NRCan 2010-11 Future-oriented Financial Statement of Operations

Statement of Management Responsibility

Departmental management is responsible for these future-oriented financial statements, including responsibility for the appropriateness of the assumptions on which these statements are prepared. These statements are based on the best information available and the assumptions adopted as at September 30, 2010 and reflect the plans described in the Report on Plans and Priorities.

This Future-oriented Future-oriented Statement of Operations has not been audited.

The financial statements of the department have not been audited.

Serge P. Dupont Deputy Minister Date signed Ottawa, Canada

Bill Merklinger, CMA Chief Financial Officer Date signed Ottawa, Canada

Natural Resources Canada

Future-oriented Future-oriented Statement of Operations (Unaudited)
For the year ended March 31
(In thousands of dollars)

	Estimated Results 2010-11	Forecast 2011-12
Expenses
Economic Opportunities for natural resources	1,907,768	1,798,032
Clean energy	1,427,840	1,317,837
Internal Services	282,000	271,150
Ecosystem risk management	203,683	86,303
Natural resource and landmass knowledge and systems	99,552	82,897
Adapting to a changing climate and hazard risk management	68,602	62,500
Natural resource-based communities	11,520	190
Geomatics Canada Revolving Fund	1,220	1,793
Total expenses	4,002,185	3,620,702
Revenues
Economic Opportunities for natural resources	1,647,711	1,822,564
Clean energy	276	291
Internal Services	3,333	3,333
Ecosystem risk management	-	-
Natural resource and landmass knowledge and systems	200	200
Adapting to a changing climate and hazard risk management	-	-
Natural resource-based communities	-	-
Geomatics Canada Revolving Fund	1,958	1,968
Total revenues	1,653,478	1,828,356
Net cost of operations	2,348,7	1,792,346

Information for the year ended March 31, 2011 includes actual amounts from April 1, 2010 to September 30, 2010.

Segmented information (Note 9)
The accompanying notes form an integral part of the Future-oriented Statement of Operations.

Natural Resources Canada

Notes to the Future-oriented Financial Statements (Unaudited)

1. Authority and Objectives

The Department of Natural Resources Canada (NRCan) was created on June 25, 1993 by the merger of the Department of Energy, Mines and Resources and the Department of Forestry. This organizational change was effected by Order in Council, pending the passage of legislation which occurred in 1994. The Department’s mandate is primarily based on the Department of Natural Resources Act, the Resources and Technical Surveys Act and the Forestry Act.

NRCan’s mandate is to ensure the sustainable development and responsible use of Canada’s natural resources. Through innovation and partnership, the department plays a pivotal role in helping shape the enormous contributions of the natural resource sectors and related industries to the high quality of life of Canadians. NRCan delivers on its mandate through eight main programs:

• Economic opportunities for natural resourcescontains programs designed to promote innovation, investment, and the enhancement of the competitiveness of Canada’s natural resources and related products to industries through the provision of know-how and tools, along with trade promotion and market acceptance, at home and abroad.
• Clean energyinclude the development and delivery of energy science and technology, policies, programs, legislation and regulations to mitigate air emissions and to reduce other environmental impacts associated with energy production and use.
• Ecosystem risk management includes programs that help to understand the risks to our environment and the protection of critical resources such as groundwater.
• Natural resources and landmass knowledge and systemscarries out the Minister’s obligation to provide a property rights infrastructure on all lands for which the department has this responsibility, along with the provision and access to accurate and precise geographic information on the Canadian landmass.
• Adapting to a changing climate and hazard risk managementprovide geoscience and geospatial information that contributes to the reduction of risks from natural hazards, such as earthquakes, tsunamis and floods, as well as hazards arising from human activities, and works with front-line responders to provide geographical information in the event of an emergency.
• Natural resource-based communitiesis targeted to increasing Canada’s knowledge of the impacts of the natural resource sector evolution on communities that have substantial reliance on resource-based industries and to improve the capacity and knowledge for increasing the number of opportunities through value-added products and services.
• The Geomatics Canada Revolving Fundallows Geomatics Canada to shift the costs from taxpayers at large to specific users who benefit directly from the goods and services provided. These goods and services include aeronautical charts and publications which contribute to the safety and security of the traveling public and Canadians.
• Internal services are groups of related activities and resources that are administered to support the needs of programs and other corporate obligations of an organization.

2. Significant Assumptions

The Future-oriented Statement of Operations has been prepared on the basis of the government priorities and the plans of the department as described in the Report on Plans and Priorities.

The main assumptions are as follows:

1. The department's activities will remain substantially the same as for the previous year.
2. Expenses and revenues, including the determination of amounts internal and external to the government, are based on historical experience, known information, and expert opinions of people with appropriate experience in the department’s activities. Where relevant, the general historical pattern is expected to continue.
3. Allowances for uncollectibility are based on historical experience. The general historical pattern is expected to continue.
4. Estimated year end information for 2010-11 is used as the opening position for the 2011-12 forecasts.

These assumptions are adopted as at September 30, 2010.

3. Variations and Changes to the Forecast Financial Information

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

In preparing these financial statements NRCan has made estimates and assumptions concerning the future. These estimates and judgements may differ from the subsequent actual results. Estimates and judgements are continually evaluated and are based on historical experience and other methodologies, including expectations of future events that are believed to be reasonable under the circumstances.

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

1. The timing and amounts of acquisitions and disposals of property, plant and equipment may affect gains/losses and amortization expense.
2. Economic conditions may affect both the amount of revenue earned and the collectability of loan receivables.
3. Interest rates in effect at the time of issue will affect the net present value of liabilities.
4. Further changes to the operating budget through additional new initiatives or technical adjustments later in the year.

These statements are based on the Main and Supplementary Estimates approved as at November 30, 2010. Once the Report on Plans and Priorities is presented, NRCan will not be updating the forecast for any changes to appropriations or forecast financial information made in ensuing supplementary estimates.

4. Summary of Significant Accounting Policies

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

1. Parliamentary Appropriations – NRCan is financed by the Government of Canada through Parliamentary authorities. The cash basis of accounting is used to recognize transactions affecting parliamentary appropriations. The future-oriented financial statements are based on accrual accounting. Consequently, items recognized in the Future-oriented Statement of Operations are not necessarily the same as those provided through authorities from Parliament. Note 5 provide a high-level reconciliation between the bases of reporting.
2. Consolidation – these future-oriented financial statements include forecast information from the Geomatics Canada Revolving Fund, for which the department has stewardship responsibility. The forecasts of the Geomatics Canada Revolving Fund have been consolidated with those of the department and all inter-organizational balances and transactions have been eliminated.
3. Net cash provided by Government –NRCan operates within the Consolidated Revenue Fund (CRF), which is administered by the Receiver General for Canada. All cash received is deposited to the CRF and all cash disbursements are paid from the CRF. The net cash provided by Government is the difference between all cash receipts and all cash disbursements including transactions made by NRCan within the federal government. Government.
4. Revenues - are recognized on an accrual basis:
   • Revenues from regulatory fees are recognized in the accounts based on the services provided in the year.
   • Funds received from external parties for specified purposes are recorded upon receipt as deferred revenue. These revenues are recognized in the period in which the related expenses are incurred.
   • Funds that have been received are recorded as deferred revenue, provided the department has an obligation to other parties for the provision of goods, services or the use of assets in the future.
   • Other revenues are accounted for in the period in which the underlying transaction or event occurred that gave rise to the revenues.
5. Expenses - are recognized on an accrual basis:
   • Grants are recognized in the year in which the conditions for payment are met. In the case of grants which do not form part of an existing program the expense is recognized when the Government announces a decision to make a non-recurring transfer, provided that the enabling legislation or authorization for payment receives parliamentary approval prior to the completion of the financial statements.
   • Contributions are recognized in the year in which the recipient meet the eligibility criteria or fulfill the terms of a contractual transfer agreement, provided that the transfer is authorized and a reasonable estimate can be made.
   • Vacation pay and compensatory leave are expensed as the benefits accrue to employees under their respective terms of employment.
   • Services provided without charge by other government departments, for accommodations, employer’s contribution to the health and dental insurance plans, workers compensation, and legal services, are recorded as operating expenses at their estimated cost.
6. Employee future benefits
   1. Pension benefits: Eligible employees participate in the Public Service Pension Plan, a multiemployer administered by the Government. The Department's contributions to the Plan are charged to expenses in the year incurred and represent the total departmental obligation to the Plan. Current legislation does not require the department to make contributions for any actuarial deficiencies of the Plan.
   2. Severance benefits: Employees are entitled to severance benefits under labour contracts or conditions of employment. These benefits are accrued as employees render the services necessary to earn them. The obligation relating to the benefits earned by employees is calculated using information derived from the results of the actuarially determined liability employee severance benefits for the Government as a whole.
7. Accounts and loans receivables are stated at amounts expected to be ultimately realized; a valuation allowance is made for receivables where recovery is deemed uncertain.
8. Repayable contributions are contributions where the recipient is expected to repay the amount advanced. Depending on their nature they are classified as either unconditionally repayable or conditionally repayable and are accounted for accordingly.
   1. Unconditionally repayable contributions are contributions that must be repaid without qualification. Normally, these contributions are provided with a low or no interest clause. A portion of this unamortized discount is brought into income each year to reflect the change in the present value of the contributions outstanding. An estimated allowance for uncollectibility is established where appropriate.
   2. Conditionally repayable contributions are contributions that, all or part of which, become repayable if conditions specified in the contribution agreement come into effect. Accordingly, they are not recorded until such time as the conditions specified in the agreement come into effect, at which time they are recorded as a receivable and a reduction in transfer payment expenses. An estimated allowance for uncollectibility is established where appropriate.
9. Contingent liabilities – Contingent liabilities are potential liabilities which may become actual liabilities when one or more future events occur or fail to occur. To the extent that the future event is likely to occur or fail to occur and a reasonable estimate of the loss can be made, an estimated liability is accrued and an expense recorded. If the likelihood is not determinable or an amount cannot be reasonably estimated the contingency is disclosed in the notes to the financial statements.
10. Environmental liabilities – Environmental liabilities reflect the estimated costs related to the management and remediation of environmentally contaminated sites. Based on management’s best estimates a liability is accrued and an expense recorded when the contamination occurs or when the department becomes aware of the contamination and is obligated, or likely to be obligated, to incur such costs. If the likelihood of the obligation to incur these costs is not determinable, or if an amount cannot be reasonably estimated, the costs are disclosed as contingent liabilities in the notes to the financial statements.
11. Tangible capital assets and leasehold improvements having an initial cost of $10,000 or more ($1,000 or more for the Geomatics Canada Revolving Fund) are recorded at their acquisition cost. The department does not capitalize intangibles, works of art and historical treasures that have cultural, aesthetic or historical value, assets located on Indian Reserves and museum collections.

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

Asset Class	Amortization period
Buildings	15 to 40 years
Machinery and equipment	5 to 15 years
Vehicles	3 to 10 years
Leasehold improvements	Lesser of the remaining term of the lease or useful life of the improvement
Leased tangible capital assets	Over the term of the lease / useful life
Assets under construction	Once in service, in accordance with asset class

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

5. Parliamentary Appropriations

The department receives most of its funding through expenditure authorities provided by Parliament. Items recognized in the Future-oriented Statement of Operations may be funded through Parliamentary authorities in prior, current or future years. Accordingly, the department has different net results of operations for the year on a government funding basis (cash) than on an accrual accounting basis. The differences are reconciled in the following tables:

(a) Authorities requested

		Estimated Results 2010-11		Forecast 2011-12
Authorities requested		(in thousands of dollars )
	Vote 1 - Operating expenditures	851,268		586,620
	Vote 5 - Capital expenditures	26,477		15,282
	Vote 10 - Transfer payments	1,898,728		1,267,523
	Statutory Amounts	1,754,085		1,672,691
Forecast authorities available		4,530,558		3,542,116

Forecast authorities requested for the year ending March 31, 2012 are the planned spending amounts presented in the 2011-12 Report on Plans and Priorities plus the 2010-11 estimated carryforward. Estimated authorities requested for the year ending March 31, 2011 include amounts presented in the 2010-11 Main Estimates and Supplementary Estimates (A) and (B) and direct transfers.

b) Reconciliation of net cost of operations to authorities requested:

		Estimated Results 2010-11		Forecast 2011-12
		(in thousands of dollars )
Net cost of operations		2,348,707		1,792,346
Adjustments for items affecting net cost of operations but not affecting authorities:
	Revenue not available for spending	1,648,187		1,823,055
	Services provided without charge	(51,985)		(52,930)
	Amortization of tangible capital assets	(24,002)		(23,803)
	Vacation pay and compensatory leave	2,778		(3,724)
	Employee severance benefits	11,217		(1,133)
	Refunds of previous years’ expenditures	15,952		15,952
	Adjustments of prior year accounts payable	8,917		8,917
	Allowance for environmental liabilities	12,096		(30,461)
	Amortization of unamortized discount loans	3,333		3,333
	Capital lease interest accrual	(1,001)		(2,564)
		1,625,492		1,736,642
Adjustments for items not affecting net cost of operations but affecting authorities:
	Acquisitions of tangible capital assets	35,290		15,282
	Decrease in lease obligations for tangible capital assets	(809)		(2,154)
		34,481		13,128
	Forecast current year lapse including frozen allotments (Operating and Capital)	20,568		-
	Forecast current year lapse including frozen allotments (Transfer payments)	481,310		-
	Forecast current year lapse (Statutory Amounts)	20,000		-
Forecast authorities available		4,530,558		3,542,116

6. Related party transactions

NRCan is related, as a result of common ownership, to all Government of Canada departments, agencies, and Crown corporations. The department enters into transactions with these entities in the normal course of business and on normal trade terms

Common services provided without charge by other government departments

The department is forecasted to receive services without charge during the year from other departments. These services without charge have been recognized in the department's Future-oriented Statement of Operations as follows:

	Estimated Results 2010-11		Forecast 2011-12
	(in thousands of dollars )
Employer contribution to the health and dental insurance plans	33,277		33,763
Accommodation	17,293		17,619
Legal services	1,165		1,311
Workers’ Compensation	250		237
Total	51,985		52,930

The Government has structured some of its administrative activities for efficiency and cost-effectiveness purposes so that one department performs these on behalf of all without charge. The costs of these services, which include payroll and cheque issuance services provided by Public Works and Government Services Canada and audit services provided by the Office of the Auditor General, are not included as an expense in the department's Future-oriented Statement of Operations.

7. Contingent liabilities

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

(a) Contaminated sites

Liabilities are accrued to record the estimated costs related to the management and remediation of contaminated sites where the department is obligated or likely to be obligated to incur such costs. As at the date of the preparation of the Future-oriented Statement of Operations, the department had identified approximately 11 sites where such action is possible and for which a liability of $337,852,454 ($368,313,752 in 2011-12) has been recorded. Additional new sites, changes in the remediation approach or material changes in amounts accrued or not accrued are not forecasted for the future years presented in these statements. However, the department’s ongoing efforts to assess contaminated sites may result in additional environmental liabilities related to newly identified sites, or changes in the assessments or intended use of existing sites; these liabilities will be accrued by the department in the year in which they become known.

(b) Claims and litigation

Claims have been made against the department in the normal course of operations. As at the date of the preparation of these future-oriented financial statements, legal proceedings for claims totaling approximately $14,500,000 are pending.

8. Lease obligation for tangible capital assets

The department has entered into agreements to rent a laboratory under capital lease with a cost of $92,683,173 and with an in-service date of November 2010. The obligations for the upcoming years include the following:

	Estimated Results 2010-11		Forecast 2011-12
	(in thousands of dollars )
2011	1,809		-
2012	4,718		4,718
2013	4,718		4,718
2014	4,718		4,718
2015 and thereafter	101,992		101,992
Total future minimum lease payments	117,955		116,146
Less: imputed interest (3.25%)	37,271		36,270
Balance of obligations	80,684		79,876

9. Segmented Information

(in thousands of dollars)		Estimated Results 2010-11	Forecast FY 2011-12
			EONR	CE	IS	ERM	NR	ACC	NRC	GCRF	Total
	Transfer payments	3,070,963	1,663,016	1,134,353	3,415	2,292	41,539	13,878	7	-	2,858,500
	Operating expenses
	Salary and employee benefits	413,626	74,670	98,887	154,807	24,770	29,031	41,629	-	645	424,439
	Professional and special services	261,334	39,222	63,771	9,412	56,688	5,223	2,106	-	911	177,333
	Transportation and communication	68,104	9,182	10,458	7,677	1,742	3,887	3,214	-	75	36,235
	Utilities, materials and supplies	40,836	4,501	4,695	1,018	483	774	1,277	-	85	12,833
	Rentals	37,674	5,019	729	18,075	85	1,962	170	74	37	26,151
	Information	30,064	224	1,888	1,623	133	181	100	64	14	4,227
	Acquisitions	35,290	-	-	15,282	-	-	-	-	-	15,282
	Amortization	25,811	-	-	28,521	-	-	-	-	-	28,521
	Repairs and maintenance	15,207	323	2,299	859	68	300	117	40	24	4,030
	Allowance for environmental liabilities	(12,096)	-	-	30,461	-	-	-	-	-	30,461
	Other	15,373	1,875	757	-	42	-	9	5	2	2,690
	Total operating expenses	931,222	135,016	183,484	267,735	84,011	41,358	48,622	183	1,793	762,202
Total Expenses		4,002,185	1,798,032	1,317,837	271,150	86,303	82,897	62,500	190	1,793	3,620,702
Revenues
	Sales of goods and services - external parties
	Rights and privileges	1,188,838	1,640,307	9	-	-	-	-	-	-	1,640,316
	Services of non-regulatory nature	29,525	-	271	-	-	60	-	-	1,378	1,708
	Sales of goods and information products	5,357	-	-	-	-	140	-	-	590	730
	Services of regulatory nature	989	-	-	-	-	-	-	-	-	-
	Lease and use of public property	204	-	-	-	-	-	-	-	-	-
	Other fees and charges	494	-	-	-	-	-	-	-	-	-
	Interest	413,036	164,031	-	-	-	-	-	-	-	164,031
	Fines	6,593	18,226	-	-	-	-	-	-	-	18,226
	Amortization of discount loans	3,333	-	-	3 333	-	-	-	-	-	3,333
	Other Revenues	5,109	-	12	-	-	-	-	-	-	12
Total Revenues		1,653,478	1,822 564	291	3,333	-	200	-	-	1,968	1,828,356
Net Cost of Operations		2,348,707	(24,532)	1,317,545	267,816	86,303	82,697	62,500	190	(175)	1,792,346

EONR – Economic Opportunities for Natural Resources
CE – Clean Energy
IS – Internal Services
ERM – Ecosystem Risk Management
NR – Natural Resource and Landmass Knowledge and Systems
ACC – Adapting to a Changing Climate and Hazard Risk Management
NRC – Natural Resource-based Communities
GCRF – Geomatics Canada Revolving Fund