Consolidated financial statements - March 31, 2018

 

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National Research Council Canada
Statement of Management Responsibility Including Internal Control over Financial Reporting

Responsibility for the integrity and objectivity of the accompanying consolidated financial statements for the year ended March 31, 2018, and all information contained in these consolidated statements rests with the management of the National Research Council Canada ( NRC ). These consolidated financial statements have been prepared by management using the Government's accounting policies, which are based on Canadian public sector accounting standards.

Management is responsible for the integrity and objectivity of the information in these consolidated financial statements. Some of the information in the consolidated financial statements is based on management's best estimates and judgment, and gives due consideration to materiality. To fulfil its accounting and reporting responsibilities, management maintains a set of accounts that provides a centralized record of NRC 's financial transactions. Financial information submitted in the preparation of the Public Accounts of Canada, and included in NRC 's Departmental Results Report, is consistent with these consolidated financial statements.

Management is also responsible for maintaining an effective system of internal control over financial reporting ( ICFR ) designed to provide reasonable assurance that financial information is reliable, that assets are safeguarded and that transactions are properly authorized and recorded in accordance with the Financial Administration Act and other applicable legislation, regulations, authorities and policies.

Management seeks to ensure the objectivity and integrity of data in its consolidated financial statements through careful selection, training and development of qualified staff; through organizational arrangements that provide appropriate divisions of responsibility; through communication programs aimed at ensuring that regulations, policies, standards and managerial authorities are understood throughout NRC ; and through conducting an annual assessment of the effectiveness of the system of ICFR .

The system of ICFR is designed to mitigate risks to a reasonable level based on an ongoing process to identify key risks, to assess the effectiveness of associated key controls, and to make any necessary adjustments.

A risk-based assessment of the system of ICFR for the year ended March 31, 2018 was completed in accordance with the Treasury Board Policy on Financial Management and the results and action plans are summarized in the annex.

The effectiveness and adequacy of NRC 's system of internal control is reviewed by the work of Internal Audit and Financial Monitoring staff, who conduct periodic audits of different areas of NRC 's operations, and by the NRC Departmental Audit Committee, which oversees management's responsibilities for maintaining adequate control systems and the quality of financial reporting, and which recommends the consolidated financial statements to the President.

Ernst & Young LLP has expressed an opinion on the fair presentation of the consolidated financial statements of NRC for the year ended March 31, 2018, which does not include an audit opinion on the annual assessment of the effectiveness of NRC 's internal controls over financial reporting.

Iain Stewart
President

Dale MacMillan, CPA , CGA
Vice‑President, Corporate Services and Chief Financial Officer

Ottawa, Canada
June 28, 2018

Independent auditors' report

To the National Research Council Canada

We have audited the consolidated financial statements of National Research Council Canada, which comprise the consolidated statement of financial position as at 31 March 2018, and the consolidated statements of operations and departmental net financial position, change in departmental net financial assets, and cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

Management's responsibility for the financial statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of National Research Council Canada as at 31 Mar 2018 and the results of its operations, changes in its departmental net financial position and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.

Other matter

The consolidated financial statements of National Research Council Canada as at March 31, 2017 and for the year then ended were audited by another auditor who expressed an unmodified opinion on those statements on June 29, 2017.

Ottawa, Canada
June 28, 2018

Ernst & Young, LLP
Chartered Professional Accountants
Licensed Public Accountants

National Research Council Canada
Consolidated Statement of Financial Position
As at March 31

(in thousands of dollars)

  2018 2017
Financial Assets
Due from Consolidated Revenue Fund 303,546 295,508
Accounts receivable (Note 4) 42,650 41,884
Inventory for resale 6,140 5,271
Cash and investments (Note 5) 11,146 14,182
Total gross financial assets 363,482 356,845
Financial assets held on behalf of Government
Accounts receivable (Note 4) (63) (130)
Total financial assets held on behalf of Government (63) (130)
Total net financial assets 363,419 356,715
Liabilities
Accounts payable and accrued liabilities (Note 6) 197,055 201,062
Vacation pay and compensatory leave 29,746 28,984
Lease inducements 30,206 32,754
Deferred revenue (Note 7) 9,139 8,169
Lease obligation for tangible capital assets (Note 8) 719 -
Employee future benefits (Note 9) 30,281 31,317
Total liabilities 297,146 302,286
Departmental net financial assets 66,273 54,429
Non-Financial Assets
Prepaid expenses 15,733 12,707
Endowment fund investments (Note 10) 5,259 5,137
Inventory for consumption 6,747 7,932
Tangible capital assets (Note 11) 626,506 588,945
Total non-financial assets 654,245 614,721
Departmental net financial position 720,518 669,150
 

Contractual rights (Note 12)
Contractual obligations (Note 13)
Environmental liabilities (Note 14)
Contingent liabilities (Note 15)
The accompanying notes form an integral part of these consolidated financial statements.

Iain Stewart
President

Dale MacMillan, CPA , CGA
Vice‑President, Corporate Services and Chief Financial Officer

Ottawa, Canada
June 28, 2018

National Research Council Canada
Consolidated Statement of Operations and Departmental Net Financial Position
For the Year Ended March 31

(in thousands of dollars)

  2018
Planned Results
2018 2017
Expenses
Technology Development and Advancement 337,401 388,583 364,991
Industrial Research Assistance Program 280,444 283,665 326,582
Science Infrastructure and Measurement 123,908 129,021 126,103
Internal Services 244,557 244,171 247,115
Total expenses 986,310 1,045,440 1,064,791
Revenues
Technical services 86,483 112,673 97,120
Research services 57,502 66,883 55,763
Intellectual property, royalties and fees 8,497 12,292 8,613
Grants and contributions 19,015 10,276 17,461
Rentals 6,445 6,628 6,880
Sales of goods and information products 6,923 6,555 7,734
Lease inducement revenue 2,548 2,548 2,548
Other - 3,625 6,482
Revenues earned on behalf of Government (100) (128) (122)
Total revenues 187,313 221,352 202,479
Net cost of operations before government funding and transfers 798,997 824,088 862,312
Government funding and transfers
Net cash provided by Government 794,551 812,949 837,933
Change in due from Consolidated Revenue Fund - 8,038 13,003
Services provided without charge by other government
departments and agencies (Note 16)
54,534 54,473 52,265
Transfers from (to) other government departments
(Note 17)
- (4) (6)
Net revenue from operations after government funding and transfers 50,088 51,368 40,883
Departmental net financial position – Beginning of year 669,150 669,150 628,267
Departmental net financial position – End of year 719,238 720,518 669,150
 

Segmented information (Note 18)

The accompanying notes form an integral part of these consolidated financial statements.

National Research Council Canada
Consolidated Statement of Change in Departmental Net Financial Assets
For the Year Ended March 31

(in thousands of dollars)

  2018
Planned Results
2018 2017
Net revenue from operations after government funding and transfers 50,088 51,368 40,883
Change due to tangible capital assets
Acquisition of tangible capital assets (190,002) (92,839) (108,596)
Amortization of tangible capital assets 50,000 54,003 51,637
Proceeds from disposal of tangible capital assets - 173 264
Net loss on disposal of tangible capital assets
including adjustments
- 802 740
Transfers from (to) other government departments
(Note 17)
- 4 6
Other adjustments - 296 (345)
Total change due to tangible capital assets (140,002) (37,561) (56,294)
Change due to inventory for consumption - 1,185 (1,825)
Change due to endowment fund investments - (122) (67)
Change due to prepaid expenses - (3,026) (1,450)
Net change in departmental net financial assets (89,914) 11,844 (18,753)
Departmental net financial assets – Beginning of year 54,429 54,429 73,182
Departmental net financial assets – End of year (35,485) 66,273 54,429
 

The accompanying notes form an integral part of these consolidated financial statements.

National Research Council Canada
Consolidated Statement of Cash Flows
For the Year Ended March 31

(in thousands of dollars)

  2018 2017
Operating Activities
Net cost of operations before government funding and transfers 824,088 862,312
Non‑cash items:
Amortization of tangible capital assets (54,003) (51,637)
Net loss on disposal of tangible capital assets (802) (740)
Services provided without charge by other government departments
and agencies (Note 16)
(54,473) (52,265)
Other adjustments to tangible capital assets (296) 345
Variations in Consolidated Statement of Financial Position:
Increase (decrease) in accounts receivable 833 (9,323)
Increase (decrease) in inventory for resale 869 (3)
Increase (decrease) in prepaid expenses 3,026 1,450
Increase (decrease) in inventory for consumption (1,185) 1,825
Decrease (increase) in accounts payable and accrued liabilities 4,007 (32,667)
Decrease (increase) in vacation pay and compensatory leave (762) (1,073)
Decrease (increase) in lease inducements 2,548 2,548
Decrease (increase) in deferred revenue (970) 841
Decrease (increase) in lease obligation for tangible capital assets (852) -
Decrease (increase) in employee future benefits 1,036 3,236
Cash used in operating activities 723,064 724,849
Capital Investing Activities
Acquisitions of tangible capital assets 92,839 108,596
Proceeds from disposal of tangible capital assets (173) (264)
Cash used in capital investing activities 92,666 108,332
Investing Activities
Income from endowment fund investments 149 165
Awards granted from endowment fund (27) (98)
Increase (decrease) in CFHT and TIO cash and investments (3,036) 4,685
Cash used in (provided by) investing activities (2,914) 4,752
Financing Activity
Lease payments for tangible capital assets 133 -
Cash used in financing activity 133 -
Net cash provided by Government of Canada 812,949 837,933
 

The accompanying notes form an integral part of these consolidated financial statements.

National Research Council Canada
Notes to Consolidated Financial Statements
For the Year Ended March 31, 2018

1. Authority and Objectives

The National Research Council Canada ( NRC ) exists under the National Research Council Act ( NRC Act) and is a departmental corporation named in Schedule II of the Financial Administration Act. The mission of NRC is to have an impact by advancing knowledge, applying leading-edge technologies, and working with other innovators to find creative, relevant and sustainable solutions to Canada's current and future economic, social and environmental challenges.

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

  • Technology Development and Advancement: Develops and advances technologies to enhance the prosperity of Canadian industries in support of federal priorities and to bring new and innovative products and processes to the marketplace.
  • Industrial Research Assistance Program ( IRAP ): 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.
  • Science Infrastructure and Measurement: Manages national science and infrastructure critical to research, development and innovation by Canadian scientific and technological communities and helps clients make the most of this infrastructure by facilitating access to a wide range of Canadian and international user communities and by participating in networks.
  • 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 those provided specifically to a program.

2. Summary of Significant Accounting Policies

The Public Sector Accounting Board (PSAB) issued new accounting standards effective for fiscal years beginning on or after April 1, 2017.

As a result, NRC adopted the new accounting standard for Inter-entity Transactions (PS 3420). This new Section establishes standards on how to account for and report transactions between public sector entities that comprise a government's reporting entity from both a provider and recipient perspective. The adoption of this new standard did not result in any financial impact on NRC 's consolidated financial statements.

NRC also adopted the new accounting standards Related Party Disclosures (PS 2200), Contingent Assets ( PS  3320) and Contractual Rights (PS 3380). These new accounting standards only impact note disclosures. The adoption of PS 2200 and PS  3320 did not result in a significant impact on the disclosures included in NRC 's consolidated financial statements. The disclosure on PS  3380 is included in Note 12.

These consolidated financial statements have been prepared using the Government's accounting policies stated below, which are based on Canadian public sector accounting standards. The presentation and results using the stated accounting policies do not result in any significant differences from Canadian public sector accounting standards.

Significant accounting policies are as follows:

a) Parliamentary authorities

NRC is financed mainly by the Government of Canada through Parliamentary authorities. Financial reporting of authorities provided to NRC do not parallel financial reporting according to generally accepted accounting principles since authorities are primarily based on cash flow requirements. Consequently, items recognized in the Consolidated Statement of Operations and Departmental Net Financial Position and in the Consolidated Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 provides a reconciliation between the bases of reporting. The planned results amounts in the "Expenses" and "Revenues" sections of the Consolidated Statement of Operations and Departmental Net Financial Position are the amounts reported in the Consolidated Future oriented Statement of Operations included in the 2017-18 Departmental Plan. The planned results amounts in the "Government funding and transfers" section of the Consolidated Statement of Operations and Departmental Net Financial Position and the Consolidated Statement of Change in Departmental Net Financial Assets were prepared for internal management purposes and have not been previously published.

b) Consolidation

These consolidated financial statements include both NRC and its portion of the accounts for organizations for which it has consolidated operations between January 1 and December 31, 2017. These organizations include the Canada-France-Hawaii Telescope Corporation ( CFHT ) and the TMT International Observatory, LLC ( TIO ). The NRC relationship with CFHT and TIO meets the definition of a government partnership under Canadian public sector accounting standards, which requires that its results be proportionally consolidated within those of NRC . All inter organizational balances and transactions are eliminated as part of the consolidation process. CFHT and TIO have audited financial statements as at December 31, 2017 that have been proportionally consolidated with NRC 's March 31, 2018 financial statements.

c) 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 (including agencies) of the Government.

d) Amounts due from the CRF

Amounts due from 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 authorities to discharge its liabilities.

e) Revenues

Revenues are recognized in the year in which the underlying transaction or event occurred that gave rise to revenue as follows:

  • Research and technical services: Revenues are recognized as services are provided based on percentage-of-completion.
  • Licences and fees for intellectual property: Revenues are recognized at the point of time when the customer has a right to use NRC 's intellectual property and the performance obligation is satisfied.
  • Royalties generated from usage or based on customer's sales from licences: Revenues are recognized over the licence period as performance is satisfied and the right to payment is enforceable.
  • Sales of goods and information products: Revenue is recognized when goods or information products are delivered to the client.
  • Rentals: Revenue is recognized in the period to which the lease or use of property relates.
  • Grants and contributions: Revenue is recognized when the transfer payment is authorized and any eligibility criteria are met, except to the extent that transfer stipulations give rise to an obligation that meets the definition of a liability.

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 are recorded as deferred revenue.

Receipts are deposited to the CRF . Under the NRC Act, money received by NRC through the conduct of its operations is respendable in the current or in subsequent years.

Revenues that are non-respendable are not available to discharge NRC 's liabilities. While the President of NRC is expected to maintain accounting control, he has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are therefore presented as a reduction of NRC 's gross revenues.

f) Expenses

  • Expenses are recorded on the accrual basis.
  • 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.
  • Grants are recognized in the year in which the conditions for payment are met. In the case of grants that 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 consolidated financial statements.
  • Vacation pay and compensatory leave are accrued as the benefits are earned by employees under their respective terms of employment.
  • Services provided without charge by other government departments and agencies for accommodation, employer contributions to the health and dental insurance plans, legal services, workers' compensation and the services related to the email, data centre and network services and the email, data centre and network support unit as well as the acquisition and provision of hardware and software for end user devices are recorded as operating expenses at their estimated cost.

g) Employee future benefits

i) Pension benefits

Eligible employees participate in the Public Service Pension Plan (the Plan), a multi-employer pension plan administered by the Government of Canada. NRC 's contributions to the Plan are charged to expenses in the year incurred and represent NRC 's total obligation to the Plan. 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.

ii) Severance benefits

Employees entitled to severance benefits under labour contracts or conditions of employment earn these benefits as services necessary to earn them are rendered. The obligation relating to the benefits earned by employees is derived from an actuarial evaluation specific to NRC .

h) Lease inducements

Lease inducements represent incentives received by NRC to enter into lease agreements for property at a nominal cost of one dollar. Lease inducements are deferred and amortized on the same basis as the related tangible capital assets.

i) Accounts receivable

Accounts receivable are stated at the lower of cost and net recoverable value. A valuation allowance is recorded for receivables where recovery is considered uncertain.

j) 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 consolidated financial statements.

k) Environmental liabilities

Environmental liabilities consist of estimated costs related to the remediation of contaminated sites as well as estimated costs related to obligations associated with the retirement of tangible capital assets and other environmental liabilities.

i) Contaminated sites

A liability for remediation of contaminated sites is recognized when all of the following criteria are satisfied:

  • an environmental standard exists;
  • contamination exceeds the environmental standard;
  • NRC is directly responsible or accepts responsibility;
  • NRC expects that future economic benefits will be given up; and
  • a reasonable estimate of the amount can be made.

The liability reflects NRC 's best estimate of the amount required to remediate the sites to the current minimum standard for their use prior to contamination. When the cash flows required to settle or otherwise extinguish a liability are expected to occur over extended future periods, a present value technique is used. The discount rate applied is taken from the Government's Consolidated Revenue Fund monthly lending rates for periods of one year and over. The discount rates used are based on the term rate associated with the estimated number of years to complete remediation.

ii) Asset retirement obligations

A liability for an asset retirement obligation is recognized when all of the following criteria are satisfied:

  • there is an agreement, contract, legislation, or a constructive or equitable obligation that obligates NRC to incur retirement costs in relation to a tangible capital asset;
  • the past event or transaction giving rise to the retirement liability has occurred;
  • it is expected that future economic benefits will be given up; and
  • a reasonable estimate of the amount can be made.

These costs are normally capitalized and amortized over the asset's estimated useful life based on NRC 's best estimates of the cost to retire the tangible capital asset. The liability reflects the present value of estimated cash flows required to retire the assets where amounts can be reasonably estimated and is expected to be settled as the related sites, facilities or assets are removed from service.

The recorded environmental liabilities are adjusted each year, as required, for present value adjustments, inflation, new obligations, changes in management estimates and actual costs incurred.

If the likelihood of NRC 's responsibility is not determinable, a contingent liability is disclosed in the notes to the financial statements. If measurement uncertainty exists, it is also disclosed in the notes to the consolidated financial statements.

l) Inventories

Inventory consists of parts, materials and supplies held for future program delivery as well as inventory for resale. Inventory for resale is recorded at the lower of cost, using the average cost method, or net realizable value. Inventory for consumption is recorded at cost using the average cost method.

m) Equity investments

Equity investments include shares in public and privately held companies. Equity investments are typically obtained as a result of debt settlement negotiations or as a result of non-monetary transactions (where financial assistance at better-than-market conditions was provided to firms through access to intellectual property, equipment and incubation space in laboratories). If the estimates of the non-monetary transactions cannot be determined, the equity investments are initially recorded at a nominal value. Otherwise they are initially recorded at fair value based on market prices. If the fair value of equity investments becomes lower than the book value and this decline in value is considered to be other than temporary, the equity investments are written down to fair value.

n) Endowment fund investments

Endowments consist of donations subject to externally imposed restrictions stipulating that the resources be maintained permanently by NRC . Income from the endowment fund investments may only be used for the purposes established by the donors.

Funds received for endowments are invested in bonds and other low risk instruments and are carried at amortized cost. Discounts and premiums arising on the purchase of these investments are amortized over the term of the investments.

o) 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 a foreign currency and CFHT and TIO assets and liabilities are translated into Canadian dollars using the rate of exchange in effect at year-end. Gains and losses resulting from foreign currency transactions are included in the applicable line on the Consolidated Statement of Operations and Departmental Net Financial Position according to the activities to which they relate. Net gains and losses relating to the sale of goods or services denominated in a foreign currency are included in revenues. Net gains and losses relating to the purchase of goods or services denominated in a foreign currency are included in expenses. Contractual obligations may contain foreign currencies that are translated into Canadian dollar equivalents using the rate of exchange in effect at March 31, 2018. CFHT and TIO revenues and expenses are translated into Canadian dollar equivalents using the average rate during the fiscal year.

p) Tangible capital assets

All tangible capital assets and leasehold improvements having an initial cost of $10,000 or more are recorded at their acquisition cost. Contributed tangible capital assets are recorded at fair 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 once the tangible capital asset is deemed held for sale.

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

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 the 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.

Where NRC enters into land leases at a nominal value, the transaction is considered as a non-monetary transaction and is recorded at fair value. If the fair value cannot be reasonably determined, the amount of the transaction is recorded at a nominal value.

The tangible capital assets consolidated from CFHT are stated at cost. Amortization is calculated on the straight-line method over the estimated useful lives of the tangible capital assets ranging from 4 to 50 years.

The tangible capital assets consolidated from TIO are stated at cost. Amortization is calculated on the straight-line method over the estimated useful lives of the tangible capital assets ranging from 3 to 10 years.

q) Measurement uncertainty

The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses reported in the consolidated financial statements. At the time of preparation of these consolidated statements, management believes the estimates and assumptions to be reasonable. The most significant items where estimates are used are percentage-of-completion on revenue from the provision of services, contingent liabilities, remediation liabilities, asset retirement obligations, the liability for employee severance benefits, the allowance for doubtful accounts, the fair value of non-monetary transactions related to leased tangible capital assets and the useful life of tangible capital assets. Actual results could significantly differ from those estimated. Management's estimates are reviewed periodically and, as adjustments become necessary, they are recorded in the consolidated financial statements in the year they become known.

3. Parliamentary Authorities

NRC receives most of its funding through annual parliamentary authorities. Items recognized in the Consolidated Statement of Operations and the Departmental Net Financial Position and the Consolidated 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 current year authorities used

(in thousands of dollars)

  2018 2017
Net cost of operations before government funding and transfers 824,088 862,312
Adjustments for items affecting net cost of operations but not affecting authorities:
Revenues 221,352 202,479
Amortization of tangible capital assets (54,003) (51,637)
Services provided without charge by other government departments
and agencies (Note 16)
(54,473) (52,265)
Decrease (increase) in salary accrual (4,700) (15,770)
Decrease (increase) in employee future benefits 1,036 3,236
Refund of previous years' expenditures 2,746 5,074
Other decrease (increase) (1,285) 3,178
Bad debt expense (55) (1,182)
Cost of goods sold (1,915) (878)
Loss on disposal of tangible capital assets (802) (740)
Increase (decrease) in inventory (2,376) (1,204)
CFHT- Contributed personnel services from affiliates (897) (1,071)
Decrease (Increase) in vacation pay and compensatory leave (762) (1,073)
Decrease (Increase) in accrued liabilities not charged to authorities (1,185) (487)
Decrease (increase) in remediation liabilities (Note 6) (506) (2,477)
Total items affecting net cost of operations but not affecting authorities 102,175 85,183
Adjustments for items not affecting net cost of operations but affecting authorities:
Acquisitions of NRC tangible capital assets and additions
to assets under construction
88,041 95,935
Increase (decrease) in NRC prepaid expenses 2,756 1,392
Inventory purchases 182 3,918
Decrease (increase) in lease obligations for tangible capital assets (719) -
Total items not affecting net cost of operations
but affecting authorities
90,260 101,245
Current year authorities used 1,016,523 1,048,740
 

b) Authorities provided and used

(in thousands of dollars)

  2018 2017
Authorities provided:
Vote 1 – Operating expenditures 410,248 402,442
Vote 5 – Capital expenditures 107,122 123,186
Vote 10 – Grants and contributions 377,821 398,196
Statutory amounts:
Revenues pursuant to paragraph 5(1)(e) of the National Research Council Act 339,147 328,721
Contributions to employee benefit plans 52,205 54,777
Proceeds from the disposal of surplus Crown assets 192 294
Collection agency fees 2 5
Loss on foreign exchange 105 -
Less:
Revenues available for use in future years (131,666) (132,883)
Lapsed authorities:
Frozen allotments – Operating (127) (14,524)
Frozen allotments – Grants and contributions (76,115) (46,580)
Frozen allotments – Capital (16,800) (38,129)
Unexpended authorities – Grants and contributions (7,669) (8,566)
Unexpended authorities – Operating (17,230) (3,050)
Unexpended authorities – Capital (20,712) (15,149)
Current year authorities used 1,016,523 1,048,740
 

4. Accounts Receivable

The following table presents details of NRC 's accounts receivable balances:

(in thousands of dollars)

  2018 2017
Receivables from external parties 36,171 34,931
Receivables from Canada Revenue Agency GST (Note 16) 2,784 2,656
Receivables from other government departments and agencies (Note 16) 3,615 5,415
CFHT – Accounts receivable 201 16
TIO – Accounts receivable - 78
Receivable and advances from employees 281 178
  43,052 43,274
Less: Allowance for doubtful accounts on receivables from external parties (402) (1,390)
Accounts receivable net of allowances 42,650 41,884
Accounts receivable held on behalf of Government (63) (130)
Net accounts receivable 42,587 41,754
 

5. Cash and Investments

(in thousands of dollars)

  2018 2017
Cash and investments held by CFHT 1,947 2,691
Cash and investments held by TIO 9,199 11,491
Equity investments - -
Cash and investments 11,146 14,182
 

Equity investments include shares in two public companies (two in 2017) and one privately held company (one in 2017). These shares were obtained through debt settlement or non-monetary transactions. NRC will consider timely opportunities for divestiture of equity investments by taking into account the interests, market liquidity and expected future growth of the applicable company.

As at March 31, 2018, the book value of the equity investments was three dollars (three dollars in 2017). The fair value of NRC 's equity investments in public companies was nine dollars (69 dollars in 2017). The fair value of the privately held companies is not determinable.

6. Accounts Payable and Accrued Liabilities

The following table presents details of NRC 's accounts payable and accrued liabilities:

(in thousands of dollars)

  2018 2017
Accounts payable – External parties 95,273 132,587
Accounts payable – Other government departments and agencies (Note 16) 21,351 10,941
Accrued wages and employee benefits 69,339 47,822
Contractor holdbacks 2,645 2,131
Remediation liabilities (Note 14a) 3,224 2,718
Sales tax payable 555 334
CFHT – Accounts payable 291 211
TIO – Accounts payable 4,377 4,318
Total accounts payable and accrued liabilities 197,055 201,062
 

7. Deferred Revenue

Deferred revenue represents the balances at year-end of unearned revenues stemming from amounts received from external parties that are restricted in order to fund the expenditures related to specific research projects and stemming from amounts received for fees prior to services being performed. Revenue is recognized in the period in which these expenditures are incurred or in which the service is performed. Details of the transactions related to this account are as follows:

(in thousands of dollars)

  2018 2017
Opening balance 8,011 8,958
Funds received 67,031 45,193
Revenue recognized (66,056) (46,140)
Closing balance 8,986 8,011
CFHT – Deferred revenue 153 158
Total deferred revenue 9,139 8,169
 

8. Lease Obligation for Tangible Capital Assets

NRC has entered into an agreement to lease scientific equipment under capital lease with a cost of $852,000 and accumulated amortization of $28,000 as at March 31, 2018 ($0 as at March 31, 2017). The obligation related to the upcoming years include the following:

(in thousands of dollars)

  2018 2017
2019 185 -
2020 185 -
2021 185 -
2022 139 -
2023 47 -
Total future minimum lease payments 741 -
Less: imputed interest (1.75%) (22) -
Balance of obligations under leased tangible capital assets 719 -
 

9. Employee Future Benefits

a) Pension benefits

Eligible NRC employees participate in the Public Service Pension Plan (the Plan), which is sponsored and administered by the Government of Canada. Pension benefits accrue up to a maximum of 35 years at a rate of 2% 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. Due to the amendment of the Public Service Superannuation Act following the implementation of provisions related to Canada's Economic Action Plan 2012, employee contributors have been divided into two groups - Group 1 relates to existing Plan members as of December 31, 2012 and Group 2 relates to members joining the Plan on or after January 1, 2013. Each group has a distinct contribution rate.

The 2017-2018 expense amounts to $35,551,328 ($38,163,026 in 2017). For Group 1 members, the expense represents approximately 1.01 times (1.12 times in 2017) the employee contribution and, for Group 2 members, approximately 1.00 times (1.08 times in 2017) the employee contributions.

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.

b) Severance benefits

NRC provides severance benefits to its employees based on eligibility, years of service and salary at termination of employment. These severance benefits are not pre-funded. Benefits will be paid from future authorities.

Severance benefits provided to NRC 's employees were previously based on an employee's eligibility, years of service and salary at termination of employment. However, since 2011 the accumulation of severance benefits for voluntary departures progressively ceased for substantially all employees. Employees subject to these changes were given the option to be paid the full or partial value of benefits earned to date or collect the full or remaining value of benefits upon departure from the public service. By March 31, 2018, substantially all settlements for immediate cash out were completed. Severance benefits are unfunded and, consequently, the outstanding obligation will be paid from future authorities.

The changes in the obligations during the year were as follows:

(in thousands of dollars)

  2018 2017
Accrued benefit obligation, beginning of year 31,317 34,553
Expense (adjustment) for the year 2,061 (309)
Benefits paid during the year (3,097) (2,927)
Accrued benefit obligation, end of year 30,281 31,317
 

10. Endowment Fund Investments

This account was established pursuant to paragraph 5(1)(f) of the NRC Act to record the residue of the estate of the late H.L. Holmes. Up to two thirds of the endowment fund's annual net income (maximum of $100,000) is used to finance the H.L. Holmes award on an annual basis. The award provides the opportunity to post-doctoral students to study at world famous graduate schools or research institutes under outstanding researchers. The monetary value and number of awards granted is established by the H.L. Holmes selection committee.

(in thousands of dollars)

  2018 2017
Endowment fund investments, beginning of year 5,137 5,070
Net income from endowment 149 165
Awards granted (27) (98)
Endowment fund investments, end of year 5,259 5,137
 

The portfolio for endowment fund investments had an average effective return of 3.41% (3.56% in 2017) and an average term to maturity of 2.12 years as at March 31, 2018 (1.01 years as at March 31, 2017). The fair value of the endowment investments as at March 31, 2018 was $5,244,088 ($5,262,918 in 2017).

11. Tangible Capital Assets

(in thousands of dollars)

  Cost Accumulated Amortization Net Book Value
Tangible capital asset class Opening balance Acquisitions Adjustments  Table note 1 Disposals and write‑offs Closing balance Opening balance Amortization Adjustments Disposals and write‑offs Closing balance 2018 2017
Land 9,766 - - - 9,766 - - - - - 9,766 9,766
Buildings and facilities 800,378 8,504 12,282 - 821,164 (533,426) (17,924) - 14 (551,336) 269,828 266,952
Works and infrastructure 36,090 698 2,184 - 38,972 (21,391) (818) - - (22,209) 16,763 14,699
Machinery, equipment and furniture 543,673 11,982 20,860 (17,240) 559,275 (408,808) (28,998) - 16,044 (421,762) 137,513 134,865
Informatics equipment 35,804 344 136 (619) 35,665 (34,472) (491) - 602 (34,361) 1,304 1,332
Informatics software 19,253 466 323 (313) 19,729 (16,007) (1,195) - 311 (16,891) 2,838 3,246
Vehicles 3,224 162 24 (256) 3,154 (2,217) (244) - 257 (2,204) 950 1,007
Aircraft 18,853 248 166 - 19,267 (11,263) (442) - - (11,705) 7,562 7,590
Leasehold improvements 17,352 - - - 17,352 (7,858) (664) - - (8,522) 8,830 9,494
Assets under construction 78,971 56,757 (16,900) (18,544) 100,284 - - - - - 100,284 78,971
Assets under construction- NRC /TIO 8,816 8,028 - - 16,844 - - - - - 16,844 8,816
Leased tangible capital assets 63,700 852 - - 64,552 (30,946) (2,576) - - (33,522) 31,030 32,754
CFHT – Tangible capital assets 24,730 516 (997) (6,010) 18,239 (17,891) (393) - 6,792 (11,492) 6,747 6,839
TIO – Tangible capital assets 12,841 4,282 (401) - 16,722 (227) (258) - 10 (475) 16,247 12,614
Total 1,673,451 92,839 17,677 (42,982) 1,740,985 (1,084,506) (54,003) - 24,030 (1,114,479) 626,506 588,945
 

Amortization expense for the year ended March 31, 2018 is $54,002,711 ($51,636,781 in 2017).

At March 31, 2018, NRC held eight land lease agreements (eight in 2017) for a nominal annual cost with universities. In these instances, NRC owns the building on the leased land. The fair value of the land leases for these non-monetary transactions could not be determined at the inception of the lease; therefore, they are recorded at a nominal value.

On March 21, 1996, NRC entered into a non-monetary transaction consisting of a lease agreement with the University of Western Ontario, whereby leased property was provided to NRC for 25 years (to August 31, 2022) at a nominal cost of one dollar. The property was recorded as a leased tangible capital asset at its fair value of $10,000,000. The annual amortization of $400,000 for the leased tangible capital asset is exactly offset by the amortization of the deferred contribution related to the leased property.

On May 23, 2006, NRC took possession of a new facility and entered into a non-monetary transaction with the University of Alberta at a nominal cost of one dollar per year. The lease provides a one-year term with options to renew on 10 sequential occasions, each of the first nine renewals to be for a period of five years and the 10th renewal for a period of four years (to May 22, 2031). The building was recorded as a leased tangible capital asset at its fair value of $44,400,000. The annual amortization of $1,776,000 for the leased tangible capital asset is exactly offset by the amortization of the deferred contribution related to the leased building.

On September 1, 2006, NRC took possession of a new facility and entered into a non-monetary transaction with the University of Prince Edward Island at a nominal cost of one dollar per year. The latest lease starting April 1, 2018 provides a three-year term with renewal options for two additional periods of one year. The building was recorded as a leased tangible capital asset at its fair value of $9,300,000. The annual amortization of $372,000 for the leased tangible capital asset is exactly offset by the amortization of the deferred contribution related to the leased building.

12. Contractual Rights

The activities of NRC sometimes involve the negotiation of contracts or agreements with outside parties that result in NRC having rights to both assets and revenues in the future. They principally involve research and technical services, and intellectual property, royalties and fees. Major contractual rights that will generate revenues in future years and that can be reasonably estimated are summarized as follows:

(in thousands of dollars)

  2019 2020 2021 2022 2023 and
thereafter
Total
Revenue contracts 73,129 24,542 17,088 5,123 2,806 122,688
 

13. 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 the services/goods are received. Transfer payments and significant operating contractual obligations that can be reasonably estimated are summarized as follows:

(in thousands of dollars)

  2019 2020 2021 2022 2023 and
thereafter
Total
Transfer payments 174,230 78,039 11,367 4,015 - 267,651
Operating contracts 61,847 29,074 16,364 9,092 7,438 123,815
Total 236,077 107,113 27,731 13,107 7,438 391,466
 

Transfer payments contractual obligations to CFHT and TIO as shown in Notes 16c) and 16d) have been excluded from the contractual obligations.

14. Environmental Liabilities

a) Remediation of contaminated sites

The Government has developed a "Federal Approach to Contaminated Sites", which incorporates a risk-based approach to the management of contaminated sites. Under this approach, the Government has inventoried the contaminated sites on federal lands; each site identified is to be classified, managed and recorded in a consistent manner. The systematic approach aides in the identification of the high-risk sites in order to allocate limited resources to those sites that pose the highest risk to the environment and human health.

NRC has identified seven sites (twelve sites in 2017) where contamination may exist for which an assessment, remediation and monitoring may be required. Of these sites, NRC has identified three sites (six sites in 2017) where action is possible and for which a liability of $3,244,044 ($2,718,164 in 2017) has been recorded. The estimated liability is based on either external scientific/engineering consultants or NRC environmental officers with contaminated site experience reviewing the results of the assessments and underlying assumptions, and estimating the cost of the most likely remediation or risk management scenario. No additional site was identified during 2017-18.

The following table presents the total estimated amounts of these liabilities by nature, the associated expected recoveries and the total undiscounted future expenditures as at March 31, 2018 and March 31, 2017. When the liability estimate is based on future cash requirement, the amount is adjusted for inflation using a forecast Consumer Price Index rate of 2%. Inflation is included in the undiscounted amount. The source of the contamination is associated with the operations and maintenance where activities such as fuel storage/handling, waste sites and use of metal based paint resulted in former or accidental contamination, e.g. metals, petroleum hydrocarbons, polyaromatic hydrocarbons, etc. Sites often have multiple sources of contamination.

Nature of Liability

Nature Number of Sites 2018 Estimated Liability 2018 Estimated Total Undiscounted Expenditures 2018 Number of sites 2017 Estimated Liability 2017 Estimated Total Undiscounted Expenditures 2017
Former Mineral Exploration - - - 1 32,660 32,660
Landfills/Waste Sites - - - 1 7,344 7,344
Office/Commercial/Industrial Operations 3 3,224,044 3,224,044 4 2,678,160 2,678,160
Total 3 3,224,044 3,224,044 6 2,718,164 2,718,164
 

There were no expected recoveries in 2017 and 2018, and the estimated total undiscounted expenditures equal the estimated liability in 2017 and 2018.

Of the four sites that do not have liabilities, two are considered to be a low priority based on the low level of risk to human health or the environment and have not yet been assessed. Assessments will be initiated to identify if additional work, remediation or risk management is warranted, or if these site files can be closed. If contamination is found and it exceeds an environmental standard, a liability will be recognized as soon as a reasonable estimate can be made. Assessment of one site was completed; decommissioning and site closure is planned during 2018-19. On another site, wells have been decommissioned; therefore, future economic benefits are not expected to be given up, no liability is recorded and site closure is planned for 2018-19.

b) Asset retirement obligation

NRC has recognized an asset retirement obligation of $658,000 ($318,000 in 2017) in the consolidated financial statements as a result of its legal obligation to retire storage tank systems for petroleum products and allied petroleum products. The undiscounted amount of expected future cash flows required to settle the asset retirement obligation is estimated at $759,000 ($486,000 in 2017). The liability for the expected future cash flows, as reflected in the consolidated financial statements, has been discounted at a weighted average of 1.64% (1.40% in 2017) based on the Government of Canada benchmark bonds. This obligation will be settled over the useful lives of the operating assets. The following table summarizes the changes in the future asset retirement obligation:

(in thousands of dollars)

  2018 2017
Asset retirement obligation, beginning of year 318 304
Obligations increased 313 7
Accretion of future asset retirement obligation 27 7
Asset retirement obligation, end of year 658 318
 

Other asset retirement obligations, such as the costs associated with the removal and disposal of asbestos and other designated substances located in NRC buildings, have not been recognized in the consolidated financial statements due to the fact that they are subject to several uncertainties. NRC generally incurs the cost of removing and disposing regulated substances during major building renovations; consequently, the timing and scope of these renovations cannot be reasonably estimated at this time and therefore fair values cannot be reasonably determined. Changes in these assumptions and uncertainties could materially affect NRC 's assets and liabilities as well as the resulting amortization and accretion expenses related to the asset retirement obligation.

The NRC 's ongoing efforts to assess contaminated sites and asset retirement obligations may result in additional environmental liabilities. Any additional liabilities will be accrued in the year in which they become known and can be reasonably estimated.

15. Contingent Liabilities

Claims have been made against NRC in the normal course of operations. Legal proceedings for three claims were pending at March 31, 2018 (four in 2017). NRC has one claim that it believes will likely result in a liability where the amount is indeterminable (one in 2017) and two claims that it believes that outcome is indeterminable, as is the liability amount (three in 2017). In 2018, NRC has zero claims that it believes the outcome is unlikely (none in 2017).

16. 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 received common services that were obtained without charge from other government departments as disclosed below.

a) Common services provided without charge by other government departments and agencies

During the year, NRC received services without charge from other government departments and agencies. These services have been recognized in NRC 's Consolidated Statement of Operations and Departmental Net Financial Position as follows:

(in thousands of dollars)

  2018 2017
Employer's contributions to the health and dental insurance plans provided by Treasury Board Secretariat 34,678 32,837
Email, data centre and network services and the email, data centre and network support unit as well as the acquisition and provision of hardware and software for end user devices provided by Shared Services Canada 19,255 18,822
Legal services provided by Justice Canada 180 255
Workers' compensation benefits provided by Employment and Social Development Canada 167 161
Accommodation Services provided by Public Services and Procurement Canada (PSPC) 193 190
Total 54,473 52,265
 

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 Services and Procurement Canada, are not included in NRC 's Consolidated Statement of Operations and Departmental Net Financial Position.

The activities related to the email, data centre and network services unit and the email, data centre and network support unit were transferred to Shared Services Canada (SSC) on November 15, 2011. Additionally, the activities related to the acquisition and provision of hardware and software for end user devices were transferred to SSC on April 3, 2013. The services provided after these transfer dates are recognized without charge.

b) Other transactions with related parties

(in thousands of dollars)

  2018 2017
Accounts receivable from other government departments and agencies 6,399 8,071
Accounts payable to other government departments and agencies 21,351 10,941
Expenses – Other government departments and agencies 82,382 73,721
Revenues – Other government departments and agencies 83,674 62,227
 

Expenses and revenues disclosed in b) exclude common services provided without charge, which are already disclosed in a).

c) Canada-France-Hawaii Telescope Corporation

NRC has a related party relationship with the following non-federal government entity:

NRC was a founding member of the Canada-France-Hawaii Telescope Corporation (CFHT), a tax-exempt, not-for-profit organization established under Hawaii state law to design, construct and operate a large optical telescope near the summit of Mauna Kea, Hawaii, USA , along with laboratories, equipment and associated installations. CFHT was established in 1974 by a Tripartite Agreement among NRC , the Centre National de la Recherche Scientifique of France and the University of Hawaii. NRC makes annual contributions to fund its 42.5% share of the cost of operations of the telescope and receives no direct benefit in return. However, as a result of NRC 's contributions, Canada receives access to telescope observation hours for Canadian astronomers. As a founding member, NRC can appoint four of the 10 members of the Board of Directors. The NRC relationship with CFHT is considered a government partnership for accounting purposes and CFHT results are proportionally consolidated in these statements. In 2018, NRC contributed $4.0 million to CFHT ($4.1 million in 2017). These contributions are eliminated upon consolidation. CFHT 's condensed financial information for the year ended December 31 is as follows:

(in thousands of dollars)

  December 31, 2017 December 31, 2016
Total assets 20,677 23,705
Total liabilities 1,645 1,671
Total unrestricted net assets 19,032 22,034
Total revenues 13,930 14,585
Total expenses 14,930 16,095
Net operating results (1,000) (1,510)
 

NRC 's future contractual obligations to CFHT are not included in the transfer payment contractual obligations (Note 13) and are as follows:

(in thousands of dollars)

  2019 2020 2021 2022 2023 and
thereafter
Total
CFHT 4,316 4,433 4,544 4,658 9,667 27,618
 

d) TMT International Observatory, LLC

NRC has a related party relationship with the following non-federal government entity:

NRC is a member since April 2015 of the TMT International Observatory, LLC ( TIO ), a tax-exempt, not-for-profit organization established under the state law of Delaware, USA . TIO was incorporated in May 2014 and formed for the purpose of the execution of the Thirty Meter Telescope Project through the construction, commissioning and operation of an observatory. The Corporation was established in 2014 by the Regents of the University of California, the California Institute of Technology, the National Institutes of Natural Sciences (Japan) and the National Astronomical Observatories of the Chinese Academy of Sciences. The Department of Sciences of Technology, Government of India and NRC subsequently became members in 2014 and 2015, respectively. The NRC relationship with TIO is considered a government partnership for accounting purposes and TIO results are proportionally consolidated in these statements.The NRC membership participation was 19.5% as of December 31, 2017 based on the aggregate pledged by all current parties. In 2018, NRC contributed $8.0 million for TIO 's Assets Under Construction ($6.9 million in 2017). TIO 's condensed financial information for the year ended December 31 is as follows:

(in thousands of dollars)

  December 31, 2017 December 31, 2016
Total assets 128,180 127,773
Total liabilities 22,965 23,479
Total unrestricted net assets 105,215 104,294
Total revenues 34,663 77,366
Total expenses 26,649 24,661
Net operating results 8,014 52,705
 

NRC 's future contractual obligations to TIO are based on Parliamentary authorities granted in 2015. NRC is aware of delays in the project, but no impact to future obligations has been identified at the completion of these consolidated financial statements. These contractual obligations for TIO are not included in the transfer payment contractual obligations (Note 13) and are as follows:

(in thousands of dollars)

  2019 2020 2021 2022 2023 and thereafter Total
TIO 66,213 39,209 34,780 33,772 12,145 186,119
 

17. Transfers From/To Other Government Departments

Transfer of tangible capital assets between other government departments and NRC have occurred in 2017 and 2018.

The transactions are as follows:

(in thousands of dollars)

  2018 2017
Net tangible capital asset transfers 4 6
Total 4 6
 

18. Segmented Information

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

The presentation by segment is based on the same accounting policies as described in the Summary of significant accounting policies in Note 2. The following table presents the expenses incurred and revenues generated for the main program activities, by major object of expenses and by major type of revenues. The segment results for the year are as follows:

(in thousands of dollars)

  Technology Development and Advancement Industrial Research Assistance Program Science Infrastructure and Measurement Internal Services 2018
Total
2017
Total
Transfer payments
Grants and contributions - 215,619 65,065 - 280,684 329,380
Total transfer payments - 215,619 65,065 - 280,684 329,380
Operating expenses
Salaries and employee benefits 257,604 55,432 39,879 114,300 467,215 448,808
Utilities, material and supplies 39,189 1,153 6,276 36,815 83,433 80,905
Amortization of tangible capital assets 29,758 4 3,947 20,294 54,003 51,637
Professional services 40,929 6,264 8,346 36,536 92,075 83,310
Repair and maintenance 8,463 10 390 10,235 19,098 21,450
Payment in lieu of taxes - 8 - 13,242 13,250 14,911
Transportation and communication 8,424 2,870 2,848 2,721 16,863 16,609
Rentals 2,018 2,176 318 6,408 10,920 9,365
Awards 26 5 - 2,392 2,423 2,042
Loss (gain) on disposal of tangible capital assets 1,006 - (13) (191) 802 741
Costs of goods sold 272 - 485 8 765 878
Information 727 124 332 605 1,788 2,250
Bad debts - - - 55 55 1,182
Other 167 - 1,148 751 2,066 1,323
Total operating expenses 388,583 68,046 63,956 244,171 764,756 735,411
Total expenses 388,583 283,665 129,021 244,171 1,045,440 1,064,791
Revenues
Research services 64,341 - 2,542 - 66,883 55,763
Technical services 96,930 2,604 4,817 8,322 112,673 97,120
Intellectual property, royalties and fees 709 - - 11,583 12,292 8,613
Sales of goods and information products 4,272 - 2,263 20 6,555 7,734
Rentals 56 - - 6,572 6,628 6,880
Grants and contributions 914 - 6,865 2,497 10,276 17,461
Lease inducement revenue - - - 2,548 2,548 2,548
Other (237) - 1,835 2,027 3,625 6,482
Revenues earned on behalf of Government - - - (128) (128) (122)
Total revenues 166,985 2,604 18,322 33,441 221,352 202,479
Net cost of operations before government funding and transfers 221,598 281,061 110,699 210,730 824,088 862,312
 

19. Financial Instruments

NRC 's financial instruments consist of due from CRF , accounts receivable, 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 consolidated financial statements, management estimates that the carrying values of the financial instruments approximate their fair value due to their impending maturity.