CAMECO CORP — Regulatory Filings 2007

Mar 19, 2007

6-K 1 o35324e6vk.htm FORM 6-K - 2006 CONSOLIDATED FINANCIAL STATEMENTS e6vk PAGEBREAK

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 6-K

Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16 Under the Securities Exchange Act of 1934

For the month of March, 2007

Cameco Corporation

(Commission file No. 1-14228)

2121-11th Street West Saskatoon, Saskatchewan, Canada S7M 1J3

(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F o Form 40-F þ

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o No þ

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):

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Exhibit Index

Exhibit No.	Description
99.1	2006 Annual Consolidated Financial Statements.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 19, 2007 Cameco Corporation

By:
Gary M.S. Chad, Q.C.
Senior Vice-President, Governance, Legal and Regulatory Affairs, and Corporate Secretary

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Exhibit 99.1

CAMECO CORPORATION

2006 CONSOLIDATED FINANCIAL STATEMENTS

March 16, 2007

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REPORT OF MANAGEMENT’S ACCOUNTABILITY

The accompanying consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles. Management is responsible for ensuring that these statements, which include amounts based upon estimates and judgment, are consistent with other information and operating data contained in the annual report and reflect the corporation’s business transactions and financial position.

Management is also responsible for the information disclosed in the management’s discussion and analysis including responsibility for the existence of appropriate information systems, procedures and controls to ensure that the information used internally by management and disclosed externally is complete and reliable in all material respects.

In addition, management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. The internal control system includes an internal audit function and a code of conduct and ethics, which is communicated to all levels in the organization and requires all employees to maintain high standards in their conduct of the corporation’s affairs. Such systems are designed to provide reasonable assurance that the financial information is relevant, reliable and accurate and that the company’s assets are appropriately accounted for and adequately safeguarded. Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the criteria established in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the company’s system of internal control over financial reporting was effective as at December 31, 2006.

Our shareholders’ independent auditors, KPMG LLP, whose report on their examination follows, have audited management’s assessment of the effectiveness of the company’s internal control over financial reporting. In addition, KPMG LLP has audited the consolidated financial statements in accordance with Canadian generally accepted auditing standards.

The board of directors annually appoints an audit committee comprised of directors who are not employees of the corporation. This committee meets regularly with management, the internal auditor and the shareholders’ auditors to review significant accounting, reporting and internal control matters. Both the internal and shareholders’ auditors have unrestricted access to the audit committee. The audit committee reviews the financial statements, the report of the shareholders’ auditors, and management’s discussion and analysis and submits its report to the board of directors for formal approval.

“Gerald W. Grandey”	“O. Kim Goheen”
President and Chief Executive Officer	Senior Vice-President and Chief Financial Officer
March 16, 2007	March 16, 2007

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AUDITORS’ REPORT

To the Shareholders of Cameco Corporation

We have audited the consolidated balance sheets of Cameco Corporation as at December 31, 2006 and 2005 and the consolidated statements of earnings, retained earnings and cash flows for each of the years in the three-year period ended December 31, 2006. 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 audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. With respect to the consolidated financial statements for the year ended December 31, 2006, we also conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 December 31, 2006 and 2005 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2006 in accordance with Canadian generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the corporation’s internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 16, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

“KPMG LLP”

Chartered Accountants Saskatoon, Canada

March 16, 2007

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Consolidated Balance Sheets

		note 3(b))
As at December 31	2006	2005
($Cdn thousands)
Assets
Current assets
Cash and cash equivalents	$ 334,089	$	623,193
Accounts receivable	403,280		340,498
Inventories [note 4]	416,479		399,675
Supplies and prepaid expenses	191,831		152,790
Current portion of long-term receivables, investments and other [note 6]	8,745		8,303
	1,354,424		1,524,459
Property, plant and equipment [note 5]	3,312,152		2,871,337
Long-term receivables, investments and other [note 6]	293,714		196,747
Goodwill [note 22]	180,139		180,232
Total assets	$ 5,140,429	$	4,772,775
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable and accrued liabilities	$ 402,806	$	350,398
Dividends payable	14,092		10,487
Current portion of long-term debt [note 7]	7,900		156,699
Current portion of other liabilities [note 9]	30,881		43,725
Future income taxes [note 16]	46,289		73,910
	501,968		635,219
Long-term debt [note 7]	696,691		702,109
Provision for reclamation [note 8]	228,496		167,568
Other liabilities [note 9]	232,370		98,609
Future income taxes [note 16]	339,451		444,942
	1,998,976		2,048,447
Minority interest	400,071		360,697
Shareholders’ equity
Share capital [note 10]	812,769		779,035
Contributed surplus [note 10]	540,173		529,245
Retained earnings	1,428,206		1,108,748
Cumulative translation account [note 11]	(39,766	)	(53,397	)
	2,741,382		2,363,631
Total liabilities and shareholders’ equity	$ 5,140,429	$	4,772,775

Commitments and contingencies [notes 8,24,25]

See accompanying notes to consolidated financial statements.

Approved by the board of directors Original signed by Gerald W. Grandey and Nancy E. Hopkins

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Consolidated Statements of Earnings

		note 3(b))		note 3(b))
For the years ended December 31	2006	2005		2004
($Cdn thousands, except per share amounts)
Revenue from
Products and services	$ 1,831,690	$	1,312,655	$	1,048,487
Expenses
Products and services sold	1,127,772		814,032		623,125
Depreciation, depletion and reclamation	199,665		197,516		180,229
Administration	143,014		110,187		71,844
Exploration	58,152		57,468		35,972
Cigar Lake remediation [note 12]	20,559		—		—
Interest and other [note 13]	(3,708	)	12,103		14,264
Research and development	2,682		2,410		1,911
Gain on sale of assets [note 14]	(51,826	)	(1,739	)	(1,958	)
	1,496,310		1,191,977		925,387
Earnings from operations	335,380		120,678		123,100
Earnings from Bruce Power [note 19]	—		165,775		120,722
Other income (expense) [note 15]	10,046		(13,989	)	133,421
Earnings before income taxes and minority interest	345,426		272,464		377,243
Income tax expense (recovery) [note 16]	(68,843	)	30,257		73,285
Minority interest	38,554		26,738		27,452
Net earnings	$ 375,715	$	215,469	$	276,506
Basic earnings per common share [note 26]	$ 1.07	$	0.62	$	0.81
Diluted earnings per common share [note 26]	$ 1.02	$	0.60	$	0.77

Consolidated Statements of Retained Earnings

		note 3(b))		note 3(b))
For the years ended December 31	2006	2005		2004
($Cdn thousands)
Retained earnings at beginning of year
As previously reported	$ 1,114,693	$	938,809	$	694,423
Change in accounting policy for
stock-based compensation [note
3(b)]	(5,945	)	(3,783	)	(1,504	)
As adjusted	1,108,748		935,026		692,919
Net earnings	375,715		215,469		276,506
Dividends on common shares	(56,257	)	(41,747	)	(34,399	)
Retained earnings at end of year	$ 1,428,206	$	1,108,748	$	935,026

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Cash Flows

		note 3(b))		note 3(b))
For the years ended December 31	2006	2005		2004
(Cdn$ thousands)
Operating activities
Net earnings	$ 375,715	$	215,469	$	276,506
Items not requiring (providing) cash:
Depreciation, depletion and reclamation	199,665		197,516		180,229
Provision for future taxes [note 16]	(184,639	)	(51,723	)	31,058
Deferred revenue recognized	(43,449	)	(25,286	)	(19,085	)
Unrealized losses (gains) on derivatives	10,400		10,513		(7,217	)
Stock-based compensation [note 20]	17,549		16,913		9,485
Gain on sale of assets [note 14]	(51,826	)	(1,739	)	(1,958	)
Cigar Lake remediation [note 12]	15,356		—		—
Earnings from Bruce Power	—		(165,775	)	(120,722	)
Equity in (earnings) loss from
associated companies [note 15]	5,320		(184	)	(990	)
Other expense (income)	—		16,577		(124,050	)
Minority interest	38,554		26,738		27,452
Other operating items [note 17]	35,375		38,517		(22,666	)
Cash provided by operations	418,020		277,536		228,042
Investing activities
Acquisition of businesses, net of cash acquired	(83,856	)	—		(3,717	)
Additions to property, plant and equipment	(459,559	)	(284,929	)	(148,273	)
Restructuring of Bruce Power	—		200,000		—
Net proceeds on sale of investment in Energy Resources Australia Ltd	—		101,956		—
Increase in long-term receivables, investments and other	(29,687	)	(6,077	)	(10,466	)
Proceeds on sale of property, plant and equipment	46,404		10,532		1,769
Cash provided by (used in) investing	(526,698	)	21,482		(160,687	)
Financing activities
Short-term financing	—		(14,544	)	14,544
Decrease in debt	(156,700	)	(167,233	)	(169,083	)
Increase in debt	—		—		100,300
Issue of debentures, net of issue costs	—		297,750		—
Issue of shares	27,058		25,199		41,281
Subsidiary issue of shares	—		—		101,234
Dividends	(52,660	)	(39,970	)	(34,262	)
Cash provided by (used in) financing	(182,302	)	101,202		54,014
Increase (decrease) in cash during the year	(290,980	)	400,220		121,369
Exchange rate changes on foreign currency cash balances	1,876		(9,662	)	(15,906	)
Increase in cash due to accounting change [note 19]	—		43,103		—
Cash at beginning of year	623,193		189,532		84,069
Cash at end of year	$ 334,089	$	623,193	$	189,532
Supplemental cash flow disclosure
Interest paid	$ 53,551	$	26,610	$	35,968
Income taxes paid	$ 115,352	$	48,429	$	18,262

See accompanying notes to consolidated financial statements.

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Notes to Consolidated Financial Statements

For the years ended December 31, 2006, 2005 and 2004

($Cdn thousands except per share amounts and as noted)

1.	Cameco Corporation
	Cameco Corporation is incorporated under the Canada Business Corporations Act. Cameco
Corporation and its subsidiaries (collectively, “Cameco” or “the company”) are primarily engaged
in the exploration for and the development, mining, refining, conversion and fabrication of
uranium for sale as fuel for generating electricity in nuclear power reactors in Canada and
other countries. The company has a 31.6% interest in Bruce Power L.P. (“BPLP”), which operates
the four Bruce B nuclear reactors in Ontario. The company wholly owns Zircatec Precision
Industries, Inc., whose primary business is the fabrication of nuclear fuel bundles. Cameco’s
52.7% subsidiary Centerra Gold Inc. (“Centerra”) is involved in the exploration for and the
development, mining and sale of gold.
2.	Significant Accounting Policies

(a)	Consolidation Principles
	The consolidated financial statements include the accounts of Cameco and its subsidiaries.
Interests in joint ventures are accounted for by the proportionate consolidation method.
Under this method, Cameco includes in its accounts its proportionate share of assets,
liabilities, revenues and expenses.
	The consolidated financial statements are prepared by management in accordance with Canadian
generally accepted accounting principles. Management makes various estimates and assumptions
in determining the reported amounts of assets and liabilities, revenues and expenses for each
year presented, and in the disclosure of commitments and contingencies. The most significant
estimates are related to the lives and recoverability of mineral properties, provisions for
decommissioning and reclamation of assets, future income taxes, financial instruments and
mineral reserves. Actual results could differ from these estimates. This summary of
significant accounting policies is a description of the accounting methods and practices that
have been used in the preparation of these consolidated financial statements and is presented
to assist the reader in interpreting the statements contained herein.
(b)	Cash
	Cash consists of balances with financial institutions and investments in money market
instruments, which have a term to maturity of three months or less at time of purchase.
(c)	Inventories
	Inventories of broken ore, uranium concentrates, refined and converted products and gold are
valued at the lower of average cost and net realizable value. Average cost includes direct
materials, direct labour, operational overhead expenses and depreciation, depletion and
reclamation.
(d)	Supplies
	Consumable supplies and spares are valued at the lower of cost or replacement value.
(e)	Investments
	Investments in associated companies over which Cameco has the ability to exercise significant
influence are accounted for by the equity method. Under this method, Cameco includes in
earnings its share of earnings or losses of the associated company. Portfolio investments
are carried at cost or at cost less amounts written off to reflect a decline in value that is
other than temporary.
(f)	Property, Plant and Equipment
	Assets are carried at cost. Costs of additions and improvements are capitalized. When
assets are retired or sold, the resulting gains or losses are reflected in current earnings.
Maintenance and repair expenditures are charged to cost of production.

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(g)	Non-Producing Properties
	The decision to develop a mine property within a project area is based on an assessment of
the commercial viability of the property, the availability of financing and the existence of
markets for the product. Once the decision to proceed to development is made, development
and other expenditures relating to the project area are deferred and carried at cost with the
intention that these will be depleted by charges against earnings from future mining
operations. No depreciation or depletion is charged against the property until commercial
production commences. After a mine property has been brought into commercial production,
costs of any additional work on that property are expensed as incurred, except for large
development programs, which will be deferred and depleted over the remaining life of the
related assets.
	The carrying values of non-producing properties are periodically assessed by management and
if management determines that the carrying values cannot be recovered, the unrecoverable
amounts are written off against current earnings.
(h)	Property Evaluations
	Cameco reviews the carrying values of its properties when changes in circumstances indicate
that those carrying values may not be recoverable. Estimated future net cash flows are
calculated using estimated recoverable reserves, estimated future commodity prices and the
expected future operating and capital costs. An impairment loss is recognized when the
carrying value of an asset held for use exceeds the sum of undiscounted future net cash
flows. An impairment loss is measured as the amount by which the asset’s carrying amount
exceeds its fair value.
(i)	Goodwill
	Acquisitions are accounted for using the purchase method whereby acquired assets and
liabilities are recorded at fair value as of the date of acquisition. The excess of the
purchase price over such fair value is recorded as goodwill. Goodwill is assigned to assets
and is not amortized.
(j)	Future Income Taxes
	Future income taxes are recognized for the future income tax consequences attributable to
differences between the carrying values of assets and liabilities and their respective income
tax bases. Future income tax assets and liabilities are measured using enacted or
substantively enacted income tax rates expected to apply to taxable income in the years in
which temporary differences are expected to be recovered or settled. The effect on future
income tax assets and liabilities of a change in rates is included in earnings in the period,
which includes the enactment date. Future income tax assets are recorded in the financial
statements if realization is considered more likely than not.
(k)	Capitalization of Interest
	Interest is capitalized on expenditures related to construction or development projects
actively being prepared for their intended use. Capitalization is discontinued when the
asset enters commercial operation or development ceases.
(l)	Depreciation and Depletion
	Conversion services assets, mine buildings, equipment and mineral properties are depreciated
or depleted according to the unit-of-production method. This method allocates the costs of
these assets to each accounting period. For conversion services, the amount of depreciation
is measured by the portion of the facilities’ total estimated lifetime production that is
produced in that period. For mining, the amount of depreciation or depletion is measured by
the portion of the mines’ economically recoverable proven and probable ore reserves which are
recovered during the period.
	Nuclear generating plants are depreciated according to the straight-line method based on the
lower of useful life and remaining lease term.
	Other assets are depreciated according to the straight-line method based on estimated useful
lives, which generally range from three to 10 years.
(m)	Research and Development and Exploration Costs
	Expenditures for research and technology related to the products and processes and
expenditures for geological exploration programs are charged against earnings as incurred.

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(n)	Environmental Protection and Reclamation Costs
	The fair value of the liability for an asset retirement obligation is recognized in the
period incurred. The fair value is added to the carrying amount of the associated asset and
depreciated over the asset’s useful life. The liability is accreted over time through
periodic charges to earnings and it is reduced by actual costs of decommissioning and
reclamation. Cameco’s estimates of reclamation costs could change as a result of changes in
regulatory requirements and cost estimates. Expenditures relating to ongoing environmental
programs are charged against earnings as incurred.
(o)	Employee Future Benefits
	Cameco accrues its obligations under employee benefit plans. The cost of pensions and other
retirement benefits earned by employees is actuarially determined using the projected benefit
method pro-rated on service and management’s best estimate of expected plan investment
performance, salary escalation, retirement ages of employees and expected health care costs.
For the purpose of calculating the expected return on plan assets, those assets are measured
at fair value. Cameco measures the plan assets and the accrued benefit obligations on
December 31 each year.
	On both the Cameco-specific and BPLP-specific defined benefit pension plans, past service
costs arising from plan amendments are amortized on a straight-line basis over the expected
average remaining service life of the plan participants. Net actuarial gains, which exceed
10% of the greater of the accrued benefit obligation and the fair value of plan assets, are
amortized on a straight-line basis over the expected average remaining service life of the
plan participants.
	On the Cameco-specific retirement benefit plans that do not vest or accumulate, past service
costs arising from plan amendments, and net actuarial gains and losses, are recognized in the
period they arise. Conversely, the BPLP-specific amounts are amortized on a straight-line
basis over the expected average remaining service life of the plan participants.
(p)	Stock-Based Compensation
	Cameco has four stock-based compensation plans that are described in note 20. These
encompass a stock option plan, a performance share unit plan, a deferred share unit plan and
a phantom stock option plan.
	Options granted under the stock option plan on or after January 1, 2003 are accounted for
using the fair value method. Under this method, the compensation cost of options granted is
measured at estimated fair value at the grant date and recognized over the shorter of, the
period to eligible retirement, or the vesting period. For options granted prior to January
1, 2003, no compensation expense was recognized when the stock options were granted. Any
consideration received on exercise of stock options is credited to share capital.
	Deferred share units, performance share units and phantom stock options are amortized over
their vesting periods and re-measured at each reporting period, until settlement, using the
quoted market value.
(q)	Revenue Recognition
	Cameco supplies uranium concentrates and uranium conversion services to utility customers.
	Cameco recognizes revenue on the sale of its nuclear products when persuasive evidence of an
arrangement exists, delivery occurs, the related revenue is fixed or determinable and
collection is reasonably assured.
	Cameco has three types of sales arrangements with its customers in its uranium and fuel
services businesses. These arrangements include uranium supply, toll conversion services and
conversion supply (converted uranium), which is a combination of uranium supply and toll
conversion services.
	Uranium Supply
	In a uranium supply arrangement, Cameco is contractually obligated to provide uranium
concentrates to its customers. Cameco-owned uranium is physically delivered to conversion
facilities (“Converters”) where the Converter will credit Cameco’s account for the volume of
accepted uranium. Based on delivery terms in a sales contract with its customer, Cameco
instructs the Converter to transfer title of a contractually-specified quantity of uranium to
the customer’s account at the Converter’s facility. At this point, Cameco invoices the
customer and recognizes revenue for the uranium supply.

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	Toll Conversion Services
	In a toll conversion arrangement, Cameco is contractually obligated to convert customer-owned
uranium to a chemical state suitable for enrichment. The customer delivers uranium to
Cameco’s conversion facilities. Once conversion is complete, Cameco physically delivers
converted uranium to enrichment facilities (“Enrichers”) where the Enricher will credit
Cameco’s account for the volume of accepted processed uranium. Based on delivery terms in a
sales contract with its customer, Cameco instructs the Enricher to transfer title of a
contractually-specified quantity of converted uranium to the customer’s account at the
Enricher’s facility. At this point, Cameco invoices the customer and recognizes revenue for
the toll conversion services.
	Conversion Supply
	In a conversion supply arrangement, Cameco is contractually obligated to provide uranium
concentrates and conversion services to its customers. Cameco-owned uranium is converted and
physically delivered to an Enricher as described in the toll conversion services arrangement.
Based on delivery terms in a sales contract with its customer, Cameco instructs the Enricher
to transfer title of a contractually-specified quantity of converted uranium to the
customer’s account at the Enricher’s facility. At this point, Cameco invoices the customer
and recognizes revenue for both the uranium supplied and the conversion service provided. It
is rare for Cameco to enter into back-to-back arrangements for uranium supply and toll
conversion services. However, in the event that a customer requires such an arrangement,
revenue from uranium supply is deferred until the toll conversion service has been rendered.
	Revenue from deliveries to counterparties with whom Cameco has arranged a standby
product loan facility (up to the limit of the loan facilities) and the related cost of sales
are deferred until the loan arrangements have been terminated, or if drawn upon, when the
loans are repaid and that portion of the facility is terminated.
	Cameco records revenue on the sale of gold when title passes and delivery is effected.
	Electricity sales are recognized at the time of generation, and delivery to the purchasing
utility is metered at the point of interconnection with the transmission system. Revenues are
recognized on an accrual basis, which includes an estimate of the value of electricity
produced during the period but not yet billed.
(r)	Amortization of Financing Costs
	Debt discounts and issue expenses associated with long-term financing are deferred and
amortized over the term of the issues to which they relate.
(s)	Foreign Currency Translation
	Monetary assets and liabilities denominated in foreign currencies are translated into
Canadian dollars at year-end rates of exchange. Revenue and expense transactions denominated
in foreign currencies are translated into Canadian dollars at rates in effect at the time of
the transactions. The applicable exchange gains and losses arising on these transactions are
reflected in earnings.
	The United States dollar is considered the functional currency of most of Cameco’s uranium
and gold operations outside of Canada. The financial statements of these operations are
translated into Canadian dollars using the current rate method whereby all assets and
liabilities are translated at the year-end rate of exchange and all revenue and expense items
are translated at the average rate of exchange prevailing during the year. Exchange gains
and losses arising from this translation, representing the net unrealized foreign currency
translation gain (loss) on Cameco’s net investment in these foreign operations, are recorded
in the cumulative translation account component of shareholders’ equity. Exchange gains or
losses arising from the translation of foreign debt and preferred securities designated as
hedges of a net investment in foreign operations are also recorded in the cumulative
translation account component of shareholders’ equity. These adjustments are not included in
earnings until realized through a reduction in Cameco’s net investment in such operations.

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(t)	Derivative Financial Instruments and Hedging Transactions
	Cameco uses derivative financial and commodity instruments to reduce exposure to fluctuations
in foreign currency exchange rates, interest rates and commodity prices. Cameco 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. Cameco 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. Gains and losses related to hedging items are deferred and recognized in the
same period as the corresponding hedged items. If derivative financial instruments are
closed before planned delivery, gains or losses are recorded as deferred gains or deferred
charges and recognized on the planned delivery date. In the event a hedged item is sold,
extinguished or matures prior to the termination of the related hedging instrument, any
realized or unrealized gain or loss on such derivative instrument is recognized in earnings.
	BPLP uses various energy and related sales contracts to reduce exposure to fluctuations in
the price of electricity in Ontario. Gains or losses on hedging instruments are recognized
in earnings over the term of the contract when the underlying hedged transactions occur. All
energy contracts are designated as hedges of BPLP’s electricity sales.
(u)	Earnings Per Share
	Earnings per share are calculated using the weighted average number of paid common shares
outstanding.
	The calculation of diluted earnings per share assumes that outstanding options and warrants
are exercised and the proceeds are used to repurchase shares of the company at the average
market price of the shares for the period. The effect is to increase the number of shares
used to calculate diluted earnings per share.

1. New Accounting Pronouncements

| (a) |
| --- |
| In January 2005, the CICA issued three new standards: “Financial Instruments – Recognition
and Measurement”, “Hedges” and “Comprehensive Income”. The main consequences of implementing
these standards are described below. |
| All financial assets and liabilities will be carried at fair value in the Consolidated
Balance Sheets, except for items classified in the following categories, which will be
carried at amortized cost: loans and receivables, held-to-maturity securities and financial
liabilities not held for trading. Realized and unrealized gains and losses on financial
assets and liabilities that are held for trading will be recorded in the Consolidated
Statements of Earnings. Unrealized gains and losses on financial assets that are available
for sale will be reported in other comprehensive income until realized, at which time they
will be recorded in the Consolidated Statements of Earnings. All derivatives, including
embedded derivatives that must be accounted for separately, will be recorded at fair value in
the Consolidated Balance Sheets. |
| For fair value hedges, changes in the fair value of the derivatives and corresponding changes
in fair value of the hedged items attributed to the risk being hedged will be recognized in
the Consolidated Statements of Earnings. For cash flow hedges, the effective portion of the
changes in the fair values of the derivative instruments will be recorded in other
comprehensive income until the hedged items are recognized in the Consolidated Statements of
Earnings. |
| Other comprehensive income, which comprises the above items as well as unrealized exchange
gains and losses on self-sustaining foreign operations (net of hedging activities), will be
included as a separate component of the new statement entitled “Statement of Shareholders’
Equity” that will be added to the consolidated financial statements. |
| These new standards will apply to Cameco effective January 1, 2007. As at January 1, 2007,
Cameco will recognize all of its financial assets and liabilities in the Consolidated Balance
Sheets according to their classification. Any adjustment made to a previous carrying amount
will be recognized as an adjustment to the balance of retained earnings at that date or as
the opening balance of a separate item in accumulated other comprehensive income net of
taxes. Cameco is completing its assessment of the impact these new standards will have on
its consolidated financial statements. |

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| (b) |
| --- |
| In July 2006, the Emerging Issues Committee (“EIC”) issued abstract No. 162, Stock-Based
Compensation for Employees Eligible to Retire Before the Vesting Date. This EIC clarifies
that the compensation cost attributable to options and awards, granted to employees who are
eligible to retire or will become eligible to retire during the vesting period, should be
recognized immediately if the employee is eligible to retire on the grant date or over the
period between the grant date to the date the employee becomes eligible to retire. This EIC
requires retroactive application to all stock-based compensation awards accounted for in
accordance with the CICA Handbook Section 3870, Stock-Based Compensation and Other
Stock-Based Payments. This differs from the current practice that recognizes the expense over
the period from the grant date to the vesting date. |
| The cumulative effect of the change in policy on the balance sheet at December 31, 2005 is to
increase contributed surplus by $5,945,000, and decrease retained earnings by $5,945,000. The
effect of the change in policy on the statement of earnings for the year ended December 31,
2005 was a $2,162,000 (2004 — $2,279,000) reduction in earnings (2005 — $0.01 per share; 2004
— $0.01 per share). The impact on 2006 financial results was negligible. |

1. Inventories

	2006	2005
Uranium
Concentrate	$ 280,650	$ 292,099
Broken ore	12,946	9,661
	293,596	301,760
Fuel Services	98,485	63,492
Gold
Finished	5,513	14,311
Broken ore	18,885	20,112
	24,398	34,423
Total	$ 416,479	$ 399,675

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1. Property, Plant and Equipment

		Accumulated — Depreciation	2006	2005
	Cost	and Depletion	Net	Net
Uranium
Mining	$ 2,818,849	$ 1,485,452	$ 1,333,397	$ 1,329,971
Non-producing	748,442	—	748,442	577,181
Fuel Services	497,118	176,334	320,784	131,657
Electricity
Assets under capital lease	164,300	52,400	111,900	121,200
Other	514,521	114,518	400,003	399,245
Gold
Mining	912,948	559,071	353,877	277,485
Non-producing	2,876	—	2,876	2,877
Other	65,567	24,694	40,873	31,721
Total	$ 5,724,621	$ 2,412,469	$ 3,312,152	$ 2,871,337

1. Long-Term Receivables, Investments and Other

	2006
BPLP [note 19]
Capital lease receivable from Bruce A L.P.	$ 97,518	$	97,454
Receivable from Ontario Power Generation (“OPG”)	11,281		19,181
Accrued pension benefit asset [note 21]	11,992		18,119
Kumtor Gold Company (“KGC”)
Reclamation trust fund	6,999		5,087
Investments in associated companies
Investment in UNOR Inc. (market value $14,452)	8,893		—
Investment in UEX Corporation (market
value $219,548)	19,151		11,303
Deferred charges
Cost of sales [notes 9, 2(q)]	75,854		—
Debt issue costs	7,372		8,538
Gold hedges	593		3,291
Investment in Huron Wind L.P.	2,340		2,527
Advances receivable	46,094		21,928
Accrued pension benefit asset [note 21]	7,889		9,689
Other	6,483		7,933
	302,459		205,050
Less current portion	(8,745	)	(8,303	)
Net	$ 293,714	$	196,747

BPLP leases the Bruce A nuclear generating plants and other property, plant and equipment to Bruce A L.P under a sublease agreement. Future minimum base rent sublease payments under the capital lease receivable are imputed using a 7.5% discount rate.

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1. Long-Term Debt

Convertible debentures	2006 — $ 207,091	$	204,577
Debentures	300,000		450,000
Capital lease obligation — BPLP [note 19]	197,500		204,231
	704,591		858,808
Less current portion	(7,900	)	(156,699	)
Net	$ 696,691	$	702,109

On September 25, 2003 the company issued unsecured convertible debentures in the amount of $230,000,000. The debentures bear interest at 5% per annum, mature on October 1, 2013, and at the holder’s option are convertible into common shares of Cameco. The fair value of the conversion option associated with the convertible debentures on the date of issuance was $30,473,000, resulting in an effective interest rate of 6.85%. The amount is reflected as contributed surplus. The conversion price is $10.83 per share, a rate of approximately 92.3 common shares per $1,000 of convertible debentures. Interest is payable semi-annually in arrears on April 1 and October 1. The debentures are redeemable by the company beginning October 1, 2008 at a redemption price of par plus accrued and unpaid interest.

The fair value of the outstanding convertible debentures is based on the quoted market price of the debentures at December 31, 2006 and was approximately $957,000,000.

Cameco has $300,000,000 outstanding in senior unsecured debentures (Series C). These debentures bear interest at a rate of 4.7% per annum and mature September 16, 2015. Cameco had $100,000,000 outstanding in senior unsecured debentures (Series A) that bore interest at a rate of 6.9% per annum and were to mature July 12, 2006. Cameco also had $50,000,000 outstanding in senior unsecured debentures (Series B) that bore interest at a rate of 7.0% per annum and were to mature July 6, 2006. On January 17, 2006, Cameco redeemed in full the Series A and B debentures. The redemption prices under the trust indenture were based on the yield for a Government of Canada bond with the equivalent term to maturity plus 25 basis points for the Series A debentures and 34 basis points for the Series B debentures. The total redemption price was $152,104,000 plus accrued and unpaid interest.

Cameco has a $500,000,000 unsecured revolving credit facility that is available until November 30, 2011. Cameco may also borrow directly in the commercial paper market. These amounts, when drawn, are classified as long-term debt.

Cameco has $597,080,000 ($169,320,000 (Cdn) and $367,081,000 (US)) in letter of credit facilities. The majority of the outstanding letters of credit at December 31, 2006 relate to future decommissioning and reclamation liabilities [note 8] and amounted to $213,069,000 ($137,236,000 (Cdn) and $65,076,000 (US)) (2005 — $206,647,000 ($133,522,000 (Cdn) and $62,720,000 (US))). At December 31, 2006 there were no amounts outstanding under the $300,000,000 (US) letter of credit facility that related to the standby product loan facilities.

BPLP holds a long-term lease with OPG to operate the Bruce nuclear power facility. The term of the lease, which expires in 2018, is 18 years with an option to extend the lease for up to an additional 25 years.

BPLP has a $150,000,000 revolving credit facility that is available until July 21, 2008 as well as a $30,000,000 letter of credit facility. As at December 31, 2006, BPLP did not have any amount outstanding under these facilities.

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The table below represents currently scheduled maturities of long-term debt over the next five years.

2007	$
2008	8,848
2009	10,112
2010	11,692
2011	13,272
Thereafter	652,767
Total	$ 704,591

Standby Product Loan Facilities

Cameco has arranged for standby product loan facilities with two Cameco customers. The arrangements, which were finalized in 2006, allow Cameco to borrow up to 5,560,000 pounds U 3 O 8 equivalent over the period 2006 to 2008 with repayment in 2008 and 2009. Of this material, up to 1,400,000 kilograms of uranium can be borrowed in the form of UF 6 . Under the loan facilities, standby fees of 0.5% to 2.25% are payable based on the market value of the facilities, and interest is payable on the market value of any amounts drawn at rates ranging from 4.0% to 5.0%. Any borrowings will be secured by letters of credit and are payable in kind.

The market value of the available facilities is based on the quoted market price of the products at December 31, 2006 and was approximately $416,000,000 (US). As at December 31, 2006, the company did not have any loan amounts outstanding under the facilities.

| 8. |
| --- |
| Cameco’s estimates of future asset retirement obligations are based on reclamation standards
that satisfy regulatory requirements. Elements of uncertainty in estimating these amounts
include potential changes in regulatory requirements, decommissioning and reclamation
alternatives and amounts to be recovered from other parties. |
| Cameco estimates total future decommissioning and reclamation costs for its operating assets to
be $312,600,000. These estimates are reviewed by Cameco technical personnel as required by
regulatory agencies or more frequently as circumstances warrant. In connection with future
decommissioning and reclamation costs, Cameco has provided financial assurances of $209,500,000
in the form of letters of credit to satisfy current regulatory requirements. |
| Following is a reconciliation of the total liability for asset retirement obligations: |

Balance, beginning of year	2006 — $ 167,568	$	166,941	$	150,444
Acquisition of Zircatec interest [note 23]	7,129		—		—
Additions to liabilities	50,299		579		2,074
Liabilities settled	(6,420	)	(6,938	)	(4,357	)
Accretion expense	9,954		9,017		9,246
Impact of foreign exchange	(34	)	(2,031	)	(5,318	)
Acquisition of Kumtor interest	—		—		14,852
Balance, end of year	$ 228,496	$	167,568	$	166,941

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Following is a summary of the key assumptions on which the carrying amount of the asset retirement obligations is based:

(i)	Total undiscounted amount of the estimated cash flows — $312,600,000.
(ii)	Expected timing of payment of the cash flows — timing is based on life of mine plans.
The majority of expenditures are expected to occur after 2013.
(iii)	Discount rates – 5.25% to 7.50% for operations in North America; 8.00% for operations
in Kyrgyzstan; 8.50% for operations in Mongolia.

The asset retirement obligations liability is comprised of:

	2006	2005
Uranium	$ 118,272	$ 101,573
Fuel Services	90,789	44,923
Gold	19,435	21,072
Total	$ 228,496	$ 167,568

Under the BPLP lease agreement, OPG, as the owner of the Bruce nuclear plants, is responsible to decommission the Bruce facility and to provide funding and meet other requirements that the Canadian Nuclear Safety Commission (“CNSC”) may require of BPLP as licensed operator of the Bruce facility. OPG is also responsible to manage radioactive waste associated with decommissioning of the Bruce nuclear plants.

1. Other Liabilities

Deferred sales [notes 6, 2(q)]	2006 — $ 107,330	$	—
Deferred currency hedges	26,333		26,171
Accrued post-retirement benefit liability [note 21]	12,166		7,403
Zircatec acquisition holdback [note 23]	20,000		—
BPLP
Accrued post-retirement benefit liability [note 21]	86,856		78,149
Deferred revenue — electricity contracts	856		16,047
Other	9,710		14,564
	263,251		142,334
Less current portion	(30,881	)	(43,725	)
Net	$ 232,370	$	98,609

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10.
Authorized share capital:

Unlimited number of first preferred shares Unlimited number of second preferred shares Unlimited number of voting common shares, and One Class B share

(a) Common Shares

Number Issued (Number of Shares) — Beginning of year	349,570,048	346,080,138	340,616,538
Issued:
Debenture conversions	5,905	16,150	—
Stock option plan [note 20]	2,716,679	3,473,760	5,463,600
Issued share capital	352,292,632	349,570,048	346,080,138

Amount — Beginning of year	2006 — $ 779,420	$	751,145	$	711,063
Issued:
Debenture conversions	64		175		—
Stock option plan [note 20]	33,361		28,100		40,082
Issued share capital	812,845		779,420		751,145
Less loans receivable	(76	)	(385	)	(586	)
End of year	$ 812,769	$	779,035	$	750,559

(b)	Class B Share
	One Class B share issued during 1988 and assigned $1 of share capital, entitles the
shareholder to vote separately as a class in respect of any proposal to locate the head
office of Cameco to a place not in the province of Saskatchewan.
(c)	Contributed Surplus

		note 3(b))
	2006	2005
Beginning of year
As previously reported	$ 523,300	$	511,674
Change in accounting policy for stock-based compensation [note 3]	5,945		3,783
As adjusted	$ 529,245	$	515,457
Stock-based compensation [note 20]	17,549		16,913
Options exercised [note 20]	(6,612	)	(3,102	)
Debenture conversions	(9	)	(23	)
End of year	$ 540,173	$	529,245

11.
The balance represents the cumulative unrealized net exchange loss on Cameco’s net investments
in foreign operations and any foreign currency debt designated as hedges of the net investments.

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12.	Cigar Lake Remediation
	As a result of the water inflow at Cigar Lake, Cameco recorded an expense of $20,559,000. Of
the amount recorded, $15,356,000 related to the write-down of assets while $5,203,000 related to
remediation efforts. Future costs associated with the remediation will be expensed as incurred.
	On March 16, 2007, the board of directors approved a new plan for the remediation and continued
development of the Cigar Lake uranium project. Cameco’s share of additional development costs is
estimated to be $274 million, bringing the total construction costs to develop the project to
$508 million. In addition, Cameco expects to incur remediation expenses of $32 million in 2007
and $9 million in 2008. The new plan is subject to the approval of the partners of the Cigar
Lake Joint Venture.
13.	Interest and Other

Interest on long-term debt	2006 — $ 43,223		2005 — $ 35,388	$	40,014
Redemption of preferred securities	—		—		6,817
Other interest and financing charges	4,642		1,600		3,870
Foreign exchange losses	1,413		3,719		331
(Gains) losses on derivatives	10,400		7,754		(7,217	)
Interest income	(32,348	)	(10,517	)	(4,819	)
Capitalized interest	(31,038	)	(25,841	)	(24,732	)
Net	$ (3,708	)	$ 12,103	$	14,264

1. Gain on Sale of Assets

Interest in Fort a la Corne Joint Venture	2006 — $ (44,782	)	2005 — $ —		2004 — $ —
Voting rights in Fort a la Corne Joint Venture	(5,889	)	(161	)	—
Other	(1,155	)	(1,578	)	(1,958	)
Net	$ (51,826	)	$ (1,739	)	$ (1,958	)

1. Other Income (Expense)

Insurance settlement (Kumtor)	2006 — $ 15,366	$	—		2004 — $ —
Equity in earnings (loss) of associated companies	(5,320	)	184		990
Sale of investment in Energy Resources Australia Ltd	—		83,673		—
Dividends on portfolio investments	—		2,022		1,383
Writedown of portfolio investments	—		(6,323	)	—
Restructuring of Bruce Power	—		(93,545	)	—
Restructuring of gold business	—		—		122,946
South Texas Project break fee	—		—		8,102
Net	$ 10,046	$	(13,989	)	$ 133,421

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16.
The significant components of future income tax assets and liabilities at December 31 are as
follows:

	2006
Assets
Property, plant and equipment	$ 173,774	$	129,823
Provision for reclamation	65,234		53,901
Foreign exploration and development	31,144		33,618
Other	37,031		53,691
Future income tax assets before valuation allowance	307,183		271,033
Valuation allowance	(128,771	)	(112,519	)
Future income tax assets, net of valuation allowance	$ 178,412	$	158,514
Liabilities
Property, plant and equipment	$ 502,579	$	571,585
Inventories	18,935		12,100
Long-term investments and other	42,638		93,681
Future income tax liabilities	$ 564,152	$	677,366
Net future income tax liabilities	$ 385,740	$	518,852
Less current portion	(46,289	)	(73,910	)
	$ 339,451	$	444,942

The provision for income taxes differs from the amount computed by applying the combined expected federal and provincial income tax rate to earnings before income taxes. The reasons for these differences are as follows:

			(as adjusted -
			note 3(b))	note 3(b))
	2006		2005	2004
Earnings before income taxes and minority interest	$ 345,426		$ 272,464	$	377,243
Combined federal and provincial tax rate	39.3	%	42.4	%	43.5	%
Computed income tax expense	135,752		115,525		164,101
Increase (decrease) in taxes resulting from:
Reduction in income tax rates	(66,749	)	—		—
Provincial royalties and other taxes	1,092		3,079		5,541
Federal resource allowance	(6,617	)	(8,181	)	2,251
Manufacturing and processing deduction	(5,719	)	(1,321	)	(7,439	)
Difference between Canadian rate and rates
applicable to subsidiaries in other countries	(133,988	)	(91,049	)	(61,398	)
Non-taxable portion of capital gain	—		(10,300	)	(28,448	)
Change in valuation allowance	19,126		17,019		(11,185	)
Capital and other taxes	2,296		8,602		5,780
Stock-based compensation plans	6,700		7,037		4,119
Recovery of taxes due to amendment of tax treatment	(16,950	)	(10,342	)	—
Other tax deductions	(3,786	)	188		(37	)
Income tax expense (recovery)	$ (68,843	)	$ 30,257	$	73,285

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During 2006, the federal and provincial governments enacted amendments to current tax legislation, which provided for a reduction in corporate tax rates. The cumulative effect of the change in income tax legislation on Cameco’s future income tax liability was a reduction of $73,000,000.

In addition, confirmation was received with respect to deductibility of the Saskatchewan provincial resource surcharge for years prior to 2001. As a result, a $16,950,000 reduction of future taxes was recorded.

	2006		2005		2004
Earnings before income taxes and minority interest
Canada	$ (17,703	)	$ (94,978	)	$ 202,518
Foreign	363,129		367,442		174,725
	$ 345,426		$ 272,464		$ 377,243
Current income taxes
Canada	$ 91,730		$ 53,719		$ 34,486
Foreign	24,066		28,261		7,741
	$ 115,796		$ 81,980		$ 42,227
Future income taxes (recovery)
Canada	$ (167,189	)	$ (56,923	)	$ 38,153
Foreign	(17,450	)	5,200		(7,095	)
	$ (184,639	)	$ (51,723	)	$ 31,058
Income tax expense (recovery)	$ (68,843	)	$ 30,257		$ 73,285

1. Statements of Cash Flows Other Operating Items

	2006				2004
Changes in non-cash working capital:
Accounts receivable	$ 36,180	$	(78,552	)	$ 4,660
Inventories	(63,623	)	(21,079	)	(51,913	)
Supplies and prepaid expenses	(38,393	)	(22,282	)	(16,629	)
Accounts payable and accrued liabilities	58,258		44,381		39,083
Hedge position settlements	32,113		43,571		3,634
Bruce Power distributions	—		83,740		—
Other	10,840		(11,262	)	(1,501	)
Total	$ 35,375	$	38,517		$ (22,666	)

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18.
Cameco conducts a portion of its exploration, development, mining and milling activities through
joint ventures. Cameco’s significant uranium joint venture interests are comprised of:

Producing:
McArthur River	69.81 %
Key Lake	83.33 %
Non-producing:
Cigar Lake	50.03 %
Inkai	60.00 %

| | Uranium joint ventures allocate uranium production to each joint venture participant and the
joint venture participant derives revenue directly from the sale of such product. Mining and
milling expenses incurred by the joint venture are included in the cost of inventory. At
December 31, 2006, Cameco’s share of property, plant and equipment in these joint ventures
amounted to $1,862,000,000 (2005 — $1,714,000,000) [note 5]. |
| --- | --- |
| | Cameco previously accounted for its investment in BPLP using the equity method. As a result of
the restructuring of the partnership agreement, which provides for joint control among the three
major partners, Cameco began accounting for this investment as a joint venture effective
November 1, 2005 [note 19]. |
| 19. | Investment in BPLP |

(a)	Restructuring
	On October 31, 2005, a new Bruce A limited partnership was formed to hold the lease for the
four Bruce A reactors. Cameco was not part of this new partnership but it has maintained its
existing 31.6% interest in BPLP, which retained ownership of the four Bruce B reactors. BPLP
received an initial payment for the assets transferred to the Bruce A partnership which
resulted in a special distribution to the partners. Cameco’s share of the special
distribution was $200,000,000. The reorganization involving Bruce A triggered a loss of
about $62,000,000 (Cameco’s share after tax) and resulted in amendments to the existing
partnership agreement. These amendments led to joint control among the three major partners.
As a result, effective November 1, 2005, Cameco has proportionately consolidated its 31.6%
interest. Prior to November 1, 2005, Cameco was using the equity method to account for this
investment.
(b)	Fuel Supply Agreements
	Cameco has entered into fuel supply agreements with BPLP for the procurement of fabricated
fuel. Under these agreements, Cameco will supply uranium and conversion services and finance
the purchase of fabrication services. Contract terms are at market rates and on normal trade
terms. During 2006, sales of uranium and conversion services to BPLP amounted to $41,650,000
(2005 — $22,017,000), approximately 2.3% (2005 — 1.7%) of Cameco’s total revenue. At December
31, 2006, amounts receivable under these agreements totalled $15,055,000 (2005 —
$26,666,000).
(c)	Supplementary Information
	Since November 1, 2005, Cameco has proportionately consolidated its share of BPLP. For 2005,
$114,000,000 of earnings before taxes was accounted for under the equity method. The
following tables represent Cameco’s proportionate share of BPLP.

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Balance Sheets

(Millions)	2006	2005
Current assets	$ 129	$ 133
Property, plant and equipment	417	415
Long-term receivables and investments	131	144
	$ 677	$ 692
Current liabilities	$ 100	$ 98
Long-term liabilities	358	354
	458	452
Equity	219	240
	$ 677	$ 692

Statements of Earnings

(Millions)	2006	2005	2004
Revenue	$ 393	$ 565	$ 494
Operating costs	256	380	366
Earnings before interest and taxes	137	185	128
Interest	14	21	21
Loss on restructuring	—	47	—
Earnings before taxes	$ 123	$ 117	$ 107

Statements of Cash Flows

(Millions) — Cash provided by operations	2006 — $ 163	$	244	$	140
Cash provided by (used in) investing	(38	)	103		(114	)
Cash used in financing	(143	)	(328	)	(33	)

| 20. |
| --- |
| Stock Option Plan |
| Cameco has established a stock option plan under which options to purchase common shares may be
granted to directors, officers and other employees of Cameco. Options granted under the stock
option plan have an exercise price of not less than the closing price quoted on the TSX for the
common shares of Cameco on the trading day prior to the date on which the option is granted.
The options vest over three years and expire eight years from the date granted. Options granted
prior to 1999 expire 10 years from the date of the grant of the option. Options have not been
awarded to directors since 2003. |

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| Prior to 1999, participants were eligible to receive loans from Cameco to assist in the purchase
of common shares pursuant to the exercise of options. The maximum term of the loans was 10
years from the date of the grant of the related option. The loans bear interest at a rate
equivalent to the regular dividends paid on the common shares to which the loans were provided.
Common shares purchased by way of a company loan are held in escrow in the account of the option
holder and are pledged as security for the respective loan until the loan has been repaid in
full. Outstanding loans are shown as a reduction of share capital [note 10]. |
| --- |
| The aggregate number of common shares that may be issued pursuant to the Cameco stock option
plan shall not exceed 43,017,198, of which 22,329,713 shares have been issued. |
| Stock option transactions for the respective years were as follows: |

(Number of Options) — Beginning of year	8,723,170		9,737,340		12,240,000
Options granted	1,537,330		2,631,180		4,170,000
Options exercised [note 10]	(2,716,679	)	(3,473,760	)	(5,463,600	)
Options cancelled	(153,768	)	(171,590	)	(1,209,060	)
End of year	7,390,053		8,723,170		9,737,340
Exercisable	3,088,841		2,859,318		3,253,800

| Upon exercise of certain existing options, additional options in respect of 55,000 shares
would be granted. |
| --- |
| Weighted average exercise prices were as follows: |

	2006	2005	2004
Beginning of year	$ 13.29	$ 7.64	$ 6.71
Options granted	41.04	27.11	11.42
Options exercised	9.84	7.16	7.20
Options cancelled	32.92	28.79	13.17
End of year	$ 19.92	$ 13.29	$ 7.64
Exercisable	$ 10.46	$ 6.93	$ 6.27

Total options outstanding and exercisable at December 31, 2006 were as follows:

2006		Options Outstanding — Weighted	Weighted	Options Exercisable	Weighted
		Average	Average		Average
		Remaining	Exercisable		Exercisable
Option Price Per Share	Number	Life	Price	Number	Price
$ 3.13 - 4.81	228,200	2	$ 4.23	228,200	$ 4.23
4.82 - 10.51	3,622,280	5	8.43	2,388,296	7.78
10.52 - 41.00	3,539,573	8	32.69	472,345	27.04
	7,390,053			3,088,841

The foregoing options have expiry dates ranging from March 3, 2007 to December 8, 2015.

Folio 22 /Folio

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| CICA Handbook Section 3870, Stock-based Compensation and Other Stock-based Payments, establishes
a fair value based method of accounting for stock-based compensation plans which Cameco has
adopted effective January 1, 2003. |
| --- |
| For the year ended December 31, 2006, Cameco has recorded compensation expense of $17,549,000
(2005 — $16,913,000; 2004 — $9,485,000) with an offsetting credit to contributed surplus to
reflect the estimated fair value of stock options granted to employees. |
| The fair value of the options issued was determined using the Black-Scholes option-pricing model
with the following assumptions: |

	2006	2005	2004
Number of options granted	1,537,330	2,631,180	4,170,000
Average strike price	$ 41.04	$ 27.11	$ 11.42
Expected dividend	$ 0.16	$ 0.12	$ 0.10
Expected volatility	35 %	34 %	37 %
Risk-free interest rate	4.0 %	3.5 %	3.3 %
Expected life of option	4 years	4 years	4 years
Expected forfeitures	15 %	15 %	15 %
Weighted average grant date fair values	$ 13.19	$ 8.36	$ 3.39

| Executive Performance Share Unit (PSU), Deferred Share
Unit (DSU), and Other Plans |
| --- |
| Commencing in 2005, Cameco provides each planned participant an annual grant of PSUs in an
amount determined by the board. Each PSU represents one phantom common share that entitles the
participant to a payment of one Cameco common share purchased on the open market, or cash at the
board’s discretion, at the end of each three-year period if certain performance and vesting
criteria have been met. The final value of the PSUs will be based on the value of Cameco common
shares at the end of the three-year period and the number of PSUs that ultimately vest. Vesting
of PSUs at the end of the three-year period will be based on total shareholder return over the
three years, Cameco’s ability to meet its annual cash flow from operations targets and whether
the participating executive remains employed by Cameco at the end of the three-year vesting
period. As of December 31, 2006, the total PSUs held by the participants was 292,150 (2005 -
196,200). |
| Cameco offers a deferred share unit plan to non-employee directors. A DSU is a notional unit
that reflects the market value of a single common share of Cameco. In 2006, 60% of each
director’s annual retainer was paid in DSUs. In addition, on an annual basis directors can
elect to receive the remaining 40% of their annual retainer and any additional fees in the form
of DSUs. Each DSU fully vests upon award. The DSUs will be redeemed for cash upon a director
leaving the board. The redemption amount will be based upon the weighted average of the closing
prices of the common shares of Cameco on the TSX for the last 20 trading days prior to the
redemption date multiplied by the number of DSUs held by the director. As of December 31, 2006,
the total DSUs held by participating directors was 299,928 (2005 — 281,766). |
| Cameco makes annual grants of bonuses to eligible non-North American employees in the form of
phantom stock options. Employees receive the equivalent value of shares in cash when exercised.
Options granted under the phantom stock option plan have an award value equal to the closing
price quoted on the TSX for the common shares of Cameco on the trading day prior to the date on
which the option is granted. The options vest over three years and expire eight years from the
date granted. As of December 31, 2006, the number of options held by participating employees
was 383,181 (2005 — 443,760) with exercise prices ranging from $4.81 to $41.00 per share (2005 -
$4.81 to $27.04) and a weighted average exercise price of $18.63 (2005 — $12.12). |

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Cameco has recognized the following amounts for these plans:

	2006	2005	2004
Performance share units	$ 4,884	$ 2,011	$ —
Deferred share units	3,206	4,089	1,896
Phantom stock options	5,212	8,537	4,376

| 21. |
| --- |
| Cameco maintains both defined benefit and defined contribution plans providing pension and
post-retirement benefits to substantially all of its employees. |
| Under the defined pension benefit plans, Cameco provides benefits to retirees based on their
length of service and final average earnings. The non-pension post-retirement plan covers such
benefits as group life and supplemental health insurance, to eligible employees and their
dependents. The costs related to the non-pension post-retirement plans are charged to earnings
in the period during which the employment services are rendered. However, these future
obligations are not funded. |
| The effective date for the most recent valuations for funding purposes on the pension benefit
plans is January 1, 2006. The next planned effective date for valuation for funding purposes of
the pension benefit plans is set to be January 1, 2009. The status of the defined plans is as
follows: |

(a) Accrued Benefit Obligation

	Pension Benefit Plans — 2006	2005		2006		2005
Balance at beginning of year	$ 15,926	$	16,478	$	7,403	$	4,460
Current service cost	1,028		803		487		226
Interest cost	872		849		544		271
Actuarial loss	6,056		—		395		2,364
Plan amendments	—		—		588		258
Acquisition of Zircatec interest [note 23]	—		—		3,116		—
Benefits paid	(611	)	(2,199	)	(367	)	(176	)
Foreign exchange rate changes	1		(5	)	—		—
	$ 23,272	$	15,926	$	12,166	$	7,403

(b) Plan Assets

	Pension Benefit Plans — 2006	2005
Fair value at beginning of year	$ 23,403	$	23,201
Actual return on plan assets	1,569		1,337
Employer contributions	51		1,064
Benefits paid	(611	)	(2,199	)
Fair value at end of year	$ 24,412	$	23,403

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Plan assets consist of:

2006	2005
Asset Category (i)
Equity securities	34 %	32 %
Bonds	23 %	20 %
Other (ii)	43 %	48 %
Total	100 %	100 %

| (i) | The defined benefit plan assets contain no material amounts of related party
assets at December 31, 2006 and 2005 respectively. |
| --- | --- |
| (ii) | Relates to the value of the refundable tax account held by the Canada Revenue
Agency. The refundable total is approximately equal to half of the sum of the realized
investment income plus employer contributions less half of the benefits paid by the
plan. |

(c) Funded Status Reconciliation

	Pension Benefit Plans — 2006	2005	Other Benefit Plans — 2006		2005
Fair value of plan assets	$ 24,412	$ 23,403	$ —		$ —
Accrued benefit obligation	23,272	15,926	12,166		7,403
Funded status of plans — surplus (deficit)	1,140	7,477	(12,166	)	(7,403	)
Unamortized net actuarial loss	6,509	1,249	—		—
Unamortized transitional obligation	240	963	—		—
Accrued benefit asset (liability) [notes 6, 9]	$ 7,889	$ 9,689	$ (12,166	)	$ (7,403	)

(d) Net Pension Expense

Current service cost	2006 — $ 1,028	$	803	$	806
Interest cost	872		849		1,031
Actual return on plan assets	(1,569	)	(1,337	)	(885	)
Actuarial loss	6,056		—		—
Balance prior to adjustments to recognize the long-term
nature of employee future benefit costs	6,387		315		952
Difference between actual and expected return on plan assets	796		491		60
Difference between actuarial loss recognized for year and
actual actuarial loss on accrued benefit obligation for year	(6,056	)	—		87
Amortization of transitional obligation	723		706		694
Defined benefit pension expense	1,850		1,512		1,793
Defined contribution pension expense	8,973		6,569		5,418
Net pension expense	$ 10,823	$	8,081	$	7,211

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Significant assumptions at December 31
Discount rate	5.3 %	5.3 %	6.5 %
Rate of compensation increase	4.5 %	4.5 %	4.5 %
Long-term rate of return on assets	6.3 %	7.0 %	7.0 %

(e) Other Post-Retirement Benefit Expense (Gain)

Current service cost	2006 — $ 487	2005 — $ 226	2004 — $ 186
Interest cost	544	271	271
Actuarial (gain) loss	395	2,364	(26	)
Plan amendment costs	588	258	772
Other post-retirement benefit expense	$ 2,014	$ 3,119	$ 1,203

Significant assumptions at December 31
Discount rate	5.1 %	5.3 %	6.5 %
Initial health care cost trend rate	10 %	11 %	11 %
Cost trend rate declines to	6 %	6 %	6 %
Year the rate reaches its final level	2011	2011	2008

(f) Pension and Other Post-Retirement Benefits Cash Payments

	2006	2005	2004
Employer contributions to funded pension plans	$ 51	$ 1,599	$ 567
Benefits paid for unfunded benefit plans	367	176	132
Cash contributions to defined contribution plans	8,973	6,569	5,418
Total cash payments for employee future benefits	$ 9,391	$ 8,344	$ 6,117

| BPLP |
| --- |
| BPLP has a funded registered pension plan and an unfunded supplemental pension plan. The funded
plan is a contributory, defined benefit plan covering all employees up to the limits imposed by
the Income Tax Act. The supplemental pension plan is a non-contributory, defined benefit plan
covering all employees with respect to benefits that exceed the limits under the Income Tax Act.
These plans are based on years of service and final average salary. |
| BPLP also has other post-retirement benefit and other post-employment benefit plans that provide
for group life insurance, health care and long-term disability benefits. These plans are
non-contributory. |
| The effective date for the most recent valuations for funding purposes on the pension benefit
plans is January 1, 2004. The next planned effective date for valuation for funding purposes of
the pension benefit plans is set to be January 1, 2007. The status of Cameco’s proportionate
share (31.6%) of the defined plans is as follows: |

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(a) Funded Status Reconciliation

	Pension Benefit Plans — 2006	2005		2006			2005
Fair value of plan assets	$ 605,789	$	526,188	$	—		$ —
Accrued benefit obligation	800,050		658,690		141,746		67,103
Funded status of plans — deficit	(194,261	)	(132,502	)	(141,746	)	(67,103	)
Unrecognized prior service cost	—		—		5,856		—
Unamortized net actuarial (gain) loss	206,253		150,621		49,034		(11,046	)
Accrued benefit asset (liability) [notes 6, 9]	$ 11,992	$	18,119	$	(86,856	)	$ (78,149	)

(b) Pension Asset Categories

2006	2005	2006	2005
Asset Category (i)
Equity securities	71 %	70 %	70 %	70 %
Fixed income	28 %	29 %	30 %	30 %
Cash	1 %	1 %	0 %	0 %
Total	100 %	100 %	100 %	100 %

| | The assets of the pension plan are managed on a going concern basis subject to legislative
restrictions. The plan’s investment policy is to maximize returns within an acceptable risk
tolerance. Pension assets are invested in a diversified manner with consideration given to
the demographics of the plan participants. Rebalancing will take place on a monthly basis if
outside of 3% of the target asset allocation. |
| --- | --- |
| | (i) The defined benefit plan assets contain no material amounts of related party assets at
December 31, 2006. |
| (c) | Other Benefit Plans Expense |

Current service cost	2006 — $ 24,229	$	3,099
Interest cost	35,406		5,301
Actual return on plan assets	(64,194	)	(12,425	)
Actuarial loss	89,119		18,412
Balance prior to adjustments to recognize the long-term
nature of employee future benefit costs	84,560		14,387
Difference between actual and expected return on plan assets	25,679		7,157
Difference between actuarial loss recognized and actual actuarial
loss on accrued benefit obligation for year	(81,322	)	(17,840	)
Net pension expense	$ 28,917	$	3,704

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Significant assumptions at December 31
Discount rate	5.0 %	5.3 %
Rate of compensation increase	3.5 %	3.5 %
Long-term rate of return on assets	7.0 %	7.3 %

(d) Other Benefit Plans Expense

Current service cost	2006 — $ 6,304	$	555
Interest cost	4,394		550
Past service cost	5,856		—
Actuarial loss	59,563		1,935
Balance prior to adjustments to recognize the long-term
nature of employee future benefit costs	76,117		3,040
Difference between actual and recognized past service
costs for year	(5,856	)	—
Difference between actuarial gain recognized and actual
actuarial loss on accrued benefit obligation for year	(59,931	)	(2,227	)
Other benefit plans expense	$ 10,330	$	813

Significant assumptions at December 31
Discount rate	5.0 %	5.1 %
Rate of compensation increase	3.5 %	3.5 %
Initial health care cost trend rate	10.0 %	10.0 %
Cost trend rate declines to	5.0 %	4.5 %
Year the rate reaches its final level	2018	2011

A one percentage point increase or decrease in assumed health care cost trend rate would have the following effect:

Effect on December 31, 2006 obligation	Increase — $ 23,892	Decrease — $ (19,986	)
Aggregate of 2006 current service cost and interest cost	1,655	(1,335	)

(e) Pension and Other Post-Retirement Benefits Cash Payments

	2006	2005
Employer contributions to funded pension plans	$ 21,665	$ —
Benefits paid for unfunded benefit plans	1,705	189
Total cash payments for employee future benefits	$ 23,370	$ 189

Benefits paid by the funded pension plan were $12,500,000 for 2006 (2005 — $800,000). BPLP’s expected contributions for the year ended December 31, 2007 are approximately $33,180,000 for the pension benefit plans.

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The following are estimated future benefit payments, which reflect expected future service:

	Pension Benefit Plans	Other Benefit Plans
2007	$ 9,900	$ 3,100
2008	13,200	3,500
2009	16,700	4,000
2010	20,600	4,600
2011	24,500	5,100
2012 to 2016	184,500	34,300

22.	Goodwill
	The acquisitions undertaken as part of the gold restructuring in 2004 were accounted for using
the purchase method whereby assets and liabilities assumed were recorded at their fair market
value as of the date of acquisition. The excess of the purchase price over such fair value was
recorded as goodwill.
	Cameco tests goodwill for possible impairment on an annual basis and at any other time if an
event occurs or circumstances change that would more likely than not reduce the fair value of a
reporting unit below its carrying amount. During the third quarter of 2006, Cameco completed
the goodwill impairment test for all reporting units. The results of this test indicated there
was no impairment.
23.	Acquisition of Interest in Zircatec Precision Industries, Inc.
	Effective February 1, 2006, Cameco acquired a 100% interest in Zircatec Precision Industries,
Inc. for $108,884,000. Zircatec’s primary business is manufacturing nuclear fuel bundles for
sale to companies that generate electricity from Candu reactors. The acquisition was accounted
for using the purchase method and the results of operations are included in the consolidated
financial statements from February 1, 2006.
	The values assigned to the net assets acquired were as follows:

Cash and other working capital	$
Tangible assets	30,928
Intangible assets	118,819
Future income taxes	(40,836	)
Net liabilities	(20,765	)
Net assets acquired	$ 108,884
Financed by:
Cash	$ 88,884
Holdback [note 9]	20,000
	$ 108,884

| | The amount allocated to intangible assets relates to the intellectual property of the business.
It is amortized over the estimated production profile of the business and during 2006,
$4,800,000 of the intangible asset was amortized. |
| --- | --- |
| 24. | Commitments and Contingencies |

(a) Cameco signed a toll-conversion agreement with British Nuclear Fuels plc (BNFL) to acquire uranium UF 6 conversion services from BNFL’s Springfields plant in Lancashire, United Kingdom. Under the 10-year agreement, BNFL is obligated to annually convert a base quantity of five million kgU as UO 3 to UF 6 for Cameco.

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| (b) | The legal action commenced by Mountain West Mines Inc. was dismissed and there was no
financial impact on Cameco’s wholly owned subsidiary, Power Resources Inc. |
| --- | --- |
| (c) | On February 12, 2004, Cameco, Cameco Bruce Holdings II Inc., BPC Generation
Infrastructure Trust and TransCanada Pipelines Limited (collectively, the “Consortium”)
sent a letter to British Energy Limited and British Energy International Holdings Limited
(collectively, “BE”) requesting, amongst other things, indemnification for breach of a
representation and warranty contained in the February 14, 2003 Amended and Restated Master
Purchase Agreement. The alleged breach is that the Unit 8 steam generators were not “in
good condition, repair and proper working order, having regard to their use and age.” This
defect was discovered during a planned outage conducted just after closing. As a result
of this defect, the planned outage had to be significantly extended. The Consortium has
claimed damages in the amount of $64,558,200 being 79.8% of the $80,900,000 of damages
actually incurred, plus an unspecified amount to take into account the reduced operating
life of the steam generators. A decision to proceed with arbitration has been made but
formal commencement of proceedings has not taken place because counsel for the Consortium
and BE have yet to agree on the composition of the arbitration panel. |
| | In anticipation of this claim, BE issued on February 10, 2006 and then served on Ontario
Power Generation Inc. and Bruce Power LP a Statement of Claim. This Statement of Claim seeks
damages for any amounts that BE is found liable to pay to the Consortium in connection with
the Unit 8 steam generator arbitration described above, damages in the amount of
$500,000,000, costs and pre and post judgment interest amongst other things. This action is
in abeyance pending further developments on the Unit 8 steam generator arbitration. |
| | Management is of the opinion, after review of the facts with counsel, that this action
against Bruce Power LP will not have a material financial impact on Cameco’s financial
position, results of operations and liquidity. |
| (d) | A claim has been filed in the Mongolian national arbitration court against Centerra
Gold Mongolia LLC alleging non-performance of an agreement in relation to the Gatsuurt
property. The claimant seeks the transfer to it of the principal license for the Gatsuurt
property. The potential impact of this claim is not determinable at this time. Management
believes that the terms of this agreement have been fully met and the claim is without
merit. |
| (e) | Annual supplemental rents of $26,000,000 (subject to CPI) per operating reactor are
payable by BPLP to OPG. Should the hourly annual average price of electricity in Ontario
fall below $30 per megawatt hour, the supplemental rent reduces to $13,000,000 per
operating reactor. In accordance with the Sublease Agreement, Bruce A L.P. will
participate in its share of any adjustments to the supplemental rent. |
| (f) | Cameco, TransCanada and BPC have assumed the obligations to provide financial
guarantees on behalf of BPLP. Cameco has provided the following financial assurances, with
varying terms that range from 2004 to 2018: |

| i) | Licensing assurances to Canadian Nuclear Safety Commission of up to $133,300,000.
At December 31, 2006, Cameco’s actual exposure under these assurances was $23,700,000. |
| --- | --- |
| ii) | Guarantees to customers under power sales agreements of up to $74,000,000. At
December 31, 2006, Cameco’s actual exposure under these guarantees was $2,400,000. |
| iii) | Termination payments to OPG pursuant to the lease agreement of $58,300,000. |

(g)
At December 31, 2006, Cameco’s purchase commitments, the majority of which are fixed price
uranium and conversion purchase arrangements, were as follows:

	(Millions (US))
2007	$ 173
2008	138
2009	126
2010	119
2011	122
Thereafter	326
Total	$ 1,004

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| 25. |
| --- |
| The majority of revenues are derived from the sale of uranium products. Cameco’s financial
results are closely related to the long- and short-term market price of uranium sales and
conversion services. Prices fluctuate and can be affected by demand for nuclear power,
worldwide production and uranium inventory levels, and political and economic conditions in
uranium producing and consuming countries. Revenue from gold operations is largely dependent on
the market price of gold, which can be affected by political and economic factors, industry
activity and the policies of central banks with respect to their levels of gold held as
reserves. Financial results are also impacted by changes in foreign currency exchange rates and
other operating risks. |
| To hedge risks associated with fluctuations in the market price for uranium, Cameco seeks to
maintain a portfolio of uranium sales contracts with a variety of delivery dates and pricing
mechanisms that provide a degree of protection from price volatility. Cameco enters into forward
sales contracts to establish a price for future deliveries of US dollars. Net realized gains
(losses) on contracts designated as hedges are recorded as deferred gains (deferred charges) and
recognized in earnings when the related hedged transactions occur. |
| Financial assets that are subject to credit risks include cash and securities, accounts
receivable and commodity and currency instruments. Cameco mitigates credit risk on these
financial assets by holding positions with a variety of large creditworthy institutions. Sales
of uranium, with short payment terms, are made to customers that management believes are
creditworthy. |
| Except as disclosed below, the fair market value of Cameco’s financial assets and financial
liabilities approximates net book value as a result of the short-term nature of the instrument
or the variable interest rate associated with the instrument. |
| BPLP is exposed to changes in electricity prices associated with an open spot market for
electricity in Ontario. To hedge the commodity price risk exposure associated with changes in
the price of electricity, BPLP enters into various energy and related sales contracts. These
instruments have terms ranging from 2007 to 2010. At December 31, 2006, the mark-to-market gain
on these sales contracts was $54,700,000. |
| Currency |
| At December 31, 2006, Cameco had $1,364,000,000 (US) in forward contracts at an average exchange
rate of $1.17 and € 58,350,000 at an average exchange rate of $1.24. The foreign
currency contracts are scheduled for use as follows: |

(Millions)	US		Cdn	Euro			US
2007	$ 584	1.19	$ 695	€	32	1.24	$ 40
2008	375	1.18	443		13	1.24	16
2009	270	1.15	311		10	1.23	12
2010	135	1.14	154		3	1.27	4
Total	$ 1,364	1.17	$ 1,603	€	58	1.24	$ 72

These positions consist entirely of forward sales contracts. The average exchange rate reflects the original spot prices at the time the contracts were entered into and includes deferred gains and deferred charges. The realized exchange rate will depend on the forward premium (discount) that is earned (paid) as contracts are utilized.

At December 31, 2006, Cameco’s net mark-to-market loss on these foreign currency instruments was $36,800,000 (Cdn).

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| 26. |
| --- |
| Per share amounts have been calculated based on the weighted average number of common shares
outstanding during the year net of shares held as security for employee loans to purchase such
shares. The weighted average number of paid shares outstanding in 2006 was 351,223,724 (2005 —
347,863,822; 2004 — 342,889,722). |

		(as adjusted - — note 3(b))	(as adjusted - — note 3(b))
	2006	2005	2004
Basic earnings per share computation
Net earnings	$ 375,715	$ 215,469	$ 276,506
Weighted average common shares outstanding	351,224	347,864	342,890
Basic earnings per common share	$ 1.07	$ 0.62	$ 0.81
Diluted earnings per share computation
Net earnings	$ 375,715	$ 215,469	$ 276,506
Dilutive effect of:
Convertible debentures	8,992	8,394	8,055
Net earnings, assuming dilution	$ 384,707	$ 223,863	$ 284,561
Weighted average common shares outstanding	351,224	347,864	342,890
Dilutive effect of:
Convertible debentures	21,209	21,214	21,230
Stock options	4,402	4,614	4,338
Weighted average common shares outstanding, assuming dilution	376,835	373,692	368,458
Diluted earnings per common share	$ 1.02	$ 0.60	$ 0.77

| 27. |
| --- |
| Cameco has four reportable segments: uranium, fuel services, electricity and gold. The uranium
segment involves the exploration for, mining, milling, purchase and sale of uranium concentrate.
The fuel services segment involves the refining, conversion and fabrication of uranium
concentrate and the purchase and sale of conversion services. The electricity segment involves
the generation and sale of electricity. The gold segment involves the exploration for, mining,
milling and sale of gold. |
| Cameco’s reportable segments are strategic business units with different products, processes and
marketing strategies. |
| Accounting policies used in each segment are consistent with the policies outlined in the
summary of significant accounting policies. |

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(a)
2006

(Millions)	Uranium	Services		Electricity	Gold	Segment			Total
Revenue	$ 803.3	$	224.1	$ 407.6	$ 414.1	$	(17.4	)	$ 1,831.7
Expenses
Products and services sold	472.1		180.2	221.0	268.4		(13.9	)	1,127.8
Depreciation, depletion and reclamation	94.2		19.1	43.5	44.4		(1.5	)	199.7
Exploration	31.7		—	—	26.5		—		58.2
Cigar Lake remediation	20.6		—	—	—		—		20.6
Research and development	—		2.7	—	—		—		2.7
Other	4.2		—	—	(15.4	)	—		(11.2	)
Loss (gain) on sale of assets	(0.4	)	0.5	—	(1.3	)	—		(1.2	)
Non-segmented expenses									89.6
Earnings before income taxes and
minority interest	180.9		21.6	143.1	91.5		(2.0	)	345.5
Income tax recovery									(68.8	)
Minority interest									38.6
Net earnings									$ 375.7
Assets	$ 3,100.6	$	366.5	$ 758.6	$ 914.7	$	—		$ 5,140.4
Capital expenditures for the year	$ 287.8	$	17.9	$ 33.2	$ 120.7	$	—		$ 459.6

2005 (as adjusted — note 3(b))

(Millions)	Uranium	Services		Electricity		Gold	Adjustments			Total
Revenue	$ 690.1	$	157.7	$	577.8	$ 412.1	$	(525.0	)	$ 1,312.7
Expenses
Products and services sold	428.5		120.2		315.4	231.0		(281.1	)	814.0
Depreciation, depletion and reclamation	102.1		9.8		76.6	73.9		(64.8	)	197.6
Exploration	25.7		—		—	31.8		—		57.5
Research and development	—		2.4		—	—		—		2.4
Other	(79.5	)	—		109.1	—		(13.3	)	16.3
Gain on sale of assets	(0.2	)	(0.1	)	—	(1.2	)	—		(1.5	)
Earnings from Bruce Power								(165.8	)	(165.8	)
Non-segmented expenses										119.7
Earnings before income taxes and
minority interest	213.5		25.4		76.7	76.6		—		272.5
Income tax expense										30.3
Minority interest										26.7
Net earnings										$ 215.5
Assets	$ 2,927.0	$	239.3	$	786.6	$ 819.9	$	—		$ 4,772.8
Capital expenditures for the year	$ 203.8	$	18.4	$	335.2	$ 39.9	$	(312.4	)	$ 284.9

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2004 (as adjusted — note 3(b))

(Millions)	Uranium	Services		(i) — Electricity	Gold	Adjustments			Total
Revenue	$ 581.5	$	144.5	$ 513.4	$ 322.5	$	(513.4	)	$ 1,048.5
Expenses
Products and services sold	377.9		101.9	313.5	143.3		(313.5	)	623.1
Depreciation, depletion and reclamation	99.5		9.6	67.8	71.1		(67.8	)	180.2
Exploration	17.0		—	—	19.0		—		36.0
Research and development	—		1.9	—	—		—		1.9
Other	(1.8	)	—	11.4	(123.5	)	(11.4	)	(125.3	)
Gain on sale of assets	(1.7	)	—	—	(0.3	)	—		(2.0	)
Earnings from Bruce Power							(120.7	)	(120.7	)
Non-segmented expenses									78.0
Earnings before income taxes and
minority interest	90.6		31.1	120.7	212.9		—		377.3
Income tax recovery									73.3
Minority interest									27.5
Net earnings									$ 276.5
Assets	$ 2,455.0	$	206.4	$ 1,079.6	$ 742.1	$	(431.0	)	$ 4,052.1
Capital expenditures for the year	$ 122.5	$	14.0	$ 114.3	$ 11.8	$	(114.3	)	$ 148.3

(i) Consistent with the presentation of financial information for internal management purposes, Cameco’s pro rata share of BPLP’s financial results have been presented as a separate segment. In accordance with GAAP, this investment was accounted for by the equity method of accounting in these consolidated financial statements to October 31, 2005 [note 19] and the associated revenues and expenses prior to the restructuring are eliminated in the adjustments column.

(b) Geographic Segments

(Millions)	2006	2005	2004
Revenue from products and services
Canada — domestic	$ 525.2	$ 109.0	$ 77.4
— export	271.0	214.9	244.0
United States	621.3	576.7	404.6
Kyrgyzstan	223.1	260.5	207.8
Mongolia	191.1	151.6	114.7
	$ 1,831.7	$ 1,312.7	$ 1,048.5
Assets
Canada	$ 3,560.7	$ 3,631.5	$ 2,944.4
United States	323.4	234.7	188.4
Kyrgyzstan	576.9	473.7	494.5
Mongolia	305.5	189.5	194.9
Europe	286.2	199.6	201.3
Kazakhstan	87.7	43.8	28.6
	$ 5,140.4	$ 4,772.8	$ 4,052.1

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| (c) |
| --- |
| Cameco relies on a small number of customers to purchase a significant portion of its uranium
concentrates and uranium conversion services. During 2006, revenues from one customer of
Cameco’s uranium and fuel services segments represented approximately $64,270,000 (2005 —
$134,600,000; 2004 — $86,500,000), approximately 6% (2005 — 16%; 2004 — 12%) of Cameco’s
total revenues from these segments. As customers are relatively few in number, accounts
receivable from any individual customer may periodically exceed 10% of accounts receivable
depending on delivery schedules. |
| During 2006, electricity revenues from BPLP’s two largest customers represented approximately
15% and 12% BPLP’s total revenues. In 2005, electricity revenues from one customer of BPLP
represented approximately 11% of BPLP’s total revenues. |

| 28. |
| --- |
| The consolidated financial statements of Cameco are expressed in Canadian dollars in accordance
with Canadian generally accepted accounting principles (Canadian GAAP). The following
adjustments and disclosures would be required in order to present these consolidated financial
statements in accordance with accounting principles generally accepted in the United States (US
GAAP). |

(a) Reconciliation of earnings in accordance with Canadian GAAP to earnings determined in accordance with US GAAP:

		note 3(b))		note 3(b))
	2006	2005		2004
Net earnings under Canadian GAAP	$ 375,715	$	215,469	$	276,506
Add (deduct) adjustments for (d):
Depreciation and depletion (i)	—		—		1,618
Mineral property costs (ii)	—		(1,760	)	11,028
Pre-operating costs (iii)	1,512		1,512		3,658
Stripping costs (iv)	(6,020	)	—		—
Hedges and derivative instruments (v) (vi)	5,668		(1,765	)	(12,104	)
Earnings from BPLP (iii) (v)	(1,003	)	25,407		2,015
Tax uncertainties and business combinations (x)	(3,727	)	—		—
Stock-based compensation (xi)	(3,998	)	2,162		2,279
Income tax effect of adjustments	(14,258	)	(7,785	)	(1,808	)
Minority interest effect of adjustments	4,326		—		—
Net earnings under US GAAP	358,215		233,240		283,192
Hedges and derivative instruments (v)	40,076		(36,748	)	32,691
Foreign currency translation adjustments (vii)	13,631		(12,875	)	(27,266	)
Unrealized gain (loss) on available-for-sale securities (viii)	(107	)	(60,606	)	36,849
Additional pension obligation (ix)	(31,568	)	—		—
Comprehensive income under US GAAP	$ 380,247	$	123,011	$	325,466
Basic net earnings per share under US GAAP	$ 1.02	$	0.67	$	0.83
Diluted earnings per share under US GAAP	$ 0.97	$	0.65	$	0.79

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(b) Comparison of balance sheet items determined in accordance with Canadian GAAP to balance sheet items determined in accordance with US GAAP:

(i) Balance Sheets

				note 3(b))
	2006			2005
	Canadian	US		Canadian		US
	GAAP	GAAP		GAAP		GAAP
Current assets	$ 1,354,424	$	1,235,813	$	1,524,459	$	1,399,575
Property, plant and equipment	3,312,152		2,703,892		2,871,337		2,261,614
Long-term receivables, investments and other	293,714		348,528		196,747		503,833
Goodwill	180,139		176,412		180,232		180,232
Total assets	$ 5,140,429	$	4,464,645	$	4,772,775	$	4,345,254
Current liabilities	$ 501,968	$	393,803	$	635,219	$	544,176
Long-term debt	696,691		529,790		702,109		523,149
Provision for reclamation	228,496		228,496		167,568		167,568
Other liabilities	232,370		160,761		98,609		50,839
Deferred income taxes	339,451		257,508		444,942		419,664
	1,998,976		1,570,358		2,048,447		1,705,396
Minority interest	400,071		395,745		360,697		360,697
Shareholders’ equity
Share capital	812,769		812,769		779,035		779,035
Contributed surplus	540,173		507,753		529,245		492,827
Retained earnings	1,428,206		1,344,331		1,108,748		1,042,373
Accumulated other comprehensive income
- net actuarial loss [d(ix), g(v)]	—		(180,630	)	—		—
- transitional obligation [g(v)]	—		(165	)	—		—
- prior service cost [g(v)]	—		(4,041	)	—		—
- cumulative translation account [d(vii)]	(39,766	)	(18,545	)	(53,397	)	(32,175	)
- available-for-sale securities [d(viii)]	—		—		—		107
- hedges and derivative instruments [d(v)]	—		37,070		—		(3,006	)
Total accumulated other comprehensive income	(39,766	)	(166,311	)	(53,397	)	(35,074	)
Total shareholders’ equity	2,741,382		2,498,542		2,363,631		2,279,161
Total liabilities and shareholders’ equity	$ 5,140,429	$	4,464,645	$	4,772,775	$	4,345,254

(ii) Components of accounts payable and accrued liabilities are as follows:

Accounts payable	$	$	$	$
Taxes and royalties payable	65,834	65,834	88,539	88,539
Accrued liabilities	53,061	53,061	44,500	44,500
Total accounts payable and accrued liabilities	$ 402,806	$ 317,755	$ 350,398	$ 259,359

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(c) The effects of these adjustments would result in the consolidated statements of cash flows reporting the following under US GAAP:

Cash provided by operations	2006 — $ 398,100		2005 — $ 283,176	2004 — $ 239,070
Cash provided by (used in) investing	$ (495,378	)	$ 36,742	$ (171,715	)
Cash provided by (used in) financing	$ (175,602	)	$ 101,202	$ 54,014

(d) A description of certain significant differences between Canadian GAAP and US GAAP follows:

(i)	Writedown of Mineral Properties
	Under both Canadian and US GAAP, property, plant and equipment must be assessed for
potential impairment. As of 2003, there was no longer any difference in the
calculation of an impairment loss between Canadian and US GAAP. However, as a result
of previous differences in the amounts of impairment losses recognized under US and
Canadian GAAP, there is a difference in the amount of depreciation and depletion
charged to earnings.
(ii)	Mineral Property Costs
	Consistent with Canadian GAAP, Cameco defers costs related to mineral properties once
the decision to proceed to development has been made. Under US GAAP, these costs are
expensed until such time as a final feasibility study has confirmed the existence of a
commercially mineable deposit. Prior to 2004, there were differences in accounting for
mineral property development costs. As a result, since the carrying value of the
mineral property is now different under US GAAP, interest capitalization was impacted.
An adjustment was made to reduce capitalized interest by $1,760,000 in 2005 (2004 -
$1,614,000). There was no impact on capitalized interest in 2006.
	Prior to 2004, the mineral property costs expensed under US GAAP included a provision
for loan impairment totalling $12,642,000. Due to the recognition of reserves and the
completion of a final feasibility study, Cameco was able to demonstrate the loan to be
recoverable and reversed the impairment provision in 2004.
(iii)	Pre-Operating Costs
	Under Canadian GAAP, pre-operating costs incurred during the commissioning phase of a
new project are deferred until commercial production levels are achieved, subject to
time limitations. Under US GAAP, such costs are expensed as incurred as required by
AICPA Statement of Position 98-5, Reporting on the Cost of Start-Up Activities.
McArthur River commercial production commenced March 1, 2000 for US GAAP and November
1, 2000 for Canadian GAAP. Differences in capitalized costs are amortized over the
estimated lives of the assets to which they relate.
	Prior to 2005, costs related to the restart of two nuclear reactors at BPLP were
considered to be start-up costs required to be expensed under US GAAP. As a result of
expensing these start-up costs, there was a difference in the capital costs recognized
under Canadian and US GAAP. Accordingly, an adjustment was made to reduce the amount
of depreciation charged to earnings by $2,329,000 in 2005 (2004 — $2,445,000).
	In 2005, the BPLP agreement was restructured resulting in the disposition of certain
assets and recognition of a loss. Under US GAAP, the carrying value of these assets
was less than under Canadian GAAP. Accordingly, the pre-tax loss has been reduced by
$22,820,000.
(iv)	Stripping Costs
	Under Canadian GAAP, stripping costs incurred during the production phase by mining
companies to remove overburden and other mine waste materials in order to access
mineral deposits, can be either expensed or capitalized given the specifics of the
situation. Under US GAAP, stripping costs are deemed to be variable production costs
that should be included in the costs of the inventory produced during the period that
the stripping costs are incurred. Stripping costs of $6,020,000 were incurred in 2006
and capitalized at one of the Centerra production mines. As a result, an adjustment was
made to increase products and services sold by the amount capitalized.

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| (v) |
| --- |
| Under US GAAP, all derivative instruments are recognized on the balance sheet as either
assets or liabilities measured at fair value. Changes in the fair value of derivatives
are recognized in earnings unless specific hedge criteria are met to qualify as a cash
flow hedge. Changes in the fair value of derivatives that qualify as fair value hedges,
are recognized in earnings in the same period as the hedged items. Changes in the fair
value of the effective portion of a cash flow hedge are deferred in other comprehensive
income with any ineffectiveness of the hedge recognized immediately on the statement of
earnings. |
| Prior to 2004, forward points were included in the assessment of hedge effectiveness
for Canadian GAAP purposes and excluded for US GAAP purposes. The cumulative impact of
this difference was $16,042,000 at December 31, 2003 of which $2,173,000 was recognized
in 2006 (2005 — $1,765,000; 2004 — $12,104,000). |
| For amounts included in the balance sheet as accumulated other comprehensive income as
at December 31, 2006, a loss of $615,000 (after tax) relates to the hedging of foreign
exchange risk. Of these amounts, a gain of $5,203,000 (after tax) would be recorded in
earnings during 2007 if market conditions remained unchanged. The impact on other
comprehensive income for 2006 is a loss of $22,497,000 (2005 — loss of $14,583,000;
2004 — gain of $38,814,000). |
| BPLP also has certain derivative instruments that qualify for hedge accounting. For
amounts included in the balance sheet as accumulated other comprehensive income as at
December 31, 2006, a gain of $37,685,000 (after tax) relates to the hedging of
electricity price risk. Of this amount, a gain of $13,976,000 (after tax) would be
recorded in earnings for 2007 if market conditions remained unchanged. The impact on
other comprehensive income for hedge accounting for 2006 is a gain of $62,573,000 (2005
— loss of $22,165,000; 2004 — loss of $6,123,000). |
| Prior to August 2003, certain BPLP energy contracts did not qualify for hedge
accounting under US GAAP as the documentation required for hedge accounting was not
contemplated at the time of entering into the contracts. Accordingly, changes in the
fair value of these contracts were charged to US GAAP earnings. Under Canadian GAAP,
hedge accounting was applied prior to August 2003, resulting in differences to be
recognized in future periods. As a result of this past difference in hedge accounting
treatment, a loss of $1,003,000 was recognized in 2006 (2005 — gain of $259,000; 2004
— gain of $618,000). At the end of 2006, all differences have been recognized. |

(vi)	Embedded Derivative Instruments
	Under US GAAP, all derivative instruments are recognized on the balance sheet as either
assets or liabilities measured at fair value. Under Canadian GAAP, derivatives embedded
within hybrid instruments are generally not separately accounted for. In 2006, certain
of Cameco’s sales contracts contained embedded foreign currency derivatives. As a
result they were separately accounted for and $7,841,000 was recognized in earnings
(2005 — nil, 2004 — nil).
(vii)	Cumulative Translation Account
	Under US GAAP, exchange gains and losses arising from the translation of our net
investments in foreign operations are included in comprehensive income. In addition,
exchange gains and losses of any foreign currency debt designated as hedges of those
net investments are included in comprehensive income. Cumulative amounts are included
in accumulated other comprehensive income on the balance sheet.
(viii)	Available-for-Sale Securities
	Under Canadian GAAP, portfolio investments are accounted for using the cost method.
Under US GAAP, portfolio investments classified as available-for-sale securities are
carried at market values with unrealized gains or losses reflected as a separate
component of shareholders’ equity and included in comprehensive income. At December
31, 2006, Cameco no longer held any available-for-sale securities. Cameco’s
investments in Energy Resources of Australia Ltd, Batavia Mining Ltd. (formerly Menzies
Gold NL), Tenke Mining Corp., Maudore Minerals Ltd. (formerly Maude Lake Exploration
Ltd.), and Golden Band Resources Inc. were classified as available for sale. The
investments in Maudore Minerals Ltd. and Golden Band Resources Inc. were sold in 2006.
The investment in Energy Resources of Australia Ltd was sold in 2005 and the
investments in Batavia Mining Ltd. and Tenke Mining Corp. were sold in 2004. The fair
market value of the owned investments at December 31, 2005 was $887,000 (2004 -
$79,785,000). The cumulative unrealized gain at December 31, 2005 was $107,000 (2004 -
$60,713,000).

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(ix)	Additional Pension Obligation
	Under US GAAP, for defined benefit pension plans, an unfunded accumulated benefit
obligation should be recorded as an additional minimum pension liability. Under
Canadian GAAP there is no requirement to recognize an additional minimum pension
liability. In 2006 for the BPLP benefit plans, the impact on other comprehensive income
is a loss of $31,568,000 (2005 — nil, 2004 — nil). The amount in accumulated other
comprehensive income at December 31, 2006 is a net actuarial loss of $31,568,000 (2005
— nil). As a result of the implementation of Statement No. 158, Employers’ Accounting
for Defined Benefit Pension and Other Post-retirement Plans (FAS 158) [note (g)v],
there will be no requirement prospectively to determine an additional minimum
liability.
(x)	Tax Uncertainties and Business Combinations
	Uncertainties related to income taxes may exist at the time of a business combination,
which affect the recognition of future income tax assets. These uncertainties may
result because the realizability of the future income tax asset is uncertain, or
because the existence of the asset is uncertain.
	Under US GAAP, when a future income tax asset acquired in a business combination that
was not recognized as an identifiable asset by the acquirer at the date of the
acquisition (for realizability or existence issues) is subsequently recognized by the
acquirer, the benefit should be applied as follows: 1) first to reduce to zero any
goodwill related to the acquisition; 2) second to reduce to zero other non-current
intangible assets related to the acquisition; 3) third to reduce income tax expense.
	Under Canadian GAAP, this approach only applies to tax uncertainties related to
realizability. If the tax uncertainty is related to existence, then subsequent
adjustments related to the tax uncertainties would be treated as a change in
management’s estimates and directly recorded to earnings. In 2006, a tax uncertainty
due to existence was removed related to assets acquired by Centerra from Kyrgyzaltyn in
2004 when Centerra acquired an additional 66.7% interest in Kumtor Gold Company. As a
result, a gain of $6,098,000 was recorded to income tax for Canadian GAAP purposes. An
adjustment of $3,727,000 was made to reallocate part of the gain to goodwill for US
GAAP purposes.
(xi)	Stock-Based Compensation
	Under Canadian GAAP, in accordance with EIC 162 [note 3(b)], Cameco recognizes
stock-based compensation expense over the shorter of the period to eligible retirement
or the vesting period for stock-based awards granted on or after January 1, 2003.
Under US GAAP, this accounting treatment is applied to stock-based awards granted on or
after January 1, 2006. Stock-based awards granted prior to January 1, 2006 are
recognized over the full vesting period of the award. As a result, an adjustment was
made to increase stock compensation expense by $3,998,000 in 2006 (2005 — decrease of
$2,162,000, 2004 — decrease of $2,279,000).

(e)	Investment in BPLP
	Under Canadian GAAP, Cameco accounts for its interest in BPLP by the proportionate
consolidation method. Under US GAAP, Cameco is required to equity account for its investment
and record in earnings its proportionate share of their net earnings measured in accordance
with US GAAP.
(f)	Convertible Debentures
	Under US GAAP, convertible debentures are to be classified entirely as debt rather than
equity. Due to the difference, accretion related to the equity component of convertible
debentures for Canadian GAAP should be reversed for US GAAP purposes. Since all interest
related to the debentures is being capitalized under both US and Canadian GAAP, the
adjustment only affects the balance sheet. The cumulative effect is to decrease
shareholders’ equity by $30,473,000, increase long-term debt by $22,699,000 and decrease
property, plant and equipment by $7,774,000.
(g)	New Accounting Pronouncements

| (i) |
| --- |
| In February 2006, the Financial Accounting Standards Board (“FASB”) issued Statement No.
155, Accounting for Certain Hybrid Instruments — an amendment of FASB Statement No. 133
and 140 (“FAS 155”). FAS 155 allows an entity to elect to measure certain hybrid
financial instruments at fair value in their entirety that contains an embedded
derivative that otherwise would require bifurcation. FAS 155 will be effective for all
financial instruments acquired or issued after the beginning of an entity’s first fiscal
year that begins after September 15, 2006. Cameco does not expect the adoption of this
statement will have a material impact on its consolidated financial statements. |

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(ii)	Guidance on Accounting for Income Taxes
	In July 2006, the FASB issued Financial Interpretation No. 48, Accounting for Uncertainty
in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48
provides additional guidance on how to recognize, measure, and disclose income tax
benefits. FIN 48 will be effective for fiscal years beginning after December 15, 2006.
Cameco does not expect the adoption of this statement will have a material impact on its
consolidated financial statements.
(iii)	Guidance for Quantifying Financial Statement Misstatements
	In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting
Bulletin No 108, Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements (“SAB 108”). SEC staff issued SAB 108
to address what they identified as diversity in practice whereby entities were using
either an income statement approach or a balance sheet approach, but not both, when
evaluating whether an error is material to an entity’s financial statements. SAB requires
that in quantifying and analyzing misstatements, both the income statement approach and
balance sheet approach should be used to evaluate the materiality of financial statement
misstatements. The adoption of this bulletin does not have a material impact on the
Cameco consolidated financial statements.
(iv)	Framework on Fair Value Measurement
	In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“FAS
157”). FAS 157 defines fair value, establishes a framework for measuring fair value in
GAAP, and expands disclosures about fair value measurements. FAS 157 will be effective
for financial statements issued for fiscal years beginning after November 15, 2007.
Cameco does not expect the adoption of this statement will have a material impact on its
consolidated financial statements.
(v)	Accounting for Defined Benefit Pension and Other Post-Retirement Plans
	On September 29, 2006, the FASB issued Statement No. 158, Employers’ Accounting for
Defined Benefit Pension and Other Post-Retirement Plans (“FAS 158”), an amendment of FASB
Statements No. 87, 88, 106 and 132(R). FAS 158 requires an entity to recognize the over
funded or under funded status of a benefit plan as an asset or liability in the balance
sheet, and to recognize the existing unrecognized net gains and losses, unrecognized
prior service costs, and unrecognized net transition assets in other comprehensive
income. FAS 158 is effective for Cameco prospectively as of December 31, 2006. The
required adjustments are reported as an adjustment to the ending balance of accumulated
other comprehensive income.
	For the Cameco benefit plan, the cumulative effect of the change in policy on the
balance sheet at December 31, 2006 is to decrease shareholders’ equity by $4,646,000 (net
actuarial loss of $4,481,000 and transitional obligation of $165,000), decrease long-term
receivables, investments and other by $6,749,000 and decrease future income taxes by
$2,103,000.
	For the BPLP benefit plan, the cumulative effect of the change in policy on the
balance sheet at December 31, 2006 is to decrease shareholders’ equity by $148,622,000
(net actuarial loss of $144,581,000 and prior service cost of $4,041,000), decrease
long-term receivables, investments and other by $215,393,000 and decrease future income
taxes by $66,771,000.
	For the Cameco benefit plans, the estimated amount of amortization expense to be
recognized in earnings in 2007 is estimated to be $240,000 for the unamortized
transitional obligation, and $487,000 for the unamortized actuarial loss. There is not
expected to be any plan assets returned to the business in 2007.
	For the BPLP benefit plans, the estimated amount of amortization expense to be
recognized in earnings in 2007 is estimated to be $697,000 for the unrecognized prior
service cost, and $14,559,000 for the unamortized net actuarial loss. There is not
expected to be any plan assets returned to the business in 2007.

29.
Certain prior year balances have been reclassified to conform to the current financial statement
presentation.

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