Financial statement discussion and analysis

Consolidated financial statements quick links

For the Year Ended March 31, 2017

Introduction

The following Financial Statement Discussion and Analysis (FSD&A) should be read in conjunction with the audited consolidated financial statements and accompanying notes for the National Research Council of Canada (NRC) for the fiscal year ended March 31, 2017.

The responsibility for the preparation of the FSD&A rests with the management of NRC. It has been prepared in accordance with the Public Sector Statement of Recommended Practice SORP-1.

The purpose of the FSD&A is to highlight information and provide explanations which enhance the users' understanding of NRC's financial position, results of operations, changes in its net financial assets and its cash flows, while demonstrating NRC's accountability for its resources. Additional information on NRC's performance is available in the NRC Departmental Results Report (DRR), and information on its plans and priorities is available in the NRC Report on Plans and Priorities (RPP).

All financial information presented herein is denominated in Canadian dollars, unless otherwise indicated.

Special note regarding forward-looking statements

The words "estimate", "will", "intend", "should", and similar expressions are intended to identify forward-looking statements. These statements reflect assumptions and expectations of NRC, based on its experience and perceptions of trends and current conditions. Although NRC believes the expectations reflected in such forward-looking statements are reasonable, they may prove to be inaccurate, and consequently NRC's actual results could differ materially from expectations. In particular, the risk factors described in the "Risks and Uncertainties" section of this report could cause actual results or events to differ materially from those contemplated in forward-looking statements.

Overview

The National Research Council (NRC) was established by the National Research Council Act. The mission of the NRC is to work with clients and partners to provide innovation support, strategic research, scientific and technical services to develop and deploy solutions to meet Canada's current and future industrial and societal needs.

NRC's budget is allocated through authorities approved by Parliament, and some of NRC's operations are funded through revenue generated from external parties. NRC has separate voted authorities for operating expenditures, capital expenditures and grants and contributions. In addition, NRC has statutory authority for the spending of revenues (pursuant to paragraph 5(1) (e) of the National Research Council Act), contributions to employee benefit plans, proceeds from the disposal of surplus Crown assets, collection agency fees and loss on foreign exchange.

Authorities provided to NRC do not parallel financial reporting according to Canadian public sector accounting standards, since authorities are primarily based on cash accounting principles. Consequently, items recognized in the Consolidated Statement of Operations and Departmental Net Financial Position and the Consolidated Statement of Financial Position are not necessarily the same as those provided through authorities from Parliament. Note 3 of the consolidated financial statements provides reconciliation between the two bases of reporting.

Reporting Entity

The consolidated financial statements include a portion of the accounts of the Canada-France-Hawaii Telescope Corporation (CFHT) and TMT International Observatory LLC (TIO) created for the execution of the Thirty Metre Telescope Project. The NRC has determined that its relationship with both CFHT and with TIO constitutes a government partnership for accounting purposes and the results are proportionately consolidated in the financial statements. Further details are described in Note 2b) of NRC's consolidated financial statements.

Highlights

Consolidated Statement of Financial Position

NRC's financial position, as shown by the Departmental net financial position line in the Consolidated Statement of Financial Position, increased to $669.2 million as at March 31, 2017, from $628.3 million in 2016. NRC's total liabilities as of March 31, 2017 were $302.3 million, an increase of $27.1 million from 2016. Net financial assets totalled $356.7 million, an increase of $8.3 million from 2016.

NRC had departmental net financial assets of $54.4 million, a decrease of $18.8 million from the previous year. Departmental net financial assets represent NRC's total net financial assets less its total liabilities. It is a measure of future income required to pay for past transactions and events.

Detailed explanation and analysis of liability and asset balances can be found in the Variance and Trend Analysis section.

Consolidated Statement of Operations and Departmental Net Financial Position

NRC's 2016‑17 net cost from continuing operations, before government funding and transfers, was $862.3 million compared to $792.6 million in 2015‑16. Total revenue of $202.5 million represents an increase of $16.9 million from the $185.6 million earned in 2015‑16 while expenses increased by $86.6 million to $1,064.8 million.

Grants and contribution expense increased by $36.6 million to $329.4 million in 2016‑17 from $292.8 million in 2015‑16. Operating expenses increased by $24.3 million from $262.3 million in 2015‑16 to $286.6 million in 2016‑17, while personnel expenses increased by $25.7 million from $423.1 million in 2015‑16 to $448.8 million. NRC's $40.9 million net revenue of operations after government funding and transfers ($28.1 million in 2015‑16) resulted in the Departmental net financial position to increase from $628.3 million to $669.2 million.

The following illustrates NRC's total expenses by major category over the past two fiscal years:

Figure 1: Expenses (in $ millions)

Expenses (in $ millions). Long description follows.
 
Long description of NRC's total expenses by major category over the past two fiscal years
  2016-17 2015-16
Personnel 448.8 423.1
Operations 286.6 262.3
Grants and Contributions 329.4 292.8
Total 1,064,8 978.2
 

For further detail and analysis of revenues and expenses, refer to the section Variance and Trend Analysis below.

Consolidated Statement of Cash Flow

The net cash provided by the Government of Canada in 2016‑17 was $837.9 million ($805.0 million in 2015‑16). Cash used in operating activities increased by $2.5 million and cash used in capital investing activities increased by $32.1 million.

Parliamentary Authorities

Parliamentary authorities are primarily based on cash accounting principles. They are shown in Note 3 of the NRC consolidated financial statements.

The following illustrates NRC's voted parliamentary authorities over the past three fiscal years, including the Main Estimates, the Supplementary Estimates, Transfers, Adjustments and Warrants. The "Use of Funds by Source" figures also include the statutory expenditures.

Figure 2: Parliamentary Authorities and Source of Funds (in $ millions)

Figure 2. Long description follows.
 
Long description of Parliamentary Authorities and Source of Funds (in $ millions)
  2016-17 2015-16 2014-15
  Voted Parliamentary Authorities Use of Funds Voted Parliamentary Authorities Use of Funds Voted Parliamentary Authorities Use of Funds
Operating Expenditures Authorities 402.4 398.2 397.6 391.8 465.3 462.4
Capital Expenditure Authorities 123.2 69.9 59.3 45.7 32.1 31.6
Grants & Contributions Authorities 398.2Table 2 note a 343.1 320.8Table 2 note a 302.5Table 2 note a 283.1Table 2 note a 268.2
Statutory Revenue   182.7Table 2 note a   150.9   134.7Table 2 note a
Other Statutory Amounts   54.8Table 2 note bTable 2 note c   54.2Table 2 note bTable 2 note c   58.8Table 2 note bTable 2 note c
Total Voted 923.8 811.2 777.7 740.0 780.5 762.2
Total Authorities   1048.7   945.1   955.7
Total Spent 1048.7   945.1   955.7  

Table notes

Table 2 note a

Total Voted Parliamentary Authorities: NRC is provided with Parliamentary Authorities in three Votes: Vote 1 – Operating expenditures, Vote 5 – Capital expenditures, and Vote 10 – Grants and contributions.

Return to table 2 note a referrer

Table 2 note b

Total Authorities Used: The total authorities used during the year (and shown in Note 3 of NRC's Consolidated Financial Statements). These include voted authorities and statutory authorities.

Return to table 2 note b referrer

Table 2 note c

Total Funds Spent: All authorities, as well as NRC spending of funds from Other Government Departments

Return to table 2 note c referrer

 
  1. Total Voted Parliamentary Authorities: NRC is provided with Parliamentary Authorities in three Votes: Vote 1 – Operating expenditures, Vote 5 – Capital expenditures, and Vote 10 – Grants and contributions.
  2. Total Authorities Used: The total authorities used during the year (and shown in Note 3 of NRC's Consolidated Financial Statements). These include voted authorities and statutory authorities.
  3. Total Funds Spent: All authorities, as well as NRC spending of funds from Other Government Departments.

In 2016‑17, total voted parliamentary authorities increased by $146.1 million. This increase is composed of a $77.4 million increase in grants and contributions authorities, a $63.9 million increase in capital expenditure funding, and a $4.8 million increase in operating expenditure funding.

NRC's actual use of funds applied to voted parliamentary authorities totalled $811.0 million. In addition, NRC had $182.7 million of revenue funded expenditures and spent $54.8 million under other statutory authorities (mainly contributions to employee benefit plans).

Discussion and Analysis

Uncertanities

NRC funds the majority of its salary, operating and capital expenditures from parliamentary authorities. The non-salary portion of this funding is fixed with no indexing for price increases and inflation.

NRC owns and manages 178 specialized buildings and facilities across Canada that comprise approximately 565,666 square meters of space. It also has equipment and informatics base (excluding CFHT and TIO assets) of $617.6 million in cost, with $147.0 million in net book value ($585.7 million in cost, with $132.0 million in net book value in 2015‑16). The underlying IT infrastructure, although on NRC premises, is owned by Shared Services Canada and is therefore not accounted for by NRC. NRC's capacity to fund the upgrade or replacement of these assets from its parliamentary authorities is limited. However, through its 5 year investment plan, NRC is investing funds to maintain its buildings and laboratories at current conditions.

Sunsetting Funding:

For certain new initiatives, it is the practice of the government to provide funding on a sunsetting basis. Rather than providing a permanent increase to parliamentary authorities, the government may allocate funding for specified purposes for a limited period of time with a renewal option. Renewal is conditional on various factors including performance, achieving desired objectives, linkages to priorities, and availability of funds.

Although NRC funding is not necessarily provided on an ongoing basis, new government-approved initiatives often entail ongoing commitments from NRC such as maintenance of new facilities and new staff salaries. There may be stakeholders that support these new initiatives, and in some cases invest in them, with expectations that the initiative will exist beyond the original funding window. These challenges add complexity to planning, budgeting and operations.

Currently, NRC has numerous initiatives and projects funded on a sunsetting basis, examples of which include the following:

Budget 2017:

  • Renewal of funding to sustain operations at the National Research Council of Canada: Renewal of funding proposes to provide NRC with $59.6 million in 2017‑18 to sustain a portion of salary and operating expenses of the Technology Development and Advancement Program. This funding began as Economic Action Plan 2013 which provided funding of $120.8 million over two years (2013‑14 to 2014‑15) followed by Refocus National Research Council in Economic Action Plan 2015 which provided NRC with $119.2 million over two years (2015‑16 to 2016‑17).
  • Youth Employment Strategy: Economic Action Plan 2017 proposes to provide resources totalling $20 million over two years. The funding, under the Renewed Youth Employment Strategy, has the objective to deliver on a thousand jobs for youth in each fiscal year for a total of two thousand jobs over the two years. This funding will supplement NRC's existing annual funding level of $5 million.
  • Clean Air Regulatory Agenda: Economic Action Plan 2017 proposes to provide resources totalling $8.0 million over four years to support efforts to reduce greenhouse gas and air pollutant emissions in order to improve the environment and health of Canadians.
  • Improving the quality of the life of Indigenous people: Economic Action Plan 2017 proposes to provide NRC with $6.0 million from 2017‑18 to 2019-20 to develop, in collaboration with Indigenous stakeholders, information technology to preserve oral histories.

Budget 2016:

  • IRAP: The budget allotted $50.0 million for Industrial Research Assistance Program (IRAP) in 2016‑17 to increase the number of companies served by the Program's highly qualified Industrial Technology Advisors nationwide.
  • Federal Infrastructure: $18.5 million over two years starting in 2016‑17 for the Federal Infrastructure Initiative (serving 7 different initiatives). NRC received $4.3 million in 2016‑17 and will receive $14.2 million in 2017‑18.

Budget 2015:

  • Thirty Meter Telescope: Economic Action Plan 2015 proposed to provide resources totalling $243.5 million over 10 years, starting in 2014‑15, to enable Canadian access to and participation in the construction of the Thirty Meter Telescope. In 2015‑16, NRC started administering $218.0 million of the resources, of which $22.6 million will be taken from its existing reference levels.
  • TRIUMF: NRC has an existing annual reference level of $34.0 million in funding for TRIUMF, Canada's National Laboratory for Particle and Nuclear Physics. Since 1976, NRC has provided over $1.3 billion in funding to TRIUMF of which a total of $45.0 million was provided during 2014‑15. Economic Action Plan 2015 proposed to provide an additional $45.0 million over five years, starting in 2015‑16. The funding supplements the $222.0 million announced in Economic Action Plan 2014, and increases the overall funding for TRIUMF to $267.0 million over five years, of which $171.0 million is sunsetting. In 2016‑17, an amount of $53.7 million was provided to TRIUMF.

Budget 2014:

  • Canada Accelerator and Incubator Program (CAIP): CAIP funding, introduced in Economic Action Plan 2013, used to help outstanding and high-potential incubator and accelerator organizations expand their services to entrepreneurs added $58.5 million in funding over five years to NRC's reference levels. Economic Action Plan 2014 provided an additional $40.0 million over four years starting in fiscal year 2015‑16 to increase the impact of CAIP in helping entrepreneurs realize the business potential of their ideas.

Other:

  • Genomics R&D Initiatives: The Genomics R&D Initiatives (GRDI) is a federal program that coordinates genomics R&D in 6 federal departments and agencies. GRDI supports public policy objectives and key national interest in human health, agriculture and food safety, environment and natural resources management. NRC received funding of $8.4 million in 2016‑17, and will receive $8.4 million each year for the next 2 years for total funding of $42.1 million received since 2014‑15.

Foreign Currency:

  • In its normal course of operation, NRC makes some of its purchases in foreign currencies which expose it to foreign exchange risk. NRC purchased C$58.4 million worth of goods and services in foreign currencies in 2016‑17 (C$61.2 million in 2015‑16); $52.1 million (89%) of the foreign currency purchases were in US dollars ($55.5 million or 91% in 2015‑16). During 2016‑17, it cost NRC an average of $1.32 Canadian dollars to purchase $1 US ($1.33 in 2015‑16).
  • In addition, NRC had C$43.6 million worth of foreign currency receipts in 2016‑17 of which $42.2 million (97%) was received in US currency compared to $39.1 million received in foreign currency in 2015‑16 of which $37.2 million (95%) was in US currency.

Revenue:

  • NRC activities generate revenues which can be reinvested in its operations. In 2016‑17, 28.1% of NRC's salary, operating and capital expenditures were funded by revenue from external sources (22.9% in 2015 16).
  • NRC is focused on increasing its business with external clients; the additional revenue from these activities will strengthen its future financial sustainability. However, significant unexpected downturns affecting industries or government partners of NRC could impact its ability to fund some type of operations.

Variance and Trend Analysis

The following analysis describes the main items appearing on the consolidated financial statements and provides analysis of significant variances and financial trends.

Financial Assets

Due from the Consolidated Revenue Fund (CRF):

This account represents the amount of cash that NRC is entitled to withdraw from the federal government treasury. This includes cash to discharge liabilities for which NRC has already received parliamentary authorities as well as revenue received but not spent. NRC's due from the CRF was $295.5 million as at March 31, 2017 and $282.5 million as at March 31, 2016. This $13.0 million net increase is primarily due to a $16.0 million increase in the cash component of accounts payable to external parties, a $10.0 million net increase in the cash component of payables/receivables to/from other government departments and agencies (OGD) and a $2.0 million increase in the cash component of salaries payable offset by a $16.7 million decrease in revenue available for use in subsequent years.

Accounts Receivable:

Accounts receivable and advances, as detailed in Note 4 of the financial statements, totalled $41.9 million as at March 31, 2017, a $9.3 million decrease from March 31, 2016. This includes accounts receivable with external parties worth $34.9 million ($30.0 million as at March 31, 2016). The corresponding allowance for doubtful accounts was $1.4 million as at March 31, 2017 ($570 thousand as at March 31, 2016), a favourable amount considering the total value of NRC's external revenues. Another $8.1 million ($21.3 million as at March 31, 2016) of the accounts receivable balance relates to other government departments and agencies, and the significant decrease in 2016‑17 is related to GST Receivable from CRA of $16.4 million which is no longer applicable.

Aged Accounts Receivable:

The graph below presents the aged accounts receivable from external parties, other government departments, and employee advances. In 2016‑17, 93% (96% in 2015‑16) of accounts receivable were aged 90 days or below indicating that receivables are collected in a timely manner.

Figure 3: Aged Receivables (in $ millions)

Figure 3. Long description follows.
 
Long description of Aged Receivables (in $ millions)
  Current 1-30 31-90 91-365 Over 365
2016-17 32.3 4.7 2.8 2.1 1.1
2015-16 45.8 1.6 1.9 1.3 0.7
2014-15 28.2 4.9 1.8 1.6 0.8
 

Cash and Investments:

In addition to the Equity Investments held by NRC, this line item includes the consolidated balance of cash and investments held by CFHT and held by TIO as detailed in Note 5 of the consolidated financial statements. CFHT Investments include time certificates of deposit and U.S. government securities; TIO Cash & Cash Equivalents include cash on deposit, temporary investments, and highly liquid financial instruments with original maturities of three months or less.

As part of its mandate to promote industrial innovation in Canada, NRC provides financial assistance to firms through access to equipment, intellectual property and incubation space in its laboratories and Industrial Partnership Facilities. NRC has on occasion taken an equity position in a company in return for assistance provided or in exchange for outstanding debts to NRC. NRC divests of equity investments by taking into account the interests and market liquidity of the company involved.

The full value of equity investments recorded in the Consolidated Statement of Financial Position reflects NRC's investment in publicly traded companies as its shares in privately held corporations are deemed to have no market value. There were no changes in NRC's equity investments which totals $3 in 2016‑17.

The following table provides an overview of NRC's 2016‑17 equity holdings:

Company Opening balance ($) Book value of equity investments acquired, sold or written off during the year ($) Closing balance ($) Market value of publicly traded equity investments ($)
PharmaGap Inc. 1 - 1 0
Cequence Energy Ltd. 1 - 1 53
Privately held corporation 1 - 1 n/a
Total 3 0 3 53

NRC does not intend to hold publicly held securities for the long term.

Liabilities

NRC's total liabilities were $302.3 million as at March 31, 2017, an increase of $27.1 million from the prior year balance of $275.2 million. NRC's liabilities consist of the following:

Accounts Payable and Accrued Liabilities:

NRC's accounts payable and accrued liabilities as at March 31, 2017 were $201.1 million ($168.4 million as at March 31, 2016). The following shows the three largest categories:

Figure 4: Main Classes of Accounts Payable and Accrued Liabilities (in $ millions)

Figure 4. Long description follows.
 
Long description of Main Classes of Accounts Payable and Accrued Liabilities (in $ millions)
  2016-17 2015-16
External Parties 132.6 114.5
Other Government Departments & Agencies 10.9 15.0
Accrued Wages & Employee Benefits 47.8 32.1
 

There was an $18.1 million increase in accounts payable to external parties and an increase of $15.7 million in accrued wages and EBP due to a backlog of non-regular pay items with the implementation of the new Phoenix pay system.

Other Accounts Payable and Accrued Liabilities totalling $9.7 million in 2016‑17, are contractor holdbacks, remediation liabilities, sales tax payable, CFHT accounts payable, and TIO accounts payable as detailed in Note 6 of the consolidated financial statements. The increase of $2.9 million from 2015‑16 is due mainly to increased remediation liabilities and contractor holdback.

Vacation Pay and Compensatory Leave:

Vacation pay and compensatory leave liabilities have decreased over the past five fiscal years being steady over the past three years to represent $29.0 million as at March 31, 2017, an increase of $1.1 million in comparison to 2015‑16. In comparison to years prior to 2013‑14, the decrease is a result of additional restrictions imposed on carry-over criteria in recent collective bargaining agreements and management oversight activities taken to manage outstanding vacation liabilities.

Figure 5: Vacation Pay and Compensatory Leave (in $ millions)

Figure 5. Long description follows.
 
Long description of Vacation Pay and Compensatory Leave (in $ millions)
2016-17 2015-16 2014-15 2013-14 2012-13 2011-12
29 27.9 28.9 29 31.7 35.1
 

Lease Inducements:

Lease inducements totalled $32.8 million as at March 31, 2017. This balance relates to tangible capital assets provided to NRC under three lease agreements with monetary consideration below fair market value. These leases of facilities were established at nominal cost with the University of Western Ontario, the University of Alberta, and the University of Prince Edward Island, to accommodate NRC research facilities.

These lease inducement liabilities have corresponding tangible capital assets and were originally recorded at the fair market value of the capital lease. Over the lease period, NRC recognizes equal amounts of amortization and lease inducement revenue. As a result, there is no impact to NRC's net cost of operations or its net financial position. The balance decrease of $2.5 million in the current year is accounted for as revenue recognized during the period.

Deferred Revenue:

Deferred revenue represents funds received for which NRC has an obligation to other parties for the provision of goods, services or the use of assets in the future. The March 31, 2017 balance of $8.2 million ($9.0 million in 2016) is explained in Note 7 of the consolidated financial statements. The significant components include:

  • $6.8 million of deferred revenue from research services and technical services projects. These are the two largest categories of revenue at NRC. When funds are received prior to work commencing or when the amount of funds received exceeds the value of the work performed as of March 31, 2017, deferred revenue is recorded. Revenue is then recognized as services are provided.
  • $1.4 million of deferred revenue remains from the original $1.8 million received to construct a facility for the Hitachi Electron Microscopy Product Centre (HEMIC) as part of a collaboration agreement. This amount was deferred and the revenue is recognized over the life of the collaboration.

Employee Future Benefits:

  • Employee future benefits represent the liability for severance benefits payable to employees upon termination of employment with the public service. This allowance is established at year end by applying an actuarial rate to total annual salary cost of NRC's indeterminate employees. This rate is determined by Treasury Board based on the liability for the government as a whole.
  • A change to the employment conditions for all employees has resulted in the cessation of the accumulation of their severance benefits beginning in 2014‑15. Some of these employees have elected to have the balance of their accumulated benefits either partially or fully paid out, reducing NRC's total liability. A total of $2.9 million was paid out in 2016‑17 ($4.5 million in 2015‑16). The liability decreased by $3.2 million from $34.5 million in 2015‑16 to $31.3 million in 2016‑17. Note 8b) of the consolidated financial statements provides additional details.

Non-Financial Assets

Prepaid Expenses:

NRC's prepaid expenses as at March 31, 2017 were $12.7 million ($11.3 million as at March 31, 2016), the components of which are shown in the chart below. Subscriptions make up the largest component of NRC's prepaid expenses. Canada's Science Library subscribes to many of the world's major scientific and technical journals and databases.

Figure 6: Prepaid Expenses as at March 31, 2017 (in $ millions)

Figure 6. Long description follows.
 
Long description of Prepaid Expenses as at March 31, 2017 (in $ millions)
Prepaid expenses 2016-17 2015-16 2014-15
Subscriptions (6.8) 6.8 4.9 4.4
Maintenance & Licences (1.2) 1.2 1.7 0.8
Rentals (1.2) 1.2 0.8 0.8
Payment in Lieu of Taxes (1.1) 1.1 1.8 1.9
Other (2.4) 2.4 2.1 1.7
 

Endowment Fund Investments:

The Holmes Endowment Fund is an investment bequeathed to NRC in July 1994. Up to two-thirds of the endowment fund's annual net income is used to finance the H.L. Holmes award. The award covers a one or two-year period and provides an opportunity for Canadian post-doctoral students to study at world famous graduate schools or research institutes. In 2016‑17, NRC provided one two year grant totalling $98 thousand to a recipient of the 2015 NRC H.L. Holmes Award. The recipient is using a total award of $200 thousand to fund two years of collaborative research at the Boston Massachusetts General Hospital and the Department of Genetics at Harvard Medical School. The research is on the role of Polycomb – Ribonucleic acid (RNA) interactions in cell fate control.

The endowment fund had a fair market value of $5.26 million on March 31, 2017 ($5.27 million on March 31, 2016). The investments within the portfolio had an average effective return of 3.56% in 2016‑17 (3.2% in 2015‑16). The endowment fund is presented at an amortized cost of $5.1 million ($5.1 million as at March 31, 2016) on the Consolidated Statement of Financial Position and not at fair value. Note 9 of the consolidated financial statements provides additional detail.

Tangible Capital Assets:

The net book value of NRC's tangible capital assets increased from $532.7 million in 2015‑16 to $589.0 million in 2016‑17. Total tangible capital asset acquisitions amounted to $108.6 million with amortization of $51.6 million and net adjustments, disposals and write-offs of $(0.7) million. Note 10 of the consolidated financial statements provides additional detail.

Acquisitions:

The additions to tangible capital assets of $108.6 million in 2016‑17 represents an increase of $32.2 million from the $76.4 million spent in 2015‑16. The majority of the increase comes from a $17.3 million increase in NRC assets under construction and a $9.4 million increase in buildings and infrastructure. The most significant acquisition categories were NRC assets under construction ($58.6 million or 54.0%), machinery, equipment and furniture ($22.6 million or 20.9%), investments in building and facilities ($19.0 million or 17.5%), and TIO assets under construction ($5.1 million or 4.7%). The major categories are shown in the chart below.

Figure 7: Tangible Capital Asset Acquisitions

Figure 7. Long description follows.
 
Long description of Tangible Capital Asset Acquisitions
  2016-17 2015-16
Assets under construction 54% 54%
Machinery, equipment and furniture 20.9% 20.0%
Buildings and facilities 17.5% 12.5%
Works & Infrastructure/Vehicles/Aircraft/Other 3.0% 3.4%
TIO Asset Under Construction 4.7% 10.0%
 

The following represents significant tangible capital assets expenditures over $1.0 million in 2016‑17:

  • $17.4 million of building recapitalization work was completed in 2016‑17 including: electrical system upgrades ($2.2 million), roofing ($1.9 million), mechanical system upgrades ($3.2 million), site work ($2.0 million), interior architectural work ($3.7 million), elevator upgrades ($0.5 million), and exterior building upgrades ($3.9 million). $22.0 million of this $77.6 million project is funded by the Treasury Board Federal Infrastructure Project.
  • NRC invested $5.7 million (in addition to the $4.5 million in previous years) in the Building Energy Retrofit project, which falls under the category of the energy management program called the Federal Building Initiative (FBI) managed by the Natural Resources Canada. The entire project, which completed in 2016‑17, is funded by the Treasury Board Federal Infrastructure Project. Phase I implemented an energy retrofit for buildings M-4, M-54 and M-55 that will reduce utility costs while at the same time address some of the required upgrades to the building infrastructure, such as the heating, air conditioning, lighting, plumbing and control systems.
  • NRC invested $5.1 million (in addition to the $0.6 million in previous years) in the Uplands Campus Electrical Upgrade. The project which was completed this year replaced the aging 115kv outdoor substation and associated 6.9kv indoor switchgear which supplies power to the entire Uplands campus. The investment was necessary due to the fact that equipment had exceeded its life expectancy. Of the overall investment of $5.7 million, $5.6 million was funded by the Treasury Board Federal Infrastructure Project.
  • NRC invested $5.0 million (in addition to the $0.7 million in 2015‑16) in the Design and Fabrication Services Facilities Modernization. The project which is expected to be completed in 2017‑18 aims at bringing NRC's prototyping capability into conformance with current safety regulations while increasing machining efficiency and productivity by replacing numerous older fabrication machines with safer and more efficient models.
  • NRC invested $3.4 million (in addition to the $1.0 million invested in 2015‑16) in the refurbishment of the 100 Sussex Drive building. The project consists of extensive repairs to the existing façade, replacement of exterior windows and upgrades to interior finishes while preserving the federal heritage status of the building. The project has been fully funded by the Treasury Board Federal Infrastructure Project.
  • NRC's Aerospace Portfolio invested $3.4 million (in addition to $1.9 million in previous years) to design a Cabin Comfort and Environment Research (CCER) Facility to respond to industry needs of NRC's existing clients in the fields of lighting, ventilation, noise and vibration control, entertainment systems and seat technologies. This investment will be completed in FY2017‑18 and is expected to generate $3.7 million of new revenues in 5 years through the Working and Travelling on Aircraft (WTA) Program.
  • NRC invested $2.8 million (in addition to $0.2 million in previous years) for the Montreal road campus sewer separation to convert existing sewer system to a separated system with independent storm and sanitary piping. The project which is expected to be completed in 2018-19 is expected to cost $12.1 million of which $12.0 million is funded by the Treasury Board Federal Infrastructure project.
  • NRC's Aerospace Portfolio invested $2.7 million (in addition to $0.2 million in 2016‑17) for the replacement of the U-66 compressor plant to allow the Aerodynamics Laboratory and Flight Research Laboratory to meet the aerospace needs of their stakeholders. The project is expected to be completed by 2017‑18.
  • NRC's Automotive and Surface Transportation Portfolio invested $2.7 million for the Dynamics Bay Facility Performance Upgrade. The upgrade includes reconfiguration of the laboratory, purchase of new actuators and equipment used for rail car testing and increase in hydraulic fluid pumping capacity. The project is expected to be completed in 2017‑18. The investment is required to meet the ever more challenging needs of customers.
  • NRC invested $1.8 million (in addition to $0.1 million in previous years) for the construction of a Flexible/Modular Research Facility to house research programs, allowing portfolios to use the space for program work with minimal tenant fit-up. The project which is expected to be completed by 2017‑18 is expected to cost $3.2 million of which $3.1 million is funded by the Treasury Board Federal Infrastructure project.
  • NRC's Energy, Mining and Environment Portfolio invested $1.6 million (in addition to $0.1 million in 2015‑16) for the development of an energy storage testing centre that will allow NRC to better meet the current and future needs of the energy storage industry. The project is expected to be completed in 2017‑18.
  • NRC's Construction Portfolio invested $1.5 million (in addition to $0.2 million in 2015‑16) for the capacity and capability upgrade to the Canadian Centre for Housing Technology. The upgrade will allow NRC to respond to the industry need for performance assessment of building technologies in real world conditions in the areas of smart home technologies, smart energy technologies and low-rise multi-unit construction. The project which is expected to be completed in 2017‑18 is expected to cost $1.9 million of which $1.3 million is funded by the Treasury Board Federal Infrastructure project.
  • NRC's Security and Disruptive Technology Portfolio invested $1.2 million (in addition to $0.4 million in 2016‑17) for the construction of the Canadian Campus for Advanced Materials Manufacturing (CCAMM). CCAMM will be a flagship hut which captures synergies from industry, public and academic investment to de-risk the development and deployment of commercially viable advanced materials technologies. The project which is expected to be completed in 2018-19 is expected to cost $25.7 million of which $25.0 million is funded by the Treasury Board Federal Infrastructure project.
  • NRC's Human Health Therapeutics Portfolio invested $1.1 million (in addition to $0.7 million in previous years) for the Pilot Process Plant upgrade. The upgrades which include new equipment, replacement and/or upgrade to piping, equipment and instrumentation and changes to space organization will make the facility more reliable, safer and more efficient. The project is expected to be completed in 2017‑18.
  • NRC invested $1.0 million (in addition to $5.6 million in previous years) for electrical work to re-distribute power from an existing NRC-owned transformer as well as the transfer of feeders from existing Hydro One Networks Inc. (HONI) owned transformers to new HONI transformers. The project is expected to be completed in FY2017‑18. This investment is required due to the fact that equipment has exceeded its life expectancy.

Expenses

Expenses are shown in the Consolidated Statement of Operations and Departmental Net Financial Position by Program Alignment Architecture (PAA) categories. They are also detailed by type of expense in Note 17 of the consolidated financial statements.

NRC's expenses increased from $978.2 million in 2015‑16 to $1,064.8 million in 2016‑17. The two largest categories of expenses are Salaries and Employee Benefits (42.2% of total expenses in 2016‑17, 43.2% of total expenses in 2015‑16), and Grants and Contributions (31.0% of total expenses in 2016‑17 29.9% of total expenses in 2015‑16). The following illustrates expenses by type:

Figure 8: Expenses (in $ millions)

Figure 8. Long description follows.
 
Long description of Expenses (in $ millions)
  2016-17 2015-16
Salaries & Employee Benefits 448.8 423.1
Grants & Contributions 329.4 292.8
Professional services 83.3 68.3
Utilities, Materials & Supplies 80.9 73.0
Amortization 51.6 55.5
Repair & Maintenance 21.5 20.8
Transportation & Communication 16.6 14.8
Payment in Lieu of Taxes 14.9 12.4
Other 16.6 17.6
 

Total expenses of $1,064.8 million were $41.3 million higher than the amount forecast in NRC's Future Oriented Financial Statements reported in the 2016‑17 Report on Plans and Priorities (RPP), and shown as Planned Results on the Consolidated Statement of Operations and Departmental Net Financial Position. A contributing factor to this increase is an additional $62.6 million in Grants and Contributions, and the addition of TIO expenses of $4.8 million in 2016‑17 ($4.6 million in 2015‑16). The major categories are explained below:

Salaries and Employee Benefits:

Salaries and employee benefits include such costs as gross salaries and wages, overtime pay, retroactive salary adjustments, employee entitlements and allowances, severance pay, pension, and health and dental plan costs. Total NRC salaries and employee benefits have increased by $25.8 million, from $423.1 million in 2015‑16 to $448.8 million in 2016‑17. The increase is primarily due to an in year increase in the retroactive pay liability expense of $10.9 million and an increase in continuing full-time employee expenses of $9.8 million.

Grants and Contributions:

Grants and contributions increased by $36.5 million, from $292.8 million in 2015‑16 to $329.4 million in 2016‑17, as shown in the chart below.

Figure 9: Net Grants & Contributions (in $ millions)

Figure 9. Long description follows.
 
Long description of Net Grants & Contributions (in $ millions)
Industrial Research Assistance Program 264.7
TRIUMF contributions 53.7
International Telescopes and Affiliations 11
 

The increase is mostly due to a $42.6 million increase to IRAP's Contributions to Firms program from $168.5 million in 2015‑16 to $211.1 million in 2016‑17, a $2.9 million increase in the TRIUMF program, from $50.8 million in 2015‑16 to $53.7 million in 2016‑17, an increase of $6.1 million in the Canada Accelerator and Incubator Program (CAIP) from $18.2 million in 2015‑16 to $24.3 in 2016‑17, a $8.8 million decrease in the Youth Employment Strategy from $23.7 million in 2015‑16 to $14.9 million in 2016‑17, and $11.5 million decrease in Business Innovation Access Program (BIAP). The significant changes from 2015‑16 are shown in the chart below:

Figure 10: Grants & Contributions by Program (in $ millions)

Figure 10. Long description follows.
 
Long description of Grants & Contributions by Program (in $ millions)
  2016-17 2015-16
Firms 211.1 168.5
TRIUMF 53.7 50.8
Youth 14.9 23.7
CAIP 24.3 18.2
BIAP 0 11.5
 

Professional Services:

Professional services increased by $15.0 million in 2016‑17 to $83.3 million, from $68.3 million in 2015‑16. NRC receives e-mail, data centre and network support unit as well as the acquisition and provision of hardware and software for end users device from Shared Services Canada (SSC) following the Government of Canada initiative to centralize these services in 2012-2013. The services received from SSC are recognized as services received without charge in professional services expenses. A total of $18.8 million was recognized in expenses, as shown in Note 14a) of the financial statements ($18.8 million in 2015‑16).

Utilities, Material and Supplies:

Utilities, materials and supplies include expenditures such as electricity, natural gas, serial renewals, electronic data processing (EDP) equipment with cost under $10,000, fuel, software, laboratory equipment and laboratory products. Utilities, material and supply costs increased by $7.9 million from $73.0 million in 2015‑16 to $80.9 million in 2016‑17. The increase is mainly due to $5.7 million increase in laboratory equipment and parts. Spending in these areas depends on the varying nature of projects from year to year which can have different material and supply requirements.

Amortization:

Tangible capital assets yield benefits over many accounting periods. As such, NRC's use of tangible capital assets to provide services is recognized as an expense on a straight-line basis over the estimated useful life of each asset class. Amortization expense amounted to $51.6 million in 2016‑17 ($55.5 million in 2015‑16).

Repair and Maintenance:

NRC has a significant amount of infrastructure investments such as buildings, facilities, and research equipment. The repair and maintenance costs related to the maintenance of these assets increased by $0.7 million from $20.8 million in 2015‑16 to $21.5 million in 2016‑17. Expenditures in this area can vary from year to year based on many factors including requirements for services.

Transportation and Communication:

Transportation and communication expense increased by $1.8 million in 2016‑17, from $14.8 million in 2015‑16 to $16.6 million in 2016‑17.

Payment in lieu of taxes (PILT):

NRC owns property and is exempt from paying property tax as an agency of the Government of Canada. The Government of Canada, as a property owner, supports the principle that it should share the cost of local government equitably with other property owners in the community since federal properties benefit from municipal services. As such, federal departments and agencies, including NRC, transfer amounts to municipalities in lieu of taxes. Public Service and Procurement Canada (PSPC) assesses the amount to be transferred by NRC under the PILT program each year. In 2016‑17, NRC paid PILT of $14.9 million ($12.4 million in 2015‑16); the increase of $2.5 million is due to a change in billing period.

Other:

Other expenses of $17.8 million ($17.6 million in 2015‑16) include, but are not limited to, rental charges of $9.4 million ($8.4 million in 2015‑16), information costs of $2.3 million ($1.9 million in 2015‑16), patent award costs of $2.0 million ($2.1 million in 2015‑16), costs of goods sold of $0.9 million ($0.8 million in 2015‑16) and loss on disposal of tangible capital assets of $0.7 million ($1.9 million in 2015‑16).

Revenues

NRC's total revenues increased $16.9 million from $185.6 million in 2015‑16 to $202.5 million in 2016‑17. The following chart provides a breakdown of the major revenue components:

Figure 11: Revenues (in $ millions)

Figure 11. Long description follows.
 
Long description of Grants & Contributions by Program (in $ millions)
  2016-17 2015-16
Research Services 55.8 52.1
Technical Services 97.1 88.6
Intellectual Property, Royalties and Fees 8.6 9.1
Goods & Information Products 7.7 6.6
Rentals 6.9 6.5
Grants & Contributions, Lease Inducements, Other 26.4 22.7
 

Revenues of $202.5 million were $24.8 million higher than the amount forecast in NRC's Future Oriented Financial Statements reported in the 2016-17 RPP.

Technical Services:

In 2016‑17, $97.1 million or 48% ($88.6 million or 48% in 2015‑16) of NRC revenues were generated from technical services. These are standard services delivered using existing NRC technology and expertise with projects that have a low level of technical risks and do not generate new intellectual property.

Research Services:

In 2016‑17, $55.8 million or 28% ($52.1 million or 28% in 2015‑16) of NRC revenues were generated from research services, which are non-standard services delivered with incremental intellectual contribution and some level of technical/scientific risks. This includes Collaborative Research Services, where clients can provide intellectual contribution to the project and share the total cost of the project.

Intellectual Property Royalties and Fees:

In 2016‑17, $8.6 million or 3% ($9.1 million or 5% in 2015‑16) of NRC revenues were generated from Intellectual Property Royalties and Fees. Royalty revenue is earned from companies that license the rights to use NRC technologies. Royalties are typically based on a percentage of the licensee's sales.

Rentals:

Facilitating access to NRC researchers and facilities is an important part of technology transfer at NRC. To this end, NRC provides laboratory space to companies on a commercial basis often as part of a collaboration or technology transfer agreement. Revenue from lease and use of property amounted to $6.9 million in 2016‑17, compared to $6.5 million in 2015‑16.

Sales of Goods and Information Products:

As part of its goal to disseminate scientific and technical information of importance to industry, NRC has publications and certified reference materials that it sells to clients. Total sales of goods and information products totalled $7.7 million in 2016‑17, as compared to $6.6 million in 2015‑16. The largest component of revenue derived from the sale of goods and information products are sales of codes, most significantly National Building Codes by NRC's Construction Portfolio.

Other:

Other revenues of $26.4 million ($22.7 million in 2015‑16) include, but are not limited to, lease inducement revenue of $2.5 million ($2.5 million in 2015‑16) and grants and contributions revenue of $17.5 million ($16.6 million in 2015‑16). In 2016‑17, TIO earned $14.8 million of grants and contributions revenues ($14.1 million in 2015‑16).

Revenue earned on behalf of government:

Treasury Board Accounting Standards require revenues earned on behalf of government be backed out of the Consolidated Statement of Operations and Departmental Net Financial Position. NRC earned $122 thousand of interest revenues on outstanding receivables in 2016‑17, as compared to $100 thousand in 2015‑16.