ATO M I C E N E RGY ... L E A D I N G T... 2 0 0 6 A N N UA...

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ATO M I C E N E RGY O F C A N A DA L I M I T E D
2 0 0 6 A N N UA L R E P O RT
L E A D I N G T H E WAY
U N I Q U E LY P O S I T I O N E D
Atomic Energy of Canada Limited (AECL) is a fully integrated nuclear technology and services company providing services to
nuclear utilities worldwide. Our 4,000 employees are dedicated to delivering leading-edge nuclear services, R&D support, design
and engineering, construction management, specialized technology, refurbishment, and waste management and decommissioning
in support of CANDU reactor products.
AECL is committed to supporting its Canadian and international customers in all aspects of nuclear power technology management.
We provide on-site expertise, closely supported by our nuclear science laboratories, testing capability and engineering facilities.
CANDU reactors supply about 15 per cent of Canada’s electricity and are an important component of clean-air energy programs
on four continents. AECL is a Crown Corporation that was established in 1952 to develop peaceful applications of nuclear energy.
Mandate
Values
AECL will create customer and shareholder value through:
• Managing the Canadian nuclear platform responsibly and cost
effectively.
• Leveraging the technology base to deliver nuclear products and
services to market.
• Paying dividends from profitable growth.
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Vision
• To be the top worldwide nuclear products and services company.
• To protect the health and safety of the public, our employees and the
environment.
• To minimize nuclear legacy obligations for future generations.
2005–2006 Revenue
($ millions)
Commercial sales are on
the rise with double-digit
growth expected in
2006–2007, primarily as a
result of increased activity in
the refurbishment business.
To achieve our vision, AECL people must be:
Driven by Customers’ Needs.
Obsessed by Quality, Excellence & Safety.
Personally Responsible and Accountable.
Engaged in Open and Honest Communication.
Empowered to Challenge and Innovate.
Committed to Learning and Teamwork.
Motivated by Performance.
Customer Commitment
Trust, Quality, Innovation, Value ...
AECL’s commitment to you.
Commercial Operations
By Region
$111
Services
$123
Projects
$137
Asia
Canada
$180
Interest
Europe
$13
$17
Other
$59
Within the total revenue
of $320 million from
Commercial Operations,
exports were $183 million,
contributing positively to a
favourable balance of trade
for Canada in 2005–2006.
TA B L E O F CO N T E N TS
16
Performance Excellence
48
Auditors’ Report
1
2005–2006 Operating Highlights
20
Sustainability
49
Consolidated Financial Statements
2
AECL at a Glance
24
2005–2006 Performance vs Objectives
53
Notes to the Consolidated Financial Statements
4
Message from the Chairman
27
2006–2007 Objectives
62
Board of Directors
5
Our Commitment to Corporate Governance
28
Financial Highlights
64
Corporate Governance
6
President’s Message
29
Financial Section
67
Five-Year Consolidated Financial Summary
10
Industry Dynamics
29
Management’s Discussion and Analysis
68
Glossary of Terms
12
Expertise
48
Management’s Responsibility
IBC
Corporate Information
2 0 0 5 – 2 0 0 6 O P E R AT I N G H I G H L I G H TS
At AECL we are dedicated to delivering with excellence. We are well positioned to perform
at the highest level and ready to meet the demands of the re-emergence of nuclear energy.
• All health, safety and environmental targets exceeded.
• Secured refurbishment contracts with New Brunswick Power and Bruce Power.
• CANDU Services revenue grew by 18% to $123 million.
• Annual domestic customer satisfaction survey increased 14%, exceeding the target by 4%.
• The CNSC extended the NRU operating licence to July 2006.
• Entered a formal agreement with Babcock & Wilcox Canada, GE Canada, Hitachi Canada,
and SNC-Lavalin Nuclear to create Team CANDU. Together, these five world-leading
nuclear technology and engineering companies will present a turnkey service and
competitive solution for building new nuclear power plants in Ontario.
• Maintained ISO 14001 environmental management accreditation.
• A January 2006 Ipsos-Reid poll showed that 61% of Ontarians support nuclear and
73% support refurbishment, up from 53% and 70% respectively in August 2005.
WO R L D C L A S S T E CH N O L O GY
48 Heavy Water Reactors based on the CANDU design in operation, under construction,
or under refurbishment – located on four continents.
AECL OFFICES
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Head Office, Mississauga, Canada
Whiteshell Laboratories, Canada
Montréal, Canada
Ottawa, Canada
Chalk River Laboratories, Canada
Saint John, Canada
Gaithersburg, Maryland, U.S.A.
Pickering, Canada
Seoul, South Korea
Beijing, China
C A N D U R E AC TO R S
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Ontario, Canada (18 units)
Québec, Canada (1 unit)
New Brunswick, Canada (1 unit)
Argentina (1 unit)
Romania (1 unit, 1 under construction)
Pakistan (1 unit)
India (13 units, 5 under construction)
South Korea (4 units)
China (2 units)
R E F U R B I S H M E N TS
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Ontario, Canada
Québec, Canada
New Brunswick, Canada
Argentina
South Korea
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A E C L AT A G L A N C E
AECL supports all aspects of the CANDU reactor product life cycle including the design
and construction of nuclear reactors and related products, services, life extension and
decommissioning and waste management. AECL also manages production and supply
of a significant portion of the global medical isotope requirements.
On behalf of the Government of Canada, AECL also fulfills a unique public policy role in
maintaining and enhancing Canadian nuclear technology to secure Canada’s electricity
supply requirements and manage legacy waste obligations.
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ATO M I C E N E RGY O F C A N A DA L I M I T E D
A E C L B U S I N E S S U N I TS
Reactor Sales and Services (Commercial Operations)
CANDU Services
Dedicated to providing cost-effective and
high quality services aimed at improving performance
of all operating CANDU plants while increasing AECL’s
market share, revenues and margins.
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Projects
Focused on supporting AECL’s global CANDU customers
in optimizing the performance of existing generating
assets and the construction of new build plants.
• Inspection and maintenance services.
• New build projects.
• Reactor refurbishment and retubing.
Technology Commercialization
Responsible for the commercialization of new technology
leveraged from AECL’s R&D efforts.
• Reactor safety technology.
• Waste management services.
Control and information products.
Operational support.
Fuelling machine/fuel handling equipment.
Heavy water.
Non-reactor core equipment.
Plant life management.
Reactor core.
Safety and analysis.
Secondments.
Smart CANDU remote monitoring.
Reactor Safety and Research (Technology)
Nuclear Laboratories
R&D activities are carried out at AECL’s Chalk River
Laboratories. Research initiatives and programs focus
on ensuring the safe and effective operation of CANDU
reactors; developing new products and services to
enhance AECL’s business opportunities; and
to support Canadian government policy.
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Reactor Development
Leads all activities related to the ACR, including
technology and market development.
• Advanced CANDU Reactor.
• CANDU 6.
• MAPLE Reactor.
Provide and enhance the safety, licensing, and design
technology-basis for CANDU.
Research reactor (NRU).
Shielded facilities (hot cells).
Nuclear materials production.
Nuclear labs and experimental facilities.
Nuclear safety and analysis.
Shops for radioactive materials.
Isotope Production.
Environmental Management (Liability Management Unit)
Decommissioning and
Waste Management
Manages the waste management and
decommissioning program, and oversees
funding received from the Government of
Canada for the program.
AECL manages low-level radioactive waste at
various locations across Canada on behalf of
the Federal Government.
• Decommissioning planning and
project management.
• Site preparation, fuel handling and highand low-level decontamination.
• Dry used fuel storage system (MACSTOR).
• Modular Above Ground storage (MAGS).
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A E C L I S A C ROW N J E W E L O F T E CH N O L O GY I N C A N A DA
AECL provides high-quality products and services, fulfills a
vital public-policy mandate, provides high-quality jobs and
makes a disproportionately important contribution to Canada’s
scientific endeavours and its gross national product.
We live in a world of continuous change, and that means those who stand still soon get left behind.
With that in mind, I am pleased to report that AECL has been changed – it has improved its
strategies and governance so it can not only keep up, but also be a leader in the nuclear industry.
AECL is a crown jewel of technology in Canada, providing high-quality products and services, fulfilling
a vital public-policy mandate, providing high-quality jobs and making a disproportionately important
contribution to the nation’s scientific endeavours and its GNP.
In the past year, the Board of Directors has continued to implement new capabilities in corporate
governance, bringing it in line with best practices. AECL has a culture of transparency and
accountability. These changes ably position us to meet the most rigorous standards set out for
businesses. We are confident that AECL has the administrative tool set and skills to participate in the
global renewal of nuclear energy.
JEAN-PIERRE SOUBLIÈRE
Acting Chairman of the Board
Over the past five years, the Board has closely co-operated with management in a strategic vision
that has prepared us for that renewal. We continue to evolve our proprietary technology, to address
the matter of waste management with the most reliable technology and protocols in the world, to
revolutionize our service delivery and to provide value-added products and services to customers.
AECL is ready to deliver, and to deliver with excellence.
As Acting Chairman, I have been deeply impressed by the true dedication of the Board of Directors
and of all the people at AECL. I am confident that they will continue to provide an astounding ability
to change and lead in what is one of Canada’s most important and
successful advanced technology sectors. I offer them my thanks.
B OA R D H I G H L I G H TS
• The Board assessed its own performance against
best practices and established an action plan to
enhance its effectiveness and demonstrate
accountability to the Shareholder.
• New Board members participated in a detailed
orientation program and training while continuing
education was provided to all other Directors.
• The Minister of Natural Resources confirmed the
Nominating Committee’s recommendation to reappoint
Mr. Robert Van Adel as President and CEO.
• The Board participated in streamlining AECL’s
financial reporting directed at more timely, transparent
and concise information.
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ATO M I C E N E RGY O F C A N A DA L I M I T E D
JEAN-PIERRE SOUBLIÈRE
Acting Chairman of the Board
O U R CO M M I T M E N T TO CO R P O R AT E G OV E R N A N C E
AECL will continue its pursuit of the highest levels of transparency
and accountability.
The Board of Directors remains on the path to implementing best practices in corporate governance.
In 2005–2006, AECL built on steps and actions taken in the previous year by assessing performance
against best practices and devised an action plan that will improve its effectiveness and demonstrate
accountability to the Shareholder.
From a financial governance perspective, the Board continued working to streamline AECL’s financial
reporting so that it is more timely, transparent and concise. The Audit Committee, in keeping with
best practices, met in camera regularly with external and internal auditors and without the presence
of management. Further, the committee has measured its performance and reported to the larger
board on its effectiveness.
The Science and Technology Committee provided the company with an independent assessment of
its research and development, and product development programs, including the Advanced CANDU
Reactor (ACR-1000), to ensure they are aligned with the company’s objectives.
With respect to human resources, a Board committee oversaw and advised on all aspects of
governance and corporate policies and strategies related to employees, including health and safety.
Among other things, it completed a number of governance activities, including ensuring that the
Board explicitly takes responsibility for AECL’s stewardship, and that it examines its public-policy
objectives and legislated mandate. It ensured that the company communicates with the Crown and
other stakeholders and completed an annual review of governance. As well, it ensured that the Board
assess periodically the position and performance of the CEO.
By these actions, reported in detail in the Management’s
Discussion and Analysis section of this report, the Board and its
committees are ensuring that AECL lives up to its commitments
to transparency and accountability.
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D E L I V E R I N G E XC E L L E N C E I N E V E RY T H I N G W E D O
AECL is prepared to deliver. After five years of re-inventing this
organization, we can say that we are ready, willing and able to
perform to the highest standards.
AECL enjoyed a very good year in 2005–2006. We met or exceeded all key commitments to our
Shareholder and have positioned ourselves to seize opportunities for nuclear power growth in
Canada and globally. We accelerated our culture change initiatives, dramatically improved customer
satisfaction and continue to foster an environment that values safety and performance excellence.
Revenue in our Commercial Operations business grew six per cent on the strength of signing major
reactor refurbishment contracts with New Brunswick Power and Bruce Power. In addition, our
CANDU Services business continued its strong performance with 18 per cent growth, a sign that
AECL is truly a provider of full life cycle support to our customers.
RO B E RT G . VA N A D E L
President and
Chief Executive Officer
Not only does AECL contribute design and project management of new build nuclear projects and
offer critical operations and management support throughout the life cycle of a reactor, we now offer
reactor refurbishment capabilities. We expect to take this new life extension business international in
2006–2007 by signing a contract with Korea Hydro & Nuclear Power Co. Ltd. to retube the first
Wolsong reactor over the next five years. The addition of refurbishment to our product set
complements our CANDU Services business and the new build nuclear business, which is poised
for significant growth due to the global nuclear renaissance.
Our CANDU 6 reactor has the best lifetime performance of any competing design. We are completing
construction of a reactor in Romania and we continue to receive expressions of interest for CANDU 6
new builds, mainly due to its proven performance and AECL’s ability to deliver projects on time, on
budget. AECL has been the top global nuclear reactor exporter over the past decade and we have
enhanced our project management and design capabilities throughout this period. Our continual
excellent performance gives AECL a strong competitive advantage and will allow us to seize the
opportunities presented by next generation nuclear technology.
We met our development milestones for the Advanced CANDU Reactor, ACR-1000, and are
positioned to meet market demands for new nuclear using third generation technology and improved
Mathew Handzlik, Mechanical
Technician, Sheridan Park.
Measuring bore diameter of
ACR end shield mock-up.
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ATO M I C E N E RGY O F C A N A DA L I M I T E D
RAISING THE BAR – 2006–2007 PRIORITIES
• Achieve sales of $596 million.
• Improve overall health and safety performance.
• Renew Chalk River site operating licence.
• Implement Comprehensive Waste Management and
price performance. The ACR-1000 design has benefited
Decommissioning Plan for AECL’s nuclear sites.
from extensive customer input to ensure not only that it
• Develop ACR to meet customer requirements.
meets performance targets, but also is easy to maintain
and operate. AECL has focused its efforts on the Ontario
• Ensure the uninterrupted supply of medical isotopes.
market where new sources of energy will be required within
• Increase openness with all stakeholders, our Shareholder
the next 10 years, but we also have opportunities in New
and the CNSC.
Brunswick, which has announced its intent to explore new
build nuclear, and in the United Kingdom, where CANDU
performance and design is recognized as a key nuclear
program competitor. The ACR-1000’s introduction,
coupled with the CANDU 6, offers continued opportunities and promises to deliver double-digit
revenue growth.
The core technology expertise, skills and infrastructure supplied by our Nuclear Laboratories Centre
of Excellence in Chalk River is an essential component in increasing our Commercial Operations
Business, which pays market rates for these services and invests its profits to support day-to-day
operations of the Nuclear Laboratories. This structure guarantees transparent flow of funds between
the unit and ensures that there is no subsidization of the Commercial Operations by the governmentfunded laboratories. As a result, Canada operates its nuclear R&D facilities more cost effectively,
on a per capita basis, than any other nation.
AECL is committed to developing and maintaining a safety culture that delivers effective quality
assurance programs. Our performance excellence culture is integrated into both our commercial
project management business and our Chalk River operations. We have increased our investment in
the National Research Universal (NRU) reactor operations and have set benchmarked standards based
on best in class operators. These investments and continued focus on performance excellence and
safety has contributed to improved relations with the Canadian Nuclear Safety Commission (CNSC).
VA L U E S I N M OT I O N
Drive for
Increased
Customer
Satisfaction
>
2 0 0 3 TO 2 0 0 5
2006
C U LT U R E CH A N G E :
ACC E L E R AT E D
C U LT U R E CH A N G E :
> Business Objectives
> Resource Deployment
and Development
> Communication
> Small Project Management
>
> Safety First
> Customer Service Transformation
> Performance Excellence
> Commitment to Dialogue
Our initial work on culture change
began in 2003. At that time we
identified six functional root causes
to focus on. We have identified four
specific areas to accelerate our
efforts to achieve “breakthroughs”
in culture change: Safety First,
Customer Service Transformation,
Performance Excellence, and
Commitment to Dialogue.
We are excited to report that 83%
of our customers surveyed indicated
they were satisfied with AECL’s
performance.
> Performance Management
> Processes and Documentation
A N N UA L R E P O RT 2 0 0 6
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The CANDU industry is vital to Canada’s economy and indeed, its
future. Its 150 companies provide 30,000 high-quality jobs and
generate $6 billion a year. Less tangibly, it contributes to Canada’s
destiny as a leading intelligence-based economy, giving the world
breakthroughs that cannot be duplicated anywhere else.
During 2005–2006, we extended the operating licence of the NRU to coincide with the renewal of the
Chalk River site licence. AECL is now well placed for an overall operating licence extension.
Ted Chudak, Development
Technician, Sheridan Park.
Control system upgrade.
Another key breakthrough was the funding of the legacy waste and decommissioning liability for the
Whiteshell and Chalk River laboratories and several prototype reactor sites. During our previous fiscal
year, AECL booked a liability to reflect current accounting practices and international best practices
for waste management, which is reflected in Government of Canada accounts. The Government has
indicated its intention to commit $520 million to fund the first five years of a long-term strategy to deal
with the legacy waste and decommissioning liability. AECL has created the Liability Management Unit
(LMU), an independent organization, to ensure that these funds are spent in an effective and
transparent manner, consistent with the Government’s long-term strategy. The LMU will enter into
formal internal contracts to ensure clear governance and that the operating arm, the Nuclear
Laboratories, delivers its projects with excellence. AECL now has a clear mandate to address the
nuclear legacy waste and liability so that future generations will not inherit them.
Resolution through mediation with MDS Inc. and its subsidiary MDS Nordion opened a new era of
co-operation. In exchange for ownership of the two MAPLE reactors under construction, and the
New Processing Facility at Chalk River, AECL entered into a 40-year agreement to supply MDS Nordion
with medical isotopes. AECL will commission the two reactors in 2008 and 2009 and provide funding
to complete and operate them. In return, we will receive a share of net revenues from the sale by
MDS Nordion of isotopes used worldwide in medical diagnostic and treatment procedures. We are
confident that this new agreement will maintain Canada’s market leadership in high-technology medicine.
E X E C U T I N G W I T H E XC E L L E N C E
With three life extension projects underway and more anticipated, refurbishment represents
about 60% of our business. Each project has a similar economic impact as a new build.
2 0 Y E A R S O F AC T I V E A N D P L A N N E D L I F E E X T E N S I O N P RO J E C TS
BRUCE 2
BRUCE 1
POINT LEPREAU
WOLSONG 1
BRUCE 3
EMBALSE
G E N T I L LY 2
PICKERING 6
PICKERING 5
BRUCE 6
BRUCE 5
BRUCE 4
PICKERING 8
PICKERING 7
BRUCE 7
BRUCE 8
D A R L I N G TO N 1
D A R L I N G TO N 2
D A R L I N G TO N 3
D A R L I N G TO N 4
Projects underway
Proposed /anticipated projects
2006
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2008
2 010
2 012
2 014
2 016
2 018
2020
2022
2024
In this new nuclear era, we’re focusing on delivering what
we’ve learned in recent years. How we execute our strategy
will determine how well AECL fares. Yet I’m pleased and
confident that we have the strategies, systems, expertise,
relationships, and the people we need to deliver.
In late March 2006, AECL joined forces with four of the world’s leading nuclear technology and
engineering companies to present a turnkey service and competitive solution for building new
nuclear plants in Ontario. The four-year, Team CANDU agreement combines AECL’s expertise with
that of our project partners: GE Canada, SNC-Lavalin Nuclear Inc., Babcock & Wilcox Canada and
Hitachi Canada. Having worked together abroad for years, we are now focusing on reactor sales
domestically. Team CANDU is proposing to deliver a business model for Ontario that we have
successfully deployed in markets around the world over the past decade.
AECL’s accomplishments this year were significant, but I am equally proud of the manner in which
we achieved them. We exceeded market benchmarks for safety and our days lost due to injury were
significantly better than target. In an attempt to foster a workplace that values quality assurance,
the number of Non-Conformance Reports increased in response to management encouragement
to actively address performance issues. A culture that challenges its performance standards will
improve quality assurance processes and drive performance excellence.
The Team CANDU companies
have joined forces to deliver a
competitive solution for building
new nuclear plants in Ontario,
Canada.
Our domestic customer service survey showed that satisfaction levels have improved for the third
year in a row with overall customer approval reaching 83 per cent and improvements made in all
categories. These leading cultural change indicators bode well for the future as our processes begin
to match the world-class skill set of our employees.
Our success in 2005–2006 demonstrates that AECL is prepared to deliver: We met or exceeded key
Company milestones and commitments and signed major agreements that will change our direction
for years to come; refurbishment contracts complete AECL’s product offering, meeting customers’
and marketplace needs while our on-schedule ACR development will also fulfil those needs; our
Nuclear Laboratories delivers excellence through safety and have established an effective relationship
with our regulator; we have forged a long-term partnership with our Shareholder to address legacy
waste and decommissioning liability at AECL sites; we entered into a 40 year agreement with
MDS Nordion to deliver medical isotopes to the world community; and we have made great strides in
establishing a culture which strives for performance excellence in a safe, customer focused manner.
On behalf of the Board of Directors and Senior Management, I wish to thank our employees for their
dedication and commitment to this organization and for bringing AECL to a strong position at the
dawn of this nuclear renaissance.
The future looks bright and AECL is well positioned to Lead the Way.
RO B E RT G . VA N A D E L
President and Chief Executive Officer
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I N D U ST RY DY N A M I C S
As the global need for energy continues to grow, many nations are committing to nuclear energy as a
key part of their supply strategies. Electricity produced by nuclear can provide reliable, cost-effective
and environmentally sound solutions while decreasing reliance on foreign oil and gas, which is
increasingly expensive and vulnerable to supply interruptions. According to the World Nuclear
Association, countries around the world expect to build about 150 new nuclear energy plants over
the next three decades. Here at home, the case for nuclear was clearly made in late 2005, when the
Ontario Power Authority (OPA) recommended to the Government of Ontario that nuclear power
maintain its place in the proposed mix of energy-supply sources. Nuclear represents about half of the
electricity generated in Ontario
so to meet the growing need
for power, the Province
Electricity produced by nuclear can provide reliable, costwill require more nuclear
effective and environmentally sound solutions while decreasing
generating capacity. The
OPA’s 2005 Power System
reliance on foreign oil and gas, which is increasingly expensive
Planning Study warns that
and vulnerable to supply interruptions.
Ontario is at “one of the most
challenging points in its
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ATO M I C E N E RGY O F C A N A DA L I M I T E D
history”. While it recognizes
that renewable energy and
gas-fired sources may replace
some coal-generated power,
the study says “nuclear plants
have less overall environmental
impact than natural gas-fired
generation and operate at
a lower cost for base-load needs”.
Through a continuum of technical achievement and solid,
ongoing activity building and servicing nuclear reactors, AECL
is helping to secure the world’s future in energy, medicine,
research and a wide array of public-policy activities.
The economics for life extension through refurbishment are also compelling. Refurbishment and
life extension represent an exciting growth area for AECL, and demonstrate again the strength
and flexibility of CANDU design.
Sylvia Cheong, Simulation
Engineer, Sheridan Park,
CAD simulation.
A strong, growing nuclear industry to serve these increasing energy needs is more than just the
hallmark of a technologically advanced nation. It is a crucial part of Canada’s technological future:
an expanding industry that provides high-quality, high-tech jobs, with high-value direct and indirect
economic activity. Already, Canada’s nuclear sector is a $6 billion-a-year industry that employs
30,000 workers in 150 companies throughout the country. AECL is the Canadian industry leader:
its CANDU plants are located in seven countries and collectively they avoid about 150 million tonnes
of greenhouse gas emissions every year. These plants deliver low-cost energy in a predictable,
reliable manner. In addition, AECL produces medical isotopes that are used in 68,000 procedures
per day throughout the world.
Beyond commercial
considerations, AECL
The economics for life extension through refurbishment
participates in a number of
are compelling. Refurbishment and life extension represent
public policy initiatives and
an exciting growth area for AECL, and demonstrate again
assignments. Among them is
researching new and safer
the strength and flexibility of CANDU design.
ways for the long-term storage
of nuclear waste and leveraging
AECL’s expertise and Canada’s
international reputation as a responsible worldwide leader in nuclear affairs. AECL supports Canada’s
Amy Siegner, Design Engineer (left)
involvement in global nuclear policy discussions at the International Atomic Energy Agency and the
and Clayton McGregor, Mechanical
Organization for Economic Co-operation and Development. One example is AECL’s contribution,
Technologist, Sheridan Park.
under the leadership of Natural Resources Canada, to international efforts in defining and creating
Remote tooling.
the next generation of nuclear reactor, known as Generation IV.
It would provide power with unprecedented reliability, economics
and safety.
Elsewhere, as the price of fossil fuels rises, there will be
increasing economic opportunities to develop hydrogen-based
activities. Another possibility is to generate steam – powered by
nuclear reactors – to help Alberta oil sands operations unlock the
oil contained in the bitumen sand.
Through a continuum of technical achievement and solid,
ongoing activity building and servicing nuclear reactors, AECL is
helping to secure the world’s future in energy, medicine, research
and a wide array of public-policy activities.
A N N UA L R E P O RT 2 0 0 6
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E X P E RT I S E
Mathew Handzlik, Mechanical
To be a world leader, we have to focus our effectiveness and
Technician (left) and Thomas
experience – in our strategic direction, in our responsiveness to
Zumpe, Mechanical Technician,
customers and stakeholders, in alliances, and in our research
Sheridan Park. ACR end shield
mock-up.
and development. R&D doesn’t just happen; it is an evolving and
committed program supported by a team of the highest quality
and skill. AECL is one of Ontario’s largest employers of scientists
and engineers, with 310 PhDs, 709 Masters, and 1,110 Professional Engineers, and 850 other
technical professionals. Our accumulated expertise and ongoing research are enabling AECL
to be one of the world’s true nuclear industry leaders.
AECL manages one of the most cost-effective national nuclear R&D programs in the developed
world. In 2005–2006, thanks to our commercial income, AECL contributed $47 million directly from
its commercial operations to support Canada’s scientific nuclear capability. This supplements the
Government of Canada’s contribution of $104 million.
AECL focuses research and development in seven key areas: safety, fuel and fuel cycles, fuel
channels, components and systems, heavy water technology, health and environment, and waste
management. The Board of Directors’ Science and Technology Committee sets policy, monitors
strategic direction and provides oversight. It is assisted by an external Research and Development
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ATO M I C E N E RGY O F C A N A DA L I M I T E D
Advisory Panel comprised of experts and scientists from
academia and industry, which advises AECL on strategic
needs, overall direction and the effectiveness of our R&D
programs.
Renewing our ranks of nuclear scientists is also a vital goal.
AECL provides facilities at Chalk River Laboratories for
graduate and post-graduate Canadian and international
students to receive nuclear technology training. Through their
educational institutions and the National Research Council,
students have access to the National Research Universal (NRU)
reactor and other facilities.
In addition, AECL’s summer program allows undergraduate
science and engineering students to experience work in a
nuclear laboratory. At the secondary school level, AECL
supports the Deep River Science Academy, in which students
work alongside principal investigators in nuclear research.
Over six decades, AECL has built one of the most extensive
nuclear knowledge bases in the world, with current staff
continuing the tradition of R&D excellence. A primary example
is the groundwork being performed on the Advanced CANDU
Reactor, or ACR-1000.
D E L I V E R I N G E XC E L L E N C E
A pioneer in the CANDU retubing
process, Bryan Murdoch is leading
AECL’s Bruce Retube Project – a
critical part of client Bruce Power’s
overall refurbishment of Bruce A,
Units 1 and 2, and one of the most
important refurbishment projects
in CANDU’s history. With 35 years
in the nuclear industry business,
including positions with Ontario Hydro/Ontario Power Generation,
Bryan’s extensive technical knowledge of fuel channel replacement processes and associated technology is enriched by his
high standards for employee safety and quality assurance in all
aspects of reactor maintenance. Coupled with a commitment
to client satisfaction and his ability to build a strong project
management focused organization that emphasizes creative
solutions for improving performance, Bryan will ensure the
project is done safely, to the highest quality of standards, and
on schedule.
Bryan Murdoch, General Manager, Bruce Retube Project
The ACR-1000 represents a new generation of nuclear power plants, designed to meet customer
and public expectations by delivering enhanced safety, major improvements in economics, and
technology to achieve operational excellence. The ACR development targets are ambitious and
highly competitive. They include:
• Enhancing safety by a 10-fold reduction in the (already low) probability of severe accidents.
• Achieving economic improvement through a 25 per cent reduction in lifetime electricity costs.
• Delivering operational excellence through design for a 95 per cent capacity factor – a five per cent
improvement on current best-in-class performance.
Qualification testing, including testing for manufacturability and operability, has now started for the
specific ACR-1000 design.
AECL has completed the
definition of the fundamental
ACR technology features to
achieve these targets.
The ACR-1000 is designed to
minimize its environmental
footprint. As an emissions-free
energy source, it offers advantages
for climate change and clean air.
Compared to displaced coal
plants, each twin-unit ACR-1000
plant will avoid emissions of
fourteen million tons of CO2 per
annum, along with large quantities
of NO X, SO2 and other airborne
pollutants.
The ACR-1000’s technology is a
blend of evolutionary
development, building on the
successful features of the
existing CANDU fleet, and
groundbreaking innovations
backed up by development and
qualification testing. For
example, the ACR-1000
maintains the modular,
horizontal pressure-tube
approach for the reactor core,
while adapting fuel channel
A N N UA L R E P O RT 2 0 0 6
13
materials and design features for higher temperature operation, leading to improved thermal efficiency.
The fuel design, using low-enriched uranium to increase burn-up, is an innovative adaptation of
AECL’s CANFLEX fuel bundle, developed to increase operating margins in current CANDU reactors.
The ACR-1000 is designed to be fully modular, with pre-assembly resulting in construction time
savings and final plant quality.
The ACR-1000 design team includes veteran nuclear utility operations and maintenance (O&M)
experts, who ensure an emphasis on O&M in the design. This, together with CANDU’s unique onpower refuelling capabilities, has resulted in a plant that can be operated for three years between
maintenance outages – an unequalled advantage.
Brian McGee, Vice-President,
Nuclear Laboratories. New hire
breakfast at Chalk River. AECL has
hired more than 900 employees in
the last ten months.
The ACR development program builds on AECL’s unique breadth of expertise. It forms a central
focus of innovation that attracts and develops top engineering and scientific talent. The program will
deliver a plant design, ready for project execution, supported by a complete range of technology and
delivery capability from fundamental materials R&D conducted at Chalk River Laboratories to the
incorporation of project lessons learned via AECL’s power plant project management team.
Enhancements developed
through this comprehensive
product development
approach can also be applied
AECL is attracting the right people with the right experience
to AECL’s CANDU 6,
including services to operating
to manage and lead. We are driving with excellence and are
units and new build opportuwell prepared to deliver for today and tomorrow.
nities. AECL develops its
technology as a continuum.
Our recent experience in
building reactors abroad has
given us insight into how we can improve our design and construction for the ACR-1000. In turn, our
innovative ACR-1000 design can contribute to the global effort to build the next iteration of reactor
under the Generation IV program. For example, the ACR’s proposed fuel design can accommodate
increased temperature and pressure, thus resulting in higher overall plant efficiency. These
refinements and their descendents may contribute to Generation IV specifications. By maintaining a
continuum of technology improvement, our reactor designs evolve in manageable steps, and AECL
assumes acceptable financial risks with solid commercial returns.
The ACR-1000 is designed to be
fully modular, with pre-assembly
resulting in construction time
savings and final plant quality.
14
ATO M I C E N E RGY O F C A N A DA L I M I T E D
P E R F O R M A N C E E XC E L L E N C E
This year’s strong financial performance is the result of AECL’s
superior people, products, services and strategies, all of which
have positioned the company as a global leader in nuclear
technology. At the end of 2005–2006, we had a consolidated
revenue backlog of $1.3 billion, approximately seven times the
amount for the previous year. We are confident that the nuclear
renaissance will find AECL well placed to build on this performance.
Ken Wood, Senior Engineering
Technologist, Sheridan Park.
Point Lepreau retube mock-up.
For the past 10 years AECL has been continuously building new nuclear reactors and has surpassed
all major reactor vendors in completing six reactors on budget and on or ahead of schedule. These
new reactors, in Korea, China and Romania have enabled AECL to keep skills sharp and current.
We have an experienced pool of talent ready to meet new challenges in the marketplace. We have
also developed innovations in sharing capabilities with our overseas construction partners. This year,
we announced that we have joined forces with four of the world’s leading nuclear technology and
engineering companies to create Team CANDU, which will bring our successful international project
performance and capabilities to Ontario. Each member of the team, which includes Babcock &
Wilcox Canada, GE Canada, Hitachi Canada and SNC-Lavalin Nuclear, brings technical strengths,
16
ATO M I C E N E RGY O F C A N A DA L I M I T E D
expertise and a worldwide track record of delivering projects
on time and on budget.
Team CANDU will deliver a business model in Ontario that has
proven to be extremely successful abroad during the last
decade. With each partner taking a share of project risk to
deliver new CANDU plants on a turnkey, fixed-price basis,
utility operators are relieved of traditional project risk.
Refurbishment of existing reactors is an excellent way to
deliver virtually new generating facilities at low cost and short
lead times. The economic value to the owner of CANDU
refurbishment projects is remarkable, and AECL is hard at
work on several such initiatives. Currently, we have a turnkey,
fixed-price contract to refurbish the CANDU 6 reactor at Point
Lepreau in New Brunswick. Engineering, procurement and site
preparation are underway, laying the groundwork for the
planned refurbishment shutdown in April 2008. Meanwhile,
we also have a contract in place with Bruce Power to retube
Bruce Units 1 and 2 as part of a larger refurbishment program
at the Bruce A generating station. We are discussing
proposals to refurbish CANDU 6 stations in Canada,
South Korea, and Argentina.
P O S I T I O N E D TO D E L I V E R
In a focused effort to serve
customers better, AECL is taking
steps to enhance its workforce
with strategic hires from the
utilities sector who have senior
operating experience. Bill
Pilkington, Director of Technical
Delivery for CANDU Services, is
one example of the type of leader
AECL brought in last year to
ensure our service teams start
thinking like operators. With close to 30 years of nuclear
experience, including positions with Ontario Hydro and
NB Power, Bill is helping AECL to better understand and
respond to the needs of customers through the delivery of
technical solutions that meet operator requirements. Bill’s
expertise, along with his strength as a motivator, are contributing to AECL’s new services culture, which will ensure we
become a supplier of choice.
Bill Pilkington, Director of Technical Delivery, CANDU Services
In 2005–2006, we made great strides in continuing to improve our customer service culture.
An independent survey of domestic customer satisfaction showed significant improvement in
several key areas: the number
of respondents who said they
were satisfied or more than
satisfied with our services rose
For the past 10 years AECL has been continuously building
47 percentage points in only
new nuclear reactors and has surpassed all major reactor
three years. Our goal is easy
vendors in completing six reactors on budget and on or
to understand: our customers’
ahead of schedule.
success is our success and
we have made a long-term
commitment to support their
operations.
CANDU Services, as the original equipment manufacturer (OEM) of the CANDU product line,
provides ongoing quality support and services to utilities worldwide. To serve our customers better,
C A N D U 6 L I F E T I M E C A PAC I T Y
The CANDU 6 fleet ranks well ahead of the competition in the international marketplace with an impressive average lifetime capacity factor –
the single most important measure of reactor performance – of 86%.
Name of Unit
In-Service Date
Lifetime Capacity
Factor
Name of Unit
In-Service Date
Lifetime Capacity
Factor
97 PER CENT
P O I N T L E P R E AU, N E W B R U N S W I CK
F E B R UA RY 19 8 3
83 PER CENT
WO L S O N G 4 , S O U T H KO R E A
O C TO B E R 19 9 9
G E N T I L LY 2 , Q U E B E C
O C TO B E R 19 8 3
79 PER CENT
E M B A L S E , A RG E N T I N A
J A N UA RY 19 8 4
85 PER CENT
WO L S O N G 1, S O U T H KO R E A
A P R I L 19 8 3
86 PER CENT
C E R N AVO DA , RO M A N I A
D E C E M B E R 19 9 6
87 PER CENT
WO L S O N G 2 , S O U T H KO R E A
J U LY 19 9 7
93 PER CENT
Q I N S H A N U N I T 1, CH I N A
DECEMBER 2002
86 PER CENT
WO L S O N G 3 , S O U T H KO R E A
J U LY 19 9 7
94 PER CENT
Q I N S H A N U N I T 2 , CH I N A
J U LY 2 0 0 3
89 PER CENT
Lifetime capacity is the percentage of time that a plant operates at its design rating.
A N N UA L R E P O RT 2 0 0 6
17
we have trained our service teams to think like operators. We also place key personnel at senior
levels to drive a services culture and to focus on becoming a supplier of choice. Our CANDU
Services business accounted for $123 million in revenues in 2005-2006, an increase of 18 per cent
over the previous year. We are committed to proving ourselves to our customers, and in doing so,
building real value into their operations.
AECL’s business depends on the wise application of technology
from our knowledge base and expertise on new products and
refinements for an energy-hungry world. As economies grow, so
does the world’s need for generating capacity, and that capacity
needs to be affordable, reliable and emission-free. To meet such
challenges, we are developing the ACR-1000, a 1,200-MW,
generation III+ nuclear reactor featuring one of the most
advanced designs in the world.
Noel Harrison, Engineering
Physicist (left) and Peter Valliant,
Metallurgical Engineering
Technician, Chalk River.
Assembling fuel string.
Last year, we met a significant milestone by confirming the
fundamentals of the technology behind the ACR-1000. We
researched materials behaviour and set parameters that will
enable the robust ACR-1000 to meet rigorous operating
conditions and customer needs. We co-operated with the CNSC
as it established its evaluation criteria for our advanced reactor.
The CNSC completed a report in March 2006 outlining issues
surrounding ACR-1000 technology and identifying topics they wish to review in the ACR-1000
pre-licensing program. We anticipate that this review by the CNSC will indicate that the ACR-1000
reactor design can be licensed in Canada under the Nuclear Safety and Control Act. With the
completion of this CNSC report, AECL has moved ahead to start the Basic Engineering program
for the ACR-1000.
At the same time, it has been essential to understand customer operating and business requirements
for the ACR-1000 to ensure that its design is customer-oriented. The reactor, for example, must be
easier to operate and maintain, and thus be more economical than earlier generation CANDUs and
our competitors’ reactors. To achieve this, we have embedded customer-service experts with firsthand utility operations experience in the design team. These experts work hand-in-glove with the
operations experts and leaders who are driving the services business.
O N T I M E , O N B U D G E T – A E C L ’ S P RO J E C T T R ACK R E CO R D
18
ATO M I C E N E RGY O F C A N A DA L I M I T E D
In-service date
Plant
Status
1997
Wolsong Unit 2, S. Korea
On budget
On Schedule
1998
Wolsong Unit 3, S. Korea
On budget
On Schedule
1999
Wolsong Unit 4, S. Korea
On budget
On Schedule
2002
Qinshan Phase III, Unit 1, China
(Turnkey contract)
Below budget
6 weeks ahead of schedule
2003
Qinshan Phase III, Unit 2, China
(Turnkey contract)
Below budget
4 months ahead of schedule
2007
Cernavoda Unit 2, Romania
On Target
84% complete
S U STA I N A B I L I T Y
AECL’s commitment to sustainable
In today’s world of heightened concern over greenhouse gases,
development starts at the top and
the advantages of nuclear are gaining more prominence. Nuclear
is factored into all of its business
energy is emission free, causes no acid rain, is dependable, and
planning activities.
the technical aspects of nuclear safety are well understood.
AECL has been working to strengthen its position as a leader in
environmental issues. Last year we maintained our ISO 14001 environmental-management
accreditation and undertook initiatives on a number of decommissioning programs that will deal
effectively with past legacies. Meanwhile, we laid the groundwork for developing a safety culture
throughout the company. We have begun a new era of co-operation and communication with our
regulator, the Canadian Nuclear Safety Commission (CNSC). Finally, we engaged the public, building
avenues of communication and, it is hoped, new levels of trust and mutual co-operation.
We have adopted three environmental objectives for our products and services: We will minimize our
footprint; we will use advanced technology to minimize releases into the environment; and we will
examine all aspects associated with fuel designs in future reactors such as the ACR-1000 to ensure
they meet stringent environmental requirements for safe storage and disposal after use.
20
ATO M I C E N E RGY O F C A N A DA L I M I T E D
AECL manages nuclear legacies on behalf of the Government
of Canada. Last year, in conjunction with our Shareholder, we
developed a long-term strategy for dealing with these
liabilities. The 70-year action plan will characterize the nature
of the legacy wastes at Chalk River and address how to
immobilize them in a stable form. The Government of Canada
has indicated its intention to commit $520 million over five
years to fund the five-year start-up phase of this strategy. This
accelerated program to address long-term management of
waste and decommissioning of legacy facilities will ensure
that the liabilities are dealt with effectively and are not left for
future generations. We will apply this protocol not only to
Chalk River, but also to ongoing nuclear waste being
generated at hospitals and universities across Canada.
AECL also has responsibility for decommissioning Whiteshell
Laboratories in eastern Manitoba, as well as three prototype
reactors located in Quebec and Ontario.
O P E R AT I O N A L E X P E RT I S E
With more than 32 years of nuclear
operations experience with OPG,
Brian McGee, AECL’s new VP,
Nuclear Laboratories, brings much
weight to AECL’s ongoing commitment to enhancing R&D excellence,
while ensuring adherence to all
regulatory requirements at its Chalk
River site. Responsible for the safe
operation of AECL’s licensed nuclear facilities, Brian is
focused on continued excellence in health, safety and the
environment for the laboratory operations and on ensuring that
the organization is prepared to meet all quality assurance and
regulatory requirements. Brian continues AECL’s enduring
drive for R&D excellence to support and advance CANDU
technology and to ensure that the organization’s expanding
decommissioning and waste management activities remain at
the leading edge. Brian is also committed to strengthening
dialogue with surrounding communities, customers, regulators,
and other stakeholders.
Documents related to the Chalk River portion of the long-term
Brian McGee, Vice-President, Nuclear Laboratories
strategy, as well as the five-year implementation plan have
been tabled with the CNSC. All of these documents are
available to the public. Indeed, we consult with interested
parties on our progress, we encourage comments from the public, and where appropriate, incorporate
their suggestions into planning.
As part of AECL’s public policy role we manage the low-level radioactive waste management office
(LLRWMO) that addresses historic waste clean-ups throughout the country. In addition, we maintain
emergency-response capabilities and expertise and are ready to respond to any incident involving
radioactive materials that may happen.
Instilling a safety culture in the company is a serious business, one that not only protects the lives,
health and welfare of AECL employees, our customers and their communities, but one that fosters a
psychology of excellence. We believe that
AECL’s drive toward industry best practices continues to be reflected in the ongoing reduction
excellence in safety is conducive to creating a
in the frequency and severity of our lost time injuries. Our FY 2005–2006 frequency and severity
high-performance organization: in operations, in
rate reduction targets (15% less than average of previous 2 years) were achieved. The launch of
delivery of services and in development
a new Safety Culture initiative in early 2005, including awareness training in the areas of human
performance and error-free tools, contributed to our continuing performance improvements.
of technology.
Safety Performance Frequency
Safety Performance Severity
1.2
12
1.0
10
0.6
0.4
8
6
4
2
0.2
0
0.0
01 /0 2
0 2 /0 3
0 3 /0 4
0 4 /0 5
0 5 /0 6
SEVERITY
0.8
FREQUENCY
This is not a one-time exercise or a simple
program of rules and regulations for avoiding
incidents. It is, rather, a mentality that goes
to work every day throughout the company:
in research and development, in operations, in
our laboratories, in decommissioning and in
customer service. AECL is focusing on safety
leadership through a series of workshops held in
2005–2006 at the managerial level. This year
we will extend these safety-consciousness
workshops to all workers. AECL strives to be an
increasingly transparent organization. To that
01 /0 2
0 2 /0 3
0 3 /0 4
04/05
05/06
Frequency = Number of Recordable Lost Time Injuries (RLTI) per 200,000 person-hours of exposure.
Severity = Number of work days lost as a result of RLTI per 200,000 person-hours of exposure.
A N N UA L R E P O RT 2 0 0 6
21
end, we welcomed a suggestion by residents and public-interest groups in Ontario’s Renfrew County
to create an Environmental Stewardship Council. The panel, which is currently being established, will
be comprised of AECL staff, members of public-interest groups and members designated by locally
elected councils. It will openly discuss matters of interest in operations at Chalk River, help us to
improve environmental performance through community feedback, and provide us with a
mechanism for two-way communications.
Craig Buchanan, Metallurgical
Technician, Chalk River. Optical
examination of fuel materials and
fuel channel components.
In an effort to increase understanding of and support for nuclear in neighbouring communities in and
around where AECL and its employees are located, we launched a community speakers program
last year. Through the program, trained AECL employee volunteers visit organizations and schools to
address the benefits, uses and misconceptions of nuclear energy, as well as the important role it will
play in ensuring a reliable, safe and affordable energy supply for the future.
AECL identified five priorities in improving and sustaining our regulatory performance and we are
making good progress on each. We seek to achieve excellence in meeting regulatory requirements
and in continuing to improve our regulator ratings. We seek to improve our ability to identify and act
on issues before we are told to. We seek timely and effective resolution of regulatory matters and
are pleased to say that we are resolving or undertaking action on all outstanding issues. We seek
sustained regulatory performance. Finally, as has been the case in Renfrew County, we seek to
develop an attitude of openness with all of our communities, with public stakeholders, the
Shareholder and the CNSC.
AECL will continue to foster better communications with the CNSC and to be more thorough and
transparent in our reporting. In that regard, the regulator’s decision to open an office at Chalk River,
a standard practice at major nuclear operations throughout the country, is a welcome one. It will
provide AECL with another communications channel, benefiting our relations and our performance.
Furthermore, we want our stakeholders – our Shareholder, customers, communities, governments,
employees and advocacy groups to have the information to understand our business. AECL is
committed to integrating social, economic and environmental goals into our business planning to
create a solid foundation for increasing Shareholder value. Over the past year, we have updated our
supporting policies to reflect best practices with respect to governance, disclosure, environmental
and social practices.
T. (Nithy) Nitheanandan, Senior
Mechanical Research and
Development Engineer (left), and
Bob O’Connor, Materials Science
Technician, Chalk River. Thermite
loading of Molten Fuel Moderator
Interaction (MFMI).
22
ATO M I C E N E RGY O F C A N A DA L I M I T E D
2005–2006 PERFORMANCE vs OBJECTIVES
Achieve Services revenue annual growth rate of 10%, and four refurbishment
and two new build contracts
Strategies
Year One Measures/Deliverables
Results
Successfully negotiate
and execute refurbishment
and retubing contracts.
Achieve revenue and cost recoveries of
$485 million.
Revenue and cost recoveries increased by $53 million to
$431 million. Two major contracts signed late in year will
carry forward to the coming fiscal year.
Achieve Net Income of $11 million
(excluding accretion for decommissioning liability).
Exceeded. Net income of $80 million was achieved.
Achieve cash balance of $46 million.
Exceeded. Year-end balance of $111 million resulted from
the project contracts.
Obtain two reactor retube contracts.
Achieved with the signing of major contracts with
New Brunswick Power and Bruce Power, together valued
at $1.2 billion.
Achieve a CANDU 6 project
replication sale.
90% of 2005–2006 project milestones delivered.
Exceeded. All contractual milestone deliverables for the
year were completed for the Cernavoda 2, New Brunswick
Power and Bruce Power contracts.
Complete the MMIR Project.
90% of project milestones delivered.
Completed 72% of the MMIR project milestones. On target
to achieve in-service date of 2008 for the isotope reactor,
MAPLE 1 and related New Processing Facility.
Canadian Nuclear Safety Commission approval
of licence renewal.
Successfully obtained two-year licence renewal.
Obtain services revenue of $117 million.
Services revenue exceeded target expectations by
$6 million.
Achieve 9% revenue growth.
Exceeded with Services revenue growth of 18%.
Implement Services and Product development
program.
Successful product development programs, including
CANFLEX LVRF fuel; improved start up automation for
CANDU plants; and the Fuel Handling Cable Harness have
been completed.
Launch the Advanced
CANDU Reactor in Ontario.
Deliver 90% of project milestones.
Exceeded expectations with 100% of Corporate milestones
completed and over 90% of the deliverables achieved.
Focus on delivering quality
processes to improve
customer satisfaction.
Improve Customer Satisfaction by 10%.
Exceeded. The annual domestic survey indicates a 14%
increase in customer satisfaction.
Improve Quality Index by 10%.
93% of the target was achieved reflecting a 5%
improvement over last year.
Access capital to invest
in growth.
Resources in place to meet business requirements.
Achieved.
Make strategic acquisitions
and partnerships to acquire
broader capabilities and to
secure the supply chain.
Retube and refurbishment projects launched on
time with appropriate resources.
Achieved. The Team CANDU initiative was formed and is
positioned to address the need for Ontario new builds.
Members include General Electric Canada, SNC Lavalin
Nuclear, Babcock Wilcox Canada, Hitachi Canada
and AECL.
Attract and retain key
resources through
succession planning,
outsourcing, partnerships
and acquisitions.
Completion of milestones for project management
and commercial awareness training.
Achieved. 200 staff completed project management
training and a new commercial awareness program has
been launched.
Strengthen the product and
services portfolio by
developing and selling value
added CANDU products and
services to maximize profits.
24
ATO M I C E N E RGY O F C A N A DA L I M I T E D
2005–2006 PERFORMANCE vs OBJECTIVES
AECL and nuclear power recognized as leaders in health, safety and the environment
Strategies
Year One Measures/Deliverables
Results
Encourage, communicate and support
a safety culture.
Achieve a 5% reduction in amount of radiation exposure.
Achieved a 6% reduction in radiation
exposure.
10% improvement in workdays lost due to accident.
Achieved. The frequency of recordable
injuries was reduced by 58%.
Achieve a 4% training expense to payroll corporate wide.
Achieved.
Completion of safety and compliance training
requirements.
Over 50% of managers have completed
the Behavioural Observation program
and 84% of NLBU have completed the
safety culture workshop, exceeding the
year-end target of 60%.
Fulfil environmental policy and
regulations.
Achieve a 5% improvement in the Environment Index.
Achieved improvement of 7%.
Establish environmental objectives for AECL products
and services.
Completed.
Continue the uninterrupted supply
of isotopes.
Achieve isotope revenue of $37 million.
Isotope revenue finished the year at
$35 million.
Achieve NRU License extension.
Achieve National Research Universal (NRU) capacity
factor of 80%.
The NRU capacity factor to the end of
March was 74%.
Submit CNSC application and supporting documentation
for removal of existing Chalk River Laboratories (CRL)
site licence condition.
Achieved. The CNSC extended the
operating licence to July 2006 to
coincide with the CRL site licence.
Enhance the awareness of and
understanding for benefits of nuclear
through associations, media and with
key stakeholders.
Achieve 50% public acceptance nationally in support
of nuclear.
Positive gains in public opinion have
been made. An Ipsos-Reid poll
completed in January 2006 showed
that 61% of Ontarians currently support
nuclear energy.
Demonstrate linkage of nuclear
technologies in new technology
markets.
Demonstrate AECL leadership in nuclear power/
hydrogen synergy.
Provided essential advice to Natural
Resources Canada to enable the signing
of the International Generation IV Nuclear
R&D agreement.
A N N UA L R E P O RT 2 0 0 6
25
2005–2006 PERFORMANCE vs OBJECTIVES
Achieve measured progress by effectively supporting the CANDU asset life-cycle and
nuclear platform obligations
26
Strategies
Year One Measures/Deliverables
Results
Ensure that the technology base
will address Safety, Licensing and
Design Basis requirements of the
Achieve a 10% improvement in the
Research Effectiveness Index over
2004–2005 target.
Exceeded. The Research Effectiveness Index of 89 at the end
of the year is better than the 2005–2006-plan target of 82.
CANDU fleet.
Achieve a 10% improvement in the
CANDU Owners Group satisfaction
index.
Achieved.
Attract and retain key R&D resources
to advance capability.
Achieve 90% of targets.
100% of succession planning targets and 70% of hiring plans
were completed.
Delivery of capability maintenance
program training requirements.
Completed.
Focus on Technology development
and commercialization to improve
customer value.
Achieve ACR and product and
services development milestones.
73% of ACR R&D deliverables for 2005–2006 were completed.
New product delivery requirements completed.
Demonstrate value and cost
effectiveness of NLBU programs
and activities.
Achieve a 15% reduction in
reportable events.
Executive emphasis on encouraging the reporting of events
and improving the reporting culture has resulted in higher than
planned reports.
Complete eight Continuous Business
Improvement (CBI) projects with
implementation plans.
The CBI programs were evaluated and subsequently two new
programs were established: the NRU Operations Improvement
program and the Safety Culture Improvement Initiative.
8% improvement in the platform
expenditures to revenue and funding
ratio over 2004–2005.
The launch of site, regulatory and safety initiatives along with
NRU performance improvement programs resulted in this
target being cancelled. The expense to revenue ratio increased
to 74% compared to the 2004–2005 year end ratio of 65%.
Structure the management of
waste & decommissioning to ensure
good governance consistent with
available resources.
Achieve 90% of decommissioning
plan milestones.
92% of decommissioning and waste management program
milestones were achieved.
Establish the Liability Management
Unit (LMU).
The Decommissioning plan and request for funding have been
submitted to the Shareholder. The LMU has been established
and all key staff positions have been filled.
Reduce AECL Site Liability.
10% improvement in the Liability
Reduction Index from the 2004–2005
targets.
Achieved a 17% improvement in the Liability Reduction Index.
ATO M I C E N E RGY O F C A N A DA L I M I T E D
2006–2007 OBJECTIVES
2006–2007 MEASUREMENT CRITERIA
People:
• Improve Safety performance
for the frequency and severity
of accidents by 10%.
• Improve Employee feedback
measurement.
• >90% of Resources Plan
milestones achieved.
Process:
• Quality index improved by 5%.
• On Time and On Budget
delivery >90%.
• Improve environmental index
by 5% over the previous
three-year average.
Customer:
• Maintain Customer
Scorecard results.
• Customer quality ranking
of 7 or higher on 90% of
completed projects.
• Achievement of customer
performance improvement
objectives.
Financial:
• Revenue of $596 million.
• Net Cash Outflow of
$54 million.
• Profit margin at or better
than budget for 90% of
projects.
Five Year Objective – Achieve leadership in our markets through performance excellence and business relationships
Five Year Strategies
• Successfully negotiate and execute refurbishment and
retubing contracts.
• Achieve new build CANDU sales in Ontario and globally.
• Continue the uninterrupted supply of isotopes and develop
the business.
• Strengthen the product and services portfolio by developing and
selling value added CANDU products and services.
• Focus on delivering quality processes to improve
customer satisfaction.
• Broaden capabilities through recruitment, outsourcing and
partnerships and strategic acquisitions.
Priority Projects
• Obtaining three additional CANDU 6 refurbishment contracts in
the first two years of the plan, and meeting all commercial
contract requirements.
• Meeting the requirements for new nuclear plant construction in
Ontario, including launching the Generation III + Advanced
CANDU Reactor.
• Continuing Isotope production and bringing into operation the new
Dedicated Isotope Production Reactors and Processing Facility.
• Continuing the culture change program and improving
Employee Dialogue to ensure alignment of employees with
Corporate objectives.
Five Year Objective – Demonstrate Vigilance and Leadership in Health, Safety, the Environment and Operational Excellence
Five Year Strategies
• Encourage, communicate and lead a safety culture.
• Achieve operational excellence by exceeding environmental policy
and regulations.
• Achieve NRU and Chalk River licence extensions.
• Demonstrate value and cost effectiveness of NLBU programs
and activities.
• Demonstrate progress and value in the delivery of the Waste
Management and Decommissioning Program.
• Work closely with NRCan in assessment of options for the future of NRU.
Priority Projects
• Renewing the Chalk River site operating licence including
operation of the NRU research and isotope production reactor.
• Ensuring the uninterrupted supply of isotopes.
• Implementing the Comprehensive Waste Management and
Decommissioning Plan for AECL’s nuclear sites.
• Work closely with the Government of Canada on the required
infrastructure investments in the national nuclear laboratory
at Chalk River.
Five Year Objective – Lead Technology Development and Application to Continuously Improve CANDU Life-cycle Performance
Five Year Strategies
• Ensure that the technology base will address Safety, Licensing and
Design Basis requirements of the CANDU fleet.
• Attract and retain key resources to advance capability.
• Focus on technology development and commercialization to improve
customer value.
Priority Projects
• Developing the ACR to meet customer requirements.
• Reinvestment in the nuclear infrastructure including knowledge
management.
A N N UA L R E P O RT 2 0 0 6
27
F I N A N C I A L H I G H L I G H TS
Building on the recent refurbishment contracts awarded in Canada and recent new build
successes in China and Romania, AECL will continue to pursue opportunities for life
extension projects and new reactor sales on a global basis with a focus on countries
where AECL already has a strong presence.
CO M M E RC I A L O P E R AT I O N S
COMMERCIAL OPERATIONS
REVENUE
Revenue and Net Income
($ millions)
Commercial revenue increased in
2005–2006 while net income
relative to sales fell. In the prior
year, commercial net income
included a one-time cost savings
relating to reduced project
warranty costs.
500
Within the total revenue of
$320 million from Commercial
Operations, exports were
$183 million, contributing positively
to a favourable balance of trade for
Canada in 2005–2006.
100
2005–2006 Revenue ($ millions)
Commercial Operations
2005–2006 Revenue ($ millions)
By Region
400
$111
$123
300
$137
$180
200
$17
$13
$59
0
01/02 02/03 03/04 04/05 05/06
Projects
Services
Asia
Services
Projects
Canada
Other
Interest
Net Income
Europe
Other
SERVICES
AC R
SERVICES REVENUE
The diversity of the Services’ revenue base and geographic
coverage provides a solid basis for future growth.
Investment in ACR product and market development declined in
2005–2006, reflecting the realignment of market strategy. AECL
still attained all planned development milestones and secured
funding from the Government of Canada equal to expenditures
for the year.
2005–2006 Services Revenue
($ millions) By Product
ACR Funding and Expenses
($ millions)
2005–2006 Services Revenue
($ millions) By Region
ACR Expenses 2005–2006
$4
$8
100
$7
$8
8%
$13
$14
7%
80
28%
13%
60
$46
$28
$75
40
$43
44%
20
0
02/03 03/04 04/05 05/06
Control and Information Products
Asia
Expenses
Engineering
Fuel (Handling and Management)
Canada
Funding
Directed Research
Non Reactor Core
Europe
QA and Other
Other
Other
Licensing
Reactor Core
Safety and Analysis
28
ATO M I C E N E RGY O F C A N A DA L I M I T E D
Business Development
FINANCIAL SECTION
29
MANAGEMENT’S DISCUSSION AND ANALYSIS
40
OUTLOOK
29
FORWARD-LOOKING STATEMENTS
42
MANAGEMENT OF RISKS AND UNCERTAINTIES
29
OVERVIEW
45
OFF-BAL ANCE SHEET ARRANGEMENTS
29
2005–2006 HIGHLIGHTS
46
ACCOUNTING RECOMMENDATIONS ADOPTED IN 2005–2006
29
INDUSTRY TRENDS AND BACKGROUND
46
FUTURE ACCOUNTING POLICY CHANGES
30
OBJECTIVES AND STRATEGIES
46
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
31
KEY SUCCESS FACTORS
48
MANAGEMENT’S RESPONSIBILIT Y
31
CAPABILIT Y TO DELIVER RESULTS
48
AUDITORS’ REPORT
32
FINANCIAL REVIEW
49
CONSOLIDATED BAL ANCE SHEET
33
KEY FINANCIAL PERFORMANCE INDICATORS
50
CONSOLIDATED STATEMENT OF OPERATIONS
34
COMMERCIAL OPERATIONS
51
CONSOLIDATED STATEMENT OF CONTRIBUTED CAPITAL
CONSOLIDATED STATEMENT OF DEFICIT
36
TECHNOLOGY
51
37
LIABILIT Y MANAGEMENT UNIT (LMU)
52
CONSOLIDATED CASH FLOW STATEMENT
38
CONSOLIDATED RESULTS
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
62/63 BOARD OF DIREC TORS, OFFICERS
38
COMPARISON WITH CORPORATE PL AN
38
CASH FLOW AND WORKING CAPITAL
64
CORPORATE GOVERNANCE
39
BAL ANCE SHEET
67
FIVE-YEAR CONSOLIDATED FINANCIAL SUMMARY
M A N AG E M E N T ’ S D I S C U S S I O N A N D A N A LYS I S
Forward-Looking Statements
2005–2006 Highlights
This Management’s Discussion and Analysis (MD&A) has been
approved by AECL’s Audit Committee. It provides comments on
the performance of the Corporation for the year ended March 31,
2006 and should be read in conjunction with the consolidated
financial statements and accompanying notes included in this
Annual Report.
• Revenue from Commercial Operations increased $19 million or
6% in 2005–2006.
• The ongoing new build project at the Cernavoda site is progressing
on target with an overall project completion of 84%.
• Consolidated orders-on-hand at the end of 2005–2006 were
$1,278 million (2004–2005: $190 million), reflecting two major
refurbishment and retubing contracts awarded during 2005–2006.
• AECL invested $60 million in the ACR-1000 program in line
with government funding support of $60 million in 2005–2006,
consequently enabling the achievement of planned milestones.
• The Technology segment maintained a $39 million investment
in support of the safety and performance of the CANDU fleet.
• Overall, AECL’s cash position (including cash and cash equivalents, segregated cash and short-term investments) at March 31,
2006 increased to $111 million (2004–2005: $67 million), mainly
due to cash generated from operating activities.
• AECL, in resolving a previous contractual dispute, signed a new
agreement with MDS Nordion, relating to the long-term supply
of isotopes.
This MD&A contains forward-looking statements with respect
to AECL based on assumptions that management considers
reasonable at the time of preparation. These forward-looking
statements, by their nature, necessarily involve risks and
uncertainties that could cause future results to differ materially from
current expectations. We caution the reader that the assumptions
regarding future events, many of which are beyond the control of
AECL, may ultimately prove to be incorrect since they are subject
to risks and uncertainties.
Overview
AECL’s business activities encompass all aspects of supporting
the CANDU reactor product life cycle. This includes the design and
construction of nuclear reactors and related products, services,
life extension and decommissioning and waste management.
In addition, AECL manages production and supply of a significant
portion of the global medical isotope requirements.
On behalf of the Government of Canada, AECL also fulfills a
unique public policy role in maintaining and enhancing Canadian
nuclear technology to secure Canada’s electricity supply
requirements and manage legacy waste obligations in a safe and
effective manner. These activities are partly funded by the
Government of Canada and managed at our Nuclear Laboratories
Business Unit (NLBU), which include CANDU-related research and
development (R&D) facilities at Chalk River, Ontario and Pinawa
(Whiteshell), Manitoba.
Industry Trends and Background
• According to the World Nuclear Association’s report on The New
Economics of Nuclear Power (2005), global energy demands are
forecast to exceed existing supply, consequently requiring new
supply generation. In addition, new plants will be required to
replace aging facilities facing retirement over the next few decades.
The report also suggests that increasing pressures to move to
more environmentally friendly electricity production technologies
have resulted in several nations re-evaluating nuclear energy as
an essential part of their future energy supply mix.
• The public is progressively acknowledging nuclear energy as safe,
reliable, affordable and environmentally sustainable. According to
an Ipsos-Reid survey (February 2006) conducted on behalf of the
A N N UA L R E P O RT 2 0 0 6
29
Canadian Nuclear Association, 61% of those surveyed in Ontario
support nuclear energy. Also, based on a report published in
2005 by the Nuclear Energy Institute, 70% of Americans favour
nuclear energy. International concerns regarding the diversity and
security of energy supply, climate change and clean air initiatives
and the need for improved economics all indicate a promising
future for nuclear power.
• In Canada, it is being increasingly recognized that the need for
energy on the scale required cannot be met without increased
nuclear power. This could be met by a combination of new builds
and refurbishment of existing reactors.
• Utilities are continuing to negotiate contracts that transfer project
risk to suppliers. This will promote greater accountability on project
performance and facilitate cost efficiencies. This model is consistent with AECL’s existing turnkey commitment on major projects.
• Nuclear related licensing requirements continue to drive a higher
level of compliance.
Objectives and Strategies
To achieve its vision, AECL is focusing on three key long-term
objectives:
1. Achieve leadership in our markets through performance
excellence and business relationships
AECL is committed to providing full support and partnering with
its suppliers and customers throughout the life cycle of nuclear
power technology management. By capitalizing on the synergy
provided by our technology capability, AECL provides innovative
solutions in maximizing the value to both customers and the
Government of Canada. Given its expert knowledge as CANDU
developer, designer, builder, and services provider, and its
specialized facilities, AECL is uniquely positioned to deliver
quality products and services to customers.
To achieve the above objective, AECL will focus on the following
strategies:
• Successfully negotiate and execute refurbishment and retubing
contracts.
• Achieve new build CANDU sales in Canada and globally.
• Continue the uninterrupted supply of isotopes and develop this
business.
• Strengthen the product and services portfolio by developing and
selling value added CANDU products and services.
• Focus on delivering quality processes to increase customer
satisfaction.
• Broaden capabilities through recruitment, outsourcing
partnerships and strategic acquisitions.
2. Demonstrate vigilance and leadership in health, safety, the
environment and operational excellence
To achieve its potential as an industry leader, AECL’s objective
is to position itself as a global leader in environmental and
30
ATO M I C E N E RGY O F C A N A DA L I M I T E D
health-related technologies. AECL is committed to managing its
nuclear R&D and waste management capabilities and related
infrastructure on behalf of the Government of Canada in an
effective and efficient manner to meet regulatory, safety,
environmental, and technical program requirements. The health
and safety of our employees, the communities we conduct
business in and the safety of our products are of paramount
significance in conducting AECL’s business. Strategies are
developed and deployed to ensure the operations at all AECL
facilities are carried out to meet and exceed the standards
required by applicable regulations.
The strategies to achieve this objective are to:
• Encourage, communicate and lead a safety culture.
• Accomplish operational excellence by enhancing environmental
performance.
• Achieve licence extensions for the Chalk River Laboratories (CRL)
including the National Research Universal (NRU) reactor.
• Demonstrate value and cost effectiveness of the NLBU programs
and activities.
• Obtain sustainable funding for the refurbishment of CRL.
• Demonstrate progress and value in the delivery of the Waste
Management and Decommissioning program, which has the
purpose of reducing and, ultimately, discharging obligations
relating to the nuclear legacy liabilities at AECL sites.
3. Lead technology development and application to continuously
improve CANDU life cycle performance
AECL ensures that its skills and facilities support the design and
licensing basis for domestic and international customers over
the life span of all CANDU reactors. This is the type of R&D that
is typically performed in national government funded nuclear
laboratories in other countries, and not usually by nuclear
vendors who focus on commercial and applied development
work that leads directly to products and services. AECL is unique
in that it fulfills both the national laboratory function and the
reactor vendor role. This integrated capability ensures a more
effective transfer of technology from the NLBU to commercial
products and services. Ongoing investment and leveraging of
our R&D and waste management capabilities advances AECL’s
capability to perform R&D while providing the ability to address
public policy requirements.
The strategies to achieve this objective are to:
• Ensure that AECL’s technology infrastructure, encompassing
nuclear technical knowledge, tools and facilities developed over
a period of sixty years will address ongoing safety, licensing and
design basis requirements for the entire CANDU fleet.
• Attract and retain key resources to advance capability.
• Focus on technology development and commercialization to
improve customer value.
Key Success Factors
Customer Commitment
Commercial success is positively correlated to customer satisfaction.
AECL achieves this through delivering on contractual requirements,
providing innovative economical products and services and
continued customer support. AECL’s demonstrated history of
successfully delivering
CANDU projects on time
CUSTOMER SATISFACTION RATING
I M P ROV E D S I G N I F I C A N T LY I N
and on budget reinforces
2005–2006, THE THIRD CONSECUTIVE
expected performance
Y E A R O F I M P ROV E M E N T
on existing and future
contracts. AECL continues
to utilize its R&D capability to deliver high quality economical
products and services and provide continued innovative customer
support and CANDU expertise.
Public Perception of Nuclear Energy
Critical to AECL’s long-term success, is recognition by the public of
the benefits of nuclear energy. AECL is committed to an open and
honest two-way communication that is timely and relevant to the
concerns expressed by the Canadian public. We are convinced that
through effective communication, the public will increasingly realize
that the CANDU nuclear option is one that is truly Canadian,
excellent and safe by world
standards and that it should
AN IPSOS-REID POLL FOUND
be sustained for the benefit
T H AT 61 % O F P E O P L E
I N O N TA R I O , C A N A DA
of all. AECL’s strategies
S U P P O RT N U C L E A R E N E RGY
include continued
investment in R&D to
preserve the excellent performance of the CANDU fleet. This, in
turn, is expected to increase the output of economic clean energy
to displace coal generation and meet growing demand.
Research and Development (R&D)
AECL’s ability to capitalize on development and utilize intellectual
property in a timely manner is crucial to its future commercial
success. Strong technical competencies provide a firm base to
develop and produce new products and services and cost effective
solutions to enhance the benefits, quality and value to our
customers. The large and growing reservoir of technology that
exists within the R&D program can be drawn upon for a wide range
of commercial activities. The development of the Advanced CANDU
Reactor (ACR-1000), which is expected to substantially reduce
capital costs and construction time, is a significant cornerstone of
the R&D capability. The ACR-1000 is poised to position AECL as a
major competitor in next generation reactor technology. AECL
measures its R&D
performance based on an
R&D EFFECTIVENESS INDEX
index, which is used by the
I M P ROV E D TO 8 9 O U T O F 10 0 ,
Government of Canada in
BETTER THAN PLANNED
assessing excellence in
science and technology. The index is aligned and weighted based
on several factors including: corporate relevance, scientific quality
and merit, impact and evidence of results, commercialization, and
workplace of choice.
Project Management Skills
Complementary to the R&D capability are contracts structured to
deliver value and timely implementation through effective project
management. AECL’s Commercial Operations has a strong
foundation in managing major projects and ensuring that consistent,
effective project management resources, systems and procedures
are applied to all such projects. This business segment is the base
for project management
experience and resources,
T H E L A ST 6 M A J O R N E W
providing training and
B U I L D P RO J E C TS H AV E
B E E N CO M P L E T E D O N T I M E
procedures in project
AND ON BUDGET
applications and developing
staff with project management skills and commercial acumen. This foundation stems from
the completion of highly successful projects in overseas markets over
the past few years, which were delivered on time and on budget and
from the major refurbishment projects currently underway.
Capability to Deliver Results
World Class Product
AECL has developed and commercialized a highly efficient worldclass technology, the CANDU reactor, which is operational in seven
countries around the world. The performance of the CANDU 6 fleet,
with its lifetime 86% capacity factor, effectively demonstrates the
competitive performance of the reactor, when compared to similar
reactors worldwide. At present, nuclear power is supplying close to
15% of Canada’s and over 50% of Ontario’s electricity needs. The
CANDU design has proven to be safe, economic and reliable over
the past four decades of
operation. An important
C A N D U 6 R E AC TO R S
competitive advantage of
H AV E P E R F O R M E D W I T H
AN 86% LIFETIME
the CANDU design is the
C A PAC I T Y FAC TO R
capability of on-power
refuelling, enabling flexible
planning of scheduled maintenance. AECL has committed itself
to continual improvement to advance and expand its products
and processes.
Partnerships
AECL’s strength lies in its ability to retain and advance technical
knowledge related to nuclear activities and manage both commercial
and non-commercial projects. Strategic alliances with both
commercial enterprises and research establishments ensure AECL’s
capability to grow. Agreements with large global companies, notably
Team CANDU (announced in March 2006) that is comprised of
A N N UA L R E P O RT 2 0 0 6
31
Government of Canada Support
Organization
AECL is one of Canada’s largest high-tech companies with around
4,000 employees comprising of approximately 3,000 highly skilled
engineers, scientists and technical professionals in a wide range of
technical disciplines. The optimum use of its human resources is
another element essential to the achievement of AECL’s corporate
objectives. To this end, AECL develops and maintains a working
environment that will effectively attract, retain, develop and
motivate competent, appropriately skilled employees. Top
scientific, engineering and technological talents, as well as broadly
experienced managerial and business personnel are essential to
its long-term success. In order to effectively carry out its objectives,
AECL has reorganized its financial reporting environment into
business units under three distinct business segments, each with
bottom line or expense target accountability. Furthermore,
fundamental programs to achieve changes in AECL’s culture have
resulted in improved customer satisfaction and AECL’s delivery
process. In the coming year, the Corporation will accelerate an
existing change management program in order to drive excellence
throughout the organization and deliver on commitments. We will
focus on the four critical areas that will help AECL to achieve
breakthrough results: safety, customer satisfaction, performance
excellence, employee dialogue and communication.
CO M M U N I C AT I O N
AECL
T E CH N O L O GY
LIABILITY
MANAGEMENT
UNIT (LMU)
• Projects
• Research &
Development
• Procurement
• New Build
• Refurbishments
• Services
f
f
ATO M I C E N E RGY O F C A N A DA L I M I T E D
ff
• Facilities
Management
f
f
32
• Planning
• Waste Project
Management
CO R P O R AT E
PERFORMANCE
Research and Development (R&D) Infrastructure
AECL maintains a significant R&D infrastructure that supports the
existing CANDU fleet and develops new technology. This infrastructure
provides AECL with a resource critical to its long-term success and a
significant competitive advantage. AECL’s R&D infrastructure also
contributes to deliver solutions that support the safety and performance of the entire fleet of CANDU reactors, assisting the fleet to
exceed international standards and consequently maintaining the
credibility of the industry. The key to the long-term assurance of
nuclear technology is to maintain an effective R&D infrastructure.
ff
• Isotope
Production
C U STO M E R
CO M M E RC I A L
O P E R AT I O N S
f
f
Government support, at both the federal and provincial levels, has
greatly assisted the development and success of the Canadian
nuclear industry to date. In particular, current government funding
supports AECL’s public policy mandate. The government currently
funds $104 million a year, or about 50%, of the ongoing nuclear
R&D program. The remainder is funded by commercial business
activity performed by the Technology segment of AECL’s business
and by profits from Commercial Operations. The government also
provides funding support for the development of the ACR-1000,
which is seen to be important in meeting future energy demand
requirements in Canada. The amount of funding for the ACR-1000
varies each year and is approved annually based on market
conditions and business economics. Furthermore, the Government
of Canada supports CANDU technology at a high level
internationally, contributing to international R&D alliances.
Government investment and
support in and through AECL
LMU 5 Year Projected
Waste Management and
has been leveraged to develop
Decommissioning Expenditure
an entire nuclear industry.
($ millions)
Continued support will help
150
safeguard Canada’s investment
in the industry and will maintain
100
nuclear as a viable energy
option. The Government of
50
Canada has indicated its
0
intention to commit $520 million
06/07 07/08 08/09 09/10 10/11
in funding for the decommissioning and waste management
program, and a memorandum of understanding is currently being
negotiated with Natural Resources Canada (NRCan) that will
provide AECL with funding to implement the plan. This will allow
AECL to execute its scheduled program activities over the next five
years, in accordance with its decommissioning plan.
Sustained investment in such infrastructure will secure AECL’s
capability to deliver results in advancing Canada’s nuclear option.
SAFETY
SNC-Lavalin Nuclear, General Electric Canada, Hitachi Canada, and
Babcock & Wilcox Canada are in place to enable AECL to meet
customers’ demands and compete in an effective manner. These
alliances are essential to mitigating commercial risks associated
with project execution and enhancing market and profit potential for
AECL, its partners and customers.
Financial Review
AECL organizes its business activities and evaluates its financial
results through three business segments with the objective of
facilitating greater transparency in financial reporting and
accountability for program objectives in accordance with good
governance. Each segment is charged to achieve its financial goals
as established in the Corporate Plan submitted and approved by
the Shareholder at the beginning of the fiscal year.
The Liability Management Unit (LMU) manages the waste management and decommissioning program, and oversees funding
received from the Government of Canada for the program. This
liability has arisen from a wide variety of sources, including activities
before AECL was incorporated, wastes received from universities,
medical facilities, government and industry from across Canada,
and R&D in support of Canada’s nuclear power program. In addition,
the LMU operates the Low-Level Radioactive Waste Management
Office (LLRWMO) on a cost-recovery basis for NRCan.
Commercial Operations Revenue ($ millions)
0
0
FINANCIAL YEAR
10/11
200
09/10
200
06/07
400
05/06
400
04/05
600
03/04
600
02/03
800
01/02
800
08/09
Corporate Plan
1,000
07/08
Actual Results
1,000
The Commercial Operations segment is responsible for two lines of
business: Projects and Services. Projects include new build and
refurbishment projects, together with related project management
services, equipment procurement and sale of heavy water. The
services business includes a full line of engineering and technical
products and services that support operating CANDU plants and
improve customer productivity and competitiveness. Commercial
Operations revenue over the past five years has been significantly
impacted by generally lower business activity and the completion of
several new build projects. However, the AECL Corporate Plan over
the next five years reflects a significant increase in revenue and
business activity through refurbishment and retube contracts
and new build projects. This is supported by AECL’s current
orders-on-hand of $1,278 million and energy demand forecasts.
The Technology segment develops new reactor technology and
supports the safety, licensing and design basis for the life cycle of
the CANDU product set and other Canadian nuclear technology.
This business segment also manufactures and sells medical
isotopes, constructs isotopes production facilities, and provides
waste management and decommissioning services. An important
part of Technology’s mission is to carry out the Government of
Canada’s policy mandate in support of Canadian nuclear
technology and industry through its technology infrastructure,
which includes nuclear laboratories and facilities. AECL fulfils the
Government of Canada’s policy mandate through:
• Supporting continued and reliable production of 15% of
Canada’s electricity in a safe and effective manner.
• Supporting and maintaining nuclear energy as a credible
alternative source of clean electricity generation.
• Producing medical isotopes for distribution globally.
• Representing Canada internationally with respect to nuclear
treaties and scientific matters.
A E C L ’ S CO N T R I B U T I O N TO T H E
G OV E R N M E N T O F C A N A DA ’ S P U B L I C P O L I C Y
SAFE
PRODUCTION
OF
ELECTRICITY
CLEAN AIR
3%
Decommissioning Liability
as of March 2006
($2,847 million)
FINANCIAL YEAR
MEDICAL
ISOTOPE
PRODUCTION
INTERNATIONAL
SCIENTIFIC
REPUTATION
30%
CRL Decommissioning
WL Decommissioning
49%
Reactors
14%
Enabling Facilities
Support & Other Costs
4%
Key Financial Performance Indicators
AECL regularly evaluates its financial performance using key
financial indicators such as: revenue and orders-on-hand, level
of funding available, net income by business segment and by
business unit, consolidated net income, gross margin by project,
resource utilization factor, selling, general and administrative
(SG&A) expense to revenue and funding ratio, cash generated
from operating activities, cash position and working capital.
Summary Of Key Financial Performance Indicators
($ millions)
2005–06
2004–05
Revenue
Commercial operations
Technology
$
320
87
$
301
55
Total revenue
$
407
$
356
Orders-on-hand
$ 1,278
$
190
Funding
Technology
Liability management unit
$
180
56
$
153
47
Total funding
$
236
$
200
$
47
33
(75)
$
72
(106)
(1,807)
$
5
Net income (loss) by business segment
Commercial operations
Technology
Liability management unit
Total net income (loss)
Other
SG&A expenses to revenue and funding ratio
18.0%
Cash generated from (used in) operating activities $
56
Working capital
(51)
Total assets
$ 1,054
$ (1,841)
18.5%
(50)
(4)
$ 863
$
A N N UA L R E P O RT 2 0 0 6
33
Revenue
Commercial revenues from all business segments increased to
$407 million in 2005–2006 from $356 million in 2004–2005 reflecting
new refurbishment and retubing contracts, offset by lower revenues
on major projects nearing completion. In addition, following the
successful resolution of a contractual dispute with MDS Nordion,
AECL recognized $33 million of previously deferred revenue. The
customer orders-on-hand as of March 31, 2006 totalled $1,278 million
(2004–2005: $190 million), reflecting the new refurbishment and
retubing projects.
Funding
Funding is comprised of government appropriations, decommissioning
funding, cost recoveries, and deferred capital funding. In 2005–2006,
AECL received funding for the development of the ACR-1000, R&D,
and site operations at CRL. Decommissioning funding arises on
2005–2006 Funding ($236 million)
T E CH N O L O GY
Parliamentary Appropriations
21%
3%
1%
ACR
42%
8%
Third Party Cost Recoveries
Deferred Capital
Cost Recovery & Other
Decommissioning
sales of government funded heavy water. Proceeds on these sales
are segregated and used for decommissioning activities within the
LMU. Cost recoveries represent common development programs
under cost-sharing arrangements with domestic CANDU utilities.
Total funding increased to $236 million in 2005–2006 (2004–2005:
$200 million), mainly as a result of
2005–2006
additional support for ACR-1000
Net Income (Loss)
development.
($ millions)
Net Income (Loss) by Business
Segment
Other
The ratio of SG&A expenses to revenue and funding are lower
than the previous year, in spite of higher business development
requirements and additional costs in support of the execution of
new major projects. AECL continues to monitor and maintain an
appropriate balance between revenue, funding and SG&A expenses,
while sustaining an adequate level of selling and marketing activities
to achieve growth.
Successful completion of milestones in major new projects and
higher net income have led to $56 million in cash generated from
operating activities compared
Assets by Business Segment
with an outflow of $50 million in
(Excluding Cash) ( $ millions)
2004–2005.
Commercial Operations
LMU
25%
Nordion. Including this gain, the Technology segment is reporting a
net income of $33 million in 2005–2006. The Liability Management
Unit (LMU) reported a net loss of $75 million, primarily in recognition
of current year accretion expenses of the decommissioning liability.
The accretion expense represents an increase in the net present
value of the decommissioning liability due to the passage of time.
With the net loss in LMU, the Corporation reported a net income
of $5 million for the year.
Commercial Operations
Technology
Total assets as at March 31, 2006
Technology
amounted to $1,054 million, an
LMU
increase of $191 million from
400
2004–2005. Increased project
300
milestone payments and
business volumes have led to
200
increases of $44 million in the
100
cash position (including shortterm investments) and
0
$60 million in accounts
2005
2006
receivables. In addition, as a
result of settling the dispute with MDS Nordion, the Corporation
acquired $44 million of inventory relating to isotope production,
and has invested $47 million to complete construction of the
Maple reactors.
LMU
Commercial Operations is managed
with revenue growth and profitability
as its primary financial goals. Over the
past five years, Commercial Operations
have contributed net income totalling
$256 million, including $47 million in
2005–2006. Technology generated
a loss from operations of $28 million
during the year which was offset by a
one-time gain of $61 million on reversal
of previously accrued project losses,
and legal provisions for the previous
isotope supply agreement with MDS
34
ATO M I C E N E RGY O F C A N A DA L I M I T E D
47
80
Commercial Operations
60
Commercial Operations are responsible for sales, marketing,
customer relations and delivery of AECL’s commercial products
and services to its CANDU customers. The highlights in 2005–2006
included the award of two major contracts: from New Brunswick
Power (NBP) for the refurbishment of the CANDU plant at Point
Lepreau and from Bruce Power for retube work on the CANDU
reactors at Bruce A units 1 and 2. These projects will generate
clean, reliable and affordable base load electricity, which is crucial
to the security of Canada’s electricity supply. The value of these
two contracts to AECL totals approximately $1,170 million. The
majority of the financial benefits will be reflected in future years, with
40
33
20
0
–20
–40
–60
(75)
–80
Commercial Operations Revenue
mobilization of resources
($ millions)
underway in the current year.
Nevertheless, revenue from
320
Total
project start-up in the
301
refurbishment business
180
Projects
provided diversity in the
179
revenue base and helped
123
Services
in offsetting the impact of
104
reduced activities in the new
17
Interest
build business, reflecting
18
completion or near completion
0 100 200 300 400
of ongoing projects. The
2005–2006
economics of refurbishing
2004–2005
CANDU reactors and their
environmental benefits are compelling and AECL expects further
refurbishment projects in Canada and abroad. Apart from the
refurbishment and retube business, our service business
experienced important growth in 2005–2006 with increased
activities in both Canadian and international markets. Against this
background, revenue from Commercial Operations increased to
$320 million from $301 million in the previous year.
Notwithstanding the revenue improvement, net income was reduced
to $47 million from last year’s level of $72 million. In the previous
year, the Corporation reduced its expectations for costs related to
warranty and other obligations on projects that were successfully
completed or near completion, resulting in higher income.
Projects
The key business drivers underlying the Projects business are:
• Executing projects on time and on budget by employing AECL’s
unique expertise and rigorous quality process;
• Meeting contract specifications and customer requirements;
• Developing strategic partnerships to increase market share; and
• Supporting innovative contractual and financing arrangements.
Revenue from the Projects business unit increased to $180 million
(2004–2005: $179 million), reflecting a reduction of activity on projects
nearing completion, offset by the impact of the commencement of
new refurbishment contracts.
The Projects business has a proven track record in successfully
managing major projects over the past decade in China, Korea and
Romania. This success was further enhanced in the past year with
the award of two refurbishment contracts, which endorses AECL’s
capability and expertise in the refurbishment business.
Going forward, AECL is pursuing CANDU new build opportunities in
China and Romania as well as potential new markets in the U.S.
and U.K. In Canada, the potential for new builds is increasing and
AECL is well positioned to enter this market with its CANDU 6 or
the new ACR-1000 in provinces such as Ontario, Alberta and
New Brunswick. In the refurbishment market, the CANDU 6 units
in Wolsong (Korea), Gentilly (Québec, Canada) and Embalse
(Argentina) are all facing life extension decisions in the near future
and AECL is aggressively pursuing these opportunities, in addition
to new opportunities with Bruce Power and Ontario Power
Generation in Ontario.
Services
The business drivers underlying the Services business are to
meet our customer needs in improving their production capacity,
increasing operating safety and optimizing reactor performance.
Services business strengths include CANDU technical expertise,
product development, emergency response, and other unique
specialist capabilities.
Revenue from the Services business grew 18% to $123 million,
reflecting an increase in the sale of engineering services and
commercial products to both domestic and international customers.
An expanded portfolio of technology-based products contributed to
this growth, specifically the sale of Emergency Core Cooling (ECC)
Strainers technology in Europe, improved steam generator tube
cleaning technology and the licensing of Low Void Reactivity Fuel
(LVRF) in Canada. The ECC Strainers provide flexibility of design,
allowing the technology to be custom-fit within existing plant space.
Both the LVRF and improvement of steam generator performance
are examples of delivering on the Services mandate of improving
the performance of operating CANDU plants.
In the past year, the Services business continued to strengthen its
market position through gaining and maintaining preferred supplier
status with several customers, improving project delivery through
implementing a more rigorous project management system and
an improved quality assurance process to facilitate effective
management and control of project costs. In addition, new markets
were entered into, such as those in France and the U.S., with the
Strainers product line. Following successful product sales in Europe
last year, AECL was awarded four multi-million dollar contracts
during the year, thereby increasing sales in Europe as well as
extending sales of safety products into nuclear markets in the U.S.
In addition, an improved steam generator tube cleaning technology
was implemented at Bruce Power, which increases the thermal
efficiency of aging reactors and significantly increases their output.
The Services business, in conjunction with the Technology segment
is continuing to capitalize on market opportunities for safety and
performance technologies, products and services in Europe, the
U.S. and Asia. Going forward, Services expects significant growth
from refurbishment work over the next few years. We will be increasing
our investment to increase our portfolio of products and services
with the objective of improving CANDU reactor performance.
In addition, we will be developing strategic partnerships to leverage
strengths and increase our ability to deliver results.
A N N UA L R E P O RT 2 0 0 6
35
Technology
The main mandate of the Technology business segment is to
provide and enhance the safety, licensing and design, technologybasis for CANDU through R&D and innovation. Activities include
managing the nuclear laboratories at Chalk River and Whiteshell,
production of isotopes, construction of isotope facilities, and
development of ACR and other new technologies. The financial goal
of this business segment is to manage with specific bottom line
targets within committed funding levels. Funding is derived from
federal appropriations and, to a lesser extent, from cost-sharing
agreements with Canadian provincial utilities. The Technology
segment also performs revenue-generating activities, which contribute
to the overall funding of the R&D program. Revenue-generating
activities, which comprised of the manufacture and sale of medical
isotopes and commercial R&D work, are undertaken for profit.
Technology
($ millions)
Revenue
2005–06
$
Funding
Nuclear laboratories
ACR-1000
Total funding
Net income (loss)
Nuclear laboratories*
Gain on reversal of provisions
ACR
Net income (loss)
2004–05
$
120
60
$
Expenses
Nuclear laboratories*
ACR-1000
Total expenses
87
180
118
35
$
235
60
$
$
$
295
153
224
90
$
(28)
61
0
33
55
314
(51)
(55)
$
(106)
*Includes isotope supply and related expenditures.
Within the Technology segment, commercial revenue increased to
$87 million from $55 million in 2004–2005. The increase reflects
settlement of contractual issues with MDS Nordion resulting
in a one-time adjustment to isotope revenue. This revenue was
previously deferred in the balance sheet as a result of a payment
dispute. Excluding this item, revenue is consistent year over year
as the volume of isotopes produced in 2005–2006 was comparable
with the previous year. The reliability rate for isotopes produced
from the NRU reactor remained at a high level of 96% throughout
the year while the availability of the reactor was consistent with
the previous year.
Total funding in support of Technology activities for 2005–2006
was $180 million compared with $153 million in the previous year.
Funding is comprised of appropriations, cost recovery from third
parties and deferred capital funding from appropriations received
in prior years, which are used to offset related amortization.
36
ATO M I C E N E RGY O F C A N A DA L I M I T E D
Within the total funding, Government of Canada appropriations
were $160 million; $60 million for ACR-1000 support, and $100 million
for Nuclear Laboratories support, compared with $35 million and
$99 million, respectively, in the previous year. Cost recovery from
third parties was $18 million compared to $15 million in 2004–2005,
representing the CANDU Owners Group (COG) funding support for
CANDU safety, licensing and design work. A primary reason for the
increase is the ongoing examination of pressure tubes from the
Canadian CANDU stations under a five-year agreement signed with
the utilities in 2004. Amortization of deferred capital funding declined
to $2 million (2004–2005: $4 million), attributable to fully amortizing
a significant number of government funded assets during the year.
Technology Funding
($ millions)
Funding
Parliamentary appropriations
Cost recovery from third parties
Amortization of deferred capital funding
Total funding
2005–06
2004–05
$
160
18
2
$
134
15
4
$
180
$
153
Basic engineering and development activities for the ACR-1000
continued to progress on target during the year, with reported
operating expenditures of $60 million completely offset by
government funding. In the previous year a $55 million net expense
was reported resulting from a lower level of government funding at
$35 million and higher expenditures of $90 million, required to
achieve committed business development milestones.
Progress continued on the construction of the isotope production
and related facilities for the long-term isotope supply agreement
contract with MDS Nordion. These facilities designed solely to
produce isotopes are “one-of-a-kind” projects, being the first reactors
worldwide to be dedicated for such purposes. Contractual issues
were settled through a voluntary mediation process during the year.
A new agreement was signed with MDS Nordion, in the latter part
of the year, aligning the interests and strengths of AECL and the
customer with a view to improve the long-term prospects of the
existing isotope supply arrangement.
Under the new agreement, AECL acquired beneficial ownership of
the facilities in contrast to an outright sale to MDS Nordion in the
previous agreement. As a result, the accrued future project losses
and related expenses previously provided for were reversed in
the current year. This contributed a net gain of $61 million to the
Technology segment’s operating results. In exchange for the
beneficial ownership of the facilities, AECL made a payment of
$25 million, which was capitalized as part of property, plant and
equipment in the balance sheet and acquired $44 million in related
isotope supply inventory. In addition, future project completion
costs and ongoing operating costs are to be incurred by AECL.
In return, AECL will receive a share of net revenues from isotopes
produced over a 40-year period under the agreement.
CRL currently produces approximately 60% of the world’s medical
isotopes used in the diagnosis and treatment of life-threatening
medical conditions. The isotope production activities provide a
significant health benefit and an important contribution to the
Canadian and international nuclear medicine business. Medical
isotopes, which include Molybdenum-99 and Cobalt-60, among
others, are used to treat an estimated 68,000 people daily.
At the NLBU, higher infrastructure expenditures were incurred
at the CRL site in 2005–2006. Expenditure related to the NRU
Improvement Initiative resulted in a total charge of $7 million for the
year. The initiative was launched in June 2005, to ensure improved
operations and maintenance in meeting Canadian Nuclear Safety
Commission (CNSC) requirements. In addition, a charge of $12 million
was recognized for the future disposal of current nuclear waste
generated, reflecting the Canadian Institute of Chartered Accountants
(CICA) accounting recommendations on asset retirement obligations
adopted in the previous year.
As a part of the Enterprise Risk Management process, AECL
completed an assessment of the appropriate level of federal support
for infrastructure renewal. Management’s recommendation will be
submitted to NRCan in the year now in progress. If approved, this
will provide a more robust financial framework within which to plan
and execute infrastructure improvement and compliance programs.
Overall, the Technology segment reported a net income of $33 million
in 2005–2006 compared with a net loss of $106 million in the
previous year. This reflects lower ACR-1000 net expenses and a net
gain attributable to the settlement of contractual disputes with MDS
Nordion in respect of the isotope supply activities. This gain largely
offset the higher site infrastructure expenditures incurred by NLBU.
The future outlook for the Technology segment is expected to
continue in the current direction. Key initiatives include:
• Maintaining and enhancing the safety, design and licensing basis
of all CANDU reactors.
• Supporting public policy for nuclear technology.
• Developing pre-commercial CANDU technology.
• Preserving capability and expertise needed to address
emerging issues.
• Completing ACR-1000 commercialization.
• Participation in the Generation IV Technologies.
Liability Management Unit (LMU)
The mandate of LMU is to manage AECL’s and the Government of
Canada’s waste management and decommissioning program. The
program has a long-term focus of safely addressing nuclear facility
liabilities and managing associated waste. Facilities include those
acquired from the early years of Canada’s nuclear program, prior
to the creation of AECL in 1952. Program activities include the
stabilization of shutdown facilities, dismantling, decontamination,
residual waste storage and disposal. These activities will result in
major construction programs associated with enabling facilities and
waste storage activities. The program is designed to achieve health,
safety and environmental protection objectives in accordance with
CNSC regulations. The LMU maintains formal decommissioning
plans that guide the execution of the program to address AECL’s
decommissioning obligations in the future. The short-term plan is
based on periodic reviews of the program’s priorities, taking into
account critical decommissioning and waste management activities
based on environmental and other risk factors. The financial
objective for LMU is to achieve various planned milestones within
the funding level established in the Corporate Plan.
LMU
($ millions)
2005–06
Government and Other Funding
Expenses
$
56
(131)
Net loss
$
(75)
2004–05
$
47
(1,854)
$ (1,807)
Funding for decommissioning and waste management activities
for 2005–2006 was derived from the net proceeds received for the
lease or sale of government funded heavy water inventory under
a funding arrangement with the Government of Canada. That agreement expired on April 1, 2006 and discussions are currently underway with respect to the treatment of funds received through ongoing
heavy water business activities. Efforts to obtain funding required in
support of the decommissioning and waste management program
have resulted in the Government of Canada indicating its intention to
commit $520 million in funds. A memorandum of understanding is
currently being negotiated with NRCan, that will provide AECL with
funding to implement the plan. These funds are required to meet
costs associated with scheduled program activities over the next
five years.
Progress on activities over the past year included continuation
of two major waste management projects with the objective of
providing long-term waste management solutions for safe storage
of radioactive liquids and used fuel wastes. The LMU has evaluated
the design and construction options for the Liquid Waste Transfer
and Storage Project and prepared a Technical Scope of Work for
tendering retrieval and transport equipment. The LMU has also
received internal approval of its safety assessment document and
an internal endorsement of its environmental assessment report for
the Fuel Packaging and Storage Project. These two major projects
are expected to be commissioned for use in late 2008 and 2010,
respectively. Other activities included the systematic dismantling
of redundant and aging experimental facilities and buildings as well
as the ongoing monitoring and surveillance of facilities no longer
in operation at CRL, Whiteshell Laboratories (WL) and other sites.
Within these activities, approval has been obtained from the CNSC
for the removal of the water from the NRX Used Fuel Storage Bays
with the project expected to commence in early 2006.
Work supplied on a cost-recovery basis progressed well throughout
the year. The Low-Level Radioactive Waste Management Office
(LLRWMO) submitted a revised draft Environmental Assessment
A N N UA L R E P O RT 2 0 0 6
37
Study Report (EASR) to the responsible federal authorities on the
Port Hope Project in Ontario. The Port Granby Project, located in
the Municipality of Clarington, Ontario, is also progressing well with
the completion of a draft EASR expected early in 2006–2007.
Activities undertaken within the LMU resulted in a net loss of
$75 million. This reflects expenses of $131 million, including accretion
expense of $144 million and $7 million related to the operating
cost of the LLRWMO. Partially offsetting this was an adjustment of
$20 million to the decommissioning and waste management liability
and $56 million funding received during the year. The accretion
expense represents an increase in the net present value of the
decommissioning liability due to the passage of time.
Consolidated Results
Excluding the loss on decommissioning activities, earnings from
core AECL operations were $80 million compared to a loss of
$34 million in the previous year. After absorption of the decommissioning activities net loss, AECL reported a net income of $5 million
compared with a $1,841 million net loss in the previous year. Last
year’s losses were caused principally by an increase in the decommissioning liability in recognition of the acceleration in timing of the
decommissioning program, additional waste management facility
costs, and the adoption of CICA recommendations on asset
retirement obligations.
Net Income (Loss)
($ millions)
2005–06
Commercial Operations
Technology
Liability Management Unit
$
47
33
(75)
Net income (loss)
$
5
2004–05
$
72
(106)
(1,807)
$ (1,841)
Comparison with Corporate Plan
Compared with the Corporate Plan, actual earnings from Commercial
Operations were lower. This reflected contract effective dates for
the two refurbishment and retubing projects occurring later than
planned due to slower than anticipated provincial government
approvals. Consequently, this caused the shortfall of revenue
against plan to be deferred to subsequent years. Nevertheless,
project activities were accelerated towards the end of the fiscal
year, with good progress being made against contractual milestones.
Technology reported a profit this year against a loss in the Corporate
Plan, largely as a result of a reduction in ACR-1000 expenses and a
significant gain reported for the isotopes related activities reflecting
the settlement of contractual issues with MDS Nordion. These
gains provided an offset to increased infrastructure and operational
costs to meet regulatory requirements at the CRL. The LMU
generated a net loss of $75 million attributable to the impact of the
change in the decommissioning and waste management liability.
The Corporate Plan assumed no such change as the financial
impact of the revised decommissioning and waste management
plan was uncertain at the time the Corporate Plan was established.
38
ATO M I C E N E RGY O F C A N A DA L I M I T E D
Net Income (Loss)
2005–2006
Actual
Results
($ millions)
Corporate
Plan
Commercial operations
Technology
Liability management unit
$
47
33
(75)
$
52
(41)
–
Net income
$
5
$
11
Cash Flow and Working Capital
In 2005–2006, AECL generated cash from operating activities of
$56 million compared to an outflow of $50 million in the previous
year. The significant improvement was principally a result of the
receipt of milestone payments from customers on new projects,
improved receivables collection from ongoing projects, and
sufficient funding of ACR-1000 development. In 2004–2005, lower
business activities and a $55 million funding shortfall for the ACR
program gave rise to the net cash outflow of $50 million. The
Corporation’s cash receipts from customers reflects a $170 million
increase in advances, which were received on achieving specific
milestones for the retubing and refurbishment projects. Partially
offsetting these are increases in cash paid to suppliers and
employees, which reflect an overall increase in activity within the
Corporation and higher staffing levels, required to deliver on major
projects and achieve higher services revenue. Within operating
activities, funds used for decommissioning and waste management
include a $2 million scheduled deposit to the Nuclear Waste
Management Organization (NWMO) trust fund, held by AECL on
behalf of the NWMO. As at March 31, 2006 the cumulative total for
the fund including interest was $17 million, comprised of an initial
$10 million deposit in November 2002 and subsequent annual
deposits of $2 million on the fund’s anniversary date. The funds
are deposited to meet the requirements of the Nuclear Fuel Waste
Act in respect of the long-term management of nuclear fuel waste in
Canada, and the deposit amounts are expected to continue at the
same level in the future.
Sources and Uses of Cash
($ millions)
Cash from (used in) operating activities
Cash from (used in) investing activities
Cash from (used in) financing activities
2005–06
$
Increase (Decrease)
Balance at beginning of year
56
(50)
43
2004–05
$
49
61
(50)
5
(1)
(46)
107
Balance at end of year
$
110
$
61
Balance Sheet
Current assets
Current liabilities
$
265
316
$
160
164
Working capital
$
(51)
$
Current ratio
0.84
(4)
0.98
Investing activities involved an outlay of $50 million compared to
an inflow of $5 million in the previous year, reflecting an increased
investment in property, plant and equipment for 2005–2006.
Included in the outlay was a $25 million payment to MDS Nordion
for acquiring their beneficial ownership of the MAPLE reactors
and associated facilities under the new isotope supply agreement. In addition, costs totalling $22 million were incurred and
capitalized for these facilities since November 1, 2005, the
effective date of the transaction. Excluding these amounts, total
funds invested in acquisition of other property, plant and equipment was $9 million (2004–2005: $8 million). In 2005–2006,
generally lower cash balances through the first nine months of
the year minimized the amount available to invest in short-term
investments. The higher cash balances towards the end of the
year have been invested in more liquid, shorter-term money
market instruments. As such, investing activities involving the
purchase and sale of short-term investments are significantly
reduced from the prior year.
Balance Sheet
Financing activities generated proceeds of $43 million, principally
accounted for by a $44 million long-term payable related to the
purchase of isotope supply related inventory from MDS Nordion.
Other financing activities include the repayment of $1 million for a
long-term payable to the Government of Canada, consequently
reducing the liability to $3 million as at March 31, 2006.
The Corporation’s total consolidated assets were $1,054 million as
at March 31, 2006 compared to $863 million as at March 31, 2005.
Under current assets the major increases are in the overall cash
balance and receivables with an increase of $49 million and
$60 million respectively, reflecting increased business activities
attributable to the new ordersAssets ( $ millions)
on-hand. Long-term assets
increased approximately
Accounts
$86 million over the previous
Receivable
year reflecting a new addition
Inventory
400
of isotope supply inventory
in the balance sheet, and an
300
Other
increase in property, plant
Assets
200
and equipment, partially offset
Cash
by a reduction in long-term
100
receivables. The isotope
0
supply inventory amounted to
$44 million as at March 31, 2006,
2006
representing the inventory
2005
purchased from MDS Nordion
as part of the new isotopes supply agreement. The inventory amount
of $44 million has a corresponding amount set up as a long-term
liability to reflect the delayed payment term, which will commence in
2008. Property, plant and equipment as at March 31, 2006 totalled
$188 million compared to $135 million as at March 31, 2005.
A substantial portion of this increase is comprised of the net
addition of $57 million largely related to the capitalization of the
isotopes production and other related facilities. Long-term receivables
decreased $13 million to $241 million from the previous year as
scheduled heavy water lease payments were collected.
Overall, AECL’s year-end closing cash position, including segregated
cash, was increased to $110 million from the previous year’s level
of $61 million. Including short-term investments, the total cash
position increased to $111 million compared to $67 million in the
previous year. This level of cash reserve, together with the large
commercial project milestone payments expected in the near-term
is satisfactory for the needs of ongoing operations over the
2006–2007 fiscal year. However, to upgrade and refurbish the
Chalk River infrastructure, additional cash outlays will be necessary
and may require interim financing. Looking ahead, significant
funding requirements have been identified to carry out the revised
decommissioning and waste management plan.
Balance Sheet
The following table summarizes the changes in AECL’s assets,
liabilities and shareholder’s deficit as at March 31, 2006 and
March 31, 2005.
($ millions)
2005–06
2004–05
Assets
Current assets
Long-term assets
$
265
789
$
160
703
Total assets
$ 1,054
$
863
Liabilities
Current liabilities
Long-term liabilities
$
$
164
2,930
Total liabilities
$ 3,306
$ 3,094
Shareholder’s Deficit
Shareholder’s deficit
$ (2,252)
$ (2,231)
Total liabilities and shareholder’s deficit
$ 1,054
$
Liabilities and Shareholder’s Deficit
316
2,990
863
Assets
A N N UA L R E P O RT 2 0 0 6
39
Liabilities and Shareholder’s
Deficit
Liabilities and Shareholder’s
Deficit ( $ millions)
Other Liabilities
Current liabilities were
and Equity
900
$316 million as at March 31,
750
2006, an increase of $152 million
600
over the previous year. The
Customer
450
Advances
current portion of customer
& Provisions
300
advances and provisions
150
increased $170 million to
0
$219 million, compared to
2006
$49 million as at March 31,
2005
2005. The increase is mainly
attributable to customer
deposits and advance payments received during the year offset by
the removal of provisions related to the settlement of contractual
issues with MDS Nordion. Deferred decommissioning funding was
reduced to $3 million from $26 million reflecting the requirement of
the Corporation to utilize segregated funds comprised of proceeds
from government funded heavy water sales to fund decommissioning
and waste management activities.
Long-term liabilities increased $60 million to $2,990 million. The
decommissioning and waste management provision increased
$97 million to $2,847 million compared to $2,750 million in the
previous year mainly representing accretion of the provision, net of
adjustments to estimates and expenses incurred during the year.
The spending levels at the beginning of the decommissioning cycle
are lower than in later years when enabling facilities are constructed
and waste is disposed. Consequently, the current period accretion,
which is calculated using the interest rate of 5.25% and applied to
the liability, is greater than current spending. As a result, the liability
increases and a loss results. The long-term portion of customer
advances and provisions were reduced by $81 million to $4 million
as a result of a portion of these balances moving to current liabilities
as they become due in 2006–2007, reflecting accelerated operational
commitments in the coming year. Long-term payables increased
$43 million primarily reflecting a deferred obligation associated
with isotope supply inventory acquired from MDS Nordion.
base-load power cannot be met without increased use of nuclear
power. In particular, the Ontario electricity sector is at one of the
most challenging points in its history as a result of a possible shortfall
in supply capacity later in the next ten years, which is expected to
widen over time. The recent release by the Ontario Power Authority
of its recommendation concerning the electricity supply mix in
Ontario clearly reflects the seriousness of this challenge. The
recommendation calls for significant investment over the next
20 years as part of an overall strategy to maintain nuclear generation
supply at 50% of Ontario’s electricity needs. Refurbishing existing
units, rebuilding on existing sites and undertaking new build plants
can all contribute to achieving this strategy.
Given the positive industry and market fundamentals, we anticipate
significant growth in our Commercial Operations over the next few
years. In addition to increased activities of the life extension projects
currently underway with Bruce Power and NB Power, we anticipate
securing refurbishment and retube projects with existing customers
in Canada, Korea and Argentina.
Commercialization of the ACR-1000 is an important element of
AECL’s growth strategy in support of new build projects. The
ACR-1000 product is expected to increase our competitive advantage,
helping to capture new market share and opening opportunities
for future growth. AECL continues to be focused on the Ontario
Projected ACR-1000 Deployment Schedule (Estimate)
Engineering, Research & Development
(5–6 years)
Site & Construction Licence
(5–6 years)
Environmental
Assessment
(3–4 years)
Contract
Negotiations
(1–2 years)
Site
Preparation
(1–2 years)
Shareholder’s deficit increased $21 million to $2,252 million
compared to $2,231 million in the previous year. As part of this
increase, contributed capital relating to government funded heavy
water activities, which was utilized for decommissioning and waste
management activities declined by $26 million from the previous
year to $267 million. This increase was offset by $5 million as a
result of the net income in 2005–2006.
Construction
(4 years)
Commissioning
(2 years)
Estimated Project Contract
Effective Date
Outlook
ATO M I C E N E RGY O F C A N A DA L I M I T E D
1
2
3
4
5
N UM B E R
6
O F
f
40
f
Increasing public recognition of the safety, environmental and
economic benefits of nuclear energy has left the nuclear industry
well positioned to take on a greater role in the future energy mix
around the world. In Canada, the growing need for sustainable
In-Service
(First Unit)
7
8
YE A R S
9
10
11
market, where success in selling an ACR-1000 solution will set up
the international market potential. AECL’s 5–year Corporate Plan
assumes the sale of a new build reactor in Ontario by the end of the
5th year. In Alberta, AECL will continue to pursue the development
of CANDU technology as an option to generate low cost and noncarbon based steam, which is required in extracting bitumen from
oil sands. The CANDU 6 has been confirmed as a technically and
economically viable option for steam generation to help meet the
growing energy needs in the oil sands region of Alberta. The ACR-1000
could also be utilized in certain larger oil sands developments
after its successful deployment in Ontario. In addition, possible
opportunities lie ahead for the addition of a second reactor to
New Brunswick Power’s Point Lepreau plant. AECL is also actively
pursuing opportunities for new reactor sales on a global basis with
a focus on countries where AECL has a strong existing presence.
New build opportunities in Ontario and Canada bring with them
both regulatory and business challenges. A new ACR-1000 unit (see
table on page 40) is expected to be deliverable in 11 years.
However, as engineering work is completed and practical project
experience is gained, the time taken to bring subsequent ACR-1000
units in-service is expected to significantly improve.
For service work, we expect to maintain the double-digit growth we
achieved in 2005–2006 by building on the growth in refurbishment
projects and by leveraging our R&D capability to provide innovative
and integrated solutions based on customer requirements.
Reflecting these opportunities, revenues from Commercial
Operations in 2006–2007 are expected to increase 66% from
$320 million in 2005–2006. By the end of the Corporate Plan
period revenues are projected to increase to $660 million up 106%
from 2005–2006, with a peak of $819 million in 2009-2010. The
associated net income is expected to increase to $61 million with a
peak of $125 million in 2009–2010 from $47 million in 2005–2006.
2006–2007 Corporate Plan – Commercial Operations
($ millions)
2006–07
2007–08
2008–09
2009–10
2010–11
$ 532
$ 56
$ 768
$ 122
$ 705
$ 103
$ 819
$ 125
$ 660
$ 61
Revenue
Net income
The current opportunities provide a solid basis for continued growth
and profitability for Commercial Operations. To realize the benefits
we must stay close to our customers so we can understand and
anticipate their needs. In addition, we need to continually improve
quality, to execute projects on budget and on schedule and to
deliver maximum value to our customers. AECL committed to
accelerate its culture change program with initiatives in the coming
year focusing on health and safety, meeting customer needs and
continued performance improvement.
In the Technology business segment, AECL will continue to invest
in R&D in order to deliver solutions that support the licensing and
operational performance of the entire fleet of CANDU reactors. The
operating and capital infrastructure costs of NLBU for 2006–2007
(before decommissioning expense) is estimated at $257 million (see
table below) against the current available government funding of
$104 million. The remaining funding of $153 million comes from
commercial work within the Technology segment, the sale of isotopes,
NLBU 2006–2007 Operating and Capital Infrastructure Costs and Sources of Funds
NLBU Business Areas
($340 million)
Shareholder
($104 million)
NLBU Commercial Contracts
($35 million)
CANDU Owners Group (COG)
($18 million)
Commercial Product Development
($21 million)
Research &
Development
($86 million)
Isotopes
($17 million)
LMU
($83 million)
Waste
Management &
Decommissioning
($46 million)
f
LMU Operations
f
Facilities & Nuclear Operations
($125 million)
Corporate Support
($34 million)
f
Funds for Operations
($257 million)
Waste Funding
Commercial Operations Profits
($47 million)
Isotope Sales
($32 million)
Capital Infrastructure
($32 million)
Shareholder
AECL
A N N UA L R E P O RT 2 0 0 6
41
third party funding for research and profits generated by Commercial
Operations. The proportion of funding from Commercial Operations
has increased over the past ten years to meet cost increases, while
Government of Canada funding has decreased in real terms. In
addition, $83 million is projected to be required for waste management
and decommissioning services. The source of this funding comes
largely from the Shareholder and is managed through LMU.
The cost increases facing the NLBU have been driven by more
stringent CNSC licensing requirements and also by the increasing
infrastructure support required at Chalk River to meet these
requirements. Increasing requirements, including those for security
and for the operation of aging nuclear facility infrastructure will
continue to increase pressure on Technology’s capability. Rising
energy costs, grants in lieu of taxes to municipalities, and increased
charges from the CNSC for site and nuclear facility licensing, are
examples of escalating expenditures that AECL incurs. These
costs are not discretionary, but are necessary to meet AECL’s
commitment as a leader in health, safety and the environment and
will not vary with the level of commercial activity. The financing
requirements for the Technology segment are a matter that is
subject to continued review.
The capitalized cost of the technology infrastructure totals
$847 million. A significant portion (approximately $390 million) of
NLBU’s infrastructure is undergoing decommissioning. The remaining infrastructure (approximately $457 million) is critical and essential to AECL’s business and is to be maintained at a level that meets
CNSC and other regulatory requirements. Both groups of assets
Technology Infrastructure
Capital Cost ($847 million)
22%
Assets undergoing decommissioning
46%
8%
E X I ST I N G R & D I N F R A ST R U C T U R E
Land & Buildings
7%
Research Facilities
17%
Research Reactor (NRU)
Equipment & Other Assets
require funding to allow the safe and effective utilization and
management of facilities.
For the LMU, the plan for 2006–2007 assumes funding of
$65 million to meet immediate health safety, security and environmental (HSSE) requirements associated with the decommissioning
and waste management program. In addition, $7 million is planned
for Low-Level Radioactive Waste Management Office activities and
$11 million is allocated for new waste arising. Including these two
activities, the total expenditures for LMU in 2006–2007 is estimated
to be $83 million. The Government of Canada has expressed its
intent to provide funding over the next five years for the decommissioning and waste management program, and a memorandum of
42
ATO M I C E N E RGY O F C A N A DA L I M I T E D
understanding relating to this is currently being negotiated
with NRCan.
Controlling costs remain an important objective for all business
segments with an emphasis to achieving greater cost effectiveness
through productivity and process improvements, while focusing on
meeting customer and program deliverables.
The Corporation’s 2006–2007 cash flows from operating activities
are expected to increase at a rate consistent with net income
growth and are projected to fund a large portion of our anticipated
funding requirements, including planned capital investment related
to isotopes production and related facilities.
Management of Risks and Uncertainties
AECL manages risk through a formal risk identification and
assessment process. This involves three levels of risk review: the
Risk Evaluation Committee of the Board of Directors ensures
satisfactory governance reviews of proposed commitments that
present the highest level exposures; intermediate level exposures
are reviewed by business unit heads and senior corporate staff; and
commitments deemed to have a lower level of risk are reviewed by
senior staff in operations and corporate services. In addition, the
Audit Committee of the Board plays an important role in overseeing
how management identifies, assesses and addresses the risks it
faces. The Audit Committee reviews and assesses risk in respect of
the financial performance of the Corporation. The Chief Executive
Officer (CEO) is accountable to the Board of Directors for all risk
taking activities and risk management programs. The executives
that support the CEO include the Chief Financial Officer, the
Corporate Risk Review Panel, the Chief Regulatory Officer, the Chief
Engineer and the Chief Risk Assessment Officer, who is responsible
for administering the Corporation’s risk management process.
Risk Management Process
In the upcoming year, AECL will continue to implement enhancements to the existing risk management process in order to establish
a more integrated and cross-functional approach to managing and
monitoring risk throughout AECL. A multifaceted review of risks and
opportunities in the context of annual planning to achieve strategic
business and operations objectives will facilitate better understanding
of options available and their potential consequences. Management
will be better positioned to align priorities and resources with
AECL’s appetite and tolerance for risk. This approach will provide
greater transparency in decision-making, support governance
responsibilities and is expected to strengthen accountability,
enhance stewardship and improve corporate performance.
Industry
The primary business risk relates to the industry in which AECL
operates. This is characterized by very long decision cycles for new
major projects. Furthermore, demand levels for AECL’s products
and services are affected by factors such as technology development,
worldwide economic trends, public acceptance, government policy
initiatives and levels of commitment to new nuclear electricity
generation capacity. To moderate such risks, AECL is establishing
new strategic business alliances, growing its full service capability,
pursuing the refurbishment business, commercializing newly
developed technologies, and carefully managing the portfolio of
existing product lines. AECL has programs in place to retain and
build core competence to support AECL’s corporate objective and
business opportunities.
Technology
In the new build project business, our continued success is
dependent on technological advances. As AECL continues to invest
in supporting the CANDU design, a significant commitment is
required to complete developing the ACR-1000, which will be well
placed to address the market needs relative to both nuclear vendors
and competing technologies. Achieving the ACR-1000 commercialization plan requires that the product meet functionality, cost and
performance parameters as well as licensing requirements. Timing,
continued support of partners including the government and
customer participation, licensing preparation and business/financing
model and delivery structure will all be critical in achieving the
successful launch of the ACR-1000. AECL manages the risk by
closely monitoring progress towards achieving ACR-1000’s key
performance parameters and by carefully managing available
resources in accordance with market conditions.
based on the type of licence and individual circumstances. During
the EA and at each significant licensing phase of the project, the
public is consulted prior to the CNSC granting a licence.
In addition, the issuance of a licence would require compliance with
applicable regulations issued under the Nuclear Safety and Control
Act (NSCA) and other legislation including the:
•
•
•
•
•
•
•
•
Nuclear Liability Act;
Nuclear Fuel Waste Act;
Canadian Environmental Assessment Act;
Canadian Environmental Protection Act;
Fisheries Act;
Species at Risk Act;
Migratory Bird Conservation Act; and
Canada Water Act.
The stringent licensing requirements described above contribute
to the safe and secure operation of nuclear facilities in Canada.
However, it also contributes to an increased project timeframe and
associated compliance and administrative costs. AECL mitigates
this risk through extensive monitoring of all licensing activities on
an ongoing basis. In addition, AECL has in place well established
environmental and quality management systems. In the case
of ACR-1000, AECL is proactive in moving the licensing and
environmental reviews in Canada, in parallel with the development
and pre-project programs. In addition, AECL has positive interaction
with key stakeholders and potential partners and is actively seeking
input into the ACR-1000 design from these stakeholders.
CRL Site Licensing
Licensing
AECL designs and builds nuclear reactors requiring a high level
of safety, reliability and sustainability. Therefore, AECL operates and
conducts business in a highly regulated environment. The preparation,
construction, operation and decommissioning of nuclear related
facilities are subject to CNSC licensing requirements. The licensing
process for the construction of nuclear facilities is comprised of
three separate licence applications: site preparation, construction
and operation. A site preparation licence is issued based on satisfying
the CNSC that the project is feasible to design, construct and
operate on the proposed site. Consequently, the site preparation
licence application requires completion of an Environmental
Assessment (EA). The EA process requires harmonization and
coordination of activities at a federal and provincial (territorial if
applicable) level, as many of the requirements at each level overlap.
Assessments include consideration of factors that impact health,
the socio-economic environment, and physical and cultural heritage.
A construction licence would require that the proposed facility
conforms to regulatory requirements and provides for safe operation
over the facility’s life. The operation licence requires that established
facility programs are appropriate to ensure safe and secure operation
of the facility. The timeframe for the granting of a licence would vary
In 2005–2006, the operating licences for the MAPLE reactors and
the New Processing Facility (NPF) were successfully renewed for a
2-year period. In 2006–2007, the operating licence for the CRL site
must be renewed. AECL has applied for a 63-month licence period,
longer than recent licence renewals for the site, but generally
consistent with licence periods granted to other major licensees.
The CNSC has noted AECL’s improved performance against
regulatory requirements in some areas, and this will support our
application for a longer licence period. Performance improvements
must be sustained to reduce the risk of CNSC regulatory action.
This is a challenge at the CRL site where buildings and facilities
are aging, and will require significant investment in infrastructure.
This issue is fundamentally linked to the discussion of a long-term
funding strategy with the Government of Canada in the coming year.
Health, Safety, Security & Environment (HSSE)
AECL is committed to the effective management of all HSSE risks
that are inherent in the operation of its major Canadian sites. AECL
implemented several formal compliance programs that specifically
address the deployment of due diligence processes and associated
resources necessary to comply with all applicable laws and
A N N UA L R E P O RT 2 0 0 6
43
regulations. AECL’s established environmental policy emphasizes
compliance to all applicable environmental legislation and other
relevant regulations; this is supported through the efforts of the
Chief Environmental Officer and the Environmental Committee,
which has established objectives for further improving the
Corporation’s environmental performance in its site operations
as well as the delivery of quality products and services in keeping
with AECL’s focus on environmental stewardship. In addition, the
Chief Regulatory Officer (CRO) has worked closely with the AECL
executive and management team to ensure that the Corporation
complies with the current regulatory framework. This is being done
by carefully managing the regulatory interface and through the
development of a licensing strategy that provides overall coordination
of licensing activities related to nuclear facilities and site operations,
including decommissioning and waste management. Ultimately,
this change will enhance AECL’s ability to bring quality products to
market in a timely and efficient manner, exceeding customer and
stakeholder expectations.
AECL research laboratories operate major facilities such as reactors,
experimental loops, shielded facilities and waste management
plants. These are used both to conduct research and support
commercial activities including the isotope business. Facilities are
subject to applicable laws and regulations regarding safety and
environmental matters including the management of hazardous
wastes and materials. There are business risks associated with the
availability of facilities for production, and the availability of funding
for facilities maintenance and upgrades, which consequently pose
a risk to AECL’s reputation. AECL seeks to manage the safety and
environmental risks through its Safety Management System, which
includes numerous program controls, such as stringent safety
reviews and audits. These controls provide assurance of compliance
to all applicable laws and regulations, and where shortfalls are
identified, appropriate corrective action plans are put in place.
Fitness of AECL’s facilities is also ensured by a prudent program of
equipment and facility maintenance such as investment in the NRU
safety upgrades. AECL has in place an extensive insurance program
to mitigate losses that may arise from certain types of liability and
property risks associated with operations at the laboratories.
Quality Assurance and Quality Management
Attention to safety and quality reduces the risk of eroding the
confidence of regulators and customers. Maintaining and enhancing
customer and regulatory confidence continues to be the main
objective of the organization. AECL has implemented a strong
corporate oversight function to ensure compliance with the widely
accepted national and international technical Quality Assurance
standards (such as CSA, IAEA and US standards), company-wide
requirements, and the Nuclear Safety and Control Act and its
regulations. Leading the quality organization is the Chief Quality
Officer who reports directly to the CEO, thereby ensuring the
independence of corporate quality. Numerous oversight activities
have been conducted at all AECL Business Units. AECL is
44
ATO M I C E N E RGY O F C A N A DA L I M I T E D
continually improving its Quality Management System through
steady and progressive implementation of Business Process
Management, implementing process improvement initiatives and
frequent Program Reviews. Continual improvements have led to
the maintenance of ISO 9001: 2000 Quality Management System
Global Certifications at all AECL sites and achieving ISO 14001
Environmental Management System Certification at the Chalk River
site. AECL quality management system goes through an extensive
internal auditing program and also receives a number of external
audits from its customers and regulatory bodies. Progress in quality
improvements is being monitored on a quarterly basis through a
Quality Index. Focus on customer satisfaction, health and safety
and excellence in performance is invigorating the organization and
directing the culture toward adopting best practices to achieve
business excellence. AECL continues to align its management
system with the National Quality Institute’s Progressive Excellence
Program (currently progressing to Level 2 certification).
Project Management
There are considerable risks in managing AECL’s major projects.
These include managing a complex supply chain and ensuring that
procurement, delivery and installation meet quality, schedule and
price requirements, in addition to contract performance risk, legal
claims and changes in political conditions. We seek to manage
these risks by stringent project cost and schedule control, rigorous
legal review of contracts, ongoing monitoring and evaluation,
including regular review of project forecast to completion and
delivery of quality products and services. Maintaining comprehensive
insurance coverage for various aspects of a given project and
developing effective relationships with clients, project partners,
subcontractors and suppliers are important elements in the project
management process. Obtaining sovereign and third party
guarantees have been part of our risk management strategy to
reduce the adverse impact of changes in political conditions.
Despite these risks, AECL has delivered all major CANDU projects
it has managed in the past decade on time and on budget.
Foreign Operations
As AECL operates globally with sales and project offices in multiple
jurisdictions, it is subject to risks and other factors associated with
doing business outside Canada. Foreign operations involve inherent
financial risks that include taxes, currency controls and fluctuations,
tariffs, import and other related restrictions and regulations. AECL
mitigates the risk through specific contractual requirements and
obtains government rulings to reduce the financial impact of such
risks, when possible. Sales and purchases are made mainly in
Canadian dollars. In addition, where large foreign currency
purchase commitments exist, forward contracts reduce exposure.
AECL is also subject to credit risks, but these are minimal as its
customer base is primarily large corporations and government
related entities, which offer sovereign guarantees in their support.
Public Perception
Public perception is a risk that impacts AECL’s nuclear related
activities. In Canada, public consultations are a mandatory part
of the Environmental Assessment process. Nuclear related
Environmental Assessments are generally initiated through CNSC
licensing requirements. AECL mitigates this risk through proactive
public information programs to inform the public on safety measures
and risks associated with nuclear activities. In addition, AECL is
committed to maintaining an honest two-way communication
dialogue with the public, the customer, the regulators and the
community in which AECL conducts business and with all
government levels.
Human Resources
Achievement of strategic business objectives and the long-term
assurance of the safety, licensing and design basis for CANDU
technology requires that AECL attract, retain and develop adequate
levels of staff with the requisite skills and technical depth. The
challenge lies in the changing demographics of scientific and
technical staff industry-wide, resulting in a need to infuse fresh
talent as well as to develop and train them, in order to achieve an
appropriate balance in the experience and versatility of the workforce.
AECL will focus investment in the development of staff in the right
technical areas. In support of that goal, AECL has put in place an
active hiring program to address loss of staff through demographicsbased attrition, as well as a robust succession planning process.
It will also ensure that its staff resources are optimally deployed to
the key commercial and technology development activities.
AECL is acting to improve employee engagement and has launched
a change management initiative to ensure all staff are given the
appropriate tools required to adapt to the current competitive
business environment. Training in customer satisfaction, leadership
and internal communications have been deployed company-wide
to ensure employees are informed and fully engaged in a customer
focused culture. Ongoing implementation of programs in quality,
knowledge management, career and succession planning and
continuous process improvement is a management focus to ensure
that the Corporation is geared to meet a business environment
which is both challenging and robust.
Internal Control
The Corporation’s internal auditors review, monitor and assess
inherent operational risks and the effectiveness of internal controls.
The independent auditors review the effectiveness of internal
controls to the extent they consider necessary in the course of their
audit of the Corporation’s financial statements. Both the internal
and independent auditors report directly to the Audit Committee
on findings from their audits. AECL has established processes in
place to facilitate the communication of illegal or unethical acts by
employees in a confidential manner through a Chief Privacy Officer,
who will investigate such matters. In addition, AECL’s Board of
Directors have established a Code of Ethics and Business Conduct
policy required to be signed and adhered to by all employees.
Off-Balance Sheet Arrangements
In the normal course of business, AECL enters into the following
off-balance sheet arrangements:
• Bank guarantees and standby letters of credit used in connection
with performance guarantees on major contracts. The guarantees
generally relate to project and product performance, and advance
payments. The aggregate amount of AECL’s potential exposure
under these guarantees is estimated to be $76 million on current
commercial projects as at March 2006. In addition, AECL also
guarantees that certain projects will be completed within a
specified time and if the Corporation does not fulfill the obligations,
it will assume responsibility for liquidated damages. Management’s
best estimate of the total maximum potential exposure of
liquidated damages under the terms of contracts is approximately
$105 million. Historically, AECL has not made any payment
on performance guarantees or on any liquidated damages.
Management does not expect these guarantees to have a
material impact on the consolidated financial statements of
the Corporation.
• Indemnification arrangements are part of the standard
contractual terms to counterparties in transactions such as
service agreements, sale and purchase contracts. These
indemnification agreements may require us to compensate the
counterparties for costs incurred as a result of certain events.
The nature of these indemnification agreements prevents us
from making a reasonable estimate of the likely maximum
amount to be paid out by us. Management does not expect
these arrangements to have a material current or future effect
on the results of the consolidated financial statements of the
Corporation.
• Foreign currency forward contracts are for the sole purpose of
limiting exposure to exchange rate fluctuations relating to
contractual terms and ongoing business operations. AECL
formally documents all relationships between the hedge
instrument and hedged items, as well as its risk management
objective and strategies for undertaking various hedge
transactions. Gains and losses resulting from foreign exchange
contracts are recognized in earnings in the period in which the
transactions are settled. As at March 31, 2006, AECL has the
following 31 outstanding foreign currency forward contracts:
24 contracts to buy US dollars and pay Canadian dollars in the
amount of $24.7 million (average exchange rate of C$1.16 /
US$1), and 7 contracts to buy Euros and pay Canadian dollars
in the amount of C$3.7 million (average exchange rate of
C$1.41 / Euro 1).
A N N UA L R E P O RT 2 0 0 6
45
Accounting Recommendations Adopted in 2005–2006
On April 1, 2005, the Corporation adopted the Canadian Institute
of Chartered Accountants’ (“CICA”) accounting guideline AcG-15,
Consolidation of Variable Interest Entities. AcG-15 requires the
Corporation to identify and evaluate entities in which it has an
interest, to determine whether it is the primary beneficiary of such
entities. As a primary beneficiary of an entity, the Corporation will
consolidate the financial statements of the entity. The Corporation
has evaluated its various business arrangements and has identified
no arrangements that meet the definition of a variable interest entity
and has concluded that AcG-15 has no impact on these financial
statements.
Critical Accounting Estimates and Policies
AECL’s critical accounting policies are those considered to be the
most important in determining its financial condition and results,
and which require significant subjective judgement by management.
A summary of the Corporation’s significant accounting policies,
including the critical ones discussed below, is set out in the notes
to the consolidated financial statements.
Future Accounting Policy Changes
Revenue Recognition
The Corporation will adopt three new CICA accounting standards:
Section 1530, Comprehensive Income; Section 3855, Financial
Instruments – Recognition and Measurement; and Section 3865,
Hedges. These standards will be incorporated on April 1, 2007.
AECL generates a significant portion of its revenue from long-term
contracts. Revenue from long-term contracts is recognized using
the percentage of completion method, where revenue, earnings
and work-in-progress are recorded as related costs are incurred
on the basis of percentage costs incurred to date, relative to
the estimated total contract costs. The nature of this accounting
method is such that refinements of the estimating process for
changing conditions and new developments are continuous.
Accordingly, revisions in cost and earnings estimates throughout
the duration of a contract term are reflected in the period in which
the need for revision becomes known. Additionally, losses on
long-term contracts are recognized in the period when they are
identified and are based upon the anticipated excess of contract
costs over the related contract revenues. Any such losses are
recorded as a component of cost of sales. Revenue from services
sales are recorded when services are rendered and goods are
shipped. Revenue from heavy water shipments is recognized
when the shipment is accepted in the manner and timing that
is in accordance with the related contract.
Comprehensive Income
A new category, accumulated other comprehensive income, will
be added to the shareholder’s deficit on the consolidated balance
sheet. Major components for this category will include unrealized
gains and losses on financial assets. These amounts will be recorded
in the statement of other comprehensive income until the criteria for
recognition in the consolidated statement of operations are met.
Financial Instruments – Recognition and Measurement
Financial assets will be classified based on their term to maturity,
trade or sale characteristics. Liabilities will be classified based
on whether they are held for trading or other purposes. Financial
assets and liabilities for trading will be measured at fair value with
gains and losses recognized in net income. In general, AECL holds
financial instruments to maturity, as such, financial assets and
liabilities will be measured at amortized cost. Financial instruments
measured at fair value with unrealized gains and losses are
recognized in other comprehensive income.
Hedges
The change in fair value of the hedged item to the extent that the
hedging relationship is effective (criteria established by the CICA
accounting standard), is offset by changes in the fair value of the
derivative. The carrying value of a hedged item is adjusted by gains
or losses attributable to the hedged risk and recognized in net
income. In a cash flow hedging relationship, the effective portion
of the change in the fair value of the hedging derivative will be
recognized in other comprehensive income. The ineffective portion
will be recognized in net income. The amounts recognized in
accumulated other comprehensive income will be reclassified to net
income when net income is affected by the variability in cash flows
46
of the hedged item. In hedging a foreign currency net investment in
a self-sustaining foreign operation, foreign exchange gains and
losses on the hedging instruments will be recognized in other
comprehensive income.
ATO M I C E N E RGY O F C A N A DA L I M I T E D
Asset Impairment
AECL reviews its long-lived assets, which include property, plant
and equipment for impairment whenever circumstances indicate
that the carrying amount of the asset may not be recoverable.
Determination of recoverability is based on an estimate of undiscounted
future cash flows, and measurement of an impairment loss is based
on the fair value of the assets. Estimated undiscounted future cash
flows reflect management’s best estimates and changes in those
estimates could materially affect the carrying amount of the longlived assets. AECL concluded that no impairment charge was
required for its long-lived assets for 2005–2006.
Heavy Water Inventory
Heavy water inventory is valued at the lower of cost or net realizable
value. It is recorded as a long-term asset since the lead time
required in relation to future reactor sales exceeds one year.
At the end of March 2006, the inventory includes 1,003 megagrams
provided to the Sudbury Neutrino Observatory Institute, at no cost,
for research and experimental purposes, the majority of which is
scheduled for return in 2007–2008.
Parliamentary Appropriations
Parliamentary appropriations that are not in the nature of contributed
capital are recorded as funding in the year for which they are
appropriated, except as follows:
• Appropriations restricted by legislation and related to expenses
of future periods are deferred and recognized as funding in the
period in which the related expenses are incurred. No appropriations
restricted by legislation or related to expenses of future periods
were received in 2005–2006.
• Appropriations used for the purchase of property, plant and
equipment are deferred and amortized on the same basis as
the related asset. The balance of deferred capital funding as at
March 2006 amounted to $37 million compared with $39 million
in the previous year.
Commencing in 1996–1997, and pursuant to a 10-year arrangement
with Treasury Board for funding decommissioning activities, AECL
retains the net proceeds from the sale or lease of government
funded heavy water inventory. The net proceeds are transferred
from contributed capital to deferred decommissioning funding
and are then recorded as funding in the consolidated statement
of operations as related expenditures are made. The funding
arrangement expired on April 1, 2006.
Decommissioning and Waste Management
AECL’s obligation for decommissioning and waste costs is recorded
as a long-term liability. The liability is recorded based on the
discounted value (using present value technique) of the estimated
future decommissioning and waste management costs to the
extent that they can be reasonably estimated. The provision is
reviewed annually to reflect actual expenditures incurred and
changes in management’s estimate of the future costs and
timing thereof.
A N N UA L R E P O RT 2 0 0 6
47
M A N AG E M E N T ’ S R E S P O N S I B I L I T Y
The consolidated financial statements, all other information presented
in this Annual Report and the financial reporting process are the
responsibility of management. These statements have been prepared
in accordance with Canadian generally accepted accounting principles
and include estimates based on the experience and judgement
of management.
Where alternate accounting methods exist, management has chosen
those it deems most appropriate in the circumstances. The Corporation
and its subsidiaries maintain books of account, financial and management control, and information systems, together with management
practices designed to provide reasonable assurance that reliable and
accurate financial information is available on a timely basis, that assets
are safeguarded and controlled, that resources are managed
economically and efficiently in the attainment of corporate objectives,
and that operations are carried out effectively. These systems and
practices are also designed to provide reasonable assurance that
transactions are in accordance with Part X of the Financial
Administration Act (FAA) and its regulations, as well as the Canada
Business Corporations Act, the articles, and the by-laws and policies
of the Corporation and its subsidiaries. The Corporation has met all
reporting requirements established by the FAA, including submission
of a Corporate Plan, an operating budget, a capital budget and this
Annual Report.
The Corporation’s internal auditor has the responsibility of assessing the
management systems and practices of the Corporation and its
subsidiaries. AECL’s independent auditors conduct an audit of the
consolidated financial statements of the Corporation and report on their
audit to the Minister of Natural Resources.
The Board of Directors is responsible for ensuring that management
fulfills its responsibility. To accomplish this, the Board has established five
committees: Audit, Human Resources and Governance, Nominating,
Science and Technology, and Risk Evaluation.
The Audit Committee, composed of independent directors, has a
mandate for overseeing the independent auditors, directing the internal
audit function and assessing the adequacy of AECL’s business
systems, practices and financial reporting. The Audit Committee meets
with management, the internal auditor and independent auditors on a
regular basis to discuss significant issues and findings, in accordance
with their mandate.
The independent auditors and internal auditor have unrestricted access
to the Audit Committee, with or without management’s presence. The
Audit Committee reviews the consolidated financial statements and the
Management’s Discussion and Analysis (MD&A) report with both
management and the independent auditors before they are approved
by the Board of Directors and submitted to the Minister of Natural
Resources. The Chair of the Audit Committee signs the audited
financial statements.
RO B E RT G . VA N A D E L
President and Chief Executive Officer
M I CH A E L RO B I N S
Chief Financial Officer
AU D I TO R S ’ R E P O RT
To the Minister of Natural Resources
We have audited the consolidated balance sheet of Atomic Energy of
Canada Limited as at March 31, 2006 and the consolidated statements
of operations, contributed capital, deficit and cash flow for the year
then ended. These financial statements are the responsibility of the
Corporation’s management. 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 plan
and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Corporation as at
March 31, 2006 and the results of its operations and its cash flows for
the year then ended in accordance with Canadian generally accepted
accounting principles. As required by the Financial Administration Act,
we report that, in our opinion, these principles have been applied on a
basis consistent with that of the preceding year.
48
ATO M I C E N E RGY O F C A N A DA L I M I T E D
Further, in our opinion, the transactions of the Corporation and of its
wholly-owned subsidiaries that have come to our notice during our audit
of the consolidated financial statements have, in all significant respects,
been in accordance with Part X of the Financial Administration Act and
regulations, the Canada Business Corporations Act, and the articles
and by-laws of the Corporation and its wholly-owned subsidiaries.
N A N C Y Y. CH E N G , F C A
Assistant Auditor General
for the Auditor General of Canada
E R N ST & YO U N G L L P
Chartered Accountants
Ottawa, Canada
May 5, 2006
CO N S O L I DAT E D B A L A N C E S H E E T
As at March 31
(thousands of dollars)
2006
Assets
Current
Cash and cash equivalents (Note 3)
Segregated cash (Note 14)
Short-term investments (Note 3)
Accounts receivable (Note 17)
Current portion of long-term receivables (Note 5)
Current portion of inventory (Note 4)
$
107,335
2,640
1,352
120,719
16,232
16,494
2005
$
264,772
241,205
17,347
44,178
299,101
187,858
Long-term receivables (Note 5)
Trust fund (Note 6)
Inventory ( Note 4)
Heavy water inventory (Note 7)
Property, plant and equipment (Note 8)
Liabilities
Current
Accounts payable and accrued liabilities
Current portion of customer advances and provisions
Deferred decommissioning funding (Notes 11 and 14)
Current portion of long-term payables (Note 9)
Decommissioning and waste management provision (Note 11)
Customer advances and provisions
Deferred capital funding (Note 8)
Employee future benefits (Note 13)
Long-term payables (Note 9)
35,275
25,851
6,302
60,325
17,229
14,961
159,943
253,764
15,004
–
299,503
134,961
$ 1,054,461
$
863,175
$
$
87,864
49,071
25,851
1,000
93,508
218,773
2,640
1,000
315,921
2,846,756
4,467
36,880
55,756
45,829
163,786
2,750,000
85,898
39,264
52,748
2,500
3,305,609
3,094,196
15,000
504,446
(2,770,594)
15,000
530,064
(2,776,085)
(2,251,148)
(2,231,021)
Commitments and contingencies (Note 16)
Shareholder's deficit
Capital stock
Authorized – 75,000 common shares
Issued – 54,000 common shares
Contributed capital (Note 14)
Deficit
$ 1,054,461
$
863,175
The accompanying notes are an integral part of these consolidated financial statements
Approved on behalf of the Board:
BARBARA TRENHOLM
Director
RO B E RT G . VA N A D E L
Director
A N N UA L R E P O RT 2 0 0 6
49
CO N S O L I DAT E D STAT E M E N T O F O P E R AT I O N S
For the year ended March 31
(thousands of dollars)
Commercial operations
Revenue
Nuclear products and services
Interest on long-term receivables (Note 5)
Interest on investments and other (Note 3)
2006
$
Expenses
Cost of sales and operating expenses
Interest on long-term payables (Note 9)
$
282,979
16,274
2,061
319,876
301,314
273,011
81
229,046
96
273,092
229,142
Commercial operations net income
46,784
72,172
Technology
Revenue
Services
87,307
55,238
87,307
55,238
160,349
17,348
2,384
133,838
15,255
3,530
180,081
152,623
Gain on reversal of provisions (Note 10)
60,852
–
Expenses
Cost of sales and operating expenses
Interest on long-term payables (Note 9)
294,247
150
314,332
–
Technology net income (loss)
33,843
(106,471)
Liability management unit
Funding
Parliamentary appropriations
Cost recovery from third parties and other
Decommissioning funding
–
6,959
48,829
29,000
9,551
8,049
Funding
Parliamentary appropriations (Note 12)
Cost recovery from third parties
Amortization of deferred capital funding
55,788
46,600
Expenses
Revision in estimate and timing of expenditures (Note 11)
Accretion and other expenses
1,210
129,714
1,792,331
60,827
Liability management unit net loss
(75,136)
(1,806,558)
5,491
$ (1,840,857)
Net income (loss)
Amortization disclosure (Note 8)
The accompanying notes are an integral part of these consolidated financial statements
50
302,809
15,158
1,909
2005
ATO M I C E N E RGY O F C A N A DA L I M I T E D
$
CO N S O L I DAT E D STAT E M E N T O F CO N T R I B U T E D C A P I TA L
For the year ended March 31
(thousands of dollars)
2006
2005
Balance at beginning of the year
Transfer to deferred decommissioning funding (Note 14)
$
530,064
(25,618)
$
557,729
(27,665)
Balance at end of the year
$
504,446
$
530,064
CO N S O L I DAT E D STAT E M E N T O F D E F I C I T
For the year ended March 31
(thousands of dollars)
2006
2005
Balance at beginning of the year
Net income (loss)
$ (2,776,085)
5,491
$ (935,228)
(1,840,857)
Balance at end of the year
$ (2,770,594)
$ (2,776,085)
The accompanying notes are an integral part of these consolidated financial statements
A N N UA L R E P O RT 2 0 0 6
51
CO N S O L I DAT E D C A S H F L OW STAT E M E N T
For the year ended March 31
(thousands of dollars)
Operating activities
Cash receipts from customers
Cash receipts from parliamentary appropriations
Cash paid to suppliers and employees
Funds used for decommissioning activities
Interest on investments received (net)
2006
$
$
332,701
162,838
(488,567)
(58,665)
1,965
Cash from (used in) operating activities
55,642
(49,728)
Investing activities
Purchase of short-term investments
Sales and maturities of short-term investments
Proceeds on disposal of property, plant and equipment
Acquisition of property, plant and equipment
(1,352)
6,302
704
(55,625)
(39,418)
50,994
948
(7,954)
Cash (used in) from investing activities
(49,971)
4,570
Financing activities
Proceeds from long-term payable
Repayment of long-term payable
44,178
(1,000)
–
(1,000)
Cash from (used in) financing activities
43,178
(1,000)
Cash, cash equivalents and segregated cash:
Increase (decrease)
Balance at beginning of the year
48,849
61,126
(46,158)
107,284
Balance at end of the year
$
109,975
$
61,126
Interest and bank charges paid during the year
$
144
$
143
As at March 31 (thousands of dollars)
Cash, cash equivalents and segregated cash are comprised of:
Cash
Short-term money market instruments
Segregated cash
The accompanying notes are an integral part of these consolidated financial statements
52
552,973
160,349
(608,574)
(50,926)
1,820
2005
ATO M I C E N E RGY O F C A N A DA L I M I T E D
2006
2005
$
(1,503)
108,838
2,640
$
3,075
32,200
25,851
$
109,975
$
61,126
N OT E S TO T H E CO N S O L I DAT E D F I N A N C I A L STAT E M E N TS
For the year ended March 31, 2006
1. The Corporation
Atomic Energy of Canada Limited (collectively “AECL” or the
“Corporation”) was incorporated in 1952 under the provisions of the
Canada Corporations Act (and continued in 1977 under the provisions
of the Canada Business Corporations Act), pursuant to the authority
and powers of the Minister of Natural Resources under the Nuclear
Energy Act.
The Corporation is a Schedule III Part I Crown Corporation under the
Financial Administration Act (FAA) and an agent of Her Majesty the
Queen in right of Canada. The Corporation is exempt from income
taxes in Canada.
AECL conducts its business through three business segments:
Commercial Operations, Technology, and the Liability Management
Unit. These segments represent strategic business units established
by senior management to facilitate the achievement of the Corporation’s
long-term objectives, to aid in resource allocation decisions and to
assess operational and financial performance.
2. Significant Accounting Policies
The Corporation’s financial statements are prepared in accordance
with Canadian generally accepted accounting principles. The significant
accounting policies are:
a) Basis of Presentation
These consolidated financial statements include the accounts of the
Corporation’s wholly-owned subsidiaries, AECL Technologies Inc.,
incorporated in the state of Delaware, U.S.A. in 1988, and AECL
Technologies B.V., incorporated in the Netherlands in 1995. All
significant inter-company transactions have been eliminated.
b) Use of Estimates
The Corporation’s financial statements include estimates and
assumptions made by management that affect the amounts reported
in the financial statements and accompanying notes. Estimates are
based on management’s best knowledge of current information.
However, actual results may differ significantly from current estimates.
The more significant areas requiring the use of estimates are heavy
water inventory, costs of future decommissioning and waste
management, future contract costs, revenue, derivatives, commercial
and other provisions, employee future benefits and amortization of
property, plant and equipment. The Corporation reviews these
estimates annually.
c) Cash, Cash Equivalents and Short-Term Investments
Investments with maturities of 90 days or less from the date of
purchase are presented as cash equivalents. Short-term investments
have original maturities greater than 90 days but less than one year.
Cash equivalents and short-term investments are carried at the lower
of cost or market.
d ) Trust Fund
Long-term investments in the Trust Fund established pursuant to the
Nuclear Fuel Waste Act are carried at the lower of cost or market.
e) Foreign Currency Translation
Transactions denominated in a foreign currency are translated into
Canadian dollars at the exchange rate in effect at the date of the
transaction. Monetary assets and liabilities outstanding at the balance
sheet date are adjusted to reflect the exchange rate in effect at that
date. Exchange gains and losses arising from the translation of
foreign currencies are included in income.
f ) Derivative Financial Instruments
The Corporation enters into foreign exchange forward contracts to
manage its exposure to changes in exchange rates arising from
contractual terms and ongoing business operations. The Corporation’s
policy is not to utilize derivative financial instruments for trading or
speculative purposes.
The Corporation formally documents all relationships between
hedging instruments and hedged items, as well as its risk
management objective and strategy for undertaking various hedge
transactions. This process includes linking all derivatives to specific
assets and liabilities on the balance sheet or to specific firm
commitments or forecasted transactions. The Corporation also
formally assesses, both at the hedge’s inception and on an ongoing
basis, whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in fair values or cash flows
of hedged items.
For foreign exchange forward contracts used to hedge anticipated
foreign currency sales, the portion of the forward premium or
discount on the contract relating to the period prior to consummation
of the sale is recognized as an adjustment of the revenues when
the sale is recorded; and the portion of the premium or discount
that relates to the resulting account receivable is amortized as
an adjustment of interest expense over the remaining term of
the contract.
Realized and unrealized gains or losses associated with derivative
instruments, which have been terminated or cease to be effective
prior to maturity, continue to be deferred under other current, or
non-current, assets or liabilities on the balance sheet and recognized
in income in the period in which the underlying hedged transaction
is recognized. Subsequent changes in the fair value of the derivative
are recognized in earnings.
In the event a forecast transaction is no longer probable of occurring,
any deferred realized or unrealized gain or loss on such a derivative
instrument is recognized in income. Subsequent changes in the fair
value of the derivative are recognized in earnings.
A N N UA L R E P O RT 2 0 0 6
53
g) Inventory
Heavy water is valued at the lower of cost or net realizable value.
Supplies and reactor fuel are valued at the lower of cost or net
replacement cost.
recorded as an adjustment to the provision. Upon settlement of the
liability, a gain or loss will be recorded. The provision includes future
construction costs associated with certain enabling facilities, such as
disposal facilities for nuclear waste.
h) Property, Plant and Equipment
Property, plant and equipment are recorded at cost less amortization.
Construction in progress, once ready for use, is transferred to the
appropriate category and amortized. Asset retirement costs are
included as part of the related asset costs. Amortization is provided
on a straight-line basis over the estimated useful life of the asset, and
on a usage basis for certain machinery and equipment used in
commercial projects, as follows:
Decommissioning costs of new assets are added to the carrying
amount and amortized over the related assets’ useful life.
Land improvements
Buildings and reactors
Machinery and equipment
10 to 20 years
20 to 40 years
3 to 20 years
i) Impairment of Long-Lived Assets
AECL reviews long-lived assets to be held and used whenever events
or changes in circumstances indicate that the carrying amount of
such assets may not be fully recoverable. Determination of recoverability
is based on an estimate of undiscounted future cash flows resulting
from the use of the assets and its eventual disposition.
Measurement of an impairment loss for long-lived assets is based
on the fair value of the assets. The fair value is estimated using
accepted valuation methodologies such as discounted future net
cash flows, earnings multiples or prices for similar assets, whichever
is most appropriate under the circumstances.
j) Customer Advances
To properly match revenues with costs, certain contracts may have
revenue recognized in excess of billings (unbilled revenues), and
other contracts may have billings in excess of revenue recognized
(customer advance payments). Revenues collected in advance under
service contracts are recorded as a liability and recognized in
accordance with the contract.
k) Decommissioning and Waste Management Provision
AECL provides for its legal obligation to decommission nuclear
facilities and to manage nuclear waste in order to satisfy regulatory
requirements. The obligation is recognized in the period incurred
when a reasonable estimate of fair value can be determined. As the
provision is recorded based on a discounted value of the projected
future cash flows, it is increased annually to reflect the passage of
time by removing one year’s discount. The accretion is charged to
expense in the Consolidated Statement of Operations.
The provision is reduced by actual expenditures incurred. The cost
estimate is subject to periodic review and any material changes in the
estimated amount or timing of the underlying future cash flows are
54
ATO M I C E N E RGY O F C A N A DA L I M I T E D
l) Revenue Recognition
Long-Term Contracts and Service Contracts
Revenue is derived from sales of the Corporation’s services and
products to clients. Revenue under certain long-term contracts, many
of which provide for periodic payments, are recognized under the
percentage-of-completion method using the ratio of cost incurred to
total estimated cost as the measure of performance. When adjustments
in contract value or estimated costs are determined, any changes
from the prior estimates are generally reflected in earnings in the
current period. Anticipated losses on contracts are charged to
earnings when identified and determined to be probable. Revenue
under cost-reimbursement contracts are recorded as costs are
incurred and include an estimate of fees earned. Revenue under all
other contracts are recognized when services are performed.
Supply of Product
Revenue is recognized based on shipments of product to customers,
supported by evidence of invoicing and shipping documents. In the case
of isotope supplies, revenue is recognized based on customer contract.
Interest Revenue
Interest entitlement under a long-term receivable is recorded as
deferred revenue and released to revenue over the term of the related
agreement.
m) Research and Development
Research and development (R&D) costs include: salaries, wages and
other related costs of personnel engaged in R&D activities, the cost
of materials and services consumed in R&D activities, amortization
of equipment and facilities to the extent that they are used for R&D
activities, overhead costs related to R&D activities, and other costs
related to R&D activities such as amortization of patents and licences.
Research expenses are expensed as incurred.
Development charges are expensed unless they meet the following
criteria for capitalization: the product or process is clearly defined
and the attributable costs are identifiable, technical feasibility of the
product or process has been established, management intends to
produce and either market or use the product or process, a market
for the product or process is clearly defined or its usefulness to the
enterprise has been established, and adequate resources exist, or
are expected to be available, to complete the project. No costs have
been capitalized in 2005–2006.
R&D costs incurred to discharge long-term waste management and
decommissioning obligations for which specific provisions have
already been made are charged to the related liability.
n) Parliamentary Appropriations
Parliamentary appropriations that are not in the nature of contributed
capital are recorded as funding in the year for which they are
appropriated, except as follows. Appropriations restricted by
legislation and related to expenses of future periods are deferred
and recognized as funding in the period in which the related
expenses are incurred. Appropriations used for the purchase of
property, plant and equipment are deferred as deferred capital
funding and amortized on the same basis as the related asset. From
1997 to 2006, and pursuant to the 10-year arrangement for funding
decommissioning activities, the Corporation retained cash proceeds
from the sale or lease of certain heavy water. The cash proceeds
were transferred from contributed capital to deferred decommissioning
funding and were then recorded as funding in the consolidated
statement of operations as related expenditures were incurred.
o) Cost Recovery from Third Parties
The Corporation and the Canadian nuclear utilities (Ontario Power
Generation, New Brunswick Power, Hydro-Québec and Bruce Power
L.P.) have a common interest in the safe, efficient and economical
use of power utilizing CANDU technology. Research programs
aligned with these objectives are undertaken by the Corporation
and cost-shared with the utilities. In addition, AECL operates the
Low-Level Radioactive Waste Management Office (LLRWMO) on a
cost-recovery arrangement with Natural Resources Canada. Funding
under these arrangements is recorded as cost recovery from third
parties and is recognized as the related expenses are incurred.
p) Pension Plan
Employees of the Corporation participate in the Public Service
Pension Plan (PSPP) administered by the Government of Canada.
Although the PSPP is a defined benefit plan, the Corporation is not
required under present legislation to make contributions with respect
to actuarial deficiencies of the Plan, and therefore, contributions to the
Plan are limited to those made by the employees and the Corporation
on account of current service. These contributions represent the total
pension obligations of the Corporation and are charged to income
on a current basis.
q) Other Employee Future Benefits
The Corporation provides certain termination benefits for current
employees pursuant to collective agreements and conditions of
employment. Other benefits include workers’ compensation claims for
which the Corporation reimburses Human Resources and Social
Development Canada in accordance with the Government Employee’s
Compensation Act for current payments billed by the provincial
compensation boards.
The Corporation accrues the cost of these employee future benefits
over the periods in which the employees earn the benefits. The cost
of employee future benefits earned by employees is actuarially
determined using the unit credit actuarial cost method prorated
on length of service and management’s best estimate of salary
escalation, retirement ages of employees and expected employee
turnover.
New Accounting Recommendations
On April 1, 2005 the Corporation adopted the Canadian Institute
of Chartered Accountants’ (“CICA”) accounting guideline AcG-15,
Consolidation of Variable Interest Entities (“AcG-15”). AcG-15 requires
the Corporation to identify entities in which it has an interest,
determine whether it is the primary beneficiary of such entities and
if it is the primary beneficiary, to consolidate the entity in the financial
statements of the Corporation. A variable interest entity (“VIE”) is an
entity in which the equity invested is not sufficient to permit that entity
to finance its activities without external support, or, the equity investors
lack voting control, an obligation to absorb future losses, or the right
to receive future returns. The primary beneficiary of a VIE is the
enterprise that will absorb a majority of the VIE’s expected losses,
receive a majority of its expected returns, or both. The Corporation
has evaluated its various business arrangements and has identified
no arrangements that meet the definitions of a VIE and has concluded
that AcG-15 has no impact on these financial statements.
Future Accounting Policy Changes
The CICA has issued three new accounting standards that the
Corporation will adopt effective April 1, 2007: Section 1530,
Comprehensive Income; Section 3855, Financial Instruments –
Recognition and Measurement; and Section 3865, Hedges. These
standards will be effective for AECL on April 1, 2007. The impact of
implementing these new standards on the Corporation’s
Consolidated Financial Statements has not been determined. The
following provides further information on each of the new
accounting standards as they related to AECL.
Comprehensive Income
As a result of adopting these standards, a new category, accumulated
other comprehensive income, will be added to shareholder’s equity
on the consolidated balance sheets. Major components for this
category will include unrealized gains and losses on financial assets
classified as available-for-sale, unrealized foreign currency translation
amounts, net of hedging, and changes in the fair value of the effective
portion of cash flow hedging instruments. These amounts will be
recorded in the consolidated statement of other comprehensive
income until the criteria for recognition in the consolidated statement
of operations are met.
A N N UA L R E P O RT 2 0 0 6
55
Financial Instruments – Recognition and Measurement
Under the new standard, for accounting purposes, financial assets
will be classified as one of the following: held-to-maturity, loans and
receivables, held-for-trading or available-for-sale, and financial liabilities
will be classified as held-for-trading or other than held-for-trading.
Financial assets and liabilities held-for-trading will be measured at fair
value with gains and losses recognized in net income. Financial
assets held-to-maturity, loans and receivables and financial liabilities
other than those held-for-trading, will be measured at amortized cost.
Available-for-sale instruments will be measured at fair value with
unrealized gains and losses recognized in other comprehensive
income. The standard also permits designation of any financial
instrument as held-for-trading upon initial recognition. All derivatives,
including embedded derivatives that must be separately accounted
for, generally must be classified as held-for-trading and recorded at
fair value in the consolidated balance sheet.
4. Inventory
(thousands of dollars)
Reactor fuel
Spare parts and store supplies
Current portion of inventory
Inventory – Dedicated isotope inventory
(Note 10)
2006
$
9,500
6,994
2005
$
8,205
6,756
16,494
14,961
44,178
–
$ 60,672
$ 14,961
2006
2005
5. Long-term Receivables
(thousands of dollars)
Contract receivables from customers in
respect of the financing of products and
services, maturing through 2019 at fixed
repayment amounts
Current portion
$ 257,437
(16,232)
$ 270,993
(17,229)
$ 241,205
$ 253,764
Hedges
This new standard specifies the criteria under which hedge accounting
can be applied and how hedge accounting is to be executed for each
of the permitted hedging strategies: fair value hedges, cash flow
hedges and hedges of a foreign currency exposure of a net investment
in a self-sustaining foreign operation. In a fair value hedging relationship,
the carrying value of the hedged item is adjusted by gains or losses
attributable to the hedged risk and recognized in net income. This
change in fair value of the hedged item, to the extent that the hedging
relationship is effective, is offset by changes in the fair value of the
derivative. In a cash flow hedging relationship, the effective portion of
the change in the fair value of the hedging derivative will be recognized
in other comprehensive income. The ineffective portion will be
recognized in net income. The amounts recognized in accumulated
other comprehensive income will be reclassified to net income in the
periods in which net income is affected by the variability in the cash
flows of the hedged item. In hedging a foreign currency exposure of a
net investment in a self-sustaining foreign operation, foreign exchange
gains and losses on the hedging instruments will be recognized in
other comprehensive income.
3. Cash, Cash Equivalents, Segregated Cash and
Short-term Investments
Bank deposits are maintained at levels required to meet daily
operating needs. Any surplus deposits are invested in the short-term
money market. The investing strategy is based on a conservative risk
assessment. All instruments are rated as R1 Low or higher by the
Dominion Bond Rating Service and as A1 Global by Standard and
Poor’s. These investments are comprised of bank certificates of
deposit, high-grade commercial and government agency paper, and
government Treasury bills. The weighted average yield on the shortterm investments held as at March 31, 2006 is 3.8% (2005 – 2.6%).
56
ATO M I C E N E RGY O F C A N A DA L I M I T E D
Repayment amounts required over subsequent years are
as follows:
(thousands of dollars)
2007
2008
2009
2010
2011
Subsequent to 2011
$ 16,232
16,045
16,983
17,977
19,028
171,172
$ 257,437
6. Trust Fund
The Nuclear Fuel Waste Act required the Canadian nuclear utilities
to form a waste management organization, the Nuclear Waste
Management Organization (NWMO), to provide recommendations to
the Government of Canada on the long-term management of nuclear
fuel waste and to implement the approach selected. The legislation
also requires that each nuclear fuel waste owner establish a trust
fund to finance implementation of the approach. Each individual trust
fund is held in order to meet the requirements of the Act and only
NWMO may withdraw moneys from it in accordance with the
provisions of the Act. As required by the Act, AECL’s initial deposit to
its Trust Fund was $10 million on November 25, 2002. Subsequent
annual deposits of $2 million have been made as required, and will
continue until the obligation ceases or the amount is modified by the
Government of Canada once certain requirements stipulated in the
Act are met by NWMO.
The Trust Fund, managed by AECL, invests in fixed income instruments,
with various maturities. The fund has been recorded as a long-term
asset. Interest earned from the fund offsets accretion expense
related to the decommissioning and waste management provision.
These instruments comprise government bonds, high-grade
corporate bonds, government agency paper, government Treasury
bills and bank certificates of deposit. Quoted market values of the
instruments are estimated at $17.3 million as at March 31, 2006
(2005 – $15 million) with a weighted average yield of 3.8% (2005 –
3.1%). Interest earned on trust assets accrues to the Trust Fund.
7. Heavy Water Inventory
Heavy water inventory includes 1,003 megagrams provided to the
Sudbury Neutrino Observatory Institute at no cost, the majority of which
is scheduled for return in 2007–2008. AECL retains the right to recall this
inventory if required to meet operational needs. Heavy water inventory is
recorded as a long-term asset since the lead-time required in relation to
future reactor sales exceeds one year. A provision has been made for
the detritiation and upgrading of certain heavy water inventory.
8. Property, Plant and Equipment
2006
(thousands of dollars
Cost
Commercial operations
Construction in progress
Land and land improvements
Buildings
Machinery and equipment
$
Technology
Construction in progress
Land and land improvements
Buildings
Reactors and equipment
1,098
999
18,698
26,193
–
253
12,470
19,806
2006
–
999
19,447
25,825
$
–
250
12,792
17,743
46,271
30,785
79,422
42,986
200,206
270,033
–
22,569
157,255
239,424
24,038
42,978
200,505
265,673
–
21,142
155,939
236,638
592,647
419,248
533,194
413,719
$ 639,635
$ 451,777
$ 579,465
$ 444,504
$ 134,961
Required payments over subsequent years are as follows (Note 10):
(thousands of dollars)
9. Long-term Payables
(thousands of dollars)
$
Accumulated
Amortization
32,529
$ 187,858
Amortization of property, plant and equipment for the year ended
March 31, 2006 amounted to $11.5 million (2005 – $12.0 million).
Amortization of deferred capital funding was $2.4 million (2005 –
$3.5 million).
Less current portion
$
Cost
46,988
Net book value
Loans from Government of Canada
Maturing September 2008 bearing interest
at 2.67% to 3.36%
Long-term payable (Note 10)
Maturing September 2012, repayments
begin October 2008. Amount is net of
discount of $8.9 million at 4.08%
2005
Accumulated
Amortization
2005
2007
2008
2009
2010
2011
Subsequent to 2011
$
1,000
1,000
7,160
13,319
13,319
19,979
$ 55,777
$
2,500
$
3,500
10. Isotope Supply Agreement
44,329
–
46,829
(1,000)
3,500
(1,000)
$ 45,829
$
2,500
During the year, AECL entered into a new agreement with MDS
Nordion with respect to a long-term arrangement for the supply of
isotopes. Under the agreement, AECL acquired beneficial ownership
of the MAPLE reactors and New Processing Facility (NPF) currently
under-construction at Chalk River, Ontario. AECL paid $25 million
in consideration for acquiring these facilities and has assumed
responsibility for remaining construction and commissioning activities.
In addition, AECL acquired $53 million in isotopes production related
A N N UA L R E P O RT 2 0 0 6
57
inventory with a deferred payment obligation in 48 monthly installments
of $1.1 million, commencing on October 2008. The value of this
inventory and the related deferred obligation were recorded at the
present value of these future payments (Notes 4 and 9).
The amortization of the discount of the long-term payable of $0.2 million
was expensed on the Consolidated Statement of Operations, and
added to the outstanding principal balance of the related payable.
Required payments are disclosed at the undiscounted amount
(Note 9).
This new agreement resolved prior disputes with MDS Nordion
with respect to completion of the facilities and related activities.
Consequently, AECL reversed certain accruals for project losses
and other provisions totalling $61 million for the year.
11. Decommissioning and Waste Management Provision
AECL has an obligation to decommission its nuclear facilities and
other assets in order to satisfy Canadian Nuclear Safety Commission
(CNSC) and other applicable regulations. These facilities include
prototype reactors, heavy water plants, nuclear research and
development, waste management and other facilities. Due to the
variety of facilities, the decommissioning process may differ in each
case. In some situations decommissioning activities are carried out
in stages with intervals of several decades between them to allow
radioactivity to decay before moving on to the next stage. These
activities include surveillance and monitoring, decontamination,
demolition and the management of the associated waste. A significant
portion of the obligation relates to liabilities that were incurred prior
to the creation of AECL in 1952.
In 2005, AECL completed a review of its decommissioning plan, the
significant assumptions that underlie the estimate and the calculation of
the nuclear facility decommissioning and waste management provision.
The amended decommissioning plan adopted international standards
with respect to prompt decommissioning practices. This involves
addressing the waste early in the decommissioning cycle, and optimizing
the safe storage period to avoid deferring unnecessarily activities
associated with physical demolition, waste processing and ultimate
disposal. The amended plan projected undiscounted expenditures
of $6,800 million (in current dollars) over a period of 70 years.
The estimated future decommissioning and site remediation costs
require that judgements be made about the regulatory environment,
health and safety considerations, the desired end-state, technology
to be employed and, in some cases, research and development
activities that extend well into the future. Significant assumptions
determine the valuation, such as timing of major decommissioning
and remediation project expenditures, regulation requirements,
volumes of waste, market based premium, interest rate estimates,
58
ATO M I C E N E RGY O F C A N A DA L I M I T E D
inflation factors, and the impact of technological advances. Another
important assumption is that the liability reflects the affordable
funding level necessary to achieve health, safety and environmental
protection objectives that are in accordance with CNSC regulations.
Changes to these assumptions, as well as changes to the timing of
the programs or the technology employed, or changes in the
standards and regulations governing the decommissioning of nuclear
facilities, could result in material changes to the Decommissioning
and Waste Management provision.
The decommissioning plan follows a hierarchy of activities to achieve:
a controlled and controllable state for all redundant nuclear facilities
that removes short-term risks; a sustainable, stable, safe state of the
facilities under surveillance; and cost-optimized completion of actions
to achieve a final end state that is an accepted completion of the
decommissioning process as required by the regulator. The discount
and inflation rates used to calculate the present value of the
provision, at the time the plan was implemented, were 5.25% and
1.7% respectively. In accordance with the requirements of CICA
section 3110, an increase in estimates resulting from new liabilities or
increases in the spending profile are discounted using a current rate
of 4.3%. The table below details transactions incurred in fiscal 2006:
Decommissioning and Waste Management Provision reconciliation
(thousands of dollars)
2006
2005
Opening balance
Liabilities settled
Accretion expense
Revision in estimate and timing
of expenditures
$ 2,750,000
(48,829)
144,375
$
945,100
(37,049)
49,618
1,210
1,792,331
Closing balance
$ 2,846,756
$ 2,750,000
The funding of actual expenditures of $48.8 million (2005 –
$37.0 million) is described in Notes 12 and 14.
12. Parliamentary Appropriations
The use of government funding by AECL’s Technology Division was
as follows:
(thousands of dollars)
Research and related infrastructure
Year 2000 reduction in appropriation
Advanced CANDU reactor development
Program Integrity – Decommissioning activities
2006
2005
$ 105,249
(4,900)
60,000
$ 103,738
(4,900)
35,000
160,349
133,838
–
29,000
$ 160,349
$ 162,838
Government funding in 2005–2006 included ongoing support for
nuclear research programs, less the final part of a five-year reduction
in appropriation on account of $24.5 million received in prior years to
assist in defrayment of the Year 2000 computer costs, and funding
for the development of the Advanced CANDU reactor (ACR) program.
In the previous year, the Corporation received funding of $29 million
for activities under the government’s Program Integrity initiative for
health and safety upgrades, including the safe long-term management
of nuclear materials or waste. Appropriations are recognized in the
Technology segment and not used to fund Commercial operations.
13. Employee Future Benefits
a) Pension Plan
The Corporation’s employee pension benefits are covered through
the Public Service Pension Plan (PSPP). Payments are made to three
accounts: Public Service Superannuation Account (PSSA), Public
Service Pension Fund account (PSPF), and the Retirement
Compensation Arrangement account (RCA). Total contributions
made on account of current service are as follows:
(thousands of dollars)
Payments by employees
Payments by employer
2006
2005
$ 14,545
$ 32,891
$ 13,651
$ 31,041
The Corporation’s rate of contribution to the PSPF account is a 2.14
multiple of the employee contributions (2005 – 2.14). The contribution
to the RCA account for calendar year 2006 is a multiple of 7.2 of the
employee contributions (calendar year 2005 – 8.9). The multiple is
subject to change based on revaluation by the PSPP administration.
b) Other Employee Future Benefits
The Corporation provides certain termination and other benefits as
described in note 2 (q). The accrued benefit obligation is not funded
as funding is provided when benefits are paid. Accordingly, there
are no plan assets and the plan deficit is equal to the accrued
benefit obligation.
(thousands of dollars)
Accrued benefit obligation, beginning of year
Current service cost
Interest on accrued benefit obligation
Benefits paid
Actuarial (gains) losses
2006
2005
$ 73,353
3,548
3,893
(4,650)
(1,992)
$ 69,635
3,311
4,018
(5,295)
1,684
Accrued benefit obligation, end of year
Unamortized net actuarial losses
74,152
(11,885)
73,353
(14,534)
Accrued benefit liability
Current portion, accrued benefit liability
62,267
(6,511)
58,819
(6,071)
$ 55,756
$ 52,748
Net accrued benefit liability
Cumulative actuarial gains or losses in excess of 10% of the obligation
are amortized over the remaining average service period of active
employees. The average remaining service period of the active
employees covered by the other employee future benefits plan is
11 years (2005 – 11 years). The measurement date of the accrued
benefit obligation is March 31, 2006, and the latest actuarial valuation
of these benefits was performed in March 2006. The next valuation
will be performed in March 2007.
The significant actuarial assumptions adopted in measuring the
Corporation’s accrued benefit obligation are:
• a discount rate of 5.25% (2005 – 5.25%)
• a rate of compensation increase of 5% (2005 – 5%)
14. Contributed Capital and Deferred
Decommissioning Funding
Included in contributed capital is approximately $267 million (2005 –
$291 million) related to parliamentary appropriations received for the
production of heavy water inventory. Up to and including 1995–1996,
the Corporation was required to repay the Government of Canada,
by way of a dividend, the cash proceeds from the sale of
government-funded heavy water. From 1997 to 2006 a Decision by
the Treasury Board directed the Corporation to hold the proceeds
from the sale or lease of government-funded heavy water in a
segregated fund for use in decommissioning activities for the 10-year
period following the Decision. As government-funded heavy water
was sold or leased, the cash proceeds were transferred from
contributed capital to deferred decommissioning funding, which
was used to fund ongoing decommissioning activities.
Subsequent to 2005–2006, the prior arrangement will apply whereby
cash proceeds, including interest and principal on long-term receivables
from heavy water sales, would be repayable to the Government of
Canada and decommissioning activities would be funded through
parliamentary appropriations. Accordingly, the Corporation expects
that the Government of Canada will continue to finance this
obligation. (Note 19)
15. Related Party Transactions
In addition to the transactions disclosed in Notes 9, 12,13 and 14,
the Corporation had the following transactions with the Government
of Canada:
(thousands of dollars)
Net benefit plan cost
Current service cost
Interest cost
Amortization of actuarial losses
Annual benefit plan expense
$
3,548
3,893
658
$
3,311
4,018
593
$
8,099
$
7,922
Repayment of loans
Principal
Interest
2006
2005
$
1,000
81
$
1,000
96
$
1,081
$
1,096
A N N UA L R E P O RT 2 0 0 6
59
In the normal course of business, the Corporation also enters into
various transactions with the Government of Canada, its agencies
and other Crown Corporations. These transactions are recorded at
the exchange amount.
16. Commitments and Contingencies
a) Commitments
The Corporation has entered into non-cancellable operating leases
expiring on various dates for the rental of office space. The leases
contain an escalation clause providing for additional rent.
Minimum future lease payments under these operating leases
are as follows:
(thousands of dollars)
2007
2008
2009
2010
2011
Subsequent to 2011
$
6,638
6,802
6,176
2,106
822
6,503
$ 29,047
b) Performance Guarantees & Liquidated Damages
It is industry practice to use letters of credit, surety bonds and
other performance guarantees on major contracts. Such guarantees
may include guarantees that a project will be completed or that
a project or particular equipment will achieve defined performance
criteria.
AECL also guarantees that certain projects will be completed within
a specified time and may bear responsibility for liquidated damages
should obligations not be met.
17. Financial Instruments and Financial Risk Management
a) Foreign Currency Exchange
The Corporation enters into foreign exchange forward contracts
to reduce the risk associated with the purchase and sale of goods
in foreign currencies. There are thirty-one (2005 – one) forward
contracts with a notional value of $28 million (2005 – $0.9 million)
and fair value equivalent to book value as at March 31, 2006.
b) Credit Risk
The Corporation is exposed to credit risk in the collection of its
accounts receivable. Three customers (2005 – three), each
representing greater than 10 per cent of the total accounts receivable,
comprise an aggregate 77% (2005 – 67%) of total accounts
receivable. No significant amounts are due in foreign currency.
c) Interest Rate Risk
The Corporation is exposed to interest rate risk through its asset
retirement obligations. Changes in the discount rate are based on a
credit adjusted risk-free rate that is sensitive to interest rate fluctuations.
d) Regulatory Risk
The nature of the business environment the Corporation operates in is
highly regulated. Changes in political environment or government policy
may have an adverse impact on the Corporation’s financial position.
e) Fair Value
Fair value represents management’s estimates of the market value at
a given point in time. The carrying value of all financial assets and
liabilities approximate fair value as at March 31, 2006 and 2005 with
the exception of Long-term receivables. The fair value of Long-term
receivables is $256.2 million (2005 – $266.7 million).
18. Segmented Information
The aggregate amount of the Corporation’s potential exposure
under the performance guarantees is estimated to be $76 million on
current commercial projects as at March 2006 (2005 – $102 million).
In addition to performance guarantees, liquidated damages as
of March 2006 are estimated to be $105 million (2005 – $nil).
Management does not expect these guarantees to have a
material impact on the consolidated financial statements
of the Corporation.
c) Other
In the normal course of operations, AECL has become involved in
various claims and legal proceedings. While the final outcome with
respect to claims and legal proceedings pending at March 31, 2006
cannot be predicted with certainty, it is the opinion of management
that their resolution will not have a material adverse effect on AECL’s
financial position or results of operations.
60
ATO M I C E N E RGY O F C A N A DA L I M I T E D
The Corporation has three reportable operating segments;
Commercial Operations, Technology, and Liability Management
Unit. The accounting policies of the segments are the same as those
described in Note 2. These segments represent strategic business
units established by senior management to facilitate the achievement
of the Corporation’s long-term objectives, to aid in resource allocation
decisions and to assess operational performance. AECL monitors
and evaluates each division’s performance based on net operating
income, defined as revenue less operating expenses. Revenues
generated and expenses incurred on transactions between segments
approximate fair value and are eliminated on consolidation. AECL
does not own capital assets that reside in countries outside Canada.
Commercial Operations
This segment is largely responsible for two lines of business: Projects
and Services. Projects include new build projects and refurbishment
projects together with related project management services, equipment
procurement and deliveries and the sale of heavy water. Services
include a full line of engineering and technical services that supports
operating CANDU plants and improves customer productivity and
competitiveness.
Technology
This segment develops new reactor technology and supports the
safety, licensing and design for the life cycle of the CANDU product
set and other Canadian nuclear technology. Business activities
include engineering and development of the Advanced CANDU
Reactor, manufacture and sale of medical isotopes, operations of
nuclear facilities and carrying out the Government of Canada’s policy
mandate in support of nuclear technology and the nuclear industry.
Commercial Operations*
(millions of dollars)
Operating revenue
Total operating revenue
Inter-segment revenue
External operating revenue**
Funding and cost recovery
2006
This business segment is closely linked to Commercial Operations
and the Liability Management Unit (LMU), supporting commercial
project delivery activity, new product development and execution of
the decommissioning and waste management program.
Liability Management Unit
The segment operates as a procurement and planning office with a
mandate to manage the decommissioning and waste management
program in a cost effective manner and to oversee funding received
from the Government of Canada for the program. Included with LMU
assets is an amount related to parliamentary appropriations received
for the production of heavy water inventory as described in Note 14.
Technology
2005
2006
$ 329.7
(9.8)
$ 312.6
(11.3)
$ 158.9
(71.6)
319.9
301.3
87.3
Liability Management Unit
2005
$
77.4
(22.2)
55.2
2006
$
3.8
(3.8)
2005
$
–
Consolidated
2006
2005
–
_
$ 492.4
(85.2)
$ 390.0
(33.5)
–
407.2
356.5
_
_
180.1
152.6
55.8
46.6
235.9
199.2
46.8
72.2
33.8
(106.5)
(75.1)
(1,806.6)
5.5
(1,840.9)
1.9
1.9
7.2
6.6
144.4
49.6
9.1
144.4
8.5
49.6
289.3
333.3
945.8
108.7
821.6
41.6
1,054.5
863.2
3,249.8
55.8
3,041.5
52.7
$3,305.6
$3,094.2
2006
2005
Revenues by geographic segment
Canada
Europe
Asia
Other
$ 224.6
110.7
58.9
13.0
$ 129.4
127.0
91.5
8.6
Total revenue
$ 407.2
$ 356.5
Operating income (loss)***
Amortization of property, plant and
equipment
Accretion expense
Segmented Assets
Cash and short term investments
407.0
341.1
249.5
147.2
Total Assets****
Segmented Liabilities
Employee future benefits
261.9
85.4
135.6
177.8
2,852.3
2,778.3
Total Liabilities
* Commercial Operations had one customer (2005 – two) that contributed 24% of AECL’s revenue (2005 – 45%).
** Commercial Operations includes $15.2 million of interest revenue (2005 – $16.3 million) related to long-term receivables.
*** The 2006 amount includes a $60.9 million gain on reversal of accrued project losses and provisions (Note 10).
**** Includes capital expenditures for Commercial Operations of $2 million (2004 – $1 million) and Technology of $54 million (2004 – $7 million).
19. Subsequent Events
As of April 1, 2006, the 1997 decision of the Treasury Board allowing
AECL to retain a portion of the cash proceeds on sale of governmentfunded heavy water sales as deferred decommissioning funding had
not been renewed. Decommissioning activities are now expected to
be funded through parliamentary appropriations. The Corporation is
currently in discussions with the Government of Canada regarding
the use of cash proceeds from heavy water sales. These discussions
may impact $256 million of long-term receivables, $160 million of
heavy water inventory, and $267 million of contributed capital.
20. Comparative Figures
Certain of the 2005 comparative amounts have been reclassified
from financial statements previously presented to conform to the
2006 financial statement presentation.
A N N UA L R E P O RT 2 0 0 6
61
B OA R D O F D I R E C TO R S
JEAN-PIERRE SOUBLIÈRE
RO B E RT G . VA N A D E L
M A RC E L AU B U T, Q . C .
Appointed October 20, 2005,
Acting Chair of the Board, AECL,
Mississauga, Ontario
President & CEO, AECL,
Mississauga, Ontario
Lawyer, senior partner, Heenan Blaikie, law firm, Quebec
Formerly an Executive Vice-President
at Export Development Canada and
the President of AGRA Engineering
Inc. Directorships include: Canadian
Nuclear Association, Nuclear Energy
Institute (USA), Canada China
Business Council, Energy Council of
Canada, Junior Achievement of
Central Ontario. Mr. Van Adel was
appointed President & CEO of AECL
in February 2001. Committees: Risk
Evaluation; Science & Technology.
Previously President, Chairman & CEO of the Quebec Nordiques
(Quebec City’s franchise in the National Hockey League) and Governor
of the NHL; Founder of Aubut Chabot (Quebec City law firm); Chairman
of the Québec Metro High Tech Park; President and CEO of TransAmerica Productions Ltd. Current directorships include: Olybro inc;
Æterna Zentaris Inc.; Boralex Power Income Fund; Triton Electronik Inc.;
Faculty of Law, Laval University; Canadian Olympic Committee (Board of
Directors and Executive Committee); Canada’s Sports Hall of Fame,
Mont Tremblant Resort, Fondation Nordiques. Member (1986) and
Officer (1993) of the Order of Canada, Official Medal of the Quebec
National Assembly (1981), Queen’s Counsel (1986), and inducted into
Canada’s Sports Hall of Fame in 1999. Appointed January 2001.
Committees: Human Resources & Governance; Nominating.
DOUGLAS THOMPSON
BARBARA TRENHOLM
ST E L L A T H O M P S O N
RO B E RT J . H A R D I N G F. C . A .
Lawyer, Hatter, Thompson, Shumka &
McDonagh, Victoria, B.C.
Professor, Faculty of Business
Administration, University of
New Brunswick, Fredericton, N.B.
Governance Consultant and
Director, Principal and
Co-Founder of Governance
West Inc., Calgary, Alberta
Chairman Brookfield Asset
Management Inc.
President, Anderson Soublière Inc.,
Ottawa, Ontario
Formerly President of SHL
Systemhouse Canada and
International, and President and COO
of Alis Technologies. Directorships
include: the University of Ottawa, United
Way of Canada (Past Chair), Provance
Technologies Inc. (Chair), the Harmony
Foundation (Chair). Appointed October
1998. Committees: Audit; Science &
Technology; Human Resources &
Governance; Risk Evaluation.
Member of the Law Society of B.C.
and the Canadian Bar Association.
Former Directorships include: British
Columbia Hydro and Power Authority,
the Power Exchange Corporation
(Powerex), the University of Victoria,
and the Victoria Bar Association.
Appointed September 2002.
Committees: Chair – Risk Evaluation;
Vice Chair – Science & Technology.
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ATO M I C E N E RGY O F C A N A DA L I M I T E D
Fellow Chartered Accountant. Other
directorships include: Plazacorp
Retail Properties Ltd. Formerly a
member of the Canadian Institute of
Chartered Accountant’s board of
directors, co-chair of the University of
New Brunswick’s Pension Board of
Trustees, president of the New
Brunswick Institute of Chartered
Accountants, and acting dean of
UNB’s Faculty of Business
Administration. Appointed June
2002. Committee: Chair – Audit.
Current directorships include:
Alberta’s Electricity Balancing Pool,
Calgary Airport Authority, Canada
Foundation for Innovation, Genome
Alberta (Vice Chair), and Talisman
Energy Inc. Formerly a Vice-President
at Petro-Canada. Appointed
September 2002. Committees: Chair
– Human Resources & Governance;
Audit; Nominating.
Fellow Chartered Accountant (F.C.A.),
Awarded the Queen’s Golden Jubilee
Medal for community service and an
honorary Doctor of Laws Degree from
University of Waterloo. Current
directorships include Brookfield Asset
Management, BPO Properties Limited,
Norbord Inc, and Fraser Papers Inc.
He is also Chair of the board of governors
of University of Waterloo, Vice Chair of
United Way of Greater Toronto Board
of Trustees and a Trustee of the
Toronto Hospital for Sick Children.
Appointed May 2005. Committees:
Vice Chair – Audit; Risk Evaluation.
P E T E R P. D H I L L O N
C L AU D E L A J E U N E S S E
J A M E S ( J A S P E R ) M CK E E
M A R N I E PA I K I N
President & CEO, Richberry Group of
Companies, Richmond, B.C.
President, Concordia University,
Montreal, Quebec
Professor Emeritus, University of
Manitoba, Winnipeg, Manitoba
Director, Hamilton, Ontario
Directorships include: Vice Chairman,
Ocean Spray Cranberries, Inc.,
Chairman of the Audit Committee for
the Vancouver Organizing Committee
for 2010 Winter Olympics and Vice
Chairman of the Agricultural Lands
Commission. Formerly Vice Chairman
for B.C. Ferries and Director, Canada
Customs and Revenue Agency.
Appointed November 2002.
Committee: Science & Technology.
Formerly President of Ryerson
University, Toronto, and President &
CEO of the Association of Universities
and Colleges of Canada (AUCC).
Member of the Board of TD Meloche
Monnex. Appointed March 2005.
Committees: Vice-Chair – Risk
Evaluation; Science & Technology.
Formerly Professor of Physics at the
University of Manitoba and Director of
its Accelerator Centre. Fellow of the
Institute of Physics (UK) and past
President of the Canadian
Association of Physicists, past
membership of the National Advisory
Board on Science and Technology.
Directorships include: President
Canadian Club of Winnipeg,
Westminster Housing Society,
elected member of the European
Academy of Sciences. Also the Editor
of Physics in Canada. Appointed
December 1995. Committees: Chair
– Science & Technology; Human
Resources & Governance.
Commissioner of the Ontario Human
Rights Commission 1996 to 2005.
Recipient of Ontario’s “Outstanding
Woman Award” and the Human
Relations Award of the Canadian
Council of Christians and Jews.
Former director of Westcoast Energy
Inc. and Union Gas Ltd. Inducted into
the Hamilton Gallery of Distinction
and a Member of the Order of
Canada. Appointed July 1985.
Committees: Chair – Nominating;
Vice Chair – Human Resources &
Governance; Risk Evaluation.
OFFICERS
RO B E RT G . VA N A D E L
President and Chief Executive Officer
R I CH A R D COT É
Vice-President, Finance
PAU L F E H R E N B ACH
Vice-President, Special Advisor
DENNIS GALANGE
Vice-President, Ontario Strategy
A L L A N H AW RY L U K
Vice-President, Corporate Affairs,
General Counsel & Corporate Secretary
KEN HEDGES
Vice-President, Dedicated Isotopes Facility
J . R AY M O N D F R E N E T T E
P I E R R E F O RT I E R
Retired September 23, 2005,
Chair of the Board, AECL,
Mississauga, Ontario
Resigned August 19, 2005,
Company Administrator and
Consultant, Montreal, Quebec
Previously Chairman New Brunswick
Power Corporation and former
Premier of New Brunswick. Elected
to the New Brunswick Legislative
Assembly in 1974, he was Minister of
Health and Community Services,
Government House Leader, Deputy
Premier and President of the
Executive Council. Previous
Directorships include Service
New Brunswick and the Canadian
Millennium Scholarship Fund.
Formerly Vice-President, Corporate
Affairs of SNC Inc. and President of
Canatom Inc. Served for seven years
on Canada’s Advisory Council on
Science & Technology. Served as
President of Societe financiere des
Caisses Desjardins. During nine years
as an elected Member of the Quebec
National Assembly he was Minister of
Privatization and Associate Minister of
Finance responsible for financial
institutions. Directorships include
Univalor Inc. and Fondation de
Polytechnique where he serves as
President.
T E R RY V I N C E N T
M CC A N N , Q . C .
Retired May 6, 2005, Retired
Lawyer, Pembroke, Ontario
Former Mayor of the City of
Pembroke. Previous directorships
included Saint Francis Xavier
University, deHavilland Aircraft
Company of Canada, Pembroke
Police Commission (Chairman),
Pembroke Hydro Commission, and
many Pembroke area commercial
and charitable organizations. Terry
has an Executive MBA from Queen’s
University and is a recipient of a
125th Confederation
Commemorative Medal.
M I CH A E L I N G R A M
Vice-President, CANDU Services
B R I A N M CG E E
Vice-President, Nuclear Laboratories
B E T H M E D H U R ST
Vice-President, Human Resources
KEN PETRUNIK
Senior Vice-President &
Chief Operating Officer
M I CH A E L RO B I N S
Senior Vice-President,
Chief Financial Officer
M I CH A E L TAY L O R
Vice-President, Special Projects
PAT R I CK T I G H E
Vice-President, Marketing &
Business Development
DAV I D F. TO RG E R S O N
Senior Vice-President &
Chief Technology Officer
A N N UA L R E P O RT 2 0 0 6
63
CO R P O R AT E G OV E R N A N C E
At AECL, corporate governance continues to reflect the best
practices for Crown corporations and publicly traded companies.
AECL firmly believes from its research that leading Canadian
companies are also pacesetters in the area of corporate
governance. In 1998, AECL established Corporate Governance
Guidelines based upon the recommendations of the Treasury Board
of Canada in its publication entitled, Corporate Governance in
Crown Corporations and Other Public Enterprises and also based
upon AECL’s research of other leading companies. Since that time,
AECL has continued to improve its governance structure through
the work and leadership of the committees of the Board including
the Audit, Human Resources and Governance, Risk Evaluation,
Science and Technology and Nominating Committees. In the fiscal
year 2005, AECL actively participated in the Treasury Board review
of Crown Corporations. Many of AECL’s views, including the
introduction of its corporate policy on “Disclosure of Wrongdoings”
(the whistleblower policy), were reflected by the Treasury Board
Report, Review of the Governance Framework for Canada’s Crown
Corporations in February, 2005.
In 2005, AECL introduced the requirement for all directors and
employees to sign a declaration confirming no conflict of interest as
part of meeting their responsibilities pursuant to the corporation’s
Code of Ethics and Business Conduct Policy. From the signed
declarations, there were no breaches of the aforementioned policy.
The Board recognizes that effective corporate governance is
important to identify and manage potential risks and opportunities and
ensure transparent accountability to the Government, Parliament and
Canadians. Overall, the Board is satisfied that its corporate
governance structure met and exceeded the recommendations made
by the Auditor General of Canada respecting corporate governance
for Crown corporations assessed annually through detailed surveys.
The Board
The Board of Directors of AECL is comprised of thirteen members,
including AECL’s President and Chief Executive Officer. At the
present time, there are two vacancies. Directors are appointed by the
Minister of Natural Resources with approval by the Governor-inCouncil for a term of three years and are eligible for re-appointment
upon the expiration of their terms. The Board oversees the strategic
direction for the organization as well as its financial management and
corporate systems. With the exception of the President and CEO, all
Board members are independent of management. The Chairs of
each of the five committees are also independent of management.
It is the practice of the Board members to meet in camera at all
regular Board meetings.
64
ATO M I C E N E RGY O F C A N A DA L I M I T E D
In 2005, AECL’s Board of Directors assessed its own performance
against best practices. To further continuous improvement, the
Board established an action plan of items to enhance its effectiveness and demonstrate accountability to the shareholder. In addition,
key activities included:
• Participation by new Board members in a detailed orientation
program and training.
• Continuing education programs for Board members sponsored
by the Privy Council Office.
• Recommendation by the Board, supported by the Nominating
Committee (composed of independent directors and two
prominent outside independent members) to reappoint the
current President and CEO, Mr. Robert Van Adel to an additional
five-year term which was subsequently confirmed following a
Parliamentary review process undertaken by the Standing
Committee on Industry, Natural Resources, Science and
Technology.
• Developed a more streamlined performance and financial
reporting system aligned to AECL’s goals and objectives and
strategic plan.
Board Remuneration
Directors are each paid a base annual retainer of $7,200.00 and a
per diem of $555.00, as set by the Governor in Council pursuant to
the Financial Administration Act. Currently, the Acting Chair
receives the base annual retainer of $7,200.00 and a per diem of
$555.00 for Board related work. The retainer for each of the Chairs
of the Committees is $9,200.00 (a marginal increase of $2,000.00
over the base retainer) and a per diem of $555.00 for Board related
work. For the fiscal year, the average remuneration for each director
amounted to approximately $20,000.00 for Board and Committee
meetings and other Board related work. Directors are also
reimbursed for all reasonable out-of-pocket expenses, including
travel, accommodation and meals while on company business.
These expenses averaged $10,863.92 for each director over the
fiscal period.
In 2005–2006, the Board met 6 times for a total of 11 days and
additionally held 8 teleconferences (for a total of 19 meetings) while
the Committees met for a total of 29 meetings. For Board and
Committee meetings, the attendance was at 86% and 89%,
respectively. The table on page 65 sets forth the record of
attendance for Board and Committee meetings for each of the
independent directors for the fiscal year commencing April 1, 2005
and ending March 31, 2006.
Nominating Committee
• Searched for prospective members by matching an individual’s
skill sets to a competency profile developed by the Human
Resources and Governance Committee.
• Reviewed and assessed the Board members’ skill sets in order
to ascertain if any gaps were present.
• Identified and recommended a short list of qualified candidates
to the Minister of Natural Resources.
M R . A L E X TAY L O R
• Recommended to the Minister the appointment of the Acting
Chair.
D R . H U G H W Y N N E - E DWA R D S
AECL’s Nominating Committee was established in 2004 and is
made up of three independent directors and two prominent outside
independent members. The mandate of this Committee is to
identify candidates for the position of Chair of the Board, President
and Chief Executive Officer and members of the Board, as and
when appropriate. From time to time, this Committee obtains
recommendations from an independent third party for potential
candidates. In 2005, the Nominating Committee completed the
following initiatives after an extensive review process:
Audit Committee
The Audit Committee is composed of three independent directors
with the Chair of the Board an ex officio member of the Committee.
The Committee advises the Board on the financial management of
AECL as well as assists the Board in overseeing the internal control
systems, financial and audit processes. All members of the
Committee have extensive financial background and experience.
During the past year, the Committee assisted the Board in AECL’s
transition to new external auditors.
Table of Directors’ Attendance at Meetings of the Board, and at Board Committees, 2005–2006
Director
Audit
(6 meetings)
Science & Technology
(3 meetings)
Human Resources
& Governance
(6 meetings)
Risk Evaluation
(8 meetings)
Nominating
(6 meetings)
Board of Directors
(19 meetings)
J.P. Soublière1
5/6
2/2
2/2
3/3
N/A
17/19
R. Van Adel
N/A
3/3
N/A
4/8
N/A
17/19
M. Aubut
N/A
N/A
6/6
N/A
4/6
17/19
P. Dhillon
N/A
1/3
N/A
N/A
N/A
9/19
R. Harding
5/5
N/A
N/A
0/1
N/A
12/17
C. Lajeunesse
N/A
2/3
N/A
3/4
N/A
16/19
J. McKee
N/A
3/3
6/6
N/A
N/A
17/19
M. Paikin
N/A
N/A
4/6
6/8
6/6
15/19
D. Thompson
N/A
3/3
N/A
8/8
N/A
19/19
S. Thompson
6/6
N/A
6/6
N/A
6/6
17/19
B. Trenholm
6/6
N/A
N/A
7/7
N/A
19/19
8/8
R. Frenette 2
4/4
N/A
4/4
5/5
N/A
P. Fortier 3
N/A
N/A
N/A
5/5
N/A
6/6
T. McCann 4
1/1
N/A
N/A
N/A
N/A
2/2
Outside Eminent Persons – Nominating Committee
H. Wynne-Edwards
6/6
A. Taylor
6/6
1
2
3
4
Jean-Pierre Soublière was appointed Acting Chair on October 20, 2005
Raymond Frenette retired on September 23, 2005
Pierre Fortier resigned on August 19, 2005
Terry McCann retired on May 6, 2005
A N N UA L R E P O RT 2 0 0 6
65
In keeping with best practices, the Committee regularly met on the
following basis:
• Regular meetings with only the members of the Committee.
• Regular meetings with senior management.
• In camera with external auditors without the presence of
management.
• In camera with Internal Audit.
In 2005, the Committee assessed its own performance and
reported to the Board on its initiatives with regard to the
Committee’s mandate. In an ongoing effort to ensure the policies of
AECL were aligned with its strategic plan and to maintain
transparency of its operations, the Audit Committee reviewed
AECL’s legal and ethical compliance programs, in particular,
AECL’s Code of Ethics and Business Conduct. As part of AECL’s
commitment to corporate governance, the Chair of the Audit
Committee reviews, on an ongoing basis, the detailed travel
expenses of the Chair of the Board and the President and CEO.
Science and Technology Committee
This Committee is made up of four independent members with
assistance from an Advisory Panel of highly qualified independent
research advisors. This Committee provides the Board and AECL
with an independent review and assessment of the corporation’s
research and development programs and product development
programs, including the Advanced CANDU Reactor (ACR), to
ensure they are responsive to the objectives of the corporation,
reflect market requirements, and provide value for money. In
addition, this Committee reviews programs directed at protection
of the environment as well as reviews policies to ensure AECL’s
intellectual property is protected. Overall, this Committee is
responsible for setting policy, monitoring and providing oversight in
the areas of AECL’s science, technology and environmental
programs. This Committee also provides an interface with the
regulator, the Canadian Nuclear Safety Commission, and a technical
interface with the shareholder, the Government of Canada. In 2005,
this Committee, with the assistance of the Research and Development Advisory Panel, assessed and provided independent advice to
the Board through the Committee validating AECL’s research and
development activities.
66
ATO M I C E N E RGY O F C A N A DA L I M I T E D
Human Resources and Governance Committee
This Committee is composed of four independent members of the
Board and is responsible for overseeing and advising the Board on
all aspects of corporate governance, corporate policies and
strategies related to human resources including health and safety,
succession planning, compensation, training and recruitment.
In 2005, this Committee defined the responsibilities for the Chair of
the Board. The Committee also reviewed the updated succession
plan prepared by senior management for key positions within the
organization. The Committee reviewed its corporate governance
practices and made recommendations to the Board in relation to its
Corporate Governance Guidelines established the previous year.
Areas of governance included the updating of Board practices and
procedures relating to the frequency, length and content of
materials and information provided to the Board. Other highlights
included ongoing training programs for the Board and programs for
development of management.
Risk Evaluation Committee
This Committee, made up of four independent members, evaluates,
on behalf of the Board, risk areas associated with significant
contracts, proposals and other business ventures. In 2005, the
Committee evaluated the risks associated with key projects
including Pt. Lepreau, Bruce Power and the MMIR agreement. The
MMIR agreement with MDS Nordion is a long-term agreement for
the supply of isotopes.
Summary
This past year both the Board and management have continued
to improve the corporate governance practices to ensure the
organization operates to the highest standards, which has become a
way of life within the corporation. The initiatives undertaken by the
Board and the Committees during the fiscal year reflect transparency
and accountability and sound governance. The ongoing commitment
to corporate governance ensures that AECL operates to the highest
ethical standards while at the same time delivering value to our
shareholder, customers and to all Canadians.
F I V E -Y E A R CO N S O L I DAT E D F I N A N C I A L S U M M A RY
Unaudited
(millions of dollars)
2006
2005*
2004*
2003*
2002*
Commercial Operations
Revenue
Interest revenue
$
303
17
$
283
18
$
407
20
$
473
9
$
404
4
Net income
$
47
$
72
$
74
$
33
$
34
$
87
180
61
$
55
153
–
$
60
173
–
$
89
128
–
$
88
157
–
Net income (loss)
$
34
$
(106)
$
(40)
$
(44)
$
21
Liability Management Unit
Funding
$
56
$
47
$
50
$
48
$
30
Net loss
$
(75)
$ (1,807)
$
(68)
$
(40)
$
(28)
111
299
56
188
2,847
$
46
$
67
300
8
135
2,750
$
3
$
125
300
14
127
945
4
$
159
427
22
128
915
5
$
157
563
23
117
901
6
$
$
$
358
3,214
$
361
3,334
$
Technology
Revenue
Funding
Gains
Financial position
Cash, cash equivalents, segregated cash and short term investments
Heavy water inventory
Capital expenditures
Property, plant and equipment
Decommissioning and waste management provision
Long-term payables (excludes current portion)
Other
Export revenues
Number of full-time employees
$
183
3,604
225
3,221
$
$
$
257
3,456
*Certain of these amounts have been reclassified to conform to the 2006 Financial Statement presentation.
A N N UA L R E P O RT 2 0 0 6
67
G L O S S A RY O F T E R M S
Base Load: The minimum continuous load or demand required
over a given period of time at a steady rate. Variations in load due to
temperature, production, etc., are in addition to base load.
Base Load Capacity: Generating capacity that tends to operate
continuously and steadily, due primarily to its low unit operating
costs. Base load output is generally not adjusted to follow demand
fluctuation.
CANDU: Canada deuterium uranium reactor, moderated and
cooled by heavy water.
Capacity: The maximum volume of power that can be produced
or delivered under specified conditions by a generator or system,
measured on an instantaneous basis. Typically expressed in
megawatts.
MACSTOR: MACSTOR (Modular Air-Cooled STORage) units were
developed by AECL as safe, highly-efficient, above-ground modules
for storing used fuel from CANDU and other types of reactors.
Megawatt (MW): Unit of electricity equal to one million watts or
one thousand kilowatts. Typically used to measure the power
production capacity of a generating station or the maximum
demand of an electricity consumer.
Core: The central part of a nuclear reactor containing the fuel
elements and any moderator.
NRU: The 200-megawatt National Research Universal research
reactor at Chalk River Laboratories. It started up in 1957 and
currently produces about 60% of the world’s supply of molybdenum99, a critical isotope used for medical diagnostic purposes.
Decommissioning: The permanent removal of a facility from
active service. In the case of a nuclear plant this includes safely
closing, and possibly dismantling (or otherwise disposing of) the
existing facilities at the end of their service life.
Nuclear reactor: A device in which a nuclear fission chain reaction
occurs under controlled conditions so that the heat yield can be
harnessed or the neutron beams utilized. All commercial reactors
are thermal reactors, using a moderator to slow down the neutrons.
Energy: In an electrical system, a quantity of electric power,
typically expressed as kilowatt-hours (kWh), megawatt-hours
(MWh), or gigawatt-hours (GWh). Differs from electric capacity,
which is measured in kilowatts or megawatts.
Radiation: The emission and propagation of energy by means of
electromagnetic waves or particles. (cf ionising radiation)
Fossil fuel: A fuel based on carbon presumed to be originally from
living matter, eg coal, oil, gas. Burned with oxygen to yield energy.
Fuel bundle: The package of natural uranium fuel elements for
insertion into a CANDU reactor. The uranium is contained in
zirconium alloy tubes or elements and the elements are held
together by welding them to zirconium alloy plates. Each bundle is a
half a metre long and weighs about 20 kg.
Greenhouse Gas Emissions: Discharge into the atmosphere of
gases – primarily carbon dioxide, methane and nitrous oxide –
believed to contribute to global warming. Main sources include
fossil fuel generating plants, transportation vehicles and industrial
production.
Heavy water: Water containing an elevated concentration of
molecules with deuterium (“heavy hydrogen”) atoms.
68
Isotope: An atomic form of an element having a particular number
of neutrons. Different isotopes of an element have the same
number of protons but different numbers of neutrons and hence
different atomic mass, eg. U-235, U-238. Some isotopes are
unstable and decay (qv) to form isotopes of other elements.
ATO M I C E N E RGY O F C A N A DA L I M I T E D
Radioactivity: The spontaneous decay of an unstable atomic
nucleus, giving rise to the emission of radiation.
Refurbishment: Large-scale replacement of a CANDU reactor’s
primary components. Refurbishment of a CANDU reactor can
extend its life cycle by 25–30 years.
Regulator: An entity with the legislative authority to develop,
impose and enforce regulations in a given industry or industries.
Spent fuel: Fuel assemblies removed from a reactor after several
years use.
Sustainable Development: Economic development that meets
the needs of the present without compromising the ability of future
generations to meet their own needs.
AECL OFFICES
C A N A DA
U. S . A .
AECL
2251 Speakman Drive
Mississauga, Ontario
Canada L5K 1B2
AECL Technologies
481 North Frederick Ave,
Suite 405, Gaithersburg,
Maryland 20877 USA
AECL
Chalk River Laboratories
Chalk River, Ontario
Canada K0J 1J0
S O U T H KO R E A
AECL
Whiteshell Laboratories
Pinawa, Manitoba
Canada R0E 1L0
AECL
Place de Ville, Tower B
112 Kent Street,
Suite 501
Ottawa, Ontario
Canada K1A 0S4
AECL
1000, rue de la
Gauchetière ouest
14 e étage, Suite 1440
Montréal, (Québec)
Canada H3B 4W5
AECL
1400 Bayly Street,
Units 20-22
Pickering, Ontario
Canada L1W 3R2
AECL
Low Level Radioactive
Waste Management
1900 City Park Drive,
Suite 200
Gloucester, Ontario
Canada K1J 1A3
AECL
Point Lepreau
Refurbishment Office
430 Bayside Drive
Saint John, New Brunswick
Canada E2J 1A8
4th Floor, IL Won Building
1000-1 Daechi-dong,
Kangnam-Ku
Seoul, 135-280
South Korea
CH I N A
Suite 2912, North Tower
Beijing Kerry Centre
1 Guang Hua Road
Chao Yang District
Beijing 100020,
People’s Republic of China
Photos:
Front cover, 2nd photo from left:
Amy Siegner and Clayton McGregor,
Sheridan Park.
Inquiries
Public Requests for
Information/Media Inquiries
Phone: 905-823-9040 ext. 7539
Toll free: 1-866-886-2325
Marketing Services
Email: [email protected]
Front cover, 3rd photo: Laura Hansen,
Chalk River.
Page 1, top photo: Stuart Parrott,
Mechanical R&D Engineer, Whiteshell.
Page 1, bottom photo: Daniel Kuchar,
Mechanical Engineer (left) and Dave Gunn,
Fuel Channel Design Engineer, Sheridan Park.
Visit Our Website
www.aecl.ca
Page 3: Craig Buchanan, Metallurgical
Technician (left) and James Valliant, Hot
Cell Technician, Chalk River. Hot cell
manipulators, post irradiation examination.
Version française
La version française du rapport
annuel sera fournie sur demande.
Page 3, middle: John Rabiasz, Senior
Technologist (left) and Taifoor Ali,
Mechanical Technician, Sheridan Park
Fuelling machine.
Page 15: Construction of Qinshan
Unit 2, China.
Page 19: Awad Beekhoo, Senior
Engineering Development Technologist,
Sheridan Park. ACR-1000 flow visualization
test rig of a reactor fuel channel.
Page 23: Laura Hansen, university student
with Environmental Technologies, and
Adam Miller, Environmental Technician,
Chalk River. Riverbed core sampling.
PRINTED IN CANADA • IMPRIMÉ AU CANADA
CC1-2006 • ISBN: 0- 662- 49321-4
CATALOGUE #: A E C L -12 213
Back cover, left to right: Yvan Lachance,
Systems Analyst, Chalk River; Tracey
Kemp, Chalk River; Mark Carney,
Sheridan Park.
A E C L L E A D I N G T H E WAY
CANDU Nuclear = Power
CANDU Nuclear = Minimal Waste
51% of Ontario’s electricity (16% of Canada’s)
comes from CANDU nuclear power.
CANDU nuclear accounts for all of its
wastes – small volume in confined space.
CANDU Nuclear = Clean Air
CANDU Nuclear = Economic Benefits
CANDU nuclear is an energy source that does
not produce harmful greenhouse gas emissions.
The Canadian nuclear industry employs
more than 30,000 workers and generates
$6 billion per year.
CANDU Nuclear = Safe
CANDU nuclear is the most regulated industry
in Canada for safety, health and environment.
ATO M I C E N E RGY O F C A N A DA L I M I T E D
2 2 51 S P E A K M A N D R I V E
M I S S I S S AU G A , O N TA R I O
C A N A DA L 5 K 1B 2
TEL: 905.823.9060
FA X : 9 0 5 . 8 2 3 . 7 5 6 5
W W W. A E C L . C A
CANDU Nuclear = Health
Canada supplies 2/3 of the world’s reactorproduced radioisotopes used in over
12 million diagnostic tests each year.
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