferred and amortized to operations on the same basis as the related depreciable tangible capital assets.
  5. Expenses

    • Expenses are presented on an accrual basis.
    • Grants are recognized in the year in which the conditions for payment are met. In the case of grants which do not form part of an existing program, the expense is recognized when the Government announces a decision to make a non recurring transfer, provided the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements.
    • Contributions are recognized in the year in which the recipient has met the eligibility criteria or fulfilled the terms of a contractual transfer agreement, provided that the transfer is authorized and a reasonable estimate can be made.
    • Vacation pay and compensatory leave are expensed as the benefits are earned by employees under their respective terms of employment.
    • Services provided without charge by other government departments for accommodation, the employer's contributions to the health and dental insurance plans, audit of NRC's financial statements, legal services and workers' compensation are recorded as operating expenses at their estimated cost and credited directly to equity.
  6. Employee future benefits

    1. Pension benefits
      Eligible employees participate in the Public Service Pension Plan, a multiemployer plan administered by the Government. NRC's contributions to the Plan are charged to expenses in the year incurred and represent NRC's total obligation to the Plan. Current legislation does not require NRC to make contributions for any actuarial deficiencies of the Plan.
    2. Severance Benefits
      Employees are entitled to severance benefits under labour contracts or conditions of employment. These benefits are accrued as employees render the services necessary to earn them. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability for employee severance benefits for the Government as a whole.
  7. Accounts receivable
    Accounts receivable are stated at lower of cost and net recoverable value. A valuation allowance is recorded for receivables where recovery is considered uncertain.
  8. Conditionally repayable contributions
    Conditionally repayable contributions are contributions that, all or part of which become repayable, if conditions specified in the contribution agreement come into effect. Accordingly, they are not recorded on the Statement of Financial Position until the conditions specified in the agreement come into effect, at which time they are recorded as a receivable and a reduction in transfer payment expenses. An estimated allowance for uncollectibility is recorded where appropriate.
  9. Contingent liabilities
    Contingent liabilities are potential liabilities, which may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated, the contingency is disclosed in the notes to the financial statements.
  10. Contaminated site liabilities
    Contaminated site liabilities reflect the estimated costs related to the management and remediation of environmentally contaminated sites. Based on management's best estimates, a liability is accrued and an expense recorded when the contamination occurs or when NRC becomes aware of the contamination and is obligated, or is likely to be obligated to incur such costs. If the likelihood of NRC's obligation to incur these costs is either not determinable or an amount cannot be reasonably estimated, the costs are disclosed as contingent liabilities in the notes to the financial statements.
  11. Inventories
    Inventory for resale and for consumption is recorded at the lower of cost (using the average cost method) or net realizable value. The cost is charged to operations in the year in which the items are sold or used.
  12. Foreign currency transactions
    Transactions involving foreign currencies are translated into Canadian dollar equivalents using rates of exchange in effect at the time of those transactions. Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars using the rate of exchange in effect at year end. Gains and losses resulting from foreign currency translation are reported on the statement of operations according to the activities to which they relate. Net gains and losses relating to the sale of goods or services in foreign currency are included in revenues. Net gains and losses relating to the purchase of goods or services in foreign currency are included in expenses. Contractual obligations may contain foreign currencies that are translated into Canadian dollar equivalents.
  13. Tangible capital assets
    Tangible capital assets and leasehold improvements having an initial cost of $5,000 or more are recorded at their acquisition cost. Contributed tangible capital assets are recorded at market value at the date of contribution. NRC does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value. Assets acquired under tangible capital leases are initially recorded at the lower of the present value of the minimum lease payments at the inception of the lease or fair value. Tangible capital assets held for sale are recorded at the lower of their carrying value or fair value less cost to sell and no amortization is recorded.

Amortization of tangible capital assets is calculated on a straight line basis over the estimated useful life of the asset as follows:

m. Tangible capital assets
Asset Class Amortization Period
Land Not applicable
Buildings and facilities 25 years
Works and infrastructure 25 – 40 years
Machinery, equipment and furniture 10 years
Informatics equipment 5 years
Informatics software 5 years
Vehicles 7 years
Aircraft 15 – 30 years
Leasehold improvements Lesser of the remaining term of the lease or useful life of the improvement
Leased tangible capital assets In accordance with asset class

Assets under construction are recorded in the applicable capital asset class in the year that they become available for use and are not amortized until they become available for use.

5. Parliamentary Authorities

NRC receives most of its funding through annual Parliamentary authorities. Items recognized in the statement of operations and the statement of financial position in one year may be funded through Parliamentary authorities in prior, current or future years. Accordingly, NRC has different net results of operations for the year on a government funding basis than on an accrual accounting basis. The differences are reconciled in the following tables:

a. Reconciliation of net cost of operations to requested authorities
(in thousands of dollars) Estimated Results 2011 Forecast 2012
Net Cost of Operations 873,653 699,970
Adjustments for items affecting net cost of operations but not affecting authorities (including Discontinued Operations Note 12):
Revenues
165,875 160,000
Financial arrangements with other Federal Government
departments and agencies
(53,578) (53,000)
Amortization of tangible capital assets
(68,887) (69,815)
Services provided without charge by other government departments (Note 9)
(33,121) (32,060)
Specified purpose accounts expenses
(25,074) (25,102)
Decrease in salary accrual
5,817
Decrease in employee future benefits
1,891 2,824
Decrease in vacation pay and compensatory leave
1,817 1,531
Decrease in inventory
(450)
Cost of goods sold
(574) (308)
Bad debt expense
(400) (400)
Other
(1,220) (850)
Total items affecting net cost of operations but
not affecting authorities:
(7,904) (17,180)
Adjustments for items not affecting net cost of operations but affecting authorities:
Acquisitions of tangible capital assets and additions to assets under construction
63,258 41,192
Environmental remediation reducing the liability
1,880
Total items not affecting net cost of operations but
affecting authorities:
65,138 41,192
Expected authorities available 930,887 723,982
b. Authorities requested
(in thousands of dollars) Estimated Results 2011 Forecast 2012
Authorities requested:
Vote 60 – Operating expenditures
423,331 391,213
Vote 65 – Capital expenditures
53,406 38,017
Vote 70 – Grants and contributions
296,258 145,651
Statutory amounts:
Revenues pursuant to paragraph 5(1)(e) of the National Research Council Act
125,502 107,872
Contributions to employee benefit plans
66,130 63,347
Less:
Revenues available for use in subsequent years
(28,972) (17,227)
Lapsed authorities:
Frozen allotments
(4,768) (4,891)
Unexpended authorities
Expected authorities available 930,887 723,982

Forecast authorities requested for the year ending March 31, 2012 are the planned spending amounts presented in the 2011-12 Report on Plans and Priorities, estimates of amounts to be allocated at year-end from Treasury Board central votes and other expected allocation adjustments. Estimated authorities requested for the year ending March 31 2011 include amounts presented in the 2010-11 Main Estimates and Supplementary Estimates (A) and (B), planned for presentation in Supplementary Estimates (C), estimates of amounts to be allocated at year-end from Treasury Board central votes and other expected allocation adjustments.

6. Employee Future Benefits

Employees of NRC are entitled to specific benefits on or after termination or retirement, as provided for under various collective agreements or conditions of employment.

  1. Pension benefits
    Eligible NRC employees participate in the Public Service Pension Plan, which is sponsored and administered by the Government. Pension benefits accrue up to a maximum of 35 years at a rate of two percent per year of pensionable service, times the average of the best five consecutive years of earnings. The benefits are integrated with Canada/Québec Pension Plans benefits and they are indexed to inflation.

    Both the employees and NRC contribute to the cost of the Plan. The forecast expenses are $46,423,260 in 2010-11 and $44,469,594 in 2011-12, representing approximately 1.9 times the contributions by employees.

    NRC's responsibility with regard to the Plan is limited to its contributions. Actuarial surpluses or deficiencies are recognized in the financial statements of the Government of Canada, as the Plan's sponsor.

  2. Severance benefits
    NRC provides severance benefits to its employees based on eligibility, years of service and final salary. These severance benefits are not pre-funded. Benefits will be paid from future authorities. Information about the severance benefits, estimated as at the date of these statements, is as follows:
b Severance benefits
(in thousands of dollars) Estimated Results 2011 Forecast 2012
Accrued benefit obligation, beginning of year 69,004 67,113
Decrease of the accrued expense for the year 5,229 1,976
Expected benefits payment during the year (7,120) (4,800)
Accrued benefit obligation, end of year 67,113 64,289

7. Contingent Liabilities

Contingent liabilities arise in the normal course of operations and their disposition is unknown. They are grouped into two categories as follows:

a) Contaminated sites
Liabilities are accrued to record the estimated costs related to the management and remediation of contaminated sites where NRC is obligated or likely to be obligated to incur such costs. Liabilities for contaminated sites that were accrued on the March 31, 2010 financial statements are expected to be fully remediated as of March 31, 2011. Additional new sites, changes in the remediation approach or material changes in amounts accrued or not accrued, are not forecasted for the future years presented in these statements. However, NRC's ongoing efforts to assess contaminated sites may result in additional environmental liabilities related to newly identified sites, or changes in the assessments or intended use of existing sites. These liabilities will be accrued by NRC in the year in which they become known and can be reasonably estimated.

b) Claims and litigation
Claims have been made against NRC in the normal course of operations. Based on NRC's legal assessment of potential liability, NRC has one claim that will likely result in a liability as of the date of these future-oriented financial statements, for which an accrued liability of $375,000 has been recorded. NRC has 1 claim where the outcome is undeterminable. Some of these potential liabilities may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur, and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded in the financial statements.

8. Contractual Obligations

The nature of NRC's activities can result in some large multi-year contracts and obligations whereby NRC will be obligated to make future payments in order to carry out its transfer payment programs or when services/goods are received. Significant contractual obligations that can be reasonably estimated are summarized as follows:

8. Contractual Obligations
(in thousands of dollars) 2011 2012 2013 2014 2015 and
thereafter
Total
Transfer payments 115,411 87,064 42,469 47,434 48,063 340,441
Operating contracts 30,684 7,309 2,839 1,529 178 42,539
Total 146,095 94,373 45,308 48,963 48,241 382,980

9. Related Party Transactions

NRC is related as a result of common ownership to all Government departments, agencies, and Crown corporations. NRC enters into transactions with these entities in the normal course of business and on normal trade terms. During the year, NRC is forecasted to receive services without charge from other government departments. These services have been recognized in NRC's future-oriented Statement of Operations as follows:

9. Related Party Transactions
(in thousands of dollars) Estimated Results 2011 Forecast 2012
Employer’s contributions to the health and dental insurance plans provided by Treasury Board 31,686 30,352
Audit of NRC’s financial statements provided by the Office of the Auditor General of Canada 489 489
Legal services provided by Justice Canada 470 742
Workers’ compensation benefits provided by Human Resources and Social Development Canada 324 324
Accommodation provided by Public Works and Government Services Canada 153 153
Total 33,122 32,060

The Government has centralized some of its administrative activities for efficiency, cost-effectiveness purposes and economic delivery of programs to the public. As a result, the Government uses central agencies and common service organizations so that one department performs services for all other departments and agencies without charge. The costs of these services, such as the payroll and cheque issuance services provided by Public Works and Government Services Canada and audit of the Public Accounts provided by the Office of the Auditor General, are not included in the NRC's future-oriented Statement of Operations.

NRC estimates that $51,555,000 of 2010-11 expenses will be with related parties and $48,000,000 of expenses in 2011-12.

10. Segmented Information

Presentation by segment is based on NRC's program activity architecture (PAA). NRC allocates transactions over the PAA in accordance with stewardship principles, based on the Institute, Branch or Program (IBP) that is responsible for managing the resource.

Segmented Information: Presentation by segment is based on NRC's program activity architecture (PAA)
(in thousands of dollars) Estimated Results 2011 2012
Manufacturing Technologies ICT and Emerging Technologies Industrial Research Assistance Health and Life Sciences Technologies Energy and Environmental Technologies National Science and Technology Infrastructure Scientific, Technical and Medical Information Internal Services Total
Expenses  
Salaries and employee benefits
455,749 111,174 52,314 48,076 88,228 34,479 33,542 11,948 65,627 445,388
Grants and contributions
291,458 84,753 55,488 610 140,851
Utilities, materials and supplies
85,111 25,267 10,037 1,055 15,677 4,825 4,385 9,940 8,894 80,080
Amortization
68,671 18,489 10,995 455 18,174 8,341 4,749 4,479 4,133 69,815
Professional and special services
55,789 13,149 9,583 1,487 3,333 4,238 4,290 4,109 11,680 51,869
Transportation and communication
25,394 5,730 2,780 3,997 3,744 1,769 2,406 639 2,883 23,948
Repairs and maintenance
17,325 3,934 1,938 242 3,708 1,167 691 199 5,105 16,984
Payments in lieu of taxes
14,233 1,471 263 105 12,561 14,400
Bad debts
5,200 4,800 400 5,200
Rentals
5,057 817 533 2,017 158 151 284 59 573 4,592
Information
2,974 250 221 95 166 344 78 90 1,585 2,829
Awards
1,860 260 551 1,650 73 75 247 2,856
Net loss on disposal of capital assets
800 264 223 192 118 53 850
Cost of goods sold
283 93 81 122 12 308
Total expenses 1,029,904 180,898 89,438 146,977 135,216 55,505 106,163 31,463 114,310 859,970
 
Revenues                    
Sales of goods and services
                   
Services of non-regulatory nature and
other fees and charges
59,436 28,285 8,358 7,603 4,075 7,855 858 2,416 59,450
Sales of goods and information products
5,629 4,079 25 597 496 5 398 5,600
Rights and privileges
9,609 1,176 1,450 6,521 293 160 9,600
Lease and use of property
4,249 315 810 2,387 232 6 500 4,250
  78,923 33,855 10,643 17,108 4,600 8,517 863 3,314 78,900
 
Financial arrangements with other Federal
Government departments and agencies
52,778 30,156 3,536 900 3,473 9,630 1,454 3,414 437 53,000
Revenues from joint project and cost sharing agreements
25,074 9,802 4,541 7,693 1,870 1,196 25,102
Lease inducement revenue
2,548 2,548 2,548
Other 461 49 8 2 4 387 450
Total revenues 159,784 73,862 18,728 900 28,276 16,104 11,167 4,277 6,686 160,000
Net cost of continuing operations 870,120 107,036 70,710 146,077 106,940 39,401 94,996 27,186 107,624 699,970

11. Financial Instruments

NRC's financial instruments consist of accounts receivable and advances, investments and accounts payable and accrued liabilities. Unless otherwise noted, it is management's opinion that NRC is not exposed to significant interest, currency or credit risk arising from these financial instruments. Unless otherwise disclosed in these financial statements, management estimates that the carrying values of the financial instruments approximate their fair value due to their impending maturity.

12. Discontinued Operations

The results for discontinued operations which represent $6,091,000 in revenues and $9,624,000 in expenses are related to the privatization of NRC-CISTI Research Press activities in September 2010.

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